UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

FORM 10-Q

 

 

 

(Mark One)

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2017

 

OR

 

¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                      to                     

 

Commission File Number: 001-35784

 

 

 

NORWEGIAN CRUISE LINE HOLDINGS LTD.

(Exact name of registrant as specified in its charter)

 

 

 

Bermuda 98-0691007

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

7665 Corporate Center Drive, Miami, Florida 33126

(Address of principal executive offices) (zip code)

 

(305) 436-4000

(Registrant’s telephone number, including area code)

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer x Accelerated filer ¨
Non-accelerated filer ¨  (Do not check if a smaller reporting company) Smaller reporting company ¨
Emerging growth company ¨    

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

 

There were 227,910,542 ordinary shares outstanding as of May 5, 2017.

 

 

 

  

 

 

TABLE OF CONTENTS

 

    Page
PART I. FINANCIAL INFORMATION  
     
Item 1. Financial Statements 1
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 15
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 25
     
Item 4. Controls and Procedures 26
   
PART II. OTHER INFORMATION  
     
Item 1. Legal Proceedings 27
     
Item 1A. Risk Factors 27
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 27
     
Item 5. Other Information 27
     
Item 6. Exhibits 27
   
SIGNATURES 29

 

 

Table of Contents 

 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Norwegian Cruise Line Holdings Ltd.

Consolidated Statements of Operations

(Unaudited)

(in thousands, except share and per share data)

 

   Three Months Ended
March 31,
 
   2017   2016 
Revenue          
Passenger ticket  $786,694   $740,112 
Onboard and other   364,087    337,520 
Total revenue   1,150,781    1,077,632 
Cruise operating expense          
Commissions, transportation and other   194,140    175,437 
Onboard and other   68,411    63,965 
Payroll and related   192,636    177,143 
Fuel   88,886    81,672 
Food   46,178    51,003 
Other   129,547    115,261 
Total cruise operating expense   719,798    664,481 
Other operating expense          
Marketing, general and administrative   192,044    180,574 
Depreciation and amortization   119,205    101,295 
Total other operating expense   311,249    281,869 
Operating income   119,734    131,282 
Non-operating income (expense)          
Interest expense, net   (52,960)   (59,754)
Other income (expense), net   (2,815)   2,805 
Total non-operating income (expense)   (55,775)   (56,949)
Net income before income taxes   63,959    74,333 
Income tax expense   (2,049)   (1,104)
Net income  $61,910   $73,229 
Weighted-average shares outstanding          
Basic   227,468,526    227,239,533 
Diluted   228,555,952    228,112,035 
Earnings per share          
Basic  $0.27   $0.32 
Diluted  $0.27   $0.32 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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Norwegian Cruise Line Holdings Ltd.

Consolidated Statements of Comprehensive Income

(Unaudited)

(in thousands)

 

   Three Months Ended
March 31,
 
   2017   2016 
Net income  $61,910   $73,229 
           
Other comprehensive income:          
Shipboard Retirement Plan   105    108 
Cash flow hedges:          
Net unrealized gain (loss)   (7,283)   70,450 
Amount realized and reclassified into earnings   9,705    34,550 
Total other comprehensive income   2,527    105,108 
Total comprehensive income  $64,437   $178,337 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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Norwegian Cruise Line Holdings Ltd.

Consolidated Balance Sheets

(Unaudited)

(in thousands, except share data)

 

   March 31,
2017
   December 31,
2016
 
Assets          
Current assets:          
Cash and cash equivalents  $219,789   $128,347 
Accounts receivable, net   47,949    63,215 
Inventories   71,439    66,255 
Prepaid expenses and other assets   149,174    153,276 
Total current assets   488,351    411,093 
Property and equipment, net   10,149,166    10,117,689 
Goodwill   1,388,931    1,388,931 
Tradenames   817,525    817,525 
Other long-term assets   232,278    238,673 
Total assets  $13,076,251   $12,973,911 
Liabilities and shareholders’ equity          
Current liabilities:          
Current portion of long-term debt  $531,778   $560,193 
Accounts payable   71,123    38,002 
Accrued expenses and other liabilities   531,375    541,753 
Advance ticket sales   1,372,483    1,172,870 
Total current liabilities   2,506,759    2,312,818 
Long-term debt   5,644,175    5,838,494 
Other long-term liabilities   300,035    284,873 
Total liabilities   8,450,969    8,436,185 
Commitments and contingencies (Note 8)          
Shareholders’ equity:          
Ordinary shares, $.001 par value; 490,000,000 shares authorized; 233,216,457 shares issued and 227,904,496 shares outstanding at March 31, 2017 and 232,555,937 shares issued and 227,243,976 shares outstanding at December 31, 2016   232    232 
Additional paid-in capital   3,911,085    3,890,119 
Accumulated other comprehensive income (loss)   (311,946)   (314,473)
Retained earnings   1,265,166    1,201,103 
Treasury shares (5,311,961 ordinary shares at March 31, 2017 and December 31, 2016, at cost)   (239,255)   (239,255)
Total shareholders’ equity   4,625,282    4,537,726 
Total liabilities and shareholders’ equity  $13,076,251   $12,973,911 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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Norwegian Cruise Line Holdings Ltd.

Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

 

   Three Months Ended
March 31,
 
   2017   2016 
Cash flows from operating activities          
Net income  $61,910   $73,229 
Adjustments to reconcile net income to net cash provided by operating activities:          
Depreciation and amortization expense   121,593    104,686 
Loss (gain) on derivatives   406    (11,948)
Deferred income taxes, net   1,186    158 
Provision for bad debts and inventory   323    575 
Share-based compensation expense   18,203    15,245 
Changes in operating assets and liabilities:          
Accounts receivable, net   14,943    (1,042)
Inventories   (5,184)   (4,360)
Prepaid expenses and other assets   (9,473)   (5,390)
Accounts payable   27,423    2,750 
Accrued expenses and other liabilities   (19,321)   7,572 
Advance ticket sales   222,935    148,621 
Net cash provided by operating activities   434,944    330,096 
Cash flows from investing activities          
Additions to property and equipment, net   (117,777)   (132,027)
Settlement of derivatives       (1,167)
Net cash used in investing activities   (117,777)   (133,194)
Cash flows from financing activities          
Repayments of long-term debt   (465,237)   (308,248)
Proceeds from long-term debt   236,000    204,000 
Proceeds from employee related plans   9,466    3,148 
Net share settlement of restricted share units   (4,550)    
Purchases of treasury shares       (49,999)
Deferred financing fees and other   (1,404)   (6,873)
Net cash used in financing activities   (225,725)   (157,972)
Net increase in cash and cash equivalents   91,442    38,930 
Cash and cash equivalents at beginning of period   128,347    115,937 
Cash and cash equivalents at end of period  $219,789   $154,867 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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Norwegian Cruise Line Holdings Ltd.

Consolidated Statements of Changes in Shareholders’ Equity

(Unaudited)

(in thousands)

 

   Ordinary
Shares
   Additional
Paid-in
Capital
   Accumulated
Other
Comprehensive
Income (Loss)
   Retained
Earnings
   Treasury
Shares
   Total
Shareholders’
Equity
 
Balance, December 31, 2015  $232   $3,814,536   $(412,650)  $568,018   $(189,256)  $3,780,880 
                               
Share-based compensation       15,245                15,245 
Issuance of shares under employee related plans       3,148                3,148 
Treasury shares                   (49,999)   (49,999)
Other comprehensive income, net           105,108            105,108 
Net income               73,229        73,229 
Balance, March 31, 2016  $232   $3,832,929   $(307,542)  $641,247   $(239,255)  $3,927,611 
                               
Balance, December 31, 2016  $232   $3,890,119   $(314,473)  $1,201,103   $(239,255)  $4,537,726 
                               
Share-based compensation       18,203                18,203 
Issuance under employee related plans       9,466                9,466 
Change in accounting policy (share-based forfeitures)       (2,153)       2,153         
Net settlement of restricted share units       (4,550)                 (4,550)
Other comprehensive income, net           2,527            2,527 
Net income               61,910        61,910 
Balance, March 31, 2017  $232   $3,911,085   $(311,946)  $1,265,166   $(239,255)  $4,625,282 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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Norwegian Cruise Line Holdings Ltd.  

Notes to Consolidated Financial Statements

(Unaudited)

 

Unless otherwise indicated or the context otherwise requires, references in this report to (i) the “Company,” “we,” “our” and “us” refer to NCLH (as defined below) and its subsidiaries (including Prestige (as defined below), except for periods prior to the consummation of the Acquisition of Prestige (as defined below)), (ii) “NCLC” refers to NCL Corporation Ltd., (iii) “NCLH” refers to Norwegian Cruise Line Holdings Ltd., (iv) “Norwegian Cruise Line” or “Norwegian” refers to the Norwegian Cruise Line brand and its predecessors, (v) “Prestige” refers to Prestige Cruises International, Inc., together with its consolidated subsidiaries, (vi) “PCH” refers to Prestige Cruise Holdings, Inc., Prestige’s direct wholly-owned subsidiary, which in turn is the parent of Oceania Cruises, Inc. (“Oceania Cruises”) and Seven Seas Cruises S. DE R.L. (“Regent”) (Oceania Cruises also refers to the brand by the same name and Regent also refers to the brand Regent Seven Seas Cruises). References to the “U.S.” are to the United States of America, “dollars” or “$” are to U.S. dollars, the “U.K.” are to the United Kingdom and “euros” or “€” are to the official currency of the Eurozone. 

 

1.Description of Business and Organization

 

We are a leading global cruise company which operates the Norwegian Cruise Line, Oceania Cruises and Regent Seven Seas Cruises brands. As of March 31, 2017, we had 24 ships with approximately 46,500 Berths. We plan to introduce eight additional ships through 2025 and we have an option to introduce two additional ships for delivery in 2026 and 2027, subject to certain conditions. One of the eight ships, Norwegian Joy, a ship tailored for Chinese travelers, was delivered in April 2017. Norwegian Bliss and an additional Breakaway Plus Class Ship are on order for delivery in the spring of 2018 and fall of 2019. We have an Explorer Class Ship on order for delivery in the winter of 2020. Project Leonardo will introduce an additional four ships with expected delivery dates through 2025. These additions to our fleet (exclusive of the option for two additional ships) will increase our total Berths to approximately 72,300. 

 

2.Summary of Significant Accounting Policies

 

Basis of Presentation

 

The accompanying consolidated financial statements are unaudited and, in our opinion, contain all normal recurring adjustments necessary for a fair statement of the results for the periods presented.

 

Our operations are seasonal and results for interim periods are not necessarily indicative of the results for the entire fiscal year. Historically, demand for cruises has been strongest during the Northern Hemisphere’s summer months. The interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2016, which are included in our most recently filed Annual Report on Form 10-K.

 

Reclassification

 

Certain amounts in prior periods have been reclassified to conform to the current period presentation.

 

Earnings Per Share

 

A reconciliation between basic and diluted earnings per share was as follows (in thousands, except share and per share data):

 

   Three Months Ended March 31, 
   2017   2016 
Net income  $61,910   $73,229 
Basic weighted-average shares outstanding   227,468,526    227,239,533 
Dilutive effect of awards   1,087,426    872,502 
Diluted weighted-average shares outstanding   228,555,952    228,112,035 
Basic earnings per share  $0.27   $0.32 
Diluted earnings per share  $0.27   $0.32 

 

For the three months ended March 31, 2017 and 2016 a total of 7.5 million and 7.6 million shares, respectively, have been excluded from diluted weighted-average shares outstanding because the effect of including them would have been anti-dilutive. 

 

Revenue and Expense Recognition

 

Revenue and expenses include port fees and taxes. The amounts included on a gross basis are $71.7 million and $62.5 million for the three months ended March 31, 2017 and 2016, respectively. 

 

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Foreign Currency

 

The majority of our transactions are settled in U.S. dollars. We translate assets and liabilities of our foreign subsidiaries at exchange rates in effect at the balance sheet date. Gains or losses resulting from transactions denominated in other currencies are recognized in our consolidated statements of operations within other income (expense), net and such losses were approximately $2.7 million and $4.2 million for the three months ended March 31, 2017 and 2016, respectively. 

 

Recently Issued Accounting Pronouncements

 

In January 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-04 which simplifies the test for goodwill impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. The guidance is effective for annual or any interim goodwill impairment tests in years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. We do not expect to early adopt this guidance. We are currently evaluating the impact of the adoption of this guidance to our consolidated financial statements.

 

In August 2016, the FASB issued ASU No. 2016-15 which amends Topic 230 (Statement of Cash Flows) to eliminate discrepancies in reporting certain items in the statement of cash flows. The guidance is effective for annual periods beginning after December 15, 2017 and interim periods within those annual periods with early adoption permitted. The transition should be made using a retrospective approach. We do not believe that the adoption of this guidance will be material to our consolidated statements of cash flows.

 

In May 2016, the FASB issued ASU No. 2016-12 which addresses improvements to the guidance on revenue from contracts from customers regarding collectability, noncash consideration, and completed contracts at transition. Additionally, it provides a practical expedient for contract modifications at transition and an accounting policy election related to the presentation of sales taxes and other similar taxes collected from customers. The effective date of this guidance is upon adoption of ASU No. 2014-09 which is presented below. We are currently evaluating the impact of the adoption of this guidance to our consolidated financial statements.

 

In May 2016, the FASB issued ASU No. 2016-11 which is a rescission of Securities and Exchange Commission guidance related to the issuance of ASU No. 2014-09 which is presented below. The effective date of this guidance is upon adoption of ASU No. 2014-09. We are currently evaluating the impact of the adoption of this guidance to our consolidated financial statements.

 

In April 2016, the FASB issued ASU No. 2016-10 which does not change the core principle of the guidance in ASU No. 2014-09 but clarifies two aspects: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. The effective date of this guidance is upon adoption of ASU No. 2014-09. We are currently evaluating the impact of the adoption of this guidance to our consolidated financial statements.

 

In February 2016, the FASB issued ASU No. 2016-02 which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e. lessees and lessors). The ASU requires lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by all leases with terms of more than 12 months. The ASU further modifies lessors’ classification criteria for leases and the accounting for sales-type and direct financing leases. The ASU will also require qualitative and quantitative disclosures designed to give financial statement users additional information on the amount, timing, and uncertainty of cash flows arising from leases. The ASU is effective for annual reporting periods, and interim periods within those annual periods, beginning after December 15, 2018 with early adoption permitted. The ASU is to be applied using a modified retrospective approach. We are currently reviewing our existing leases to evaluate the impact of the adoption of this guidance to our consolidated financial statements.

 

In May 2014, the FASB issued ASU No. 2014-09 which requires entities to recognize revenue through the application of a five-step model, including identification of the contract, identification of the performance obligations, determination of the transaction price, allocation of the transaction price to the performance obligation and recognition of revenue as the entity satisfies the performance obligations. Entities have the option of using either a full retrospective or a modified approach to adopt the guidance.

 

In August 2015, the FASB issued ASU No. 2015-14 deferring the effective date for one year. We can elect to adopt the provisions of ASU No. 2014-09 for annual periods beginning after December 15, 2017 including interim periods within that reporting period or we can elect to early adopt the guidance as of the original effective date. We expect to adopt a modified retrospective application for annual periods beginning after December 15, 2017. We have initiated an assessment of our systems, data and processes related to the implementation of this guidance. This assessment is expected to be completed during 2017. Additionally, we are currently evaluating our performance obligations and believe that our application of the guidance could result in changes in classification and additional disclosures.

 

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3.Intangible Assets

 

The gross carrying amounts of intangible assets included within other long-term assets, the related accumulated amortization, the net carrying amounts and the weighted-average amortization periods of the Company’s intangible assets are listed in the following tables (in thousands, except amortization period):

 

   March 31, 2017 
   Gross Carrying
Amount
   Accumulated
Amortization
   Net Carrying
Amount
   Weighted-
Average
Amortization
Period (Years)
 
Customer relationships  $120,000   $(44,161)  $75,839    6.0 
Licenses   3,368    (989)   2,379    5.6 
Non-compete agreements   660    (660)       1.0 
Total intangible assets subject to amortization  $124,028   $(45,810)  $78,218      
License (Indefinite-lived)  $4,427   $   $      

 

   December 31, 2016 
   Gross Carrying
Amount
   Accumulated
Amortization
   Net Carrying
Amount
   Weighted-
Average
Amortization
Period (Years)
 
Customer relationships  $120,000   $(36,593)  $83,407    6.0 
Licenses   3,368    (807)   2,561    5.6 
Non-compete agreements   660    (495)   165    1.0 
Total intangible assets subject to amortization  $124,028   $(37,895)  $86,133      
License (Indefinite-lived)  $4,427   $   $      

 

The aggregate amortization expense is as follows (in thousands):

 

   Three months ended
March 31,
 
   2017   2016 
Amortization expense  $7,915   $5,389 

 

The following table sets forth the Company’s estimated aggregate amortization expense for each of the five years below (in thousands):

 

Year ended December 31,  Amortization
Expense
 
2018  $26,163 
2019   18,489 
2020   9,906 
2021   75 
2022   75 

 

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4.Accumulated Other Comprehensive Income (Loss)

 

Accumulated other comprehensive income (loss) for the three months ended March 31, 2017 was as follows (in thousands):

 

   Accumulated
Other
Comprehensive
Income (Loss)
   Change
Related to
Cash Flow
Hedges
   Change
Related to
Shipboard
Retirement
Plan
 
Accumulated other comprehensive income (loss) at beginning of period  $(314,473)  $(307,618)  $(6,855)
Current period other comprehensive income before reclassifications   (7,283)   (7,283)    
Amounts reclassified into earnings   9,810    9,705(1)   105(2)
Accumulated other comprehensive income (loss) at end of period  $(311,946)  $(305,196)(3)  $(6,750)

 

(1)We refer you to Note 6— “Fair Value Measurements and Derivatives” for the affected line items in the consolidated statements of operations.

(2)Amortization of prior-service cost and actuarial loss reclassified to payroll and related expense.

(3)Includes $43.5 million of loss expected to be reclassified into earnings in the next 12 months.

 

Accumulated other comprehensive income (loss) for the three months ended March 31, 2016 was as follows (in thousands):

 

   Accumulated
Other
Comprehensive
Income (Loss)
   Change
Related to
Cash Flow
Hedges
   Change
Related to
Shipboard
Retirement
Plan
 
Accumulated other comprehensive income (loss) at beginning of period  $(412,650)  $(405,298)  $(7,352)
Current period other comprehensive income before reclassifications   70,450    70,450     
Amounts reclassified into earnings   34,658    34,550(1)   108(2)
Accumulated other comprehensive income (loss) at end of period  $(307,542)  $(300,298)  $(7,244)

 

(1)We refer you to Note 6— “Fair Value Measurements and Derivatives” for the affected line items in the consolidated statements of operations.

(2)Amortization of prior-service cost and actuarial loss reclassified to payroll and related expense.

 

5.Property and Equipment, net

 

Property and equipment, net increased $31.5 million for the three months ended March 31, 2017 primarily due to ship improvement projects and ships under construction.

 

6.Fair Value Measurements and Derivatives

 

Fair value is defined as the price at which an orderly transaction to sell an asset or to transfer a liability would take place between market participants at the measurement date under current market conditions (that is, an exit price at the measurement date from the perspective of a market participant that holds the asset or owes the liability).

 

Fair Value Hierarchy

 

The following hierarchy for inputs used in measuring fair value should maximize the use of observable inputs and minimize the use of unobservable inputs by requiring that the most observable inputs be used when available:

 

Level 1   Quoted prices in active markets for identical assets or liabilities that are accessible at the measurement dates.
   
Level 2 Significant other observable inputs that are used by market participants in pricing the asset or liability based on market data obtained from independent sources.
   
Level 3 Significant unobservable inputs we believe market participants would use in pricing the asset or liability based on the best information available.

 

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Derivatives

 

We are exposed to market risk attributable to changes in interest rates, foreign currency exchange rates and fuel prices. We attempt to minimize these risks through a combination of our normal operating and financing activities and through the use of derivatives. We assess whether derivatives used in hedging transactions are “highly effective” in offsetting changes in the cash flow of our hedged forecasted transactions. We use regression analysis for this hedge relationship and high effectiveness is achieved when a statistically valid relationship reflects a high degree of offset and correlation between the fair values of the derivative and the hedged forecasted transaction. Cash flows from the derivatives are classified in the same category as the cash flows from the underlying hedged transaction. The determination of ineffectiveness is based on the amount of dollar offset between the cumulative change in fair value of the derivative and the cumulative change in fair value of the hedged transaction at the end of the reporting period. If it is determined that a derivative is not highly effective as a hedge, or if the hedged forecasted transaction is no longer probable of occurring, then the amount recognized in accumulated other comprehensive income (loss) is released to earnings. In addition, the ineffective portion of our highly effective hedges is recognized in earnings immediately and reported in other income (expense), net in our consolidated statements of operations. There are no amounts excluded from the assessment of hedge effectiveness and there are no credit-risk-related contingent features in our derivative agreements.

 

We monitor concentrations of credit risk associated with financial and other institutions with which we conduct significant business. Credit risk, including but not limited to counterparty non-performance under derivatives and our New Revolving Loan Facility, is not considered significant, as we primarily conduct business with large, well-established financial institutions that we have established relationships with and that have credit risks acceptable to us or the credit risk is spread out among a large number of creditors. We do not anticipate non-performance by any of our significant counterparties. The following table sets forth our derivatives measured at fair value and discloses the balance sheet location (in thousands):

 

The following table sets forth our derivatives measured at fair value and discloses the balance sheet location (in thousands):

 

      Asset   Liability 
   Balance Sheet location  March 31,
2017
   December 31,
2016
   March 31,
2017
   December 31,
2016
 
Fuel swaps designated as hedging instruments                   
   Prepaid expenses and other assets  $11,630   $20,288   $   $ 
   Accrued expenses and other liabilities   622        45,690    44,271 
   Other long-term liabilities   7,827    13,237    42,130    38,608 
Foreign currency forward contracts designated as hedging instruments                       
   Other long-term assets   225    14         
   Accrued expenses and other liabilities           54,086    61,788 
   Other long-term liabilities           78,247    88,920 
Interest rate swaps designated as hedging instruments                       
   Accrued expenses and other liabilities           2,886    3,331 
   Other long-term liabilities           453    1,151 

 

The fair values of swap and forward contracts are determined based on inputs that are readily available in public markets or can be derived from information available in publicly quoted markets. The Company determines the value of options and collars utilizing an option pricing model based on inputs that are either readily available in public markets or can be derived from information available in publicly quoted markets. The option pricing model used by the Company is an industry standard model for valuing options and is used by the broker/dealer community. The inputs to this option pricing model are the option strike price, underlying price, risk-free rate of interest, time to expiration, and volatility. The fair value of option contracts considers both the intrinsic value and any remaining time value associated with those derivatives that have not yet settled. The Company also considers counterparty credit risk and its own credit risk in its determination of all estimated fair values. Our derivatives and financial instruments were categorized as Level 2 in the fair value hierarchy, and we had no derivatives or financial instruments categorized as Level 1 or Level 3.

Our derivative contracts include rights of offset with our counterparties. We have elected to net certain assets and liabilities within counterparties when the rights of offset exist. We are not required to post cash collateral related to our derivative instruments.

 

The following table discloses the gross and net amounts recognized within assets and liabilities (in thousands): 

 

March 31, 2017  Gross Amounts   Gross
Amounts
Offset
   Total Net
Amounts
   Gross
Amounts Not
Offset
   Net Amounts 
Assets  $11,855   $   $11,855   $(225)  $11,630 
Liabilities   223,492    (8,449)   215,043    (135,672)   79,371 

 

December 31, 2016  Gross Amounts   Gross
Amounts
Offset
   Total Net
Amounts
   Gross
Amounts Not
Offset
   Net Amounts 
Assets  $20,302   $   $20,302   $(14)  $20,288 
Liabilities   238,069    (13,237)   224,832    (155,190)   69,642 

 

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Fuel Swaps

 

As of March 31, 2017, we had fuel swaps maturing through December 31, 2020 which are used to mitigate the financial impact of volatility in fuel prices pertaining to approximately 1.6 million metric tons of our projected fuel purchases.

 

The effects on the consolidated financial statements of the fuel swaps which were designated as cash flow hedges were as follows (in thousands):

 

   Three Months Ended
March 31,
 
   2017   2016 
Loss recognized in other comprehensive income – effective portion  $(26,203)  $(9,506)
Loss recognized in other income (expense), net – ineffective portion   (370)   (5,227)
Amount reclassified from accumulated other comprehensive income (loss) into fuel expense   8,003    31,137 

   

We had fuel swaps that matured which were not designated as cash flow hedges. These fuel swaps were previously designated as cash flow hedges and were dedesignated due to a change in our expected future fuel purchases mix.

 

The effects on the consolidated financial statements of the fuel swaps which were dedesignated and recognized into earnings were as follows (in thousands):

 

   Three Months Ended
March 31,
 
   2017   2016 
Amount reclassified from accumulated other comprehensive income (loss) into other income (expense), net  $   $1,529 

 

Foreign Currency Options

 

We had foreign currency options that matured which consisted of call options with deferred premiums. These options were used to mitigate the financial impact of volatility in foreign currency exchange rates related to our ship construction contracts denominated in euros. If the spot rate at the date the ships were delivered was less than the strike price under these option contracts, we would have paid the deferred premium and would not exercise the foreign currency options. 

 

The effects on the consolidated financial statements of the foreign currency options which were designated as cash flow hedges were as follows (in thousands): 

 

   Three Months Ended
March 31,
 
   2017   2016 
Amount reclassified from accumulated other comprehensive income (loss) into depreciation and amortization expense  $330   $330 

 

Foreign Currency Forward Contracts

 

As of March 31, 2017, we had foreign currency forward contracts which are used to mitigate the financial impact of volatility in foreign currency exchange rates related to our ship construction contracts denominated in euros. The notional amount of our foreign currency forward contracts was €2.6 billion, or $2.8 billion based on the euro/U.S. dollar exchange rate as of March 31, 2017.

 

The effects on the consolidated financial statements of the foreign currency forward contracts which were designated as cash flow hedges were as follows (in thousands): 

 

   Three Months Ended
March 31,
 
   2017   2016 
Gain recognized in other comprehensive income – effective portion  $18,636   $82,511 
Gain (loss) recognized in other income (expense), net – ineffective portion   (50)   11 
Amount reclassified from accumulated other comprehensive income (loss) into depreciation and amortization expense   618    645 

 

Foreign Currency Collar

 

We had foreign currency collars that matured and were used to mitigate the volatility of foreign currency exchange rates related to our ship construction contracts denominated in euros.

 

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The effects on the consolidated financial statements of the foreign currency collar which was designated as a cash flow hedge was as follows (in thousands):

 

   Three Months Ended
March 31,
 
   2017   2016 
Amount reclassified from accumulated other comprehensive income (loss) into depreciation and amortization expense  $(91)  $(91)

 

The effect on the consolidated financial statements of the foreign currency collar which was not designated as a cash flow hedge was as follows (in thousands):

 

   Three Months Ended
March 31,
 
   2017   2016 
Gain recognized in other income (expense)  $   $13,625 

 

Interest Rate Swaps

 

As of March 31, 2017, we had interest rate swap agreements to hedge our exposure to interest rate movements and to manage our interest expense. The notional amount of outstanding debt associated with the interest rate swap agreements was $282.0 million as of March 31, 2017.

 

The effects on the consolidated financial statements of the interest rate swaps which were designated as cash flow hedges were as follows (in thousands): 

 

   Three Months Ended
March 31,
 
   2017   2016 
Gain (loss) recognized in other comprehensive income – effective portion  $284   $(2,555)
Gain recognized in other income (expense), net – ineffective portion       3 
Amount reclassified from accumulated other comprehensive income (loss) into interest expense, net   845    1,000 

 

Long-Term Debt

 

As of March 31, 2017 and December 31, 2016, the fair value of our long-term debt, including the current portion, was $6,294.0 million and $6,525.7 million, respectively, which was $8.7 million and $11.6 million higher, respectively, than the carrying values. The difference between the fair value and carrying value of our long-term debt is due to our fixed and variable rate debt obligations carrying interest rates that are above or below market rates at the measurement dates. The fair value of our long-term debt was calculated based on estimated rates for the same or similar instruments with similar terms and remaining maturities resulting in Level 2 inputs in the fair value hierarchy. Market risk associated with our long-term variable rate debt is the potential increase in interest expense from an increase in interest rates. The calculation of the fair value of our long-term debt is considered a Level 2 input.

 

Other

 

The carrying amounts reported in the consolidated balance sheets of all other financial assets and liabilities approximate fair value.

  

7.Employee Benefits and Compensation Plans

 

Share-Based Compensation

 

As a result of our adoption of ASU No. 2016-09, in the first quarter of 2017, we began accounting for forfeitures as they occur, rather than estimating expected forfeitures. Pursuant to the modified-retrospective application, the net cumulative effect of this change was recognized as a $2.2 million increase to retained earnings as of January 1, 2017 (we refer you to our consolidated statements of changes in shareholders’ equity).

 

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Share Option Awards

 

The following is a summary of option activity under our Amended and Restated 2013 Performance Incentive Plan for the three months ended March 31, 2017 (excludes the impact of 208,335 previously awarded performance-based options as no grant date has been established):

 

   Number of Share Option
Awards
   Weighted-Average Exercise
Price
   Weighted-
Average
Contractual Term
  

Aggregate

Intrinsic Value

 
   Time-
Based
Awards
   Performance-
Based
Awards
   Market-
Based
Awards
   Time-
Based
Awards
   Performance-
Based
Awards
   Market-
Based
Awards
   (years)   (in thousands) 
Outstanding as of January 1, 2017   7,775,058    432,978    208,333   $48.04   $23.86   $59.43    7.81   $35,429 
Granted       156,249            59.43             
Exercised   (270,157)   (49,315)       27.01    19.00             
Forfeited and cancelled   (233,948)   (93,749)       56.52    59.43             
Outstanding as of March 31, 2017   7,270,953    446,163    208,333   $48.55   $29.38   $59.43    7.67   $51,491 

 

Restricted Ordinary Share Awards

 

The following is a summary of restricted ordinary share activity for the three months ended March 31, 2017:

 

   Number of
Time-Based
Awards
   Weighted-
Average Grant
Date Fair
Value
 
Non-vested as of January 1, 2017   16,872   $7.63 
Granted        
Vested   (9,780)   5.85 
Forfeited or expired        
Non-vested and expected to vest as of March 31, 2017   7,092   $10.08 

 

Restricted Share Unit Awards

 

On March 1, 2017, we granted 1.7 million time-based restricted share unit awards to our employees which vest equally over three years. Additionally, on March 1, 2017, we awarded 121,000 performance-based restricted share units to certain members of our management team which vest upon the achievement of certain pre-established performance targets.

 

The following is a summary of restricted share unit activity for the three months ended March 31, 2017 (excludes the impact of 171,000 previously awarded performance-based restricted share units as no grant date was established):

 

   Number of
Time-Based
Awards
   Weighted-
Average Grant
Date Fair
Value
   Number of
Performance-
Based
Awards
   Weighted-
Average Grant
Date Fair Value
   Number of
Market-
Based
Awards
   Weighted-
Average Grant
Date Fair Value
 
Non-vested as of January 1, 2017   1,305,335   $50.38       $    50,000   $59.43 
Granted   1,730,374    50.92    37,500    49.76         
Vested   (379,675)   50.61    (15,000)   49.76         
Forfeited or expired   (11,002)   50.48    (22,500)   49.76         
Non-vested and expected to vest as of March 31, 2017   2,645,032   $50.70       $    50,000   $59.43 

 

The share-based compensation expense for the three months ended March 31, 2017 was $18.2 million of which $17.4 million was recorded in marketing, general and administrative expense and $0.8 million was recorded in payroll and related expense.

 

8.Commitments and Contingencies

 

Ship Construction Contracts

 

Norwegian Joy was delivered in April 2017, we refer you to Note 10— “Subsequent Events”. We have two other Breakaway Plus Class Ships on order for delivery in the spring of 2018 and fall of 2019, respectively. Norwegian Joy and the two other Breakaway Plus Class Ships are approximately 168,000 Gross Tons each with approximately 3,880 to 4,000 Berths each. We have an Explorer Class Ship on order for delivery in the winter of 2020. We have export credit financing in place that provides financing for 80% of each ship’s contract price. As of March 31, 2017, the aggregate cost of these four ships on order was approximately € 3.1 billion or $3.3 billion based on the exchange rate as of March 31, 2017.

 

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Project Leonardo will introduce an additional four ships with expected delivery dates through 2025 and we have an option to introduce two additional ships for delivery in 2026 and 2027, subject to certain conditions. These four ships are each approximately 140,000 Gross Tons with approximately 3,300 Berths. The contract price for each of the additional four ships is approximately €800.0 million or $852.2 million based on the exchange rate as of March 31, 2017. For ships expected to be delivered after 2023, the contract price is subject to adjustment under certain circumstances. We have export credit financing in place for the four ships that provides financing for 80% of the contract price of each ship expected to be delivered through 2025, subject to certain conditions.

 

In connection with the contracts to build the ships, we do not anticipate any contractual breaches or cancellation to occur. However, if any would occur, it could result in, among other things, the forfeiture of prior deposits or payments made by us and potential claims and impairment losses which may materially impact our business, financial condition and results of operations. 

 

Litigation

 

In the normal course of our business, various claims and lawsuits have been filed or are pending against us. Most of these claims and lawsuits are covered by insurance and, accordingly, the maximum amount of our liability is typically limited to our deductible amount.

 

Nonetheless, the ultimate outcome of these claims and lawsuits that are not covered by insurance cannot be determined at this time. We have evaluated our overall exposure with respect to all of our threatened and pending litigation and, to the extent required, we have accrued amounts for all estimable probable losses associated with our deemed exposure. We are currently unable to estimate any other potential contingent losses beyond those accrued, as discovery is not complete nor is adequate information available to estimate such range of loss or potential recovery. However, based on our current knowledge, we do not believe that the aggregate amount or range of reasonably possible losses with respect to these matters will be material to our consolidated results of operations, financial condition or cash flows. We intend to vigorously defend our legal position on all claims and, to the extent necessary, seek recovery. 

 

9.Supplemental Cash Flow Information

 

For the three months ended March 31, 2017 and 2016 we had non-cash investing activities in connection with property and equipment of $23.0 million and $7.5 million, respectively.

 

10.Subsequent Events

 

Norwegian Joy was delivered in April 2017. This ship is approximately 168,000 Gross Tons with approximately 3,880 Berths.

 

In April 2017, we obtained export credit financing for the four Project Leonardo ships that provides financing for 80% of the contract price of each ship expected to be delivered through 2025, subject to certain conditions.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Cautionary Statement Concerning Forward-Looking Statements

 

Certain statements in this report constitute forward-looking statements within the meaning of the U.S. federal securities laws intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts contained, or incorporated by reference, in this report, including, without limitation, those regarding our business strategy, financial position, results of operations, plans, prospects and objectives of management for future operations (including development plans and objectives relating to our activities), are forward-looking statements. Many, but not all, of these statements can be found by looking for words like “expect,” “anticipate,” “goal,” “project,” “plan,” “believe,” “seek,” “will,” “may,” “forecast,” “estimate,” “intend” and “future” and similar words. Forward-looking statements do not guarantee future performance and may involve risks, uncertainties and other factors which could cause our actual results, performance or achievements to differ materially from the future results, performance or achievements expressed or implied in those forward-looking statements. Examples of these risks, uncertainties and other factors include, but are not limited to the impact of:

 

adverse general economic and related factors, such as fluctuating or increasing levels of unemployment, underemployment and the volatility of fuel prices, declines in the securities and real estate markets, and perceptions of these conditions that decrease the level of disposable income of consumers or consumer confidence;
adverse events impacting the security of travel, such as terrorist acts, armed conflict and threats thereof, acts of piracy, and other international events;
the risks and increased costs associated with operating internationally;
our expansion into and investments in new markets;
breaches in data security or other disturbances to our information technology and other networks;
the spread of epidemics and viral outbreaks;
adverse incidents involving cruise ships;
changes in fuel prices and/or other cruise operating costs;
an impairment of our tradenames or goodwill which could adversely affect our financial condition and operating results;
our hedging strategies;
our inability to obtain adequate insurance coverage;
our substantial indebtedness, including the ability to raise additional capital to fund our operations, and to generate the necessary amount of cash to service our existing debt;
restrictions in the agreements governing our indebtedness that limit our flexibility in operating our business;
the significant portion of our assets pledged as collateral under our existing debt agreements and the ability of our creditors to accelerate the repayment of our indebtedness;
volatility and disruptions in the global credit and financial markets, which may adversely affect our ability to borrow and could increase our counterparty credit risks, including those under our credit facilities, derivatives, contingent obligations, insurance contracts and new ship progress payment guarantees;
fluctuations in foreign currency exchange rates;
overcapacity in key markets or globally;
our inability to recruit or retain qualified personnel or the loss of key personnel;
future changes relating to how external distribution channels sell and market our cruises;
our reliance on third parties to provide hotel management services to certain ships and certain other services;
delays in our shipbuilding program and ship repairs, maintenance and refurbishments;
future increases in the price of, or major changes or reduction in, commercial airline services;
seasonal variations in passenger fare rates and occupancy levels at different times of the year;
our ability to keep pace with developments in technology;
amendments to our collective bargaining agreements for crew members and other employee relation issues;
the continued availability of attractive port destinations;
pending or threatened litigation, investigations and enforcement actions;
changes involving the tax and environmental regulatory regimes in which we operate; and
other factors set forth under “Risk Factors” in our most recently filed Annual Report on Form 10-K.

 

The above examples are not exhaustive and new risks emerge from time to time. Such forward-looking statements are based on our current beliefs, assumptions, expectations, estimates and projections regarding our present and future business strategies and the environment in which we expect to operate in the future. These forward-looking statements speak only as of the date made. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement to reflect any change in our expectations with regard thereto or any change of events, conditions or circumstances on which any such statement was based, except as required by law. 

 

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Terminology

 

This report includes certain non-GAAP financial measures, such as Net Revenue, Net Yield, Net Cruise Cost, Adjusted Net Revenue, Adjusted Net Yield, Adjusted Net Cruise Cost Excluding Fuel, Adjusted EBITDA, Adjusted Net Income and Adjusted EPS. Definitions of these non-GAAP financial measures are included below. For further information about our non-GAAP financial measures including detailed adjustments made in calculating our non-GAAP financial measures and a reconciliation to the most directly comparable GAAP financial measure, we refer you to “Results of Operations” below.

 

Unless otherwise indicated in this report, the following terms have the meanings set forth below:

 

Acquisition of Prestige. In November 2014, pursuant to the Merger Agreement, we acquired Prestige in a cash and stock transaction for total consideration of $3.025 billion, including the assumption of debt.

 

Adjusted EBITDA. EBITDA adjusted for other income (expense), net and other supplemental adjustments.

 

Adjusted EPS. Adjusted Net Income divided by the number of diluted weighted-average shares outstanding.

 

Adjusted Net Cruise Cost Excluding Fuel. Net Cruise Cost Excluding Fuel expense adjusted for supplemental adjustments.

 

Adjusted Net Income. Net income adjusted for supplemental adjustments.

 

Adjusted Net Revenue. Net Revenue adjusted for supplemental adjustments.

 

Adjusted Net Yield. Net Yield adjusted for supplemental adjustments.

 

Bareboat Charter. The hire of a ship for a specified period of time whereby no crew or provisions are provided by the Company.

 

Berths. Double occupancy capacity per cabin (single occupancy per studio cabin) even though many cabins can accommodate three or more passengers.

 

Breakaway Class Ships. Norwegian Breakaway and Norwegian Getaway.

 

Breakaway Plus Class Ships. The next generation of ships which are similar in design and innovation to Breakaway Class Ships.

 

Business Enhancement Capital Expenditures. Capital expenditures other than those related to new ship construction and ROI Capital Expenditures.

 

Capacity Days. Available Berths multiplied by the number of cruise days for the period. 

 

Constant Currency. A calculation whereby foreign currency-denominated revenue and expenses in a period are converted at the U.S. dollar exchange rate of a comparable period in order to eliminate the effects of the foreign exchange fluctuations.

 

Dry-dock. A process whereby a ship is positioned in a large basin where all of the fresh/sea water is pumped out in order to carry out cleaning and repairs of those parts of a ship which are below the water line.

 

EBITDA. Earnings before interest, taxes, and depreciation and amortization.

 

EPS. Earnings per share.

 

Explorer Class Ships. Regent’s Seven Seas Explorer and a second ship on order.

 

GAAP. Generally accepted accounting principles in the U.S.

 

Gross Cruise Cost. The sum of total cruise operating expense and marketing, general and administrative expense.

 

Gross Tons. A unit of enclosed passenger space on a cruise ship, such that one gross ton = 100 cubic feet or 2.831 cubic meters.

 

Gross Yield. Total revenue per Capacity Day. 

 

Merger Agreement. Agreement and Plan of Merger, dated as of September 2, 2014, by and among Prestige, NCLH, Portland Merger Sub, Inc. and Apollo Management, L.P., as amended, for the Acquisition of Prestige.

 

Net Cruise Cost. Gross Cruise Cost less commissions, transportation and other expense and onboard and other expense.

 

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Net Cruise Cost Excluding Fuel. Net Cruise Cost less fuel expense.

 

Net Revenue. Total revenue less commissions, transportation and other expense and onboard and other expense.

 

Net Yield. Net Revenue per Capacity Day. 

 

Occupancy Percentage. The ratio of Passenger Cruise Days to Capacity Days. A percentage in excess of 100% indicates that three or more passengers occupied some cabins.

 

Passenger Cruise Days. The number of passengers carried for the period, multiplied by the number of days in their respective cruises.

 

New Revolving Loan Facility. $750.0 million senior secured revolving credit facility maturing on June 6, 2021, subject to an earlier springing maturity date.

 

Project Leonardo. The next generation of ships for our Norwegian brand.

 

ROI Capital Expenditures. Comprised of project-based capital expenditures which have a quantified return on investment.

 

Shipboard Retirement Plan. An unfunded defined benefit pension plan for certain crew members which computes benefits based on years of service, subject to certain requirements.

 

Non-GAAP Financial Measures

 

We use certain non-GAAP financial measures, such as Net Revenue, Adjusted Net Revenue, Net Yield, Adjusted Net Yield, Net Cruise Cost, Adjusted Net Cruise Cost Excluding Fuel, Adjusted EBITDA, Adjusted Net Income and Adjusted EPS, to enable us to analyze our performance. See “Terminology” for the definitions of these non-GAAP financial measures. We utilize Net Revenue and Net Yield to manage our business on a day-to-day basis and believe that they are the most relevant measures of our revenue performance because they reflect the revenue earned by us net of significant variable costs. In measuring our ability to control costs in a manner that positively impacts net income, we believe changes in Net Cruise Cost and Adjusted Net Cruise Cost Excluding Fuel to be the most relevant indicators of our performance.

 

As our business includes the sourcing of passengers and deployment of vessels outside of the U.S., a portion of our revenue and expenses are denominated in foreign currencies, particularly British pound, Canadian dollar, euro and Australian dollar which are subject to fluctuations in currency exchange rates versus our reporting currency, the U.S. dollar. In order to monitor results excluding these fluctuations, we calculate certain non-GAAP measures on a Constant Currency basis whereby current period revenue and expenses denominated in foreign currencies are converted to U.S. dollars using currency exchange rates of the comparable period. We believe that presenting these non-GAAP measures on both a reported and Constant Currency basis is useful in providing a more comprehensive view of trends in our business.

 

We believe that Adjusted EBITDA is appropriate as a supplemental financial measure as it is used by management to assess operating performance. We believe that Adjusted EBITDA is a useful measure in determining our performance as it reflects certain operating drivers of our business, such as sales growth, operating costs, marketing, general and administrative expense and other operating income and expense. Adjusted EBITDA is not a defined term under GAAP. Adjusted EBITDA is not intended to be a measure of liquidity or cash flows from operations or a measure comparable to net income as it does not take into account certain requirements such as capital expenditures and related depreciation, principal and interest payments and tax payments and it includes other supplemental adjustments.

 

In addition, Adjusted Net Revenue and Adjusted Net Yield, which exclude certain business combination accounting entries, are non-GAAP financial measures that we believe are useful as supplemental measures in evaluating the performance of our operating business and provide greater transparency into our results of operations. Adjusted Net Income and Adjusted EPS are non-GAAP financial measures that exclude certain amounts and are used to supplement GAAP net income and EPS. We use Adjusted Net Income and Adjusted EPS as key performance measures of our earnings performance. We believe that both management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning, forecasting and analyzing future periods. These non-GAAP financial measures also facilitate management’s internal comparison to our historical performance. In addition, management uses Adjusted EPS as a performance measure for our incentive compensation. The amounts excluded in the presentation of these non-GAAP financial measures may vary from period to period; accordingly, our presentation of Adjusted Net Revenue, Adjusted Net Yield, Adjusted Net Income and Adjusted EPS may not be indicative of future adjustments or results. For example, for the year ended December 31, 2016, we incurred $28.0 million of amounts related to the extinguishment of debt and $11.2 million of deferred financing fees due to the refinancing of certain credit facilities. We included these as adjustments in the reconciliation of Adjusted Net Income since these amounts are not representative of our day-to-day operations and we have included similar adjustments in prior periods; however, these adjustments did not occur and are not included in the periods presented within this Form 10-Q.

 

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You are encouraged to evaluate each adjustment used in calculating our non-GAAP financial measures and the reasons we consider our non-GAAP financial measures appropriate for supplemental analysis. In evaluating our non-GAAP financial measures, you should be aware that in the future we may incur expenses similar to the adjustments in our presentation. Our non-GAAP financial measures have limitations as analytical tools, and you should not consider these measures in isolation or as a substitute for analysis of our results as reported under GAAP. Our presentation of our non-GAAP financial measures should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items. Our non-GAAP financial measures may not be comparable to other companies. Please see a historical reconciliation of these measures to the most comparable GAAP measure presented in our consolidated financial statements below in the “Results of Operations” section. 

 

Financial Presentation

 

Revenue from our cruise and cruise-related activities are categorized by us as “passenger ticket revenue” and “onboard and other revenue.” Passenger ticket revenue and onboard and other revenue vary according to product offering, the size of the ship in operation, the length of cruises operated and the markets in which the ship operates. Our revenue is seasonal based on demand for cruises, which has historically been strongest during the Northern Hemisphere’s summer months.

 

Passenger ticket revenue primarily consists of revenue for accommodations, meals in certain restaurants on the ship, certain onboard entertainment, and includes revenue for service charges and air and land transportation to and from the ship to the extent guests purchase these items from us. Onboard and other revenue primarily consists of revenue from gaming, beverage sales, shore excursions, specialty dining, retail sales, spa services, photo services as well as certain Bareboat Charter revenue. We record onboard revenue from onboard activities we perform directly or that are performed by independent concessionaires, from which we receive a share of their revenue.

 

Our cruise operating expense is classified as follows: 

 

  Commissions, transportation and other primarily consists of direct costs associated with passenger ticket revenue. These costs include travel agent commissions, air and land transportation expenses, related credit card fees, costs associated with service charges, certain port expenses and the costs associated with shore excursions and hotel accommodations included as part of the overall cruise purchase price.

 

  Onboard and other primarily consists of direct costs that are incurred in connection with onboard and other revenue. These include costs incurred in connection with gaming, beverage sales and shore excursions.

 

  Payroll and related consists of the cost of wages and benefits for shipboard employees and costs of certain inventory items, including food, for a third party that provides crew and other hotel services for certain ships.

 

  Fuel includes fuel costs, the impact of certain fuel hedges and fuel delivery costs.

 

  Food consists of food costs for passengers and crew on certain ships.

 

  Other consists of repairs and maintenance (including Dry-dock costs), ship insurance and other ship expenses.

 

Critical Accounting Policies

 

For a discussion of our critical accounting policies and estimates, see “Critical Accounting Policies” included in our Annual Report on Form 10-K for the year ended December 31, 2016 under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We have made no significant changes to our critical accounting policies and estimates from those described in our Annual Report on Form 10-K for the year ended December 31, 2016.

 

However, in accordance with Item 303(a)(3)(ii) of Regulation S-K and Section V of SEC Release No. 33-8350, we are including additional disclosure which is presented below:

 

Asset Impairment

 

We review our long-lived assets, principally ships, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Assets are grouped and evaluated at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of other groups of assets. We consider historical performance and future estimated results in our evaluation of potential impairment and then compare the carrying amount of the asset to the estimated future cash flows expected to result from the use of the asset. If the carrying amount of the asset exceeds the estimated expected undiscounted future cash flows, we measure the amount of the impairment by comparing the carrying amount of the asset to its fair value. We estimate fair value based on the best information available making whatever estimates, judgments and projections we considered necessary. The estimation of fair value is generally measured by discounting expected future cash flows at discount rates commensurate with the risk involved.

 

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We evaluate goodwill for impairment annually or more frequently when an event occurs or circumstances change that indicates the carrying value of a reporting unit may not be recoverable. For our evaluation of goodwill and tradenames we use the Step 0 Test which allows us to first assess qualitative factors to determine whether it is more likely than not (i.e., more than 50%) that the fair value of a reporting unit is less than its carrying value. In order to make this evaluation, we consider the following circumstances:

 

General macroeconomic conditions such as a deterioration in general economic conditions; limitations on accessing capital; fluctuations in foreign exchange rates; or other developments in equity and credit markets;
Industry and market conditions such as a deterioration in the environment in which an entity operates; an increased competitive environment; a decline in market-dependent multiples or metrics (in both absolute terms and relative to peers); a change in the market for an entity’s products or services; or a regulatory or political development;
Changes in cost factors that have a negative effect on earnings and cash flows;
Overall financial performance (for both actual and expected performance);
Entity and reporting unit specific events such as changes in management, key personnel, strategy, or customers; litigation; or a change in the composition or carrying amount of net assets; and
Share price (in both absolute terms and relative to peers).

 

We believe our estimates and judgments with respect to our long-lived assets, principally ships, and goodwill and other indefinite-lived intangible assets are reasonable. Nonetheless, if there was a material change in assumptions used in the determination of such fair values or if there is a material change in the conditions or circumstances that influence such assets, we could be required to record an impairment charge. If a material change occurred, we may conduct a quantitative assessment comparing the fair value of each reporting unit to its carrying value, including goodwill. This is called the Step I Test which consists of a combined approach using the expected future cash flows and market multiples to determine the fair value of the reporting units.

 

In the third quarter of 2016, based on the performance of the Oceania Cruises reporting unit, we performed an interim goodwill impairment evaluation consisting of a Step I Test. Based on that evaluation, we determined that there was no impairment of goodwill because its fair value exceeded its carrying value. For our annual impairment evaluation, we performed a Step 0 Test for the Norwegian reporting unit and Step I Tests for the Regent Seven Seas and the Oceania Cruises reporting units. As a result of the Step 0 Test for the Norwegian reporting unit, we determined there were no factors indicating it was more likely than not (i.e., more than 50%) that the fair value of the reporting unit was less than its carrying value. Based on the results of the Step 1 Tests, we determined there was no impairment of goodwill because the fair value of the Oceania Cruises and Regent Seven Seas reporting units exceeded their carrying values by 24% and 81%, respectively. However, if the fair value of any reporting unit declines in future periods, its goodwill may become impaired at that time. As of December 31, 2016 and March 31, 2017, there was $523.0 million, $462.1 million and $403.8 million of goodwill for the Oceania Cruises, Regent Seven Seas and Norwegian reporting units, respectively. As of December 31, 2016, our annual review consisting of the Step 0 and Step I Tests supported the carrying values of these assets. Subsequent to December 31, 2016, the Company has continued to monitor the results of each of these reporting units and will perform the necessary tests should events occur or circumstances change that indicate the carrying value of a reporting unit may not be recoverable.

 

Quarterly Overview 

 

In February 2017, we announced that we plan to introduce an additional four ships with expected delivery dates through 2025 and we have an option to introduce two additional ships for delivery in 2026 and 2027, subject to certain conditions. These four ships are each approximately 140,000 Gross Tons with approximately 3,300 Berths. The contract price for each of the additional four ships is approximately €800.0 million or $852.2 million based on the exchange rate as of March 31, 2017. For ships expected to be delivered after 2023, the contract price is subject to adjustment under certain circumstances. We have export credit financing in place for the four ships that provides financing for 80% of the contract price of each ship expected to be delivered through 2025, subject to certain conditions.

 

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Three months ended March 31, 2017 (“2017”) compared to three months ended March 31, 2016 (“2016”)

Total revenue increased 6.8% to $1.2 billion in 2017 compared to $1.1 billion in 2016.
Net Revenue in 2017 increased 6.0% to $888.2 million from $838.2 million in 2016.
Net income and diluted EPS was $61.9 million and $0.27, respectively, in 2017.
Operating income was $119.7 million in 2017 compared to $131.3 million in 2016.
Adjusted Net Income and Adjusted EPS were $91.2 million and $0.40, respectively, in 2017, which included $29.2 million of adjustments primarily consisting of expenses related to non-cash compensation and certain other adjustments.
Adjusted EBITDA improved 3.1% in 2017 compared to 2016.

 

We refer you to our “Results of Operations” below for a calculation of Net Revenue, Net Yield, Adjusted Net Income, Adjusted EPS and Adjusted EBITDA.

 

Results of Operations

 

The following table sets forth operating data as a percentage of total revenue:

 

   Three Months Ended
March 31,
 
   2017   2016 
Revenue          
Passenger ticket   68.4%   68.7%
Onboard and other   31.6%   31.3%
Total revenue   100.0%   100.0%
           
Cruise operating expense          
Commissions, transportation and other   16.9%   16.3%
Onboard and other   5.9%   6.0%
Payroll and related   16.7%   16.4%
Fuel   7.7%   7.6%
Food   4.0%   4.7%
Other   11.3%   10.7%
Total cruise operating expense   62.5%   61.7%
           
Other operating expense          
Marketing, general and administrative   16.7%   16.8%
Depreciation and amortization   10.4%   9.4%
Total other operating expense   27.1%   26.2%
Operating income   10.4%   12.1%
           
Non-operating income (expense)          
Interest expense, net   (4.6)%   (5.5)%
Other income (expense), net   (0.2)%   0.3%
Total non-operating income (expense)   (4.8)%   (5.2)%
Net income before income taxes   5.6%   6.9%
Income tax expense   (0.2)%   (0.1)%
Net income   5.4%   6.8%

 

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The following table sets forth selected statistical information:

 

   Three Months Ended
March 31,
 
   2017   2016 
Passengers carried   528,354    551,475 
Passenger Cruise Days   4,230,518    4,285,294 
Capacity Days   4,030,616    3,990,942 
Occupancy Percentage   105.0%   107.4%

 

Net Revenue, Adjusted Net Revenue, Gross Yield, Net Yield and Adjusted Net Yield were calculated as follows (in thousands, except Capacity Days and Yield data):  

 

   Three Months Ended
March 31,
 
   2017   2017
Constant
Currency
   2016 
Passenger ticket revenue  $786,694   $794,507   $740,112 
Onboard and other revenue   364,087    364,087    337,520 
Total revenue   1,150,781    1,158,594    1,077,632 
Less:               
Commissions, transportation and other expense   194,140    196,518    175,437 
Onboard and other expense   68,411    68,411    63,965 
Net Revenue   888,230    893,665    838,230 
Non-GAAP Adjustment:               
Deferred revenue (1)           460 
Adjusted Net Revenue  $888,230   $893,665   $838,690 
Capacity Days   4,030,616    4,030,616    3,990,942 
Gross Yield  $285.51   $287.45   $270.02 
Net Yield  $220.37   $221.72   $210.03 
Adjusted Net Yield  $220.37   $221.72   $210.15 

 

  (1)  Reflects deferred revenue fair value adjustments related to the Acquisition of Prestige that were made pursuant to business combination accounting rules.

 

Gross Cruise Cost, Net Cruise Cost, Net Cruise Cost Excluding Fuel and Adjusted Net Cruise Cost Excluding Fuel were calculated as follows (in thousands, except Capacity Days and per Capacity Day data):

 

   Three Months Ended
March 31,
 
   2017   2017
Constant
Currency
   2016 
Total cruise operating expense  $719,798   $721,967   $664,481 
Marketing, general and administrative expense   192,044    192,363    180,574 
Gross Cruise Cost   911,842    914,330    845,055 
Less:               
Commissions, transportation and other expense   194,140    196,518    175,437 
Onboard and other expense   68,411    68,411    63,965 
Net Cruise Cost   649,291    649,401    605,653 
Less: Fuel expense   88,886    88,886    81,672 
Net Cruise Cost Excluding Fuel   560,405    560,515    523,981 
Less Non-GAAP Adjustments:               
Non-cash deferred compensation (1)   823    823    791 
Non-cash share-based compensation (2)   18,203    18,203    15,245 
Severance payments and other fees (3)   2,399    2,399    2,030 
Acquisition of Prestige expenses (4)   250    250    1,741 
 Adjusted Net Cruise Cost Excluding Fuel  $538,730   $538,840   $504,174 
Capacity Days   4,030,616    4,030,616    3,990,942 
Gross Cruise Cost per Capacity Day  $226.23   $226.85   $211.74 
Net Cruise Cost per Capacity Day  $161.09   $161.12   $151.76 
Net Cruise Cost Excluding Fuel per Capacity Day  $139.04   $139.06   $131.29 
Adjusted Net Cruise Cost Excluding Fuel per Capacity Day  $133.66   $133.69   $126.33 

 

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  (1) Non-cash deferred compensation expenses related to the crew pension plan and other crew expenses, which are included in payroll and related expense.
  (2) Non-cash share-based compensation expenses related to equity awards, which are included in marketing, general and administrative expense and payroll and related expense.
  (3) Severance payments and other expenses related to restructuring costs and other severance arrangements, which are included in marketing, general and administrative expense.
  (4) Expenses related to the Acquisition of Prestige, which are included in marketing, general and administrative expense.

 

Adjusted Net Income and Adjusted EPS were calculated as follows (in thousands, except share and per share data):

 

  

Three Months Ended

March 31,

 
   2017   2016 
Net income  $61,910   $73,229 
Non-GAAP Adjustments:          
Non-cash deferred compensation (1)   823    791 
Non-cash share-based compensation (2)   18,203    15,245 
Severance payments and other fees (3)   2,399    2,030 
Acquisition of Prestige expenses (4)   250    1,741 
Deferred revenue (5)       460 
Amortization of intangible assets (6)   7,568    5,268 
Derivative adjustment (7)       (12,096)
Adjusted Net Income  $91,153   $86,668 
Diluted weighted-average shares outstanding – Net income and Adjusted Net Income   228,555,952    228,112,035 
Diluted earnings per share  $0.27   $0.32 
Adjusted EPS  $0.40   $0.38 

 

  (1) Non-cash deferred compensation expenses related to the crew pension plan and other crew expenses, which are included in payroll and related expense.
  (2) Non-cash share-based compensation expenses related to equity awards, which are included in marketing, general and administrative expense and payroll and related expense.
  (3) Severance payments and other expenses related to restructuring costs and other severance arrangements, which are included in marketing, general and administrative expense.
  (4) Expenses related to the Acquisition of Prestige, which are included in marketing, general and administrative expense.
  (5) Deferred revenue fair value adjustments related to the Acquisition of Prestige that were made pursuant to business combination accounting rules, which are primarily included in passenger ticket revenue.
  (6) Amortization of intangible assets related to the Acquisition of Prestige, which are included in depreciation and amortization expense.
  (7) A gain of approximately $13.6 million for the fair value adjustment of a foreign exchange collar which does not receive hedge accounting and losses of approximately $(1.5) million for the dedesignation of certain fuel swaps.

 

EBITDA and Adjusted EBITDA were calculated as follows (in thousands):

 

  

Three Months Ended

March 31,

 
   2017   2016 
Net income  $61,910   $73,229 
Interest expense, net   52,960    59,754 
Income tax expense   2,049    1,104 
Depreciation and amortization expense   119,205    101,295 
EBITDA   236,124    235,382 
Other (income) expense, net (1)   2,815    (2,805)
Non-GAAP Adjustments:          
Non-cash deferred compensation (2)   823    791 
Non-cash share-based compensation (3)   18,203    15,245 
Severance payments and other fees (4)   2,399    2,030 
Acquisition of Prestige expenses (5)   250    1,741 
Deferred revenue (6)       460 
Adjusted EBITDA  $260,614   $252,844 

 

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(1) Primarily consists of gains and losses, net for derivative contracts and forward currency exchanges.
(2) Non-cash deferred compensation expenses related to the crew pension plan and other crew expenses, which are included in payroll and related expense.
(3) Non-cash share-based compensation expenses related to equity awards, which are included in marketing, general and administrative expense and payroll and related expense.
(4) Severance payments and other expenses related to restructuring costs and other severance arrangements, which are included in marketing, general and administrative expense.
(5) Expenses related to the Acquisition of Prestige, which are included in marketing, general and administrative expense.
(6) Deferred revenue fair value adjustments related to the Acquisition of Prestige that were made pursuant to business combination accounting rules, which are primarily included in passenger ticket revenue.

 

Three months ended March 31, 2017 (“2017”) compared to three months ended March 31, 2016 (“2016”)

 

Revenue

 

Total revenue increased 6.8% to $1.2 billion in 2017 compared to $1.1 billion in 2016 due to an increase in passenger ticket pricing and higher onboard and other revenue. Gross Yield increased 5.7%. Net Revenue in 2017 increased 6.0% to $888.2 million from $838.2 million in 2016 due to an increase in Capacity Days of 1.0% and an increase in Net Yield of 4.9% partially offset by a slight decrease in Occupancy Percentage. The increase in Capacity Days was primarily due to Sirena joining our fleet in April 2016 and the delivery of Seven Seas Explorer in June 2016 partially offset by Dry-docks during the period. The increase in Gross Yield and Net Yield was primarily due to an increase in passenger ticket pricing and higher onboard and other revenue. Adjusted Net Revenue, in 2016, includes a deferred revenue fair value adjustment of $0.5 million related to the Acquisition of Prestige. On a Constant Currency basis, Net Yield and Adjusted Net Yield increased 5.6% and 5.5%, respectively, in 2017 compared to 2016.

 

Expense

 

Gross Cruise Cost increased 7.9% in 2017 compared to 2016 due to an increase in total cruise operating expense and marketing, general and administrative expenses. Total cruise operating expense increased 8.3% in 2017 compared to 2016 primarily due to the increase in Capacity Days as discussed above, crew payroll and related costs and an increase in repairs and maintenance including Dry-dock expenses. Total other operating expense increased 10.4% in 2017 compared to 2016 primarily due to an increase in depreciation and amortization expense primarily due to ship improvement projects and the ship additions as well as an increase in marketing, general and administrative expenses primarily due to an increase in share-based compensation expense of $3.0 million. On a Capacity Day basis, Net Cruise Cost increased 6.1% (6.2% on a Constant Currency basis) due to an increase in crew payroll and related costs, maintenance and repairs including Dry-dock and share-based compensation expense discussed above. Adjusted Net Cruise Cost Excluding Fuel per Capacity Day increased 5.8% (on an actual and a Constant Currency basis) primarily due to the increase in expenses discussed above.

 

Interest expense, net decreased to $53.0 million in 2017 from $59.8 million in 2016 reflecting a decrease in average debt outstanding partially offset by an increase in LIBOR rates.

 

Other income (expense), net was an expense of $2.8 million in 2017 compared to income of $2.8 million in 2016. In 2017, the expense was primarily related to losses on foreign currency exchange and unrealized and realized losses on derivatives. In 2016, the income was primarily related to unrealized gains on derivatives partially offset by realized losses on derivatives and losses on foreign currency exchange. 

 

In 2017, we had an income tax expense of $2.0 million compared to $1.1 million in 2016.

 

Liquidity and Capital Resources

 

General

 

As of March 31, 2017, our liquidity was $969.8 million consisting of $219.8 million in cash and cash equivalents and $750.0 million under our New Revolving Loan Facility. Our primary ongoing liquidity requirements are to finance working capital, capital expenditures and debt service.

 

As of March 31, 2017, we had a working capital deficit of $2.0 billion. This deficit included $1.4 billion of advance ticket sales, which represents the revenue we collect in advance of sailing dates, and accordingly, are substantially more like deferred revenue balances rather than actual current cash liabilities. Our business model, along with our New Revolving Loan Facility, allows us to operate with a working capital deficit and still meet our operating, investing and financing needs.

 

We evaluate potential sources of additional liquidity, including the capital markets, in the ordinary course of business. We believe that prevailing market conditions, particularly in the debt capital markets, are generally favorable. We will continue to evaluate opportunities to optimize our capital structure, taking into consideration our current and expected capital requirements, our assessment of prevailing market conditions and expectations regarding future conditions, and the contractual and other restrictions to which we are subject.

 

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Sources and Uses of Cash

 

In this section, references to “2017” refer to the three months ended March 31, 2017 and references to “2016” refer to the three months ended March 31, 2016.

 

Net cash provided by operating activities was $434.9 million in 2017 as compared to $330.1 million in 2016. The net cash provided by operating activities included timing differences in cash receipts and payments relating to operating assets and liabilities. Advance ticket sales increased to $222.9 million in 2017 compared to $148.6 million in 2016.

 

Net cash used in investing activities was $117.8 million in 2017 and $133.2 million in 2016, primarily related to payments for ship improvements, ships under construction and shoreside projects.

 

Net cash used in financing activities was $225.7 million in 2017 and $158.0 million in 2016 primarily due to net repayments of our New Revolving Loan Facility and other loan facilities. Additionally, in 2016, we had the repurchase of our ordinary shares.

 

Future Capital Commitments

 

Future capital commitments consist of contracted commitments, including ship construction contracts, and future expected capital expenditures necessary for operations. As of March 31, 2017, excluding Project Leonardo, our anticipated capital expenditures were $1.1 billion for the remainder of 2017, $1.3 billion for the year ending December 31, 2018 and $1.2 billion for the year ending December 31, 2019, of which we have export credit financing in place for the expenditures related to ship construction contracts of $0.8 billion for the remainder of 2017, $0.7 billion for 2018 and $0.6 billion for 2019.

 

Project Leonardo will introduce an additional four ships with expected delivery dates through 2025 and we have an option to introduce two additional ships for delivery in 2026 and 2027, subject to certain conditions. These four ships are each approximately 140,000 Gross Tons with approximately 3,300 Berths. The contract price for each of the additional four ships is approximately €800.0 million or $852.2 million based on the exchange rate as of March 31, 2017. For ships expected to be delivered after 2023, the contract price is subject to adjustment under certain circumstances. The additional anticipated capital expenditures for these ships were $70.8 million for the remainder of 2017, $5.2 million for the year ending December 31, 2018 and $6.4 million for the year ending December 31, 2019, of which we have export credit financing in place for the expenditures related to ship construction contracts of $54.5 million for 2018.

 

Norwegian Joy was delivered in April 2017, we refer you to our consolidated notes to our financial statements, Note 10— “Subsequent Events”. We have two other Breakaway Plus Class Ships on order for delivery in the spring of 2018 and fall of 2019, respectively. Norwegian Joy and the two other Breakaway Plus Class Ships are approximately 168,000 Gross Tons each with approximately 3,880 to 4,000 Berths each. We have an Explorer Class Ship on order for delivery in the winter of 2020. The combined contract price of these four ships was approximately €3.1 billion, or $3.3 billion based on the euro/U.S. dollar exchange rate as of March 31, 2017. We have export credit financing in place that provides financing for 80% of each ship’s contract price.

 

In connection with the contracts to build the ships, we do not anticipate any contractual breaches or cancellation to occur. However, if any would occur, it could result in, among other things, the forfeiture of prior deposits or payments made by us and potential claims and impairment losses which may materially impact our business, financial condition and results of operations. 

 

Capitalized interest for the three months ended March 31, 2017 and 2016 was $8.5 million and $7.1 million, respectively, primarily associated with construction of our newbuild ships.

 

Off-Balance Sheet Transactions

 

None.

 

Contractual Obligations 

 

As of March 31, 2017, our contractual obligations with initial or remaining terms in excess of one year, including interest payments on long-term debt obligations, were as follows (in thousands):

 

   Total   Less than
1 year
   1-3 years   3-5 years   More than
5 years
 
Long-term debt (1)  $6,285,799   $531,778   $1,135,178   $3,180,792   $1,438,051 
Operating leases (2)   147,977    15,979    30,647    28,471    72,880 
Ship construction contracts (3)   3,200,349    976,091    2,224,258         
Port facilities (4)   266,201    45,666    63,910    53,318    103,307 
Interest (5)   973,930    208,672    371,123    256,708    137,427 
Other (6)   187,309    56,330    71,787    38,693    20,499 
Total  $11,061,565   $1,834,516   $3,896,903   $3,557,982   $1,772,164 

 

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(1) Includes premiums aggregating $0.5 million. Also includes capital leases. The amount excludes deferred financing fees which are included in the consolidated balance sheets as an offset to long-term debt.
(2) Primarily for offices, motor vehicles and office equipment.
(3) For our newbuild ships, not including Project Leonardo, based on the euro/U.S. dollar exchange rate as of March 31, 2017. Export credit financing is in place from syndicates of banks.
(4) Primarily for our usage of certain port facilities.
(5) Includes fixed and variable rates with LIBOR held constant as of March 31, 2017.
(6) Future commitments for service, maintenance and other Business Enhancement Capital Expenditure contracts.

 

The table above does not include $11.1 million of unrecognized tax benefits.

 

Contractual obligations for Project Leonardo, subject to certain conditions, which are not included in the table above (in thousands):

 

   Total   Less than
1 year
   1-3 years   3-5 years   More than
5 years
 
Ship construction contracts (four ships)  $3,408,640   $68,173   $   $255,648   $3,084,819 

 

Other

 

Certain service providers may require collateral in the normal course of our business. The amount of collateral may change based on certain terms and conditions.

 

As a routine part of our business, depending on market conditions, exchange rates, pricing and our strategy for growth, we regularly consider opportunities to enter into contracts for the building of additional ships. We may also consider the sale of ships, potential acquisitions and strategic alliances. If any of these were to occur, they may be financed through the incurrence of additional permitted indebtedness, through cash flows from operations, or through the issuance of debt, equity or equity-related securities. 

 

Funding Sources

 

Certain of our debt agreements contain covenants that, among other things, require us to maintain a minimum level of liquidity, as well as limit our net funded debt-to-capital ratio, maintain certain other ratios and restrict our ability to pay dividends. Substantially all of our ships and other property and equipment are pledged as collateral for certain of our debt. We believe we were in compliance with these covenants as of March 31, 2017.

 

The impact of changes in world economies and especially the global credit markets can create a challenging environment and may reduce future consumer demand for cruises and adversely affect our counterparty credit risks. In the event this environment deteriorates, our business, financial condition and results of operations could be adversely impacted.

 

We believe our cash on hand, expected future operating cash inflows, additional available borrowings under our New Revolving Loan Facility and our ability to issue debt securities or additional equity securities, will be sufficient to fund operations, debt payment requirements, capital expenditures and maintain compliance with covenants under our debt agreements over the next twelve-month period. There is no assurance that cash flows from operations and additional financings will be available in the future to fund our future obligations. 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

General

 

We are exposed to market risk attributable to changes in interest rates, foreign currency exchange rates and fuel prices. We attempt to minimize these risks through a combination of our normal operating and financing activities and through the use of derivatives. The financial impacts of these derivative instruments are primarily offset by corresponding changes in the underlying exposures being hedged. We achieve this by closely matching the notional, term and conditions of the derivatives with the underlying risk being hedged. We do not hold or issue derivatives for trading or other speculative purposes. Derivative positions are monitored using techniques including market valuations and sensitivity analyses. 

 

Interest Rate Risk

 

As of March 31, 2017, we had interest rate swap agreements to hedge our exposure to interest rate movements and to manage our interest expense. As of March 31, 2017, 56% of our debt was fixed and 44% was variable, which includes the effects of the interest rate swaps. The notional amount of outstanding debt associated with the interest rate swap agreements as of March 31, 2017 was $282.0 million. Based on our March 31, 2017 outstanding variable rate debt balance, a one percentage point increase in annual LIBOR interest rates would increase our annual interest expense by approximately $27.4 million excluding the effects of capitalization of interest.

 

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Foreign Currency Exchange Rate Risk

 

As of March 31, 2017, we had foreign currency derivatives to hedge the exposure to volatility in foreign currency exchange rates related to our ship construction contracts denominated in euros. These derivatives hedge the foreign currency exchange rate risk on a portion of the payments on our ship construction contracts. The payments not hedged aggregate €188.5 million, or $200.8 million based on the euro/U.S. dollar exchange rate as of March 31, 2017. We estimate that a 10% change in the euro as of March 31, 2017 would result in a $20.1 million change in the U.S. dollar value of the foreign currency denominated remaining payments.

 

Fuel Price Risk

 

Our exposure to market risk for changes in fuel prices relates to the forecasted purchases of fuel on our ships. Fuel expense, as a percentage of our total cruise operating expense, was 12.3% for the three months ended March 31, 2017 and 2016. We use fuel derivative agreements to mitigate the financial impact of fluctuations in fuel prices and as of March 31, 2017, we had hedged approximately 78%, 66%, 49% and 18% of our 2017, 2018, 2019 and 2020 projected metric tons of fuel purchases, respectively. We estimate that a 10% increase in our weighted-average fuel price would increase our anticipated 2017 fuel expense by $22.3 million. This increase would be partially offset by an increase in the fair value of our fuel swap agreements of $13.4 million. Fair value of our derivative contracts is derived using valuation models that utilize the income valuation approach. These valuation models take into account the contract terms such as maturity, as well as other inputs such as fuel types, fuel curves, creditworthiness of the counterparty and the Company, as well as other data points. 

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Our management has evaluated, with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures, as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, as of March 31, 2017. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon management’s evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2017 to provide reasonable assurance that the information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission, and that it is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

 

Changes in Internal Control Over Financial Reporting

 

There have been no changes in our internal control over financial reporting during the quarter ended March 31, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Limitations on the Effectiveness of Controls

 

It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system will be met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there is only the reasonable assurance that our controls will succeed in achieving their goals under all potential future conditions.

 

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PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings

 

In the normal course of our business, various claims and lawsuits have been filed or are pending against us. Most of these claims and lawsuits are covered by insurance and, accordingly, the maximum amount of our liability is typically limited to our deductible amount.

 

Nonetheless, the ultimate outcome of these claims and lawsuits that are not covered by insurance cannot be determined at this time. We have evaluated our overall exposure with respect to all of our threatened and pending litigation and, to the extent required, we have accrued amounts for all estimable probable losses associated with our deemed exposure. We are currently unable to estimate any other potential contingent losses beyond those accrued, as discovery is not complete nor is adequate information available to estimate such range of loss or potential recovery. However, based on our current knowledge, we do not believe that the aggregate amount or range of reasonably possible losses with respect to these matters will be material to our consolidated results of operations, financial condition or cash flows. We intend to vigorously defend our legal position on all claims and, to the extent necessary, seek recovery. 

 

Item 1A. Risk Factors

 

We refer you to our 2016 Annual Report on Form 10-K for a discussion of the risk factors that affect our business and financial results. We wish to caution the reader that the risk factors discussed in “Item 1A. Risk Factors” in our 2016 Annual Report on Form 10-K, elsewhere in this report or other Securities and Exchange Commission filings, could cause future results to differ materially from those stated in any forward-looking statements.

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

Purchases of Equity Securities by the Issuer

 

On April 29, 2014, NCLH’s Board of Directors authorized, and NCLH announced, a three-year share repurchase program for up to $500.0 million. The share repurchase program was scheduled to expire on April 29, 2017, but was extended through April 29, 2020. NCLH may make repurchases in the open market, in privately negotiated transactions, in accelerated repurchase programs or in structured share repurchase programs, and any repurchases may be made pursuant to Rule 10b5-1 plans. There was no share repurchase activity during the three months ended March 31, 2017, and as of March 31, 2017, $263.5 million remained available for repurchases of our outstanding ordinary shares under the share repurchase program. 

 

Item 5. Other Information

 

None.

  

Item 6. Exhibits 

 

2.1 Agreement and Plan of Merger, dated as of September 2, 2014, by and among Prestige Cruises International, Inc., Norwegian Cruise Line Holdings Ltd., Portland Merger Sub, Inc. and Apollo Management, L.P. (incorporated herein by reference to Exhibit 2.1 to Norwegian Cruise Line Holdings Ltd.’s Form 8-K filed on September 4, 2014 (File No. 001-35784))
   
2.2 Amendment No. 1 to the Agreement and Plan of Merger, dated as of October 6, 2014, by and among Prestige Cruises International, Inc., Norwegian Cruise Line Holdings Ltd., Portland Merger Sub, Inc. and Apollo Management, L.P. (incorporated herein by reference to Exhibit 2.1 to Norwegian Cruise Line Holdings Ltd.’s Form 8-K filed on October 8, 2014 (File No. 001-35784))
   
10.1* Amendment No. 11, dated February 8, 2017, to Office Lease Agreement, dated December 1, 2006, as amended, by and between SPUS7 Miami ACC, LP and NCL (Bahamas) Ltd. +
   
10.2* Employment Agreement by and between NCL (Bahamas) Ltd. and T. Robin Lindsay, entered into on October 18, 2015#
   
10.3* Leonardo One Loan Agreement, dated April 12, 2017, by and among Leonardo One, Ltd., as borrower, the banks and financial institutions listed in Schedule 1, as lenders, Crédit Agricole Corporate and Investment Bank, BNP Paribas Fortis S.A./N.V., HSBC Bank plc, KfW IPEX-Bank GmbH and Cassa Depositi e Prestiti S.p.A., as joint mandated lead arrangers and Crédit Agricole Corporate and Investment Bank as agent and SACE agent+
   
10.4* Guarantee relating to the Leonardo One Loan Agreement, dated April 12, 2017, by and among NCL Corporation Ltd., as guarantor and Crédit Agricole Corporate and Investment Bank as security trustee+

 

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10.5* Leonardo Two Loan Agreement, dated April 12, 2017, by and among Leonardo Two, Ltd., as borrower, the banks and financial institutions listed in Schedule 1, as lenders, Crédit Agricole Corporate and Investment Bank, BNP Paribas Fortis S.A./N.V., HSBC Bank plc, KfW IPEX-Bank GmbH and Cassa Depositi e Prestiti S.p.A., as joint mandated lead arrangers and Crédit Agricole Corporate and Investment Bank as agent and SACE agent+
   
10.6* Guarantee relating to the Leonardo Two Loan Agreement, dated April 12, 2017, by and among NCL Corporation Ltd., as guarantor and Crédit Agricole Corporate and Investment Bank as security trustee+
   
10.7* Leonardo Three Loan Agreement, dated April 12, 2017, by and among Leonardo Three, Ltd., as borrower, the banks and financial institutions listed in Schedule 1, as lenders, BNP Paribas Fortis S.A./N.V., HSBC Bank plc, KfW IPEX-Bank GmbH and Cassa Depositi e Prestiti S.p.A., as joint mandated lead arrangers and BNP Paribas S.A. as agent and SACE agent+
   
10.8* Guarantee relating to the Leonardo Three Loan Agreement, dated April 12, 2017, by and among NCL Corporation Ltd., as guarantor and BNP Paribas S.A. as security trustee+
   
10.9* Leonardo Four Loan Agreement, dated April 12, 2017, by and among Leonardo Four, Ltd., as borrower, the banks and financial institutions listed in Schedule 1, as lenders, BNP Paribas Fortis S.A./N.V., HSBC Bank plc, KfW IPEX-Bank GmbH and Cassa Depositi e Prestiti S.p.A., as joint mandated lead arrangers and BNP Paribas S.A. as agent and SACE agent+
   
10.10* Guarantee relating to the Leonardo Four Loan Agreement, dated April 12, 2017, by and among NCL Corporation Ltd., as guarantor and BNP Paribas S.A. as security trustee+
   
31.1* Certification of the President and Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
   
31.2* Certification of the Executive Vice President and Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934
   
32.1** Certifications of the President and Chief Executive Officer and the Executive Vice President and Chief Financial Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934 and Section 1350 of Chapter 63 of Title 18 of the United States Code
   
101* The following unaudited financial statements are from Norwegian Cruise Line Holdings Ltd.’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2017, formatted in Extensible Business Reporting Language (XBRL), as follows:

 

  (i) the Consolidated Statements of Operations for the three months ended March 31, 2017 and 2016;
     
  (ii) the Consolidated Statements of Comprehensive Income for the three months ended March 31, 2017 and 2016;
     
  (iii) the Consolidated Balance Sheets as of March 31, 2017 and December 31, 2016;
     
  (iv) the Consolidated Statements of Cash Flows for the three months ended March 31, 2017 and 2016;
     
  (v) the Consolidated Statements of Changes in Shareholders’ Equity for the three months ended March 31, 2017 and 2016; and
     
  (vi) the Notes to the Consolidated Financial Statements, tagged in summary and detail.

 

* Filed herewith.
** Furnished herewith.
+ Confidential treatment has been requested with respect to certain portions of this exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission.
# Management contract or compensatory plan.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

NORWEGIAN CRUISE LINE HOLDINGS LTD.

(Registrant)

     
  By: /s/ FRANK J. DEL RIO 
  Name:  Frank J. Del Rio
  Title: President and Chief Executive Officer
    (Principal Executive Officer)
     
  By: /s/ WENDY A. BECK 
  Name: Wendy A. Beck
  Title: Executive Vice President and Chief Financial
    Officer
    (Principal Financial Officer)

 

Dated: May 10, 2017

 

 29

 

 

Exhibit 10.1

 

[*]: THE CONFIDENTIAL PORTION HAS BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND THE OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE COMMISSION.

  

ELEVENTH AMENDMENT TO LEASE

 

(Norwegian Cruise Line – The Landing at MIA)

 

THIS ELEVENTH AMENDMENT TO LEASE ("Amendment") is dated effective and for identification purposes as of February 8, 2017 (“Effective Date”), and is made by and between SPUS7 MIAMI ACC, LP, a Delaware limited partnership ("Landlord"), and NCL (BAHAMAS) LTD., a Bermuda company, d/b/a Norwegian Cruise Line ("Tenant").

 

RECITALS:

 

WHEREAS, Landlord’s predecessor-in-interest (Hines REIT Airport Corporate Center LLC) and Tenant entered into that certain Airport Corporate Center Office Lease Agreement dated December 1, 2006 ("Original Lease"), as amended by that certain First Amendment to Airport Corporate Center Office Lease dated November 27, 2006, Second Amendment to Airport Corporate Center Office Lease dated March 22, 2007, Third Amendment to Airport Corporate Center Office Lease dated July 31, 2007, Letter Agreement dated August 1, 2007, Fourth Amendment to Airport Corporate Center Office Lease dated December 10, 2007, Fifth Amendment to Airport Corporate Center Office Lease dated February 2, 2010, Sixth Amendment to Airport Corporate Center Office Lease dated April 1, 2012, Seventh Amendment to Airport Corporate Center Office Lease dated June 29, 2012, Eighth Amendment to Lease dated January 28, 2015 (“Eighth Amendment”), Ninth Amendment to Lease dated June 30, 2015 (“Ninth Amendment”), and Tenth Amendment to Lease dated March 31, 2016 (collectively, the "Lease"), pertaining to the premises located at 7665 Corporate Center Drive (“Building 11”), 7650 Corporate Center Drive (“Building 10”), 7245 Corporate Center Drive (“Building 3”), and 7300 Corporate Center Drive (“Building 8”), Miami, Florida;

 

WHEREAS, pursuant to the Lease, Tenant is currently leasing 306,548 rentable square feet of space (defined in the Lease as the "Total Premises") consisting of the following:

 

·7,067 rentable square feet within Building 3
·94,258 rentable square feet within Building 8
·79,417 rentable square feet within Building 10
·125,806 rentable square feet within Building 11;

 

WHEREAS, pursuant to the Lease, effective as of the Extension Commencement Date (as defined in the Lease and being February 1, 2023), the Total Premises (as re-measured pursuant to the Eighth Amendment, and reduced by the Warehouse Premises, as defined in the Lease) shall be 306,828 rentable square feet, consisting of the following:

 

·94,258 rentable square feet within Building 8
·81,470 rentable square feet within Building 10
·131,100 rentable square feet within Building 11;

 

   

 

  

WHEREAS, pursuant to the Lease, Tenant is currently entitled to the following number of parking spaces:

 

·Building 3: None

 

·Building 8: Four (4) spaces per 1,000 rentable square feet of space leased in Building 8 (which equals 377 spaces) (the "Building 8 Spaces") shall be located in the surface parking areas surrounding Building 8. Twenty percent (20%) of the Building 8 Spaces (plus the fourteen (14) additional spaces pursuant to the Ninth Amendment) for a total of eighty-nine (89) spaces shall be located in the covered portion of the Building 8 Garage (“Building 8 Garage Covered Spaces”). In addition to the foregoing 377 spaces, Tenant is entitled to ninety-five (95) spaces (based on Tenant's requirement for five (5) spaces per 1,000 rentable square feet in Building 8) (the "Relocatable Spaces") at a location within the Project as determined by Landlord, with Landlord having the right to relocate any such Relocatable Spaces upon not less than thirty (30) days’ prior written notice to Tenant, but no more often than two (2) times per year. All of the foregoing spaces are at no additional cost to Tenant.

 

·Buildings 10 and 11: Five (5) spaces per 1,000 rentable square feet of space leased in Building 10 (which equals 397 spaces) plus an additional eighteen (18) spaces pursuant to the Eighth Amendment, for a total of 415 spaces (the "Building 10 Spaces"), and five (5) spaces per 1,000 rentable square feet of space leased in Building 11 (which equals 629 spaces) (the "Building 11 Spaces") for a total of one thousand forty-four (1,044) spaces (collectively the Building 10 & 11 Spaces"), of which four hundred ten (410) spaces shall be located in either the surface parking areas or the structured parking garage adjacent to Building 10 (the "Building 10 Garage"), and the balance of which shall be located in either the surface parking areas or the structured parking garage adjacent to Building 11 (the "Building 11 Garage"). Up to twenty (20) of the Building 10 & 11 Spaces may be designated as "reserved" spaces (of which up to five (5) of such "reserved" spaces may be located in the Building 10 Garage and the balance of which shall be in the Building 11 Garage). There shall be no charge for fifteen (15) of the "reserved" spaces that Tenant elects to designate, but Tenant shall pay a monthly parking charge for any spaces in excess of fifteen (15) that Tenant elects to have designated as "reserved" spaces pursuant to Section 3.4(a) of the Original Lease; and

 

WHEREAS, Landlord and Tenant desire to enter into this Amendment to amend the parking provisions of the Lease as more fully set forth herein.

 

NOW, THEREFORE, in consideration of the foregoing and the mutual covenants contained herein, the parties agree that the Lease shall be amended in accordance with the terms and conditions set forth below.

 

1.          Definitions; Recitals. The capitalized terms used herein shall have the same definitions as set forth in the Lease, unless otherwise defined herein. The foregoing recitals are true and correct and are incorporated herein by this reference.

 

2.          Reserved Parking Space. The parties hereby acknowledge and agree that as of (and retroactive to) June 1, 2016 (the “Amendment Commencement Date”), Tenant shall be permitted to use one (1) reserved space in the visitor parking area associated with Building 8 (“Reserved Space”), as shown in Exhibit A attached hereto and incorporated herein by this reference, at no cost to Tenant.

 

 2 

 

  

3.          Building 8 Garage Reserved Covered Spaces. The parties hereby acknowledge and agree that as of the Amendment Commencement Date, Tenant shall be permitted to use six (6) spaces within the covered portion of the Building 8 Garage (“Building 8 Garage Reserved Covered Spaces”) at a cost of $[*] per space per month (“Reserved Monthly Parking Rent”). The location of the Building 8 Garage Reserved Covered Spaces are shown on Exhibit B attached to this Amendment and are provided as a replacement for six (6) of the Building 8 Garage Covered Spaces. Accordingly, as of the Amendment Commencement Date, Tenant shall be permitted to use: (i) eighty-three (83) Building 8 Garage Covered Spaces; and (ii) six (6) Building 8 Garage Reserved Covered Spaces. The Reserved Monthly Parking Rent shall be abated through December 31, 2016. Commencing on January 1, 2017, Tenant shall pay the Reserved Monthly Parking Rent to Landlord as Additional Rental. The Reserved Monthly Parking Rent is subject to change upon thirty (30) days’ prior written notice by Landlord, but in no event shall the Reserved Monthly Parking Rent be increased on more than one (1) occasion in any twelve (12) consecutive month period. Tenant shall be liable for any sales taxes on its paid parking spaces.

 

4.          Amendment to Relocatable Spaces. The parties hereby acknowledge and agree that as of the Amendment Commencement Date, Landlord will no longer have the right to relocate the Relocatable Spaces and the Relocatable Spaces shall be allocated as follows: (a) seventy (70) of the Relocatable Spaces shall be provided to Tenant for its non-exclusive use within the Building 8 Garage at a cost of $[*] per space per month, and (b) twenty-five (25) of the Relocatable Spaces shall be provided to Tenant for its non-exclusive use within the garage adjacent to the building located at 7600 Corporate Center Drive, Miami, Florida (collectively, the “Unreserved Spaces”) at a cost of $[*] per space per month (“Unreserved Monthly Parking Rent”). The Unreserved Monthly Parking Rent shall be abated through December 31, 2016. Commencing on January 1, 2017, Tenant shall pay the Unreserved Monthly Parking Rent to Landlord as Additional Rental. The Unreserved Monthly Parking Rent is subject to change upon thirty (30) days’ prior written notice by Landlord, but in no event shall the Unreserved Monthly Parking Rent be increased on more than one (1) occasion in any twelve (12) consecutive month period. Tenant shall be liable for any sales taxes on its paid parking spaces.

 

5.          Termination Option. Notwithstanding anything to the contrary contained herein, Tenant may at any time after the Effective Date, deliver written notice to Landlord terminating Tenant’s right to use any of the Unreserved Spaces, the Building 8 Garage Reserved Covered Spaces, and the Reserved Space (collectively, the “Eleventh Amendment Parking Spaces”) upon no less than fifteen (15) days prior written notice. Upon such early termination, Tenant shall have no further rights to use the Eleventh Amendment Parking Spaces so terminated for any purpose and no obligation to pay for any such terminated spaces after the date such termination takes effect.

 

6.          Counterparts; Electronic Signatures.  This Amendment may be executed in counterparts, including both counterparts that are executed on paper and counterparts that are in the form of electronic records and are executed electronically.  An electronic signature means any electronic sound, symbol or process attached to or logically associated with a record and executed and adopted by a party with the intent to sign such record, including facsimile or e-mail electronic signatures.  All executed counterparts shall constitute one agreement, and each counterpart shall be deemed an original.  The parties hereby acknowledge and agree that electronic records and electronic signatures, as well as facsimile signatures, may be used in connection with the execution of this Amendment and electronic signatures, facsimile signatures or signatures transmitted by electronic mail in so-called pdf format shall be legal and binding and shall have the same full force and effect as if a paper original of this Amendment had been delivered and had been signed using a handwritten signature.  Landlord and Tenant (i) agree that an electronic signature, whether digital or encrypted, of a party to this Amendment is intended to authenticate this writing and to have the same force and effect as a manual signature, (ii) intend to be bound by the signatures (whether original, faxed or electronic) on any document sent or delivered by facsimile or, electronic mail, or other electronic means, (iii) are aware that the other party will rely on such signatures, and (iv) hereby waive any defenses to the enforcement of the terms of this Amendment based on the foregoing forms of signature.  If this Amendment has been executed by electronic signature, all parties executing this document are expressly consenting under the Electronic Signatures in Global and National Commerce Act ("E-SIGN"), and Uniform Electronic Transactions Act ("UETA"), that a signature by fax, email or other electronic means shall constitute an Electronic Signature to an Electronic Record under both E-SIGN and UETA with respect to this specific transaction.

 

 3 

 

  

7.          Miscellaneous. With the exception of those matters set forth in this Amendment, Tenant's leasing of the Premises shall be subject to all terms, covenants and conditions of the Lease. In the event of any express conflict or inconsistency between the terms of this Amendment and the terms of the Lease, the terms of this Amendment shall control and govern. Except as expressly modified by this Amendment, all other terms and conditions of the Lease are hereby ratified and affirmed. The parties acknowledge that the Lease is a valid and enforceable agreement and that, as of the date hereof to the best of Tenant’s actual knowledge, Tenant holds no claims against Landlord or its agents which might serve as the basis of any other set-off against accruing rent and other charges or any other remedy at law or in equity.

 

IN WITNESS WHEREOF, the foregoing Eleventh Amendment to Lease is dated effective as of the date and year first written above.

 

WITNESS:   LANDLORD:
     
    SPUS7 MIAMI ACC, LP,
    a Delaware limited partnership
     
By: /s/David Witham   By: /s/Claudia Walraven
Name: David Witham   Name: Claudia Walraven
      Title: Assistant Vice President
By: /s/Desiree Ammons   Date: 2/21/17
Name: Desiree Ammons      
      By: /s/Mark Zikakis
By: /s/David Witham   Name: Mark Zikakis
Name: David Witham   Title: Vice President
      Date: 2/21/17
By: /s/Desiree Ammons      
Name:  Desiree Ammons      

 

  TENANT:
   
  NCL (BAHAMAS) LTD.,
  a Bermuda company, d/b/a Norwegian Cruise Line
   
  By: /s/Wendy Beck
  Name: Wendy Beck
  Title: Executive Vice President, Chief Financial Officer
  Date: 2/17/2017

 

 4 

 

 

CONSENT OF GUARANTOR

 

The undersigned Guarantor under the original Guaranty of Lease dated November 27, 2006 (the "Guaranty"), does hereby consent to the foregoing Amendment. Guarantor acknowledges and agrees that the Guaranty is in full force and effect and shall continue to apply to the Lease, as amended by this Amendment.

 

NCL CORPORATION LTD.,  
a Bermuda company  
     
By: /s/Wendy Beck  
Name: Wendy Beck  
Title:   Executive Vice President, Chief Financial Officer  

 

 5 

 

 

EXHIBIT A

 

 

 

 6 

 

 

EXHIBIT B

  

 

 

 7 

 

Exhibit 10.2

 

EMPLOYMENT AGREEMENT

 

THIS EMPLOYMENT AGREEMENT (this “Agreement”) is made and entered into this 18th day of October 2015, by and between NCL (Bahamas) Ltd., a company organized under the laws of Bermuda (the “Company”), and Robin T. Lindsay (the “Executive”).

 

RECITALS

 

THE PARTIES ENTER THIS AGREEMENT on the basis of the following facts, understandings and intentions:

 

A. The Company desires to offer the Executive the benefits set forth in this Agreement and provide for the services of the Executive on the terms and conditions set forth in this Agreement.

 

B. The Executive desires to be employed by the Company on the terms and conditions set forth in this Agreement.

 

C. This Agreement shall govern the employment relationship between the Executive and the Company and all of its affiliates from and after the date hereof, and supersedes and negates any previous agreements with respect to such relationship.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the above recitals incorporated herein and the mutual covenants and promises contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby expressly acknowledged, the parties agree as follows:

 

1.Retention and Duties.

 

1.1           Retention. The Company does hereby agree to employ the Executive for the Period of Employment (as such term is defined in Section 2) on the terms and conditions expressly set forth in this Agreement. The Executive does hereby accept and agree to such employment, on the terms and conditions expressly set forth in this Agreement.

 

1.2           Duties. During the Period of Employment, the Executive shall serve the Company as its Executive Vice President, Vessel Operations, and shall be appointed to such position on the first day of the Period of Employment. The Executive shall have duties and obligations generally consistent with that position as the Company may assign from time to time. The Executive shall comply with the corporate policies of the Company as they are in effect from time to time throughout the Period of Employment (including, without limitation, the Company’s Code of Ethical Business Conduct policy, as it may change from time to time). During the Period of Employment, the Executive shall report directly to the President and Chief Executive Officer of the Company, or his/her designee. During the Period of Employment, the Executive shall perform services for Norwegian Cruise Line Holdings Ltd., a company organized under the laws of Bermuda (the “Parent”), and the Parent’s other subsidiaries, but shall not be entitled to any additional compensation with respect to such services.

 

   

 

 

1.3           No Other Employment; Minimum Time Commitment. During the Period of Employment, the Executive shall (i) devote substantially all of the Executive’s business time, energy and skill to the performance of the Executive’s duties for the Company, (ii) perform such duties in a faithful, effective and efficient manner to the best of Executive’s abilities, and (iii) hold no other employment. The Executive’s service on the boards of directors (or similar body) of other business entities is subject to the approval of the Board of Directors of the Parent (the “Board”), provided that the Executive shall be permitted to serve on one board of directors (or similar bodies) during the Period of Employment, subject to the Company’s rights to require the Executive’s resignation pursuant to the following sentence. The Company shall have the right to require the Executive to resign from any board or similar body (including, without limitation, any association, corporate, civic or charitable board or similar body) which he may then serve if the Board reasonably determines that the Executive’s service on such board or body materially interferes with the effective discharge of the Executive’s duties and responsibilities or that any business related to such service is then in competition with any business of the Company or any of its Affiliates (as such term is defined in Section 5.5), successors or assigns.

 

1.4           No Breach of Contract. The Executive hereby represents to the Company that: (i) the execution and delivery of this Agreement by the Executive and the Company and the performance by the Executive of the Executive’s duties hereunder do not and shall not constitute a breach of, conflict with, or otherwise contravene or cause a default under, the terms of any other agreement or policy to which the Executive is a party or otherwise bound or any judgment, order or decree to which the Executive is subject; (ii) that the Executive has no information (including, without limitation, confidential information and trade secrets) relating to any other Person (as such term is defined in Section 5.5) which would prevent, or be violated by, the Executive entering into this Agreement or carrying out Executive’s duties hereunder; (iii) the Executive is not bound by any employment, consulting, non-compete, confidentiality, trade secret or similar agreement (other than this Agreement) with any other Person; and (iv) the Executive understands the Company will rely upon the accuracy and truth of the representations and warranties of the Executive set forth herein and the Executive consents to such reliance.

 

1.5           Location. During the Period of Employment, the Executive’s principal place of employment shall be the Company’s principal executive office as it may be located from time to time. The Executive agrees that he will be regularly present at the Company’s principal executive office. The Executive acknowledges that he will be required to travel from time to time in the course of performing Executive’s duties for the Company.

 

   

 

 

2.            Period of Employment. The “Period of Employment” shall be a period commencing on September 1, 2015 (the “Effective Date”) and ending at the close of business on the first December 31st following the third anniversary of the Effective Date (the “Termination Date”); provided, however, that this Agreement shall be automatically renewed, and the Period of Employment shall be automatically extended for one (1) additional year on the Termination Date and each anniversary of the Termination Date thereafter, unless either party gives written notice at least sixty (60) days prior to the expiration of the Period of Employment (including any renewal thereof) of such party’s desire to terminate the Period of Employment (such notice to be delivered in accordance with Section 18). The term “Period of Employment” shall include any extension thereof pursuant to the preceding sentence. Notwithstanding the foregoing, the Period of Employment is subject to earlier termination as provided below in this Agreement.

 

3.Compensation.

 

3.1           Base Salary. During the Period of Employment, the Company shall pay the Executive a base salary (the “Base Salary”), which shall be paid biweekly or in such other installments as shall be consistent with the Company’s regular payroll practices in effect from time to time. The Executive’s Base Salary shall be at an annualized rate of Six Hundred thousand dollars ($600,000.00). The Compensation Committee of the Board (the “Compensation Committee”) will review the Executive’s rate of Base Salary on an annual basis and may, in its sole discretion, increase (but not decrease) the rate then in effect.

 

3.2           Incentive Bonus. Beginning with the 2015 fiscal year, the Executive shall be eligible to receive an incentive bonus for each fiscal year of the Company that occurs during the Period of Employment (“Incentive Bonus”); provided that, except as provided in Section 5.3, the Executive must be employed by the Company at the time the Company pays the Incentive Bonus with respect to any such fiscal year in order to be eligible for an Incentive Bonus with respect to that fiscal year (and, if the Executive is not so employed at such time, in no event shall he have been considered to have “earned” any Incentive Bonus with respect to the fiscal year in question). The Executive’s actual Incentive Bonus amount for a particular fiscal year shall be determined by the Compensation Committee in its sole discretion, based on performance objectives (which may include corporate, business unit or division, financial, strategic, individual or other objectives) established with respect to that particular fiscal year by the Compensation Committee. Any Incentive Bonus becoming payable for a particular fiscal year shall be paid in the following fiscal year following the close of the audit and generally by March 31.

 

3.3           Equity Award. The Executive shall be eligible to participate in the Parent’s 2013 Performance Incentive Plan (together with any successor equity incentive plan, the “Parent Equity Plan”) and to receive grants of equity awards under the Parent Equity Plan as may be approved from time to time by the Compensation Committee in its sole discretion.

 

   

 

 

4.Benefits.

 

4.1           Retirement, Welfare and Fringe Benefits. During the Period of Employment, the Executive shall be entitled to participate, on a basis generally consistent with other similarly situated executives, in all employee pension and welfare benefit plans and programs, all fringe benefit plans and programs and all other benefit plans and programs (including those providing for perquisites or similar benefits) that are made available by the Company to the Company’s other similarly situated executives generally, in accordance with the eligibility and participation provisions of such plans and as such plans or programs may be in effect from time to time. The Executive’s participation in the foregoing plans and programs is subject to the eligibility and participation provisions of such plans, and the Company’s right to amend or terminate such plans from time to time in accordance with their terms.

 

4.2           Medical Executive Reimbursement Plan. During the Period of Employment, the Company will provide the Executive, and the Executive’s spouse and dependent children, with a Medical Executive Reimbursement Plan (the “MERP”), subject to the terms and conditions of such plan.

 

4.3           Company Automobile. During the Period of Employment, the Company shall provide the Executive with a monthly cash car allowance of up to One thousand Two hundred dollars ($1,200.00) per month, in accordance with the Company’s policy as in effect from time to time.

 

4.4           Reimbursement of Business Expenses. The Executive is authorized to incur reasonable expenses in carrying out the Executive’s duties for the Company under this Agreement and shall be entitled to reimbursement for all reasonable business expenses the Executive incurs during the Period of Employment in connection with carrying out the Executive’s duties for the Company, subject to the Company’s expense reimbursement policies and any pre-approval policies in effect from time to time.

 

4.5           Vacation and Other Leave. During the Period of Employment, the Executive’s annual rate of vacation accrual shall be five (5) weeks per year; provided that such vacation shall accrue on a bi-weekly basis in accordance with the Company’s regular payroll cycle and be subject to the Company’s vacation policies in effect from time to time. The Executive shall also be entitled to all other holiday and leave pay generally available to other similarly situated executives of the Company.

 

5.Termination.

 

5.1           Termination by the Company. The Executive’s employment by the Company, and the Period of Employment, may be terminated at any time by the Company: (i) with Cause (as such term is defined in Section 5.5), or (ii) without Cause, or (iii) in the event of the Executive’s death, or (iv) in the event that the Board determines in good faith that the Executive has a Disability (as such term is defined in Section 5.5).

 

   

 

 

5.2           Termination by the Executive. The Executive’s employment by the Company, and the Period of Employment, may be terminated by the Executive with or without Good Reason (as such term is defined in Section 5.5) upon written notice to the Company (such notice to be delivered in accordance with Section 18).

 

5.3           Benefits Upon Termination. If the Executive’s employment by the Company is terminated during the Period of Employment for any reason by the Company or by the Executive, or upon or following the expiration of the Period of Employment (in any case, the date that the Executive’s employment by the Company terminates is referred to as the “Severance Date”), the Company shall have no further obligation to make or provide to the Executive, and the Executive shall have no further right to receive or obtain from the Company, any payments or benefits except as follows:

 

(a)The Company shall pay the Executive (or, in the event of Executive’s death, the Executive’s estate) any Accrued Obligations (as such term is defined in Section 5.5);

 

(b)Unless the provisions of Section 5.3(c) below apply, if, during the Period of Employment, the Executive’s employment with the Company is terminated (1) by the Company without Cause (and other than due to the Executive’s death or in connection with a good faith determination by the Board that the Executive has a Disability), (2) by the Executive for Good Reason, or (3) as a result of the Company’s provision of notice to the Executive that this Agreement shall not be extended or further extended, the Executive shall be entitled to the following benefits:

 

(i)The Company shall pay the Executive (in addition to the Accrued Obligations), subject to tax withholding and other authorized deductions, an amount equal to two times Executive’s Base Salary at the annualized rate in effect on the Severance Date. Such amount is referred to hereinafter as the “Severance Benefit.” Subject to Section 5.7(a), the Company shall pay the Severance Benefit to the Executive in substantially equal installments in accordance with the Company’s standard payroll practices over a period of twelve (12) consecutive months, with the first installment payable in the month following the month in which the Executive’s Separation from Service (as such term is defined in Section 5.5) occurs. (For purposes of clarity, each such installment shall equal the applicable fraction of the aggregate Severance Benefit.)

 

   

 

 

(ii)Subject to the Executive’s continued payment of the same percentage of the applicable premiums as he was paying on the Severance Date, the Company will pay or reimburse the Executive for Executive’s premiums charged to continue medical and dental coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act (“COBRA”), and the Executive shall also be entitled to continued participation in the MERP, at the same or reasonably equivalent medical coverage for the Executive (and, if applicable, the Executive’s eligible dependents) as in effect immediately prior to the Severance Date, to the extent that the Executive elects such continued coverage (the “COBRA Benefit”); provided that the Company’s obligation to make any payment or reimbursement pursuant to this clause (ii) shall, subject to Section 5.7(a), commence with continuation coverage for the month following the month in which the Executive’s Separation from Service occurs and shall cease with continuation coverage for the eighteenth month following the month in which the Executive’s Separation from Service occurs (or, if earlier, shall cease upon the first to occur of the Executive’s death, the date the Executive becomes eligible for coverage under the health plan of a future employer, or the date the Company ceases to offer group medical coverage or the MERP to its active executive employees or the Company is otherwise under no obligation to offer COBRA continuation coverage to the Executive). To the extent the Executive elects COBRA coverage, he shall notify the Company in writing of such election prior to such coverage taking effect and complete any other continuation coverage enrollment procedures the Company may then have in place.

 

(iii)The Company shall pay the Executive, subject to tax withholding and other authorized deductions, a pro-rata portion of the Incentive Bonus for the fiscal year in which the Executive’s employment terminates (the “Pro-Rata Bonus”). The Pro-Rata Bonus shall equal the Incentive Bonus for the fiscal year of termination multiplied by a fraction, the numerator of which is the number of days in the current fiscal year through the Severance Date and the denominator is 365. Any Pro-Rata Bonus that becomes payable will be paid if and when the Incentive Bonus for active employees is paid (following the completion of the audit in the following calendar year).

 

(c)If, during the Period of Employment and within three months prior to a Change in Control or twenty-four months following a Change in Control, the Executive’s employment with the Company is terminated (1) by the Company without Cause (and other than due to the Executive’s death or in connection with a good faith determination by the Board that the Executive has a Disability), or (2) by the Executive for Good Reason, or (3) as a result of the Company’s provision of notice to the Executive that this Agreement shall not be extended or further extended, the Executive shall be entitled to the following benefits in lieu of the benefits described under Section 5.3(b):

 

   

 

 

(i)The Company shall pay the Executive (in addition to the Accrued Obligations), subject to tax withholding and other authorized deductions, an amount equal to two times Executive’s Base Salary at the annualized rate in effect on the Severance Date. Such amount is referred to hereinafter as the “Change in Control Severance Benefit.” Subject to Section 5.7(a), the Company shall pay the Change in Control Severance Benefit to the Executive in substantially equal installments in accordance with the Company’s standard payroll practices over a period of twelve (12) consecutive months, with the first installment payable in the month following the month in which the Executive’s Separation from Service (as such term is defined in Section 5.5) occurs. (For purposes of clarity, each such installment shall equal the applicable fraction of the aggregate Change in Control Severance Benefit.)

 

(ii)The Company shall provide the COBRA Benefit described in Section 5.3(b)(ii) above on the terms and conditions specified in that section until the eighteenth month following the month in which the Executive’s Separation from Service occurs.

 

(iii)The Company shall pay the Executive, subject to tax withholding and other authorized deductions, the Pro-Rata Bonus, as described in Section 5.3(b)(iii) above.

 

(iv)At the Severance Date, all then outstanding and unvested equity awards granted under the Parent Equity Plan or any predecessor equity incentive plan shall receive full accelerated vesting.

 

(d)Notwithstanding the foregoing provisions of this Section 5.3, if the Executive breaches Executive’s obligations under Section 6 of this Agreement at any time, from and after the date of such breach and not in any way in limitation of any right or remedy otherwise available to the Company, the Executive will no longer be entitled to, and the Company will no longer be obligated to pay, any remaining unpaid portion of the Severance Benefit or Change in Control Severance Benefit, the Pro-Rata Bonus, or the COBRA Benefit; provided that, if the Executive provides the release contemplated by Section 5.4, in no event shall the Executive be entitled to a Severance Benefit or Change in Control Severance Benefit payment of less than $5,000, which amount the parties agree is good and adequate consideration, in and of itself, for the Executive’s release contemplated by Section 5.4.

 

   

 

 

(e)The foregoing provisions of this Section 5.3 shall not affect: (i) the Executive’s receipt of benefits otherwise due terminated employees under group insurance coverage consistent with the terms of the applicable Company welfare benefit plan; or (ii) the Executive’s rights under COBRA to continue participation in medical, dental, hospitalization and life insurance coverage.

 

5.4Release; Exclusive Remedy.

 

(a)This Section 5.4 shall apply notwithstanding anything else contained in this Agreement or any stock option or other equity-based award agreement to the contrary. As a condition precedent to any Company obligation to the Executive pursuant to Sections 5.3(b) or (c), the Executive shall, upon or promptly following his or her last day of employment with the Company (and in any event within twenty-one (21) days following the Executive’s last day of employment), execute a general release agreement in substantially the form of Exhibit A (with such amendments that may be necessary to ensure the release is enforceable to the fullest extent permissible under then applicable law), and such release agreement shall have not been revoked by the Executive pursuant to any revocation rights afforded by applicable law.

 

(b)The Executive agrees that the payments and benefits contemplated by Section 5.3 (and any applicable acceleration of vesting of an equity-based award in accordance with the terms of such award in connection with the termination of the Executive’s employment) shall constitute the exclusive and sole remedy for any termination of Executive’s employment and the Executive covenants not to assert or pursue any other remedies, at law or in equity, with respect to any termination of employment. The Company and the Executive acknowledge and agree that there is no duty of the Executive to mitigate damages under this Agreement. All amounts paid to the Executive pursuant to Section 5.3 shall be paid without regard to whether the Executive has taken or takes actions to mitigate damages. The Executive agrees to resign, on the Severance Date, as an officer and director of the Company and any Affiliate of the Company, and as a fiduciary of any benefit plan of the Company or any Affiliate of the Company, and to promptly execute and provide to the Company any further documentation, as requested by the Company, to confirm such resignation.

 

5.5Certain Defined Terms.

 

(a)As used herein, “Accrued Obligations” means:

 

(i)any Base Salary that had accrued but had not been paid on or before the Severance Date (including accrued and unpaid vacation time to the extent that the Executive is entitled to accrued vacation in accordance with the Company’s policy in effect at the applicable time); and (ii) any reimbursement due to the Executive pursuant to Section 4.4 for expenses reasonably incurred by the Executive on or before the Severance Date and documented and pre-approved, to the extent applicable, in accordance with the Company’s expense reimbursement policies in effect at the applicable time.

 

   

 

 

(b)As used herein, “Affiliate” of the Company means a Person that directly or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the Company. As used in this definition, the term “control,” including the correlative terms “controlling,” “controlled by” and “under common control with,” means the possession, directly or indirectly, of the power to direct or cause the direction of management or policies (whether through ownership of securities or any partnership or other ownership interest, by contract or otherwise) of a Person. For purposes of clarity and without limiting the generality of the foregoing, the term “Affiliate” includes any Person that meets the definition of “Affiliate” and is, directly or indirectly through any other Person, engaged in the Business (as such term is defined in Section 6.2) if that Person is controlled by Apollo Global Management, LLC or any of its affiliated funds or Genting HK and its affiliates. However, any Person that would not otherwise be an Affiliate of the Company but for its ownership by Apollo Global Management, LLC or its affiliated funds shall not be considered an Affiliate if such Person is not, directly or indirectly through any other Person, engaged in the Business (as such term is defined in Section 6.2).

 

(c)As used herein, “Cause” shall mean, as reasonably determined by the Chief Executive Officer based on the information then known to him, that one or more of the following has occurred:

 

(i)the Executive has committed a felony (under the laws of the United States or any relevant state, or a similar crime or offense under the applicable laws of any relevant foreign jurisdiction), other than through vicarious liability not related to the Company or any of its Affiliates;

 

(ii)the Executive has engaged in acts of fraud, dishonesty or other acts of willful misconduct;

 

(iii)the Executive willfully fails to perform or uphold Executive’s duties under this Agreement and/or willfully fails to comply with reasonable directives of the Board and/or Chief Executive Officer, in either case after there has been delivered to the Executive a written demand for performance from the Company and the Executive fails to remedy such condition(s) within ten (10) days of receiving such written notice thereof; or

 

   

 

 

(iv)any breach by the Executive of the provisions of Section 6, or any material breach by the Executive of any other contract he is a party to with the Company or any of its Affiliates.

 

(d)As used herein, “Change in Control” shall mean the following:

 

(i)The consummation by the Parent of a merger, consolidation, reorganization, or business combination, other than a transaction:

 

(A)Which results in the Parent’s voting securities outstanding immediately before the transaction continuing to represent (either by remaining outstanding or by being converted into voting securities of the Parent or the Person that, as a result of the transaction, controls, directly or indirectly, the Parent or owns, directly or indirectly, all or substantially all of the Parent’s assets or otherwise succeeds to the business of the Parent (the Parent or such person, the “Successor Entity”)) directly or indirectly, at least a majority of the combined voting power of the Successor Entity’s outstanding voting securities immediately after the transaction, and;

 

(B)After which no person or group (as such terms are used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) beneficially owns (within the meaning of Rule 13d-3 under the Exchange Act) voting securities representing 50% or more of the combined voting power of the Successor Entity; provided, however, that no person or group shall be treated for purposes of this Section 5.5(d)(i)(B) as beneficially owning 50% or more of combined voting power of the Successor Entity solely as a result of the voting power held in the Parent prior to the consummation of the transaction; or

 

(ii)A sale or other disposition of all or substantially all of the Parent’s assets in any single transaction or series of related transactions; or

 

(iii)A transaction or series of transactions (other than an offering of stock to the general public through a registration statement filed with the Securities and Exchange Commission) whereby any person or group (as such terms are used in Sections 13(d) and 14(d)(2) of the Exchange Act) (other than the Parent, any of its subsidiaries, an employee benefit plan maintained by the Parent or any of its subsidiaries or a person or group that, prior to such transaction, directly or indirectly controls, is controlled by, or is under common control with, the Parent) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) of securities of the Parent and immediately after such acquisition possesses more than 50% of the total combined voting power of the Parent’s securities outstanding immediately after such acquisition; or

 

   

 

 

(iv)Individuals who, on the Effective Date, constitute the Board together with any new director(s) whose election by the Board was not in connection with an actual or threatened proxy contest, cease for any reason to constitute a majority thereof.

 

(e)As used herein, “Disability” shall mean a physical or mental impairment which, as reasonably determined by the Board, renders the Executive unable to perform the essential functions of Executive’s employment with the Company, even with reasonable accommodation that does not impose an undue hardship on the Company, for more than 90 days in any 180-day period, unless a longer period is required by federal or state law, in which case that longer period would apply.

 

(f)As used herein, “Good Reason” shall mean that the Executive has complied with the "Good Reason Process" following the occurrence of any of the following events (referred to individually as a "Good Reason Event" and collectively as "Good Reason Events"): (A) any substantial adverse change, not consented to by the Executive in a writing signed by the Executive, in the nature or scope of the Executive's responsibilities, authorities, powers, functions, or duties; (B) an involuntary reduction in the Executive's Base Salary; (C) a breach by the Company of any of its material obligations under this Agreement; or (D) the requirement that the Executive be relocated from the Company's primary offices at which the Executive is principally employed to a location more than sixty (60) miles from the Company's current principal offices, or the requirement by the Company for the Executive to be based anywhere other than the Company's principal offices at such current location (or more than sixty (60) miles therefrom) on an extended basis, except for required travel on the Company’s business to an extent substantially consistent with the Executive's current business travel obligations.

 

(g)As used herein, "Good Reason Process" shall mean that (i) the Executive reasonably determines in good faith that a Good Reason Event has occurred; (ii) the Executive notifies the Company in writing (such notice to be delivered in accordance with Section 18) of the occurrence of the Good Reason Event within 10 days thereof and the Executive’s intent to terminate employment as a result thereof; and (iii) one or more of the Good Reason Events continues to exist for a period of more than thirty (30) days following such notice and has not been modified or cured in a manner acceptable to the Executive, in which case the Executive’s employment shall automatically terminate on the thirty-first (31st) day after the date such notice is given.

 

   

 

 

(h)As used herein, the term “Person” shall be construed broadly and shall include, without limitation, an individual, a partnership, a limited liability company, a corporation, an association, a joint stock company, a trust, a joint venture, an unincorporated organization and a governmental entity or any department, agency or political subdivision thereof.

 

(i)As used herein, a “Separation from Service” occurs when the Executive dies, retires, or otherwise has a termination of employment with the Company that constitutes a “separation from service” within the meaning of Treasury Regulation Section 1.409A-1(h)(1), without regard to the optional alternative definitions available thereunder.

 

5.6           Notice of Termination. Any termination of the Executive’s employment under this Agreement shall be communicated by written notice of termination from the terminating party to the other party. This notice of termination must be delivered in accordance with Section 18 and must indicate the specific provision(s) of this Agreement relied upon in effecting the termination and the basis of any termination by the Company for Cause or by the Executive for Good Reason.

 

5.7Section 409A.

 

(a)If the Executive is a “specified employee” within the meaning of Treasury Regulation Section 1.409A-1(i) as of the date of the Executive’s Separation from Service, the Executive shall not be entitled to any payment or benefit pursuant to Sections 5.3(b) or (c) until the earlier of (i) the date which is six (6) months after Executive’s Separation from Service for any reason other than death, or (ii) the date of the Executive’s death. The provisions of this paragraph shall only apply if, and to the extent, required to avoid the imputation of any tax, penalty or interest pursuant to Section 409A of the Code. For purposes of clarity, the six (6) month delay shall not apply in the case of any short-term deferral as contemplated by Treasury Regulation Section 1.409A-1(b)(4) or severance pay contemplated by Treasury Regulation Section 1.409A-1(b)(9)(iii) to the extent of the limits set forth therein. Any amounts otherwise payable to the Executive upon or in the six (6) month period following the Executive’s Separation from Service that are not so paid by reason of this Section 5.7(a) shall be paid (without interest) as soon as practicable (and in all events within thirty (30) days) after the date that is six (6) months after the Executive’s Separation from Service (or, if earlier, as soon as practicable, and in all events within thirty (30) days, after the date of the Executive’s death).

 

   

 

 

(b)To the extent that any benefits pursuant to Sections 5.3(b)(ii) or (c)(ii) or reimbursements pursuant to Section 4 are taxable to the Executive, any reimbursement payment due to the Executive pursuant to any such provision shall be paid to the Executive on or before the last day of the Executive’s taxable year following the taxable year in which the related expense was incurred. The benefits and reimbursements pursuant to Sections 5.3(b)(ii) and (c)(ii) and Section 4 are not subject to liquidation or exchange for another benefit and the amount of such benefits and reimbursements that the Executive receives in one taxable year shall not affect the amount of such benefits or reimbursements that the Executive receives in any other taxable year.

 

(c)Any installment payments provided for in this Agreement shall be treated as separate payments for purposes of Section 409A of the Code. To the extent required to avoid the imputation of any tax, penalty or interest pursuant to Section 409A of the Code, the definition of Change in Control will be interpreted to mean a change in the ownership, effective control or ownership of a substantial portion of assets of Parent within the meaning of Section 409A of the Code. This Agreement is intended to comply with the requirements of Section 409A of the Code and shall be interpreted consistent with this intent so as to avoid the imputation of any tax, penalty or interest pursuant to Section 409A of the Code.

 

5.8           Possible Limitation of Benefits in Connection with a Change in Control. Notwithstanding anything contained in this Agreement to the contrary, if following a change in ownership or effective control or in the ownership of a substantial portion of assets (in each case, within the meaning of Section 280G of the Code), the tax imposed by Section 4999 of the Code or any similar or successor tax (the “Excise Tax”) applies to any payments, benefits and/or amounts received by the Executive pursuant to this Agreement or otherwise, including, without limitation, any acceleration of the vesting of outstanding stock options or other equity awards (collectively, the “Total Payments”), then the Total Payments shall be reduced (but not below zero) so that the maximum amount of the Total Payments (after reduction) shall be one dollar ($1.00) less than the amount which would cause the Total Payments to be subject to the Excise Tax; provided that such reduction to the Total Payments shall be made only if the total after-tax benefit to the Executive is greater after giving effect to such reduction than if no such reduction had been made. If such a reduction is required, the Company shall reduce or eliminate the Total Payments by first reducing or eliminating any cash payments under this Agreement, then by reducing or eliminating any accelerated vesting of stock options, then by reducing or eliminating any accelerated vesting of other equity awards, then by reducing or eliminating any other remaining Total Payments, in each case in reverse order beginning with the payments which are to be paid the farthest in time from the date of the transaction triggering the Excise Tax. The provisions of this Section 5.8 shall take precedence over the provisions of any other plan, arrangement or agreement governing the Executive’s rights and entitlements to any benefits or compensation.

 

   

 

 

6.Protective Covenants.

 

6.1Confidential Information; Inventions.

 

(a)The Executive shall not disclose or use at any time, either during the Period of Employment or thereafter, any Confidential Information (as defined below) of which the Executive is or becomes aware, whether or not such information is developed by Executive, except to the extent that such disclosure or use is directly related to and required by the Executive’s performance in good faith of duties for the Company. The Executive will take all appropriate steps to safeguard Confidential Information in Executive’s possession and to protect it against disclosure, misuse, espionage, loss and theft. The Executive shall deliver to the Company at the termination of the Period of Employment, or at any time the Company may request, all memoranda, notes, plans, records, reports, computer tapes and software and other documents and data (and copies thereof) relating to the Confidential Information or the Work Product (as hereinafter defined) of the business of the Company or any of its Affiliates which the Executive may then possess or have under Executive’s control. Notwithstanding the foregoing, the Executive may truthfully respond to a lawful and valid subpoena or other legal process, but shall give the Company the earliest possible notice thereof, shall, as much in advance of the return date as possible, make available to the Company and its counsel the documents and other information sought, and shall assist the Company and such counsel in resisting or otherwise responding to such process. Nothing in this Agreement prohibits Executive from reporting possible violations of federal law or regulation to any governmental agency or entity, or making other disclosures that are protected under the whistleblower provisions of federal law or regulation. Executive does not need the prior authorization to make any such reports or disclosures and is not required to notify the Employer of such reports or disclosures.

 

(b)As used in this Agreement, the term “Confidential Information” means information that is not generally known to the public and that is used, developed or obtained by the Company or its Affiliates in connection with their businesses, including, but not limited to, information, observations and data obtained by the Executive while employed by the Company or any predecessors thereof (including those obtained prior to the Effective Date) concerning (i) the business or affairs of the Company (or such predecessors), (ii) products or services, (iii) fees, costs and pricing structures, (iv) designs, (v) analyses, (vi) drawings, photographs and reports, (vii) computer software, including operating systems, applications and program listings, (viii) flow charts, manuals and documentation, (ix) data bases, (x) accounting and business methods, (xi) inventions, devices, new developments, methods and processes, whether patentable or unpatentable and whether or not reduced to practice, (xii) customers and clients and customer or client lists, (xiii) other copyrightable works, (xiv) all production methods, processes, technology and trade secrets, and (xv) all similar and related information in whatever form. Confidential Information will not include any information that has been published (other than a disclosure by the Executive in breach of this Agreement) in a form generally available to the public prior to the date the Executive proposes to disclose or use such information. Confidential Information will not be deemed to have been published merely because individual portions of the information have been separately published, but only if all material features comprising such information have been published in combination.

 

   

 

 

(c)As used in this Agreement, the term “Work Product” means all inventions, innovations, improvements, technical information, systems, software developments, methods, designs, analyses, drawings, reports, service marks, trademarks, trade names, logos and all similar or related information (whether patentable or unpatentable, copyrightable, registerable as a trademark, reduced to writing, or otherwise) which relates to the Company’s or any of its Affiliates’ actual or anticipated business, research and development or existing or future products or services and which are conceived, developed or made by the Executive (whether or not during usual business hours, whether or not by the use of the facilities of the Company or any of its Affiliates, and whether or not alone or in conjunction with any other person) while employed by the Company (including those conceived, developed or made prior to the Effective Date) together with all patent applications, letters patent, trademark, trade name and service mark applications or registrations, copyrights and reissues thereof that may be granted for or upon any of the foregoing. All Work Product that the Executive may have discovered, invented or originated during Executive’s employment by the Company or any of its Affiliates prior to the Effective Date or that she may discover, invent or originate during the Period of Employment or at any time prior to the Severance Date, shall be the exclusive property of the Company and its Affiliates, as applicable, and Executive hereby assigns all of Executive’s right, title and interest in and to such Work Product to the Company or its applicable Affiliate, including all intellectual property rights therein. Executive shall promptly disclose all Work Product to the Company, shall execute at the request of the Company any assignments or other documents the Company may deem necessary to protect or perfect its (or any of its Affiliates’, as applicable) rights therein, and shall assist the Company, at the Company’s expense, in obtaining, defending and enforcing the Company’s (or any of its Affiliates’, as applicable) rights therein. The Executive hereby appoints the Company as Executive’s attorney-in-fact to execute on Executive’s behalf any assignments or other documents deemed necessary by the Company to protect or perfect the Company’s (and any of its Affiliates’, as applicable) rights to any Work Product.

 

   

 

 

6.2           Restriction on Competition. The Executive acknowledges that, in the course of Executive’s employment with the Company and/or its Affiliates , he has become familiar, or will become familiar, with the Company’s and its Affiliates’ and their predecessors’ trade secrets and with other Confidential Information concerning the Company, its Affiliates and their respective predecessors and that Executive’s services have been and will be of special, unique and extraordinary value to the Company and its Affiliates. The Executive agrees that if the Executive were to become employed by, or substantially involved in, the business of a competitor of the Company or any of its Affiliates following the Severance Date, it would be very difficult for the Executive not to rely on or use the Company’s and its Affiliates’ trade secrets and Confidential Information. Thus, to avoid the inevitable disclosure of the Company’s and its Affiliates’ trade secrets and Confidential Information, and to protect such trade secrets and Confidential Information and the Company’s and its Affiliates’ relationships and goodwill with customers, during the Period of Employment and for a period of twenty-four months after the Severance Date, the Executive will not directly or indirectly through any other Person engage in, enter the employ of, render any services to, have any ownership interest in, nor participate in the financing, operation, management or control of, any Competing Business. For purposes of this Agreement, the phrase “directly or indirectly through any other Person engage in” shall include, without limitation, any direct or indirect ownership or profit participation interest in such enterprise, whether as an owner, stockholder, member, partner, joint venturer or otherwise, and shall include any direct or indirect participation in such enterprise as an employee, consultant, director, officer, licensor of technology or otherwise. For purposes of this Agreement, “Competing Business” means a Person anywhere in the continental United States and elsewhere in the world where the Company and its Affiliates engage in business, or reasonably anticipate engaging in business, on the Severance Date (the “Restricted Area”) that at any time during the Period of Employment has competed, or at any time during the twelve month period following the Severance Date competes, with the Company or any of its Affiliates in the passenger cruise ship industry (the “Business”). Nothing herein shall prohibit the Executive from being a passive owner of not more than 2% of the outstanding stock of any class of a corporation which is publicly traded, so long as the Executive has no active participation in the business of such corporation. Notwithstanding the foregoing, the Executive and the Company may agree that the Company shall waive all or a portion of the non-competition restrictions provided for in this Section 6.2 in exchange for the Executive’s agreement to forfeit all or a portion of the Severance Benefit payable under Section 5.3(b) or the Change in Control Severance Benefit payable under Section 5.3(c). Any such agreement between the Executive and the Company shall be documented in the general release agreement provided for in Section 5.4 or in such other written agreement between the Executive and the Company determined by the Company.

 

6.3           Non-Solicitation of Employees and Consultants. During the Period of Employment and for a period of twenty-four months after the Severance Date, the Executive will not directly or indirectly through any other Person (i) induce or attempt to induce any employee or independent contractor of the Company or any Affiliate of the Company to leave the employ or service, as applicable, of the Company or such Affiliate, or in any way interfere with the relationship between the Company or any such Affiliate, on the one hand, and any employee or independent contractor thereof, on the other hand, or (ii) hire any person who was an employee of the Company or any Affiliate of the Company until twelve months after such individual’s employment relationship with the Company or such Affiliate has been terminated.

 

   

 

 

6.4           Non-Solicitation of Customers. During the Period of Employment and for a period of twenty-four months after the Severance Date, the Executive will not directly or indirectly through any other Person influence or attempt to influence customers, vendors, suppliers, licensors, lessors, joint venturers, associates, consultants, agents, or partners of the Company or any Affiliate of the Company to divert their business away from the Company or such Affiliate, and the Executive will not otherwise interfere with, disrupt or attempt to disrupt the business relationships, contractual or otherwise, between the Company or any Affiliate of the Company, on the one hand, and any of its or their customers, suppliers, vendors, lessors, licensors, joint venturers, associates, officers, employees, consultants, managers, partners, members or investors, on the other hand.

 

6.5           Understanding of Covenants. The Executive represents that he (i) is familiar with and has carefully considered the foregoing covenants set forth in this Section 6 (together, the “Restrictive Covenants”), (ii) is fully aware of Executive’s obligations hereunder, (iii) agrees to the reasonableness of the length of time, scope and geographic coverage, as applicable, of the Restrictive Covenants, (iv) agrees that the Company and its Affiliates currently conduct business throughout the continental United States and the rest of the world, (v) agrees that the Restrictive Covenants are necessary to protect the Company’s and its Affiliates’ confidential and proprietary information, good will, stable workforce, and customer relations, and (vi) agrees that the Restrictive Covenants will continue in effect for the applicable periods set forth above in this Section 6 regardless of whether the Executive is then entitled to receive severance pay or benefits from the Company. The Executive understands that the Restrictive Covenants may limit Executive’s ability to earn a livelihood in a business similar to the Business of the Company and any of its Affiliates, but he nevertheless believes that he has received and will receive sufficient consideration and other benefits as an employee of the Company and as otherwise provided hereunder or as described in the recitals hereto to clearly justify such restrictions which, in any event (given Executive’s education, skills and ability), the Executive does not believe would prevent Executive from otherwise earning a living. The Executive agrees that the Restrictive Covenants do not confer a benefit upon the Company disproportionate to the detriment of the Executive.

 

   

 

 

6.6           Enforcement. The Executive agrees that the Executive’s services are unique and that he has access to Confidential Information and Work Product. Accordingly, without limiting the generality of Section 17, the Executive agrees that a breach by the Executive of any of the covenants in this Section 6 would cause immediate and irreparable harm to the Company that would be difficult or impossible to measure, and that damages to the Company for any such injury would therefore be an inadequate remedy for any such breach. Therefore, the Executive agrees that in the event of any breach or threatened breach of any provision of this Section 6, the Company shall be entitled, in addition to and without limitation upon all other remedies the Company may have under this Agreement, at law or otherwise, to obtain specific performance, injunctive relief and/or other appropriate relief (without posting any bond or deposit) in order to enforce or prevent any violations of the provisions of this Section 6. The Executive further agrees that the applicable period of time any Restrictive Covenant is in effect following the Severance Date, as determined pursuant to the foregoing provisions of this Section 6, shall be extended by the same amount of time that Executive is in breach of any Restrictive Covenant.

 

7.            Withholding Taxes. Notwithstanding anything else herein to the contrary, the Company may withhold (or cause there to be withheld, as the case may be) from any amounts otherwise due or payable under or pursuant to this Agreement such federal, state and local income, employment, or other taxes as may be required to be withheld pursuant to any applicable law or regulation.

 

8.Successors and Assigns.

 

(a)This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive’s legal representatives.

 

(b)This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. Without limiting the generality of the preceding sentence, the Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, “Company” shall mean the Company as hereinbefore defined and any successor or assignee, as applicable, which assumes and agrees to perform this Agreement by operation of law or otherwise.

 

9.            Number and Gender; Examples. Where the context requires, the singular shall include the plural, the plural shall include the singular, and any gender shall include all other genders. Where specific language is used to clarify by example a general statement contained herein, such specific language shall not be deemed to modify, limit or restrict in any manner the construction of the general statement to which it relates.

 

10.         Section Headings. The section headings of, and titles of paragraphs and subparagraphs contained in, this Agreement are for the purpose of convenience only, and they neither form a part of this Agreement nor are they to be used in the construction or interpretation thereof.

 

   

 

 

11.         Governing Law. THIS AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF FLORIDA, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICTING PROVISION OR RULE (WHETHER OF THE STATE OF FLORIDA OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF FLORIDA TO BE APPLIED. IN FURTHERANCE OF THE FOREGOING, THE INTERNAL LAW OF THE STATE OF FLORIDA WILL CONTROL THE INTERPRETATION AND CONSTRUCTION OF THIS AGREEMENT, EVEN IF UNDER SUCH JURISDICTION’S CHOICE OF LAW OR CONFLICT OF LAW ANALYSIS, THE SUBSTANTIVE LAW OF SOME OTHER JURISDICTION WOULD ORDINARILY APPLY.

 

12.         Severability. It is the desire and intent of the parties hereto that the provisions of this Agreement be enforced to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, if any particular provision of this Agreement shall be adjudicated by a court of competent jurisdiction to be invalid, prohibited or unenforceable under any present or future law, and if the rights and obligations of any party under this Agreement will not be materially and adversely affected thereby, such provision, as to such jurisdiction, shall be ineffective, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction, and to this end the provisions of this Agreement are declared to be severable; furthermore, in lieu of such invalid or unenforceable provision there will be added automatically as a part of this Agreement, a legal, valid and enforceable provision as similar in terms to such invalid or unenforceable provision as may be possible. Notwithstanding the foregoing, if such provision could be more narrowly drawn (as to geographic scope, period of duration or otherwise) so as not to be invalid, prohibited or unenforceable in such jurisdiction, it shall, as to such jurisdiction, be so narrowly drawn, without invalidating the remaining provisions of this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction.

 

13.         Entire Agreement; Legal Effect. This Agreement embodies the entire agreement of the parties hereto respecting the matters within its scope. This Agreement supersedes all prior and contemporaneous agreements of the parties hereto that directly or indirectly bear upon the subject matter hereof. Any prior negotiations, correspondence, agreements, proposals or understandings relating to the subject matter hereof shall be deemed to have been merged into this Agreement, and to the extent inconsistent herewith, such negotiations, correspondence, agreements, proposals, or understandings shall be deemed to be of no force or effect. There are no representations, warranties, or agreements, whether express or implied, or oral or written, with respect to the subject matter hereof, except as expressly set forth herein.

 

14.         Modifications. This Agreement may not be amended, modified or changed (in whole or in part), except by a formal, definitive written agreement expressly referring to this Agreement, which agreement is executed by both of the parties hereto.

 

   

 

 

15.         Waiver. Neither the failure nor any delay on the part of a party to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence. No waiver shall be effective unless it is in writing and is signed by the party asserted to have granted such waiver.

 

16.         Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT.

 

17.         Remedies. Each of the parties to this Agreement and any such person or entity granted rights hereunder whether or not such person or entity is a signatory hereto shall be entitled to enforce its rights under this Agreement specifically to recover damages and costs for any breach of any provision of this Agreement and to exercise all other rights existing in its favor. The parties hereto agree and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of this Agreement and that each party may in its sole discretion apply to any court of law or equity of competent jurisdiction for specific performance, injunctive relief and/or other appropriate equitable relief (without posting any bond or deposit) in order to enforce or prevent any violations of the provisions of this Agreement. Each party shall be responsible for paying its own attorneys’ fees, costs and other expenses pertaining to any such legal proceeding and enforcement regardless of whether an award or finding or any judgment or verdict thereon is entered against either party.

 

18.         Notices. Any notice provided for in this Agreement must be in writing and must be either personally delivered, transmitted via telecopier, mailed by first class mail (postage prepaid and return receipt requested) or sent by reputable overnight courier service (charges prepaid) to the recipient at the address below indicated or at such other address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party. Notices will be deemed to have been given hereunder and received when delivered personally, when received if transmitted via telecopier, five days after deposit in the U.S. mail and one day after deposit with a reputable overnight courier service.

 

if to the Company:

 

NCL (Bahamas) Ltd.
7665 Corporate Center Drive
Miami, FL 33126
Facsimile: (305) 436-4101
Attn: Senior Vice President, Corporate Human Resources

 

with a copy to:

 

NCL (Bahamas) Ltd.
7665 Corporate Center Drive
Miami, FL 33126
Facsimile: (305) 436-4101
Attn: Senior Vice President and General Counsel

 

   

 

 

if to the Executive, to the address most recently on file in the payroll records of the Company.

 

19.         Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original as against any party whose signature appears thereon, and all of which together shall constitute one and the same instrument. This Agreement shall become binding when one or more counterparts hereof, individually or taken together, shall bear the signatures of all of the parties reflected hereon as the signatories. Photographic or other electronic copies of such signed counterparts may be used in lieu of the originals for any purpose.

 

20.         Legal Counsel; Mutual Drafting. Each party recognizes that this is a legally binding contract and acknowledges and agrees that they have had the opportunity to consult with legal counsel of their choice. Each party has cooperated in the drafting, negotiation and preparation of this Agreement. Hence, in any construction to be made of this Agreement, the same shall not be construed against either party on the basis of that party being the drafter of such language. The Executive agrees and acknowledges that he has read and understands this Agreement, is entering into it freely and voluntarily, and has been advised to seek counsel prior to entering into this Agreement and has had ample opportunity to do so.

 

21.         Clawback. All bonuses and equity awards granted under this Agreement, the Parent Equity Plan or any other incentive plan are subject to the terms of the Company’s or Parent’s recoupment, clawback or similar policy as it may be in effect from time to time, as well as any similar provisions of applicable law, any of which could in certain circumstances require repayment or forfeiture of bonuses or awards or any shares or other cash or property received with respect to the bonuses or awards (including any value received from a disposition of the shares acquired upon payment of the bonuses or equity awards).

 

(Signature Page to Follow)

 

   

 

 

IN WITNESS WHEREOF, the Company and the Executive have executed this Agreement as of the date hereof.

 

  COMPANY
   
  NCL (Bahamas), Ltd.
  a company organized under the laws of Bermuda
   
  By: /s/Frank J. Del Rio
  Name:  Frank J. Del Rio
  Title:  President and Chief Executive Officer
   
  EXECUTIVE
   
  /s/Robin T. Lindsay
  Robin T. Lindsay

 

   

 

 

Exhibit A

 

FORM OF RELEASE AGREEMENT

 

This Release Agreement (this “Release Agreement”) is entered into this ___ day of ___________ 20__, by and between [__________], an individual (“Executive”), and NCL (Bahamas) Ltd., a company organized under the laws of Bermuda (the “Company”).

 

WHEREAS, Executive has been employed by the Company or one of its subsidiaries; and

 

WHEREAS, Executive’s employment by the Company or one of its subsidiaries has terminated and, in connection with the Executive’s Employment Agreement with the Company, dated as of [______________] (the “Employment Agreement”), the Company and Executive desire to enter into this Release Agreement upon the terms set forth herein;

 

NOW, THEREFORE, in consideration of the covenants undertaken and the releases contained in this Release Agreement, and in consideration of the obligations of the Company to pay severance and other benefits (conditioned upon this Release Agreement) under and pursuant to the Employment Agreement, Executive and the Company agree as follows:

 

1.            Termination of Employment. Executive’s employment with the Company terminated on [_________, __________] (the “Separation Date”). Executive waives any right or claim to reinstatement as an employee of the Company and each of its affiliates. Executive hereby confirms that Executive does not hold any position as an officer, director or employee with the Company and each of its affiliates. Executive acknowledges and agrees that Executive has received all amounts owed for Executive’s regular and usual salary (including, but not limited to, any overtime, bonus, accrued vacation, commissions, or other wages), reimbursement of expenses, sick pay and usual benefits.

 

   

 

 

2.            Release. Executive, on behalf of Executive, Executive’s descendants, dependents, heirs, executors, administrators, assigns, and successors, and each of them, hereby covenants not to sue and fully releases and discharges the Company and each of its parents, subsidiaries and affiliates, past and present, as well as its and their trustees, directors, officers, members, managers, partners, agents, attorneys, insurers, employees, stockholders, representatives, assigns, and successors, past and present, and each of them, hereinafter together and collectively referred to as the “Releasees,” with respect to and from any and all claims, wages, demands, rights, liens, agreements or contracts (written or oral), covenants, actions, suits, causes of action, obligations, debts, costs, expenses, attorneys’ fees, damages, judgments, orders and liabilities of whatever kind or nature in law, equity or otherwise, whether now known or unknown, suspected or unsuspected, and whether or not concealed or hidden (each, a “Claim”), which he now owns or holds or he has at any time heretofore owned or held or may in the future hold as against any of said Releasees (including, without limitation, any Claim arising out of or in any way connected with Executive’s service as an officer, director, employee, member or manager of any Releasee, Executive’s separation from Executive’s position as an officer, director, employee, manager and/or member, as applicable, of any Releasee, or any other transactions, occurrences, acts or omissions or any loss, damage or injury whatever), whether known or unknown, suspected or unsuspected, resulting from any act or omission by or on the part of said Releasees, or any of them, committed or omitted prior to the date of this Release Agreement including, without limiting the generality of the foregoing, any Claim under Title VII of the Civil Rights Act of 1964, the Age Discrimination in Employment Act of 1967, the Americans with Disabilities Act, the Family and Medical Leave Act of 1993, or any other federal, state or local law, regulation, or ordinance, or any Claim for severance pay, equity compensation, bonus, sick leave, holiday pay, vacation pay, life insurance, health or medical insurance or any other fringe benefit, workers’ compensation or disability (the “Release”); provided, however, that the foregoing Release does not apply to any obligation of the Company to Executive pursuant to any of the following: (1) any equity-based awards previously granted by the Company or its affiliates to Executive, to the extent that such awards continue after the termination of Executive’s employment with the Company in accordance with the applicable terms of such awards (and subject to any limited period in which to exercise such awards following such termination of employment); (2) any right to indemnification that Executive may have pursuant to the Bylaws of the Company, its Articles of Incorporation or under any written indemnification agreement with the Company (or any corresponding provision of any subsidiary or affiliate of the Company) or applicable state law with respect to any loss, damages or expenses (including but not limited to attorneys’ fees to the extent otherwise provided) that Executive may in the future incur with respect to Executive’s service as an employee, officer or director of the Company or any of its subsidiaries or affiliates; (3) with respect to any rights that Executive may have to insurance coverage for such losses, damages or expenses under any Company (or subsidiary or affiliate) directors and officers liability insurance policy; (4) any rights to continued medical or dental coverage that Executive may have under COBRA (or similar applicable state law); (5) any rights to the severance and other benefits payable under Section 5.3 of the Employment Agreement in accordance with the terms of the Employment Agreement; or (6) any rights to payment of benefits that Executive may have under a retirement plan sponsored or maintained by the Company or its affiliates that is intended to qualify under Section 401(a) of the Internal Revenue Code of 1986, as amended. In addition, this Release does not cover any Claim that cannot be so released as a matter of applicable law. Executive acknowledges and agrees that he has received any and all leave and other benefits that she has been and is entitled to pursuant to the Family and Medical Leave Act of 1993.

 

3.            ADEA Waiver. Executive expressly acknowledges and agrees that by entering into this Release Agreement, Executive is waiving any and all rights or Claims that he may have arising under the Age Discrimination in Employment Act of 1967, as amended (the “ADEA”), which have arisen on or before the date of execution of this Release Agreement. Executive further expressly acknowledges and agrees that:

 

A.           In return for this Release Agreement, the Executive will receive consideration beyond that which the Executive was already entitled to receive before entering into this Release Agreement;

 

B.           Executive is hereby advised in writing by this Release Agreement to consult with an attorney before signing this Release Agreement;

 

C.           Executive has voluntarily chosen to enter into this Release Agreement and has not been forced or pressured in any way to sign it;

 

   

 

 

D.           Executive was given a copy of this Release Agreement on [_________, 20__] and informed that he had twenty one (21) days within which to consider this Release Agreement and that if he wished to execute this Release Agreement prior to expiration of such 21-day period, he should execute the Endorsement attached hereto;

 

E.           Executive was informed that he had seven (7) days following the date of execution of this Release Agreement in which to revoke this Release Agreement, and this Release Agreement will become null and void if Executive elects revocation during that time. Any revocation must be in writing and must be received by the Company during the seven-day revocation period. In the event that Executive exercises Executive’s right of revocation, neither the Company nor Executive will have any obligations under this Release Agreement;

 

F.           Nothing in this Release Agreement prevents or precludes Executive from challenging or seeking a determination in good faith of the validity of this waiver under the ADEA, nor does it impose any condition precedent, penalties or costs from doing so, unless specifically authorized by federal law.

 

4.            Non-Disparagement. Executive agrees not to make, directly or indirectly, whether verbal or in writing, any damaging or disparaging statements, representations or remarks about or concerning Employer or any of the Released Parties.

 

5.            No Transferred Claims. Executive warrants and represents that the Executive has not heretofore assigned or transferred to any person not a party to this Release Agreement any released matter or any part or portion thereof and she shall defend, indemnify and hold the Company and each of its affiliates harmless from and against any claim (including the payment of attorneys’ fees and costs actually incurred whether or not litigation is commenced) based on or in connection with or arising out of any such assignment or transfer made, purported or claimed.

 

6.            Severability. It is the desire and intent of the parties hereto that the provisions of this Release Agreement be enforced to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is sought. Accordingly, if any particular provision of this Release Agreement shall be adjudicated by a court of competent jurisdiction to be invalid, prohibited or unenforceable under any present or future law, such provision, as to such jurisdiction, shall be ineffective, without invalidating the remaining provisions of this Release Agreement or affecting the validity or enforceability of such provision in any other jurisdiction; furthermore, in lieu of such invalid or unenforceable provision there will be added automatically as a part of this Release Agreement, a legal, valid and enforceable provision as similar in terms to such invalid or unenforceable provision as may be possible. Notwithstanding the foregoing, if such provision could be more narrowly drawn so as not to be invalid, prohibited or unenforceable in such jurisdiction, it shall, as to such jurisdiction, be so narrowly drawn, without invalidating the remaining provisions of this Release Agreement or affecting the validity or enforceability of such provision in any other jurisdiction.

 

   

 

 

7.            Counterparts. This Release Agreement may be executed in separate counterparts, each of which is deemed to be an original and all of which taken together constitute one and the same agreement. This Release Agreement shall become binding when one or more counterparts hereof, individually or taken together, shall bear the signatures of all of the parties reflected hereon as the signatories. Photographic or other electronic copies of such signed counterparts may be used in lieu of the originals for any purpose.

 

8.            Successors. This Release Agreement is personal to Executive and shall not, without the prior written consent of the Company, be assignable by Executive. This Release Agreement shall inure to the benefit of and be binding upon the Company and its respective successors and assigns and any such successor or assignee shall be deemed substituted for the Company under the terms of this Release Agreement for all purposes. As used herein, “successor” and “assignee” shall include any person, firm, corporation or other business entity which at any time, whether by purchase, merger, acquisition of assets, or otherwise, directly or indirectly acquires the ownership of the Company, acquires all or substantially all of the Company’s assets, or to which the Company assigns this Release Agreement by operation of law or otherwise.

 

9.            Governing Law. THIS RELEASE AGREEMENT WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH UNITED STATES FEDERAL LAW AND, TO THE EXTENT NOT PREEMPTED BY UNITED STATES FEDERAL LAW, THE LAWS OF THE STATE OF FLORIDA, WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICTING PROVISION OR RULE (WHETHER OF THE STATE OF FLORIDA OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE LAWS OF ANY JURISDICTION OTHER THAN UNITED STATES FEDERAL LAW AND THE LAW OF THE STATE OF FLORIDA TO BE APPLIED. IN FURTHERANCE OF THE FOREGOING, APPLICABLE FEDERAL LAW AND, TO THE EXTENT NOT PREEMPTED BY APPLICABLE FEDERAL LAW, THE INTERNAL LAW OF THE STATE OF FLORIDA, WILL CONTROL THE INTERPRETATION AND CONSTRUCTION OF THIS RELEASE AGREEMENT, EVEN IF UNDER SUCH JURISDICTION’S CHOICE OF LAW OR CONFLICT OF LAW ANALYSIS, THE SUBSTANTIVE LAW OF SOME OTHER JURISDICTION WOULD ORDINARILY APPLY.

 

10.          Amendment and Waiver. The provisions of this Release Agreement may be amended and waived only with the prior written consent of the Company and Executive, and no course of conduct or failure or delay in enforcing the provisions of this Release Agreement shall be construed as a waiver of such provisions or affect the validity, binding effect or enforceability of this Release Agreement or any provision hereof.

 

11.          Descriptive Headings. The descriptive headings of this Release Agreement are inserted for convenience only and do not constitute a part of this Release Agreement.

 

12.          Construction. Where specific language is used to clarify by example a general statement contained herein, such specific language shall not be deemed to modify, limit or restrict in any manner the construction of the general statement to which it relates. The language used in this Release Agreement shall be deemed to be the language chosen by the parties to express their mutual intent, and no rule of strict construction shall be applied against any party.

 

   

 

 

13.          Nouns and Pronouns. Whenever the context may require, any pronouns used herein shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns and pronouns shall include the plural and vice-versa.

 

14.          Legal Counsel. Each party recognizes that this is a legally binding contract and acknowledges and agrees that they have had the opportunity to consult with legal counsel of their choice. Executive acknowledges and agrees that he has read and understands this Release Agreement completely, is entering into it freely and voluntarily, and has been advised to seek counsel prior to entering into this Release Agreement and he has had ample opportunity to do so.

 

The undersigned have read and understand the consequences of this Release Agreement and voluntarily sign it. The undersigned declare under penalty of perjury under the laws of the State of Florida that the foregoing is true and correct.

 

EXECUTED this ____ day of _________ 20__, at _________

 

  “Executive”  
     
     
     
  Print Name:   

 

  NCL (BAHAMAS), LTD.,
  a company organized under the laws of Bermuda,
     
  By:  
    Name:  
    Title:  

 

   

 

 

ENDORSEMENT

 

I, ________________, hereby acknowledge that I was given 21 days to consider the foregoing Release Agreement and voluntarily chose to sign the Release Agreement prior to the expiration of the 21-day period.

 

I declare under penalty of perjury under the laws of the United States and the State of Florida that the foregoing is true and correct.

 

EXECUTED this [____] day of [__________ 200__].

 

     
  Print Name:  

 

   

 

 

[*]: THE CONFIDENTIAL PORTION HAS BEEN OMITTED PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT AND THE OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE COMMISSION.

 

Exhibit 10.3

 

Execution Version

  

Dated 12 April 2017

 

LEONARDO ONE, LTD.

as Borrower

 

and

 

The Banks and Financial Institutions
listed in SCHEDULE 1

as Lenders

 

and

 

Crédit Agricole Corporate and Investment Bank
BNP PARIBAS Fortis S.A./N.V.
HSBC Bank PLC
KFW IPEX-BANK GMBH
CASSA DEPOSITI E PRESTITI S.P.A.

as Joint Mandated Lead Arrangers

 

and

 

Crédit Agricole Corporate and Investment Bank

as Agent and SACE Agent

 

and

 

Crédit Agricole Corporate and Investment Bank

as Security Trustee

 

with the support of

 

SACE S.p.A.

 

Loan Agreement

 

relating to the part financing of the 3,300 passenger cruise ship
newbuilding presently designated as
Hull No. [*] at Fincantieri S.p.A.

 

 

   

 

 

Index

 

Clause   Page
     
1 Interpretation 2
2 Facility 25
3 Conditions Precedent 26
4 Drawdown 35
5 Repayment 37
6 Interest 38
7 Interest Periods 41
8 SACE Premium and Italian Authorities 42
9 Fees 44
10 Taxes, Increased Costs, Costs and Related Charges 45
11 Representations and Warranties 51
12 General Undertakings 57
13 Ship Undertakings 65
14 Insurance Undertakings 71
15 Security Value Maintenance 75
16 Cancellation, Prepayment and Mandatory Prepayment 76
17 Interest on Late Payments 78
18 Events of Default 78
19 Application of sums received 83
20 Indemnities 83
21 Illegality, etc. 86
22 Set-Off 87
23 Bail-In 88
24 Changes to the Lenders 88
25 Changes to the Obligors 93
26 Role of the Agent and the Joint Mandated Lead Arrangers 93
27 The Security Trustee 99
28 Conduct of business by the Creditor Parties 109
29 Sharing among the Creditor Parties 110
30 Payment Mechanics 111
31 Variations and Waivers 113
32 Notices 114
33 Confidentiality 116
34 Legal independence and Unconditional Obligations of the Borrower 119
35 SACE Subrogation and Reimbursement 120
36 Supplemental 122
37 Governing Law 123
38 Enforcement 123
     
Schedules  
   
Schedule 1 Lenders and Commitments 124
Schedule 2 Form of Drawdown Notice 125
Schedule 3 Documents to be produced by the Builder to the Agent on Delivery 127
Schedule 4 Form of Transfer Certificate 128
Schedule 5 Qualifying Certificate 132
Schedule 6 Drawdown Schedule 134
   
Execution  
   
Execution Pages 135

  

   

 

 

Execution Version

 

THIS AGREEMENT is made on 12 April 2017

 

PARTIES

 

(1)LEONARDO ONE, LTD., an exempted company incorporated under the laws of Bermuda whose registered office is at Cumberland House, 9th Floor, 1 Victoria Street, Hamilton HM11, Bermuda as borrower (the “Borrower”)

 

(2)THE BANKS AND FINANCIAL INSTITUTIONS listed in Schedule 1 (Lenders and Commitments) as lenders (the “Lenders”)

 

(3)CRÉDIT AGRICOLE CORPORATE AND INVESTMENT BANK, BNP PARIBAS FORTIS S.A./N.V., KFW IPEX-BANK GMBH, HSBC BANK PLC and CASSA DEPOSITI E PRESTITI S.P.A. as joint mandated lead arrangers (the “Joint Mandated Lead Arrangers”)

 

(4)CRÉDIT AGRICOLE CORPORATE AND INVESTMENT BANK, as agent (the “Agent”) and SACE agent (the “SACE Agent”)

 

(5)CRÉDIT AGRICOLE CORPORATE AND INVESTMENT BANK, as security trustee (the “Security Trustee”)

 

BACKGROUND

 

(A)By a shipbuilding contract dated as of 21 October 2016 (as amended or supplemented from time to time, including on 14 December 2016, 30 January 2017, 27 February 2017, 30 March 2017 and 10 April 2017 (the “Shipbuilding Contract”)) entered into between (i) Fincantieri S.p.A., a company incorporated in Italy with registered office in Trieste, via Genova, 1, and having fiscal code 00397130584 (the “Builder”) and (ii) the Borrower, the Builder has agreed to design, construct and deliver, and the Borrower has agreed to purchase, a 3,300 passenger cruise ship currently having hull number [*] as more particularly described in the Shipbuilding Contract to be delivered on [*] subject to any adjustments of such delivery date in accordance with the Shipbuilding Contract.

 

(B)The total price payable by the Borrower to the Builder under the Shipbuilding Contract is eight hundred million Euros (€800,000,000) (the “Initial Contract Price”) payable on the following terms:

 

(i)as to [*], being [*], by an initial payment which is to be within 5 Business Days after the effective date of the Shipbuilding Contract in accordance with Article 10.1(A) of the Shipbuilding Contract (“First Shipbuilding Contract Instalment”);

 

(ii)as to [*], being [*], on the later of the date of commencement of steel cutting and the date falling 24 months prior to the Intended Delivery Date;

 

(iii)as to [*], being [*], on the later of keel laying in dry-dock and the date falling 18 months prior to the Intended Delivery Date;

 

(iv)as to [*], being [*], on the later of launching and the date falling 12 months prior to the Intended Delivery Date; and

 

(v)as to [*], being [*], on delivery of the Ship on the Delivery Date,

 

as each such event is described in the Shipbuilding Contract.

 

(C)The Initial Contract Price may be decreased at delivery of the Ship under Articles 13, 14, 16, 17, 19 and 20 of the Shipbuilding Contract (in aggregate the “Liquidated Damages”) or by mutual agreement between the parties (the Initial Contract Price adjusted as aforesaid being the “Final Contract Price”). For the avoidance of doubt, under the Shipbuilding Contract the price of the Ship may be increased or decreased pursuant to Article 24 thereof but, for the purposes of this Agreement, the Final Contract Price will not include any increase in the price under Article 24.

 

   

 

 

(D)The Lenders have agreed to make available to the Borrower a Dollar loan facility for the purpose of assisting the Borrower in financing, subject to exchange rate fluctuations, up to eighty per cent. (80%) of the Final Contract Price (and subject to an aggregate amount no greater than the Eligible Amount) and one hundred per cent. (100%) of the SACE Premium.

 

OPERATIVE PROVISIONS

 

1Interpretation

 

1.1Definitions

 

Subject to Clause 1.6 (General Interpretation), in this Agreement:

 

Advance” means the principal amount of each borrowing by the Borrower under this Agreement.

 

Affected Lender” has the meaning given in Clause 6.6 (Market disruption).

 

Affiliate” means in relation to any person, a Subsidiary of that person or a Holding Company of that person or any other Subsidiary of that Holding Company.

 

Agent” means Crédit Agricole Corporate and Investment Bank, a French “société anonyme”, having a share capital of seven billion eight hundred and fifty one million six hundred and thirty six thousand three hundred and forty two Euros (€7,851,636,342) and its registered office located at 12, place des Etats-Unis, CS 70052, 92547 Montrouge cedex, France, registered under the n° Siren 304 187 701 at the Registre du Commerce et des Sociétés of Nanterre or any successor of it appointed under Clause 26 (Role of the Agent and the Joint Mandated Lead Arrangers).

 

Annex VI” means Annex VI (Regulations for the Prevention of Air Pollution from Ships, entered into on 19 May, 2005) to the International Convention for the Prevention of Pollution from Ships 1973, as modified by the Protocol of 1978 relating thereto and by the Protocol of 1997 (MARPOL) .

 

Approved Broker” means Clarkson plc, Barry Rogliano Salles, Fearnleys, Rocca & Partners, Brax Shipbrokers AS (or any Affiliate of such person through which valuations are commonly issued) or such other shipbroker or ship valuer experienced in valuing cruise ships nominated by the Borrower and approved by the Agent.

 

Approved Flag” means the Bermudan flag, the Marshall Islands flag, the Bahamas flag or such other flag as the Agent may, with the approval of the Italian Authorities and at least three Lenders representing as a minimum the Majority Lenders, approve from time to time.

 

Approved Manager” means any of the Borrower, NCL Corporation Ltd., NCL (Bahamas) Ltd. or other member of the Group, or any company which is not a member of the Group which the Agent may, with the authorisation of the Majority Lenders, approve from time to time as manager of the Ship.

 

Approved Manager’s Undertaking” means, in the event that the Approved Manager is a company other than the Borrower, a letter of undertaking executed or to be executed by the Approved Manager in favour of the Agent, which will include, without limitation, an agreement by the Approved Manager to subordinate its rights against the Ship and the Borrower to the rights of the Secured Parties under the Finance Documents, in the agreed form.

 

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Availability Period” means the period commencing on the date of this Agreement and ending on:

 

(a)the earlier to occur of (i) the Delivery Date and (ii) 25 February 2023 (or such later date as the Agent may, with the authorisation of the Lenders, agree with the Borrower); or

 

(b)if earlier, the date on which the Total Commitments are fully borrowed, cancelled or terminated.

 

Bail-In Action” means the exercise of any Write-down and Conversion Powers.

 

Bail-In Legislation” means:

 

(a)in relation to an EEA Member Country which has implemented, or which at any time implements, Article 55 of Directive 2014/59/EU establishing a framework for the recovery and resolution of credit institutions and investment firms, the relevant implementing law or regulation as described in the EU Bail-In Legislation Schedule from time to time; and

 

(b)in relation to any other state, any analogous law or regulation from time to time which requires contractual recognition of any Write-down and Conversion Powers contained in that law or regulation.

 

Base Rate” means one Euro for [*] Dollars.

 

Bermudan Obligors” means the Borrower, the Shareholder and the Guarantor.

 

Builder” has the meaning given in Recital (A).

 

Business Day” means:

 

(a)for the purposes of Recital (B) above, a day (other than a Saturday or a Sunday) on which banks are open in New York, Milan and Rome; and

 

(b)for the purposes of any other provision in this Agreement, a day (other than a Saturday or a Sunday) on which banks are open in London, Frankfurt, Rome, Brussels and Paris and, in relation to any payment to be made to the Builder, Milan and, in respect of a day on which a payment is required to be made under a Finance Document, also in New York City.

 

CDP” means Cassa Depositi e Prestiti S.p.A..

 

Certified Copy” means in relation to any document delivered or issued by or on behalf of any company, a copy of such document certified as a true, complete and up-to-date copy of the original by any of the directors or the secretary or assistant secretary or any attorney-in-fact for the time being of that company.

 

Charged Property” means all of the assets which from time to time are, or are expressed to be, the subject of Security Interests pursuant to the Finance Documents.

 

CIRR” (Commercial Interest Reference Rate) means two point fifty-three per cent. (2.53%) per annum or any other CIRR rate being the fixed rate for medium and long term export credits in Dollars applicable to the financing of the Ship according to the Organisation for Economic Co-operation and Development rules as determined by the competent Italian Authorities.

 

Code” means the United States Internal Revenue Code of 1986.

 

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Code of Ethics” means the code of ethics adopted by CDP, available on CDP’s website (http://www.cdp.it/static/upload/cdp/cdp_code_ethics.pdf).

 

Commitment” means, in relation to a Lender, the percentage of the Maximum Loan Amount set opposite its name in Schedule 1 (Lenders and Commitments), or, as the case may require, the amount specified in the relevant Transfer Certificate, as that amount may be reduced, cancelled or terminated in accordance with this Agreement (and “Total Commitments” means the aggregate of the Commitments of all the Lenders).

 

Compliance Certificate” has the meaning given to the term “Compliance Certificate” in the Guarantee.

 

Confidential Information” means all information relating to any Obligor, the Group, the Finance Documents or the Loan of which a Secured Party becomes aware in its capacity as, or for the purpose of becoming, a Secured Party or which is received by a Secured Party in relation to, or for the purpose of becoming a Secured Party under, the Finance Documents or the Loan from either:

 

(a)any member of the Group or any of its advisers; or

 

(b)another Secured Party, if the information was obtained by that Secured Party directly or indirectly from any member of the Group or any of its advisers,

 

in whatever form, and includes information given orally and any document, electronic file or any other way of representing or recording information which contains or is derived or copied from such information but excludes information that:

 

(i)is or becomes public information other than as a direct or indirect result of any breach by that Secured Party of Clause 33 (Confidentiality); or

 

(ii)is identified in writing at the time of delivery as non-confidential by any member of the Group or any of its advisers; or

 

(iii)is known by that Secured Party before the date the information is disclosed to it in accordance with paragraphs (a) or (b) above or is lawfully obtained by that Secured Party after that date, from a source which is, as far as that Secured Party is aware, unconnected with the Group and which, in either case, as far as that Secured Party is aware, has not been obtained in breach of, and is not otherwise subject to, any obligation of confidentiality.

 

Confidentiality Undertaking” means a confidentiality undertaking in substantially the appropriate form recommended by the LMA from time to time or in any other form agreed between the Borrower and the Agent.

 

Contribution” means, in relation to a Lender, the part of the Loan which is owing to that Lender.

 

Conversion Rate” means the rate determined by the Agent on the Conversion Rate Fixing Date and notified to the Borrower as being the lower of:

 

(a)the Base Rate; or

 

(b)the FOREX Contracts Weighted Average Rate.

 

Conversion Rate Fixing Date” means:

 

(a)in respect of each Advance save for the Delivery Advance, the date falling [*] days before the relevant Drawdown Date; and

 

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(b)in respect of the Delivery Advance, the date falling [*] days before the Delivery Date.

 

Corresponding Debt” means any amount, other than any Parallel Debt, which an Obligor owes to a Creditor Party under or in connection with the Finance Documents.

 

Creditor Party” means the Agent, the Security Trustee, the SACE Agent, the Joint Mandated Lead Arrangers or any Lender, whether as at the date of this Agreement or at any later time.

 

Delivery Advance” means, subject to the provisions of Clause 8.4 (Refund), the Advance to be made available for drawing on the Delivery Date.

 

Delivery Date” means the date and time of delivery of the Ship by the Builder to the Borrower as stated in the Protocol of Delivery and Acceptance.

 

Document of Compliance” has the meaning given to it in the ISM Code.

 

Dollar Equivalent” means such amount in Dollars as is calculated by the Agent on the Conversion Rate Fixing Date to be the equivalent of an amount in Euro at the Conversion Rate.

 

Dollars” and “$” means the lawful currency for the time being of the United States of America.

 

Downgraded Refund Guarantor” means a Refund Guarantor who has become subject to a RG Downgrade Event.

 

Drawdown Date” means, in relation to an Advance, the date on which that Advance is drawn down and applied in accordance with Clause 2 (Facility).

 

Drawdown Notice” means a notice in the form set out in Schedule 2 (Form of Drawdown Notice) (or in any other form which the Agent approves or reasonably requires).

 

Earnings” means all moneys whatsoever which are now, or later become, payable (actually or contingently) to the Borrower and which arise out of the use or operation of the Ship, including (but not limited to):

 

(a)all freight, hire, fare and passage moneys, compensation payable to the Borrower or the Agent in the event of requisition of the Ship for hire, remuneration for salvage and towage services, demurrage and detention moneys and damages for breach (or payments for variation or termination) of any charterparty or other contract for the employment of the Ship;

 

(b)all moneys which are at any time payable under Insurances in respect of loss of earnings;

 

(c)all moneys which are at any time payable to the Borrower in respect of the general average contribution; and

 

(d)if and whenever the Ship is employed on terms whereby any moneys falling within paragraphs (a) or (b) above are pooled or shared with any other person, that proportion of the net receipts of the relevant pooling or sharing arrangement which is attributable to the Ship.

 

EEA Member Country” means any member state of the European Union, Iceland, Liechtenstein and Norway.

 

Eligible Amount” means eighty per cent. (80%) of the lesser of:

 

 5 

 

 

(a)the Dollar Equivalent of eight hundred million Euros (€800,000,000); and

 

(b)the Dollar Equivalent of the Final Contract Price.

 

Environmental Approval” means any present or future permit, ruling, variance or other authorisation required under Environmental Laws.

 

Environmental Claim” means any claim by any governmental, judicial or regulatory authority or any other person which arises out of an Environmental Incident or an alleged Environmental Incident or which relates to any Environmental Law and, for this purpose, “claim” includes a claim for damages, compensation, contribution, injury, fines, losses and penalties or any other payment of any kind, including in relation to clean-up and removal, whether or not similar to the foregoing; an order or direction to take, or not to take, certain action or to desist from or suspend certain action; and any form of enforcement or regulatory action, including the arrest or attachment of any asset.

 

Environmental Incident” means:

 

(a)any release, emission, spill or discharge into the Ship or into or upon the air, sea, land or soils (including the seabed) or surface water of Environmentally Sensitive Material within or from the Ship; or

 

(b)any incident in which Environmentally Sensitive Material is released, emitted, spilled or discharged into or upon the air, sea, land or soils (including the seabed) or surface water from a vessel other than the Ship and which involves a collision between the Ship and such other vessel or some other incident of navigation or operation, in either case, in connection with which the Ship is actually or potentially liable to be arrested, attached, detained or injuncted and/or the Ship and/or any Obligor and/or any operator or manager of the Ship is at fault or allegedly at fault or otherwise liable to any legal or administrative action; or

 

(c)any other incident in which Environmentally Sensitive Material is released, emitted, spilled or discharged into or upon the air, sea, land or soils (including the seabed) or surface water otherwise than from the Ship and in connection with which the Ship is actually or potentially liable to be arrested and/or where any Obligor and/or any operator or manager of the Ship is at fault or allegedly at fault or otherwise liable to any legal or administrative action, other than in accordance with an Environmental Approval.

 

Environmental Law” means any present or future law relating to pollution or protection of human health or the environment, to conditions in the workplace, to the carriage, generation, handling, storage, use, release or spillage of Environmentally Sensitive Material or to actual or threatened releases of Environmentally Sensitive Material.

 

Environmentally Sensitive Material” means and includes all contaminants, oil, oil products, toxic substances and any other substance (including any chemical, gas or other hazardous or noxious substance) which is (or is capable of being or becoming) polluting, toxic or hazardous.

 

Equator Principles” means the standards entitled “A financial industry benchmark for determining, assessing and managing environmental and social risk in projects” dated June 2013 and adopted by certain financial institutions, as the same may be amended or supplemented from time to time.

 

EU Bail-In Legislation Schedule” means the document described as such and published by the Loan Market Association (or any successor person) from time to time.

 

Euro” and “EUR” means the single currency of the Participating Member States.

 

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Event of Default” means any of the events or circumstances described in Clause 18.1 (Events of Default).

 

Existing Indebtedness” means Financial Indebtedness referred to in the financial statements of the Guarantor delivered to the Agent prior to the date of this Agreement.

 

Exporter Declaration” means a declaration to be issued for Advances in respect of which interest is payable at the Fixed Interest Rate, in the form required by SIMEST at the relevant time duly signed by an authorised signatory of the Builder.

 

Facility” means the term loan facility made available under this Agreement as described in Clause 2.1 (Amount of facility).

 

Facility Office” means the office or offices notified by a Lender to the Agent in writing on or before the date it becomes a Lender (or, following that date, by not less than five (5) Business Days’ written notice) as the office or offices through which it will perform its obligations under this Agreement.

 

FATCA” means:

 

(a)sections 1471 to 1474 of the Code or any associated regulations;

 

(b)any treaty, law or regulation of any other jurisdiction, or relating to an intergovernmental agreement between the US and any other jurisdiction, which (in either case) facilitates the implementation of paragraph (a) above; or

 

(c)any agreement pursuant to the implementation of paragraphs (a) or (b) above with the US Internal Revenue Service, the US government or any governmental or taxation authority in any other jurisdiction.

 

FATCA Application Date” means:

 

(a)in relation to a “withholdable payment” described in section 1473(1)(A)(i) of the Code (which relates to payments of interest and certain other payments from sources within the US), 1 July 2014;

 

(b)in relation to a “withholdable payment” described in section 1473(1)(A)(ii) of the Code (which relates to “gross proceeds” from the disposition of property of a type that can produce interest from sources within the US), 1 January 2019; or

 

(c)in relation to a “passthru payment” described in section 1471(d)(7) of the Code not falling within paragraphs (a) or (b) above, 1 January 2019,

 

or, in each case, such other date from which such payment may become subject to a deduction or withholding required by FATCA as a result of any change in FATCA after the date of this Agreement.

 

FATCA Deduction” means a deduction or withholding from a payment under a Finance Document required by FATCA.

 

FATCA Exempt Party” means a Party that is entitled to receive payments free from any FATCA Deduction.

 

Fee Letter” means any letter dated on or about the date of this Agreement between the SACE Agent and the Borrower setting out the fees referred to in paragraph (d) of Clause 9.1 (Fees).

 

 7 

 

 

Finance Documents” means:

 

(a)this Agreement;

 

(b)any Fee Letter;

 

(c)the Guarantee;

 

(d)the Pre-delivery Security;

 

(e)the General Assignment;

 

(f)the Mortgage;

 

(g)the Post-Delivery Assignment;

 

(h)any Subordinated Debt Security;

 

(i)the Shares Security Deed;

 

(j)the Approved Manager’s Undertaking;

 

(k)any Transfer Certificate;

 

(l)any Compliance Certificate;

 

(m)any Drawdown Notice;

 

(n)any other document (whether creating a Security Interest or not) which is executed as security for, or for the purpose of establishing any priority or subordination arrangement in relation to, the Secured Liabilities; and

 

(o)any other document (whether creating a Security Interest or not) which is designated as a Finance Document by agreement between the Borrower, SACE and the Agent.

 

Final Contract Price” has the meaning given in Recital (C).

 

Financial Indebtedness” means, in relation to a person (the “debtor”), a liability of the debtor:

 

(a)for principal, interest or any other sum payable in respect of any moneys borrowed or raised by the debtor;

 

(b)under any loan stock, bond, note or other security issued by the debtor;

 

(c)under any acceptance credit, guarantee or letter of credit facility made available to the debtor;

 

(d)under a financial lease, a deferred purchase consideration arrangement or any other agreement having the commercial effect of a borrowing or raising of money by the debtor;

 

(e)under any foreign exchange transaction, any interest or currency swap or any other kind of derivative transaction entered into by the debtor or, if the agreement under which any such transaction is entered into requires netting of mutual liabilities, the liability of the debtor for the net amount;

 

 8 

 

 

(f)under a guarantee, indemnity or similar obligation entered into by the debtor in respect of a liability of another person which would fall within paragraphs (a) to (e) if the references to the debtor referred to the other person; or

 

(g)receivables sold or discounted (other than receivables to the extent they are sold on a non-recourse basis).

 

First Instalment” means the first instalment of the SACE Premium as more particularly described in paragraph (a) of Clause 8.1 (SACE Premium).

 

Fixed Interest Rate” means, in respect of any Interest Period, the rate per annum determined by the Agent to be the aggregate of:

 

(a)the applicable Margin; and

 

(b)the CIRR.

 

Floating Interest Rate” means, in respect of any Interest Period, the rate per annum determined by the Agent to be the aggregate of:

 

(a)the applicable Margin; and

 

(b)LIBOR for the relevant period.

 

FOREX Contracts” means each actual purchase contract, spot or forward contract and any other contract, such as an option or collar arrangement, which is entered into in the foreign exchange markets for the acquisition of Euro intended to pay the instalments under the Shipbuilding Contract, which:

 

(a)matures not later than each Drawdown Date, provided that for the Delivery Advance, option arrangements may mature up to one month after such date if at the time they are entered into there exists a reasonable uncertainty as to the date on which the Ship will be delivered;

 

(b)is entered into by the Borrower or the Guarantor or a combination of the foregoing not later than two (2) days before the Conversion Rate Fixing Date so that the Borrower, directly or through the Guarantor, purchases or may purchase Euro with Dollars at a pre-agreed rate; and

 

(c)is notified to the Agent within ten (10) days of its execution but in any event no later than the day preceding the Conversion Rate Fixing Date, with a Certified Copy of each such contract being delivered to the Agent at such time.

 

FOREX Contracts Weighted Average Rate” means the rate determined by the Agent on the Conversion Rate Fixing Date in accordance with the following principles which (inter alia) are intended to take into account any maturity mismatch between the maturity of the FOREX Contracts and each Drawdown Date as well as FOREX Contracts that are unwound as part of the hedging strategy of the Borrower:

 

(a)FOREX Contracts that are spot or forward foreign exchange contracts, if any, shall be valued at the contract value (taking into account any rescheduling);

 

(b)the difference between the Euro amount available under (a) above and the Euro amount balance payable to the Builder on each Drawdown Date is assumed to be purchased at the official daily fixing rate of the European Central Bank for the purchase of Euro with Dollars as displayed on World Markets Reuters (or such other pages as may replace that page on that service or a successor service) at or around 1 p.m. (London time) on the Conversion Rate Fixing Date;

 

 9 

 

 

(c)any FOREX Contract which is an option or collar arrangement and is not unwound at the Conversion Rate Fixing Date will be marked to market and the resulting profit or loss shall reduce or increase the Dollar countervalue of the purchased Euro;

 

(d)any FOREX Contract which is an option or collar arrangement and is sold or purchased back at the time FOREX Contract(s) are entered into for an identical Euro amount shall be accounted for the net premium cost or profit, as the case may be.

 

Any marked to market valuation, as required in paragraph (c) above, shall be performed by Crédit Agricole Corporate and Investment Bank’s dedicated desk in accordance with market practices. The Borrower shall have the right to request indicative valuations from time to time prior to the Conversion Rate Fixing Date.

 

GAAP” means generally accepted accounting principles in the United States of America consistently applied (or, if not consistently applied, accompanied by details of the inconsistencies) including, without limitation, those set forth in the opinion and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board.

 

General Assignment” means an assignment of any Management Agreement, the Earnings, the Insurances and any Requisition Compensation, executed or to be executed by the Borrower and, in the event that the Approved Manager is not a member of the Group and is named as a co-assured in the Insurances, the Approved Manager in favour of the Security Trustee in the agreed form.

 

Gross Negligence” means any act or omission, whether deliberate or not, which in the circumstances (including both the probability and seriousness of the consequences likely to result) would reasonably be regarded by those familiar with the nature of the activity in question and with the surrounding circumstances, as amounting to the reckless disregard of, or serious indifference to, the consequences, being in any case more than a negligent failure to exercise proper skill and care.

 

Group” means the Guarantor and its Subsidiaries.

 

Guarantee” means a guarantee issued by the Guarantor in favour of the Security Trustee in the agreed form.

 

Guarantor” means NCL Corporation Ltd., a Bermuda company with its registered office at Cumberland House, 9th Floor, 1 Victoria Street, Hamilton HM11, Bermuda.

 

Holding Company” means, in relation to a person, any other person in respect of which it is a Subsidiary.

 

IAPPC” means a valid international air pollution prevention certificate for the Ship issued under Annex VI.

 

Illicit Origin” means any origin which is illicit, fraudulent or in breach of Sanctions including, without limitation, drug trafficking, corruption, organised criminal activities, terrorism, money laundering or fraud.

 

Initial Contract Price” has the meaning given in Recital (B).

 

Insurances” means:

 

(a)all policies and contracts of insurance, including entries of the Ship in any protection and indemnity or war risks association, which are effected in respect of the Ship, its Earnings or otherwise in relation to it; and

 

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(b)all rights and other assets relating to, or derived from any of such policies, contracts or entries, including any rights to a return of a premium.

 

Intended Delivery Date” means [*] (the date on which the Ship will be ready for delivery pursuant to the Shipbuilding Contract as at the date of this Agreement) or any other date notified by the Borrower to the Agent in accordance with paragraph (a) of Clause 3.12 (No later than sixty (60) days before the Intended Delivery Date) or paragraph (b) of Clause 3.14 (No later than five (5) Business Days before the Intended Delivery Date) as being the date on which the Builder and the Borrower have agreed that the Ship will be ready for delivery pursuant to the Shipbuilding Contract.

 

Interest Make-up Agreement” means an interest make up agreement (Capitolato) to be entered into between SIMEST and the Agent on behalf of the Lenders and in form and substance acceptable to the Joint Mandated Lead Arrangers, whereby, inter alia, the return to the Lenders on the Loan made hereunder will be supplemented by SIMEST so that it equals that which the Lenders would have received if interest were payable on the Loan at LIBOR plus the Margin (as described in paragraph (b) of the definition of Margin).

 

Interest Period” means a period determined in accordance with Clause 7 (Interest Periods).

 

ISM Code” means the International Safety Management Code for the safe operation of ships and for pollution prevention (including the guidelines on its implementation), adopted by the International Maritime Organisation as the same may be amended or supplemented from time to time.

 

ISPS Code” means the International Ship and Port Facility Security (ISPS) Code adopted by the International Maritime Organisation (IMO) Diplomatic Conference of December 2002, as the same may be amended or supplemented from time to time.

 

Italian Authorities” means SACE and/or SIMEST and any other relevant Italian authorities involved in the implementation of the Loan.

 

Legislative Decree 231/01” means the Italian legislative decree of 8 June 2001, no. 231 (Disciplina della responsabilità amministrativa delle persone giurdiche, delle società e delle associazioni anche prive di personalità giuridica, a norma dell’articolo 11 della legge 29 settembre 2000, n.300) as amended from time to time, on administrative vicarious liability of corporate entities.

 

Lender” means a bank, financial institution, trust, fund or other entity listed in Schedule 1 (Lenders and Commitments) and acting through its Facility Office or its transferee, successor or assign.

 

LIBOR” means, in relation to a particular period, the rate determined by the Agent to be that at which deposits of Dollars in amounts comparable with the amount for which LIBOR is to be determined and for a period equivalent to such period are being offered in the London interbank eurocurrency market at or about 11 a.m. (London time) on the Quotation Date for such period as displayed on page LIBOR 01 or LIBOR 02 of the Thomson Reuters screen (or any replacement Thomson Reuters page which displays that rate) or on the appropriate page of such other information service which publishes that rate from time to time in place of Thomson Reuters (and if such page or service ceases to be available, the Agent may specify another page or service displaying the relevant rate after consultation with the Borrower), Provided that if on such date no such rate is so displayed, LIBOR for such period shall be the rate quoted to the Agent by the Lenders who are able to quote such rate at the request of the Agent as those Lenders’ offered rate for deposits of Dollars in an amount approximately equal to the amount in relation to which LIBOR is to be determined for a period equivalent to such period to prime banks in the London interbank eurocurrency market at or about 11 a.m. (London time) on the Quotation Date for such period and provided further that, if the rate displayed on the relevant page is less than zero, LIBOR shall be deemed to be zero (except with respect to the Interest Make-Up Agreement).

 

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Loan” means the principal amount for the time being outstanding under this Agreement.

 

Majority Lenders” means:

 

(a)before the first Advance has been made, Lenders whose Commitments total [*] per cent. of the Total Commitments; and

 

(b)after any Advance has been made, Lenders whose Contributions total [*] per cent. of the Loan.

 

Management Agreement” means the management agreement (if any) entered or to be entered into between the Borrower and an Approved Manager which is not a member of the Group with respect to the Ship on terms reasonably acceptable to the Majority Lenders and SACE.

 

Margin” means:

 

(a)in relation to the Fixed Interest Rate zero point fifteen per cent. (0.15%) per annum; and

 

(b)in relation to the Floating Interest Rate one point sixty-five per cent. (1.65%) per annum.

 

Maritime Registry” means the maritime registry which the Borrower will specify to the Lenders no later than 90 days before the Intended Delivery Date, being that of Bermuda, the Marshall Islands, Bahamas or such other registry as the Agent may, with the approval of the Italian Authorities and at least three Lenders representing as a minimum the Majority Lenders, approve.

 

Material Adverse Effect” means the occurrence of any event or circumstance which reasonably would be expected to have a material adverse effect on:

 

(a)the business, operations, property, condition (financial or otherwise) of any Obligor or the Group as a whole; or

 

(b)the ability of any Obligor to perform its obligations under any Finance Document and/or any Pre-delivery Contract; or

 

(c)the validity or enforceability of, or the effectiveness or ranking of any Security Interest granted or intended to be granted pursuant to any of, the Finance Documents or the rights or remedies of any Secured Party under any of the Finance Documents.

 

Material Provisions” means Article 1 (Subject of the Contract), Article 2 (Vessel’s Classification – Rules and Regulations – Certificates), Article 8 (Delivery), Article 9 (Price), Article 13 (Speed – Liquidated Damages), Article 14 (Deadweight – Liquidated Damages), Article 17 (Fuel Oil Consumption – Liquidated Damages), Article 19 (Maximum Amount of Liquidated Damages), Article 20 (Termination of the Contract – Liquidated Damages to be paid by the Builder), Article 23 (Insurance), Article 25 (Guarantee – Liability), Article 26 (Permissible Delay), Article 29 (Assignment of the Contract), and Article 30 (Law of the Contract – Disputes) of the Shipbuilding Contract.

 

Maximum Loan Amount” means the aggregate of:

 

(a)the Dollar Equivalent of six hundred and forty million Euros (€640,000,000); and

 

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(b)one hundred per cent. (100%) of the SACE Premium to be paid in accordance with Clause 8.1 (SACE Premium),

 

provided that such amount shall not, at any time, exceed eight hundred and sixty-eight million, one hundred and eight thousand, one hundred and eight Dollars and eleven Cents ($868,108,108.11).

 

Minor Modification” means a modification of the plans or the specification or the construction of the Ship under Article 24 of the Shipbuilding Contract, resulting in a contract price increase or decrease of less than [*] Euros (€[*]).

 

Model” means the principles of the compliance system adopted by CDP pursuant to Legislative Decree 231/01, available on CDP’s website (http://www.cdp.it/static/upload/pri/ principles-of-the-compliance-system.pdf).

 

Mortgage” means the first priority mortgage on the Ship acceptable for registration on the Approved Flag and, if applicable, deed of covenant, executed or to be executed by the Borrower in favour of the Security Trustee in the agreed form.

 

Negotiation Period” has the meaning given in Clause 6.9 (Negotiation of alternative rate of interest).

 

Obligors” means the Borrower, the Guarantor, the Shareholder and (in the event that the Approved Manager is a member of the Group) the Approved Manager.

 

Original Jurisdiction” means, in relation to an Obligor, the jurisdiction under whose laws that Obligor is incorporated as at the date of this Agreement.

 

Overnight LIBOR” means, on any date, the London interbank offered rate, being the day to day rate at which Dollars are offered to prime banks in the London interbank market and published by the Intercontinental Exchange at or about 11.00 a.m. London time on page LIBOR01 of the Reuters screen. If the agreed page is replaced or the service ceases to be available, the Agent may specify another page or service displaying the appropriate rate after consultation with the Borrower.

 

Parallel Debt” means any amount which an Obligor owes to the Security Trustee under Clause 27.2 (Parallel Debt (Covenant to pay the Security Trustee)).

 

Participating Member State” means any member state of the European Union that adopts or has adopted the euro as its lawful currency in accordance with legislation of the European Union relating to Economic and Monetary Union.

 

Party” means a party to this Agreement from time to time.

 

Permitted Financial Indebtedness” means any Financial Indebtedness:

 

(a)incurred under the Finance Documents; or

 

(b)permitted pursuant to Clause 12.14 (Financial Indebtedness and subordination of indebtedness).

 

Permitted Security Interests” means:

 

(a)in the case of the Borrower:

 

(i)any of the Security Interests referred to in paragraph (b)(ii)(A) below; and

 

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(ii)any of the Security Interests referred to in paragraphs (b)(ii)(B), (b)(ii)(C), (b)(ii)(E), (b)(ii)(H) and (b)(ii)(I) below if, by reason of any chartering or management arrangements for the Ship approved by the Agent pursuant to the provisions of this Agreement, such Security Interests are created by the Borrower in the case of paragraphs (b)(ii)(C) or (b)(ii)(E) or incurred by the Borrower in the case of paragraphs (b)(ii)(B), (b)(ii)(H) or (b)(ii)(I); and

 

(b)in the case of the Guarantor:

 

(i)any of the Security Interests referred to in paragraphs (ii)(A), (ii)(D), (ii)(F) and (ii)(G) below; and

 

(ii)any of the Security Interests referred to in paragraphs (C), (E), (H) and (I) below if, by reason of any chartering or management arrangements for the Ship approved by the Agent pursuant to the provisions of this Agreement, such Security Interests are created by the Guarantor in the case of paragraphs (C) or (E) or incurred by the Guarantor in the case of paragraphs (H) or (I);

 

(A)any Security Interest created by or pursuant to the Finance Documents and any deposits or other Security Interests placed or incurred in connection with any bond or other surety from time to time provided to the US Federal Maritime Commission in order to comply with laws, regulations and rules applicable to the operators of passenger vessels operating to or from ports in the United States of America;

 

(B)liens on the Ship up to an aggregate amount at any time not exceeding [*] for current crew’s wages and salvage and liens incurred in the ordinary course of trading the Ship;

 

(C)any deposits or pledges up to an aggregate amount at any time not exceeding [*] to secure the performance of bids, tenders, bonds or contracts required in the ordinary course of business;

 

(D)any other Security Interest including in relation to the Existing Indebtedness over the assets of any Obligor other than the Borrower notified by the Borrower or any of the Obligors to the Agent and accepted by it prior to the date of this Agreement;

 

(E)(without prejudice to the provisions of Clause 12.14 (Financial Indebtedness and subordination of indebtedness)) liens on assets leased, acquired or upgraded after the date of this Agreement or assets newly constructed or converted after the date of this Agreement provided that (i) such liens secure Financial Indebtedness otherwise permitted under this Agreement, (ii) such liens are incurred at the time of such lease, acquisition, upgrade, construction or conversion and (iii) the Financial Indebtedness secured by such liens does not exceed the cost of such upgrade or the cost of such assets acquired or leased;

 

(F)other liens arising in the ordinary course of business of the Group unrelated to Financial Indebtedness and securing obligations not yet delinquent or which are being contested in good faith by appropriate proceedings and for which adequate reserves have been established provided that (i) the aggregate amount of all cash and the fair market value of all other property subject to such liens as are described in this paragraph (F) does not exceed [*] and (ii) such cash and/or other property is not an asset of the Borrower;

 

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(G)subject to the other provisions of this Agreement and the Guarantee, any Security Interest in respect of existing Financial Indebtedness of a person which becomes a Subsidiary of the Guarantor or is merged with or into the Guarantor or any of its subsidiaries;

 

(H)liens in favour of credit card companies on unearned customer deposits pursuant to agreements therewith; and

 

(I)liens in favour of customers on unearned customer deposits.

 

Pertinent Document” means:

 

(a)any Finance Document;

 

(b)any policy or contract of insurance contemplated by or referred to in Clause 12 (General Undertakings) or any other provision of this Agreement or another Finance Document;

 

(c)any other document contemplated by or referred to in any Finance Document; and

 

(d)any document which has been or is at any time sent by or to the Agent in contemplation of or in connection with any Finance Document or any policy, contract or document falling within paragraphs (b) or (c).

 

Pertinent Matter” means:

 

(a)any transaction or matter contemplated by, arising out of, or in connection with a Pertinent Document; or

 

(b)any statement relating to a Pertinent Document or to a transaction or matter falling within paragraph (a);

 

and covers any such transaction, matter or statement, whether entered into, arising or made at any time before the signing of this Agreement or on or at any time after that signing.

 

Post-Delivery Assignment” means an assignment of the rights of the Borrower in respect of the post-delivery guarantee liability of the Builder under Article 25 of the Shipbuilding Contract executed or to be executed by the Borrower in favour of the Security Trustee in the agreed form.

 

Pre-delivery Contracts” means the Shipbuilding Contract and the Refund Guarantee.

 

Pre-delivery Security” means a document creating security over the Pre-delivery Contracts in agreed form.

 

Prohibited Payment” means:

 

(a)any offer, gift, payment, promise to pay, commission, fee, loan or other consideration which would constitute bribery or an improper gift or payment under, or a breach of Sanctions, any laws of the Republic of Italy, England and Wales, Bermuda, the Council of the European Union, Germany, the United States of America or any other applicable jurisdiction; or

 

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(b)any offer, gift, payment, promise to pay, commission, fee, loan or other consideration which would or might constitute bribery within the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions of 17 December 1997.

 

Prohibited Person” means any person (whether designated by name or by reason of being included in a class of persons) against whom Sanctions are directed.

 

Protocol of Delivery and Acceptance” means the protocol of delivery and acceptance of the Ship to be signed by the Borrower and the Builder in accordance with Article 8 of the Shipbuilding Contract.

 

Quotation Date” means, in relation to any Interest Period (or any period for which an interest rate is to be determined under any provision of a Finance Document), the day which is 2 Business Days before the first day of that period, unless market practice differs in the Relevant Interbank Market for a currency, in which case the Quotation Date will be determined by the Agent in accordance with market practice in the Relevant Interbank Market (and if quotations would normally be given by leading banks in the Relevant Interbank Market on more than one day, the Quotation Date will be the last of those days).

 

Qualifying Certificate” means the certificate to be issued by the Builder on each Drawdown Date and issued to the Agent and copied to the Borrower substantially in the form set out in Schedule 5 (Qualifying Certificate).

 

Refund Guarantee” means any irrevocable and unconditional guarantee issued or to be issued by a Refund Guarantor in favour of the Borrower under the Shipbuilding Contract in a form acceptable to the Joint Mandated Lead Arrangers and the SACE Agent.

 

Refund Guarantor” means a bank, insurance company or other financial institution acceptable to the Lenders and SACE which, at the time of issue by it of a Refund Guarantee, has a minimum credit rating of at least BBB- at Standard & Poor’s (or, where the relevant Refund Guarantor is not rated by Standard & Poor’s, the equivalent rating at Moody’s or where the relevant Refund Guarantor is not rated by Standard & Poor’s or Moody’s, the equivalent rating at Fitch).

 

Relevant Interbank Market” means the European Interbank Market.

 

Relevant Jurisdiction” means, in relation to an Obligor:

 

(a)its jurisdiction of incorporation;

 

(b)any jurisdiction where any asset subject to, or intended to be subject to, any of the Security Interests created, or intended to be created, under the Finance Documents to which it is a party is situated;

 

(c)any jurisdiction where it conducts its business; and

 

(d)the jurisdiction whose laws govern the perfection of any of the Security Interests created, or intended to be created, under the Finance Documents to which it is a party.

 

Repayment Date” means a date on which a repayment is required to be made under Clause 5 (Repayment).

 

Representative” means any delegate, agent, manager, administrator, nominee, attorney, trustee or custodian.

 

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Requisition Compensation” includes all compensation or other moneys payable by reason of any act or event such as is referred to in paragraph (b) of the definition of “Total Loss”.

 

“Restricted Country” means a country or territory that is the subject of any comprehensive Sanctions barring dealings with such country or territory.

 

Resolution Authority” means any body which has authority to exercise any Write-down and Conversion Powers.

 

RG Downgrade Event” means an event which occurs when a Refund Guarantor ceases to maintain a credit rating of at least BBB- at Standard & Poor’s (or, where the relevant Refund Guarantor is not rated by Standard & Poor’s, the equivalent rating at Moody’s or where the relevant Refund Guarantor is not rated by Standard & Poor’s or Moody’s, the equivalent rating at Fitch).

 

SACE” means SACE S.p.A.

 

SACE Agent” means Crédit Agricole Corporate and Investment Bank, a French “société anonyme”, having a share capital of seven billion eight hundred and fifty one million six hundred and thirty six thousand three hundred and forty two Euros (€7,851,636,342) and its registered office located at 12, place des Etats-Unis, CS 70052, 92547 Montrouge cedex, France, registered under the n° Siren 304 187 701 at the Registre du Commerce et des Sociétés of Nanterre or any successor of it appointed under Clause 26 (Role of the Agent and the Joint Mandated Lead Arrangers).

 

SACE Insurance Policy” means the insurance policy in respect of this Agreement (which, in all material respects, is not inconsistent with the commercial terms of this Agreement) to be issued by SACE for the benefit of the Lenders in respect of one hundred per cent. (100%) of the Loan in form and substance satisfactory to the Agent and all the Lenders.

 

SACE Premium” means the amount payable by the Borrower to SACE directly or through the Agent in two instalments in respect of the SACE Insurance Policy as set out in Clause 8 (SACE Premium and Italian Authorities).

 

SACE Premium Instalments” means each of the First Instalment and Second Instalment.

 

SACE Required Documents” means in relation to each Drawdown Notice:

 

(a)a duly completed and executed Qualifying Certificate; and

 

(b)each of the other documents, information and other evidence specified in or required to be enclosed with such Qualifying Certificate.

 

Safety Management Certificate” has the meaning given to it in the ISM Code.

 

Sanctions” means any sanctions, embargoes, freezing provisions, prohibitions or other restrictions relating to trading, doing business, investment, exporting, financing or making assets available (or other activities similar to or connected with any of the foregoing):

 

(a)imposed by law or regulation of the United Kingdom, the Council of the European Union, the United Nations or its Security Council or imposed by any member state of the European Union or Switzerland;

 

(b)imposed by the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC); or

 

(c)otherwise imposed by any law or regulation.

 

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Second Instalment” means the second instalment of the SACE Premium as more particularly described in paragraph (b) of Clause 8.1 (SACE Premium).

 

Secured Liabilities” means all liabilities which the Borrower, the Obligors or any of them have, at the date of this Agreement or at any later time or times, under or in connection with any Finance Document or any judgment relating to any Finance Document; and for this purpose, there shall be disregarded any total or partial discharge of these liabilities, or variation of their terms, which is effected by, or in connection with, any bankruptcy, liquidation, arrangement or other procedure under the insolvency laws of any country.

 

Secured Party” means SACE, the Agent, the Security Trustee, the SACE Agent, the Joint Mandated Lead Arrangers or any Lender whether at the date of this Agreement or any later time.

 

Security Interest” means:

 

(a)a mortgage, charge (whether fixed or floating) or pledge, any maritime or other lien, assignment, hypothecation or any other security interest of any kind or other agreement or arrangement having the effect of conferring security;

 

(b)the security rights of a plaintiff under an action in rem; and

 

(c)any arrangement entered into by a person (A) the effect of which is to place another person (B) in a position which is similar, in economic terms, to the position in which B would have been had he held a security interest over an asset of A; but this paragraph (c) does not apply to a right of set off or combination of accounts conferred by the standard terms of business of a bank or financial institution.

 

Security Period” means the period commencing on the date of this Agreement and ending on the date on which:

 

(a)all amounts which have become due for payment by the Borrower or any Obligor under the Finance Documents have been paid;

 

(b)no amount is owing or has accrued (without yet having become due for payment) under any Finance Document;

 

(c)neither the Borrower nor any other Obligor has any future or contingent liability under Clause 19 (Application of sums received) below or any other provision of this Agreement or another Finance Document; and

 

(d)the Agent does not consider that there is a significant risk that any payment or transaction under a Finance Document would be set aside, or would have to be reversed or adjusted, in any present or possible future bankruptcy of the Borrower or an Obligor or in any present or possible future proceeding relating to a Finance Document or any asset covered (or previously covered) by a Security Interest created by a Finance Document.

 

Security Property” means:

 

(a)the Security Interests expressed to be granted in favour of the Security Trustee as trustee for the Secured Parties and all proceeds received or recovered by or on behalf of the Security Trustee under or by virtue of any Security Interest including any money or other assets which are received or recovered by it as a result of the enforcement or exercise by it of such a Security Interest or right;

 

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(b)all obligations expressed to be undertaken by an Obligor to pay amounts in respect of the Secured Liabilities to the Security Trustee as trustee for the Secured Parties and secured by the Security Interests together with all representations and warranties expressed to be given by an Obligor in favour of the Security Trustee as trustee for the Secured Parties;

 

(c)the Security Trustee’s interest in any turnover trust created under the Finance Documents;

 

(d)any other amounts or property, whether rights, entitlements, choses in action or otherwise, actual or contingent, which the Security Trustee is required by the terms of the Finance Documents to hold as trustee on trust for the Secured Parties,

 

except:

 

(i)rights intended for the sole benefit of the Security Trustee; and

 

(ii)any moneys or other assets which the Security Trustee has transferred to the Agent or (being entitled to do so) has retained in accordance with the provisions of this Agreement.

 

Security Requirement” means the amount in Dollars (as certified by the Agent whose certificate shall, in the absence of manifest error, be conclusive and binding on the Borrower and the Agent) which is at any relevant time one hundred and twenty-five per cent (125%) of the Loan.

 

Security Trustee” means Crédit Agricole Corporate and Investment Bank, a French “société anonyme”, having a share capital of seven billion eight hundred and fifty one million six hundred and thirty six thousand three hundred and forty two Euros (€7,851,636,342) and its registered office located at 12, place des Etats-Unis, CS 70052, 92547 Montrouge cedex, France, registered under the n° Siren 304 187 701 at the Registre du Commerce et des Sociétés of Nanterre or any successor of it appointed under Clause 27 (The Security Trustee).

 

Security Value” means the amount in Dollars (as certified by the Agent whose certificate shall, in the absence of manifest error, be conclusive and binding on the Borrower and the Agent) which, at any relevant time, is the aggregate of (i) the charter free market value of the Ship as most recently determined in accordance with Clause 13.4 (Valuation of the Ship); and (ii) the market value of any additional security for the time being actually provided to the Agent pursuant to Clause 15 (Security Value Maintenance).

 

Servicing Party” means the Agent or the Security Trustee.

 

Shares Security Deed” means a document creating security over the share capital in the Borrower in the agreed form.

 

Shareholder” means NCL International Ltd., a Bermuda company with its registered office at Cumberland House, 9th Floor, 1 Victoria Street, Hamilton HM11, Bermuda.

 

Ship” means the passenger cruise ship currently designated with Hull No. [*] (as more particularly described in the Shipbuilding Contract) to be constructed under the Shipbuilding Contract and to be delivered to, and purchased by, the Borrower and registered in its name under an Approved Flag.

 

Shipbuilding Contract” has the meaning given in Recital (A).

 

SIMEST” means Società Italiana per Le Imprese all’Estero - SIMEST Spa, which grants export subsidies in Italy under and according to the Italian Legislative Decree n. 143/98 and its amendments.

 

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Subordinated Debt Security” has the meaning given in paragraph (b)(ii) of Clause 12.14 (Financial Indebtedness and subordination of indebtedness).

 

Subsidiary” has the following meaning:

 

A company (S) is a subsidiary of another company (P) if:

 

(a)a majority of the issued shares in S (or a majority of the issued shares in S which carry unlimited rights to capital and income distributions) are directly owned by P or are indirectly attributable to P; or

 

(b)P has direct or indirect control over a majority of the voting rights attaching to the issued shares of S; or

 

(c)P has the direct or indirect power to appoint or remove a majority of the directors of S; or

 

(d)P otherwise has the direct or indirect power to ensure that the affairs of S are conducted in accordance with the wishes of P;

 

and any company of which S is a subsidiary is a parent company of S.

 

Tax” means any tax, levy, impost, duty, assessment, fee, deduction or other charge or withholding of a similar nature imposed by any governmental authority (including any penalty or interest payable in connection with any failure to pay or any delay in paying any of the same).

 

Total Loss” means:

 

(a)actual, constructive, compromised, agreed or arranged total loss of the Ship;

 

(b)any expropriation, confiscation, requisition or acquisition of the Ship, whether for full consideration, a consideration less than its proper value, a nominal consideration or without any consideration, which is effected by any government or official authority or by any person or persons claiming to be or to represent a government or official authority, (excluding a requisition for hire for a fixed period not exceeding 1 year without any right to an extension) unless it is within 1 month redelivered to the Borrower’s full control;

 

(c)any arrest, capture, seizure or detention of the Ship (including any hijacking or theft) unless it is within 1 month redelivered to the Borrower’s full control.

 

Total Loss Date” means:

 

(a)in the case of an actual loss of the Ship, the date on which it occurred or, if that is unknown, the date when the Ship was last heard of;

 

(b)in the case of a constructive, compromised, agreed or arranged total loss of the Ship, the earliest of:

 

(i)the date on which a notice of abandonment is given to the insurers; and

 

(ii)the date of any compromise, arrangement or agreement made by or on behalf of the Borrower with the Ship’s insurers in which the insurers agree to treat the Ship as a total loss; and

 

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(c)in the case of any other type of total loss, on the date (or the most likely date) on which it appears to the Agent acting reasonably and in consultation with the Borrower that the event constituting the total loss occurred.

 

Transaction Documents” means the Finance Documents and the Underlying Documents.

 

Transfer Certificate” means a certificate substantially in the form set out in Schedule 4 (Form of Transfer Certificate) or any other form agreed between the Agent and the Borrower.

 

Underlying Documents” means the Shipbuilding Contract, the Refund Guarantee, any Management Agreement, any bareboat charter and any charter and associated guarantee in respect of which a notice of assignment is required to be served under the terms of the General Assignment.

 

Unpaid Sum” means (i) any sum due and payable but unpaid by an Obligor under the Finance Documents and (ii) any part of the SACE Premium unpaid by the Borrower.

 

VAT” means:

 

(a)any tax imposed in compliance with the Council Directive of 28 November 2006 on the common system of value added tax (EC Directive 2006/112); and

 

(b)any other tax of a similar nature, whether imposed in a member state of the European Union in substitution for, or levied in addition to, such tax referred to in paragraph (a) above, or imposed elsewhere.

 

Write-down and Conversion Powers” means:

 

(a)in relation to any Bail-In Legislation described in the EU Bail-In Legislation Schedule from time to time, the powers described as such in relation to that Bail-In Legislation in the EU Bail-In Legislation Schedule; and

 

(b)in relation to any other applicable Bail-In Legislation:

 

(i)any powers under that Bail-In Legislation to cancel, transfer or dilute shares issued by a person that is a bank or investment firm or other financial institution or affiliate of a bank, investment firm or other financial institution, to cancel, reduce, modify or change the form of a liability of such a person or any contract or instrument under which that liability arises, to convert all or part of that liability into shares, securities or obligations of that person or any other person, to provide that any such contract or instrument is to have effect as if a right had been exercised under it or to suspend any obligation in respect of that liability or any of the powers under that Bail-In Legislation that are related to or ancillary to any of those powers; and

 

(ii)any similar or analogous powers under that Bail-In Legislation.

 

1.2Construction of certain terms

 

In this Agreement:

 

Agent”, the “SACE Agent”, the “Joint Mandated Lead Arranger”, the “Security Trustee”, any “Creditor Party”, any “Secured Party”, any “Lender”, any “Obligor” or any other “person”, shall be construed so as to include its successors in title, permitted assigns and permitted transferees.

 

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approved by the Lenders” (or any similar determination or instruction by the Lenders) means approved in writing by the Agent acting on the instructions of all the Lenders and SACE (on such conditions as they may respectively impose) (or the Lenders only to the extent the SACE Insurance Policy does not cover the event for which such instruction or approval is required) and any requirement for approval by all the Lenders shall mean prior approval.

 

approved by the Majority Lenders” (or any similar determination or instruction by the Majority Lenders) means approved in writing by the Agent acting on the instructions of the Majority Lenders and SACE (or the Majority Lenders only to the extent the SACE Insurance Policy does not cover the event for which such instruction or approval is required) (on such conditions as they may respectively impose) and otherwise approved means approved in writing by the Agent (on such conditions as the Agent may impose) and approval and approve shall be construed accordingly and any requirement for approval by the Agent or the Majority Lenders shall mean prior approval.

 

asset” includes every kind of property, asset, interest or right, including any present, future or contingent right to any revenues or other payment.

 

company” includes any partnership, joint venture and unincorporated association.

 

consent” includes an authorisation, consent, approval, resolution, licence, exemption, filing, registration, notarisation and legalisation.

 

contingent liability” means a liability which is not certain to arise and/or the amount of which remains unascertained.

 

date of this Agreement” means 12 April 2017.

 

document” includes a deed; also a letter, fax or electronic mail.

 

expense” means any kind of cost, charge or expense (including all legal costs, charges and expenses) and any applicable Taxes including VAT.

 

including” and “in particular” (and other similar expressions) shall be construed as not limiting any general words or expressions in connection with which they are used.

 

indebtedness” includes any obligation (whether incurred as principal or as surety) for the payment or repayment of money, whether present or future, actual or contingent;

 

law” includes any order or decree, any form of delegated legislation, any treaty or international convention and any regulation or resolution of the Council of the European Union, the European Commission, the United Nations or its Security Council.

 

legal or administrative action” means any legal proceeding or arbitration and any administrative or regulatory action or investigation.

 

liability” includes every kind of debt or liability (present or future, certain or contingent), whether incurred as principal or surety or otherwise.

 

months” shall be construed in accordance with Clause 1.4 (Meaning of “month”).

 

parent company” has the meaning given in the definition of “Subsidiary”.

 

person” includes any individual, firm, company, corporation, government, any state, political sub-division of a state and local or municipal authority, agency of a state or any association, trust, joint venture, consortium or partnership; and any international organisation (whether or not having a separate legal personality).

 

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proceedings” means, in relation to any enforcement provision of a Finance Document, proceedings of any kind, including an application for a provisional or protective measure.

 

regulation” includes any regulation, rule, official directive, request or guideline (whether or not having the force of law) of any governmental, intergovernmental or supranational body, agency, department or regulatory, self-regulatory or other authority or organisation.

 

1.3Construction of Insurance Terms

 

approved” means, for the purposes of Clause 14 (Insurance Undertakings), approved in writing by the Agent.

 

excess risks” means the proportion of claims for general average, salvage and salvage charges not recoverable under the hull and machinery policies in respect of the Ship in consequence of its insured value being less than the value at which the Ship is assessed for the purpose of such claims.

 

obligatory insurances” means all insurances effected, or which the Borrower is obliged to effect, under Clause 14 (Insurance Undertakings) or any other provision of this Agreement or another Finance Document.

 

policy” in relation to any insurance, includes a slip, cover note, certificate of entry or other document evidencing the contract of insurance or its terms.

 

protection and indemnity risks” means the usual risks covered by a protection and indemnity association managed in London, including pollution risks and the proportion (if any) of any sums payable to any other person or persons in case of collision which are not recoverable under the hull and machinery policies by reason of the incorporation in them of clause 6 of the International Hull Clauses (1/11/02) (1/11/03), clause 8 of the Institute Time Clauses (Hulls) (1/10/83) (1/11/95) or the Institute Amended Running Down Clause (1/10/71) or any equivalent provision.

 

war risks” includes the risk of mines and all risks excluded by clause 29 of the International Hull Clauses (1/11/02 or 1/11/03), clause 24 of the Institute Time Clauses (Hulls) (1/11/95) or clause 23 of the Institute Time Clauses (Hulls)(1/10/83).

 

1.4Meaning of “month”

 

A period of one or more “months” ends on the day in the relevant calendar month numerically corresponding to the day of the calendar month on which the period started (“the numerically corresponding day”), but:

 

(a)on the Business Day following the numerically corresponding day if the numerically corresponding day is not a Business Day or, if there is no later Business Day in the same calendar month, on the Business Day preceding the numerically corresponding day; or

 

(b)on the last Business Day in the relevant calendar month, if the period started on the last Business Day in a calendar month or if the last calendar month of the period has no numerically corresponding day;

 

and “month” and “monthly” shall be construed accordingly. 

 

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1.5Non-applicable provisions between the Obligors and German Lenders

 

The undertakings and covenants given under paragraph (e) of Clause 12.2 (Information), Clause 12.4 (Illicit Payments), Clause 12.5 (Prohibited Payments), Clause 12.25 (Compliance with laws etc.) or Clause 21.1 (Illegality and Sanctions) and the representations and warranties given under paragraphs (u), (v), (y), (z) and (jj) of Clause 11.2 (Continuing representations and warranties) and paragraph (j) of Clause 11.3 (Representations on the Delivery Date) respectively shall only be given, and be applicable to, a Lender incorporated in the Federal Republic of Germany insofar as the giving of and compliance with such undertakings and covenants and such representations and warranties do not result in a violation of or conflict with section 7 of the German Foreign Trade Regulation (Außenwirtschaftsverordnung) (in conjunction with section 4 paragraph 1 a no.3 foreign trade law (AWG) (Außenwirtschaftsgesetz)), any provision of Council Regulation (EC) 2271/1996 or any similar applicable anti-boycott law or regulation.

 

1.6General Interpretation

 

In this Agreement:

 

(a)references in Clause 1.1 (Definitions) to a Finance Document or any other document being an “agreed form” are to the form agreed between the Agent (acting with the authorisation of each of the Creditor Parties and SACE) and the Borrower with any modifications to that form which the Agent (with the authorisation of the Majority Lenders and SACE in the case of substantial modifications) approves or reasonably requires;

 

(b)references to, or to a provision of, a Finance Document or any other document are references to it as amended, amended and restated or supplemented, whether before the date of this Agreement or otherwise;

 

(c)references to Sanctions, for the purposes of Clause 11 (Representations and Warranties), Clause 12 (General Undertakings), Clause 20 (Indemnities), Clause 21 (Illegality, etc.) and the Security Documents shall mean “Sanctions” as defined in Clause 1.1 (Definitions), by which any Obligor is bound or to which it is subject or, as regards a regulation, compliance with which is reasonable in the ordinary course of business of any Obligor.

 

(d)references to, or to a provision of, any law or regulation include any amendment, extension, re-enactment or replacement, whether made before the date of this Agreement or otherwise;

 

(e)any English legal term for any action, remedy, method of judicial proceeding, legal document, legal status, court, official or any legal concept or thing shall, in respect of a jurisdiction other than England, be deemed to include that which most nearly approximates in that jurisdiction to the English legal term;

 

(f)words denoting the singular number shall include the plural and vice versa; and

 

(g)Clauses 1.1 (Definitions) to 1.6 (General Interpretation) apply unless the contrary intention appears.

 

1.7Headings

 

In interpreting a Finance Document or any provision of a Finance Document, all clauses, sub-clauses and other headings in that and any other Finance Document shall be entirely disregarded.

 

1.8Schedules

 

The schedules form an integral part of this Agreement.

 

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2Facility

 

2.1Amount of facility

 

Subject to the other provisions of this Agreement, the Lenders agree to make available to the Borrower a loan in five (5) Advances not exceeding the Maximum Loan Amount intended to be applied as follows:

 

(a)in reimbursement to the Borrower or in payment to the Builder, up to the Eligible Amount, of all or part of eighty per cent. (80%) of the Final Contract Price;

 

(b)in reimbursement to the Borrower of the amount of the First Instalment of the SACE Premium paid by it to SACE in accordance with paragraph (a) of Clause 8.1 (SACE Premium);

 

(c)in payment to SACE of the amount of the Second Instalment of the SACE Premium payable by the Borrower to SACE in accordance with paragraph (b) of Clause 8.1 (SACE Premium).

 

2.2Lenders’ participations in Loan

 

Subject to the other provisions of this Agreement, each Lender shall participate in each Advance in the proportion which, as at the relevant Drawdown Date, its Commitment bears to the Total Commitments.

 

2.3Purpose of Loan

 

The Borrower undertakes with each Secured Party to use each Advance only to pay for:

 

(a)goods and services of Italian origin incorporated in the design, construction or delivery of the Ship;

 

(b)subject to the limits and conditions fixed by the Italian Authorities, goods and services incorporated in the design, construction or delivery of the Ship and originating from countries other than Italy where the provision of such goods or services has been sub-contracted by the Builder and therefore remains the Builder’s responsibility under the Shipbuilding Contract;

 

(c)reimbursement to the Borrower of all or part of eighty per cent. (80%) of the First Shipbuilding Contract Instalment;

 

(d)reimbursement to the Borrower of the First Instalment of the SACE Premium paid by the Borrower direct to SACE in accordance with paragraph (a) of Clause 8.1 (SACE Premium); and

 

(e)the Second Instalment of the SACE Premium payable in accordance with paragraph (b) of Clause 8.1 (SACE Premium).

 

2.4Creditor Parties’ rights and obligations

 

(a)The obligations of each Creditor Party under the Finance Documents are several. Failure by a Creditor Party to perform its obligations under the Finance Documents does not affect the obligations of any other Party under the Finance Documents. No Creditor Party is responsible for the obligations of any other Creditor Party under the Finance Documents.

 

(b)The rights of each Creditor Party and SACE under or in connection with the Finance Documents are separate and independent rights and any debt arising under the Finance Documents to a Creditor Party and SACE from an Obligor shall be a separate and independent debt.

 

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(c)A Creditor Party and SACE may not, except as otherwise stated in the Finance Documents, separately enforce its rights under the Finance Documents.

 

(d)Notwithstanding any other provision of the Finance Documents and subject to the prior written consent of SACE, a Creditor Party may separately sue for any Unpaid Sum due to it without the consent of any other Creditor Party or joining any other Creditor Party to the relevant proceedings (it being understood that a Creditor Party may file a claim noting the amounts due to it in the event insolvency proceedings are commenced against the Borrower by a third party).

 

2.5Monitoring

 

No Creditor Party is bound to monitor or verify the application of any amount borrowed pursuant to this Agreement.

 

2.6Obligations of Lenders several

 

The obligations of the Lenders under this Agreement are several; and a failure of a Lender to perform its obligations under this Agreement shall not result in:

 

(a)the obligations of the other Lenders being increased; nor

 

(b)any Obligor or any other Lender being discharged (in whole or in part) from its obligations under any Finance Document,

 

and in no circumstances shall a Lender have any responsibility for a failure of another Lender to perform its obligations under this Agreement or any other Finance Document.

 

3Conditions Precedent

 

3.1General

 

The Borrower may only draw an Advance when the following conditions have been fulfilled to the satisfaction of the Agent and provided no Event of Default shall have occurred and remains unremedied or is likely to occur as a consequence of the drawing of the Advance:

 

3.2No later than the date of this Agreement

 

The Agent shall have received no later than the date of this Agreement:

 

(a)an opinion from legal counsel acceptable to the Secured Parties as to the laws of the state of Bermuda in form and substance satisfactory to the Agent and the Secured Parties, together with the company documentation of the Bermudan Obligors supporting the opinion, including but without limitation the Memorandum of Association and By-laws as filed with the competent authorities and a certificate of a competent officer or manager of each of the Bermudan Obligors containing specimen signatures of the persons authorised to sign the documents on behalf of each of the Bermudan Obligors, including, without limitation:

 

(i)the Bermudan Obligors have been duly formed and are validly existing as companies under the laws of Bermuda;

 

(ii)the Finance Documents to which each Opinion Obligor is a party to falls within the scope of the Bermudan Obligors’ purpose as defined by their Memoranda of Association and By-laws;

 

(iii)each Opinion Obligor’s representatives were at the date of this Agreement fully empowered to sign the Finance Documents to which it is a party;

 

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(iv)either all administrative requirements applicable to the Bermudan Obligors (whether in Bermuda or elsewhere), concerning the transfer of funds abroad and acquisitions of Dollars to meet their obligations hereunder have been complied with, or that there are no such requirements;

 

(v)no withholding tax or stamp duty implications arise by virtue of the Bermudan Obligors entering into the Finance Documents to which they are a party respectively;

 

(vi)a judgment of an English Court in relation to this Agreement and any relevant Finance Documents to which each Opinion Obligor is a party will be recognised by and acknowledged by the Courts in Bermuda; and

 

(vii)the Finance Documents to which each Opinion Obligor is a party constitute the legal, valid and binding obligations of that Opinion Obligor enforceable in accordance with its terms,

 

and containing such qualifications and assumptions as are standard for opinions of this type;

 

(b)an opinion from legal counsel to the Secured Parties as to English law in form and substance satisfactory to the Agent and the Secured Parties in respect of the validity and enforceability of this Agreement and the Guarantee;

 

(c)an opinion from legal counsel to the Secured Parties as to Bermudan law in form and substance satisfactory to the Agent and the Secured Parties in respect of the validity and enforceability of the Shares Security Deed;

 

(d)a Certified Copy of the executed Shipbuilding Contract;

 

(e)such documentary evidence as the Agent and its legal advisers may require in relation to the due authorisation and execution by the Borrower and the Builder of the Shipbuilding Contract and of all documents to be executed by the Borrower and the Builder;

 

(f)a confirmation from EC3 Services Limited of The St Botolph Building, 138 Houndsditch, London EC3A 7AR that it will act for the Borrower and the Guarantor as agent for service of process in England in respect of this Agreement and any other Finance Document;

 

(g)duly executed originals of the Guarantee and the Shares Security Deed and of each document to be submitted pursuant to it;

 

(h)such documentation and other evidence as is reasonably requested by the Agent (for itself or on behalf of any Lender or SACE) or any Lender or SACE (for itself) in order for the Agent and such Lender or SACE to carry out and be satisfied it has complied with all necessary “know your customer” or other similar checks under all applicable laws and regulations pursuant to the transactions contemplated in the Finance Documents;

 

(i)payment of [*] per cent. ([*]%) of the Joint Mandated Lead Arranger structuring fee payable in accordance with paragraph (a)(i) of Clause 9.1 (Fees);

 

(j)payment of the initial portion of the Agent Structuring Fee (as defined in the Fee Letter), payable in accordance with terms of the Fee Letter; and

 

(k)an agreed form version of the Italian law tax opinion from legal counsel to the Creditor Parties in respect of the tax treatment of payments under the SACE Insurance Policy.

 

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3.3No later than forty-five (45) days before the first Drawdown Date

 

The Agent shall have received from the Borrower no later than forty-five (45) days before the first Drawdown Date (and on each subsequent date on which a Compliance Certificate is to be received by the Security Trustee pursuant to clause 11.3(c) of the Guarantee) a duly completed Compliance Certificate from the Guarantor.

 

3.4No later than [*] days before the first Drawdown Date

 

The Agent shall have received from the Borrower no later than [*] days before the first Drawdown Date:

 

(a)notification, signed by a duly authorised signatory of the Borrower, specifying which of the Fixed Interest Rate or the Floating Interest Rate shall be applicable to all Advances until the date of payment of the final repayment instalment of the Loan in accordance with the provisions of Clause 6.1 (Fixed or Floating Interest Rate));

 

(b)the SACE Insurance Policy documentation relating to the transaction contemplated by this Agreement issued on terms whereby the SACE Insurance Policy will enter into full force and effect upon fulfilment of the conditions specified therein to be fulfilled on or before the first Drawdown Date; and

 

(c)a certified true copy bank statement evidencing receipt by the Builder of the First Shipbuilding Contract Instalment (as described in Recital (B)).

 

3.5No later than five (5) Business Days before each Drawdown Date

 

The Agent shall have received no later than five (5) Business Days before each Drawdown Date a Drawdown Notice from the Borrower, signed by a duly authorised signatory of the Borrower, specifying the amount of the Advance to be drawn down.

 

3.6No later than five (5) Business Days before the First Drawdown Date

 

The Agent shall have received no later than five (5) Business Days before the First Drawdown Date:

 

(a)an agreed form version of the Pre-delivery Security and of each document to be issued pursuant to it;

 

(b)an agreed form version of the opinion to be issued by legal counsel to the Secured Parties as to English law in form and substance satisfactory to the Agent and the Secured Parties in respect of the validity and enforceability of the Pre-delivery Security;

 

(c)an agreed form version of the opinion to be issued by legal counsel to the Secured Parties as to Bermuda law in form and substance satisfactory to the Agent and the Secured Parties in respect of the Borrower’s execution of the Pre-delivery Security;

 

(d)an original of the SACE Insurance Policy;

 

(e)evidence that the First Instalment has been paid;

 

(f)an agreed form version of the Interest Make-Up Agreement relative to the Loan;

 

(g)an agreed form version of the opinion to be issued by legal counsel to the Creditor Parties as to Italian law in form and substance satisfactory to the Agent and the Secured Parties in respect of SACE’s issuance of the SACE Insurance Policy and compliance with the principles governing the eligibility of credit risk mitigation techniques as per Article 194, paragraph 1, of the Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013;

 

(h)if applicable, an agreed form version of the Subordinated Debt Security; and

 

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(i)the agreed form version of any opinions to be issued by legal counsel to the Secured Parties relating to the due execution, validity and enforceability of the Subordinated Debt Security (if applicable), in form and substance satisfactory to the Agent and the Secured Parties.

 

3.7No later than the First Drawdown Date

 

The Agent shall have received no later than the first Drawdown Date:

 

(a)a duly executed original of the Pre-delivery Security and of each document to be issued pursuant to it;

 

(b)an opinion from legal counsel to the Secured Parties as to English law in form and substance satisfactory to the Agent and the Secured Parties in respect of the validity and enforceability of the Pre-delivery Security;

 

(c)an opinion from legal counsel to the Secured Parties as to Bermuda law in form and substance satisfactory to the Agent and the Secured Parties in respect of the Borrower’s execution of the Pre-delivery Security;

 

(d)an original of the Interest Make-Up Agreement relative to the Loan and in full force and effect;

 

(e)an opinion from legal counsel to the Creditor Parties as to Italian law in form and substance satisfactory to the Agent and the Secured Parties in respect of SACE’s issuance of the SACE Insurance Policy and compliance with the principles governing the eligibility of credit risk mitigation techniques as per Article 194, paragraph 1, of the Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013; and

 

(f)an Italian law tax opinion from legal counsel to the Creditor Parties in respect of the tax treatment of payments under the SACE Insurance Policy.

 

3.8No later than the Drawdown Date in respect of each Advance other than first Advance and the Delivery Advance

 

The Agent shall have received no later than the Drawdown Date in respect of each Advance other than in respect of the first Advance and the Delivery Advance, a copy of the class milestone certificate in respect of the instalment due under the Shipbuilding Contract to which the Advance relates issued by the classification society.

 

3.9No later than the Drawdown Date in respect of each Advance other than the Delivery Advance

 

The Agent shall have received no later than the Drawdown Date in respect of each Advance other than the Delivery Advance:

 

(a)a Certified Copy of any executed Refund Guarantee and of the power of attorney (or other form of authority) and related corporate authorities pursuant to which such Refund Guarantee was signed;

 

(b)a copy of the relevant invoice from the Builder in respect of the instalment under the Shipbuilding Contract to which the Advance relates;

 

(c)written confirmation from the SACE Agent that there is no outstanding notice from SACE which terminates, cancels or repudiates, withdraws or suspends the SACE Insurance Policy or states that the SACE Insurance Policy is not effective or not guaranteed by the Republic of Italy;

 

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(d)save for the First Shipbuilding Contract Instalment (in respect of which the Builder shall have received from the Borrower an amount equal to one hundred per cent. (100%) of such instalment and the Agent shall have received a certified true copy bank statement evidencing receipt by the Builder of the First Shipbuilding Contract Instalment in accordance with Clause 3.4 (No later than [*] days before the first Drawdown Date), confirmation in writing from the Builder that it has received from the Borrower an amount equal to twenty per cent. (20%) of the relevant instalment due under the Shipbuilding Contract to which the Advance relates;

 

(e)a copy of a duly executed Qualifying Certificate;

 

(f)a certificate confirming that the Shipbuilding Contract continues to be in full force and effect and, in relation to each instalment under a Pre-Delivery Contract, the proposed Refund Guarantee in respect of such instalment is or is to be provided by a Refund Guarantor who is not subject to an RG Downgrade Event;

 

(g)a certificate of confirmation confirming that:

 

(i)no default or mandatory prepayment event pursuant to Clause 16 (Cancellation, Prepayment and Mandatory Prepayment) is continuing or would result from the proposed Advance;

 

(ii)the repeating representations and, in relation to the first Advance and first Drawdown Notice, all of the other representations set out in Clause 11 (Representations and Warranties) (except the representations to be made on the Delivery Date pursuant to paragraph (b) of Clause 11.1 (Timing and repetition) are true;

 

(h)a certificate of confirmation attaching an original or a certified copy of each of the SACE Required Documents and the Agent shall be satisfied that the SACE Required Documents on their face appear properly completed and comply with the requirements of this Agreement and the requirements of the SACE Insurance Policy;

 

(i)if applicable, a duly executed original of the Subordinated Debt Security; and

 

(j)any opinions from legal counsel to the Secured Parties relating to the due execution, validity and enforceability of the Subordinated Debt Security (if applicable), in form and substance satisfactory to the Agent and the Secured Parties.

 

3.10No later than four (4) years before the Intended Delivery Date

 

The Agent shall have received no later than four (4) years before the Intended Delivery Date, payment of the remaining [*] per cent. ([*]%) of the Joint Mandated Lead Arranger structuring fee payable in accordance with paragraph (a)(ii) of Clause 9.1 (Fees).

 

3.11No later than ninety (90) days before the Intended Delivery Date

 

The Agent shall have received no later than ninety (90) days before the Intended Delivery Date:

 

(a)notification from the Borrower of its chosen Maritime Registry; and

 

(b)notification of the Approved Manager.

 

3.12No later than sixty (60) days before the Intended Delivery Date

 

The Agent shall have received from the Borrower no later than sixty (60) days before the Intended Delivery Date:

 

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(a)notification of the Intended Delivery Date;

 

(b)a notice from the Borrower as described in paragraph (a) of Clause 8.4 (Refund); and

 

(c)a Bermudan tax opinion from legal counsel to the Secured Parties in respect of the tax treatment of the entry by the Bermudan incorporated Borrower into this Agreement and the other Finance Documents substantially in the form notified to the Borrower on or around the date of this Agreement and updated to reflect any changes in law.

 

3.13No later than fifteen (15) Business Days before the Intended Delivery Date

 

The Agent shall have received no later than fifteen (15) Business Days before the Intended Delivery Date insurance documents in form and substance satisfactory to the Lenders confirming that the Insurances have been effected and will be in full force and effect on the Delivery Date.

 

3.14No later than five (5) Business Days before the Intended Delivery Date

 

The Agent shall have received no later than five (5) Business Days before the Intended Delivery Date:

 

(a)a Certified Copy of any amendments to the Shipbuilding Contract which are not Minor Modifications arising in the general day to day construction period for a vessel of the type of the Ship and of the power of attorney pursuant to which the authorised signatory of the Borrower signed the Drawdown Notice and a specimen of his signature; and

 

(b)a final confirmation of the Intended Delivery Date signed by a duly authorised signatory of the Borrower, and counter-signed by a duly authorised signatory of the Builder.

 

3.15No later than the Delivery Date

 

The Agent shall have received no later than the Delivery Date:

 

(a)if applicable, a duly executed original of the Subordinated Debt Security;

 

(b)any opinions from legal counsel to the Secured Parties relating to the due execution, validity and enforceability of the Subordinated Debt Security, in form and substance satisfactory to the Agent and the Secured Parties;

 

(c)evidence of payment to and receipt by the Builder of any other part of the Final Contract Price as at the Delivery Date not being financed hereunder;

 

(d)payment of the remaining portion of the Agent Structuring Fee (as defined in the Fee Letter), payable in accordance with terms of the Fee Letter;

 

(e)evidence of payment of all amounts which are due and payable hereunder by the Borrower on or prior to the Delivery Date;

 

(f)a certificate from the Borrower, signed by an authorised representative of the Borrower, confirming that the representations and warranties contained in Clause 11 (Representations and Warranties) are true and correct as of the Delivery Date in consideration of the facts and circumstances existing as of the Delivery Date;

 

(g)a certificate of confirmation confirming that:

 

(i)the Shipbuilding Contract continues to be in full force and effect;

 

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(ii)no default or mandatory prepayment event pursuant to Clause 16 (Cancellation, Prepayment and Mandatory Prepayment) is continuing or would result from the Delivery Advance;

 

(iii)the repeating representations as set out in Clause 11 (Representations and Warranties) are true; and

 

(iv)the representations to be made on the Delivery Date pursuant to paragraph (b) of Clause 11 (Representations and Warranties) are true;

 

(h)an original or a certified copy of each of the SACE Required Documents and the Agent shall be satisfied that the SACE Required Documents on their face appear properly completed and comply with the requirements of this Agreement and the requirements of the SACE Insurance Policy; and

 

provided always that the obligations of the Lenders to make the Advance available on the Delivery Date are subject to the Lenders remaining satisfied that each of the SACE Insurance Policy and the Interest Make-up Agreement will cover the Loan following the advance of the Delivery Advance and delivery to the Agent of the documents listed in Schedule 3 (Documents to be produced by the Builder to the Agent on Delivery).

 

3.16At Delivery

 

Immediately prior to the delivery of the Ship by the Builder to the Borrower, the Agent shall have received:

 

(a)evidence that immediately following delivery:

 

(i)the Ship will be registered in the name of the Borrower in the Maritime Registry;

 

(ii)title to the Ship will be held by the Borrower free of all Security Interests other than any maritime lien in respect of crew’s wages and trade debts arising out of equipment, consumable and other stores placed on board the Ship prior to or concurrently with delivery, none of which is overdue;

 

(iii)the Mortgage will be duly registered in the Maritime Registry and constitutes a first priority security interest over the Ship and that all taxes and fees payable to the Maritime Registry in respect of the Ship have been paid in full; and

 

(iv)the opinions mentioned in paragraphs (b) and (c) of Clause 3.17 (Immediately following Delivery), in draft form immediately prior to the delivery of the Ship, and the documents mentioned in paragraph (e) of Clause 3.17 (Immediately following Delivery) will be issued to and received by the Agent;

 

(b)a Certified Copy of a classification certificate (or interim classification certificate) showing the Ship to be classed in accordance with paragraph (c) of Clause 11.3 (Representations on the Delivery Date).

 

(c)duly executed originals of the General Assignment, any Approved Manager’s Undertaking and the Post-Delivery Assignment together with relevant notices of assignment and the acknowledgement of the notice of assignment to be issued pursuant to the General Assignment and the Post-Delivery Assignment;

 

(d)a Certified Copy of any executed Management Agreement, any bareboat charter and any related security pursuant to paragraph (b) of Clause 13.1 (Pooling of earnings and charters) (if applicable) and any time charterparty in respect of the Ship;

 

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(e)a Certified Copy of any current certificate of financial responsibility in respect of the Ship issued under OPA, a valid Safety Management Certificate (or interim Safety Management Certificate) issued to the Ship in respect of its management by the Approved Manager pursuant to the ISM Code, a valid Document of Compliance (or interim Document of Compliance) issued to the Approved Manager in respect of ships of the same type as the Ship pursuant to the ISM Code, a valid International Ship Security Certificate issued to the Ship in accordance with the ISPS Code and a valid IAPPC issued to the Ship in accordance with Annex VI and, if entered into, any carrier initiative agreement with the United States’ Customs and Border Protection under the Customs-Trade Partnership Against Terrorism (C-TPAT) programme along with any other documents required under the ISM Code and the ISPS Code;

 

(f)a Certified Copy of the power of attorney pursuant to which the authorised signatory(ies) of the Borrower signed the documents referred to in this Clause 3.16 (At Delivery) and to which the Borrower is a party and a specimen of his or their signature(s); and

 

(g)a confirmation from EC3 Services Limited of The St Botolph Building, 138 Houndsditch, London EC3A 7AR (or any replacement process agent satisfactory to the Agent acting reasonably) that it will act for each of the relevant Obligors as agent for service of process in England in respect of the deed of covenants constituting part of the Mortgage (if applicable), the General Assignment and the Post-Delivery Assignment.

 

3.17Immediately following Delivery

 

Immediately following the delivery of the Ship by the Builder to the Borrower, the Agent shall receive:

 

(a)a duly executed original of the Mortgage;

 

(b)an opinion from legal counsel acceptable to the Secured Parties as to the law of the Maritime Registry in form and substance satisfactory to the Agent and the Secured Parties confirming:

 

(i)the valid registration of the Ship in the Maritime Registry; and

 

(ii)the Mortgage over the Ship is a first priority security and has been validly registered in the Maritime Registry;

 

(c)an opinion from legal counsel to the Secured Parties as to English law in form and substance satisfactory to the Agent and the Secured Parties in respect of the validity and enforceability of the deed of covenants constituting part of the Mortgage (if applicable), the General Assignment, the Post-Delivery Assignment and any other relevant security document entered into at delivery;

 

(d)an opinion from legal counsel acceptable to the Secured Parties as to the laws of the state of Bermuda in form and substance satisfactory to the Agent and the Secured Parties together with the company documentation of the Borrower and a certificate of a competent officer or manager of the Borrower containing specimen signatures of the persons authorised to sign the documents on behalf of the Borrower, confirming that, without limitation:

 

(i)the Mortgage, the deed of covenants constituting part of the Mortgage, the General Assignment, the Post-Delivery Assignment and the bareboat charter (if applicable) fall within the scope of the Borrower’s company purpose as defined by its Memorandum of Association and By-laws and are binding on it; and

 

(ii)the Borrower’s representatives are fully empowered to sign the Protocol of Delivery and Acceptance, the Mortgage, the deed of covenants constituting part of the Mortgage, the General Assignment, the Post-Delivery Assignment and the bareboat charter (if applicable) and any related security pursuant to paragraph (b) of Clause 13.1 (Pooling of earnings and charters); and

 

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(e)the documents listed in Schedule 3 (Documents to be produced by the Builder to the Agent on Delivery).

 

3.18Notification of satisfaction of conditions precedent

 

The Agent shall notify the Lenders and SACE promptly upon being satisfied as to the satisfaction of the conditions precedent referred to in this Clause 3 (Conditions Precedent).

 

3.19Waiver of conditions precedent

 

If the Majority Lenders, at their discretion, subject to the prior written consent of SACE, permit an Advance to be borrowed before any of the conditions precedent referred to in Clause 3 (Conditions Precedent) has been satisfied, the Borrower shall ensure that that condition is satisfied within five (5) Business Days after the date (as specified in the relevant part of Clause 3 (Conditions Precedent)) or such later date as the Agent may agree in writing with the Borrower.

 

3.20Changes to SACE’s or SIMEST’s requirements

 

(a)If SACE or SIMEST notifies the Agent in writing of a change of the SACE Insurance Policy or the Interest Make-Up Agreement (as applicable), or gives instructions to the SACE Agent with the effect that, in the opinion of the Agent, this Agreement or certain documents which the Borrower is or may be required to provide for the purpose of drawing an Advance under this Agreement shall be amended to comply with such change or instructions, then the SACE Agent shall promptly notify the Borrower of such a change in SACE’s or SIMEST’s requirements (as applicable) and of the relevant amendments to be made to this Agreement or any such documents as the Agent considers appropriate.

 

(b)If the Agent notifies the Borrower of any proposed changes to this Agreement under paragraph (a) above, and provided that:

 

(i)all the Lenders and the Borrower agree with such changes; and

 

(ii)the Borrower indemnifies and holds harmless the Agent and the Lenders for any reasonable costs that it may incur arising from or in connection with any such amendments (including legal fees),

 

then such changes will be made to this Agreement in accordance with the terms hereof.

 

(c)If, in the opinion of the Lenders, there are any provisions of this Agreement that contradict or conflict with any provision of the SACE Insurance Policy or the Interest Make-up Agreement (as applicable), such that compliance by any Finance Party with the terms of the SACE Insurance Policy or the Interest Make-up Agreement (as applicable) may result in a breach by such Finance Party of the any of the terms of this Agreement or to an extent that the same may have the effect of rendering all or any part of the SACE Insurance Policy or the Interest Make-up Agreement (as applicable) void, voidable or otherwise not in full force and effect, the Borrower agrees that any relevant terms of this Agreement will be amended to the extent agreed in writing between the Borrower and the Agent to ensure compliance with the terms of the SACE Insurance Policy or the Interest Make-up Agreement (as applicable).

 

3.21No claim against the Finance Parties

 

The Borrower agrees that the Finance Parties may act on the instructions of the Italian Authorities in relation to this Agreement.

 

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3.22Examination and reliance on documents by the Agent

 

(a)The Agent shall ensure that an officer or employee or other person designated by it as its authorised representative is present at the Builder on the Delivery Date for the purpose of examining originals (or certified copies) of the SACE Required Documents duly signed by the parties thereto and collecting copies thereof (which copies shall be certified as true copies by an authorised signatory of the Builder and/or the Borrower, as applicable).

 

(b)The Agent shall be entitled (but not obliged) to rely and act upon any documentation or information provided under this Clause 3 (Conditions Precedent), which appears on its face to have been duly completed.

 

(c)The Agent’s responsibility to the Borrower and the Lenders for the examination of any Drawdown Notice, and, when applicable, the documents provided by any person other than the Borrower in connection with each Drawdown Notice, shall be limited to the examination of their apparent compliance with the terms and conditions thereof in accordance with Articles 14 (Standard of examination of documents) and 34 (Disclaimer on effectiveness of documents) of the “Uniform Customs and Practice for Documentary Credits” (currently publication number 600 of the International Chamber of Commerce, latest edition) (except that no time limit for examination of documents shall apply).

 

(d)The Agent and the Lenders shall not be obliged to enquire as to, or be responsible for, the validity, truthfulness and genuineness and (where the relevant document is a conformed copy) conformity to the original of any Drawdown Notice or any other document which appears on its face to be in order, or of any signatures thereon or any of the statements set out therein and shall be entitled to rely on the accuracy of any such statements.

 

(e)In case of any discrepancy in any such documents, the Agent shall notify the Borrower in writing thereof and shall request its approval of such discrepancy in writing.

 

The Agent and the Lenders shall not be responsible for any delay in making available any Advances resulting from any requirement for the delivery of further information or documents reasonably required by the Agent for the relevant conditions precedent in this Agreement to be satisfied.

 

4Drawdown

 

4.1Borrower’s irrevocable payment instructions

 

The Lenders shall not be obliged to fulfil their obligation to make an Advance available other than (i) by reimbursing the Borrower or by paying the Builder all or part of eighty per cent. (80%) of the Final Contract Price on behalf of and in the name of the Borrower, (ii) by reimbursing the Borrower for the First Instalment of the SACE Premium which is to be paid by the Borrower to SACE on the earlier of (A) the date falling 30 days after the issuance of the SACE Insurance Policy and (B) the date falling 6 months after the date of SACE’s board approval and (iii) by payment to SACE of the Second Instalment of the SACE Premium payable on the first Drawdown Date. For the avoidance of doubt, the amount of the Loan shall not exceed the Maximum Loan Amount.

 

The Borrower hereby instructs the Lenders in accordance with this Clause 4.1 (Borrower’s irrevocable payment instructions) and in accordance with Schedule 6 (Drawdown Schedule):

 

(a)to reimburse to the Borrower and to pay to the Builder, up to the Eligible Amount, all or part of eighty per cent. (80%) of the Final Contract Price in five (5) instalments in accordance with Schedule 6 (Drawdown Schedule);

 

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(b)to reimburse the Borrower on the first Drawdown Date the amount of the First Instalment of the SACE Premium to be paid by the Borrower to SACE on the earlier of (i) the date falling 30 days after the issuance of the SACE Insurance Policy and (ii) 16 June 2017, being the date falling 6 months after the date of SACE’s board approval; and

 

(c)to pay to the Agent on behalf of the Lenders for onward payment to SACE (such payment to SACE to be made for value on the first Drawdown Date), by drawing under this Agreement, the amount of the Second Instalment of the SACE Premium.

 

Payment to the Builder of the amounts drawn under paragraph (a) of Clause 4.1 (Borrower’s irrevocable payment instructions) above shall be made on the relevant Drawdown Date during usual banking hours in Italy to the Builder’s account as specified by the Builder in accordance with the Shipbuilding Contract and, in respect of the Delivery Advance, after receipt and verification by the Agent of the documents provided under Schedule 3 (Documents to be produced by the Builder to the Agent on Delivery).

 

Save as contemplated in Clause 4.3 (Modification of payment terms) below, the payment instruction contained in this Clause 4.1 (Borrower’s irrevocable payment instructions) is irrevocable.

 

4.2Conversion Rate for Loan

 

The Dollar amounts to be drawn down under paragraph (a) of Clause 4.1 (Borrower’s irrevocable payment instructions) shall be calculated by the Agent on the Conversion Rate Fixing Date in accordance with the definitions of “Eligible Amount” and “Conversion Rate” in Clause 1.1 (Definitions).

 

4.3Modification of payment terms

 

The Borrower expressly acknowledges that the payment terms set out in this Clause may only be modified with the agreement of the Italian Authorities, the Agent, the Security Trustee, the Lenders and the Borrower in the case of paragraph (a) of Clause 4.1 (Borrower’s irrevocable payment instructions) and with the agreement of the Italian Authorities, the Agent, the Lenders and the Borrower in the case of paragraphs (b) and (c) of Clause 4.1 (Borrower’s irrevocable payment instructions); Provided that it is the intention of the Borrower, the Lenders, the Security Trustee and the Agent that prior to the Conversion Rate Fixing Date agreement shall be reached with those financial institutions with whom the Borrower has entered into the FOREX Contracts (the “Counterparties”) in order that the Euro payments due from the Counterparties under the FOREX Contracts shall be paid to the Agent for holding in escrow and to be released by the Agent simultaneously with (i) the payment of each Advance to the Builder denominated in Euro and (ii) the payment to the Counterparties of the Dollars due to them under the relevant FOREX Contracts out of the Dollar amount available under paragraph (a) of Clause 4.1 (Borrower’s irrevocable payment instructions), subject to the Borrower having deposited with the Agent before each Drawdown Date, if and to the extent required, any Dollar and/or Euro amounts as may be needed to ensure the payment in full of both the balance of the relevant Advance in Euro and the Dollars owed to the Counterparties under all the relevant FOREX Contracts.

 

4.4Availability and conditions

 

(a)A drawing may not be made under this Agreement (and an Advance shall not be available) after the expiry of the Availability Period and any Commitment which is not utilised on the last day of the Availability Period shall then be cancelled.

 

(b)There will be no more than five (5) Advances under this Agreement.

 

(c)The amount of the first Advance shall not exceed the aggregate of (i) the Dollar Equivalent of 80% of the First Shipbuilding Contract Instalment and (ii) the SACE Premium.

 

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(d)The amount of each Advance (save for the first Advance) shall not exceed the Dollar Equivalent of eighty per cent. (80%) of the amount of the instalment due to the Builder under the Shipbuilding Contract to which that Advance relates.

 

(e)The aggregate amount of the Advances cannot exceed the Maximum Loan Amount.

 

(f)The Lenders shall not be under any obligation to lend any Advance to the Borrower if prior to that Advance any of the events specified in Article 20.2 of the Shipbuilding Contract occurs.

 

4.5Notification to Lenders of receipt of a Drawdown Notice

 

The Agent shall promptly notify the Lenders that it has received a Drawdown Notice and shall inform each Lender of:

 

(a)the amount of the Advance and the relevant Drawdown Date;

 

(b)the amount of that Lender’s participation in the Advance; and

 

(c)the duration of the first Interest Period.

 

4.6Lenders to make available Contributions

 

Subject to the provisions of this Agreement, each Lender shall, on and with value on each Drawdown Date, make available to the Agent the amount due from that Lender under Clause 2.2 (Lenders’ participations in Loan) on that Drawdown Date.

 

4.7Disbursement of Advance

 

Subject to the provisions of this Agreement, the Agent shall on each Drawdown Date pay the amounts which the Agent receives from the Lenders under Clause 4.6 (Lenders to make available Contributions) in the like funds as the Agent received the payments from the Lenders:

 

(a)in the case of the amount referred to in paragraph (a) of Clause 4.1 (Borrower’s irrevocable payment instructions), to the account of the Builder and the Borrower which the Borrower specifies in the Drawdown Notice; and

 

(b)in the case of an amount referred to in paragraph (b) of Clause 4.1 (Borrower’s irrevocable payment instructions) to the account of the Borrower which the Borrower shall specify; and

 

(c)in the case of an amount referred to in paragraph (c) of Clause 4.1 (Borrower’s irrevocable payment instructions) to the account of SACE which the SACE Agent shall specify.

 

4.8Disbursement of Advance to third party

 

The payment by the Agent under Clause 4.7 (Disbursement of Advance) shall constitute the making of the Advance and the Borrower shall at that time become indebted, as principal and direct obligor, to each Lender in an amount equal to that Lender’s Contribution.

 

5Repayment

 

5.1Number of repayment instalments

 

The Borrower shall repay the Loan by twenty-four (24) consecutive six-monthly instalments from the earlier of (i) the Delivery Date and (ii) the date of actual disbursement of the respective delivery instalment (the “Starting Point of Repayment”).

 

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5.2Repayment Dates

 

The first repayment instalment shall be repaid on the date falling six (6) months after the Starting Point of Repayment and the last repayment instalment on the date falling one hundred and forty-four (144) months after the Starting Point of Repayment, each date of payment of an instalment being a “Repayment Date”.

 

5.3Amount of repayment instalments

 

Each repayment instalment of the Loan shall be of an equal amount.

 

5.4Final Repayment Date

 

On the final Repayment Date, the Borrower shall additionally pay to the Agent for the account of the Creditor Parties all other sums then accrued or owing under any Finance Document.

 

6Interest

 

6.1Fixed or Floating Interest Rate

 

The Borrower shall provide notification, signed by a duly authorised signatory of the Borrower, to the Agent at least [*] days before the first Drawdown Date specifying which of the Fixed Interest Rate or the Floating Interest Rate shall be applicable to all Advances until the date of payment of the final repayment instalment of the Loan.

 

6.2Fixed Interest Rate

 

If the Borrower has specified a Fixed Interest Rate pursuant to Clause 6.1 (Fixed or Floating Interest Rate), the Loan shall bear interest in respect of each Interest Period at the Fixed Interest Rate. Such interest shall accrue on the actual number of days elapsed based upon a 360 day year and shall be paid on the last day of each Interest Period.

 

6.3Floating Interest Rate

 

If:

 

(a)the Borrower has specified a Floating Interest Rate pursuant to Clause 6.1 (Fixed or Floating Interest Rate); or

 

(b)the Borrower has specified a Fixed Interest Rate pursuant to Clause 6.1 (Fixed or Floating Interest Rate) but thereafter for any reason whatsoever the Interest Make-up Agreement is suspended or otherwise ceases to be in effect; or

 

(c)SIMEST has requested a change of currency pursuant to the Interest Make-Up Agreement and such change of currency is not agreed by the Borrower or Lenders in accordance with Clause 6.16 (Change of currency); or

 

(d)SIMEST has failed to make a net payment of interest to the Lenders pursuant to the Interest Make-Up Agreement,

 

the rate of interest on the Loan in respect of any Interest Period shall be the Floating Interest Rate applicable for that Interest Period and the following provisions of this Clause 6 (Interest) shall apply (in the case of the circumstances referred to in paragraph (b) above, with effect from the date on which the Interest Make-up Agreement ceases to be in effect, with such consequential amendments as shall be necessary to give effect to the switch from a Fixed Interest Rate to a Floating Interest Rate).

 

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6.4Payment of Floating Interest Rate

 

Subject to the provisions of this Agreement, interest on the Loan, as applicable, in respect of each Interest Period shall accrue on the actual number of days elapsed based upon a 360 day year and shall be paid by the Borrower on the last day of that Interest Period.

 

6.5Notification of Interest Periods and Floating Interest Rate

 

The Agent shall notify the Borrower and each Lender of each Floating Interest Rate and the duration of each Interest Period as soon as reasonably practicable after each is determined and no later than the Quotation Date.

 

6.6Market disruption

 

The following provisions of this Clause 6 (Interest) apply if:

 

(a)no rate is quoted on “Thomson Reuters Page LIBOR 01 or LIBOR 02” (or any other page replacing it) and the Lenders do not, before 1.00 p.m. (London time) on the Quotation Date for an Interest Period, provide quotations to the Agent in order to fix LIBOR; or

 

(b)at least 1 Business Day before the start of an Interest Period, Lenders having Contributions together amounting to more than [*] per cent. of the Loan (or, if an Advance has not been made, Commitments amounting to more than [*] per cent. of the Total Commitments) notify the Agent that LIBOR fixed by the Agent would not accurately reflect the cost to those Lenders of funding their respective Contributions (or any part of them) during the Interest Period in the London Interbank Market at or about 11.00 a.m. (London time) on the Quotation Date for the Interest Period; or

 

(c)at least 1 Business Day before the start of an Interest Period, the Agent is notified by a Lender (the “Affected Lender”) that for any reason it is unable to obtain Dollars in the London Interbank Market in order to fund its Contribution (or any part of it) during the Interest Period.

 

6.7Notification of market disruption

 

The Agent shall promptly notify the Borrower and each of the Lenders stating the circumstances falling within Clause 6.6 (Market disruption) which have caused its notice to be given.

 

6.8Suspension of drawdown

 

If the Agent’s notice under Clause 6.6 (Market disruption) is served before an Advance is made:

 

(a)in a case falling within paragraphs (a) or (b) of Clause 6.6 (Market disruption), the Lenders’ obligations to make that Advance;

 

(b)in a case falling within paragraph (c) of Clause 6.6 (Market disruption), the Affected Lender’s obligation to participate in that Advance;

 

shall be suspended while the circumstances referred to in the Agent’s notice continue.

  

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6.9Negotiation of alternative rate of interest

 

If the Agent’s notice under Clause 6.7 (Notification of market disruption) is served after an Advance is made, the Borrower, the Agent and the Lenders or (as the case may be) the Affected Lender shall use reasonable endeavours to agree, in consultation with SACE, within the 30 days after the date on which the Agent serves its notice under Clause 6.7 (Notification of market disruption) (the “Negotiation Period”), an alternative interest rate or (as the case may be) an alternative basis for the Lenders or (as the case may be) the Affected Lender to fund or continue to fund their or its Contribution during the Interest Period concerned.

 

6.10Application of agreed alternative rate of interest

 

Any alternative interest rate or an alternative basis which is agreed during the Negotiation Period shall take effect in accordance with the terms agreed.

 

6.11Alternative rate of interest in absence of agreement

 

If an alternative interest rate or alternative basis is not agreed within the Negotiation Period, and the relevant circumstances are continuing at the end of the Negotiation Period, then the Agent shall, with the agreement of each Lender or (as the case may be) the Affected Lender (and in consultation with SACE), set an interest period and interest rate representing the cost of funding of the Lenders or (as the case may be) the Affected Lender in Dollars or in any available currency of their or its Contribution plus the Margin; and the procedure provided for by this Clause 6.11 (Alternative rate of interest in absence of agreement) shall be repeated if the relevant circumstances are continuing at the end of the interest period so set by the Agent.

 

6.12Notice of prepayment

 

If the Borrower does not agree with an interest rate set by the Agent under Clause 6.11 (Alternative rate of interest in absence of agreement), the Borrower may give the Agent not less than 15 Business Days’, or, if the Fixed Interest Rate has been selected pursuant to Clause 6.1 (Fixed or Floating Interest Rate), 30 days, notice of its intention to prepay at the end of the interest period set by the Agent.

 

6.13Prepayment; termination of Commitments

 

A notice under Clause 6.12 (Notice of prepayment) shall be irrevocable; the Agent shall promptly notify the Lenders or (as the case may require) the Affected Lender and, if the Fixed Interest Rate has been selected by the Borrower, SIMEST of the Borrower’s notice of intended prepayment; and:

 

(a)on the date on which the Agent serves that notice, the Total Commitments or (as the case may require) the Commitment of the Affected Lender shall be cancelled; and

 

(b)on the last Business Day of the Interest Period set by the Agent, the Borrower shall prepay (without premium or penalty subject to the provisions of Clause 20.2 (Breakage costs and SIMEST arrangements)) the Loan or, as the case may be, the Affected Lender’s Contribution, together with accrued interest thereon at the applicable rate (being either the Floating Interest Rate or the Fixed Interest Rate as specified by the Borrower pursuant to Clause 6.1 (Fixed or Floating Interest Rate)).

 

6.14Application of prepayment

 

The provisions of Clause 16 (Cancellation, Prepayment and Mandatory Prepayment) shall apply in relation to the prepayment.

 

6.15Certain Circumstances

 

Notwithstanding anything to the contrary in this Agreement:

 

(a)in the event of any circumstances falling within Clause 6.6 (Market disruption) which might affect the advance of an Advance on a Drawdown Date (the “Relevant Circumstances”):

 

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(i)occurring and being continuing on the date falling ninety (90) days before the proposed Drawdown Date (the “Relevant Date”), each Lender will notify the Borrower (through the Agent) of the Relevant Circumstances on the Relevant Date or, if the Relevant Date is not a Business Day, on the next following Business Day; and

 

(ii)occurring after the Relevant Date, each Lender will notify the Borrower (through the Agent) immediately each Lender become aware of the Relevant Circumstances;

 

(b)in the event of any Relevant Circumstances falling within paragraphs (a) or (b) of Clause 6.6 (Mark