-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, InIuOPSMTPY+Lnxn0TjzVDC4YiBqrh5kzLwqNbQV/gFU93tNHD/UfC/ikzVCyXCR om6bouJip1Q2MOJqWvSMcA== 0000950137-01-000978.txt : 20010402 0000950137-01-000978.hdr.sgml : 20010402 ACCESSION NUMBER: 0000950137-01-000978 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN CLASSIC VOYAGES CO CENTRAL INDEX KEY: 0000315136 STANDARD INDUSTRIAL CLASSIFICATION: WATER TRANSPORTATION [4400] IRS NUMBER: 310303330 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-09264 FILM NUMBER: 1586418 BUSINESS ADDRESS: STREET 1: TWO N RIVERSIDE PLZ STREET 2: 2ND FLOOR CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: 3122581890 MAIL ADDRESS: STREET 1: TWO NORTH RIVERSIDE PLAZA STREET 2: 2ND FLOOR CITY: CHICAGO STATE: IL ZIP: 60606 10-K 1 c61256e10-k.txt ANNUAL REPORT 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ------------------------- FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED) FOR THE YEAR ENDED DECEMBER 31, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) COMMISSION FILE NUMBER: 0-9264 AMERICAN CLASSIC VOYAGES CO. (Exact name of registrant as specified in its charter) DELAWARE 31-0303330 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) TWO NORTH RIVERSIDE PLAZA, CHICAGO, ILLINOIS 60606 (Address of principal executive offices) (Zip Code) (312) 258-1890 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: NONE Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $.01 PAR VALUE (Title of Class) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of voting stock held by non-affiliates of the registrant was $221.4 million based upon the last reported sale price of $16.25 per share on February 28, 2001 on The NASDAQ Stock Market. Using beneficial ownership of stock rules adopted pursuant to Section 13 of the Securities Exchange Act of 1934, certain persons designated as affiliates for purposes of this computation may not be held to be affiliates upon judicial determination. As of February 28, 2001, there were 21,027,923 shares of Common Stock outstanding. DOCUMENTS INCORPORATED BY REFERENCE: PART III -- Portions of the registrant's definitive Proxy Statement, which will be filed with the Securities and Exchange Commission by April 27, 2001. ================================================================================ 2 AMERICAN CLASSIC VOYAGES CO. INDEX
ITEM DESCRIPTION PAGE - ---------------- ---- Part I Item 1 -- Business................................................................. 3 Item 2 -- Properties............................................................... 13 Item 3 -- Legal Proceedings........................................................ 14 Item 4 -- Submission of Matters to a Vote of Security Holders...................... 14 Part II Item 5 -- Market for Registrant's Common Equity and Related Stockholder Matters...................................................... 15 Item 6 -- Selected Financial Data.................................................. 16 Item 7 -- Management's Discussion and Analysis of Financial Condition and Results of Operations...................................... 17 Item 7A -- Quantitative and Qualitative Disclosures About Market Risk............... 23 Item 8 -- Financial Statements and Supplementary Data.............................. 24 Item 9 -- Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................................... 49 Part III Item 10 -- Directors and Executive Officers of the Registrant....................... 49 Item 11 -- Executive Compensation................................................... 49 Item 12 -- Security Ownership of Certain Beneficial Owners and Management........................................................... 49 Item 13 -- Certain Relationships and Related Transactions........................... 49 Part IV Item 14 -- Exhibits, Financial Statement Schedules, and Reports on Form 8-K.................................................. 49
2 3 AMERICAN CLASSIC VOYAGES CO. PART I ITEM 1. BUSINESS GENERAL American Classic Voyages Co. ("the Company") is the leading provider of overnight passenger cruises among the Hawaiian Islands and on the inland rivers and coastal waterways of North America. We currently operate four cruise lines under the names American Hawaii Cruises, The Delta Queen Steamboat Co., Delta Queen Coastal Voyages and United States Lines. American Hawaii, acquired in August 1993, operates the S.S. Independence, a U.S.-flagged ocean liner with 860 total passenger berths. American Hawaii provides inter-island cruises on a year-round basis among the Hawaiian Islands. The Delta Queen Steamboat Co. currently operates the Delta Queen, American Queen and Mississippi Queen, U.S.-flagged paddlewheel steamboats having 1,026 total passenger berths, and, as of May 27, 2000 introduced a fourth riverboat, the Columbia Queen, which has 157 passenger berths. This new vessel added the Columbia River system of the Pacific Northwest to Delta Queen's previously existing set of cruise vacations on the Mississippi, Ohio, Cumberland, Tennessee, Arkansas, Illinois and Atchafalaya Rivers. Delta Queen Coastal Voyages will operate the cv Cape May Light and cv Cape Cod Light, currently scheduled to be introduced in May and the fourth quarter of 2001 respectively. These new vessels will offer cruises along U.S. coastal waterways. United States Lines currently operates the ms Patriot, a 1,212-passenger vessel which was acquired from Holland America Line on October 18, 2000 and put into service on December 9, 2000. The ms Patriot offers seven-day cruise vacations throughout the Hawaiian Islands, sailing from Oahu to Kauai, Maui, and the island of Hawaii. We do not offer gaming on any of our vessels. American Classic Voyages Co. is a Delaware corporation incorporated in 1985 as a holding company that owns and controls The Delta Queen Steamboat Co., which operates the Delta Queen riverboats and the Delta Queen Coastal Voyages vessels through various subsidiaries, Great Hawaiian Cruise Line, Inc., which operates American Hawaii through various subsidiaries, and Project America, Inc., which operates United States Lines through various subsidiaries. American Classic Voyages Co.'s principal executive offices are located at Two North Riverside Plaza, Suite 200, Chicago, Illinois 60606. The principal administrative offices of Delta Queen, American Hawaii and United States Lines are located in New Orleans, Louisiana. We are the largest owner and operator of U.S.-flag passenger vessels. Under the Passenger Vessel Act of 1886 and related U.S. laws, only U.S. ships that are (1) U.S. built, (2) owned by U.S. citizens, (3) operated by U.S. crews and officers, and (4) U.S.-flagged by the U.S. Coast Guard are permitted to operate exclusively among U.S. ports, including the islands of Hawaii. We are the only U.S.-flagged, large scale, overnight cruise line operator providing inter-island vacations among the Hawaiian Islands. Accordingly, we believe our U.S.-flagged designation provides us with significant itinerary advantages. Our cruises can visit and explore the beauty and attractions of the various Hawaiian Islands without having to include a foreign port in our itineraries, which would involve at least three sailing days on the Pacific Ocean. On inland U.S. waterways, where Delta Queen operates, the Passenger Vessel Act requirements effectively prohibit foreign-flagged vessels from offering competing itineraries. The U.S. Flag Cruise Ship Pilot Project Statute was enacted in 1997 to develop the U.S.-flagged cruise ship industry and stimulate commercial construction of cruise ships in the U.S. In connection with our execution of a definitive agreement with Ingalls Shipbuilding to construct at least two new vessels in a U.S. shipyard (see page 6, Hawaii Expansion Plans for a more detailed discussion of our new Hawaii vessels), we believe that we will have (1) the exclusive right to operate large U.S.-flagged cruise ships in the domestic trade among the Hawaiian Islands for the life expectancy of the vessels and (2) the right to operate the ms Patriot as a U.S.-flagged ship in the Hawaiian Islands for a period of two years following delivery of the final new vessel under the contract. The terms of the statute require, among other things, that the new cruise ships are built with more than 867 berths each, that delivery of the first vessel be prior to January 1, 2005 and that the second vessel be delivered prior to January 1, 2008. The statute does not restrict the activities of small U.S.-flagged cruise ships with fewer than 275 passengers and fewer than 10,000 gross tons. 3 4 CURRENT OPERATIONS AMERICAN HAWAII American Hawaii's cruise ship, the S.S. Independence, operates inter-island cruise vacations among the Hawaiian Islands year round. Built in 1951, the S.S. Independence has 860 passenger berths. American Hawaii offers primarily seven-day itineraries with ports of call throughout the Hawaiian Islands. On November 11, 2000 the S.S. Independence was moved to a new homeport in Kahului, Maui and the ports of Hilo, Hawaii, Kona, Hawaii, Honolulu, Oahu and Nawiliwili, Kauai compose the vessel's remaining itinerary. The itinerary affords an opportunity to view Mount Kilauea, one of the world's few active volcanoes, and the soaring sea cliffs of the inaccessible Na Pali coast. Many cruise passengers also choose to extend their stay in Hawaii, purchasing hotel accommodations through American Hawaii. American Hawaii offers more than 50 optional shore excursion activities to passengers to showcase the spectacular Hawaiian scenery and local attractions. Cruise fares on American Hawaii for a seven-day cruise, as stated in the 2000/2001 cruise brochure, range from luxurious suites at $3,549 per person to interior cabins with a single sofa bed and fold-away upper berth at $1,349 per person, based on double occupancy. The fare includes meals, nightly entertainment on the vessel and port charges. American Hawaii also offers seasonal youth programs to attract passengers with children, as the S.S. Independence has a large number of cabins that can accommodate three and four passengers. UNITED STATES LINES United States Lines' ms Patriot offers seven-day cruise vacations throughout the Hawaiian Islands, sailing from Oahu to Kauai, Maui, and the island of Hawaii. Guests on the 1,212-passenger ms Patriot are able to select numerous shore excursions featuring some of the Hawaiian Islands' most beautiful attractions. The ms Patriot cruises feature American and Hawaiian regional cuisine, a cultural enrichment program and nightly showplace entertainment. Originally named the ms Nieuw Amsterdam, the vessel was acquired on October 18, 2000 from Holland America Line and renamed the ms Patriot upon its delivery to United States Lines. We are operating it as a U.S.-flagged vessel in the Hawaiian market, as we are permitted to do under the terms of the Pilot Project Statute. The vessel's inaugural voyage took place in December 2000. It has nine public decks with 607 passenger staterooms, 68% of which are outside cabins, and includes 20 suites. It features two outdoor swimming pools, a spa, a gymnasium, a two-deck main lounge and six additional lounges and bars, as well as a spacious dining room, an indoor/outdoor cafe, a boutique and seven passenger elevators. Upon taking delivery, we renovated portions of the vessel by adding a destination learning center, family activities center, and upgrading the conference and meeting facilities and other passenger facilities on board. The cost of the renovations amounted to approximately $20.4 million. The cruise fares on the ms Patriot for a seven-day cruise, as stated in the 2000/2001 cruise brochure, range from luxurious suites at $4,099 per person to interior cabins with two or more berths at $1,699 per person, based on double occupancy during the peak travel season. The fare also includes meals and nightly entertainment on the vessel. Our Hawaii cruise products are marketed as the best way to experience and enjoy Hawaii, and as a convenient and rewarding alternative to land-based multi-island vacations. We accomplish this by focusing on onboard dining, entertainment, and by offering an extensive package of shore excursions at all stops along the itinerary, as well as by providing a wide variety of activities, demonstrations and lectures designed to enhance passengers' overall experience of the unique Hawaiian culture. In addition, United States Lines and American Hawaii offer additional services and products to its passengers, including bar services, beauty salon services, photography services, shore excursions and gift shop products. In order to facilitate and simplify passengers' travel planning process, we offer air transportation arrangements to and from the Hawaiian Islands through agreements with several major commercial airlines as well as trip cancellation insurance. American Hawaii's and United States Lines' marketing efforts target consumers who are interested in Hawaii, cruise enthusiasts and other consumers who fit certain demographic or geographic profiles. We send out more than five million pieces of direct mail annually to reach these potential customers. The travel agency community receives cooperative direct mail and periodic fax broadcasts. In addition, we place advertisements in specialized publications and have been the subject of numerous feature articles in national travel and leisure magazines and newspaper travel sections. 4 5 DELTA QUEEN STEAMBOAT CO. Delta Queen's three paddlewheel steamboats offer cruise itineraries for trips along the Mississippi, Ohio, Cumberland, Tennessee, Arkansas, Illinois and Atchafalaya Rivers, as well as the Intracoastal Waterway. Ports visited, which are typically locations of historical or cultural significance, include New Orleans, Memphis, St. Louis, St. Paul, Louisville, Cincinnati, Pittsburgh, Nashville, Chattanooga, Galveston, Vicksburg, and Hannibal. Delta Queen promotes special cruise packages revolving around specific themes which allow passengers to participate in activities, meet special guest lecturers, and enjoy entertainment relevant to the theme. Seasonal theme vacations include "Kentucky Derby" cruises that include attendance at the Kentucky Derby horse race, "Civil War" and "Cajun Culture" theme cruises. In May 2000 we introduced the Columbia Queen riverboat as the fourth member of our Delta Queen fleet. The Columbia Queen operates approximately 9 months out of the year from its homeport of Portland, Oregon and traverses the Columbia, Snake and Willamette Rivers in the Pacific Northwest. Itineraries focus on providing passengers with an adventurous and educational cruise experience. Its 8-night vacation package features an overnight stay in Portland, a visit to Mount St. Helens National Monument, a 7-night cruise and many adventurous excursions from the coastal town of Astoria, Oregon to Hells Canyon in Lewiston, Idaho. Delta Queen is marketed to mature adult travelers as a unique vacation experience aboard classic steamboats in which the people, sights, romance and history of heartland America and the Pacific Northwest are explored. We believe individuals are attracted to our riverboat cruises because of the quality of our service, dining, accommodations and entertainment, as well as the unique characteristics of the steamboat experience and its connection to American history. The Steamboatin' cruise fare for an average five-day cruise, as stated in the 2001 cruise brochure, ranges from luxurious suites at $3,365 per person to interior cabins with lower and upper passenger berths at $1,465 per person, based on double occupancy. The Columbia Queen eight-night fare ranges from luxurious suites at $4,310 per person to interior cabins at $3,110 per person during the peak traveling season. The fares also include meals, day and night entertainment on the vessels and port charges. DELTA QUEEN COASTAL VOYAGES In order to capitalize upon its strong market position and brand name recognition, Delta Queen is expanding its current business by introducing at least two new vessels capable of offering cruises along U.S. coastal waterways. By extending the Delta Queen line beyond our country's heartland to the underserved coastal markets, Delta Queen offers its unique cruising experience to destinations of historical or cultural interest, as well as those known for their natural beauty. We are constructing the first two coastal cruise vessels at Atlantic Marine, Inc. of Jacksonville, Florida. The first vessel, the cv Cape May Light, is scheduled to be delivered in April 2001 and the second vessel, the cv Cape Cod Light, is expected to be delivered in the third quarter of 2001. Each coastal vessel will be approximately 300 feet long, have diesel-electric propulsion systems and "state-of-the-art" safety technology. The total project cost for each new vessel is approximately $40 to $42 million. The new Delta Queen coastal cruise vessels have an historic design inspired by the Fall River Line vessels which traveled between New York and New England from 1847 through 1937 and became symbolic of elegant transportation and gracious service. The new vessels will be decorated in classic New England federal and nautical decor reminiscent of turn-of-the-century coastal ships, featuring the "first-class" amenities for which Delta Queen steamboats have come to be known. Approximately 90% of the passenger berths on each of the vessels will be in outside cabins. The new vessels will each have features such as elegant dining rooms with fine artwork, architectural embellishments and windows, a grand salon for entertainment, two bars, and other services typically offered on Delta Queen steamboats. Atlantic Coast destinations featured in the 2001 cruise brochure include Martha's Vineyard, Halifax, Nova Scotia, Boston Harbor, the Chesapeake Bay, New York City, Washington, D.C., Charleston, SC and Savannah, GA. Itineraries for the 2001/2002 winter traveling season include Belize, Costa Rica, Honduras, Mexico and Panama. To attract additional customers, Delta Queen has developed products which combine its riverboat and coastal cruises with escorted tours and overnight stays at historic port cities. As a convenience to its passengers, Delta Queen will also arrange hotel accommodations and air and land transportation to and from the cruise embarkation and disembarkation points. Delta Queen annually welcomes back a large number of prior passengers through its relationship marketing program. New passengers are acquired through direct response advertising, advertising in trade and consumer publications and other promotional activity. Each year a significant number of new customers are referred by prior customers. 5 6 SALES AND MARKETING We maintain one field sales force and one common reservation staff for Delta Queen, American Hawaii and United States Lines. We sell our cruise products primarily through two major channels, of which the most significant channel is travel agents operating throughout the U.S. We have programs that educate travel agents about the unique nature of our travel experiences, the vessels' itineraries, special programs, theme cruises and pricing policies. To assist in generating reservations from travel agents, we engage in both consumer and trade-oriented advertising, including direct mailings of our cruise lines' literature to travel agencies. We also maintain contact with travel agents through our field sales personnel who conduct educational seminars and attend trade shows. Our second major sales channel is group travel organizers, consisting of clubs, travel agencies and tour operators who arrange for the sale of cruise vacations at discounted fares. We provide a variety of incentives to these organizers, including fare discounts and promotional materials. During fiscal 2000, no single customer accounted for more than 10% of our consolidated revenues. PRICING AND ADVANCE RESERVATIONS We issue separate full color sales brochures for The Delta Queen Steamboat Co., American Hawaii, United States Lines and Delta Queen Coastal Voyages, which contain descriptive information, itineraries and fare schedules, prior to the beginning of each upcoming calendar year. We price our cruise fares, based on cabin category, using a single pricing schedule for each cruise line throughout the calendar year, except for the Columbia Queen and the ms Patriot, which are priced seasonally. As an inducement for passengers to book early, we generally offer an early booking discount which typically consists of the current year's fares to passengers who book more than six to eight months in advance for the upcoming year. In addition, we offer to group travel organizers and others limited discounts from our published fare schedules. We actively market our cruises up to one year prior to the cruise year and the level of advance reservations at any given date provides us with an indication of our future fare revenue. A significant portion of such reservations is booked more than six months in advance of the cruise date. Generally, customers of each cruise line must pay a $300 refundable deposit within one week of booking a cruise with the balance of the cruise fare to be remitted 60 days in advance of the departure date. Depending upon the proximity of a cancellation to the cruise date, customers may lose some or all of their deposits or cruise fares. For a nominal fee, we also offer trip cancellation insurance through a third-party insurer, which allows the customers to reduce their exposure to cancellation charges. As of February 29, 2000, advance reservations for the 2000 cruise year were $58.5 million. As of February 28, 2001, advance reservations for the 2001 cruise year were $63.3 million. However, we cannot specifically determine the amount of revenues to be derived from advance reservations as we cannot guarantee that any particular advance reservation will result in any revenue to us. Capacity in the Hawaii cruise market has more than doubled in 2001 due to the introduction of the ms Patriot and additional visits by foreign flagged ships. As a result, we have been discounting our Hawaii cruises as we absorb this increase in capacity, and our gross fare revenue per passenger night ("gross fare per diems") in Hawaii for the first half of 2001 has declined by 24% as compared to the comparable period of a year ago, based on cruises reserved through February 28. HAWAII EXPANSION PLANS We believe that there is significant untapped market potential in the cruise industry and plan to realize some of this potential by expanding our cruise lines. In the Hawaii cruise market, we plan to leverage our U.S.-flagged designation and the unique competitive advantages offered to us under the Pilot Project Statute by introducing larger, more modern vessels into the Hawaii vacation market under the United States Lines banner. We intend to use this brand name to help us market our Hawaii business. On March 9, 1999, we executed definitive agreements with Ingalls Shipbuilding to construct at least two new vessels for the Hawaii cruise market. Each of the new vessels is expected to measure approximately 840 feet in length, with 13 decks and approximately 950 cabins containing at least 1,900 passenger berths. The contract provides that Ingalls Shipbuilding deliver the first new ship in January 2003 and the second ship in January 2004. We currently estimate the new Hawaii cruise ships to cost approximately $495 million each, including the cost of furnishings, fixtures and equipment, as well as design, engineering and architectural fees, but excluding capitalized interest. Ingalls Shipbuilding is claiming that the Company should pay additional sums beyond the contract price for certain interior finish work and has requested a delay in the delivery schedule. The Company believes that the claims made by the shipyard for additional payments and a delay in the delivery of the ships are unwarranted and the Company intends to assert its rights under the original provisions of the contract. Litton Industries, Ingalls Shipbuilding's parent company, has provided a performance guarantee of the contract. Ingalls Shipbuilding will provide a limited warranty for the design, material and workmanship of each vessel for one year after delivery. In addition, the shipbuilding contract provides us 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 subsequent option vessels will be negotiated between the parties. 6 7 OTHER GOVERNMENT REGULATION Federal maritime law prohibits non-U.S.-flagged vessels from receiving and discharging passengers at any two U.S. ports without stopping at an intervening non-U.S. port. Periodically there has been debate about the potential amendment or repeal of this law and the broader cabotage laws encompassed under the Passenger Vessel Act and related U.S. laws. In August 1995, we joined the Maritime Cabotage Task Force, a broad national coalition of several hundred companies, associations and unions representing all modes of domestic transportation. The task force is responsible for monitoring potential adverse changes in legislation that could affect the U.S. maritime industry and publicizing the economic and national security issues relevant to maintaining a strong U.S.-flagged vessel industry. Through the coalition's efforts, numerous legislators and key Congressional staff members have been made aware of the substantive issues and positions surrounding any changes to this legislation. In recent years bills have been introduced in Congress to modify the Passenger Vessel Act, including allowing foreign-flagged ships into a limited number of itineraries where there was no existing U.S.-flagged ship in service. One of these bills was approved by the relevant Senate Committee in 2000, but no further action was taken. The same bill was reintroduced in 2001. One of the criteria for operating U.S.-flagged vessels in U.S. domestic trade is that holders of at least 75% of our shares must be U.S. citizens. In order to preserve the status of our U.S.-flagged vessels, our certificate of incorporation contains a provision restricting the transfer of shares of our common stock to non-U.S. citizens. In addition, we have created separate forms of stock certificates with legends to indicate whether the stockholder is a U.S. or non-U.S. citizen. We are subject to various federal and state regulations that affect the operations of our vessels. Our U.S.-flagged vessels are subject to regulations promulgated by the U.S. Department of Transportation and enforced by the Coast Guard. The Coast Guard conducts both scheduled and unannounced inspections to determine compliance with these regulations and has the authority to delay or suspend cruises. The Delta Queen vessels must be dry-docked for an inspection of the hulls' exteriors every five years. The S.S. Independence and ms Patriot must be dry-docked approximately every 18 months for a similar procedure. The Coast Guard is empowered to increase the interval between inspections and accordingly, we have requested and received permission from the Coast Guard to lengthen the interval between dry-dockings for the S.S. Independence and ms Patriot to 30 months, subject to annual hull surveys. Like other entities that operate vessels on U.S. waterways, we are also subject to certain federal, state and local health and safety laws, regulations and ordinances, including environmental laws. Periodically, we incur expenditures to keep our vessels in compliance with applicable laws, regulations and ordinances. Environmental compliance on the part of the cruise industry generally has been the subject of increasing attention by federal and state legislators as well as environmental groups, agencies and enforcement personnel. Particular attention has focused on vessel discharges. New federal or state laws, regulations or ordinances could be adopted as a result of this activity. We do not anticipate making any material expenditures in 2001 with respect to environmental matters. However, the coverage and the cost of complying with any such new (or modifications to current) environmental ordinances may result in future additional costs to our operations. Federal law requires that vessels for 50 or more overnight passengers be constructed of fire retardant materials. Since 1968 Congress has granted the Delta Queen eight consecutive exemptions from the Safety at Sea Act requirement because of fire prevention and safety enhancements made to the vessel and the Delta Queen's historic status. The statute exempting the Delta Queen requires us to notify potential passengers that the Delta Queen does not comply with applicable fire standards and prohibits us from disclaiming liability for loss due to fire caused by our negligence. The current exemption has been extended to November 1, 2008. Our ability to operate the Delta Queen is dependent upon retaining our current Congressional exemption and obtaining additional exemptions subsequent to 2008. Ocean-going passenger vessels were required to make enhancements to life safety systems by October 1, 1997 in order to comply with federal law. The S.S. Independence was brought into compliance during its spring 1997 dry-dock, and the next improvements are not required until 2005. The Federal Maritime Commission regulates passenger vessels with 50 or more passenger berths departing from U.S. ports and requires that operators post security to be used in the event the operator fails to provide cruise services, or otherwise satisfy certain financial standards. We have been approved as a self-insurer by the Federal Maritime Commission, and therefore, subject to continued approval, are not required to post security for passenger cruise deposits. The Federal Maritime Commission has reviewed its standards and in June 1996 issued proposed regulations to increase significantly the financial responsibility requirements. We filed our objection to the proposals, as we believe that the Federal Maritime Commission's current standards provide passengers with adequate protection in the event of an operator's non-performance and that further requirements may impose an undue burden on operators. The Federal maritime Commission has taken no action on the proposed rulemaking, and at this time we cannot predict if the proposed changes will be approved as currently constituted, or at all. 7 8 The Company currently maintains liquor licenses for its steamboats operating on the Mississippi River system in Louisiana and for the Columbia Queen in Portland, Oregon. As a result of actions taken by Tennessee authorities, the Company has applied for an alcohol beverage license in the State of Tennessee as well as other neighboring states. The Company does not anticipate any material expenses or other material adverse developments with respect to these applications or licenses. However, in the event such developments do occur, the Company may be required to restrict the sale of alcoholic beverages on all or portions of its cruises. In connection with these applications or otherwise, the Company may be required to become qualified to do business in, or to pay or remit various types of taxes or fees to, certain states or political subdivisions thereof. In addition, the Company may be subject to fines or other penalties for failure to comply with laws and regulations of one or more states requiring licensing, qualification or other action. Neither the cost of compliance by the Company with such regulations, nor the penalties imposed or sought to be imposed on the Company for noncompliance have been material in the past. However, no assurance can be given that such costs or penalties may not increase or become material in the future. COMPETITION The vacation industry is highly fragmented and characterized by a significant degree of competition among a large number of participants, including cruise lines, land-based destination resorts, sightseeing tours and a wide range of other vacation options. Our vessels compete against all of these vacation options. Since leisure spending is discretionary, adverse economic conditions affecting our customer base, including uncertainty over inflation and interest rate fluctuations, may negatively impact our performance. Within the cruise industry, we believe that cruise destination, cruise product, and pricing are the primary methods of competition. We also believe that our status as an operator of U.S.-flagged vessels provides us with a competitive advantage. The Company, through its subsidiaries, is the sole U.S.-flagged overnight cruise ship operator and the largest provider of cruise vacations among the Hawaiian Islands. The Company competes with operators of foreign-flagged cruise ships that visit the Hawaiian Islands on voyages of seven days and greater. Under U.S. law, foreign-flagged ships must include a foreign port in each of their itineraries. This means that foreign-flagged ships visiting Hawaii, including ships operating seven day cruises, must spend at least three to four days sailing on the Pacific Ocean in order to visit a foreign port. Our cruises can visit and explore the beauty of the various Hawaiian Islands without having to visit a foreign port. Delta Queen is the largest provider of overnight cruises in the domestic waterways and rivers cruise market. There are several other smaller U.S.-flagged providers of overnight domestic cruises, including two providers who primarily operate overnight river cruises. We believe that Delta Queen's principal competitive strengths include its strong brand recognition, the distinctive nature of its products, its luxurious accommodations, and its high level of service. SEASONALITY 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. We expect the seasonal trends for United States Lines to be similar to those historically experienced by American Hawaii. INSURANCE We carry marine liability insurance on our vessels through Steamship Mutual Underwriting Association (Bermuda) Limited ("Steamship Mutual"), a non-profit, mutual protection and indemnity association. Our marine liability insurance arrangements are typical of common marine industry practices and, subject to certain deductibles, provide coverage for losses, other than hull physical damage losses, including casualty damage by the vessels and claims by crew members, passengers and other third parties. The policy has no maximum limit of liability coverage except for a $500 million limit, per occurrence, for oil pollution liability claims. As a member of Steamship Mutual, we pay our annual premiums based largely on our risk characteristics and loss experience, and the loss experience of other members. In addition, because Steamship Mutual and other maritime mutual indemnity associations around the world pool a portion of their loss experience in risk sharing arrangements, Steamship Mutual also may be affected by the loss experience of other mutual protection and indemnity organizations. Over and above this pooling arrangement, Steamship Mutual has additional independent reinsurance protection. Our annual protection and indemnity insurance premium consists of a mutual premium, 70% of which is paid in the initial year of the policy period with installments of 15% being paid in years two and three of the policy period. We may be liable for a supplemental call in excess of the anticipated amount in the event that Steamship Mutual incurs heavy losses or experiences unusual circumstances. 8 9 We also carry a multi-line marine and non-marine package policy which is underwritten by various insurers. This package policy provides hull and machinery coverage, which insures against physical loss and damage to the vessels, subject to a $500,000 deductible. The vessels are insured for their appraised value. Although we believe the risk of a total loss of our vessels is remote, in all likelihood the replacement costs would exceed these coverage limits. Additionally, this package policy provides coverage against loss of revenue and extra expenses incurred in connection with a marine casualty or other covered interruption in service. The deductible for the loss of revenue coverage is 14 days of revenue for each occurrence, and the deductible for extra expenses incurred coverage is $125,000 per occurrence. We believe our insurance coverage is adequate based on our assessment of the risks to be insured, the probabilities of loss and the relative cost of available coverages. EMPLOYEES We employed 1,857 persons as of December 31, 2000. Of the vessels' onboard employees, the American Maritime Officers of the AFL-CIO ("American Maritime Officers") represented approximately 212 individuals, and the Seafarers International Union of North America, Atlantic, Gulf, Lakes and Inland Waters District of the AFL-CIO ("Seafarers") represented approximately 841 individuals. In 2000, the Company entered into ten year agreements with the American Maritime Officers and Seafarers International Union, relating to the vessels operated by the Company. The agreement with the American Maritime Officers expires on February 28, 2009 and the agreement with Seafarers International Union expires on December 31, 2009. Since 1986, we have not experienced any work stoppages, and we believe relations with our employees are good. RISK FACTORS AND FACTORS CONCERNING FORWARD LOOKING STATEMENTS Certain statements contained in "Risk Factors", "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this Annual Report on Form 10-K, in the Company's press releases and in oral statements and presentations made by or with the approval of an authorized executive officer of the Company constitute "forward-looking statements" 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 the 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, assumptions and other factors. Such factors include, among other things, the following: general economic and business conditions which may impact levels of disposable income of consumers and demand for the Company's cruise products; increases in cruise industry capacity; cruise and other vacation industry competition; changes to the U.S. Flag Cruise Ship Pilot Project Statute and related U.S. laws; the ability of the Company to implement its shipbuilding program; unscheduled ship repairs and dry-docking; and the Company's ability to obtain adequate financing at commercially acceptable levels to support its expansion plans. Words such as "expect," "anticipate," "intend," "plan," "believe," "estimate" and variations of such words and similar expressions are intended to identify such forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this document might not occur. As permitted by the Private Securities Litigation Reform Act of 1995, the Company is hereby filing the following cautionary statements identifying important factors which, among others, could cause the Company's actual results to differ materially from expected and historical results. Our future financial condition, liquidity and operating results may adversely be affected by a number of factors, including the following: CONSTRUCTION DELAYS AND DEVIATIONS FROM SPECIFICATIONS FOR THE NEW HAWAII AND COASTAL VESSELS MAY ADVERSELY AFFECT EXPANSION PLANS AND FUTURE FINANCIAL PERFORMANCE We have entered into contracts to construct at least two new vessels for our Hawaii cruise business and two new coastal cruisers for the Delta Queen line. A delay or inability to deliver these new ships may adversely impact our future financial performance. Ingalls Shipbuilding, the builders of the new Hawaii cruise ships, has never built a modern passenger ship and, because no U.S. shipyard has built a passenger ship in more than 40 years, there is a limited base of experienced subcontractors for portions of the ships. As discussed previously, Ingalls Shipbuilding is claiming that the Company should pay additional sums beyond the contract price for certain interior finish work and has requested a delay in the delivery schedule. Although the Company believes that the claims made by the shipyard for additional payments and a delay in the delivery of the ships are unwarranted and the Company intends to assert its rights under the provisions of its shipbuilding contracts, we cannot assure you 9 10 that we will be able to successfully complete construction of the Hawaii cruise ships or the coastal cruisers or that we will be able to complete these projects within our budgets or expected time frames. Factors that could impact the construction or renovation of the new vessels include: - construction delays or complications; - cost overruns; - labor stoppages, slowdowns or shortages; and - compliance with U.S. Coast Guard regulations and classification society requirements. A significant delay in delivering the vessels or a material deviation from the design specifications could have a material adverse effect on our cash flow and results of operations. Also, events out of the control of the shipyards constructing the vessels could delay delivery. IF WE DO NOT OBTAIN SIGNIFICANT AMOUNTS OF CAPITAL TO BUILD, PURCHASE AND RENOVATE VESSELS, OUR EXPANSION PLANS AND FUTURE OPERATING RESULTS MAY BE ADVERSELY AFFECTED Our expansion plans are based in part on the construction of several new vessels to be put into operation in both the Hawaii market and the U.S. coastal waterways market. Our expansion plans require us to spend significant amounts of capital in building, purchasing and renovating vessels. The final cost for these vessels may exceed our initial estimates and we may be required to seek additional sources of capital in order to complete the vessels. We cannot assure you that we will be able to obtain additional financing at commercially acceptable levels to finance this expansion or to pursue strategic business opportunities. We expect to be able to use our cash on hand and cash generated from our future operations to provide a significant portion of these funding needs. Our failure to obtain sufficient capital or generate sufficient funds from operations may require us to delay or abandon some of our expansion plans and could have a material adverse effect on our financial condition and results of operations. INCREASED LEVERAGE MAY ADVERSELY AFFECT OUR FINANCIAL PERFORMANCE AND CASH FLOW We have substantially increased our indebtedness and will continue to do so as we finance a significant portion of the construction costs under existing and contemplated agreements to acquire, build, convert or renovate new vessels. This higher level of indebtedness will require us to devote an increased amount of our future cash flow from operations to the payment of principal and interest on indebtedness. At December 31, 2000, we had outstanding consolidated total debt of $359.2 million. We have and will continue to substantially increase our leverage with the debt required to finance: - - construction costs for each of the two Hawaii cruise ships projected to be approximately $495 million; - - construction costs for each of the first two coastal cruisers expected to be approximately $40 to $42 million; - - acquisition and renovation costs for the ms Patriot of approximately $135 million; and - - acquisition, renovation, relocation and start-up costs for the Columbia Queen of approximately $44 million. We expect that approximately 87.5% of the total cost for the new Hawaii cruise ships and coastal vessels will be financed through Maritime Administration guaranteed private financing. The seller of the ms Patriot, Holland America Line, a non-U.S. citizen, provided us with financing for $84.5 million of the purchase price of the ship secured by a preferred mortgage on the vessel. Under our current expansion plans, and assuming we build, acquire, renovate and convert all of the ships we currently contemplate, we could increase our indebtedness to approximately $1.2 billion by 2004. Our increased leverage could adversely affect our liquidity, financial condition and working capital available for operations. IF WE ARE UNABLE TO MAINTAIN ADEQUATE MANAGERIAL RESOURCES DURING OUR EXPANSION, OUR BUSINESS MAY BE ADVERSELY AFFECTED If we successfully execute our growth strategy, our expansion will place a significant strain on our managerial resources. Our future performance will depend upon management's ability to manage our growth effectively, which includes our ability to: - expand sales and marketing to fill the passenger berths in our expanded fleet at profitable rates; - operate, maintain and support a significantly expanded fleet of vessels; and - hire and train additional personnel to staff our expanded fleet and support operations. The process of expanding our fleet of vessels may result in unforeseen operating difficulties and may require management attention that would otherwise be available for the ongoing operation of our existing fleet of vessels. Our failure to 10 11 manage our growth effectively may cause us to delay or abandon some of our expansion plans and may have a material adverse effect on our business. IF WE ARE UNABLE TO MANAGE OUR FINANCIAL RESOURCES DURING OUR EXPANSION, OUR FINANCIAL PERFORMANCE MAY BE ADVERSELY AFFECTED Our plans for expansion call for significant capital expenditures that will not produce corresponding revenues in the near term, which may place a strain on our capital resources. The process of expanding our fleet of vessels may require additional financial resources that would otherwise be available for the ongoing operation of our existing fleet of vessels. Our failure to manage our financial resources effectively during our expansion could force us to delay or abandon some of our expansion plans and may have a material adverse effect on our liquidity, financial condition and results of operations. IF DEMAND FOR OUR NEW CRUISE PRODUCTS FAILS TO DEVELOP AS EXPECTED OR COMPETITION INCREASES, OUR BUSINESS MAY BE ADVERSELY AFFECTED The Hawaii, Pacific Northwest and coastal cruise markets where we intend to deploy our new vessels currently do not have a large supply of cruise operators. If demand for our new vessels does not develop, our financial performance may suffer. Our expected deployment of vessels will increase the supply of available cruises in these markets significantly. We engaged market research firms to assist us in making our decision to pursue expansion plans. We cannot assure you, however, that demand for our new cruise products, services and itineraries will develop. If the market for these new cruise products fails to develop, develops more slowly than expected or becomes saturated with competitors, it may adversely affect our liquidity, financial condition and results of operations. INCREASED CAPACITY IN HAWAII MAY REDUCE OCCUPANCY ON THE S.S. INDEPENDENCE, ADVERSELY AFFECTING REVENUES The introduction of the ms Patriot or our new cruise ships into the Hawaii cruise market could cause occupancy or revenue levels on the S.S. Independence to decline. If revenue levels drop so much that the S.S. Independence generates operating losses, it may reduce our expected benefits from increased capacity in Hawaii and could have a material adverse effect on our financial condition and results of operations. IF WE CANNOT BENEFIT FROM THE EXCLUSIVE RIGHTS OF THE PILOT PROJECT STATUTE, OUR REVENUE GROWTH IN HAWAII WOULD BE ADVERSELY AFFECTED We believe the Pilot Project Statute provides us with the exclusive right to operate large U.S.-flagged cruise ships in the Hawaiian Islands for the life expectancy of our new ships. We will enjoy the benefits of the Pilot Project Statute, however, only if we comply with its terms. Our competitive advantage could be eliminated or diminished if the Pilot Project Statute were to be repealed or amended, if our interpretation of its terms is not upheld or if we fail to satisfy its requirements. This could have a material adverse effect on our financial condition and results of operations. For a more detailed discussion of the Pilot Project Statute, see "Business - General." MODIFICATION OF THE PASSENGER VESSEL ACT MAY ADVERSELY AFFECT OUR BUSINESS From time to time, proposals are made which would limit or eliminate the terms of the Passenger Vessel Act. If the Passenger Vessel Act is repealed or amended to allow foreign-flagged ships the same rights to transport passengers between U.S. ports as U.S.-flagged ships, we could face considerable competition in all our lines, including competition from entities with greater financial resources. Under the Passenger Vessel Act and related laws, only U.S.-flagged ships may transport passengers between U.S. ports. Consequently, only ships that are U.S. built, owned, operated and documented may operate between U.S. ports, including the islands of Hawaii. Foreign-flagged ships may transport passengers between U.S. ports only if their itineraries include a stop at a foreign port. This increased competition could have a material adverse effect on our financial condition and results of operations. For a more detailed discussion of the Passenger Vessel Act, see "Business - General." INCREASED COMPETITION IN THE HAWAII CRUISE MARKET AND FROM OTHER VACATION ALTERNATIVES, MAY ADVERSELY IMPACT OUR FINANCIAL PERFORMANCE We presently compete against a wide range of vacation alternatives, including other cruises, destination resorts and sightseeing vacations. Cruise lines or other entities, including those with greater resources, could introduce overnight U.S.- flagged vessels in direct competition with our Delta Queen vessels, which may adversely impact our financial performance. We may also face additional competition in the Hawaii cruise market from foreign-flagged vessels as the Hawaii cruise market expands. The entry of direct competition could make it more difficult for us to maintain or further increase occupancy 11 12 or prices for cruise vacations. This could result in lower margins and adversely effect our financial condition and results of operations. AS A MEMBER OF THE VACATION AND LEISURE INDUSTRY, OUR BUSINESS IS SENSITIVE TO GENERAL ECONOMIC AND BUSINESS CONDITIONS As a vacation and leisure company providing cruise vacations, we depend on our customers' leisure spending. Adverse change in the general economic or business environment could affect our customers by decreasing the amount of money they spend on leisure activities such as cruising. A decrease in leisure spending could affect passenger yields and occupancy rates on our ships, which could adversely affect our financial performance. IF WE DO NOT COMPLETE DRY-DOCKING ON SCHEDULE OR WITHIN BUDGETS, OR IF ANY OF OUR VESSELS REQUIRE UNSCHEDULED REPAIRS, OUR REVENUES MAY BE ADVERSELY IMPACTED Operation of our vessels is subject to regulations established by the U.S. Department of Transportation that are enforced by the U.S. Coast Guard. Among these regulations is the requirement that the vessels be taken out of operation and removed from the water for inspection of the exterior of the hull on a periodic basis, referred to as dry-docking. When we dry-dock one of our vessels as required, we lose the revenue from that vessel's operations for the period it is out of service. We also incur the additional cost of the dry-docking. The S.S. Independence, ms Patriot and the two new coastal vessels must be dry-docked every 30 months and the Delta Queen riverboats must be dry-docked every five years. For its last dry-docking, the S.S. Independence was out of service for 18 days beginning on January 5, 2000. Dry-docks of Delta Queen vessels take place in the winter months when our revenue yield is lowest. For its last regularly scheduled dry-docking, the Mississippi Queen was out of service for a period of approximately 24 days commencing January 3, 2001. For its next scheduled dry-docking, the Delta Queen is expected to be out of service for a period of 28 days commencing in January 2002. The American Queen, which first entered service in 1995, was out of service for 10 days for its first dry-docking between January 10, 2000 and January 20, 2000. Its next dry-docking will occur in approximately four years. In years that we are not required to dry-dock our Delta Queen vessels, we remove each of these vessels from service to perform routine repairs and maintenance and capital projects. We refer to the period that each vessel is removed from service as a lay-up. The Delta Queen was out of service beginning on January 4, 2001 for 42 days, and the American Queen was out of service for a period of 18 days beginning February 5, 2001. The S.S. Independence, ms Patriot and the two new coastal vessels do not undergo lay-ups in years that they are not dry-docked. We cannot assure you that future dry-docks or lay-ups for any of our vessels will be completed on schedule or within their budgets. The S.S. Independence will undergo an unscheduled dry-dock beginning March 24, 2001 to repair its bow thruster. The vessel is expected to be out of service for a period of seven days, and the expected cost of the repairs is expected to be between $400,000 and $500,000. On February 20, 2001, the ms Patriot was required to cancel a cruise that was in progress and return to its home port so that a thrust bearing in the vessel's generator drive train could be replaced. This resulted in refunds issued to passengers of approximately $1.6 million, and travel credits for a future cruise expected to cost approximately $0.5 million. Additional unscheduled repairs could have an adverse impact on the Company's results of operations and financial condition. RIVER AND OCEAN CONDITIONS AND WEATHER FACTORS CAN ADVERSELY AFFECT OPERATIONS AND OUR FINANCIAL PERFORMANCE River or ocean conditions and weather factors can adversely affect our operation and the financial performance of the Delta Queen and American Hawaii lines by disrupting schedules or reducing operating days. As a result of flooding and restrictions placed upon commercial travel along the inland rivers, we have, in the past, canceled or re-routed scheduled cruises. We operate the Hawaii cruise ships in and around the Hawaiian Islands. As a result, its schedules are subject to ocean and weather conditions, including hurricane conditions. Weather conditions could cause us to reschedule or cancel cruises, which could adversely affect our results of operations. THE LOSS OF VESSELS FROM SERVICE WOULD ADVERSELY IMPACT OUR BUSINESS The loss of any vessel from service due to weather, casualty, mechanical failure, extended or extraordinary maintenance, or otherwise, could adversely affect our operating results. We believe we have a commercially reasonable level of insurance coverage. In the event of a permanent or temporary loss of one or more of the vessels, however, our insurance would not provide the replacement costs of the vessels nor fully cover the impact of lost business. 12 13 THE SEC HAS BEEN CONDUCTING AN INFORMAL INQUIRY OF OUR ACCOUNTING PRACTICES RELATING TO DIRECT RESPONSE ADVERTISING COSTS The SEC has been conducting an informal inquiry into our accounting practices with respect to direct response advertising costs. The informal inquiry relates to our adoption of a particular methodology effective as of January 1, 1999 and our subsequent rescission of that methodology in November, 1999 due to difficulties encountered implementing the new method. We restated our financial statements for the first and second quarters of 1999 and we believe that we are cooperating with the SEC in their informal inquiry. We are unable to predict the outcome or impact of the SEC's informal investigation. However, it is possible that the SEC's informal inquiry or a subsequent formal inquiry could result in orders, penalties or sanctions against the Company. Depending upon the resulting orders, penalties or sanctions, if any, our financial performance could be adversely affected, our ability to conduct our business could be impaired or we could be required to make further adjustments to our financial statements. For a more detailed description of the accounting rescission, see Note 13 to the Consolidated Financial Statements. ANTI-TAKEOVER AND TRANSFERABILITY LIMITATIONS OF U.S. OWNERSHIP REQUIREMENTS MAY ADVERSELY AFFECT THE LIQUIDITY OF OUR COMMON STOCK One of the requirements for having U.S.-flagged vessels operating in U.S. domestic trade is that 75% of our stockholders must be U.S. citizens and that non-U.S. citizens cannot exercise control of us. We have restrictions in our certificate of incorporation limiting the transferability of our common stock or control to non-U.S. citizens to preserve our U.S.-flagged status. These limitations may have the effect of decreasing the liquidity of our common stock, thereby making it more difficult for investors to dispose of their shares in an orderly manner. We have also added legends to our stock certificates to indicate the citizenship of our stockholders. These provisions and the level of ownership by Equity Group Investments, Inc. and its affiliates, which we refer to as the "Equity Group," may deter a change in control and limit non-U.S. citizens', including corporations and individuals, purchases of our common stock. OUR CONTROLLING STOCKHOLDER MAY TAKE ACTIONS THAT ADVERSELY AFFECT OUR BUSINESS Affiliates of the Equity Group own an aggregate of approximately 35% of the outstanding shares of our common stock. The Equity Group's level of ownership may permit it to elect the members of our board of directors who will control our future direction and operations. This includes decisions regarding the issuance of securities, dividends, acquisitions and our sale. The Equity Group's stockholders are, directly or indirectly, trusts created for the benefit of Samuel Zell, Ann Lurie and their respective families. Mr. Zell is the Chairman of our board of directors. SALES OF OUR CONTROLLING STOCKHOLDER'S SHARES COULD HAVE AN ADVERSE EFFECT ON OUR COMMON STOCK PRICE OR OUR ABILITY TO RAISE CAPITAL The sale of a substantial number of shares of our common stock by the Equity Group, or the perception that such a sale could occur, could negatively affect the market price of our common stock. As of December 31, 2000, the Equity Group had pledged 4,603,000 of its 7,402,247 shares of our common stock to secure several loans. If the Equity Group were to default on these loans, the creditors could acquire the pledged shares. We have been advised by the Equity Group that it is presently in compliance in all material respects with all covenants and terms of these loans and has alternative resources with which to service the loans. Any sale, or the perception that such a sale may occur, could also materially impair our future ability to raise capital through an offering of securities. OUR CONTROLLING STOCKHOLDER MAY HAVE CONFLICTS OF INTEREST WITH COMPETING INTERESTS The Equity Group, our controlling stockholder, is an investor directly or indirectly in various business enterprises, both publicly and privately held. Mr. Zell is also an officer and/or director in many of these affiliated businesses. The Equity Group, Mr. Zell and/or these affiliated businesses may from time to time receive opportunities in various businesses that might compete with us in our current or future activities. Conflicts of interest may result from such opportunities. The Equity Group and Mr. Zell have informed us that neither it, he nor any of these affiliated businesses presently intends to make investments which would cause a conflict of interest with us. ITEM 2. PROPERTIES We currently operate vessels with a total of 3,255 passenger berths. The following table represents a list of our current vessels, the year they entered into service, their estimated passenger capacity based upon double occupancy per cabin, and their areas of operation: 13 14
YEAR VESSEL PASSENGER PRIMARY AREAS VESSEL ENTERED INTO SERVICE CAPACITY OF OPERATION - ------ -------------------- -------- ------------ ms Patriot(1) ................. 1982 1,212 HAWAII S.S. Independence(2) .......... 1951 860 HAWAII American Queen ................ 1995 436 Mississippi River SYSTEM Mississippi Queen ............. 1976 416 Mississippi River System Delta Queen ................... 1926 174 Mississippi River System Columbia Queen ................ 2000 157 Columbia River System
(1) Acquired by the Company and substantially renovated in 2000. (2) Acquired by the Company in 1993 and substantially renovated in 1994. The following table represents a list of the new vessels we currently plan to build together with their estimated dates for entering service, and based upon double occupancy per cabin, their estimated passenger capacity:
ESTIMATED ESTIMATED DATE ENTERING INTO SERVICE PASSENGER CAPACITY -------------------------- ------------------ United States Lines Vessels: Newbuild #1............................ January 2003 1,900 Newbuild #2............................ January 2004 1,900 Delta Queen Vessels: cv Cape May Light...................... May 2001 224 cv Cape Cod Light...................... Fourth Quarter 2001 224
See Note 8 to the Consolidated Financial Statements for a discussion of leased properties. ITEM 3. LEGAL PROCEEDINGS There are no material legal proceedings to which we are a party or of which any of our property is the subject, other than ordinary routine litigation and claims incidental to the business. We believe we maintain adequate insurance coverage and reserves for such claims. The SEC has been conducting an informal inquiry into our accounting practices with respect to direct response advertising costs. The informal inquiry relates to our adoption of a particular methodology effective as of January 1, 1999 and our subsequent rescission of that methodology in November 1999 due to difficulties encountered implementing the new method. We restated our financial statements for the first and second quarters of 1999 and we believe that we are cooperating with the SEC in their informal inquiry. We are unable to predict the outcome or impact of the SEC's informal investigation. However, it is possible that the SEC's informal inquiry or a subsequent formal inquiry could result in orders, penalties or sanctions against the Company. Depending upon the resulting orders, penalties or sanctions, if any, our financial performance could be adversely affected, our ability to conduct our business could be impaired or we could be required to make further adjustments to our financial statements. For a more detailed discussion of the accounting rescission, see Note 13 to the Consolidated Financial Statements. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 14 15 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS (a) Our common stock trades on the NASDAQ National Market tier of The NASDAQ Stock Market under the symbol: "AMCV". On February 28, 2001, the last reported sale price for our common stock was $16.25 per share. The following table indicates the high and low sales price information for shares of our common stock as reported by The NASDAQ Stock Market:
High Low ------------------------------------------------------------------------------------------- QUARTER ENDED: December 31, 2000................ $ 16.75 $ 11.00 September 30, 2000............... 21.56 14.62 June 30, 2000.................... 24.10 18.75 March 31, 2000................... 34.87 23.37 QUARTER ENDED: December 31, 1999................ $ 35.25 $ 21.13 September 30, 1999............... 24.94 19.81 June 30, 1999.................... 24.00 15.63 March 31, 1999................... 26.06 16.25
(b) The number of stockholders of record of common stock on February 28, 2001 was approximately 662. (c) We did not pay cash dividends on our common stock during 1999 or 2000. We currently anticipate that all of our earnings will be retained for planned construction projects and ongoing business requirements. We do not anticipate paying any cash dividends in the foreseeable future. 15 16 ITEM 6. SELECTED FINANCIAL DATA
Years Ended December 31, 2000 1999 1998 1997 1996 ------------------------------------------------------------------------- INCOME STATEMENT DATA (In thousands) Revenues ......................................... $ 221,625 $ 208,717 $ 192,225 $ 177,884 $ 190,408 Gross profit ..................................... 78,008 74,854 66,630 66,589 67,863 One-time charges(1) .............................. -- -- -- -- 38,390 Operating income (loss) .......................... (13,106) 1,649 5,486 9,984 (30,465) Other (income) expense (2) ....................... 18 (10) (300) -- (11,729) Net income (loss) ................................ $ (10,072) $ (1,750) $ 157 $ 2,429 $ (17,636) PER SHARE INFORMATION Basic earnings (loss) per share .................. $ (0.49) $ (0.10) $ 0.01 $ 0.17 $ (1.28) Diluted earnings (loss) per share ................ $ (0.49) $ (0.10) $ 0.01 $ 0.17 $ (1.28) Cash dividends per share ......................... $ -- $ -- $ -- $ -- $ -- OPERATING STATISTICS Fare revenue per passenger night (3) ............. $ 232 $ 225 $ 218 $ 228 $ 216 Total revenue per passenger night (3) ............ $ 324 $ 316 $ 306 $ 302 $ 287 Weighted average operating days(4): Delta Queen ................................. 318 342 341 337 347 American Hawaii ............................. 348 365 365 337 366 United States Lines ......................... 23 -- -- -- -- Vessel capacity per day (berths)(5): Delta Queen ................................. 1,183 1,026 1,026 1,026 1,024 American Hawaii ............................. 860 867 867 844 817 United States Lines ......................... 1,212 -- -- -- -- Passenger nights(3,6) ............................ 684,888 659,507 627,321 588,892 643,891 Physical occupancy percentage(3,7) ............... 97% 99% 94% 94% 98% BALANCE SHEET DATA (at period end) (In thousands) Total assets ..................................... $ 752,615 $ 293,990 $ 212,685 $ 210,805 $ 211,864 Notes Payable .................................... 125,000 -- -- -- -- Current portion of long-term debt ................ 15,768 4,100 4,100 4,100 4,100 Long-term debt ................................... 218,420 80,463 77,388 81,488 85,898 Total stockholders' equity ....................... 173,503 129,800 61,907 59,129 54,982
- ----------------------- (1) In 1996, we decided not to renovate and return the S.S. Constitution to service, resulting in write-down costs of $38.4 million ($1.89 per share - net of tax on both a basic and diluted basis). (2) In 1996, we sold the Maison Dupuy Hotel located in New Orleans, Louisiana for a gain of $11.7 million ($0.57 per share - net of tax on both a basic and diluted basis). In 1998, we received $0.3 million ($0.01 per share - net of tax on both a basic and diluted basis) of final proceeds under a profit participation agreement associated with the 1996 sale. (3) 1999 and 1998 figures have been recalculated to conform to the 2000 presentation, which includes passengers sailing on complimentary tickets. (4) 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 the actual operating days of the vessel by each vessel's capacity per day. (5) 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, Patriot and the American Queen can accommodate three or four passengers. (6) 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. (7) Physical occupancy percentage is passenger nights divided by capacity passenger nights. 16 17 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW 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 four cruise lines: Delta Queen Steamboat Co., which owns and operates the American Queen, Mississippi Queen and Delta Queen steamboats and the Columbia Queen riverboat; Delta Queen Coastal Voyages, which owns and will operate the cv Cape May Light and cv Cape Cod Light; American Hawaii, which owns and operates the S.S. Independence steamship; and United States Lines, which owns and operates the ms Patriot. Our revenues are comprised of: 1. cruise fares; 2. onboard revenues, such as those from gift shops and shore excursions; 3. trip cancellation insurance and pre- and post-cruise hotel packages; and 4. the sale of airplane tickets to and from points of embarkation and disembarkation. 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 dry-docking costs for our vessels; 3. insurance costs; 4. commissions paid to travel agents; and 5. airplane tickets and hotel costs. When we receive deposits from passengers for cruises, we establish a liability for unearned passenger revenue. We recognize these deposits as revenue on a pro-rata basis during the associated cruise. 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 dry-dockings, 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. Operations data expressed as a percentage of total revenue for years indicated is as follows: 2000 1999 1998 ------- ------- ------- Revenues.................................. 100% 100% 100% Costs and expenses: Operating expenses...................... 65 64 65 Selling, general and administrative..... 34 27 23 Depreciation............................ 7 8 9 Operating income ......................... (6) 1 3 Net income (loss)......................... (5) (1) 0 17 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT'D.) SEASONALITY 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 significantly less 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. We expect the seasonal trends for United States Lines to eventually be similar to those historically experienced by American Hawaii. LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION For the year ended December 31, 2000, cash provided by operations, before changes in unearned passenger revenue, was $9.7 million compared to $24.8 million in 1999 and $12.9 million in 1998. The decrease in 2000 is due primarily to lower earnings and increases in accounts receivable, inventory, prepaid expenses and deferred tax assets, partially offset by an increase in accounts payable. The increase in 1999 as compared to 1998 is due primarily to increases in accrued expenses and accounts payable. The increase in unearned passenger revenues was $5.9 million greater in 2000 than in 1999 as deposits pertaining to the ms Patriot, introduced in December 2000, more than offset decreases in unearned passenger revenues at American Hawaii and Delta Queen. The decrease in unearned passenger revenues at American Hawaii was mainly due to lower advance bookings for cruises taking place in the first quarter of 2001, and the decrease at Delta Queen was due to the dry-docking of the Mississippi Queen and the 42-day lay-up of the Delta Queen in January and February of 2001. Cash used in investing activities totaled $426.6 million in 2000 as compared to $80.1 million in 1999 and $8.2 million in 1998. The increase is due primarily to capital expenditures of $356.1 million in 2000, as compared to $79.9 million in 1999 and $8.8 million in 1998. In addition to the $134.9 million cost for the purchase and renovation of the ms Patriot, acquired in October 2000, the Company spent $135.0 million in 2000 for the new Hawaii cruise ships under construction as compared to $53.5 million during 1999, $32.8 million in 2000 for the Columbia Queen as compared to $11.3 million in 1999, and $46.4 million on the Delta Queen coastal vessels in 2000 as compared to $7.4 million spent in 1999. Other capital expenditures of $7.0 million were mainly related to our existing vessels as the S.S. Independence and the American Queen were dry-docked in January 2000 and the Delta Queen and Mississippi Queen underwent lay-ups during that period. The increases in restricted investments and marketable securities in 2000 in the amount of $70.5 million was mainly a result of proceeds from Maritime Administration ("MARAD") guaranteed debt issuances that were held in escrow. Cash received from financing activities was $418.6 million in 2000 as compared to $68.6 in 1999, and cash used in financing activities of $2.5 million 1998. The increase in 2000 is due primarily to the issuance of $125 million of short-term notes to finance construction of the new Hawaiian vessels, an $84.5 million note issued to Holland America Line for the purchase of the ms Patriot, $70.7 million of bonds, net of financing costs, issued to finance the two new Delta Queen Coastal vessels, $143.1 million of convertible preferred securities of a subsidiary trust and common stock (see below) issued in February 2000, as compared to $63.5 million of common stock issued in the prior year, and net repayments on the Company's credit facility of $7.2 million, as compared to $7.2 million of net borrowings in 1999. The Company also made scheduled principal payments of $4.1 million under the American Queen and S.S. Independence ship financing notes in both 2000 and 1999. On February 22, 2000 the Company completed an offering of 2,000,000 trust convertible preferred securities. Each $50 security bears interest at 7% and is convertible at the holder's election into 1.6207 shares of common stock. The net proceeds, after underwriting fees and other expenses, were $96.3 million. A portion of the proceeds were used to fund the letter of credit facility related to the ms Nieuw Amsterdam purchase and to pay outstanding amounts on the Chase credit facility. The underwriters' overallotment option of 300,000 additional preferred securities was not exercised. 18 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT'D.) On February 22, 2000 the Company also completed an offering of an additional 2,000,000 shares of common stock. The net proceeds, after underwriting commissions and other expenses, were $46.8 million and are being used for construction of the second Hawaii vessel. The underwriters' overallotment option of 300,000 additional shares was not exercised. For the Hawaii cruise market, we are constructing two new cruise ships over the next several years. On March 9, 1999 we signed a definitive agreement with Ingalls Shipbuilding to construct two passenger ships, each containing approximately 1,900 passenger berths, with options to build up to four additional vessels. The contract provides that Ingalls Shipbuilding deliver the first new ship in January 2003 and the second ship in January 2004. We currently estimate the new Hawaii cruise ships to cost approximately $495 million each, including the cost of furnishings, fixtures and equipment, as well as design, engineering and architectural fees, but excluding capitalized interest. Ingalls Shipbuilding is claiming that the Company should pay additional sums beyond the contract price for certain interior finish work and has requested a delay in the delivery schedule. The Company believes that the claims made by the shipyard for additional payments and a delay in the delivery of the ships are unwarranted, and the Company intends to assert its rights under the original provisions of the contract. During 2000 the Company spent $110.3 million on construction of the first Hawaii vessel and $24.7 million on construction of the second vessel. Over the next twelve months, we expect to spend approximately $301 million on building the two new Hawaii cruise vessels and completing construction of the cv Cape May Light and cv Cape Cod Light, excluding capitalized interest. 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 commitments from the Maritime Administration for financing guarantees for debt of up to 87.5% of the cost of the vessels. The guaranteed debt will be accessed during the construction period. Interest payments during that period are capitalized as part of the cost of construction as required by generally accepted accounting principles. During the 12 months ending December 31, 2000 the Company placed three separate issuances of short-term notes guaranteed by the Maritime Administration totaling $125 million. These notes bear interest ranging from the London Interbank Offer Rate, or LIBOR, minus 0.05% to LIBOR minus 0.10%. On January 31, 2001 the Company issued an additional $50 million of notes guaranteed by MARAD bearing interest at LIBOR minus 0.10% and due on January 31, 2002. A portion of the proceeds from this issuance was used to pay down $25 million of notes issued in 2000 that were due January 31, 2001. The Company intends to refinance all of these notes on or before their maturity dates by issuing long-term bonds. In the current market, this type of debt generally bears interest at a rate of 100 to 175 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 either a straight-line basis or on a mortgage-style 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 sum of the annual guarantee fees is payable at the closing of the long term Maritime Administration guaranteed financing and will be capitalized as part of the vessel cost. We are constructing two new coastal cruise vessels for our Delta Queen Coastal Voyages line at Atlantic Marine, Inc. of Jacksonville, Florida. We expect each vessel to have a total project cost, including furnishing, fixtures and equipment, of approximately $40 million to $42 million. The coastal cruise vessels will be approximately 300 feet long and provide accommodations for up to 224 passengers. The first vessel, the cv Cape May Light, is scheduled to be delivered in April 2001. The second vessel, the cv Cape Cod Light, is expected to be delivered in the third quarter of 2001. 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. During 2000, the Company incurred $23.5 million and $22.9 million for construction costs pertaining to the Cape May Light and Cape Cod Light respectively, including capitalized interest. On October 16, 2000 the Company issued $37.9 million and $38.5 million of 7.25% long-term bonds to finance construction of the cv Cape May Light and cv Cape Cod Light respectively. Semi-annual principal payments commence six months after delivery of the ships. The bonds are guaranteed by MARAD pursuant to a commitment received by the Company from MARAD on March 31, 2000 for financing guarantees pertaining to the two ships. 19 20 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT'D.) Under the terms of an agreement finalized on October 15, 1999, the Company acquired on October 18, 2000 the ms Nieuw Amsterdam from Holland America Line ("HAL") for $114.5 million. Upon taking delivery of the vessel, the Company renamed it the ms Patriot and is operating it as a 1,212-passenger U.S.-flagged vessel serving the Hawaiian market. This is the first ship that the Company intends to operate under the United States Lines brand name. The purchase price was financed with $30 million of proceeds from the issuance of Trust Preferred Securities (see Note 7 to the Consolidated Financial Statements) and an $84.5 million promissory note issued to HAL by the Company. The promissory note bears interest at a floating rate equal to the prevailing prime rate, which was 9.5% at the time of purchase, and is payable monthly in arrears. Principal paydowns of $5.1 million are scheduled for each March 31st and September 30th, beginning with March 31, 2001, with a final payment of $23.7 million due on January 18, 2007. The Company also incurred $20.4 million in refurbishment, renovation, and other capital expenditures necessary to ready the vessel for service. This amount was funded from operating cash flow. The vessel was placed into service on December 9, 2000. The 1999 purchase contract with HAL required the Company to make an earnest money deposit of $30 million by January 17, 2000. Persons and entities affiliated with Equity Group Investments, Inc. ("Equity"), the Company's largest stockholder, guaranteed the letter of credit facility for the Company with The Chase Manhattan Bank ("Chase") for up to $30 million, thereby allowing the Company to obtain the facility from its inception until February 22, 2000. Under an agreement dated October 15, 1999, as consideration for issuance of the guarantee, the Company paid Equity a commitment fee of $0.5 million in 1999 and agreed to pay Equity additional compensation in the form of stock appreciation units. Equity's rights to receive this additional compensation vested, on a monthly basis, during the period that the guarantee remained outstanding. On February 22, 2000, the Company deposited $30 million into a cash collateral account with Chase from proceeds received from the issuance of Trust Preferred Securities, thereby terminating the Equity guarantee. Equity may exercise its right to receive payment during the two years following the third anniversary of the date of the agreement, subject to the Company's rights to retire Equity's stock appreciation units, at escalating prices, prior to the third anniversary of the agreement. (See Note 8 to the Consolidated Financial Statements for further information). In May 1999 we acquired a substantially complete riverboat originally built for the casino trade that we converted into the fourth Delta Queen riverboat. The vessel, known as the Columbia Queen, entered service on May 27, 2000 and operates weekly cruise vacations out of Portland, Oregon on the Columbia River system. The Company paid $3.2 million to acquire the vessel and incurred $32.8 million and $8.1 million of costs in 2000 and 1999 respectively, including capitalized interest, to convert the 218-foot boat into an overnight passenger vessel with 157 passenger berths. The conversion was financed primarily through borrowings on the Company's revolving credit facility. In February 1999, The Delta Queen Steamboat Co. ("DQSC") entered into a credit agreement with a group of lenders, with The Chase Manhattan Bank as agent. This agreement provided for a revolving credit facility of up to $70 million to fund the expansion of the Delta Queen line. Upon the completion of MARAD financing for the two Delta Queen coastal vessels, this facility was amended in the third quarter of 2000 whereby DQSC has a maximum of $30 million available to it in the amount of revolving credit loans until the maturity date of the facility, which is September 13, 2001. Any amounts outstanding on the maturity date will be converted to a non-amortizing term loan which matures on September 13, 2002. Borrowings under the 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 0.75%, or (2) LIBOR plus a margin ranging from 1.50% to 1.75%. The Company is also required to pay an unused commitment fee of 0.50% per annum. The facility is secured by all of the assets of DQSC, except for the American Queen, Cape May Light and Cape Cod Light. The terms of the facility require DQSC to maintain certain financial performance ratios and contain limitations on investments, additional indebtedness, construction costs of new vessels and other capital expenditures. In the first quarter of 2000 the then three existing Delta Queen vessels' lay-ups were completed at a cost of approximately $6.7 million, including capital expenditures, repairs and maintenance. These amounts were funded from working capital and the Delta Queen credit facility. For its most recent dry-docking, the S.S. Independence was out of service for 18 days beginning January 5, 2000. This dry-docking cost approximately $5.9 million, including capital expenditures, repairs and maintenance and was funded from cash on hand. In the first quarter of 2001 the regularly scheduled dry-docking of the Mississippi Queen and lay-ups of the other Delta Queen riverboats were completed at a cost of approximately $7.8 million, including capital expenditures, repairs and maintenance and was funded from cash on hand. As of December 31, 2000, we complied with all covenants under our various debt agreements. 20 21 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT'D.) Principal payments on long term debt due in 2001 amount to $15.8 million. Capital expenditures in 2001, including payments for vessels under construction, are expected to be approximately $308.5 million. 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 and working capital needs. 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 have obtained sufficient equity and debt financing commitments from the capital markets, together with cash generated from operations, to satisfy our financial obligations relating to construction of the new vessels, there can be no assurance that the Company will be able to obtain additional financing, if necessary, 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 plans to increase capacity or pursue strategic growth opportunities. Capacity in the Hawaii cruise market has more than doubled in 2001 due to the introduction of the ms Patriot and additional visits by foreign flagged ships. We have been discounting our Hawaii cruises as we absorb this increase in capacity. As a result, gross fare per diems in Hawaii for the first half of 2001 have declined by 24% as compared to the comparable period of a year ago. YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999 Total revenues were $221.6 million in 2000 compared to $208.7 million in 1999. Total revenue for 2000 represents a $10.3 million increase in fare revenues year over year and a $2.6 million increase in other revenues, primarily passenger air and onboard revenues. Fare per diems increased 3% year over year, while occupancy levels decreased from 99% in 1999 to 97% in 2000. American Hawaii's fare revenues decreased by $1.2 million as a 5% increase in fare per diems was more than offset by a 9% decrease in passenger nights, due to the SS Independence being out of service for 18 days in January 2000. Delta Queen's fare revenues increased $6.8 million in 2000, primarily due to an increase in capacity from the late May Columbia Queen introduction, partially offset by a 1% decline in passenger nights at the other three riverboats. Fare per diems and occupancy levels for Delta Queen were flat in 2000 as compared to 1999. On December 9, 2000 the ms Patriot was introduced into service and contributed fare revenue of $4.7 million in 2000. Consolidated cost of operations increased by $9.8 million, to $143.6 million in 2000 from $133.9 million in 1999. The increase is mainly due to the introduction of the ms Patriot in December 2000 and, to a lesser extent, the introduction of the Columbia Queen in May 2000. Operating costs were also negatively impacted by higher fuel costs, which increased by $2.3 million, or 49%, for vessels that were in service in 1999 and 2000. Selling, general and administrative expenses ("SG&A") increased by $17.9 million, from $56.8 million in 1999 to $74.7 million in 2000. The increase is due primarily to $11.1 million in marketing expenses associated with vessels that were not yet in service during the year, as compared to $1.3 million of comparable expenses in 1999. The Company also incurred $5.1 million in start-up expenses, of which $4.3 million was related to the ms Patriot, $0.6 million was related to the Columbia Queen and $0.2 million was related to the new Delta Queen Coastal vessels. No start-up expenses were incurred in 1999. Excluding these start-up and marketing expenses, SG&A increased by $3.1 million. As a percent of total revenues, excluding start-up costs and marketing expenses for vessels not in service, SG&A decreased from 26.6% in 1999 to 26.4% in 2000. The operating loss in 2000 was $13.1 million compared to an operating profit of $1.6 million in 1999. The change is mainly due to the increase in marketing expenses and start-up costs previously discussed, as well as the increase in fuel costs which negatively impacted gross margin. Interest income increased by $3.9 million to $7.0 million in 2000, primarily due to income generated from debt proceeds held in escrow prior to being released for payments to shipyards. Interest expense decreased from $7.5 million in 1999 to $3.6 million in 2000 as $11.7 million of interest that was capitalized in 2000, as compared to $2.3 million in 1999, was partially offset by interest from higher debt levels in 2000. Income tax benefit increased from $1.0 million in 1999 to $3.6 million in 2000, due to higher pre-tax losses. 21 22 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT'D.) On February 22, 2000 the Company completed an offering of $100 million of convertible 7% preferred securities of a subsidiary trust (see Note 7 to the Consolidated Financial Statements), resulting in accrued distributions and amortization of related financing costs of $6.2 million. YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998 Consolidated revenues for 1999 increased $16.5 million to $208.7 million from $192.2 million for 1998. This represented an $11.3 million increase in fare revenues combined with a $5.2 million increase in other revenues. American Hawaii's fare revenues increased $3.8 million. Occupancy rates increased 6% to 106% while fare per diems of $183 were consistent with the prior year. Delta Queen's fare revenues increased $7.5 million. Occupancy rates increased 4 percentage points from 89% to 93% and fare per diems increased 5% to $268. As a result, consolidated fare per diems for 1999 increased 3% to $225. Of the $5.2 million increase in other revenues, $3.4 million was attributable to increases in passenger air and hotel revenue corresponding to the occupancy increase at both cruise lines. Air revenue per passenger night also increased due to higher air fares. As discussed below, the increase in air revenue was offset by a corresponding increase in related air expenses. American Hawaii's onboard revenue also increased by $1.8 million reflecting an 8% improvement in onboard revenue per passenger night combined with the 6% occupancy increase. As a result, consolidated total revenue per passenger night increased 3% to $316. Consolidated cost of operations for 1999 increased $8.3 million to $133.9 million from $125.6 million for 1998. As noted above, higher air fare expenses accounted for $2.9 million of the increase. American Hawaii's operating costs, before air expenses, increased $2.8 million reflecting higher passenger and onboard expenses associated with the occupancy increase, and higher fuel costs. Delta Queen's operating costs, before air expenses, increased $2.6 million reflecting higher passenger and commission expenses associated with the occupancy increase, and higher fuel costs. Consolidated maintenance expenses increased $2.1 million. Consolidated gross profit increased $8.2 million in 1999 from 1998. Consolidated SG&A expenses increased $12.5 million to $56.8 million for 1999 from $44.2 million in 1998. The increase reflects additional selling and marketing spending at both cruise lines during the year. Of the additional marketing spending, approximately $4.8 million was used to promote year 2000 sailings, whereas in the prior year, approximately $0.7 million was incurred for 1999 sailings. The third quarter of 1999 included marketing expenses for the Columbia Queen amounting to $1.3 million, with no comparable expenses in 1998. The remainder of the increase is mainly attributable to salary and benefits associated with new personnel hired during 1999 in connection with our capacity expansion efforts. As a result of increases in expenses in excess of increases in revenues, consolidated operating income for 1999 was $1.6 million as compared to $5.5 million for 1998. Interest income increased by $2.0 million as a result of proceeds received by us upon the sale of additional common stock during 1999. Interest expense and other financing costs increased during 1999 due to the accrual of $2.6 million payable to the guarantor of our letter of credit facility related to our agreed upon purchase of the ms Nieuw Amsterdam in October 2000. We also amortized $0.5 million of deferred financing fees related to this transaction. During the year, we also capitalized $2.3 million of interest expense related to our vessels under construction. We capitalized no interest expense in the prior year. Income tax benefit was $1.0 million in 1999 as compared to income tax expense $0.1 million in 1998 due to a pre-tax loss of $2.8 million in 1999, while 1998 had pre-tax income of $0.3 million. RESCISSION OF ACCOUNTING METHOD On November 2, 1999 we announced that we had rescinded our 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. Under SOP 93-7, we deferred recognition of direct response advertising costs related to direct response advertising efforts for future cruises. These deferred costs were recognized in the periods that the cruises promoted by the efforts were completed, and the related cruise revenue recognized. We rescinded our adoption of SOP 93-7 due to difficulties we encountered in implementing the new method. In rescinding SOP 93-7, we returned to our prior method of recognizing expenses for direct response advertising costs 22 23 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONT'D.) when those costs are incurred. As a result of the rescission of SOP 93-7, we restated our earnings for the first quarter of 1999 to reflect a loss of $6.3 million, or ($0.44) per share, compared to our previously reported loss of $4.5 million, or ($0.32) per share. We also restated our earnings for the second quarter of 1999 to $2.5 million, or $0.14 per share, compared to our previously reported earnings of $2.4 million, or $0.13 per share. As previously disclosed, the Securities and Exchange Commission has been conducting an informal investigation into our adopting and then rescinding the AICPA's Statement of Position 93-7 relating to the deferral of direct response advertising costs. While the SEC has not brought any formal proceedings against us, it is possible that the SEC's informal inquiry or a subsequent formal inquiry or proceeding could result in sanctions or orders against us. We cannot predict at this time whether any such sanctions would have a material impact. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities". This statement establishes accounting and reporting standards for derivative instruments and for hedging activities. It requires that derivatives be recognized in the balance sheet at fair value and specifies the accounting for changes in fair value. In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133" to defer the effective date of SFAS No. 133, until fiscal years beginning after June 15, 2000. At December 31, 1999, December 31, 2000 and February 28, 2001 the Company had no derivative financial instruments, nor does it engage in any hedging activities. Therefore, SFAS No. 133 is not expected to have a material impact on its results of operations or financial position. Should the Company elect to engage in derivative and hedging activities in the future, the impact of SFAS No. 133 on the consolidated financial statements would depend on a variety of factors including the level of future hedging activities, the types of hedging instruments used and the effectiveness of such instruments. OTHER MATTERS On September 8, 2000 the Company announced its intention to relocate its corporate and operational headquarters, from Chicago, IL and New Orleans, LA respectively, to a new leased facility which is being constructed in Sunrise, FL. In connection with the move, the Company is eligible to receive economic incentives from the State of Florida, Broward County and the City of Sunrise of up to $4.2 million once certain conditions are met. The economic benefits to be received by the Company include tax refunds beginning in 2002 under Florida's Qualified Target Industry Tax (QTI) Refund Program, state job training funds and certain cash grants approved by the local municipalities. These benefits will be recognized as they are earned. Construction of the new facility is expected to be completed in November 2001 and the relocation is expected to be largely complete by early 2002. The Company has offered to relocate most employees to the new location but the number of employees intending to relocate is largely undetermined as of December 31, 2000. The Company will incur severance and retention costs pertaining to those employees choosing not to relocate (see Note 14 to the Consolidated Financial Statements). The Company also expects to incur employee relocation costs and additional relocation expenses to move equipment and furniture, which will be expensed as incurred. As of December 31, 2000 the Company has not recognized any expense for relocation of employees or Company assets, but has recognized $0.6 million in severance expenses for employees who have communicated to the Company in writing their intention not to relocate. The Company may also incur lease termination expenses or a write-off of leasehold improvements if it elects to vacate its Chicago or New Orleans facilities. At this time the Company has not determined whether it will completely vacate these facilities and therefore is unable to determine the potential costs, if any, it will incur in connection with terminating the leases or writing off the leasehold improvements. On February 20, 2001, the ms Patriot returned to its home port so that a thrust bearing in the vessel's generator drive train could be replaced. This resulted in refunds issued to passengers of approximately $1.6 million, and travel credits for a future cruise expected to cost approximately $0.5 million. The S.S. Independence will undergo an unscheduled dry-dock beginning March 24, 2001 to repair its bow thruster. The vessel is expected to be out of service for a period of seven days, and the expected cost of the repairs is expected to be between $400,000 and $500,000. 23 24 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risk is the risk of loss from adverse changes in market prices and rates. Our principal market risk is due to changes in interest rates which affects us directly in our borrowing activities. At December 31, 2000, the Company's outstanding variable rate debt had a carrying value of $229.8 million. The Company also had cash and cash equivalents of $165.0 million. The company invests its excess cash in highly liquid short-term investments. A hypothetical instantaneous 100 basis point change in interest rates from their levels of December 31, 2000 would impact the earnings and cash flows of the Company by approximately $1.1 million. On January 31, 2001, the Company issued $50 million of one-year notes, which bear interest at LIBOR minus 0.10%.and used $25 million of the proceeds to retire previously issued notes which were due on January 31, 2001. We will be issuing up to $950 million in additional debt related to our shipbuilding program for the Hawaii cruise vessels. This debt will be subject to the prevailing market conditions at the time it is issued. The Company does not employ any interest rate hedging techniques to manage interest rate risk, nor does it hold or issue any derivative or other financial instruments for trading purposes. Should we commence using interest rate hedging techniques, we may not be successful in reducing or eliminating our interest rate risk in the future. Other market risks to which we are exposed relate to bunker and diesel fuel and food commodity prices, which we do not typically manage through the use of financial instruments. Increases in food and fuel commodity prices could materially affect our operating results. In the year 2000, the Company's bunker and diesel fuel costs amounted to 3.6% of total revenues, as compared to 2.2% of revenues in 1999. Food costs did not materially change as percentage of revenues in 2000 as compared to 1999. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page Number ------- Independent Auditors' Report................................................... 25 Consolidated Financial Statements Consolidated Balance Sheets............................................... 26 Consolidated Statements of Operations..................................... 27 Consolidated Statements of Cash Flows..................................... 28 Consolidated Statements of Changes in Stockholders' Equity................ 29 Notes to Consolidated Financial Statements................................ 30 Financial Statement Schedules Schedule I - Condensed Financial Information of Registrant............ 44 Schedule II - Valuation and Qualifying Accounts....................... 48
24 25 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders American Classic Voyages Co. We have audited the accompanying consolidated balance sheets of American Classic Voyages Co. and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 2000. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedules. These consolidated financial statements and financial statement schedules are the responsibility of management of American Classic Voyages Co. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of American Classic Voyages Co. and subsidiaries as of December 31, 2000 and 1999 and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/ KPMG LLP KPMG LLP Chicago, Illinois February 27, 2001 25 26 AMERICAN CLASSIC VOYAGES CO. CONSOLIDATED BALANCE SHEETS (In thousands except shares and par value)
December 31, 2000 1999 ----------------------------- ASSETS Cash and cash equivalents .................................................................. $ 52,073 $ 42,399 Restricted short-term investments .......................................................... 62,954 289 Marketable securities ...................................................................... 7,843 -- Accounts receivable ........................................................................ 4,552 1,205 Inventory .................................................................................. 5,417 2,529 Prepaid air tickets ........................................................................ 3,646 1,930 Prepaid expenses and other current assets .................................................. 4,814 3,491 ----------------------------- Total current assets .................................................................. 141,299 51,843 ============================= Property and equipment, net (Note 3) ....................................................... 320,657 150,797 Vessels under construction (Notes 4 and 8) ................................................. 258,467 74,601 Deferred income taxes, net (Note 10) ....................................................... 19,744 12,446 Other assets ............................................................................... 12,448 4,303 ----------------------------- Total assets .......................................................................... $ 752,615 $ 293,990 ============================= LIABILITIES Accounts payable ........................................................................... 41,930 $ 14,534 Other accrued liabilities .................................................................. 28,581 23,712 Notes payable, current portion (Note 5) .................................................... 100,000 -- Current portion of long-term debt .......................................................... 15,768 4,100 Unearned passenger revenues ................................................................ 49,413 41,381 ----------------------------- Total current liabilities ............................................................. 235,692 83,727 Notes payable, non current portion (Note 5) ................................................ 25,000 -- Long-term debt, less current portion (Note 6) .............................................. 218,420 80,463 ----------------------------- Total liabilities ..................................................................... $ 479,112 $ 164,190 ============================= Convertible preferred securities of a subsidiary trust holding solely 7% convertible subordinated debentures of the Company (Note 7) ................................ $ 100,000 $ -- ============================= COMMITMENTS AND CONTINGENCIES (Note 8) STOCKHOLDERS' EQUITY (Note 9) Preferred stock, $0.01 par value (10,000,000 and 5,000,000 shares authorized, respectively; none issued and outstanding) .................................. $ -- $ -- Common stock, $0.01 par value (100,000,000 and 40,000,000 shares authorized, respectively; 20,969,183 and 18,602,206 shares issued and outstanding, respectively) .............................................................. 210 187 Additional paid-in capital ................................................................. 204,555 151,094 Accumulated deficit ........................................................................ (29,645) (19,573) Common stock in treasury, at cost (51,000 shares) .......................................... (757) (757) Unearned restricted stock and stock units .................................................. (860) (1,151) ----------------------------- Total stockholders' equity ............................................................ 173,503 129,800 ----------------------------- Total liabilities and stockholders' equity ............................................ $ 752,615 $ 293,990 =============================
The accompanying notes are an integral part of these consolidated Financial Statements. 26 27 AMERICAN CLASSIC VOYAGES CO. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data)
Years Ended December 31, 2000 1999 1998 ----------------------------------------------- Revenues .................................................................. $ 221,625 $ 208,717 $ 192,225 Cost of operations (exclusive of depreciation shown below) ................ 143,617 133,863 125,595 ----------------------------------------------- Gross profit .............................................................. 78,008 74,854 66,630 Selling, general and administrative expenses .............................. 74,745 56,765 44,232 Depreciation expense ...................................................... 16,369 16,440 16,912 ----------------------------------------------- Operating (loss) income ................................................... (13,106) 1,649 5,486 Interest income ........................................................... 7,025 3,102 1,117 Interest expense and other financing costs ................................ 3,612 7,549 6,639 Accrued distributions on convertible preferred securities and related financing costs ................................................... 6,247 -- -- Other (income) expense .................................................... 18 (10) (300) ----------------------------------------------- Income (loss) before income taxes ......................................... (15,958) (2,788) 264 Income tax expense (benefit) .............................................. (5,886) (1,038) 107 ----------------------------------------------- Net income (loss) ......................................................... $ (10,072) $ (1,750) $ 157 =============================================== PER SHARE INFORMATION Basic: Weighted-average shares outstanding .................................. 20,621 17,167 14,137 Earnings (loss) per share ............................................ $ (0.49) $ (0.10) $ 0.01 Diluted: Weighted-average shares outstanding .................................. 20,621 17,167 14,777 Earnings (loss) per share ............................................ $ (0.49) $ (0.10) $ 0.01
The accompanying notes are an integral part of these consolidated Financial Statements. 27 28 AMERICAN CLASSIC VOYAGES CO. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Years Ended December 31, 2000 1999 1998 ------------------------------------------------- OPERATING ACTIVITIES Net (loss) income ................................................. $ (10,072) $ (1,750) $ 157 ADJUSTMENTS TO RECONCILE NET (LOSS) INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES Depreciation expense .............................................. 16,369 16,440 16,912 Gain on sale of assets ............................................ -- -- (300) Changes in certain working capital accounts and other Accounts receivable ...................................... (3,347) 784 (690) Accounts payable ......................................... 13,424 1,039 (789) Other accrued liabilities ................................ 5,015 8,210 (529) Other assets ............................................. (5,798) (1,050) (258) Unearned passenger revenues .............................. 8,032 2,084 5,584 Prepaid expenses and other ............................... (5,927) 1,103 (1,563) ------------------------------------------------- Net cash provided by operating activities ......................... 17,696 26,860 18,524 ------------------------------------------------- INVESTING ACTIVITIES (Increase) decrease in restricted investments ..................... (62,665) (229) 265 Capital expenditures .............................................. (356,123) (79,866) (8,789) Proceeds from sale of assets ...................................... -- -- 300 Purchase of marketable securities ................................. (7,843) -- -- ------------------------------------------------- Net cash used in investing activities ............................. (426,631) (80,095) (8,224) ------------------------------------------------- FINANCING ACTIVITIES Proceeds from borrowings .......................................... 302,200 12,200 -- Repayments of borrowings .......................................... (27,575) (9,125) (4,100) Issuance of convertible preferred securities of subsidiary trust .................................................. 100,000 -- -- Purchase of common stock .......................................... -- -- (757) Issuance of common stock, net of issuance costs ................... 53,629 68,697 2,907 Deferred financing fees ........................................... (9,645) (3,142) (533) ------------------------------------------------- Net cash provided by (used in) financing activities ............... 418,609 68,630 (2,483) ------------------------------------------------- Increase in cash and cash equivalents ............................. 9,674 15,395 7,817 Cash and cash equivalents, beginning of period .................... 42,399 27,004 19,187 ------------------------------------------------- Cash and cash equivalents, end of period .......................... $ 52,073 $ 42,399 $ 27,004 ================================================= SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for: Interest (net of capitalized interest) ........................ $ -- $ 4,189 $ 6,438 Income taxes .................................................. $ 177 $ 258 $ 232
The accompanying notes are an integral part of these consolidated Financial Statements. 28 29 AMERICAN CLASSIC VOYAGES CO. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (In thousands)
Unearned Total Common Additional Accumulated Treasury Restricted Stock Stockholders' Stock Paid-in Capital Deficit Stock And Stock Units Equity --------- --------------- ----------- --------- ---------------- ------------ Balance, December 31, 1997 ................. $ 140 $ 77,059 $ (17,980) $ -- $ (90) $ 59,129 Net income ................................. -- -- 157 -- -- 157 Stock units earned ......................... -- -- -- -- 90 90 Stock units issued to Directors, net ....... -- 138 -- -- (107) 31 Stock issued under option and benefit plans .............................. 3 3,254 -- -- -- 3,257 Purchase of treasury stock ................. -- -- -- (757) -- (757) --------- --------- --------- --------- --------- --------- Balance, December 31, 1998 ................. 143 80,451 (17,823) (757) (107) 61,907 Net loss ................................... -- -- (1,750) -- -- (1,750) Stock units earned ......................... -- -- -- -- 107 107 Stock units issued to Directors, net ....... -- 205 -- -- (103) 102 Restricted stock grant ..................... -- 1,397 -- -- (1,048) 349 Stock issued under option and benefit plans .............................. 4 4,336 -- -- -- 4,340 Stock offering, net of expenses ............ 40 63,464 -- -- -- 63,504 Tax benefit from exercise of stock options .................................... -- 1,241 -- -- -- 1,241 --------- --------- --------- --------- --------- --------- Balance, December 31, 1999 ................. 187 151,094 (19,573) (757) (1,151) 129,800 Net loss ................................... -- -- (10,072) -- -- (10,072) Stock units earned ......................... -- -- -- -- 103 103 Stock units issued to Directors, net ....... -- 377 -- -- (161) 216 Restricted stock grant vesting ............. -- -- -- -- 349 349 Stock issued under option and benefit plans .............................. 3 5,435 -- -- -- 5,438 Stock offering, net of expenses ............ 20 46,709 -- -- -- 46,729 Tax benefit from exercise of stock options .................................... -- 940 -- -- -- 940 --------- --------- --------- --------- --------- --------- Balance, December 31, 2000 ................. $ 210 $ 204,555 $ (29,645) $ (757) $ (860) $ 173,503 ========= ========= ========= ========= ========= =========
The accompanying notes are an integral part of these consolidated Financial Statements. 29 30 AMERICAN CLASSIC VOYAGES CO. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS American Classic Voyages Co., ("the Company") through its subsidiaries, operates three cruise lines under the names of The Delta Queen Steamboat Co., American Hawaii Cruises and United States Lines. The Delta Queen Steamboat Co., through its subsidiaries, owns and operates the American Queen, Mississippi Queen, Delta Queen and Columbia Queen riverboats, which conduct overnight cruise operations on certain U.S. inland waterways. Great Hawaiian Cruise Line, Inc., doing business as American Hawaii Cruises, through its subsidiaries, owns and operates the S.S. Independence steamship providing overnight cruises among the Hawaiian Islands. Project America Inc., doing business as United States Lines ("USL"), through its subsidiaries, owns and operates the ms Patriot, which also provides overnight cruises among the Hawaiian Islands. USL will also operate the new Hawaii vessels currently under construction. Ocean Development Company, a wholly owned subsidiary of Project America Inc., oversees the design and construction of new vessels. PRINCIPLES OF CONSOLIDATION The accompanying Consolidated Financial Statements include the accounts of the Company and all of its subsidiaries, and have been prepared in accordance with accounting principles generally accepted in the United States of America. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain previously reported amounts have been reclassified to conform to the 2000 presentation. USE OF ESTIMATES The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities to prepare these consolidated financial statements. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS All highly liquid investments purchased with an original maturity of three months or less are considered cash equivalents. RESTRICTED SHORT-TERM INVESTMENTS At December 31, 2000 and 1999, restricted short-term investments primarily reflect proceeds from debt issuances that have been placed in escrow accounts and are related to the construction of new vessels. MARKETABLE SECURITIES Unrestricted short-term investments which are held to maturity and mature in less than one year are classified as marketable securities. INVENTORIES Inventories consists of provisions, supplies, fuel and gift shop merchandise carried at the lower of cost (weighted-average) or market. PREPAID AIR TICKETS Prepaid air tickets consist of air tickets purchased by the Company and resold to passengers in advance of sailings. PROPERTY AND EQUIPMENT Property and equipment primarily consists of vessels and leasehold improvements which are recorded at cost. Construction-in-progress represents expenditures for the vessels under lay-up and/or dry-dock. Depreciation is computed using the straight-line method based upon the estimated useful lives of the various classes of assets ranging from 3 to 40 years. Lay-up and dry-dock expenditures relating to vessel improvements or betterments are capitalized. In addition, lay-up and dry-dock expenditures relating to cleaning, repairs and maintenance are accrued evenly over the period to the next scheduled lay-up and/or dry-dock and are based on the best available estimate of total costs. The accrual for these costs is included in other accrued liabilities and was $4.0 and $5.1 million at December 31, 2000 and 1999 respectively. For vessels acquired and put into service in 2000, transportation, renovation and other costs necessary for placing the vessels into service have been capitalized as part of the cost of the asset. Depreciation of these vessels reflects the estimated salvage values based on the expected recoverable amounts at the end of their depreciable lives. 30 31 AMERICAN CLASSIC VOYAGES CO. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D.) VESSELS UNDER CONSTRUCTION Vessels under Construction consists mainly of payments to shipyards as part of the Company's various new shipbuilding programs (see note 4 for further information). Additional capitalized costs include furniture, fixtures and equipment, technical design, engineering, and architectural fees and owner supplied items. Interest costs associated with the vessels under construction are capitalized during the construction period and were $11.7 million and $2.3 million for the years ended December 31, 2000 and 1999 respectively. IMPAIRMENT OF LONG-LIVED ASSETS Long-lived assets and certain identifiable intangibles are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceed their fair value. INCOME TAXES Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between carrying amounts and the tax bases of assets and liabilities. REVENUE AND EXPENSE RECOGNITION The Company generally receives passenger fares up to 60 days prior to the cruise date, which are recorded as a liability for unearned passenger revenue. The liability is recognized as revenue on a pro-rata basis during the associated cruise. The Company is self-insured in respect of guaranteeing the Company's passenger cruise deposits. Revenues from the sale of airline tickets and land packages are recorded at the gross amount billed to customers when earned, with their corresponding costs included in cost of operations. Advertising costs are expensed as incurred except for brochure costs, which result in tangible assets. Brochure costs are recorded as prepaid expenses and charged to expense as consumed. EARNINGS PER SHARE Basic earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income by the sum of weighted- average common shares outstanding during the period plus potentially dilutive common shares. Potentially dilutive common shares that are anti-dilutive are excluded from earnings per share. Following is a reconciliation of the shares used in calculating basic and dilutive earnings per share (in thousands): 2000 1999 1998 ================================== Weighted-average common shares outstanding 20,621 17,167 14,137 Effect of dilutive securities - options and stock units ---- ---- 640 ---------------------------------- Weighted-average common equivalent shares outstanding - assuming dilution 20,621 17,167 14,777 ================================== As the Company reported net losses for the years ended December 31, 2000 and 1999, diluted earnings per share was computed in the same manner as basic earnings per share. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company's financial instruments include restricted short-term investments, marketable securities, accounts receivable, accounts payable, short-term notes payable, long-term debt and convertible preferred securities of a wholly owned subsidiary trust ("trust preferred securities"). At December 31, 2000 and 1999, the fair values of all financial instruments, with the exception of the trust preferred securities, were not materially different from their carrying or contract values. See Note 7 to the Consolidated Financial Statements for the fair value of these securities. 31 32 AMERICAN CLASSIC VOYAGES CO. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D.) STOCK-BASED COMPENSATION PLANS The Company accounts for its stock -based compensation plans in accordance with the provisions of Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation." As permitted under this statement, the Company has chosen to apply the intrinsic value-based method of accounting as prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." See Note 9 for the pro forma effect of the fair value accounting method, as defined in SFAS No. 123. OPERATING SEGMENTS The nature of the Company's operations are such that the Company operates as a single business segment under the standards set forth in SFAS No. 131. NEW ACCOUNTING PRONOUNCEMENTS In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". This statement establishes accounting and reporting standards for derivative instruments and for hedging activities. It requires that derivatives be recognized in the balance sheet at fair value and specifies the accounting for changes in fair value. In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133" to defer the effective date of SFAS No. 133, until fiscal years beginning after June 15, 2000. As of December 31, 1999, December 31, 2000 and February 28, 2001 the Company had no derivative financial instruments and did not engage in hedging activities. Therefore, SFAS 133 is not expected to have a material impact on its results of operations or financial position. Should the Company elect to engage in derivative and hedging activities in the future, the impact of SFAS No. 133 on the consolidated financial statements would depend on a variety of factors including the level of future hedging activities, the types of hedging instruments used and the effectiveness of such instruments. RISKS AND UNCERTAINTIES The Company is subject to varying degrees of risk and uncertainty. The Company insures its vessels and other business assets against insurable risks in a manner it deems appropriate. The Company believes that there is no concentration of risk with any single customer. See Note 8 for a discussion of concentration of risk for suppliers, or a small group of suppliers, whose failure or non-performance would materially affect the Company's results. NOTE 2. SHIP ADDITIONS Under the terms of an agreement finalized on October 15, 1999, the Company acquired on October 18, 2000 the ms Nieuw Amsterdam from Holland America Line ("HAL") for $114.5 million. Upon taking delivery of the vessel, the Company renamed it the ms Patriot and is operating it as a 1,212-passenger U.S.-flagged vessel serving the Hawaiian market. The purchase price was financed with $30 million of proceeds from the issuance of Trust Preferred Securities (see Note 7) and an $84.5 million promissory note issued to HAL by the Company (see Note 6). The Company also incurred $20.4 million in renovation, refurbishment and other capital expenditures necessary to ready the vessel for service. This amount was funded from operating cash flow. The vessel was placed into service on December 9, 2000. The promissory note bears interest at a floating rate equal to the prevailing prime rate, which was 9.5% at the time of purchase. The ms Patriot is the first ship that the Company intends to operate under the United States Lines brand name. In May 1999 the Company acquired a riverboat originally built for the casino trade. The Company paid $3.2 million to acquire the vessel and incurred $32.8 million and $8.1 million of costs in 2000 and 1999 respectively, including capitalized interest, to convert the ship into an overnight passenger vessel with 157 passenger berths. The vessel entered service on May 27, 2000 and operates weekly cruise vacations out of Portland, Oregon on the Columbia River system. The conversion was financed primarily through borrowings on the Company's revolving credit facility and through the Company's operating cash flow. 32 33 AMERICAN CLASSIC VOYAGES CO. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D.) NOTE 3. PROPERTY AND EQUIPMENT Property and Equipment consists of (in thousands): December 31, 2000 1999 --------------------------------- Vessels $ 408,598 $ 222,666 Buildings and leasehold improvements 8,086 7,779 Construction-in-progress 1,407 3,278 Other 10,971 9,122 --------------------------------- 429,062 242,845 Less accumulated depreciation (108,405) (92,048) --------------------------------- $ 320,657 $ 150,797 ================================= NOTE 4. VESSELS UNDER CONSTRUCTION The Vessels under Construction balance includes payments to shipyards, design and engineering fees, construction management and oversight costs, various owner-supplied items and capitalized interest. There are four vessels under construction as of December 31, 2000. See Note 8 for further information. Vessels under construction consists of the following (in thousands): December 31, 2000 1999 --------------------------------- New Hawaii Ship #1 $ 175,223 $ 54,333 New Hawaii Ship #2 27,624 1,471 cv Cape May Light 30,479 5,067 cv Cape Cod Light 25,141 2,296 Columbia Queen -- 11,280 ms Patriot -- 154 --------------------------------- $ 258,467 $ 74,601 ================================= The balance for the ms Patriot in 1999 consisted of design and engineering fees and various owner supplied items which were purchased in advance of taking delivery of the ship. NOTE 5. NOTES PAYABLE On April 8, 1999, the Company received a commitment from the Maritime Administration ("MARAD") for up to $1.1 billion in financing guarantees. The commitment amount represents 87.5% of the estimated total cost of the initial two Hawaii vessels (see Note 8), including shipyard costs, design and engineering fees and capitalized interest. During 2000, the Company issued $125 million of MARAD-guaranteed notes pertaining to the construction of the first Hawaii vessel as follows: - - February 10, $25 million bearing interest at LIBOR minus 0.05%, due January 31, 2001 - - August 10, $50 million bearing interest at LIBOR minus 0.05%, due July 31, 2001 - - November 9, $50 million bearing interest at LIBOR minus 0.10%, due October 31, 2001. The Company intends to refinance all of these notes on or before the maturity date. On January 31, 2001 the Company issued an additional $50 million of notes guaranteed by MARAD bearing interest at LIBOR minus 0.10%. Interest is payable quarterly and the principal amount is due on January 31, 2002. A portion of the proceeds from this issuance was used to pay down the $25 million note due January 31, 2001. Thus, at December 31, 2000 the $25 million note is shown as a non-current liability in the Company's consolidated financial statements. The weighted average interest rates of the notes issued February 10, August 10, and November 9, 2000 were 6.45%, 6.67% and 6.66% respectively. 33 34 AMERICAN CLASSIC VOYAGES CO. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D.) NOTE 6. LONG-TERM DEBT Long-term debt consisted of (in thousands):
December 31, 2000 1999 ----------------------- 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......................................................... $ 11,961 $ 14,385 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 June 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........................................................ 6,604 7,926 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........................................................ 1,770 2,124 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 U.S. Government Guaranteed Ship Financing Bond, Cape May Series, 7.25% fixed rate, sinking fund bonds due semi-annually beginning no later than October 16, 2002 through April 16, 2027......................................... 37,900 -- U.S. Government Guaranteed Ship Financing Bond, Cape Cod Series, 7.25% fixed rate, sinking fund bonds due semi-annually beginning no later than October 16, 2002 through April 16, 2027................................................. 38,500 -- Patriot promissory note, floating prime rate due semi-annually beginning March 31, 2001 with a final payment of $23.7 million due on January 18, 2007.......... 84,500 -- Revolving credit facility (maximum availability of $30 million at December 31, 2000 and $70 million at December 31, 1999)...................................... -- 7,175 --------------------- 234,188 84,563 Less current portion.............................................................. 15,768 4,100 --------------------- $218,420 $ 80,463 =====================
The American Queen Series, the Independence Series A and B, Cape May Series and Cape Cod Series debt are guaranteed by the U.S. Government through MARAD and are secured by first mortgages on the American Queen, the S.S. Independence, Cape May Light and Cape Cod Light, respectively. These Series contain various covenants which, among other things, require the maintenance of certain financial ratios measured at the end of each year. On October 16, 2000 the Company issued $37.9 million and $38.5 million of long-term bonds to finance construction of the cv Cape May Light and cv Cape Cod Light respectively (see Note 8). Semi-annual principal payments commence six months after delivery of the ships. The bonds are guaranteed by MARAD pursuant to a commitment received by the Company from MARAD on March 31, 2000 for financing guarantees pertaining to the two ships. On October 18, 2000 the Company acquired the ms Nieuw Amsterdam from Holland America Line ("HAL") for $114.5 million (see Note 2). In connection with the purchase, the Company issued to HAL an $84.5 million promissory note. The promissory note bears interest at a floating rate equal to the prevailing prime rate, and is payable monthly in arrears. Principal paydowns of $5.1 million are scheduled for each March 31st and September 30th, beginning with March 31, 2001, with a final payment of $23.7 million due on January 18, 2007. 34 35 AMERICAN CLASSIC VOYAGES CO. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D.) In the third quarter of 2000 DQSC, as borrower, amended its credit facility with The Chase Manhattan Bank, as agent, and several participant banks (the "Chase Facility"). The Company has a maximum of $30 million available to it in the form of revolving credit loans until the maturity date of the facility, which is September 13, 2001. Any loans outstanding on the maturity date are converted to non-amortizing term loans which mature September 13, 2002. Borrowings under the amended facility bear interest at a rate, at the option of the Company, equal to either (1) the greater of Chase's prime rate or certain alternative base rates plus a margin ranging from 0.50% to 0.75%, or (2) LIBOR plus a margin ranging from 1.50% to 1.75%. The Company is also required to pay an unused commitment fee at a rate of 0.50% per annum. The Chase Facility will be used for general corporate purposes. The amended facility is guaranteed by AMCV and secured by all of the assets of DQSC except the American Queen, Cape May Light and Cape Cod Light and has various limitations and restrictions on investments, additional indebtedness, the construction costs of the new vessels, and other capital expenditures. DQSC is required to comply with certain financial covenants, including maintenance of minimum interest coverage ratios and maximum leverage ratios, as defined. Maturities of long-term debt during the next five years ending December 31, 2001 through 2005 are $15,768,000, $17,296,000, $17,296,000, $17,296,000 and $17,131,000 respectively As of December 31, 2000, the Company was in compliance with all covenants under its various debt agreements. NOTE 7. TRUST PREFERRED SECURITIES On February 22, 2000, AMCV Capital Trust I (the "Trust"), a wholly owned subsidiary of the Company, completed an offering of 2,000,000 convertible preferred securities ("trust preferred securities"). Each $50 security bears interest at 7% and is convertible at the holder's election into 1.6207 shares of the Company's common stock. All outstanding preferred securities are redeemable by the Company upon maturity of the debentures issued to the trust, which is on February 15, 2015, or upon early redemption. The outstanding preferred securities may be redeemed for cash at the Company's option on or after February 19, 2003. The Trust used the proceeds of its offering to purchase certain junior convertible subordinated debentures from the Company, which now comprise the sole assets of the Trust. The net proceeds to the Company, after underwriting fees and other costs, were approximately $96.3 million. A portion of the proceeds were used to fund the $30 million letter of credit facility related to the ms Nieuw Amsterdam purchase (see Notes 2 and 8) and to pay down outstanding amounts on the Chase credit facility. The underwriters' overallotment option of 300,000 additional trust preferred securities was not exercised. The fair value of these securities at December 31, 2001, based on quoted market prices, was $27.75 per security, or $55.5 million. NOTE 8. COMMITMENTS AND CONTINGENCIES The Company leases certain facilities and equipment under operating leases. The Company currently leases approximately 21,000 square feet from a partnership controlled by an affiliated company, at an annual rate of approximately $100,000. In addition, the Company's mainland operations facility in New Orleans is maintained pursuant to an assignment from local authorities. The Company paid approximately $171,000, $168,000 and $165,000 under this arrangement for the years ended December 31, 2000, 1999 and 1998 respectively. This arrangement may be terminated at any time by the local authorities upon determination that a superior maritime use is deemed to exist. Rent expense for the years ended December 31, 2000, 1999 and 1998 was approximately $912,000, $662,000 and $842,000, respectively. 35 36 AMERICAN CLASSIC VOYAGES CO. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D.) As of December 31, 2000 the Company is obligated to make minimum rental payments under all operating leases through 2016, excluding assignment payments, as follows: (in thousands) 2001 $ 1,416 2002 2,379 2003 2,562 2004 2,475 2005 2,247 thereafter 28,678 ------------ $ 39,757 ============ The Company is subject to litigation in the ordinary course of business. In the opinion of management, the outcome of such litigation will not have a material effect on the results of operations or financial position of the Company as most is covered by insurance, net of a deductible. 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. The contract provides that Ingalls Shipbuilding deliver the first new ship in January 2003 and the second ship in January 2004. We currently estimate the new Hawaii cruise ships to cost approximately $495 million each, including the cost of furnishings, fixtures and equipment, as well as design, engineering and architectural fees, but excluding capitalized interest. Ingalls Shipbuilding is claiming that the Company should pay additional sums beyond the contract price for certain interior finish work and has requested a delay in the delivery schedule. The Company believes that the claims made by the shipyard for additional payments and a delay in the delivery of the ships are unwarranted, and the Company intends to assert its rights under the original provisions of the contract. 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. COASTAL VESSELS We are constructing two new coastal cruise vessels for our Delta Queen Coastal Voyages line at Atlantic Marine, Inc. of Jacksonville, Florida. We expect each vessel to have a total project cost, including furnishing, fixtures and equipment, of approximately $40 million to $42 million. The coastal cruise vessels will be approximately 300 feet long and provide accommodations for up to 224 passengers. The first vessel, the cv Cape May Light, is scheduled to be delivered in April 2001. The second vessel, the cv Cape Cod Light, is expected to be delivered in the third quarter of 2001. 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. STOCK APPRECIATION UNITS In 1999, the Company finalized an agreement with Holland America Line ("HAL") to purchase the ms Nieuw Amsterdam for $114.5 million. The purchase agreement required the Company to make an earnest money deposit of $30 million by January 17, 2000. The Company arranged for an unsecured letter of credit facility with The Chase Manhattan Bank for up to $30 million and satisfied the deposit requirement by posting a letter of credit for $30 million. In 1999, persons and entities affiliated with Equity Group Investments, Inc. ("Equity"), the Company's largest stockholder, guaranteed the letter of credit facility for the Company with The Chase Manhattan Bank ("Chase") for up to $30 million. Under an agreement dated October 15, 1999, as consideration for issuance of the guarantee, the Company paid Equity a commitment fee of $500,000 in 1999 and agreed to pay Equity additional compensation in the form of stock appreciation units contingent, in part, upon appreciation in the Company's common stock above $21.90 per share. Equity's rights to receive this additional compensation vested, on a monthly basis, during the period that the guarantee remained outstanding. On February 22, 2000, the Company deposited $30 million into a cash collateral account with Chase from proceeds received by the Company from the securities offering discussed in Note 7, thereby terminating the Equity guarantee. The Company has the right to retire Equity's stock appreciation units by paying a per unit price, which escalates each year, during the first three years after issuance. The price of the Company's right to retire Equity's stock appreciation units was $11 per unit if the 36 37 AMERICAN CLASSIC VOYAGES CO. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D.) Company retired the units by October 15, 2000, $13 per unit if the Company retires the units by October 15, 2001, and $15 per unit if the Company retires the units by October 15, 2002. If the Company does not retire Equity's stock appreciation units during the first three years after issuance, Equity may exercise, during the fourth and fifth years after issuance, its right to receive payment based upon the market value of the Company's common stock at such time. After giving consideration to the Company's then current stock price and other factors, the Company decided not to exercise its right to retire Equity's vested stock appreciation units by October 15, 2000. Accordingly, the Company accrued an additional $2 per vested unit, or $0.6 million, which was charged to other financing costs on that date. On or before the next two anniversary dates of the issuance of Equity's stock appreciation units, the Company will evaluate whether to exercise its right to retire the units based on the Company's then current stock price, its liquidity and other factors. It is currently the Company's intent to retire Equity's stock appreciation units prior to October 15, 2002. NOTE 9. STOCKHOLDERS' EQUITY COMMON STOCK OFFERINGS 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 issuance costs, of $63.5 million were used for construction of the initial Hawaii vessel. On February 22, 2000, the Company completed an offering of an additional 2,000,000 shares of common stock. The net proceeds to the Company, after issuance costs, were $46.7 million and are being used for the construction of the second Hawaii vessel. The underwriters' overallotment option of 300,000 additional shares was not exercised. 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. EMPLOYEE STOCK PURCHASE PLAN The American Classic Voyages Co. 1995 Employee Stock Purchase Plan (the "ESP Plan") allows eligible employees to purchase common stock of the Company, through payroll deductions, at a discounted price from the market price. The purchase price under the ESP Plan is deemed to be 85% of the lesser of (i) the market value of the Company's common stock on the last business day of the offering period or (ii) the greater of (a) the average market value during the offering period and (b) the market value on the first business day of the offering period. There is a maximum of 500,000 shares authorized under the ESP Plan. There were 11,113, 9,749 and 11,622 shares issued during 2000, 1999 and 1998 respectively, at an average price of $14.86, $17.41 and $13.38 per share for 2000, 1999 and 1998 respectively. At December 31, 2000, approximately 440,000 shares were available for offering under the ESP Plan. STOCK-BASED COMPENSATION PLANS The Company granted, as of January 1, 1992, fully vested options to the Company's then senior executive officers, to purchase shares of common stock, in lieu of bonus payments (the "Executive Stock Option Plan"). These options are exercisable, in whole or in part, at any time prior to January 2, 2002, at an exercise price of $3.25 per share. The Company adopted the 1992 Stock Option Plan effective January 2, 1992 (the "1992 Plan") and the 1999 Stock Option Plan effective June 24, 1999 (the "1999 Plan"). Pursuant to the 1992 and 1999 Plans, certain officers, directors, key employees, and consultants will be offered the opportunity to acquire shares of the Company's common stock via stock option grants. In addition, the 1992 Plan provides for the granting of stock units. The exercise price of options granted under the 1992 and 1999 Plans cannot be less than the fair market value of the Company's common stock at the date of grant. As of December 31, 2000, 2,174,130 and 2,965,167 shares of the Company's common stock have been reserved for issuance under the 1992 Plan and 1999 Plan respectively. Options granted under the 1992 and 1999 Plans generally vest over a three-year period and expire 10 years from the date of grant. The per share weighted-average fair value of stock options granted during 37 38 AMERICAN CLASSIC VOYAGES CO. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D.) 2000, 1999, and 1998 was $9.86, $9.21 and $7.86 respectively, on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions for 2000, 1999 and 1998 respectively: expected volatility of 52%, 50% and 53%, risk-free interest rates of 6.2%, 6.3% and 4.6%, expected lives of three years and dividend yield of 0% for all years. In 2000, 1999 and 1998, under the terms of the 1992 Plan, the Company paid each non-employee director stock units as an annual retainer. The stock units in general vest at a rate of 25% on the first day of each calendar quarter. The fully vested stock units will be converted into an equal number of common stock shares at any time as selected by each director prior to each grant. As permitted under SFAS No. 123, the Company continues to apply the provisions of APB Opinion No. 25 for stock-based awards granted to employees. Accordingly, no compensation cost has been recognized for stock option grants in the financial statements. Had compensation cost for the Company's stock-based compensation plans been recognized based on the fair value method prescribed under SFAS No. 123, the Company's net income (loss) and earnings (loss) per share would have been adjusted to the pro forma amounts indicated below (in thousands, except per share amounts): 2000 1999 1998 --------------------------------- Net income (loss) As reported $ (10,072) $ (1,750) $ 157 Pro forma (11,706) (4,396) (2,487) Basic earnings (loss) per share As reported $ (0.49) $ (0.10) $ 0.01 Pro forma (0.57) (0.26) (0.18) Diluted earnings (loss) per share As reported $ (0.49) $ (0.10) $ 0.01 Pro forma (0.57) (0.26) (0.18) The table below summarizes the activity for the Company's stock-based compensation plans in 1998, 1999 and 2000:
Executive Stock Option Plan 1992 Plan 1992 Plan 1999 Plan Weighted ---------------- ---------- ----------- ---------- Average Shares Shares Shares Exercise Shares Subject to Subject to Subject to Subject to Price Options Options Stock Units Options For Options ------- ------- ----------- ------- ----------- Balance at December 31, 1997 195,125 1,422,379 20,400 -- $ 10.74 Granted...................... -- 1,618,000 14,000 -- 17.10 Canceled..................... (19,512) (151,236) -- -- 13.44 Exercised.................... (50,000) (215,047) -- -- 9.29 Converted.................... -- -- (7,000) -- -- ---------------- ------------ ----------- ---------- Balance at December 31, 1998 125,613 2,674,096 27,400 -- 14.39 Granted...................... -- 7,500 9,100 999,650 20.69 Canceled..................... -- (48,673) -- -- 14.92 Exercised.................... (86,000) (238,526) -- -- 9.94 ---------------- ------------ ----------- ---------- Balance at December 31, 1999 39,613 2,394,397 36,500 999,650 16.65 Granted...................... -- 55,000 18,150 117,900 23.91 Canceled..................... -- (153,683) -- (35,934) 18.18 Exercised.................... (15,000) (290,542) -- (34,833) 13.59 ---------------- ------------ ----------- ---------- Balance at December 31, 2000 24,613 2,005,172 54,650 1,046,783 $ 17.30 ================ ============ =========== =========== =======
38 39 AMERICAN CLASSIC VOYAGES CO. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D.) The following table summarizes information about options outstanding at December 31, 2000:
Options Outstanding Options Exercisable ---------------------------------------------- --------------------------- Weighted-Average Remaining Weighted- Weighted- Range of Outstanding Contractual Life Average Exercisable Average Exercise Price at 12/31/00 in Years Exercise Price at 12/31/00 Exercise Price - -------------- ----------- ---------------- -------------- ----------- -------------- $3.25 24,613 1 $ 3.25 24,613 $ 3.25 7.97 - 9.88 300,649 6 8.79 300,649 8.79 10.25 - 15.00 210,750 5 11.82 210,750 11.82 15.32 - 20.00 2,174,673 7 17.33 1,185,731 17.17 21.13 - 33.14 365,883 9 28.21 85,500 28.96 --------- ----------- -------------- $ 3.25 -$33.14 3,076,568 7 $17.30 1,807,243 $15.52 ========= ================= ============= =========== ==============
NOTE 10. INCOME TAXES The provision (benefit) for income taxes consisted of (in thousands): Years Ended December 31, 2000 1999 1998 ----------------------------------- Current tax provision (benefit): Federal............................. $ -- $ -- $ -- State............................... 435 150 213 ----------------------------------- Total current tax provision......... 435 150 213 ----------------------------------- Deferred tax provision (benefit): Federal............................. (4,856) (712) 89 State............................... (1,465) (476) (195) ----------------------------------- Total deferred tax provision........ (6,321) (1,188) (106) ----------------------------------- Total tax provision (benefit)....... $ (5,886) $ (1,038) $ 107 =================================== The provision (benefit) for income taxes differs from amounts computed by applying the U.S. statutory income tax rate. The differences are summarized as follows (in thousands): Years Ended December 31, 2000 1999 1998 ------------------------------- 35% 35% 35% ------------------------------- Tax provision (benefit) at federal statutory rate........................................ $ (5,584) $ (975) $ 93 Effect of state income taxes (net of Federal benefit).................................... (669) (297) 12 Non-deductible expenses..................... 367 234 221 Other....................................... -- -- (219) ------------------------------- Total tax provision (benefit)............... $ (5,886) $ (1,038) $ 107 =============================== 39 40 AMERICAN CLASSIC VOYAGES CO. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D.) The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below (in thousands): December 31, Deferred tax assets: 2000 1999 -------------------------- Insurance costs and reserves................. $ 1,508 $ 1,173 Non-recurring executive compensation......... 84 135 Benefit cost accruals........................ 907 716 Finance cost accruals........................ 1,324 1,030 Alternative minimum tax Credit carryforwards....................... 2,206 2,206 Dry-dock accruals............................ 1,745 1,995 Net operating loss carryforward.............. 47,985 36,823 Goodwill, due to basis differences........... 2,717 3,075 -------------------------- Total deferred tax assets.................... 58,476 47,153 -------------------------- Deferred tax liabilities: Capital construction fund.................... 612 702 Property plant and equipment, due to basis differences and depreciation, net...... 38,120 34,005 -------------------------- Total deferred tax liabilities............... 38,732 34,707 -------------------------- Net deferred tax asset....................... $ 19,744 $ 12,446 ========================== At December 31, 2000, consolidated net operating losses of approximately $3.0 million, $10.0 million, $36.0 million, $14.0 million, $29.0 million, $5.0 million, $5.7 million and $23.4 million, expiring in 2008, 2009, 2010, 2011, 2012, 2018, 2019 and 2020 respectively, were available to offset future taxable income of the Company. The 2000 net operating loss of $23.4 million includes $2.7 million of deductions related to stock option exercises, the tax benefit of which was recorded as additional paid in capital. There is no valuation allowance for deferred tax assets as of December 31, 2000 and 1999. In assessing whether the deferred tax assets are realizable, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the temporary differences become deductible. Management considers, among other things, projected future taxable income, and tax planning strategies in making this assessment. Based upon the level of historical taxable income and projections for future taxable income over the periods during which the temporary differences that gave rise to those deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the benefits of these deductible differences. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward period are reduced. In 1993, the Company established a capital construction fund (the "CCF") pursuant to Section 607 of the Merchant Marine Act of 1936, into which it deposited approximately $12.0 million. This fund was primarily used to pay liabilities assumed in the acquisition of American Global Line (now American Hawaiian Cruises) and allowed the Company to accelerate recognition of certain deductions for qualified capital expenditures for income tax purposes. As a result of the CCF, the Company has approximately a $2.2 million alternative minimum tax credit carryforward available with no expiration date. NOTE 11. RELATED PARTY TRANSACTIONS As of December 31, 2000, the largest stockholders of the Company's common stock were certain affiliates of EGI, including EGI Holdings, Inc. and EGIL Investments, Inc., which owned an aggregate of 35.2% of the Company's common stock. EGI and its affiliates provided certain administrative support services for the Company, including but not limited to legal, accounting, tax, benefit and insurance brokerage services. As previously mentioned in Note 8, the Company leases office space from an affiliate of EGI. In the aggregate, the fees charged by EGI and its affiliates for such services and rent were approximately $0.2 million, $0.4 million and $0.4 million for the years ended December 31, 2000, 1999 and 1998 respectively. At December 31, 2000 the Company had also accrued $0.5 million in connection with the assistance of several 40 41 AMERICAN CLASSIC VOYAGES CO. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D.) EGI employees with recent debt and equity financing transactions undertaken by the Company. This amount was paid in the first quarter of 2001. In addition, as previously mentioned in Note 8, the Company obtained financing guarantees from EGI. Arrangements with EGI and its affiliates are subject to approval by a majority of the non-affiliated members of the Company's Board of Directors. In late 1997, the Company subleased approximately 13,000 square feet of Chicago office space (the "sublease area") to Equity Office Properties Trust, an affiliate of EGI. For the years ended December 31, 1998 and 1997, approximately $78,000 and $23,000, respectively, was received by the Company under the sublease. In mid-1998, the Company entered into an amended lease agreement covering the Chicago office space whereby the subleased area was removed from the lease. The Company was granted a $0.6 million reduction in future rent on its remaining office space, representing the value of undepreciated leasehold improvements of the sublease area. The Company paid approximately $1.0 million, $0.6 million and $0.8 million during 2000, 1999 and 1998 respectively, for legal services to Preston Gates Ellis & Rouvelas Meeds ("Preston Gates"). Mr. Rouvelas, a Director of the Company since 1998, is a partner of Preston Gates. The Company paid approximately $0.3 million, $0.1 million and $0.1 million during 2000, 1999 and 1998 respectively, for legal services to Watanabe, Ing & Kawashima ("WIK"). Mr. Watanabe, a Director of the Company since 1998, is a partner of WIK. The Company paid approximately $13,000 and $0.2 million during 2000 and 1999 respectively for recruiting fees to Heidrick & Struggles ("H&S"). Mr. Berry, a Director of the Company since 1999, is a partner of H&S. NOTE 12. EMPLOYEE BENEFIT PLANS RETIREMENT PLANS The Company's non-union employees are eligible to participate in the ADVANTAGE Retirement Savings Plan (as amended and restated October 1, 1987, "ADVANTAGE Plan"), a profit-sharing plan with a salary deferral feature that qualifies under Section 401 of the Internal Revenue Code of 1986, as amended. The ADVANTAGE Plan allows participants to defer a portion of their eligible compensation on a pre-tax basis. Participant contributions are 100% vested at the time the contribution is made. Matching contributions are made by the Company in an amount equal to 100% of the amount of a participant's contribution with a maximum of 4% of such participant's annual eligible wages, subject to Internal Revenue Service maximums. In addition, the Company may make discretionary profit-sharing contributions which are allocated to eligible employees based on eligible compensation. Company contributions vest over a five-year period. Matching and profit-sharing contributions approximated $562,000, $845,000 and $497,000 for the years ended December 31, 2000, 1999 and 1998 respectively. The Company also maintains a non-qualified deferred compensation plan (the "Restoration Plan"), effective August 1, 1998. The purpose of the Restoration Plan is to provide deferrals for eligible employees that may not be made to the ADVANTAGE Plan because of certain restrictions and limitations in the Code. Benefits will be paid from employee contributions. The Company's liability under the Restoration Plan as of December 31, 2000 was $156,000. The Company also contributes, under collective bargaining agreements, to funds designed to provide pension and health benefits for its union employees. The Company contributed approximately $3,059,000, $2,419,000 and $2,203,000 to such plans for the years ended December 31, 2000, 1999 and 1998, respectively. 41 42 AMERICAN CLASSIC VOYAGES CO. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D.) NOTE 13. UNAUDITED QUARTERLY RESULTS OF OPERATIONS Summarized unaudited quarterly results of operations for 2000 and 1999 are as follows:
Year Ended December 31, 2000 March 31, June 30, September 30, December 31, (In thousands, except per share data) 2000 2000 2000 2000 ----------------------------------------------------- Revenues.............................. $ 38,960 $ 58,302 $ 62,456 $ 61,907 Gross profit.......................... 10,725 22,868 23,853 20,562 Operating (loss) income............... (9,580) 2,045 1,614 (7,185) Pre-tax (loss) income................. (10,119) 2,101 1,556 (9,496) Net (loss) income..................... (6,380) 1,324 980 (5,996) Basic (loss) earnings per share....... (0.33) 0.06 0.05 (0.28) Diluted (loss) earnings per share..... (0.33) 0.06 0.05 (0.28) Year Ended December 31, 1999 March 31, June 30, September 30, December 31, (In thousands, except per share data) 1999 1999 1999 1999 ----------------------------------------------------- Revenues ............................. $ 40,566 $ 55,200 $ 57,460 $ 55,491 Gross profit.......................... 11,798 21,506 21,692 19,858 Operating (loss) income .............. (9,222) 4,735 3,714 2,422 Pre-tax (loss) income................. (10,470) 4,124 3,479 79 Net (loss) income..................... (6,283) 2,475 2,091 (33) Basic (loss) earnings per share....... (0.44) 0.14 0.11 0.00 Diluted (loss) earnings per share..... (0.44) 0.14 0.11 0.00
The pre-tax (loss) income amounts in the first three quarters of 2000 reflect the reclassification of accrued distributions on the trust preferred securities and their related income tax benefit. The sum of quarterly (loss) earnings per common share differs from full-year amounts due to changes in the number of shares outstanding during the year. On November 2, 1999 we announced that we had rescinded our 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. Under SOP 93-7, we deferred recognition of direct response advertising costs related to direct response advertising efforts for future cruises. These deferred costs were recognized in the periods that the cruises promoted by the efforts were completed, and the related cruise revenue recognized. We rescinded our adoption of SOP 93-7 due to difficulties we encountered in implementing the new method. In rescinding SOP 93-7, we returned to our 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, we restated our earnings for the first quarter of 1999 to reflect a loss of $6.3 million, or ($0.44) per share, compared to our previously reported loss of $4.5 million, or ($0.32) per share. We also restated our earnings for the second quarter of 1999 to $2.5 million, or $0.14 per share, compared to our previously reported earnings of $2.4 million, or $0.13 per share. As previously disclosed, the Securities and Exchange Commission has been conducting an informal investigation into our adopting and then rescinding the AICPA's Statement of Position 93-7 relating to the deferral of direct response advertising costs. While the SEC has not brought any formal proceedings against us, it is possible that the SEC's informal inquiry or a subsequent formal inquiry or proceeding could result in orders, sanctions or penalties against us. We cannot predict at this time whether any such sanctions would have a material impact. NOTE 14. HEADQUARTERS RELOCATION (UNAUDITED) In September 2000 the Company announced its intention to relocate its corporate and operational headquarters, from Chicago, IL and New Orleans, LA respectively, to a new leased facility in Sunrise, FL. In connection with the move, the Company will receive economic incentives from the State of Florida, Broward County and the City of Sunrise of up to $4.2 million once 42 43 AMERICAN CLASSIC VOYAGES CO. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONT'D.) certain conditions are met. Construction of the new facility is expected to be completed in November 2001 and the relocation is expected to be largely complete by early 2002. The Company has offered to relocate most employees to the new location but the number of employees intending to relocate is largely undetermined as of December 31, 2000. The Company will incur severance and retention costs pertaining to those employees choosing not to relocate. The total amount of severance and retention costs is not expected to exceed $4.0 million. These costs will be expensed as certain criteria are met. As of December 31, 2000 the Company has recognized $0.6 million in severance expenses for employees who have communicated to the Company in writing their intention not to relocate. The Company also expects to incur employee relocation costs in the range of $0.5 million to $1.0 million, and additional relocation expenses to move equipment and furniture, which is expected to cost up to $0.5 million. These costs will also be expensed as certain conditions are met. As of December 31, 2000 the Company has not recognized any expense for relocation of employees or Company assets. The Company may also incur lease termination expenses or a write-off of leasehold improvements if it elects to vacate its Chicago or New Orleans facilities. At this time the Company has not determined whether it will completely vacate these facilities and therefore is unable to determine the potential costs, if any, it will incur in connection with terminating the leases or writing off the leasehold improvements. The economic incentives to be received by the Company include tax refunds beginning in 2002 under Florida's Qualified Target Industry Tax (QTI) Refund Program, state job training funds and certain cash grants approved by the local municipalities. These benefits will be recognized as they are earned. NOTE 15. SUBSEQUENT EVENTS (UNAUDITED) On January 31, 2001 the Company issued an additional $50 million of notes guaranteed by MARAD bearing interest at LIBOR minus 0.10%. Interest is payable quarterly and the principal amount is due on January 31, 2002. A portion of the proceeds from this issuance was used to pay down the $25 million note due January 31, 2001. On February 20, 2001 the ms Patriot was required to cancel a cruise that was in progress and return to its home port so that a thrust bearing in the vessel's generator drive train could be replaced. This resulted in refunds issued to passengers of approximately $1.6 million, and travel credits for a future cruise expected to cost approximately $0.5 million. No other cruises were cancelled as a result of the repair. The S.S. Independence will undergo an unscheduled dry-dock beginning March 24, 2001 to repair its bow thruster. The vessel is expected to be out of service for a period of seven days, and the expected cost of the repairs is expected to be between $0.4 million and $0.5 million. 43 44 Schedule I AMERICAN CLASSIC VOYAGES CO. CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY) BALANCE SHEETS (IN THOUSANDS)
December 31, 2000 1999 -------------------------- ASSETS Cash and cash equivalents............................................ $ 29,910 $ 30,153 Marketable Securities................................................ 7,843 -- Prepaid expenses and other current assets............................ 580 339 Property and equipment, net.......................................... 640 906 Other assets......................................................... 3,879 493 Investment in and advances to subsidiaries........................... 232,823 100,609 -------------------------- $ 275,675 $ 132,500 -------------------------- LIABILITIES Other liabilities.................................................... $ 2,172 $ 2,700 ========================== Convertible preferred securities of subsidiary trust holding solely 7% convertible subordinated debentures of the Company.......................... $ 100,000 $ -- -------------------------- STOCKHOLDERS' EQUITY Common stock......................................................... 210 187 Additional paid-in capital........................................... 204,555 151,094 Retained earnings (deficit).......................................... (29,645) (19,573) Other................................................................ (1,617) (1,908) -------------------------- Total stockholders' equity........................................... 173,503 129,800 -------------------------- $ 275,675 $ 132,500 ==========================
See accompanying notes to Condensed Financial Information. 44 45 Schedule I AMERICAN CLASSIC VOYAGES CO. CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY) - (CONTINUED) STATEMENTS OF OPERATIONS (IN THOUSANDS)
Years Ended December 31, 2000 1999 1998 ----------------------------------- Miscellaneous expense (revenues).................... $ (3,238) $ (1,711) $ 1,700 Depreciation expense................................ 279 608 880 Accrued distributions on convertible preferred securities and related financing costs ............. 6,247 -- -- Income tax (benefit) expense........................ (921) 435 (1,068) Equity in earnings (losses) of subsidiaries......... (7,705) (2,418) 1,669 ----------------------------------- Net income (loss)................................... $ (10,072) $ (1,750) $ 157 -----------------------------------
See accompanying notes to Condensed Financial Information. 45 46 Schedule I AMERICAN CLASSIC VOYAGES CO. CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY) - (CONTINUED) STATEMENTS OF CASH FLOWS (IN THOUSANDS)
Years Ended December 31, 2000 1999 1998 ------------------------------------ OPERATING ACTIVITIES Net income (loss) $ (10,072) $ (1,750) $ 157 ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES Depreciation 279 608 880 Equity in (earnings) losses of subsidiaries, net 7,705 2,418 (1,669) Increase in advances to subsidiaries (139,919) (40,961) (570) (Increase) decrease in prepaid expenses and other (1,407) 145 (514) (Decrease) increase in other liabilities 1,191 678 (1,326) ------------------------------------ Net cash used in operating activities (142,223) (38,862) (3,042) ------------------------------------ INVESTING ACTIVITIES Purchase of marketable securities (7,843) -- -- Capital expenditures (13) (140) (1,421) ------------------------------------ Net cash used in investing activities (7,856) (140) (1,421) ------------------------------------ FINANCING ACTIVITIES Issuance of common stock 53,629 68,697 2,907 Issuance of convertible preferred securities of subsidiary trust 100,000 -- -- Purchase of common stock -- -- (757) Deferred financing fees (3,793) -- (533) ------------------------------------ Net cash provided by financing activities 149,836 68,697 1,617 ------------------------------------ Increase (decrease) in cash and cash equivalents (243) 29,695 (2,846) Cash and cash equivalents, beginning of period 30,153 458 3,304 ------------------------------------ Cash and cash equivalents, end of period $ 29,910 $ 30,153 $ 458 ===================================== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Non-cash investing activities: Cash paid for taxes $ -- $ 165 $ --
46 47 Schedule I AMERICAN CLASSIC VOYAGES CO. NOTES TO CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY) - (CONTINUED) BASIS OF PRESENTATION The Condensed Financial Information of American Classic Voyages Co. ("AMCV") has 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 for the years ended December 31, 2000, 1999 and 1998 included herein this Form 10-K. The balance sheets as of December 31, 2000 and 1999 and the related statements of operations and cash flows have been prepared on an unconsolidated basis. AMCV's investment in its subsidiaries is recorded on the equity basis. Certain previously reported amounts have been reclassified to conform to the 2000 presentation. DIVIDENDS FROM SUBSIDIARIES No dividends were paid to AMCV for the years ended December 31, 2000, 1999 and 1998. INCOME TAXES AMCV has entered into tax sharing agreements with its subsidiaries which require each subsidiary to compute its Federal income tax liability on a separate company basis and to pay amounts so computed to AMCV. No payments were made under the tax sharing agreement for the years ended December 31, 2000, 1999 and 1998. 47 48 Schedule II AMERICAN CLASSIC VOYAGES CO. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 (IN THOUSANDS)
Balance at Charged to Charged to Accrual for Dry-dock and Beginning of costs other Balance at Lay-up Expenses Year and Expenses Accounts Deductions End of Year - ------------------------------------------------------------------------------------------------- Year ended December 31, 2000 5,117 3,978 5,063 4,022 Year ended December 31, 1999 2,419 4,187 1,489 5,117 Year ended December 31, 1998 2,144 2,111 1,836 2,419
48 49 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEMS 10, 11, 12 AND 13 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT, EXECUTIVE COMPENSATION, SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS We will file a definitive proxy statement with the Securities and Exchange Commission, pursuant to Regulation 14A under the Securities Exchange Act of 1934 (the "Proxy Statement") and relating to the Company's Annual Meeting of Stockholders to be held on June 27, 2001, not later than April 30, 2001. Information required by Items 10 through 13 will appear in the Proxy Statement and is incorporated herein by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1) Financial Statements. The consolidated financial statements of the Company are set forth in the "Index to Consolidated Financial Statements" on page 24. (a)(2) Financial Statement Schedules. Financial Statement Schedules, except those indicated in the "Index to Consolidated Financial Statements" on page 24, have been omitted because they are not applicable, not required under the instructions, or all the information required is set forth in the financial statements or the notes to the financial statements. (a)(3) Exhibits are as set forth in the "Index to Exhibits" on page 51. (b) Reports on Form 8-K: None. 49 50 SIGNATURES Pursuant to the requirements of Section 13 and 15(d) of the Securities and Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. Date March 29, 2001 -------------- AMERICAN CLASSIC VOYAGES CO. By / s / Philip C. Calian -------------------------------------- Philip C. Calian Chief Executive Officer Pursuant to the requirements of the Securities and Exchange Act of 1934, as amended, has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ Samuel Zell Chairman of the Board - ----------------------------- Samuel Zell /s/ Philip C. Calian Chief Executive Officer and Director - ------------------------------ (Principal Executive Officer) Philip C. Calian /s/ Randall L. Talcott Vice President-Finance and Treasurer - ------------------------------ (Principal Financial and Accounting Officer) Randall L. Talcott /s/ John R. Berry Director - ------------------------------ John R. Berry /s/ Bradbury Dyer, III Director Bradbury Dyer, III /s/ Laurence S. Geller Director - ------------------------------ Laurence S. Geller /s/ Terence C. Golden Director - ------------------------------ Terence C. Golden /s/ Arthur A. Greenberg Director - ------------------------------ Arthur A. Greenberg /s/ Jerry R. Jacob Director - ------------------------------ Jerry R. Jacob /s/ Emanuel L. Rouvelas Director - ------------------------------ Emanuel L. Rouvelas /s/ Mark Slezak Director - ------------------------------ Mark Slezak /s/ Jeffrey N. Watanabe Director - ------------------------------ Jeffrey N. Watanabe 50 51 AMERICAN CLASSIC VOYAGES CO. INDEX TO EXHIBITS EXHIBIT NUMBER DESCRIPTION - -------------- ----------- **3.(i) Second Amended and Restated Certificate of Incorporation of the Company (filed on March 31, 1999 as Exhibit 3.(i) to the Company's Form 10-K dated December 31, 1998 and incorporated herein by reference). **3.(ii) Third Amended and Restated By-Laws of the Company (filed on November 15, 1999 as Exhibit 3.(ii) to the Company's Form 10-Q dated September 30, 1999 and incorporated herein by reference). **3.(iii) Certificate of Amendment to Second Amendment and Restated Certificate of Incorporation of the Company (filed on August 14, 2000 as Exhibit 3.(iii) to the Company's Report on Form 10-Q) and incorporated herein by reference). **4.(i) Proof of Common Stock Certificate (filed on February 14, 1992 as Exhibit 4.(i) to Amendment No. 2 to the Company's Registration Statement on Form S-1 (Registration No. 33-45139) and incorporated herein by reference). **4.(ii)(a)(1) Credit Agreement, dated as of February 25, 1999, among the Delta Queen Steamboat Co. (the "Borrower"), the financial institutions from time to time parties thereto as Lenders (the "Lenders"), The Chase Manhattan Bank, as Issuing Bank and as Administrative Agent thereunder (the "Agent"), and Hibernia National Bank, as Documentation Agent (filed on March 31, 1999 as Exhibit 4.(ii)(a)(1) to the Company's Form 10-K dated December 31, 1998 and incorporated herein by reference). **4.(ii)(a)(2) Security Agreement, dated as of February 25, 1999, executed by the Borrower in favor of the Agent for the benefit of the Agent and the Lenders (filed on March 31, 1999 as Exhibit 4.(ii)(a)(2) to the Company's Form 10-K dated December 31, 1998 and incorporated herein by reference). The following entities also have entered into a similar security agreement with the Agent: (i) DQSB II, Inc.; (ii) Great Ocean Cruise Line, L.L.C.; (iii) Cruise America Travel, Incorporated; (iv) Great River Cruise Line, L.L.C.; and (v) DQSC Property Co. **4.(ii)(a)(3) Stock Pledge Agreement, dated as of February 25, 1999, executed by the Borrower in favor of the Agent, evidencing the pledge by the Borrower of all of its 100% interest in the capital stock of each of Cruise America Travel, Incorporated, DQSC Property Co. and DQSB II, Inc. (filed on March 31, 1999 as Exhibit 4.(ii)(a)(3) to the Company's Form 10-K dated December 31, 1998 and incorporated herein by reference). **4.(ii)(a)(4) Limited Liability Company Pledge Agreement, dated as of February 25, 1999, executed by the Borrower in favor of the Agent evidencing the pledge by the Borrower of its 99% membership interest in each of Great River Cruise Line, L.L.C. and Great Ocean Cruise Line, L.L.C. (filed on March 31, 1999 as Exhibit 4.(ii)(a)(4) to the Company's Form 10-K dated December 31, 1998 and incorporated herein by reference). **4.(ii)(a)(5) Guaranty executed by Cruise America Travel, Incorporated, DQSC Property Co., DQSB II, Inc., Great Ocean Cruise Line, L.L.C. and Great River Cruise Line, L.L.C. in favor of the Agent evidencing the guarantees of the obligations of the Borrower (filed on March 31, 1999 as Exhibit 4.(ii)(a)(5) to the Company's Form 10-K dated December 31, 1998 and incorporated herein by reference). 51 52 AMERICAN CLASSIC VOYAGES CO. INDEX TO EXHIBITS (CONT'D.) EXHIBIT NUMBER DESCRIPTION - -------------- ----------- **4.(ii)(a)(6) Trust Indenture among the Agent, the Lenders, Great River Cruise Line, L.L.C. and The Chase Manhattan Bank as trustee (the "DQ Trustee") covering the Delta Queen (a substantially identical Trust Indenture covering the Mississippi Queen has also been executed) (filed on March 31, 1999 as Exhibit 4.(ii)(a)(6) to the Company's Form 10-K dated December 31, 1998 and incorporated herein by reference). **4.(ii)(a)(7) Preferred Ship Mortgage covering the Delta Queen executed by Great River Cruise Line, L.L.C. in favor of the DQ Trustee for the benefit of the Agent and the Lenders (a substantially identical Preferred Ship Mortgage covering the Mississippi Queen has also been executed) (filed on March 31, 1999 as Exhibit 4.(ii)(a)(7) to the Company's Form 10-K dated December 31, 1998 and incorporated herein by reference). **4.(ii)(a)(8) Amended and Restated Credit Agreement dated as of September 14, 2000 among The Delta Queen Steamboat Co. ("Borrower"), the financial institutions listed on the signature pages as Lenders and each other financial institution which from time to time becomes a party thereto ("Lenders"), The Chase Manhattan Bank, as Issuing Bank and as Administrative Agent for the Lenders thereunder (in such latter capacity, the "Agent"), and Hibernia National Bank, as Documentation Agent. (filed on November 14, 2000 as Exhibit 4.(ii)(a)(8) to the Company's Report on Form 10-Q and incorporated herein by reference). **4.(ii)(a)(9) Guaranty dated September 14, 2000 executed by American Classic Voyages Co. in favor of the Agent. (filed on November 14, 2000 as Exhibit 4.(ii)(a)(9) to the Company's Report on Form 10-Q and incorporated herein by reference). **4.(ii)(a)(10) Amended and Restated Contribution Agreement dated September 14, 2000 executed by the Parent Guarantor and each Borrower Subsidiary that is a party to a Subsidiary Guaranty. (filed on November 14, 2000 as Exhibit 4.(ii)(a)(10) to the Company's Report on Form 10-Q and incorporated herein by reference). **4.(ii)(a)(11) First Amendment to Trust Indenture dated September 14, 2000 among the Agent, the Lenders, Great River Cruise Line, L.L.C. and The Chase Manhattan Bank, as Trustee covering the Delta Queen (a substantially identical First Amendment to Preferred Ship Mortgage covering the Mississippi Queen and Columbia Queen has also been executed). (filed on November 14, 2000 as Exhibit 4.(ii)(a)(11) to the Company's Report on Form 10-Q and incorporated herein by reference). **4.(ii)(a)(12) First Amendment to Preferred Ship Mortgage dated September 14, 2000 executed by Great River Cruise Line, L.L.C. for the benefit of The Chase Manhattan Bank, as Trustee covering the Delta Queen (a substantially identical First Amendment to Preferred Ship Mortgage covering the Mississippi Queen and Columbia Queen has also been executed). (filed on November 14, 2000 as Exhibit 4.(ii)(a)(12) to the Company's Report on Form 10-Q and incorporated herein by reference). **4.(ii)(b)(1) Commitment to Guaranty Obligations by the United States of America accepted by Great AQ Steamboat Co. dated as of August 24, 1995 (filed on November 14, 1995 as Exhibit 4.(ii)(c)(1) to the Company's Form 10-Q dated September 30, 1995 and incorporated herein by reference). **4.(ii)(b)(2) Great AQ Steamboat Co. United States Government Guaranteed Ship Financing Obligations, American Queen Series Purchase Agreement dated August 24, 1995 (filed on November 14, 1995 as Exhibit 4.(ii)(c)(2) to the Company's Form 10-Q dated September 30, 1995 and incorporated herein by reference). **4.(ii)(b)(3) Trust Indenture relating to United States Government Guaranteed Ship Financing Obligations, American Queen Series, between Great AQ Steamboat Co. and the Bank of New York, dated as of August 24, 1995 (the "Trust Indenture") along with Schedule A and Exhibit 1 (filed on November 14, 1995 as Exhibit 4.(ii)(c)(3) to the Company's Form 10-Q dated September 30, 1995 and incorporated herein by reference). 52 53 AMERICAN CLASSIC VOYAGES CO. INDEX TO EXHIBITS (CONT'D.) EXHIBIT NUMBER DESCRIPTION - -------------- ----------- **4.(ii)(b)(4) Form of 2005 Note, Guarantee and Trustee's Authentication Certificate Specimen Note as it relates to the United States Government Guaranteed Ship Financing Obligation, American Queen Series (filed on November 14, 1995 as Exhibit 4.(ii)(c)(4) to the Company's Form 10-Q dated September 30, 1995 and incorporated herein by reference). **4.(ii)(b)(5) Form of 2020 Bond, Guarantee and Trustee's Authentication Certificate Specimen Bond as it relates to United States Government Guaranteed Ship Financing Bond, American Queen Series (filed on November 14, 1995 as Exhibit 4.(ii)(c)(5) to the Company's Form 10-Q dated September 30, 1995 and incorporated herein by reference). **4.(ii)(b)(6) Authorization Agreement between the United States of America as represented by the Secretary of Transportation and the Bank of New York as Indenture Trustee under the Trust Indenture between it and Great AQ Steamboat Co. dated as of August 24, 1995 (filed on November 14, 1995 as Exhibit 4.(ii)(c)(6) to the Company's Form 10-Q dated September 30, 1995 and incorporated herein by reference). **4.(ii)(b)(7) Security Agreement relating to the United States Government Guaranteed Ship Financing Obligation between Great AQ Steamboat Co. and the United States of America dated as of August 24, 1995 (the "Security Agreement") along with Exhibit 1 and the Schedule of Definitions (filed on November 14, 1995 as Exhibit 4.(ii)(c)(7) to the Company's Form 10-Q dated September 30, 1995 and incorporated herein by reference). **4.(ii)(b)(8) $60,589,000 Promissory Note dated August 24, 1995 by and between Great AQ Steamboat Co. and the United States of America (filed on November 14, 1995 as Exhibit 4.(ii)(c)(8) to the Company's Form 10-Q dated September 30, 1995 and incorporated herein by reference). **4.(ii)(b)(9) Title XI Reserve Fund and Financial Agreement among Great AQ Steamboat Co. and the United States of America dated as of August 24, 1995 along with the General Provisions (filed on November 14, 1995 as Exhibit 4.(ii)(c)(9) to the Company's Form 10-Q dated September 30, 1995 and incorporated herein by reference). **4.(ii)(b)(10) Guaranty Agreement dated August 24, 1995 made by the Delta Queen Steamboat Co. in favor of the United States of America (filed on November 14, 1995 as Exhibit 4.(ii)(c)(10) to the Company's Form 10-Q dated September 30, 1995 and incorporated herein by reference). **4.(ii)(b)(11) Assumption and Supplement No. 1 to First Preferred Ship Mortgage effective as of December 31, 1996 made by and among Great AQ Steamboat, L.L.C., Great AQ Steamboat Co. and the United States of America, represented by the Secretary of Transportation, acting by and through the Maritime Administrator (filed on May 13, 1997 as Exhibit 4.(ii)(c)(11) to the Company's Form 10-Q dated March 31, 1997 and incorporated herein by reference). **4.(ii)(b)(12) Modification and Assumption Agreement entered into March 25, 1997, effective as of December 31, 1996, among The United States of America, represented by the Secretary of Transportation, acting by and through the Maritime Administrator, Great AQ Steamboat, L.L.C., and The Bank of New York (filed on May 13, 1997 as Exhibit 4.(ii)(c)(12) to the Company's Form 10-Q dated March 31, 1997 and incorporated herein by reference). **4.(ii)(b)(13) Confirmation of Guaranty Agreement effective as of December 31, 1996 made by The Delta Queen Steamboat Co. in favor of the United States of America, represented by the Secretary of Transportation, acting by and through the Maritime Administrator (filed on May 13, 1997 as Exhibit 4.(ii)(c)(13) to the Company's Form 10-Q dated March 31, 1997 and incorporated herein by reference). 53 54 AMERICAN CLASSIC VOYAGES CO. INDEX TO EXHIBITS (CONT'D.) EXHIBIT NUMBER DESCRIPTION - -------------- ----------- **4.(ii)(b)(14) Endorsement No. 1 to Secretary's Note Form Great AQ Steamboat, L.L.C. to the United States of America executed on March 25, 1997, effective as of December 31, 1996 (filed on May 13, 1997 as Exhibit 4.(ii)(c)(14) to the Company's Form 10-Q dated March 31, 1997 and incorporated herein by reference). **4.(ii)(b)(15) Subordination Agreement dated as of March 25, 1997 made by and among Great AQ Steamboat, L.L.C., The Delta Queen Steamboat Co. and DQSB II, Inc. and the United States of America, represented by the Secretary of Transportation, acting by and through the Maritime Administrator (filed on May 13, 1997 as Exhibit 4.(ii)(c)(15) to the Company's Form 10-Q dated March 31, 1997 and incorporated herein by reference). **4.(ii)(c)(1) Commitment to Guaranty Obligations by the United States of America Accepted by Great Independence Ship Co. dated as of December 7, 1995 (filed on April 1, 1996 as Exhibit 4.(ii)(d)(1) to the Company's Form 10-K dated December 31, 1995). **4.(ii)(c)(2) Great Independence Ship Co. United States Government Guaranteed Ship Financing Obligations, Independence Series A Purchase Agreement dated December 7, 1995 (filed on April 1, 1996 as Exhibit 4.(ii)(d)(2) to the Company's Form 10-K dated December 31, 1995). **4.(ii)(c)(3) Trust Indenture relating to United States Government Guaranteed Ship Financing Obligations, Independence Series A, between Great Independence Ship Co. and the Bank of New York, dated as of December 7, 1995 (the "Trust Indenture") along with Schedule A and Exhibit 1 (filed on April 1, 1996 as Exhibit 4.(ii)(d)(3) to the Company's Form 10-K dated December 31, 1995). **4.(ii)(c)(4) Forms of 2005 Note, Guarantee and Trustee's Authentication Certificate Specimen Note as it relates to the United States Government Guaranteed Ship Financing Obligation, Independence Series A (filed on April 1, 1996 as Exhibit 4.(ii)(d)(4) to the Company's Form 10-K dated December 31, 1995). **4.(ii)(c)(5) Forms of 2015 Bond, Guarantee and Trustee's Authentication Certificate Specimen Bond as it relates to United States Government Guaranteed Ship Financing Bond, Independence Series A (filed on April 1, 1996 as Exhibit 4.(ii)(d)(5) to the Company's Form 10-K dated December 31, 1995). **4.(ii)(c)(6) Authorization Agreement between the United States of America represented by the Secretary of Transportation and the Bank of New York as Indenture Trustee under the Trust Indenture between it and Great Independence Ship Co. dated as of December 7, 1995 (filed on April 1, 1996 as Exhibit 4.(ii)(d)(6) to the Company's Form 10-K dated December 31, 1995). **4.(ii)(c)(7) Security Agreement relating to the United States Government Guaranteed Ship Financing Obligation between Great Independence Ship Co. and the United States of America dated as of December 7, 1995 (the "Security Agreement") along with Exhibit 1 and the Schedule of Definitions (filed on April 1, 1996 as Exhibit 4.(ii)(d)(7) to the Company's Form 10-K dated December 31, 1995). **4.(ii)(c)(8) $26,429,000 Promissory Note dated December 7, 1995 by and between Great Independence Ship Co. and the United States of America (filed on April 1, 1996 as Exhibit 4.(ii)(d)(8) to the Company's Form 10-K dated December 31, 1995). **4.(ii)(c)(9) Title XI Reserve Fund and Financial Agreement between Great Independence Ship Co. and the United States of America dated as of December 7, 1995 along with the General Provisions (filed on April 1, 1996 as Exhibit 4.(ii)(d)(9) to the Company's Form 10-K dated December 31, 1995). 54 55 AMERICAN CLASSIC VOYAGES CO. INDEX TO EXHIBITS (CONT'D.) EXHIBIT NUMBER DESCRIPTION - -------------- ----------- **4.(ii)(c)(10) Guaranty and Security Agreement dated December 7, 1995 made by the Great Independence Ship Co., Great Hawaiian Cruise Line, Inc. and Great Hawaiian Properties Corporation in favor of the United States of America (filed on April 1, 1996 as Exhibit 4.(ii)(d)(10) to the Company's Form 10-K dated December 31, 1995). **4.(ii)(c)(11) Amendment to Commitment to Guarantee Obligations by the United States of America Accepted by Great Independence Ship Co. dated as of March 28, 1996 (filed on May 15, 1996 as Exhibit 4.(ii)(d)(11) to the Company's Form 10-Q dated March 31, 1996). **4.(ii)(c)(12) Great Independence Ship Co. United Stated Government Guaranteed Ship Financing Obligations, Independence Series B Purchase Agreement dated March 28, 1996 (filed on May 15, 1996 as Exhibit 4.(ii)(d)(12) to the Company's Form 10-Q dated March 31, 1996). **4.(ii)(c)(13) Supplemental Indenture No. 1 relating to United States Government Guaranteed Ship Financing Obligations, Independence Series B, between Great Independence Ship Co. and the Bank of New York, dated as of March 28, 1996 (filed on May 15, 1996 as Exhibit 4.(ii)(d)(13) to the Company's Form 10-Q dated March 31, 1996). **4.(ii)(c)(14) Form of 2005 Note, Guarantee and Trustee's Authentication Certificate Specimen Note as it relates to the United States Government Guaranteed Ship Financing Obligation, Independence Series B (filed on May 15, 1996 as Exhibit 4.(ii)(d)(14) to the Company's Form 10-Q dated March 31, 1996). **4.(ii)(c)(15) Form of 2015 Bond, Guarantee and Trustee's Authentication Certificate Specimen Bond as it relates to United States Government Guaranteed Ship Financing Bond, Independence Series B (filed on May 15, 1996 as Exhibit 4.(ii)(d)(15) to the Company's Form 10-Q dated March 31, 1996). **4.(ii)(c)(16) Amendment No. 1 to Authorization Agreement between the United States of America represented by the Secretary of Transportation and the Bank of New York as Indenture Trustee under the Trust Indenture between it and Great Independence Ship Co. dated as of March 28, 1996 (filed on May 15, 1996 as Exhibit 4.(ii)(d)(16) to the Company's Form 10-Q dated March 31, 1996). **4.(ii)(c)(17) Amendment No. 1 to Security Agreement relating to the United States Government Guaranteed Ship Financing Obligation between Great Independence Ship Co. and the United States of America dated as of March 28, 1996 (the "Security Agreement") (filed on May 15, 1996 as Exhibit 4.(ii)(d)(17) to the Company's Form 10-Q dated March 31, 1996). **4.(ii)(c)(18) Endorsement to $6,903,000 Promissory Note dated March 28, 1996 by and between Great Independence Ship Co. and the United States of America (filed on May 15, 1996 as Exhibit 4.(ii)(d)(18) to the Company's Form 10-Q dated March 31, 1996). **4.(ii)(c)(19) Amendment No. 1 to Title XI Reserve Fund and Financial Agreement between Great AQ Steamboat Co. and the United States of America effective as of January 1, 1996 (filed on August 14, 1996 as Exhibit 4.(ii)(d)(19) to the Company's Form 10-Q dated June 30, 1996). **4.(ii)(d)(1) Commitment to Guarantee Obligations dated February 10, 2000 by The United States of America, represented by the Secretary of Transportation, acting by and through the Maritime Administrator, and accepted by Project America Ship I, Inc., the Shipowner. (filed on August 14, 2000 as Exhibit 4.(ii)(d)(1) to the Company's Report on Form 10-Q and incorporated herein by reference). **4.(ii(d)(2) Note Purchase Agreement dated February 10, 2000 as it relates to United States Government Guaranteed Ship Financing Notes - Variable Rate Notes due January 31, 2001 signed by Project America, Inc., and accepted by Chase Securities, Inc. (filed on August 14, 2000 as Exhibit 4.(ii)(d)(2) to the Company's Report on Form 10-Q and incorporated herein by reference). 55 56 AMERICAN CLASSIC VOYAGES CO. INDEX TO EXHIBITS (CONT'D.) EXHIBIT NUMBER DESCRIPTION - -------------- ----------- **4.(ii)(d)(3) Trust Indenture Relating to United States Government Guaranteed Ship Financing Obligations dated February 10, 2000 between Project America Ship I, Inc., as Shipowner, and The Bank of New York, as Indenture Trustee. (filed on August 14, 2000 as Exhibit 4.(ii)(d)(3) to the Company's Report on Form 10-Q and incorporated herein by reference). **4.(ii)(d)(4) Authorization Agreement dated February 10, 2000 between The United States of America, represented by the Maritime Administrator, and The Bank of New York, as the Indenture Trustee under the Trust Indenture dated February 10, 2000 between the Indenture Trustee and Project America Ship I, Inc., the Shipowner. (filed on August 14, 2000 as Exhibit 4.(ii)(d)(4) to the Company's Report on Form 10-Q and incorporated herein by reference). **4.(ii)(d)(5) Security Agreement Relating to United States Government Guaranteed Ship Finaincing Obligations dated February 10, 2000 between Project America Ship I, Inc., as Shipowner, and The United States of America. (filed on August 14, 2000 as Exhibit 4.(ii)(d)(5) to the Company's Report on Form 10-Q and incorporated herein by reference). **4.(ii)(d)(6) Promissory Note to United States of America dated February 2000 by Project America Ship I, Inc. (filed on August 14, 2000 as Exhibit 4.(ii)(d)(6) to the Company's Report on Form 10-Q and incorporated herein by reference). **4.(ii)(d)(7) Title XI Reserve Fund and Financial Agreement dated February 10, 2000 by Project America Ship I, Inc. and The United States of America, represented by the Secretary of Transportation, acting by and through the Maritime Administrator. (filed on August 14, 2000 as Exhibit 4.(ii)(d)(7) to the Company's Report on Form 10-Q and incorporated herein by reference). **4.(ii)(d)(8) Guaranty Agreement in Favor of the United States of America dated February 10, 2000 by and between Project America, Inc., as Guarantor, and The United States of America, represented by the Secretary of Transportation, acting by and through the Maritime Administrator. (filed on August 14, 2000 as Exhibit 4.(ii)(d)(8) to the Company's Report on Form 10-Q and incorporated herein by reference). **4.(ii)(d)(9) Secretary's Determination, dated August 10, 2000, as it relates to $50,000,000 of United States Government Guaranteed Ship Financing Notes. (filed on November 14, 2000 as Exhibit 4.(ii)(d)(9) to the Company's Report on Form 10-Q and incorporated herein by reference). **4.(ii)(d)(10) $50,000,000 Note Purchase Agreement dated August 10, 2000 as it relates to United States Government Guaranteed ship Financing Notes - Variable Rate Notes due July 31, 2001 signed by Project America, Inc. and accepted by Chase Securities, Inc. (filed on November 14, 2000 as Exhibit 4.(ii)(d)(10) to the Company's Report on Form 10-Q and incorporated herein by reference). **4.(ii)(d)(11) $50,000,000 Promissory Note to United States of America dated August 10, 2000 by Project America Ship I, Inc. (filed on November 14, 2000 as Exhibit 4.(ii)(d)(11) to the Company's Report on Form 10-Q and incorporated herein by reference). 56 57 AMERICAN CLASSIC VOYAGES CO. INDEX TO EXHIBITS (CONT'D.) EXHIBIT NUMBER DESCRIPTION - -------------- ----------- **4.(ii(e)(1) Commitment to Guarantee Obligations dated October 16, 2000 by The United States of America, represented by the Secretary of Transportation, acting by and through the Maritime Administrator, and accepted by Cape May Light, L.L.C., the Shipowner. (filed on November 14, 2000 as Exhibit 4.(ii)(e)(1) to the Company's Report on Form 10-Q and incorporated herein by reference). **4.(ii)(e)(2) Bond Purchase Agreement dated October 16, 2000 as it relates to United States Government Guaranteed Ship Financing Bonds, 2000 Series - 7.25% Sinking Fund Bonds due April 15, 2027 in the aggregate principal amount of $37,900,000 signed by Cape May Light, L.L.C. and accepted by Chase Securities, Inc. (filed on November 14, 2000 as Exhibit 4.(ii)(e)(2) to the Company's Report on Form 10-Q and incorporated herein by reference). **4.(ii)(e)(3) $37,900,000 U.S. Government Guaranteed Ship Financing Bonds, 2000 Series, 7.25% Sinking Fund Bonds due April 15, 2027, issued by Cape May Light, L.L.C. (filed on November 14, 2000 as Exhibit 4.(ii)(e)(3) to the Company's Report on Form 10-Q and incorporated herein by reference). **4.(ii)(e)(4) Trust Indenture Relating to United States Government Guaranteed Ship Financing Obligations dated October 16, 2000 between Cape May Light, L.L.C., as Shipowner, and The Bank of New York, as Indenture Trustee. (filed on November 14, 2000 as Exhibit 4.(ii)(e)(4) to the Company's Report on Form 10-Q and incorporated herein by reference). **4.(ii)(e)(5) Authorization Agreement dated October 16, 2000 between The United States of America, represented by the Secretary of Transportation, acting by and through the Maritime Administrator, and The Bank of New York, as the Indenture Trustee under the Trust Indenture dated October 16, 2000 between the Indenture Trustee and Cape May Light, L.L.C., the Shipowner. (filed on November 14, 2000 as Exhibit 4.(ii)(e)(5) to the Company's Report on Form 10-Q and incorporated herein by reference). **4.(ii)(e)(6) Security Agreement Relating to United States Government Guaranteed Ship Financing Obligations dated October 16, 2000 between Cape May Light, L.L.C., as Shipowner, and The United States of America. (filed on November 14, 2000 as Exhibit 4.(ii)(e)(6) to the Company's Report on Form 10-Q and incorporated herein by reference). **4.(ii)(e)(7) Title XI Reserve Fund and Financial Agreement dated October 16, 2000 between Cape May Light, L.L.C. and The United States of America, represented by the Secretary of Transportation, acting by and through the Maritime Administrator. (filed on November 14, 2000 as Exhibit 4.(ii)(e)(7) to the Company's Report on Form 10-Q and incorporated herein by reference). 57 58 AMERICAN CLASSIC VOYAGES CO. INDEX TO EXHIBITS (CONT'D.) EXHIBIT NUMBER DESCRIPTION - -------------- ----------- **4.(ii)(e)(8) Guaranty Agreement in Favor of the United States of America dated October 16, 2000 by and between Cape May Light, L.L.C., as Guarantor, and The United States of America, represented by the Secretary of Transportation, acting by and through the Maritime Administrator. (filed on November 14, 2000 as Exhibit 4.(ii)(e)(8) to the Company's Report on Form 10-Q and incorporated herein by reference). **4.(ii)(f)(1) Commitment to Guarantee Obligations dated October 16, 2000 by The United States of America, represented by the Secretary of Transportation, acting by and through the Maritime Administrator, and accepted by Cape Cod Light, L.L.C., the Shipowner. (filed on November 14, 2000 as Exhibit 4.(ii)(f)(1) to the Company's Report on Form 10-Q and incorporated herein by reference). **4.(ii)(f)(2) Bond Purchase Agreement dated October 16, 2000 as it relates to United States Government Guaranteed Ship Financing Bonds, 2000 Series - 7.25% Sinking Fund Bonds due April 15, 2027 in the aggregate principal amount of $38,500,000 signed by Cape Cod Light, L.L.C. and accepted by Chase Securities Inc. (filed on November 14, 2000 as Exhibit 4.(ii)(f)(2) to the Company's Report on Form 10-Q and incorporated herein by reference). **4.(ii)(f)(3) $38,500,000 U.S. Government Guaranteed Ship Financing Bonds, 2000 Series, 7.25% Sinking Fund Bonds due April 15, 2027, issued by Cape Cod Light, L.L.C. (filed on November 14, 2000 as Exhibit 4.(ii)(f)(3) to the Company's Report on Form 10-Q and incorporated herein by reference). **4.(ii)(f)(4) Trust Indenture Relating to United States Government Guaranteed Ship Financing Obligations dated October 16, 2000 between Cape Cod Light, L.L.C., as Shipowner, and The Bank of New York, as Indenture Trustee. (filed on November 14, 2000 as Exhibit 4.(ii)(f)(4) to the Company's Report on Form 10-Q and incorporated herein by reference). **4.(ii)(f)(5) Authorization Agreement dated October 16, 2000 between The United States of America, represented by the Secretary of Transportation, acting by and through the Maritime Administrator, and The Bank of New York, as the Indenture Trustee under the Trust Indenture dated October 16, 2000 between the Indenture Trustee and Cape Cod Light, L.L.C., the Shipwowner. (filed on November 14, 2000 as Exhibit 4.(ii)(f)(5) to the Company's Report on Form 10-Q and incorporated herein by reference). **4.(ii)(f)(6) Security agreement Relating to United States Government Guaranteed Ship Financing Obligations dated October 16, 2000 between Cape Cod Light, L.L.C., as Shipowner, and The United States of America. (filed on November 14, 2000 as Exhibit 4.(ii)(f)(6) to the Company's Report on Form 10-Q and incorporated herein by reference). **4.(ii)(f)(7) Title XI Reserve Fund and Financial Agreement dated October 16, 2000 between Cape Cod Light, L.L.C. and The United States of America, represented by the Secretary of Transportation, acting by and through the Maritime Administrator. (filed on November 14, 2000 as Exhibit 4.(ii)(f)(7) to the Company's Report on Form 10-Q and incorporated herein by reference). **4.(ii)(f)(8) Guaranty Agreement in Favor of the United States of America dated October 16, 2000 by and between Cape Cod Light, L.L.C., as Guarantor, and The United States of America, represented by the Secretary of Transportation, acting by and through the Maritime Administrator. (filed on November 14, 2000 as Exhibit 4.(ii)(f)(8) to the Company's Report on Form 10-Q and incorporated herein by reference). **4.(ii)(g)(1) Preferred Ship Mortgage dated October 18, 2000 executed by Oceanic Ship Co. (in connection with the purchase of the ms Patriot). (filed on November 14, 2000 as Exhibit 4.(ii)(g)(1) to the Company's Report on Form 10-Q and incorporated herein by reference). 58 59 AMERICAN CLASSIC VOYAGES CO. INDEX TO EXHIBITS (CONT'D.) EXHIBIT NUMBER DESCRIPTION - -------------- ----------- **4.(ii)(g)(2) $84,500,000 Promissory Note dated October 18, 2000 to Hal Antillen N.V. by Oceanic Ship Co. (in connection with the purchase of the ms Patriot). (filed on November 14, 2000 as Exhibit 4.(ii)(g)(2) to the Company's Report on Form 10-Q and incorporated herein by reference). **4.(iii)(a)(1) Junior Convertible Subordinated Indenture dated as of February 22, 2000 between the Company and The Bank of New York, as trustee (includes form of Subordinated Debenture) (filed on February 29, 2000 as exhibit 4.1 to the Company's 8-K and incorporated herein by reference). **4.(iii)(a)(2) Amended and Restated Declaration of Trust of AMCV Capital Trust I among American Classic Voyages Co. (the "Company") , The Bank of New York, as Property Trustee, Philip C. Calian, Randal L. Talcott and Jordan B. Allen, as Administrative Trustee (includes form of Preferred Security) (filed on February 29, 2000 as exhibit 4.2 to the company's 8-K and incorporated herein by reference). **4.(iii)(a)(3) Form of Preferred Security (included in exhibit 4.(iii) (a) (1)) (filed on February 29, 2000 as exhibit 4.3 to the Company's 8-K and incorporated herein by reference). **4.(iii)(a)(4) Form of Subordinated Debenture (included in exhibit 4. (iii) (a) (2) ) (filed on February 29, 2000 as exhibit 4.4 to the Company's 8-K and incorporated herein by reference) 9. Not applicable. **10.(i)(a)(1) Administrative Services Agreement by and between the Company and Equity Group Investments, Inc. (filed on March 2, 1993 as Exhibit 10.(i)(A) to Amendment No. 3 to the Company's Registration Statement on Form S-1 (Registration No. 33-45139) and incorporated herein by reference). **10.(ii)(a)(1) Preferential Assignment Agreement dated September 27, 1984, by and between the Board of Commissioners of the Port of New Orleans and the Company, including Assignment thereof and Amendments thereto (filed on January 17, 1992 as Exhibit 10.(ii)(D)(2) to the Company's Registration Statement on Form S-1 (Registration No. 33-45139) and incorporated herein by reference). **10.(ii)(a)(2) Lease dated May 30, 1995 by and between Equity Office Properties, Inc., as agent for beneficial owner, as Landlord, and Great Hawaiian Properties Corporation, d/b/a American Hawaii Cruises, as Tenant (filed on April 1, 1996 as Exhibit 10.(ii)(D)(3) to the Company's Form 10-K dated December 31, 1995). **10.(ii)(a)(3) First Amendment dated March 12, 1997 by and between Equity Office Properties, Inc., as agent for beneficial owner, as Landlord, and Great Hawaiian Properties Corporation, d/b/a American Hawaii Cruises, as Tenant (filed on March 31, 1999 as Exhibit 10.(ii)(a)(3) to the Company's Form 10-K dated December 31, 1998 and incorporated herein by reference). **10.(ii)(a)(4) Assignment and Assumption of Lease dated January 1, 1998 between Great Hawaiian Properties Corporation, d/b/a American Hawaii Cruises, as Assignor, and American Classic Voyages Co., as Assignee (filed on March 31, 1999 as Exhibit 10.(ii)(a)(4) to the Company's Form 10-K dated December 31, 1998 and incorporated herein by reference). **10.(ii)(a)(5) Second Amendment dated August 10, 1998 by and between Equity Office Properties, Inc., as agent for beneficial owner, as Landlord, and American Classic Voyages Co., as Tenant (filed on March 31, 1999 as Exhibit 10.(ii)(a)(5) to the Company's Form 10-K dated December 31, 1998 and incorporated herein by reference). **10.(ii)(a)(6) Lease dated October 16, 1998 by and between MFD Partners, as Landlord, and American Hawaii Properties Corporation, as Tenant (filed on March 31, 1999 as Exhibit 10.(ii)(a)(6) to the Company's Form 10-K dated December 31, 1998 and incorporated herein by reference). 59 60 AMERICAN CLASSIC VOYAGES CO. INDEX TO EXHIBITS (CONT'D.) EXHIBIT NUMBER DESCRIPTION - -------------- ----------- **10.(iii)(a)(1) Performance Management Objectives Bonus Plan (filed on January 17, 1992 as Exhibit 10.(iii)(A)(2) to the Company's Registration Statement on Form S-1 (Registration No. 333-44225) and incorporated herein by reference). **10.(iii)(a)(2) Executive Bonus Plan (filed on January 17, 1992 as Exhibit 10.(iii)(a)(4) to the Company's Registration Statement on Form S-1 (Registration No. 33-45139) and incorporated herein by reference). **10.(iii)(a)(3) American Classic Voyages Co. S. Cody Engle Stock Option Agreement (filed on January 17, 1992 as Exhibit 10.(iii)(A)(6) to the Company's Registration Statement on Form S-1 (Registration No. 33-45139) and incorporated herein by reference). **10.(iii)(a)(4) American Classic Voyages Co. Dividend Reinvestment and Common Stock Purchase Plan (filed on June 22, 1994 as part of the Company's Registration Statement on Form S-3 (Registration No. 33-80614) and incorporated herein by reference). **10.(iii)(a)(5) American Classic Voyages Co. 1992 Stock Option Plan (filed on January 14, 1998 as part of the Company's Registration Statement on Form S-8 (Registration No. 333-44225) and incorporated herein by reference). **10.(iii)(a)(6) American Classic Voyages Co. Deferred Compensation Plan (filed on March 31, 1999 as Exhibit 10.(iii)(a)(6) to the Company's Form 10-K dated December 31, 1998 and incorporated herein by reference). *10.(iv)(a)(1) Master Shipbuilding Contract for Construction of Two Passenger Vessels by and between Ingalls Shipbuilding, Inc. and Project America, Inc. for Hulls No. 7671 and 7672, dated March 9, 1999.* Exhibit A - Shipbuilding Contract for Construction of One Passenger Vessel by and between Ingalls Shipbuilding, Inc. and Project America, Inc. for Hull No. 7671, dated March 9, 1999 (a substantially identical Shipbuilding Contract has been entered into for hull no.7672, with a delivery date of January 2004). (filed as Exhibit 10 to the Company's Form 8-K dated March 26, 1999 and incorporated herein by reference). *10.(iv)(a)(2) Construction Contract for Coastal Queen Class Vessel dated May 1, 1999 by and between Coastal Queen Holdings, L.L.C. and Atlantic Marine, Inc. (filed on May 14, 1999 as Exhibit 10.(iv)(a)(3) to the Company's Form 10-Q dated March 31, 1999 and incorporated herein by reference).* Appendix One - Coastal Queen Milestone Payments Appendix Two - Affidavit for Exemption of Boat Sold for Removal from the State of Florida by a Nonresident Purchaser Appendix Three - Maker's List **10.(iv)(a)(3) Guaranty dated May 1, 1999 made by The Delta Queen Steamboat Co. in favor of Atlantic Marine Inc. (filed on May 14, 1999 as Exhibit 10.(iv)(a)(4) to the Company's Form 10-Q dated March 31, 1999 and incorporated herein by reference). **10.(iv)(a)(4) Asset Purchase and Sale Agreement dated April 29, 1999 by and between Capitol Queen & Casino, Inc., as Seller, and The Delta Queen Steamboat Co., as Purchaser (filed on May 14, 1999 as Exhibit 10.(iv)(a)(5) to the Company's Form 10-Q dated March 31, 1999 and incorporated herein by reference). Exhibit A - Escrow Agreement Exhibit B - Vessel Inventory Exhibit C - Order Approving Sale of Personal Property Free and Clear of Liens, Claims and Encumbrances 60 61 AMERICAN CLASSIC VOYAGES CO. INDEX TO EXHIBITS (CONT'D.) EXHIBIT NUMBER DESCRIPTION - -------------- ----------- **10.(iv)(a)(5) Letter of Credit Agreement dated October 15, 1999 between American Classic Voyages Co. and The Chase Manhattan Bank (filed on November 9, 1999 as Exhibit 10.(iv)(a)(6) of the Company's 10-Q/A dated March 31, 1999 and incorporated herein by reference). Exhibit A - Form of Irrevocable Letter of Credit **10.(iv)(a)(6) Amended and Restated Reimbursement Agreement dated October 15, 1999 by and among Samuel Zell, Samuel Zell Revocable Trust and American Classic Voyages Co. (filed on November 9, 1999 as Exhibit 10.(iv)(a)(7) of the Company's 10-Q/A dated March 31, 1999 and incorporated herein by reference). **10.(iv)(a)(7) Memorandum of Agreement dated August 5, 1999 by and between American Classic Voyages Co., as Buyer, and Hal Antillen N.V., as Seller, as amended October 11, 1999 (filed on November 9, 1999 as Exhibit 10.(iv)(a)(6) of the Company's 10-Q/A dated March 31, 1999 and incorporated herein by reference). Exhibit A - Vessel Details Exhibit B - Form of Letter of Credit Exhibit C - Form of Escrow Agreement Exhibit D - Form of Promissory Note Exhibit E - Form of First Preferred Ship Mortgage Exhibit F - Form of General Assignment of Insurance Exhibit G - Form of Guarantee Exhibit H - Excluded Art **10.(iv)(a)(8) Vessel Conversion Agreement dated August 20, 1999 between Nichols Brothers Boat Builders, Inc. and The Delta Queen Steamboat Co.* (filed on November 15, 1999 as Exhibit 10.(iv)(a)(8) to the Company's Form 10-Q dated September 30, 1999 and incorporated herein by reference). *10.(iv)(a)(9) Amended and Restated Agreement dated as of December 22, 1999 by and between Cascade General, Inc. (Shipyard) and The Delta Queen Steamboat Co. (Owner) for the conversion of the Columbia Queen. (filed on March 30, 2000 as Exhibit 10.(iv)(a)(9) to the Company's Annual Report on Form 10-K and incorporated herein by reference). **10.(iv)(a)(10) Amendment "1" to May 1, 1999 Construction Contract between Coastal Queen Holdings, L.L.C. and Atlantic Marine, Inc. dated June 13, 2000. (filed on November 14, 2000 as Exhibit 10.(iv)(a)(10) to the Company's Report on Form 10-Q and incorporated herein by reference). **10.(iv)(a)(11) Assignment and Assumption of Contract dated September 25, 2000 by and Between Delta Queen Coastal Voyages, L.L.C. (f/k/a Coastal Queen Holdings, L.L.C.), as Assignor, and Cape May Light, L.L.C. and Cape Cod Light, L.L.C., as Assignees. (filed on November 14, 2000 as Exhibit 10.(iv)(a)(11) to the Company's Report on Form 10-Q and incorporated herein by reference). **10.(iv)(a)(12) Amendment No. 2 to Construction Contract for Coastal Queen Class Vessel dated October 16, 2000 by and between Atlantic Marine, Inc. and Cape May Light, L.L.C. and Cape Cod Light, L.L.C. (filed on November 14, 2000 as Exhibit 10.(iv)(a)(12) to the Company's Report on Form 10-Q and incorporated herein by reference). **10.(v) Trust Preferred Securities Guarantee Agreement dated February 22, 2000, by the Company and The Bank of New York, as trustee (filed on February 29, 2000 as exhibit 10.1 to the Company's 8-K and incorporated herein by reference). 10.(vi) Office lease executed November 30, 2000, by and between Duke-Weeks Realty Limited Partnership, an Indiana limited partnership ("Landlord"), and American Classic Voyages Co., a Delaware corporation ("Tenant"). 61 62 AMERICAN CLASSIC VOYAGES CO. INDEX TO EXHIBITS (CONT'D.) EXHIBIT NUMBER DESCRIPTION - -------------- ----------- 11. Not applicable. 12. Not applicable. 13. Not applicable. 16. Not applicable. 18. Not applicable. 21. Subsidiaries of the Company. 22. Not applicable. 23. Consent of KPMG LLP 24. Not applicable. 27. Not applicable. 28. Not applicable. * Certain portions of this exhibit previously filed and incorporated by reference were 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 was filed separately with the Securities and Exchange Commission. ** Previously filed and incorporated by reference. 62 EX-10.(VI) 2 c61256ex10-vi.txt OFFICE LEASE 1 EXHIBIT 10(vi) OFFICE LEASE THIS OFFICE LEASE (this "LEASE") is executed this 30th day of November, 2000, by and between DUKE-WEEKS REALTY LIMITED PARTNERSHIP, an Indiana limited partnership ("LANDLORD"), and AMERICAN CLASSIC VOYAGES CO., a Delaware corporation ("TENANT"). ARTICLE 1 - LEASE OF PREMISES Section 1.01. Basic Lease Provisions and Definitions. A. Leased Premises (shown outlined on Exhibit A attached hereto): Floors: 2, 3, 4 and 10,000 square feet of Rentable Area on Floor 1 Building Address: Tenant shall submit to Landlord Tenant's requested Building address and Landlord agrees to use reasonable efforts to have such address approved by the appropriate governmental agencies. (the "BUILDING") Land: Approximately seventeen (17) acres located in Sawgrass Commerce Center (the "PARK") bounded by Sawgrass Corporate Parkway on the west, N.W. 8th Street on the south, N.W. 136th Avenue on the east and N.W. 12th Street on the North and as more particularly described on Exhibit A attached hereto (the "LAND"; the Land, together with the Building, herein collectively referred to as the "Project"); B. Rentable Area: approximately 130,000 rentable square feet C. Building Expense Percentage: Shall be calculated by dividing the total rentable square footage of the Leased Premises by the total rentable square footage of the Building; D. Minimum Annual Rent: Minimum Annual Rent Lease Year Per RSF ---------- ------- Year 1 $15.50 Year 2 $15.97 Year 3 $16.45 Year 4 $16.94 Year 5 $17.45 Year 6 $17.97 Year 7 $18.51 Year 8 $19.07 Year 9 $19.64 Year 10 $20.23 Year 11 $20.84 2 Year 12 $21.47 Year 13 $22.11 Year 14 $22.77 Year 15 $23.45 (Rent does not include applicable Florida State Sales Tax or Additional Rent) E. Initial Monthly Rental Installments: Monthly Lease Year Rental Installments Year 1 $109,791.67 per month First Six Months of First Lease Year (based on 85,000 square feet occupied) $167,916.67 per month Second Six Months of First Lease Year (based on 130,000 square feet occupied) Year 2 $173,008.33 per month Year 3 $178,208.33 per month Year 4 $183,516.67 per month Year 5 $189,041.67 per month Year 6 $194,675.00 per month Year 7 $200,525.00 per month Year 8 $206,591.67 per month Year 9 $212,766.67 per month Year 10 $219,158.33 per month Year 11 $225,766.67 per month Year 12 $232,591.67 per month Year 13 $239,525.00 per month Year 14 $246,675.00 per month Year 15 $254,041.67 per month (Rent does not include applicable Florida State Sales Tax or Additional Rent) F. Term: Fifteen (15) years and zero (0) months G. Target Completion Date: November 6, 2001 H. Security Deposit: $500,000.00 in the form of a Letter of Credit per Section 4 of the Lease I. Broker(s): Julien J. Studley, Inc., representing Tenant Codina Realty Services, Inc. - ONCOR International, representing Landlord J. Permitted Use: General business and office purposes, including but not limited to, conference reservation center and computer facilities, employee and visitor cafeteria and dining areas (including related kitchen facilities), and any other legally permitted use consistent with the character of a similar type building K. Target Plan Delivery Date: April 1, 2001 3 L. Address for payments and notices as follows: Landlord: Duke-Weeks Realty Limited Partnership 10150 Highland Manor Drive Suite 150 Tampa, Florida 33610 With a copy to: Duke-Weeks Realty Limited Partnership 3950 Shackleford Road Suite 300 Duluth, Georgia 30096 Attn: Legal Department With Rental Payments to: Duke-Weeks Realty Limited Partnership P.O. Box 945703 Atlanta, Georgia 30394-5703 Tenant: Prior to the Commencement Date: American Classic Voyages Co. Two North Riverside Plaza Suite 200 Chicago, Illinois 60606 Attention: Jordan Allen After the Commencement Date: American Classic Voyages Co. [TO BE AGREED UPON BY LANDLORD AND TENANT AS SOON AS REASONABLY POSSIBLE AFTER THE DATE HEREOF] 4 Exhibits attached hereto: Exhibit A: Legal Description of Land Exhibit B: Construction Agreement Exhibit B-1: Scope of Work Specifications Exhibit B-2: List of Comparable Buildings Exhibit B-3 Intentionally Omitted Exhibit B-4 Site Plan Exhibit B-5 Rendering of Building Exhibit B-6 Floor Plans Exhibit B-7 Approved Schedule Exhibit B-8 Coordination of Improvement Work by Landlord Exhibit C: Commencement Date Agreement Exhibit D: Rules and Regulations Exhibit E: Special Stipulations Exhibit F: Form of Tax Certification Exhibit G: Janitorial Specifications Exhibit H: Intentionally Omitted Exhibit I: Form of SNDA Exhibit J: Form of Letter of Credit Section 1.02. Lease of Premises. Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, under the terms and conditions herein, the Leased Premises. The leasing of the Leased Premises by Landlord to Tenant also shall include the appurtenant right of Tenant to use, without charge, in common with the other tenants of the Building, all driveways, accessways, sidewalks, landscaped areas, lobbies, elevators, entrances and other common areas on the Land, as well as all entrances and other similar areas in the Park which provide access from any public road to the Building and any and all appurtenances, rights, interests, easements and privileges relating thereto. Subject to and in accordance with the terms and provisions set forth below, Tenant shall have the option (the "PRE-COMMENCEMENT EXPANSION OPTION"), exercisable at the time set forth below, to expand the Leased Premises by up to an additional 20,000 square feet of contiguous Rentable Area. To exercise such Pre-Commencement Expansion Option, Tenant must notify Landlord in writing at least six (6) months prior to the Commencement Date, and Tenant must specify in such written notice the proposed size (subject to the foregoing limit) of the additional space desired by Tenant. The exact location of the Rentable Area to be added to the Leased Premises as a result of the exercise by Tenant of the Pre-Commencement Expansion Option shall be determined by Landlord, but Landlord agrees that in designating the location of such space (the "PRE-COMMENCEMENT EXPANSION SPACE"), (i) such space shall be internally contiguous with the Leased Premises and (ii) such space shall have a configuration that is commercially usable and which shall have an approximately proportionate share of exterior window walls on the applicable floor of the Building. The Pre-Commencement Expansion Space shall be taken on the same terms and conditions as the original Leased Premises and Tenant shall be entitled to the same Tenant Improvement Allowance per square foot of Rentable Area contained within the Pre-Commencement Expansion Space on the same terms and conditions as provided for the original Leased Premises in Exhibit B. In the event that Tenant provides Landlord with Plans and Specifications for the Pre-Commencement Expansion Space on or prior to the Plan Delivery Date, Landlord agrees to complete 5 the Improvement Work with respect to the Pre-Commencement Expansion Space on the same schedule as is provided for the initial Leased Premises. In the event that Tenant provides Landlord with its Plans and Specifications for the Pre-Commencement Expansion Space after the Plan Delivery Date, Landlord agrees to deliver the Pre-Commencement Expansion Space to Tenant in accordance with the Improvement Work for such space completed pursuant to the Work Letter within six (6) months from Tenant's delivery to Landlord of its Plans and Specifications for the Pre-Commencement Expansion Space; provided, however, that such six (6) month period shall be extended on a day-for-day basis to the extent that Landlord is unable, despite diligent good faith efforts, to obtain permits for such work within two (2) months after receipt of Tenant's Plans and Specifications for the Pre-Commencement Expansion Space. Landlord agrees to use good faith reasonable efforts to complete such Improvement Work promptly after Landlord's approval of the Plans and Specifications for such Pre-Commencement Expansion Space. Base Rent and Annual Rental Adjustment shall be payable by Tenant in the same manner as for the initial Leased Premises commencing on the first (1st) business day of the second (2nd) week following the Completion Date (as defined in Exhibit B hereto) for the Pre-Commencement Expansion Space. Section 1.03. Rentable Area. The term "Rentable Area", as used herein, shall refer to the rentable area of the Leased Premises as determined in accordance with the "Standard Method for Measuring Floor Area in Office Buildings," published by the Secretariat, Building Owners and Managers Association International (ANSI/BOMA Z65.1-1996), approved June 7, 1996 and applying a "load" or "add on" factor of no more than 9% with respect to full floors and 15% with respect to partial floors. In the event Tenant initially occupies a partial floor but during the term hereof expands into a full floor, the rentable square footage shall be determined on a full floor basis. Unless otherwise specifically designated, all references to Rentable Area, square footage or square feet in this Lease are to rentable square footage or square feet. The rentable area of the Leased Premises shall be calculated, on a preliminary basis, by Landlord's architect when floor plans for the Leased Premises are complete (subject to final, conclusive determination as described in the following paragraph), in accordance with the definitions and methodology contained in this Lease. Upon such determination by Landlord's architect, the Rentable Area of the Leased Premises (as well as other calculations herein which are based upon such Rentable Area including, without limitation, the Minimum Annual Rent, Tenant's Proportionate Share, Annual Rental Adjustment and the Tenant Improvement Allowance) shall be adjusted to reflect the number of square feet of Rentable Area determined by such calculation. Within thirty (30) days after the Commencement Date (defined below), Landlord's architect shall field measure the Leased Premises, Landlord shall deliver to Tenant Landlord's proposed form of Exhibit C, attached hereto and incorporated herein, which shall contain an acknowledgment of the date upon which the Commencement Date of this Lease occurred, Tenant's Proportionate Share and Landlord's calculation of the exact number of square feet of Rentable Area within the Leased Premises and the Building. Tenant shall have the right to object to Landlord's proposed Exhibit C and any of the factual information therein by delivering written notice to Landlord within twenty (20) days after Landlord delivers Exhibit C to Tenant, failing which Tenant shall be deemed to have agreed that all information contained in Exhibit C is correct. If Tenant objects to Landlord's proposed Exhibit C or any of the factual information therein within said twenty (20)-day period, Landlord and Tenant shall work together for thirty (30) days to resolve their differences and, if such differences are resolved within such thirty (30) day period, Landlord and Tenant shall execute Exhibit C. If Landlord and Tenant are unable to resolve their disagreement within such thirty (30) day period, the parties shall mutually agree upon an experienced, qualified architect to resolve such disagreement (concerning either the Rentable Area of the 6 Leased Premises and/or the Building or concerning the correct Commencement Date). The architect must not have been employed by either party previously and must have ten (10) years experience immediately prior to the date in question designing multi-story office buildings in the suburban Ft. Lauderdale, Florida market area. If the parties are unable to agree on an architect within ten (10) days after the expiration of such thirty (30) day period, either party may apply to the Miami Chapter of the American Institute of Architects for designation of an architect. The architect shall resolve the disagreement within thirty (30) days of his/her selection. The decision of such architect shall be final and binding upon both Landlord and Tenant and shall be incorporated into Exhibit C. Upon execution by Landlord and Tenant of the agreed Exhibit C or the Exhibit C determined by arbitration, the Commencement Date as shown on Exhibit C shall be the Commencement Date for all purposes of this Lease and the Rentable Area of the Leased Premises as shown on Exhibit C shall replace the Rentable Area of the Leased Premises as shown in Section 1.01.B. and shall be deemed to be the Rentable Area of the Leased Premises for all purposes under this Lease. Further, all calculations, amounts and sums which are based upon the Rentable Area of the Leased Premises including, without limitation, Minimum Annual Rent and the Tenant Improvement Allowance shall be adjusted accordingly. All payments of Minimum Annual Rent, Annual Rental Adjustment and all other payments of rent and other sums of money required of Tenant herein shall be made as and when required herein, notwithstanding any unresolved objections to Exhibit C. All such payments shall be based upon the Landlord's proposed form of Exhibit C prepared by Landlord until such objections have been finally resolved, whereupon any overpayment or any underpayment theretofore made shall be adjusted by increasing or reducing, as the case may be, the next installment of Minimum Annual Rent coming due. ARTICLE 2 - TERM AND POSSESSION Section 2.01. Term. The term of this Lease shall commence on the Commencement Date and expire at 12:00 midnight on the last day of the calendar month in which the fifteenth (15th) anniversary of the Commencement Date occurs (the "LEASE TERM"). As used herein, "COMMENCEMENT DATE" means the later of (i) the delivery of Non-Disturbance Agreement(s) executed by all the prior encumbrancers of the Project; or (ii) the first (1st) business day of the second (2nd) week following the Completion Date (as defined in Exhibit B hereto). Section 2.02. Construction of Building and Leased Premises. Landlord agrees, at its sole cost and expense, to cause the Building to be constructed in a good and workmanlike manner in compliance with all Applicable Laws (as hereinafter defined). The Building shall be constructed in accordance with the Base Building Plans (as defined in Exhibit B), Exhibit B and generally in accordance with the renderings attached as Exhibit B-5, subject, however to the finalization thereof as hereinafter described. The Leased Premises shall be constructed, and the Improvement Allowance (as defined in Exhibit B) shall be distributed, in accordance with the terms and provisions of Exhibit B. Section 2.03. Surrender of the Premises. Upon the expiration or earlier termination of this Lease, Tenant shall immediately surrender the Leased Premises to Landlord in broom-clean condition. Tenant shall remove its personal property in the Leased Premises at its sole cost and expense. Tenant shall, at its expense, promptly repair any damage caused by 7 any such removal, and shall restore the Leased Premises to the condition existing upon the Commencement Date, reasonable wear and tear, casualty, condemnation and permitted alterations excepted. Landlord acknowledges and agrees that Tenant shall not be required to remove any wiring or cabling except such that is contained within the Leased Premises (not above-ceiling). Following expiration or earlier termination of this Lease, all Tenant property which is required to be removed hereby and is not removed within ten (10) days following Landlord's written demand therefore shall be conclusively deemed to have been abandoned and Landlord shall be entitled to dispose of such property at Tenant's cost without incurring any liability to Tenant. The provisions of this section shall survive the expiration or other termination of this Lease. Section 2.04. Holding Over. If Tenant retains possession of the Leased Premises after the expiration or earlier termination of this Lease, such holdover shall be subject to and in accordance with all of the terms of this Lease, except that (i) the Monthly Rental Installment for the six (6) months of such holdover shall be equal to one hundred twenty-five percent (125%) of the Monthly Rental Installment payable during the last month of the Term (the "LAST MONTH'S RENT"), prorated for the period of such holdover and (ii) Tenant shall also be required to pay the monthly installment of the Annual Rental Adjustment, as prorated for such holdover period. If Tenant continues to retain possession of the Leased Premises for a period exceeding such six (6) month period, the Monthly Rental Installment for any such additional holdover period shall be equal to one hundred fifty percent (150%) of the last month's rent. In no event shall Tenant be liable for consequential damages as a result of any holdover. Acceptance by Landlord of rent after such expiration or earlier termination shall not result in a renewal of this Lease. This Section 2.04 shall in no way constitute a consent by Landlord to any holding over by Tenant upon the expiration or earlier termination of this Lease, provided, however, Landlord's monetary remedies for such holdover shall be limited to collection of holdover rental as specified above, provided, further that this shall not prevent Landlord from pursuing a dispossessory proceeding or other process to obtain possession of the Leased Premises. Section 2.05. Short Term Extension Option. Landlord hereby grants to Tenant the right and option to unilaterally extend the Lease Term for any period of time up to six (6) months following the expiration of the Lease Term. Tenant shall exercise the option granted hereby by giving Landlord notice of exercise at least twelve (12) months prior to the expiration of the Term. If Tenant shall exercise Tenant's rights under this section, then Tenant shall include in Tenant's notice of exercise a statement that Tenant is exercising Tenant's rights under this section and Tenant shall designate a date not later than the date six (6) months following the expiration of the Term to which Tenant elects to extend the expiration date of the Term. Thereupon, this Lease shall be extended to the date set forth in Tenant's notice of exercise. If the Term of this Lease shall be extended under this section, all terms and conditions of this Lease shall remain in full force and effect and Tenant shall continue to pay Monthly Rental Installments during such extension period calculated at a rate of increase of three percent (3.0%) of the last month's rent. Following expiration of the short term option period selected and exercised by Tenant pursuant to this section, the holdover provisions of Section 2.04 shall apply to any continued occupancy by Tenant. 8 ARTICLE 3 - RENT Section 3.01. Base Rent. Subject to Section 3.06 below, Tenant shall pay to Landlord the Minimum Annual Rent in the Monthly Rental Installments plus Florida State Sales tax in advance on the Commencement Date and on or before the first day of each and every calendar month thereafter during the Lease Term. The Monthly Rental Installments shall be paid, except as otherwise provided herein, without deduction or offset and, with respect to any partial calendar months, shall be prorated. 9 Section 3.02. Annual Rental Adjustment Definitions. A. "Annual Rental Adjustment" - shall mean the amount of Tenant's Proportionate Share of Operating Expenses for a particular calendar year. B. "Operating Expenses" - shall mean the amount of all of Landlord's costs and expenses paid or incurred in operating, repairing and maintaining the Building (including the Common Areas as defined below) in good condition and repair for a particular calendar year, including by way of illustration and not limitation: all Real Estate Taxes (as hereinafter defined); insurance premiums and deductibles; water, sewer, electrical and other utility charges other than the electrical charges incurred with respect to any space in the Building other than Common Areas; service and other charges incurred in the repair, operation and maintenance of the elevators and the heating, ventilation and air-conditioning system; cleaning and other janitorial services; tools and supplies; repair costs; landscape maintenance costs; security services; license, permit and inspection fees; management or administrative fees, not to exceed three percent (3%) of the Minimum Annual Rent for such calendar year; supplies, costs, wages and related employee benefits payable for the management, maintenance and operation of the Building; maintenance and repair of the driveways, parking and sidewalk areas (including snow and ice removal), landscaped areas; lighting; maintenance and repair costs, dues, fees and assessments incurred under that certain Declaration of Protective Covenants and Restrictions for Sawgrass Commerce Center, recorded in Book 15002, Page 0711 (the "DECLARATION"); and amortization (on a straight-line basis over the useful life of the item in question) of the cost of acquiring and installing any system, apparatus, device or equipment which is installed for the principal purpose of (i) reducing Operating Expenses (but the annual amortization included may not exceed the reasonable projected annual reduction), (ii) promoting safety or (iii) complying with governmental requirements which first become effective after the Commencement Date (the "PERMITTED CAPITAL EXPENSES"). Landlord agrees to provide Tenant promptly upon Tenant's request, copies of all tax bills, canceled checks (with respect to any tax payment) and other evidence of billing and payment of Real Estate Taxes reasonably requested by Tenant. At the request of Tenant, Landlord shall engage a security service on such terms and conditions as are reasonably specified by Tenant. Tenant acknowledges and agrees that Tenant shall be responsible for seventy-five percent (75%) of the cost of such security service during such period that any such security service is engaged as approved by Tenant (with the balance of such cost to be at the expense of Landlord or other tenants of the Building). At the option of Tenant, Tenant may request a statement from Landlord indicating the amount of Tenant's Proportionate Share of Real Estate Taxes, in order for Tenant to be eligible for a Qualified Targeted Industry tax refund for Tenant's Proportionate Share of the Real Estate Taxes. Such certification shall be addressed to the State of Florida Office of Tourism, Trade and Economic Development and shall be signed by Landlord and delivered to Tenant within fourteen (14) days of request by Tenant. Landlord shall attach as exhibits to such certification a copy of the Real Estate Tax bill for the year in question and a copy (front and back) of the cancelled check for the payment of such Real Estate Taxes to the Broward County Tax Collector and shall be substantially in the form attached hereto as Exhibit F. Notwithstanding the foregoing, specifically excluded from "Operating Expenses" are the following listed items: (1) Costs associated with the operation of the business of the ownership or entity which constitutes "Landlord", as distinguished from the costs of building operations, including, 10 but not limited to partnership accounting and legal matters, costs of defending any lawsuits with any mortgagee, costs of selling, syndicating, financing, mortgaging or hypothecating any of Landlord's interest in the Project, costs of any disputes between Landlord and its employees (if any), disputes of Landlord with Project management, or outside fees paid in connection with disputes with other tenants; (2) Costs incurred in connection with the original construction of the Project or in connection with any capital expenditure in the Project (except the Permitted Capital Expenditures) , including but not limited to the addition or deletion of floors; (3) Costs of alterations or improvements to the Premises or the premises of other tenants (as compared to repairs or maintenance) (except the Permitted Capital Expenditures); (4) Depreciation, interest and principal payments on mortgages and other debt costs (directly related to financing the Project, or any portion thereof), if any; (5) Costs of correcting defects in or inadequacy of the initial design or construction of the Project; (6) Expenses directly resulting from the negligence and/or willful misconduct of Landlord, its agents, servants or employees; (7) Legal fees, space planners' fees, real estate brokers' leasing commissions and advertising expenses incurred in connection with the development or leasing of the Project; (8) Costs for which Landlord is entitled to be reimbursed by its insurance carrier or any tenant's insurance carrier (excluding commercially reasonable deductibles); (9) Any bad debt loss, rent loss or reserves for bad debts or rent loss; (10) The expense of any services provided to other tenants in the Building which are in excess of the services made available to Tenant under this Lease; (11) Wages and salaries of management or supervising employees offsite above the level of senior property manager; the wages of any employee who does not devote substantially all of his or her time to the Project shall be equitably apportioned among all projects for which such employee performed services based upon the time such employee spent on each project relative to the total time devoted by such employee to all projects; (12) Fines and penalties; (13) Amounts paid as ground rental by Landlord; (14) Any recalculation of or additional Operating Expenses actually incurred more that two (2) years prior to the year in which Landlord proposes that such costs be included in Operating Expenses; (15) Capital expenditures required by Landlord's failure to comply with laws enacted before the Commencement Date; 11 (16) Costs incurred by Landlord with respect to goods and services (including utilities sold and supplied to tenants and occupants of the Building) to the extent that Landlord is entitled to reimbursement for such costs directly from such tenant(s); (17) Costs, including permit, license and inspection costs, incurred with respect to the installation of tenant improvements made for new tenants in the Building or incurred in renovating or otherwise improving, decorating, painting or redecorating vacant space for tenants or other occupants of the Building; (18) Costs incurred by Landlord for alterations which are considered capital improvements under generally accepted accounting principles, consistently applied, except for Permitted Capital Expenditures; (19) Any costs paid to Landlord or subsidiaries or affiliates of Landlord for services in the Project to the extent the same exceeds the costs of such services rendered by unaffiliated third parties on a competitive basis; (20) Rentals and other related expenses incurred in leasing air conditioning systems, elevators or other equipment ordinarily considered to be of a capital nature, except equipment not affixed to the Building which is used in providing janitorial or similar services and except for temporary rentals that are necessitated by an emergency; (21) Electric power costs for any tenant or tenant space; (22) Any costs to repair or restore any portion of the Project following a condemnation or a casualty (except to the extent of a commercially reasonable deductible amount); (23) Legal fees, accounting fees or consulting fees, except those incurred directly in connection with Operating Expenses; and (24) Costs incurred to remove, encapsulate or remediate asbestos or any Hazardous Substances (as defined in Section 15.01.B.). It is understood that Operating Expenses shall be reduced by all cash discounts, trade discounts, or quantity discounts received by Landlord or Landlord's managing agent in the purchase of any goods, utilities, or services in connection with the operation of the Project. In the calculation of any expenses hereunder, it is understood that no expense shall be charged in duplicate. Landlord shall use commercially reasonable efforts to effect an equitable proportion of bills for services rendered to the Project and to any other property owned by Landlord. Landlord agrees to keep books and records showing the Operating Expenses in accordance with a system of generally accepted accounting practices consistently maintained on a year-to-year basis. Notwithstanding any language contained herein to the contrary, Tenant hereby agrees that, during any calendar year in which the entire Building is not provided with Building Standard Services or is not at least ninety five percent (95%) occupied on average throughout the calendar year, Landlord shall compute all Variable Operating Costs (defined below) for such calendar year as though the entire Building were provided with Building Standard Services and were ninety-five percent (95%) occupied. For purposes of this lease the term "VARIABLE OPERATING COSTS" shall mean any operating cost that varies with the level of occupancy of the Building (e.g. tenant utilities and tenant cleaning services, but 12 the parties expressly agree that Real Estate Taxes are not included in Variable Operating Expenses). In the event that Landlord excludes from "Operating Expenses" any specific costs billed to or otherwise incurred for the particular benefit of specific tenants of the Building, or to other buildings or projects within the Park, Landlord shall have the right to increase "Operating Expenses" by an amount equal to the cost of providing standard services similar to the services for which such excluded specific costs were billed or incurred. In no event shall Landlord receive from all tenants of the Building more than one hundred percent (100%) of any Operating Expenses. In the event that within six (6) months after Tenants' receipt of Landlord's statement of Operating Expenses for the prior calendar year, Tenant reasonably believes that certain of the Operating Expenses charged by Landlord include costs that are not properly included within the term "Operating Expenses" or the Landlord has erred in calculating same or that any of the amounts included therein are not commercially reasonable, Tenant or its agents shall have the right to audit Landlord's books and records and dispute any portion of such statement in accordance with this paragraph. Tenant shall exercise such audit right by providing Landlord with a written notice of Tenant's exercise of such audit right within such 6-month period and a statement enumerating reasonable detailed reasons for Tenant's objections to the statement issued by Landlord (the "AUDIT NOTICE"). Within ten (10) business days of the receipt by Landlord of an Audit Notice, Landlord shall cause its property manager at the Building to meet with a designated employee or agent of Tenant (the "TENANT REPRESENTATIVE") to discuss the objections set forth in the Audit Notice in order to attempt to resolve the issues raised by Tenant in the Audit Notice. At least five (5) business days prior to such meeting, Landlord shall provide the Tenant Representative with reasonable access during normal business hours to Landlord's books and records at the Building relating to Operating Expenses for the calendar year in question. If, within thirty (30) days after Landlord's receipt of the Audit Notice, Landlord and Tenant are unable to resolve Tenant's objections, then not later than fifteen (15) days after the expiration of such 30-day period, Tenant shall notify Landlord if Tenant wishes to employ an independent, reputable certified public accounting firm or a nationally recognized operating expenses audit firm to inspect and audit Landlord's books and records for the Building for the year in question. Tenant may not use an accounting firm operating on a contingency fee basis in such audit during the first five (5) years of the term of the Lease. Provided further however, after the first five (5) years of the term of the Lease, Tenant may use a nationally recognized operating expenses audit firm which operates on a contingency fee basis to inspect and audit Landlord's books and records no more than twice during the remaining term of the Lease or any independent, reputable certified public accounting firm. All costs and expenses of any such audit shall be paid by Tenant, unless such audit reveals (or it is ultimately determined by the Independent Accountant, as described below) that Landlord overstated Operating Expenses by five percent (5%) or more, in which case Landlord shall reimburse Tenant for the cost of such audit. Any audit performed pursuant to the terms of this section shall be conducted at the offices of Landlord's property manager at the Building during normal business hours and Landlord shall make its books and records conveniently available at the Building within ten (10) business days of Tenant's notice that it desires to perform such audit. If, based on such audit, Tenant believes that Landlord's statement includes improper or excessive charges for Operating Expenses for the year in question, Tenant shall notify Landlord, in writing, specifying the overcharges and including a copy of the audit. Tenant shall have the right, at any time up through the date one (1) year after Landlord's statement was delivered to Tenant, to submit the dispute to any of the "Big-Five" accounting firms that is not then employed by Landlord or Tenant (the "INDEPENDENT ACCOUNTANT"). Such Independent Accountant shall be asked to resolve the dispute within thirty (30) days. The decision of such Independent Accountant shall be final and binding on both Landlord and Tenant. If Landlord and Tenant agree pursuant to this paragraph that Tenant was overcharged or if the Independent Accountant determines that Tenant was overcharged, the overcharge amount, together with interest at the Default Rate (as hereinafter defined) from the date Tenant paid the amount shown on 13 Landlord's statement, shall be applied as a credit to the next installments of Minimum Annual Rent and Annual Rental Adjustment due hereunder (or if the Lease has expired, promptly to Tenant in cash). Notwithstanding anything contained herein to the contrary, Tenant shall be entitled to exercise its audit right pursuant to this section only in strict accordance with the foregoing procedures no more often than once per calendar year and each such audit shall relate only to the calendar year most recently ended; provided, however, if Tenant discovers overcharges in Landlord's statement, Tenant shall be entitled to audit up to two (2) prior years' books and records with respect to the item(s) for which such overcharge is discovered; and provided further, that in the event any audit reveals evidence of fraud, Tenant shall be entitled to audit any and all prior years' books and records with respect to all items. In the event that Tenant fails to notify Landlord within the foregoing 6-month period that Tenant objects to the statement of Operating Expenses, then Tenant's right to audit such year's statement of Operating Expenses shall be null and void. C. "Tenant's Proportionate Share of Operating Expenses" - shall be an amount equal to the product of Tenant's Building Expense Percentage times the Building Operating Expenses. D. "Real Estate Taxes" - shall include any form of real estate tax or assessment or service payments in lieu thereof, and any license fee, commercial rental tax, improvement bond or other similar charge or tax (other than inheritance, personal income or estate taxes) imposed upon the Building or the Land by any authority having the power to so charge or tax, together with reasonable costs and expenses of contesting the validity or amount of Real Estate Taxes, which at Landlord's option may be calculated as if such contesting work had been performed on a contingent fee basis (whether charged by Landlord's counsel or representative; provided, however, that said fees are reasonably comparable to the fees charged for similar services by others not affiliated with Landlord, but in no event shall said fees exceed thirty-three percent (33%) of the good faith estimated tax savings). Notwithstanding the foregoing, Real Estate Taxes shall not include the following types: income, business license, impact fees, capital, stock, succession, transfer, franchise, gift, estate, inheritance or taxes or assessments attributable to the personal property of other tenants. E. "Common Areas" - shall mean the areas of the Building and the Land which are designed for use in common by all tenants of the Building and their respective employees, agents, customers, invitees and others, and includes, by way of illustration and not limitation, entrances and exits, hallways and stairwells, elevators, restrooms, sidewalks, driveways, parking areas, landscaped areas and other areas as may be designated by Landlord as part of the Common Areas of the Building. Tenant shall have the non-exclusive right, in common with others, to the use of the Common Areas. Section 3.03. Payment of Annual Rental Adjustment for Operating Expenses. In addition to the Minimum Annual Rent specified in this Lease, Tenant shall pay to Landlord as additional rent for the Leased Premises, in each calendar year or partial calendar year, during the Lease Term, an amount equal to the Annual Rental Adjustment for such calendar year, in an amount not to exceed $6.63 per rentable square foot for the first year of the Lease Term (net of Tenant's electric and security guard charges). The Annual Rental Adjustment shall be estimated annually by Landlord, and written notice thereof shall be given to Tenant prior to December 1 of the previous calendar year. Tenant shall pay to Landlord each month, at the same time the Monthly Rental Installment is due, an amount equal to one-twelfth (1/12) of the estimated Annual Rental Adjustment. If Real Estate Taxes or the cost of janitorial services or Common Area utility increase during a calendar year, Landlord may increase the estimated Annual Rental Adjustment once during such year by giving Tenant thirty (30) days written notice to that effect, and thereafter Tenant shall pay to Landlord, in each of the remaining months of such year, an amount equal to the amount of such increase in the estimated Annual Rental Adjustment divided 14 by the number of months remaining in such year. Within ninety (90) days after the end of each calendar year, Landlord shall prepare and deliver to Tenant a statement showing the actual Annual Rental Adjustment for the calendar year in question. Within thirty (30) days after receipt of the aforementioned statement, Tenant shall pay to Landlord, or Landlord shall credit against the next installment(s) of Minimum Annual Rent due from Tenant (or pay directly to Tenant if the Lease has expired or has been terminated), as the case may be, the difference between the actual Annual Rental Adjustment for the preceding calendar year and the estimated amount paid by Tenant during such year. Section 3.04. Late Charges. Tenant acknowledges that Landlord shall incur certain additional unanticipated administrative and legal costs and expenses if Tenant fails to timely pay any payment required hereunder. Therefore, in addition to the other remedies available to Landlord hereunder, if any payment required to be paid by Tenant to Landlord hereunder shall become overdue, such unpaid amount shall bear interest from the due date thereof to the date of payment at the Default Rate. As used herein, the term "DEFAULT RATE" shall mean the prime rate (as reported in the Wall Street Journal) of interest (the "PRIME RATE") plus four percent (4%) per annum. Section 3.05. Maximum Increase in Operating Expenses. Notwithstanding anything in this Lease to the contrary, Landlord agrees that the amount of the Annual Rental Adjustment calculated to be due under Section 3.03 hereunder attributable to Controllable Operating Expenses (as hereinafter defined) paid or incurred in (i) the first lease year shall not exceed $3.36 per square foot of Rentable Area and (ii) for any subsequent lease year, shall not exceed five percent (5%) of the amount attributable to Controllable Operating Expenses properly chargeable to Tenant under this Lease for the prior calendar year. As used herein, the term "CONTROLLABLE OPERATING EXPENSES" shall mean all Operating Expenses of any kind or nature other than Real Estate Taxes, service payments in lieu of real estate taxes, insurance premiums, charges for public utilities and management or administrative fees applicable to such expenses. Section 3.06. Minimum Annual Rent and Annual Rental Adjustment During First Lease Year. Minimum Annual Rent and Annual Rental Adjustment shall be payable by Tenant only on 85,000 square feet of Rentable Area of the Leased Premises for the period commencing on the Commencement Date and ending on the six (6) month anniversary of the Commencement Date to the extent that Tenant doesn't occupy for business purposes more than 85,000 square feet of Rentable Area during that portion of the Lease Term. To the extent that Tenant occupies for business purposes more than 85,000 square feet of Rentable Area during the initial six (6) months of the Lease Term, Tenant shall pay Minimum Annual Rent and Annual Rental Adjustment applicable to any portion of the Leased Premises above the 85,000 square feet of Rentable Area which it occupies for business purposes. Thereafter, Minimum Annual Rent and Annual Rental Adjustment shall be payable with respect to the entirety of the Leased Premises. ARTICLE 4 - SECURITY DEPOSIT Section 4.01. Letter of Credit. (a) Tenant shall, within five (5) business days after the execution of this Lease, provide to Landlord an irrevocable unconditional letter of credit (the "LETTER OF CREDIT") in substantially the form attached 15 hereto as Exhibit J or as otherwise reasonably acceptable to Landlord and issued by Chase Manhattan Bank or another bank reasonably acceptable to Landlord (the "LETTER OF CREDIT BANK"). The Letter of Credit shall be in the amount of Five Hundred Thousand and 00/100 ($500,000.00) Dollars and shall be held by Landlord as security for the full and faithful performance by Tenant of all of the terms, conditions and covenants contained in the Lease on the part of Tenant to be performed, including but not limited to the payment of rent. (b) In the event of a default by Tenant in the payment of rent or performance or observance of any of the other terms, conditions or covenants of this Lease beyond the expiration of any notice and cure period, Landlord may, at its option and with notice to Tenant, present the Letter of Credit to the Letter of Credit Bank together with a certificate from Landlord executed by any officer of Landlord certifying that Tenant is in default under the Lease, has failed to cure such default within the time periods specified in the Lease for cure and that Landlord is entitled to draw upon the Letter of Credit. Upon such presentation, Landlord may draw upon the Letter of Credit and apply all or any part thereof to payment of rent or to cure any such default; and if Landlord does so, Tenant shall, upon request, deposit with Landlord the amount so applied so that Landlord will have on hand at all times during the Security Period (as hereinafter defined) the full amount of the Letter of Credit. If Landlord shall improperly draw under the Letter of Credit, Landlord shall immediately return the drawn amount (together with interest from the date drawn until repaid at the rate per annum which is the lesser of (i) the Default Rate or (ii) the highest rate permitted by law) and reimburse Tenant for any charges imposed by the issuer in connection with the draw or restoration of the letter of credit. The Letter of Credit shall be renewed on an annual basis during the Security Period (except with respect to the last year of the Security Period). If Tenant has not renewed the Letter of Credit as required at least forty five (45) days prior to the expiration date thereof, Landlord may immediately draw upon the Letter of Credit and hold the cash proceeds in lieu thereof. All sums held by Landlord pursuant to this section shall be without interest. (c) Notwithstanding anything to the contrary in this Lease, if there has been no breach of any material undertaking by Tenant under the Lease beyond any applicable notice and grace period, at the end of the twelfth (12th) month of the Lease Term, the amount of the Letter of Credit shall be reduced by One Hundred Thousand and 00/100 ($100,000.00) Dollars. Thereafter, if there continues to be no breach of any material undertaking by Tenant under the Lease beyond any applicable notice and grace period, at the end of the twenty fourth (24th) month of the Lease Term, the amount of the Letter of Credit shall be reduced again by One Hundred Thousand and 00/100 ($100,000.00) Dollars. Thereafter, if there continues to be no breach of any material undertaking by Tenant under the Lease beyond any applicable notice and grace period, at the end of the thirty sixty (36th) month of the Lease Term, the amount of the Letter of Credit shall be reduced again by One Hundred Thousand and 00/100 ($100,000.00) Dollars. Thereafter, if there continues to be no breach of any material undertaking by Tenant under the Lease beyond any applicable notice and grace period, at the end of the forty-eighth (48th) month of the Lease Term, the amount of the Letter of Credit shall be reduced again by One Hundred Thousand and 00/100 ($100,000.00) Dollars. Thereafter, if there continues to be no breach of any material undertaking by Tenant under the Lease beyond any applicable notice and grace period, at the end of the sixtieth (60th) month of the Lease Term, the amount of the Letter of Credit shall be reduced again by One Hundred Thousand and 00/100 ($100,000.00) Dollars such that the Letter of Credit has been reduced to zero and Tenant shall thereafter have no further obligation under this Article 4 (the period of time during which the Letter of Credit is required to be posted is herein called the "SECURITY PERIOD"). 16 ARTICLE 5 - OCCUPANCY AND USE Section 5.01. Use. The Leased Premises shall be used by Tenant for the Permitted Use and for no other purposes without the prior written consent of Landlord, which consent shall not be unreasonably withheld, delayed or conditioned. Landlord represents and warrants to Tenant that the applicable laws, codes and regulations, as applicable to the Project, permit the Leased Premises to be used for general office use. Tenant shall have access to the Leased Premises twenty four (24) hours per day, seven (7) days per week. Section 5.02. Covenants of Tenant Regarding Use. Tenant shall (i) use and maintain the Leased Premises and conduct its business thereon in a safe, careful, reputable and lawful manner, (ii) comply with all laws, rules, regulations, orders, ordinances, directions and requirements of any governmental authority or agency, now in force or which may hereafter be in force ("APPLICABLE LAWS"), including without limitation those which shall impose upon Landlord or Tenant any duty with respect to or triggered by a change in the use or occupation of, or any improvement or alteration to, the Leased Premises, (iii) comply with and obey all Building Rules and Regulations attached hereto as Exhibit D and as may be reasonably modified from time to time by Landlord on reasonable notice to Tenant (provided that such modifications do not materially and adversely affect Tenant's use and enjoyment of, or access to, the Leased Premises). Tenant shall not do or permit anything to be done in or about the Leased Premises which will in any way unreasonably obstruct or interfere with the rights of other tenants or occupants of the Building or create a nuisance. Landlord shall not be responsible to Tenant for the non-performance by any other tenant or occupant of the Building of any of the Building Rules and Regulations, but agrees to take reasonable measures to assure such other tenant's compliance. Tenant shall not use the Leased Premises, or allow the Leased Premises to be used, for any purpose or in any manner which would invalidate any policy of insurance now or hereafter carried on the Building or increase the rate of premiums payable on any such insurance policy unless Tenant reimburses Landlord for any increase in premium charged. Section 5.03. Landlord's Rights Regarding Use. In addition to the rights specified elsewhere in this Lease, Landlord shall have the following rights regarding the use of the Leased Premises or the Common Areas, each of which may be exercised without notice or liability to Tenant: (a) Landlord may install such signs, advertisements or notices or tenant identification information on the directory board as it shall deem reasonably necessary or proper; (b) Landlord shall have the right at any time to control, change or otherwise alter the Common Areas in such manner as it deems reasonably necessary or proper, provided that such control, change or alteration does not materially and adversely affect Tenant's use and enjoyment of, or access to, the Leased Premises or the nature of the Building as a first class building for the Sawgrass/Sunrise submarket; (c) Landlord, its employees and agents and any mortgagee of the Building shall have the right to enter any part of the Leased Premises at reasonable times upon reasonable notice except in the event of an emergency where no notice shall be required for the purposes of examining or inspecting the same, showing the same to prospective purchasers, mortgagees or, during the last twelve (12) months of the Lease Term, to prospective tenants and making such repairs, alterations or improvements to the Leased Premises or the Building as Landlord may deem necessary or desirable, provided, however, that any repairs made by Landlord shall be at Tenant's expense except as provided in Section 7.02 hereof. Except with respect to Landlord's gross negligence or intentional misconduct, Landlord shall incur no liability to Tenant for such entry, nor shall such entry constitute an eviction of Tenant or a termination of this Lease, or entitle Tenant to any abatement of rent therefor; provided, however, that Landlord agrees in its exercise of any 17 rights pursuant to this Section, to use good faith efforts to minimize Landlord's interference with Tenant's business operations. ARTICLE 6 - UTILITIES AND OTHER BUILDING SERVICES Section 6.01. Services to be Provided. Landlord shall furnish to Tenant, except as noted below, the following utilities and other building services at levels and in types customary for first-class office buildings in the Sawgrass/Sunrise, Florida submarket and as more particularly provided below. As a part of the Base Building Work, Landlord shall install electric meters for the Leased Premises and Tenant shall be responsible for and pay directly to the provider of such utility or service all charges for electrical service for the Leased Premises. Utility charges for services to the Common Areas shall be included in Operating Expenses. (a) Heating, ventilation and air-conditioning in accordance with the specifications provided in the Work Letter attached hereto as required by Tenant with Landlord providing Tenant with independent control of such HVAC within the Leased Premises; (b) Electric current for lighting equal to at least two (2) watts per square foot of Rentable Area plus electrical current for outlets and convenience power equal to at least four (4) watts per square foot of Rentable Area (on demand); (c) Water in the Common Areas for lavatory and drinking purposes; (d) Automatic elevator service twenty-four hours per day through not less than three (3) passenger cabs and one (1) non-dedicated freight elevator cab, except in emergencies or for routine maintenance and in any case, both passenger elevators won't be removed from service at one time for routine maintenance; (e) Cleaning and janitorial service in the Leased Premises and Common Areas on Monday through Friday of each week, except legal holidays in accordance with Exhibit G attached hereto; (f) Washing of windows at intervals reasonably established by Landlord (but not less than twice per year); (g) Replacement of all lamps, bulbs, starters and ballasts in Building standard lighting as required from time to time as a result of normal usage; (h) Cleaning and maintenance of the Common Areas, including the removal of rubbish, ice and snow; (i) Access control for the Building comparable as to coverage, control and responsiveness to other similarly situated first-class multi-tenant office buildings in suburban Ft. Lauderdale, Florida; (j) Security service for the Building as specified in Section 3.02; and (k) Repair and maintenance to the extent specified elsewhere in this Lease. 18 In the event of utility deregulation, Landlord may choose the electric, natural gas or water service provider, provided, that the service provided by such provider and cost of such services and utilities shall be comparable to that provided and charged in other comparable buildings in the Sawgrass/Sunrise, Florida submarket. Charges for such utilities and services provided by Landlord, if any, shall not exceed the charges that would have been payable if such utilities and services had been directly billed by the utilities or service providers to Tenant. Section 6.02. Additional Services. If Tenant requests utilities or building services in addition to those identified above or any of the above utilities or building services in frequency, scope, quality or quantity substantially greater than those which Landlord determines are normally required by other tenants in the Building for the Permitted Use, then Landlord shall use reasonable efforts to attempt to furnish Tenant with such additional utilities or building services. In the event Landlord is able to and does furnish such additional utilities or building services, the actual costs thereof shall be borne by Tenant. Tenant shall reimburse Landlord monthly (except with respect to after-hours HVAC and electrical which Tenant shall pay directly to the utility provider) for the same as Additional Rent at the same time Monthly Rental Installments and other Additional Rent is due. If any lights, density of staff, machines or equipment used by Tenant in the Leased Premises materially affect the temperature otherwise maintained by the Building's air-conditioning system or generate substantially more heat in the Leased Premises than that which would normally be generated by that typically used by other tenants in the Building or by tenants in comparable office buildings, then Tenant as part of the initial leasehold improvements shall install any machinery or equipment which Landlord considers reasonably necessary in order to restore the temperature balance between the Leased Premises and the rest of the Building, including equipment which modifies the Building's air-conditioning system. All costs expended to install any such machinery and equipment and any additional costs of operation and maintenance in connection therewith shall be borne by Tenant. Section 6.03. Interruption of Services. Notwithstanding anything to the contrary contained in this Lease, if Tenant cannot reasonably use all or any portion of the Leased Premises for Tenant's intended business operation by reason of any interruption in services to be provided by Landlord (and Tenant does not in fact use such portion of the Leased Premises) and such condition exists for three (3) or more consecutive business days or five (5) or more business days within any thirty (30) day period, then Tenant's Minimum Annual Rent and Annual Rental Adjustment shall be abated for that portion of the Leased Premises that Tenant is unable to use for Tenant's intended business operations until such service is restored to the Leased Premises, provided, however, that if and to the extent that the interruption in services is not a result of Landlord's negligence or failure to act, Tenant shall be entitled to an abatement of Tenant's Minimum Annual Rent and Annual Rental Adjustment only if and to the extent that such loss is covered by Landlord's property, rental loss or similar insurance. At the time of the loss of service, Tenant must give written notice promptly to Landlord of the loss of service and its claim for abatement and Tenant only shall be entitled to abatement of Minimum Annual Rent and Annual Rental Adjustment in proportion to the area rendered unusable. Landlord may prevent or stop abatement of Minimum Annual Rent and Annual Rental Adjustment by providing substantially the same service in similar quality and quantity by temporary or alternative means until the cause of the loss of service can be corrected. If any such interruption in services renders twenty-five percent (25%) or more of the Leased Premises unusable for ninety (90) or more consecutive days, Tenant shall have the right to terminate this Lease by written notice to Landlord at any time prior to the 19 restoration of such services. Tenant shall not be entitled to the rent abatement or termination rights set forth above if the service interruption is caused by the act or omission of Tenant. ARTICLE 7 - REPAIRS, MAINTENANCE AND ALTERATIONS Section 7.01. Repair and Maintenance of Building. Subject to Section 7.02, Landlord shall make all necessary repairs to the roof, structural elements, exterior walls, exterior doors, windows, corridors and other Common Areas, and Landlord shall keep the Building and the Land in a safe, clean and neat condition and use reasonable efforts to keep all equipment used in common with other tenants in good condition and repair. In addition to the foregoing, if, within three (3) years of the Commencement Date of the Lease, Tenant notifies Landlord of a latent defect, then Landlord, at Landlord's expense (without inclusion as an Operating Expense), will repair such latent defect as soon as practicable. Section 7.02. Repair and Maintenance of Leased Premises. Tenant shall keep and maintain the Leased Premises in good order, condition and repair. Except for ordinary wear and tear, casualty, condemnation and damage and repairs which Tenant is not obligated to make as provided elsewhere in this Lease, the cost of all repairs and maintenance to the Leased Premises shall be borne by Tenant. In the event Tenant fails to maintain the Leased Premises as required herein or fails to commence repairs (as required herein and as requested by Landlord in writing) within thirty (30) days after such request, or fails diligently to proceed thereafter to complete such repairs, Landlord shall have the right in order to preserve the Leased Premises or portion thereof, and/or the appearance thereof, to make such repairs or have a contractor make such repairs and charge Tenant for the cost thereof as additional rent, together with interest at the rate of twelve percent (12%) per annum from the date of making such payments. Section 7.03. Alterations. Except for Permitted Alterations, Tenant shall not permit alterations in or to the Leased Premises unless and until the plans and the contractor have been approved by Landlord in writing, such approval not to be unreasonably withheld, delayed or conditioned. Landlord's failure to respond within ten (10) business days after Tenant's written request, shall be deemed a consent provided that such request specifically sets out the time limit for such response and specifies that Landlord shall be deemed to have consented if it fails to respond within such time period. All such alterations shall become a part of the realty and the property of Landlord, and shall not be removed by Tenant, except for trade fixtures and personalty, unless Landlord designates at the time of granting such consent that such alterations must be removed at the termination of the Lease. Tenant shall repair any damage caused by the removal of any alterations, trade fixtures and personalty from the Leased Premises. Tenant shall ensure that all alterations shall be made in accordance with all applicable laws, regulations and building codes, in a good and workmanlike manner and of quality equal to or better than the original construction of the Building. Upon completion of the work, Tenant shall provide lien waivers from the subcontractors or a final affidavit of lien waiver from the general contractor, and such lien waiver shall be in a form reasonably acceptable to Landlord. No person shall be entitled to any lien derived through or under Tenant for any labor or material furnished to the Leased Premises, and nothing in this Lease shall be construed to constitute a consent by Landlord to the creation of any lien. If any lien is filed against the Leased Premises for work claimed to have been done for or material claimed to have been furnished to Tenant, Tenant shall cause such lien to be 20 discharged of record (by bonding or otherwise) within thirty (30) days after filing. Tenant shall indemnify Landlord from all costs, losses, expenses and reasonable attorneys' fees actually incurred in connection with any construction or alteration performed by or at the request of Tenant and any related lien. Notwithstanding the foregoing, Tenant shall have the right to make non-structural, non-MEP (mechanical, electrical and plumbing) alterations (including painting and carpeting) without the consent of Landlord (a "PERMITTED Alteration"), so long as (i) Tenant notifies Landlord in writing of its intention to do such work at least ten (10) days prior to the initiation of such work, (ii) such alterations do not cause excessive loads on the Building and its systems and are not visible from the exterior of the Leased Premises and (iii) Tenant obtains and furnishes to Landlord any required building permits. 21 ARTICLE 8 - CASUALTY Section 8.01. Casualty. In the event of total or partial destruction of the Project or the Leased Premises by fire or other casualty, Landlord agrees to promptly restore and repair same; provided, however, Landlord's obligation hereunder shall be limited to the reconstruction of such of the Building and the payment toward restoration of Improvement Work in an amount equal to the Improvement Allowance. Rent shall proportionately abate during the time that the Leased Premises or part thereof are unusable because of any such damage. Notwithstanding the foregoing, if the Leased Premises are (i) so destroyed that they cannot be repaired or rebuilt within three hundred sixty five (365) days from the casualty date; or (ii) destroyed by a casualty which is not covered by the insurance required hereunder; then either Landlord or Tenant may, upon thirty (30) days' written notice to the other party, terminate this Lease with respect to matters thereafter accruing. Tenant waives any right under applicable laws inconsistent with the terms of this paragraph. Notwithstanding the provisions of this paragraph, if any material damage or destruction which renders the Leased Premises untenantable occurs within the final two (2) years of the Lease Term, then either Landlord or Tenant may, without regard to the aforesaid 365-day period, terminate this Lease by written notice to the other party. Section 8.02. Fire and Extended Coverage Insurance. During the Lease Term, Landlord shall maintain "all-risk" fire and extended coverage insurance on the Building in an amount equal to the full insurable value of the Building and the initial tenant improvements constructed pursuant to Exhibit B, but shall not protect Tenant's personal property on the Leased Premises; and, notwithstanding the provisions of Section 9.01 and Section 9.03, neither party shall be liable for any damage to the other's property, regardless of cause, including the negligence of either party and its employees, agents and invitees. Tenant hereby expressly waives any right of recovery against Landlord for damage to any personal property of Tenant located in or about the Leased Premises, however caused, including the negligence of Landlord and its employees, agents and invitees. Notwithstanding the provisions of Section 9.01 below, Landlord hereby expressly waives any rights of recovery against Tenant for damage to the Leased Premises or the Building, however caused, including the negligence of Tenant and its employees, agents and invitees. All insurance policies maintained by Landlord or Tenant as provided in this Lease shall contain an agreement by the insurer waiving the insurer's right of subrogation against the other party to this Lease. ARTICLE 9 - LIABILITY INSURANCE Section 9.01. Tenant's Responsibility. Tenant shall assume the risk of, be responsible for, have the obligation to insure against, and indemnify Landlord and hold it harmless from any and all liability for any loss of or damage or injury to any person (including death resulting therefrom) or personal property occurring in the Leased Premises, regardless of cause, except for any loss or damage covered by Landlord's insurance as provided in Section 8.02 and except for that caused directly by the sole negligence of Landlord or its employees, agents, customers or invitees; and Tenant hereby releases Landlord from any and all liability for the same. Tenant's obligation to indemnify Landlord hereunder shall include the duty to defend against any claims asserted by reason of such loss, damage or injury and to pay any judgments, settlements, costs, fees and expenses, including 22 reasonable attorneys' fees, incurred in connection therewith. This provision shall survive the expiration or earlier termination of this Lease. Section 9.02. Tenant's Insurance. Tenant shall carry general public liability and property damage insurance, issued by one or more insurance companies reasonably acceptable to Landlord, with the following minimum coverages: (a) Worker's Compensation: minimum statutory amount. (b) Commercial General Liability Insurance, including blanket, contractual liability, broad form property damage, personal injury, completed operations, products liability, and fire damage: Not less than $3,000,000 Combined Single Limit for both bodily injury and property damage. (c) All Risk Coverage, Vandalism and Malicious Mischief, and Sprinkler Leakage insurance, if applicable, for the full cost of replacement of Tenant's property. The insurance policies shall protect Tenant and Landlord as their interests may appear, naming Landlord and Landlord's managing agent and mortgagee as additional insureds, and shall provide that they may not be canceled on less than thirty (30) days' prior written notice to Landlord. Tenant shall furnish Landlord with Certificates of Insurance evidencing all required coverages on or before the Commencement Date. If Tenant fails to carry such insurance and furnish Landlord with such Certificates of Insurance after a request to do so, Landlord may, upon written notice to Tenant, obtain such insurance and collect the cost thereof from Tenant. Section 9.03. Landlord's Responsibility. Landlord shall assume the risk of, be responsible for, have the obligation to insure against, and indemnify Tenant and hold it harmless from, any and all liability for any loss of or damage or injury to person (including death resulting therefrom) or property (other than Tenant's property as provided in Section 8.02) occurring in, on or about the Common Areas, regardless of cause, except for that caused by the sole negligence of Tenant or its employees, agents, customers or invitees; and Landlord hereby releases Tenant from any and all liability for the same. Landlord's obligation to indemnify Tenant hereunder shall include the duty to defend against any claims asserted by reason of such loss, damage or injury and to pay any judgments, settlements, costs, fees and expenses, including reasonable attorneys' fees, incurred in connection therewith. This provision shall survive the expiration or earlier termination of this Lease. ARTICLE 10 - EMINENT DOMAIN If all or any substantial part of the Building or Common Areas shall be acquired by the exercise of eminent domain, Landlord may terminate this Lease by giving written notice to Tenant on or before the date possession thereof is so taken. If all or any part of the Leased Premises, the Building or the Common Areas shall be acquired by the exercise of eminent domain so that the Leased Premises shall become impractical for Tenant to use for the Permitted Use, Tenant may terminate this Lease by giving written notice to Landlord as of the date possession thereof is so taken. If this Lease is terminated as provided above, this Lease shall cease and expire as if the date of transfer of possession of the Leased Premises, the Project or any portion thereof, was the expiration date of this Lease. In the event that this Lease is not terminated by either Landlord or Tenant as aforesaid, Tenant shall pay the Minimum Annual 23 Rent and all other rentals up to the date of possession of such portion of the Leased Premises so taken or condemned and this Lease shall thereupon cease and terminate with respect to such portion of the Leased Premises so taken or condemned as if the date of transfer of possession of the Leased Premises was the expiration date of the term of this Lease relating to such portion of the Leased Premises. Thereafter, the Minimum Annual Rental and Annual Rental Adjustment shall be adjusted on a pro rata, net rentable square foot basis. In the event of any such condemnation or taking and this Lease is not so terminated, Landlord shall promptly repair the Leased Premises or the Project, as the case may be, to Building Standard condition so that the remaining portion of the Leased Premises or the Project, as the case may be, shall constitute an architectural unit, fit for Tenant's occupancy and business. In the event of any temporary taking or condemnation for any public purpose of the Leased Premises or any portion thereof, this Lease shall continue in full force and effect except that Minimum Annual Rent and Annual Rental Adjustment shall be adjusted on a pro rata net rentable square foot basis for the period of time that the Leased Premises are so taken as of the date of transfer of possession of the Leased Premises. In the event of any condemnation or taking of the Leased Premises, Tenant hereby assigns to Landlord the value of all or any portion of the unexpired term of the Lease and all leasehold improvements and Tenant may not assert a claim for a condemnation award therefor; provided, however, Tenant may pursue a separate attempt to recover an award or compensation against or from the condemning authority for (i) the value of any fixtures, furniture, furnishings, improvements and other property which were condemned but which under the terms of this Lease Tenant is permitted to remove at the end of the Lease Term, (ii) the unamortized cost of any improvements to the Leased Premises made by Tenant, which are not so removable by Tenant at the end of the Lease Term but which were installed solely at Tenant's expense, (iii) relocation and moving expenses and (iv) compensation for loss to Tenant's business. ARTICLE 11 - ASSIGNMENT AND SUBLEASE Except as otherwise permitted in this Article 11, Tenant shall not assign this Lease or sublet the Leased Premises in whole or in part without Landlord's prior written consent, which consent shall not be unreasonably withheld, delayed or denied. Landlord shall be deemed to have consented to any request for consent to an assignment or sublet if Landlord shall not have responded within ten (10) business days of such request, provided such request specifically sets out the time limit for such response and specifies that Landlord shall be deemed to have consented if it fails to respond within such time period. In the event of any permitted assignment or subletting, Tenant shall remain primarily liable hereunder. The acceptance of rent from any other person shall not be deemed to be a waiver of any of the provisions of this Lease or to be a consent to the assignment of this Lease or the subletting of the Leased Premises. Except in connection with an assignment or a subletting to an Affiliate (as hereinafter defined), in the event that Tenant sublets the Leased Premises or any part thereof, or assigns this Lease and at any time receives rent and/or other consideration which exceeds that which Tenant would at that time be obligated to pay to Landlord, Tenant shall pay to Landlord fifty percent (50%) of the Net Profit (as hereinafter defined) as such rent is received by Tenant. Tenant agrees to reimburse Landlord for reasonable accounting and attorneys' fees incurred in conjunction with the processing and documentation of any requested assignment, subletting or any other hypothecation of this Lease or Tenant's interest in and to the Leased Premises (not to exceed $500.00). As used herein, the term "Net Profit" shall mean rent and/or other consideration received by Tenant for such sublease or assignment less all of Tenant's costs and expenses actually incurred associated therewith, including market brokerage fees, attorneys' fees, free rent, lease takeover payments, moving allowances and the cost of remodeling or otherwise improving the Leased Premises or providing an improvement allowance for said sublessee or assignee. 24 Notwithstanding the foregoing, Tenant may freely transfer and assign this Lease or sublet all or any portion of the Leased Premises (i) to any entity that controls, is controlled by or is under common control with, Tenant, (ii) to any entity resulting from a merger, acquisition, consolidation or reorganization of or with Tenant; or (iii) in connection with the sale of all or substantially all of the stock or assets of Tenant (any of the foregoing herein called an "AFFILIATE"), without having to obtain any consent or approval of Landlord; provided, however, that any such assignment or subletting shall not result in Tenant being released or discharged from any liability under this Lease except to the extent Tenant ceases to exist following any such merger or consolidation. Tenant shall provide Landlord with written notice of such assignment or subletting prior to or promptly following the effective date of such assignment or subletting. Notwithstanding anything to the contrary contained in this Article 11, provided Tenant gives Landlord at least fifteen (15) days advance written notice, Landlord's consent shall not be required to a subletting or assignment meeting the following criteria: (i) The proposed use: (a) is consistent with the Permitted Use hereunder and is comparable to the use of other Class A office buildings in the Sunrise/Sawgrass market area. (b) does not require services which would unreasonably burden the mechanical or electrical systems of the Building and which are not otherwise provided for in the Lease. (ii) The proposed sublessee/assignee is not a governmental subdivision or agency or an entity which enjoys diplomatic or sovereign immunity. ARTICLE 12 - SUBORDINATION; ESTOPPELS; TRANSFERS BY LANDLORD Subject to execution by Landlord, Tenant and the holder of the interest in question of an SNDA in the form described below, Landlord shall have the right to subordinate this Lease to any mortgage presently existing or hereafter placed upon the Building. In the event of a sale or transfer of Landlord's interest in this Lease (except a mortgage or other transfer as security for a debt), the "Landlord" named herein, or in the case of a subsequent transfer, upon the express written assumption by the transferee of all of Landlord's obligations, duties and liabilities arising from and after the date of transfer, the transferor shall, after the date of such transfer, be automatically released from all personal liability for the performance or observance of any term, condition, covenant or obligation thereafter accruing against Landlord, but Landlord shall not be released from any duties, obligations or liabilities accruing prior to the date of transfer or arising out of events that occur prior to the date of transfer. Within ten (10) business days following receipt of a written request from Landlord, Tenant shall execute and deliver to Landlord, without cost, any instrument which Landlord deems reasonably necessary to confirm the subordination of this Lease so long as such instrument is consistent with this Lease and the executed SNDA and so long as each successor acknowledges all of Tenant's rights under this Lease in a manner consistent with the executed SNDA. In addition, within ten (10) business days following receipt of a written request from either party hereunder, the other party shall execute and deliver to the requesting party an estoppel certificate in such form as the requesting party may reasonably request certifying, if true (i) that this Lease is in full force and effect and unmodified or stating the nature of any modification, (ii) the date to which rent has been paid, (iii) that there are not, to the certifying party's knowledge, any uncured defaults or specifying such defaults if any are claimed, and (iv) any other factual matters or state of facts reasonably required respecting the Lease. Such estoppel may be relied upon by the requesting 25 party. As a condition to Tenant's execution of this Lease, Landlord, Tenant and Landlord's mortgagee agree to execute a subordination, non-disturbance and attornment agreement in the form attached hereto as Exhibit I and by this reference made a part hereof (the "SNDA"). In addition, Tenant's agreement to subordinate to any future mortgage, deed of trust or ground lease shall be subject to the execution and delivery of a document substantially the same as the SNDA by Landlord, Tenant and each holder of a mortgage or deed of trust or ground lease, as the case may be, which may hereafter affect the Building or otherwise in form and substance reasonably satisfactory to Tenant; otherwise, this Lease shall be superior to any such future mortgage or deed of trust or ground lease. ARTICLE 13 - DEFAULT AND REMEDY Section 13.01. Default. The occurrence of any of the following shall be a "Default": (a) Tenant fails to pay any Monthly Rental Installment or Additional Rent within five (5) business days after written notice from Landlord that the same is due, or Tenant fails to pay any other amounts due Landlord from Tenant within thirty (30) business days after written notice that the same is due. Tenant hereby expressly waives any additional notice required under ss. 83.20 of the Florida Statutes. (b) Tenant fails to perform or observe any other term, condition, covenant or obligation required under this Lease for a period of thirty (30) days after notice thereof from Landlord; provided, however, that if the nature of Tenant's default is such that more than thirty days are reasonably required to cure, then such default shall be deemed to have been cured if Tenant commences such performance within said thirty-day period and thereafter diligently completes the required action within a reasonable time. (c) All or substantially all of Tenant's assets in the Leased Premises or Tenant's interest in this Lease are attached or levied under execution (and Tenant does not discharge the same within sixty (60) days thereafter); a petition in bankruptcy, insolvency or for reorganization or arrangement is filed by or against Tenant (and Tenant fails to secure a stay or discharge thereof within sixty (60) days thereafter); Tenant is insolvent and unable to pay its debts as they become due; Tenant makes a general assignment for the benefit of creditors; Tenant takes the benefit of any insolvency action or law; the appointment of a receiver or trustee in bankruptcy for Tenant or its assets if such receivership has not been vacated or set aside within thirty (30) days thereafter; or, dissolution or other termination of Tenant's corporate charter if Tenant is a corporation. Section 13.02. Remedies. Upon the occurrence of any Default, Landlord shall have the following rights and remedies, in addition to those allowed by law or in equity, any one or more of which may be exercised without further notice to Tenant: (a) Landlord may apply the Security Deposit or re-enter the Leased Premises and cure any default of Tenant, and Tenant shall reimburse Landlord as additional rent for any costs and expenses which Landlord thereby incurs; and Landlord shall not be liable to Tenant for any loss or damage which Tenant may sustain by reason of Landlord's action except as provided in Article 4 above or otherwise as arising out of Landlord's gross negligence or intentional misconduct. (b) Landlord may terminate this Lease or, without terminating this Lease, terminate Tenant's right to possession of the Leased Premises as of the date of such Default, and thereafter (i) neither Tenant nor any person claiming under or through Tenant shall be entitled to possession of the Leased Premises, 26 and Tenant shall immediately surrender the Leased Premises to Landlord; and (ii) Landlord may re-enter the Leased Premises and dispossess Tenant and any other occupants of the Leased Premises by any lawful means and may remove their effects, without prejudice to any other remedy which Landlord may have. Upon the termination of this Lease, Landlord may declare the present value (discounted at the Prime Rate) of all rent which would have been due under this Lease for the balance of the Lease Term to be immediately due and payable, whereupon Tenant shall be obligated to pay the same to Landlord, together with all other reasonable loss or damage which Landlord may sustain by reason of Tenant's default, which shall include without limitation expenses of preparing the Leased Premises for re-letting, demolition, repairs, tenant finish improvements, brokers' commissions and reasonable attorneys' fees, less the reasonable rental value of the Leased Premises for the remainder of the Lease Term had the Lease not been so terminated (the "DEFAULT DAMAGES"), it being expressly understood and agreed that the liabilities and remedies specified in this subsection (b) shall survive the termination of this Lease. (c) Landlord may, without terminating this Lease, re-enter the Leased Premises and re-let all or any part thereof for a term different from that which would otherwise have constituted the balance of the Lease Term and for rent and on terms and conditions different from those contained herein, whereupon Tenant shall be immediately obligated to pay to Landlord as liquidated damages the present value (discounted at the Prime Rate) of the difference between the rent provided for herein and that provided for in any lease covering a subsequent re-letting of the Leased Premises, for the period which would otherwise have constituted the balance of the Lease Term, together with all of Landlord's Default Damages. (d) Landlord may sue for injunctive relief or to recover damages for any loss resulting from the Default. Notwithstanding anything to the contrary contained in the Lease, Landlord agrees to use commercially reasonable efforts to mitigate Landlord's damages.. Section 13.03. Landlord's Default and Tenant's Remedies. (a) If Landlord fails to pay any amounts due to Tenant under this Lease and shall not cure such failure within ten (10) business days following Tenant's written notice to Landlord (and to the holder of any mortgage of which Tenant shall have been notified in writing) or, if Landlord fails to keep or perform any of its obligations under this Lease and shall not cure such failure within thirty (30) days following Tenant's written notice to Landlord (and to the holder of any mortgage of which Tenant shall have been notified in writing), Landlord shall be in default under this Lease; provided, however, if the failure is of a nature that such failure cannot be cured within thirty (30) days, Landlord shall not be in default so long as Landlord commences the cure within such thirty (30) day period and diligently and continuously pursues the cure to completion as soon as reasonably possible. Upon the occurrence of any default by Landlord hereunder, Tenant may, in addition to any rights and remedies allowed by law or in equity, pursue any one or more of the following remedies: (i) take any and all action reasonably necessary to cure Landlord's default; or (ii) if Tenant either (a) obtains a written decision from an arbitration tribunal in an arbitration proceeding providing for a monetary remedy (in whole or in part), or (b) obtains a monetary judgment against Landlord, then Tenant may offset the amount of such judgment or decision against Minimum Annual Rent and Annual Rental Adjustment or other payments thereafter coming due from Tenant to Landlord pursuant to this Lease, in an amount not to exceed fifty percent (50%) of any Minimum Annual Rent and Annual Rental Adjustments until such time as Tenant must offset against 100% of the remaining Minimum Annual Rent and Annual Rental Adjustment to recoup the amount of such judgment or decision. 27 (c) If and only if, as a result of a Landlord default in its obligations hereunder, Tenant's use of a substantial portion of the Leased Premises for normal business operations has been materially and adversely affected such that Tenant cannot conduct business within the Leased Premises (or any material portion thereof), Tenant may terminate this Lease; provided, however, Tenant may not exercise this termination right until after the thirty (30) day cure period provided to Landlord above has expired and Tenant has provided the holder of any mortgage (of which Tenant has been provided written notice) written notice of the Landlord default and afforded such holder an additional twenty (20) days opportunity to cure Landlord's failure (or if such failure cannot reasonably be cured within such twenty (20) day period, Tenant may not terminate if the holder of such mortgage commences the cure within such twenty (20) day period and diligently pursues the cure to completion. Section 13.04. Limitation of Landlord's Liability. If Landlord shall fail to perform any term, condition, covenant or obligation required to be performed by it under this Lease and if Tenant shall, as a consequence thereof, recover a money judgment against Landlord, Tenant agrees that it shall look solely to Landlord's right, title and interest in and to the Building and the Land, the rent and other income derived therefrom, casualty insurance proceeds or condemnation awards not used for restoration and any proceeds of sale of the Building or the Land, for the collection of such judgment; and Tenant further agrees that no other assets of Landlord shall be subject to levy, execution or other process for the satisfaction of Tenant's judgment. Landlord hereby specifically acknowledges and agrees that Tenant may offset against Minimum Annual Rent and Annual Rental Adjustment any unsatisfied judgment against Landlord as provided in Section 13.03 above. The provision contained in the foregoing sentence is not intended to, and shall not, limit any right that Tenant might otherwise have to obtain injunctive relief against Landlord or Landlord's successors in interest or any suit or action in connection with enforcement or collection of amounts which become owing or payable under or on account of insurance maintained by Landlord. Section 13.05. Nonwaiver of Defaults. Neither party's failure or delay in exercising any of its rights or remedies or other provisions of this Lease shall constitute a waiver thereof or affect its right thereafter to exercise or enforce such right or remedy or other provision. No waiver of any default shall be deemed to be a waiver of any other default. Landlord's receipt of less than the full rent due shall not be construed to be other than a payment on account of rent then due, nor shall any statement on Tenant's check or any letter accompanying Tenant's check be deemed an accord and satisfaction. No act or omission by Landlord or its employees or agents during the Lease Term shall be deemed an acceptance of a surrender of the Leased Premises, and no agreement to accept such a surrender shall be valid unless in writing and signed by Landlord. Section 13.06. Attorneys' Fees. If either party defaults in the performance or observance of any of the terms, conditions, covenants or obligations contained in this Lease and the non-defaulting party obtains a judgment against the defaulting party, then the defaulting party agrees to reimburse the non-defaulting party for reasonable attorneys' fees incurred in connection therewith. ARTICLE 14 - LANDLORD'S RIGHT TO RELOCATE TENANT Intentionally omitted. 28 ARTICLE 15 - TENANT'S RESPONSIBILITY REGARDING ENVIRONMENTAL LAWS AND HAZARDOUS SUBSTANCES Section 15.01. Environmental Definitions. A. "Environmental Laws" - All present or future federal, state and municipal laws, ordinances, rules and regulations applicable to the environmental and ecological condition of the Leased Premises, the rules and regulations of the Federal Environmental Protection Agency or any other federal, state or municipal agency or governmental board or entity having jurisdiction over the Leased Premises. B. "Hazardous Substances" - Those substances included within the definitions of "hazardous substances," "hazardous materials," "toxic substances" "solid waste" or "infectious waste" under Environmental Laws. 29 Section 15.02. Compliance. Tenant, at its sole cost and expense, shall promptly comply with the Environmental Laws including any notice from any source issued pursuant to the Environmental Laws or issued by any insurance company which shall impose any duty upon Tenant with respect to the use, occupancy, maintenance or alteration of the Leased Premises whether such notice shall be served upon Landlord or Tenant. Landlord shall be obligated to deliver the Leased Premises to Tenant in compliance with all Applicable Laws, including all Environmental Laws, and Landlord shall be obligated, at Landlord's sole expense, to remedy any violations of Applicable Laws in the Base Building Condition including, without limitation, the Americans with Disabilities Act, that exist at the time the Leased Premises are delivered to Tenant; provided, however, that Landlord shall not be responsible for violations of Applicable Laws relating to the Improvement Work except to the extent that such Improvement Work is not constructed in accordance with the Plans and Specifications. Landlord shall comply with all Environmental Laws with respect to the operation of the Building and the Land. Landlord shall not cause or permit the use, generation, storage, release, disposal in or about the Building, or any portion thereof, of any Hazardous Substances. Landlord shall not permit the use of any Hazardous Substances, including without limitation, asbestos, in the construction of any portion of the Building. Section 15.03. Restrictions on Tenant. Tenant shall operate its business and maintain the Leased Premises in compliance with all Environmental Laws. Tenant shall not cause the use, generation, release, manufacture, refining, production, processing, storage or disposal of any Hazardous Substances on, under or about the Leased Premises, or the transportation to or from the Leased Premises of any Hazardous Substances, except as necessary and appropriate for its Permitted Use in which case the use, storage or disposal of such Hazardous Substances shall be performed in compliance with the Environmental Laws and the highest standards prevailing in the industry. Section 15.04. Notices, Affidavits, Etc. Tenant and Landlord shall each immediately notify the other of (i) any violation of the Environmental Laws on, under or about the Leased Premises, the Land or the Building, or (ii) the presence or suspected presence of any Hazardous Substances on, under or about the Leased Premises, the Land or the Building and shall immediately deliver to the other any notice received by such party relating to (i) and (ii) above from any source. Tenant and Landlord shall execute affidavits, representations and the like within five (5) days of the other party's request therefor concerning such party's best knowledge and belief regarding the presence of any Hazardous Substances on, under or about the Leased Premises, the Land or the Building. Section 15.05. Landlord's Rights. Landlord and its agents shall have the right, but not the duty, upon advance notice (except in the case of emergency when no notice shall be required) to inspect the Leased Premises and conduct tests thereon to determine whether or the extent to which there has been a violation of Environmental Laws by Tenant or whether there are Hazardous Substances on, under or about the Leased Premises. In exercising its rights herein, Landlord shall use reasonable efforts to minimize interference with Tenant's business but such entry shall not constitute an eviction of Tenant, in whole or in part, and Landlord shall not be liable for any interference, loss, or damage to Tenant's property or business caused thereby. 30 Section 15.06. Indemnification. Tenant shall indemnify Landlord and Landlord's managing agent from any and all claims, losses, liabilities, costs, expenses and damages, including reasonable attorneys' fees, costs of testing and remediation costs, incurred by Landlord in connection with any breach by Tenant of its obligations under this Article 15. Landlord shall indemnify Tenant from any and all claims, losses, liabilities, costs, expenses and damages, including reasonable attorneys' fees, costs of testing and remediation costs, incurred by Tenant in connection with Landlord's violation of Environmental Laws. The covenants and obligations under this Article 15 shall survive the expiration or earlier termination of this Lease. Section 15.07. Existing Conditions. Notwithstanding anything contained in this Article 15 to the contrary, Tenant shall not have any liability to Landlord under this Article 15 resulting from any conditions existing, or events occurring, or any Hazardous Substances existing or generated, at, in, on, under or in connection with the Leased Premises, the Land or the Building prior to the Commencement Date of this Lease, except to the extent Tenant exacerbates the same. ARTICLE 16 - MISCELLANEOUS Section 16.01. Benefit of Landlord and Tenant. This Lease shall inure to the benefit of and be binding upon Landlord and Tenant and their respective successors and assigns. Section 16.02. Governing Law. This Lease shall be governed in accordance with the laws of the State where the Building is located. Section 16.03. Secure Areas. Landlord acknowledges and agrees that the Premises shall from time to time include files, materials, information, documents, work product and similar items which are proprietary to Tenant and are strictly confidential (collectively, the "CONFIDENTIAL INFORMATION"). Landlord covenants and agrees that it shall take all reasonable steps to ensure that the Confidential Information is not disclosed, transferred, utilized, reproduced, disseminated to or discussed with any person by Landlord, its employees, invitees, independent contractors or any other representatives of Landlord, and Landlord shall take all steps necessary to prevent any employee, invitee, independent contractor or other representative of Landlord from violating the terms of this Section 16.03. Landlord acknowledges that disclosure of the Confidential Information would result in irreparable injury to Tenant and by reason thereof, Landlord consents and agrees that Tenant shall be entitled to an injunction to be issued by any court of competent jurisdiction restraining Landlord and anyone covered by this Section 16.03 from committing or continuing such violation. The obligation of Landlord to maintain confidentiality shall survive the termination of this Lease. Further, Tenant shall have the right to designate certain areas of the Leased Premises as "Secured Areas" which Landlord shall not have access to, except in the event of an emergency. In that regard, Landlord hereby agrees that in the event Landlord deems it necessary to enter such Secured Areas due to an emergency, any documents, information or other items contained in such Secured Areas shall be deemed to be Confidential Information. 31 Section 16.04. Force Majeure. Landlord and Tenant (except with respect to the payment of any monetary obligation) shall be excused for the period of any delay in the performance of any obligation hereunder when such delay is occasioned by causes beyond its control, including but not limited to work stoppages, boycotts, slowdowns or strikes; shortages of materials, equipment, labor or energy; unusual weather conditions; or acts or omissions of governmental or political bodies. Notwithstanding anything in this Lease to the contrary, any Force Majeure claim shall only be effective if written notice is provided by the party claiming the Force Majeure event to the other within two (2) business days after discovery of the event triggering the Force Majeure claim and any Force Majeure event shall only be grounds for a delay directly and reasonably attributable to such Force Majeure event. Section 16.05. Examination of Lease. Submission of this instrument for examination or signature to Tenant does not constitute a reservation of or option for Lease, and it is not effective as a Lease or otherwise until execution by and delivery to both Landlord and Tenant. Section 16.06. Indemnification for Leasing Commissions. The parties hereby represent and warrant that the only real estate brokers involved in the negotiation and execution of this Lease are the Brokers. Each party shall indemnify the other from any and all liability for the breach of this representation and warranty on its part and shall pay any compensation to any other broker or person who may be entitled thereto. The parties acknowledge that certain officers, directors, shareholders, or partners of Landlord or its general partner(s), are licensed real estate brokers and/or salesmen under the laws of the State of Florida. Tenant consents to such parties acting in such dual capacities. Landlord hereby agrees to pay Brokers their respective leasing commissions pursuant to a separate agreement between each Broker and Landlord. Section 16.07. Notices. Any notice required or permitted to be given under this Lease or by law shall be deemed to have been given if it is written and delivered in person or by overnight courier or mailed by certified mail, postage prepaid, to the party who is to receive such notice at the address specified in Article 1. If sent by overnight courier, the notice shall be deemed to have been given one (1) business day after sending. If mailed, the notice shall be deemed to have been given on the date which is three (3) business days following mailing. Either party may change its address by giving written notice thereof to the other party. Section 16.08. Partial Invalidity; Complete Agreement. If any provision of this Lease shall be held to be invalid, void or unenforceable, the remaining provisions shall remain in full force and effect. This Lease represents the entire agreement between Landlord and Tenant covering everything agreed upon or understood in this transaction. There are no oral promises, conditions, representations, understandings, interpretations or terms of any kind as conditions or inducements to the execution hereof or in effect between the parties. No change or addition shall be made to this Lease except by a written agreement executed by Landlord and Tenant. 32 Section 16.09. Special Stipulations. Attached hereto as Exhibit E are Special Stipulations which are incorporated herein by this reference. In the event of any inconsistency or conflict between the Special Stipulations and the provisions of the body of this Lease, the Special Stipulations shall control. Section 16.10. Signage. Tenant shall have the right to install Tenant's signage on two (2) of the exterior elevations (as selected by Tenant) of the Building (which may be illuminated). Landlord shall not permit any other Building signage; provided, however, in the event that Tenant fails to occupy at least 80,000 square feet of Rentable Area in the Building, Landlord shall be permitted to install signage on the two (2) remaining exterior elevations of the Building for any single tenant occupying at least the square feet of Rentable Area then occupied by Tenant in the Building. In addition to the foregoing, Landlord shall provide Tenant with internal directory signage and Tenant's prorata share of and top location on any multi-tenant exterior monument signage constructed by Landlord. No internal Building or tenant signage shall otherwise be permitted. Such Building signage and monument panel shall be at Tenant's expense. Landlord shall provide a Building directory reasonably satisfactory to Tenant. Tenant shall place no other exterior signs on the Leased Premises without the prior written consent of Landlord. Any signs not in conformity with the Lease may be immediately removed by Landlord. Section 16.11. Consent. Except as may be expressly provided herein, where the consent of a party is required, such consent will not be unreasonably withheld, conditioned or delayed. Section 16.12. Parking. Tenant shall be entitled to use on a non-exclusive basis parking spaces in the Project based on a ratio of 5.7 parking spaces per thousand square feet of Leased Premises for the first 150,000 square feet of Rentable Area, based on a ratio of 5.0 parking spaces per thousand square feet for the next 40,000 square feet of additional Rentable Area and based on a ratio of 4.0 parking spaces per thousand square feet for any additional Rentable Area thereafter, and shall otherwise park in common with other tenants of Landlord. Included in the parking ratios, Landlord shall provide to Tenant ten (10) marked visitor parking spaces (in close proximity to the Building) for exclusive use by Tenant's visitors and guests. Subject to the immediately preceding sentence, Tenant agrees not to overburden the parking facilities and agrees to cooperate with Landlord and other tenants in the use of parking facilities. Landlord reserves the right in its absolute discretion to determine whether parking facilities are becoming crowded and, in such event, to allocate parking spaces among Tenant and other tenants. In addition to the visitors spaces, but included within the parking ratio, for every thousand square feet of Leased Premises, Landlord shall designate one (1) reserved parking space for Tenant's exclusive use at a location reasonably determined by Landlord. Subject to the foregoing, there will be no assigned parking unless Landlord, in its sole discretion, may deem advisable. No vehicle may be repaired or serviced in the parking area and any vehicle deemed abandoned by Landlord will be towed from the project and all costs therein shall be borne by the Tenant. All driveways, ingress and egress, and all parking spaces are for the joint use of all tenants. There shall be no parking permitted on any of the streets or roadways located within the Park. Section 16.13. Time. Time is of the essence of each term and provision of this Lease. 30 33 Section 16.14. Representations and Warranties. The undersigned represent and warrant that (i) such party is duly organized, validly existing and in good standing (if applicable) in accordance with the laws of the state under which it was organized; (ii) the Tenant is authorized to do business in the State where the Building is located; and (iii) the individual executing and delivering this Lease has been properly authorized to do so, and such execution and delivery shall bind such party. Section 16.15. Radon Gas. Radon Gas is a naturally occurring radioactive gas that, when it has accumulated in a building in sufficient quantities, may present health risks to persons who are exposed to it over time. Levels of radon that exceed federal and state guidelines have been found in buildings in Florida. Additional information regarding radon and radon testing may be obtained from your county public health unit. Section 16.16. Compliance With Laws. Landlord, at Landlord's sole cost and expense, shall ensure that as of the Commencement Date, the Building and the Leased Premises are in compliance with all Applicable Laws governing the Leased Premises (provided, however, that Landlord shall not be responsible for violations of Applicable Laws relating to the Improvement Work except to the extent that such Improvement Work is not constructed in accordance with the Plans and Specifications), including but not limited to, the Americans With Disabilities Act, excepting only that Tenant shall be responsible during the term of this Agreement for such costs and expenses as may be required as a direct result of Tenant's particular use of the Leased Premises or Tenant's alterations to the Leased Premises. Section 16.17 Complete Agreement. There are no oral agreements between Landlord and Tenant affecting this Lease, and this Lease supercedes and cancels any and all previous negotiations, arrangements, agreements and understandings, if any, between Landlord and Tenant with respect to the subject matter of this Lease or the Building. IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the day and year first above written. Signed and delivered LANDLORD: as to Landlord, in the presence of: DUKE-WEEKS REALTY LIMITED PARTNERSHIP, an Indiana limited partnership - --------------------------- Unofficial Witness By: Duke-Weeks Realty Corporation, its General Partner - --------------------------- Unofficial Witness By: --------------------------- Name: ------------------------- Title: ------------------------- 34 Signed and delivered TENANT: as to Tenant, in the presence of: AMERICAN CLASSIC VOYAGES CO. - --------------------------- Unofficial Witness By: --------------------------- - --------------------------- Name: Unofficial Witness ------------------------- Title: ------------------------- 35 EXHIBIT A LEGAL DESCRIPTION OF LAND 36 EXHIBIT B CONSTRUCTION AGREEMENT 37 EXHIBIT C COMMENCEMENT DATE AGREEMENT Re: Office Lease dated November ___, 2000, by and between Duke-Weeks Realty Limited Partnership, as Landlord, and American Classic Voyages Co., as Tenant (the "Lease") Pursuant to Article 1 of the captioned Lease, the undersigned agree as follows: 1. The Commencement Date of the Lease is _______________________________, 200__. 2. The expiration date of the Lease is the ____ day of ___________________, _____, unless sooner terminated pursuant to the Lease or unless extended pursuant to the Lease. 3. The number of square feet of Rentable Area within the Leased Premises is _____________. 4. The number of square feet of Rentable Area within the Building is ___________________. 5. Tenant's Proportionate Share of the Building is _______________. 6. The Building address is _______________________________________________. This ____ day of _________________________, 200__. Signed and delivered LANDLORD: as to Landlord, in the presence of: DUKE-WEEKS REALTY LIMITED PARTNERSHIP, an Indiana limited partnership - --------------------------- Unofficial Witness By: Duke-Weeks Realty Corporation, its General Partner - --------------------------- Unofficial Witness By: -------------------------- Name: ------------------------ Title: ------------------------ Signed and delivered TENANT: as to Tenant, in the presence of: AMERICAN CLASSIC VOYAGES CO. - --------------------------- Unofficial Witness By: --------------------------- ___________________________ Name: Unofficial Witness ------------------------- Title: ------------------------- 38 EXHIBIT D RULES AND REGULATIONS 1. The sidewalks, entrances, passages, courts, elevators, vestibules, stairways, corridors or halls shall not be obstructed or used for any purpose other than ingress and egress. 2. No awnings or other projections shall be attached to the outside walls of the Building. No curtains, blinds, shades or screens shall be attached to or hung in, or used in connection with, any window or door of the Leased Premises other than Landlord standard blinds without Landlord's prior written approval, which approval shall not be unreasonably withheld, delayed or conditioned. All electric ceiling fixtures hung in offices or spaces along the perimeter of the Building must be fluorescent, of a quality, type, design and bulb color reasonably approved by Landlord. Neither the interior nor the exterior of any exterior windows shall be coated or otherwise sunscreened without written consent of Landlord. 3. No sign, advertisement, notice or handbill shall be exhibited, painted or affixed by any tenant on, about or from any part of the Leased Premises or the Building without the prior written consent of Landlord. In the event of the violation of the foregoing by any tenant, Landlord may remove or stop same without any liability, and may charge the expense incurred in such removal or stopping to tenant. Standard interior signs on doors and lobby directory shall be inscribed, painted or affixed for each tenant by Landlord, and shall be of a size, color and style reasonably acceptable to Landlord. The lobby directory will be provided exclusively for the display of the name and location of tenants only, and Landlord reserves the right to exclude any other names therefrom. Nothing may be placed on the exterior of corridor walls or corridor doors other than Landlord's standard lettering except as otherwise provided in the Lease. 4. The sinks and toilets and other plumbing fixtures shall not be used for any purpose other than those for which they were constructed, and no sweepings, rubbish, rags, or other substances shall be thrown therein. Subject to Section 8.02 of the Lease, all damages resulting from any misuse of the fixtures shall be borne by the tenant who, or whose subtenants, assignees or any of their servants, employees, agents, visitors or licensees shall have caused the same. 5. Tenant shall not cover or obstruct the windows or glass that is exposed to the common corridors or lobby area of the Building. 6. Except as otherwise permitted by the Lease, Tenant shall not mark, paint, drill into, or in any way deface any part of the Leased Premises or the Building. Except as otherwise permitted by the Lease, no boring, cutting or stringing of wires or laying of linoleum or other similar floor coverings shall be permitted, except with the prior written consent of the Landlord and as the Landlord may direct, which consent shall not be unreasonably withheld, delayed or conditioned. Landlord shall direct electricians as to where and how telephone or telegraph wires are to be introduced. The location of telephones, call boxes and other office equipment affixed to the Leased Premises shall be subject to the reasonable approval of Landlord. 7. No bicycles, vehicles, birds or animals of any kind (except seeing eye dogs) shall be brought into or kept in or about the Leased Premises. Tenant shall not cause any objectionable odors to be produced from and permeate the Leased Premises. 39 8. The Leased Premises shall not be used for manufacturing or for the storage of merchandise except as such storage may be incidental to the permitted use of the Leased Premises. No tenant shall occupy or permit any portion of the Leased Premises to be occupied as an office for the manufacture or sale of liquor, narcotics, or tobacco in any form, or as a medical office, or as a barber or manicure shop, or an employment bureau without the express written consent of Landlord. The Leased Premises shall not be used for lodging or sleeping or for any immoral or illegal purpose. 9. No tenant shall unreasonably disturb or interfere with occupants of the Building or those having business with them, whether by the use of any musical instrument, radio, phonograph, unusual noise, or in any other way. No tenant shall throw anything out of doors, windows or down the passageways. 10. No tenant, subtenant or assignee nor any of its servants, employees, agents, visitors or licensees, shall at any time bring or keep upon the Leased Premises any inflammable, combustible or explosive fluid, chemical or substance or firearm, except such cleaning materials or other materials customarily utilized in first class office buildings. 11. No additional locks or bolts of any kind shall be placed upon any of the doors or windows by any tenant, nor shall any changes be made in existing locks or the mechanism thereof. Each tenant must upon the termination of his tenancy, restore to the Landlord all keys of doors, offices, and toilet rooms, either furnished to, or otherwise procured by, such tenant and in the event of the loss of keys so furnished, such tenant shall pay to the Landlord the cost of replacing the same. Tenant may maintain certain secure areas so long as Landlord has access to such secure areas in the event of an emergency. 12. Tenant shall not overload the floors of the Leased Premises. Subject to Section 8.02 of the Lease, all damage to the floor, structure or foundation of the Building due to improper positioning or storage items or materials shall be repaired by Landlord at the sole cost and expense of Tenant, who shall reimburse Landlord immediately therefor upon demand. All removals or the carrying in or out of any safes, freight, furniture, or bulky matter of any description must take place during the hours which Landlord shall reasonably determine from time to time. The moving of safes or other fixtures or bulky matter of any kind must be done upon previous notice to the superintendent of the Building and under his supervision, and the persons employed by any tenant for such work must be reasonably acceptable to Landlord. Landlord reserves the right to inspect all safes, freight or other bulky articles to be brought into the Building and to exclude from the Building all safes, freight or other bulky articles which violate any of these Rules and Regulations or the Lease of which these Rules and Regulations are a part. The Landlord reserves the right to prescribe the weight and position of all safes, which must be placed upon supports approved by Landlord to distribute the weight. 13. No tenant shall purchase janitorial or maintenance or other like services, from any person or persons not approved by Landlord, which approval shall not be unreasonably withheld, delayed or conditioned. 14. Landlord reserves the right to require all persons entering the Building between the hours of 6 p.m. and 8 a.m. and at all hours on Sunday and legal holidays to register with Landlord's security personnel. Each tenant shall be responsible for all persons entering the Building at tenant's invitation, express or implied. Landlord shall in no case be liable for damages for any error with regard to the admission to or exclusion from the Building of any person. In case of an invasion, mob riot, public excitement or other circumstances rendering such action advisable in Landlord's opinion, Landlord reserves the right without any abatement of rent to require all persons to vacate the Building and to prevent access to the Building 40 during the continuance of the same for the safety of the tenants and the protection of the Building and the property in the Building. 15. Any persons employed by any tenant to do janitorial work or other work in the Leased Premises shall, while in the Building and outside of the Leased Premises, be subject to and under the control and direction of the superintendent of the Building (but not as an agent or servant of said superintendent or of the Landlord), and tenant shall be responsible for all acts of such persons. 16. In the event Tenant has any questions or requests in regard to the Leased Premises, such questions or requests shall be initially directed to the Property Manager for the Building. 17. Canvassing, soliciting and peddling in the Building are prohibited, and each tenant shall cooperate to prevent the same. 18. All office equipment of any electrical or mechanical nature shall be placed by tenant in the Leased Premises in settings which will absorb or prevent any unreasonable vibration, noise and annoyance. 19. No air-conditioning unit or other similar apparatus shall be installed or used by any tenant without the written consent of Landlord, which consent shall not be unreasonably withheld, delayed or conditioned. 20. There shall not be used in any space, or in the public halls of the Building, either by any tenant or others, any hand trucks except those equipped with rubber tires and rubber side guards. 21. The scheduling of tenant move-ins shall be subject to the reasonable discretion of Landlord. 22. The Building is a smoke-free Building. Smoking is strictly prohibited within the Building. Smoking shall only be allowed in areas designated as a smoking area by Landlord. Tenant and its employees, representatives, contractors or invitees shall not smoke within the Building or throw cigar or cigarette butts or other substances or litter of any kind in or about the Building, except in receptacles placed in it for that purpose. 23. Parking spaces associated with the Building are intended for the exclusive use of passenger automobiles. Except for intermittent deliveries, no vehicles other than passenger automobiles may be parked in a parking space without the express written permission of Landlord. 24. Tenant shall be responsible for and cause the proper disposal of medical waste, if any, including hypodermic needles, created by its employees. It is Landlord's desire to maintain in the Building the highest standard of dignity and good taste consistent with comfort and convenience for tenants. Any action or condition not meeting this high standard should be reported directly to Landlord. The Landlord reserves the right to make such other and further reasonable rules and regulations as in its judgment may from time to time be necessary for the safety, care and cleanliness of the Building, and for the preservation of good order therein. 41 EXHIBIT E SPECIAL STIPULATIONS 1 . Expansion Options. Tenant shall have the option to expand the Leased Premises into the space and pursuant to the time schedules described as follows: 1.1 Fifth Year Expansion Option. Provided that, at the time of the exercise of this option, this Lease is in effect and no event of Default beyond any applicable cure period then exists, Tenant shall have the option to expand the Leased Premises by up to 20,000 square feet of Rentable Area (as determined by Tenant) (hereinafter the "FIFTH YEAR EXPANSION SPACE"). Tenant shall exercise this option, if at all, by written notice to Landlord on or before the forty-second (42nd) month anniversary of the Commencement Date. The Fifth Year Expansion Space shall be either internally contiguous or contiguous with other space leased by Tenant and on contiguous floors and shall have a configuration that is commercially usable and which shall have an approximately proportionate share of the exterior window walls on the applicable floor of the Building. The lease of the Fifth Year Expansion Space shall commence, at Landlord's option, at any time between the sixtieth (60th) and the sixty sixth (66th) month of the Lease Term, upon the same terms and conditions contained in the Lease except the Minimum Annual Rent for the Fifth Year Expansion Space shall be the Market Rate (as hereafter defined) and provided that the Minimum Annual Rent and Annual Rental Adjustment shall commence on the earlier to occur of (i) ninety (90) days following the date that Landlord delivers the Fifth Year Expansion Space to Tenant for commencement of construction of tenant improvements therein, or (ii) the date that Tenant occupies such Fifth Year Expansion Space for business purposes. All tenant improvements in all portions of the Fifth Year Expansion Space which have been previously improved for another tenant shall be delivered to and accepted by Tenant in an "as is" condition. 1.2 Seventh Year Expansion Option. Provided that Tenant has not exercised the option for the Fifth Year Expansion Space and, at the time of the exercise of this option, this Lease is in effect and no event of Default beyond any applicable cure period then exists, Tenant shall have the option to expand the Leased Premises by up to 20,000 square feet of Rentable Area (as determined by Tenant) (hereinafter the "SEVENTH YEAR EXPANSION Space"). Tenant shall exercise this option, if at all, by written notice to Landlord on or before the sixty-sixth (66th) month anniversary of the Commencement Date. The Seventh Year Expansion Space shall be either internally contiguous or contiguous with other space leased by Tenant and on contiguous floors and shall have a configuration that is commercially usable and which shall have an approximately proportionate share of the exterior window walls on the applicable floor of the building. The lease of the Seventh Year Expansion Space shall commence, at Landlord's option, at any time between the eighty-fourth (84th) and ninetieth (90th) month of the Lease Term, upon the same terms and conditions contained in the Lease except the Minimum Annual Rent for the Seventh Year Expansion Space shall be the Market Rate (as hereafter defined) and provided that the Minimum Annual Rent and Annual Rental Adjustment shall commence on the earlier to occur of (i) ninety (90) days following the date that Landlord delivers the Seventh Year Expansion Space to Tenant for commencement of construction of tenant improvements therein, or (ii) the date that Tenant occupies such Seventh Year Expansion Space for business purposes. All tenant improvements in all portions of the Seventh Year Expansion Space which have been previously improved for another tenant shall be delivered to and accepted by Tenant in an "as is" condition. 1.3 Tenth Year Expansion Option. Provided that, at the time of the exercise of this option, this Lease is in effect and no event of Default beyond any applicable cure period then exists, Tenant shall 42 have the option to expand the Leased Premises by up to 20,000 square feet of Rentable Area (as determined by Tenant) (hereinafter the "TENTH YEAR EXPANSION SPACE"). Tenant shall exercise this option, if at all, by written notice to Landlord on or before the one hundred second (102nd) month anniversary of the Commencement Date. The Tenth Year Expansion Space shall be either internally contiguous or contiguous with other space leased by Tenant and on contiguous floors and shall have a configuration that is commercially usable and which shall have an approximately proportionate share of the exterior window walls on the applicable floor of the building. The lease of the Tenth Year Expansion Space shall commence, at Landlord's option, at any time between the one hundred twentieth (120th) and the one hundred twenty sixth (126th) month of the Lease Term, upon the same terms and conditions contained in the Lease except the Minimum Annual Rent for the Tenth Year Expansion Space shall be the Market Rate (as hereafter defined) and provided that the Minimum Annual Rent and Annual Rental Adjustment shall commence on the earlier to occur of (i) ninety (90) days following the date that Landlord delivers the Tenth Year Expansion Space to Tenant for commencement of construction of tenant improvements therein, or (ii) the date that Tenant occupies such Tenth Year Expansion Space for business purposes. All tenant improvements in all portions of the Tenth Year Expansion Space which have been previously improved for another tenant shall be delivered to and accepted by Tenant in an "as is" condition. 1.4 Result of Exercise. The Fifth Year Expansion Space, the Seventh Year Expansion Space and the Tenth Year Expansion Space are sometimes severally and collectively referred to in this Lease as the "Expansion Space". Any Expansion Space as to which Tenant has properly exercised its option in accordance with this Section 1 shall be leased by Tenant from Landlord for the balance of the Lease Term on the terms and conditions of this Lease then, and from time to time thereafter, in effect except as specifically set forth above. Tenant shall not have the right to exercise any expansion option for less than 5,000 square feet of Rentable Area. Landlord shall provide Tenant not less than six (6) month's written notice of the date that the applicable Expansion Space will be delivered to Tenant for commencement of construction of tenant improvements therein. Upon Tenant's exercise of its expansion option, Landlord and Tenant shall enter into an amendment to this Lease for the applicable expansion option space to reflect the addition of such expansion space to the Leased Premises. All tenant improvements in all portions of the Expansion Space which have been previously improved for another tenant shall be delivered to and accepted by Tenant in an "as is" condition. With respect to any other portions of Expansion Space which have not been previously improved for any other tenant (i) Landlord shall be responsible for the Base Building Work (as defined in Exhibit B) thereto and (ii) Landlord will complete such Base Building Work prior to the date that such Expansion Space is made available to Tenant for the commencement of the Improvement Work. 1.5 Market Rate. Market Rate, as used herein, shall mean the then (as of the date of such determination) fair market rental value of the Leased Premises or applicable Expansion Space, as the case may be, determined in accordance with the provisions set forth below. Following Tenant's exercise of an expansion option or the renewal option, Landlord and Tenant shall have thirty (30) days thereafter to agree upon the Market Rate to be paid by Tenant to Landlord for the Leased Premises or the applicable Expansion Space, as the case may be, it being intended that the rental for the Leased Premises or such Expansion Space shall be equal to one hundred percent (100%) of what a willing, comparable new non-equity tenant would pay and receive and what a willing, comparable landlord of a comparable Class A office building in the Sunrise/Sawgrass market area would give at arms length, as rent, concessions, tenant improvement allowances, other allowances, brokerage commissions, inducements and other economic considerations for the lease of space comparable to the Leased Premises or the Expansion Space, as the case may be, for which the Market Rate is being determined, taking into account all relevant factors applicable to the lease of such space for the duration of the Lease Term or the applicable 43 renewal term, including without limitation, age and quality of the Building, size of space, length of term, creditworthiness of tenant, free rent, method of paying operating expenses, tenant improvement allowances, rent concessions and rental escalations and, with respect to an extension of the Lease Term, also taking into account that Landlord would not incur any "down-time" or marketing expense in connection with Tenant's extension of this Lease. In the event Landlord and Tenant are unable to agree on the Market Rate within such thirty (30) day period, each of Landlord and Tenant shall designate an appraiser holding the M.A.I. designation who has a minimum of ten (10) years experience in appraising similar properties in the submarket in which the Leased Premises is located. Each such appraiser shall determine the Market Rate of the Leased Premises or the applicable Expansion Space, as the case may be, based upon an analysis of similar buildings in the area in which the Leased Premises is located and considering all other factors provided above. In the event each appraiser identifies a Market Rate which is within five percent (5%) of the other appraiser's Market Rate, it shall be conclusively determined that the Market Rate of the Leased Premises shall be equal to the average of the two (2) amounts. In the event the two (2) appraisers' figures for Market Rate differ by more than five percent (5%), the two (2) appraisers shall jointly choose a third appraiser holding the same qualifications, which appraiser shall make a determination as to the Market Rate; in such event it shall be conclusively determined that the Market Rate shall be equal to the average of such third appraiser's Market Rate and the next closest Market Rate as determined by the first two (2) appraisers. 2. Option to Extend. Provided that, at the time of the exercise of this option, this Lease is in effect and no event of Default beyond any applicable cure period then exists, Tenant shall have the option to extend the Lease Term for two (2) successive periods of five (5) years each (each an "EXTENSION TERM"). Tenant shall exercise such option by delivering to Landlord, no later than twelve (12) months prior to the expiration of the initial term or the first Extension Term, as the case may be, written notice of Tenant's desire to extend the term of the Lease with respect to all or a portion (but not less than 94,998 square feet of Rentable Area) of the then existing Leased Premises. Such Extension Term shall apply to Rentable Area which is internally contiguous or contiguous with other space leased by Tenant and on contiguous floors and shall have a configuration such that the portion of the Leased Premises that is surrendered is commercially usable. Tenant must indicate in the notice delivered to Landlord that Tenant exercises its option with respect to less than all of the Leased Premises and shall specify in such notice the particular portions of the Leased Premises which will be excluded from the Leased Premises during the applicable Extension Term. Unless Landlord otherwise agrees in writing, Tenant's failure to timely exercise such option shall waive it. If Tenant properly exercises its option to extend, Landlord and Tenant shall execute an amendment to the Lease reflecting the terms and conditions of the Extension Term. Each Extension Term shall be upon the same terms and conditions contained in the Lease except the Minimum Annual Rent for each Extension Term shall be at the Market Rate. 3. Right of First Offer. Provided that, at the time of the exercise of this option, this Lease is in effect, no event of Default beyond any applicable cure period then exists, Landlord shall have an ongoing obligation to notify Tenant in writing, after the initial lease-up of any space, ("LANDLORD'S NOTICE") of the availability of such space located within the Building on any floor contiguous to Tenant's floor(s) (the "OFFER SPACE") before marketing such Offer Space. Tenant shall have seven (7) business days from its receipt of Landlord's Notice to deliver to Landlord a written acceptance agreeing to lease the Offer Space on the terms and conditions contained herein except that the Minimum Annual Rent shall be, at Tenant's sole discretion, either: a. At the Market Rate; or 44 b. At the same rate that Tenant is then paying for the original Leased Premises with an Improvement Allowance equal to the product of $27.00 per square foot of Rentable Area multiplied by a fraction, the numerator being the number of months remaining in the Lease Term and the denominator being 180. In the event Tenant accepts the Offer Space on the terms and conditions specified in the Landlord's Notice, the term for the Offer Space shall be coterminous with the term for the original Leased Premises; provided, however, that the minimum term for the Offer Space shall be five (5) years and the Term for the original Leased Premises shall be extended, to be coterminous with the term for the Offer Space. The Minimum Annual Rent for the original Leased Premises during such extended term shall be an amount equal to the Minimum Annual Rent then being paid by Tenant on the original Leased Premises increased by 3.0% for each year of extension of the Original Lease Term. The Commencement Date of the Offer Space and the payment of Minimum Annual Rent and Annual Rental Adjustment shall be the earlier of (i) the date Tenant occupies the Offer Space for business purposes, or (ii) ninety (90) days following Landlord delivery of possession of the Offer Space to Tenant. In the event Tenant fails to notify Landlord of its acceptance within said seven (7) business day period, such failure shall be conclusively deemed a waiver of Tenant's Right of First Offer with respect to such Offer Space, whereupon Tenant shall have no further rights with respect to the Offer Space (except as provided in Section 4 below) and Landlord shall be free to lease the Offer Space to a third party; provided, however, (i) if the Offer Space is not subsequently leased to another tenant within one hundred eighty (180) days after the expiration of such seven (7) business day period, Tenant's right of first offer with respect to the Offer Space shall be reinstated and (ii) if the Offer Space is leased to a third party within such one hundred eighty (180) day period, Tenant's right of first offer shall be reinstated with respect to such Offer Space only upon expiration of the term of such lease and any extensions thereof. 4. Right of First Refusal. Provided that, at the time of the exercise of this option, this Lease is in effect and no event of Default beyond any applicable cure period then exists, Tenant shall have a right of first refusal (the "REFUSAL OPTION") to lease any of the additional space in the Building (the "REFUSAL SPACE"). The Refusal Space shall be offered to Tenant upon the terms and conditions and at the rental rate then being offered by a specific third party prospective tenant for such space which terms, conditions and rental rate that Landlord is willing to accept. Upon notification in writing by Landlord that the Refusal Space is available, Tenant shall have seven (7) business days in which to notify Landlord in writing of its election to lease the Refusal Space at such rental rates and at such square footage described above, in which event this Lease shall be amended to incorporate such Refusal Space. If Tenant declines its Refusal Option, then this Refusal Option with respect to the applicable Refusal Space shall terminate and Landlord may lease the Refusal Space to the prospective third party on the terms offered to Tenant; provided, however, (i) if the Refusal Space is not subsequently leased to another tenant within one hundred twenty (120) days after the expiration of such seven (7) business day period, Tenant's right of first refusal with respect to the Refusal Space shall be reinstated and (ii) if the Refusal Space is leased to a third party within such one hundred twenty (120) day period, Tenant's right of first refusal shall be reinstated with respect to such Refusal Space only upon expiration of the term of such lease and any extensions thereof and the receipt by Landlord of a subsequent third party offer for such space. It is understood and agreed that this Refusal Option shall not be construed to prevent any tenant in the Building from extending or renewing its lease. 5. Sundry Shop. Landlord covenants and agrees that so long as Tenant is occupying the Leased Premises, Landlord shall use commercially reasonable efforts to cause to be provided in the Building a sundry shop that operates during business hours Monday through Friday. 45 6. Generator. Landlord hereby grants to Tenant the right, at its sole cost and expense, to erect, install and maintain a generator serving the Leased Premises, subject to the following terms and conditions: a. The location, design, construction, size, capacity and all other aspects of such generator shall be subject to Landlord's prior approval, which approval shall not be unreasonably withheld, delayed or conditioned. b. Tenant shall shield or screen the generator from public view. In the event the generator is located in the parking facility, any parking space(s) taken by the generator shall be counted towards the total number of parking spaces allocated to Tenant under this Lease. c. The expense of installing, constructing, maintaining and removing the generator shall be at the sole cost and expense of Tenant and shall be paid directly by Tenant. Tenant shall be responsible for all costs and expenses associated with such generator and Tenant shall promptly repair any damage to the Building or the Land resulting from the installation, construction, maintenance or removal of such generator. Upon the termination or expiration of the Lease, Tenant shall promptly remove the generator at its sole cost and expense. Tenant shall restore any portion of the Building or Land affected by the generator to substantially the same condition existing prior to the installation of the generator, normal wear and tear excepted. 7. Antennae Equipment. Landlord hereby grants to Tenant the right to install, maintain and operate, free of charge, satellite dishes, communication equipment and related equipment (each dish not to exceed six (6) feet in diameter)(the "EQUIPMENT") on the roof of the Building (Tenant being entitled to use its pro rata share of the portion of the roof top allocated to communication equipment) subject to the following terms and conditions: a. The location of the Equipment shall be approved by Landlord prior to Tenant's installation of the Equipment. Tenant shall deliver to Landlord Tenant's plans and specifications for the installation of the Equipment and the surrounding screening for review and approval by Landlord's engineer not less than thirty (30) days prior to commencing installation of the Equipment. Landlord's approvals hereunder shall not be unreasonably withheld, delayed or conditioned. b. Tenant shall install the Equipment in an aesthetically neutral or pleasing manner and shall exercise all reasonable steps to shield or screen the Equipment from public view. Tenant shall fence or screen the Equipment so as to minimize any risks to ensure that the Equipment does not create a nuisance. c. Tenant shall operate the Equipment in compliance with all Applicable Laws. d. Upon expiration or earlier termination of this Lease, Tenant shall promptly remove the Equipment and repair all damage to the Building caused thereby. e. Landlord shall cause any equipment installed by Landlord or other tenants of the Building not to hinder or unreasonably interfere with the operation of Tenant's Equipment. f. Tenant shall have the right, subject to the reasonable supervision of the Building engineer, to use the Building risers to install cabling to connect the Equipment to the Leased Premises. 46 8. Partial Termination. Notwithstanding anything to the contrary contained in this Lease, Tenant shall have the option to reduce the size of the Leased Premises by up to one (1) full floor (the "TERMINATION OPTION"), provided that the result of such reduction shall be that all remaining space shall be internally contiguous or contiguous with other space leased by Tenant and on contiguous floors. Such reduction shall be effective at the end of the tenth (10th) lease year (the "TERMINATION DATE"), by Tenant providing Landlord with written notice of such Termination Option election (the "TERMINATION NOTICE"). Such Termination Notice shall specify in such notice the particular portions of the Leased Premises to be excluded from the Leased Premises (the "TERMINATION PREMISES"). Such Termination Option shall be effective only if the Termination Notice is given to Landlord at least twelve (12) months prior to the Termination Date (the "TERMINATION NOTICE DEADLINE"); accordingly, if Tenant has not given its Termination Notice to Landlord prior to the ninth (9th) anniversary of the Commencement Date, this Termination Option shall expire and be of no further force or effect. Landlord shall deliver to Tenant written confirmation of Landlord's approval of the Termination Premises within thirty (30) days after the date of the Termination Notice. In the event of the failure by Landlord to so respond, Tenant's designation of the Termination Premises shall be deemed approved. As a condition precedent to any reduction of the Leased Premises, Tenant must deliver to Landlord on or before the thirty (30) days following Landlord's approval (or deemed approval)(or at such later date as Landlord shall specify in Landlord's approval notice) of the Termination Premises, a termination fee equal to the unamortized portion (amortized at 11.5 percent per annum) of the Improvement Allowance, leasing commissions paid by Landlord and attributable to the Termination Premises and a sum equal to three (3) month's of the then current monthly rental installments of Monthly Annual Rent attributable to the Termination Premises. 47 EXHIBIT F FORM OF TAX CERTIFICATION Certification of Payment of Real Estate Taxes This Certification is being issued by Duke-Weeks Realty Limited Partnership ("LANDLORD"), in order to certify to the State of Florida Office of Tourism, Trade and Economic Development that American Classic Voyages Co. ("TENANT") has paid $_______________ in real estate taxes for the period beginning ________ and ending __________________ pursuant to Section 3.02 of the Office Lease between Landlord and Tenant dated November ___, 2000, and that Landlord has in turn paid these real estate taxes to the Broward County Tax Collector, pursuant to the copy of the tax bill attached hereto as Schedule 1 and a copy of the cancelled check to the Broward County Tax Collector indicating payment of such taxes attached hereto as Schedule 2. Tenant's proportionate share of the real estate taxes represents ____ % of the entire real estate taxes assessed on the attached tax bill. Landlord is issuing this certification to the Office of Tourism, Trade and Economic Development in order to establish the payment of real estate taxes by Tenant, so that Tenant will be eligible to offset such amounts of real estate taxes paid by Tenant pursuant to the Qualified Targeted Industries tax credit, as set out in Section 288.106(3)(c)2.d Florida Statutes. This Certification is executed by the undersigned this ____ day of _____________, ________. DUKE-WEEKS REALTY LIMITED PARTNERSHIP An Indiana limited partnership By: Duke-Weeks Realty Corporation Its General Partner By: _____________________________ Name: _____________________________ Title: _____________________________ 48 EXHIBIT G JANITORIAL SPECIFICATIONS CLEANING A. Office Area Daily: (Monday through Friday, inclusive, holidays excepted) Empty and clean all waste receptacles and ashtrays and remove waste material from the Premises, wash receptacles as necessary. Sweep and dust, mop all uncarpeted areas using a dust-treated mop. Vacuum all rugs and carpeted areas. Hand dust and wipe with treated cloths all horizontal surfaces including furniture, office equipment, windowsills, door ledges, chair rails, and convector tops, within normal reach. Wash clean all water fountains Remove and dust under all desk equipment and telephones and replace same. Wipe clean all brass and other bright work. Hand dust all grill work within normal reach. Upon completion of cleaning, all lights will be turned off and doors locked, leaving the Premises in an orderly condition. Weekly: Dust coat racks, and the like. Remove all finger marks from private entrance doors, light switches and doorways. Quarterly: Render high dusting not reached in daily cleaning to include: Dusting all pictures, frames, charts, graphs, and similar wall hangings. Dusting all vertical surfaces, such as walls, partitions, doors, and ducts. Dusting of all pipes, ducts and high moldings. Dusting of all venetian blinds. B. Lavatories: Daily: (Monday through Friday, inclusive, holidays excepted). Sweep and damp mop floors. Clean all mirrors, powder shelves, dispensers and receptacles, bright work, flushometers, piping, and toilet seat hinges. Wash both sides of all toilet seats. Wash all basins, bowls and urinals. Dust and clean all powder room fixtures. Empty and clean paper towel and sanitary disposal receptacles. Remove waste paper and refuse. 49 Refill tissue holders, soap dispensers, towel dispensers, vending sanitary dispensers; materials to be furnished by Landlord. A sanitizing solution will be used in all lavatory cleaning. Monthly: Machine scrub lavatory floors. Wash all partitions and tile walls in lavatories. C. Main Lobby, Elevators, Building Exterior and Corridors: Daily: (Monday through Friday, inclusive, holidays excepted) Sweep and wash all floors. Wash all rubber mats. Clean elevators, wash or vacuum floors, wipe down walls and doors. Spot clean any metal work inside lobby. Spot clean any metal work surrounding Building Entrance doors. Monthly: All resilient tile floors in public areas to be treated equivalent to spray buffing. D. Window Cleaning: Window of exterior walls will be washed on the inside and the outside twice per year. E. Tenant requiring services in excess of those described above shall request same through Landlord, at Tenant's expense. 50 EXHIBIT H INTENTIONALLY OMITTED 51 EXHIBIT I FORM OF SNDA SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT THIS AGREEMENT made this ___ day of ________, 200___, among ________________________________, a national banking association chartered pursuant to the laws of the United States of America (hereinafter referred to as "LENDER"), DUKE-WEEKS REALTY LIMITED PARTNERSHIP, an Indiana limited partnership (hereinafter referred to as "Landlord") and AMERICAN CLASSIC VOYAGES CO., a Delaware corporation (hereinafter referred to as "TENANT"). WITNESSETH: WHEREAS, Landlord and Tenant have entered into a certain Office Lease (hereinafter referred to as the "Lease") dated November ___, 2000, relating to the premises (hereinafter referred to as the "PREMISES") located or to be located in Sawgrass Commerce Center, Sunrise Florida and constructed upon the real property described in Exhibit "A" attached hereto and by this reference made a part hereof (hereinafter referred to as the "PROJECT"); and WHEREAS, Lender has made or has committed to make a loan to Landlord in the principal amount of $_________ secured by a deed of trust, assignment and security agreement (hereinafter referred to as the "SECURITY INSTRUMENT") which contains an assignment of leases and rents from Landlord to Lender covering, inter alia, the Premises; and WHEREAS, Tenant has agreed that the Lease shall be subject and subordinate to the Security Instrument held by Lender, provided Tenant is assured of continued occupancy of the Premises under the terms of the Lease; NOW, THEREFORE, for and in consideration of the mutual covenants herein contained, the sum of Ten Dollars ($10.00) and other good and valuable considerations, the receipt and sufficiency of which are hereby acknowledged, and notwithstanding anything in the Lease to the contrary, it is hereby agreed as follows: 1. Lender, Tenant and Landlord do hereby covenant and agree that the Lease, with all rights, options, liens and charges created thereby, is and shall continue to be subject and subordinate in all respects to the Security Instrument and to any renewals, modifications, consolidations, replacements and extensions thereof and to all advancements made thereunder. 2. Lender does hereby agree with Tenant that, in the event Lender becomes the owner of the Premises by foreclosure, conveyance in lieu of foreclosure or otherwise, so long as no uncured event of default exists under the Lease following notice and the expiration of the applicable cure period, (a) Lender will take no action which will interfere with or disturb Tenant's possession or use of the Premises or other rights under the Lease, and (b) the Premises shall be subject to the Lease and Lender shall recognize Tenant as the tenant of the Premises for the remainder of the term of the Lease in accordance with all the provisions thereof (including, without limitation, assuming the obligation to fund the Tenant Improvement Allowance), provided, however, that Lender shall not be subject to any offsets 52 or defenses which Tenant might have against any prior landlord except those which arose under the provisions of the Lease out of such landlord's default and accrued after Tenant had notified Lender and given Lender the opportunity to cure same as hereinbelow provided, nor shall Lender be liable for any act or omission of any prior landlord (but Lender shall be obligated to cure any Landlord default of a continuing, on-going nature), nor shall Lender be bound by any rent or additional rent which Tenant might have paid for more than the current month to any prior landlord nor shall it be bound by any amendment or modification of the Lease made without its consent. 3. Tenant does hereby agree with Lender that, in the event Lender becomes the owner of the Premises by foreclosure, conveyance in lieu of foreclosure or otherwise, then Tenant shall attorn to and recognize Lender as the landlord under the Lease for the remainder of the term thereof, and Tenant shall perform and observe its obligations thereunder, subject only to the terms and conditions of the Lease. Tenant further covenants and agrees to execute and deliver upon request of Lender, or its assigns, an appropriate agreement of attornment to Lender and any subsequent titleholder of the Premises. 4. Any option or rights contained in the Lease, or otherwise existing, to acquire any or all of the Project (or any superior leasehold interest therein) are hereby made subject and subordinate to the rights of Lender under the Security Instrument; and acquisition of any or all of the Project made by Tenant during the term of the Security Instrument shall be made subordinate and subject to the Security Instrument. 5. So long as the Security Instrument remains outstanding and unsatisfied, Tenant will mail or deliver to Lender, at the address and in the manner hereinbelow provided, a copy of all notices permitted or required to be given to Landlord by Tenant under and pursuant to the terms and provisions of the Lease. At any time within the time permitted Landlord for curing any default under the Lease as therein provided, Lender may, but shall have no obligation to, pay any taxes and assessments, make any repairs and improvements, make any deposits or do any other act or thing required of Landlord by the terms of the Lease; and all payments so made and all things so done and performed by Lender shall be as effective to prevent the rights of Landlord from being forfeited or adversely affected because of any default under the Lease as the same would have been if done and performed by Landlord. 6. Lender shall have no liability whatsoever hereunder prior to becoming the owner of the Premises; and Tenant agrees that if Lender becomes the owner of the Premises, Tenant shall look solely to the estate or interest of Lender in the Premises (and such other sources of funds as are described in Section 13.04 of the Lease) for satisfaction of any obligation which may be or become owing by Lender to Tenant hereunder or under the Lease. 7. Landlord and Tenant hereby certify to Lender that the Lease has been duly executed by Landlord and Tenant and is in full force and effect; that the Lease and any modifications and amendments specified herein are a complete statement of the agreement between Landlord and Tenant with respect to the leasing of the Premises or otherwise affecting the Project, and the Lease has not been modified or amended except as specified herein; that to the knowledge of Landlord and Tenant, no party to the Lease is in default thereunder; that no rent under the Lease has been paid more than thirty (30) days in advance of its due date; and that Tenant, as of this date, has no charge, lien or claim of offset under the Lease, or otherwise, against the rents or other charges due or to become due thereafter. 53 8. Unless and except as otherwise specifically provided herein, any and all notices, elections, approvals, consents, demands, requests and responses thereto ("COMMUNICATIONS") permitted or required to be given under this Agreement shall be in writing, signed by or on behalf of the party giving the same, and shall be deemed to have been properly given and shall be effective upon the earlier of receipt thereof or deposit thereof in the United States mail, postage prepaid, certified with return receipt requested, to the other party at the address of such other party set forth hereinabove or at such other address within the continental United States as such other party may designate by notice specifically designated as a notice of change of address and given in accordance herewith; provided, however, that the time period in which a response to any Communication must be given shall commence on the date of receipt thereof; and provided further that no notice of change of address shall be effective with respect to Communications sent prior to the time of receipt thereof. Receipt of Communications hereunder shall occur upon actual delivery (whether by mail, telecopy transmission, messenger, courier service, or otherwise) to an individual party or to an officer or general or limited partner of a party or to any agent or employee of such party at the address of such party set forth hereinbelow, subject to change as provided hereinabove. An attempted delivery in accordance with the foregoing, acceptance of which is refused or rejected, shall be deemed to be and shall constitute receipt; and an attempted delivery in accordance with the foregoing by mail, messenger, or courier service (whichever is chosen by the sender) which is not completed because of changed address of which no notice was received by the sender in accordance with this provision prior to the sending of the Communication shall also be deemed to be and constitute receipt. Any Communication, if given to Lender, must be addressed as follows, subject to change as provided hereinabove: ----------------------------- ----------------------------- ----------------------------- ----------------------------- ----------------------------- and, if given to Tenant, must be addressed to Tenant's notice addresses set forth in the Lease; and, if given to Landlord, must be addressed as follows, subject to change as provided hereinabove: ----------------------------- ----------------------------- ----------------------------- ----------------------------- ----------------------------- 9. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, legal representatives, successors, successors-in-title and assigns. When used herein, the term "landlord" refers to Landlord and to any successor to the interest of Landlord under the Lease. 54 IN WITNESS WHEREOF, the parties hereto have executed this Agreement under seal as of the date first above written. LENDER: Signed, sealed and delivered ________________________________ In the presence of: _______________________ By:______________________ Witness Title:________________ _______________________ (BANK SEAL) Witness TENANT: Signed, sealed and delivered AMERICAN CLASSIC VOYAGES CO. in the presence of: a Delaware corporation ________________________ By:______________________ Witness Title:________________ - ------------------------ Witness LANDLORD: Signed, sealed and delivered DUKE-WEEKS REALTY LIMITED in the presence of: PARTNERSHIP, a Delaware corporation ________________________ By: Duke-Weeks Realty Corporation Witness Its: General Partner ________________________ By:_________________________ Witness Title:______________________ 55 EXHIBIT J FORM OF LETTER OF CREDIT Duke-Weeks Realty Limited Partnership 10150 Highland Manor Drive Amount: USD 500,000 Suite 150 (Five Hundred Thousand and Tampa, Florida 33610 00/100 United States Dollars) WE HEREBY ESTABLISH THIS IRREVOCABLE STANDBY LETTER OF CREDIT NO __________ IN YOUR FAVOR, FOR AN AGGREGATE AMOUNT NOT TO EXCEED THE AMOUNT INDICATED ABOVE, EXPIRING AT OUR COUNTERS IN NEW YORK WITH OUR CLOSE OF BUSINESS ON NOVEMBER ___, 2001 OR ANY AUTOMATICALLY EXTENDED EXPIRY DATE. THIS LETTER OF CREDIT IS AVAILABLE WITH THE CHASE MANHATTAN BANK, NEW YORK AGAINST PRESENTATION OF YOUR DRAFT AT SIGHT DRAWN ON THE CHASE MANHATTAN BANK, NEW YORK WHEN ACCOMPANIED BY THE DOCUMENTS INDICATED HEREIN. BENEFICIARY'S DATED STATEMENT PURPORTEDLY SIGNED BY ONE OF ITS OFFICIALS READING AS FOLLOWS: "THIS DRAWING USD ___________________ UNDER THE CHASE MANHATTAN BANK LETTER OF CREDIT NO. __________________ REPRESENTS FUNDS DUE US FOR PAYMENT OR PERFORMANCE DEFAULT BY AMERICAN CLASSIC VOYAGES CO. UNDER THE OFFICE LEASE DATED NOVEMBER ____, 2000 EXECUTED BY BENEFICIARY AND AMERICAN CLASSIC VOYAGES CO." IT IS A CONDITION OF THIS IRREVOCABLE LETTER OF CREDIT THAT IT SHALL BE AUTOMATICALLY EXTENDED WITHOUT AMENDMENT FOR ADDITIONAL ONE YEAR PERIODS FROM THE PRESENT OR EACH FUTURE EXPIRATION DATE, UNLESS AT LEAST 45 DAYS PRIOR TO SUCH DATE WE SEND YOU NOTICE IN WRITING BY REGISTERED MAIL, OR HAND DELIVERY AT THE ABOVE ADDRESS, THAT WE ELECT NOT TO RENEW THIS LETTER OF CREDIT FOR SUCH ADDITIONAL PERIOD. UPON SUCH NOTICE TO YOU, YOU MAY DRAW DRAFTS ON US AT SIGHT FOR AN AMOUNT NOT TO EXCEED THE BALANCE REMAINING IN THIS LETTER OF CREDIT WITHIN THE THEN APPLICABLE EXPIRY DATE, ACCOMPANIED BY YOUR DATED STATEMENT PURPORTEDLY SIGNED BY ONE OF YOUR OFFICERS READING: "THE AMOUNT OF THIS DRAWING USD __________ UNDER THE CHASE MANHATTAN BANK LETTER OF CREDIT NUMBER _____________ REPRESENTS FUNDS DUE US AS WE HAVE RECEIVED NOTICE FROM THE CHASE MANHATTAN BANK OF THEIR DECISION NOT TO EXTEND LETTER OF CREDIT NUMBER ____________ FOR AN ADDITIONAL YEAR. PARTIAL DRAWINGS PERMITTED. WE HEREBY AGREE WITH YOU THAT DRAFTS DRAWN UNDER AND IN COMPLIANCE WITH THE TERMS AND CONDITIONS OF THIS LETTER OF CREDIT WILL BE DULY HONORED. THIS CREDIT IS SUBJECT TO THE UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY CREDITS (1993 REVISION INTERNATIONAL CHAMBER OF COMMERCE PUBLICATION NO. 500) AND ENGAGES US IN ACCORDANCE WITH THE TERMS THEREOF. THE NUMBER AND THE DATE OF OUR CREDIT AND THE NAME OF OUR BANK MUST BE QUOTED ON ALL DRAFTS REQUIRED. EX-21 3 c61256ex21.txt SUBSIDIARIES OF THE COMPANY 1 EXHIBIT 21 SUBSIDIARIES OF AMERICAN CLASSIC VOYAGES CO. AS OF DECEMBER 31, 2000
Jurisdiction Under Percentage Name of Subsidiary Which Organized of Ownership - ----------------------------------------------- ----------------------- ----------------- The Delta Queen Steamboat Co. Delaware 100% DQSB II, Inc. Delaware (1) Cruise America Travel, Incorporated Delaware (1) Great River Cruise Line, L.L.C. Delaware (2) Great Ocean Cruise Line, L.L.C. Delaware (2) Great AQ Steamboat, L.L.C. Delaware (2) Great Pacific NW Cruise Line, L.L.C. Delaware (2) Delta Queen Coastal Voyages, L.L.C. Delaware (2) Cape Cod Light, L.L.C. Delaware (5) Cape May Light, L.L.C. Delaware (5) AMCV Capital Trust I Delaware 100% AMCV Holdings, Inc. Hawaii 100% Great Hawaiian Cruise Line, Inc. Delaware (6) Great Independence Ship Co. Delaware (3) Great Hawaiian Properties Corporation Delaware (3) American Hawaii Properties Corporation Delaware (3) CAT II, Inc. Delaware (3) Project America, Inc. Delaware (6) Oceanic Ship Co. Delaware (4) Project America Ship I, Inc. Delaware (4) Project America Ship II, Inc. Illinois (4) Ocean Development Co. Delaware (4)
(1) 100% owned subsidiary of The Delta Queen Steamboat Co. (2) 99% owned subsidiary of The Delta Queen Steamboat Co. and 1% owned subsidiary of DQSB II, Inc. (3) 100% owned subsidiary of Great Hawaiian Cruise Line, Inc. (4) 100% owned subsidiary of Project America, Inc. (5) 99% owned subsidiary of Delta Queen Coastal Voyages, L.L.C. and 1% owned subsidiary of DQSB II, Inc. (6) 100% owned subsidiary of AMCV Holdings, Inc. EX-23 4 c61256ex23.txt CONSENT OF KPMG LLP 1 EXHIBIT 23 Consent of KPMG LLP The Board of Directors and Stockholders American Classic Voyages Co. We consent to incorporation by reference in the registration statements No. 33-80614 on Form S-3 and No. 333-44225 on Form S-8 of American Classic Voyages Co. of our report dated February 27, 2001, relating to the consolidated balance sheets of American Classic Voyages Co. and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2000, and the related financial statement schedules, which report appears in the December 31, 2000 annual report on Form 10-K of American Classic Voyages Co. /s/ KPMG LLP KPMG LLP Chicago, Illinois March 29, 2000 -----END PRIVACY-ENHANCED MESSAGE-----