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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------------------
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-9264
AMERICAN CLASSIC VOYAGES CO.
(Exact name of registrant as specified in its charter)
DELAWARE
(State or other jurisdiction of 31-0303330
incorporation or organization) (I.R.S. Employer identification No.)
TWO NORTH RIVERSIDE PLAZA, CHICAGO, IL 60606
(Address of principal executive offices) (Zip Code)
(312) 258-1890
(Registrant's telephone number, including area code)
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 [ ]
As of November 5, 1999, there were 18,484,233 shares of Common Stock
outstanding.
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AMERICAN CLASSIC VOYAGES CO.
INDEX
<TABLE>
<CAPTION>
ITEM DESCRIPTION PAGE
- ---------------- ----
Part I. Financial Information:
<S> <C>
Item 1. Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets at September 30, 1999
and December 31, 1998......................................... 3
Condensed Consolidated Statements of Operations for the
Three Months and Nine Months Ended September 30, 1999
and 1998...................................................... 4
Condensed Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1999 and 1998................. 5
Notes to Condensed Consolidated Financial Statements.......... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk ... 17
Part II. Other Information:
Item 1. Legal Proceedings............................................. 18
Item 6. Exhibits and Reports on Form 8-K.............................. 18
</TABLE>
2
<PAGE> 3
AMERICAN CLASSIC VOYAGES CO.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except shares and par value)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---------------- -------------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................................ $ 69,747 $27,004
Restricted short-term investments........................................ 1,060 60
Accounts receivable...................................................... 1,533 1,989
Prepaid air tickets...................................................... 4,339 2,527
Prepaid expenses and other current assets................................ 6,684 6,526
-------- --------
Total current assets................................................ 83,363 38,106
Property and equipment, net.............................................. 151,015 159,079
Vessels under construction............................................... 43,589 3,050
Deferred income taxes, net............................................... 11,317 10,011
Other assets............................................................. 4,052 2,546
-------- --------
Total assets........................................................ $293,336 $212,792
======== ========
LIABILITIES
Accounts payable......................................................... $ 10,161 $13,493
Other accrued liabilities................................................ 16,835 16,500
Current portion of long-term debt........................................ 4,100 4,100
Unearned passenger revenues.............................................. 61,340 39,297
-------- --------
Total current liabilities........................................... 92,436 73,390
Long-term debt, less current portion..................................... 74,126 77,388
-------- --------
Total liabilities................................................... $166,562 $150,778
======== ========
COMMITMENTS AND CONTINGENCIES (NOTE 6)
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value (5,000,000 shares
authorized, none issued and outstanding)............................. $ -- $ --
Common stock, $.01 par value (40,000,000 and 20,000,000
shares authorized, respectively; 18,522,867 and 14,293,931 shares
issued, respectively)................................................ 185 143
Additional paid-in capital............................................... 147,934 80,451
Accumulated deficit...................................................... (19,540) (17,823)
Common stock in treasury, at cost (51,000 shares)........................ (757) (757)
Unearned restricted stock................................................ (1,048) --
-------- --------
Total stockholders' equity.......................................... 126,774 62,014
-------- --------
Total liabilities and stockholders' equity.......................... $293,336 $212,792
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
<PAGE> 4
AMERICAN CLASSIC VOYAGES CO.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
----------------------- ------------------------
1999 1998 1999 1998
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
Revenues................................................ $ 57,460 $ 50,920 $ 153,226 $ 145,123
Cost of operations (exclusive of depreciation expense
shown below).......................................... 35,768 32,736 98,230 95,168
-------- -------- --------- ---------
Gross profit............................................ 21,692 18,184 54,996 49,955
Selling, general and administrative expenses............ 13,848 10,156 43,297 35,544
Depreciation expense.................................... 4,130 4,230 12,472 12,719
-------- -------- --------- ---------
Operating income (loss)................................. 3,714 3,798 (773) 1,692
Interest income......................................... 1,071 272 2,282 786
Interest expense........................................ 1,306 1,646 4,376 5,002
Other income............................................ -- -- -- 300
-------- -------- --------- ---------
Income (loss) before income taxes....................... 3,479 2,424 (2,867) (2,224)
Income tax (expense) benefit............................ (1,388) (970) 1,150 890
-------- -------- --------- ---------
Net income (loss)....................................... $ 2,091 $ 1,454 $ (1,717) $ (1,334)
======== ======== ========= =========
Per Share Information
Basic:
Basic weighted average shares outstanding.......... 18,505 14,145 16,694 14,111
Earnings (loss) per share.......................... $ 0.11 $ 0.10 $ (0.10) $ (0.09)
Diluted:
Diluted weighted average shares outstanding........ 19,629 14,543 16,694 14,111
Earnings (loss) per share.......................... $ 0.11 $ 0.10 $ (0.10) $ (0.09)
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
<PAGE> 5
AMERICAN CLASSIC VOYAGES CO.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss................................................... $ (1,717) $ (1,334)
Depreciation expense................................... 12,472 12,719
Gain on sale of assets................................. -- (300)
Changes in working capital and other:
Working capital changes and other.................. (4,450) (5,307)
Unearned passenger revenues........................ 22,043 10,126
----------- ----------
Net cash provided by operating activities.............. 28,348 15,904
----------- ----------
INVESTING ACTIVITIES:
(Increase) decrease in restricted short-term investments .. (1,000) 265
Capital expenditures....................................... (45,108) (6,104)
Proceeds from sale of assets............................... -- 300
----------- ----------
Net cash used in investing activities.................. (46,108) (5,539)
----------- ----------
FINANCING ACTIVITIES:
Proceeds from borrowings................................... 2,000 --
Repayment of borrowings.................................... (5,262) (3,262)
Purchase of common stock................................... -- (757)
Proceeds from issuance of common stock, net................ 65,989 2,219
Deferred financing fees.................................... (2,224) (519)
----------- ----------
Net cash provided by (used in) financing activities.... 60,503 (2,319)
----------- ----------
Increase in cash and cash equivalents......................... 42,743 8,046
Cash and cash equivalents, beginning of period................ 27,004 19,187
----------- ----------
Cash and cash equivalents, end of period...................... $ 69,747 $ 27,233
=========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of capitalized interest)................. $ 4,676 $ 4,982
Income taxes........................................... 165 --
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
<PAGE> 6
AMERICAN CLASSIC VOYAGES CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(Unaudited)
1. BASIS OF PRESENTATION
These accompanying unaudited Condensed Consolidated Financial Statements
("Financial Statements") have been prepared pursuant to Securities and Exchange
Commission ("SEC") rules and regulations and should be read in conjunction with
the Consolidated Financial Statements and Notes thereto included on Form 10-K
for the year ended December 31, 1998 (the "Form 10-K") for American Classic
Voyages Co. ("AMCV") and its subsidiaries. These Financial Statements include
the accounts of AMCV and its wholly owned subsidiaries, The Delta Queen
Steamboat Co. ("DQSC"), Great Hawaiian Cruise Line, Inc. ("GHCL") and Project
America, Inc. (collectively with such subsidiaries, the "Company"). The
following notes to the Financial Statements highlight changes to the notes
included in the Form 10-K and such interim disclosures as required by the SEC.
These Financial Statements reflect, in the opinion of management, all
adjustments necessary for a fair presentation of the interim financial
statements. All such adjustments are of a normal and recurring nature. Certain
previously reported amounts have been reclassified to conform to the 1999
presentation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
2. EARNINGS PER SHARE
Earnings per share have been computed as follows (in thousands, except per share
data):
<TABLE>
<CAPTION>
For the Three Months
Ended September 30,
---------------------
1999 1998
---------- ---------
<S> <C> <C>
Basic:
Net income............................................... $ 2,091 $ 1,454
Weighted average shares outstanding...................... 18,505 14,145
---------- ---------
Earnings per share ...................................... $ 0.11 $ 0.10
========== =========
Diluted:
Net income............................................... $ 2,091 $ 1,454
Weighted average shares outstanding...................... 18,505 14,145
Additional shares issuable under various stock plans..... 1,124 398
---------- ---------
Diluted weighted average shares outstanding.............. 19,629 14,543
---------- ---------
Earnings per share ...................................... $ 0.11 $ 0.10
========== =========
</TABLE>
As the Company reported net losses for the nine months ended September 30, 1999
and 1998, diluted earnings per share was computed in the same manner as basic
earnings per share.
3. VESSELS UNDER CONSTRUCTION
Vessels under construction consists mainly of payments to shipyards as part of
the Company's various new shipbuilding programs (see Note 6 for further
information). Additional capitalized costs include technical design,
engineering, and architectural fees. Interest cost associated with the DQSC
vessels under construction are capitalized during the construction period and
amounted to $0.3 million and $ 0.5 million, respectively, for the three and nine
months ended September 30, 1999. No interest costs were capitalized in 1998.
6
<PAGE> 7
4. DEBT
Long-term debt consisted of (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
-------------- --------------
<S> <C> <C>
U.S. Government Guaranteed Ship Financing Note, American Queen Series, LIBOR +
0.25% floating rate notes due semi-annually beginning February 24, 1996 through
August 24, 2005...................................................................... $ 14,385 $ 16,809
U.S. Government Guaranteed Ship Financing Bond, American Queen Series, 7.68% fixed
rate, sinking fund bonds due semi-annually beginning February 24, 2006 through
September 2, 2020.................................................................... 36,198 36,198
U.S. Government Guaranteed Ship Financing Note, Independence Series A, LIBOR +
0.27% floating rate notes due semi-annually beginning June 7, 1996 through
December 7, 2005..................................................................... 8,587 9,248
U.S. Government Guaranteed Ship Financing Bond, Independence Series A, 6.84% fixed
rate sinking fund bonds due semi-annually beginning June 7, 2006 through
December 7, 2015..................................................................... 13,215 13,215
U.S. Government Guaranteed Ship Financing Note, Independence Series B, LIBOR +
0.27% floating rate notes due semi-annually beginning December 7, 1996 through
December 7, 2005..................................................................... 2,301 2,478
U.S. Government Guaranteed Ship Financing Bond, Independence Series B, 7.46% fixed
rate sinking fund bonds due semi-annually beginning June 7, 2006 through
December 7, 2015..................................................................... 3,540 3,540
Revolving credit facility (maximum availability of $70 million) ......................... -- --
----------- -----------
78,226 81,488
Less current portion..................................................................... 4,100 4,100
----------- -----------
$ 74,126 $ 77,388
=========== ===========
</TABLE>
In the first quarter of 1999, DQSC, as borrower, closed on a new long-term
credit facility with The Chase Manhattan Bank, as agent, and several participant
banks (the "Chase Facility"). The Chase Facility, which is a $70 million
revolving credit facility maturing in February 2004, replaces the previous
credit facility with Chase Manhattan. Borrowings under the new facility bear
interest at a rate, at the option of DQSC, equal to either (1) the greater of
Chase's prime rate or certain alternative base rates plus a margin ranging from
0.50% to 1.50%, or (2) the London Interbank Offered Rate plus a margin ranging
from 1.50% to 2.50%. DQSC is also required to pay an unused commitment fee at a
rate of 0.50% per annum.
The Chase Facility will be used for the conversion of the fourth Delta Queen
riverboat, the construction of the first two coastal vessels, and Delta Queen
working capital. The new facility is secured by all of the assets of DQSC except
the American Queen, and has various limitations and restrictions on investments,
additional indebtedness, the construction costs of the new vessels, and other
capital expenditures. The Chase Facility also limits dividends by DQSC, when
aggregated with investments and certain other payments, to amounts ranging from
$5 million to $15 million per annum. DQSC is required to comply with certain
financial covenants, including maintenance of minimum interest coverage ratios
and maximum leverage ratios.
On April 8, 1999, the Company received a commitment from the Maritime
Administration for up to $1.1 billion in financing guarantees. The commitment
amount represents 87.5% of the total cost of the initial two Hawaii vessels,
including shipyard costs, capitalized interest, and fees.
As of September 30, 1999, the Company complied with all covenants under its
various debt agreements.
7
<PAGE> 8
5. STOCKHOLDERS' EQUITY
COMMON STOCK OFFERING
In the second quarter of 1999, the Company completed a public offering of an
additional 4,025,000 shares of common stock. The net proceeds to the Company,
after offering expenses, were $63.5 million and are being used for construction
of the initial Hawaii vessel.
ACCUMULATED DEFICIT
Changes in accumulated deficit for the nine months ended September 30, 1999 were
(in thousands):
Accumulated deficit at December 31, 1998......... $(17,823)
Net loss......................................... (1,717)
--------
Accumulated deficit at September 30, 1999........ $(19,540)
========
RESTRICTED STOCK
In February 1999, the Company reserved and set aside 72,122 shares of restricted
common stock as compensation for a key salaried employee. Issuance and sale of
these shares is restricted prior to the employee's retirement from the Company.
Unearned compensation was recorded at the date of the restricted stock award
based on the market value of shares. Unearned compensation, which is shown as a
separate component of stockholders' equity, is being amortized to expense over a
four year vesting period, which began in July 1999.
6. COMMITMENTS AND CONTINGENCIES
HAWAII VESSELS
On March 9, 1999, the Company executed definitive agreements with Ingalls
Shipbuilding, Inc. to construct at least two new vessels for the Hawaii cruise
market. The new Hawaii cruise ships will have the capacity to accommodate
approximately 1,900 passengers each and are currently estimated to cost $440
million each, plus approximately $30 million each for furnishings, fixtures and
equipment. The contract provides that Ingalls Shipbuilding will deliver the
first new ship in January 2003 and the second ship in January 2004. In addition,
the shipbuilding contract provides the Company an option to build up to four
additional vessels. The estimated contract price of the first option vessel is
$487 million and the contract price for the subsequent option vessels will be
negotiated between the parties. Ingalls Shipbuilding will provide a limited
warranty for the design, material, and workmanship of each vessel for one year
after delivery.
On August 5, 1999, the Company entered into an agreement with Holland America
Line to purchase the ms Nieuw Amsterdam for $114.5 million. The 1,214 passenger
cruise ship is expected to be transferred to the Company in the Fall of 2000 and
will be operated in the Hawaiian Islands as a U.S.-flag vessel. See Note 7 for
further information.
COASTAL VESSELS
The Company entered into a construction contract, as of May 1, 1999, with
Atlantic Marine, Inc. of Jacksonville, Florida to construct at least two coastal
cruise vessels for its Delta Queen line. This contract is the culmination of the
previously announced plans to build a series of up to five new vessels to
provide cruises along U.S. coastal waterways. Under the construction contract,
the contract price of the vessels will be $30 million each and will have a total
project cost, including Company provided furnishings, fixtures and equipment, of
approximately $35 million. The coastal cruise vessels will be approximately 300
feet long and provide accommodations for up to 226 passengers. The contract
provides that the delivery date will be early March 2001 for the first vessel
and June 2001 for the second vessel. Atlantic Marine will provide a limited
warranty for the work, parts, and components of each vessel fabricated by the
yard for one year after delivery.
8
<PAGE> 9
RIVERBOAT ACQUISITION
On May 25, 1999, the Company acquired a substantially complete riverboat
originally built for the casino trade that the Company will convert and operate
as the fourth Delta Queen riverboat. The Company expects the vessel, which will
be known as the Columbia Queen, will enter service in April 2000 operating
weekly cruise vacations out of Portland on the Columbia River system. The
Company recently entered into an agreement with Nichols Brothers Boat Builders,
Inc. ("Nichols Brothers") to convert the 218 foot boat into an overnight
passenger vessel with 161 passenger berths. The Company paid $3.2 million to
acquire the vessel and estimates the total renovation, relocation, start-up and
marketing costs, inclusive of the $6.5 million contract with Nichols Brothers,
will require an additional $13 million to $16 million.
7. SUBSEQUENT EVENTS
SHIP ACQUISITION
On October 15, 1999, the Company finalized its agreement with Holland America
Line to purchase the ms Nieuw Amsterdam for $114.5 million. $1.0 million
previously placed in escrow by the Company upon entering the agreement with
Holland America Line was released back to the Company. The purchase agreement
required the Company to make an earnest money deposit of $18 million by October
18, 1999 and an additional $12 million by January 17, 2000. The Company has
arranged for an unsecured letter of credit facility with Chase Manhattan Bank
for up to $30 million and satisfied the first deposit requirement by posting an
$18 million letter of credit. Outstanding letters of credit under this facility
bear interest at a rate of 2.125% per annum. The Company is also required to pay
a commitment fee of 0.375% per annum on the unused portion of the facility.
Persons and entities affiliated with Equity Group Investments, Inc. ("EGI"), the
Company's largest shareholder, guaranteed the letter of credit facility to Chase
Manhattan Bank, thereby allowing the Company to obtain the facility. The Company
has paid EGI a commitment fee of $0.5 million and has agreed to pay EGI
additional compensation contingent upon appreciation in the Company's common
stock. EGI's rights to receive this additional compensation will vest, on a
monthly basis, during the period that the guarantee remains outstanding and will
increase to the extent that amounts are paid by EGI pursuant to the guarantee.
EGI has a period of five years to exercise its rights to receive such payment,
subject to the Company's right to pay such additional fee at any time within the
next three years at escalating amounts and tied to the rights vested by EGI. A
committee comprised of the Company's independent directors negotiated the
arrangement with EGI. The committee received independent legal and financial
advice. The purchase agreement with Holland America Line provides for the
transaction to close in October 2000. As part of the purchase agreement, Holland
America Line has agreed to make available to the Company $84.5 million of
financing secured by the vessel. Paired with the EGI commitment to provide up to
$30.0 million, this represents all of the funds needed by the Company to
purchase the ms Nieuw Amsterdam.
On October 27, 1999, the Company announced that its Project America subsidiary
will operate under the United States Lines brand name and that the ms Nieuw
Amsterdam will be renamed the ms Patriot.
RESCISSION OF ACCOUNTING METHOD
On November 2, 1999, the Company announced that it had rescinded its prior
adoption of the American Institute of Certified Public Accountants Accounting
Standards Executive Committee's Statement of Position ("SOP") No. 93-7,
"Reporting on Advertising Costs," relating to the deferral of direct response
advertising costs. The deferral method provided for in SOP 93-7 was adopted in
1999, and made effective as of January 1, 1999. Pursuant to SOP 93-7, the
Company deferred recognition of direct response advertising costs related to
certain direct response advertising efforts. These deferred costs were
recognized in the periods that the cruises promoted by the efforts were
completed, and the related cruise revenue recognized. The Company rescinded its
adoption of SOP 93-7 due to difficulties encountered in implementing the new
method. In rescinding SOP 93-7, the Company returned to its prior method of
recognizing expenses for direct response advertising costs when those costs are
incurred. As a result of the rescission of SOP 93-7, the Company has restated
its earnings for the first quarter of 1999 to reflect a loss of $6.3 million, or
($0.44) per share, compared to its previously reported loss of $4.5 million, or
($0.32) per share. The Company has also restated its earnings for the second
quarter of 1999 to $2.5 million, or $0.14 per share, compared to its previously
reported earnings of $2.3 million, or $0.13 per share. For the six months ended
June 30, 1999, the Company has restated its earnings to reflect a loss of $3.8
million, or ($0.24) per share, compared to its previously reported loss of $2.2
million, or ($0.14) per share.
9
<PAGE> 10
AMERICAN CLASSIC VOYAGES CO.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
American Classic Voyages Co. is a holding company which owns and controls The
Delta Queen Steamboat Co., Great Hawaiian Cruise Line, Inc. and Project America,
Inc. Through our various subsidiaries, we currently operate two cruise lines:
Delta Queen, which owns and operates the American Queen, Mississippi Queen and
Delta Queen steamboats; and American Hawaii, which owns and operates the
Independence steamship. We have formed a third cruise line, United States Lines,
to operate the ms Patriot and the new Hawaii cruise vessels following their
renovation or construction.
Our revenues are comprised of:
(1) cruise fares,
(2) onboard revenues, such as those from gift shops and shore excursions, and
(3) trip cancellation insurance and pre- and post-cruise hotel packages.
Additional revenue is also derived from the sale of airplane tickets to and from
points of embarkation or disembarkation. Our cost for air tickets typically
matches the revenue we generate from sales of airline tickets, so we recognize
minimal profits from such sales. Our cost of operations is comprised of:
(1) passenger expenses, such as employee payroll and benefits and the cost of
food and beverages,
(2) vessel operating costs including lay-up and drydocking costs for our
vessels,
(3) insurance costs,
(4) commissions paid to travel agents, and
(5) air ticket and hotel costs.
When we receive deposits from passengers for cruises, we establish a liability
for unearned passenger revenue. We recognize revenue when the passengers take
their cruises and make a corresponding reduction in our unearned passenger
revenues. Our revenues and some of our expenses vary considerably when measured
on a quarterly basis. This is due to the seasonality of our Delta Queen
revenues, the timing of our Delta Queen and American Hawaii lay-ups and
drydockings, and fluctuations in airfares. These variations are reflected in our
fare revenues per passenger night, which are commonly referred to as fare per
diems, and our occupancy rates.
Delta Queen's operations are seasonal. Historically, we have had greater
passenger interest and higher yields in the spring and fall months of the year.
The vessels typically undergo their annual lay-ups in December or January. While
American Hawaii has historically experienced greater passenger interest in the
summer and fall months of the year, quarterly variations in its revenues are
much smaller than those of Delta Queen. During the summer months, in particular,
American Hawaii tends to have average occupancies in excess of 100% as the
number of families sharing cabins with children increases significantly during
this period.
The following discusses the Company's consolidated results of operations and
financial condition for the three months and nine months ended September 30,
1999 and 1998. This section should be read in conjunction with the Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in our Form 10-K for the year ended December 31, 1998.
10
<PAGE> 11
RESULTS OF OPERATIONS
Operations data expressed as a percentage of total revenue for the periods
indicated is as follows:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
-------------------------------- -------------------------------
1999 1998 1999 1998
------------ ------------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues 100% 100% 100% 100%
Costs and Expenses:
Operating expenses.................... 62 64 64 66
Selling, general and administrative... 24 20 28 24
Depreciation.......................... 7 8 8 9
Operating income (loss).................... 6 7 (1) 1
Net income (loss).......................... 4 3 (1) (1)
</TABLE>
Selected operating statistics for the periods indicated are as follows:
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
-------------------------------- ------------------------------
1999 1998 1999 1998
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Fare revenue per passenger night............. $ 231 $ 222 $ 227 $ 222
Total revenue per passenger night............ $ 325 $ 308 $ 322 $ 313
Weighted average operating days (1):
DELTA QUEEN............................. 92 92 250 256
AMERICAN HAWAII......................... 92 92 273 273
Vessels capacity per day (berths) (2):
DELTA QUEEN............................. 1,026 1,026 1,026 1,026
AMERICAN HAWAII......................... 867 867 867 867
Passenger nights (3)......................... 176,805 165,539 476,460 464,361
Physical occupancy percentage (berths) (4)... 102% 95% 97% 93%
</TABLE>
(1) Weighted average operating days for each cruise line is determined by
dividing capacity passenger nights for each cruise line by the cruise
line's total vessel capacity per day. Capacity passenger nights is
determined by multiplying, for the respective period, the actual operating
days of each vessel by each vessel's capacity per day.
(2) Vessel capacity per day represents the number of passengers each cruise
line can carry assuming double occupancy for cabins which accommodate two
or more passengers. Some cabins on the Independence and the American Queen
can accommodate three or four passengers.
(3) A passenger night represents one passenger spending one night on a vessel;
for example, one passenger taking a three-night cruise would generate three
passenger nights.
(4) Physical occupancy percentage is passenger nights divided by capacity
passenger nights.
11
<PAGE> 12
QUARTER ENDED SEPTEMBER 30, 1999 COMPARED TO QUARTER ENDED SEPTEMBER 30, 1998
Consolidated third quarter 1999 revenues increased $6.6 million to $57.5 million
from $50.9 million for the third quarter 1998. This represents a $4.2 million
increase in fare revenues combined with a $2.4 million increase in other
revenues. Delta Queen's fare revenues increased $3.1 million, reflecting a 7%
increase in fare per diems and a 5% increase in occupancy. American Hawaii's
fare revenues increased $1.1 million on an 8% increase in occupancy while fare
per diems were consistent with the prior year. Of the $2.4 million increase in
other revenues, $1.9 million is attributable to increases in passenger air and
hotel revenue corresponding to the occupancy increase at both cruise lines.
American Hawaii's onboard revenue also increased by $0.6 million reflecting an
11% improvement in onboard revenue per passenger night combined with the 8%
occupancy increase.
Consolidated cost of operations increased $3.0 million to $35.8 million for the
third quarter of 1999 from $32.8 million or the comparable period of 1998. Delta
Queen's operating costs increased $1.4 million due to an increase in passenger,
commission, and air and hotel expenses. American Hawaii's operating costs
increased $1.6 million mainly corresponding to the increases in onboard, air and
hotel revenue noted above. Consolidated gross profit increased $3.5 million for
the third quarter 1999 as compared to 1998.
Consolidated selling, general and administrative expenses, before capacity
expansion expenses, increased $2.6 million to $12.1 million for the third
quarter of 1999 from $9.5 million for the same period in 1998. The increase was
a result of higher selling and marketing expenses, which increased by $3.0
million from the prior year. In the third quarter of 1999, both American Hawaii
and Delta Queen began to promote year 2000 sailings whereas in the third quarter
of 1998, minimal amounts were incurred for 1999 sailings. Capacity expansion
expenses increased $1.0 million to $1.7 million from $0.7 million in 1998.
Beginning in the third quarter of 1999, marketing and public relations expenses
for the Columbia Queen were incurred, which amounted to $0.8 million.
Additionally, $0.3 million of compensation expense was recognized in the third
quarter of 1999 for restricted stock vesting. Depreciation expense for the third
quarter of 1999 was consistent with 1998.
The consolidated operating income for the third quarter of 1999 was $3.7
million as compared to $3.8 million for the comparable period of 1998.
Interest expense decreased by $0.3 million due to the capitalization of interest
expense and a lower outstanding debt balance in the third quarter of 1999.
Interest income increased by $0.8 million in the third quarter of 1999 as a
result of proceeds received by us upon the sale of additional common stock in
the second quarter of 1999. Our consolidated effective tax rate was 40% for both
periods in 1999 and 1998.
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1998
Consolidated revenues for the first nine months of 1999 increased $8.1 million
to $153.2 million from $145.1 million for the first nine months of 1998
representing a $5.1 million increase in fare revenues combined with a $3.0
million increase in other revenues. Delta Queen's fare revenues increased $2.6
million, reflecting a 6% increase in fare per diems and a 1% increase in
occupancy, offset by a 2% decrease in capacity due to six fewer average
operating days. American Hawaii's fare revenues increased $2.5 million on a 7%
increase in occupancy while fare per diems decreased by 1%. Of the $3.0 million
increase in other revenues, $1.8 million is attributable to an increase in
passenger air and hotel revenue at both cruise lines. American Hawaii's onboard
revenue also increased by $1.4 million reflecting a 9% improvement in onboard
revenues per passenger night combined with a 7% occupancy increase while Delta
Queen's onboard revenue decreased by $0.2 million reflecting the decrease in
capacity.
Consolidated cost of operations for the first nine months of 1999 increased $3.1
million over the comparable period of 1998. Delta Queen's operating costs
increased by $0.7 million primarily corresponding to the increase in air
revenue. American Hawaii's operating costs increased $2.4 million corresponding
to the increases in onboard, air and hotel revenue noted above. Consolidated
gross profit increased $5.0 million for the first nine months of 1999.
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Consolidated selling, general and administrative expenses, before capacity
expansion expenses, increased by $6.7 million to $40.5 million for the first
nine months of 1999 from $33.8 million for the same period in 1998. The increase
was a result of higher selling and marketing expenses, which increased by $6.4
million from the prior year. Increased selling and marketing expenses were
incurred earlier in 1999 to promote cruises occurring in 1999. Higher selling
and marketing expenses in the third quarter of 1999 were incurred to promote
year 2000 sailings. Capacity expansion expenses increased by $1.1 million to
$2.8 million from $1.7 million in the first nine months of 1998. Beginning in
the third quarter of 1999, marketing and public relations expenses for the
Columbia Queen were incurred, which amounted to $0.8 million. The remainder of
the increase is attributable to salary and benefits associated with new
personnel hired during 1999 to run our capacity expansion program. Depreciation
expense for the first nine months of 1999 was consistent with 1998.
The consolidated operating loss for the first nine months of 1999 was $0.8
million as compared to operating income of $1.7 million for the first nine
months of 1998.
Interest expense decreased by $0.6 million due to the capitalization of interest
expense and a lower outstanding debt balance in the first nine months of 1999.
Interest income increased $1.5 million in the first nine months of 1999 as a
result of proceeds received by us upon the sale of additional common stock in
late April and early May. In February 1998, we received $0.3 million of final
proceeds from the buyer of the Maison Dupuy hotel which we sold in October 1996.
Our consolidated effective tax rate was 40% for both periods in 1999 and 1998.
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
Operating Activities
For the nine months ended September 30, 1999, cash provided by operations was
$28.3 million compared to $15.9 million in 1998. The improvement reflected a
greater seasonal increase in unearned passenger revenues, which increased $22.0
million in 1999, as compared to an increase of $10.1 million in 1998. The
increase in unearned passenger revenues was greater in 1999 than in 1998
primarily due to (1) an improvement in American Hawaii's and Delta Queen's
advance bookings and (2) deposits received in 1999 for millennium charter
cruises at Delta Queen.
Investing Activities
During 1999, we made a $1.0 million deposit into escrow upon entering into an
agreement with Holland America Line to purchase the ms Nieuw Amsterdam, which
was subsequently returned to us. Our capital expenditures of $45.1 million
included $40.5 million for vessels under construction which is comprised mainly
of payments to shipyards. Other capital costs for the new shipbuilding programs
include technical design, engineering and architectural fees. For the Hawaii
cruise ships under construction, we have spent $28.0 million during 1999, while
$12.5 million has been spent in 1999 on the Columbia Queen and Delta Queen
coastal vessels projects. Other capital expenditures of $4.6 million were mainly
related to our existing vessels such as lay-ups for our Delta Queen vessels,
which were completed earlier in 1999.
Financing Activities
For the nine months ended September 30, 1999, we made scheduled principal
payments of $3.3 million under the American Queen and Independence ship
financing notes and borrowed and repaid $2.0 million under our credit facility.
In the second quarter of 1999, the Company completed a public offering of an
additional 4,025,000 shares of common stock. The net proceeds to the Company,
after offering expenses, were $63.5 million and are being used for construction
of the initial Hawaii vessel. Additional proceeds from the issuance of common
stock were received from employee stock option exercises. We also paid $2.2
million for financing efforts related to our new credit facility and Maritime
Administration financing, as discussed below.
Capital Expenditures and Debt
For the Hawaii cruise market, we are constructing two new cruise ships over the
next five years and plan to introduce an existing foreign-built cruise ship,
which we have a contract to acquire, in the Hawaii market prior to delivery of
the new vessels. On March 9, 1999, we signed a definitive agreement with Ingalls
Shipbuilding to construct two passenger ships, each containing approximately
1,900 passengers berths, with options to build up to four additional vessels.
The estimated construction cost of the two initial ships, inclusive of shipyard
contract price, furniture, fixtures, and owner-furnished equipment, will be
approximately $470 million each. The agreement provides that the first ship will
be delivered in January 2003 and the second ship in January 2004.
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We will finance a significant portion of the construction cost of the Hawaii
cruise ships through the Maritime Administration, which provides guarantees of
private financing for new vessel construction projects conducted in U.S.
shipyards. In April 1999, we received financing guarantees for debt up to 87.5%
of the cost of the vessels. The guaranteed debt will be accessed during the
construction period, with net interest payments during that period capitalized
as part of the cost of construction. In the current market, this type of debt
generally bears interest at a rate of 100 to 150 basis points over the
comparable U.S. government obligations and can have a term of up to 25 years
from the date of delivery of the vessel. The loans generally amortize on a
straight line basis over the term of the loan commencing after the delivery
date. Fees associated with obtaining the financing guarantees included a
one-time investigation fee of approximately $1.4 million, which we paid to the
Maritime Administration in April 1999. In addition, the Maritime Administration
imposes an annual guarantee fee of not less than 1/4 of 1% and not more than 1%
of the indebtedness, reduced by any required escrow, based upon the obligor's
ratio of long-term debt to stockholders' equity. The present value of the annual
guarantee fees is payable at the closing of the Maritime Administration
guaranteed financing and will be capitalized as part of the vessel cost.
Over the next twelve months, we expect to spend approximately $125 million on
building the two new Hawaii cruise vessels, which includes anticipated payments
to Ingalls Shipbuilding.
On October 15, 1999, the Company finalized an agreement with Holland America
Line to purchase the ms Nieuw Amsterdam for $114.5 million. The purchase
agreement required the Company to make an earnest money deposit of $18 million
by October 18, 1999 and an additional $12 million by January 17, 2000. The
Company has arranged for an unsecured letter of credit facility with Chase
Manhattan Bank for up to $30 million and satisfied the first deposit requirement
by posting an $18 million letter of credit. Outstanding letters of credit under
this facility bear interest at a rate of 2.125% per annum. The Company is also
required to pay a commitment fee of 0.375% per annum on the unused portion of
the facility. Persons and entities affiliated with Equity Group Investments,
Inc. ("EGI"), the Company's largest shareholder, guaranteed the letter of credit
facility to Chase Manhattan Bank thereby allowing the Company to obtain the
facility. The Company has paid EGI a commitment fee of $0.5 million and has
agreed to pay EGI additional compensation contingent upon appreciation in the
Company's common stock. EGI's rights to receive this additional compensation
will vest, on a monthly basis, during the period that the guarantee remains
outstanding and will increase to the extent that amounts are paid by EGI
pursuant to the guarantee. EGI has a period of five years to exercise its rights
to receive such payment, subject to the Company's right to pay such additional
fee at any time within the next three years at escalating amounts and tied to
the rights vested by EGI. Under the purchase agreement, at the closing scheduled
for October 2000, we are required to fund the $30 million deposit. If EGI funds
the $30 million deposit, we will pay EGI interest at 15% per annum and the
obligation will mature 24 months after funding. In addition, Holland America
Line has agreed to provide financing for the remaining portion of the purchase
price totaling $84.5 million for 75 months at the prevailing prime rate. The
Holland America Line financing will be secured by a first preferred ship
mortgage. Prior to introducing the ms Patriot into service in December 2000, we
expect to spend approximately $10 to 15 million on improvements to the ship.
This will be funded from cash on hand, funds from operations, new borrowings
from lenders, and possibly through the capital markets.
For the Delta Queen line, we intend to build up to five new small coastal ships
over the next seven to 10 years. We entered into a construction contract, as of
May 1, 1999, with Atlantic Marine, Inc. of Jacksonville, Florida to construct at
least two coastal cruise vessels for our Delta Queen line. Under the
construction contract, the contract price of the vessels will be $30 million
each and will have a total project cost, including furnishing, fixtures and
equipment, of approximately $35 million. The coastal cruise vessels will be
approximately 300 feet long and provide accommodations for up to 226 passengers.
The contract provides that the delivery date will be early March 2001 for the
first vessel and June 2001 for the second vessel. Atlantic Marine will provide a
limited warranty for the work, parts, and components of each vessel fabricated
by the yard for one year after delivery.
Over the next twelve months, we expect to spend approximately $35 million to $40
million on building the new coastal cruise vessels, which also includes
anticipated payments to Atlantic Marine, Inc.
On May 25, 1999, we acquired a substantially complete riverboat originally built
for the casino trade that we will convert and operate as the fourth Delta Queen
riverboat. We expect the vessel, which will be known as the Columbia Queen, will
enter service in April 2000 operating weekly cruise vacations out of Portland on
the Columbia River system. We recently entered into an agreement with Nichols
Brothers Boat Builders, Inc. ("Nichols Brothers") to convert the 218 foot boat
into an overnight passenger vessel with 161 passenger berths. We paid $3.2
million to acquire the vessel and estimate the total renovation, relocation,
start-up and marketing costs, inclusive of the $6.5 million contract with
Nichols Brothers, will require an additional $13 million to $16 million.
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On February 25, 1999, The Delta Queen Steamboat Co. entered into a credit
agreement with a group of lenders, with The Chase Manhattan Bank as agent. This
credit agreement provides for a revolving credit facility of up to $70 million
to fund the expansion of our Delta Queen line. This new $70 million facility
replaced our prior credit facility with Chase Manhattan. Borrowings under the
new credit facility bear interest at either (1) the greater of Chase Manhattan's
prime rate or alternative base rates plus a margin ranging from 0.50% to 1.50%,
or (2) the London Interbank Offered Rate plus a margin ranging from 1.50% to
2.50%. We are also charged a fee of 0.50% per annum on any unused commitment.
The new credit facility is secured by all of the assets of The Delta Queen
Steamboat Co., except for the American Queen. The new credit facility limits the
dividends The Delta Queen Steamboat Co. may pay to between $5 million and $15
million per year when aggregated with investments and other payments.
In the first quarter of 2000, the three existing Delta Queen vessels will
undergo lay-ups which are expected to cost approximately $6.7 million, including
repairs and maintenance. These amounts will be funded from working capital and
the Delta Queen credit facility. The Independence will undergo an 18-day drydock
in early 2000, which is expected to cost approximately $5.5 million, including
repairs and maintenance, and will be funded from cash on hand.
As of September 30, 1999, we complied with all covenants under our various debt
agreements.
We believe we will have adequate access to capital resources, both internally
and externally, to meet our current short-term and long-term capital
commitments. Such resources may include cash on hand, new borrowings from
lenders, and the ability to secure additional financing through the capital
markets. We continually evaluate opportunities to increase capacity at both
Delta Queen and in Hawaii and to strategically grow our business. Although we
believe that we will be able to obtain sufficient equity and debt financing from
the capital markets to satisfy our financial obligations relating to
construction of the new vessels, and to acquire, renovate and introduce the ms
Patriot into service, we cannot assure you that we will be able to obtain
additional financing at commercially acceptable levels to finance these projects
and, if we so choose, to pursue strategic business opportunities. If we fail to
obtain such financing, we may have to postpone or abandon some of our
construction plans.
In June 1997, our board of directors approved a stock repurchase plan. The plan
authorizes us to repurchase up to one million shares of our stock. These shares
may be purchased from time to time in the public market or through privately
negotiated transactions. As of September 30, 1999, we had repurchased 51,000
shares at an average purchase price of $14.84 per share under the plan. We
currently have no intention to repurchase any additional shares of common stock.
Impact of Year 2000
Many computer programs have been written using two digits rather than four to
define the applicable year. Any of our computer programs that have
time-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a major system failure, miscalculations
and/or other unanticipated problems.
State of Readiness
We have established internally staffed project teams to address Year 2000
issues. Each team has formulated a plan that focuses on Year 2000 compliance
efforts for information technology systems and non-information technology
systems. This plan addresses (1) information technology systems software and
hardware such as reservations, accounting and associated systems, personal
computers and software and (2) non-information technology systems such as
embedded chip systems in building facilities, shipboard navigation, control,
power generation systems, and communication systems.
Our Year 2000 plan addresses the Year 2000 issues in various phases for both
types of systems including: (1) inventory of our systems, equipment and
suppliers that may be vulnerable to Year 2000 issues; (2) assessment of
inventoried items to determine the risks associated with their possible failure
to be Year 2000 compliant; (3) testing of systems and components to determine if
they are Year 2000 compliant, both prior to and subsequent to remediation; (4)
remediation and implementation of new systems; and (5) contingency planning to
address reasonably likely worst case scenarios.
For information technology systems, inventories and risk assessments have been
completed for all our shoreside software applications, hardware and operating
systems. Our reservations systems functions have been tested and were found to
be compliant. We have also determined that our shoreside phone system and
onboard financial systems on the Delta Queen vessels are Year 2000 compliant.
Our new shoreside financial system, which replaced our prior non-Year 2000
compliant system, became operational on October 4, 1999. The Independence's
onboard financial system is now Year 2000 compliant. We anticipate that these
modifications and improvements will enable our information systems to function
properly with respect to dates in the Year 2000 and thereafter.
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Inventories and risk assessments have been completed for all non-information
technology systems. No Year 2000 issues with respect to navigation, control and
propulsion systems are believed to exist on our vessels.
Risks of Year 2000 Issues
If any of our suppliers or travel partners do not, or if we do not, successfully
implement solutions to any Year 2000 issues, we could experience delays in
scheduled cruises which could result in lost revenues or increases in costs and
could subject us to claims and damages. To determine the most reasonably likely
sources of these risks, we have been communicating with our major suppliers and
travel partners on their Year 2000 compliance issues. For example, our external
air ticketing and credit card processing software have been determined to be
Year 2000 compliant.
Based on these procedures, management believes that the most reasonably likely
sources of risk to us include (1) the disruption of transportation channels
relevant to our operations, including ports and transportation vendors,
primarily airlines, as a result of a general failure of support systems and
necessary infrastructure; (2) the disruption of travel agency and other sales
distribution systems; and (3) the inability of principal product suppliers to
deliver goods and services. The severity of these possible problems would depend
on the nature of these problems and how quickly they could be corrected or
alternatives implemented.
Our major suppliers and travel partners consist of our transportation vendors,
our primary external airline ticketing vendors, and our primary credit card
processing software vendors. Our primary external airline ticketing vendor has
certified that its systems are Year 2000 compliant. Our primary credit card
processing software vendors have also certified that their systems are Year 2000
compliant. We have not received written assurance from our transportation
vendors indicating that they will be Year 2000 compliant before the end of 1999.
Because we have no contingency plan to transport our customers long distances to
and from our embarkation and disembarkation points, failure by our
transportation vendors to provide transportation services could have a material
adverse effect on our operations and our financial condition.
Some risks of the Year 2000 issue are beyond our control and our other travel
partners and suppliers. For example, no preparations or contingency plan will
protect us from a downturn in economic activity caused by the possible ripple
effect throughout the entire economy that could be caused by problems of others
with Year 2000 issues.
Costs
We have estimated our total costs for system improvements and the Year 2000
project to be approximately $1.0 million. These efforts are being funded from
working capital. Of the total project cost, approximately $0.5 million is
attributable to the implementation of a new accounting system. This amount
includes new software, new hardware, and consulting fees, all of which are being
capitalized. Another $0.2 million of capital outlays is attributable to the
upgrading of the Independence's onboard financial system. The remaining $0.3
million is expected to be expensed as incurred and is not expected to have a
material impact on the results of operations. The Year 2000 project represents
less than 10% of our information systems budget. To date, we have incurred and
expensed approximately $0.2 million related to our systems improvements and the
Year 2000 project. These costs do not include costs incurred by us as a result
of the failure of any third parties, including suppliers, to become Year 2000
compliant or costs to implement any contingency plans.
The costs of the project and the date on which we believe we will complete the
Year 2000 modifications are based on our best estimates given presently
available information. These estimates were derived utilizing numerous
assumptions of future events, including the continued availability of the
resources we rely on, third party modification plans and other factors. We
cannot assure you, however, that these estimates will be achieved, and actual
results could differ materially from those anticipated. Specific factors that
might cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer code, and similar uncertainties.
Contingency Plans
We are preparing our contingency plans to identify and determine how to handle
our most probable worst case scenarios. Preliminary contingency plans are
currently being reviewed. Comprehensive contingency plans are estimated to be
substantially completed by November 30, 1999 and continued refinements are
expected to occur throughout the remainder of the year.
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Factors Concerning Forward-Looking Statements
Certain statements in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" constitute "forward-looking statements"
which we believe are within the meaning of the Private Securities Litigation
Reform Act of 1995. Such forward-looking statements involve known and unknown
risks, uncertainties and other factors which may cause our actual results,
performance or achievements to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking
statements. These forward-looking statements are not guarantees of future
performance and are subject to certain risks, uncertainties and assumptions.
Such factors include, among others, the following: construction delays and
deviations from specifications for the new vessels may adversely affect
expansion plans and future financial performance; limited remedies against
shipyards in the event of shipbuilding delays which would delay the introduction
of new vessels; failure to obtain significant amounts of capital to build,
purchase and renovate vessels, may adversely affect our expansion plans and
future operating results; increased leverage may adversely affect our financial
performance and cash flow; inability to locate and introduce a foreign-built
vessel in Hawaii would delay our growth in Hawaii; inability to manage our
financial resources during our expansion may adversely affect our financial
performance; if demand for our new cruise products fails to develop as expected
or competition increases, our business may be adversely affected; increased
capacity in Hawaii may reduce occupancy at the Independence, adversely affecting
revenues; increased expenditures for the Independence may adversely impact our
operating results; loss of exclusive rights of the Pilot Project Statute may
adversely affect our revenue growth in Hawaii; modification of existing
governmental regulations may adversely affect our business; increased
competition in the Hawaii cruise market and from other vacation alternatives may
adversely impact our financial performance; sensitivity of the vacation and
leisure industry to general economic and business conditions; failure to
complete drydocking on schedule or within budget may adversely affect our
revenues; weather factors can adversely affect our operations and our financial
performance; the loss of vessels from service would adversely impact our
business; our controlling stockholder may take actions that adversely affect our
business; sales of our controlling stockholder's shares could have an adverse
effect on our ability to raise capital; and our controlling stockholder may have
conflicts of interest with competing interests.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
For a discussion of certain market risks related to us, see Part I Item 7A
"Quantitative and Qualitative Disclosures About Market Risks" in our Annual
Report on Form 10-K for the fiscal year ended December 31, 1998. There have been
no significant developments with respect to exposure to market risk.
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<PAGE> 18
AMERICAN CLASSIC VOYAGES CO.
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
There are no other material legal proceedings, to which the Company is
a party or of which any of its property is the subject, other than
ordinary routine litigation and claims incidental to the business. The
Company believes it maintains adequate insurance coverage and reserves
for such claims.
ITEM 6. Exhibits and Reports on Form 8-K
a) Exhibits:
3.(ii) Third Amended and Restated By-Laws of
the Company
10.(iv)(a)(9) Vessel Conversion Agreement dated August
20, 1999 between Nichols Brothers Boat
Builders, Inc. and The Delta Queen
Steamboat Co.*
27. Financial Data Schedule.
b) Reports on Form 8-K:
None.
*Certain portions of this exhibit filed herewith have been omitted pursuant to
an application for an order of confidential treatment pursuant to Rule 24b-2
under the Securities and Exchange Act of 1934, as amended. This non-public
information has been filed separately with the Securities and Exchange
Commission.
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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.
AMERICAN CLASSIC VOYAGES CO.
By: /s/ Philip C. Calian
---------------------------------
Philip C. Calian
Chief Executive Officer
By: /s/ Randall L. Talcott
---------------------------------
Randall L. Talcott
Vice President-Finance and
Treasurer (Principal Financial
and Accounting Officer)
Dated: November 12, 1999
- ------------------------
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THIRD AMENDED AND RESTATED BY-LAWS
OF
AMERICAN CLASSIC VOYAGES CO.
ARTICLE I
OFFICES
The Corporation shall continuously maintain in the State of Delaware a
registered office and a registered agent whose business office is identical with
such registered office, and may have other offices within or without the State.
ARTICLE II
SHAREHOLDERS
SECTION 1. ANNUAL MEETING. An annual meeting of the shareholders shall be
held on the third Wednesday in June of each year or at such time as the Board of
Directors may designate for the purpose of electing directors and for the
transaction of such other business as may come before the meeting. If the day
fixed for the annual meeting shall be a legal holiday, such meeting shall be
held on the next succeeding business day. If the election of directors shall not
be held on the day designated herein for any annual meeting, or at any
adjournment thereof, the Board of Directors shall cause the election to be held
at a meeting of the shareholders as soon thereafter as may be convenient.
SECTION 2. SPECIAL MEETINGS. Special meetings of the shareholders may be
called either by the President, by the Board of Directors or by the holders of
not less than a majority of all the outstanding shares of the Corporation
entitled to vote, for the purpose or purposes stated in the call of the meeting.
SECTION 3. PLACE OF MEETING. The Board of Directors may designate any
place, either within or without the State of Delaware, as the place of meeting
for any annual meeting or for any special meeting called by the Board of
Directors. A waiver of notice signed by all shareholders may designate any
place, either within or without the State of Delaware, as the place for the
holding of such meeting. If no designation is made, or if a special meeting be
otherwise called, the place of meeting shall be at Two North Riverside Plaza,
Chicago, Illinois 60606, except as otherwise provided in Section 5 of this
Article II.
<PAGE> 2
SECTION 4. NOTICE OF MEETINGS. Written notice stating the place, date, and
hour of the meeting and, in the case of a special meeting, the purpose or
purposes for which the meeting is called, shall be delivered not less than 10
nor more than 60 days before the date of the meeting, or in the case of a
merger, consolidation, share exchange, dissolution or sale, lease or exchange of
assets, not less than 20 nor more than 60 days before the date of the meeting,
either personally or by mail, by or at the direction of the President, or the
Secretary, or the officer or persons calling the meeting, to each shareholder of
record entitled to vote at such meeting. If mailed, such notice shall be deemed
to be delivered when deposited in the United States mail addressed to the
shareholder at his or her address as it appears on the records of the
corporation, with postage thereon prepaid. When a meeting is adjourned to
another time or place, notice need not be given of the adjourned meeting if the
time and place thereof are announced at the meeting at which the adjournment is
taken.
SECTION 5. MEETING OF ALL SHAREHOLDERS. If all of the shareholders shall
meet at any time and place, either within or without the State of Delaware, and
consent to the holding of a meeting at such time and place, such meeting shall
be valid without call or notice, and at such meeting any corporate action may be
taken.
SECTION 6. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. For the
purpose of determining the shareholders entitled to notice of or to vote at any
meeting of shareholders, or shareholders entitled to receive payment of any
dividend, or in order to make a determination of shareholders for any other
proper purpose, the Board of Directors may fix in advance a date as the record
date for any such determination of shareholders, such date in any case to be not
more than 60 days and, for a meeting of shareholders, not less than 10 days or,
in the case of a merger, consolidation, share exchange, dissolution or sale,
lease or exchange of assets, not less than 20 days before the date of such
meeting. If no record date is fixed for the determination of shareholders
entitled to notice of or to vote at a meeting of shareholders, or shareholders
entitled to receive payment of a dividend, the date on which notice of the
meeting is mailed or the date on which the resolution of the Board of Directors
declaring such dividend is adopted, as the case may be, shall be the record date
for such determination of shareholders. When a determination of shareholders
entitled to vote at any meeting of shareholders has been made as provided in
this Section, such determination shall also apply to any adjournment thereof.
SECTION 7. VOTING LISTS. The officer or agent having charge of the
transfer book for shares of the Corporation shall make, within 20 days after the
record date for a meeting of shareholders or 10 days before such meeting,
whichever is earlier, a complete list of the shareholders entitled to vote at
such meeting, arranged in alphabetical order, with the address of and the number
of shares held by each, which list, for a period of 10 days prior to such
meeting, shall be kept on file at the registered office of the Corporation and
shall be subject to inspection by any shareholder, and to copying at the
shareholder's expense, at any time during usual business hours. Such list shall
also be produced and kept open at the time and place of the meeting and shall be
subject to the inspection of any shareholder during the whole time of the
meeting. The original share ledger or transfer book, or a duplicate thereof kept
in the State of Delaware, shall be prima facie evidence as to who are the
shareholders entitled to examine such list or share ledger or transfer book or
to vote at any meeting of shareholders.
2
<PAGE> 3
SECTION 8. QUORUM. The holders of a majority of the outstanding shares of
the Corporation entitled to vote on a matter, represented in person or by proxy,
shall constitute a quorum for consideration of such matter at any meeting of
shareholders, but in no event shall a quorum consist of less than one-third of
the outstanding shares entitled so to vote; provided that if less than a
majority of the outstanding shares are represented at said meeting, a majority
of the shares so represented may adjourn the meeting at any time without further
notice. If a quorum is present, the affirmative vote of the majority of the
shares represented at the meeting shall be the act of the shareholders, unless
the vote of a greater number or voting by classes is required by the General
Corporation Law of Delaware (as now in effect or as amended from time to time,
the "Act"), the certificate of incorporation or these by-laws. At any adjourned
meeting at which a quorum shall be present, any business may be transacted which
might have been transacted at the original meeting. Withdrawal of shareholders
from any meeting shall not cause failure of a duly constituted quorum at that
meeting.
SECTION 9. PROXIES. At all meetings of shareholders, a shareholder may
vote by proxy executed in writing by the shareholder or by his duly authorized
attorney-in-fact. Such proxy shall be filed with the Secretary of the
Corporation before or at the time of the meeting. No proxy shall be valid after
eleven months from the date of its execution, unless otherwise provided in the
proxy.
SECTION 10. VOTING OF SHARES. Unless otherwise provided in the articles of
incorporation, each outstanding share shall be entitled to one (1) vote upon
each matter submitted to vote at a meeting of shareholders.
SECTION 11. VOTING OF SHARES BY CERTAIN HOLDERS. Shares held by the
Corporation in a fiduciary capacity may be voted and shall be counted in
determining the total number of outstanding shares entitled to vote at any given
time.
Shares registered in the name of another corporation, domestic or foreign,
may be voted by any officer, agent, proxy or other legal representative
authorized to vote such shares under the law of incorporation of such
corporation. The Corporation may treat the president or other person holding the
position of chief executive officer of such other corporation as authorized to
vote such shares, together with any other person indicated and any other holder
of any office indicated by the corporate shareholder to the Corporation as a
person or an officer authorized to vote such shares. Such persons and officers
indicated shall be registered by the Corporation on the transfer books for
shares and included in any voting list prepared in accordance with Section 7 of
this Article II.
Shares registered in the name of a deceased person, a minor ward or a
person under legal disability may be voted by his or her administrator, executor
or court appointed guardian, either in person or by proxy without a transfer of
such shares into the name of such administrator, executor or court appointed
guardian. Shares registered in the name of a trustee may be voted by him or her,
either in person or by proxy.
Shares registered in the name of a receiver may be voted by such receiver,
and shares held by or under the control of a receiver may be voted by such
receiver without the transfer thereof into his or her name if authority to do so
is contained in an appropriate order of the court by which such receiver was
appointed.
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A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Any number of shareholders may create a voting trust for the purpose of
conferring upon a trustee or trustees the right to vote or otherwise represent
their shares, for a period not to exceed 10 years, by entering into a written
voting trust agreement specifying the terms and conditions of the voting trust
and by transferring their shares to such trustee or trustees for the purpose of
the agreement. Any such trust agreement shall not become effective until a
counterpart of the agreement is deposited with the Corporation at its registered
office. The counterpart of the voting trust agreement so deposited with the
Corporation shall be subject to the same right of examination by a shareholder
of the Corporation, in person or by agent or attorney, as are the books and
records of the Corporation, and shall be subject to examination by any holder of
a beneficial interest in the voting trust, either in person or by agent or
attorney, at any reasonable time for any proper purpose.
Shares of its own stock belonging to the Corporation shall not be voted,
directly or indirectly, at any meeting and shall not be counted in determining
the total number of outstanding shares at any given time, but shares of its own
stock held by it in a fiduciary capacity may be voted and shall be counted in
determining the total number of outstanding shares at any given time.
SECTION 12. INSPECTORS. At any meeting of shareholders, the presiding
officer may, or upon the request of any shareholder shall, appoint one or more
persons as inspectors for such meeting.
Such inspectors shall ascertain and report the number of shares
represented at the meeting, based upon their determination of the validity and
effect of proxies; count all votes and report the results; and do such other
acts as are proper to conduct the election and voting with impartiality and
fairness to all the shareholders.
Each report of an inspector shall be in writing and signed by him or her
or by a majority of them if there be more than one inspector acting at such
meeting. If there is more than one inspector, the report of a majority shall be
the report of the inspectors. The report of the inspector or inspectors on the
number of shares represented at the meeting and the results of the voting shall
be prima facie evidence thereof.
SECTION 13. INFORMAL ACTION BY SHAREHOLDERS. Any action required to be
taken at a meeting of the shareholders, or any other action which may be taken
at a meeting of the shareholders, may be taken without a meeting and without a
vote if a consent in writing, setting forth the action so taken, shall be signed
(a) by the holders of outstanding shares having not less than the minimum number
of votes that would be necessary to authorize or take such action at a meeting
at which all shares entitled to vote thereon were present and voting or (b) by
all of the shareholders entitled to vote with respect to the subject matter
thereof.
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Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given in writing to those
shareholders who have not consented in writing. In the event that the action
which is consented to is such as would have required the filing of a certificate
under any section of the Act if such action had been voted on by the
shareholders at a meeting thereof, the certificate filed under such section
shall state, in lieu of any statement required by such section concerning any
vote of shareholders, that written consent has been given in accordance with the
provisions of SECTION 228 of the Act and that written notice has been given as
provided in such SECTION 228.
SECTION 14. VOTING BY BALLOT. Voting on any question or in any election
may be by voice unless the presiding officer shall order or any shareholder
shall demand that voting be by ballot.
ARTICLE III
DIRECTORS
SECTION 1. GENERAL POWERS. The business of the Corporation shall be
managed by or under the direction of its Board of Directors.
SECTION 2. NUMBER, TENURE AND QUALIFICATIONS. The number of directors of
the Corporation shall be not less than two (2) and not more than thirteen (13).
Each director shall hold office until the next annual meeting of shareholders;
or until his successor shall have been elected and qualified. Directors need not
be residents of Delaware or shareholders of the Corporation. The number of
directors may be increased or decreased from time to time by the amendment of
this Section 2. No decrease shall have the effect of shortening the term of any
incumbent director.
SECTION 3. REGULAR MEETINGS. A regular meeting of the Board of Directors
shall be held, without other notice than this by-law, immediately after the
annual meeting of shareholders. The Board of Directors may provide, by
resolution, the time and place for holding of additional regular meetings
without other notice than such resolution.
SECTION 4. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by or at the request of the President or any two directors. The
person or persons authorized to call special meetings of the Board of Directors
may fix any place as the place for holding any special meeting of the Board of
Directors called by them.
SECTION 5. NOTICE. Notice of any special meeting shall be given at least
two business days previous thereto by written notice to each director at his
business address. If mailed, such notice shall be deemed to be delivered when
deposited in the United States mail so addressed, with postage thereon prepaid.
If notice be given by telegram, such notice shall be deemed to be delivered when
the telegram is delivered to the telegram company. The attendance of a director
at any meeting shall constitute a waiver of notice of such meeting, except where
a director attends a meeting for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board of Directors need be specified in the
notice or waiver of notice of such meeting.
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SECTION 6. QUORUM. Unless otherwise provided in the articles of
incorporation, a majority of the number of directors fixed by these by-laws
shall constitute a quorum for transaction of business at any meeting of the
Board of Directors, provided that if less than a majority of such number of
directors are present at said meeting, a majority of the directors present may
adjourn the meeting at any time without further notice.
Unless specifically prohibited by the articles of incorporation, members
of the Board of Directors or of any committee of the Board of Directors may
participate in and act at any meeting of the Board or such committee through the
use of a conference telephone or other communications equipment by means of
which all persons participating in the meeting can hear each other.
Participation in such meeting shall constitute attendance and presence in person
at the meeting of the person or persons so participating.
SECTION 7. MANNER OF ACTING. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors, unless the act of a greater number is required by statute, these
by-laws, or the articles of incorporation.
SECTION 8. VACANCIES. Any vacancy on the Board of Directors and any
directorship to be filled by reason of an increase in the number of directors
may be filled by election at the next annual or special meeting of shareholders.
A majority of the Board of Directors may fill any vacancy or any newly created
directorship prior to such annual or special meeting of shareholders.
SECTION 9. RESIGNATION OF DIRECTORS. A director may resign at any time
upon written notice to the Board of Directors, its chairman, if any, or to the
chief executive officer or Secretary of the Corporation.
SECTION 10. INFORMAL ACTION BY DIRECTORS. Unless specifically prohibited
by the articles of incorporation or by other provisions of these by-laws, any
action required to be taken at a meeting of the Board of Directors, or any other
action which may be taken at a meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting if a consent in writing,
setting forth the action so taken, shall be signed by all the directors entitled
to vote with respect to the subject matter thereof or by all the members of such
committee, as the case may be. Any such consent signed by all the directors or
all the members of the committee shall have the same effect as a unanimous vote,
and may be stated as such in any document filed with the Secretary of State or
with anyone else.
SECTION 11. COMMITTEES. A majority of the directors fixed by these by-laws
may, by resolution, create one or more committees and appoint members of the
Board to serve on any one or more of such committees. Each committee shall have
two or more members who shall serve at the pleasure of the Board. A majority of
any committee shall constitute a quorum and a majority of a quorum is necessary
for committee action. Each committee, to the extent provided by the Board of
Directors in such resolution, shall have and exercise all of the authority of
the Board of Directors in the management of the Corporation, except that a
committee may not: authorize distributions; approve or recommend to shareholders
any act required by statute to be approved by shareholders; fill vacancies on
the Board or on any of its committees; elect or remove officers or fix the
compensation of any member of the committee;
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adopt, amend or repeal the by-laws; approve a plan of merger not requiring
shareholder approval; authorize or approve the reacquisition of shares, except
according to a general formula or method prescribed by the Board; authorize or
approve the issuance or sale, or contract for sale, of shares or determine the
designation and relative rights, preferences, and limitations of a series of
shares, except that the Board may direct a committee to fix the specific terms
of issuance or sale or contract for sale or the number of shares to be allocated
to particular employees under an employee benefit plan; or, amend, alter,
repeal, or take action inconsistent with any resolution or action of the Board
of Directors when the resolution or action of the Board of Directors provides by
its terms that it shall not be amended, altered or repealed by action of a
committee. Vacancies in the membership of any committee shall be filled by the
Board of Directors. Each committee shall keep regular minutes of its proceedings
and report the same to the Board when required. A committee may act by unanimous
consent in writing without a meeting and, subject to action by the Board of
Directors, each committee, by a majority vote of its members, shall determine
the time and place of meetings and the notice therefor.
SECTION 12. COMPENSATION. The Board of Directors, by the affirmative vote
of a majority of directors then in office, and irrespective of any personal
interest of any of its members, shall have authority to establish reasonable
compensation of all directors for services to the Corporation as directors,
officers or otherwise notwithstanding any director conflict of interest. By
resolution of the Board of Directors, the directors may be paid their expenses,
if any, of attendance at each meeting of the Board. No such payment previously
mentioned in this Section shall preclude any director from serving the
Corporation in any other capacity and receiving compensation therefor.
SECTION 13. PRESUMPTION OF ASSENT. A director of the Corporation who is
present at a meeting of the Board of Directors at which action on any corporate
matter is taken shall be conclusively presumed to have assented to the action
taken unless his or her dissent shall be entered in the minutes of the meeting
or unless he or she shall file his or her written dissent to such action with
the person acting as the secretary of the meeting before the adjournment thereof
or shall forward such dissent by registered or certified mail to the Secretary
of the Corporation immediately after the adjournment of the meeting. Such right
to dissent shall not apply to a director who voted in favor of such action.
SECTION 14. REMOVAL OF DIRECTORS. One or more of the directors may be
removed, with or without cause, at a meeting of shareholders by the affirmative
vote of the holders of a majority of the outstanding shares then entitled to
vote at an election of directors, except that no director shall be removed at a
meeting of shareholders unless the notice of such meeting shall state that a
purpose of the meeting is to vote upon the removal of one or more directors
named in the notice, and then only the named director or directors may be
removed at such meeting. If a director has been elected by a class or series of
shares, he may be removed only by the shareholders of that class or series.
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SECTION 15. DISINTERESTED DIRECTORS; VOTING. A majority of the
Corporation's disinterested directors shall be required to approve any business
dealing between the Corporation and (i) any one or more of the directors of the
Corporation or (ii) any person affiliated with or under common control with any
one or more of the directors of the Corporation. Any such person described in
clauses (i) or (ii) of this Section 15 who enters into or intends to enter into
a business dealing with the Corporation shall, for purposes of this Section 15,
be referred to as an "interested person." For the purposes of this Section 15,
the terms "affiliate," "control," "under common control with," "disinterested
directors" and "business dealing" shall have the following meanings:
(a) an "affiliate" of, or person "affiliated" with, a specified
person shall mean a person that directly, or indirectly
through one or more intermediaries, controls or is controlled
by or is under common control with the person specified;
(b) the word "control" (the meaning of which hereunder shall also
be applicable to the term "under common control with") shall
mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management or policies of
the person, whether through board representation, the
ownership of voting securities, by contract or otherwise;
(c) the word "person" shall mean any natural person, corporation,
firm, association, trust, government, governmental agency or
other entity, whether acting in an individual, fiduciary or
other capacity;
(d) the term "disinterested directors" shall mean any director of
the Corporation who is not (i) an employee, officer, director,
trustee, general partner, 5% shareholder (through beneficial
ownership or otherwise) or fiduciary of a person (other than
the Corporation) who is affiliated with or under common
control with an interested person; or (ii) an employee,
officer, director, trustee, partner or fiduciary of any of the
persons described in subsection d(i) above; and
(e) the term "business dealing" shall mean any transaction
providing for the sale, lease or exchange of property or the
rendering of any service, other than the sale, lease or
exchange of property or the rendering of any service made or
undertaken pursuant to and in accordance with an
Administrative Services Agreement to be executed between
Equity Group Investments, Inc., an Illinois corporation, and
the Corporation in such form as the Board of Directors shall
approve.
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ARTICLE IV
OFFICERS
SECTION 1. NUMBER. The officers of the Corporation shall be a President, a
Treasurer and a Secretary and may include a Chairman of the Board (or one or
more Co-Chairmen of the Board), Chief Executive Officer, one or more Vice
Presidents, a Chief Operating Officer, a Chief Financial Officer, one or more
Assistant Treasurers, and one or more Assistant Secretaries. In addition, the
Board of Directors may, from time to time, appoint such other officers with such
powers and duties as they shall deem necessary or desirable. Any two or more
offices may be held by the same person.
SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the Corporation
shall be elected annually by the Board of Directors at the first meeting of the
Board of Directors held after each annual meeting of shareholders. If the
election of officers shall not be held at such meeting, such election shall be
held as soon thereafter as conveniently may be. Vacancies may be filled or new
offices created and filled at any meeting of the Board of Directors. Each
officer shall hold office until his successor shall have been duly elected and
shall have qualified or until his death or until he shall resign or shall have
been removed in the manner hereinafter provided. Election of an officer shall
not of itself create contract rights.
SECTION 3. REMOVAL AND RESIGNATION. Any officer elected or appointed by
the Board of Directors may be removed by the Board of Directors whenever in its
judgment the best interest of the Corporation would be served thereby, but such
removal shall be without prejudice to the contract rights, if any, of the person
so removed. Any officer of the Corporation may resign at any time by giving
written notice thereof to the Board of Directors, the Chairman of the Board, the
President or the Secretary. Any resignation shall take effect at the time
specified in the notice, or, if the time when it shall become effective is not
specified therein, immediately upon its receipt. The acceptance of a resignation
shall not be necessary to make it effective unless otherwise stated in the
resignation.
SECTION 4. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise may be filled by the Board
of Directors for the unexpired portion of the term.
SECTION 5. CHAIRMAN OF THE BOARD. The Board of Directors may designate a
Chairman of the Board (or one or more Co-Chairmen of the Board). The Chairman of
the Board shall preside over the meetings of the Board of Directors and of the
stockholders at which he shall be present. If there be more than one, the
Co-Chairmen designated by the Board of Directors will perform such duties. The
Chairman of the Board shall perform such other duties as may be assigned to him
or them by the Board of Directors.
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SECTION 6. CHIEF EXECUTIVE OFFICER. The Board of Directors shall designate
a Chief Executive Officer. In the absence of such designation, the Chairman of
the Board (or, if more than one, the Co-Chairmen of the Board in the order
designated at the time of their election or, in the absence of any designation,
then in the order of their election) shall be the Chief Executive Officer of the
Corporation. The Chief Executive Officer shall have general responsibility for
implementing the policies of the Corporation, as determined by the Board of
Directors, and for the management of the business and affairs of the
Corporation.
SECTION 7. PRESIDENT. The President or the Chief Executive Officer, as the
case may be, shall be the principal executive officer of the Corporation and
shall in general supervise and control all of the business and affairs of the
Corporation. In the absence of a designation of a Chief Operating Officer by the
Board of Directors, the President shall be the Chief Operating Officer. Subject
to the direction and control of the Board of Directors, he/she shall, in
general: supervise and control the business and affairs of the Corporation; see
that the resolutions and directions of the Board of Directors are carried into
effect except in those instances in which that responsibility is specifically
assigned to some other person by the Board of Directors; and discharge all
duties incident to the office of President and such other duties as may be
prescribed by the Board of Directors from time to time. Except in those
instances in which the authority to execute is expressly delegated to another
officer or agent of the Corporation or a different mode of execution is
expressly prescribed by the Board of Directors or these by-laws, he/she may
execute for the Corporation certificates for its shares and any contracts,
deeds, mortgages, bonds, or other instruments which the Board of Directors has
authorized to be executed, and he/she may accomplish such execution either under
or without the seal of the Corporation and either individually or with the
Secretary, any Assistant Secretary, or any other officer thereunto authorized by
the Board of Directors, according to the requirements of the form of the
instrument. He/she may vote all securities which the Corporation is entitled to
vote except as and to the extent such authority shall be vested in a different
officer or agent of the Corporation by the Board of Directors.
SECTION 8. CHIEF OPERATING OFFICER. The Board of Directors may designate a
Chief Operating Officer. The Chief Operating Officer shall have the
responsibilities and duties as set forth by the Board of Directors or the Chief
Executive Officer or President, as the case may be.
SECTION 9. CHIEF FINANCIAL OFFICER. The Board of Directors may designate a
Chief Financial Officer. The Chief Financial Officer shall have the
responsibilities and duties as set forth by the Board of Directors or the Chief
Executive Officer or President, as the case may be.
SECTION 10. THE VICE PRESIDENTS. The Vice President (or in the event there
be more than one Vice President, each of the Vice Presidents) shall assist the
President in the discharge of his/her duties as the President may direct and
shall perform such other duties as from time to time may be assigned to him/her
by the President or by the Board of Directors. In the absence of the President
or in the event of his/her inability or refusal to act, the Vice President (or
in the event there be more than one Vice President, the Vice Presidents in the
order designated by the Board of Directors or by the President if the Board of
Directors has not made such a designation or, in the absence of any designation,
then in the order of seniority of tenure as Vice President) shall perform the
duties of the President and, when so acting, shall have all the powers
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of and be subject to all the restrictions upon the President. Except in those
instances in which the authority to execute is expressly delegated to another
officer or agent of the Corporation or a different mode of execution is
expressly prescribed by the Board of Directors or these by-laws, the Vice
President (or each of them if there are more than one) may execute for the
Corporation certificates for its shares and any contracts, deeds, mortgages,
bonds or other instruments which the Board of Directors has authorized to be
executed, and he/she may accomplish such execution either under or without the
seal of the Corporation and either individually or with the Secretary, any
Assistant Secretary, or any other officer thereunto authorized by the Board of
Directors, according to the requirements of the form of the instrument, except
when a different mode of execution is expressly prescribed by the Board of
Directors or these by-laws.
SECTION 11. THE TREASURER. The Treasurer shall: (a) have charge of and be
responsible for the maintenance of adequate books of account for the
Corporation; (b) have charge and custody of all funds and securities of the
Corporation and be responsible therefor and for the receipt and disbursement
thereof; and (c) perform all the duties incident to the office of treasurer and
such other duties as from time to time may be assigned to him/her by the
President or by the Board of Directors. If required by the Board of Directors,
the Treasurer shall give a bond for the faithful discharge of his duties in such
sum and with such surety or sureties as the Board of Directors may determine.
SECTION 12. THE SECRETARY. The Secretary shall: (a) record the minutes of
the shareholders' and of the Board of Directors' meetings in one or more books
provided for that purpose; (b) see that all notices are duly given in accordance
with the provisions of these by-laws; (c) be custodian of the corporate records
and of the seal of the Corporation; (d) keep a register of the post office
address of each shareholder which shall be furnished to the Secretary by such
shareholder; (e) sign, with the President or a Vice President or any other
officer thereunto authorized by the Board of Directors, certificates for shares
of the Corporation, the issue of which shall have been authorized by the Board
of Directors, and any contracts, deeds, mortgages, bonds, or other instruments
which the Board of Directors has authorized to be executed, according to the
requirements of the form of the instrument, except when a different mode of
execution is expressly prescribed by the Board of Directors or these by-laws;
(f) have general charge of the stock transfer books of the Corporation; (g) have
authority to certify the by-laws, resolutions of the shareholders and Board of
Directors and committees thereof, and other documents of the Corporation as true
and correct copies thereof; and (h) perform all duties incident to the office of
secretary and such other duties as from time to time may be assigned to him/her
by the President or by the Board of Directors.
SECTION 13. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES. The Assistant
Treasurers and Assistant Secretaries shall perform such duties as shall be
assigned to them by the Treasurer or the Secretary, respectively, or by the
President or the Board of Directors. The Assistant Secretaries may sign with the
President or a Vice President, or any other officer thereunto authorized by the
Board of Directors, certificates for shares of the Corporation, the issue of
which shall have been authorized by the Board of Directors, and any contracts,
deeds, mortgages, bonds, or other instruments which the Board of Directors has
authorized to be executed, according to the requirements of the form of the
instrument, except when a different mode of execution is expressly prescribed by
the Board of Directors or these by-laws. The Assistant Treasurers shall, if
required by the Board of Directors, give bonds for the faithful discharge of
their duties in such sums and with such sureties as the board of directors shall
determine.
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SECTION 14. SALARIES. The salaries of the officers shall be fixed from
time to time by the Board of Directors and no officer shall be prevented from
receiving such salary by reason of the fact that he is also a director of the
Corporation.
ARTICLE V
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 1. CONTRACTS. The Board of Directors may authorize any officer or
officers, agent or agents to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the Corporation, and such authority
may be general or confined to specific instances.
SECTION 2. LOANS. No loans shall be contracted on behalf of the
Corporation and no evidences of indebtedness shall be issued in its name unless
authorized by a resolution of the Board of Directors.
SECTION 3. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the Corporation shall be signed by such officer or officers, agent or agents of
the Corporation and in such manner as shall from time to time be determined by
resolution of the Board of Directors.
SECTION 4. DEPOSITS. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation in such
banks, trust companies or other depositories as the Board of Directors may
select.
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ARTICLE VI
SHARES AND THEIR TRANSFER
SECTION 1. SHARES REPRESENTED BY CERTIFICATES AND UNCERTIFICATED SHARES.
The issued shares of the Corporation shall be represented by certificates or
shall be uncertificated shares.
Certificates representing shares of the Corporation shall be signed by the
appropriate officers and may be sealed with the seal or a facsimile of the seal
of the Corporation. If a certificate is countersigned by a transfer agent or
registrar, other than the Corporation or its employee, any other signatures may
be facsimile. Each certificate representing shares shall be consecutively
numbered or otherwise identified and shall also state the name of the person to
whom issued, the number and class of shares (with designation of series, if
any), the date of issue, and that the Corporation is organized under Delaware
law. If the Corporation is authorized to issue shares of more than one class or
of series within a class, the certificate shall also contain such information or
statement as may be required by law.
Unless prohibited by the articles of incorporation, the Board of Directors
may provide by resolution that some or all of any class or series of shares
shall be uncertificated shares. Any such resolution shall not apply to shares
represented by a certificate until the certificate has been surrendered to the
Corporation. Within a reasonable time after the issuance or transfer of
uncertificated shares, the Corporation shall send the registered owner thereof a
written notice of all information that would appear on a certificate. Except as
otherwise expressly provided by law, the rights and obligations of the holders
of uncertificated shares shall be as identical to those of the holders of
certificates representing shares of the same class and series.
The name and address of each shareholder, the number and class of shares
held and the date on which the shares were issued shall be entered on the books
of the Corporation. The person in whose name shares stand on the books of the
Corporation shall be deemed the owner thereof for all purposes as regards the
Corporation.
SECTION 2. LOST CERTIFICATES. If a certificate representing shares has
allegedly been lost or destroyed, the Board of Directors may, in its discretion,
except as may be required by law, direct that a new certificate be issued upon
such indemnification and other reasonable requirements as it may impose.
SECTION 3. TRANSFER OF SHARES. Transfer of shares of the Corporation shall
be recorded on the books of the Corporation. Transfer of shares represented by a
certificate, except in the case of a lost or destroyed certificate, shall be
made on surrender for cancellation of the certificate for such shares. A
certificate presented for transfer must be duly endorsed and accompanied by
proper guaranty of signature and other appropriate assurances that the
endorsement is effective. Transfer of an uncertificated share shall be made on
receipt by the Corporation of an instruction from the registered owner or other
appropriate person. The instruction shall be in writing or a communication in
such form as may be agreed upon in writing by the Corporation.
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ARTICLE VII
FISCAL YEAR
The fiscal year of the Corporation shall be fixed by resolution of the
Board of Directors.
ARTICLE VIII
DISTRIBUTIONS
The Board of Directors may authorize, and the Corporation may make,
distributions to its shareholders, subject to any restrictions in its articles
of incorporation or provided by law.
ARTICLE IX
SEAL
The corporate seal shall have inscribed thereon the name of the
Corporation and the words "Corporate Seal, Delaware." The seal may be used by
causing it or a facsimile thereof to be impressed or affixed or in any other
manner reproduced, provided that the affixing of the corporate seal to an
instrument shall not give the instrument additional force or effect, or change
the construction thereof, and the use of the corporate seal is not mandatory.
ARTICLE X
WAIVER OF NOTICE
Whenever any notice is required to be given under the provisions of these
by-laws or under the provisions of the articles of incorporation or under the
provisions of the Act, a waiver thereof in writing, signed by the person or
persons entitled to such notice, whether before or after the time stated
therein, shall be deemed equivalent to the giving of such notice. Attendance at
any meeting shall constitute waiver of notice thereof unless the person at the
meeting objects to the holding of the meeting because proper notice was not
given.
14
<PAGE> 15
ARTICLE XI
INDEMNIFICATION
Each person who at any time is or shall have been a director, officer,
employee or agent of this Corporation, or is or shall have been serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall be
indemnified by this Corporation in accordance with and to the full extent
permitted by the Act. The foregoing right of indemnification shall not be deemed
exclusive of any other rights to which a person seeking indemnification may be
entitled under any by-law, agreement, vote of shareholders or disinterested
directors or otherwise. If authorized by the Board of Directors, the Corporation
may purchase and maintain insurance on behalf of any person to the full extent
permitted by the Act. If the Corporation pays indemnity or makes an advance of
expenses to a director, officer, employee or agent, the Corporation shall report
the indemnification or advance in writing to the shareholders with or before the
notice of the next shareholders' meeting.
ARTICLE XII
AMENDMENTS
Unless otherwise provided in the articles of incorporation, these by-laws
may be made, altered, amended or repealed by the shareholders or the Board of
Directors, but no by-law adopted by the shareholders may be altered, amended or
repealed by the Board of Directors.
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<PAGE> 1
OWNER: /s/ JBA
BUILDER: /s/ MJN
VESSEL CONVERSION AGREEMENT
HULL NUMBER: S-137
MAXIMUM PRICE: $6,454,432.00
REDELIVERY DATE: March 21, 2000 at Langley, Washington
CONTRACT
This Agreement entered into as of the 20th day of August 1999
BETWEEN
NICHOLS BROTHERS BOAT BUILDERS, INC.
(hereinafter called "BUILDER").
AND
THE DELTA QUEEN STEAMBOAT CO.
(hereinafter called "OWNER").
WITNESSETH:
ARTICLE I - SCOPE
A. All dates specified in this Agreement are material and of the essence
unless otherwise stated. Subject to the terms of this Agreement and in
exchange for the payment by OWNER to BUILDER on the Time and Materials
basis hereafter defined but not to exceed the sum of Six Million Four
Hundred Fifty Four Thousand Nine Hundred Four Hundred Thirty Two U.S.
Dollars ($6,454,432.00), BUILDER agrees, at its own risk and expense,
subject to and as qualified by the other terms and conditions of this
Agreement, to complete the scope of conversion work defined herein and
redeliver to OWNER afloat at the redelivery point specified in Article
II-D below, on or before the REDELIVERY DATE specified above, the M/V
Columbia Queen (hereinafter called the "Vessel") converted, outfitted,
trialed and issued a temporary Certificate of Inspection ("COI") by the
United States Coast Guard ("USCG") following ship conversion and outfit
approval by the USCG Marine Safety Center ("MSC") in accordance with
the following defined materials (collectively the "Contract Drawings"):
(1) A preliminary ship construction specification
("Preliminary Ship Construction Specification") prepared by the BUILDER
and agreed to by the OWNER consisting of 27 pages but which excludes
specifying the Interior of the Vessel;
<PAGE> 2
OWNER: /s/ JBA
BUILDER: /s/ MJN
(2) A package prepared by Hopeman Brothers Marine Interiors
("Hopeman"), a subcontractor of the OWNER whose work and
responsibilities are outside of the BUILDER's scope, agreed to by the
OWNER and BUILDER, to describe the Interior of the Vessel consisting of
74 pages of drawings and narrative matter amounting to an additional 12
pages (the "Interior Specification"), and when the capitalized work
"Interior" is used hereafter, it shall mean the Interior of the Vessel
as is defined in the Interior Specification;
(3) A preliminary and unfinalized general arrangement drawing
prepared by Rodney E. Lay & Associates (the "Architects"), the OWNER's
naval architects, and a drawing of the transverse sections prepared by
Andrea Piacentiai (together 5 pages called the "Preliminary GA");
(4) Additional technical drawings and accompanying technical
narrative explanation as yet unprepared by the Architects in final form
but which are listed in a 14 page writing for the conversion of the
Vessel and for all of its systems and outfit excluding the Interior to
be completed by the OWNER's Architects and agreed with the BUILDER
under paragraph D(1) of this Article I and when so prepared to be known
as the "Architects Technical Conversion Plans"; and
(5) A complete and final specification for the conversion and
outfit including systems of the Vessel excluding the Interior (the
"Final Ship Construction Specification"), as yet unprepared but to be
completed by the BUILDER and agreed with the OWNER under paragraph C of
this Article I.
A true and complete copy of the Preliminary Ship Construction
Specification, the Interior Specification, the Preliminary GA and the
writing listing the drawings to be the Architects Technical Conversion
Plans have been certified by the parties by initialing each page
thereof and reflecting the date of certification as concurrent with
execution of this Agreement and are sometimes referred to collectively
hereafter as the Preliminary Conversion Scope. The Architects Technical
Conversion Plans and the Final Ship Construction Specification when
completed shall be likewise certified and when so completed, approved
and certified shall together with the Interior Specification be
sometimes collectively referred to hereafter as the Final Conversion
Scope. Should Hopeman later prepare and the OWNER and BUILDER both
assent to a more detailed specification and description of the Interior
than that certified as of the date of this Agreement, then such later
and more detailed matter shall be reduced to writing, referred to
thereafter as the Final Interior Specification and considered within
the Final Conversion Scope, and be likewise certified.
Any Additional Work required of the BUILDER in the Architects Technical
Conversion Plans or in any such Final Interior Specification which is
additional to work required of or the capacity of systems to be
supplied by the BUILDER under the Preliminary Ship Construction
Specification and considering the Interior Specification certified as
of the date of this Agreement (specifically including, without
limitation, increased main
2
<PAGE> 3
OWNER: /s/ JBA
BUILDER: /s/ MJN
propulsion plant, electrical power generation requirements, or
increased HVAC system cooling or heating requirements) will be subject
to the provisions of Article VII hereof.
B. OWNER shall at the times hereafter specified pay BUILDER (i) the sum of
USD ___ per hour for all production and shipyard production management
and engineering time spent on the Vessel under this Agreement; (ii) the
BUILDER's actual cost (including freight and insurance in transit) to
purchase all materials, equipment, systems and to pay all subcontract
and professional work together with a markup of ___ thereon; and (iii)
the premiums for the builder's risk and ship repairer's liability
insurance coverages required of the BUILDER together with no markup;
all not to exceed $6,454,432 (the "Maximum Price") unless the Maximum
Price is increased pursuant to Article VII hereof. The BUILDER's scope
of work within the Maximum Price and presently defined in the
Preliminary Ship Construction Specification includes an allowance of
________ for types of support work identified in the Preliminary Ship
Construction Specification on the part of the BUILDER for Hopeman's
construction and installation of the Interior (hereafter the "Hopeman
Builder Support Allowance"). If the final total of the Builder's
charges under subclauses (i) through (iii) in this paragraph B upon
Redelivery including the net expense of all changes under Article VII
(the "Final Price") is less than the Maximum Price, the savings shall
be shared equally by OWNER and BUILDER and the amount of the Article
IV-B Redelivery Payment shall be adjusted accordingly. For the
avoidance of doubt, the OWNER may not assert that BUILDER having
accomplished one particular budgeted area of its work (such as, for
example, piping) for less than the BUILDER's budgeted sum for such area
operates, taken alone, to amount to a saving below the Maximum Price.
To the contrary, the Final Price is measured and computed as provided
in this paragraph and Article and under Article VII as a single
aggregate number for all BUILDER work, then to be measured as a single
Final Price number against the Maximum Price.
C. BUILDER agrees to furnish a suitable location at its shipyard for the
conversion of the Vessel, and all labor, tools, equipment, materials,
services and fees necessary for the conversion of said Vessel, except
for the construction and installation and outfit of the Interior and
except as otherwise indicated in the Preliminary or Final Conversion
Scope. BUILDER agrees by not later than September 10, 1999, to complete
and furnish to OWNER, for OWNER'S approval to be given or withheld
within ten days of receipt thereof, and not to be withheld
unreasonably, the Final Ship Construction Specification. The Final Ship
Conversion Specification shall, except for any additional work not
identified in the Preliminary Conversion Scope but identified by the
BUILDER, OWNER or any regulatory body as necessary for USCG or U.S.
Public Health Service ("USPHS") regulatory approvals and agreed to by
both BUILDER and OWNER (which shall be deemed "Additional Work"),
comport with the scope and quality and extent of conversion, outfit and
finish work for the Vessel presently defined in The Preliminary Ship
Construction Specification and the Preliminary GA and be consistent
with the Vessel's system performance requirements derived from the
Interior Specification (as distinguished from the Final Interior
Specification); and shall comply with and be to a level of detail
adequate for USCG MSC and USPHS regulatory approval for an overnight
USCG Subchapter H vessel restricted to operate in protected harbors and
navigable
3
<PAGE> 4
OWNER: /s/ JBA
BUILDER: /s/ MJN
inland waterways excepting the Great Lakes. Work by the BUILDER under
this Agreement is based on the understanding that the OWNER intends to
operate the Vessel east of Astoria in the Columbia/Snake/Willamette
system.
D. (1) OWNER agrees to furnish, through the Architects selected and
engaged by Owner, to BUILDER for BUILDER'S approval, to be given or
withheld within ten days of receipt thereof, and not to be withheld
unreasonably, by September 10, 1999, the entirety of the Architects
Technical Conversion Plans completed to preliminary design level or to
any greater level of detail necessary for USCG MSC and USPHS regulatory
approval for an overnight USCG Subchapter H vessel restricted to
operate in navigable inland waterways east of Astoria in the
Columbia/Snake/Willamette system. Although the Interior Specification
and not the Architects Technical Conversion Plans will specify the
Interior, it shall be the responsibility of the Architects to include
in the Architects Technical Conversion Plans such fire load and other
safety aspects of the Interior as may be required by USCG for the USCG
approvals sought. The Architects Technical Conversion Plans shall,
except for any Additional Work identified by the Architects as
necessary for USCG or USPHS Vessel regulatory approvals (which shall be
included but noted as Additional Work), comport with the scope and
quality and extent of conversion, outfit and finish work for the Vessel
and her Interior presently defined in the Preliminary Conversion Scope
and shall comply with the requirements of the USCG and USPHS for
approval of an overnight USCG Subchapter H vessel to operate in
navigable inland waterways east of Astoria in the
Columbia/Snake/Willamette system. The OWNER and the Architects shall be
solely responsible to provide in the Architects Technical Conversion
Plans, and otherwise to notify the BUILDER in writing, of any changes
or measures not already provided for in the Preliminary Conversion
Scope which the OWNER desires or requires for accesses and measures
responsive to such if any of the ADA Accessibility Guidelines as may be
applicable to the Vessel and which, if so identified in the Architects
Technical Conversion Plans or otherwise, shall be subject to the
provisions of Article VII hereof together with any Additional Work
identified in the Architects Technical Conversion Plans. The BUILDER
shall have no responsibility for compliance with the ADA except to
faithfully perform and not deviate from the scope of work identified in
this Agreement. It shall be the responsibility of OWNER and the
Architects to apply and pay all fees for and make all necessary
submissions to USCG for MSC approval; but it shall be the
responsibility of BUILDER to furnish timely to OWNER or the Architects
all matters required of the BUILDER under this Agreement which are
necessary to support such USCG MSC approval process.
(2) Utilizing the Preliminary Conversion Scope documents and when
completed and certified the Final Conversion Scope documents, BUILDER
shall be responsible within the Maximum Price to prepare all Production
Drawings which are necessary or useful for the personnel and vendors
and subcontractors of the BUILDER to complete timely the conversion by
the Redelivery Date in accordance with the Final Conversion Scope,
except that this responsibility does not extend to preparing Production
Drawings for Hopeman's work to construct the Interior. The BUILDER
shall furnish any and all to-then completed Production Drawings
requested by OWNER or the Architects to assist in any USCG MSC or other
reviews, and BUILDER shall upon Redelivery furnish one copy
4
<PAGE> 5
OWNER: /s/ JBA
BUILDER: /s/ MJN
of all Production Drawings to the OWNER. BUILDER shall in addition be
responsible to prepare drawings which reflect the Vessel and all of her
converted systems as actually constructed, except for the Interior (the
"As-Built Drawings"), and shall furnish to OWNER upon Redelivery one
copy of the As-Built Drawings as are to-then completed and two copies
of all of the final As-Built Drawings within 90 days after Redelivery.
(3) If the Final Conversion Scope increases the amount of the Hopeman
Builder Support Allowance or the OWNER determines to have it include
any other contingency factor, the same shall be identified and the
Maximum Price shall be increased accordingly. In such event the cost of
any changes under Article VII shall not further increase the adjusted
Maximum Price unless, if at all, aggregate costs of changes net of
changes which decrease cost under Article VII exceed the amount of the
increased allowance and/or any such added contingency factor.
E. BUILDER will provide and install ready for use all parts, equipment
and appurtenances shown in the Final Conversion Scope and including
such OWNER Furnished Items as are identified in the Final Conversion
Scope but excepting all parts, equipment and appurtenances in the
Interior Specification. The OWNER shall supply the OWNER Furnished
Items identified in the Final Conversion Scope by the dates for the
same listed in the Final Conversion Scope (or such other dates as may
be later agreed in writing between OWNER and BUILDER). BUILDER shall
store, safeguard and handle all OWNER Furnished Items both prior to and
after placement on board and BUILDER shall allow sufficient working
area and time to allow the timely and safe installation of equipment
and loading of supplies by Redelivery.
F. BUILDER will allow OWNER and the OWNER Representative at all reasonable
times to examine the Vessel during conversion. The rights to inspect,
if and when exercised, shall not be deemed a waiver of BUILDER's
responsibilities hereunder, subject to the terms of Article XIII-B.
G. BUILDER shall, by not later than September 10, 1999, provide to
OWNER in writing for approval within five (5) business days, not to be
withheld unreasonably, an initial Construction Schedule. The
Construction Schedule shall be updated by BUILDER every thirty (30)
days thereafter if necessary to reflect changed circumstances as a
result of the Architects Technical Conversion Plans, any Final Interior
Specification, Additional Work, or changes or events otherwise arising
under Articles V or VII hereof. Any such updates to the Completion
Schedule shall identify any changes reasonably required from dates in
the Final Conversion Scope required for delivery by OWNER to BUILDER of
OWNER Furnished Items. It shall be the responsibility of OWNER to
insure that the construction and installation activities of Hopeman do
not interfere with so as to delay the BUILDER's ability to meet the
Construction Schedule. It shall be the responsibility of BUILDER timely
to provide the support in the Hopeman Builder Support Allowance and to
in good faith cooperate with the OWNER and its contractors.
H. BUILDER will do all work hereunder in a good and workman-like manner in
accordance with the Final Conversion Scope (and, in the interim, the
Preliminary Conversion Scope).
5
<PAGE> 6
OWNER: /s/ JBA
BUILDER: /s/ MJN
All material and equipment shall be in accordance with the Final
Conversion Scope (and, in the interim, the Preliminary Conversion
Scope).
I. Any dispute between OWNER and BUILDER as to whether the Builder has
legitimately identified Additional Work in the Final Ship Construction
Specification or whether either party has reasonably or unreasonably
withheld their approval under paragraphs C, D(1) or G of this Article I
shall be determined summarily pursuant to paragraph B of Article XI
hereof.
ARTICLE II - DELIVERY & REDELIVERY
A. OWNER shall, at its own expense and risk, transport and deliver the
Vessel afloat on her own bottom positioned above BUILDER's launch/haul
submerged apparatus to the BUILDER close inshore within Holmes Harbor
for conversion in accordance with the terms and conditions of this
Agreement to so arrive at the facility of the BUILDER no later than
September 21, 1999, and by such date the OWNER shall have performed the
OWNER's scope and extents of removal and preparatory work upon and
within the Vessel as are specified in the Preliminary Conversion Scope.
Upon delivery, the OWNER and the BUILDER shall execute a certificate of
delivery and release.
B. The BUILDER shall, at its own expense and risk, receive, store,
protect, and install aboard the Vessel all Owner Furnished Items
identified by the Final Conversion Scope (or, in the interim, the
Preliminary Conversion Scope). The BUILDER shall be liable to the OWNER
for any damage or loss of OWNER Furnished Items occurring during the
BUILDER's custody thereof except as otherwise provided in this
Agreement.
C. BUILDER agrees, subject to the other provisions of this Agreement, to
complete the conversion excepting the Interior and to redeliver the
Vessel to OWNER free and clear of all liens, claims and encumbrances,
except any arising by or through OWNER (including any of OWNER's
subcontractors and/or vendors); and OWNER agrees to accept Redelivery
and pay all unpaid sums due to the BUILDER under this Agreement upon
completion of conversion of the Vessel, satisfactory trials specified
in the Final Conversion Scope ("Trials"), and issuance of USCG
regulatory approvals for the Vessel as converted and a temporary COI
for her operation. It shall be the responsibility of the OWNER and not
the BUILDER to create and submit the Architects Technical Conversion
Plans to levels of detail and having content acceptable to MSC and
USCG, to specify and construct and install the Interior to levels and
in manners (including by selecting materials relative to fire load
calculations) likewise acceptable to MSC and USCG, and to demonstrate
to USCG the compliance and qualification of its crew and any of its
management and training and monitoring systems and facilities relating
to the Vessel which are necessary for issuance of the COI
(collectively, the "OWNER Regulatory Responsibilities"). If lack of
qualification, compliance or demonstration under the immediately
preceding sentence or if delay or default by OWNER or its Architects or
Hopeman under such OWNER Regulatory Responsibilities is the cause which
prevents one or more such issuances, OWNER shall pay BUILDER the
Redelivery
6
<PAGE> 7
OWNER: /s/ JBA
BUILDER: /s/ MJN
Payment notwithstanding the absence of such USCG regulatory approvals
and notwithstanding that a temporary or permanent COI has not been
issued.
D. BUILDER agrees to redeliver the Vessel to OWNER in accordance with this
Agreement at BUILDER's berth at Langley, Washington, safely afloat,
following satisfactory completion of Trials, on or before the
Redelivery Date specified on page 1 of this Agreement or such later
date as may be allowed by reason of changes in the Vessel under Article
VII hereof or Permitted Delays under Article V hereof.
E. The Vessel shall be inspected by OWNER at BUILDER's shipyard and during
Trials. BUILDER shall execute a Certificate of Completion and
Redelivery in a form reasonably acceptable to OWNER which certifies
compliance with and full performance of the obligations of the BUILDER
under this Agreement at the time of Redelivery for such Vessel. OWNER
shall accept the Vessel if it is completed in accordance with the Final
Conversion Scope and any changes performed in accordance with Article
VII hereof.
F. In the event that any work required of the BUILDER under this
Agreement is not in fact completed at the time BUILDER tenders the
Certificate of Completion and Redelivery, OWNER, shall have the option,
if it in its sole discretion deems the Vessel fit for service, to take
Redelivery of the Vessel and treat all "unfinished work" as a warranty
obligation of the BUILDER under Article IX. In that event, Builder's
Certificate of Completion and Redelivery shall specify all unfinished
work. The parties shall agree as to the amount to be withheld from the
Redelivery Payment and the Vessel shall be redelivered to OWNER upon
OWNER paying the undisputed amount to BUILDER and by withholding the
amount for "unfinished work" until such time that BUILDER completes the
"unfinished work" and OWNER accepts the "unfinished work" as complete.
BUILDER shall invoice OWNER for completion of "unfinished work" and,
provided the work meets the standards of the Final Conversion Scope,
OWNER shall, within ten (10) days of receipt of invoice, pay BUILDER.
If OWNER does not exercise such option, BUILDER shall completely finish
all contract work.
G. BUILDER shall furnish OWNER on redelivery of the Vessel a Bill of
Sale for the Vessel excepting the Interior, together with an assignment
of all warranties by makers and manufacturers and the originals of all
such warranties, and with such other documents as may be required by
law or by any other regulatory agency of the United States having
jurisdiction in the premises in order for OWNER to redocument the
Vessel (excepting that BUILDER has no such responsibility relating to
the Interior); and will assist OWNER, or its agent, in acquiring all
required information to enable OWNER to obtain all documentation
necessary to operate the Vessel as intended. However, it is understood
that the required USCG approved drawings, the Interior and the OWNER
Regulatory Responsibilities are the responsibility of the OWNER and/or
the Architects and/or Hopeman. Any expense in connection with
documentation of the Vessel shall be paid by OWNER.
7
<PAGE> 8
OWNER: /s/ JBA
BUILDER: /s/ MJN
ARTICLE III - DOWN PAYMENT
Before the date of this Agreement OWNER paid BUILDER the sum of
$150,000 US dollars towards the OWNER down payment. Concurrent with the
execution of this Agreement, OWNER shall pay BUILDER by wire transfer
to the bank and account designated by BUILDER the additional sum of
$815,765 which, together with the $150,000 so paid, equals $965,765 or
approximately 15% of the Maximum Price.
ARTICLE IV - SUBSEQUENT PAYMENTS
A. OWNER agrees to pay to BUILDER by wire transfer at the place and in the
manner specified in preceding Article III-A the following additional
Interim Installment Payments for such Vessel:
(i) 15% ($965,765) on September 2, 1999 provided that, by such date,
the Vessel has been hauled at BUILDER's yard (unless the OWNER did not
deliver it by September 1st in which case this element is eliminated),
60% of all materials and equipment have been ordered, 15% of
engineering is complete, and 10% of steel prefabrication is complete;
and
(ii) 15% ($965,765) on October 4, 1999 provided that, by such date, the
BUILDER has delivered the proposed Final Ship Construction
Specification to OWNER, 90% of all materials and equipment have been
ordered, 30% of engineering is complete, 70% of steel prefabrication is
complete, and 20% of steel construction is complete; and
(iii) 10% ($643,843) on November 1, 1999 provided that, by such date,
50% of engineering is complete, 70% of steel construction is complete,
and 15% of all new Vessel systems preassembly or installation is
complete; and
(iv) 10% ($643,843) on November 29, 1999 provided that, by such date,
75% of engineering is complete, 90% of steel construction is complete
and 50% of all new Vessel systems preassembly or installation is
complete; and
(v) 10% ($643,843) on December 27, 1999 provided that, by such date,
90% of engineering is complete, 70% of all new Vessel systems
preassembly or installation is complete, and the main engines and
reduction gears have been received at Builder's facility; and
(vi) 10% ($643,843) on January 24, 2000 provided that, by such date,
80% of all new Vessel systems preassembly or installation is complete,
10% of exterior painting is complete, and 65% of deck equipment has
been installed; and
(vii) 10% ($643,843) on February 14, 2000 provided that, by such date,
the main engines and reduction gears have been installed with the
propulsion system 95% complete, 90% of all new Vessel systems
installation is complete, 50% of exterior painting is complete,
8
<PAGE> 9
OWNER: /s/ JBA
BUILDER: /s/ MJN
90% of deck equipment has been installed, and 50% of the bridge
equipment has been installed. In addition:
B. Upon Redelivery of the Vessel in accordance with this Agreement, and
upon acceptance thereof by OWNER at BUILDER's shipyard in accordance
with the Agreement, OWNER agrees to pay the BUILDER against BUILDER's
invoice the Redelivery Payment consisting of:
1. $321,922 (5%).
2. Any applicable State or Local Sales and/or Use Taxes none
of which will be due for the State of Washington provided
OWNER timely executes and files its certificate of tax
exemption for a Vessel exported from such State's waters
within 45 days of completion.
3. Plus any changes resulting from agreed or determined
changes under Article VII in the Preliminary Conversion Scope
or in the Final Conversion Scope, or if the Final Price is
less than the Maximum Price, then instead Less one-half the
savings achieved.
4. Less any liquidated damages for delay in accordance with
Article VI below.
The parties agree that the sum of the foregoing installment payments
and the Down Payment are $16,000 less than the Maximum Price. The
Maximum Price includes an allowance of $16,000 towards the estimated
cost of the Builder's Risk Insurance premiums for 6 months for which
OWNER is responsible under this Agreement but which are to be billed
monthly by BUILDER to OWNER and paid by OWNER separate from the
foregoing installment payments. Notwithstanding the foregoing, OWNER
may initiate and BUILDER shall approve a change in accordance with
Article VII for the full amount of any Builder's Risk premium included
in the Maximum Price. In such case, OWNER shall be obligated to place
the Builder's Risk Insurance required under this Agreement and tender
the policy to the BUILDER.
C. BUILDER will give OWNER notice of intended date of issuance of each
"Stage Completion Certificate" not less than seven days calendar before
issuance and OWNER's Representative shall forthwith inspect progress
claimed in such Certificate so that payment for work if completed as
claimed is not delayed. All Interim Installment Payments and the
Redelivery Payment will be due by wire transfer to such bank and
account for the BUILDER as BUILDER specifies to OWNER in writing.
D. Each of the Interim Installment Payments shall be payable within seven
calendar days after presentation of BUILDER's invoice and the
accompanying BUILDER's Stage Completion Certificate provided that
BUILDER is then not in breach of this Agreement; and the Redelivery
Payment shall be payable upon BUILDER's invoice at time of Redelivery
provided that BUILDER has fulfilled its obligations due under this
Agreement to OWNER and owed at or before the time of Redelivery.
E. The BUILDER shall furnish a Stage Completion Certificate for each
Interim Installment Payment which shall state (i) the stage of contract
work achieved in specific relation to
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<PAGE> 10
OWNER: /s/ JBA
BUILDER: /s/ MJN
the subparts of paragraph A of Article IV hereof; (ii) that the
contract work completed complies with the Final Conversion Scope (or,
if before the Final Conversion Scope is defined, with the Preliminary
Conversion Scope) and this Agreement; and (iii) that there are no liens
or claims upon said Vessel for labor, materials or equipment for said
Vessels, except those created by or through the OWNER. The Stage
Completion Completion Certificate shall be executed and certified by an
officer of BUILDER.
F. If OWNER objects upon receipt of the Stage Completion Certificate on
grounds that the pertinent stage has not been reached, or for any other
bona fide reason, any such dispute shall be summarily determined under
paragraph B of Article XI hereof. The OWNER shall be entitled to
withhold payment until the matter is determined, but if the dispute is
determined in favor of the BUILDER the OWNER shall be obligated to pay
BUILDER (irrespective of whether or not expressly stated in the
decision) forthwith the stage payment due and in addition interest at
the prime rate plus two percent (on a per annum basis) for the period
during which payment was withheld.
G. The BUILDER shall certify in the Certificate of Completion and
Redelivery that, excepting that no representation is made as to the
Interior: (i) the Vessel has been completed; (ii) all Trials have been
satisfactorily completed; (iii) the Vessel complies with the Final
Conversion Scope and this Agreement and is free from defects in
materials and workmanship; (iv) there are no liens or claims upon the
Vessel for materials, equipment or labor for said Vessel except any
created or incurred by or through the OWNER; and (v) the BUILDER has
performed all obligations due from it to the OWNER under this Agreement
at time of Redelivery.
H. The making of the Interim Installment Payments or Redelivery Payment
with respect to the Vessel shall not stop the OWNER from thereafter
asserting any right or remedy accruing to it because of the failure of
the BUILDER to convert and redeliver the completed Vessel in accordance
with the terms hereof.
ARTICLE V - PERMITTED DELAYS
A. All agreements of the BUILDER contained in this Contract respecting
the Date of Redelivery of the Vessel shall be subject to extension by
one day for each day: (i) after September 21, 1999 that the Vessel is
delivered by OWNER to BUILDER; (ii) that the OWNER is in violation of
its payment obligations under this Agreement (excluding any periods of
withholding permitted under paragraph F of preceding Article IV); (iii)
that the Architects Technical Conversion Plans are late, that activity
by Hopeman delays BUILDER meeting the Construction Schedule, that
Hopeman completes the Interior after March 20, 2000, or that the OWNER
is late in delivering OWNER Furnished Items by the dates required under
this Agreement; and (iv) by reason of "Force Majeure," which term is
hereby declared to be actual delay (subject to the limitation on delay
in paragraph B of this Article) in the course of conversion caused by
natural forces, fire, explosion, or persons not under the control of
BUILDER and not caused or contributed to by the negligence of the
BUILDER and subject to the succeeding paragraphs of this Article V.
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OWNER: /s/ JBA
BUILDER: /s/ MJN
B. Delays in receiving supplies, materials and equipment shall not be
considered Force Majeure unless (a) caused by strikes or lockouts of
workmen other than employees of the BUILDER or (b) BUILDER establishes
to the reasonable satisfaction of OWNER that (1) BUILDER timely ordered
such supplies, materials and equipment, (2) BUILDER exercised due
diligence to obtain delivery, and (3) no other source of supply was
reasonably available (relative price being a factor to be considered).
C. Delays caused by weather conditions shall not be Force Majeure except
where caused by lightning, flood, windstorm, hurricane, tornado,
calamitous act of God or nature, or by extraordinary rains which
prevent work for three (3) consecutive days.
D. BUILDER may rely on the provisions of this Article V to complete the
conversion and redeliver without liquidated damages later than the
Redelivery Date specified at page 1 of this Agreement provided that
BUILDER informs the OWNER in writing of the occurrence of a
circumstance of Permitted Delays within five (5) business days of its
occurrence and to include with that notice a description of the event
and its expected duration; but there shall be no such requirement for
such notice or notice under the next following sentence as to any
circumstance of Permitted Delay under subclauses (i) or (ii) of
paragraph A of this Article. BUILDER shall inform OWNER of the end of a
circumstance of Permitted Delay within five (5) business days of its
cessation and include an estimate of the delay in Redelivery Date, if
any, caused by that event. Failing such notices, BUILDER shall not have
the benefit of this Article for said event. The BUILDER shall maintain
records of such delays and allow OWNER to inspect same upon request at
all reasonable times. The Redelivery Date for the Vessel shall
automatically be extended for the period specified in paragraph A of
this Article unless the OWNER, within five (5) business days after
receiving either of the aforesaid notices, shall state with
particularity its objections in writing to BUILDER, in which event any
such dispute shall be determined summarily under the provisions of
paragraph B of Article XI hereof.
ARTICLE VI - LIQUIDATED DAMAGES PROVISIONS
A. All work on the Vessel contemplated hereunder shall be completed
(including completion of satisfactory Trials) and redelivery on the
Vessel effected on or before the Redelivery Date set forth on the first
page of this Agreement or such extensions of time as are provided for
herein, except that BUILDER has no responsibility for the Interior and
no responsibility for late Redelivery if construction or installation
of the Interior delays Redelivery, except that BUILDER must timely
perform its defined work tasks within the Hopeman Builder Support
Allowance. Both parties recognize that during conversion OWNER will
make contracts depending upon the use of the Vessel so that redelivery
time is of the essence and that redelivery delay will result in
substantial damages not susceptible of accurate calculation. In the
event the Vessel is not converted and redelivered to the OWNER on the
Redelivery Date (or on such later date as is permitted to the BUILDER
without liability under Article V hereof), OWNER will deduct from
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OWNER: /s/ JBA
BUILDER: /s/ MJN
Redelivery Payment for the Vessel the sum of _____________ U.S.
Currency (US _________) per day for the first twenty-one (21) days
after which redelivery was due but not made until the actual
redelivery, and the additional sum of ____________________ U.S.
currency ____________ per day for each day after the first twenty-one
days after which redelivery was due but not made until actual
redelivery, but with such deduction to in no event exceed in the
aggregate the sum of ______________________________________ ($_______).
This agreement for the payment of liquidated damages for late delivery
is not a penalty but a good faith agreement to compensate the OWNER for
foreseeable damages presently difficult or impossible later to
calculate; is in lieu of all other damages, direct or consequential,
which may result to OWNER from delay; and is OWNER'S sole and exclusive
remedy for late redelivery.
B. In the event the parties are unable to agree on the above reduction of
the Redelivery Payment, the Vessel shall nevertheless be redelivered to
OWNER upon OWNER paying the undisputed amount to BUILDER and by placing
the disputed portion of the delivery in a Certificate of Deposit with a
bank or in prime grade commercial paper of OWNER's choice, withdrawable
only upon signatures of both OWNER's and BUILDER's attorneys, interest
to be accumulated and payable in proportion to the resolution of the
dispute, and the certificate to be held by BUILDER'S attorneys. Funds
shall be disbursed according to the determination made as to the
disputed portion under Article XI.
ARTICLE VII - CHANGES IN SPECIFICATIONS AND CONTRACT DRAWINGS
A. Subject to the provisions of this Article, the right is reserved by
OWNER to make any deductions for or additions or substitutions to the
Preliminary Conversion Scope and to the Final Conversion Scope on
giving due notice in writing to BUILDER. If so, the cost (if any) of
any such changes shall be paid to the BUILDER under this Article and if
applicable added to the Maximum Price to the extent permitted under
paragraph B of Article I hereof. If any such change will delay the
completion of the work, BUILDER will be allowed additional time
sufficient to cover such delay. Within three (3) business days after
receiving a proposed change order from OWNER, the BUILDER shall advise
the OWNER in writing of the increased or reduced cost and any
additional time required or any reduction in conversion completion time
occasioned by the change, if the change is performed, and the OWNER
shall accept or reject the advised impacts from the BUILDER within
three (3) further business days after receipt of the advised impacts
from BUILDER. The provisions of the last sentence of paragraph B of
Article I shall apply if aggregate changes decrease the Maximum Price
of the Final Conversion Scope. BUILDER also may propose changes in
writing to OWNER and if so shall include advised impacts. If so, OWNER,
while hereby agreed to be under no obligation to agree to any of the
same, promises to give good faith consideration to any changes proposed
which will reduce cost without sacrifice in Vessel outfit, finish or
performance.
B. The BUILDER shall advise the cost (or reduced cost impact) of any
change on a fixed price or fixed sum basis unless, in an unusual
circumstance where the BUILDER states and the OWNER agrees that unknown
variables involved with a change make fixed price
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OWNER: /s/ JBA
BUILDER: /s/ MJN
performance not reasonably possible, the OWNER and BUILDER instead
agree to effect a change on a time at ___/hour and
materials/subcontract at cost plus ___ markup basis (with or without
overtime at ___/hour to mitigate delay impacts), but in such event not
to exceed a specified overall limit for the cost of the change.
C. Changes from the Final Conversion Scope (or, when earlier
applicable, from the Preliminary Conversion Scope) and which are
Additional Work or are required by the Architects based upon regulatory
considerations or required by the USCG or other regulatory body shall
be performed by the BUILDER notwithstanding paragraph E of this
Article. All such mandatory changes shall be considered as if coming
from the OWNER under paragraph A of this Article and handled and
determined under this Article; but if mandatory changes require work
different from that specified in the Final Ship Construction
Specification because the Final Ship Construction Specification failed
or omitted to identify work required by regulatory considerations
published as of the date of this Agreement, the cost of such work shall
be absorbed by the BUILDER without charge or expense to the OWNER and
without increase in the Maximum Price or extension of the Redelivery
Date.
D. BUILDER's scope of work under this Agreement assumes that construction
work previously performed by the first builder of the Vessel on those
portions of the Vessel not to be repaired or modified by BUILDER under
this Agreement were then and will remain acceptable to USCG. Rework in
such areas to the extent required by USCG shall be deemed a change for
purposes of this Article except for defects actually observed by the
BUILDER during preliminary inspection of the Vessel at berth in
Louisiana before the date of this Agreement and which were neither
informally reported by BUILDER to OWNER as representing a risk of
required work nor provided to be performed within the Preliminary
Conversion Scope. Work and assistance by the BUILDER for Hopeman to the
extent provided for in the ________ Hopeman Builder Support Allowance
shall not be a change under this Article; but if work requested by
Hopeman or by OWNER for Hopeman exceeds such Hopeman Builder Support
Allowance and there is then no increase of such Allowance or other
contingency factor in the Final Conversion Scope for such excess, then
any such Additional Work request relating to Hopeman shall be deemed a
request for a change coming from the OWNER under paragraph A of this
Article and to be determined in accordance with the applicable
provisions of this Article.
E. Except for changes falling under paragraph C of this Article, BUILDER
shall not be obligated to perform a change directed by OWNER unless the
amount and impacts have first been agreed under this Article or have
otherwise been summarily determined, as all such disputes over proposed
changes under this Article shall be, under paragraph B of Article XI
hereof.
F. No provision has been made for the performance of overtime work by the
BUILDER which, if authorized by the OWNER and performed, will require a
labor charge of ___ per hour. The OWNER shall not be required to pay
overtime labor rates unless OWNER expressly agrees or is otherwise
specifically required to do so under this Article on account of a
change.
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OWNER: /s/ JBA
BUILDER: /s/ MJN
G. Notwithstanding any provision of this Article, the OWNER may not
propose by change order to redesignate any major ship's systems
specified by BUILDER in the Preliminary Ship Construction Specification
or in the Final Ship Construction Specification (such as main
propulsion, electrical power generation, HVAC, LSA, communications aids
or navigation or monitoring/alarm systems, to be removed from the
BUILDER's scope and responsibility and instead to be supplied as OWNER
Furnished Items. For the avoidance of doubt, the OWNER may further
specify the detail of Vessel systems and outfit but may not delete
entire systems from BUILDER's scope.
H. If aggregate OWNER changes so reduce the Final Conversion Scope as to
reduce the Maximum Price below __________, then BUILDER is relieved of
its agreement to have charged ___/hour for labor and shall instead be
deemed to have charged, and the OWNER deemed to have agreed to pay,
from inception, the sum of ___/hour for labor.
ARTICLE VIII - RISKS AND INSURANCE
A. Excepting all labor and the value of work for Hopeman and all materials
and components and equipment and elements intended to comprise the
Interior, all risks of damage to or destruction of the Vessel, to all
machinery, materials and equipment provided by BUILDER and any OWNER
Furnished Items timely reported by OWNER to BUILDER under this Article,
and all liability to or for labor employed by the BUILDER and
subcontracted effort arranged for by the BUILDER on or about the Vessel
from the time the Vessel is delivered and released to the BUILDER
during conversion (including Trials) and up to redelivery and
acceptance shall be the responsibility of the BUILDER. Full form
Builder's Risk Insurance acceptable to OWNER (including loss or damage
caused by strikes, locked-out workmen or persons taking part in labor
disturbances or riots, or civil commotions, without deletions of
protection and indemnity and collision clauses, and including risks of
earthquakes, with endorsements attached covering losses or damage
caused by vandalism and malicious mischief) will be maintained by
BUILDER at BUILDER's expense and cover the cash value of BUILDER's work
in progress, the value of timely reported OWNER Furnished Items and,
notwithstanding the initial sentence of this paragraph excepting the
Interior from BUILDER's uninsured risk, include in such coverage the
timely reported value of work in progress by Hopeman. BUILDER shall
invoice OWNER monthly for the premium cost of the Builder's Risk
insurance for the declared Hopeman and Owner Furnished Items and OWNER
shall pay such invoice with 14 days. BUILDER shall maintain Workmen's
Compensation, Longshoreman's and Harborworker's Compensation not less
than minimum required by statute, and Public Liability Insurance of
$5,000,000. BUILDER shall provide relevant copies of insurance policies
prior to signing of this Agreement. OWNER and OWNER's subcontractors,
including specifically but without limitation Hopeman, shall maintain
workman's compensation, longshoreman's and harbor worker's compensation
insurance not less than the minimum required by statute, and public
liability insurance of $5,000,000. OWNER and OWNER'S subcontractors
shall provide relevant copies of insurance policies prior to commencing
any work at BUILDER's shipyard or on Vessels.
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OWNER: /s/ JBA
BUILDER: /s/ MJN
In addition, OWNER shall procure or otherwise require Hopeman to
procure and maintain in full force and effect at all times from the
date of this Agreement until redelivery, Ship Repairers Liability
Insurance (that is, third party liability with products liability or
completed operations coverage) meeting the same standards of coverage
as are required of the BUILDER's coverage under paragraphs A and B of
this Article, and which names BUILDER as an additional insured as
interests may appear. This policy shall provide physical damage loss
coverage in an amount and with insurance carriers reasonably acceptable
to BUILDER and OWNER.
B. The Builder's Risk Insurance and Public Liability Insurance
required of the BUILDER shall be taken out in the name of BUILDER and
OWNER and any "Construction Financing Entity," and all casualty losses
under such policies shall be payable to the BUILDER and OWNER and
"Construction Financing Entity," as their interests may appear. The
policy shall provide that there shall be no recourse against the OWNER
for payment of premiums or other charges and shall further provide that
at least thirty (30) days' prior written notice of any cancellation for
the non-payment of premiums or other charges shall be given to the
OWNER by the insurance underwriters. The originals of all cover notes
and policies shall be delivered to the BUILDER, with duplicates thereof
to OWNER. Policies not in conformance herewith shall be conformed or
surrendered and canceled upon direction of the OWNER and new policies
procured in conformance herewith.
C. If, prior to Redelivery and Acceptance by OWNER, the Vessel, its
machinery, equipment or material including OWNER Furnished Items timely
reported under this Article (but excluding the value of labor for and
of all materials and equipment and components and elements of the
Interior) shall be damaged, such damage shall be repaired by the
BUILDER or replacement shall be supplied by the BUILDER at its sole
cost and expense but in such event all proceeds of insurance covering
such loss shall be payable only to the BUILDER. The BUILDER shall have
no responsibility to repair damage to the Interior unless caused by or
through the BUILDER and, if not so caused by or through the BUILDER,
unless paid for such work by insurance proceeds or by the OWNER.
D. For actions from the time of Delivery and Release of the Vessel
by the OWNER to the BUILDER up to Redelivery and Acceptance of the
Vessels, the BUILDER shall at its own cost and expense indemnify,
protect and defend the Vessel and the OWNER against any and all claims
and costs and expenses incident thereto (including reasonable
Attorney's fees and costs) arising from injury to, or death of,
employees, workmen, BUILDER's subcontractors, trespassers, licensees,
invitees (other than private entity invitees of OWNER) and all other
persons (except for Hopeman and all employees, subcontractors, vendors,
freight forwarders, and agents of Hopeman) and from property damage to
the property of BUILDER, BUILDER's subcontractors, their employees,
workmen, licensees, invitees or vendors, whether in or on or about the
Vessel and the work to be performed hereunder regardless of cause
unless caused by the active negligence of OWNER or OWNER's
subcontractors, their employees, agents or vendors. It is expressly
understood that workmen other than compensated employees or
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OWNER: /s/ JBA
BUILDER: /s/ MJN
subcontractors of OWNER, engaged upon the work on the Vessel, shall at
all times be employees or subcontractors of the BUILDER and not of the
OWNER.
E. For actions prior to Redelivery and Acceptance of the Vessels,
the OWNER shall at its own cost and expense indemnify, protect and
defend the Vessel and the BUILDER against any claim and costs and
expenses incident thereto (including reasonable Attorneys' fees and
costs) arising from injury to or death of OWNER's and Hopeman's
employees, workmen, subcontractors, vendors, freight and other agents,
and private entity invitees; and from property damage to the property
of OWNER and Hopeman, OWNER's subcontractors, their employees, workmen,
freight and other agents, and private entity business invitees and
vendors, whether in or on or about the Vessel and the work to be
performed hereunder, regardless of cause but unless caused by the
active negligence of BUILDER, BUILDER's subcontractors, their agents,
employees or vendors.
F. In the event there is an actual total loss or constructive total loss
of the Vessel, this Agreement shall be terminated upon receipt of
payment of any such loss to OWNER and BUILDER, and any "Construction
Financing Entity" as interest may appear, of the proceeds of the
insurance required pursuant to this Article VIII for such actual loss
or constructive total loss, or if such actual total loss or
constructive total loss shall occur through the operation of a risk not
covered by insurance for which the BUILDER assumes the risk as herein
set forth, upon receipt by OWNER of payment of the full amount as
interest may appear.
G. For purposes of this Article VIII, it is agreed that "as interest may
appear" shall be construed to mean that OWNER and any "Construction
Finance Entity" are entitled to a refund of amounts paid by OWNER as
Down Payment and Interim Installment Payments, BUILDER is entitled to
amounts owing for conversion work completed and/or damage repair work
completed or due but not yet billed and paid, and OWNER is entitled to
the balance of any insurance proceeds.
H. OWNER shall identify and report to BUILDER the cash value and a
description in detail sufficient to BUILDER's insurer of OWNER
Furnished Items and of and for the Interior at least monthly to permit
the BUILDER's reporting to same to its insurer in order to obtain
Builder's Risk coverage therefor.
I. OWNER shall assure that OWNER and OWNER's subcontractors and vendors
and agents and private entity invitees, and all of their respective
employees, while on the premises of the BUILDER, obey all identified
shipyard safety rules and regulations (including specifically
maintaining fire watch and fire safety provisions) and obey all
applicable state and federal OSHA standards for worker safety; and do
not damage or disrupt the facilities of the BUILDER or the BUILDER's
various works in progress.
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OWNER: /s/ JBA
BUILDER: /s/ MJN
ARTICLE IX - BUILDER'S WARRANTY
A. Except for the Interior, BUILDER warrants that the Vessel will be
converted in accordance with the Final Conversion Scope in a good and
workmanlike manner, free from defects in material and workmanship; and
BUILDER agrees at BUILDER's expense including transporting labor and
supplies to repair or replace any defects discovered within 365 days of
Redelivery excepting defects in Owner Furnished Items or in machinery
and equipment manufactured and warranted by others and excluded from
BUILDER's express limited warranty under this Article; and BUILDER
shall assign and subrogate to OWNER all warranties by said
manufacturers and agrees to extend full cooperation to OWNER, as
needed, to coordinate in enforcing such warranties. This express
written limited warranty is in lieu of all other express or implied
warranties.
This limited warranty is Builder's only warranty to Owner that survives
or continues in force after the Redelivery of the Vessel and is expressly in
lieu of any other warranties. THE TERMS OF THIS EXPRESS, LIMITED WARRANTY
EXCLUDE ANY AND ALL WARRANTIES WHICH ARE OR MAY BE IMPLIED BY LAW INCLUDING,
WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND OF FITNESS FOR
A PARTICULAR USE OR SPECIFIED PURPOSE. TO THE MAXIMUM EXTENT PERMITTED BY LAW,
BUILDER SHALL NOT BE RESPONSIBLE FOR AND HEREBY DISCLAIMS ALL LIABILITY FOR ANY
INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING WITHOUT LIMITATION ANY LOSS OF
TIME, REVENUE AND/OR USE IN OPERATING OR REPAIRING THE VESSEL) SUFFERED BY OWNER
OR ANY OTHER PERSON. Some states do not allow the exclusion or limitation of
incidental or consequential damages so the above limitation or exclusion may not
apply. This warranty gives Owner specific legal rights and Owner may have other
legal rights which vary from state to state. ALL RIGHTS GRANTED TO OWNER UNDER
THIS LIMITED WARRANTY ARE CONDITIONED UPON BEING EXERCISED IN THE TIME AND
MANNER SPECIFIED IN THIS AGREEMENT AND THERE IS A SOLE AND EXCLUSIVE REMEDY OF
REPAIR OR REPLACEMENT SPECIFIED IN THIS AGREEMENT.
Builder's limited warranty does not apply to or include defects,
damages or claims related to or arising from:
(i) The Interior of the Vessel as defined in the Interior
Specification;
(ii) failure of Owner to perform required maintenance and
servicing;
(iii) abuse, misuse, accident, neglect, or improper operation
by Owner;
(iv) repairs or replacements not authorized by Builder or in
violation of warranty terms;
(v) normal wear and tear of any part that has a life
inherently less than one year (for example: hoses, bulbs, belts,
gaskets, filters, lubricants, etc.);
(vi) Owner Furnished Items and any items or systems which are
separately warranted by their makers
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OWNER: /s/ JBA
BUILDER: /s/ MJN
for periods of not less than 12 months from the date of delivery, such
as main engines, reduction gears, propellers, generators, watermakers,
HVAC, bilge and fire pumps, refrigerators, stoves, life rafts, radars,
navigation systems and radios, and the Interior;
(vii) erroneous, inadequate or incomplete provisions in the
Architects Technical Conversion Plans or in the Interior Specification
or in any Final Interior Specification;
(viii) latent defects in the steel hull and/or decks of the
Vessel existing upon initial delivery of the Vessel to the BUILDER and
not within the scope of BUILDER's responsibilities under this
Agreement; and
(ix) defects first appearing more than one year after
Redelivery.
B. No warranty is made by BUILDER with respect to paint, regardless of
whether procured by BUILDER, except that same will be applied neatly in
accordance with the manufacturer's recommendations and in accordance
with Final Conversion Scope.
C. In the event of any defect covered by BUILDER's guarantee,
BUILDER promptly will make repairs or replacements at the expense of
BUILDER at its yard, if practical, without expense to BUILDER for
transporting the Vessel to and from the yard. Should it be economically
impractical to deliver the Vessel to BUILDER's yard for warranty work
which it presumptively shall be for warranty work having a reasonably
foreseeable cost of less than ________, or should the warranty defect
be such that it is unsafe to deliver the Vessel to BUILDER's yard or if
the Vessel is not within 300 miles of the yard, BUILDER will pay the
cost of repair or replacement performed at a mutually agreed place at
or nearby OWNER's area of Vessel operations including all costs of
transporting labor and supplies; and if any part of warranty correction
work is not so performed by the BUILDER promptly after due notice, the
BUILDER shall reimburse the OWNER for any cost incurred by the OWNER in
effecting such repairs including, without limitation, if it does so
with its own personnel. On a warranty claim the following procedure
shall be followed:
1. OWNER shall give prompt notice and BUILDER shall have
reasonable time and opportunity, under the circumstances, to
inspect the Vessel before work is undertaken;
2. BUILDER shall have the right, reasonable time, and
opportunity, under the circumstances, to negotiate price with
the shipyard or repairman; and
3. BUILDER, at its sole option and expense, may have a
representative present during repairs.
D. BUILDER shall have no obligation under this guarantee unless such
defect becomes manifest within 365 days after Redelivery and Acceptance
of the Vessel and written notice of claim is given within ten (10) days
thereafter. The BUILDER is specifically
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OWNER: /s/ JBA
BUILDER: /s/ MJN
relieved of any responsibility for a latent defect not discovered
within 365 days after Redelivery and Acceptance of the Vessel. The
BUILDER shall not be liable for any consequential or incidental damage
occasioned by any defect.
E. To additionally assure the faithful performance by the BUILDER of
its obligations under this Article following Redelivery, the Builder
shall, at time of Redelivery, cause a national banking association of
BUILDER's choosing to issue a one-year irrevocable standby letter of
credit ("SLC") in favor of OWNER in the amount of ________ which, upon
any material payment default by BUILDER under this Agreement, may be
presented by OWNER to such issuer for a single draw in the full amount
of such SLC. As to the cash received from such issuer upon such
presentment and as to the SLC, BUILDER hereby grants OWNER a security
interest in the SLC and in its proceeds, and in and to all cash paid on
presentment of such SLC, and further agrees that OWNER alone shall be
entitled to hold and possess all such proceeds and cash and that such
possession by OWNER constitutes perfection of OWNER's security
interests. OWNER shall not be restricted as to its use and application
of any and all of such proceeds and cash and may instead use and apply
it in any manner permitted by law and consistent with the terms of this
Agreement; and may (but only for the remainder of the warranty term)
retain all cash from such a single SLC draw not expended to remedy the
particular warranted defect not remedied by the BUILDER as cash
collateral to secure BUILDER's future performance of any additional
warranty obligations hereunder, returning any unexpended portion to
BUILDER at the end of the warranty term. BUILDER agrees that OWNER
shall at all times have recourse to BUILDER and agrees that any
presentment of the SLC by OWNER shall not be deemed an election of one
sole form or type of action or of an exclusive or preclusive remedy,
except to the extent (if at all) that such presentment and receipt and
use of proceeds and cash satisfies in full all compensatory damages to
which OWNER was entitled on account of such BUILDER breach. BUILDER
shall invoice OWNER for the BUILDER's actual cost to have such SLC
issued and shall include with such invoice the issuer's actual record
of charges for such issuance; whereupon the OWNER shall pay the BUILDER
the amount so invoiced, not to exceed $5,000, within 14 days of the
date of BUILDER's invoice therefor.
ARTICLE X - DEFAULT BY BUILDER
A. BUILDER shall be considered in default under this Agreement in the
event that (a) during a period of fifteen (15) consecutive days (plus
the number of days from the beginning of such period when work has been
prevented or its continuation excused under Article V hereof), except
for progress on the Interior, no substantial progress has been made in
the conversion of the Vessel; or (b) the Vessel has not been
redelivered within forty-two (42) days after the Redelivery Date or
later date permitted under this Agreement.
B. BUILDER shall be considered in default under this Agreement if it does
not perform its obligations under this Agreement.
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OWNER: /s/ JBA
BUILDER: /s/ MJN
C. If BUILDER is in default as that word is defined in X-A above, then at
OWNER's option OWNER may terminate this Agreement, in which event
BUILDER shall promptly repay to OWNER the Down Payment and Interim
Installment Payments made by OWNER under Articles III and IV above,
plus interest from the date monies were paid to BUILDER at the Wall
Street Journal prime rate, less any credit due the BUILDER at law or in
equity on a quantum meruit basis for net benefit conferred to the
OWNER's Vessel to the extent that OWNER or OWNER's successors or
assigns have the use and benefit of such Vessel.
D. Payment to OWNER of the Down Payment and Interim Installment Payments
in accordance with this Article by the BUILDER will not prejudice OWNER
as to all other rights and remedies available to OWNER in the event of
default in respects set out in X-A above or in any other respects.
E. X-A above lists the causes of default applicable only to the provision
for repayment of the Down Payment and Interim Installment Payments. For
any such default and any other default, OWNER shall have all rights and
remedies otherwise available to it, including specifically (but not by
way of limitation) any rights to specific performance or mandatory
injunction.
ARTICLE XI - ARBITRATION, JURISDICTION AND LAW
A. Any dispute or controversy arising under or related to this
Agreement where the amount in controversy does not exceed $500,000.00,
excepting disputes under paragraphs B and C of this Article, shall be
submitted to binding arbitration before the person or entity agreed by
the parties within 14 days of the date of this Agreement under
paragraph D of this Article or, failing agreement under said paragraph
D, then the Chief Surveyor of the American Bureau of Shipping ("ABS")
in the City of Seattle, Washington who shall be the single arbitrator
appointed jointly by the parties; or if such Chief Surveyor be
unwilling or unable to act, then such other single qualified and
unbiased individual as the ABS Chief Surveyor will name. Attorney's
fees shall be awarded to the prevailing party together with their costs
of the arbitration.
B. All disputes to be summarily determined under paragraphs B, D(1) or G
of Article I concerning Additional Work or whether an approval was
reasonably withheld, under Article V concerning Permitted Delays, or
under Article VII concerning Changes, shall be solely determined by
summary arbitration to be conducted at Builder's facility within five
(5) calendar days of the time of the dispute arising, with the sole
arbiter the same arbitrator designated or appointed to act under
paragraph A of this Article; to be paid such firm or appointee's
prevailing fees including actual travel costs but not to exceed fees of
$1,500 per day. No rules of evidence shall apply. If either party to
the dispute fails to attend the summary arbitration, the arbitrator
shall rule in favor of the attending party without requirement of proof
or argument by the attending party. The decision of the arbitrator
respecting all matters within the scope of the dispute arbitrated shall
absolutely bind the parties. The arbitrator's decision may be summary
and need not detail reasons
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OWNER: /s/ JBA
BUILDER: /s/ MJN
but shall be in writing. The party which did not prevail on the dispute
shall promptly pay all of the arbitrator's fees and costs. This
paragraph B of this Article XI makes special provision for an extremely
rapid summary arbitration to address special matters which, if not
immediately resolved, are likely to frustrate both parties'
expectations or the ability of each to govern their behavior under this
Agreement.
C. This Agreement shall be governed by and construed in accordance
with the laws of the State of Washington. Except for disputes required
to be submitted to arbitration under paragraph A or B of this Article,
the sole forum to adjudicate any dispute arising under or related to
this Agreement shall be the United States District Court for the
District of Washington, at Seattle, or if such Court lacks subject
matter jurisdiction, then the State Court of general jurisdiction for
King County in Seattle; and each party hereby consents to such Court
exercising jurisdiction over their person. Nothing in paragraph A or B
of this Article shall preclude either party from resorting to the
specified sole judicial forum to obtain permanent equitable remedies,
or to seek provisional equitable remedies pending the outcome of
arbitration, or to carry into effect any determination made by
arbitration. Upon any dispute arising under or related to this
Agreement, excepting matters within the scope of paragraph B of this
Article XI, attorneys fees shall be awarded to the prevailing party.
This exclusive forum provision shall not limit a party's ability to
enforce any judgment rendered by the exclusive forum in any Court or
jurisdiction useful or convenient for execution or enforcement.
D. As of the date of this Agreement, BUILDER nominates Kirt Quick (or such
other qualified person employed by Hainline & Associates) as arbitrator
but such person and firm is unknown to OWNER. The parties agree to
exchange nominations and information about the same and promise in good
faith to attempt to agree in writing to an individual or entity as
arbitrator within 14 days of the date of this Agreement; but in the
absence of such agreement, the existing provisions of paragraphs A and
B shall control.
ARTICLE XII - AGREEMENT CONTROLLING
A. This Agreement together with the Contract Drawings contains the
fully-integrated entire and final agreement between the BUILDER and the
OWNER; and there are no promises or representations by either of them
other than those set forth herein. This Agreement shall not be altered
or modified except by an agreement in writing signed by the parties
hereto, and no officer, agent, or employee of either the BUILDER or the
OWNER shall have the power to waive any provisions hereof unless such
waiver be in writing and signed by a duly authorized representative of
each of the parties hereto.
B. In the event of conflict between this Agreement and the Final
Conversion Scope (or, for the period before the Final Conversion Scope
comes into existence, then the Preliminary Conversion Scope), this
Agreement governs; as between the Final Ship Construction Specification
and the Architects Technical Conversion Plans, the former governs; and
in case of internal conflict within the Interior Specification, its
drawings govern over textual matters.
21
<PAGE> 22
OWNER: /s/ JBA
BUILDER: /s/ MJN
ARTICLE XIII - INSPECTION, ACCESS, TESTS AND OFFICIAL CERTIFICATES
A. During conversion, BUILDER shall provide OWNER, or its appointed
representative, facilities and access to inspect the Vessel, material,
workmanship, plans, tests and movements. BUILDER shall provide a
suitable office for OWNER's representative and BUILDER shall provide
access to suitable facilities and conditions such as a telephone, fax,
copy machine, heat and air conditioning. BUILDER will perform all of
the tests and Trials required of BUILDER in the Final Conversion Scope
and reasonably necessary for OWNER's acceptance of the Vessel. Except
for OWNER Furnished Items (but as to which OWNER has informed BUILDER
that no testing or vendor attendance will be necessary), BUILDER will
supply all vendor representatives necessary for installation and
Trials, and all crew, stores and ballast reasonably necessary for
Trials and for transit to the place of Redelivery. OWNER will supply
all fuel and lubricants for Trials and all licensed and employed crew
reasonably necessary for tests or demonstrations relating to the crew
or to OWNER's operations required by USCG for the COI. BUILDER will
give OWNER at least ten (10) business days' notice of the date of
commencement of Trials.
B. All of the workmanship and material required under this Agreement,
while the same is in the process of fabrication, erection,
construction, installation and performance, shall be inspected promptly
by the OWNER and his agents and shall be accepted promptly in
accordance with this Agreement and the Exhibits hereto or rejected
promptly in accordance therewith. The OWNER shall promptly notify the
BUILDER if the OWNER's Representative has actual awareness of a
particular defect.
C. OWNER hereby appoints Thomas Gourguechon as the OWNER's
Representative. Until BUILDER is notified in writing that such OWNER`s
Representative's appointment has been revoked, said Representative
shall have full and complete authority to act for the OWNER in any and
every manner required, permitted or contemplated under this Agreement,
except that unless specially notified by the OWNER in writing to the
BUILDER the OWNER's Representative shall not have the authority to
amend this Agreement on behalf of the OWNER. BUILDER hereby appoints
Kevin Dallman as its Representative. Each party shall have one and only
one Representative appointed at any given time for the entire period
from the date of this Agreement until Redelivery and shall replace said
Representative within seven (7) days in the event the position is
vacated.
D. BUILDER shall provide access to the Vessel while under conversion to
inspectors from any public authority reasonably requested by OWNER and
to private business invitees of the OWNER provided that all private
business invitees are themselves or by the OWNER insured against injury
and death from any cause while on the BUILDER's premises; and OWNER
shall defend, indemnify and hold BUILDER harmless from any liability
for injury asserted by or on behalf of any such private business
invitee against BUILDER save to the extent caused by the BUILDER's
active negligence.
22
<PAGE> 23
OWNER: /s/ JBA
BUILDER: /s/ MJN
E. During conversion, the OWNER will from time to time be required to make
decisions on the selection of items to be purchased by the BUILDER to
complete the conversion by the Redelivery Date. The OWNER agrees that
the OWNER's Representative shall make decisions on all purchase items
requested by BUILDER within 5 business days of BUILDER requesting such
OWNER decision and having given a reasonable level of detail on the
matters requiring decision. The OWNER hereby agrees that its consent
shall be deemed given on the purchase source, color or particular item
proposed by the BUILDER if OWNER's Representative fails to so decide
within 5 business days of BUILDER making the decision request.
ARTICLE XIV - ASSIGNMENT OF THE AGREEMENT
This Agreement shall inure to the benefit of the BUILDER and OWNER and
their successors and assigns and shall be binding upon the BUILDER and
OWNER and their successors and assigns; provided, however, that BUILDER
shall not assign this Agreement or any interest hereunder without the
prior written consent of OWNER, and any assignment without said prior
written consent shall be null and void. OWNER may at any time sell,
transfer or mortgage the Vessel and/or assign this Agreement, but shall
at all times remain liable under the Agreement. BUILDER agrees that
such a sale and/or assignment shall not be grounds for termination of
this Agreement.
ARTICLE XV - COMPLIANCE WITH REGULATIONS
The BUILDER shall comply with all laws, rules, regulations and
requirements of the departments or agencies of the United Sates
affecting the construction of works, plants and vessels in or on
navigable waters and the shores thereof and all other waters subject to
the control of the United States, and shall procure at its own expense
such permits from the United States and from state and local
authorities as may be necessary in connection with beginning or
carrying on the completion of the contract work, and shall at all times
comply with all applicable and legally enforceable United States, State
and local laws in any way affecting the contract work. It shall be the
responsibility of OWNER and not BUILDER to make provision in the Vessel
and in any of OWNER's shoreside facilities for any compliance necessary
with the ADA Accessibility Guidelines now or hereafter in force.
Nothing in this Article shall reduce the OWNER's responsibility under
Article I-D hereof.
ARTICLE XVI - PATENTS
OWNER agrees to protect and hold harmless BUILDER against claims of
third persons for damages sustained by reason of the infringement of
the patent rights with respect to materials, processes, machinery,
equipment, and hull form selected and used by OWNER, Hopeman, or the
Architects in such works. OWNER agrees to protect and hold harmless
BUILDER against claims of third persons for damages sustained by reason
23
<PAGE> 24
OWNER: /s/ JBA
BUILDER: /s/ MJN
of infringement of patent rights with respect to materials, processes,
machinery and equipment supplied or specifically acquired by OWNER or
required by the Preliminary GA, the Architects Technical Conversion
Plans or the Interior Specification and any Final Interior
Specification. BUILDER agrees to protect and hold harmless OWNER
against claims of third persons for damages sustained by reason of
infringement of patent rights with respect to materials, processes,
machinery and equipment supplied or specifically acquired or applied by
or through BUILDER.
ARTICLE XVII - OWNERSHIP OF THE DRAWINGS AND SPECIFICATIONS
The Interior Specification, any Final Interior Specification, the
Preliminary GA and the Architects Technical Conversion Plans are and
shall remain the sole property of the OWNER. The Preliminary and Final
Ship Construction Specifications, the Production Drawings and the
As-Built Drawings are and shall be deemed jointly owned by OWNER and
BUILDER. BUILDER shall be entitled to retain permanently one archive
copy of The Interior Specification, any Final Interior Specification,
the Preliminary GA and the Architects Technical Conversion Plans.
BUILDER shall not permit any third party who may wish to contract with
BUILDER for the construction or conversion of an overnight riverboat to
utilize the archive copy of the specified materials which are the sole
or joint property of the OWNER for any material portion of a design for
another vessel unless it has first obtained the OWNER's written consent
to so allow, given or withheld in the Owner's sole and absolute
discretion.
ARTICLE XVIII - NOTICES AND COMMUNICATIONS
Communication and notices shall be in writing addressed to the OWNER
under this agreement shall be addressed to the OWNER at the following
address:
The Delta Queen Steamboat Co.
c/o American Classic Voyages Co.
Two North Riverside Plaza, Suite 200
Chicago, Illinois 60606
Attn: Thomas Gourguechon
Fax: 847-328-0336
With a copy to: Jordan Allen
Fax: 312-466-6151
Communications and notices shall be in writing addressed to the BUILDER
under this Agreement shall be addressed to the BUILDER at the following
address:
Nichols Brothers Boat Builders, Inc.
P.O. Box 580, 5400 South Cameron Road
Freeland, Washington 98249
Attn: Matthew J. Nichols
Fax: 360-331-7484
24
<PAGE> 25
OWNER: /s/ JBA
BUILDER: /s/ MJN
Notices shall be personally delivered or, if not, sent both by letter
and by fax provided good transmission of the fax is electronically
confirmed; and if not so confirmed, shall be sent by Federal Express or
like overnight delivery service.
ARTICLE XIX - TITLE AND COLLATERAL SECURITY
A. OWNER shall remain the owner of the Vessel to be converted pursuant to
this Agreement. Title to all work performed, materials delivered, and
components fabricated shall vest in the OWNER as and when performed,
delivered to the shipyard, or fabricated. Title to all scrap and title
to any material surplus to the requirements of this Agreement shall be
and remain vested in the BUILDER.
B. OWNER has disclosed to BUILDER that the Vessel at time of this
Agreement is subject to a first preferred mortgage recorded in favor of
a lender to OWNER in the approximate amount of $70 million, will remain
subject to such mortgage throughout the conversion, and that such
lender is unwilling to subordinate the lien of its mortgage to the lien
of any security interest in favor of the BUILDER. To protect the
interests of BUILDER under such circumstances, OWNER acknowledges that
it has agreed to installment payments and a down payment under Articles
III and IV hereof to make BUILDER's performance of work hereunder cash
flow neutral instead of being in the nature of payments in arrears. To
additionally protect BUILDER under such disclosed circumstances, OWNER
agrees within 15 days of the date of this Agreement to cause a national
banking association of OWNER's choosing to issue a one-year irrevocable
standby letter of credit ("SLC") in favor of BUILDER in the amount of
$500,000 which, upon any material payment default by OWNER under this
Agreement, may be presented by BUILDER to such issuer for a single draw
in the full amount of such SLC. As to the cash received from such
issuer upon such presentment and as to the SLC, OWNER hereby grants
BUILDER a security interest in the SLC and in its proceeds, and in and
to all cash paid on presentment of such SLC, and further agrees that
BUILDER alone shall be entitled to hold and possess all such proceeds
and cash and that such possession by BUILDER constitutes perfection of
BUILDER's security interests. BUILDER shall not be restricted as to its
use and application of any and all of such proceeds and cash and may
instead use and apply it in any manners permitted by law and not
inconsistent with the terms of this Agreement. OWNER agrees that
BUILDER shall at all times have recourse to OWNER and agrees that any
presentment of the SLC by BUILDER shall not be deemed an election of
one sole form or type of action or of an exclusive or preclusive
remedy, except to the extent (if at all) that such presentment and
receipt and use of proceeds and cash satisfies in full all compensatory
damages to which BUILDER was entitled on account of such OWNER breach.
OWNER shall invoice BUILDER for the OWNER's actual cost to have such
SLC issued and shall include with such invoice the issuer's actual
record of charges for such issuance; whereupon the BUILDER shall pay
the OWNER the amount so invoiced, not to exceed $15,000, within 14 days
of the date of OWNER's invoice therefor. If not
25
<PAGE> 26
OWNER: /s/ JBA
BUILDER: /s/ MJN
sooner presented and drawn against, the SLC shall be expressly released
by the BUILDER on Redelivery.
C. To protect the OWNER's interests in having the BUILDER fully
perform its obligations under this Agreement, BUILDER agrees within 15
days of the date of this Agreement to cause a national banking
association of BUILDER's choosing to issue a one-year irrevocable
standby letter of credit ("SLC") in favor of OWNER in the amount of
$1,000,000 which, upon any material payment default by BUILDER under
this Agreement, may be presented by OWNER to such issuer for a single
draw in the full amount of such SLC. As to the cash received from such
issuer upon such presentment and as to the SLC, BUILDER hereby grants
OWNER a security interest in the SLC and in its proceeds, and in and to
all cash paid on presentment of such SLC, and further agrees that OWNER
alone shall be entitled to hold and possess all such proceeds and cash
and that such possession by OWNER constitutes perfection of OWNER's
security interests. OWNER shall not be restricted as to its use and
application of any and all of such proceeds and cash and may instead
use and apply it in any manners permitted by law and not inconsistent
with the terms of this Agreement. BUILDER agrees that OWNER shall at
all times have recourse to BUILDER and agrees that any presentment of
the SLC by OWNER shall not be deemed an election of one sole form or
type of action or of an exclusive or preclusive remedy, except to the
extent (if at all) that such presentment and receipt and use of
proceeds and cash satisfies in full all compensatory damages to which
OWNER was entitled on account of such BUILDER breach. BUILDER shall
invoice OWNER for the BUILDER's actual cost to have such SLC issued and
shall include with such invoice the issuer's actual record of charges
for such issuance; whereupon the OWNER shall pay the BUILDER the amount
so invoiced, not to exceed $30,000, within 14 days of the date of
BUILDER's invoice therefor. If not sooner presented and drawn against,
the SLC shall be expressly released by the OWNER on Redelivery.
ARTICLE XX - CERTAIN DEFAULT PROVISIONS
A. On the eleventh calendar day following any material default by the
OWNER in paying any sum due to the BUILDER under this Agreement and
which has not been fully cured, the BUILDER shall be at liberty to stop
all work in progress on the Vessel and shall be at liberty to cancel
such of its vendor and subcontract agreements which relate to the
Vessel as it is entitled to do or where affected third parties consent.
B. If a payment default by OWNER continues for 11 days after the actual
date when the defaulted payment was due and has not been fully cured:
(1) all remaining unpaid portions of the purchase price shall
be accelerated and then be all due and payable together with interest
on such sum at the rate of one and one-quarter percent (1.25%) per
month until paid, but the total indebtedness due shall subtract any
actual expense saved by the BUILDER on account of the breach from not
having to perform the balance of the contract;
26
<PAGE> 27
OWNER: /s/ JBA
BUILDER: /s/ MJN
(2) Owner shall in addition pay to BUILDER as liquidated
damages for involuntary productive shipyard space consumption and for
profit lost from other potential contracts delayed or prevented by the
occupation the sum of ______ for each day, after the actual date of
default, that the Vessel or the equipment and materials and components
intended to become the Vessel continue to occupy space at the BUILDER's
facility, and in addition a one-time work force demobilization fee of
_______, but all amounts under this subparagraph shall not in any event
exceed the sum of ________; and
(3) Respecting the sums specified in preceding subparagraph 2,
the parties agree that the sums are not penalties but instead a good
faith agreement to sums meant to compensate the BUILDER for damages
foreseeable but presently impossible or difficult to calculate.
XXI: SPECIAL EARLY TERMINATION PROVISION
Should the Vessel during transit from her present location in Louisiana
to the BUILDER's facility sink or be so damaged in transit that she is an actual
or implied constructive total loss for purposes of the expectations of the
parties under this Agreement (and if damage suffered in transit would
necessitate $1 million or more work beyond the scope of the Preliminary
Conversion Scope and delay the Redelivery Date by 30 days or more, the Vessel
shall conclusively be deemed an implied constructive total loss); then in such
event the OWNER may by written notice to the BUILDER declare this Agreement
terminated effective as of the date of BUILDER's receipt of such notice.
Forthwith upon receipt of such notice, the BUILDER shall notify its vendors and
subcontractors to, and shall itself, stop all work and activity under this
Agreement; and shall thereafter promptly notify the OWNER in writing of the
total of its labor, subcontract, equipment and materials charges actually paid
or incurred under this Agreement to such date less the amount of any refunds and
relief from liability insurance which BUILDER can actually effect with
commercially reasonable effort with its subcontractors, vendors and suppliers;
and if such total is greater than the sums paid by OWNER to BUILDER under
Articles III and IV of this Agreement, BUILDER shall invoice the OWNER for the
difference which OWNER shall pay within fourteen calendar days of date of
invoice; but if such total is less than such payments, BUILDER shall with such
notice refund the difference to the OWNER.
[Only a concluding single un-numbered paragraph and the signatures of the
parties appear on the single page following.]
27
<PAGE> 28
OWNER: /s/ JBA
BUILDER: /s/ MJN
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be executed
by their proper authorized representatives, thereunto duly authorized, with this
Agreement being deemed made and completed at Freeland, Washington. This
Agreement may be executed at different places and the signatures transmitted by
facsimile which, if so done, will bind a party transmitting their signature by
facsimile as fully as if their original signature had been delivered; and, or in
addition, this Agreement may be executed in original counterparts which, if so
done, shall when taken together bind the parties fully and as if both had
originally subscribed to a single instrument. Each person signing this Agreement
individually warrants their ability to bind the party on whose behalf each
signs.
NICHOLS BROTHERS BOAT BUILDERS, INC.
By: /s/ Matthew J. Nichols
--------------------------------------------
Name/title: Matthew J. Nichols, President
THE DELTA QUEEN STEAMBOAT CO.
By: /s/ Jordan Allen
--------------------------------------------
Name/title: Jordan Allen, Senior Vice-President
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 69,747<F1>
<SECURITIES> 0
<RECEIVABLES> 1,533
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 83,363
<PP&E> 239,128
<DEPRECIATION> 88,113
<TOTAL-ASSETS> 293,336
<CURRENT-LIABILITIES> 92,436
<BONDS> 74,126
0
0
<COMMON> 185
<OTHER-SE> 126,589
<TOTAL-LIABILITY-AND-EQUITY> 293,336
<SALES> 0
<TOTAL-REVENUES> 153,226
<CGS> 0
<TOTAL-COSTS> 98,230
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,376
<INCOME-PRETAX> (2,867)
<INCOME-TAX> 1,150
<INCOME-CONTINUING> (1,717)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,717)
<EPS-BASIC> (0.10)
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<FN>
<F1>Includes restricted short-term investments of $1,060.
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