UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

FORM 10-Q

 

 

  

(Mark One)

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

 

For the quarterly period ended March 31, 2016

 

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, or a smaller reporting company (See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting 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 ¨

 

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 227,006,865 ordinary shares outstanding as of May 5, 2016.

 

 

 

 

 

  

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 25
   
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,
 
   2016   2015 
Revenue          
Passenger ticket  $740,112   $670,483 
Onboard and other   337,520    267,699 
Total revenue   1,077,632    938,182 
Cruise operating expense          
Commissions, transportation and other   175,437    171,827 
Onboard and other   63,965    58,645 
Payroll and related   177,143    157,629 
Fuel   81,672    87,374 
Food   51,003    41,851 
Other   115,261    106,374 
Total cruise operating expense   664,481    623,700 
Other operating expense          
Marketing, general and administrative   180,574    154,157 
Depreciation and amortization   101,295    99,976 
Total other operating expense   281,869    254,133 
Operating income   131,282    60,349 
Non-operating income (expense)          
Interest expense, net   (59,754)   (50,989)
Other income (expense)   2,805    (30,139)
Total non-operating income (expense)   (56,949)   (81,128)
Net income (loss) before income taxes   74,333    (20,779)
Income tax expense   (1,104)   (677)
Net income (loss)  $73,229   $(21,456)
Weighted-average shares outstanding          
Basic   227,239,533    224,301,117 
Diluted   228,112,035    224,301,117 
Earnings (loss) per share          
Basic  $0.32   $(0.10)
Diluted  $0.32   $(0.10)

 

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 (Loss)

(Unaudited)

(in thousands)

 

   Three Months Ended
March 31,
 
   2016   2015 
Net income (loss)  $73,229   $(21,456)
           
Other comprehensive income (loss):          
Shipboard Retirement Plan   108    119 
Cash flow hedges:          
Net unrealized gain (loss)   70,450    (103,765)
Amount realized and reclassified into earnings   34,550    21,886 
Total other comprehensive income (loss)   105,108    (81,760)
Total comprehensive income (loss)  $178,337   $(103,216)

 

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,
2016
   December 31,
2015
 
Assets          
Current assets:          
Cash and cash equivalents  $154,867   $115,937 
Accounts receivable, net   45,613    44,996 
Inventories   62,383    58,173 
Prepaid expenses and other assets   130,053    121,305 
Total current assets   392,916    340,411 
Property and equipment, net   9,489,153    9,458,805 
Goodwill   1,388,931    1,388,931 
Tradenames   817,525    817,525 
Other long-term assets   317,214    259,085 
Total assets  $12,405,739   $12,264,757 
Liabilities and Shareholders’ Equity          
Current liabilities:          
Current portion of long-term debt  $629,953   $629,840 
Accounts payable   54,250    51,369 
Accrued expenses and other liabilities   606,161    640,568 
Due to Affiliate   20,976    20,769 
Advance ticket sales   1,178,749    1,023,973 
Total current liabilities   2,490,089    2,366,519 
Long-term debt   5,670,144    5,767,697 
Other long-term liabilities   317,895    349,661 
Total liabilities   8,478,128    8,483,877 
Commitments and contingencies (Note 7)          
Shareholders’ equity:          
Ordinary shares, $.001 par value; 490,000,000 shares authorized; 232,313,393 shares issued and 227,001,432 shares outstanding at March 31, 2016 and 232,179,786 shares issued and 227,815,301 shares outstanding at December 31, 2015   232    232 
Additional paid-in capital   3,832,929    3,814,536 
Accumulated other comprehensive income (loss)   (307,542)   (412,650)
Retained earnings   641,247    568,018 
Treasury shares (5,311,961 and 4,364,485 ordinary shares at March 31, 2016 and December 31, 2015, respectively, at cost)   (239,255)   (189,256)
Total shareholders’ equity   3,927,611    3,780,880 
Total liabilities and shareholders’ equity  $12,405,739   $12,264,757 

 

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,
 
   2016   2015 
Cash flows from operating activities          
Net income (loss)  $73,229   $(21,456)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:          
Depreciation and amortization expense   104,686    104,533 
(Gain) loss on derivatives   (11,948)   29,027 
Deferred income taxes, net   158    60 
Gain on contingent consideration       (9,100)
Write-off of deferred financing fees       195 
Provision for bad debts and inventory   575     
Share-based compensation expense   15,245    12,005 
Changes in operating assets and liabilities:          
Accounts receivable, net   (1,042)   1,474 
Inventories   (4,360)   (80)
Prepaid expenses and other assets   (5,390)   (4,488)
Accounts payable   2,750    (17,455)
Accrued expenses and other liabilities   7,572    (35,481)
Advance ticket sales   148,621    255,556 
Net cash provided by operating activities   330,096    314,790 
Cash flows from investing activities          
Additions to property and equipment, net   (132,027)   (73,131)
Settlement of derivatives   (1,167)    
Net cash used in investing activities   (133,194)   (73,131)
Cash flows from financing activities          
Repayments of long-term debt   (308,248)   (477,224)
Proceeds from long-term debt   204,000    224,033 
Proceeds from the exercise of share options   2,044    51,790 
Proceeds from employee share purchase plan   1,104     
Purchases of treasury shares   (49,999)    
Deferred financing fees and other   (6,873)   (3,660)
Net cash used in financing activities   (157,972)   (205,061)
Net increase in cash and cash equivalents   38,930    36,598 
Cash and cash equivalents at beginning of period   115,937    84,824 
Cash and cash equivalents at end of period  $154,867   $121,422 

 

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, 2014  $230   $3,702,344   $(242,642)  $140,881   $(82,000)  $3,518,813 
                               
Share-based compensation       12,005                12,005 
Proceeds from the exercise of share options   2    51,788                51,790 
Other comprehensive loss, net           (81,760)           (81,760)
Net loss               (21,456)       (21,456)
Balance, March 31, 2015  $232   $3,766,137   $(324,402)  $119,425   $(82,000)  $3,479,392 
                               
Balance, December 31, 2015  $232   $3,814,536   $(412,650)  $568,018   $(189,256)  $3,780,880 
                               
Share-based compensation       15,245                15,245 
Proceeds from the exercise of share options       2,044                2,044 
Proceeds from employee share purchase plan       1,104                1,104 
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 

 

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” 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), (vii) “Apollo” refers to Apollo Global Management, LLC, its subsidiaries and the affiliated funds it manages and the “Apollo Holders” refers to one or more of AIF VI NCL (AIV), L.P., AIF VI NCL (AIV II), L.P., AIF VI NCL (AIV III), L.P., AIF VI NCL (AIV IV), L.P., AAA Guarantor — Co-Invest VI (B), L.P., Apollo Overseas Partners (Delaware) VI, L.P., Apollo Overseas Partners (Delaware 892) VI, L.P., Apollo Overseas Partners VI, L.P., Apollo Overseas Partners (Germany) VI, L.P., AAA Guarantor — Co-Invest VII, L.P., AIF VI Euro Holdings, L.P., AIF VII Euro Holdings, L.P., Apollo Alternative Assets, L.P., Apollo Management VI, L.P. and Apollo Management VII, L.P., (viii) “TPG Global” refers to TPG Global, LLC, “TPG” refers to TPG Global and its affiliates and the “TPG Viking Funds” refers to one or more of TPG Viking, L.P., TPG Viking AIV I, L.P., TPG Viking AIV II, L.P., and TPG Viking AIV-III, L.P. and/or certain other affiliated investment funds, each an affiliate of TPG, (ix) “Genting HK” refers to Genting Hong Kong Limited and/or its affiliates (formerly Star Cruises Limited and/or its affiliates) (Genting HK owns NCLH’s ordinary shares indirectly through Star NCLC Holdings Ltd., its wholly-owned subsidiary (“Star NCLC”)), and (x) “Affiliate(s)” or “Sponsor(s)” refers to the Apollo Holders, Genting HK and/or the TPG Viking Funds. 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

 

NCLH is a leading global cruise company which operates the Norwegian Cruise Line, Oceania Cruises and Regent Seven Seas Cruises brands. We have 23 ships with approximately 45,800 Berths including Sirena, previously under a Bareboat Charter, which joined our Oceania Cruises’ fleet in April 2016. We will introduce five additional ships to our fleet through 2020. We have two Explorer Class Ships on order for delivery in the summer of 2016 and the winter of 2020. Norwegian Joy is on order for delivery in the spring of 2017 and two additional Breakaway Plus Class Ships are on order for deliveries to the Norwegian fleet in the spring of 2018 and fall of 2019. These additions to our fleet will increase our total Berths to approximately 59,300.

 

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 summer months. The interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2015, 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 (Loss) Per Share

 

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

 

   Three Months Ended March 31, 
   2016   2015 
Net income (loss)  $73,229   $(21,456)
Basic weighted-average shares outstanding   227,239,533    224,301,117 
Dilutive effect of awards   872,502     
Diluted weighted-average shares outstanding   228,112,035    224,301,117 
Basic earnings (loss) per share  $0.32   $(0.10)
Diluted earnings (loss) per share  $0.32   $(0.10)(1)

 

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(1)Due to a net loss, excludes 4,745,812 shares as including these would be antidilutive.

 

Revenue and Expense Recognition

 

Deposits received from guests for future voyages are recorded as advance ticket sales and are subsequently recognized as passenger ticket revenue along with onboard and other revenue, and all associated direct costs of a voyage are recognized as cruise operating expenses on a pro-rata basis over the period of the voyage. Guest cancellation penalties are recognized in passenger ticket revenue in the month of the cancellation.

 

Revenue and expenses include port fees and taxes. The amounts included on a gross basis are $62.5 million and $51.9 million for the three months ended March 31, 2016 and 2015, respectively. 

 

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) and such losses were $(4.2) million and gains were $4.9 million for the three months ended March 31, 2016 and 2015, respectively.

 

Depreciation and Amortization Expense

 

The amortization of deferred financing fees are included in depreciation and amortization expense in the consolidated statements of cash flows but are included in interest expense, net and not included in the depreciation and amortization expense in the consolidated statements of operations. 

 

Recently Issued Accounting Pronouncements

 

In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-09 to improve multiple aspects of the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. The guidance is effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods with early adoption permitted. We are currently evaluating the impact of the adoption of this newly issued 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 evaluating the impact of the adoption of this newly issued guidance to our consolidated financial statements.

 

In July 2015, the FASB issued ASU No. 2015-11 to simplify the measurement of inventory for all entities. This applies to all inventory that is measured using either the first-in, first-out or average cost method. The guidance requires an entity to measure inventory at the lower of cost or net realizable value. The guidance must be applied prospectively and will be effective for our interim and annual reporting periods beginning after December 15, 2016. Early adoption is permitted as of the beginning of an interim or annual reporting period. We are currently evaluating the impact of the adoption of this newly issued guidance to our consolidated financial statements.

 

In April 2015, the FASB issued ASU No. 2015-05 to clarify a customer’s accounting for fees paid in a cloud computing arrangement. The amendments provide guidance to customers about whether a cloud computing arrangement includes a software license or if the arrangement should be accounted for as a service contract. This guidance will impact the accounting of software licenses but will not change a customer’s accounting for service contracts. The guidance will be effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2015. We have adopted this guidance and there has not been an impact to our consolidated financial statements.

 

In May 2014, 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

 

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early adopt the guidance as of the original effective date. We are currently evaluating the impact of the adoption of this newly issued guidance to our consolidated financial statements.

 

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 table (in thousands, except amortization period): 

 

   March 31, 2016 
   Gross Carrying
Amount
   Accumulated
Amortization
   Net Carrying
Amount
   Weighted-
Average
Amortization
Period (Years)
 
Customer relationships  $120,000   $(20,793)  $99,207    6.0 
Licenses   3,368    (331)   3,037    5.6 
Total intangible assets subject to amortization  $123,368   $(21,124)  $102,244      
License (Indefinite-lived)  $4,427   $   $      

 

   December 31, 2015 
   Gross Carrying
Amount
   Accumulated
Amortization
   Net Carrying
Amount
   Weighted-
Average
Amortization
Period (Years)
 
Customer relationships  $120,000   $(15,527)  $104,473    6.0 
Backlog   70,000    (70,000)       1.0 
Licenses   3,368    (208)   3,160    5.6 
Total intangible assets subject to amortization  $193,368   $(85,735)  $107,633      
License (Indefinite-lived)  $4,427   $   $      

 

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

 

   Three months ended
March 31,
 
   2016   2015 
Amortization expense  $5,389   $18,230 

 

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
 
2017  $31,177 
2018   26,058 
2019   18,489 
2020   9,906 
2021   75 

 

4.Accumulated Other Comprehensive Income (Loss)

 

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)(3)  $(7,244)

 

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(1)We refer you to Note 5— “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 $119.2 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, 2015 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  $(242,642)  $(234,188)  $(8,454)
Current period other comprehensive loss before reclassifications   (103,765)   (103,765)    
Amounts reclassified into earnings   22,005    21,886(1)   119(2)
Accumulated other comprehensive income (loss) at end of period  $(324,402)  $(316,067)  $(8,335)

 

(1)We refer you to Note 5— “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.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.

 

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) 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 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.

 

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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,
2016
    December 31,
2015
    March 31,
2016
    December 31,
2015
 
Fuel swaps designated as hedging instruments                                    
    Prepaid expenses and other assets   $ 6,283     $     $ 256     $  
    Other long-term assets     3,534             43        
    Accrued expenses and other liabilities                 117,016       128,740  
    Other long-term liabilities     1,241             132,656       132,494  
Fuel swaps not designated as hedging instruments                                    
    Prepaid expenses and other assets     16                    
    Accrued expenses and other liabilities                 1,545        
Foreign currency forward contracts designated as hedging instruments                                    
    Prepaid expenses and other assets     671                    
    Other long-term assets     59,812       3,446       2,953       1,370  
    Accrued expenses and other liabilities                 138       8,737  
    Other long-term liabilities     1,397       551                         5,390       24,181  
Foreign currency collar not designated as a hedging instrument                                    
    Accrued expenses and other liabilities                 29,368       42,993  
Interest rate swaps designated as hedging instruments                                    
    Accrued expenses and other liabilities                 3,882       4,079  
    Other long-term liabilities                 4,490       3,395  

 

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 exists. 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, 2016  Gross Amounts   Gross
Amounts
Offset
   Total Net
Amounts
   Gross
Amounts Not
Offset
   Net Amounts 
Assets  $70,316   $(3,252)  $67,064   $(49,147)  $17,917 
Liabilities   294,485    (2,638)   291,847    (39,761)   252,086 

 

December 31, 2015  Gross Amounts   Gross
Amounts
Offset
   Total Net
Amounts
   Gross
Amounts Not
Offset
   Net Amounts 
Assets  $3,446   $(1,370)  $2,076   $(2,043)  $33 
Liabilities   344,619    (551)   344,068    (336,645)   7,423 

  

Fuel Swaps

 

As of March 31, 2016, we had fuel swaps maturing through December 31, 2019 which are used to mitigate the financial impact of volatility in fuel prices pertaining to approximately 2.0 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,
 
   2016   2015 
Loss recognized in other comprehensive income (loss) – effective portion  $(9,506)  $(2,801)
Loss recognized in other income (expense) – ineffective portion   (5,227)   (6,051)
Amount reclassified from accumulated other comprehensive income (loss) into fuel expense   31,137    20,536 

 

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As of March 31, 2016, we had fuel swaps pertaining to approximately 14,000 metric tons 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,
 
   2016   2015 
Amount reclassified from accumulated other comprehensive income (loss) into other income (expense)  $1,529   $ 

 

Fuel Collars

 

We had fuel collars that matured and were used to mitigate the financial impact of volatility in fuel prices of our fuel purchases.

 

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

 

   Three Months Ended
March 31,
 
   2016   2015 
Amount reclassified from accumulated other comprehensive income (loss) into fuel expense  $   $238 

 

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,
 
   2016   2015 
Amount reclassified from accumulated other comprehensive income (loss) into depreciation and amortization expense  $330   $330 

 

Foreign Currency Forward Contracts

 

As of March 31, 2016, 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 and forecasted Dry-dock payments denominated in euros. The notional amount of our foreign currency forward contracts was €2.3 billion, or $2.6 billion based on the euro/U.S. dollar exchange rate as of March 31, 2016.

 

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,
 
   2016   2015 
Gain (loss) recognized in other comprehensive income (loss) – effective portion  $82,511   $(97,375)
Gain (loss) recognized in other income (expense) – ineffective portion   11    (15)
Amount reclassified from accumulated other comprehensive income (loss) into depreciation and amortization expense   645    (64)

 

Foreign Currency Collar

 

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

 

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):

 

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   Three Months Ended
March 31,
 
   2016   2015 
Amount reclassified from accumulated other comprehensive income (loss) into depreciation and amortization expense  $(91)  $(91)

 

As of March 31, 2016, we had a foreign currency collar used to mitigate the volatility of foreign currency exchange rates related to our ship construction contracts denominated in euros. The notional amount of our foreign currency collar was €274.4 million, or $312.3 million based on the euro/U.S. dollar exchange rate as of March 31, 2016.

 

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,
 
   2016   2015 
Gain (loss) recognized in other income (expense)  $13,625   $(28,953)

 

Interest Rate Swaps

 

As of March 31, 2016, 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 $411.7 million.

 

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,
 
   2016   2015 
Loss recognized in other comprehensive income (loss) – effective portion  $(2,555)  $(3,589)
Gain (loss) recognized in other income (expense) – ineffective portion   3    (7)
Amount reclassified from accumulated other comprehensive income (loss) into interest expense, net   1,000    937 

 

We had an interest rate swap that matured in January 2015, which was used to mitigate our exposure to interest rate movements and to manage our interest expense.

 

The effect on the consolidated financial statements of the interest rate swap contract which was not designated as a hedging instrument was as follows (in thousands):

 

   Three Months Ended
March 31,
 
   2016   2015 
Loss recognized in other income (expense)  $   $(2)

 

Long-Term Debt

 

As of March 31, 2016 and December 31, 2015, the fair value of our long-term debt, including the current portion, was $6.4 billion and $6.5 billion, respectively, which was $6.0 million and $6.6 million lower, 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.

 

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6. Employee Benefits and Compensation Plans

 

Share Option Awards

 

On March 1, 2016, we granted 1.0 million share option awards to our employees at an exercise price of $50.31 with a contractual term of ten years. The share options vest equally over three years.

 

The following is a summary of option activity under our share option plan for the three months ended March 31, 2016 (excludes the impact of 364,584 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 December 31, 2015   7,702,071    432,752    208,333   $47.35   $19.00   $59.43    8.59   $104,864 
Granted   1,035,000    52,083        50.15    59.43               
Exercised   (52,803)   (40,359)       25.92    19.00               
Forfeited and cancelled   (329,027)           48.24                   
Outstanding as of March 31, 2016   8,355,241    444,476    208,333   $47.80   $23.74   $59.43    8.54   $85,185 

 

Restricted Ordinary Share Awards

 

The following is a summary of restricted ordinary share activity for the three months ended March 31, 2016:

 

   Number of
Time-Based
Awards
   Weighted-
Average Grant
Date Fair
Value
 
Non-vested as of January 1, 2016   43,653   $5.87 
Granted        
Vested   (10,462)   7.89 
Forfeited or expired   (352)   2.50 
Non-vested and expected to vest as of March 31, 2016   32,839   $5.26 

 

Restricted Share Unit Awards

 

On March 1, 2016, we granted 1.2 million restricted share unit awards to our employees which vest equally over three years.

 

The following is a summary of restricted share unit activity for the three months ended March 31, 2016 (excludes the impact of 87,500 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, 2016   150,000   $59.43       $    50,000   $59.43 
Granted   1,228,990    50.42    12,500    50.00         
Vested           (12,500)   50.00         
Forfeited or expired   (18,500)   50.31                 
Non-vested and expected to vest as of March 31, 2016   1,360,490   $51.42       $    50,000   $59.43 

 

The share-based compensation expense for the three months ended March 31, 2016 was $15.2 million of which $13.7 million was recorded in marketing, general and administrative expense and $1.5 million was recorded in payroll and related expense.

 

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7. Commitments and Contingencies

 

Ship Construction Contracts

 

We have Norwegian Joy and two other Breakaway Plus Class Ships on order with Meyer Werft shipyard for delivery in the spring of 2017, spring of 2018 and fall of 2019, respectively. These ships will be the largest in our fleet, reaching approximately 164,600 Gross Tons. The combined contract price of these three ships is approximately €2.6 billion, or $3.0 billion based on the euro/U.S. dollar exchange rate as of March 31, 2016. We have export credit financing in place that provides financing for 80% of their contract prices. We also have contracts with Fincantieri shipyard to build two Explorer Class Ships. The original contract price of the ships is approximately €765.0 million, or approximately $870.6 million based on the euro/U.S. dollar exchange rate as of March 31, 2016. We have export credit financing in place that provides financing for 80% of these ships’ contract price. The two Explorer Class Ships are expected to be delivered in the summer of 2016 and winter of 2020.

 

In connection with the second Explorer Class Ship, in March 2016 we entered into a financing agreement with a syndicate of banks that provides for up to $498.2 million of borrowings. Under the terms of this agreement, we may elect either a fixed or variable interest rate and the loan is payable over twelve years.

 

In connection with the contracts to build these 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, subject to certain refund guarantees, 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. We intend to vigorously defend our legal position on all claims and, to the extent necessary, seek recovery.

 

8. Restructuring Costs

 

Due to the Acquisition of Prestige, a number of employee positions were consolidated. As of March 31, 2016, we had an accrual balance of $2.5 million for restructuring costs for severance and other employee-related costs. The expense of $1.7 million for the three months ended March 31, 2016 is included in marketing, general and administrative expense.

 

The following table summarizes changes in the accrual for restructuring costs (in thousands):

 

   Restructuring costs 
Accrued expense balance as of December 31, 2015  $(4,144)
Amounts paid   3,282 
Additional accrued expense   (1,660)
Accrued expense balance as of March 31, 2016  $(2,522)

 

9. Supplemental Cash Flow Information

 

For the three months ended March 31, 2016, we had non-cash investing activities in connection with property and equipment of $7.5 million and for the three months ended March 31, 2015, we had non-cash investing activities in connection with capital leases of $27.6 million.  

 

10. Revision to the Consolidated Statement of Cash Flows

 

During the three months ended September 30, 2015, we determined that for the three months ended March 31, 2015 and six months ended June 30, 2015, cash payments related to property and equipment were reported as a decrease in cash flows from operating activities related to the change in accrued expenses and other liabilities and prepaid and other assets when it should have been reported as a decrease in cash flows from investing activities related to additions to property and equipment. The Consolidated Statements of Cash Flows for the three months ended March 31, 2015 has been revised, and we will revise the six months ended June 30, 2015 in the Form 10-Q filing for the period ended June 30, 2016, to increase cash from operating activities related to the change in accrued expenses and other liabilities and prepaid and other assets and increase investing cash outflows from additions to property and equipment by $14.6 million and $18.5 million, respectively. We have determined that the revision is not material to our consolidated financial statements individually and in the aggregate.

 

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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;
the risks and increased costs associated with operating internationally;
our efforts to expand our business into new markets;
adverse events impacting the security of travel, such as terrorist acts, acts of piracy, armed conflict and threats thereof and other international events;
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;
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;
our ability to incur significantly more debt despite our substantial existing 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;
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;

 

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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 and “Item 1A. Risk Factors” in this report.

 

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 will 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.

 

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) 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.

 

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.

 

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

 

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.

 

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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. 

 

Management NCL Corporation Units. NCLC’s previously outstanding profits interests issued to management (or former management) of NCLC which were converted into units in NCLC. All Management NCL Corporation Units were exchanged for NCLH ordinary shares and restricted shares in the fourth quarter of 2014.

 

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.

 

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.

 

Revolving Loan Facility. $625.0 million senior secured revolving credit facility maturing on May 24, 2018.

 

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.

 

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In addition, Adjusted Net Revenue and Adjusted Net Yield, which excludes 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. 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.

 

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, 2015 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, 2015.

 

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Quarterly Overview

 

Sirena, previously under a Bareboat Charter, joined our Oceania Cruises’ fleet in April 2016. This ship is approximately 30,000 Gross Tons with approximately 684 Berths.

 

We placed an order with Fincantieri shipyards to build a second Explorer Class Ship for delivery in the winter of 2020.

 

We repurchased approximately $50 million of NCLH’s outstanding ordinary shares under our previously authorized three-year, $500 million share repurchase program.

 

Three months ended March 31, 2016 (“2016”) compared to the three months ended March 31, 2015 (“2015”)

 

Total revenue increased 14.9% to $1.1 billion in 2016 compared to $938.2 million in 2015. Net Revenue in 2016 increased 18.4% to $838.2 million from $707.7 million in 2015 due to an increase in Capacity Days of 12.2% and an increase in Net Yield of 5.5%.The increase in Capacity Days was primarily due to the delivery of Norwegian Escape in October 2015.

 

We had net income and diluted EPS of $73.2 million and $0.32, respectively, in 2016. Operating income was $131.3 million in 2016 compared to $60.3 million in 2015. We had Adjusted Net Income and Adjusted EPS of $86.7 million and $0.38, respectively, in 2016, which includes $13.4 million of adjustments primarily consisting of expenses related to non-cash compensation and certain other adjustments. Adjusted EBITDA improved 28.2% in 2016 compared to 2015. 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,
 
   2016   2015 
Revenue        
Passenger ticket   68.7%   71.5%
Onboard and other   31.3%   28.5%
Total revenue   100.0%   100.0%
           
Cruise operating expense          
Commissions, transportation and other   16.3%   18.3%
Onboard and other   6.0%   6.3%
Payroll and related   16.4%   16.8%
Fuel   7.6%   9.3%
Food   4.7%   4.5%
Other   10.7%   11.3%
Total cruise operating expense   61.7%   66.5%
           
Other operating expense          
Marketing, general and administrative   16.8%   16.4%
Depreciation and amortization   9.4%   10.7%
Total other operating expense   26.2%   27.1%
Operating income   12.1%   6.4%
           
Non-operating income (expense)          
Interest expense, net   (5.5)%   (5.4)%
Other income (expense)   0.3%   (3.2)%
Total non-operating income (expense)   (5.2)%   (8.6)%
Net income (loss) before income taxes   6.9%   (2.2)%
Income tax expense   (0.1)%   (0.1)%
Net income (loss)   6.8%   (2.3)%

   

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The following table sets forth selected statistical information:

 

   Three Months Ended
March 31,
 
   2016   2015 
Passengers carried   551,475    513,526 
Passenger Cruise Days   4,285,294    3,768,115 
Capacity Days   3,990,942    3,556,468 
Occupancy Percentage   107.4%   106.0%

 

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,
 
   2016   2016
Constant
Currency
   2015 
Passenger ticket revenue  $740,112   $752,632   $670,483 
Onboard and other revenue   337,520    337,519    267,699 
Total revenue   1,077,632    1,090,151    938,182 
Less:               
Commissions, transportation and other expense   175,437    178,905    171,827 
Onboard and other expense   63,965    63,965    58,645 
Net Revenue   838,230    847,281    707,710 
Non-GAAP Adjustment:               
Deferred revenue (1)   460    460    21,194 
Adjusted Net Revenue  $838,690   $847,741   $728,904 
Capacity Days   3,990,942    3,990,942    3,556,468 
Gross Yield  $270.02   $273.16   $263.80 
Net Yield  $210.03   $212.30   $198.99 
Adjusted Net Yield  $210.15   $212.42   $204.95 

 

  (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,
 
   2016   2016
Constant
Currency
   2015 
Total cruise operating expense  $664,481   $669,159   $623,700 
Marketing, general and administrative expense   180,574    181,315    154,157 
Gross Cruise Cost   845,055    850,474    777,857 
Less:               
Commissions, transportation and other expense   175,437    178,905    171,827 
Onboard and other expense   63,965    63,965    58,645 
Net Cruise Cost   605,653    607,604    547,385 
Less: Fuel expense   81,672    81,672    87,374 
Net Cruise Cost Excluding Fuel   523,981    525,932    460,011 
Less Non-GAAP Adjustments:               
Non-cash deferred compensation (1)   791    791    1,453 
Non-cash share-based compensation (2)   15,245    15,245    12,005 
Severance payments and other fees (3)   2,030    2,030    10,387 
Management NCL Corporation Units exchange expenses (4)           624 
Acquisition of Prestige expenses (5)   1,741    1,741    400 
Contingent consideration adjustment (6)           (9,100)
 Adjusted Net Cruise Cost Excluding Fuel  $504,174   $506,125   $444,242 
Capacity Days   3,990,942    3,990,942    3,556,468 
Gross Cruise Cost per Capacity Day  $211.74   $213.10   $218.72 
Net Cruise Cost per Capacity Day  $151.76   $152.25   $153.91 
Net Cruise Cost Excluding Fuel per Capacity Day  $131.29   $131.78   $129.34 
Adjusted Net Cruise Cost Excluding Fuel per Capacity Day  $126.33   $126.82   $124.91 

 

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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 exchange of Management NCL Corporation Units for ordinary shares, 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) Contingent consideration fair value adjustment related to the Acquisition of Prestige, which is 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,

 
   2016   2015 
Net income (loss)   73,229    (21,456)
Non-GAAP Adjustments:          
Non-cash deferred compensation (1)   791    1,453 
Non-cash share-based compensation (2)   15,245    12,005 
Severance payments and other fees (3)   2,030    10,387 
Management NCL Corporation Units exchange expenses (4)       624 
Acquisition of Prestige expenses (5)   1,741    400 
Deferred revenue (6)   460    21,194 
Amortization of intangible assets (7)   5,268    18,146 
Contingent consideration adjustment (8)       (9,100)
Derivative adjustment (9)   (12,096)   28,953 
Adjusted Net Income  $86,668   $62,606 
Diluted weighted–average shares outstanding – Net income (loss)   228,112,035    224,301,117(10)
Diluted weighted–average shares outstanding – Adjusted Net Income   228,112,035    229,046,929 
Diluted earnings (loss) per share  $0.32   $(0.10)
Adjusted EPS  $0.38   $0.27 

 

  (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 exchange of Management NCL Corporation Units for ordinary shares, 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 Net Revenue.
  (7) Amortization of intangible assets related to the Acquisition of Prestige, which are included in depreciation and amortization expense.
  (8) Contingent consideration fair value adjustment related to the Acquisition of Prestige, which is included in marketing, general and administrative expense.
  (9) In 2016, 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. In 2015, a loss for the fair value adjustment for a foreign exchange collar which does not receive hedge accounting treatment. These adjustments are included in other income (expense).
  (10) Due to a net loss, excludes 4,745,812 shares, as including these would be antidilutive.

 

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

 

  

Three Months Ended

March 31,

 
   2016   2015 
Net income (loss)  $73,229   $(21,456)
Interest expense, net   59,754    50,989 
Income tax expense   1,104    677 
Depreciation and amortization expense   101,295    99,976 
EBITDA   235,382    130,186 
Other (income) expense   (2,805)   30,139 
Non-GAAP Adjustments:          
Non-cash deferred compensation (1)   791    1,453 
Non-cash share-based compensation (2)   15,245    12,005 
Severance payments and other fees (3)   2,030    10,387 
Management NCL Corporation Units exchange expenses (4)       624 
Acquisition of Prestige expenses (5)   1,741    400 
Deferred revenue (6)   460    21,194 
Contingent consideration adjustment (7)       (9,100)
Adjusted EBITDA  $252,844   $197,288 

 

(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 exchange of Management NCL Corporation Units for ordinary shares, 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 Net Revenue.
(7) Contingent consideration fair value adjustment related to the Acquisition of Prestige, which is included in marketing, general and administrative expense.

 

Three months ended March 31, 2016 (“2016”) compared to three months ended March 31, 2015 (“2015”)

 

Revenue

 

Total revenue increased 14.9% to $1.1 billion in 2016 compared to $938.2 million in 2015. Net Revenue in 2016 increased 18.4% to $838.2 million from $707.7 million in 2015 due to an increase in Capacity Days of 12.2% and an increase in Net Yield of 5.5%.The increase in Capacity Days was primarily due to the delivery of Norwegian Escape in October 2015. The increase in Net Yield was primarily due to an increase in passenger ticket pricing and higher onboard and other revenue. Adjusted Net Revenue includes a deferred revenue fair value adjustment of $0.5 million and $21.2 million in 2016 and 2015, respectively, related to the Acquisition of Prestige. On a Constant Currency basis, Net Yield and Adjusted Net Yield increased 6.7% and 3.6%, respectively, in 2016 compared to 2015.

 

Expense

 

Total cruise operating expense increased 6.5% in 2016 compared to 2015 primarily due to the increase in Capacity Days as discussed above and an increase in Dry-dock expenses. Total other operating expense increased 10.9% in 2016 compared to 2015 primarily due to an increase in marketing, general and administrative expenses with an increase in advertising expenses and in 2015 we had $9.1 million of an incremental contingent consideration adjustment related to the Acquisition of Prestige. Depreciation and amortization expense increased primarily due to the depreciation of Norwegian Escape in 2016 and in 2015 we had $13.0 million of incremental amortization of intangible assets due to the Acquisition of Prestige. On a Capacity Day basis, Net Cruise Cost decreased 1.4% (1.1% on a Constant Currency basis) due to a decrease in fuel expense which was primarily resulting from a 16.7% decrease in the average fuel price to $438 per metric ton in 2016 from $526 per metric ton in 2015 primarily offset by an increase in marketing, general and administrative expenses. Adjusted Net Cruise Cost Excluding Fuel per Capacity Day increased 1.1% (1.5% on a Constant Currency basis) primarily due to the increase in expenses discussed above.

 

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Interest expense, net increased to $59.8 million in 2016 from $51.0 million in 2015 primarily due to higher interest rates due to an increase in LIBOR rates as well as an increase in average debt balances outstanding primarily associated with the delivery of Norwegian Escape in October 2015.

 

Other income (expense) was income of $2.8 million in 2016 compared to an expense of $(30.1) million in 2015. 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 2015, the expense was primarily related to the derivative fair value adjustment for a foreign exchange collar which does not receive hedge accounting treatment. 

 

In 2016, we had an income tax expense of $1.1 million compared to $0.7 million in 2015.

 

Liquidity and Capital Resources

 

General

 

As of March 31, 2016, our liquidity was $691.9 million consisting of $154.9 million in cash and cash equivalents and $537.0 million under our Revolving Loan Facility. Our primary ongoing liquidity requirements are to finance working capital, capital expenditures and debt service.

 

As of March 31, 2016, we had a working capital deficit of $2.1 billion. This deficit included $1.2 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 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 increase our liquidity in the near term, taking into consideration our current and expected requirements, our assessment of prevailing market conditions and expectations regarding future conditions, and the contractual and other restrictions to which we are subject.

 

Sources and Uses of Cash

 

In this section, references to “2016” refer to the three months ended March 31, 2016 and references to “2015” refer to the three months ended March 31, 2015.

 

Net cash provided by operating activities was $330.1 million in 2016 as compared to $314.8 million in 2015. The change in net cash provided by operating activities reflects net income in 2016 of $73.2 compared to a net loss in 2015 of $(21.5) million. The net cash provided by operating activities included timing differences in cash receipts and payments relating to operating assets and liabilities.

 

Net cash used in investing activities was $133.2 million in 2016, primarily related to payments for ship improvements, ships under construction and shoreside projects. Net cash used in investing activities was $73.1 million in 2015, primarily related to payments for delivery of Norwegian Getaway and ship improvements and shoreside projects.

 

Net cash used in financing activities was $158.0 million in 2016 and $205.1 million in 2015 primarily due to net repayments of our Revolving Loan Facility and other loan facilities and the repurchase of our ordinary shares in 2016.

 

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, 2016, anticipated capital expenditures were $0.9 billion for the remainder of 2016 and $1.3 billion for each of the years ending December 31, 2017 and 2018, of which we have export credit financing in place for the expenditures related to ship construction contracts of $0.5 billion for the remainder of 2016, $0.6 billion for 2017 and $0.7 billion for 2018.

 

We have Norwegian Joy and two other Breakaway Plus Class Ships on order with Meyer Werft shipyard for delivery in the spring of 2017, spring of 2018 and fall of 2019, respectively. These ships will be the largest in our fleet, reaching approximately 164,600 Gross Tons. The combined contract price of these three ships is approximately €2.6 billion, or $3.0 billion based on the euro/U.S. dollar exchange rate as of March 31, 2016. We have export credit financing in place that provides financing for 80% of their contract prices. We also have contracts with Fincantieri shipyard to build two Explorer Class Ships. The original contract price of the ships is approximately €765.0 million, or approximately $870.6 million based on the euro/U.S. dollar exchange rate as of March 31, 2016. We have export credit financing in place that provides financing for 80% of these ships’ contract price. The Explorer Class Ships are expected to be delivered in the summer of 2016 and winter of 2020.

 

In connection with the contracts to build these 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, subject to certain

 

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refund guarantees, 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, 2016 and 2015 was $7.1 million and $7.7 million, respectively, primarily associated with the construction of our Breakaway Plus Class Ships.

 

Off-Balance Sheet Transactions

 

None.

 

Contractual Obligations 

 

As of March 31, 2016, 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)   $ 6,399,065     $ 629,953     $ 1,923,757     $ 2,015,666     $ 1,829,689  
Due to Affiliate (2)     20,976       20,976                    
Operating leases (3)     157,762       13,230       29,072       29,390       86,070  
Ship construction contracts (4)     3,687,018       559,999       1,985,881       1,141,138        
Port facilities (5)     251,144       38,875       59,536       52,078       100,655  
Interest (6)     895,915       177,517       345,324       227,627       145,447  
Other (7)     166,533       55,522       53,686       32,793       24,532  
Total   $ 11,578,413     $ 1,496,072     $ 4,397,256     $ 3,498,692     $ 2,186,393  

 

(1)Includes premiums aggregating $0.7 million. Also includes capital leases.
(2)Primarily related to the purchase of Norwegian Sky.
(3)Primarily for offices, motor vehicles and office equipment.
(4)For our newbuild ships based on the euro/U.S. dollar exchange rate as of March 31, 2016. Export credit financing is in place from syndicates of banks.
(5)Primarily for our usage of certain port facilities.
(6)Includes fixed and variable rates with LIBOR held constant as of March 31, 2016.
(7)Future commitments for service and maintenance contracts and other Business Enhancement Capital Expenditures.

 

The table above does not include $11.2 million of unrecognized tax benefits.

 

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

 

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. Our ships and substantially all other property and equipment are pledged as collateral for our debt. We believe we were in compliance with these covenants as of March 31, 2016.

 

The impact of changes in world economies and especially the global credit markets has created 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 Revolving Loan Facility and our ability to issue debt securities or raise additional equity, 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. 

 

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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 amount, 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, 2016, we had interest rate swap agreements to hedge our exposure to interest rate movements and to manage our interest expense. As of March 31, 2016, 52% of our debt was fixed and 48% 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, 2016 was $411.7 million. Based on our March 31, 2016 outstanding variable rate debt balance, a one percentage point increase in annual LIBOR interest rates would increase our annual interest expense by approximately $30.6 million excluding the effects of capitalization of interest.

 

Foreign Currency Exchange Rate Risk

 

As of March 31, 2016, 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 €620.1 million, or $705.7 million based on the euro/U.S. dollar exchange rate as of March 31, 2016. We estimate that a 10% change in the euro as of March 31, 2016 would result in a $70.6 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% and 14.0% for the three months ended March 31, 2016 and 2015, respectively. We use fuel derivative agreements to mitigate the financial impact of fluctuations in fuel prices and as of March 31, 2016, we had hedged approximately 92%, 82%, 55% and 50% of our 2016, 2017, 2018 and 2019 projected metric tons of fuel purchases, respectively. We estimate that a 10% increase in our weighted-average fuel price would increase our anticipated 2016 fuel expense by $16 million. This increase would be partially offset by an increase in the fair value of our fuel swap agreements of $10 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 Exchange Act Rule 13a-15(e), as of March 31, 2016. 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 our management’s evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2016 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, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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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. 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 2015 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 2015 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. NCLH may make repurchases in the open market, in privately negotiated transactions, or pursuant to accelerated share repurchase programs or structured share repurchase programs, and any repurchases may be made pursuant to Rule 10b5-1 plans.

 

Share repurchase activity during the three months ended March 31, 2016 was as follows:

 

Period  Total Number
of Shares
Purchased as
Part of a
Publicly
Announced
Program
   Average
Price Paid
per Share
   Approximate
Dollar Value of
Shares that May
Yet be
Purchased
Under the
Program
(in thousands)
 
January 1, 2016 – January 31, 2016   538,363   $55.72   $283,505 
February 1, 2016 – February 29, 2016      $   $283,505 
March 1, 2016 – March 31, 2016   409,113   $48.89   $263,505 
Total for the three months ended March 31, 2016   947,476   $52.77   $263,505 

 

Item 5. Other Information

 

Explorer Class Newbuild Loan Agreement

 

On March 30, 2016, Explorer II New Build, LLC, a wholly-owned subsidiary of Regent, entered into a loan facility with Crédit Agricole Corporate and Investment Bank, Société Générale, HSBC Bank plc and KFW IPEX-Bank GmbH, as Joint Mandated Lead Arrangers, and Crédit Agricole Corporate and Investment Bank, as Agent and Security Trustee, and the banks and financial institutions lenders party thereto, providing for borrowings of up to approximately $498 million with a syndicate of financial institutions to finance 80% of the construction contract for an Explorer Class Ship and payment of the export credit insurance premium (the “Explorer Class Newbuild Loan Agreement”). The twelve-year fully amortizing loan requires semi-annual principal and interest payments commencing six months following the draw-down date or, if three-month interest periods are elected, quarterly principal and interest payments commencing three months following the draw-down date.  Borrowings under the Explorer Class Newbuild Loan Agreement will bear interest, at the election of Explorer II New Build, LLC, at either (i) a fixed rate of 3.01% per year, or (ii) three month or six month LIBOR plus a margin of 1.75% per year.  Explorer II New Build, LLC is required to pay various fees to the lenders under the Explorer Class Newbuild Loan Agreement, including a commitment fee on the maximum undrawn loan amount payable semi-annually beginning September 2016.  Obligations under the Explorer Class Newbuild Loan Agreement are guaranteed by NCLC, and they are also 95% guaranteed to the lenders by the export credit agency.  The Explorer Class Newbuild Loan Agreement contains financial covenants, including a requirement for NCLC to maintain a minimum liquidity balance at all times, a maximum total net funded debt to total capitalization ratio at all times, and certain other ratios. The Explorer Class Newbuild Loan Agreement also contains negative covenants that are customary for credit facilities of this type. Events of default include, among others, the failure to pay principal and interest when due, a material breach of representation or warranty, covenant defaults, events of bankruptcy and change of control. The equity interests of Explorer II New Build, LLC are, and the ship together with certain interests relating to the ship, when delivered, will be, pledged as collateral for the aforementioned debt.

 

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))
   

 

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10.1* Employment Agreement by and between Prestige Cruise Services, LLC and Robert Binder, entered into on October 26, 2015 #
   
10.2* Addendum No. 5, dated March 16, 2016, to Shipbuilding Contract for Hull identified therein, as amended, by and among Meyer Werft GmbH & Co. KG, Breakaway Four, Ltd. and NCL Corporation Ltd. +
   
10.3* Addendum No. 4, dated March 16, 2016, to Shipbuilding Contract for Hull identified therein, as amended, by and among Meyer Werft GmbH & Co. KG, Seahawk One, Ltd. and NCL Corporation Ltd. +
   
10.4* Addendum No. 4, dated March 16, 2016, to Shipbuilding Contract for Hull identified therein, as amended, by and among Meyer Werft GmbH & Co. KG, Seahawk Two, Ltd. and NCL Corporation Ltd. +

 

10.5* Amendment No. 10, dated March 31,2016, to Office Lease Agreement, dated December 1, 2006, as amended, by and between SPUS7 Miami ACC, LP and NCL (Bahamas) Ltd. +
   
10.6* Explorer Class Newbuild Loan Agreement, dated March 30, 2016, among Explorer II New Build, LLC, as borrower, the banks and financial institutions listed in Schedule 1 as lenders, Crédit Agricole Corporate and Investment Bank, Société Générale, HSBC Bank plc, KFW IPEX-Bank GmbH, as joint mandated lead arrangers and Crédit Agricole Corporate and Investment Bank as agent and security trustee +
   
10.7* Guarantee relating to the Explorer Class Newbuild Loan Agreement, dated March 30, 2016, among NCL Corporation Ltd., as guarantor, and Crédit Agricole Corporate and Investment Bank 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, 2016, formatted in Extensible Business Reporting Language (XBRL), as follows:

 

  (i) the Consolidated Statements of Operations for the three months ended March 31, 2016 and 2015;
     
  (ii) the Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2016 and 2015;
     
  (iii) the Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015;
     
  (iv) the Consolidated Statements of Cash Flows for the three months ended March 31, 2016 and 2015;
     
  (v) the Consolidated Statements of Changes in Shareholders’ Equity for the three months ended March 31, 2016 and 2015; 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, 2016

 

 29 

 

 

 

Exhibit 10.1

 

EMPLOYMENT AGREEMENT

 

THIS EMPLOYMENT AGREEMENT (this “Agreement”) is made and entered into this 26th day of October 2015, by and between Prestige Cruise Services, LLC, a company organized under the laws of Delaware (the “Company”), and Robert Binder (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 Vice Chairman, Oceania Cruises and Regent Seven Seas Cruises, 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 October 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 Five Hundred thousand dollars ($500,000.00). 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 Travel. During the Period of Employment, Executive’s travel expenses will be reimbursed in accordance with the Employer’s travel policy in effect at the time of travel. Executive shall be permitted to travel via first class service on regularly scheduled commercial aircraft for travel to California one time per month.

 

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.

 

5.7           Section 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:

 

Prestige Cruise Services, LLC
8300 NW 33rd Street
Miami, FL 33122
Facsimile: (305) 436-4101
Attn: Senior Vice President, Corporate Human Resources

 

with a copy to:

 

Prestige Cruise Services, LLC
8300 NW 33rd Street


 

 

  

Miami, FL 33122
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
   
  Prestige Cruise Services, LLC
  a company organized under the laws of Delaware
     
  By: /s/ Frank J. Del Rio
  Name:  Frank J. Del Rio
  Title:  President and Chief Executive Officer
     
  EXECUTIVE
   
  /s/ Robert Binder
  Robert Binder

 

 

 

  

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 Prestige Cruise Services, LLC. , a company organized under the laws of Delaware (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:  
   
  Prestige Cruise Services, LLC
  a company organized under the laws of Delaware,

 

  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:  

 

 

 

 

 

 

Exhibit 10.2

 

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

 

ADDENDUM NO. 5

TO THE SHIPBUILDING CONTRACT

HULL NO. [*]

DATED 14 SEPTEMBER 2012

 

between

 

MEYER WERFT GMBH & CO. KG, a company organised and existing under the laws of Germany, and having its principal office at Industriegebiet Süd, D-26871 Papenburg, Germany (the "Builder"); and

 

BREAKAWAY FOUR, LTD., a company incorporated in Bermuda and having its registered office at Cumberland House, 9th Floor, 1 Victoria Street, Hamilton HM11, Bermuda (the "Buyer"); and

 

NCL CORPORATION LTD., a company incorporated in Bermuda having its registered office at Cumberland House, 9th Floor, 1 Victoria Street, Hamilton HM11, Bermuda ("NCLC").

 

Whereas, by a Shipbuilding Contract dated 14 September 2012 in relation to Hull No. [*] – as amended – made between the Builder, the Buyer and NCLC (the "Contract"), the Builder agreed to design, build, complete and sell to the Buyer a passenger cruise ship and the Buyer agreed to purchase and accept delivery of the same, all in accordance with the terms and conditions of the Contract.

 

Whereas, the Buyer has requested the Builder to adjust the Ship extensively for the [*] market although the Ship is already in an advanced stage of design and construction (hereinafter referred to as the “[*] Changes”). For that reason a core team with specialists from technical design and construction departments was established to develop a complete new process and a procedure to implement such extensive changes as far as reasonably practicable at such a late stage of design and construction.

 

Whereas, the parties have agreed that the [*] Changes shall be conducted and documented – in addition to this addendum – by way of an agreement on modification (named as the “[*] Changes AOM), which describes the scope of modifications in detail and the impact on the Contract, Specification, including Appendices and Plans.

 

Now, therefore, in consideration of the premises, and for other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, the parties agree as follows:

 

 

 

  

1.The general arrangement plan which is currently agreed by the parties within the Contract and hence does currently form a part of the Contract shall be replaced as follows:

 

The general arrangement plan [*] (as amended) shall be and is hereby entirely replaced by the general arrangement plan [*] Changes Milestone C1, Alteration L, and dated March 07, 2016

 

2.Article 1 Clause 2 “Description of the Ship” shall be and is hereby amended as follows:

 

(ii) Deadweight

 

The guaranteed deadweight at a mean moulded draft of [*] metres will be [*] metric tons in seawater of 1.025 t/m3 density (and under the conditions further described in section G.2.3 of the Specification). The deadweight is the difference between the loaded displacement and the contractual lightweight. The contractual lightweight is the weight of the Ship clean, empty, equipped ready for sea in accordance with section G.8.3 of the Specification and adjusted by any weight (and related ballast) added or subtracted by reason of any agreements on modification made at any time under Article 3 of this Contract.

 

(iii) Passenger Cabins:

 

Penthouse Suite: [*]

Courtyard Suite 1: [*]

Courtyard Suite 2: [*]

Courtyard Suite 2 ADA: [*]

Corner Suite: [*]

Junior Suite: [*]

Family Deluxe Suite: [*]

Family Deluxe Suite ADA: [*]

Family Cabin Large Type 01: [*]

Family Cabin Large Type 02: [*]

Concierge Family Cabin Large Type 01: [*]

Concierge Family Cabin Large Type 02: [*]

Concierge Suite Small: [*]

Concierge Suite Large A: [*]

Concierge Suite Large B: [*]

Concierge Suite B: [*]

Mini Suite: [*]

Mini Suite ADA: [*]

Balcony Cabin: [*]

Balcony Cabin ADA: [*]

Ocean View Cabins Transversal: [*]

Ocean View Cabins Longitudinal: [*]

Ocean View Cabins Longitudinal Family: [*]

Ocean View Cabins ADA: [*]

Family cabin: [*]

Family cabin ADA: [*]

Inside Cabin: [*]

Inside Cabin ADA: [*]

 

  Page 2 of 7

 

  

(iv) Crew Cabins:

 

Captain class cabins: [*]

Senior officer cabins: [*]

Officer outside cabins: [*]

Officer inside cabins: [*]

Senior Crew single cabins: [*]

Senior Crew double cabins: [*]

Crew single cabins: [*]

Crew single shared cabins: [*]

Crew double cabins A: [*]

Crew double cabins B: [*]

Crew entertainer cabins: [*]

 

(v) Life saving equipment:

 

The number of person on board for the purposes of long international voyages: [*].

 

(vii) Speed:

The trial speed of the Ship at a mean moulded draft of [*] metres shall be at least [*] knots under the conditions specified in Section G.2.5 of the Specification.

 

Article 2, Clause 2:

 

The time period for the approval of those documents and drawings which will to any extent be revised or even newly issued in each case as a consequence of the [*] Changes (the “[*] Changes Plans”) and which are to be approved by or on behalf of the Buyer under and in accordance with this Contract including without limitation Article 2 Clause 2.6 of the Contract, is hereby reduced from fifteen (15) working days to ten (10) working days and the Builder will deliver an indicative pre-alert list of the drawings to the Buyer the week before. Any [*] Changes Plans which are sufficient for the Buyer’s review under and in accordance with Article 2 Clause 2.4 of the Contract and which the Buyer fails to return to the Builder within the above mentioned period of (10) working days shall without any further notice being required by the Builder be deemed to have been automatically approved by the Buyer in their entirety.

 

3.Article 2, Clause 4:

 

The milestones programme which is currently agreed by the parties within the Contract and hence does currently form part of the Contract as Appendix 8 to the Specification (“Milestones”), shall be replaced as follows:

 

The milestone plan revision 4 is hereby replaced by the milestone plan revision 5, dated January 12, 2016.

 

  Page 3 of 7

 

  

4.Article 3, Clause 1:

 

For the avoidance of doubt, the [*] Changes AOM shall be dealt with under and in accordance with Article 3 of the Contract and hence e.g. adjustments to or amendments of any relevant provisions of this Contract, the Plans or the Specification, which are directly, necessarily and reasonably occasioned by such modifications will be accepted accordingly. The price of the [*] Changes, which have been agreed between the Buyer and the Builder but which still need to be documented in the [*] Changes AOM, is EUR [*] (in words: Euro [*]) and shall be payable by the Buyer to the Builder with the balance of the Contract Price on delivery of the Ship. For the avoidance of doubt, the afore-mentioned price for the [*] Changes does not include any other AOM agreed under and in accordance with the Contract so that accordingly also for any such other AOM the price(s) shall - if not agreed otherwise like for the [*] AOM - be paid with the balance of the Contract Price on delivery of the Ship.

 

5.Article 6, Clause 2.2:

 

The guaranteed trial speed ("GTS") of the Ship at a mean moulded draft of [*] metres ([*] metres and [*]) shall be [*] knots and shall be demonstrated by the Builder during the sea trials tests under the conditions described in section G.2.5 of the Specification. If at any time the Builder anticipates that, or if the sea trials tests demonstrate that, there will be a deficiency in the GTS the Builder shall promptly develop and provide the Buyer with a proposal to remedy the deficiency at the Builder's cost.

 

6.Article 6, Clause 2.6:

 

The guaranteed deadweight capacity of the Ship shall be [*] metric tons under the conditions defined in sections G.2.3 and G.2.4 of the Specification and shall be demonstrated by the Builder in the specified deadweight capacity test.

 

7.Article 6, Clause 2.7:

 

If the Builder fails to remedy any deficiency in the Ship's deadweight capacity before delivery, the Builder shall have no liability to the Buyer if the actual deadweight capacity of the Ship, as determined in accordance with the Specification, is less than [*] below the guaranteed deadweight capacity, but the Contract Price for the Ship shall be reduced by way of liquidated damages by the sum of [*] for each full metric ton of such deficiency being more than [*] up to a maximum deficiency of [*] at a draft of not more than [*] on even keel with fractions of each metric ton being calculated in proportion provided that if the actual deadweight deficiency at a mean moulded draft of not more than [*] even keel is more than [*], the Buyer may, at its option, either accept the Ship at a reduction in the Contract Price of [*] for such Defect or reject the Ship and terminate this Contract pursuant to Clause 2 in Article 9.

 

8.Article 6, Clause 2.14:

 

The Buyer and the Builder agree that Article 6, Clauses 2.14 to 2.18 shall not apply in the event of a delay in the delivery of the Ship by the Delivery Date (as amended in paragraph 9 below) if such delay is caused by the inability of the Builder to complete the [*] Changes in accordance with the Contract by the Delivery Date, and that in the event of

 

  Page 4 of 7

 

  

any such delay the following provisions shall apply in place of Article 6, Clauses 2.14 to 2.18:

 

"The Builder: acknowledges that the Buyer intends to arrange for the Ship's maiden cruise with fare paying passengers to be held directly following the end of the Rectification Period; acknowledges that it is imperative for the Ship to be ready at the time, and in the condition, provided for in this Contract so as to enable the Buyer to fulfill its commitments in relation to the Ship's maiden cruise; agrees to take all reasonable measures to assist the Buyer to fulfill its commitments in relation to the Ship's maiden cruise; acknowledges that if the Outstanding Works (as defined in paragraph 10 below) have not been completed in accordance with this Contract by the end of the Rectification Period, the Buyer will suffer loss and damage (including reputational damage) in amounts which are extremely difficult to quantify in advance; and agrees that the per day sums set out below represent a genuine and reasonable pre-estimate of the Buyer's loss and damage for each day of delay in completion of the Outstanding Works in accordance with this Contract beyond the end of the Rectification Period.

 

If completion of the Outstanding Works in accordance with this Contract is delayed beyond the end of the Rectification Period, then subject to a grace period which will expire at midnight in Papenburg on the [*], the Builder shall pay liquidated damages for each calendar day (or pro-rata for each part of a calendar day) of delay, calculated as follows: (a) for the first [*] of delay, counting from midnight Papenburg on the [*], the liquidated damages for delay shall be calculated at the rate of [*] per day; and thereafter, until actual completion of the Outstanding Works in accordance with this Contract, the liquidated damages for delay shall be calculated at the rate of [*].

 

Payment of the liquidated damages referred to above shall be made by the Builder to the Buyer as follows. The Builder's first payment shall be made on the earlier of (a) the [*] after completion of the Outstanding Works in accordance with this Contract have been delayed beyond the last day of the Rectification Period and (b) the date on which completion of the Outstanding Works in accordance with this Contract actually occurs. Thereafter the payments shall be made every [*] commencing on the [*] after the end of the [*] period mentioned above, and continuing on the last day of each succeeding [*] period thereafter until the day on which completion of the Outstanding Works in accordance with this Contract actually occurs."

 

Provided however, the maximum liquidated damages payable by the Builder to the Buyer for delay in delivery resulting from the [*] Changes shall be limited to a total maximum amount of [*].

 

9.Article 7, Clause 1.1:

 

The Delivery Date of the Ship shall now be [*] instead of [*]. The Buyer herewith agrees and acknowledges that due to the late request for the [*] Changes - and their corresponding late implementation into the Ship - the Ship might not be fit for purpose at the Delivery Date as currently provided for in the Contract. However, the Builder and the Buyer (i) will jointly take all reasonable efforts to make to Ship fit for purpose at the Delivery Date and (ii) expect at the date of this addendum in consideration of the amendments to the Contract contemplated herein that this common goal is achievable. In case the Ship contrary to the above expectations might have one or more Defects relating

 

  Page 5 of 7

 

  

to the [*] Changes which: do not entitle the Buyer to reject the Ship under any of the provisions of Article 6, Clause 2.3, Clause 2.5 or Clause 2.7; do not and will not render the Ship unseaworthy or otherwise prevent the Buyer from safely conveying Ship to China; do not prevent the Buyer from registering the Ship under the flag and laws of the Flag State; do not prevent the Buyer from drawing any tranche of the loan by which the Buyer intends to finance its purchase of the Ship; do not and will not prevent the Buyer from insuring the ship in accordance with its usual policies and standards and do not qualify as minor and insignificant Defects under and in accordance with Article 7 Clause 1.6 of the Contract, including without limitation not receiving the passenger vessel safety certificate in time and/or receiving one or more conditions of class and/or other restrictions of other authorities (collectively, "Acceptable Defects") the Buyer herewith unconditionally and irrevocably waives all its present or future rights a) not to take delivery of the Ship at the Delivery Date by reason of any Acceptable Defects and b) to be paid liquidated damages for delay in delivery, including without limitation Article 6 Clause 2.15 of the Contract, because requirements of the Contract, including without limitation the requirements set forth in Article 7 Clauses 1.1 (i) to (iv) of the Contract are not fulfilled or partially not fulfilled.

 

10.Both a) any and all works which are not entirely completed under and in accordance with the Contract at the Delivery Date and which are within the foregoing definition of Acceptable Defects and b) any and all minor and insignificant Defects existing at the Delivery Date (together the “Outstanding Works) shall be completed by or on behalf of the Builder and in close cooperation with and support by the Buyer within [*] counting from the day after the day the Ship was actually delivered (hereinafter referred to as the “Rectification Period”). For the avoidance of doubt despite the Outstanding Works described above the delivery of the Ship shall take place at the Delivery Date, including without limitation the payment of the balance of the Contract Price.

 

11.After the Ship’s actual delivery to the Buyer and within the Rectification Period the Buyer shall at its own risk, cost and expense convey the Ship to its first port of call in China. Without the prior written consent of the Builder, the Buyer shall during the Rectification Period not be entitled to have persons on board the Ship other than the Buyers’ and Builders’ personnel and subcontractors and suppliers required for completing the Outstanding Works. During such conveyance and on-site on the first port of call in China or an alternative location in each case to be agreed upon between the Buyer and the Builder, the Buyer shall at its own cost and expense provide the Builder and the Builder’s subcontractors and suppliers appropriate board and lodging onboard the Ship in each case in order to enable them to carry out the Outstanding Works in an appropriate manner. It is acknowledged and agreed that the completion of the Outstanding Works can only be performed on the basis of a proper coordination and cooperation between the parties hereto.

 

12.The Builder agrees that the Guarantee Period in respect of Acceptable Defects in the Ship at delivery shall be deemed to commence upon completion of their rectification in accordance with the Shipbuilding Contract and not on the date of delivery of the Ship.

 

13.With regard to any works that may be required to be performed by or on behalf of the Builder on the Ship after the delivery of the Ship (including without limitation the Outstanding Works, guarantee works, voluntary works on a goodwill basis or any other basis), the Buyer and the Builder shall discuss in good faith, but without any obligation or commitment on the part of the Buyer, subsequent to the date of this addendum but in any

 

  Page 6 of 7

 

  

event with sufficient lead time prior to delivery of the Ship, the possibility of naming the Builder as co-assured under the Buyer’s hull & machinery insurance and as a protective co-assured under the Buyer’s protection & indemnity insurance and including in each case a waiver of subrogation towards the Builder (the “Buyer’s Insurances”), the amount of deductable for which the Builder would be responsible in the event of a loss to which such waiver of subrogation would apply under such coverage, and increased premiums and other costs, if any, which would be payable by the Builder. If the Buyer will not be able to include the Builder under the Buyer’s Insurances as aforesaid, the Builder shall be entitled to charge the Buyer with any additional insurance costs the Builder incurs due to coverage of works to be performed after the delivery of the Ship as evidenced by the Builder to the Buyer as such costs are currently not included in the price for the [*] Changes AOM.

 

14.This Addendum No. 5 will be treated as having been signed by the parties hereto at the time and on the date when each party has signed and initialled a complete, legible and identical counterpart of this Addendum No. 5 and exchanged the same by e-mail or fax with the other parties. Thereafter for record purposes only three identical original counterparts of this Addendum No. 5 shall be signed and initialled by each of the parties after which one original counterpart will be retained by the Builder, one will be retained by the Buyer and the other will be retained by NCLC.

 

15.Words and expressions defined in the Contract shall have the same meanings when used herein.

 

16.Except as set forth in this Addendum No. 5, the Contract shall remain unchanged and this Addendum No. 5 shall be treated as an integral part of the Contract.

 

IN WITNESS WHEREOF, the Builder, the Buyer and NCLC have duly executed this Addendum No. 5.

 

/s/ Bernard Meyer  
For and on behalf of MEYER WERFT GmbH & Co. KG  
16 March 2016    
   
/s/Frank J. Del Rio  
For and on behalf of Breakaway Four, Ltd.  
16 March 2016    
   
/s/Frank J. Del Rio  
For and on behalf of NCL Corporation Ltd.  
16 March 2016  

 

  Page 7 of 7

 

 

Exhibit 10.3

 

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

 

ADDENDUM NO. 4

TO THE SHIPBUILDING CONTRACT

HULL NO. [*]

DATED 14 June 2013

 

between

 

MEYER WERFT GMBH & CO. KG, a company organised and existing under the laws of Germany, and having its principal office at Industriegebiet Süd, D-26871 Papenburg, Germany (the "Builder"); and

 

SEAHAWK ONE, LTD., a company incorporated in Bermuda and having its registered office at Cumberland House, 9th Floor, 1 Victoria Street, Hamilton HM11, Bermuda (the "Buyer"); and

 

NCL CORPORATION LTD., a company incorporated in Bermuda having its registered office at Cumberland House, 9th Floor, 1 Victoria Street, Hamilton HM11, Bermuda ("NCLC").

 

Whereas, by a Shipbuilding Contract originally dated 14 June 2013 in relation to Hull No. [*] – as amended – to which, by novation made on 8 July 2014, the Builder, the Buyer and NCLC are parties – (the "Contract"), the Builder has agreed to design, build, complete and sell to the Buyer a passenger cruise ship and the Buyer has agreed to purchase and accept delivery of the same, all in accordance with the terms and conditions of the Contract.

 

Whereas, it is intended by the buyer to instruct the Builder to increase the standard of the design, quality, workmanship, Parts (as defined in the shipbuilding contract for the First Ship), function and performance of systems, and the aesthetic design of the passenger cabins and public areas and other specified areas of the First Ship by way of an Addendum No. 5 to the shipbuilding contract for the First Ship dated 14 September 2012, including without limitation the Asia Changes (as defined in the shipbuilding contract for the First Ship).

 

Whereas, the First Ship is the reference ship to the Ship under and in accordance with the Contract the applicable reference standard for the Ship needs to be amended due to fact that such increased standard of the First Ship is not considered in the shipbuilding contract for the Ship.

 

Now, therefore, in consideration of the premises, and for other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, the parties agree as follows:

 

1.The parties herewith agree that the term First Ship (as defined in Article 14, Cl. 15.1 of the Contract) and the reference ship (as defined in Schedule 1 of the Contract) shall mean Builder’s Hull No. [*] as defined and specified by the shipbuilding contract for the First

 

 

 

  

Ship dated 14 September 2012 including Addendum No. 1, 2, 3, 4 and all AOM’s which have been agreed before the date of the above mentioned Addendum No. 5 to the shipbuilding contract for the First Ship (the “Applicable Status”). The parties herewith further agree that the Applicable Status does not and will not include and consider without limitation Addendum No. 5 to the shipbuilding contract for the First Ship, the Asia Changes for the First Ship and any other AOM or any other modification which may at any time be agreed for the First Ship on or after the date of the above mentioned Addendum No. 5 to the shipbuilding contract for the First Ship.

 

2.This Addendum No. 4 will be treated as having been signed by the parties hereto at the time and on the date when each party has signed and initialled a complete, legible and identical counterpart of this Addendum No. 4 and exchanged the same by e-mail or fax with the other parties. Thereafter for record purposes only three identical original counterparts of this Addendum No. 4 shall be signed and initialled by each of the parties after which one original counterpart will be retained by the Builder, one will be retained by the Buyer and the other will be retained by NCLC.

 

3.Words and expressions defined in the Contract shall have the same meanings when used herein.

 

4.Except as set forth in this Addendum No. 4, the Contract shall remain unchanged and this Addendum No. 4 shall be treated as an integral part of the Contract.

 

IN WITNESS WHEREOF, the Builder, the Buyer and NCLC have duly executed this Addendum No. 4.

 

/s/ Bernard Meyer  
For and on behalf of MEYER WERFT GmbH & Co. KG  
16 March 2016  
   
/s/Frank J. Del Rio  
   
For and on behalf of SEAHAWK ONE, LTD  
16 March 2016  
   
/s/Frank J. Del Rio  

 

For and on behalf of NCL CORPORATION LTD.

16 March 2016

 

– REMAINDER OF PAGE INTENTIONALLY LEFT BLANK –

 

Page 2 of 2

 

 

 

Exhibit 10.4

 

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

 

ADDENDUM NO. 4

TO THE SHIPBUILDING CONTRACT

HULL NO. [*]

DATED 14 June 2013

 

between

 

MEYER WERFT GMBH & CO. KG, a company organised and existing under the laws of Germany, and having its principal office at Industriegebiet Süd, D-26871 Papenburg, Germany (the "Builder"); and

 

SEAHAWK TWO, LTD., a company incorporated in Bermuda and having its registered office at Cumberland House, 9th Floor, 1 Victoria Street, Hamilton HM11, Bermuda (the "Buyer"); and

 

NCL CORPORATION LTD., a company incorporated in Bermuda having its registered office at Cumberland House, 9th Floor, 1 Victoria Street, Hamilton HM11, Bermuda ("NCLC").

 

Whereas, by a Shipbuilding Contract originally dated 14 June 2013 in relation to Hull No. [*] – as amended – to which, by novation made on 8 July 2014, the Builder, the Buyer and NCLC are parties – (the "Contract"), the Builder has agreed to design, build, complete and sell to the Buyer a passenger cruise ship and the Buyer has agreed to purchase and accept delivery of the same, all in accordance with the terms and conditions of the Contract.

 

Whereas, it is intended by the buyer to instruct the Builder to increase the standard of the design, quality, workmanship, Parts (as defined in the shipbuilding contract for the First Ship), function and performance of systems, and the aesthetic design of the passenger cabins and public areas and other specified areas of the First Ship by way of an Addendum No. 5 to the shipbuilding contract for the First Ship dated 14 September 2012, including without limitation the Asia Changes (as defined in the shipbuilding contract for the First Ship).

 

Whereas, the First Ship is the reference ship to the Ship under and in accordance with the Contract the applicable reference standard for the Ship needs to be amended due to fact that such increased standard of the First Ship is not considered in the shipbuilding contract for the Ship.

 

Now, therefore, in consideration of the premises, and for other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, the parties agree as follows:

 

1.The parties herewith agree that the term First Ship (as defined in Article 14, Cl. 15.1 of the Contract) and the reference ship (as defined in Schedule 1 of the Contract) shall mean Builder’s Hull No. [*] as defined and specified by the shipbuilding contract for the First

 

 

 

 

 

Ship dated 14 September 2012 including Addendum No. 1, 2, 3, 4 and all AOM’s which have been agreed before the date of the above mentioned Addendum No. 5 to the shipbuilding contract for the First Ship (the “Applicable Status”). The parties herewith further agree that the Applicable Status does not and will not include and consider without limitation Addendum No. 5 to the shipbuilding contract for the First Ship, the Asia Changes for the First Ship and any other AOM or any other modification which may at any time be agreed for the First Ship on or after the date of the above mentioned Addendum No. 5 to the shipbuilding contract for the First Ship.

 

2.This Addendum No. 4 will be treated as having been signed by the parties hereto at the time and on the date when each party has signed and initialled a complete, legible and identical counterpart of this Addendum No. 4 and exchanged the same by e-mail or fax with the other parties. Thereafter for record purposes only three identical original counterparts of this Addendum No. 4 shall be signed and initialled by each of the parties after which one original counterpart will be retained by the Builder, one will be retained by the Buyer and the other will be retained by NCLC.

 

3.Words and expressions defined in the Contract shall have the same meanings when used herein.

 

4.Except as set forth in this Addendum No. 4, the Contract shall remain unchanged and this Addendum No. 4 shall be treated as an integral part of the Contract.

  

IN WITNESS WHEREOF, the Builder, the Buyer and NCLC have duly executed this Addendum No. 4.

  

/s/ Bernard Meyer  
   
For and on behalf of MEYER WERFT GmbH & Co. KG  
16 March 2016  
   
/s/Frank J. Del Rio  
   
For and on behalf of SEAHAWK TWO, LTD  
16 March 2016  
   
/s/Frank J. Del Rio  
   
For and on behalf of NCL CORPORATION LTD.  
16 March 2016  

 

– REMAINDER OF PAGE INTENTIONALLY LEFT BLANK –

 

  Page 2 of 2

 

 

 

Exhibit 10.5

 

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

 

TENTH AMENDMENT TO LEASE

 

(Norwegian Cruise Line – The Landing at MIA)

 

THIS TENTH AMENDMENT TO LEASE ("Amendment") is dated effective and for identification purposes as of March 31, 2016, 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 Lease Agreement dated December 1, 2006 ("Original Lease"), as amended by that certain First Amendment dated December 1, 2006, Second Amendment dated March 20, 2007, Third Amendment dated July 31, 2007, Letter Agreement dated August 1, 2007, Fourth Amendment dated December 10, 2007, Fifth Amendment dated February 2, 2010, Sixth Amendment dated April 1, 2012, Seventh Amendment dated June 29, 2012, Eighth Amendment dated January 28, 2015, and Ninth Amendment to Lease dated June 30, 2015 (collectively, the "Lease"), pertaining to the premises located in 7665 Corporate Center Drive ("Building 11"), 7650 Corporate Center Drive ("Building 10") (collectively, the "Original Office Premises"), 7245 Corporate Center Drive ("Building 3") ("the Warehouse Premises"), and 7300 Corporate Center Drive, Miami, Florida ("Building 8"); and

 

WHEREAS, pursuant to the Eighth Amendment, Tenant shall lease (or is leasing) from Landlord approximately 65,862 rentable square feet of space located in Building 8 and an additional 4,434 rentable square feet of space located in Building 10. The Eighth Amendment Expansion Commencement Dates are as follows: for Building 8: (i) September 1, 2015 (2nd Floor except Suite 203 and 3rd Floor except Suites 301, 302, 305, 311, and 312)), (ii) December 1, 2015 (Suite 203), (iii) February 1, 2016 (Suites 302 and 305), and (iv) April 15, 2016 (Suites 301, 311 and 312); for Building 10: September 1, 2015 (Suite 301). Pursuant to the Eighth Amendment, as of April 15, 2016 the Total Premises shall be comprised of approximately 276,094 rentable square feet of space (of which 125,806 rentable square feet of space are located in Building 11, 77,359 rentable square feet of space are located in Building 10, 65,862 rentable square feet of space are located in Building 8, and 7,067 rentable square feet of space are located in Building 3). Further, pursuant to the Eighth Amendment, the Original Office Premises was re-measured. Accordingly, as of the Eighth Amendment Extension Commencement Date (i.e., February 1, 2023), Tenant’s leased rentable square footage will be increased by 5,294 rentable square feet of space in Building 11 and by 2,053 rentable square feet of space in Building 10. Additionally, on January 31, 2023, Tenant’s lease of the Warehouse Premises shall expire. Therefore, as of the Eighth Amendment Extension Commencement Date (i.e. February 1, 2023), the Total Premises (not including the Expansion Premises in Building 8 pursuant to the Ninth Amendment and not including the Expansion Premises pursuant to this Amendment) shall be 276,374 rentable square feet of space; and

 

WHEREAS, pursuant to the Ninth Amendment, Tenant shall lease from Landlord approximately 28,396 rentable square feet of space (of which 17,434 rentable square feet of space are located in Suite 102, 1,853 rentable square feet of space are located in Suite 112, 4,509 rentable square feet of space are located in Suite 100, and 4,600 rentable square feet of space are located in Suite 111). The Ninth Amendment Expansion Commencement Dates are as follows: (i) November 1, 2015 (Suite 102), (ii) March 4, 2016 (Suite 112), (iii) March 4, 2016 (Suite 100), and (iv) November 1, 2015 (Suite 111). Accordingly, as of

 

 

 

  

April 15, 2016 (i.e., the latest to occur Expansion Commencement Date of the Eighth Amendment), the Total Premises including the Warehouse Premises, as expanded shall be comprised of approximately 304,490 rentable square feet of space (of which 125,806 rentable square feet of space are located in Building 11, 77,359 rentable square feet of space are located in Building 10, 94,258 rentable square feet of space are located in Building 8, and 7,067 rentable square feet of space are located in Building 3); and

 

WHEREAS, upon the Eighth Amendment Extension Commencement Date (i.e., February 1, 2023), the Total Premises (as re-measured and expanded) shall be comprised of approximately 304,770 rentable square feet of space (of which 131,100 rentable square feet of space are located in Building 11, 79,412 rentable square feet of space are located in Building 10, and 94,258 rentable square feet of space are located in Building 8), plus the Expansion Premises set forth in this Amendment; and

 

WHEREAS, Landlord and Tenant desire to enter into this Amendment to expand the Total Premises and provide for certain other matters 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. The capitalized terms used herein shall have the same definitions as set forth in the Lease, unless otherwise defined herein.

 

2.            Expansion.

 

(a)          Expansion Premises. The term "Expansion Premises" is hereby defined to be and to mean that certain space located on the third floor of Building 10 (the "Building"), consisting of 2,058 rentable square feet of space (which is the final agreement of the parties and not subject to adjustment), as outlined on Exhibit A, attached hereto and incorporated herein by this reference. Accordingly, effective as of the Tenth Amendment Expansion Commencement Date (as defined below), the Total Premises, as expanded by this Amendment (and not including the Premises as re-measured and expanded on the Eighth Amendment Extension Commencement Date (i.e., February 1, 2023)), shall be deemed to consist of a collective total of 306,548 rentable square feet of space. Effective on February 1, 2023, the Total Premises, as expanded by this Amendment, shall be deemed to consist of a collective total of 306,828 rentable square feet of space.

 

(b)          Tenth Amendment Expansion Commencement Date. The term "Tenth Amendment Expansion Commencement Date" is hereby defined to be and to mean April 1, 2016. If Tenant is allowed to occupy, use, work in or otherwise enter the Expansion Premises prior to the Tenth Amendment Expansion Commencement Date, the terms and conditions of the Lease as hereby amended shall apply, except that Tenant shall not be required to pay Rental for any period(s) prior to the Tenth Amendment Expansion Commencement Date for the Expansion Premises.

 

(c)          Expansion Term. The term "Expansion Term" is hereby defined to be and to mean that period of time commencing on the Tenth Amendment Expansion Commencement Date and expiring contemporaneously with the Lease on the Expansion Expiration Date (i.e., January 31, 2028), as defined in Section 2(c) of the Ninth Amendment.

 

(d)          Acceptance. Effective on the Tenth Amendment Expansion Commencement Date, Landlord hereby leases to Tenant and Tenant hereby leases from Landlord, on the terms and conditions set forth in the Lease, as amended, and herein, the Expansion Premises. Tenant shall accept the Expansion Premises in its present "as is" condition.

 

 2 

 

  

3.           Base Rental for the Expansion Premises. During the Expansion Term, Tenant shall pay to Landlord Base Rental for the Expansion Premises (in addition to its Base Rental obligation for the original Premises), which shall be payable in monthly installments as follows:

 

EXPANSION PREMISES

 

Months  Annual Rate/RSF   Monthly Installment 
Tenth Amendment Expansion       
Commencement Date - 08/31/16  $[*]   $[*] 
09/01/16 – 08/31/17  $[*]   $[*] 
09/01/17 – 08/31/18  $[*]   $[*] 
09/01/18 – 08/31/19  $[*]   $[*] 
09/01/19 – 08/31/20  $[*]   $[*] 
09/01/20 – 08/31/21  $[*]   $[*] 
09/01/21 – 08/31/22  $[*]   $[*] 
09/01/22 – 08/31/23  $[*]   $[*] 
09/01/23 – 08/31/24  $[*]   $[*] 
09/01/24 – 08/31/25  $[*]   $[*] 
09/01/25 – 08/31/26  $[*]   $[*] 
09/01/26 – 08/31/27  $[*]   $[*] 
09/01/27 – Expansion Expiration Date (01/31/28)  $[*]   $[*] 

 

Except as otherwise expressly set forth herein, Base Rental shall be payable pursuant to the terms and conditions of Article 2 of the Original Lease.

 

4.          Tenant’s Percentage Share and Operating Expenses. Beginning on the Tenth Amendment Expansion Commencement Date, Tenant’s Percentage Share, as defined in Section 2.3(c) of the Original Lease, shall be increased based upon an amount determined by (a) the fraction, the numerator of which is the total number of Rentable Square Feet then leased by Tenant in Building 10, and the denominator of which is the greater of (i) ninety-five percent (95%) of the total Rentable Square Feet in Building 10, or (ii) the total Rentable Square Feet in Building 10 actually leased or occupied by tenants.

 

5.          Tenant’s Parking Spaces. Beginning on the Tenth Amendment Expansion Commencement Date, Tenant shall have the right to use an increased number of parking spaces based on the new rentable area of the Expansion Premises, pursuant to the same terms and conditions as Section 8 of the Eighth Amendment and Section 5 of the Ninth Amendment.

 

6.          Brokers. Tenant hereby represents and warrants to Landlord that Tenant has not dealt with any real estate brokers or leasing agents, and Landlord hereby represents and warrants to Tenant that Landlord has not dealt with any real estate brokers or leasing agents in connection with the negotiation and execution of this Amendment. Landlord and Tenant hereby agree to indemnify and to hold each other harmless against any loss, expense, or liability with respect to any claims for commissions or brokerage fees arising from or out of any breach of the foregoing representation and warranty.

 

7.          Energy and Environmental Initiatives. Tenant shall cooperate with Landlord in any programs in which Landlord may elect to participate relating to the Building’s (i) energy efficiency, management, and conservation; (ii) water conservation and management; (iii) environmental standards and efficiency; (iv) recycling and reduction programs; and/or (v) safety, which participation may include,

 

 3 

 

  

without limitation, the Leadership in Energy and Environmental Design (LEED) program and related Green Building Rating System promoted by the U.S. Green Building Council, as well as the Energy Star program promoted by the U.S. Environmental Protection Agency and the U.S. Department of Energy.

 

8.          Electronic Signatures. This Amendment may be executed in counterparts.  All executed counterparts shall constitute one (1) agreement, and each counterpart shall be deemed an original.  The parties hereby acknowledge and agree that 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 an original of this Amendment had been delivered.  Landlord and Tenant (i) intend to be bound by the signatures (whether original, faxed or electronic) on any document sent by facsimile or electronic mail, (ii) are aware that the other party will rely on such signatures, and (iii) hereby waive any defenses to the enforcement of the terms of this Amendment based on the foregoing forms of signature.

 

9.          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 neither party is aware of any demands, claims (matured or unmatured), losses, rights of set off or deduction asserted or assertable against the other party in any manner relating to the Lease, or arising in connection with the Premises or the Project.

 

(Signatures on following Page)

 

 4 

 

 

IN WITNESS WHEREOF, the foregoing Tenth 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/Theresa Morris   By: /s/Michael Burrichter
Name: Theresa Morris   Name: Michael Burrichter
      Title: Vice President
By: /s/Susandra Soumetho   Date:  
Name: Susandra Soumetho      
         
By: /s/Theresa Morris   By: /s/Claudia Walraven
Name: Theresa Morris   Name: Claudia Walraven
      Title: Assistant Vice President
By:  /s/Susandra Soumetho   Date:  
Name: Susandra Soumetho      
         
WITNESS:   TENANT:
     
    NCL (BAHAMAS) LTD.,
    a Bermuda company, d/b/a Norwegian Cruise Line
By: /s/Lincoln  M. Vidal  
Name: Lincoln  M. Vidal  
         
By: /s/Yakelin Chirino   By: /s/Wendy Beck
Name: Yakelin Chirino   Name: Wendy Beck
      Title: Executive Vice President & Chief Financial Officer
      Date: 4/13/16

 

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/Frank Del Rio  
Name: Frank Del Rio  
Title:  President & Chief Executive Officer  

 

 5 

 

 

EXHIBIT A

 

EXPANSION PREMISES

 

 

 

 

 

 

Exhibit 10.6

 

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

 

Execution Version

 

Dated 30 March 2016

 

explorer II new build, llc

as Borrower

 

and

 

the banks and financial institutions
listed in schedule 1

as Lenders

 

and

 

CRÉDIT AGRICOLE CORPORATE AND INVESTMENT BANK

SOCIÉTÉ GÉNÉRALE

HSBC BANK PLC

KFW IPEX-BANK GMBH

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 754 passenger cruise ship
newbuilding presently designated as
Hull No. 6281 at Fincantieri S.p.A

 

  

 

 

  

Index

 

Clause   Page
     
1 Interpretation 2
2 Facility 22
3 Conditions Precedent 24
4 Drawdown 30
5 Repayment 32
6 Interest 33
7 Interest Periods 36
8 SACE Premium and Italian Authorities 36
9 Fees 38
10 Taxes, Increased Costs, Costs and Related Charges 39
11 Representations and Warranties 45
12 General Undertakings 50
13 Ship Undertakings 56
14 Insurance Undertakings 62
15 Security Value Maintenance 66
16 Cancellation, Prepayment and Mandatory Prepayment 67
17 Interest on Late Payments 69
18 Events of Default 69
19 Application of sums received 74
20 Indemnities 74
21 Illegality, etc. 76
22 Set-Off 78
23 Changes to the Lenders 79
24 Changes to the Obligors 83
25 Role of the Agent and the Joint Mandated Lead Arrangers 83
26 The Security Trustee 89
27 Conduct of business by the Creditor Parties 100
28 Sharing among the Creditor Parties 100
29 Payment Mechanics 101
30 Variations and Waivers 103
31 Notices 104
32 Confidentiality 106
33 Legal independence 109
34 SACE Subrogation and Reimbursement 109
35 Supplemental 111
36 Governing Law 112
37 Enforcement 112
     
Schedules  
   
Schedule 1 Lenders and Commitments 114
Schedule 2 Form of Drawdown Notice 115
Schedule 3 Documents to be produced by the Builder to the Agent on Delivery 117
Schedule 4 Form of Transfer Certificate 118
Schedule 5 Qualifying Certificate 122
   
Execution  
   
Execution Pages 124

  

 

 

 

THIS AGREEMENT is made on 30 March 2016

 

PARTIES

 

(1)EXPLORER II NEW BUILD, LLC, a limited liability company formed in the state of Delaware whose registered office is at Corporation Service Company, 2711 Centerville Road, Suite 400, Wilmington, Delaware, 19808 United States of America 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, SOCIÉTÉ GÉNÉRALE, KFW IPEX-BANK GMBH and HSBC BANK PLC as joint mandated lead arrangers (the "Joint Mandated Lead Arrangers")

 

(4)CRÉDIT AGRICOLE CORPORATE AND INVESTMENT BANK, agent and SACE agent (the "Agent") and (the "SACE Agent")

 

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

 

BACKGROUND

 

(A)By a shipbuilding contract dated as of 22 December 2015 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 754 passenger cruise ship currently having hull number 6281 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 EUR 422,000,000 (the "Initial Contract Price") payable on the following terms:

 

(i)as to [*]%, being EUR [*], 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;

 

(ii)as to [*]%, being EUR [*], on the later of the date of commencement of steel cutting and the date falling 26 months prior to the Delivery Date;

 

(iii)as to [*]%, being EUR [*], on the later of keel laying in dry-dock and the date falling 20 months prior to the Delivery Date;

 

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

 

(v)as to [*]%, being EUR [*], 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 (i) increased or decreased from time to time under Article 24 of the Shipbuilding Contract in the event that the Borrower requests, and the Builder agrees, modifications to the specification or plans constituting a part of the Shipbuilding Contract or in the event that, subsequent to the date of the Shipbuilding Contract, variations are made to its provisions compliance with which is compulsory, the final net cost of all such variations being payable by no later than the Delivery Date (the "Change Orders"); and (ii) 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").

 

(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 80% of the Final Contract Price (and subject to an aggregate amount no greater than the Eligible Amount) and 100% of the SACE Premium.

 

OPERATIVE PROVISIONS

 

1Interpretation

 

1.1Definitions

 

Subject to Clause 1.5 (General Interpretation), in this Agreement:

 

"Affected Lender" has the meaning given in Clause 6.5 (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 EUR 7,327,121,031 and its registered office located at 9, Quai du Président Paul Doumer, 92920 Paris La Défense 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 25 (Role of the Agent and the Joint Mandated Lead Arrangers).

 

"Annex VI" means Annex VI (Regulations for the Prevention of Air Pollution from Ships) to the International Convention for the Prevention of Pollution from Ships 1973 (as modified in 1978 and 1997, 2005, 2007, 2008, 2010 and 2012).

 

"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 Marshall Islands flag, the Bahamas flag or such other flag as the Agent may approve from time to time.

 

"Approved Manager" means the Borrower, Seven Seas as bareboat charterer, Prestige Cruise Services LLC, or any other company (whether or not a member of the Group) which the Agent may approve from time to time as the manager of the Ship.

 

"Approved Manager's Undertaking" means, in the event that the Approved Manager is a company other than the Borrower or Seven Seas (as bareboat charterer), 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.

 

"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) 27 September 2020 (or such later date as the Agent may, with the authorisation of the Lenders, agree with the Borrower); or

 

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

 

"Bareboat Charter" means the bareboat charter of the Ship by the Borrower as owner to Seven Seas as bareboat charterer which shall be entered into no later than the Delivery Date in the form of draft approved by the Agent before the date of this Agreement with such reasonable changes thereto as the Agent may approve from time to time.

 

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

 

"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 Paris, 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 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.

 

"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 2.76% 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.

 

"CISADA" means the United States Comprehensive Iran Sanctions, Accountability and Divestment Act of 2010 as it applies to non-US persons.

 

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

 

"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

 

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(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 32 (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 the date falling [*] days before the Intended 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 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.

 

"Drawdown Date" means the date on which the Loan is drawn down and applied in accordance with Clause 2 (Facility).

 

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"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, by Seven Seas as bareboat charterer 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; and

 

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

 

(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.

 

"Eligible Amount" means 80% of the lesser of:

 

(a)the Dollar Equivalent of EUR 436,770,000; 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

 

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(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.

 

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

 

"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 in the form required by SIMEST at the relevant time duly signed by an authorised signatory of the Builder.

 

"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,

 

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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).

 

"Finance Documents" means:

 

(a)this Agreement;

 

(b)any Fee Letter;

 

(c)the Guarantee;

 

(d)the Tripartite General Assignment;

 

(e)the Mortgage;

 

(f)the Post-Delivery Assignment;

 

(g)the Limited Liability Company Interests Security Deed;

 

(h)the Approved Manager's Undertaking;

 

(i)any Transfer Certificate;

 

(j)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

 

(k)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;

 

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(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;

 

(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 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 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 delivery instalment under the Shipbuilding Contract, which:

 

(a)matures not later than the Intended Delivery Date, provided that 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 the Intended Delivery 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);

 

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(b)the difference between the Euro amount available under (a) above and the Euro amount balance payable to the Builder on the Delivery 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 "Reuters Page ECB 37" (or such other pages as may replace that page on that service or a successor service) at or around 2 p.m. (Paris time) on the Conversion Rate Fixing Date;

 

(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.

 

"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).

 

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"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

 

(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)(i) of Clause 3.4 or paragraph (c) of Clause 3.7 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.

 

"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.

 

"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 at the request of the Agent as the 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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"Limited Liability Company Interests Security Deed" means a security pledge in relation to the limited liability company interests of the Borrower executed or to be executed by Seven Seas in favour of the Security Trustee in the agreed form.

 

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

 

"Majority Lenders" means:

 

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

 

(b)after the Loan 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 twenty-five per cent. (0.25%) per annum; and

 

(b)in relation to the Floating Interest Rate one point seventy-five per cent. (1.75%) 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 the Marshall Islands, Bahamas or such other registry as the Agent may 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; 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.

 

"Maximum Loan Amount" means the aggregate of:

 

(a)the Dollar Equivalent of EUR 349,416,000;

 

(b)100% of the First Instalment of the SACE Premium to be paid by the Borrower direct to SACE on the earlier of (i) the date falling 30 days after the issuance of the SACE Insurance Policy and (ii) the date falling 6 months after the date of SACE's board approval; and

 

(c)100% of the Second Instalment of the SACE Premium payable on the Drawdown Date,

 

Provided that such amount shall not, at any time, exceed $498,187,967.01.

 

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"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 6.8 (Negotiation of alternative rate of interest).

 

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

 

"OFAC" means the Office of Foreign Assets Control of the United States Department of the Treasury.

 

"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 British Bankers' Association 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 26.2 (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 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

 

(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

 

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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 [*] Dollars ($[*]) 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 [*] Dollars ($[*]) 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 12.13 (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 [*] Dollars ($[*]) and (ii) such cash and/or other property is not an asset of the Borrower;

 

(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;

 

(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;

 

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(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.

 

"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, Panama, the Council of the European Union, Germany, the United States of America or any other applicable jurisdiction; or

 

(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 the Delivery Date and issued to the Agent and copied to the Borrower substantially in the form set out in Schedule 5 (Qualifying Certificate).

 

"Relevant Interbank Market" means the European Interbank Market.

 

"Relevant Jurisdiction" means, in relation to an Obligor:

 

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(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.

 

"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".

 

"SACE" means SACE S.p.A.

 

"SACE Agent" means Crédit Agricole Corporate and Investment Bank, a French "société anonyme", having a share capital of EUR 7,327,121,031 and its registered office located at 9, Quai du Président Paul Doumer, 92920 Paris La Défense 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 25 (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 95% of the Loan in form and substance satisfactory to the Agent and 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 Required Documents" means in relation to the 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.

 

"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 CISADA or OFAC; or

 

(c)otherwise imposed by any law or regulation,

 

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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.

 

"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 per cent (100%) of the Loan.

 

"Security Trustee" means Crédit Agricole Corporate and Investment Bank, a French "société anonyme", having a share capital of EUR 7,327,121,031 and its registered office located at 9, Quai du Président Paul Doumer, 92920 Paris La Défense 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 (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 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.

 

"Seven Seas" means Seven Seas Cruises S. DE R.L., a Panamanian sociédad de responsibilidad limitada domiciled in Panama whose resident agent is Arias, Fabrega & Fabrega at Plaza 2000 Building, 16th Floor, 50th Street, Panama, Republic of Panama.

 

"Ship" means the passenger cruise ship currently designated with Hull No. 6281 (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 with the name "Explorer II".

 

"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.

 

"Subsidiary" has the following meaning:

 

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

 

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(i)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

 

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

 

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

 

(iv)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

 

(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.

 

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"Tripartite General Assignment" means an assignment of the Bareboat Charter, any Management Agreement, the Earnings, the Insurances and any Requisition Compensation, executed or to be executed by the Borrower, Seven Seas as bareboat charterer 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.

 

"Underlying Documents" means the Shipbuilding Contract, any Management Agreement, the 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 Tripartite 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.

 

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;

 

"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 30 March 2016.

 

"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;

 

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"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).

 

"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 1 of the Institute Time Clauses (Hulls)(1/10/82) or Clause 8 of the Institute Time Clauses (Hulls) (1/11/1995) 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 23 of the Institute Time Clauses (Hulls)(1/10/83) or clause 24 of the Institute Time Clauses (Hulls) (1/11/1995).

 

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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.

 

1.5General 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, or to a provision of, any law include any amendment, extension, re-enactment or replacement, whether made before the date of this Agreement or otherwise;

 

(d)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;

 

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

 

(f)Clauses 1.1 (Definitions) to 1.5 (General Interpretation) apply unless the contrary intention appears.

 

1.6Headings

 

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.

 

1.7Schedules

 

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 not exceeding the Maximum Loan Amount intended to be applied as follows:

 

(a)in payment to the Builder, up to the Eligible Amount, of all or part of 70% of the Final Contract Price and in reimbursement to the Borrower of all or part of 10% 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); and

 

(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 the Loan in the proportion which, as at the Drawdown Date, its Commitment bears to the Total Commitments.

 

2.3Purpose of Loan

 

The Borrower undertakes with each Secured Party to use the Loan 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 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);

 

(d)reimbursement to the Borrower of all or part of 10% of the Final Contract Price paid by the Borrower to the Builder prior to the Delivery Date; 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.

 

2.7Unconditional Obligations of the Borrower

 

The obligations of the Borrower to make payments and to observe and perform its obligations under the Transaction Documents are absolute, unconditional, irrevocable and several and such obligations shall not:

 

(a)in any way be discharged by reason of any matter affecting the Shipbuilding Contract including its performance, frustration or validity, the insolvency or dissolution of any party to the Shipbuilding Contract or the destruction, non-completion or non-functioning of the goods and equipment supplied under the Shipbuilding Contract;

 

(b)in any way be affected or discharged by reason of any dispute under the Shipbuilding Contract or any claim which it or any other person may have against, or consider that it has against, any person under the Shipbuilding Contract;

 

(c)in any way be affected or discharged by reason of unenforceability, illegality or invalidity of any obligation of the Borrower or any other person under the Shipbuilding Contract or any documents or agreements relating to the Shipbuilding Contract;

 

(d)in any way be affected by the fact that all or any part of the amount requested referred to in the Drawdown Notice is not or was not due or payable to the Builder;

 

(e)be conditional on the performance by the Creditor Parties of any obligations (except as otherwise stated herein) in order to give rise to a relevant obligation of the Borrower hereunder; or

 

(f)in any way be affected or discharged by the insolvency or dissolution of the Borrower.

 

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3Conditions Precedent

 

3.1General

 

The Borrower may only draw under the Loan 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 Loan:

 

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 Delaware in form and substance satisfactory to the Agent and the Secured Parties, together with the limited liability company documentation of the Borrower supporting the opinion, including but without limitation the Certificate of Formation and Limited Liability Company Agreement as filed with the competent authorities 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, including, without limitation:

 

(i)the Borrower has been duly formed and is validly existing as a limited liability company under the laws of the state of Delaware;

 

(ii)this Agreement falls within the scope of the Borrower's limited liability company purpose as defined by its Certificate of Formation and Limited Liability Company Agreement;

 

(iii)the Borrower's representatives were at the date of this Agreement fully empowered to sign this Agreement;

 

(iv)either all administrative requirements applicable to the Borrower (whether in the state of Delaware or elsewhere), concerning the transfer of funds abroad and acquisitions of Dollars to meet its 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 Borrower entering into this Agreement;

 

(vi)a judgment of an English Court in relation to the Agreement and any relevant Finance Documents will be recognised by and acknowledged by the Courts in the State of Delaware; and

 

(vii)this Agreement constitutes the legal, valid and binding obligations of the Borrower 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 confirming, without limitation, that (i) the obligations of the Borrower under this Agreement and (ii) that the obligations of the Guarantor under the Guarantee are legally valid and binding obligations enforceable by the relevant Creditor Parties;

 

(c)an opinion from legal counsel to the Secured Parties as to New York law in form and substance satisfactory to the Agent and the Secured Parties in respect of the validity and enforceability of the Limited Liability Company Interests Security Deed;

 

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(d)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 Guarantor’s execution of the Guarantee;

 

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

 

(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)an opinion from legal counsel acceptable to the Secured Parties as to Panamanian law in form and substance satisfactory to the Agent and the Secured Parties, together with the corporate documentation of Seven Seas supporting the opinion, including but without limitation the Articles of Incorporation and By-laws as filed with the competent authorities and a certificate of a competent officer of Seven Seas containing specimen signatures of the persons authorised to sign the documents on behalf of Seven Seas including without limitation:

 

(i)Seven Seas has been duly organised and is validly existing and in good standing as a Panamanian sociedad anonima or a sociedad de responsibilidad limitada with its domicile in the Republic of Panama and its Resident Agent being Arias Fabrega & Fabrega with address at Plaza 2000 Building, 16th Floor, 50th Street, Panama;

 

(ii)the Limited Liability Company Interests Security Deed is the legal, valid and binding obligation of Seven Seas which issued it enforceable in accordance with its terms;

 

(iii)the Limited Liability Company Interests Security Deed falls within the scope of Seven Seas' corporate purpose as defined by its Articles of Incorporation and By-laws; and

 

(iv)the representative of Seven Seas was at the date of the Limited Liability Company Interests Security Deed fully empowered to sign the Limited Liability Company Interests Security Deed,

 

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

 

(h)duly executed originals of the Guarantee and the Limited Liability Company Interests Security Deed.

 

3.3No 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;

 

(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 Drawdown Date;

 

(c)evidence that the Borrower has paid the First Instalment of the SACE Premium to SACE in accordance with paragraph (a) of Clause 8.1 (SACE Premium);

 

(d)notification of the Approved Manager;

 

(e)(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; and

 

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(f)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 of the Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013.

 

3.4No later than sixty (60) days before the Intended Delivery Date

 

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

 

(i)notification of the Intended Delivery Date; and

 

(ii)a US tax opinion from legal counsel to the Secured Parties in respect of the tax treatment of the entry by the US 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;

 

(b)The Agent shall notify to the Borrower any documents required under the ISM Code and the ISPS Code which are to be provided at delivery pursuant to paragraph (f) of Clause 3.10 below.

 

3.5No later than thirty (30) days before the Intended Delivery Date

 

The Agent shall have received from the Borrower no later than thirty (30) days before the Intended Delivery Date notification, signed by a duly authorised signatory of the Borrower, specifying:

 

(a)which of the Fixed Interest Rate or the Floating Interest Rate shall be applicable to the Loan until the date of payment of the final repayment instalment of the Loan; and

 

(b)if the Floating Interest Rate is applicable, whether the duration of the Interest Periods applicable to the Loan shall be 3 months or 6 months,

 

and in absence of any such notification, the Borrower shall be deemed to have opted for the Floating Interest Rate with Interest Periods of 6 months.

 

3.6No 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.

 

3.7No 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)the Drawdown Notice from the Borrower, signed by a duly authorised signatory of the Borrower, specifying the amount of the Loan to be drawn down;

 

(b)a Certified Copy of each of the Change Orders, of any amendments to the Shipbuilding Contract 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;

 

(c)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.

 

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3.8Examination of documents by the Agent

 

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 proposed Drawdown 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).

 

3.9No later than the Delivery Date

 

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

 

(a)an opinion from legal counsel acceptable to the Secured Parties as to the laws of the state of Delaware in form and substance satisfactory to the Agent and the Secured Parties together with the limited liability 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 Tripartite General Assignment, the Post-Delivery Assignment and the Bareboat Charter fall within the scope of the Borrower's limited liability company purpose as defined by its Certificate of Formation and Limited Liability Company Agreement 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 Tripartite General Assignment, the Post-Delivery Assignment and the Bareboat Charter;

 

(b)an opinion from legal counsel acceptable to the Secured Parties as to Panamanian law in form and substance satisfactory to the Agent and the Secured Parties together with the corporate documentation of Seven Seas and a certificate of a competent officer of Seven Seas containing specimen signatures of the persons authorised to sign the Tripartite General Assignment on behalf of Seven Seas, confirming that, without limitation:

 

(i)the Tripartite General Assignment falls within the scope of Seven Sea’s corporate purpose as defined by its Articles of Incorporation and By-laws; and

 

(ii)the representative of Seven Seas is fully empowered to sign the Tripartite General Assignment;

 

(c)evidence of payment to and receipt by the Builder of:

 

(i)the [*] pre-delivery instalments of the Final Contract Price; and

 

(ii)any other part of the Final Contract Price as at the Delivery Date not being financed hereunder;

 

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

 

(e)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;

 

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

 

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(g)an original of the SACE Insurance Policy;

 

(h)an original or a certified copy of each of the SACE Required Documents and SACE 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 Loan 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 Loan, payment of the Second Instalment of the SACE Premium and delivery to the Agent of the documents listed in Schedule 3 (Documents to be produced by the Builder to the Agent on Delivery).

 

3.10At Delivery

 

Immediately prior to the delivery of