-----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, MexcIdLgAbk114jILdX7XcWGzy5i/p1lwHySicANp3wD8DWynQIt1ExNU670xFdC xUYRLo5BA7GDZ5MLnn1TFg== 0000950137-99-000780.txt : 19990402 0000950137-99-000780.hdr.sgml : 19990402 ACCESSION NUMBER: 0000950137-99-000780 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 20 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 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: 99583457 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 FORM 10-K 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, 1998 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 $132.5 million based upon the last reported sale price of $19.00 per share on March 26, 1999 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 March 26, 1999, there were 14,327,509 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 30, 1999. ================================================================================ 2 AMERICAN CLASSIC VOYAGES CO. INDEX
ITEM DESCRIPTION PAGE ---------------- ---- Part I Item 1 -- Business........................................................................ 3 Item 2 -- Properties...................................................................... 14 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......................................................... 15 Item 7 -- Management's Discussion and Analysis of Financial Condition and Results of Operations............................................. 15 Item 7A -- Quantitative and Qualitative Disclosures About Market Risk...................... 15 Item 8 -- Financial Statements and Supplementary Data..................................... 15 Item 9 -- Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.......................................... 15 Part III Item 10 -- Directors and Executive Officers of the Registrant.............................. 16 Item 11 -- Executive Compensation.......................................................... 16 Item 12 -- Security Ownership of Certain Beneficial Owners and Management.................................................................. 16 Item 13 -- Certain Relationships and Related Transactions.................................. 16 Part IV Item 14 -- Exhibits, Financial Statement Schedules, and Reports on Form 8-K......................................................... 17
2 3 AMERICAN CLASSIC VOYAGES CO. PART I ITEM 1. BUSINESS GENERAL American Classic Voyages Co. is the leading provider of overnight passenger cruises among the Hawaiian Islands and on the Mississippi River system. We operate two cruise lines under the names American Hawaii Cruises and The Delta Queen Steamboat Co. American Hawaii, acquired in August 1993, operates the S.S. Independence, a U.S.-flagged ocean liner with 867 total passenger berths. American Hawaii provides inter-island cruises on a year-round basis among the Hawaiian Islands. Delta Queen currently operates the Delta Queen, American Queen and Mississippi Queen, U.S.-flagged paddlewheel steamboats having 1,026 total passenger berths. Delta Queen provides cruise vacations on the Mississippi, Ohio, Cumberland, Tennessee, Arkansas, Illinois and Atchafalaya Rivers. We do not offer gaming on 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 Delta Queen through various subsidiaries, and Great Hawaiian Cruise Line, Inc., which operates American Hawaii through various subsidiaries. American Classic Voyages Co.'s principal executive offices are located at Two North Riverside Plaza, Suite 200, Chicago, Illinois 60606. Delta Queen and American Hawaii's principal administrative offices 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 between 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. The U.S. Flag Cruise Ship Pilot Project Statute ("Pilot Project Statute") was enacted in 1997 to develop the U.S.-flagged cruise ship industry and stimulate commercial construction of cruise ships in U.S. shipyards. 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 below), 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 a foreign-built cruise ship as a U.S.-flagged ship in the Hawaiian Islands for a period of two years following delivery of the final vessel under the contract. We will enjoy the benefits of the Pilot Project Statute, however, only if we comply with its terms. The Pilot Project Statute requires, among other things, as a condition to obtaining these rights that the agreement to construct the new cruise ships provide that (1) the vessels are built with more than 867 berths each and (2) delivery of the first vessel be prior to January 1, 2005 and the second vessel 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 less than 10,000 gross tons. CURRENT OPERATIONS American Hawaii -- Current Operations 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 867 passenger berths. American Hawaii offers primarily seven day itineraries with ports of call throughout the Hawaiian Islands. In addition, American Hawaii also offers three and four day itineraries. 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, including the following: helicopter rides and submarine rides, deep sea fishing, snorkeling, scuba diving and tours of popular destinations such as Pearl Harbor and the Arizona Memorial, the Fern Grotto and the historic town of Lahaina. The itinerary also 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. 3 4 American Hawaii offers theme cruises organized around specific activities or seasons, including: "Whales in the Wild" cruises, in which passengers can observe whales that make Hawaii their winter playground; "Hawaiian Heritage" cruises, which emphasize native Hawaiian ceremonies and rituals; and "Big Band" cruises featuring 1940's Big Band orchestra music and "Golden Age of Movies" film screenings. Cruise fares on American Hawaii for a seven-night cruise, as stated in the 1999 cruise brochure, range from luxurious suites at $3,280 per person to interior cabins with a single sofa bed and fold-away upper berth at $1,230 per person, based on double occupancy. The fare also includes three full service meals per day, along with mid-afternoon snacks and a late evening buffet, night 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. American Hawaii offers additional services and products to its passengers, including bar services, beauty salon services, photography services, shore excursions and gift shop products. American Hawaii also distributes a line of specialty products through its onboard gift shops utilizing the "American Hawaii Cruises" logo. In order to facilitate and simplify passengers' travel planning process, American Hawaii offers air transportation arrangements to and from the Hawaiian Islands through agreements with several major commercial airlines as well as trip cancellation insurance. American Hawaii is marketed as "the best and most convenient" way to experience the Hawaiian Islands. We accomplish this by focusing on onboard dining, entertainment, and 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. Additionally, the Hawaii vacation package is promoted as a convenient and rewarding alternative to land-based multi-island vacations. American Hawaii's marketing efforts target consumers who are interested in Hawaii, cruise enthusiasts and other consumers who fit certain demographic or geographic profiles. American Hawaii sends out more than six million pieces of direct mail annually to reach these potential customers in an effort to develop cruise sales. These direct mailings are made throughout the year to drive business during certain specific time frames. American Hawaii also sends out the Holokai Hui News newsletter, aimed at encouraging passengers to repeat, and sends cooperative direct mail to travel agents to promote cruise sales. The travel agency community also receives periodic fax broadcasts and a quarterly newsletter, the Kuaihelani. American Hawaii also places advertisements in specialized publications such as Islands, Hawaii, Modern Maturity, Car and Travel and Endless Vacation magazines, and has been the subject of numerous feature articles in national travel and leisure magazines and newspaper travel sections. Delta Queen -- Current Operations 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 of embarkation and disembarkation, which are typically locations of historical or cultural significance, include New Orleans, Memphis, St. Louis, St. Paul, Louisville, Cincinnati, Pittsburgh, Nashville, Chattanooga, and Galveston. Other ports of call include such towns as Hannibal, Missouri; Prairie du Chien, Wisconsin; Vicksburg and Natchez, Mississippi; and Shiloh, Tennessee. According to the Cruise Industry News 1998 Annual Report, Delta Queen had a 53% share of available beds within the domestic rivers and waterways segments of the overnight cruise market. 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 are explored. We believe individuals are attracted to our paddlewheel steamboat cruises because of the quality of our service, dining, accommodations and entertainment as well as the unique characteristics of the steamboat experience, including the connection to American history. 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 cruises include: "Spring Pilgrimage," "Fall Foliage - Autumn in America" and "Old Fashioned Holidays" while geographic themes include "Dixie Fest," "Mark Twain Heartland," "Cajun Culture" and "Gardens of the River." Old standbys and continuing favorites are "Kentucky Derby" cruises that include attendance at the Kentucky Derby horse race and "The Great Steamboat Race," a reenactment of the famous 19th Century race between the Natchez and the Robert E. Lee steamboats. For nostalgia and history lovers, Delta Queen offers "Big Band," "The Year That Was...," "Civil War" and "Fabulous 50s" theme cruises. In a continuing effort to upgrade its cruise product, Delta Queen introduced in 1998 4 5 enhancements to the onboard dining, entertainment and shore excursions which highlighted America's heartland. In addition, several new theme cruises were added, such as "Tramping on the River" cruises featuring impromptu river stops; and "The History of Steamboatin'," which retraced the 1811 voyage of the first successful steamboat voyage down the Ohio and Mississippi Rivers to New Orleans. The Steamboatin'(TM) cruise fare for an average five-night cruise, as stated in the 1999/2000 cruise brochure, ranges from luxurious suites at $3,410 per person to interior cabins with lower and upper passenger berths at $1,390 per person, based on double occupancy. The fare also includes three full service meals per day, along with mid-afternoon snacks and a late evening buffet, day and night entertainment on the vessels and port charges. To attract additional customers, Delta Queen has developed products which combine its steamboat 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 targeted direct mail, direct response advertising and other promotional activity. Media coverage generated by public relations activity is another method of acquiring new customers and building brand awareness. In 1998, Steamboatin'(TM) vacations were featured or mentioned in more than 3,000 articles in publications with national and local circulations. In addition, each year a significant number of new customers are referred by prior customers. Nearly all Steamboatin'(TM) vacations are booked via travel agents, who receive frequent communications from Delta Queen and who are supported with collateral and mailing materials. Sales and Marketing We maintain separate field sales and reservation staffs for Delta Queen and American Hawaii. 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 which 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 Delta Queen and American Hawaii literature to travel agencies. We also maintain contact with travel agents through each cruise line's 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 1998, no single customer accounted for more than 10% of our consolidated revenues. Pricing and Advance Reservations We issue separate full color sales brochures for each of Delta Queen and American Hawaii, 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. As an inducement for passengers to book early, we generally offer an early booking discount. 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. Cancellations received after a certain date are subject to a loss of deposit or a cancellation charge ranging from 25% to 100% of the cruise fare. 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 January 1, 1999, advance reservations for the 1999 cruise year for both Delta Queen and American Hawaii combined were $81.6 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. 5 6 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 both our Hawaii and Delta Queen 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. To expand Delta Queen's position in the U.S. inland waterway cruise market, we plan to extend our cruise itineraries into the U.S. coastal cruise market with up to five new coastal cruisers and to introduce a fourth riverboat on the West Coast. Hawaii Expansion Plans On March 9, 1999, we executed definitive agreements with Ingalls Shipbuilding to construct at least two new vessels for the Hawaii cruise market. The new Hawaii cruise ships will have the capacity to accommodate approximately 1,900 passengers each and are currently estimated to cost $440 million each, plus approximately $30 million for furnishings, fixtures and equipment. The contract provides that Ingalls Shipbuilding will deliver the first new ship in January 2003 and the second ship in January 2004. In addition, the shipbuilding contract provides 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 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. In order to expedite the introduction of a larger, more modern ship into the Hawaii cruise market, we intend to obtain and operate a foreign-built vessel as a U.S.-flagged vessel in the Hawaii market. Our ability to operate a foreign-built vessel in the Hawaiian Islands arises under the terms of the Pilot Project Statute. We have targeted vessels that were built since 1980 and can accommodate between 1,200 and 2,000 passengers. If successful in obtaining a foreign-built vessel, we plan to introduce this vessel into service by the end of 2000. We have hired Roderick K. McLeod, a 27-year veteran of the cruise industry, to manage all aspects of our expansion plans in the Hawaii market. Mr. McLeod will oversee development of our expanded Hawaii business. Delta Queen Expansion Plans In order to capitalize upon its strong market position and brand name recognition, Delta Queen plans to expand its current business by introducing (1) a fourth riverboat offering new itineraries and (2) up to five new vessels capable of offering cruises along U.S. coastal waterways. By extending the Delta Queen line beyond our country's heartland and inland rivers to underserved coastal markets, Delta Queen plans to offer its unique cruising experience on itineraries highlighting historically or culturally interesting or beautiful U.S. coastal regions. Coastal Cruises We believe that there are itineraries along the U.S. coastlines with significant cruise market potential. As a further extension of Delta Queen's inland waterway cruise itineraries, we plan to build up to five new ships offering cruises along the eastern seaboard, in the Pacific Northwest and along the California coast of the U.S. Possible new destinations identified by Delta Queen include the following: Eastern seaboard cruise itineraries to explore Halifax, Nova Scotia and New Brunswick, Maine, and visits to Boston Harbor, Martha's Vineyard and the Chesapeake Bay, as well as New York City, Baltimore and Annapolis, Maryland, Washington, D.C., Charleston, South Carolina, Savannah, Georgia and Florida's beaches. Pacific Northwest itineraries are also planned to feature cruises in Puget Sound near Seattle, Washington, the Willamette River, Canada's Inside Passage and along the Alaskan coast. In California, prospective itineraries include San Francisco and Napa Valley's wine country. We plan to capture these underserved coastal markets by building up to five new ships with approximately 226 passenger berths each in the next seven to ten years to extend the itineraries of the Delta Queen line. We are currently negotiating with a shipyard to construct the first two new coastal vessels. We hope that construction on the first vessel can begin as early as mid-1999. Assuming construction commences at that time, the first ship could be launched as early as the first half of 2001. Delivery of the second vessel would then be planned for the second half 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 estimated at $35 million. 6 7 Delta Queen coastal cruises also plan to offer shore excursions to highlight the unique and historically significant destinations in their new itineraries and may also offer special cruise packages revolving around specific themes, similar to those offered by Delta Queen's steamboat river cruises. Further, we believe that this expansion into coastal cruise itineraries will appeal to younger and more physically active customers. Then, as those customers age, we will have the opportunity to transition these same customers to Delta Queen river cruises. By extending the Delta Queen line into coastal cruise itineraries, it will allow Delta Queen to increase gradually the number and range of itineraries it can offer and to attract a broader base of passengers. New Riverboat We have entered into an agreement to acquire a new vessel and plan to convert it into an overnight passenger vessel with approximately 150 passenger berths for use as the fourth Delta Queen riverboat. The purchase price for the vessel is approximately $8.0 million. We have conducted a due diligence review to ensure the vessel can be effectively and efficiently renovated for passenger use and that the cost of outfitting the vessel is consistent with our current estimates. Based on this due diligence review, we are seeking to amend the terms and conditions of the agreement. We estimate that the total renovation, relocation, start-up and marketing costs will require an additional $12 million. We expect that the conversion project will take between six and nine months and that the vessel will be able to enter into service in the first half of 2000. The current plans call for the vessel to be operated by Delta Queen in the Pacific Northwest, including the Columbia River system near Portland, Oregon. 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 415 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 1997 and 1998, bills were introduced to the Senate 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. None of these bills were approved by the relevant subcommittees or committees of the Senate or the House of Representatives. 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 which 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 drydocked for an inspection of the hulls' exteriors every five years. Previously, American Hawaii was required to drydock the S.S. Independence 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 of the drydocking of the S.S. Independence to 30 months, subject to annual hull surveys. In May 1997, the S.S. Independence was out of service for a four-week period and the next drydocking is scheduled for January 2000. 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. We do not anticipate making any material expenditures in 1999 with respect to environmental matters. However, the coverage and attendant compliance costs associated with such laws, regulations and ordinances may result in future additional costs to our operations. 7 8 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 drydock as discussed above. 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. At this time, we cannot predict if the proposed changes will be approved as currently constituted, or at all. 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. American Hawaii is the sole U.S.-flagged overnight cruise ship operator and the largest provider of cruise vacations among the Hawaiian Islands. American Hawaii competes with operators of foreign-flagged cruise ships which visit the Hawaiian Islands on voyages greater than seven days. 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 must spend at least four days sailing across 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. 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. 8 9 Our annual protection and indemnity insurance premium consists of an advance call which recently has approximated 71% of the expected total annual premium, and a supplemental call determined by Steamship Mutual's managing directors later in the year. 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. We also carry hull and machinery coverage with various insurers, which insures against physical loss and damage to the vessels, subject to a $750,000 deductible and/or co-payment requirements per occurrence. 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. 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 1,418 persons as of December 31, 1998. Of the vessels' onboard employees, the American Maritime Officers of the AFL-CIO ("American Maritime Officers") represented approximately 124 individuals, and the Seafarers International Union of North America, Atlantic, Gulf, Lakes and Inland Waters District of the AFL-CIO ("Seafarers") represented approximately 677 individuals. The American Maritime Officers' contracts for Delta Queen and American Hawaii expire in February 2004 and May 2000, respectively, and the Seafarers' contracts for Delta Queen and American Hawaii expire in December 2003 and May 2000, respectively. Since 1986, we have not experienced any work stoppages, and we believe relations with our employees are good. Factors Concerning Forward-Looking Statements Certain statements in "Risk Factors" and in "Management's Discussion and Analysis of Financial Condition and Results of Operations" constitute "forward-looking statements" that we believe are within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions. 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 those risks, uncertainties and assumptions, the forward-looking events discussed herein might not occur. RISK FACTORS 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 a contract to construct at least two new vessels for our Hawaii cruise business and currently intend to construct up to five new coastal cruisers for the Delta Queen line. Without these new ships, our future financial performance may be adversely impacted. Ingalls Shipbuilding has never built a modern passenger ship and, because no U.S. shipyard has built a passenger ship in over 40 years, there is a limited base of experienced subcontractors for portions of the ships. We cannot assure you 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 construction budgets or expected time frames. Factors that could impact construction 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. 9 10 Our business strategy has been developed on the assumption that we will be able to put the Hawaii cruise ships and coastal cruisers into service on a timely basis. We have also assumed that the ships will perform according to their design specifications. A significant delay in delivering the vessels or a material deviation from the design specifications could have a material deviation from the design specifications could have a material adverse effect on our business. Also, events out of the control of the shipyards constructing the vessels could delay delivery. IF WE ARE UNABLE TO OBTAIN MARITIME ADMINISTRATION FINANCING GUARANTIES, IT WILL IMPEDE OUR EXPANSION PLANS AND FUTURE REVENUE GROWTH We intend to finance a significant portion of the purchase price of the Hawaiian cruise ships through private financing guarantied by the Maritime Administration. Without this financing, we may be unable to implement our current expansion plans and our future revenue growth may be adversely affected. If granted, guarantied financing through the Maritime Administration would provide us with favorable financing terms for up to 87.5% of the cost of the Hawaii cruise ships. While we have filed the formal application with the Maritime Administration and are currently negotiating terms of the financing guaranties, we cannot assure you that we will be able to obtain such guarantied financing for the Hawaii cruise ships. If we do not obtain the Maritime Administration guaranty, we will have to obtain financing for the Hawaii cruise ships from other sources. Due to the size of our financing needs, we may be unable to obtain sufficient financing, regardless of price; and if available, such alternative financing would likely be at much less favorable rates than that of the Maritime Administration guarantied financing. If we cannot finance the construction of the Hawaii cruise ships, then we will have to abandon our current expansion plans in Hawaii. 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 and the acquisition and renovation of existing vessels to be put into operation in both the Hawaii market and the U.S. coastal and inland 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 enough capital may require us to delay or abandon some of our expansion plans and could have a material adverse effect on our business. INCREASED LEVERAGE MAY ADVERSELY AFFECT OUR FINANCIAL PERFORMANCE AND CASH FLOW We will substantially increase our indebtedness as we finance a significant portion of the construction costs under existing and contemplated agreements to build 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, 1998, we had outstanding consolidated total long-term debt of $77.4 million. With construction costs for each of the two Hawaii cruise ships projected to be approximately $470 million, and for each of the five planned coastal cruisers expected to be approximately $35 million, we intend to substantially increase our leverage. We expect that approximately 87.5% of the cost for the new Hawaii cruise ships will be financed through Maritime Administration guarantied private financing, and a substantial portion of Delta Queen's expansion costs will be financed with debt. Under our current expansion plans for American Hawaii and Delta Queen, and assuming we build all of the ships contemplated, we could increase our indebtedness by approximately $1.1 billion by 2007. Our increased leverage could adversely affect our ability to repay debt and reduce our working capital available for operations. IF WE ARE UNABLE TO LOCATE AND INTRODUCE A FOREIGN-BUILT VESSEL IN HAWAII, OUR GROWTH IN HAWAII WOULD BE DELAYED The Pilot Project Statute provides that we may operate a foreign-built cruise ship in Hawaii as a U.S.-flagged vessel after we sign a contract for the construction of new U.S.-built passenger cruise ships. If we do not operate a foreign-built cruise ship as permitted, we will not recognize any additional revenues as a result of the Pilot Project Statute for at least four years. We currently plan to operate such a ship. However, it is possible that we will not be able to locate and obtain a suitable ship on commercially reasonable terms. If we cannot find an acceptable ship, it could take at least four years before the first of the Hawaii cruise ships we intend to construct is available for operation. In that case, we would lose the incremental revenue growth gained by introducing a larger and more modern cruise ship into the Hawaii market until the new vessels are completed. For a more detailed discussion of the Pilot Project Statute, see "Business -- General." 10 11 FAILURE TO ENTER INTO A CONTRACT WITH A SHIPYARD FOR COASTAL CRUISERS WILL ADVERSELY IMPACT OUR DELTA QUEEN EXPANSION PLANS AND FUTURE REVENUE GROWTH We currently plan to construct up to five new coastal ships for Delta Queen. Without these new ships, our future revenue growth may be adversely impacted. We have not yet entered into a definitive agreement to construct the coastal ships. We cannot assure you that we will be able to reach agreement with a shipyard to build the coastal ships on terms acceptable to us. If we cannot reach such an agreement to build any or all of the five new coastal ships, then we will not be able to implement our expansion plans or we will have to scale back our expansion plans. 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; - hire and train additional personnel to staff our expanded fleet and support operations; and - deploy capital efficiently. 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 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 business. IF DEMAND FOR OUR NEW CRUISE PRODUCTS FAILS TO DEVELOP AS EXPECTED OR COMPETITION INCREASES, OUR BUSINESS MAY BE ADVERSELY AFFECTED The Hawaii 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, our business may be adversely affected. INCREASED CAPACITY IN HAWAII MAY REDUCE OCCUPANCY AT THE S.S. INDEPENDENCE, ADVERSELY AFFECTING REVENUES The introduction of a larger, more modern foreign-built vessel 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. 11 12 WE MAY HAVE TO SPEND MORE IN THE FUTURE ON THE S.S. INDEPENDENCE, WHICH MAY ADVERSELY IMPACT OUR OPERATING RESULTS Older ships such as the S.S. Independence may cost more to maintain and may be less efficient than more modern cruise vessels. Older ships may be more prone to mechanical problems and may require more repairs than modern cruise ships. We may have to spend more in the future to maintain and to operate the S.S. Independence, which could have an adverse effect on our operating results. IF WE CANNOT BENEFIT FROM THE EXCLUSIVE RIGHTS OF THE PILOT PROJECT STATUTE, OUR REVENUE GROWTH IN HAWAII WILL 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 expansion plans. 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 both our Delta Queen and American Hawaii 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 which 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 business. 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 or prices for cruise vacations. This could result in lower margins and reduce the profitability of our business. 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 changes 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 DRYDOCKING ON SCHEDULE OR WITHIN BUDGET, 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 drydocking. When we drydock 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 drydock. The S.S. Independence must be drydocked every 30 months and the Delta Queen vessels must be drydocked every five years. Drydocks of Delta Queen vessels take place in the winter months when our customer demand is weakest. For its last regularly scheduled drydocking, the Mississippi Queen was out of service for 51 days beginning on December 1, 1995. The Delta Queen was out of service beginning on December 15, 1996 for 30 days for its last scheduled drydocking. The American Queen, which first entered service in 1995, will have its first 12 13 drydocking in January, 2000. The last drydocking for the S.S. Independence began on May 17, 1997 and lasted 28 days. We cannot assure you that future drydocks for any of our vessels will be completed on schedule or within their budgets. RIVER AND OCEAN CONDITIONS AND WEATHER FACTORS CAN ADVERSELY AFFECT OUR OPERATIONS AND OUR FINANCIAL PERFORMANCE River or ocean conditions and weather factors can adversely affect our operations 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 ship 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. 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. 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. We have restrictions in our certificate of incorporation limiting the transferability of our common stock 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 will own an aggregate of approximately 42.2% of the outstanding shares of common stock after this offering, or 41.0% if the underwriter's over-allotment option is exercised in full. The Equity Group's level of ownership after this offering 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. The Equity Group has pledged 4,603,000 of its 7,530,747 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 equity securities. 13 14 ITEM 2. PROPERTIES We currently operate four ships with a total of 1,893 passenger berths. The following table represents a list of our ships, the year they entered into service, their estimated passenger capacity based upon double occupancy per cabin, and their areas of operation: CURRENT VESSELS
YEAR VESSEL PASSENGER PRIMARY AREAS ENTERED INTO SERVICE CAPACITY(1) OF OPERATION -------------------- ----------- ------------ VESSEL - ------ S.S. Independence(2) 1951 867 Hawaii American Queen 1995 436 Mississippi River System Mississippi Queen 1976 416 Mississippi River System Delta Queen 1926 174 Mississippi River System
- -------------------- (1) Based on double occupancy per cabin. (2) Substantially renovated in 1994. 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. 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 March 26, 1999, the last reported sale price for our common stock was $19.00 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, 1998................ $ 17.63 $ 11.38 September 30, 1998............... 17.00 12.50 June 30, 1998.................... 24.63 14.75 March 31, 1998................... 23.25 17.25 QUARTER ENDED: December 31, 1997............... $ 19.25 $ 16.00 September 30, 1997............... 18.25 10.25 June 30, 1997.................... 11.88 9.88 March 31, 1997................... 13.00 10.13
(b) The number of stockholders of record of common stock on March 26, 1999 was approximately 620. (c) We did not pay cash dividends on our common stock during 1997 or 1998. 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. ITEM 6. SELECTED FINANCIAL DATA Information with respect to our selected financial data is set forth under "Selected Financial Data" on page 20. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's discussion and analysis is set forth under "Management's Discussion and Analysis of Financial Condition and Results of Operations" on page 21. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are principally exposed to market risks from fluctuations in interest rates. At December 31, 1998, long-term variable rate debt had a carrying value of $24.4 million (See Note 6 to the Consolidated Financial Statements). We do not manage this risk through derivative financial instruments as we do not expect changes in interest rates to materially affect our operating results. Other market risks to which we are exposed relate to food and fuel commodity prices, which we do not typically manage through the use of financial instruments. However, we do not expect changes in food and fuel commodity prices to materially affect our operating results. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements and supplementary data are as set forth in the "Index to Consolidated Financial Statements" on page 19. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 15 16 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 24, 1999, not later than April 30, 1999. Information required by Items 10 through 13 will appear in the Proxy Statement and is incorporated herein by reference. 16 17 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 19. (a)(2) Financial Statement Schedules. Financial Statement Schedules, except those indicated in the "Index to Consolidated Financial Statements" on page 19, 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 48. (b) Reports on Form 8-K: None. 17 18 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 31, 1999 -------------------------- 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 President and Chief Executive Officer - ------------------------------ (Principal Executive Officer), Director Philip C. Calian /s/ Randall L. Talcott Vice President-Finance and Treasurer - ------------------------------ (Principal Financial and Accounting Officer) Randall L. Talcott /s/ Arthur A. Greenberg Director - ------------------------------ Arthur A. Greenberg /s/ Mark Slezak Director - ------------------------------ Mark Slezak /s/ Jeffrey Watanabe Director - ------------------------------ Jeffrey Watanabe /s/ Emanual Rouvelas Director - ------------------------------ Emanual Rouvelas /s/ Jerry R. Jacob Director - ------------------------------ Jerry R. Jacob /s/ Joseph P. Sullivan Director - ------------------------------ Joseph P. Sullivan 18 19 AMERICAN CLASSIC VOYAGES CO. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page Number ------- Selected Financial Data....................................................................... 20 Management's Discussion and Analysis of Financial Condition and Results of Operations......... 21 Independent Auditors' Report.................................................................. 28 Consolidated Financial Statements Consolidated Balance Sheets.............................................................. 29 Consolidated Statements of Operations.................................................... 30 Consolidated Statements of Cash Flows.................................................... 31 Consolidated Statements of Changes in Stockholders' Equity............................... 32 Notes to Consolidated Financial Statements............................................... 33 Financial Statement Schedules Schedule I - Condensed Financial Information of Registrant........................... 44
19 20 AMERICAN CLASSIC VOYAGES CO. SELECTED FINANCIAL DATA
Years Ended December 31, 1998 1997 1996 1995 1994 -------------- ------------- -------------- -------------- -------------- INCOME STATEMENT DATA (In thousands) Revenues............................... $ 192,225 $ 177,884 $ 190,408 $ 188,373 $ 195,197 ------------------------------------------------------------------------ Gross profit........................... 66,630 66,589 67,863 51,895 51,569 ------------------------------------------------------------------------ One-time charges(1).................... -- -- 38,390 5,900 5,699 ------------------------------------------------------------------------ Operating income (loss) ............... 5,486 9,984 (30,465) (14,535) (4,438) ------------------------------------------------------------------------ Other income (2)....................... 300 -- 11,729 -- -- ------------------------------------------------------------------------ Net interest (expense) income.......... (5,522) (5,935) (7,199) (4,002) 672 ------------------------------------------------------------------------ Net income (loss) .................... $ 157 $ 2,429 $ (17,636) $ (9,671) $ (983) ------------------------------------------------------------------------ PER SHARE INFORMATION Basic earnings (loss) per share........ $ 0.01 $ 0.17 $ (1.28) $ (0.70) $ (0.07) Diluted earnings (loss) per share....... $ 0.01 $ 0.17 $ (1.28) $ (0.70) $ (0.07) Cash dividends per share................ $ -- $ -- $ -- $ 0.08 $ 0.16 OPERATING STATISTICS Fare revenue per passenger night....... $ 224 $ 228 $ 216 $ 208 $ 202 Total revenue per passenger night...... $ 314 $ 302 $ 287 $ 288 $ 297 Weighted average operating days(3): DELTA QUEEN....................... 341 337 347 263 339 AMERICAN HAWAII................... 365 337 366 272 303 Vessel capacity per day (berths)(4): DELTA QUEEN....................... 1,026 1,026 1,024 1,024 588 AMERICAN HAWAII................... 867 844 817 1,594 1,544 Passenger nights(5) ................... 611,624 588,892 643,891 628,660 632,373 Physical occupancy percentage(6) ...... 92% 94% 98% 90% 95% BALANCE SHEET DATA (at period end) (In thousands) Total assets........................... $ 212,792 $ 210,895 $ 211,864 $ 247,473 $ 227,798 Current portion of long-term debt...... 4,100 4,100 4,100 3,746 -- Long-term debt......................... 77,388 81,488 85,898 103,272 65,000 Total stockholders' equity............. 62,014 59,219 54,982 71,413 82,105
- --------------------------------- (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). In 1995, we incurred a $5.9 million ($0.28 per share - net of tax on both a basic and diluted basis) one-time charge that represented costs associated with the introduction of the American Queen in June of 1995. In 1994, we incurred $5.7 million ($0.20 per share-net of tax on both a basic and diluted basis) in one-time charges due to problems related to the renovation of the Independence. (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) 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. (4) Vessel capacity per day represents the number of passengers each cruise line can carry assuming double occupancy for cabins which accommodate two or more passengers. Some cabins on the Independence and the American Queen can accommodate three or four passengers. (5) 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. (6) Physical occupancy percentage is passenger nights divided by capacity passenger nights. 20 21 AMERICAN CLASSIC VOYAGES CO. 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. and Great Hawaiian Cruise Line, Inc. Through our various subsidiaries, we operate two cruise lines: Delta Queen, which owns and operates the American Queen, Mississippi Queen and Delta Queen steamboats; and American Hawaii, which owns and operates the S.S. Independence steamship. Our revenues are comprised of: (1) cruise fares, (2) onboard revenues, such as those from gift shops and shore excursions, and (3) trip cancellation insurance and pre- and post-cruise hotel packages. Additional revenue is also derived from the sale of airplane tickets to and from points of embarkation or disembarkation. Our cost for air tickets typically matches the revenue we generate from sales of airline tickets, so we recognize minimal profits from such sales. Our cost of operations are comprised of: (1) passenger expenses, such as employee payroll and benefits and the cost of food and beverages, (2) vessel operating costs including lay-up and drydocking costs for our vessels, (3) insurance costs, (4) commissions paid to travel agents, and (5) air ticket and hotel costs. When we receive deposits from passengers for cruises, we establish a liability for unearned passenger revenue. We recognize revenue when the passengers take their cruises and make a corresponding reduction in our unearned passenger revenues. Our revenues and some of our expenses vary considerably when measured on a quarterly basis. This is due to the seasonality of our Delta Queen revenues, the timing of our layups and drydockings, and fluctuations in airfares. These variations are reflected in our fare revenues per passenger night, which are commonly referred to as fare per diems, and our occupancy rates. 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. 21 22 Selected quarterly data As a result of seasonality, timing of vessel lay-ups and drydocking and the factors affecting our revenues, results of operations vary on a quarterly basis. The following tables set forth selected unaudited quarterly data for 1996, 1997 and 1998. We cannot assure you that our historical quarterly results of operations will be indicative of our future performance. The figures in the tables below state dollars in thousands, except per share data, fare revenue and percentages.
1996 - Quarters Ended --------------------- March 31 June 30 September 30 December 31 -------- ------- ------------ ----------- Revenues.................................. $ 41,628 $ 49,021 $ 49,776 $ 49,983 Gross profit.............................. 13,556 17,721 17,950 18,636 Operating (loss) income................... (41,784)(1) 2,323 4,834 4,162 Net (loss) income......................... (43,271)(1) 381 2,851 22,403(2) Diluted (loss) income per share........... (3.14) 0.03 0.20 1.59 Fare revenue per passenger night.......... 204 218 209 230 Physical occupancy percentage............. 95% 98% 102% 98% 1997 - Quarters Ended --------------------- March 31 June 30 September 30 December 31 -------- ------- ------------ ----------- Revenues ................................. $ 40,372 $ 42,356 $ 49,746 $ 45,410 Gross profit.............................. 13,233 17,661 19,606 16,089 Operating (loss) income .................. (1,869) 3,451 6,098 2,304 Net (loss) income......................... (1,988) 1,177 2,770 470 Diluted (loss) income..................... (0.14) 0.08 0.19 0.03 Fare revenue per passenger night.......... 221 245 224 223 Physical occupancy percentage............. 91% 94% 96% 93% 1996 - Quarters Ended --------------------- March 31 June 30 September 30 December 31 -------- ------- ------------ ----------- Revenues ................................. $ 40,668 $ 53,535 $ 50,920 $ 47,102 Gross profit.............................. 11,209 20,562 18,184 16,675 Operating (loss) income .................. (6,143) 4,037 3,798 3,794 Net (loss) income......................... (4,362) 1,574 1,454 1,491 Diluted (loss) income..................... (0.31) 0.11 0.10 0.10 Fare revenue per passenger night.......... 211 231 222 230 Physical occupancy percentage............. 87% 97% 95% 88%
(1) In the first quarter of 1996, we decided not to renovate and return the S.S. Independence to service, resulting in write-down costs of $38.4 million, $2.79 per share on a diluted basis before any associated tax benefit. The tax benefit associated with this write-down was recognized in the fourth quarter of 1996. Had such tax benefit been recognized in the first quarter of 1996, the per share write-down costs net of tax on a diluted basis would have been $1.89. (2) In the fourth quarter of 1996, we sold the Maison Dupuy hotel located in New Orleans, Louisiana for a gain of $11.7 million or $0.57 per share, net of tax on a diluted basis. The fourth quarter also includes a year-to-date adjustment of the federal tax benefit based on our review of our tax position. 22 23 The following discusses our consolidated results of operations and financial condition for the years ended December 31, 1998, 1997 and 1996 (referred to herein as 1998, 1997 and 1996). YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997 Consolidated revenues for 1998 increased $14.3 million to $192.2 million from $177.9 million for 1997. This represents a $2.7 million increase in fare revenues combined with an $11.6 million increase in other revenues. American Hawaii's fare revenues increased $4.1 million on a 14% increase in passenger nights mainly due to an 11% increase in capacity associated with additional operating days in 1998. The number of operating days was higher in 1998 than in 1997 because the S.S. Independence was out of service for a four-week drydock in 1997. American Hawaii's fare per diems, however, decreased by 5%. Delta Queen's fare revenues decreased $1.4 million, attributable to a 5% decrease in occupancy, offset by a 3% increase in fare per diems. Consolidated fare per diems for 1998 decreased 2% to $224, as the decrease in fare per diems at American Hawaii more than offset the increase in fare per diems at Delta Queen. The $11.6 million increase in other revenues was mainly due to an increase in passenger nights at American Hawaii and an increase in passengers electing to purchase air through American Hawaii under various air promotions. As a result, consolidated total revenue per passenger night increased 4% to $314. As discussed below, the increase in air revenue was offset by a corresponding increase in related air expenses. Consolidated cost of operations for 1998 increased $14.3 million to $125.6 million from $111.3 million for 1997. American Hawaii's operating costs increased $15.0 million primarily as a result of additional operating days and an increase in air package expenses. The increase in air package expenses was directly related to the increase in air revenue, as noted above. Delta Queen's operating costs decreased by $0.7 million reflecting the decrease in occupancy. Consolidated selling, general and administrative expenses, before capacity expansion costs, increased $2.0 million to $41.9 million for 1998 from $39.9 million in 1997. The increase in selling, general and administrative expenses reflects additional selling and marketing spending at both cruise lines in the first half of the year. Capacity expansion costs of $2.3 million in 1998 were $1.2 million higher than in the prior year. Capacity expansion expenses were incurred for a full year during 1998 for both cruise lines, whereas in 1997, these expenses were incurred in the second half of the year for American Hawaii only. The $1.3 million increase in depreciation and amortization expense was attributable to capital expenditures incurred during the 1997 S.S. Independence drydock and Delta Queen vessel lay-ups completed earlier in 1998. As a result of increases in expenses as detailed above, consolidated operating income for 1998 was $5.5 million as compared to $10.0 million for 1997. Interest expense decreased slightly due to a lower outstanding debt balance during 1998 while our effective tax rate remained unchanged from the prior year. YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996 Consolidated revenues for 1997 decreased $12.5 million to $177.9 million from $190.4 million for 1996 representing a $6.6 million decrease in cruise revenues combined with a $5.9 million decrease in hotel revenues as a result of the sale of the Maison Dupuy hotel. Delta Queen owned and operated the hotel, located in New Orleans, prior to its sale in October 1996. Delta Queen's cruise revenues increased $7.1 million, reflecting a 12% increase in fare per diems combined with an 11% increase in revenue from air and land packages. The increase in fare per diems as compared to 1996 was attributable to a reduction in the use of discounts to fill open inventory close to a sailing date. American Hawaii's revenues decreased $13.7 million as a result of an 8% decrease in operating days due to the S.S. Independence drydock combined with a 3% decrease in fare per diems and a 9% decrease in occupancy. Consolidated fare per diems for 1997 increased 6% to $228, and consolidated total revenue per passenger night increased 5% to $302, as the increase in fare per diems at Delta Queen more than offset the decrease in fare per diems at American Hawaii. Consolidated cost of operations decreased $11.2 million to $111.3 million for 1997 from $122.5 million for 1996. Hotel-related costs of operations represented $1.9 million of the 1996 costs. American Hawaii's operating costs decreased $9.2 million primarily as a result of the S.S. Independence drydock while Delta Queen's cruise operating costs decreased $0.1 million. Savings in Delta Queen's passenger and vessel expenses were offset by an increase in air and land package expense corresponding to the increased sales of air and land packages. 23 24 Consolidated selling, general and administrative expenses decreased $4.4 million to $41.0 million for 1997 from $45.4 million for 1996. Of the $4.4 million decrease, $2.3 million was attributable to the hotel, with the remainder of the decrease primarily due to cost savings at Delta Queen. Also included in selling, general and administrative expenses for 1997 were $1.6 million of American Hawaii's office relocation costs and costs incurred for planning for capacity expansion in Hawaii. The $1.0 million increase in depreciation and amortization expense was primarily attributable to the S.S. Independence drydock and capital improvements on Delta Queen vessels during lay-ups earlier in 1997. In the first quarter of 1996, we recognized an impairment write-down of $38.4 million related to our decision not to renovate or return the S.S. Constitution to service. As the vessel was sold in November 1997 for net sale proceeds of $1.8 million, the salvage value of the vessel was written down from $2.5 million to $1.8 million. This write-down was offset by a reduction in the reserve set-up for the estimated costs to be incurred on behalf of the vessel until its eventual disposition. Consolidated cruise operating income for 1997 was $10.0 million as compared to cruise operating income of $6.5 million, excluding the S.S. Constitution write-down and hotel operations in 1996. Hotel operating income in 1996 was $1.4 million. Interest expense decreased $1.1 million due to a lower outstanding debt balance in 1997. Our consolidated effective tax rate increased to 40% in 1997 from 32% in 1996 as we recognized additional state tax expenses in 1997. LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION Operating Activities For the year ended December 31, 1998, cash provided by operations was $18.5 million compared to $22.4 million in 1997. The decrease reflected the decline in operating income as mentioned earlier and changes in other working capital accounts. Offsetting the decrease was an increase in unearned passenger revenues, representing passenger cruise deposits, which increased $5.6 million in 1998 as compared to an increase of $2.0 million in 1997. The increase in unearned passenger revenues was greater in 1998 than in 1997 due to (1) the timing of Delta Queen's 1998/1999 lay-ups, as discussed below, which occurred later than the 1997/1998 lay-ups and (2) deposits received in 1998 for the millennium charter cruises for both cruise lines. Investing Activities During 1998, we made expenditures of $8.8 million on capital projects, of which $5.6 million related to our existing vessels. $3.8 million of the $5.6 million related to the Delta Queen and American Queen lay-ups, which were completed in the first quarter of 1998. The remaining $1.8 million related to vessel improvement projects and costs incurred for the Mississippi Queen lay-up which began December 13, 1998. Other significant capital expenditures included $3.0 million related to design fees and costs associated with new shipbuilding programs at American Hawaii and Delta Queen, as discussed below. In February 1998, we received $0.3 million of final proceeds from the buyer of the Maison Dupuy hotel which we sold in October 1996. Additionally, $0.3 million of cash pledged under a letter of credit became unrestricted during 1998 upon the cancellation of the letter of credit. Financing Activities We made scheduled principal payments of $4.1 million under the American Queen and S.S. Independence ship financing notes during 1998. We repurchased $0.8 million of our common stock during 1998 under the stock repurchase plan, as discussed below. We received $2.9 million during 1998 from the issuance of our common stock, principally from stock options exercised by our employees. We paid $0.5 million during 1998 for financing efforts related to our new shipbuilding programs. 24 25 Capital Expenditures and Debt On January 21, 1999, the Mississippi Queen completed a 39-day lay-up. The American Queen also completed a 15-day lay-up on February 10, 1999. The Delta Queen completed a 54-day lay-up on February 27, 1999. The lay-ups for the three vessels, including repairs and maintenance, cost approximately $5.5 million and were funded from working capital. In October 1997, we announced plans to expand capacity in the Hawaii cruise market. We intend to construct two new cruise ships over the next five years and plan to introduce an existing foreign-built cruise ship in the Hawaii market while awaiting construction of the new vessels. On March 9, 1999, we signed a definitive agreement with Ingalls Shipbuilding to construct two passenger ships, each containing approximately 1,900 passengers berths, with options to build up to four additional vessels. The estimated construction cost of the two initial ships will be approximately $470 million each. The agreement provides that the first ship will be delivered in January 2003 and the second ship in January 2004. See "Business - Expansion Plans - Hawaii Expansion Plans" for a discussion on the material terms of the construction contract with Ingalls Shipbuilding. In 1999, we expect to spend between $80 million and $100 million on building the two new Hawaii cruise vessels, which includes anticipated payments to Ingalls Shipbuilding. In April 1998, we announced plans to expand capacity at Delta Queen. For the Delta Queen fleet, we intend to build up to five new small coastal ships over the next seven to 10 years. The ships will each accommodate approximately 226 passengers and cruise in coastal areas and other itineraries not currently served by existing Delta Queen vessels. These include such U.S. locations as the Eastern Coastline and the Pacific Northwest. We have completed naval contract designs and are presently negotiating with a U.S. shipyard. The estimated construction cost of the ships will be $35 million each. If we decide to go forward with the expansion plan and enter into a shipyard contract, construction of the first new vessel will begin in mid-1999 with a targeted introduction of the first coastal cruiser into service in mid-2001. We have entered into an agreement to acquire a new vessel and plan to convert it into an overnight passenger vessel with approximately 150 passenger berths for use as the fourth Delta Queen riverboat. The purchase price is approximately $8.0 million. We have conducted a due diligence review to ensure the vessel can be effectively and efficiently renovated for passenger use and that the cost of outfitting the vessel is consistent with our current estimates. Based on this due diligence review, we are seeking to amend the terms and conditions of the agreement. We estimate that the total renovation, relocation, start-up and marketing costs will require an additional $12 million. We expect that the conversion project will take between six and nine months and that the vessel will be able to enter into service in the first half of 2000. Assuming we proceed with our expansion plans for the Delta Queen line, we expect to spend between $15 million and $20 million in 1999 on building the new coastal cruise vessels, which also includes anticipated payments to the shipyard. We estimate that costs to be incurred in 1999 to acquire and outfit the fourth riverboat will be $18.0 million. We intend to finance a significant portion of the construction cost of the Hawaii cruise ships through the Maritime Administration, which provides guaranties of private financing for new vessel construction projects conducted in U.S. shipyards. We have applied for financing guaranties for debt for up to 87.5% of the cost of the vessels. The guarantied debt would be accessed during the construction period, with interest payments during that period capitalized as part of the cost of construction. In the current market, this type of debt generally bears interest at a rate of 100 to 150 basis points over the comparable U.S. government obligations and can have a term of up to 25 years from the date of delivery of the vessel. The loans generally amortize on a straight line basis over the term of the loan commencing after the delivery date. Fees associated with the financing guaranties include a one-time investigation fee equal to 1/2 of 1% of the indebtedness of $10 million and 1/8 of 1% of the amount in excess of $10 million. In addition, the Maritime Administration imposes an annual guarantee fee of not less than 1/4 of 1% and not more than 1% of the indebtedness, reduced by any required escrow, based upon the obligor's ratio of long-term debt to stockholders' equity. The present value of the annual guaranty fees is payable at the closing of the Maritime Administration guarantied financing and capitalized as part of the vessel cost. See "Risk Factors -- If we are unable to obtain Maritime Administration financing guaranties, it will impede our expansion plans and future revenue growth" for more detail regarding the impact on us if we do not obtain Maritime Administration financing guaranties. We currently have several Maritime Administration guarantied loans outstanding, secured by the S.S. Independence and the American Queen. In June 1997, our board of directors approved a stock repurchase plan. The plan authorizes us to repurchase up to one million shares of our stock. These shares may be purchased from time to time in the public market or through privately negotiated transactions. As of December 31, 1998, we had repurchased 51,000 shares at an average purchase price of $14.84 per share under the plan. We currently have no intention to repurchase any additional shares of common stock. 25 26 As of December 31, 1998, we complied with all covenants under our various debt agreements. On February 25, 1999, The Delta Queen Steamboat Co. entered into a credit agreement with a group of lenders, with The Chase Manhattan Bank as agent. This credit agreement provides for a revolving credit facility of up to $70 million to fund the expansion of our Delta Queen line. This new $70 million facility replaced our prior credit facility with Chase Manhattan. Borrowings under the new credit facility bear interest at either (1) the greater of Chase Manhattan's prime rate or alternative base rates plus a margin ranging from 0.50% to 1.50%, or (2) the London Interbank Offered Rate plus a margin ranging from 1.50% to 2.50%. We are also charged a fee of 0.50% per annum on any unused commitment. The new credit facility is secured by all of the assets of The Delta Queen Steamboat Co., except for the American Queen. The new credit facility limits the dividends The Delta Queen Steamboat Co. may pay to between $5 million and $15 million per year when aggregated with investments and other payments. Subject to Maritime Administration guarantied financing, we believe we will have adequate access to capital resources, both internally and externally, to meet our current short-term and long-term capital commitments. Such resources may include cash on hand 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. As discussed earlier, we announced plans to expand capacity at Delta Queen and in the Hawaiian market. On February 22, 1999, we filed a Registration Statement on Form S-3 with the Securities and Exchange Commission relating to a proposed public offering of up to 3,450,000 shares of our common stock. Although we believe that we will be able to obtain sufficient equity and debt financing from the capital markets to construct the new vessels, we cannot assure you that we will be able to obtain additional financing at commercially acceptable levels to finance such new construction and, if we so choose, to pursue strategic business opportunities. Impact of Year 2000 Many computer programs have been written using two digits rather than four to define the applicable year. Any of our computer programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a major system failure, miscalculations and/or other unanticipated problems. State of Readiness We have established internally staffed project teams to address Year 2000 issues. Each team is formulating a plan that focuses on Year 2000 compliance efforts for information technology systems and non-information technology systems. This plan addresses (1) information technology systems software and hardware such as reservations, accounting and associated systems, personal computers and software and (2) non-information technology systems such as embedded chip systems in building facilities, shipboard navigation, control, power generation systems, and communication systems. Our Year 2000 plan addresses the Year 2000 issues in various phases for both types of systems including: (1) inventory of our systems, equipment and suppliers that may be vulnerable to Year 2000 issues; (2) assessment of inventoried items to determine the risks associated with their possible failure to be Year 2000 compliant; (3) testing of systems and components to determine if they are Year 2000 compliant, both prior to and subsequent to remediation; (4) remediation and implementation of new systems; and (5) contingency planning to address reasonably likely worst case scenarios. For information technology systems, inventories and risk assessments have been substantially completed for all our shoreside software applications, hardware and operating systems. Most of our reservations systems functions have been tested and were found to be compliant. The remaining functions will be tested and remediated, if necessary, by mid-1999. We have also determined that our shoreside phone system and onboard financial systems on the Delta Queen vessels are Year 2000 compliant. The S.S. Independence's onboard financial system and our shoreside accounting system, however, are not Year 2000 compliant. We will utilize both internal and external resources to continue testing, reprogramming and replacing our information technology systems that require Year 2000 modifications. We anticipate completing the system improvements and the Year 2000 project no later than September 30, 1999. This is prior to any anticipated impact on our operating systems. We anticipate that these modifications and improvements will enable our information systems to function properly with respect to dates in the Year 2000 and thereafter. Inventories and risk assessments are currently being performed for all non-information technology systems and are expected to be finalized by April 30, 1999. The process of testing, remediation and implementation is expected to be completed by September 30, 1999. 26 27 Risks of Year 2000 Issues If any of our suppliers or travel partners do not, or if we do not, successfully deal with the Year 2000 issue, we could experience delays in scheduled cruises which could result in lost revenues or increases in costs and could subject us to claims and damages. To determine the most reasonably likely sources of these risks, we have been communicating with our major suppliers and travel partners on their Year 2000 compliance issues. For example, our external air ticketing and credit card processing software have been determined to be Year 2000 compliant. Based on these procedures, management believes that the most reasonably likely sources of risk to us include (1) the disruption of transportation channels relevant to our operations, including ports and transportation vendors, primarily airlines, as a result of a general failure of support systems and necessary infrastructure; (2) the disruption of travel agency and other sales distribution systems; and (3) the inability of principal product suppliers to deliver goods and services. The severity of these possible problems would depend on the nature of these problems and how quickly they could be corrected or alternatives implemented. Our major suppliers and travel partners consists of our transportation vendors, our primary external airline ticketing vendors, and our primary credit card processing software vendors. Our primary external airline ticketing vendor has certified that its systems are Year 2000 complaint. Our primary credit card processing software vendors have also certified that their systems are Year 2000 complaint. We have not received written assurance from our transportation vendors indicating that they will be Year 2000 complaint before the end of 1999. Because we have no contingency plan to transport our customers long distance to and from our embarkation and disembarkation points, failure by our transportation vendors to provide transportation services could have a material adverse effect on our operations and our financial condition. Some risks of the Year 2000 issue are beyond our control and our other travel partners and suppliers. For example, no preparations or contingency plan will protect us from a downturn in economic activity caused by the possible ripple effect throughout the entire economy that could be caused by problems of others with Year 2000 issues. Costs We have estimated our total costs for system improvements and the Year 2000 project to be approximately $1.0 million. These efforts are being funded from working capital. Of the total project cost, approximately $0.5 million is attributable to the implementation of a new accounting system. This amount includes new software, new hardware, and consulting fees, all of which will be capitalized. Another $0.3 million of capital outlays is attributable to the upgrading of the S.S. Independence's onboard financial system and to the replacement of imbedded chip systems in several of our vessels. The remaining $0.2 million is expected to be expensed as incurred and is not expected to have a material impact on the results of operations. The Year 2000 project represents less than 10% of our information systems budget. To date, we have incurred and expensed approximately $75,000 related to our systems improvements and the Year 2000 project. These costs do not include costs incurred by us as a result of the failure of any third parties, including suppliers, to become Year 2000 compliant or costs to implement any contingency plans. The costs of the project and the date on which we believe we will complete the Year 2000 modifications are based on our best estimates given presently available information. These estimates were derived utilizing numerous assumptions of future events, including the continued availability of the resources we rely on, third party modification plans and other factors. We cannot assure you, however, that these estimates will be achieved, and actual results could differ materially from those anticipated. Specific factors that might cause such material differences include, but are not limited to, the availability and cost of personnel trained in this area, the ability to locate and correct all relevant computer code, and similar uncertainties. Contingency Plans We are preparing our contingency plans to identify and determine how to handle our most probable worst case scenarios. Preliminary contingency plans are currently being reviewed. Comprehensive contingency plans are estimated to be complete by mid-1999. 27 28 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders American Classic Voyages Co. We have audited the consolidated balance sheets of American Classic Voyages Co. and subsidiaries as of December 31, 1998 and 1997, 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, 1998. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule. These consolidated financial statements and financial statement schedule 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 schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. 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, 1998 and 1997 and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1998, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, 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 19, 1999 28 29 AMERICAN CLASSIC VOYAGES CO. CONSOLIDATED BALANCE SHEETS (In thousands except shares and par value)
December 31, 1998 1997 ----------------------- ----------------------- ASSETS Cash and cash equivalents................................................ $ 27,004 $ 19,187 Restricted short-term investments........................................ 60 325 Accounts receivable...................................................... 1,989 1,299 Inventory................................................................ 2,413 2,274 Prepaid air tickets...................................................... 2,527 1,982 Prepaid expenses and other current assets................................ 4,113 3,557 ----------------------- ----------------------- Total current assets................................................ 38,106 28,624 Property and equipment, net.............................................. 162,129 171,105 Deferred income taxes, net............................................... 10,011 9,564 Other assets............................................................. 2,546 1,602 ----------------------- ----------------------- Total assets........................................................ $ 212,792 $ 210,895 ======================= ======================= LIABILITIES Accounts payable......................................................... $ 13,493 $ 14,282 Other accrued liabilities................................................ 16,500 18,093 Current portion of long-term debt........................................ 4,100 4,100 Unearned passenger revenues.............................................. 39,297 33,713 ----------------------- ----------------------- Total current liabilities........................................... 73,390 70,188 Long-term debt, less current portion..................................... 77,388 81,488 ----------------------- ----------------------- Total liabilities................................................... 150,778 151,676 ======================= ======================= STOCKHOLDERS' EQUITY Preferred stock, $0.01 par value (5,000,000 shares authorized, none issued and outstanding)............................................... -- -- Common stock, $0.01 par value (20,000,000 shares authorized, 14,293,931 and 14,006,015 shares issued, respectively)................ 143 140 Additional paid-in capital............................................... 80,451 77,059 Accumulated deficit...................................................... (17,823) (17,980) Common stock in treasury, at cost (51,000 shares)........................ (757) -- ----------------------- ----------------------- Total stockholders' equity.......................................... 62,014 59,219 ----------------------- ----------------------- $ 212,792 $ 210,895 ======================= =======================
The accompanying notes are an integral part of these Consolidated Financial Statements. 29 30 AMERICAN CLASSIC VOYAGES CO. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data)
Years Ended December 31, 1998 1997 1996 --------------------- --------------------- --------------------- Revenues $ 192,225 $ 177,884 $ 190,408 Cost of operations (exclusive of depreciation and amortization shown below)............................ 125,595 111,295 122,545 --------------------- --------------------- --------------------- Gross profit............................................ 66,630 66,589 67,863 Selling, general and administrative expenses............ 44,232 41,015 45,367 Depreciation and amortization expense................... 16,912 15,590 14,571 Impairment write-down (Note 4).......................... -- -- 38,390 --------------------- --------------------- --------------------- Operating income (loss)................................. 5,486 9,984 (30,465) Interest income......................................... 1,117 1,028 912 Interest expense........................................ 6,639 6,963 8,111 Other income............................................ 300 -- 11,729 --------------------- --------------------- --------------------- Income (loss) before income taxes ...................... 264 4,049 (25,935) Income tax (expense) benefit............................ (107) (1,620) 8,299 --------------------- --------------------- --------------------- Net income (loss)....................................... $ 157 $ 2,429 $ (17,636) ===================== ===================== ===================== PER SHARE INFORMATION Basic: Basic weighted average shares outstanding.......... 14,137 13,952 13,802 Earnings (loss) per share.......................... $ 0.01 $ 0.17 $ (1.28) Diluted: Diluted weighted average shares outstanding........ 14,777 14,338 13,802 Earnings (loss) per share.......................... $ 0.01 $ 0.17 $ (1.28)
The accompanying notes are an integral part of these Consolidated Financial Statements. 30 31 AMERICAN CLASSIC VOYAGES CO. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Years Ended December 31, 1998 1997 1996 -------------------- -------------------- --------------------- OPERATING ACTIVITIES Net income (loss).................................... $ 157 $ 2,429 $ (17,636) ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH PROVIDED BY OPERATING ACTIVITIES Depreciation and amortization expense................ 16,912 15,590 14,571 Impairment write-down (Note 4)....................... -- -- 38,390 Gain on sale of assets............................... (300) -- (11,729) Changes in certain working capital accounts and other Accounts receivable......................... (690) 2,435 (2,600) Accounts payable............................ (789) 3,599 (2,305) Other accrued liabilities................... (529) (5,344) (289) Other assets................................ (258) 1,576 (6,400) Unearned passenger revenues................. 5,584 2,044 3,137 Prepaid expenses and other.................. (1,563) 85 (123) -------------------- -------------------- --------------------- Net cash provided by operating activities............ 18,524 22,414 15,016 -------------------- -------------------- --------------------- INVESTING ACTIVITIES Decrease in restricted investments................... 265 2,632 7,724 Capital expenditures................................. (8,789) (22,326) (15,355) Proceeds from sale of assets......................... 300 1,830 21,522 -------------------- -------------------- --------------------- Net cash (used in) provided by investing activities.. (8,224) (17,864) 13,891 -------------------- -------------------- --------------------- FINANCING ACTIVITIES Proceeds from borrowings............................. -- -- 6,903 Repayments of borrowings............................. (4,100) (4,410) (23,923) Purchase of common stock............................. (757) -- -- Issuance of common stock............................. 2,907 1,139 368 Deferred financing fees.............................. (533) -- (395) -------------------- -------------------- --------------------- Net cash used in financing activities................ (2,483) (3,271) (17,047) -------------------- -------------------- --------------------- Increase in cash and cash equivalents................ 7,817 1,279 11,860 Cash and cash equivalents, beginning of period....... 19,187 17,908 6,048 -------------------- -------------------- --------------------- Cash and cash equivalents, end of period............. $ 27,004 $ 19,187 $ 17,908 ==================== ==================== ===================== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the period for: Interest ........................................ $ 6,438 $ 6,791 $ 7,952 Income taxes..................................... $ 232 $ 249 $ 450
The accompanying notes are an integral part of these Consolidated Financial Statements. 31 32 AMERICAN CLASSIC VOYAGES CO. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (In thousands)
Additional Total Paid-in Accumulated Treasury Stockholders' Common Stock Capital Deficit Stock Equity ----------------- ------------ -------------- -------------- ------------- Balance, December 31, 1995................ $ 138 $ 74,048 $ (2,773) $ -- $ 71,413 Net loss.................................. -- -- (17,636) -- (17,636) Stock issued under option and benefit plans......................... 1 1,204 -- 1,205 ----------------- ------------ -------------- ------------- ------------ Balance, December 31, 1996................ 139 75,252 (20,409) -- 54,982 Net income................................ -- -- 2,429 -- 2,429 Stock units issued to Directors, net...... -- 219 -- -- 219 Stock issued under option and benefit plans......................... 1 1,588 -- 1,589 ----------------- ------------ -------------- ------------- ------------ Balance, December 31, 1997 140 77,059 (17,980) -- 59,219 Net income................................ -- -- 157 -- 157 Stock units issued to Directors, net...... -- 138 -- -- 138 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) $ 62,014 ================= ============ ============== ============= ============
The accompanying notes are an integral part of these Consolidated Financial Statements. 32 33 AMERICAN CLASSIC VOYAGES CO. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS American Classic Voyages Co., through its subsidiaries, operates two cruise lines under the names of The Delta Queen Steamboat Co. and American Hawaii Cruises. The Delta Queen Steamboat Co., through its subsidiaries, owns and operates the American Queen, Mississippi Queen and Delta Queen steamboats which conduct overnight cruise operations on certain U.S. inland waterways ("Delta Queen"). Delta Queen also owned and operated the Maison Dupuy Hotel (the "Hotel") located in New Orleans, prior to its sale in October 1996. American Hawaii Cruises, through its subsidiaries owns and operates the S.S. Independence steamship providing overnight cruises among the Hawaiian Islands. American Hawaii also owned the S.S. Constitution steamship which was removed from service in June 1995 and was sold on November 4, 1997. PRINCIPLES OF CONSOLIDATION The accompanying Consolidated Financial Statements include the accounts of American Classic Voyages Co. ("AMCV") and its wholly owned subsidiaries, The Delta Queen Steamboat Co. ("DQSC"), and Great Hawaiian Cruise Line, Inc. ("GHCL") (collectively with such subsidiaries, the "Company"). The accompanying Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain previously reported amounts have been reclassified to conform to the 1998 presentation. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 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 As of December 31, 1998 and 1997, restricted short-term investments reflected cash pledged as collateral on outstanding letters of credit related to certain contracts with vendors. 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 consists 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 construction, renovation, lay-up and/or drydock. 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 drydock expenditures relating to vessel improvements or betterments are capitalized. In addition, lay-up and drydock expenditures relating to cleaning, repairs and maintenance are accrued evenly over the period to the next scheduled lay-up and/or drydock and are included in other accrued liabilities. Interest costs incurred during vessel construction periods were capitalized into the cost of the related vessels. The Company reviews long-lived assets, identifiable intangibles, goodwill, and reserves for impairment whenever events or changes in circumstances indicate the carrying amount of the assets may not be fully recoverable. In 1997, the Company reduced the cost of the S.S. Constitution to its salvage value as further discussed in Note 4. 33 34 GOODWILL In August 1993, the Company acquired substantially all the assets and certain liabilities of American Global Line Inc. ("the GHCL Acquisition"). The GHCL Acquisition was accounted for as a purchase. In connection with this purchase, goodwill was recorded for the excess of purchase price over the fair value of the net assets acquired and was being amortized over its estimated useful life of 25 years using the straight-line method. In 1996, in connection with its decision not to return the S.S. Constitution to service, the Company wrote-off the remaining goodwill balance (see Note 4). Amortization expense for 1996 was $52,000. 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 other assets and liabilities. REVENUE AND EXPENSE RECOGNITION The Company generally receives passenger fares up to 60 days prior to the cruise date. Prepaid passenger fares are deferred and recognized as revenue during the associated cruise. The Company is self-insured in respect of guaranteeing the Company's passenger cruise deposits. Advertising costs are expensed as incurred and are included in selling expense. EARNINGS PER SHARE INFORMATION Basic earnings per share is computed by dividing net income by the weighted-average number of common shares outstanding. Diluted earnings per share is computed in a similar manner except that the denominator is increased to include dilutive potential common shares from stock options and stock units. See Note 2 for a reconciliation of basic and diluted earnings per share. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company's financial instruments include restricted short-term investments, accounts receivable, accounts payable, other accrued expenses and long-term debt. At December 31, 1998 and 1997, the fair values of all financial instruments were not materially different from their carrying or contract values. STOCK-BASED COMPENSATION PLANS The Company has elected to account for employee stock-based compensation plans in accordance with Accounting Principles Board Opinion No. 25, as permitted under Statement of Financial Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation". See Note 10 for pro forma effect for the fair value accounting method, as defined in SFAS No. 123. NEW ACCOUNTING PRONOUNCEMENT In June 1997, the Financial Accounting Standards Board issued SFAS No. 131 "Disclosure about Segments of an Enterprise and Related Information", which requires the reporting of certain information about operating segments and related disclosures about products and services, geographic areas, and major customers. The Company has reviewed SFAS 131 and has determined that the Company operates as a single business segment. RISK 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 there is no concentration of risk with any single customer or supplier, or small group of customers or suppliers, whose failure or non-performance would materially affect the Company's results. 34 35 NOTE 2. EARNINGS PER SHARE The earnings per share reconciliations presented below for the years ended December 31, 1998 and 1997 have been prepared pursuant to the requirements of SFAS No. 128 (in thousands, except per share amount):
Years Ended December 31, 1998 1997 --------------------------------- --------------------------------- Per Per Numerator Denominator Share Numerator Denominator Share --------------------------------- --------------------------------- Basic earnings per share...................... $157 14,137 $0.01 $2,429 13,952 $0.17 ===== ===== Additional shares assuming exercise of dilutive stock options and immediate vesting of stock units........................ -- 640 -- 386 ---- ------ ------ ------ Diluted earnings per share.... ............... $157 14,777 $0.01 $2,429 14,338 $0.17 ==== ====== ===== ====== ====== =====
For the years ended December 31, 1998 and 1997, options to purchase 858,000 and 523,000 shares of common stock, respectively, at prices ranging from $15.00 to $20.00 were outstanding during 1998 and 1997, but were not included in the computation of diluted earnings per share because the options' exercise prices were greater than the average market prices of the common shares. As the Company reported a net loss for the year ended December 31, 1996, diluted earnings per share was computed in the same manner as basic earnings per share. Therefore, at December 31, 1996, outstanding options to purchase 1,730,553 shares of common stock at prices ranging from $3.25 to $20.00, were not included in the computation of diluted earnings per share. NOTE 3. PROPERTY AND EQUIPMENT Property and equipment consisted of (in thousands):
December 31, 1998 1997 ------------------- ------------------- Vessels................................... $ 218,649 $ 211,231 Buildings................................. 7,704 8,590 Construction-in-progress.................. 813 2,674 Other..................................... 10,756 8,003 ------------------- ------------------ 237,922 230,498 Less accumulated depreciation............. (75,793) (59,393) ------------------- ------------------ $ 162,129 $ 171,105 =================== ==================
At December 31, 1998, other property and equipment included $3.0 million of technical consulting and design fees related to capacity expansion at American Hawaii and Delta Queen. During 1998, $1.4 million of leasehold improvements were written-off along with $0.5 million of related accumulated depreciation upon the amendment to the lease covering the Company's Chicago headquarters facilities. This write-off was offset by a receivable from the landlord for the value of the undepreciated leasehold improvements (see Note 9 for further information). During 1997, $0.8 million of fully depreciated assets that were no longer in use were written-off along with the related accumulated depreciation. NOTE 4. IMPAIRMENT WRITE-DOWN The S.S. Constitution was removed from service on June 27, 1995 and was placed in wet berth at a shipyard in Portland, Oregon. In 1996, after evaluating the scope and cost of the S.S. Constitution reconstruction project as well as considering various alternatives, the Company decided not to renovate or return the S.S. Constitution to service. The Company recognized an impairment write-down of $38.4 million, composed of (i) $36.1 million directly related to the write-down of the vessel and its allocated goodwill to an estimated salvage value of $2.5 million, and (ii) $2.3 million which represented the remaining goodwill balance from the GHCL Acquisition. The Company reserved for the estimated costs to be incurred on behalf of the S.S. Constitution until its eventual disposition. On November 4, 1997, the Company sold the vessel for net sale proceeds of $1.8 million and as such, the salvage value of the vessel was written down from $2.5 million to $1.8 million. This write-down was offset by a reduction in the reserve set-up for the estimated costs to be incurred on behalf of the vessel, as mentioned above. 35 36 NOTE 5. DISPOSITION OF ASSETS In October 1996, the Company sold its subsidiary which owned the Hotel in New Orleans for $22.0 million in cash. In addition, the Company entered into a Profit Participation Agreement with the buyer which provided for future payments based on the future performance of the Hotel. The agreement was terminated in February 1998 when the Company received final proceeds of $0.3 million from the buyer. Upon the sale of the Hotel, the Company paid down its then outstanding borrowings, which were $9.5 million under its prior credit agreement with a group of financial institutions with The Chase Manhattan Bank, as agent (the "Credit Agreement"). The balance of the Hotel sale proceeds were used for general corporate purposes. NOTE 6. LONG-TERM DEBT Long-term debt consists of (in thousands):
December 31, 1998 1997 --------------- -------------- 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......................................................... $ 16,809 $ 19,233 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............................................................. 9,248 10,570 U.S. Government Guaranteed Ship Financing Bond, Independence Series A, 6.84% fixed rate sinking fund bonds due semi-annually beginning June 7, 2006 through December 7, 2015............................................................. 13,215 13,215 U.S. Government Guaranteed Ship Financing Note, Independence Series B, LIBOR+0.27% floating rate notes due semi-annually beginning December 7, 1996 through December 7, 2005............................................................. 2,478 2,832 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 ------------------------------ 81,488 85,588 Less current portion..................................................................... 4,100 4,100 ------------------------------ $ 77,388 $ 81,488 ==============================
Required principal payments on long-term debt over the next five years are $4.1 million for each of the years from 1999 to 2003. For the years ended December 31, 1998 and 1997, the weighted-average interest rate on outstanding borrowings was approximately 7.0% and 6.9%, respectively. The American Queen Series and the Independence Series A and B debt are guaranteed by the U.S. Government through the Maritime Administration ("MARAD") and are secured by first mortgages on the American Queen and the S.S. Independence, respectively. These Series contain various covenants which, among other things, require the compliance with certain financial ratios at the end of each year. Upon the issuance of the Independence Series A and B debt in 1995 and 1996, $2.2 million was deposited into an account representing six months of debt service. The debt service deposit was released to the Company in 1997 as GHCL had met the required cash flow and debt to equity ratios as of December 31, 1996. As of December 31, 1996, the Company's restricted short-term investments included an escrow account for remaining American Queen construction costs in the amount of $0.3 million, which was released to the Company in October 1997 and was used to pay down the principal balance of the American Queen Series. 36 37 As of December 31, 1998, the Company had a revolving credit facility under the Credit Agreement which provided for borrowings of up to $15.0 million with a final maturity on March 31, 1999. In 1998, no borrowings were outstanding at any time under this facility. Borrowings bear interest, at the option of the Company, equal to either a LIBOR rate or prime rate basis. The Company is also required to pay a commitment fee on the unused portion of the facility at a rate ranging from 0.375% to 0.500% per annum. The Credit Agreement is guaranteed by AMCV and secured by substantially all the assets of DQSC, excluding the American Queen. The Credit Agreement contains various limitations, restrictions and financial covenants which, among other things, requires maintenance of certain financial ratios, restricts additional indebtedness, limits intercompany advances to $20.0 million and limits the payment of dividends from DQSC to AMCV to $2.0 million per annum. See Note 12 for further information. As of December 31, 1998, the Company complied with all covenants under its various debt agreements. NOTE 7. 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 $99,000. In addition, the DQSC and GHCL headquarters is maintained pursuant to an assignment from local authorities. The Company paid approximately $165,000 and $160,000 under this arrangement for the years ended December 31, 1998 and 1997, 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, 1998, 1997 and 1996 was approximately $842,000, $916,000 and $848,000, respectively. The future minimum lease commitments for the next five years and thereafter under all noncancelable operating leases, excluding assignment payments, as of December 31, 1998, are $322,000, $374,000, $396,000, $348,000, $323,000 and $243,000. 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. 37 38 NOTE 8. INCOME TAXES The provision (benefit) for income taxes consisted of (in thousands):
Years Ended December 31, 1998 1997 1996 ------------------------------------------------- Current tax provision (benefit): Federal............................... $ -- $ -- $ -- State................................. 213 163 (458) ------------------------------------------------- 213 163 (458) ------------------------------------------------- Deferred tax provision (benefit): Federal............................... 89 1,323 (9,073) State................................. (195) 134 1,232 ------------------------------------------------- (106) 1,457 (7,841) ------------------------------------------------- Total tax provision (benefit)......... $ 107 $ 1,620 $ (8,299) =================================================
The provision (benefit) for income taxes differs from amounts computed by applying the U.S. statutory Federal income tax rate. The differences are summarized as follows (in thousands):
Years Ended December 31, 1998 1997 1996 ------------------------------------------------ 35% 35% 35% ------------------------------------------------ Tax provision (benefit) at statutory rate... $ 93 $ 1,417 $ (9,076) State income taxes (net of Federal benefit). 12 193 503 Non-deductible expenses..................... 221 313 121 Other....................................... (219) (303) 153 ------------------------------------------------ Total tax provision (benefit)............... $ 107 $ 1,620 $ (8,299) ================================================
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: 1998 1997 --------------------------------------- Insurance costs and reserves......................... $ 1,097 $ 1,198 Non-recurring executive compensation................. 490 809 Benefit cost accruals................................ 491 483 Alternative minimum tax credit carryforwards............................... 2,196 2,196 Drydock accruals..................................... 967 820 Net operating loss carryforward...................... 35,090 33,041 Goodwill, due to basis differences................... 1,270 1,248 --------------------------------------- Total deferred tax assets............................ 41,601 39,795 --------------------------------------- Deferred tax liabilities: Capital construction fund............................ 1,237 1,472 Property plant and equipment, due to basis differences and depreciation, net............ 30,353 28,759 --------------------------------------- Total deferred tax liabilities....................... 31,590 30,231 --------------------------------------- Net deferred tax asset............................... $ 10,011 $ 9,564 =======================================
At December 31, 1998, consolidated net operating losses of approximately $3.0 million, $10.0 million, $36.0 million, $14.0 million, $29.0 million and $5.0 million expiring in 2008, 2009, 2010, 2011, 2012 and 2018, respectively, were available to offset future taxable income of the Company. 38 39 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 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 9. RELATED PARTIES As of December 31, 1998, the largest stockholders of the Company's common stock were certain affiliates of Equity Group Investments ("EGI"), including EGI Holdings, Inc. and EGIL Investments, Inc., which owned an aggregate of 53% 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. In addition, as previously mentioned in Note 7, 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 $0.4 million, $0.7 million, and $1.5 million for the years ended December 31, 1998, 1997 and 1996, respectively. These 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, and are conducted on terms no less favorable to the Company than could be obtained from unaffiliated third parties. 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 at a rate which it believes to be competitive for comparable space for an unaffiliated party. 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 $768,000 for legal services to Preston Gates Ellis & Rouvelas Meeds ("Preston Gates") during 1998. Mr. Rouvelas, a Director of the Company, is a partner of Preston Gates. The Company paid approximately $113,000 for legal services to Watanabe, Ing & Kawashima ("WIK") during 1998. Mr. Watanabe, a Director of the Company, is a partner of WIK. NOTE 10. 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 $497,000, $550,000 and $708,000 for the years ended December 31, 1998, 1997 and 1996, 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, 1998 was $30,000. The Company also contributes, under collective bargaining agreements, to funds designed to provide pension and health benefits for its union employees. The Company contributed $2,203,000, $2,147,000 and $2,337,000 to such plans for the years ended December 31, 1998, 1997 and 1996, respectively. 39 40 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 exercise 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 11,622, 9,718 and 12,297 shares issued during 1998, 1997 and 1996, respectively, at an average price of $13.38, $10.70 and $7.13 per share for 1998, 1997 and 1996, respectively. At December 31, 1998, approximately 461,000 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"). Pursuant to the 1992 Plan, 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 and stock appreciation rights ("SARs"). The exercise price of options granted under the 1992 Plan cannot be less than the fair market value of the Company's common stock at the date of grant. As of December 31, 1998, 2,703,198 shares of the Company's common stock have been reserved for issuance under the 1992 Plan. Options granted under the 1992 Plan 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 1998, 1997 and 1996 was $7.86, $4.25 and $3.48, respectively, on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions for 1998, 1997 and 1996 respectively: expected volatility of 53%, 52% and 50%, risk-free interest rates of 4.6%, 5.7% and 6.0%, expected lives of three years and dividend yield of 0% for all years. In 1998 and 1997, 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. In 1995, the Company granted SARs to key employees. All of the SARs were canceled in 1996. During 1995, the Financial Accounting Standards Board issued SFAS No. 123, "Accounting for Stock Based Compensation," which defines a fair value based method of accounting for an employee stock option or similar equity instrument and encourages all entities to adopt that method of accounting for all of their employee stock compensation plans. However, it also allows an entity to continue to measure compensation cost for those plans using the method of accounting prescribed by APB No. 25, "Accounting for Stock Issued to Employees." Entities electing to remain with the accounting in APB No. 25 must make pro forma disclosures of net income and earnings per share, as if the fair value based method of accounting defined in this Statement has been applied. The Company applies APB No. 25 in accounting for its plans and, accordingly, no compensation cost has been recognized for its stock options in the financial statements. Had the Company determined compensation cost based on the fair value at the grant date for its stock options 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):
1998 1997 1996 ------------------------------------------------- Net income (loss) As reported $ 157 $ 2,429 $ (17,636) Pro forma (2,487) 1,422 (18,033) Basic earnings (loss) per share As reported $ 0.01 $ 0.17 $ (1.28) Pro forma (0.18) 0.10 (1.31) Diluted earnings (loss) per share As reported $ 0.01 $ 0.17 $ (1.28) Pro forma (0.18) 0.10 (1.31)
40 41 Pro forma net income (loss) and earnings (loss) per share reflect only options granted since 1995. Therefore, the full impact of calculating compensation cost for stock options under SFAS No. 123 is not reflected in the pro forma amounts presented above because compensation cost is reflected over the options' vesting period which is generally three years and compensation cost for options granted prior to January 1, 1995 is not considered. The table below summarizes the activities for 1996, 1997 and 1998:
Executive Stock Option Plan 1992 Plan Weighted-Average --------------- ------------------------------------------ Exercise Price Shares Shares Shares Shares for Options Subject to Subject to Subject to Subject to and SARs Options Options Stock Units SARs only --------------- ------------ -------------- ---------- -------- Balance at December 31, 1995......... 323,971 1,179,410 -- 280,000 $ 13.04 Granted........................ -- 895,680 -- -- 9.50 Canceled....................... -- (582,668) -- (280,000) 15.36 Exercised...................... (85,840) -- -- -- 3.25 --------------- ------------ -------------- ---------- ----- Balance at December 31, 1996 238,131 1,492,422 -- -- 10.54 Granted........................ -- 62,000 24,500 -- 12.36 Canceled....................... -- (71,753) (1,450) -- 11.43 Exercised...................... (43,006) (60,290) -- -- 7.90 Converted...................... -- -- (2,650) -- -- --------------- ------------ -------------- ---------- --------- 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 =============== ============ ============== ========== ========
The following table summarizes information about options outstanding at December 31, 1998:
Options Outstanding Options Exercisable ----------------------------------------------------------- ---------------------------------- Weighted-Average Weighted- Weighted- Range of Outstanding Remaining Average Exercisable Average Exercise Price at 12/31/98 Contractual Life Exercise Price at 12/31/98 Exercise Price - ---------------- ------------ ------------------- ---------------- ---------------- -------------- $3.25 125,613 3 $ 3.25 125,613 $ 3.25 7.97 - 9.88 441,855 8 8.96 365,997 8.88 10.25 - 15.00 408,451 7 11.65 370,446 11.70 15.32 - 20.00 1,823,790 9 17.08 637,123 17.16 - --------------- ---------- ------------------- ---------------- ---------------- -------------- $ 3.25 - $20.00 2,799,709 8 $ 14.39 1,499,179 $ 12.63 =============== ========== =================== ================ ================ ==============
41 42 NOTE 11. UNAUDITED QUARTERLY RESULTS OF OPERATIONS Summarized unaudited quarterly results of operations for 1998 and 1997 are as follows:
Year Ended December 31, 1998 March 31, June 30, September 30, December 31, (In thousands, except per share data) 1998 1998 1998 1998 ---------------- ---------------- ---------------- ----------------- Revenues.................................. $ 40,668 $ 53,535 $ 50,920 $ 47,102 Gross profit.............................. 11,209 20,562 18,184 16,675 Operating (loss) income................... (6,143) 4,037 3,798 3,794 Pre-tax (loss) income..................... (7,262) 2,614 2,424 2,488 Net (loss) income......................... (4,362) 1,574 1,454 1,491 Basic (loss) earnings per share........... (0.31) 0.11 0.10 0.10 Diluted (loss) earnings per share......... (0.31) 0.11 0.10 0.10
Year Ended December 31, 1997 March 31, June 30, September 30, December 31, (In thousands, except per share data) 1997 1997 1997 1997 ---------------- ---------------- ---------------- ----------------- Revenues ................................. $ 40,372 $ 42,356 $ 49,746 $ 45,410 Gross profit.............................. 13,233 17,661 19,606 16,089 Operating (loss) income .................. (1,869) 3,451 6,098 2,304 Pre-tax (loss) income..................... (3,314) 1,962 4,617 784 Net (loss) income......................... (1,988) 1,177 2,770 470 Basic (loss) earnings per share........... (0.14) 0.08 0.20 0.03 Diluted (loss) earnings per share......... (0.14) 0.08 0.19 0.03
The sum of quarterly (loss) earnings per common share may differ from full-year amounts due to changes in the number of shares outstanding during the year. NOTE 12. SUBSEQUENT EVENTS (UNAUDITED) REGISTRATION STATEMENT On February 22, 1999, the Company filed a Registration Statement on Form S-3 with the Securities and Exchange Commission relating to a proposed public offering of up to 3,450,000 shares of common stock. The expected proceeds of this issuance will be used to fund capacity expansion in the Hawaiian cruise market. No assurances can be given, however, that this offering will be consummated. CHASE CREDIT AGREEMENT In the first quarter of 1999, DQSC, as borrower, closed on a new long-term credit facility with The Chase Manhattan Bank, as agent, and several participant banks (the "Chase Facility"). The Chase Facility, which is a $70 million revolving credit facility maturing in February 2004, replaces the Credit Facility. Borrowings under the new 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 1.50%, or (2) the London Interbank Offered Rate plus a margin ranging from 1.50% to 2.50%. 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 to fund the acquisition of the fourth Delta Queen riverboat, the construction of the first two coastal vessels, and Delta Queen working capital. The new facility is secured by all of the assets of DQSC except the American Queen, and has various limitations and restrictions on investments, additional indebtedness, the construction costs of the new vessels, and other capital expenditures. The Chase Facility also limits dividends by DQSC, when aggregated with investments and certain other payments, to amounts ranging from $5 million to $15 million per annum. DQSC is required to comply with certain financial covenants, including maintenance of minimum interest coverage ratios and maximum leverage ratios. 42 43 CONSTRUCTION CONTRACT On March 9, 1999, the Company executed definitive agreements with Ingalls Shipbuilding, Inc. to construct at least two new vessels for the Hawaii cruise market. The new Hawaii cruise ships will have the capacity to accommodate approximately 1,900 passengers each and are currently estimated to cost $440 million each, plus approximately $30 million for furnishings, fixtures and equipment. The contract provides that Ingalls Shipbuilding will deliver the first new ship in January 2003 and the second ship in January 2004. In addition, the shipbuilding contract provides the Company an option to build up to four additional vessels. The estimated contract price of the first option vessel is $487 million and the contract price for the subsequent option vessels will be negotiated between the parties. Ingalls Shipbuilding will provide a limited warranty for the design, material and workmanship of each vessel for one year after delivery. 43 44 Schedule I AMERICAN CLASSIC VOYAGES CO. CONDENSED FINANCIAL INFORMATION OF REGISTRANT (PARENT COMPANY) BALANCE SHEETS (IN THOUSANDS)
December 31, 1998 1997 ------------------------------------------- ASSETS Cash and cash equivalents............................................ $ 458 $ 3,304 Prepaid expenses and other current assets............................ 1,948 301 Property and equipment, net.......................................... 2,771 1,385 Investment in and advances to subsidiaries........................... 60,667 59,850 ------------------------------------------- $ 65,844 $ 64,840 =========================================== LIABILITIES Other liabilities.................................................... $ 3,830 $ 5,621 ------------------------------------------- STOCKHOLDERS' EQUITY Common stock......................................................... 143 140 Paid-in capital...................................................... 80,451 77,059 Accumulated deficit.................................................. (17,823) (17,980) Treasury stock....................................................... (757) -- ------------------------------------------- Total stockholders' equity........................................... 62,014 59,219 ------------------------------------------- $ 65,844 $ 64,840 ===========================================
See accompanying notes to Condensed Financial Statements. 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, 1998 1997 1996 ------------------------------------------------------------------ Miscellaneous (expense) revenues.................... $ (1,700) $ (290) $ 16 Depreciation expense................................ (880) (713) (793) Income tax benefit ................................. 1,068 547 295 Equity in earnings (losses) of subsidiaries......... 1,669 2,885 (17,154) ------------------------------------------------------------------ Net income (loss)................................... $ 157 $ 2,429 $ (17,636) ==================================================================
See accompanying notes to Condensed Financial Statements. 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, 1998 1997 1996 -------------------- -------------------- -------------------- OPERATING ACTIVITIES Net income (loss)........................................... $ 157 $ 2,429 $ (17,636) ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES Depreciation............................................. 880 713 793 Equity in (earnings) losses of subsidiaries, net......... (1,669) (2,885) 17,154 (Increase) decrease in advances to subsidiaries.......... (570) 438 1,817 (Increase) decrease in prepaid expenses and other........ (514) 168 (128) (Decrease) increase in other liabilities................. (1,326) (465) (743) -------------------------------------------------------------- Net cash (used in) provided by operating activities...... (3,042) 398 1,257 -------------------------------------------------------------- INVESTING ACTIVITIES Capital expenditures........................................ (1,421) (178) (87) -------------------------------------------------------------- Net cash used in investing activities....................... (1,421) (178) (87) -------------------------------------------------------------- FINANCING ACTIVITIES Issuance of common stock.................................... 2,907 1,139 368 Purchase of common stock.................................... (757) -- -- Deferred financing fees..................................... (533) -- -- -------------------------------------------------------------- Net cash provided by financing activities................... 1,617 1,139 368 -------------------------------------------------------------- (Decrease) increase in cash and cash equivalents............ (2,846) 1,359 1,538 Cash and cash equivalents, beginning of period.............. 3,304 1,945 407 -------------------------------------------------------------- Cash and cash equivalents, end of period.................... $ 458 $ 3,304 $ 1,945 ============================================================== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Non-cash investment activities: Conversion of advances to subsidiaries into investment in subsidiaries............................. $ -- $ -- $ 30,000
See accompanying notes to Condensed Financial Statements. 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, 1998, 1997 and 1996 included herein this Form 10-K. The balance sheets as of December 31, 1998 and 1997, respectively, 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. DIVIDENDS FROM SUBSIDIARIES No dividends were paid to AMCV for the years ended December 31, 1998, 1997 and 1996. COMMITMENTS AMCV has guaranteed the credit agreement between one of its subsidiaries and a group of financial institutions which provides for a borrowing facility to such subsidiary for general corporate purposes. For information related to this credit agreement, see Note 6 of "Notes to Consolidated Financial Statements" included in this Form 10-K. The Federal Maritime Commission ("FMC") regulates passenger vessels with 50 or more 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. The Company has been approved as a self-insurer by the FMC, and therefore, subject to continued approval, is not required to post security for passenger cruise deposits. The FMC has reviewed its standards and in June 1996 issued proposed regulations to significantly increase the financial responsibility requirements. The Company filed its objection on the proposals, as it believes that the FMC'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. At this time, the Company cannot predict if the proposed changes will be approved as currently constituted, or at all. INCOME TAXES AMCV has also 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, 1998, 1997 and 1996. In 1993, AMCV established a capital construction fund ("CCF") pursuant to section 607 of the Merchant Marine Act of 1936. The CCF allows AMCV to accelerate recognition of Federal income tax deductions for capital expenditures related to the American Hawaii vessels. A substantial portion of the income generated by AMCV is eligible for deposit into the CCF; however; expenditures for the vessels of DQSC are not qualified for this tax treatment. As such, on a consolidated tax return basis, AMCV was able to obtain the accelerated deduction treatment on a substantial portion of its taxable income. 47 48 AMERICAN CLASSIC VOYAGES CO. INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION 3.(i) Second Amended and Restated Certificate of Incorporation of the Company 3.(ii) Second Amended and Restated By-Laws of the Company. **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. 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. 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. 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. 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. 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). 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). **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).
48 49 **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). **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). 49 50 **4.(ii)(b)(14) Endorsement No. 1 to Secretary's Note from 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). **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). 50 51 **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). 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. 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. 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. 51 52 10.(ii)(a)(6) Lease dated October 16, 1998 by and between MFD Partners, as Landlord, and American Hawaii Properties Corporation, as Tenant. **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. **10.(iv)(a)(1) Asset Purchase and Sale Agreement dated as of November 11, 1998 by and among The Delta Queen Steamboat Co., and Richard C. Breeden as bankruptcy trustee of bankruptcy estate of the Bennett Funding Group, Inc., Bennett Receivables Corporation, Bennett Receivables Corporation II, Bennett Management & Development Corporation, The Processing Center, Inc., Resort Service Company, Inc., American Marine International, Ltd. and Aloha Capital Corporation (filed as Exhibit 1 to the Company's Form 8-K dated February 22, 1999 and incorporated herein by reference). **10.(iv)(a)(2) 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). 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. Financial Data Schedule. 28. Not applicable. 52 53 99.(i) Agreement by certain shareholders with the Company dated February 22, 1999 regarding amendment of the Company's Amended and Restated Certificate of Incorporation to increase the number of authorized shares of common stock of the Company. 99.(ii) American Classic Voyages Amended and Restated 1995 Employee Stock Purchase Plan financial statements as of and for the year ended December 31, 1998. **Previously filed. 53 EX-3.(I) 2 CERTIFICATE OF INCORPORATION OF THE COMPANY 1 EXHIBIT 3(i) SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF AMERICAN CLASSIC VOYAGES CO. American Classic Voyages Co. (the "Corporation"), a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows: 1. The name of the Corporation is American Classic Voyages Co. American Classic Voyages Co. was originally incorporated under the name DQSC, Inc., and the original Certificate of Incorporation of the Corporation was filed with the Secretary of State of the State of Delaware on June 19, 1985. 2. The Board of Directors of the Corporation, by unanimous written consent of its members, filed with the minutes of the board, adopted resolutions proposing and declaring advisable that the Certificate of Incorporation be amended and restated. 3. In lieu of a meeting and vote of stockholders, the holders of a majority of the outstanding shares of common stock have given their written consent to said amended and restated Certificate of Incorporation in accordance with the provisions of Section 228 of the Delaware General Corporation Law. 4. Pursuant to Sections 242 and 228 of the General Corporation Law of the State of Delaware, this Second Amended and Restated Certificate of Incorporation ("Second Amended and Restated Certificate") restates and integrates and further amends the provisions of the Certificate of Incorporation of this Corporation. 5. The text of the Certificate of Incorporation as heretofore amended or supplemented is hereby restated and further amended to read in its entirety as follows: FIRST: The name of the Corporation is American Classic Voyages Co. SECOND: The registered office of the Corporation is to be located at 1013 Centre Road, Wilmington, in the County of Kent, the State of Delaware, 19805-1297. The name of its registered agent at that address is The Prentice-Hall Corporation System, Inc. THIRD: The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of Delaware. FOURTH: The maximum number of shares of capital stock which the Corporation is authorized to issue or to have outstanding at any time shall be 45,000,000 shares of which 40,000,000 shall be Common Stock of $.01 (one cent) par value, and 5,000,000 shall be Preferred Stock of $.01 (one cent) par value. The Preferred Stock may be issued from time to time in one or more series, upon resolution or resolutions providing for such series adopted by the Board of Directors, with such distinctive designations as shall be stated in such resolution or resolutions. The resolution or resolutions providing for the issue of shares of a particular series shall fix, subject to the applicable laws and provisions of this Article FOURTH, the designation, rights, preferences and limitations of the shares of each such series. The authority of the Board of Directors with respect to each series shall include, but not be limited to, the determination of the following: 2 (a) The number of shares constituting such series, including the authority to increase or decrease such number, and the distinctive designation of such series; (b) The dividend rate of the shares of such series, whether the dividends shall be cumulative and, if so, the date from which they shall be cumulative, and the relative rights of priority, if any, of payment of dividends on shares of such series; (c) The right, if any, of the Corporation to redeem shares of such series and the terms and conditions of such redemption including the redemption price; (d) The rights of the shares in case of a voluntary or involuntary liquidation, dissolution or winding up of the Corporation, and the relative rights of priority, if any, of payment of shares of such series; (e) The voting rights, if any, for such series and the terms and conditions under which such voting rights may be exercised; (f) The obligation, if any, of the Corporation to retire shares of such series pursuant to a retirement or sinking fund or fund of a similar nature and the terms and conditions of such obligation; (g) The terms and conditions, if any, upon which shares of such series shall be convertible into or exchangeable for shares of stock of any other class or classes or of any other series of preferred stock, including the price or prices or the rate or rates of conversion or exchange and the terms of adjustment, if any; and (h) Any other rights, preferences or limitations of the shares of such series as may be permitted by law. FIFTH: The following provisions are inserted for the management of the business and for the conduct of the affairs of the Corporation, and for further definition, limitation and regulation of the powers of the Corporation and of its directors and stockholders: (a) The number of directors of the Corporation shall be such as from time to time shall be fixed by, or in the manner provided in, the by-laws. Election of directors need not be by ballot unless the by-laws so provide. (b) The Board of Directors shall have power without the assent or vote of the stockholders to make, alter, amend, change, add to or repeal the by-laws of the Corporation; to fix and vary the amount to be reserved for any proper purpose; to authorize and cause to be executed mortgages and liens upon all or any part of the property of the Corporation; to determine the use and disposition of any surplus or net profits; and to fix the times for the declaration and payment of dividends. 2 3 (c) The Board of Directors in their discretion may submit any contract or act for approval or ratification at any annual meeting of the stockholders or at any meeting of the stockholders called for the purpose of considering any such act or contract, and any contract or act that shall be approved or be ratified by the vote of the holders of a majority of the stock of the Corporation which is represented in person or by proxy at such meeting and entitled to vote thereat (provided that a lawful quorum of stockholders be there represented in person or by proxy) shall be as valid and as binding upon the Corporation and upon all the stockholders as though it had been approved or ratified by every stockholder of the Corporation, whether or not the contract or act would otherwise be open to legal attack because of the interest of any member of the Board of Directors, or for any other reason. (d) In addition to the powers and authorities hereinbefore or by statute expressly conferred upon them, the Board of Directors is hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation; subject, nevertheless, to the provisions of the statutes of the State of Delaware, of this Second Amended and Restated Certificate, and to any by-laws from time to time made by the stockholders; provided, however, that no by-laws so made shall invalidate any prior act of the Board of Directors which would have been valid if such by-law had not been made. SIXTH: (a) The Corporation shall, to the full extent permitted by Section 145 of the Delaware General Corporation Law, as amended from time to time, indemnify all persons whom it may indemnify pursuant thereto; including, without limitation, (i) any person who was a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that such person is or was a director, officer, employee or agent of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit, and (ii) any person who was or is party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in connection with any such action, suit or proceeding, in each case to the fullest extent permissible under Section 145 of the Delaware General Corporation Law, as amended from time to time, or the indemnification provisions of any successor statute. 3 4 (b) The foregoing provisions of this Article SIXTH shall be deemed to be a contract between the Corporation and each director, officer, employee or agent of the Corporation or person who is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise and who serves in such capacity at any time while this Article SIXTH is in effect, and any repeal or modification thereof shall not affect any rights or obligations then existing with respect to any state of facts then or therefore existing or any action, suit or proceedings theretofore or thereafter brought based in whole or in part upon any such state of facts. The foregoing rights of indemnification shall not be deemed exclusive of any other rights to which any director or officer may be entitled apart from the provisions of this Article SIXTH. The Board of Directors in its discretion shall have power on behalf of the Corporation to enter into agreements with respect to the indemnification of any person, other than a director or officer, made a party to any action, suit or proceeding by reason of the fact that he/she, his/her testator or intestate, is or was an employee, agent or otherwise acting on behalf of the Corporation or serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise. SEVENTH: A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for beach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived any improper personal benefit. If the Delaware General Corporation Law is amended after this Second Amended and Restated Certificate of Incorporation becomes effective to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Corporation shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended. Any repeal or modification of the provisions of this Article SEVENTH by the stockholders of the Corporation shall be prospective only and shall not adversely affect any limitation on the personal liability of a director of the Corporation with respect to any act or omission occurring prior to the effective date of such appeal or modification. In the event that any of the provisions of this Article SEVENTH (including any provision within a single sentence) is held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable, the remaining provisions are severable and shall remain enforceable to the fullest extent permitted by law. EIGHTH: The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Second Amended and Restated Certificate in the manner now or hereafter prescribed by law, and all rights and powers conferred herein on stockholders, directors and officers are subject to this reserved power. NINTH: This Second Amended and Restated Certificate is effective as of 7:30 A.M., Eastern Standard Time, on March 31, 1999. 4 5 TENTH: (A) For purposes of this Article TENTH: (1) The term "Act" shall mean the Securities Exchange Act of 1934, as amended. (2) The terms "Affiliate" and "Associate" shall have meanings ascribed to them in Rule 12b-2 of the General Rules and Regulations under the Act. (3) The terms "acquire", "acquisition" or "acquiring" with respect to the acquisition of any security of the corporation shall refer to the acquisition of such security by any means whatsoever, including, without limitation, an acquisition of such security by operation of law, by will or by intestacy. (4) The term "Common Stock" means all common stock of the Corporation and any other securities issued by the Corporation which are treated as stock for purposes of Section 2 of the Shipping Act, 1916. (5) The term "Excess Shares" shall have the meaning ascribed to it in Section (C)(1) hereof. (6) The term "Holder of Excess Shares" shall have the meaning ascribed to it in Section (B) hereof. (7) The term "25% Limitation" shall mean the limitations on ownership of Common Stock imposed by this Article TENTH. (8) The terms "own", "owned", "ownership" or "owning" refer to the ownership of stock in a corporation within the meaning of Section 2 of the Shipping Act, 1916. (9) The term "Permitted Transferee" shall have the meaning ascribed to it in Section (C)(1)(a) hereof. (10) The term "Person" shall mean any individual, firm, corporation, partnership, joint venture or other entity and shall include any group comprised of such Person and any other Person with whom such Person or any Affiliate or Associate of such Person has any agreement, arrangement or understanding, directly or indirectly, for the purpose of acquiring, holding, voting or disposing of Common Stock and any other Person who is a member of such group, but does not include any underwriter which participates in an underwritten public offering of the Corporation's Common Stock, provided that such underwriter shall not own such Common Stock. (11) The term "Proceeds" shall have the meaning ascribed to it in Section (C)(1)(d) hereof. (12) The term "Purported Owner" shall have the meaning ascribed to it in Section (C)(1) hereof. 5 6 (13) The term "Purported Owner's Transferor" shall have the meaning ascribed to it in Section (C)(1)(a) hereof. (14) The term "Share Trustee" shall mean the trustee of the Excess Shares nominated and appointed by the Board of Directors from time to time. (15) The term "Shipping Act" shall mean the Shipping Act, 1916, and all amendments thereto as codified in 46 U.S.C. Section 801, et. seq. and all regulations promulgated thereunder. (16) The term "Transfer Agent" shall mean the transfer agent with respect to the Common Stock nominated and appointed by the Board of Directors from time to time. (B) At no time shall any Person who is not a citizen of the United States own or purchase Common Stock which, when aggregated with all other Common Stock of the Corporation owned by Persons who are not citizens of the United States, would make the ownership of the Common Stock owned by Persons who are not citizens of the United States exceed twenty-five percent (25%) (the "25% Limitation") of the total Common Stock. (C) (1) The transfer, purchase or ownership of any shares of Common Stock in violation of Section B of this Article TENTH is prohibited and shall be null and void. If, notwithstanding the foregoing prohibition, a Person shall, voluntarily or involuntarily, become or attempt to become the purported owner (the "Purported Owner") of shares of Common Stock, or both, in excess of such 25% Limitation (the number of shares of Common Stock so exceeding the 25% Limitation being herein the "Excess Shares"), then: (a) The Purported Owner shall not obtain any rights in and to the Excess Shares, and the purported transfer of the Excess Shares to the Purported Owner shall not be recognized by the Transfer Agent. Until the Excess Shares are transferred to a person whose acquisition thereof will not violate the 25% Limitation (a "Permitted Transferee"), the transferor of the Excess Shares to the Purported Owner (the "Purported Owner's Transferor") shall be deemed to have retained the Excess Shares and shall hold and be entitled to exercise all rights incident to ownership of such Excess Shares. All Excess Shares will continue to be issued and outstanding. (b) If the Transfer Agent obtains possession of a certificate or certificates representing the Excess Shares, the Transfer Agent shall deliver such certificate or certificates to the Share Trustee who shall proceed forthwith to sell or cause the sale of the Excess Shares to a Permitted Transferee. Upon notice from the Corporation of the existence of Excess Shares and the identity of the Purported Owner, the Share Trustee shall take all lawful action to cause the Purported Owner to deliver or cause delivery of the Excess Shares and any indicia of ownership thereof to the Share Trustee and upon obtaining possession thereof, the Share Trustee shall proceed forthwith to sell or cause the sale of the Excess Shares to a Permitted Transferee. The Share Trustee shall sell or cause the sale of the 6 7 Excess Shares in the then existing public market or in such other commercially reasonable fashion as the Corporation shall direct. In performing the duties herein imposed upon it, the Share Trustee shall act at all times as the agent for the Purported Owner's Transferor. (c) Once the Excess Shares are acquired by a Permitted Transferee, the Permitted Transferee shall have and shall be entitled to exercise all rights incident to the ownership of such Excess Shares. (d) The proceeds from the sale of the Excess Shares to the Permitted Transferee (the "Proceeds") shall be distributed as follows: (i) first, to the Share Trustee for any costs incurred in respect of its administration of the Excess Shares, (ii) second, to the Purported Owner, if known, in an amount up to the amount paid by the Purported Owner, if determinable, for the Excess Shares, and (iii) the remaining Proceeds, if any, shall be distributed to the Purported Owner's Transferor, if known, and if not known, such remaining Proceeds shall be held by the Corporation for the benefit of the Purported Owner's Transferor or such other Person as their interests may appear. Notwithstanding anything in this Article TENTH to the contrary, the Corporation shall at all times be entitled to make application to any court of equitable jurisdiction within the State of Delaware for an adjudication of the respective rights and interest of any Person in and to the Proceeds pursuant to this Article TENTH and applicable law and for leave to pay the Proceeds into such court. (2) In determining whether any Person has become a Purported Owner of Excess Shares: (a) the Corporation is entitled to rely on Schedule 13D and 13G filings as required by Rule 13d-1 of the Act to identify the citizenship of any Person who owns more than five percent (5%) of the Common Stock; and (b) in the case of any Person who does not own more than five percent (5%) of the Common Stock, without regard to the actual identity of the ultimate beneficial owners of such Common Stock, the Corporation may rely on a statement, signed under oath, or affirmation by such Person or on the registered address of such Person to establish the citizenship of any such Person. The Corporation may not rely on a statement by such Person or on the registered address of such Person if the Corporation knows that the statement is false. 7 8 The Board of Directors shall be fully protected in relying in good faith on the items set forth in subparagraphs (a) and (b) of the foregoing paragraph (2), together with such other items or sources of information as may be required from time to time by the Shipping Act, to determine whether any Person has become a Purported Owner of Excess Shares. (D) Immediately upon the purported acquisition of any Excess Shares, the Purported Owner thereof shall give, or cause to be given, written notice thereof to the Corporation. Each owner of shares of Common Stock shall furnish to the Corporation all information reasonably requested with respect to all shares of Common Stock directly and indirectly owned by such Person. (E) Upon a determination by the Board of Directors that a person has attempted or may attempt to transfer or to acquire Excess Shares, the Board of Directors may take such action as it deems advisable to refuse to give effect to such transfer or acquisition on the books and records of the Corporation, including without limitation, to cause the Transfer Agent to record the Purported Owner's Transferor as the record owner of the Excess Shares and to institute proceedings to enjoin or rescind any such transfer or acquisition. (F) If any provision of this Article TENTH or any application of any such provision is determined to be invalid by any federal or state court having jurisdiction over the issues, the validity of the remaining provisions shall not be affected and other application of such provision shall be affected only to the extent necessary to comply with the determination of such court. (G) It is the purpose of this Article TENTH to facilitate the Corporation's ability to preserve its ownership by United States citizens as required under Section 2 of the Shipping Act and to that end the Board of Directors is authorized to take such action, to the extent permitted by law and not inconsistent with this Article TENTH, as it may deem necessary or advisable to protect the Corporation and the interests of the holders of its equity and debt securities by preservation of the Corporation's ownership by United States citizens. (H) The Board of Directors may, to the extent permitted by law, from time to time, establish, modify, amend or rescind, by By-law or otherwise, regulations and procedures not inconsistent with the express provisions of this Article TENTH for determining whether any acquisition of Common Stock would jeopardize the Corporation's ability to maintain such ownership by citizens of the United States for the orderly application, administration and implementation of the provisions of this Article TENTH. Such procedures and regulations shall be kept on file with the Secretary of the Corporation and with its Transfer Agent and shall be made available for inspection by the public and, upon request, shall be mailed to any holder of Common Stock of the Corporation. (I) All certificates evidencing ownership of Common Stock of the Corporation shall bear a conspicuous legend describing the restriction set forth in this Article TENTH. ELEVENTH: The Corporation shall not be governed by Section 203 of Delaware General Corporation Law. 8 9 IN WITNESS WHEREOF, American Classic Voyages Co. has caused this Second Amended and Restated Certificate of Incorporation to be signed by Jordan B. Allen, its Executive Vice President, General Counsel and Secretary, and attested by Pam Stringer, its Assistant Secretary, this 29th day of March, 1999. AMERICAN CLASSIC VOYAGES CO. By: /s/ Jordan B. Allen ------------------------ Jordan B. Allen Executive Vice President, General Counsel and Secretary Attest: /s/ Pam Stringer --------------------------------- Pam Stringer, Assistant Secretary 9 EX-3.(II) 3 BY-LAWS OF THE COMPANY 1 3(ii) SECOND AMENDED AND RESTATED BY-LAWS OF AMERICAN CLASSIC VOYAGES CO. ARTICLE I OFFICES The Corporation shall continuously maintain in the State of Delaware a registered office and a registered agent whose business office is identical with such registered office, and may have other offices within or without the State. ARTICLE II SHAREHOLDERS SECTION 1. ANNUAL MEETING. An annual meeting of the shareholders shall be held on the third Wednesday in June of each year or at such time as the Board of Directors may designate for the purpose of electing directors and for the transaction of such other business as may come before the meeting. If the day fixed for the annual meeting shall be a legal holiday, such meeting shall be held on the next succeeding business day. If the election of directors shall not be held on the day designated herein for any annual meeting, or at any adjournment thereof, the Board of Directors shall cause the election to be held at a meeting of the shareholders as soon thereafter as may be convenient. SECTION 2. SPECIAL MEETINGS. Special meetings of the shareholders may be called either by the President, by the Board of Directors or by the holders of not less than a majority of all the outstanding shares of the Corporation entitled to vote, for the purpose or purposes stated in the call of the meeting. SECTION 3. PLACE OF MEETING. The Board of Directors may designate any place, either within or without the State of Delaware, as the place of meeting for any annual meeting or for any special meeting called by the Board of Directors. A waiver of notice signed by all shareholders may designate any place, either within or without the State of Delaware, as the place for the holding of such meeting. If no designation is made, or if a special meeting be otherwise called, the place of meeting shall be at Two North Riverside Plaza, Chicago, Illinois 60606, except as otherwise provided in Section 5 of this Article II. SECTION 4. NOTICE OF MEETINGS. Written notice stating the place, date, and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than 10 nor more than 60 days before the date of the meeting, or in the case of a merger, consolidation, share exchange, dissolution or sale, lease or exchange of assets, not less than 20 nor more than 60 days before the date of the 1 2 meeting, either personally or by mail, by or at the direction of the President, or the Secretary, or the officer or persons calling the meeting, to each shareholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail addressed to the shareholder at his or her address as it appears on the records of the corporation, with postage thereon prepaid. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. SECTION 5. MEETING OF ALL SHAREHOLDERS. If all of the shareholders shall meet at any time and place, either within or without the State of Delaware, and consent to the holding of a meeting at such time and place, such meeting shall be valid without call or notice, and at such meeting any corporate action may be taken. SECTION 6. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. For the purpose of determining the shareholders entitled to notice of or to vote at any meeting of shareholders, or shareholders entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other proper purpose, the Board of Directors may fix in advance a date as the record date for any such determination of shareholders, such date in any case to be not more than 60 days and, for a meeting of shareholders, not less than 10 days or, in the case of a merger, consolidation, share exchange, dissolution or sale, lease or exchange of assets, not less than 20 days before the date of such meeting. If no record date is fixed for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders, or shareholders entitled to receive payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the Board of Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of shareholders. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this Section, such determination shall also apply to any adjournment thereof. SECTION 7. VOTING LISTS. The officer or agent having charge of the transfer book for shares of the Corporation shall make, within 20 days after the record date for a meeting of shareholders or 10 days before such meeting, whichever is earlier, a complete list of the shareholders entitled to vote at such meeting, arranged in alphabetical order, with the address of and the number of shares held by each, which list, for a period of 10 days prior to such meeting, shall be kept on file at the registered office of the Corporation and shall be subject to inspection by any shareholder, and to copying at the shareholder's expense, at any time during usual business hours. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any shareholder during the whole time of the meeting. The original share ledger or transfer book, or a duplicate thereof kept in the State of Delaware, shall be prima facie evidence as to who are the shareholders entitled to examine such list or share ledger or transfer book or to vote at any meeting of shareholders. SECTION 8. QUORUM. The holders of a majority of the outstanding shares of the Corporation entitled to vote on a matter, represented in person or by proxy, shall constitute a quorum for consideration of such matter at any meeting of shareholders, but in no event shall a quorum consist of less than one-third of the outstanding shares entitled so to vote; provided that if less than a majority of the outstanding shares are represented at said meeting, a majority of the shares so represented may adjourn the meeting at any time without further notice. If a quorum is present, the affirmative vote of the majority of the shares represented at the meeting 2 3 shall be the act of the shareholders, unless the vote of a greater number or voting by classes is required by the General Corporation Law of Delaware (as now in effect or as amended from time to time, the "Act"), the certificate of incorporation or these by-laws. At any adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the original meeting. Withdrawal of shareholders from any meeting shall not cause failure of a duly constituted quorum at that meeting. SECTION 9. PROXIES. At all meetings of shareholders, a shareholder may vote by proxy executed in writing by the shareholder or by his duly authorized attorney-in-fact. Such proxy shall be filed with the Secretary of the Corporation before or at the time of the meeting. No proxy shall be valid after eleven months from the date of its execution, unless otherwise provided in the proxy. SECTION 10. VOTING OF SHARES. Unless otherwise provided in the articles of incorporation, each outstanding share shall be entitled to one (1) vote upon each matter submitted to vote at a meeting of shareholders. SECTION 11. VOTING OF SHARES BY CERTAIN HOLDERS. Shares held by the Corporation in a fiduciary capacity may be voted and shall be counted in determining the total number of outstanding shares entitled to vote at any given time. Shares registered in the name of another corporation, domestic or foreign, may be voted by any officer, agent, proxy or other legal representative authorized to vote such shares under the law of incorporation of such corporation. The Corporation may treat the president or other person holding the position of chief executive officer of such other corporation as authorized to vote such shares, together with any other person indicated and any other holder of any office indicated by the corporate shareholder to the Corporation as a person or an officer authorized to vote such shares. Such persons and officers indicated shall be registered by the Corporation on the transfer books for shares and included in any voting list prepared in accordance with Section 7 of this Article II. Shares registered in the name of a deceased person, a minor ward or a person under legal disability may be voted by his or her administrator, executor or court appointed guardian, either in person or by proxy without a transfer of such shares into the name of such administrator, executor or court appointed guardian. Shares registered in the name of a trustee may be voted by him or her, either in person or by proxy. Shares registered in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by such receiver without the transfer thereof into his or her name if authority to do so is contained in an appropriate order of the court by which such receiver was appointed. A shareholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter the pledgee shall be entitled to vote the shares so transferred. Any number of shareholders may create a voting trust for the purpose of conferring upon a trustee or trustees the right to vote or otherwise represent their shares, for a period not to exceed 10 years, by entering into a written voting trust agreement specifying the terms and 3 4 conditions of the voting trust and by transferring their shares to such trustee or trustees for the purpose of the agreement. Any such trust agreement shall not become effective until a counterpart of the agreement is deposited with the Corporation at its registered office. The counterpart of the voting trust agreement so deposited with the Corporation shall be subject to the same right of examination by a shareholder of the Corporation, in person or by agent or attorney, as are the books and records of the Corporation, and shall be subject to examination by any holder of a beneficial interest in the voting trust, either in person or by agent or attorney, at any reasonable time for any proper purpose. Shares of its own stock belonging to the Corporation shall not be voted, directly or indirectly, at any meeting and shall not be counted in determining the total number of outstanding shares at any given time, but shares of its own stock held by it in a fiduciary capacity may be voted and shall be counted in determining the total number of outstanding shares at any given time. SECTION 12. INSPECTORS. At any meeting of shareholders, the presiding officer may, or upon the request of any shareholder shall, appoint one or more persons as inspectors for such meeting. Such inspectors shall ascertain and report the number of shares represented at the meeting, based upon their determination of the validity and effect of proxies; count all votes and report the results; and do such other acts as are proper to conduct the election and voting with impartiality and fairness to all the shareholders. Each report of an inspector shall be in writing and signed by him or her or by a majority of them if there be more than one inspector acting at such meeting. If there is more than one inspector, the report of a majority shall be the report of the inspectors. The report of the inspector or inspectors on the number of shares represented at the meeting and the results of the voting shall be prima facie evidence thereof. SECTION 13. INFORMAL ACTION BY SHAREHOLDERS. Any action required to be taken at a meeting of the shareholders, or any other action which may be taken at a meeting of the shareholders, may be taken without a meeting and without a vote if a consent in writing, setting forth the action so taken, shall be signed (a) by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voting or (b) by all of the shareholders entitled to vote with respect to the subject matter thereof. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given in writing to those shareholders who have not consented in writing. In the event that the action which is consented to is such as would have required the filing of a certificate under any section of the Act if such action had been voted on by the shareholders at a meeting thereof, the certificate filed under such section shall state, in lieu of any statement required by such section concerning any vote of shareholders, that written consent has been given in accordance with the provisions of SECTION 228 of the Act and that written notice has been given as provided in such SECTION 228. 4 5 SECTION 14. VOTING BY BALLOT. Voting on any question or in any election may be by voice unless the presiding officer shall order or any shareholder shall demand that voting be by ballot. ARTICLE III DIRECTORS SECTION 1. GENERAL POWERS. The business of the Corporation shall be managed by or under the direction of its Board of Directors. SECTION 2. NUMBER, TENURE AND QUALIFICATIONS. The number of directors of the Corporation shall be not less than two (2) and not more than thirteen (13). Each director shall hold office until the next annual meeting of shareholders; or until his successor shall have been elected and qualified. Directors need not be residents of Delaware or shareholders of the Corporation. The number of directors may be increased or decreased from time to time by the amendment of this Section 2. No decrease shall have the effect of shortening the term of any incumbent director. SECTION 3. REGULAR MEETINGS. A regular meeting of the Board of Directors shall be held, without other notice than this by-law, immediately after the annual meeting of shareholders. The Board of Directors may provide, by resolution, the time and place for holding of additional regular meetings without other notice than such resolution. SECTION 4. SPECIAL MEETINGS. Special meetings of the Board of Directors may be called by or at the request of the President or any two directors. The person or persons authorized to call special meetings of the Board of Directors may fix any place as the place for holding any special meeting of the Board of Directors called by them. SECTION 5. NOTICE. Notice of any special meeting shall be given at least two business days previous thereto by written notice to each director at his business address. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail so addressed, with postage thereon prepaid. If notice be given by telegram, such notice shall be deemed to be delivered when the telegram is delivered to the telegram company. The attendance of a director at any meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting. SECTION 6. QUORUM. Unless otherwise provided in the articles of incorporation, a majority of the number of directors fixed by these by-laws shall constitute a quorum for transaction of business at any meeting of the Board of Directors, provided that if less than a majority of such number of directors are present at said meeting, a majority of the directors present may adjourn the meeting at any time without further notice. Unless specifically prohibited by the articles of incorporation, members of the Board of Directors or of any committee of the Board of Directors may participate in and act at any 5 6 meeting of the Board or such committee through the use of a conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other. Participation in such meeting shall constitute attendance and presence in person at the meeting of the person or persons so participating. SECTION 7. MANNER OF ACTING. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors, unless the act of a greater number is required by statute, these by-laws, or the articles of incorporation. SECTION 8. VACANCIES. Any vacancy on the Board of Directors and any directorship to be filled by reason of an increase in the number of directors may be filled by election at the next annual or special meeting of shareholders. A majority of the Board of Directors may fill any vacancy prior to such annual or special meeting of shareholders. SECTION 9. RESIGNATION OF DIRECTORS. A director may resign at any time upon written notice to the Board of Directors, its chairman, if any, or to the chief executive officer or Secretary of the Corporation. SECTION 10. INFORMAL ACTION BY DIRECTORS. Unless specifically prohibited by the articles of incorporation or by other provisions of these by-laws, any action required to be taken at a meeting of the Board of Directors, or any other action which may be taken at a meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all the directors entitled to vote with respect to the subject matter thereof or by all the members of such committee, as the case may be. Any such consent signed by all the directors or all the members of the committee shall have the same effect as a unanimous vote, and may be stated as such in any document filed with the Secretary of State or with anyone else. SECTION 11. COMMITTEES. A majority of the directors fixed by these by-laws may, by resolution, create one or more committees and appoint members of the Board to serve on any one or more of such committees. Each committee shall have two or more members who shall serve at the pleasure of the Board. A majority of any committee shall constitute a quorum and a majority of a quorum is necessary for committee action. Each committee, to the extent provided by the Board of Directors in such resolution, shall have and exercise all of the authority of the Board of Directors in the management of the Corporation, except that a committee may not: authorize distributions; approve or recommend to shareholders any act required by statute to be approved by shareholders; fill vacancies on the Board or on any of its committees; elect or remove officers or fix the compensation of any member of the committee; adopt, amend or repeal the by-laws; approve a plan of merger not requiring shareholder approval; authorize or approve the reacquisition of shares, except according to a general formula or method prescribed by the Board; authorize or approve the issuance or sale, or contract for sale, of shares or determine the designation and relative rights, preferences, and limitations of a series of shares, except that the Board may direct a committee to fix the specific terms of issuance or sale or contract for sale or the number of shares to be allocated to particular employees under an employee benefit plan; or, amend, alter, repeal, or take action inconsistent with any resolution or action of the Board of Directors when the resolution or action of the Board of Directors provides by its terms that it shall not be amended, altered or repealed by action of a committee. Vacancies in the membership of any committee shall be filled by the Board of Directors. Each committee shall keep regular minutes of its proceedings and report 6 7 the same to the Board when required. A committee may act by unanimous consent in writing without a meeting and, subject to action by the Board of Directors, each committee, by a majority vote of its members, shall determine the time and place of meetings and the notice therefor. SECTION 12. COMPENSATION. The Board of Directors, by the affirmative vote of a majority of directors then in office, and irrespective of any personal interest of any of its members, shall have authority to establish reasonable compensation of all directors for services to the Corporation as directors, officers or otherwise notwithstanding any director conflict of interest. By resolution of the Board of Directors, the directors may be paid their expenses, if any, of attendance at each meeting of the Board. No such payment previously mentioned in this Section shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. SECTION 13. PRESUMPTION OF ASSENT. A director of the Corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be conclusively presumed to have assented to the action taken unless his or her dissent shall be entered in the minutes of the meeting or unless he or she shall file his or her written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered or certified mail to the Secretary of the Corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a director who voted in favor of such action. SECTION 14. REMOVAL OF DIRECTORS. One or more of the directors may be removed, with or without cause, at a meeting of shareholders by the affirmative vote of the holders of a majority of the outstanding shares then entitled to vote at an election of directors, except that no director shall be removed at a meeting of shareholders unless the notice of such meeting shall state that a purpose of the meeting is to vote upon the removal of one or more directors named in the notice, and then only the named director or directors may be removed at such meeting. If a director has been elected by a class or series of shares, he may be removed only by the shareholders of that class or series. SECTION 15. DISINTERESTED DIRECTORS; VOTING. A majority of the Corporation's disinterested directors shall be required to approve any business dealing between the Corporation and (i) any one or more of the directors of the Corporation or (ii) any person affiliated with or under common control with any one or more of the directors of the Corporation. Any such person described in clauses (i) or (ii) of this Section 15 who enters into or intends to enter into a business dealing with the Corporation shall, for purposes of this Section 15, be referred to as an "interested person." For the purposes of this Section 15, the terms "affiliate," "control," "under common control with," "disinterested directors" and "business dealing" shall have the following meanings: (a) an "affiliate" of, or person "affiliated" with, a specified person shall mean a person that directly, or indirectly through one or more intermediaries, controls or is controlled by or is under common control with the person specified; (b) the word "control" (the meaning of which hereunder shall also be applicable to the term "under common control with") shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or 7 8 policies of the person, whether through board representation, the ownership of voting securities, by contract or otherwise; (c) the word "person" shall mean any natural person, corporation, firm, association, trust, government, governmental agency or other entity, whether acting in an individual, fiduciary or other capacity; (d) the term "disinterested directors" shall mean any director of the Corporation who is not (i) an employee, officer, director, trustee, partner, 5% shareholder (through beneficial ownership or otherwise) or fiduciary of a person (other than the Corporation) who is affiliated with or under common control with an interested person; or (ii) an employee, officer, director, trustee, partner or fiduciary of any of the persons described in subsection d(i) above; and (e) the term "business dealing" shall mean any transaction providing for the sale, lease or exchange of property or the rendering of any service, other than the sale, lease or exchange of property or the rendering of any service made or undertaken pursuant to and in accordance with an Administrative Services Agreement to be executed between Equity Group Investments, Inc., an Illinois corporation, and the Corporation in such form as the Board of Directors shall approve. ARTICLE IV OFFICERS SECTION 1. NUMBER. The officers of the Corporation shall be a President, a Treasurer and a Secretary and may include a Chairman of the Board (or one or more Co-Chairmen of the Board), Chief Executive Officer, one or more Vice Presidents, a Chief Operating Officer, a Chief Financial Officer, one or more Assistant Treasurers, and one or more Assistant Secretaries. In addition, the Board of Directors may, from time to time, appoint such other officers with such powers and duties as they shall deem necessary or desirable. Any two or more offices may be held by the same person. SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the Corporation shall be elected annually by the Board of Directors at the first meeting of the Board of Directors held after each annual meeting of shareholders. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as conveniently may be. Vacancies may be filled or new offices created and filled at any meeting of the Board of Directors. Each officer shall hold office until his successor shall have been duly elected and shall have qualified or until his death or until he shall resign or shall have been removed in the manner hereinafter provided. Election of an officer shall not of itself create contract rights. SECTION 3. REMOVAL AND RESIGNATION. Any officer elected or appointed by the Board of Directors may be removed by the Board of Directors whenever in its judgment the best interest of the Corporation would be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Any officer of the Corporation may resign at any time by giving written notice thereof to the Board of Directors, the Chairman of the Board, 8 9 the President or the Secretary. Any resignation shall take effect at the time specified in the notice, or, if the time when it shall become effective is not specified therein, immediately upon its receipt. The acceptance of a resignation shall not be necessary to make it effective unless otherwise stated in the resignation. SECTION 4. VACANCIES. A vacancy in any office because of death, resignation, removal, disqualification or otherwise may be filled by the Board of Directors for the unexpired portion of the term. SECTION 5. CHAIRMAN OF THE BOARD. The Board of Directors may designate a Chairman of the Board (or one or more Co-Chairmen of the Board). The Chairman of the Board shall preside over the meetings of the Board of Directors and of the stockholders at which he shall be present. If there be more than one, the Co-Chairmen designated by the Board of Directors will perform such duties. The Chairman of the Board shall perform such other duties as may be assigned to him or them by the Board of Directors. SECTION 6. CHIEF EXECUTIVE OFFICER. The Board of Directors shall designate a Chief Executive Officer. In the absence of such designation, the Chairman of the Board (or, if more than one, the Co-Chairmen of the Board in the order designated at the time of their election or, in the absence of any designation, then in the order of their election) shall be the Chief Executive Officer of the Corporation. The Chief Executive Officer shall have general responsibility for implementing the policies of the Corporation, as determined by the Board of Directors, and for the management of the business and affairs of the Corporation. SECTION 7. PRESIDENT. The President or the Chief Executive Officer, as the case may be, shall be the principal executive officer of the Corporation and shall in general supervise and control all of the business and affairs of the Corporation. In the absence of a designation of a Chief Operating Officer by the Board of Directors, the President shall be the Chief Operating Officer. Subject to the direction and control of the Board of Directors, he/she shall, in general: supervise and control the business and affairs of the Corporation; see that the resolutions and directions of the Board of Directors are carried into effect except in those instances in which that responsibility is specifically assigned to some other person by the Board of Directors; and discharge all duties incident to the office of President and such other duties as may be prescribed by the Board of Directors from time to time. Except in those instances in which the authority to execute is expressly delegated to another officer or agent of the Corporation or a different mode of execution is expressly prescribed by the Board of Directors or these by-laws, he/she may execute for the Corporation certificates for its shares and any contracts, deeds, mortgages, bonds, or other instruments which the Board of Directors has authorized to be executed, and he/she may accomplish such execution either under or without the seal of the Corporation and either individually or with the Secretary, any Assistant Secretary, or any other officer thereunto authorized by the Board of Directors, according to the requirements of the form of the instrument. He/she may vote all securities which the Corporation is entitled to vote except as and to the extent such authority shall be vested in a different officer or agent of the Corporation by the Board of Directors. SECTION 8. CHIEF OPERATING OFFICER. The Board of Directors may designate a Chief Operating Officer. The Chief Operating Officer shall have the responsibilities and duties as set forth by the Board of Directors or the Chief Executive Officer or President, as the case may be. 9 10 SECTION 9. CHIEF FINANCIAL OFFICER. The Board of Directors may designate a Chief Financial Officer. The Chief Financial Officer shall have the responsibilities and duties as set forth by the Board of Directors or the Chief Executive Officer or President, as the case may be. SECTION 10. THE VICE PRESIDENTS. The Vice President (or in the event there be more than one Vice President, each of the Vice Presidents) shall assist the President in the discharge of his/her duties as the President may direct and shall perform such other duties as from time to time may be assigned to him/her by the President or by the Board of Directors. In the absence of the President or in the event of his/her inability or refusal to act, the Vice President (or in the event there be more than one Vice President, the Vice Presidents in the order designated by the Board of Directors or by the President if the Board of Directors has not made such a designation or, in the absence of any designation, then in the order of seniority of tenure as Vice President) shall perform the duties of the President and, when so acting, shall have all the powers of and be subject to all the restrictions upon the President. Except in those instances in which the authority to execute is expressly delegated to another officer or agent of the Corporation or a different mode of execution is expressly prescribed by the Board of Directors or these by-laws, the Vice President (or each of them if there are more than one) may execute for the Corporation certificates for its shares and any contracts, deeds, mortgages, bonds or other instruments which the Board of Directors has authorized to be executed, and he/she may accomplish such execution either under or without the seal of the Corporation and either individually or with the Secretary, any Assistant Secretary, or any other officer thereunto authorized by the Board of Directors, according to the requirements of the form of the instrument, except when a different mode of execution is expressly prescribed by the Board of Directors or these by-laws. SECTION 11. THE TREASURER. The Treasurer shall: (a) have charge of and be responsible for the maintenance of adequate books of account for the Corporation; (b) have charge and custody of all funds and securities of the Corporation and be responsible therefor and for the receipt and disbursement thereof; and (c) perform all the duties incident to the office of treasurer and such other duties as from time to time may be assigned to him/her by the President or by the Board of Directors. If required by the Board of Directors, the Treasurer shall give a bond for the faithful discharge of his duties in such sum and with such surety or sureties as the Board of Directors may determine. SECTION 12. THE SECRETARY. The Secretary shall: (a) record the minutes of the shareholders' and of the Board of Directors' meetings in one or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these by-laws; (c) be custodian of the corporate records and of the seal of the Corporation; (d) keep a register of the post office address of each shareholder which shall be furnished to the Secretary by such shareholder; (e) sign, with the President or a Vice President or any other officer thereunto authorized by the Board of Directors, certificates for shares of the Corporation, the issue of which shall have been authorized by the Board of Directors, and any contracts, deeds, mortgages, bonds, or other instruments which the Board of Directors has authorized to be executed, according to the requirements of the form of the instrument, except when a different mode of execution is expressly prescribed by the Board of Directors or these by-laws; (f) have general charge of the stock transfer books of the Corporation; (g) have authority to certify the by-laws, resolutions of the shareholders and Board of Directors and committees thereof, and other documents of the Corporation as true and correct copies thereof; and (h) perform all duties 10 11 incident to the office of secretary and such other duties as from time to time may be assigned to him/her by the President or by the Board of Directors. SECTION 13. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES. The Assistant Treasurers and Assistant Secretaries shall perform such duties as shall be assigned to them by the Treasurer or the Secretary, respectively, or by the President or the Board of Directors. The Assistant Secretaries may sign with the President or a Vice President, or any other officer thereunto authorized by the Board of Directors, certificates for shares of the Corporation, the issue of which shall have been authorized by the Board of Directors, and any contracts, deeds, mortgages, bonds, or other instruments which the Board of Directors has authorized to be executed, according to the requirements of the form of the instrument, except when a different mode of execution is expressly prescribed by the Board of Directors or these by-laws. The Assistant Treasurers shall, if required by the Board of Directors, give bonds for the faithful discharge of their duties in such sums and with such sureties as the board of directors shall determine. SECTION 14. SALARIES. The salaries of the officers shall be fixed from time to time by the Board of Directors and no officer shall be prevented from receiving such salary by reason of the fact that he is also a director of the Corporation. ARTICLE V CONTRACTS, LOANS, CHECKS AND DEPOSITS SECTION 1. CONTRACTS. The Board of Directors may authorize any officer or officers, agent or agents to enter into any contract or execute and deliver any instrument in the name of and on behalf of the Corporation, and such authority may be general or confined to specific instances. SECTION 2. LOANS. No loans shall be contracted on behalf of the Corporation and no evidences of indebtedness shall be issued in its name unless authorized by a resolution of the Board of Directors. SECTION 3. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation shall be signed by such officer or officers, agent or agents of the Corporation and in such manner as shall from time to time be determined by resolution of the Board of Directors. SECTION 4. DEPOSITS. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositories as the Board of Directors may select. 11 12 ARTICLE VI SHARES AND THEIR TRANSFER SECTION 1. SHARES REPRESENTED BY CERTIFICATES AND UNCERTIFICATED SHARES. The issued shares of the Corporation shall be represented by certificates or shall be uncertificated shares. Certificates representing shares of the Corporation shall be signed by the appropriate officers and may be sealed with the seal or a facsimile of the seal of the Corporation. If a certificate is countersigned by a transfer agent or registrar, other than the Corporation or its employee, any other signatures may be facsimile. Each certificate representing shares shall be consecutively numbered or otherwise identified and shall also state the name of the person to whom issued, the number and class of shares (with designation of series, if any), the date of issue, and that the Corporation is organized under Delaware law. If the Corporation is authorized to issue shares of more than one class or of series within a class, the certificate shall also contain such information or statement as may be required by law. Unless prohibited by the articles of incorporation, the Board of Directors may provide by resolution that some or all of any class or series of shares shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until the certificate has been surrendered to the Corporation. Within a reasonable time after the issuance or transfer of uncertificated shares, the Corporation shall send the registered owner thereof a written notice of all information that would appear on a certificate. Except as otherwise expressly provided by law, the rights and obligations of the holders of uncertificated shares shall be as identical to those of the holders of certificates representing shares of the same class and series. The name and address of each shareholder, the number and class of shares held and the date on which the shares were issued shall be entered on the books of the Corporation. The person in whose name shares stand on the books of the Corporation shall be deemed the owner thereof for all purposes as regards the Corporation. SECTION 2. LOST CERTIFICATES. If a certificate representing shares has allegedly been lost or destroyed, the Board of Directors may, in its discretion, except as may be required by law, direct that a new certificate be issued upon such indemnification and other reasonable requirements as it may impose. SECTION 3. TRANSFER OF SHARES. Transfer of shares of the Corporation shall be recorded on the books of the Corporation. Transfer of shares represented by a certificate, except in the case of a lost or destroyed certificate, shall be made on surrender for cancellation of the certificate for such shares. A certificate presented for transfer must be duly endorsed and accompanied by proper guaranty of signature and other appropriate assurances that the endorsement is effective. Transfer of an uncertificated share shall be made on receipt by the Corporation of an instruction from the registered owner or other appropriate person. The instruction shall be in writing or a communication in such form as may be agreed upon in writing by the Corporation. 12 13 ARTICLE VII FISCAL YEAR The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors. ARTICLE VIII DISTRIBUTIONS The Board of Directors may authorize, and the Corporation may make, distributions to its shareholders, subject to any restrictions in its articles of incorporation or provided by law. ARTICLE IX SEAL The corporate seal shall have inscribed thereon the name of the Corporation and the words "Corporate Seal, Delaware." The seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced, provided that the affixing of the corporate seal to an instrument shall not give the instrument additional force or effect, or change the construction thereof, and the use of the corporate seal is not mandatory. ARTICLE X WAIVER OF NOTICE Whenever any notice is required to be given under the provisions of these by-laws or under the provisions of the articles of incorporation or under the provisions of the Act, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Attendance at any meeting shall constitute waiver of notice thereof unless the person at the meeting objects to the holding of the meeting because proper notice was not given. ARTICLE XI INDEMNIFICATION Each person who at any time is or shall have been a director, officer, employee or agent of this Corporation, or is or shall have been serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall be indemnified by this Corporation in accordance with and to the full extent permitted by the Act. The foregoing right of indemnification shall not be deemed exclusive of any other rights to which a person seeking indemnification may be entitled under 13 14 any by-law, agreement, vote of shareholders or disinterested directors or otherwise. If authorized by the Board of Directors, the Corporation may purchase and maintain insurance on behalf of any person to the full extent permitted by the Act. If the Corporation pays indemnity or makes an advance of expenses to a director, officer, employee or agent, the Corporation shall report the indemnification or advance in writing to the shareholders with or before the notice of the next shareholders' meeting. ARTICLE XII AMENDMENTS Unless otherwise provided in the articles of incorporation, these by-laws may be made, altered, amended or repealed by the shareholders or the Board of Directors, but no by-law adopted by the shareholders may be altered, amended or repealed by the Board of Directors. 14 EX-4.(II)(A)(1) 4 CREDIT AGREEMENT 1 4(ii)(a)(l) EXECUTION COPY CREDIT AGREEMENT Dated as of February 25, 1999 among THE DELTA QUEEN STEAMBOAT CO., as Borrower, THE FINANCIAL INSTITUTIONS FROM TIME TO TIME PARTY HERETO, as Lenders, THE CHASE MANHATTAN BANK, as Issuing Bank and as Administrative Agent, and HIBERNIA NATIONAL BANK, as Documentation Agent 2 TABLE OF CONTENTS
ARTICLE I Definitions..............................................................................................1 1.01. Certain Defined Terms.............................................................................1 1.02. Computation of Time Periods......................................................................23 1.03. Accounting Terms.................................................................................23 1.04. Other Definitional Provisions....................................................................23 ARTICLE II Amounts and Terms of Revolving Credit Facility..........................................................23 2.01. The Revolving Loans..............................................................................23 2.02. Loan Facility Mechanics..........................................................................24 2.03. Interest on the Loans............................................................................26 2.05. Fees.............................................................................................34 2.06. Prepayments......................................................................................35 2.07. Payments.........................................................................................35 2.08. Interest Periods.................................................................................38 2.09. Special Provisions Governing Eurodollar Rate Loans...............................................38 2.10. Taxes............................................................................................41 2.11. Capital Adequacy; Increased Costs................................................................44 2.12. Use of Proceeds of the Loans and the Letters of Credit...........................................45 2.13. Authorized Officers of Borrower..................................................................45 2.14. Replacement of Certain Lenders...................................................................46 ARTICLE III Conditions to Loans ....................................................................................47 3.01. Conditions Precedent to Effectiveness............................................................47 3.02. Conditions Precedent to all Loans................................................................48 ARTICLE IV Representations and Warranties..........................................................................49 4.01. Representations and Warranties on the Initial Funding Date.......................................49 4.02. Subsequent Funding Representations and Warranties................................................57 ARTICLE V Reporting Covenants.....................................................................................57 5.01. Financial Statements.............................................................................57 5.02. Environmental Notices............................................................................62 ARTICLE VI Affirmative Covenants...................................................................................63 6.01. Corporate Existence, Etc.........................................................................63
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6.02. Corporate Powers, Etc............................................................................63 6.03. Compliance with Laws.............................................................................63 6.04. Payment of Taxes and Claims......................................................................63 6.05. Maintenance of Properties; Insurance.............................................................64 6.06. Inspection of Property; Books and Records; Discussions...........................................64 6.07. Labor Matters....................................................................................64 6.08. Maintenance of Permits...........................................................................65 6.09. Employee Benefit Matters.........................................................................65 6.10. Formation of Subsidiaries........................................................................65 6.11. Acquisition or Construction of New Vessels.......................................................66 6.12. Hedging Contracts................................................................................66 ARTICLE VII Negative Covenants......................................................................................66 7.01. Indebtedness.....................................................................................67 7.02. Sales of Assets; Liens...........................................................................67 7.03. Investments......................................................................................68 7.04. Accommodation Obligations........................................................................69 7.05. Restricted Junior Payments.......................................................................70 7.06. Conduct of Business..............................................................................70 7.07. Transactions with Affiliates.....................................................................70 7.08. Restriction on Fundamental Changes...............................................................70 7.09. Employee Benefit Matters.........................................................................71 7.10. Environmental Liabilities........................................................................71 7.11. Margin Regulations...............................................................................72 7.12. Change of Fiscal Year............................................................................72 7.13. Amendment of Certain Documents...................................................................72 ARTICLE VIII Financial Covenants.....................................................................................72 8.01. Maximum Bank Indebtedness Leverage Ratio.........................................................72 8.02. Maximum Total Indebtedness Leverage Ratio........................................................73 8.03. Minimum Interest Coverage Ratio..................................................................73 8.04. Capital Expenditures.............................................................................73 ARTICLE IX Events of Default; Rights and Remedies..................................................................74 9.01. Events of Default................................................................................74 9.02. Rights and Remedies..............................................................................77 ARTICLE X The Agent...............................................................................................77 10.01. Appointment.....................................................................................77
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10.02. Nature of Duties................................................................................78 10.03. Rights, Exculpation, Etc........................................................................78 10.04. Reliance........................................................................................79 10.05. Indemnification.................................................................................79 10.06. The Agent Individually..........................................................................80 10.07. Successor Agent; Resignation of Agent...........................................................80 10.08. Collateral Matters..............................................................................81 10.09. Relations Among Lenders.........................................................................83 ARTICLE XI Miscellaneous...........................................................................................83 11.01. Survival of Warranties and Agreements...........................................................83 11.02. Assignments and Participations..................................................................83 11.03. Expenses........................................................................................87 11.04. Indemnification and Waiver......................................................................88 11.05. Limitation of Liability.........................................................................88 11.06. Ratable Sharing.................................................................................89 11.07. Amendments and Waivers..........................................................................89 11.08. Notices.........................................................................................90 11.09. Failure or Indulgence Not Waiver; Remedies Cumulative...........................................90 11.10. Termination.....................................................................................91 11.11. Marshalling; Recourse to Security; Payments Set Aside...........................................91 11.12. Severability....................................................................................91 11.13. Headings........................................................................................91 11.14. GOVERNING LAW...................................................................................91 11.15. Successors and Assigns; Subsequent Holders of Notes.............................................92 11.16. CONSENT TO JURISDICTION; SERVICE OF PROCESS; JURY TRIAL.........................................92 11.17. Counterparts; Effectiveness; Inconsistencies....................................................93 11.18. Performance of Obligations......................................................................94 11.19. ENTIRE AGREEMENT................................................................................94 11.20. Confidentiality.................................................................................95
iii 5 EXHIBITS
Exhibit 1 -- Assignment and Acceptance (Sections 1.01, 11.02(d)) Exhibit 2 -- Compliance Certificate (Sections 1.01, 5.01(e)) Exhibit 3 -- Notice of Borrowing (Sections 1.01, 2.02) Exhibit 4 -- Notice of Conversion/Continuation (Sections 1.01, 2.03(c)) Exhibit 5 -- Form of Revolving Loan Note (Section 2.02) Exhibit 6 -- List of Closing Documents (Section 3.01(a)) Exhibit 7 -- Form of Loss Payable Endorsement (Section 6.05)
iv 6 SCHEDULES
Schedule A -- List of Lenders, Domestic and Eurodollar Lending Offices and Commitments (Sections 1.01, 11.02(c), 11.10) Schedule 1.01-A -- Existing Indebtedness (Section 1.01) Schedule 1.01-B -- Permitted Existing Liens (Section 1.01) Schedule 1.01-C -- Vessels Schedule 4.01(c) -- Subsidiaries (Sections 4.01(c), 6.01) Schedule 4.01(d) -- Violation of Requirements of Law (Section 4.01(d)) Schedule 4.01(i) -- Capitalization (Section 4.01(i)) Schedule 4.01(j) -- Pending or Threatened Litigation (Section 4.01(j)) Schedule 4.01(l) -- Tax Assessments (Section 4.01(l)) Schedule 4.01(t) -- ERISA Matters (Section 4.01(t)) Schedule 4.01(w) -- Joint Ventures (Section 4.01(w)) Schedule 4.01(x) -- Labor Matters (Section 4.01(x)) Schedule 6.05 -- Insurance (Section 6.05) Schedule 7.02(a) -- Intercompany Leases (Section 7.02(a))
v 7 CREDIT AGREEMENT This Credit Agreement dated as of February 25, 1999 (as amended, supplemented, modified or restated from time to time, the "Agreement") is entered into among THE DELTA QUEEN STEAMBOAT CO., a Delaware corporation ("Borrower"), THE FINANCIAL INSTITUTIONS LISTED ON THE SIGNATURE PAGES HEREOF and each other financial institution which from time to time becomes a party hereto in accordance with Section 11.02(a) (together with their respective successors and assigns, individually, a "Lender" and, collectively, the "Lenders"), THE CHASE MANHATTAN BANK, a New York banking corporation, in its separate capacities as Issuing Bank and as Administrative Agent for the Lenders hereunder (in such latter capacity, the "Agent"), and HIBERNIA NATIONAL BANK, as Documentation Agent. The parties hereto agree as follows: ARTICLE I DEFINITIONS 1.01. Certain Defined Terms. The following terms used in this Agreement shall have the following meanings (such meanings to be applicable, except to the extent otherwise indicated in a definition of a particular term, both to the singular and the plural forms of the terms defined): "Accommodation Obligation," as applied to any Person, shall mean any contractual obligation, contingent or otherwise, of that Person with respect to any Indebtedness or other obligation or liability of another, including, without limitation, any such Indebtedness, obligation or liability directly or indirectly guaranteed, endorsed (otherwise than for collection or deposit in the ordinary course of business), co-made or discounted or sold with recourse by that Person, or in respect of which that Person is otherwise directly or indirectly liable, including Contractual Obligations (contingent or otherwise) arising through any agreement to purchase, repurchase, or otherwise acquire such Indebtedness, obligation or liability or any security therefor, or to provide funds for the payment or discharge thereof (whether in the form of loans, advances, stock purchases, capital contributions or otherwise), or to maintain solvency, assets, level of income, or other financial condition, or to make payment other than for value received. For purposes of interpreting any provision of this Agreement which refers to the Dollar amount of Accommodation Obligations of any Person, such provision shall be deemed to mean the maximum amount of such 8 Accommodation Obligations or, in the case of an Accommodation Obligation to maintain solvency, assets, level of income or other financial condition, the amount of Indebtedness to which such Accommodation Obligation relates, or if less, the stated maximum, if any, in the documents evidencing such Accommodation Obligation. "Adjusted LIBO Rate" means, with respect to any Borrowing of Eurodollar Rate Loans for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to (a) the LIBO Rate for such Interest Period multiplied by (b) the Statutory Reserve Rate. "Affiliate," as applied to any Person, shall mean any other Person directly or indirectly controlling, controlled by, or under common control with, that Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that Person, whether through the ownership of voting Securities or by contract or otherwise. "Agent" shall have the meaning ascribed to such term in the preamble hereto and shall include any successor Agent appointed pursuant to Section 10.07. "Agreement" shall have the meaning ascribed to such term in the preamble hereto. "Agreement Accounting Principles" shall mean GAAP as of the date of this Agreement together with any changes in GAAP after the date hereof which are not "Material Accounting Changes" (as defined below). If any changes in GAAP are hereafter required or permitted and are adopted by the Borrower with the agreement of its independent certified public accountants and such changes result in a material change in the calculation of any of the financial covenants, restrictions or standards herein or in the related definitions or terms used therein ("Material Accounting Changes"), the parties hereto agree to enter into negotiations, in good faith, in order to amend such provisions in a credit neutral manner so as to reflect equitably such changes with the desired result that the criteria for evaluating the Borrower's financial condition shall be the same after such changes as if such changes had not been made; provided, however, that no Material Accounting Change shall be given effect in such calculations until such provisions are amended, in a manner reasonably satis- factory to the Requisite Lenders. In the event such amendment is entered into, all references in this Agreement to Agreement Accounting Principles shall mean GAAP as of the date of such amendment together with any changes in GAAP after the date of such amendment which are not Material Accounting Changes. "Agreement Obligations" shall mean all Obligations other than with respect to Eligible Hedging Contracts. "Alternate Base Rate" shall mean, for any day, a rate per annum equal to the greatest of (a) the Prime Rate in effect on such day, (b) the Base CD Rate in effect on such day plus 1% and 2 9 (c) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. Any change in the Alternate Base Rate due to a change in the Prime Rate, the Base CD Rate or the Federal Funds Effective Rate shall be effective from and including the effective date of such change in the Prime Rate, the Base CD Rate or the Federal Funds Effective Rate, respectively. "American Queen" shall mean the vessel of the same name identified on Schedule 1.01-C. "Applicable Base Rate Margin" as at any date of determination, shall be the rate per annum then applicable to Base Rate Loans determined in accordance with the provisions of Section 2.03(e). "Applicable Eurodollar Rate Margin" as at any date of determination, shall be the rate per annum then applicable to Eurodollar Rate Loans determined in accordance with the provisions of Section 2.03(e). "Applicable Lending Office" shall mean, with respect to each Lender, such Lender's Domestic Lending Office, in the case of a Base Rate Loan and such Lender's Eurodollar Lending Office, in the case of a Eurodollar Rate Loan. "Applicable Margin" shall mean the Applicable Base Rate Margin and/or the Applicable Eurodollar Rate Margin, as the case may be. "Assessment Rate" shall mean, for any day, the annual assessment rate in effect on such day that is payable by a member of the Bank Insurance Fund classified as "well-capitalized" and within supervisory subgroup "B" (or a comparable successor risk classification) within the meaning of 12 C.F.R. Part 327 (or any successor provision) to the FDIC for insurance by the FDIC of time deposits made in dollars at the offices of such member in the United States; provided that if, as a result of any change in any law, rule or regulation, it is no longer possible to determine the Assessment Rate as aforesaid, then the Assessment Rate shall be such annual rate as shall be determined by the Agent to be representative of the cost of such insurance to the Lenders. "Assignment and Acceptance" shall mean an Assignment and Acceptance in the form of Exhibit 1 (with blanks appropriately filled in) delivered to the Agent in connection with an assignment of a Lender's interest under this Agreement pursuant to Section 11.02. "Bank Indebtedness Leverage Ratio" shall mean, for any fiscal quarter, the ratio of (a) the total Revolving Credit Exposures on the last day of such fiscal quarter to (b) DQSC EBITDA less GAQSC EBITDA, in each case for the four fiscal quarter period ending on the last day of such fiscal quarter, determined in accordance with Agreement Accounting Principles consistently applied. "Base CD Rate" shall mean the sum of (a) the Three-Month Secondary CD Rate multiplied by the Statutory Reserve Rate plus (b) the Assessment Rate. 3 10 "Base Rate Loans" shall mean all Loans outstanding which bear interest at a rate determined by reference to the Alternate Base Rate, as provided in Section 2.03(a)(i). "Benefit Plan" shall mean a defined benefit plan as defined in Section 3(35) of ERISA (other than a Multiemployer Plan) in respect of which Borrower or any ERISA Affiliate is, or within the immediately preceding six (6) years was, an "employer" as defined in Section 3(5) of ERISA. "Borrower" shall have the meaning ascribed to such term in the preamble hereto. "Borrower Subsidiaries" shall mean any Subsidiary of the Borrower. "Borrowing" shall mean a borrowing consisting of Loans of the same Type, having the same Interest Period, in the case of Eurodollar Rate Loans, and made on the same day by the Lenders. "Business Day" shall mean (i) for all purposes other than as described by clause (ii) below, any day excluding Saturday, Sunday and any day which is a legal holiday under the laws of the State of New York, or is a day on which banking institutions located in New York are required or authorized by law or other governmental action to close and (ii) with respect to all notices, determinations, fundings and payments in connection with Eurodollar Rate Loans, any day which is a Business Day described in clause (i) and which is also a day for trading in dollar deposits by and between banks in the London interbank Eurodollar market. "Capital Lease," as applied to any Person, shall mean any lease of any property (whether real, personal, or mixed) by that Person as lessee which, in conformity with Agreement Accounting Principles, is or should be accounted for as a capital lease on the balance sheet of that Person. "Carryover Amount" shall have the meaning ascribed to such term in Section 8.04. "Cash Equivalents" shall mean (i) marketable direct obligations issued or unconditionally guaranteed by the United States Government or issued by an agency thereof and backed by the full faith and credit of the United States of America, in each case maturing within one year after the date of acquisition thereof; (ii) marketable direct obligations issued by any state or municipality of the United States of America maturing or puttable within six months after the date of acquisition thereof and, at the time of acquisition, having one of the two highest short-term ratings obtainable from either Standard & Poor's Rating Services ("S&P") or Moody's Investors Service, Inc. ("Moody's") (or, if at any time neither S&P nor Moody's shall be rating such obligations, then from such other nationally recognized rating services acceptable to the Agent); and (iii) commercial paper (other than commercial paper issued by Parent, Borrower or any of their respective Subsidiaries or any of their Affiliates), domestic and Eurodollar certificates of deposit, time deposits or bankers' acceptances, in any such case maturing no more than 180 days after the date of acquisition thereof and, at the time of the acquisition thereof, the issuer's rating on its commercial 4 11 paper is at least A-1 or P-1 from either S&P or Moody's (or, if at any time neither S&P nor Moody's shall be rating such obligations, then the highest rating from other nationally recognized rating services acceptable to the Agent). "Cash Interest Expense" shall mean, with respect to any Person on a consolidated basis for any period, the sum of (a) interest expense of such Person for such period (excluding the amortization of all fees payable in connection with the incurrence of the Obligations) and (b) capitalized interest of such Person for such period, determined in accordance with Agreement Accounting Principles consistently applied. "Change of Control" shall mean that either (a) the Zell Group shall cease to own, directly or indirectly, more than 10% of the combined voting power of the Parent's outstanding securities ordinarily having the right to vote at elections of directors (excluding any such securities which Ann Lurie has the right to vote, or to direct or control the right to vote, at elections of directors without the consent or approval of any other person), (b) Sam Zell shall cease to be a director of the Parent or (c) the Parent shall cease to directly own 100% of the Borrower's outstanding securities ordinarily having the right to vote at elections of directors. "Coastal Cruiser One" shall mean the first of two new coastal cruise ships to be constructed by the Borrower (or a Subsidiary of the Borrower) for passenger use in the Borrower's cruise business. "Coastal Cruiser Two" shall mean the second of two new coastal cruise ships to be constructed by the Borrower (or a Subsidiary of the Borrower) for passenger use in the Borrower's cruise business. "Collateral" shall mean all property and interests in property now owned or hereafter acquired by the Borrower or any of its Subsidiaries in or upon which a security interest, pledge, lien or mortgage is intended to be granted, or of which a collateral assignment is intended to be made, under the Collateral Documents. "Collateral Documents" shall mean the Security Agreement, the Subsidiary Security Agreements, the Subsidiary Guaranties, the Intellectual Property Agreements, the Pledge Agreements, the Ship Mortgages, and all other security agreements, mortgages, deeds of trust, collateral assignments, financing statements and other agreements, conveyances or documents at any time delivered to the Agent by the Borrower or any Borrower Subsidiary which intend to create or evidence Liens to secure or to guarantee the Obligations. "Commission" shall mean the Securities and Exchange Commission or any Governmental Authority succeeding to the functions thereof. "Commitment" shall mean, with respect to each Lender, the commitment of such Lender to make Revolving Loans and to acquire participations in Letters of Credit hereunder, 5 12 expressed as an amount representing the maximum aggregate amount of such Lender's Revolving Credit Exposure hereunder, as such commitment may be (a) reduced from time to time pursuant to Section 2.02(d) and (b) reduced or increased from time to time pursuant to assignments by or to such Lender pursuant to Section 11.02. The initial amount of each Lender's Commitment is set forth on Schedule A, or in the Assignment and Acceptance pursuant to which such Lender shall have assumed its Commitment, as applicable. The initial aggregate amount of the Lenders' Commitments is $70,000,000. "Commitments" shall mean the aggregate amount of the Commitments of all Lenders. "Commitment Fee" shall have the meaning ascribed to that term in Section 2.05(a). "Compliance Certificate" shall mean an Officer's Certificate in substantially the form of Exhibit 2 delivered to the Agent and each Lender by Borrower pursuant to Section 5.01(d) and covering Borrower's compliance with the covenants contained in Article VIII and certain other provisions of this Agreement. "Consolidated Borrower Group" shall mean the Borrower and all of its Subsidiaries on a consolidated basis. "Consolidated Net Income" shall mean, with respect to any Person on a consolidated basis for any period, net income for such period including, without duplication, the proceeds of business interruption insurance in respect of cruise revenues but excluding from the definition of Consolidated Net Income the effect of any extraordinary or non-recurring gains or losses, all computed on a consolidated basis in accordance with Agreement Accounting Principles consistently applied. "Contaminant" shall mean any pollutant, hazardous substance, hazardous chemical, toxic substance, hazardous waste or special waste, as those terms are defined in federal, state or local laws and regulations, radioactive material, petroleum, including crude oil or any petroleum-derived substance, or breakdown or decomposition product thereof, or any constituent of any such substance or waste, including but not limited to polychlorinated biphenyls and asbestos. "Contractual Obligation", as applied to any Person, shall mean any provision of any Securities issued by that Person or any indenture, mortgage, deed of trust, contract, undertaking, document, instrument or other agreement or instrument to which that Person is a party or by which it or any of its properties is bound, or to which it or any of its properties is subject (including, without limitation, any restrictive covenant affecting such Person or any of its properties). "Contribution Agreement" shall mean that certain Contribution Agreement executed by each of the Subsidiaries of the Borrower (other than GAQSC) of even date herewith, as the same may be amended, restated, supplemented or otherwise modified from time to time with the consent of the Requisite Lenders. 6 13 "Customary Permitted Liens" shall mean (i) Liens (other than Environmental Liens, Liens imposed under ERISA or Enforceable Judgments) for claims, taxes, assessments or charges of any Governmental Authority not yet due or which are being contested in good faith by appropriate proceedings and with respect to which adequate reserves or other appropriate provisions are being maintained in accordance with Agreement Accounting Principles, (ii) statutory Liens of landlords, bankers, carriers, warehousemen, mechanics, materialmen, and other Liens (other than Environmental Liens, Liens imposed under ERISA or Enforceable Judgments) imposed by law including without limitation preferred maritime liens, arising in the ordinary course of business and for amounts which (A) are not yet due, (B) are not more than thirty (30) days past due as long as no notice of default has been given or other action taken to enforce such Liens, or (C) (1) are not more than thirty (30) days past due and a notice of default has been given or other action taken to enforce such Liens, or (2) are more than thirty (30) days past due, and, in the case of clause (1) or (2), are being contested in good faith by appropriate proceedings which are sufficient to prevent imminent foreclosure of such Liens and with respect to which adequate reserves or other appropriate provisions are being maintained in accordance with Agreement Accounting Principles, (iii) Liens (other than Environmental Liens, Liens imposed under ERISA or Enforceable Judgments) incurred or deposits made in the ordinary course of business (including, without limitation, surety bonds and appeal bonds) in connection with workers' compensation, unemployment insurance and other types of employment benefits or to secure the performance of tenders, bids, leases, contracts (other than for the repayment of Indebtedness), statutory obligations and other similar obligations or arising as a result of progress payments under government contracts, (iv) easements (including, without limitation, reciprocal easement agreements and utility agreements), rights-of-way, covenants, consents, rights of landlords, reservations, encroachments, variations and other restrictions, charges or encumbrances (whether or not recorded) affecting the use of real property, which do not materially interfere with the ordinary conduct of the business of Borrower or any of its Subsidiaries, (v) Liens in favor of customs and revenue authorities arising as a matter of law to secure payment of customs duties in connection with the importation of goods; and (vi) precautionary filings of financing statements in connection with Operating Leases entered into in the ordinary course of business. "Default Rate" shall have the meaning ascribed to that term in Section 2.03(d). "Delta Queen" shall mean the vessel of the same name identified on Schedule 1.01-C. "DOL" shall mean the United States Department of Labor and any successor department or agency. "Dollars" and "$" shall mean the lawful money of the United States of America. "Domestic Lending Office" means, with respect to any Lender, the office of such Lender specified as its "Domestic Lending Office" under its name on Schedule A or on the Assignment and Acceptance by which it became a Lender or such other office of such Lender as such Lender may from time to time specify by written notice to Borrower and the Agent. 7 14 "DQSC EBITDA" shall mean EBITDA for the Consolidated Borrower Group. "EBITDA" shall mean, with respect to any Person on a consolidated basis for any period, the sum for such Person for such period of Consolidated Net Income plus, to the extent reflected in the income statement of such Person for such period from which Consolidated Net Income is determined, without duplication, (i) interest expense, (ii) federal, state and local income and franchise tax expense, (iii) depreciation expense, (iv) amortization expense, and (v) any other noncash items which had the effect of reducing Consolidated Net Income for such period, but minus any noncash items which had the effect of increasing Consolidated Net Income for such period. "Effective Date" shall mean the date on which the conditions specified in Section 3.01 are satisfied (or waived in accordance with Section 11.07). "Eligible Hedging Contract" shall mean Hedging Contracts with any Lender or any Affiliate of any Lender as the counterparty. "Enforceable Judgment" means a judgment or order as to which (a) the Borrower has not demonstrated to the reasonable satisfaction of the Agent that the Borrower is covered by third-party insurance (other than retro-premium insurance that determines retro-premiums solely on the basis of losses of the Borrower) therefor or that the Borrower has adequate reserves therefor and (b) the period, if any, during which the enforcement of such judgment or order is stayed shall have expired, it being understood that a judgment or order which is under appeal or as to which the time in which to perfect an appeal has not expired shall not be deemed an "Enforceable Judgment" so long as enforcement thereof is effectively stayed pending the outcome of such appeal or the expiration of such period, as the case may be; provided that if enforcement of a judgment or order has been stayed on condition that a bond or collateral equal to or greater than $2,500,000 be posted or provided, such judgment or order shall be an "Enforceable Judgment." "Environmental Lien" shall mean a Lien in favor of any Governmental Authority for (i) any liability of the Borrower or any of its Subsidiaries under federal or state environmental laws or regulations, or (ii) damages arising from, or costs incurred by such Governmental Authority in response to, a Release or threatened Release of a Contaminant into the environment. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time, and any successor statute. "ERISA Affiliate" shall mean any (i) corporation which is a member of the same controlled group of corporations (within the meaning of Section 414(b) of the IRC) as Borrower or any of its Subsidiaries, (ii) partnership or other trade or business (whether or not incorporated) under common control (within the meaning of Section 414(c) of the IRC) with Borrower or any of its Subsidiaries, and (iii) member of the same affiliated service group (within the meaning of Section 414(m) of the IRC) as Borrower or any of its Subsidiaries, any corporation described in clause (i) above or any partnership or trade or business described in clause (ii) above. 8 15 "Eurodollar Lending Office" means, with respect to any Lender, the office of such Lender specified as its "Eurodollar Lending Office" under its name on Schedule A or on the Assignment and Acceptance by which it became a Lender (or, if no such office is specified, its Domestic Lending Office) or such other office of such Lender as such Lender may from time to time specify by written notice to Borrower and the Agent. "Eurodollar Rate Loans" shall mean those Loans outstanding which bear interest at a rate determined by reference to the Adjusted LIBO Rate as provided in Section 2.03(a)(ii). "Event of Default" shall mean any of the occurrences set forth in Section 9.01 after the expiration of any applicable grace period expressly provided therein. "Existing Indebtedness" shall mean the Indebtedness of the Borrower or any of its Subsidiaries reflected on Schedule 1.01-A. "FDIC" shall mean the Federal Deposit Insurance Corporation or any Governmental Authority succeeding to its functions. "Federal Funds Effective Rate" shall mean, for any day, the weighted average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average (rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for such day for such transactions received by the Agent from three Federal funds brokers of recognized standing selected by it. "Federal Reserve Board" shall mean the Board of Governors of the Federal Reserve System or any Governmental Authority succeeding to its functions. "Fee Letter" shall have the meaning ascribed to that term in Section 2.05(c). "Fiscal Year" shall mean the fiscal year of the Borrower, which shall be each twelve (12) month period ending on December 31 of each calendar year or such other period as the Borrower may designate and the Requisite Lenders may approve in writing. "Funding Date" shall mean, with respect to any Loan, the date of the funding of such Loan, and with respect to any Letter of Credit, the date of the issuance of such Letter of Credit.. "GAAP" shall mean generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board, or in such other statements by such other entity as may be in general use by significant 9 16 segments of the accounting profession, which are applicable to the circumstances as of the date of determination. "GAQSC" shall mean Great AQ Steamboat, L.L.C., a Delaware limited liability company (successor by merger to Great AQ Steamboat Co., a Delaware corporation). "GAQSC Depository Agreement" shall mean the Depository Agreement dated as of August 24, 1995, among GAQSC, the Secretary and The Bank of New York, as Depository-Bailee. "GAQSC EBITDA" shall mean EBITDA for GAQSC. "GAQSC Financial Agreement" shall mean the Title XI Reserve Fund and Financial Agreement dated as of August 24, 1995, between GAQSC and the Secretary. "GAQSC Guaranty" shall mean the Guaranty Agreement dated as of August 24, 1995, executed by the Borrower in favor of the Secretary guaranteeing the payment and performance by GAQSC of the Secretary's Note. "GAQSC Obligations" shall mean the United States Government Guaranteed Ship Financing Obligations, American Queen Series, issued by GAQSC in the aggregate original principal amount of $60,589,000 under the GAQSC Trust Indenture. "GAQSC Security Agreement" shall mean the Security Agreement dated as of August 24, 1995, between GAQSC and the Secretary, securing payment of the Secretary's Note. "GAQSC Ship Mortgage" shall mean the First Preferred Ship Mortgage dated as of August 24, 1995, executed by GAQSC, as shipowner and mortgagor, in favor of the Secretary, as mortgagee, covering the American Queen and securing payment of the Secretary's Note. "GAQSC Trust Indenture" shall mean the Trust Indenture dated as of August 24, 1995, between GAQSC and The Bank of New York, as Indenture Trustee. "Governmental Authority" shall mean any nation, state, sovereign, or government, any federal, regional, state, local or political subdivision and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government including without limitation, any central bank. "Hedging Contract" shall mean (i) any exchange-traded or over-the-counter futures, forward, swap or option contract or other financial instrument with similar characteristics, or (ii) any agreements, devices or arrangements providing for payments related to fluctuations of interest rates, exchange rates, forward rates or commodity prices, including, but not limited to, interest rate swap or exchange agreements, forward currency exchange agreements, interest rate cap or collar protection agreements, forward rate currency or interest rate options. 10 17 "Holders of Secured Obligations" shall mean the holders of the Obligations from time to time and shall refer to (i) each Lender in respect of its Revolving Credit Exposure, (ii) the Issuing Bank in respect of Letters of Credit and LC Disbursements, (iii) the Agent and the Lenders in respect of all other present and future obligations and liabilities of Borrower of every type and description arising under or in connection with this Agreement or any other Loan Document, (iv) each other Person entitled to indemnification pursuant to Section 11.04, in respect of the obligations and liabilities of Borrower to such Person thereunder, (v) each Lender and each Affiliate of each Lender, in respect of all obligations and liabilities of Borrower to such Lender or such Affiliate as exchange party or counterparty under any Eligible Hedging Contract, and (vi) their respective successors, transferees and assigns. "Indebtedness" of any Person shall mean, without duplication, (i) all indebtedness, obligations or other liabilities of such Person for borrowed money or under any debt Securities, whether or not subordinated, (ii) all obligations with respect to redeemable stock and redemption or repurchase obligations under any equity securities or profit payment agreements, (iii) all reimbursement obligations (absolute or contingent) and other liabilities of such Person with respect to letters of credit issued for such Person's account or for which such party is a co-applicant, (iv) all obligations of such Person to pay the purchase price of property or services, except trade payables and accrued expenses incurred by such Person in the ordinary course of business, (v) all obligations in respect of Capital Leases of such Person, (vi) all Accommodation Obligations of such Person, (vii) all indebtedness, obligations or other liabilities, contingent or otherwise, of such Person or others secured, by a Lien on any asset of such Person, whether or not such indebtedness, obligations or liabilities are assumed by or are a personal liability of such Person, (viii) all obligations upon which interest charges are customarily paid (including zero coupon instruments) and (ix) all obligations under conditional sale or other title retention agreements relating to property purchased by such Person. "Initial Funding" shall mean the first funding of any Loans hereunder. "Initial Funding Date" shall mean the date, if any, on which the Initial Funding occurs. "Intellectual Property Agreements" shall mean any and all patent and/or trademark security agreements executed by the Borrower and certain of its Subsidiaries in favor of the Agent on behalf of itself and the Holders of Secured Obligations as the same may be amended, restated, supplemented or otherwise modified from time to time. "Intercompany Receivables" shall mean the aggregate outstanding balance of all receivables owed to the Borrower by the Parent. "Interest Coverage Ratio" shall mean, for any period, the ratio of (a) DQSC EBITDA for such period to (b) Cash Interest Expense for the Consolidated Borrower Group for such period, determined in accordance with Agreement Accounting Principles consistently applied. 11 18 "Interest Payment Date" shall mean with respect to any Eurodollar Rate Loan, (i) the last day of each Interest Period applicable to such Loan and (ii) with respect to any Eurodollar Rate Loan having an Interest Period in excess of three (3) calendar months, the last day of each three (3) calendar month interval during such Interest Period and, in addition, the date of any refinancing or conversion of such Borrowing with or to a Borrowing of a different Type. "Interest Period" shall have the meaning ascribed to such term in Section 2.08. "Interest Rate Determination Date" shall mean the date on which the Agent determines the LIBO Rate applicable to a Borrowing, continuation or conversion of Eurodollar Rate Loans. The Interest Rate Determination Date shall be the second (2nd) Business Day prior to the first day of the Interest Period applicable to such Borrowing, continuation or conversion. "Investment" shall have the meaning ascribed to that term in Section 7.03. "IRC" shall mean the Internal Revenue Code of 1986, as amended from time to time hereafter, and any successor statute. "IRS" shall mean the Internal Revenue Service of the United States or any Governmental Authority succeeding to the functions thereof. "Issuing Bank" shall mean The Chase Manhattan Bank, in its capacity as the issuer of Letters of Credit hereunder, and its successors in such capacity as provided in Section 2.04(i). The Issuing Bank may, in its discretion, arrange for one or more Letters of Credit to be issued by Affiliates of the Issuing Bank, in which case the term "Issuing Bank" shall include any such Affiliate with respect to Letters of Credit issued by such Affiliate. "LC Disbursement" shall mean a payment made by the Issuing Bank pursuant to a Letter of Credit. "LC Exposure" shall mean, at any time, the sum of (a) the aggregate undrawn amount of all outstanding Letters of Credit at such time plus (b) the aggregate amount of all LC Disbursements that have not yet been reimbursed by or on behalf of the Borrower at such time. The LC Exposure of any Lender at any time shall be its Pro Rata Share of the total LC Exposure at such time. "Lender" shall have the meaning ascribed to such term in the preamble and shall include The Chase Manhattan Bank, in its individual capacity, and each Person which at any time becomes a Lender pursuant to Section 11.02(a). "Letter of Credit" shall mean any letter of credit issued pursuant to this Agreement. 12 19 "Liabilities and Costs" shall mean all liabilities, claims, obligations, responsibilities, losses, damages, punitive damages, consequential damages, treble damages, charges, costs and expenses (including, without limitation, attorneys', experts' and consulting fees and costs of investigation and feasibility studies), fines, penalties and monetary sanctions, interest, direct or indirect, known or unknown, absolute or contingent, past, present or future. "LIBO Rate" shall mean, with respect to any Borrowing of Eurodollar Rate Loans for any Interest Period, the rate appearing on Page 3750 of the Telerate Service (or on any successor or substitute page of such Service, or any successor to or substitute for such Service, providing rate quotations comparable to those currently provided on such page of such Service, as determined by the Agent from time to time for purposes of providing quotations of interest rates applicable to dollar deposits in the London interbank market) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, as the rate for dollar deposits with a maturity comparable to such Interest Period. In the event that such rate is not available at such time for any reason, then the "LIBO Rate" with respect to such Borrowing for such Interest Period shall be the rate at which dollar deposits of $5,000,000 and for a maturity comparable to such Interest Period are offered by the principal London office of the Agent in immediately available funds in the London interbank market at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period. "Lien" shall mean any mortgage, deed of trust, pledge, hypothecation, assignment, deposit arrangement, security interest, encumbrance (including, but not limited to, easements, rights of way and the like), judgment, lien (statutory or other), Environmental Lien, Enforceable Judgment, charge, security agreement or transfer intended as security, including, without limitation, any conditional sale or other title retention agreement, the interest of a lessor under a Capital Lease, any financing lease having substantially the same economic effect as any of the foregoing and, in the case of securities, any purchase option, call or similar right of a third party with respect to such securities. "Loan" shall mean any Revolving Loan. "Loan Account" shall have the meaning ascribed to such term in Section 2.07(d). "Loan Documents" shall mean this Agreement, the Notes, the Fee Letter, the Collateral Documents and all other agreements delivered to the Agent, the Issuing Bank or any Lender by or on behalf of the Borrower or any of its Subsidiaries in satisfaction or furtherance of the requirements of this Agreement or any other Loan Document. "Maintenance Capital Expenditures" shall mean, with respect to any Person on a consolidated basis for any period, the aggregate of all expenditures incurred by such Person during such period that, in accordance with Agreement Accounting Principles, are or should be included in "additions to property, plant or equipment" or similar items reflected in the statement of cash flows of such Person, including maintenance, renovation and layup expenditures but excluding 13 20 interest and start-up expenses that otherwise would be included; provided, however, that Maintenance Capital Expenditures shall not include (i) expenditures of proceeds of insurance settlements in respect of lost, destroyed or damaged assets, equipment or other property to the extent such expenditures are made to replace or repair such lost, destroyed or damaged assets, equipment or other property within 6 months of the receipt of any such insurance proceeds related to such destruction or damage, or (ii) expenditures in connection with the purchasing, outfitting or construction of the New Vessels. "MARAD Financing" shall mean the long-term mortgage financing of the American Queen guaranteed by the Secretary in an initial amount of $60,589,000 as evidenced by the GAQSC Trust Indenture. "Margin Stock" shall have the meaning ascribed to such term in Regulation U. "Material Adverse Effect" shall mean a material adverse effect (a) upon the business, assets or other properties, liabilities or condition (financial or otherwise) or results of operations of Borrower, individually, or the Consolidated Borrower Group taken as a whole or (b) upon the ability of any of the Borrower or any of its Subsidiaries to perform any of their respective Obligations under any Loan Document in any material respects to which it is or will be a party, including, without limitation, payment of the Obligations. "Mississippi Queen" shall mean the vessel of the same name identified on Schedule 1.01-C. "Multiemployer Plan" shall mean a "multiemployer plan" as defined in Section 4001 (a)(3) of ERISA which is, or within the immediately preceding six (6) years was, contributed to by either Borrower or any ERISA Affiliate. "Net Interest Expense" shall mean, with respect to any Person on a consolidated basis for any period, Cash Interest Expense of such Person for such period minus interest income of such Person for such period calculated in accordance with Agreement Accounting Principles. "Net Proceeds" shall mean with respect to any Prepayment Event (a) the gross amount of cash proceeds (including in each Fiscal Year the amount of insurance settlements and condemnation awards in such fiscal year in excess of Set Aside Amounts (it being understood that Set Aside Amounts shall not be included in "Net Proceeds," and may be retained by the Borrower or a Subsidiary of Borrower, as applicable, for the purposes described in clause (a) of the definition of the term "Set Aside Amount", unless and until any such amount shall cease to be a "Set Aside Amount" as a result of any failure to meet any of the criteria set forth in clause (a) or (b) of such definition)) paid to or received by the Borrower or any Subsidiary of Borrower in respect of such Prepayment Event (including cash proceeds subsequently received in respect of such Prepayment Event in respect of non-cash consideration initially received or otherwise), less (b) the amount, if any, of all taxes (other than income taxes) and the Borrower's good-faith best estimate of all income 14 21 taxes (to the extent that such amount shall have been set aside for the purpose of paying such taxes when due), and customary fees, commissions, costs and other expenses (other than those payable to the Borrower, any Affiliate of the Borrower or any Subsidiary of Borrower) that are incurred in connection with such Prepayment Event and are payable by the seller or the transferor of the assets or property or issuer of the securities, as the case may be, to which such Prepayment Event relates, and, in the case of any Prepayment Event described in clause (i) of the definition of "Prepayment Event," the amount of all Indebtedness secured by a Lien on the assets to which such Prepayment Event relates which is repaid in connection with such Prepayment Event, but in any case under this clause (b) only to the extent such amount was not already deducted in arriving at the amount referred to in clause (a). "New Vessel" shall mean any new vessel purchased or built or otherwise acquired by the Borrower or any of its Subsidiaries for operation in its cruise business, including, without limitation, the Western Riverboat, Coastal Cruiser One and Coastal Cruiser Two. "New Vessel Capital Expenditures" shall mean, with respect to any Person on a consolidated basis for any period, all expenditures incurred by such Person during such period that would be Maintenance Capital Expenditures but for the exclusion in clause (ii) of the definition of "Maintenance Capital Expenditures" of expenditures in connection with the purchasing, outfitting or construction of the New Vessels. "Notes" shall mean the amended and restated revolving loan notes executed by the Borrower and delivered to each Lender pursuant to Section 2.02 or Section 11.02. "Notice of Borrowing" shall mean, with respect to a proposed Borrowing pursuant to Section 2.02(a), a notice substantially in the form of Exhibit 3. "Notice of Conversion/Continuation" shall mean, with respect to a proposed conversion or continuation of a Loan pursuant to Section 2.03(c), a notice substantially in the form of Exhibit 4. "Obligations" shall mean the principal of and all interest on all Loans, all reimbursement obligations with respect to Letters of Credit, all fees, expense reimbursements, taxes, compensation and indemnities payable by Borrower to the Agent or any Lender pursuant to this Agreement and all other present and future Indebtedness and other liabilities of Borrower owing to the Agent, any Lender, any Affiliate of any Lender (in connection with any Eligible Hedging Contract) or any Person entitled to indemnification pursuant to Section 11.04, or any of their respective successors, permitted transferees or assigns, of every type and description, whether or not evidenced by any note, guaranty or other instrument, arising under or in connection with this Agreement, any Note, the Fee Letter, any other Loan Document or any Eligible Hedging Contract whether or not for the payment of money, whether direct or indirect (including those acquired by assignment), absolute or contingent, due or to become due, now existing or hereafter arising and however arising. 15 22 "Officer's Certificate" shall mean, as to any corporation, a certificate executed on behalf of such corporation by its chairman or vice chairman of the board (if an officer), its president or any vice president, its chief financial officer, its controller or its treasurer. "Operating Lease" shall mean, as applied to any Person, any lease of any Property by that Person as lessee which is not a Capital Lease. "Other Indebtedness" shall mean all Indebtedness of Borrower and its Subsidiaries other than the Obligations. "Parent" shall mean American Classic Voyages Co., a Delaware corporation. "PBGC" shall mean the Pension Benefit Guaranty Corporation and any Person succeeding to the functions thereof. "Permits" shall mean any permit, approval, consent, authorization, license, variance, or permission required from a Governmental Authority under an applicable Requirement of Law. "Permitted Amount" shall mean $5,000,000; provided that (i) such amount shall increase to $7,000,000 if the Borrower's Total Indebtedness Leverage Ratio is not greater than 3.25 to 1; (ii) such amount shall increase to $10,000,000 if the Borrower's Total Indebtedness Leverage Ratio is not greater than 3.00 to 1; and (iii) such amount shall increase to $15,000,000 if the Borrower's Total Indebtedness Leverage Ratio is not greater than 2.50 to 1. The Borrower's Total Indebtedness Leverage Ratio shall be determined for this purpose as of the end of the most recently completed fiscal quarter for which the Borrower has delivered financial statements and a Compliance Certificate in accordance with Section 5.01, but giving effect to any Indebtedness incurred in connection with the applicable Investment and/or Restricted Junior Payment. "Permitted Existing Liens" shall mean the Liens on any property of the Borrower or its Subsidiaries, in each case reflected on Schedule 1.01-B. "Person" shall mean any natural person, corporation, limited partnership, general partnership, joint stock company, joint venture, association, company, trust, bank, trust company, land trust, business trust or other organization, whether or not a legal entity, or any other non-governmental entity, or any Governmental Authority. "Plan" shall mean an employee benefit plan defined in Section 3(3) of ERISA in respect of which either the Borrower or any ERISA Affiliate is, or within the immediately preceding six (6) years was, an "employer" as defined in Section 3(5) of ERISA. "Pledge Agreements" shall mean the Stock Pledge Agreements and Limited Liability Company Pledge Agreements, as applicable, executed by (i) the Borrower in connection with the pledge of the stock of, or its membership interest in, each of the Borrower Subsidiaries (other than 16 23 GAQSC), and (ii) DQSB II, Inc., a Delaware corporation, in connection with the pledge of its membership interests in each of the other Borrower Subsidiaries (other than GAQSC), as any of the same may be amended, restated, supplemented or otherwise modified from time to time. "Potential Event of Default" shall mean an event, condition or circumstance which, with the giving of notice or the lapse of time, or both, would constitute an Event of Default. "Prepayment Event" shall mean (i) any sale, lease, transfer, assignment, loss, damage or destruction (in the case of loss, damage or destruction, to the extent covered by insurance) or other disposition of assets (including trademarks and other intangibles), business units, individual business assets or property of the Borrower or any of its Subsidiaries, including the sale, transfer or disposition of any capital stock thereof or (ii) the incurrence, creation or assumption by the Borrower or its Subsidiaries of any Indebtedness (other than Indebtedness that is permitted to be incurred pursuant to Section 7.01) or the issuance or sale by the Borrower or any Subsidiaries of the Borrower of any debt securities or any obligations convertible into or exchangeable for, or giving any person or entity any right, option or warrant to acquire from the Borrower or any of the Subsidiaries of Borrower any Indebtedness or any such debt securities or any such convertible or exchangeable obligations; provided, however, that none of the following shall be deemed to be a "Prepayment Event": (a) the sale of inventory in the ordinary course of business, (b) the sale, lease, transfer, assignment or other disposition of assets of the Borrower or any Subsidiary of the Borrower to the Borrower or any other Wholly-Owned Subsidiary of the Borrower, (c) the sale, lease, transfer, assignment or other disposition of assets of the Borrower or any of its Subsidiaries (other than dispositions described in clauses (a) or (b) of this proviso) to the extent that the Net Proceeds of any such disposition of assets received since the Effective Date do not in the aggregate exceed $5,000,000, and (d) the loss, damage or destruction of assets of the Borrower or any of its Subsidiaries (to the extent covered by insurance) to the extent that the Net Proceeds of any single loss do not exceed $1,000,000. "Prime Rate" shall mean the rate of interest per annum publicly announced from time to time by The Chase Manhattan Bank as its prime rate in effect at its principal office in New York City; each change in the Prime Rate shall be effective from and including the date such change is publicly announced as being effective. "Property" shall mean with respect to any Person, any real or personal property, plant, building, facility, structure, equipment or unit, or other asset (tangible or intangible) owned, leased or operated by such Person. "Pro Rata Share" shall mean, at any particular time and with respect to any Lender, a fraction (expressed as a percentage), the numerator of which shall be the then amount of such Lender's Commitment and the denominator of which shall be the then aggregate amount of all Commitments, as adjusted from time to time pursuant to the terms of this Agreement. 17 24 "RCRA" shall mean the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq., and any successor statute, and regulations promulgated thereunder. "Regulation D," "Regulation T," "Regulation U" and "Regulation X" shall mean Regulation D, Regulation T, Regulation U and Regulation X, respectively, of the Federal Reserve Board as in effect from time to time. "Related Parties" shall mean, with respect to any specified Person, such Person's Affiliates and the respective directors, officers, employees, agents and advisors of such Person and such Person's Affiliates. "Release" shall mean any release, spill, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching or migration from any Property into the indoor or outdoor environment, including the movement of Contaminants through or in the air, soil, surface water, groundwater or Property. "Remedial Action" shall mean any action required to (i) clean up, remove, treat or in any other way address Contaminants in the indoor or outdoor environment; (ii) prevent a Release or threat of Release or minimize the further Release of Contaminants so they do not migrate or endanger or threaten to endanger public health or welfare or the indoor or outdoor environment; or (iii) perform pre-remedial studies and investigations or post-remedial monitoring and care. "Reportable Event" shall mean the events described in Section 4043 of ERISA or the regulations thereunder other than a Reportable Event described in subsections (3), (4) or (8) of Section 4043(c). "Requirements of Law" shall mean, as to any Person, the charter and by-laws or other organizational or governing documents of such Person, and any law, rule or regulation, Permit, or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its Property or to which such Person or any of its property is subject, including, without limitation, the Securities Act, the Securities Exchange Act, Regulation T, Regulation U and Regulation X, and any certificate of occupancy, zoning ordinance, building, environmental or land use, law, rule, regulation, ordinance or Permit or occupational safety or health law, rule or regulation. "Requisite Lenders" shall mean Lenders whose Pro Rata Shares, in the aggregate, are greater than fifty percent (50%); provided, however, that, in the event that the Commitments have been terminated pursuant to the terms of this Agreement, "Requisite Lenders" means Lenders (without regard to such Lenders' performance of their respective obligations hereunder) having Revolving Credit Exposures representing more than fifty percent (50%) of the total Revolving Credit Exposures. 18 25 "Restricted Junior Payment" shall mean (i) any dividend or other distribution, direct or indirect, on account of any shares of any class of capital stock of or membership interests in Borrower or any of its Subsidiaries, except a distribution of stock as part of a stock split and except a dividend or distribution payable solely in shares of that class of stock or membership interests or in any junior class of stock or membership interests to the holders of that class, provided that the issuance of such stock or membership interests or junior class of stock or membership interests is not an incurrence of Indebtedness, (ii) any redemption, retirement, sinking fund or similar payment, purchase or other acquisition for value, direct or indirect, of any shares of any class of capital stock of or membership interests in Borrower or any of its Subsidiaries now or hereafter outstanding, (iii) any payment made to retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire shares of any class of capital stock of or membership interests in Borrower or any of its Subsidiaries now or hereafter outstanding, (iv) any payment of a claim for the rescission of the purchase or sale of, or for material damages arising from the purchase or sale of, any shares of the capital stock of or membership interests in Borrower or any of its Subsidiaries or of a claim for reimbursement, indemnification or contribution arising out of or related to any such claim for damages or rescission, (v) any payment of tax-sharing payments, allocated corporate overhead, guaranty fees or management fees to Parent or any of its Affiliates (other than Borrower and its Subsidiaries) and (vi) any payment in the nature of a loan from Borrower or any of its Subsidiaries to Parent or any of Parent's Subsidiaries (other than Borrower and its Subsidiaries). "Revolving Credit Availability" shall mean, as at any particular date of determination, the amount by which the Commitments exceed the total Revolving Credit Exposures. "Revolving Credit Exposure" shall mean, with respect to any Lender at any time, the sum of the outstanding principal amount of such Lender's Revolving Loans and its LC Exposure at such time. "Revolving Credit Facility" shall mean the revolving credit facility established for Revolving Loans and Letters of Credit pursuant to Article II. "Revolving Loan" shall have the meaning ascribed to such term in Section 2.01(a). "Secretary" shall mean the United States of America, represented by the Secretary of Transportation, acting by and through the Maritime Administrator. "Secretary's Note" shall mean the Promissory Note to United States of America dated August 24, 1995, made by GAQSC to the Secretary in the original principal amount of $60,589,000. "Securities" shall mean any stock, shares, voting trust certificates, bonds, debentures, notes or other evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise, or in general any instruments commonly known as "securities", or any certificates of interest, shares, or participations in temporary or interim certificates for the purchase or acquisition 19 26 of, or any right to subscribe to, purchase or acquire any of the foregoing, but shall not include any evidence of the Obligations. "Securities Act" shall mean the Securities Act of 1933, as amended to the date hereof and from time to time hereafter, and any successor statute. "Securities Exchange Act" shall mean the Securities Exchange Act of 1934, as amended to the date hereof and from time to time hereafter, and any successor statute. "Security Agreement" shall mean that certain Security Agreement executed by the Borrower in favor of the Agent for the benefit of itself and the Holders of Secured Obligations of even date herewith, as the same may be amended, restated, supplemented or otherwise modified from time to time. "Set Aside Amount" shall mean, in respect of any insurance settlement or condemnation award which does not in the aggregate exceed $5,000,000 received by the Borrower or any Subsidiary of Borrower, the portion thereof, if any, (a) (i) set aside by the Borrower or the applicable Subsidiary for the replacement or repair of any lost, destroyed or damaged assets, equipment or other property that were the subject of an insurable loss, destruction or damage and for which an insurance settlement was made or (ii) set aside by the Borrower or the applicable Subsidiary for the replacement of any real property that was the subject of a taking and in respect of which a condemnation award was made and (b) used within 6 months of the receipt of any such condemnation award or insurance proceeds related to such loss, destruction or damage or such taking, as applicable. "Ship Mortgages" shall mean the preferred ship mortgages of even date herewith covering the Delta Queen and the Mississippi Queen, executed by the Borrower or the Subsidiary of the Borrower, as applicable, in favor of the Agent as trustee for the benefit of itself and the Holders of Secured Obligations, as the same may be amended, supplemented or otherwise modified from time to time. "Solvent" shall mean, when used with respect to any Person, that at the time of determination: (i) the fair value of its assets (both at fair valuation and at present fair saleable value) is equal to or in excess of the total amount of its liabilities, including, without limitation, contingent liabilities; and (ii) it is then able and expects to be able to pay its debts as they mature; and (iii) it has capital sufficient to carry on its business as conducted and as proposed to be conducted. 20 27 With respect to contingent liabilities (such as litigation, guarantees and pension plan liabilities), such liabilities shall be computed at the amount which, in light of all the facts and circumstances existing at the time, represent the amount which can reasonably be expected to become an actual or matured liability. "Statutory Reserve Rate" shall mean a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum applicable reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Federal Reserve Board and any other banking authority to which the Agent or any Lender is subject (a) with respect to the Base CD Rate, for new negotiable nonpersonal time deposits in dollars of over $100,000 with maturities approximately equal to three months and (b) with respect to the Adjusted LIBO Rate, for eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in Regulation D). Such reserve percentages shall include those imposed pursuant to Regulation D. Eurodollar Rate Loans shall be deemed to constitute eurocurrency funding and to be subject to such reserve requirements without benefit of or credit for proration, exceptions or offsets that may be available from time to time to any Lender under such Regulation D or any comparable regulation. The Statutory Reserve Rate shall be adjusted automatically on and as of the effective date of any change in any reserve percentage. "Subsidiary" of a Person shall mean (i) any corporation more than 50% of the outstanding securities having ordinary voting power of which shall at the time be owned or controlled, directly or indirectly, by such Person or by one or more of its Subsidiaries or by such Person and one or more of its Subsidiaries, or (ii) any company, partnership, limited liability company, association, joint venture or similar business organization more than 50% of the ownership or membership interests having ordinary voting power of which shall at the time be so owned or controlled. "Subsidiary Guaranties" shall mean each guaranty executed by each of the Borrower Subsidiaries (other than GAQSC) in favor of the Agent, for the benefit of itself and the Holders of Secured Obligations, as the same may be amended, restated, supplemented or otherwise modified from time to time. "Subsidiary Security Agreements" shall mean each security agreement executed by each of the Subsidiaries (other than GAQSC) of the Borrower in favor of the Agent, for the benefit of itself and the Holders of Secured Obligations as the same may be amended, restated, supplemented or otherwise modified from time to time. "Taxes" shall have the meaning ascribed to such term in Section 2.10(a). "Termination Date" shall mean the earlier of (a) February 25, 2004 and (b) the date of termination of the Commitments pursuant to Section 2.02(d) or Section 9.02(a). 21 28 "Termination Event" shall mean (i) a Reportable Event with respect to any Benefit Plan; (ii) the withdrawal of Borrower or any ERISA Affiliate from a Benefit Plan during a plan year in which Borrower or such ERISA Affiliate was a "substantial employer" as defined in Section 4001(a)(2) of ERISA; (iii) the imposition of an obligation on Borrower or any ERISA Affiliate under Section 4041 of ERISA to provide affected parties written notice of intent to terminate a Benefit Plan in a distress termination described in Section 4041(c) of ERISA; (iv) the institution by the PBGC of proceedings to terminate a Benefit Plan; (v) any event or condition which might constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Benefit Plan; or (vi) the partial or complete withdrawal of Borrower or any ERISA Affiliate from a Multiemployer Plan if such withdrawal would result in the imposition of withdrawal liability under Section 4219 of ERISA. "Three-Month Secondary CD Rate" shall mean, for any day, the secondary market rate for three-month certificates of deposit reported as being in effect on such day (or, if such day is not a Business Day, the next preceding Business Day) by the Federal Reserve Board through the public information telephone line of the Federal Reserve Bank of New York (which rate will, under the current practices of the Federal Reserve Board, be published in Federal Reserve Statistical Release H.15(519) during the week following such day) or, if such rate is not so reported on such day or such next preceding Business Day, the average of the secondary market quotations for three-month certificates of deposit of major money center banks in New York City received at approximately 10:00 a.m., New York City time, on such day (or, if such day is not a Business Day, on the next preceding Business Day) by the Agent from three negotiable certificate of deposit dealers of recognized standing selected by it. "Total Indebtedness" shall mean, with respect to the Consolidated Borrower Group, the total Revolving Credit Exposures and all Other Indebtedness. "Total Indebtedness Leverage Ratio" shall mean, for any fiscal quarter, the ratio of (a) the Total Indebtedness of the Consolidated Borrower Group on the last day of such fiscal quarter to (b) DQSC EBITDA for the four fiscal quarter period ending on the last day of such fiscal quarter, determined in accordance with Agreement Accounting Principles consistently applied. "Transaction Costs" shall mean the fees, costs and expenses payable by the Borrower or any of its Subsidiaries pursuant hereto or in connection herewith or in respect hereof or of the other Loan Documents. "Transaction Documents" shall mean the Loan Documents and the Contribution Agreement. "Type" when used in respect of any Loan or Borrowing, shall refer to the rate by reference to which interest on such Loan or on the Loans comprising such Borrowing is determined. 22 29 "Western Riverboat" shall mean the newly-built riverboat to be acquired and outfitted by the Borrower (or a Subsidiary of the Borrower) for passenger use in the Borrower's cruise business. "Wholly-Owned Subsidiary" of a Person shall mean any subsidiary of such Person 100% of the capital stock of each class of such Subsidiary, in the case of a corporation, or 100% of the membership or other equity interests of such Subsidiary, in the case of a limited liability company, in each case at the time as of which any determination is being made, is owned and controlled, beneficially and of record, by such Person, or by one or more other Wholly-Owned Subsidiaries, or both. "Zell Group" shall mean Samuel Zell or any of his affiliates (as such term is defined in Rule 12b-2 of the Securities Exchange Act) or associates (as such term is defined in Rule 12b-2 of the Securities Exchange Act). 1.02. Computation of Time Periods. In this Agreement, in the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each mean "to but excluding". Periods of days referred to in this Agreement shall be counted in calendar days unless Business Days are expressly prescribed. 1.03. Accounting Terms. For purposes of this Agreement, all accounting terms not otherwise defined herein shall have the meanings assigned to them in conformity with Agreement Accounting Principles. 1.04. Other Definitional Provisions. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". The word "will" shall be construed to have the same meaning and effect as the word "shall". Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) the words "herein", "hereof" and "hereunder", and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (c) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement and (d) the words "asset" and "property" shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights. 23 30 ARTICLE II AMOUNTS AND TERMS OF REVOLVING CREDIT FACILITY 2.01. The Revolving Loans. (a) Revolving Credit Availability. Subject to the terms and conditions set forth in this Agreement, each Lender hereby severally and not jointly agrees to make revolving loans, in Dollars (each individually, a "Revolving Loan" and, collectively, the "Revolving Loans") to Borrower from time to time during the period from the Effective Date to the Business Day immediately preceding the Termination Date, in an amount which shall not exceed such Lender's Pro Rata Share of the Revolving Credit Availability at such time. (b) Several Commitments. All Revolving Loans comprising the same Borrowing under this Agreement shall be made by the Lenders simultaneously and proportionately to their respective Pro Rata Shares, it being understood that no Lender shall be responsible for any failure by any other Lender to perform its obligation to make a Revolving Loan hereunder and that the Commitment of any Lender shall not be increased or decreased without the prior written consent of such Lender as a result of the failure by any other Lender to perform its obligation to make a Revolving Loan. The failure of any Lender to make available to the Agent its Pro Rata Share of any Borrowing shall not relieve any other Lender of its obligation hereunder to make available to the Agent such other Lender's Pro Rata Share of such Borrowing on the date such funds are to be made available pursuant to the terms of this Agreement. (c) Repayments and Prepayments. Loans may be voluntarily repaid at any time, shall be mandatorily prepaid pursuant to Section 2.05 and, subject to the provisions of this Agreement, any amounts voluntarily repaid in respect of Revolving Loans may be reborrowed, up to the amount available under Section 2.01 at the time of such Borrowing, until the Business Day immediately preceding the Termination Date. (d) Minimum Amounts. Loans made on any Funding Date shall be in integral multiples of $100,000 and in the aggregate minimum amount of $500,000, in the case of Loans constituting Base Rate Loans, and in integral multiples of $500,000 and in the aggregate minimum amount of $1,500,000, in the case of Loans constituting Eurodollar Rate Loans; provided that a Borrowing of Base Rate Loans may be in an aggregate amount that is equal to the entire unused balance of the Commitments or that is required to finance the reimbursement of an LC Disbursement as contemplated by Section 2.04(e). 2.02. Loan Facility Mechanics. (a) Notice of Borrowing. Whenever Borrower desires to borrow under Section 2.01(a), Borrower shall deliver to the Agent a Notice of Borrowing no later than 11:00 a.m (New York City time) (i) on the proposed Funding Date, in the case of a Borrowing of Base Rate Loans, and (ii) at least three (3) Business Days in advance of the proposed Funding Date, in the case 24 31 of a Borrowing of Eurodollar Rate Loans. The Notice of Borrowing shall specify (A) the Funding Date (which shall be a Business Day) in respect of the Revolving Loan, (B) the amount of the proposed Borrowing, (C) whether the proposed Borrowing will be of Base Rate Loans or Eurodollar Rate Loans, (D) in the case of Eurodollar Rate Loans, the requested Interest Period, and (E) the Borrower's account to which funds are to be disbursed. In lieu of delivering the above-described Notice of Borrowing, and only with the consent of the Agent in its sole discretion at such time, Borrower may give the Agent telephonic notice of any proposed Borrowing by the time required under this Section 2.02(a); provided that, in the event the Agent so consents, such notice shall be confirmed in writing by delivery to the Agent promptly (but in no event later than 2:00 p.m. (New York City time) on the Funding Date of the requested Loan) of a Notice of Borrowing. Any Notice of Borrowing (or telephonic notice in lieu thereof) pursuant to this Section 2.02(a) shall be irrevocable. (b) Making of Loans. Promptly after receipt of a Notice of Borrowing under Section 2.02(a) (or telephonic notice in lieu thereof if the Agent consents to such telephonic notice), the Agent shall notify each Lender by telex or telecopy or other similar form of teletransmission, of the proposed Borrowing. Each Lender shall make the amount of its Revolving Loan available to the Agent in Dollars and in immediately available funds, not later than 2:00 p.m. (New York City time) on the Funding Date. After the Agent's receipt of the proceeds of such Revolving Loans, the Agent shall (unless it has not received the Notice of Borrowing in satisfaction of the requirements of Section 2.02(a) or has been notified in writing that any of the conditions precedent set forth in Section 3.02(a) have not been satisfied) make the proceeds of such Revolving Loans available to Borrower on such Funding Date and shall disburse such funds in Dollars and in immediately available funds to the account of Borrower designated in the Notice of Borrowing; provided that a Borrowing of Base Rate Loans made to finance the reimbursement of an LC Disbursement as contemplated by Section 2.04(e) shall be remitted by the Agent to the Issuing Bank. (c) Failure to Fund by Lender. Unless the Agent shall have been notified by any Lender prior to any Funding Date in respect of any Borrowing of Revolving Loans that such Lender does not intend to make available to the Agent such Lender's Revolving Loan on such Funding Date, the Agent may assume that such Lender has made such amount available to the Agent on such Funding Date and the Agent in its sole discretion may, but shall not be obligated to, make available to Borrower a corresponding amount on such Funding Date. If such corresponding amount is not in fact made available to the Agent by such Lender on or prior to 2:00 p.m. (New York City time) on a Funding Date, such Lender agrees to pay, and Borrower agrees to repay, to the Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to Borrower until the date such amount is paid or repaid to the Agent, at (i) in the case of such Lender, the Federal Funds Effective Rate for the first three (3) Business Days and thereafter at the Alternate Base Rate, and (ii) in the case of Borrower, the interest rate which would be applicable at the time to a Borrowing of Base Rate Loans. If such Lender shall pay to the Agent such corresponding amount, such amount so paid shall constitute such Lender's Revolving Loan, and if both such Lender and Borrower shall have paid and repaid, respectively, such corresponding amount, the Agent shall promptly pay over to Borrower such corresponding amount in same day funds, but Borrower shall remain obligated for all interest thereon. Nothing in 25 32 this Section 2.02(c) shall be deemed to relieve any Lender of its obligation hereunder to make its Revolving Loan on any Funding Date. (d) Voluntary Reduction of Commitments. Borrower shall have the right, at any time and from time to time, (i) to terminate the Commitments in whole, without premium or penalty, if no Revolving Loans or Letters of Credit are then outstanding, no Revolving Loans have been requested but not yet advanced and no Letters of Credit have been requested but not yet issued, or (ii) subject to the second to last sentence of this Section 2.02(d), permanently to reduce in part, without premium or penalty, the Commitments up to the amount by which the Commitments exceed the sum of (A) the total Revolving Credit Exposures, (B) the aggregate principal amount of all Revolving Loans requested hereunder but not yet advanced and (C) the aggregate face amount of all Letters of Credit requested hereunder but not yet issued. Borrower shall give not fewer than five (5) Business Days' prior written notice to the Agent designating the date (which shall be a Business Day) of such termination or reduction and the amount of any partial reduction. Promptly after receipt of a notice of such termination or reduction, the Agent shall notify each Lender of the proposed termination or reduction. Such termination or partial reduction of the Commitments shall be effective on the date specified in the Borrower's notice and shall reduce the Commitment of each Lender proportionately in accordance with its Pro Rata Share. Any such partial reduction of the Commitments shall be in an aggregate minimum amount of $5,000,000 and integral multiples of $1,000,000 in excess of that amount. Any notice of reduction or termination pursuant to this Section 2.02(d) shall be irrevocable. (e) Notes. The Borrower shall execute and deliver to each Lender (or to the Agent on behalf of each Lender) on or before the Effective Date a revolving loan note substantially in the form of Exhibit 5 to evidence the aggregate amount of that Lender's Loans and with other appropriate insertions. The Note delivered to each Lender shall be dated the Effective Date and shall be stated to mature on the Termination Date. Each Lender is hereby authorized to, and prior to any transfer of the Note issued to it each Lender shall, endorse the date and amount of the Loans made by such Lender, as applicable, and each payment or prepayment of principal of the Loans evidenced thereby on the schedule annexed to and constituting a part of such Note, which endorsement shall constitute prima facie evidence, absent manifest error, of the accuracy of the information so endorsed, provided that failure by any such Lender to make such endorsement shall not affect the obligations of the Borrower hereunder or under such Note. In lieu of endorsing such schedule as hereinabove provided, prior to any transfer of a Note, each Lender is hereby authorized, at its option, to record such Loans and such payments or prepayments in its books and records, such books and records constituting prima facie evidence, absent manifest error, of the accuracy of the information contained therein; provided, however, that if the Loan Account differs from the information endorsed by a Lender on such Lender's Note, the Loan Account, absent manifest error, shall govern. 2.03. Interest on the Loans. (a) Rate of Interest. All Loans shall bear interest on the unpaid principal amount thereof from the date made until paid in full at a fluctuating rate determined from time to time by 26 33 reference to the Alternate Base Rate or the Adjusted LIBO Rate. The applicable basis for determining the rate of interest shall be selected by Borrower at the time a Notice of Borrowing is given by the Borrower pursuant to Section 2.02(a) or at the time a Notice of Conversion/Continuation is delivered by Borrower pursuant to Section 2.03(c); provided, however, that Borrower may not select the Adjusted LIBO Rate as the applicable basis for determining the rate of interest on a Loan (1) if at the time of such selection a Potential Event of Default or Event of Default exists or (2) if such a selection would be otherwise prohibited by the terms of this Agreement. If the Borrower fails to deliver a Notice of Conversion/Continuation to the Agent in accordance with the terms of this Agreement specifying the basis for determining the rate of interest for all or any portion of any Eurodollar Rate Loans then having the same Interest Period, then such Loans, or the portion thereof for which no Notice of Conversion/Continuation shall have been delivered, shall be automatically converted to Base Rate Loans on the last day of such Interest Period. Loans shall bear interest, subject to Section 2.03(d), at the following rates: (i) if a Base Rate Loan, then at a rate per annum equal to the sum of (A) the Applicable Base Rate Margin and (B) the Alternate Base Rate as in effect from time to time as interest accrues; and (ii) if a Eurodollar Rate Loan, then at a rate per annum equal to the sum of (A) the Applicable Eurodollar Rate Margin and (B) the Adjusted LIBO Rate determined for the applicable Interest Period. (b) Interest Payments. Subject to Section 2.03(d), (i) interest accrued on each Base Rate Loan shall be payable in arrears (A) on the last calendar day of each calendar quarter occurring after the Effective Date, (B) upon the prepayment in full of the Loans and the termination of all Commitments under this Agreement, (C) upon the date any principal of the Loan is due, with respect to the principal amount then due and (D) on the Termination Date, and (ii) interest accrued on each Eurodollar Rate Loan shall be payable in arrears (A) on each Interest Payment Date applicable to such Eurodollar Rate Loan, (B) upon the prepayment in full of the Loans and the termination of all Commitments under this Agreement, (C) upon the prepayment thereof upon the date any principal of the Loan is due, with respect to the principal then due and (D) on the Termination Date. (c) Conversion or Continuation. (i) Subject to the provisions of Sections 2.08 and 2.09, Borrower shall have the option (A) to convert at any time all or any part of outstanding Base Rate Loans which, in the aggregate, equal or exceed $2,500,000 from Base Rate Loans to Eurodollar Rate Loans; or (B) to convert all or any part of outstanding Eurodollar Rate Loans which, in the aggregate, equal or exceed $1,000,000 from Eurodollar Rate Loans to Base Rate Loans on the expiration date of any Interest Period applicable thereto or upon the payment of compensation payable pursuant to Section 2.09(d); or (C) upon the expiration of any Interest Period applicable to any Eurodollar Rate Loans having the same Interest Period, to continue all or any portion of such Loans equal to or in excess of $2,500,000 as Eurodollar Rate Loans, and the succeeding Interest Period of such continued Loans shall commence on the expiration date of the Interest Period applicable thereto; provided that no outstanding Loan may be continued as, or be converted into, a 27 34 Eurodollar Rate Loan if any Potential Event of Default or Event of Default exists or if such a continuation or conversion would otherwise be prohibited by the terms of this Agreement. Any conversion or continuation of Loans pursuant to this Section 2.03(c) shall apply to the applicable Loans of the Lenders on a pro rata basis. (ii) In the event Borrower shall elect to convert or continue a Loan under this Section 2.03(c), Borrower shall deliver a Notice of Conversion/Continuation to the Agent no later than 11:00 a.m. (New York City time) (A) at least one (1) Business Day in advance of the proposed conversion date in the case of a conversion to a Base Rate Loan and (B) at least three (3) Business Days in advance of the proposed conversion or continuation date in the case of a conversion to, or a continuation of, a Eurodollar Rate Loan. A Notice of Conversion/Continuation shall specify (1) the proposed conversion or continuation date (which shall be a Business Day), (2) the amount of the Loan to be converted or continued, (3) the nature of the proposed conversion or continuation, and (4) in the case of a conversion to, or a continuation of, a Eurodollar Rate Loan, the requested Interest Period. If no Interest Period is specified in any such Notice of Conversion/Continuation with respect to a Eurodollar Rate Loan, the Borrower shall be deemed to have selected an Interest Period of one month's duration. In lieu of delivering the above-described Notice of Conversion/Continuation, Borrower may give the Agent telephonic notice of any proposed conversion or continuation by the time required under this Section 2.03(c); provided that such notice shall be confirmed in writing by delivery to the Agent promptly (but in no event later than 11:00 a.m. (New York City time) on the proposed conversion or continuation date) of a Notice of Conversion/Continuation. Promptly after receipt of a Notice of Conversion/Continuation under this Section 2.03(c) (or telephonic notice in lieu thereof), the Agent shall notify each Lender by telex, telecopy, telephone or other similar form of transmission, of the proposed conversion or continuation. (iii) Any Notice of Conversion/Continuation for conversion to, or continuation of, a Loan (or telephonic notice in lieu thereof) shall be irrevocable and the Borrower shall be bound to convert or continue in accordance therewith. (d) Default Interest. Notwithstanding the rates of interest specified in Section 2.03(a) and the payment dates specified in Section 2.03(b), (i) from and after the occurrence of a payment default constituting an Event of Default under Section 9.01(a), until the past-due amount is paid, such amount not paid when due shall bear interest payable upon demand at a rate per annum equal to the sum of (A) two percent (2.0%) and (B) the interest rate otherwise in effect from time to time (the "Default Rate"), and (ii) (x) from and after the occurrence of any Event of Default described in Sections 9.01(f) or 9.01(g) with respect to the Borrower or any of its Subsidiaries and (y) from and after the occurrence of any other Event of Default set forth in a notice from the Agent or Requisite Lenders to the Borrower, and for so long thereafter as such Event of Default is continuing, the principal balance of all Loans and other Agreement Obligations then outstanding (including, without limitation, all amounts due and payable pursuant to Section 9.02(a)) and, to the extent permitted by applicable law, any interest payments on the Loans not paid when due, shall bear interest payable upon demand at the Default Rate. 28 35 (e) Determination of Applicable Margins; Computation of Interest. (i) Determination of Applicable Margins. (A) The Applicable Margin in respect of any Loan shall be determined by reference to the table set forth below on the basis of the Borrower's Total Indebtedness Leverage Ratio (calculated on a rolling four quarter basis) determined by reference to the most recent financial statements delivered pursuant to Section 5.01(a) or 5.01(b).
Total Applicable Applicable Indebtedness Eurodollar Base Rate Leverage Ratio Rate Margin Margin -------------- ----------- ------ Greater than or equal to 4.00 to 1 2.50% 1.50% Less than 4.00 to 1 and greater than or equal to 3.50 to 1 2.00% 1.00% Less than 3.50 to 1 and greater than or equal to 3.00 to 1 1.75% 0.75% Less than 3.00 to 1 1.50% 0.50%
(B) Upon receipt of the financial statements delivered pursuant to Section 5.01(a) or Section 5.01(b), as applicable, the Applicable Margins for all outstanding Loans shall be adjusted, such adjustment being effective on the first Business Day after receipt of such financial statements and the Compliance Certificate to be delivered in connection therewith; provided, however, if the Borrower shall not have timely delivered its financial statements in accordance with Section 5.01(a) or Section 5.01(b), as applicable, beginning with the date upon which such financial statements should have been delivered and continuing until such financial statements are delivered together with the Compliance Certificate, it shall be assumed for purposes of determining the Applicable Margins that the Borrower's Total Indebtedness Leverage Ratio was greater than 4.00 to 1.0. (C) Notwithstanding anything herein to the contrary, from the Effective Date through the date of receipt of the financial statements for the period ended June 30, 1999 pursuant to Section 5.01(b), the Applicable Eurodollar Rate Margin and Applicable Base Rate Margin shall be 1.75% and 0.75%, respectively. 29 36 (ii) Computation of Interest. Interest on all Agreement Obligations (other than those on which the interest rate is determined by reference to the Prime Rate) shall be computed on the basis of the actual number of days elapsed in the period during which interest accrues and a year of 360 days. Interest on all Agreement Obligations with respect to which the interest rate is determined by reference to the Prime Rate shall be computed on the basis of the actual number of days elapsed in the period during which interest accrues and a year of 365 or 366 days, as applicable. In computing interest on any Loan, the date of the making of the Loan or the first day of an Interest Period, as the case may be, shall be included and the date of payment or the expiration date of an Interest Period, as the case may be, shall be excluded; provided that if a Loan is repaid on the same day on which it is made, one (1) day's interest shall be paid on that Loan. 2.04. Letters of Credit. (a) General. Subject to the terms and conditions set forth herein, the Borrower may request the issuance of Letters of Credit for its own account, in a form reasonably acceptable to the Agent and the Issuing Bank, at any time and from time to time during the period from the Effective Date until the date that is thirty days prior to the Termination Date. In the event of any inconsistency between the terms and conditions of this Agreement and the terms and conditions of any form of letter of credit application or other agreement submitted by the Borrower to, or entered into by the Borrower with, the Issuing Bank relating to any Letter of Credit, the terms and conditions of this Agreement shall control. (b) Notice of Issuance, Amendment, Renewal, Extension; Certain Conditions. To request the issuance of a Letter of Credit (or the amendment, renewal or extension of an outstanding Letter of Credit), the Borrower shall hand deliver or telecopy (or transmit by electronic communication, if arrangements for doing so have been approved by the Issuing Bank) to the Issuing Bank and the Agent (reasonably in advance of the requested date of issuance, amendment, renewal or extension) a notice requesting the issuance of a Letter of Credit, or identifying the Letter of Credit to be amended, renewed or extended, the date of issuance, amendment, renewal or extension, the date on which such Letter of Credit is to expire (which shall comply with paragraph (c) of this Section), the amount of such Letter of Credit, the name and address of the beneficiary thereof and such other information as shall be necessary to prepare, amend, renew or extend such Letter of Credit. If requested by the Issuing Bank, the Borrower also shall submit a letter of credit application on the Issuing Bank's standard form in connection with any request for a Letter of Credit, with such modifications as may be necessary to ensure that such application imposes no additional material burdens or obligations on the Borrower and provides no additional material rights, remedies or benefits (including exculpations) to the Issuing Bank not otherwise provided in this Agreement. A Letter of Credit shall be issued, amended, renewed or extended only if (and upon issuance, amendment, renewal or extension of each Letter of Credit the Borrower shall be deemed to represent and warrant that), after giving effect to such issuance, amendment, renewal or extension (i) the LC Exposure shall not exceed $5,000,000 and (ii) the total Revolving Credit Exposures shall not exceed the total Commitments. 30 37 (c) Expiration Date. Each Letter of Credit shall expire at or prior to the close of business on the earlier of (i) the date one year after the date of the issuance of such Letter of Credit (or, in the case of any renewal or extension thereof, one year after such renewal or extension) and (ii) the date that is five Business Days prior to the Termination Date. (d) Participations. By the issuance of a Letter of Credit (or an amendment to a Letter of Credit increasing the amount thereof) and without any further action on the part of the Issuing Bank or the Lenders, the Issuing Bank hereby grants to each Lender, and each Lender hereby acquires from the Issuing Bank, a participation in such Letter of Credit equal to such Lender's Pro Rata Share of the aggregate amount available to be drawn under such Letter of Credit. In consideration and in furtherance of the foregoing, each Lender hereby absolutely and unconditionally agrees to pay to the Agent, for the account of the Issuing Bank, such Lender's Pro Rata Share of each LC Disbursement made by the Issuing Bank and not reimbursed by the Borrower on the date due as provided in paragraph (e) of this Section, or of any reimbursement payment required to be refunded to the Borrower for any reason. Each Lender acknowledges and agrees that its obligation to acquire participations pursuant to this paragraph in respect of Letters of Credit is absolute and unconditional and shall not be affected by any circumstance whatsoever, including any amendment, renewal or extension of any Letter of Credit or the occurrence and continuance of an Event of Default or Potential Event of Default or reduction or termination of the Commitments, and that each such payment shall be made without any offset, abatement, withholding or reduction whatsoever. (e) Reimbursement. If the Issuing Bank shall make any LC Disbursement in respect of a Letter of Credit, the Borrower shall reimburse such LC Disbursement by paying to the Agent an amount equal to such LC Disbursement not later than 12:00 noon, New York City time, on the date that such LC Disbursement is made, if the Borrower shall have received notice of such LC Disbursement prior to 10:00 a.m., New York City time, on such date, or, if such notice has not been received by the Borrower prior to such time on such date, then not later than 12:00 noon, New York City time, on (i) the Business Day that the Borrower receives such notice, if such notice is received prior to 10:00 a.m., New York City time, on the day of receipt, or (ii) the Business Day immediately following the day that the Borrower receives such notice, if such notice is not received prior to such time on the day of receipt; provided that the Borrower may, subject to the conditions to borrowing set forth herein, request in accordance with Section 2.02 that such payment be financed with a Borrowing of Base Rate Loans in the amount of such LC Disbursement and, to the extent so financed, the Borrower's obligation to reimburse the Issuing Bank for such LC Disbursement shall be discharged and replaced by the resulting Borrowing. If the Borrower fails to make such payment when due, the Agent shall notify each Lender of the applicable LC Disbursement, the payment then due from the Borrower in respect thereof and such Lender's Pro Rata Share thereof. Promptly following receipt of such notice, each Lender shall pay to the Agent its Pro Rata Share of the payment then due from the Borrower, in the same manner as provided in Section 2.02 with respect to Loans made by such Lender (and Section 2.02 shall apply, mutatis mutandis, to the payment obligations of the Lenders), and the Agent shall promptly pay to the Issuing Bank the amounts so received by it from the Lenders. Promptly following receipt by the Agent of any payment from the Borrower pursuant to this paragraph (including the proceeds of any such Base Rate Loans), the 31 38 Agent shall distribute such payment to the Issuing Bank or, to the extent that Lenders have made payments pursuant to this paragraph to reimburse the Issuing Bank, then to such Lenders and the Issuing Bank as their interests may appear. Any payment made by a Lender pursuant to this paragraph to reimburse the Issuing Bank for any LC Disbursement (other than the funding of Base Rate Loans as contemplated above) shall not constitute a Loan and shall not relieve the Borrower of its obligation to reimburse such LC Disbursement. (f) Obligations Absolute. The Borrower's obligation to reimburse LC Disbursements as provided in paragraph (e) of this Section shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement under any and all circumstances whatsoever and irrespective of (i) any lack of validity or enforceability of any Letter of Credit or this Agreement, or any term or provision therein, (ii) any draft or other document presented under a Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect, (iii) payment by the Issuing Bank under a Letter of Credit against presentation of a draft or other document that does not comply with the terms of such Letter of Credit, or (iv) any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section, constitute a legal or equitable discharge of, or provide a right of setoff against, the Borrower's obligations hereunder. Neither the Agent, the Lenders nor the Issuing Bank, nor any of their Related Parties, shall have any liability or responsibility by reason of or in connection with the issuance or transfer of any Letter of Credit or any payment or failure to make any payment thereunder (irrespective of any of the circumstances referred to in the preceding sentence), or any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other communication under or relating to any Letter of Credit (including any document required to make a drawing thereunder), any error in interpretation of technical terms or any consequence arising from causes beyond the control of the Issuing Bank; provided that nothing in this paragraph (f) shall be construed to excuse the Issuing Bank from liability to the Borrower to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are hereby waived by the Borrower to the extent permitted by applicable law) suffered by the Borrower that are caused by (x) the Issuing Bank's grossly negligent or wilful failure to pay under a Letter of Credit against presentation of a draft and other documents that strictly comply with the terms of such Letter of Credit or (y) the Issuing Bank's failure to exercise care when determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof. The parties hereto expressly agree that, in the absence of gross negligence or wilful misconduct on the part of the Issuing Bank (as finally determined by a court of competent jurisdiction), the Issuing Bank shall be deemed to have exercised care in each such determination. In furtherance of the foregoing and without limiting the generality thereof, the parties agree that, with respect to documents presented which appear on their face to be in substantial compliance with the terms of a Letter of Credit, the Issuing Bank may, in its sole discretion, either accept and make payment upon such documents without responsibility for further investigation, regardless of any notice or information to the contrary, or refuse to accept and make payment upon such documents if such documents are not in strict compliance with the terms of such Letter of Credit. 32 39 (g) Disbursement Procedures. The Issuing Bank shall, promptly following its receipt thereof, examine all documents purporting to represent a demand for payment under a Letter of Credit. The Issuing Bank shall promptly notify the Agent and the Borrower by telephone (confirmed by telecopy) of such demand for payment and whether the Issuing Bank has made or will make an LC Disbursement thereunder; provided that any failure to give or delay in giving such notice shall not relieve the Borrower of its obligation to reimburse the Issuing Bank and the Lenders with respect to any such LC Disbursement. (h) Interim Interest. If the Issuing Bank shall make any LC Disbursement, then, unless the Borrower shall reimburse such LC Disbursement in full on the date such LC Disbursement is made, the unpaid amount thereof shall bear interest, for each day from and including the date such LC Disbursement is made to but excluding the date that the Borrower reimburses such LC Disbursement, at the rate per annum then applicable to Base Rate Loans; provided that, if the Borrower fails to reimburse such LC Disbursement when due pursuant to paragraph (e) of this Section, then Section 2.03(d) shall apply. Interest accrued pursuant to this paragraph shall be for the account of the Issuing Bank, except that interest accrued on and after the date of payment by any Lender pursuant to paragraph (e) of this Section to reimburse the Issuing Bank shall be for the account of such Lender to the extent of such payment. (i) Replacement of the Issuing Bank. The Issuing Bank may be replaced at any time by written agreement among the Borrower, the Agent, the replaced Issuing Bank and the successor Issuing Bank. The Agent shall notify the Lenders of any such replacement of the Issuing Bank. At the time any such replacement shall become effective, the Borrower shall pay all unpaid fees accrued for the account of the replaced Issuing Bank pursuant to Section 2.04(b). From and after the effective date of any such replacement, (i) the successor Issuing Bank shall have all the rights and obligations of the Issuing Bank under this Agreement with respect to Letters of Credit to be issued thereafter and (ii) references herein to the term "Issuing Bank" shall be deemed to refer to such successor or to any previous Issuing Bank, or to such successor and all previous Issuing Banks, as the context shall require. After the replacement of an Issuing Bank hereunder, the replaced Issuing Bank shall remain a party hereto and shall continue to have all the rights and obligations of an Issuing Bank under this Agreement with respect to Letters of Credit issued by it prior to such replacement, but shall not be required to issue additional Letters of Credit. (j) Cash Collateralization. If any Event of Default shall occur and be continuing, on the Business Day that the Borrower receives notice from the Agent or the Requisite Lenders demanding the deposit of cash collateral pursuant to this paragraph, the Borrower shall deposit in an account with the Agent, in the name of the Agent and for the benefit of the Lenders, an amount in cash equal to the LC Exposure as of such date plus any accrued and unpaid interest thereon; provided that the obligation to deposit such cash collateral shall become effective immediately, and such deposit shall become immediately due and payable, without demand or other notice of any kind, upon the occurrence of any Event of Default with respect to the Borrower described in clause (f) or (g) of Section 9.01. Such deposit shall be held by the Agent as collateral for the payment and performance of the obligations of the Borrower under this Agreement. The Agent shall 33 40 have exclusive dominion and control, including the exclusive right of withdrawal, over such account. Other than any interest earned on the investment of such deposits, which investments shall be made at the option and sole discretion of the Agent and at the Borrower's risk and expense, such deposits shall not bear interest. Interest or profits, if any, on such investments shall accumulate in such account. Moneys in such account shall be applied by the Agent to reimburse the Issuing Bank for LC Disbursements for which it has not been reimbursed and, to the extent not so applied, shall be held for the satisfaction of the reimbursement obligations of the Borrower for the LC Exposure at such time or, if the maturity of the Loans has been accelerated, be applied to satisfy other obligations of the Borrower under this Agreement. If the Borrower is required to provide an amount of cash collateral hereunder as a result of the occurrence of an Event of Default, such amount (to the extent not applied as aforesaid) shall be returned to the Borrower within three Business Days after all Events of Default have been cured or waived. 2.05. Fees. (a) Commitment Fee. The Borrower shall pay to the Agent, for the account of the Lenders in accordance with their respective Pro Rata Shares, a fee (the "Commitment Fee"), accruing at the rate of 0.50% per annum on the average daily amount by which the Commitments exceed the total Revolving Credit Exposures for the period commencing on the Effective Date and ending on the Termination Date, such Commitment Fee being payable quarterly, in arrears, on the last calendar day of each calendar quarter occurring after the Effective Date and on the Termination Date. (b) Letter of Credit Fees. The Borrower agrees to pay (i) to the Agent for the account of each Lender a participation fee with respect to its participations in Letters of Credit, which shall accrue at a per annum rate equal to the Applicable Eurodollar Rate Margin in effect from time to time on the average daily amount of such Lender's LC Exposure (excluding any portion thereof attributable to unreimbursed LC Disbursements) during the period from and including the Effective Date to but excluding the later of the date on which such Lender's Commitment terminates and the date on which such Lender ceases to have any LC Exposure, and (ii) to the Issuing Bank a fronting fee, which shall accrue at the rate of 0.25% per annum on the average daily amount of the LC Exposure (excluding any portion thereof attributable to unreimbursed LC Disbursements) during the period from and including the Effective Date to but excluding the later of the date of termination of the Commitments and the date on which there ceases to be any LC Exposure, as well as the Issuing Bank's standard fees with respect to the issuance, amendment, renewal or extension of any Letter of Credit or processing of drawings thereunder. Participation fees and fronting fees accrued through and including the last day of March, June, September and December of each year shall be payable on the third Business Day following such last day, commencing on the first such date to occur after the Effective Date; provided that all such fees shall be payable on the date on which the Commitments terminate and any such fees accruing after the date on which the Commitments terminate shall be payable on demand. Any other fees payable to the Issuing Bank pursuant to this paragraph shall be payable within 10 days after demand. 34 41 (c) Payment of Fees. The fees described in this Section 2.05 represent compensation for services rendered and to be rendered separate and apart from the lending of money or the provision of credit and do not constitute compensation for the use, detention or forbearance of money, and the obligation of Borrower to pay each fee described herein shall be in addition to, and not in lieu of, the obligation of Borrower to pay interest, other fees and expenses otherwise described in this Agreement. Fees and expenses shall be payable when due in immediately available funds. All fees and expenses shall be nonrefundable when paid. All fees and expenses specified or referred to in this Agreement or in the letter agreement dated January 26, 1999, between The Chase Manhattan Bank and the Borrower (the "Fee Letter") due to the Agent, the Issuing Bank or any Lender, including, without limitation, amounts referred to in this Section 2.05 and in Section 11.03, shall constitute Obligations and shall be secured by all the Collateral. All fees described in this Section 2.05 which are expressed as a per annum charge shall be calculated on the basis of the actual number of days elapsed in a 360 day year. 2.06. Prepayments. (a) Borrower shall not at any time cause or permit the total Revolving Credit Exposures to exceed the Commitments. If at any time the total Revolving Credit Exposures exceed the Commitments at such time, Borrower shall, without demand or notice, promptly pay to the Agent such amount as may be necessary to eliminate such excess, which prepayment shall be applied as set forth in Section 2.07(b). (b) (i) In the event and on each occasion after the Effective Date that a Prepayment Event described in clause (ii) of the definition of the term Prepayment Event occurs, the Borrower shall, promptly upon (and in any event not later than the third Business Day next following) the occurrence of such Prepayment Event subject to the provisions of subsection (b)(iii) below, pay to the Agent 100% of the amount of Net Proceeds of such Prepayment Event to the Agent. All such prepayments under this subsection (b)(i) shall be applied as set forth in Section 2.07(b). (ii) In the event and on each occasion after the Effective Date that a Prepayment Event that is an event described in clause (i) of the definition of the term "Prepayment Event" and is not excluded from the definition of such term pursuant to the proviso in such definition (an "Asset Sale Prepayment Event") occurs, the Borrower shall, promptly upon (and in any event not later than the third Business Day next following) receipt by or on behalf of the Borrower or any Subsidiary thereof of the Net Proceeds from such Prepayment Event, pay 100% of the aggregate amount of Net Proceeds of all such Asset Sale Prepayment Events to the Agent, which amount, in the case of any Asset Sale Prepayment Event with respect to the American Queen, shall be reduced by any amounts required to be paid in connection with the MARAD Financing. All such prepayments under this subsection (b)(ii) shall be applied as set forth in Section 2.07(b). (iii) In the event that the calculation of the Net Proceeds relating to any Prepayment Event included an estimate for income taxes that was at least $100,000 greater than the income taxes actually payable in respect thereof, the Borrower shall, promptly after determining the amount of income taxes actually payable, pay the amount by which such estimate exceeded the amount of taxes actually payable to the Agent, which prepayment shall be applied as set forth in Section 2.07(b). 35 42 (c) Any payment required by this Section 2.06 shall be payable without penalty or premium, except as may be required by Section 2.09(d) with respect to any Eurodollar Rate Loan prepaid as a result thereof. 2.07. Payments. (a) Manner and Time of Payment. Except as otherwise expressly set forth herein, all payments of principal of and interest on the Loans and other Agreement Obligations (including without limitation, fees and expenses) payable to the Agent, the Issuing Bank or the Lenders (or any of them) shall be made without setoff, counterclaim, defense, condition or reservation of right, in Dollars and in immediately available funds, delivered to the Agent not later than 11:00 a.m.(New York City time) on the date and at the place due, to such account of the Agent as it may designate, for the account of the Agent, the Issuing Bank or the Lenders as the case may be; and funds received by the Agent after that time and date shall be deemed to have been paid and received by the Agent on the next succeeding Business Day. Payments actually received by the Agent for the account of the Agent, the Issuing Bank or the Lenders or any of them, shall be paid to them promptly after receipt thereof by the Agent. (b) Apportionment of Payments and Prepayments. (i) All payments and prepayments of principal and interest in respect of outstanding Loans and all payments of fees and all other payments in respect of any other Agreement Obligations, shall be allocated among the Issuing Bank and such of the Lenders as are entitled thereto, in proportion to their respective Pro Rata Shares or otherwise as provided herein. Subject to the provisions of Section 2.07(b)(ii), all such payments and prepayments and any other amounts received by the Agent from or for the benefit of the Borrower shall be applied first, to pay principal of and interest on any portion of the Loans which the Agent may have advanced on behalf of any Lender for which the Agent has not then been reimbursed by such Lender or the Borrower, second, to pay principal of and interest on any advance made under Section 11.18 for which the Agent has not then been paid by the Borrower or reimbursed by the Lenders, third, to pay all other Agreement Obligations (other than as those referred to in clauses fourth and fifth) then due and payable, fourth, to pay interest in respect of the Revolving Loans and unreimbursed LC Disbursements then due and payable, and fifth, to pay the principal of the Revolving Loans and unreimbursed LC Disbursements. All principal payments and prepayments in respect of Loans shall be applied first, to the Eurodollar Rate Loans maturing on the date of such payment, second, to repay outstanding Base Rate Loans, and then to repay outstanding Eurodollar Rate Loans with those Eurodollar Rate Loans which have earlier expiring Interest Periods being repaid prior to those which have later expiring Interest Periods. (ii) After the occurrence of an Event of Default and while the same is continuing, the Agent shall, unless otherwise specified at the direction of the Requisite Lenders, which direction shall be consistent with the last sentence of this clause (ii), apply all payments and prepayments in respect of any Obligations and all proceeds of Collateral in the following order: 36 43 (A) first, to pay interest on and then principal of any portion of the Loans which the Agent may have advanced on behalf of any Lender for which the Agent has not then been reimbursed by such Lender or the Borrower; (B) second, to pay interest on and then principal of any advance made under Section 11.18 for which the Agent has not then been paid by the Borrower or reimbursed by the Lenders; (C) third, to pay Agreement Obligations in respect of any fees, expense reimbursements or indemnities then due to the Agent; (D) fourth, to pay Agreement Obligations in respect of any fees, expense reimbursements or indemnities then due to the Lenders; (E) fifth, to pay interest due in respect of Revolving Loans and unreimbursed LC Disbursements; (F) sixth, to the ratable payment or prepayment of principal outstanding on Loans and unreimbursed LC Disbursements in such order as the Agent may determine in its sole discretion; (G) seventh, to the ratable payment of all other Agreement Obligations; and (H) eighth, to the ratable payment of all Obligations in respect of Eligible Hedging Contracts. The order of priority set forth in this Section 2.07(b)(ii) and the related provisions of this Agreement are set forth solely to determine the rights and priorities of the Agent, the Issuing Bank, the Lenders and the other Holders of Secured Obligations as among themselves. The order of priority set forth in clauses (D) through (H) of this Section 2.07(b)(ii) may at any time and from time to time be changed by the Requisite Lenders without necessity of notice to or consent of or approval by the Borrower, or any other Person. The order of priority set forth in clauses (A) through (C) of this Section 2.07(b)(ii) may be changed only with the prior written consent of the Agent. (iii) The Agent shall promptly distribute to the Issuing Bank and to each Lender at its primary address set forth on the appropriate signature page hereof or the signature page to the Assignment and Acceptance by which it became a Lender, or at such other address as the Issuing Bank, a Lender or other Holder of Secured Obligations may request in writing, such funds as such Person may be entitled to receive; provided that the Agent shall under no circumstances be bound to inquire into or determine the validity, scope or priority of any interest or entitlement of the Issuing Bank, any Lender or any other Holder of Secured Obligations and may suspend all payments or seek appropriate relief (including, without limitation, instructions from the Requisite Lenders or an action 37 44 in the nature of interpleader) in the event of any doubt or dispute as to any apportionment or distribution contemplated hereby. (c) Payments on Non-Business Days. Whenever any payment to be made by Borrower hereunder shall be stated to be due on a day which is not a Business Day, payments shall be made on the next succeeding Business Day, unless such Business Day occurs in the succeeding month in which case such payment shall be made on the immediately preceding Business Day, and such extension of time, if any, shall be included in the computation of the payment of interest hereunder and of any of the fees specified in Section 2.05, as the case may be. (d) Agent's Accounting. The Agent shall maintain such accounts, books and records (a "Loan Account") in which it shall record (i) the names and addresses of the Issuing Bank and the Lenders and the respective Commitments of, and principal amount of Loans owing to, each Lender from time to time; (ii) other appropriate debits and credits as provided in this Agreement, including, without limitation, all interest and fees constituting Obligations; and (iii) all payments of such Obligations made by Borrower or for Borrower's account. Each Lender shall maintain in accordance with its usual practices an account or accounts evidencing the indebtedness of Borrower to such Lender resulting from each Loan owing to such Lender from time to time, including the amount of principal and interest payable and paid to such Lender from time to time hereunder. Entries in any Loan Account made in accordance with the Agent's or any Lender's customary accounting practices as in effect from time to time shall constitute prima facie evidence of the matters reflected therein. 2.08. Interest Periods. By giving notice as set forth in Section 2.02(a) or 2.03(c) with respect to a Borrowing of, conversion into or continuation of Loans consisting of Eurodollar Rate Loans, Borrower shall have the option, subject to the other provisions of this Section 2.08 and Section 2.09, to specify an interest period (each an "Interest Period") to apply to the Borrowing described in such notice, which Interest Period shall be either a one (1), two (2), three (3) or six (6) month period. The determination of Interest Periods shall be subject to the following provisions: (a) In the case of immediately successive Interest Periods, each successive Interest Period shall commence on the day on which the next preceding Interest Period expires; (b) If any Interest Period would otherwise expire on a day which is not a Business Day, the Interest Period shall be extended to expire on the next succeeding Business Day; provided that if any such Interest Period would otherwise expire on a day which is not a Business Day and no further Business Day occurs in that calendar month, that Interest Period shall expire on the immediately preceding Business Day; (c) Borrower may not select an Interest Period which terminates later than the Termination Date; and (d) Without the prior written consent of the Agent, there shall be no more than eight (8) Interest Periods under this Agreement in effect at any one time. 38 45 2.09. Special Provisions Governing Eurodollar Rate Loans. Notwithstanding other provisions of this Agreement, the following provisions shall govern with respect to Eurodollar Rate Loans as to the matters covered: (a) Determination of Interest Rate. As soon as practicable after 11:00 a.m. (New York City time) on the Interest Rate Determination Date, the Agent shall determine (which determination shall, absent manifest error, be presumptively correct) the interest rate which shall apply to the Eurodollar Rate Loans for which an interest rate is then being determined for the applicable Interest Period and shall promptly give notice thereof (in writing or by telephone confirmed in writing) to Borrower and to each Lender. (b) Interest Rate Unascertainable, Inadequate or Unfair. If prior to the commencement of any Interest Period for a Borrowing of Eurodollar Rate Loans: (i) the Agent determines (which determination shall be conclusive absent manifest error) that adequate and reasonable means do not exist for ascertaining the Adjusted LIBO Rate for such Interest Period; or (ii) the Agent is advised by the Requisite Lenders that the Adjusted LIBO Rate for such Interest Period will not adequately and fairly reflect the cost to such Lenders of making or maintaining their Loans included in such Borrowing for such Interest Period; then the Agent shall forthwith give notice thereof to Borrower and each Lender, whereupon until the Agent has determined that the circumstances giving rise to such suspension no longer exist, (a) the right of Borrower to elect to have Loans bear interest based upon the Adjusted LIBO Rate shall be suspended, and (b) each outstanding Eurodollar Rate Loan shall be converted into a Base Rate Loan on the last day of the then current Interest Period therefor, notwithstanding any prior election by the Borrower to the contrary. (c) Illegality. (i) In the event that on any date any Lender shall have determined (which determination shall, in the absence of manifest error, be final and conclusive and binding upon all parties) that the making or continuation of any Eurodollar Rate Loan has become unlawful by reason of (i) on or after the date of this Agreement, the adoption of any law, rule or regulation applicable to such Lender, or any change in any law, rule or regulation applicable to such Lender, or any change in the interpretation or administration thereof by any Governmental Authority charged with the interpretation or administration thereof, or (ii) compliance in good faith by such Lender with any request or directive (whether or not having the force of law) made after the date of this Agreement of any such Governmental Authority, then, and in any such event, such Lender shall promptly give notice (by teletransmission or by telephone promptly confirmed in writing) to Borrower and the Agent of that determination and the reasons therefor. Before giving any notice to Borrower or the Agent pursuant to this Section 2.09(c)(i), such Lender shall use reasonable efforts to make, fund and maintain its Eurodollar Rate Loans through another Applicable Lending Office if such change will avoid the need for giving such notice and will not, in the reasonable judgment 39 46 of such Lender, be disadvantageous to such Lender. The Agent shall promptly forward any such notice it receives to the other Lenders. (ii) Upon the giving of the notice referred to in Section 2.09(c)(i), (A) Borrower's right to request of such Lender and such Lender's obligation to make Eurodollar Rate Loans with respect to any requested Borrowing or to convert Base Rate Loans to Eurodollar Rate Loans shall be immediately suspended, and such Lender shall make Loans with respect to such requested Borrowing of Eurodollar Rate Loans as Base Rate Loans, and (B) if such Lender shall have determined that it may not lawfully continue to maintain any of its outstanding Eurodollar Rate Loans to the end of the Interest Period applicable thereto and shall so specify in such notice, the Borrower shall be deemed to have delivered (and is hereby permitted to so deliver) a Notice of Conversion/Continuance solely with respect to such Lender's Eurodollar Rate Loans and such Eurodollar Rate Loans shall be converted as of such date to Base Rate Loans on which interest and principal shall be payable contemporaneously with the related Eurodollar Rate Loans of the other Lenders. (iii) In the event that a Lender determines at any time following its giving of a notice referred to in Section 2.09(c)(i) that the circumstances giving rise to such suspension no longer exist, such Lender shall promptly give notice (by teletransmission or by telephone promptly confirmed in writing) to Borrower and the Agent of that determination, whereupon Borrower's right to request of such Lender and such Lender's obligation to make, or convert Base Rate Loans to, Eurodollar Rate Loans shall be restored. The Agent shall promptly forward any such notice it receives to the other Lenders. (d) Compensation. In addition to such amounts as are required to be paid by Borrower pursuant to Sections 2.03(a), 2.03(d), 2.05 and each other provision of this Agreement requiring payment by Borrower, Borrower shall compensate each Lender, upon demand, for all losses (but not including lost profits or loss of margin), expenses and liabilities (including, without limitation, any loss or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund or maintain such Lender's Eurodollar Rate Loans to the Borrower) which such Lender may sustain (i) if for any reason a Borrowing of, conversion into or continuation of Eurodollar Rate Loans does not occur on a date specified therefor in a Notice of Borrowing or a Notice of Conversion/Continuation or in a telephonic request for borrowing or conversion or continuation or a successive Interest Period does not commence after notice therefor is given pursuant to Section 2.03(c)(ii), (ii) if any principal payment of any Eurodollar Rate Loan (including, without limitation, any prepayment pursuant to Section 2.06 but excluding any prepayment of any Eurodollar Rate Loan in connection with the replacement of any Lender under clause (i) of Section 2.14) occurs for any reason on a date which is not the last day of the applicable Interest Period, (iii) as a consequence of any required conversion of a Eurodollar Rate Loan to a Base Rate Loan as a result of any of the events indicated in Section 2.09(c) or (iv) as a consequence of an acceleration of the Obligations pursuant to Section 9.02(a). Such Lender shall deliver to Borrower, as a condition of Borrower's obligation to compensate such Lender, a written statement as to such 40 47 losses, expenses and liabilities which statement, in the absence of manifest error, shall be conclusive as to such amounts. (e) Booking of Eurodollar Rate Loans. Any Lender may make, carry or transfer Eurodollar Rate Loans at, to, or for the account of, any of its branch offices, agencies or the office of an Affiliate of that Lender; provided that no such Lender shall be entitled to receive any greater amount under Section 2.10 or Section 2.11(b) as a result of the transfer of any such Loan than such Lender would be entitled to immediately prior thereto unless (i) such transfer occurred at a time when circumstances giving rise to the claim for such greater amount did not exist and were not reasonably foreseeable by such Lender, or (ii) such claim would have arisen even if such transfer had not occurred. 2.10. Taxes. (a) Any and all payments by Borrower hereunder shall be made, in accordance with Section 2.07, free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges, or withholdings, and all liabilities with respect thereto including those arising after the date hereof as a result of the adoption of or any change in any law, treaty, rule, regulation, guideline or determination of a Governmental Authority or any change in the interpretation or application thereof by a Governmental Authority but excluding, in the case of each Lender, the Issuing Bank and the Agent, such taxes (including income taxes, franchise taxes and branch profit taxes) as are imposed on or measured by such Lender's, the Issuing Bank's or the Agent's, as the case may be, net income by the United States of America or any Governmental Authority of the jurisdiction under the laws of which such Lender, the Issuing Bank or Agent, as the case may be, is organized, maintains an Applicable Lending Office or is deemed to be engaged in trade or business other than by reason of this Agreement or the transaction contemplated hereby (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings, and liabilities which the Agent, the Issuing Bank or a Lender determines to be applicable to this Agreement, the other Loan Documents, the Commitments, the Loans or the Letters of Credit being hereinafter referred to as "Taxes"). If Borrower shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder or under the other Loan Documents to any Lender, the Issuing Bank or the Agent, (i) the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.10) such Lender, the Issuing Bank or the Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) Borrower shall make such deductions, and (iii) Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. If a withholding tax of the United States of America or any other Governmental Authority shall be or become applicable (y) after the date of this Agreement, to such payments by Borrower made to the Applicable Lending Office or any other office that a Lender may claim as its Applicable Lending Office, or (z) after such Lender's selection and designation of any other Applicable Lending Office, to such payments made to such other Applicable Lending Office, such Lender shall use reasonable efforts to make, fund and maintain its Loans through another Applicable Lending Office of such Lender in another jurisdiction so as to reduce such Borrower's liability hereunder, if the making, funding or maintenance of such Loans through such other Applicable Lending Office of such Lender does not, in the reasonable 41 48 judgment of such Lender, otherwise materially adversely affect such Loans, obligations under the Commitments or such Lender. (b) In addition, Borrower agrees to pay any present or future stamp or documentary taxes or any other excise or property taxes, charges, or similar levies which arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement, the other Loan Documents, the Commitments, the Loans or the Letters of Credit (hereinafter referred to as "Other Taxes"). (c) Borrower will indemnify each Lender, the Issuing Bank and the Agent for the full amount of Taxes and Other Taxes (including, without limitation, any Taxes or Other Taxes imposed by any Governmental Authority on amounts payable under this Section 2.10) paid by such Lender, the Issuing Bank or the Agent (as the case may be) and, so long as such Lender, the Issuing Bank or the Agent (as the case may be) shall not have unreasonably delayed making such payment, any additional liability (including penalties, interest, and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted. This indemnification shall be made within thirty (30) days after the date such Lender, the Issuing Bank or the Agent (as the case may be) makes written demand therefor. A certificate as to any such amount payable to any Lender, the Issuing Bank or the Agent under this Section 2.10 submitted to Borrower and the Agent (if a Lender or the Issuing Bank is so submitting) by such Lender, the Issuing Bank or the Agent shall show in reasonable detail the amount payable and the calculations used to determine such amount and shall, absent manifest error, be final, conclusive and binding upon all parties hereto. With respect to such deduction or withholding for or on account of any Taxes and to confirm that all such Taxes have been paid to the appropriate Governmental Authorities, Borrower shall promptly (and in any event not later than thirty (30) days after receipt) furnish to each Lender, the Issuing Bank and the Agent such certificates, receipts and other documents as may be required (in the reasonable judgment of such Lender, the Issuing Bank or the Agent) to establish any tax credit to which such Lender, the Issuing Bank or the Agent may be entitled, and, to the extent that the Borrower shall have paid, or reimbursed any Lender, the Issuing Bank or the Agent for, any such Taxes, such Lender, the Issuing Bank or the Agent, as applicable, shall promptly refund such amount to the Borrower to the extent that such Lender, the Issuing Bank or the Agent, as applicable, receives a permanent tax benefit as a result of any such credit. (d) Within thirty (30) days after the date of any payment of Taxes or Other Taxes by Borrower, Borrower will furnish to the Agent, at its address referred to in Section 11.08, the original or a certified copy of a receipt evidencing payment thereof. (e) Without prejudice to the survival of any other agreement of Borrower hereunder, the agreements and obligations of Borrower contained in this Section 2.10 shall survive the payment in full of principal and interest hereunder and the termination of this Agreement. (f) Each Lender that is not created or organized under the laws of the United States of America or a political subdivision thereof shall deliver to Borrower and the Agent on or before 42 49 the Effective Date, or, if later, the date on which such Lender becomes a Lender pursuant to Section 11.02 hereof, a true and accurate certificate executed in duplicate by a duly authorized officer of such Lender, in a form satisfactory to Borrower and the Agent, to the effect that such Lender is capable under the provisions of an applicable tax treaty concluded by the United States of America (in which case the certificate shall be accompanied by two executed copies of Form 1001 of the IRS) or under Section 1442 of the IRC (in which case the certificate shall be accompanied by two copies of Form 4224 of the IRS) of receiving payments of interest hereunder without deduction or withholding of United States federal income tax. Each such Lender further agrees to deliver to Borrower and the Agent from time to time a true and accurate certificate executed in duplicate by a duly authorized officer of such Lender substantially in a form satisfactory to Borrower and the Agent, before or promptly upon the occurrence of any event requiring a change in the most recent certificate previously delivered by it to Borrower and the Agent pursuant to this Section 2.10(f). Further, each Lender which delivers a certificate accompanied by Form 1001 of the IRS covenants and agrees to deliver to Borrower and the Agent within fifteen (15) days prior to January 1, 2002, and every third (3rd) anniversary of such date thereafter, on which this Agreement is still in effect, another such certificate and two accurate and complete original signed copies of Form 1001 (or any successor form or forms required under the IRC or the applicable regulations promulgated there under), and each Lender that delivers a certificate accompanied by Form 4224 of the IRS covenants and agrees to deliver to Borrower and the Agent within fifteen (15) days prior to the beginning of each subsequent taxable year of such Lender during which this Agreement is still in effect, another such certificate and two accurate and complete original signed copies of IRS Form 4224 (or any successor form or forms required under the IRC or the applicable regulations promulgated thereunder). Each such certificate shall certify as to one of the following: (i) that such Lender is capable of receiving payments of interest hereunder without deduction or withholding of United States of America federal income tax; (ii) that such Lender is not capable of receiving payments of interest hereunder without deduction or withholding of United States of America federal income tax as specified therein but is capable of recovering the full amount of any such deduction or withholding from a source other than the Borrower and will not seek any such recovery from Borrower; or (iii) that, as a result of the adoption of or any change in any law, treaty, rule, regulation, guideline or determination of a Governmental Authority or any change in the interpretation or application thereof by a Governmental Authority after the date such Lender became a party hereto, such Lender is not capable of receiving payments of interest hereunder without deduction or withholding of United States of America federal income tax as specified therein and that it is not capable of recovering the full amount of the same from a source other than the Borrower. 43 50 If the form provided by any Lender at the time such Lender first becomes a party to this Agreement indicates a United States interest withholding tax rate in excess of zero, withholding tax at such rate shall be considered excluded from "Taxes" as defined in Section 2.10(a). Each Lender shall promptly furnish to Borrower and the Agent such additional documents as may be reasonably required by Borrower or the Agent to establish any exemption from or reduction of any Taxes or Other Taxes required to be deducted or withheld and which may be obtained without undue expense to such Lender. (g) For any period with respect to which a Lender has failed to provide Borrower with the appropriate form pursuant to Section 2.10(f) (unless such failure is due to a change in treaty, law or regulation occurring subsequent to the date on which a form originally was required to be provided), such Lender shall not be entitled to indemnification under Section 2.10(c), and Borrower shall not be required to comply with Section 2.10(a), with respect to Taxes imposed by the United States; provided, however, that should a Lender, which is otherwise exempt from or subject to a reduced rate of withholding tax, become subject to Taxes because of its failure to deliver a form required hereunder, Borrower shall take such steps as such Lender shall reasonably request to assist such Lender to recover such Taxes so long as Borrower shall incur no costs or liability as a result thereof. 2.11. Capital Adequacy; Increased Costs. (a) If any Lender or the Issuing Bank determines that (i) the introduction of or any change in any law, order or regulation or in the interpretation or administration of any law, order or regulation by any Governmental Authority charged with the interpretation or administration thereof after the date hereof or (ii) compliance with any guideline or request issued or made after the date hereof from any central bank or other Governmental Authority (whether or not having the force of law) has or would have the effect of reducing the rate of return on the capital of such Lender or the Issuing Bank or any corporation controlling such Lender or the Issuing Bank, as a consequence of or with reference to this Agreement, such Lender's Commitment or its making or maintaining Loans, or the Issuing Bank's issuing or maintaining, or such Lenders participating in, Letters of Credit, below the rate which such Lender or the Issuing Bank or such other corporation could have achieved but for such compliance (taking into account the policies of such Lender or the Issuing Bank or such corporation with regard to capital) by an amount deemed by such Lender or the Issuing Bank, as applicable, to be material, then Borrower shall from time to time, upon demand by such Lender or the Issuing Bank (with a copy of such demand to the Agent), pay to such Lender or the Issuing Bank, as applicable, additional amounts sufficient to compensate such Lender or the Issuing Bank, as applicable, for such reduction, upon receipt by Borrower (with a copy to the Agent) of a certificate as to such amounts, by such Lender or the Issuing Bank, as applicable, setting forth in reasonable detail the basis for, and the calculations used by such Lender or the Issuing Bank, as applicable, in determining, any such amounts. Such certificate, in the absence of manifest error, shall be conclusive and binding for all purposes. (b) In the event that after the date hereof (i) the adoption of or any change in any law, treaty, rule, regulation, guideline or determination of a Governmental Authority or any change in the 44 51 interpretation or application thereof by a Governmental Authority, or (ii) compliance by any Lender or the Issuing Bank with any request or directive (whether or not having the force of law and whether or not the failure to comply therewith would be unlawful) from any central bank or other Governmental Authority or quasi-governmental authority exercising jurisdiction, power or control over banks or financial institutions generally, does impose, modify, or hold applicable, in the determination of a Lender, any reserve, special deposit, compulsory loan, FDIC insurance, capital allocation or similar requirement against assets held by, or deposits or other liabilities in or for the account of, advances or loans by, commitments made, letters of credit issued or participated in, or other credit extended by, or any other acquisition of funds by, a Lender or any Applicable Lending Office of such Lender (except with respect to Base Rate Loans, so long as the Alternate Base Rate in effect at the time is determined by reference to the Prime Rate) or the Issuing Bank which is not otherwise taken into account in the calculation of the Adjusted LIBO Rate or the Alternate Base Rate, and the result of any of the foregoing is to increase the cost to such Lender or the Issuing Bank of making, renewing or maintaining the Loans or its Commitment or issuing, maintaining or participating in any Letter of Credit or to reduce any amount receivable hereunder or thereunder; then, in any such case, Borrower shall upon written notice from and demand by that Lender or the Issuing Bank pay to such Lender or the Issuing Bank, as applicable, within fifteen (15) Business Days of the date specified in such notice and demand, such amount or amounts (based upon a reasonable allocation thereof by such Lender or the Issuing Bank, as applicable, to the financing transactions contemplated by this Agreement and affected by this Section 2.11(b)) as may be necessary to compensate that Lender or the Issuing Bank, as applicable, for any such additional cost incurred or reduced amount received. Such Lender or the Issuing Bank, as applicable, shall deliver to the Borrower with any such notice and demand a certificate setting forth in reasonable detail the basis for, and the calculations used by such Lender or the Issuing Bank, as applicable, in determining, the costs or reductions so claimed and the allocation made by such Lender or the Issuing Bank, as applicable, of such costs and reductions. Such certificate, in the absence of manifest error, shall be conclusive and binding for all purposes. If a Lender or the Issuing Bank, as applicable, subsequently recovers from another Person any amount previously paid by Borrower pursuant to this Section 2.11(b), such Lender or the Issuing Bank, as applicable, shall, within thirty (30) days after receipt of such refund and to the extent permitted by applicable law, pay to the Borrower, without interest, the amount of any such recovery. (c) Failure or delay on the part of any Lender or the Issuing Bank to demand compensation pursuant to this Section 2.11 shall not constitute a waiver of such Lender's or the Issuing Bank's right to demand such compensation; provided that the Borrower shall not be required to compensate a Lender or the Issuing Bank pursuant to this Section 2.11 for any increased costs or reduction incurred more than 180 days prior to the date that such Lender or the Issuing Bank, as the case may be, notifies the Borrower of the circumstances giving rise to such increased costs or reductions and of such Lender's or the Issuing Bank's intention to claim compensation therefor; provided further that, if the change or compliance giving rise to such increased costs or reductions is retroactive, then the 180-day period referred to above shall be extended to include the period of retroactive effect thereof. 45 52 (d) If any Lender requests compensation under this Section 2.11, then such Lender shall use reasonable efforts to designate a different Applicable Lending Office for funding or booking its Loans hereunder, if, in the reasonable judgment of such Lender, such designation (i) would eliminate or reduce amounts payable pursuant to this Section 2.11 in the future and (ii) would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. 2.12. Use of Proceeds of the Loans and the Letters of Credit. The proceeds of the Loans and the Letters of Credit shall be used for general corporate purposes. 2.13. Authorized Officers of Borrower. Borrower shall notify the Agent in writing of the names of the officers and employees authorized to request Loans and Letters of Credit and to request a conversion or continuation of any Loan and shall provide the Agent with a specimen signature of each such officer or employee. The Agent shall be entitled to rely conclusively on such officer's or employee's authority to request such Loan or Letter of Credit or such conversion or continuation until the Agent receives written notice to the contrary. The Agent shall have no duty to verify the authenticity of the signature appearing on any written Notice of Borrowing, notice of request for the issuance of a Letter of Credit or Notice of Conversion/Continuation and, with respect to an oral request for such a Loan or such conversion or continuation, the Agent shall have no duty to verify the identity of any person representing himself as one of the officers or employees authorized to make such request on behalf of Borrower. Neither the Agent nor any Lender shall incur any liability to Borrower in acting upon any telephonic notice referred to above which the Agent believes to have been given by a duly authorized officer or other person authorized to borrow on behalf of Borrower. 2.14. Replacement of Certain Lenders. In the event a Lender ("Affected Lender") shall have: (i) failed to fund its Pro Rata Share of any Borrowing requested by the Borrower which such Lender is obligated to fund under the terms of this Agreement and which such failure has not been cured, (ii) has requested compensation from the Borrower under Section 2.10 or 2.11 to recover additional costs incurred by such Lender which are not being incurred generally by the other Lenders, or (iii) delivered a notice pursuant to Section 2.09(c)(i) claiming that such Lender is unable to extend Eurodollar Rate Loans to the Borrower for reasons not generally applicable to the other Lenders, then, in any such case, the Borrower or the Agent may make written demand on such Affected Lender (with a copy to the Agent in the case of a demand by the Borrower and a copy to the Borrower in the case of a demand by the Agent) for the Affected Lender to assign, and such Affected Lender shall assign pursuant to one or more duly executed Assignment and Acceptances five (5) Business Days after the date of such demand, to one or more financial institutions which complies with the provisions of Section 11.02) (and, if selected by the Borrower is reasonably acceptable to the Agent) which the Borrower or the Agent, as the case may be, shall have engaged for such purpose ("Replacement Lender"), all of such Affected Lender's rights and obligations under this Agreement and the other Loan Documents (including, without limitation, its Commitment and Revolving Credit Exposure) in accordance with Section 11.02. Further, with respect to such assignment, the Affected Lender shall have concurrently received, in cash, all amounts due and 46 53 owing to the Affected Lender hereunder or under any other Loan Document, including, without limitation, the aggregate outstanding principal amount of the Loans and unreimbursed LC Disbursements owed to such Lender, together with accrued interest thereon through the date of such assignment, amounts payable under Sections 2.10 and 2.11, and compensation payable under Section 2.09(d) in the event of any replacement of any Affected Lender under clause (ii) or clause (iii) of this Section 2.14; provided, upon such Affected Lender's replacement, such Affected Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.09, 2.10, 2.11, 11.03 and 11.04, as well as to any fees accrued for its account hereunder and not yet paid. Upon the replacement of any Affected Lender pursuant to this Section 2.14, each such Affected Lender shall cease to have any participation in, entitlement to, or other right to share in the security interests and liens of the Agent and the Holders of Secured Obligations in the Collateral except with respect to Eligible Hedging Contracts. ARTICLE III CONDITIONS TO LOANS 3.01. Conditions Precedent to Effectiveness. The effectiveness of this Agreement, and the obligation of each Lender to make Revolving Loans and of the Issuing Bank to issue Letters of Credit hereunder, shall be subject to the satisfaction of all of the following conditions precedent: (a) Documents. The Agent and the Lenders shall have received on or before the Effective Date (i) this Agreement, the Notes, the other Transaction Documents and all other agreements, documents and instruments described in the List of Closing Documents attached hereto as Exhibit 6 and made a part hereof, each duly executed where appropriate and in form and substance satisfactory to the Agent and the Lenders and (ii) such additional documentation as the Agent or any Lender may reasonably request. (b) No Legal Impediments. No law, regulation, order, judgment or decree of any Governmental Authority shall, and the Agent shall not have received any notice that litigation is pending or threatened which is likely to (i) enjoin, prohibit or restrain the making of the Loans on the Effective Date or (ii) impose or result in the imposition of a Material Adverse Effect. (c) No Change in Condition. No change in the business, assets, management, operations or financial condition of the Borrower or the Consolidated Borrower Group taken as a whole shall have occurred since December 31, 1997, which change, in the judgment of the Lenders, could reasonably be expected to have a Material Adverse Effect. (d) No Default. No Event of Default or Potential Event of Default shall have occurred and be continuing or would result from the making of the Loans. 47 54 (e) Representations and Warranties. All of the representations and warranties contained in Section 4.01 and in any of the other Loan Documents shall be true and correct in all material respects on and as of the Effective Date. (f) Payment of Fees and Expenses. On the Effective Date, the Borrower shall have paid to the Agent, for the accounts of the Lenders and the Agent, as applicable, an amount equal to the sum of (i) all fees due and payable on or before the Effective Date (including, without limitation, all fees described in the Fee Letter) and (ii) all expenses due and payable on or before the Effective Date (including the expenses and fees of Sidley & Austin then due and payable). (g) Legal Matters. All legal and regulatory matters shall be satisfactory to the Agent and its counsel and to each Lender and their respective counsel. (h) Termination of Existing Credit Agreement. The Third Amended and Restated Credit Agreement dated as of April 22, 1996, as amended, among the Borrower, Parent, the financial institutions party thereto and The Chase Manhattan Bank, as Agent, shall have been terminated, all obligations of the Borrower thereunder shall have been paid in full, or will be paid in full from the proceeds of the Initial Funding hereunder on the Effective Date, and all Liens on the Property of the Borrower and its Subsidiaries securing such obligations shall have been terminated.. 3.02. Conditions Precedent to all Loans. The obligation of each Lender to make any Revolving Loan on any date, and of the Issuing Bank to issue, amend, renew or extend any Letter of Credit on any date, is subject to the following conditions precedent as of such date: (a) Representations and Warranties. All of the representations and warranties of Borrower contained in or repeated pursuant to Section 4.02 and of Borrower or its Subsidiaries contained in any other Loan Document (other than representations and warranties which expressly speak only as of a different date) shall be true and complete in all respects on and as of such date as though made on and as of such date both before and after taking into account the requested Revolving Loan to be made or the requested Letter of Credit to be issued. (b) No Default. No Event of Default or Potential Event of Default shall have occurred and be continuing or would result from the making of the requested Revolving Loan or the issuance of the requested Letter of Credit. (c) No Injunction. No law or regulation shall have been adopted, no order, judgment or decree of any Governmental Authority shall have been issued, and no litigation shall be pending or threatened (other than as a result of any condition described in Section 2.09(d), 2.10 or 2.11), which in the reasonable judgment of the Requisite Lenders, would enjoin, prohibit or restrain any Lender from making the requested Revolving Loan or the Issuing Bank from issuing the requested Letter of Credit or as a result of making any such Loan or issuing any such Letter of Credit impose or result in the imposition of any material adverse condition upon any Lender. 48 55 (d) No Material Adverse Change. No event shall have occurred after December 31, 1997 which, in the reasonable judgment of the Requisite Lenders, could reasonably be expected to have a Material Adverse Effect. (e) No Forfeiture Proceedings. Neither the Borrower nor any of its Subsidiaries shall have been named as a defendant in a criminal indictment under the Racketeering Influenced and Corrupt Organizations Act or any similar federal or state statute which provides for forfeiture of assets as a potential criminal penalty unless such proceeding shall not be adverse to the interests of the Lenders. Each Borrowing and each issuance, amendment, renewal or extension of a Letter of Credit shall constitute a representation and warranty by Borrower as of the date thereof that all the conditions contained in this Section 3.02 have been satisfied or waived in writing pursuant to Section 11.07. ARTICLE IV REPRESENTATIONS AND WARRANTIES 4.01. Representations and Warranties on the Initial Funding Date. To induce each Lender, the Issuing Bank and the Agent to enter into this Agreement and to make the Loans and to issue and participate in Letters of Credit hereunder, the Borrower hereby represents and warrants to each Lender, the Issuing Bank and the Agent that the following statements are true and correct: (a) Organization; Corporate Powers. The Borrower and each of its Subsidiaries (i) is a corporation or limited liability company duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (ii) is duly qualified to do business as a foreign corporation or limited liability company and is in good standing under the laws of each jurisdiction in which it owns or leases real property or in which the nature of its business requires it to be so qualified, except those jurisdictions where the failure to be in good standing or to so qualify could not reasonably be expected to have a Material Adverse Effect, and (iii) has all requisite power and authority to own, operate and encumber its property and assets and to conduct its business as presently conducted and as proposed to be conducted in connection with and following the consummation of the transactions contemplated by the Transaction Documents. (b) Authority. (i) The Borrower and each of its Subsidiaries has the requisite power and authority to execute, deliver and perform its obligations under each of the Transaction Documents executed by it, or to be executed by it. (ii) The execution, delivery and performance (or filing or recording, as the case may be) of each of the Transaction Documents to which the Borrower or any of its Subsidiaries is a party, and the consummation of the transactions contemplated thereby, have been duly authorized by all necessary corporate or company action on the part of each such Person, the respective boards of directors or managers, as applicable, of each such Person, and, if necessary, the 49 56 stockholders or members, as applicable, of each such Person, and no other corporate or company proceedings on the part of any such Person are necessary to consummate such transactions. (iii) Each of the Transaction Documents to which the Borrower or any of its Subsidiaries is a party has been duly executed and delivered (or filed or recorded, as the case may be) by each such Person and constitutes its legal, valid and binding obligation, enforceable against it in accordance with its terms (except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and by general equitable principles), is in full force and effect (unless terminated in accordance with the terms thereof) and no term or condition thereof has been amended, modified or waived from the terms and conditions contained therein without the prior written consent of the Agent and the Requisite Lenders or, where so required, all of the Lenders, and the Borrower and each of its Subsidiaries have performed and complied in all material respects with all the material terms, provisions, agreements and conditions set forth therein and required to be performed or complied with by such parties on or before the effective date thereof, and no default by any such party exists thereunder. (c) Subsidiaries. The Borrower has no Subsidiaries other than those described in Schedule 4.01(c) and those, if any, which are permitted by Section 7.03 to be created or acquired after the Effective Date. (d) No Conflict. The execution, delivery and performance by the Borrower and each of its Subsidiaries of each Transaction Document to which it is a party and each of the transactions contemplated thereby do not and will not (i) conflict with any Contractual Obligation of any such Person, any liability resulting from which could reasonably be expected to have a Material Adverse Effect, or (ii) conflict with the documents of organization or governance of any such Person, or (iii) except as set forth on Schedule 4.01(d), conflict with, result in a breach of or constitute (with or without notice or lapse of time or both) a default under any Requirement of Law or Contractual Obligation of any such Person, or (iv) result in or require the creation or imposition of any Lien whatsoever upon any of the properties or assets of any such Person (other than Liens in favor of the Agent, for the benefit of itself and the Holders of Secured Obligations, arising pursuant to the Loan Documents or Liens permitted pursuant to Section 7.02(b)), or (v) require any approval of stock holders or members of any such Person, unless such approval has been obtained. (e) Governmental Consents. The execution, delivery and performance by the Borrower and each of its Subsidiaries of each Transaction Document to which it is a party and the transactions contemplated thereby do not and will not require any registration with, consent or approval of, or notice to, or other action with or by, any Governmental Authority. (f) Governmental Regulation. Neither the Borrower nor any of its Subsidiaries is subject to regulation under the Public Utility Holdings Company Act of 1935, the Federal Power Act, the Interstate Commerce Act, the Investment Company Act of 1940 or any other statute or regulation of any Governmental Authority such that its ability to incur indebtedness is limited or its 50 57 ability to consummate the transactions contemplated hereby or by the other Transaction Documents is materially impaired. (g) Financial Position. (i) As of the Effective Date, all quarterly and annual financial statements of Borrower or of the Consolidated Borrower Group delivered to the Agent were prepared in conformity with Agreement Accounting Principles (except as otherwise noted therein) and fairly present the financial position of Borrower or the consolidated financial position of the Consolidated Borrower Group, as the case may be, as at the respective dates thereof and the results of operations and changes in cash flows for each of the periods covered thereby, subject, in the case of any unaudited interim financial statements, to normal year-end adjustments. (ii) All quarterly and annual financial statements of the Borrower or of the Consolidated Borrower Group delivered to the Agent after the Effective Date were prepared in conformity with Agreement Accounting Principles (except as otherwise noted therein) and fairly present the financial position of Borrower or the consolidated financial position of the Consolidated Borrower Group, as the case may be, as at the respective dates thereof and the results of operations and changes in cash flows for each of the periods covered thereby, subject, in the case of any unaudited interim financial statements, to normal year-end adjustments. Except as contemplated in the Transaction Documents, neither the Borrower nor any of its Subsidiaries has any material obligations, contingent liabilities or liabilities for taxes, long term leases or material or unusual forward or long term commitments which are not reflected in such financial statements and the notes thereto as at the respective dates thereof. (h) Financial Projections. As of the Effective Date, the financial statement projections for the Consolidated Borrower Group contained in the Confidential Information Memorandum dated January 1999 delivered to the Lenders reflect the Borrower's best estimate of future performance based upon the past operations of its business, current conditions and other information available to the Borrower at the time, and the assumptions and methodology used in such projections were reasonable. (i) Capitalization. (i) As of the Effective Date, Schedule 4.01(i) sets forth the number of shares and the relevant percentages of capital stock held by each shareholder of the Parent that holds in excess of 5% of the Capital Stock of the Parent of which the Borrower has knowledge. (ii) As of the Effective Date, there are outstanding no shares of any class of capital stock and no membership interests of any class (or any securities, instruments, warrants, option or purchase rights, conversion or exchange rights, calls, commitments or claims of any character convertible into or exercisable for capital stock or membership interests) of: (A) Borrower other than capital stock described on Schedule 4.01(i); and 51 58 (B) any Subsidiary of the Borrower other than the capital stock of DQSB II, Inc., of DQSC Property Co. and of Cruise America Travel, Incorporated held by Borrower and the membership interests in Great River Cruse Line, L.L.C., in Great Ocean Cruise Line, L.L.C and in GAQSC owned by Borrower and by DQSB II, Inc. and in each case, other than with respect to GAQSC pursuant to the MARAD Financing, pledged to the Agent for the benefit of itself and Holders of Secured Obligations pursuant to the Pledge Agreements. (iii) None of the capital stock or membership interests of any Subsidiary of the Borrower, other than with respect to GAQSC pursuant to the MARAD Financing, is subject to any security, instrument, warrant, option or purchase rights, agreement, conversion or exchange rights, call, commitment or claim of any right, title or interest therein or thereto other than pursuant to the Pledge Agreements. The outstanding capital stock of each Subsidiary of the Borrower that is a corporation is duly authorized, validly issued, fully paid and nonassessable. Neither the Borrower nor any of its Subsidiaries that is a member of any other Subsidiary that is a limited liability company has any further liability to such other Subsidiary for contribution or otherwise in its capacity as such a member. (j) Litigation; Adverse Effects. (i) Except as set forth in Schedule 4.01(j), there is no action, suit, proceeding, investigation of any Governmental Authority or arbitration, at law or in equity, or before or by any Governmental Authority, pending, or, to the best knowledge of Borrower, threatened against the Borrower or any of its Subsidiaries or any Property of any of them, as to which there is a reasonable possibility of an adverse determination and which if adversely determined could reasonably be expected to have a Material Adverse Effect. (ii) Neither the Borrower nor any of its Subsidiaries is (A) to the knowledge of Borrower, in violation of any applicable law which violation could reasonably be expected to have a Material Adverse Effect, or (B) subject to or in default with respect to any final judgment, writ, injunction, decree, order, rule or regulation of any court or Governmental Authority which could reasonably be expected to have a Material Adverse Effect. Except as set forth in Schedule 4.01(j), there is no action, suit, proceeding or investigation pending or, to the knowledge of Borrower, threatened against or affecting the Borrower or any of its Subsidiaries (1) which challenges the validity or the enforceability of any of the Transaction Documents or (2) which will or would reasonably be expected to result in (y) any liability in the aggregate in the amount of greater than $1,000,000 with respect to any such Person (in each case net of applicable third-party insurance coverage other than retro-premium insurance that determines retro-premiums solely on the basis of losses of the insured person) or (z) which involves a claim under the Racketeering Influenced and Corrupt Organizations Act or any similar federal or state statute where such Person is a defendant in a criminal indictment that provides for the forfeiture of assets to any Governmental Authority as a potential criminal penalty. (k) No Material Adverse Change. With respect to Borrower or the Consolidated Borrower Group taken as a whole, there has occurred no event since December 31, 1997 which could reasonably be expected to have a Material Adverse Effect. 52 59 (l) Payment of Taxes. All tax returns and reports of Borrower and its Subsidiaries required to be filed (including extensions), have been timely filed, and all taxes, assessments, fees and other charges of Governmental Authorities thereupon and upon their respective properties, assets, income and franchises which are shown on such returns as being due and payable, have been paid when due and payable, except (i) taxes being contested in good faith by appropriate proceedings and that are reserved against in accordance with Agreement Accounting Principles, (ii) taxes which are not yet delinquent, (iii) taxes which are payable in installments so long as paid before any penalty accrues with respect thereto and (iv) other taxes, assessments, fees and other charges of Governmental Authorities the failure of which to pay could not be reasonably expected to have a Material Adverse Effect in the aggregate and tax returns and reports with respect to taxes that are reserved against in accordance with Agreement Accounting Principles. On the Effective Date, except as set forth in clause (iv) above or on Schedule 4.01(l), and after the Effective Date, except as set forth in clauses (i) through (iv) above or on Schedule 4.01(l), Borrower has no knowledge of any proposed tax assessment against Borrower or any Borrower Subsidiary. All tax assessments referred to in Schedule 4.01(l) are being contested in good faith by Borrower or such Subsidiary or a settlement with respect to any such assessment is being negotiated in good faith by such Person and appropriate reserves have been established in accordance with Agreement Accounting Principles. (m) Material Adverse Agreements. Neither the Borrower nor any of its Subsidiaries is a party to or subject to any Contractual Obligation or other restriction contained in its charter or By-laws which could reasonably be expected to have a Material Adverse Effect after giving effect to the consummation of the transactions contemplated in the Transaction Documents or otherwise. (n) Performance. Neither the Borrower nor any of its Subsidiaries is in default in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any Contractual Obligation applicable to it under any agreement or instrument the absence or termination of which Contractual Obligations could reasonably be expected to have a Material Adverse Effect, and no condition exists which, with the giving of notice or the lapse of time, or both, would constitute a default under such Contractual Obligation, except where the consequences, direct or indirect, of such default or defaults, if any, could not reasonably be expected to have a Material Adverse Effect. (o) Securities Activities. Neither the Borrower nor any of its Subsidiaries is engaged in the business of extending credit for the purpose of purchasing or carrying any Margin Stock. (p) Disclosure. Subject to changes in facts or conditions which are required or permitted under this Agreement, the representations and warranties of the Borrower and its Subsidiaries contained in the Transaction Documents, and all certificates and other documents delivered to the Agent in connection therewith, taken as a whole do not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements contained herein or therein, in light of the circumstances under which they were made, not misleading. 53 60 (q) Requirements of Law. The Borrower and each of its Subsidiaries is in compliance with all Requirements of Law (including, without limitation, the Securities Act and the Securities Exchange Act, the applicable rules and regulations thereunder, and state securities laws) applicable to it and its business, where the failure to so comply could not reasonably be expected to have a Material Adverse Effect. (r) Patents, Trademarks, Permits, Etc. The Borrower and each of its Subsidiaries owns, is licensed or otherwise has the lawful right to use, or has all permits and other approvals of Governmental Authorities, patents, trademarks, service marks, trade names, copyrights, technology, know-how and processes used in or necessary for the conduct of its business except to the extent that the absence of which could not reasonably be expected to have Material Adverse Effect. The use of such permits and other approvals of Governmental Authorities, patents, trademarks, service marks, trade names, copyrights, technology, know-how and processes by the Borrower or any of its Subsidiaries does not infringe on the rights of any Person, subject to such claims and infringements the existence of which could not reasonably be expected to have a Material Adverse Effect. The consummation of the transactions contemplated by the Transaction Documents will not impair the ownership of or rights under (or the license or other right to use, as the case may be) any permits and governmental approvals, patents, trademarks, service marks, trade names, copyrights, technology, know-how or processes by the Borrower or any of its Subsidiaries in any manner which could reasonably be expected to have a Material Adverse Effect. (s) Environmental Matters. Except where the failure of which could not reasonably be expected to have a Material Adverse Effect, (i) each of the operations of the Borrower and its Subsidiaries comply in all material respects with all applicable environmental, health and safety Requirements of Law; (ii) the Borrower and each of its Subsidiaries has obtained all environmental, health and safety Permits necessary for its operations, all such Permits are in good standing and the Borrower and each of its Subsidiaries is in compliance with all terms and conditions of such Permits; (iii) (A) neither the Borrower nor any of its Subsidiaries, any of their present Property or operations and (B) to the knowledge of the Borrower, none of the Borrower's nor any of its Subsidiaries' previously owned Property or past operations is subject to any order from or agreement with any Governmental Authority or private party or any judicial or administrative proceeding or investigations respecting any environmental, health or safety Requirements of Law or is the subject of any investigation by any Governmental Authority evaluating the need for Remedial Action to respond to a material Release or threatened Release of a Contaminant into the environment, or is subject to any Remedial Action or other Liabilities and Costs arising from the Release or threatened Release of a Contaminant into the environment; (iv) none of the operations of the Borrower or any of its Subsidiaries is subject to any judicial or administrative proceeding alleging a violation of any environmental, health or safety Requirement of Law; (v) none of the present or, to the knowledge of the Borrower, past operations of the Borrower or its Subsidiaries is the subject of any investigation by any Governmental Authority evaluating whether any Remedial Action is needed to respond to a Release or threatened Release of a Contaminant into the environment; (vi) to the knowledge of the Borrower, no past or present property of the Borrower or any of its Subsidiaries is now or has ever been a storage, treatment or disposal facility for hazardous waste, as those terms 54 61 are defined under 40 CFR Part 261 or any state equivalent; (vii) neither the Borrower nor any of its Subsidiaries has filed any notice under any applicable Requirement of Law reporting a Release of a Contaminant into the environment; (viii) there is not now, nor has there ever been, on or in the Property of the Borrower or any of its Subsidiaries: (A) any underground storage tanks or surface impoundments or (B) any polychlorinated biphenyls used in hydraulic oils, electrical transformers or other equipment; (ix) neither the Borrower nor any of its Subsidiaries has received any notice or claim to the effect that it is or might be liable to any Person as a result of the Release or threatened Release of a Contaminant into the environment, or as a result of exposure to asbestos or to any other hazardous substance, which might result in liability in excess of workers compensation; (x) no Environmental Lien has attached to any Property of the Borrower or any of its Subsidiaries; or (xi) within the last eighteen months, the Borrower has inspected its Property and the Property of its Subsidiaries which the Borrower knows contains asbestos containing material or which was acquired during such eighteen-month period and which the Borrower has reason to believe could contain asbestos containing material, and all asbestos containing material, if any, which is on or part of such Property (excluding any raw materials which are used in the manufacture of products or products themselves) is in good repair according to the current standards and practices governing such material, and its presence or condition does not violate any currently applicable or proposed Requirement of Law; and (xii) none of the products which the Borrower or any of its Subsidiaries manufactures, distributes or sells, or ever has manufactured, distributed or sold, contains asbestos material. (t) ERISA. Neither Borrower nor any ERISA Affiliate maintains or contributes to any Plan other than those listed on Schedule 4.01(t). Each Plan which is intended to be qualified under Section 401(a) of the IRC as currently in effect has been determined by the IRS to be so qualified (or will be submitted to the IRS for a determination as to its qualified status within the applicable remedial amendment period for such Plan), and each trust related to any such Plan has been determined to be exempt from Federal income tax under Section 501(a) of the IRC as currently in effect. Except as disclosed in Schedule 4.01(t), neither Borrower nor any ERISA Affiliate maintains or contributes to any employee welfare benefit plan within the meaning of Section 3(1) of ERISA which provides benefits to employees after termination of employment other than as required by Section 601 of ERISA. The Borrower and all of its ERISA Affiliates are in compliance in all material respects with all of the responsibilities, obligations or duties imposed on them by ERISA or regulations promulgated thereunder with respect to all Plans. No Benefit Plan has incurred any accumulated funding deficiency (as defined in Sections 302(a)(2) of ERISA and 412(a) of the IRC) whether or not waived. Neither the Borrower nor any ERISA Affiliate or any fiduciary of any Plan which is not a Multiemployer Plan (i) has engaged in a nonexempt prohibited transaction described in Section 406 of ERISA or 4975 of the IRC which could result in the imposition of a penalty or fine, the payment of which could reasonably be expected to have a Material Adverse Effect, or (ii) has taken or failed to take any action which would constitute or result in a Termination Event that could subject either the Borrower or an ERISA Affiliate to a material liability to pay money. Except as disclosed on Schedule 4.01(t), neither the Borrower nor any ERISA Affiliate has any potential liability of a material amount under Section 4063, 4064, 4069, 4204 or 4212(c) of ERISA. Neither the Borrower nor any ERISA Affiliate has incurred any liability to the PBGC which 55 62 remains outstanding other than the payment of premiums, and there are no premium payments which have become due which are unpaid. Neither Borrower nor any ERISA Affiliate has (i) failed to make a required contribution or payment to a Multiemployer Plan or (ii) made a complete or partial withdrawal under Section 4203 or 4205 of ERISA from a Multiemployer Plan. Neither Borrower nor any ERISA Affiliate has failed to make a required installment or any other required payment under Section 412 of the IRC on or before the due date for such installment or other payment. Neither Borrower nor any ERISA Affiliate is required to provide security to a Benefit Plan under Section 401(a)(29) of the IRC due to a Plan amendment that results in an increase in current liability for the plan year. Neither the Borrower nor any ERISA Affiliate has by reason of the transactions contemplated hereby any obligation to make any payment to any employee pursuant to any Plan or existing contract or arrangement. (u) Solvency. The Borrower, individually, and the Consolidated Borrower Group, considered as one enterprise, are each Solvent after giving effect to the transactions contemplated by this Agreement and the other Transaction Documents and the payment and accrual of all Transaction Costs with respect to any of the foregoing. (v) Assets and Properties. The Borrower and each of its Subsidiaries has good title to all of the assets (tangible and intangible) owned by it, except for imperfections of title (including Liens to the extent permitted under Section 7.02(b)) which in the aggregate could not reasonably be expected to have a Material Adverse Effect; and all such assets are free and clear of all Liens, except as otherwise specifically permitted by the terms and provisions of this Agreement and the other Loan Documents. Other than the New Vessels during any period in which such New Vessels are being purchased, outfitted or constructed or assets or properties damaged or destroyed by casualty or condemnation during the period of any repair or reconstruction, substantially all of the assets and properties owned by, leased to or used by Borrower or any of its Subsidiaries are in good repair, working order and condition, excepting ordinary wear and tear, are free and clear of any known defects except such defects as do not substantially interfere with the continued use thereof in the conduct of normal operations. (w) Joint Venture; Partnership. Except as set forth in Schedule 4.01(w) or permitted under Section 7.03, neither the Borrower nor any of its Subsidiaries is engaged in any joint venture or partnership with any other Person. (x) Labor Matters. Except as listed on Schedule 4.01(x), there are no collective bargaining agreements, other labor agreements or Multiemployer Plans covering any of the employees of Borrower or any of its Subsidiaries. No attempt to organize the employees of Borrower or any of its Subsidiaries, and no labor disputes, strikes or walkouts affecting the operations of Borrower or any of its Subsidiaries is pending or, to Borrower's knowledge, threatened, planned or contemplated. (y) No Default. No Potential Event of Default or Event of Default exists. 56 63 (z) Restricted Junior Payments. On or after the Effective Date, neither Borrower nor any Subsidiary of Borrower has directly or indirectly declared, ordered, paid or made or set apart any sum or property for any Restricted Junior Payment or agreed to do so, except to the extent permitted pursuant to Section 7.05. (aa) Advances to Parent. All Investments of the Borrower in the Parent as of the Effective Date constitute Indebtedness of the Parent extended by the Borrower on open account and none are evidenced by any promissory note or other instrument. (bb) Year 2000. Borrower has established a plan to address "Year 2000 issues" (that is, the risk that computer systems or other equipment may not be able to properly perform date- sensitive functions after December 31, 1999), including an inventory, risk assessment, testing and remediation or replacement of the Borrower's and any of its Subsidiaries' (i) computer systems and (ii) equipment containing embedded microchips that may be vulnerable to Year 2000 issues. Borrower anticipates completing its such Year 2000 project, including the testing of all such computer systems and equipment which must be reprogrammed or replaced, no later than September 30, 1999, and that all such modifications and improvements will enable its information systems to function properly with respect to dates in the Year 2000 and thereafter. Based upon its current assessment efforts, Borrower does not believe that Year 2000 issues with respect to its computer systems and equipment, or the computer systems and equipment of other companies on which Borrower's or its Subsidiaries' systems or operations rely, including, without limitation, their major suppliers and travel partners, could reasonably be expected to have a Material Adverse Effect; however, Borrower's and its Subsidiaries' Year 2000 issues and any potential business interruptions, costs, damages or losses related thereto are dependent, to a significant degree, upon the Year 2000 compliance of third parties. There can be no guarantee that the systems of other companies on which Borrower's or its Subsidiaries' systems or operations rely, including, without limitation, their major suppliers and travel partners, will be Year 2000 compliant and would not have an adverse effect on Borrower's or its Subsidiaries' business, financial condition or operations. In addition, some risks of year 2000 issues are beyond the control of Borrower and its suppliers and travel partners. 4.02. Subsequent Funding Representations and Warranties. To induce each Lender, the Issuing Bank and the Agent to enter into this Agreement and to make the Loans and issue Letters of Credit, Borrower hereby represents and warrants to each Lender, the Issuing Bank and the Agent that the statements set forth in Section 4.01 (except to the extent that such statements expressly are made only as of the Effective Date or another earlier date) are true, correct and complete in all material respects on and as of the Funding Date in respect of each Borrowing and each issuance of a Letter of Credit after the Effective Date, except that the representations and warranties need not be true and correct to the extent that changes in the facts and conditions on which such representations and warranties are based are required or permitted under this Agreement. ARTICLE V REPORTING COVENANTS 57 64 So long as Borrower shall have any outstanding Agreement Obligations or any Lender shall have any Commitment hereunder: 5.01. Financial Statements. Borrower shall maintain or cause to be maintained a system of accounting established and administered in accordance with sound business practices and consistent with past practice to permit preparation of financial statements in conformity with GAAP, and, if required by the terms of this Agreement, in conformity with Agreement Accounting Principles, and each of the financial statements described below shall be prepared from such system and records. Borrower shall deliver or cause to be delivered to the Agent and each Lender: (a) Quarterly Reports. As soon as practicable, and in any event within fifty-five (55) days after the end of each of Borrower's first three fiscal quarters of any Fiscal Year, on a consolidated basis for the Consolidated Borrower Group, each of the following: (A) a balance sheet as of the end of such fiscal quarter, and as of the end of the previous Fiscal Year; (B) an income statement for such fiscal quarter and for the period from the beginning of the current Fiscal Year to the end of such fiscal quarter, setting forth in each case in comparative form and in reasonable detail the figures for the corresponding periods of the previous Fiscal Year; and (C) a cash flow statement for the period from the beginning of the current Fiscal Year to the end of such fiscal quarter, setting forth in each case in comparative form and in reasonable detail the figures for the corresponding period of the previous Fiscal Year; together with an Officer's Certificate of the Borrower stating that such financial statements fairly represent the financial condition, results of operations and cash flows of the Persons covered thereby as at the dates and for the periods indicated in accordance with Agreement Accounting Principles, subject to normal year-end adjustments. (b) Annual Reports. As soon as practicable, and in any event within one hundred (100) days after the end of each Fiscal Year, on a consolidated basis for the Consolidated Borrower Group, annual financial statements consisting of a balance sheet, income statement and cash flow statement, setting forth in comparative form in each case the consolidated figures for the corresponding periods of the previous Fiscal Year and for the Fiscal Year of the current financial statement, all in reasonable detail, and accompanied by an opinion (unqualified as to scope or going concern and which is not adverse) thereon of the firm of independent certified public accountants of recognized national standing regularly retained by the Borrower and acceptable to the Requisite Lenders (it being understood that any of the five largest accounting firms in the United States shall be deemed acceptable), which report shall state that such financial statements present fairly in all material respects the financial position of the Persons covered thereby as at the dates indicated and 58 65 the results of their operations and cash flow for the periods indicated in conformity with GAAP applied on a basis consistent with prior years (or, in the event of a change in accounting principles, such accountants' concurrence with such change) and that such firm's audit has been conducted in accordance with generally accepted auditing standards. (c) Budget and Business Plan. Promptly upon completion, but in any event not later than one hundred twenty (120) days after the end of each Fiscal Year (commencing with Fiscal Year 1999), a copy of the operating budget and projections by the Borrower of the income statement, balance sheet and cash flow of the Consolidated Borrower Group, taken as a whole, for the next succeeding Fiscal Year (commencing with Fiscal Year 2000) of the Consolidated Borrower Group, all in form customarily prepared by the Borrower's management, such operating budget and projected financial statements to be accompanied by an Officer's Certificate of Borrower stating that such operating budget and projected financial statements have been prepared on the basis of sound financial planning practice and that such officer has no reason to believe they are incorrect or misleading in any material respect. (d) Compliance Certificate. Together with each delivery of (i) the financial statements pursuant to subsections (a) and (b) above, (A) an Officer's Certificate of Borrower stating that such officer has reviewed the terms of this Agreement and the Loan Documents and has made, or caused to be made under such officer's supervision, a review in reasonable detail of the transactions and condition of Borrower and its Subsidiaries during the accounting period covered by such financial statements, and that such review has not disclosed the existence during or at the end of such accounting period, and that such officer does not have knowledge of the existence, as at the date of the Officer's Certificate, of any condition or event which constitutes an Event of Default or Potential Event of Default, or, if any such condition or event existed or exists, specifying the nature and period of existence thereof and what action Borrower has taken, is taking and proposes to take with respect thereto; and (B) a Compliance Certificate (1) demonstrating in reasonable detail compliance during and at the end of such accounting periods, as applicable, with the provisions set forth in Sections 2.06, 7.01, 7.03 and 7.05 and Article VIII, (2) setting forth Borrower's calculation, in detail, of the Borrower's Total Indebtedness Leverage Ratio and based upon its calculations the Applicable Margins and (3) stating that such financial statements present fairly in all material respects the financial position of the Consolidated Borrower Group, as at the dates indicated and the results of their operations and changes in their cash flow for the periods indicated in conformity with Agreement Accounting Principles (except as otherwise noted therein) consistently applied and (ii) the financial statements pursuant to subsection (b) above, a written discussion and analysis by the management of the Borrower of such financial statements. (e) Accountant's Compliance Certificate. Simultaneously with the delivery of the financial statements referred to in subsection (b) above, a statement of the firm of independent certified public accountants which reported on such financial statements (i) whether anything has come to their attention to cause them to believe that there existed on the date of such statements any Event of Default or Potential Event of Default and (ii) confirming the calculations set forth in the Compliance Certificate delivered simultaneously therewith pursuant to subsection (d) above. 59 66 (f) Report of Material Events. Promptly upon Borrower obtaining knowledge (A) of any condition or event which constitutes an Event of Default or Potential Event of Default, or (B) of any condition or event which has had or could reasonably be expected to have a Material Adverse Effect, an Officer's Certificate specifying the nature and period of existence of any such condition or event and what action Borrower has taken, is taking and proposes to take with respect thereto. (g) Notice of Claims and Proceedings. (i) Promptly after learning thereof, notice of the institution of, or threat of, any action, suit, proceeding, governmental investigation or arbitration against or affecting Borrower or any of its Subsidiaries (or any Property of such Person) involving claims in an aggregate amount in excess of $5,000,000 or in excess of $1,000,000 with respect to any such Person or any Property of such Person except where the same is fully covered (other than any applicable deductible) by insurance (other than insurance in the nature of retro-premium insurance or other self insurance programs) and of any material adverse change in any existing action, suit, proceeding, governmental investigation or arbitration; and (ii) promptly upon learning thereof, notice of any investigation or proceeding before or by any Governmental Authority, the effect of which might limit, prohibit or restrict materially the manner in which Borrower or any of its Subsidiaries currently conducts its business or to declare any substance contained in the products manufactured or distributed by it to be dangerous, if such declaration has had or could reasonably be expected to have a Material Adverse Effect. (h) ERISA Matters. (i) As soon as possible, and in any event within thirty (30) Business Days after Borrower or any ERISA Affiliate knows or has reason to know that a Termination Event has occurred, a written statement of the chief financial officer of Borrower describing such Termination Event and the action, if any, which Borrower or such ERISA Affiliate has taken, is taking or proposes to take with respect thereto, and when known, any action taken or threatened by the IRS, DOL or PBGC with respect thereto; (ii) As soon as possible, and in any event within thirty (30) Business Days, after Borrower or any ERISA Affiliate knows or has reason to know that a prohibited transaction (as defined in Section 406 of ERISA and Section 4975 of the IRC) involving Borrower or any ERISA Affiliate has occurred, a statement of the chief financial officer of Borrower describing such transaction and the action which Borrower or such ERISA Affiliate has taken, is taking or proposes to take with respect thereto; (iii) Within ten (10) Business Days after receipt by the Borrower or any ERISA Affiliate of a written request from the Agent (which shall make such request at the request of any Lender), a copy of each annual report (Form 5500 series), including Schedule B thereto, filed after the Effective Date with respect to each Benefit Plan; (iv) Within ten (10) Business Days after the filing thereof with the IRS, a copy of each funding waiver request filed with respect to any Benefit Plan and within ten (10) 60 67 Business Days after receipt, a copy of any communications received by Borrower or any ERISA Affiliate with respect to such request; (v) Within (30) Business Days after receipt by the Borrower or any ERISA Affiliate of a written request from the Agent (which shall make such request at the request of any Lender), a copy of each actuarial report for any Benefit Plan or Multiemployer Plan and each annual report for any Multiemployer Plan; provided that neither Borrower nor any ERISA Affiliate shall have an obligation to provide a copy of any actuarial report or annual report for any Multiemployer Plan if it is unable to obtain such documents after good faith efforts to do so; (vi) Within thirty (30) Business Days after the occurrence thereof, notification of any material increases in the benefits of any existing Benefit Plan or the establishment of any new Plan or the commencement of contributions to any Multiemployer Plan to which Borrower or any ERISA Affiliate was not previously contributing; (vii) Within ten (10) Business Days after receipt by Borrower or an ERISA Affiliate of notice of the PBGC's intention to terminate a Benefit Plan or to have a trustee appointed to administer a Benefit Plan, a copy of each such notice; (viii) Within ten (10) Business Days after receipt by Borrower or any ERISA Affiliate of any unfavorable determination letter from the IRS regarding the qualification of a Plan under Section 401(a) of the IRC which could reasonably be expected to result in a liability to the Borrower or an ERISA Affiliate in excess of $500,000, a copy of such letter; (ix) Within ten (10) Business Days after receipt by Borrower or an ERISA Affiliate of a notice from a Multiemployer Plan regarding the imposition of withdrawal liability which could reasonably be expected to result in a liability to the Borrower or an ERISA Affiliate in excess of $500,000, copies of each such notice; (x) Within ten (10) Business Days after the failure by Borrower or any ERISA Affiliate to make a required installment or any other payment required under Section 412 of the IRC on or before the due date for such installment or payment if such failure could reasonably be expected to result in a lien under Section 412(n) of the IRC, a notification of such failure; and (xi) Within seven (7) Business Days after Borrower or any ERISA Affiliate knows or has reason to know (A) a Multiemployer Plan has been terminated, (B) the administrator or plan sponsor of a Multiemployer Plan intends to terminate a Multiemployer Plan, or (C) the PBGC has instituted or will institute proceedings under Section 4042 of ERISA to terminate a Multiemployer Plan if such event could reasonably be expected to result in liability to the Borrower or an ERISA Affiliate in excess of $500,000, a notification of such information. 61 68 For purposes of this Section 5.01, Borrower and any ERISA Affiliate shall be deemed to know all facts known by the administrator of any Plan of which Borrower or any ERISA Affiliate is the plan sponsor. (i) Other Information. Such other information respecting the financial condition of Borrower or its business, operations, assets, performance or prospects as the Agent or any Lender may, from time to time, reasonably request. (j) Publicly Distributed Information. On a timely basis, copies of all financial statements, reports and notices, sent or made available generally by Parent to the holders of its publicly-held securities, if any, or filed with the Commission, and of all press releases made available generally by Parent to the public, if any, concerning material developments in the business of Borrower. (k) Property Damage or Condemnation. Promptly after the occurrence thereof, written notification (or telephonic notice promptly confirmed in writing) of and a description of any Property of Borrower or any of its Subsidiaries with an aggregate value in excess of $2,500,000 damaged, lost or taken and the anticipated amount of any insurance or condemnation proceeds in connection therewith. (l) Loss of Right to Self-Insure. Promptly upon Borrower obtaining knowledge thereof, notice of the loss of the permission of the Federal Maritime Commission for any member of the Consolidated Borrower Group to self-insure with respect to the obligation to indemnify passengers with respect to ticket deposits with any such Person in the event of nonperformance of water transportation pursuant to Subpart A of Part 540 of Title 46, Code of Federal Regulations. 5.02. Environmental Notices. Borrower shall notify the Agent and each Lender in writing, promptly upon Borrower's learning thereof, of any: (a) Notice or claim to the effect that the Borrower or any of its Subsidiaries is or may be liable to any Person as a result of the Release or threatened Release of any Contaminant into the environment, which liability could reasonably be expected to be in excess of $500,000; (b) Notice that the Borrower or any of its Subsidiaries is subject to investigation by any Governmental Authority evaluating whether any Remedial Action is needed to respond to the Release or threatened Release of any Contaminant into the environment which could reasonably be expected to result in a liability to the Borrower or such Subsidiary in excess of $500,000; (c) Notice that any Property of Borrower or any of its Subsidiaries is subject to an Environmental Lien; (d) Notice of violation to the Borrower or any of its Subsidiaries or awareness by the Borrower or any of its Subsidiaries of a condition which might reasonably be expected to result in 62 69 a notice of violation of any environmental, health or safety Requirement of Law which has had or could reasonably be expected to have a Material Adverse Effect; (e) Commencement or threat of any judicial or administrative proceeding alleging a violation by Borrower or any of its Subsidiaries of any environmental, health or safety Requirement of Law which, if adversely determined, could reasonably be expected to have a Material Adverse Effect; (f) New or proposed changes to any existing environmental, health or safety Requirement of Law that have had or could reasonably be expected to have a Material Adverse Effect; or (g) Any proposed acquisition of stock, assets, real estate, or leasing of property, or any other action by Borrower or any of its Subsidiaries that would be reasonably likely to subject Borrower or any such Subsidiary to environmental, health or safety Liabilities and Costs in excess of $1,000,000. ARTICLE VI AFFIRMATIVE COVENANTS Borrower covenants and agrees that, on and after the date hereof and so long as Borrower shall have any outstanding Agreement Obligations or any Lender shall have any Commitment hereunder: 6.01. Corporate Existence, Etc. Except as permitted in Section 7.08, Borrower shall, and shall cause each of its Subsidiaries to, at all times, maintain its existence as a corporation or limited liability company, as applicable, and, except as permitted by Section 6.08, preserve and keep in full force and effect its rights and franchises. Borrower shall promptly provide the Agent and each of the Lenders with a complete list of its Subsidiaries upon the occurrence of any change in the list set forth on Schedule 4.01(c) hereto. 6.02. Corporate Powers, Etc. Borrower shall, and shall cause each of its Subsidiaries to, qualify and remain qualified to do business in each jurisdiction in which the nature of its business requires it to be so qualified, except in those jurisdictions where the failure to so qualify could not reasonably be expected to have a Material Adverse Effect. 6.03. Compliance with Laws. Borrower shall, and shall cause each of its Subsidiaries to, comply with all Requirements of Law, and all Contractual Obligations affecting it or its business, properties, assets or operations, except where the failure so to comply could not reasonably be expected to have a Material Adverse Effect. 63 70 6.04. Payment of Taxes and Claims. Borrower shall, and shall cause each of its Subsidiaries to, pay (a) all taxes, assessments and other governmental charges imposed upon it or on any of its properties or assets or in respect of any of its franchises, business, income or property before any penalty or interest accrues thereon, and (b) all claims (including, without limitation, claims for labor, services, materials and supplies) for sums which have become due and payable and which by law have or may become a Lien (other than a Customary Permitted Lien) upon any of its properties or assets, prior to the time when any penalty or fine shall be incurred with respect thereto; provided that no such taxes, assessments and governmental charges referred to in clause (a) above or claims referred to in clause (b) above need be paid (i) if being contested in good faith by appropriate proceedings promptly instituted and diligently conducted and if such reserve or other appropriate provision, if any, as shall be required in conformity with Agreement Accounting Principles shall have been made therefor or (ii) if adequate reserves in the absence of a contested claim are maintained therefor in accordance with Agreement Accounting Principles. 6.05. Maintenance of Properties; Insurance. Borrower shall, and shall cause each of the Borrower Subsidiaries to, maintain or cause to be maintained in good repair, working order and condition, excepting ordinary wear and tear and damage, due to casualty or condemnation, all Property material to its operations (which shall in any event include each vessel, whether subject to a Ship Mortgage or otherwise) and will make or cause to be made all appropriate repairs, renewals and replacements thereof. Borrower shall, and shall cause each of the Borrower Subsidiaries to, maintain with financially sound insurance companies the insurance policies and programs, including, self-insurance retention levels, listed on Schedule 6.05 hereto (or substantially similar programs or policies and amounts or other programs, policies and amounts acceptable to the Requisite Lenders) insuring all Property and other assets material to the operations of Borrower and the Borrower Subsidiaries (which shall in any event include each vessel, whether subject to a Ship Mortgage or otherwise) against loss or damage by fire, theft, burglary, pilferage and loss in transit and business interruption, together with such other hazards as are reasonably consistent with prudent industry practice, and maintain liability insurance consistent with prudent industry practice with financially sound insurance companies. Not later than thirty (30) days after the renewal, replacement or material modification of any policy or program, the Borrower shall deliver or cause to be delivered to the Agent (in sufficient quantity for each of the Lenders, which the Agent shall promptly distribute to each Lender) a detailed schedule setting forth for each such policy or program: (a) the amount of such policy, (b) the risks insured against by such policy, (c) the name of the insurer and each insured party under such policy, and (d) the policy number of such policy. All casualty and business interruption insurance covering Borrower or any Subsidiary of the Borrower or any Property of Borrower or any Subsidiary of the Borrower shall contain an endorsement in the form of Exhibit 7. 6.06. Inspection of Property; Books and Records; Discussions. Borrower shall permit, and shall cause each of its Subsidiaries to permit, any authorized representative(s) designated by Agent or any Lender to visit and inspect any of its properties and to discuss its affairs, finances and accounts with its officers and independent certified public accountants, all upon reasonable notice to the president, chief financial officer, treasurer or general counsel of the Borrower and at 64 71 such reasonable time and as often as may be reasonably requested. The Borrower shall have the right to attend or otherwise participate in any discussion with its independent accountants. Each such visitation and inspection made by or on behalf of the Agent or any Lender shall be at the Agent's or such Lender's expense if no Event of Default shall have occurred and be continuing and at all other times at Borrower's expense. 6.07. Labor Matters. Borrower shall notify the Agent and each Lender in writing, promptly, but in any event within five (5) Business Days after learning thereof, of any material labor dispute to which it or any of its Subsidiaries may become a party, any strikes or walkouts relating to any of its or its Subsidiaries' facilities and the expiration of any material labor contract to which it or any of its Subsidiaries is a party or by which it or any of its Subsidiaries is bound. 6.08. Maintenance of Permits. Borrower shall obtain and maintain, and shall cause each of its Subsidiaries to obtain and maintain, in full force and effect all licenses, franchises, Permits or other rights necessary for the operation of its business, except where the failure to obtain or maintain such licenses, franchises, Permits or rights could not reasonably be expected to have a Material Adverse Effect. 6.09. Employee Benefit Matters. Borrower shall establish, maintain and operate, and cause each of its Subsidiaries and other ERISA Affiliates to establish, maintain and operate, all Plans in all material respects in compliance with the applicable provisions of ERISA, the IRC, and all other applicable laws, and the regulations and interpretations thereunder, and the respective requirements of the governing documents for such Plans. 6.10. Formation of Subsidiaries. The Borrower may form or acquire additional Wholly-Owned Subsidiaries organized as corporations or limited liability companies under the laws of one of the states of the United States provided each of the following conditions is met in connection therewith within fifteen (15) Business Days after the Borrower or any Borrower Subsidiary has made an aggregate Investment in such additional Subsidiary in excess of $50,000: (i) such Subsidiary shall have executed and delivered a Subsidiary Guaranty, a Subsidiary Security Agreement, and if requested by the Agent, an Intellectual Property Agreement; (ii) such Subsidiary shall have executed and become a party to the Contribution Agreement; (iii) to the extent such Subsidiary has an interest of record in real property or in a vessel, such Subsidiary shall execute and deliver such ship mortgages and/or real property mortgages in connection therewith as shall be requested by the Agent (with Schedule 1.01-C being automatically amended as of the execution thereof); 65 72 (iv) all financing statements and mortgages relating to the Collateral of such Subsidiary shall have been filed or recorded and the Agent shall have received in form and substance reasonably satisfactory to the Agent, such assurances, including, without limitation, insurance policies, as the Agent may deem appropriate to establish such Subsidiary's title, the due creation, perfection and priority of the Agent's Liens for the benefit of itself and the Holders of Secured Obligations on such Collateral and the absence of any Liens which are not specifically permitted hereunder; (v) Borrower shall have executed and/or shall have caused its appropriate Subsidiary to execute a Pledge Agreement in respect of all of the stock or membership interests, as applicable, of such new Subsidiary and Borrower and any other pledgor Subsidiary shall have executed and delivered all financing statements and other documents reasonably requested by the Agent in connection therewith; (vi) the Agent shall have received an opinion of counsel, in form and substance reasonably satisfactory to the Agent, covering such matters relating to the proposed Subsidiary and the Transaction Documents executed and delivered to the Agent pursuant to this Section 6.10 as the Agent deems necessary; (vii) the Agent shall have received a compliance certificate from an executive officer of the Borrower certifying that after the formation of such Subsidiary, no Event of Default or Potential Event of Default exists; and (viii) the Lenders shall have received such other documents, instruments or agreements as are reasonably requested by the Agent or the Requisite Lenders in order to ensure that the documentation with respect to such Subsidiary is substantially the same as that received with respect to the Subsidiaries of the Borrower existing on the date hereof. 6.11. Acquisition or Construction of New Vessels. At such time as the Borrower or any of its Subsidiaries acquires or commences construction of any New Vessel, the Borrower or such Subsidiary, as applicable, shall promptly execute and deliver to the Agent all preferred ship mortgages, construction mortgages, assignments of ship-building or construction contracts, consents and agreements of the shipbuilder, financing statements and other appropriate Collateral Documents with respect thereto as the Agent reasonably requests, all in form and substance reasonably satisfactory to the Agent, together with all title assurances, governmental certificates and Permits, insurance certificates, endorsements and assignments and other documents as the Agent may reasonably request to establish and perfect the Borrower's or such Subsidiary's title thereto and the due creation, perfection, priority and protection of the Agent's Liens thereon for the benefit of itself and the other Holders of Secured Obligations. 6.12. Hedging Contracts. The Borrower shall not, and shall not permit any Subsidiary to, enter into any Hedging Contract other than Hedging Contracts pursuant to which the 66 73 Borrower or such Subsidiary has hedged its reasonably estimated interest rate, foreign currency or commodity exposure, and not for speculative purposes. ARTICLE VII NEGATIVE COVENANTS Borrower covenants and agrees that, on and after the date hereof and so long as Borrower shall have any outstanding Agreement Obligations or any Lender shall have any Commitment hereunder: 7.01. Indebtedness. Borrower shall not, and shall not permit any of its Subsidiaries to, directly or indirectly create, incur, assume or otherwise become or remain directly or indirectly liable with respect to any Indebtedness, except: (i) the Obligations; (ii) the Existing Indebtedness; (iii) Indebtedness in respect of Accommodation Obligations permitted by Section 7.04; (iv) Indebtedness incurred by any Subsidiary of the Borrower with respect to which the Borrower or any other Subsidiary of the Borrower is the obligee; (v) Indebtedness incurred by the Borrower with respect to which any Subsidiary of the Borrower is the obligee; (vi) other Indebtedness of the Borrower and its Subsidiaries not exceeding in the aggregate $5,000,000 at any one time outstanding; (vii) any refinancing of the Indebtedness described in clauses (i) through (vii), provided that any such refinancing is on terms no less favorable in any material respect to the obligor than the Indebtedness being refinanced and provided, further, that the new Indebtedness incurred in connection with such refinancing does not exceed the principal amount (together with any premium or penalty) of the Indebtedness refinanced; and (viii) the GAQSC Obligations; provided, however, in each case after taking such Indebtedness into account the Consolidated Borrower Group is in full compliance with the provisions of Article VIII. 67 74 7.02. Sales of Assets; Liens. (a) Limitation on Sales. Borrower shall not, and shall not permit any of its Subsidiaries to, sell, assign, transfer, lease (other than pursuant to the intercompany leases set forth on Schedule 7.02(a)), convey or otherwise dispose of any properties or assets, including, without limitation, any capital stock or membership interests of any of its Subsidiaries, whether now owned or hereafter acquired, or any income or profits therefrom to the extent such disposition constitutes a Prepayment Event, unless the Net Proceeds of such disposition are paid to the Agent in accordance with Section 2.06(b); provided, however, that the Borrower shall not, and shall not permit any of its Subsidiaries to sell, assign, transfer, lease, convey or otherwise dispose of the American Queen, the Delta Queen, the Mississippi Queen or any New Vessel or any of the capital stock or membership interests of any Subsidiary which owns any of the foregoing except for fair market value and with the prior written approval of all of the Lenders, and provided all of the Net Proceeds of any such disposition are paid to the Agent in accordance with Section 2.06(b) (subject, in the case of dispositions with respect to the American Queen to payment of amounts required to be paid in connection with the MARAD Financing). (b) Liens. Borrower shall not, and shall not permit any of its Subsidiaries to, directly or indirectly create, incur, assume or permit to exist any Lien on or with respect to any of its Property (including all capital stock or membership interests, as applicable, of any Subsidiary of Borrower and all Collateral) except: (i) Liens granted to the Agent for the benefit of itself and the Holders of Secured Obligations, securing the Obligations; (ii) Customary Permitted Liens; (iii) Permitted Existing Liens; (iv) Liens on property existing at the time of acquisition thereof by Borrower or any of its Subsidiaries and not created in contemplation of such acquisition and Liens securing purchase money Indebtedness for equipment to the extent the aggregate outstanding principal amount of such Indebtedness does not exceed $2,500,000, is permitted under Section 7.01 and such Indebtedness does not exceed the purchase price of such equipment securing such Indebtedness, provided that in each case such Liens do not apply to other property or assets of such Person; (v) Liens with respect to judgments or attachments which do not result in an Event of Default or Potential Event of Default hereunder; (vi) Liens on the American Queen and other property of GAQSC created pursuant to the GAQSC Security Agreement, the GAQSC Financial Agreement, the GAQSC Trust 68 75 Indenture, the GAQSC Ship Mortgage and the GAQSC Depository Agreement to secure the GAQSC Obligations; and (vii) Liens granted on cash collateral securing letters of credit permitted pursuant to Section 7.01(vi) in favor of the issuer of such letter of credit. 7.03. Investments. Borrower shall not, and shall not permit any of its Subsidiaries to, directly or indirectly make or commit to make any advance, loan, extension of credit or capital contribution to, or purchase of any stock, bonds, notes, debentures or other securities of, or make any other investment in, any Person, including, without limitation, any Affiliate of the Borrower (all such transactions being referred to as "Investments"), except: (i) Investments by Borrower or any of its Subsidiaries in Cash Equivalents; and Investments by the Borrower in commercial paper that would qualify as a Cash Equivalent but for the fact that the issuer's rating on such commercial paper is not at least A-1 from S&P or P-1 from Moody's, provided that (i) such rating is at least A-2 from S&P or P-2 from Moody's and (ii) the aggregate amount of such Investments at any time shall not exceed $10,000,000; (ii) Investments constituting Intercompany Receivables as of the Effective Date; (iii) Investments by the Borrower in its Wholly-Owned Subsidiaries (including, without limitation, Investments in any Person which, as a result of such Investment, becomes a Wholly-Owned Subsidiary pursuant to and in compliance with Section 6.10); provided, however, that such Investments by the Borrower in GAQSC may not exceed an aggregate amount of $10,000,000 and provided, further, that no such Investment shall be permitted to be made if before or after making such Investment an Event of Default has occurred and is continuing or would result therefrom; (iv) loans to employees in the ordinary course of business not in excess of an aggregate amount of $500,000 outstanding at any one time; (v) other Investments by Borrower and the Borrower Subsidiaries not in excess of an aggregate amount during any Fiscal Year which, when added to the aggregate amount of all Restricted Junior Payments during such Fiscal Year pursuant to Section 7.05, does not exceed the Permitted Amount; provided that no such Investment shall be permitted to be made if before or after making such Investment an Event of Default has occurred and is continuing or would result therefrom; and (vi) Investments by GAQSC in accordance with the GAQSC Security Agreement, the GAQSC Financial Agreement and the GAQSC Depository Agreement. 69 76 Notwithstanding anything herein to the contrary, (a) there shall be excluded from the calculation of Investments the accrual of intercompany charges incurred in the ordinary course and (b) there shall be included in the calculation of investments all transfers of cash or assets (other than the purchase of inventory in the ordinary course of business and upon terms that would be obtained in an arms-length transaction). 7.04. Accommodation Obligations. Borrower shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create or become or be liable with respect to any Accommodation Obligation, except: (i) guaranties resulting from endorsement of negotiable instruments for collection in the ordinary course of business; (ii) Accommodation Obligations arising in connection with the Transaction Documents; (iii) Accommodation Obligations of the Borrower pursuant to the GAQSC Guaranty; (iv) Accommodation Obligations with respect to any Indebtedness permitted by Section 7.01; and (v) Accommodation Obligations with respect to any Contractual Obligation of the Borrower or any Subsidiary (other than GAQSC, except as permitted by clause (iii) above) if such Contractual Obligation is not otherwise prohibited under this Agreement. 7.05. Restricted Junior Payments. Borrower shall not, and shall not permit any Subsidiary of Borrower to, declare or make any Restricted Junior Payment, except: (i) Restricted Junior Payments by the Borrower or any of its Subsidiaries to Parent or any Affiliate of Parent (other than the Borrower and its Subsidiaries) not in excess of an aggregate amount during any Fiscal Year which, when added to the aggregate amount of all Investments during such Fiscal Year pursuant to Section 7.03(v), does not exceed the Permitted Amount; provided that no such Restricted Junior Payment shall be permitted to be made if before or after making such Restricted Junior Payment an Event of Default has occurred and is continuing or would result therefrom; and (ii) any Subsidiary of Borrower may pay dividends, distributions or other payments (including loan payments) to Borrower or another Wholly-Owned Subsidiary of Borrower. 7.06. Conduct of Business. Borrower shall not, and shall not permit any of its Subsidiaries to, engage in any business other than the business engaged in by the Borrower and its Subsidiaries on the date hereof and any business activities substantially similar or related thereto, including without limitation, the operation of any New Vessel in its cruise business. 70 77 7.07. Transactions with Affiliates. Except as expressly permitted by Section 7.03 or 7.05, Borrower shall not, and shall not permit any of its Subsidiaries to, directly or indirectly enter into or permit to exist any transaction (including, without limitation, the purchase, sale, lease or exchange of any property or the rendering of any service) with any of its Affiliates (other than a member of the Consolidated Borrower Group) on terms that are less favorable to it than those fair and reasonable terms that might be obtained in a comparable arms-length transaction at the time. 7.08. Restriction on Fundamental Changes. (a) Borrower shall not, and shall not permit any of its Subsidiaries to, enter into any merger or consolidation, or liquidate, wind-up or dissolve (or suffer any liquidation or dissolution) or discontinue its business, except that any Subsidiary of Borrower may merge into or convey, sell, lease or transfer all or substantially all of its assets to Borrower or any other Subsidiary of Borrower (other than GAQSC). (b) Borrower shall not, and shall not permit its Subsidiaries to, acquire by purchase or otherwise any property or assets of any other Person, except in the ordinary course of its business (including, without limitation, the acquisition of New Vessels for operation in its cruise business) or to the extent permitted pursuant to Section 7.03. 7.09. Employee Benefit Matters. Borrower shall not, and shall not permit any of its ERISA Affiliates to: (i) Engage in any prohibited transaction described in Section 406 of ERISA or 4975 of the IRC for which a statutory or class exemption is not available or a private exemption has not been previously obtained from the DOL and for which a civil penalty pursuant to Section 502(i) of ERISA or a tax pursuant to Section 4975 of the IRC, in excess of $1,000,000 is imposed. (ii) permit to exist any accumulated funding deficiency (as defined in Sections 302 of ERISA and 412 of the IRC), which has not been waived; (iii) fail to pay timely required contributions or annual installments due with respect to any waived funding deficiency to any Benefit Plan; (iv) terminate any Benefit Plan in a distress termination under Section 4041(c) of ERISA which would result in any material liability to Borrower or any ERISA Affiliate; (v) fail to make any contribution or payment to any Multiemployer Plan which Borrower or any ERISA Affiliate may be required to make under any agreement relating to such Multiemployer Plan, or any law pertaining thereto which could reasonably be expected to result in a liability in excess of $1,000,000; 71 78 (vi) fail to pay any required installment or any other payment required under Section 412 of the IRC on or before the due date for such installment or other payment which could reasonably be expected to result in a lien under Section 412(n) of the IRC; or (vii) amend a Plan resulting in an increase in current liability for the plan year such that Borrower or any ERISA Affiliate is required to provide security to such Plan under Section 401(a)(29) of the IRC. 7.10. Environmental Liabilities. Borrower shall not, and shall not permit any of its Subsidiaries to, become subject to any Liabilities and Costs, which could reasonably be expected to have a Material Adverse Effect, arising out of or related to (a) the Release or threatened Release at any location of any Contaminant into the environment, or any Remedial Action in response thereto, or (b) any violation of any environmental, health and safety Requirements of Law. 7.11. Margin Regulations. No portion of the proceeds of any credit extended under this Agreement shall be used in any manner which might cause the extension of credit or the application of such proceeds to violate Regulation T, Regulation U or Regulation X or any other regulation of the Federal Reserve Board or to violate the Securities Exchange Act or the Securities Act, in each case as in effect on the date or dates of such Borrowing and the use of such proceeds. 7.12. Change of Fiscal Year. Borrower shall not change its Fiscal Year. 7.13. Amendment of Certain Documents. Borrower and its Subsidiaries shall not permit any termination of, or any modification or amendment that is adverse in any respect to the Lenders to be made to the certificate of incorporation or by-laws or the certificate of formation or limited liability company agreement, or other comparable organizational or governing documents, as applicable, of Borrower or any of its Subsidiaries. Except for modification, assumption and supplemental documents effective as of December 31, 1996, in connection with the merger of Great AQ Steamboat Co. into Great AQ Steamboat, L.L.C., Borrower and GAQSC shall not modify or amend the GAQSC Obligations, the GAQSC Trust Indenture, the GAQSC Security Agreement, the GAQSC Financial Agreement, the GAQSC Ship Mortgage, the GAQSC Depository Agreement or the GAQSC Guaranty without the prior written consent of the Agent. ARTICLE VIII FINANCIAL COVENANTS Borrower covenants and agrees that, on and after the date hereof and so long as Borrower shall have any outstanding Agreement Obligations or any Lender shall have any Commitment hereunder: 72 79 8.01. Maximum Bank Indebtedness Leverage Ratio. Borrower shall not permit the Bank Indebtedness Leverage Ratio calculated at the end of each fiscal quarter set forth below to be greater than the ratio set forth below with respect to such fiscal quarter:
Fiscal Quarter Ending Maximum Ratio --------------------- ------------- Prior to December 31, 2001 3.75 to 1 On or after December 31, 2001 and prior to December 31, 2002 3.25 to 1 On or after December 31, 2002 2.25 to 1
8.02. Maximum Total Indebtedness Leverage Ratio. Borrower shall not permit the Total Indebtedness Leverage Ratio calculated at the end of each fiscal quarter set forth below to be greater than the ratio set forth below with respect to such fiscal quarter:
Fiscal Quarter Ending Maximum Ratio --------------------- ------------- Prior to December 31, 2001 4.50 to 1 On or after December 31, 2001 and prior to December 31, 2002 4.00 to 1 On or after December 31, 2002 3.00 to 1
8.03. Minimum Interest Coverage Ratio. Borrower shall not permit the Interest Coverage Ratio calculated at the end of each fiscal quarter set forth below for the period of the immediately preceding four fiscal quarters to be less than the ratio set forth below with respect to such fiscal quarter:
Fiscal Quarter Ending Minimum Ratio --------------------- ------------- Prior to December 31, 2001 2.75 to 1 On or after December 31, 2001 3.00 to 1
8.04. Capital Expenditures. (a) Borrower shall not, and shall not permit any of its Subsidiaries to, incur Maintenance Capital Expenditures which exceed, in the aggregate, $7,000,000 in Fiscal Year 1999, $8,000,000 in Fiscal Year 2000 and $10,000,000 in each Fiscal Year thereafter, plus for each Fiscal Year after Fiscal Year 1999, the difference (the "Carryover Amount"), if 73 80 positive, between (1) the maximum aggregate amount of Maintenance Capital Expenditures permitted pursuant to this Section 8.04(a) for the immediately preceding Fiscal Year and (2) the aggregate amount of actual Maintenance Capital Expenses for such preceding Fiscal Year; provided, however, that the Carryover Amount shall not exceed $6,000,000 for any Fiscal Year. (b) Borrower shall not, and shall not permit any of its Subsidiaries to, incur New Vessel Capital Expenditures which exceed, in the aggregate for each New Vessel, the amount set forth below corresponding to such New Vessel:
Vessel Amount ------ ------ Western Riverboat $18,500,000 Coastal Cruiser One $37,000,000 Coastal Cruiser Two $38,000,000
ARTICLE IX EVENTS OF DEFAULT; RIGHTS AND REMEDIES 9.01. Events of Default. Each of the following occurrences shall constitute an Event of Default under this Agreement: (a) Failure to Make Payments When Due. Borrower shall fail (i) to pay when due any principal of any Loan or LC Disbursement or (ii) to pay when due any interest on any Loan or any fee or other amount payable under this Agreement or any of the other Loan Documents and such failure under this clause (ii) shall continue for three (3) Business Days. (b) Breach of Certain Covenants. Borrower or any of its Subsidiaries shall fail duly and punctually to perform or observe any agreement, covenant or obligation under Section 5.01 or under Article VII (other than Sections 7.07 and 7.09) or VIII. (c) Breach of Representation or Warranty. Any representation or warranty made or deemed made by Borrower to the Agent or any Lender herein or by Borrower or any of its Subsidiaries in any of the other Loan Documents or in any written statement or certificate at any time given by Borrower or any of its Subsidiaries pursuant to any of the Loan Documents shall be false or misleading in any material respect on the date as of which made or deemed made. (d) Other Defaults. Borrower or any of its Subsidiaries shall fail duly and punctually to perform or observe any agreement, covenant or obligation arising under this Agreement (except those described in Sections 9.01(a), (b) and (c)) or under any of the other Loan Documents, and such 74 81 failure shall continue for thirty (30) days (or, in the case of Loan Documents other than this Agreement, any longer period of grace expressly set forth therein). (e) Default as to Other Indebtedness. Borrower or any of its Subsidiaries shall fail to make any payment when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) on any Other Indebtedness of Borrower or any such Subsidiary, if the aggregate outstanding amount of all such Indebtedness is $2,500,000 or more, or any breach, default or event of default shall occur, or any other event shall occur or condition shall exist, under any instrument, agreement or indenture pertaining thereto, if the effect thereof is to accelerate, or permit the holder(s) of such Indebtedness to accelerate, the maturity of any such Indebtedness; or any such Indebtedness shall be declared to be due and payable or required to be prepaid or mandatorily redeemed (other than by a regularly scheduled required prepayment prior to the stated maturity there of); or the holder of any Lien, in any amount, shall commence foreclosure of such Lien upon property of Borrower or any of its Subsidiaries having a book or fair market value in excess of $1,000,000 in the aggregate. (f) Involuntary Bankruptcy; Appointment of Receiver, Etc. (i) An involuntary case shall be commenced against Borrower or any of its Subsidiaries and the petition shall not be dismissed within sixty (60) days after commencement of the case, or a court having jurisdiction in the premises shall enter a decree or order for relief in respect of Borrower or any of its Subsidiaries in an involuntary case, under any applicable bankruptcy, insolvency or other similar law now or hereinafter in effect; or any other similar relief shall be granted under any applicable federal, state or foreign law. (ii) A decree or order of a court having jurisdiction in the premises for the appointment of a receiver, liquidator, sequestrator, trustee, custodian or other officer having similar powers over Borrower or any of its Subsidiaries or over all or a substantial part of the property of Borrower or any of its Subsidiaries shall be entered; or an interim receiver, trustee or other custodian of Borrower or any of its Subsidiaries or of all or a substantial part of the property of Borrower or any of its Subsidiaries shall be appointed or a warrant of attachment, execution or similar process against any substantial part of the property of Borrower or any of its Subsidiaries, shall be issued and any such event shall not be stayed, vacated, dismissed, bonded or discharged within sixty (60) days of entry, appointment or issuance. (g) Voluntary Bankruptcy; Appointment of Receiver, Etc. Borrower or any of its Subsidiaries shall have an order for relief entered with respect to it or commence a voluntary case under any applicable bankruptcy, insolvency or other similar law now or hereafter in effect, or shall consent to the entry of an order for relief in an involuntary case, or to the conversion of an involuntary case to a voluntary case, under any such law, or shall consent to the appointment of or taking of possession by a receiver, trustee or other custodian for all or a substantial part of its property; Borrower or any of its Subsidiaries shall make any assignment for the benefit of creditors or shall be unable or generally fail, or admit in writing its inability, to pay its debts as such debts become due; or the board of directors (or any committee thereof) or the managing members of 75 82 Borrower or any of its Subsidiaries adopts any resolution to authorize or approve any of the foregoing. (h) Judgments. (i) Enforceable Judgments (other than an Enforceable Judgment described in the proviso contained in the definition of Enforceable Judgment) for the payment of money in an aggregate amount in excess of $5,000,000 shall be rendered against Borrower or any of its Subsidiaries and such Enforceable Judgments shall continue unsatisfied or unstayed for a period of thirty (30) days or action shall have been commenced to foreclose on such Enforceable Judgments, or (ii) Enforceable Judgments described in the proviso contained in the definition of Enforceable Judgments shall be rendered against Borrower or any of its Subsidiaries. (i) Dissolution. Any order, judgment or decree shall be entered against Borrower or any of its Subsidiaries decreeing its involuntary dissolution or split-up and such order shall remain undischarged and unstayed for a period in excess of thirty (30) days; or Borrower or any of its Subsidiaries shall otherwise dissolve or cease to exist except as expressly permitted pursuant to Section 7.08. (j) Collateral Documents; Failure of Security. For any reason other than a release of Liens in accordance with the terms of the Loan Documents or the failure of the Agent and the Lenders to take any action available to them to maintain the perfection of the Liens created in favor of the Agent, for the benefit of itself and the Holders of Secured Obligations, pursuant to this Agreement and the Collateral Documents, any Collateral Document ceases to be in full force and effect in any material respect or any Lien intended to be created thereby ceases to be or is not valid and perfected or the Borrower or any of its Subsidiaries asserts that any such Lien is not valid and perfected. (k) Change in Control. (i) Any Change of Control occurs; or (ii) Borrower shall cease to own directly or indirectly all of the capital stock or membership interests of its Subsidiaries. (l) Employee Benefit Related Liabilities. (i) Any Termination Event occurs which the Agent believes could subject Borrower or an ERISA Affiliate to a material liability to pay money if the payment of such liability could reasonably be expected to have a Material Adverse Effect, (ii) the plan administrator of any Plan applies under Section 412(d) of the IRC for a waiver of the minimum funding standards of Section 412(a) of the IRC and the Agent believes that the substantial business hardship upon which the application for the waiver is based could subject either the Borrower or any ERISA Affiliate to a material liability to pay money if the payment of such liability could reasonably be expected to have a Material Adverse Effect. (m) Contribution Agreement Default. Any party to the Contribution Agreement shall terminate or revoke any of its obligations under the Contribution Agreement or breach any of the material terms of the Contribution Agreement. 76 83 (n) Subsidiary Guaranty Default. Any Borrower Subsidiary party to any Subsidiary Guaranty shall terminate or revoke any of its obligations under its Subsidiary Guaranty, breach any of the terms of its Subsidiary Guaranty, or any Subsidiary Guaranty shall otherwise become unenforceable for any reason. For purposes of this Agreement and each of the other Loan Documents, an Event of Default shall be deemed "continuing" until cured or waived in writing in accordance with Section 11.08. 9.02. Rights and Remedies. (a) Acceleration and Termination of Commitments. Upon the occurrence of any Event of Default described in Section 9.01(f) or 9.01(g) with respect to Borrower or any of its Subsidiaries, the Commitments shall automatically and immediately terminate and the unpaid principal amount of and any and all accrued interest on the Loans and all other Agreement Obligations shall automatically become immediately due and payable, with all additional interest from time to time accrued thereon and without presentment, demand, or protest or other requirements of any kind (including, without limitation, valuation and appraisement, diligence, presentment, notice of intent to demand or accelerate and of acceleration), all of which are hereby expressly waived by Borrower, and the obligation of each Lender to make any Loan and of the Issuing Bank to issue any Letter of Credit hereunder shall thereupon terminate; and upon the occurrence and during the continuance of any other Event of Default, the Agent shall at the request, or may with the consent, of the Requisite Lenders, by written notice to Borrower, (i) declare that the Commitments are terminated, whereupon the Commitments and the obligation of each Lender to make any Loan and of the Issuing Bank to issue any Letter of Credit hereunder shall immediately terminate, and (ii) declare the unpaid principal amount of and any and all accrued and unpaid interest on the Loans and all other Agreement Obligations to be, and the same shall thereupon be, immediately due and payable with all additional interest from time to time accrued thereon and without presentment, demand, or protest or other requirements of any kind (including, without limitation, valuation and appraisement, diligence, presentment, notice of intent to demand or accelerate and of acceleration), all of which are hereby expressly waived by Borrower. (b) Rescission. If at any time after acceleration of the maturity of the Loans, Borrower shall pay all arrears of interest and all payments on account of principal of the Loans which shall have become due otherwise than by acceleration (with interest on principal and, to the extent permitted by law, on overdue interest, at the rates specified in this Agreement) and all Events of Default and Potential Events of Default (other than nonpayment of principal of and accrued interest on the Loans due and payable solely by virtue of acceleration) shall be remedied or waived pursuant to Section 11.08, then by written notice to Borrower, the Requisite Lenders may elect, in the sole discretion of such Requisite Lenders, to rescind and annul the acceleration and its consequences; but such action shall not affect any subsequent Event of Default or Potential Event of Default or impair any right or remedy consequent thereon. The provisions of the preceding sentence are intended merely to bind the Lenders to a decision which may be made at the election of the 77 84 Requisite Lenders; they are not intended to benefit Borrower and do not give Borrower the right to require the Lenders to rescind or annul any acceleration hereunder, even if the conditions set forth herein are met. ARTICLE X THE AGENT 10.01. Appointment. (a) Each of the Lenders and the Issuing Bank hereby designates and appoints The Chase Manhattan Bank as the Agent of such Lender under this Agreement and the Loan Documents, and each of the Lenders and the Issuing Bank hereby irrevocably authorizes the Agent to take such action on its behalf under the provisions of this Agreement and the other Loan Documents and to exercise such powers as are set forth herein or therein, together with such other powers as are incidental thereto. The Agent agrees to act as such on the express conditions contained in this Article X. (b) The provisions of this Article X (other than Sections 10.07, 10.08 and 10.09(c)) are solely for the benefit of the Agent and the Holders of Secured Obligations and Borrower shall have no right to rely on or enforce any of the provisions hereof (other than Sections 10.07, 10.08 and 10.09(c)). In performing its functions and duties under this Agreement, the Agent shall act solely as agent for the Lenders and the Issuing Bank and does not assume and shall not be deemed to have assumed any obligation toward or relationship of agency or trust with or for Borrower or any of its Affiliates. 10.02. Nature of Duties. The Agent shall not have any duties or responsibilities except those expressly set forth in this Agreement or in the other Loan Documents. The duties of the Agent shall be mechanical and administrative in nature. The Agent shall not have by reason of this Agreement a fiduciary relationship in respect of any Holder of Secured Obligations. Nothing in this Agreement or any of the other Loan Documents, expressed or implied, is intended to or shall be construed to impose upon the Agent any obligations in respect of this Agreement or any of the other Loan Documents except as expressly set forth herein or therein. Each Holder of Secured Obligations shall make its own independent investigation of the financial condition and affairs of Borrower and its Subsidiaries in connection with the making and the continuance of the Loans and the issuance of Letters of Credit hereunder and the entering into any Eligible Hedging Contract and shall make its own appraisal of the creditworthiness of Borrower and its Subsidiaries, and the Agent shall not have any duty or responsibility, either initially or on a continuing basis, to provide any Holder of Secured Obligations with any credit or other information with respect thereto, whether coming into its possession on or before the Effective Date or at any time or times thereafter. Each Lender and the Issuing Bank acknowledges that neither the Agent nor counsel to the Agent nor any other Lender is providing any assurances, or shall have any responsibility, with respect to the ownership of the Property or the absence of any prior Liens or defects of title, or the legality, sufficiency or effect of any mortgage, certificate or notice, or any other document, or the validity, creation, perfection or priority of any Lien, or as to any decision to request, take, defer, omit or 78 85 release any Collateral or to investigate or not to investigate any of those matters, and each Lender agrees to look solely to its rights as one of the Lenders with respect to any of the foregoing. If the Agent seeks the consent or approval of the Requisite Lenders to the taking or refraining from taking any action hereunder, the Agent shall send notice thereof to each Lender. The Agent shall promptly notify each Lender at any time that the Requisite Lenders or, where expressly required, all of the Lenders, have instructed the Agent to act or refrain from acting pursuant hereto. 10.03. Rights, Exculpation, Etc. Neither the Agent nor any of its Affiliates nor any of its officers, directors, employees, agents, attorneys or consultants shall be liable to any Holder of Secured Obligations for any action taken or omitted by it or such Person hereunder or under any of the Loan Documents, or in connection herewith or therewith, except that (i) the Agent shall be obligated on the terms set forth herein for performance of its express obligations hereunder, and (ii) no Person shall be relieved of any liability imposed by law for its gross negligence or willful misconduct (as determined by the final judgment of a court of competent jurisdiction). The Agent shall not be liable for any apportionment or distribution of payments made by it in good faith pursuant to the terms of this Agreement and if any such apportionment or distribution is subsequently determined to have been made in error the sole recourse of any Holder of Secured Obligations to whom payment was due, but not made, shall be to recover from other Holders of Secured Obligations any payment in excess of the amount to which they are determined to have been entitled. The Agent shall not be responsible to any Holder of Secured Obligations for any recitals, statements, representations or warranties herein or for the execution, effectiveness, genuineness, validity, enforceability, collectibility, or sufficiency of this Agreement, any of the Collateral Documents or any of the other Loan Documents, or any of the transactions contemplated hereby and thereby, or of any of the Transaction Documents or any of the transactions contemplated thereby, or for the financial condition of Borrower or any of its Subsidiaries. The Agent shall not be required to make any inquiry concerning either the performance or observance of any of the terms, provisions or conditions of this Agreement or any of the Loan Documents or the financial condition of Borrower or any of Subsidiaries or the existence or possible existence of any Potential Event of Default or Event of Default. The Agent may at any time request instructions from the Lenders with respect to any actions or approvals which by the terms of this Agreement or of any of the other Loan Documents the Agent is permitted or required to take or to grant, and if such instructions are promptly requested, the Agent shall be absolutely entitled to refrain from taking any action or to withhold any approval and shall not be under any liability whatsoever to any Person for refraining from any action or withholding any approval under any of the Loan Documents until it shall have received such instructions from the Requisite Lenders or, where expressly required, all of the Lenders. Without limiting the foregoing, no Holder of Secured Obligations shall have any right of action whatsoever against the Agent as a result of the Agent acting or refraining from acting under this Agreement, the Collateral Documents or any of the other Loan Documents in accordance with the instructions of the Requisite Lenders or, where expressly required, all of the Lenders. 10.04. Reliance. The Agent shall be entitled to rely upon any written notices, statements, certificates, orders or other documents or any telephone message believed by it in good faith to be genuine and correct and to have been signed, or made by the proper Person, and with 79 86 respect to all matters pertaining to this Agreement, the Collateral Documents or any of the other Loan Documents and its duties hereunder or thereunder, upon advice of legal counsel (including counsel for Borrower), independent public accountants and other experts selected by it in good faith. 10.05. Indemnification. To the extent that the Agent is not reimbursed and indemnified by Borrower or Borrower fails upon demand by the Agent to perform its obligations to reimburse or indemnify the Agent, the Lenders will reimburse and indemnify the Agent for and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by, or asserted against the Agent in any way relating to or arising out of this Agreement, the Collateral Documents or any of the other Transaction Documents or any action taken or omitted by the Agent under this Agreement, the Collateral Documents or any of the other Transaction Documents, in proportion to each Lender's Pro Rata Share; provided that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the Agent's gross negligence or willful misconduct, as determined by the final judgment of a court of competent jurisdiction. The obligations of the Lenders under this Section 10.05 shall survive the payment in full of the Loans and the termination of this Agreement. 10.06. The Agent Individually. With respect to its Pro Rata Share hereunder and the Loans made by it, the Agent shall have and may exercise the same rights and powers hereunder and is subject to the same obligations and liabilities as and to the extent set forth herein for any other Lender. The terms "Lenders" or "Requisite Lenders" or any similar terms shall, unless the context clearly otherwise indicates, include the Agent in its individual capacity as a Lender or one of the Requisite Lenders. The Agent may accept deposits from, lend money to, and generally engage in any kind of banking, trust or other business with Borrower as if it were not acting as Agent pursuant hereto. 10.07. Successor Agent; Resignation of Agent. (a) The Agent may resign from the performance of its functions and duties hereunder at any time by giving at least thirty (30) days prior written notice to the Lenders, the Issuing Bank and Borrower. In the event that the Agent gives notice of its desire to resign from the performance of its functions and duties as Agent, any such resignation shall take effect only upon the acceptance by a successor Agent of appointment pursuant to clauses (b) and (c) below. (b) The Requisite Lenders shall appoint a successor Agent who shall be reasonably satisfactory to Borrower provided no such approval of the Borrower shall be required after the occurrence and during the continuance of an Event of Default. (c) If a successor Agent shall not have been so appointed within said thirty (30) day period, the retiring Agent, with the consent of Borrower (which may not be withheld unreasonably), shall then appoint a successor Agent who shall serve as Agent until such time, if any, as the Requisite Lenders, with the consent of Borrower (which may not be withheld unreasonably), appoint 80 87 a successor Agent as provided above. No consent of the Borrower shall be required after the occurrence and during the continuance of an Event of Default. (d) Upon the appointment of a successor Agent, the term "Agent" shall, for all purposes of this Agreement, thereafter include such successor, except that the retiring Agent shall reserve all rights as to Obligations accrued or due to it, in its capacity as such, at the time of such succession and all rights (whenever arising) under Section 11.04. (e) Notwithstanding anything in this Section 10.07 to the contrary, no Person shall serve as an Agent unless such Person is a Lender. 10.08. Collateral Matters. (a) Each of the Lenders authorizes and directs the Agent to enter into the Loan Documents relating to the Collateral for the benefit of itself and the Holders of Secured Obligations. Each of the Lenders agrees that any action taken by the Agent or the Requisite Lenders (or, where required by the express terms of this Agreement or any other Loan Document, a greater proportion of the Lenders) in accordance with the provisions of this Agreement or the other Loan Documents, and the exercise by the Agent or the Requisite Lenders (or, where so required, such greater proportion) of the powers set forth herein or therein, together with such other powers as are reasonably incidental thereto, shall be authorized and binding upon all of the Lenders. Without limiting the generality of the foregoing, the Agent shall have the sole and exclusive right and authority to (i) act as the disbursing and collecting agent for the Lenders with respect to all payments and collections arising in connection with this Agreement and the other Loan Documents relating to the Loans or Collateral; (ii) execute and deliver each Loan Document relating to the Collateral and accept delivery of each such agreement delivered by the Borrower or any of its Subsidiaries; (iii) act as collateral agent for the Lenders for purposes of the perfection of all security interests and Liens created by such agreements and all other purposes stated therein, provided, however, the Agent hereby appoints, authorizes and directs the Lenders to act as collateral sub-agent for the Agent and the Lenders for purposes of the perfection of all security interests and Liens with respect to the Borrower's and the Borrower's Subsidiaries' respective deposit accounts maintained with, and cash and Cash Equivalents held by, such Lender; (iv) manage, supervise and otherwise deal with the Collateral in accordance with the terms of this Agreement and the other Loan Documents; (v) take such action as is necessary or desirable to maintain the perfection and priority of the security interests and Liens created or purported to be created by the Loan Documents; and (vi) except as may be otherwise specifically restricted by the terms of this Agreement or any other Loan Document, exercise all remedies given to the Agent or the Lenders with respect to the Collateral under the Loan Documents relating thereto, under applicable law or otherwise. (b) The Holders of Secured Obligations hereby irrevocably authorize the Agent, at the option and in the discretion of the Agent, to release any Lien granted to or held by the Agent upon any Collateral (i) upon termination of the Commitments and payment and satisfaction of all Loans and all other Agreement Obligations which have matured and which the Agent has been notified in writing are then due and payable; or (ii) constituting property being sold or disposed of if Borrower certifies to the Agent that the sale or disposition is made in compliance with 81 88 Section 7.02 (and the Agent may rely conclusively on any such certificate, without further inquiry); or (iii) constituting property in which neither the Borrower nor any Subsidiary of the Borrower owned any interest at the time the Lien was granted or at any time thereafter; or (iv) if approved or consented to by the Requisite Lenders (or, where so required, all of the Lenders). Upon request by the Agent at any time, the Lenders will confirm in writing the Agent's authority to release particular types or items of Collateral pursuant to this Section 10.08(b). (c) Without in any manner limiting the Agent's authority to act without any specific or further authorization or consent by the Requisite Lenders (as set forth in Section 10.08(b)), each Lender agrees to confirm in writing, upon request by Borrower, the authority to release Collateral conferred upon the Agent under clauses (i) through (iv) of Section 10.08(b). So long as no Event of Default is then continuing, upon receipt by the Agent of the net cash proceeds of any sale and transfer of Collateral which is expressly permitted pursuant to the terms of this Agreement, to the extent such proceeds are required to be paid to the Lenders, and upon at least five (5) Business Days' prior written request by Borrower, the Agent shall (and is hereby irrevocably authorized by the Holders of Secured Obligations to) execute such documents as may be necessary to evidence the release of the Liens granted to the Agent for the benefit of the Holders of Secured Obligations herein or pursuant hereto upon such Collateral; provided, that (i) the Agent shall not be required to execute any such document on terms which, in the Agent's opinion, would expose the Agent to liability or create any obligation or entail any consequence other than the release of such Liens without recourse or warranty, and (ii) such release shall not in any manner discharge, affect or impair the Obligations or any Liens upon (or obligations of Borrower in respect of) all interests retained by Borrower, including, without limitation, the proceeds of any sale, all of which shall continue to constitute part of the Collateral. (d) The benefit of the Collateral Documents and of the provisions of this Agreement relating to the Collateral shall extend to and be available in respect of any Obligations ("Related Obligations") which arise under any Eligible Hedging Contracts or which are otherwise owed to Persons entitled to indemnification pursuant to Section 11.04; provided that (i) the Related Obligations shall be entitled to the benefit of the Collateral to the extent and with the priority expressly set forth in this Agreement and the Collateral Documents, and to such extent the Agent shall hold, and have the right and power to act with respect to, the Collateral on behalf of and as agent for the holders of the Related Obligations; but the Agent is otherwise acting solely as agent for the Lenders and shall have no separate fiduciary duty, duty of loyalty, duty of care, duty of disclosure or other obligation whatsoever to any holder of Related Obligations; and (ii) all matters, acts and omissions relating in any manner to the Collateral, or the omission, creation, perfection, priority, abandonment or release of any Lien, shall be governed solely by the provisions of this Agreement and the Collateral Documents, and no separate Lien, right, power or remedy shall arise or exist in favor of any Holder of Secured Obligations under any separate instrument or agreement or in respect of any Related Obligations; and (iii) each Holder of Secured Obligations shall be bound by all actions taken or omitted, in accordance with the provisions of this Agreement and the Collateral Documents, by the Agent and the Requisite Lenders or, where expressly required, all of the Lenders, each of whom shall be entitled to act at its sole discretion and exclusively in its own 82 89 interest given its own Commitments and its own interest in the Loans, and its other Agreement Obligations, without any duty or liability to any other Holder of Secured Obligations or as to any Related Obligations and without regard to whether any Related Obligations remain outstanding or are deprived of the benefit of the Collateral or become unsecured or are otherwise affected or put in jeopardy thereby; and (iv) no holder of Related Obligations and no other Holder of Secured Obligations (except the Agent and the Lenders, to the extent set forth in this Agreement) shall have any right to be notified of, or to direct, require or be heard with respect to, any action taken or omitted in respect of the Collateral or under this Agreement or the Collateral Documents; and (v) no holder of any Related Obligations shall exercise any right of setoff, banker's lien or similar right. 10.09. Relations Among Lenders. (a) Except as set forth in the following clause (b) of this section, each Lender agrees that it will not take any action, nor institute any actions or proceedings, against Borrower or any other obligor hereunder or with respect to any Collateral or Loan Document, without the prior written consent of the Requisite Lenders or, as may be provided in this Agreement or the other Loan Documents, at the direction of the Agent. (b) The Lenders are not partners or co-venturers, and no Lender shall be liable for the acts or omissions of, or (except as otherwise set forth herein in case of the Agent) authorized to act for, any other Lender. (c) Hibernia National Bank, as Documentation Agent, shall have no right, power, obligation, liability, responsibility or duty under this Agreement other than those applicable to all Lenders as such. Without limiting the foregoing, Hibernia National Bank shall not have by reason of this Agreement a fiduciary relationship in respect of any Lender. ARTICLE XI MISCELLANEOUS 11.01. Survival of Warranties and Agreements. All agreements, representations and warranties made herein shall survive the execution and delivery of this Agreement and the other Loan Documents and the making of the Loans and the issuance of Letters of Credit hereunder. 11.02. Assignments and Participations. (a) At any time after the Effective Date, each Lender may assign to one or more banks or financial institutions all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitment and Revolving Credit Exposure) in conformity with the following provisions: 83 90 (i) each such assignment shall be of a constant, and not a varying, percentage of the assigning Lender's rights and obligations under this Agreement and the assignment shall transfer the same percentage of such Lender's Commitment, Revolving Credit Exposure and other interests hereunder; (ii) unless the Agent and the Borrower otherwise consent, the amount of the Commitment of the assigning Lender being assigned pursuant to each such assignment (determined as of the date of the Assignment and Acceptance with respect to such assignment) shall in no event be less than $5,000,000 or, if less, the entire amount of such assigning Lender's Commitment, Revolving Credit Exposure and other interests hereunder (provided that assignments between Lenders shall have no minimum amount and assignments after the occurrence and during the continuance of an Event of Default shall not require Borrower's consent regardless of the size of such assignment); (iii) the Agent shall have consented (which consent shall not unreasonably be withheld) to each such assignment and the parties to each such assignment shall execute and deliver to the Agent an Assignment and Acceptance, together with a processing and recordation fee of $3,500; provided that such consent of the Agent shall not be required for any assignment made by a Lender to an Affiliate of such Lender; and (iv) With respect to any assignment made at a time when no Event of Default exists, the Borrower shall have consented to such assignment, which consent shall not unreasonably be withheld; provided that such consent of the Borrower shall not be required for any assignment made by a Lender to an Affiliate of such Lender. Upon such execution, delivery, approval, acceptance and recording, from and after the effective date specified in each Assignment and Acceptance, which effective date shall be at least five (5) Business Days after the execution date thereof, (x) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned or negotiated to it pursuant to such Assignment and Acceptance, have the rights and obligations of a Lender hereunder (including, in respect of the Collateral, all the rights and obligations of a Holder of Secured Obligations, as fully as if such assignee had been named as a Lender in accordance with the terms of this Agreement) and (y) the Lender assignor thereunder shall, to the extent that rights and obligations hereunder have been assigned or negotiated by it pursuant to such Assignment and Acceptance, relinquish its rights and be released from its obligations under this Agreement and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto but shall continue to be entitled to the benefits of Sections 2.09, 2.10, 2.11, 11.03 and 11.04, as well as to any fees accrued for its account hereunder and not yet paid. (b) By executing and delivering an Assignment and Acceptance, the assigning Lender thereunder and the assignee thereunder confirm to and agree with each other and the other parties hereto as follows: (i) the assignment made under such Assignment and Acceptance is made 84 91 without recourse and, other than as provided in such Assignment or and Acceptance, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or any other Loan Document or any other document, instrument or agreement executed or delivered in connection herewith or therewith or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other Transaction Document or any other instrument or document furnished pursuant hereto or thereto; (ii) such assigning Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of Borrower or any of its Subsidiaries or the performance or observance by Borrower or any of its Subsidiaries of any of its obligations under any Transaction Document or any other instrument or document furnished pursuant hereto; (iii) such assignee confirms that it has received a copy of this Agreement, together with copies of the financial statements most recently delivered pursuant to Article V and such other Loan Documents and other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon the Agent, such assigning Lender or any other Lender or the Issuing Bank and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (v) such assignee appoints and authorizes the Agent to take such action as an Agent on its behalf and to exercise such powers under this Agreement and the other Loan Documents as are delegated to the Agent by the terms hereof and thereof, together with such powers as are reasonably incidental thereto; and (vi) such assignee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement are required to be performed by it as a Lender. (c) The Agent shall maintain at its address referred to on Schedule A, a copy of each Assignment and Acceptance delivered to and accepted by it and shall record in the Agent's Loan Account the names and addresses of each Lender and the Commitment of, and principal amount of the Loans owing to, such Lender from time to time. Borrower, the Agent, the Issuing Bank and the Lenders may treat each Person whose name is recorded in the Loan Account as a Lender, and all of such Persons as the only Lenders, hereunder for all purposes of this Agreement. (d) Upon its receipt of an Assignment and Acceptance executed by an assigning Lender and the assignee, the Agent shall, if such Assignment and Acceptance has been properly completed and is in substantially the form of Exhibit 1 and if the conditions for the assignment referred to in the Assignment and Acceptance and set forth in Section 11.02(a) have been met, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Agent's Loan Account and (iii) give prompt notice thereof to Borrower. (e) Each Lender may sell participations to one or more banks or other entities as to all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitment and Revolving Credit Exposure; provided that (i) notice thereof is given to the Borrower and the Agent, (ii) such Lender's obligations under this Agreement (including, without limitation, its Commitment to Borrower hereunder) shall remain unchanged, (iii) such Lender shall remain solely responsible to the other parties hereto for the performance of such 85 92 obligations, (iv) the participating banks or other entities shall be entitled to the benefit of the cost protection provisions contained in Sections 2.09, 2.10 and 2.11 to the same extent as if they were Lenders; provided, however, that no such participating bank or entity shall be entitled to receive any greater amount pursuant to such Sections than the Lender from which it purchased its participation would have been entitled to receive in respect of the amount of the participation transferred by such Lender to such participating bank or entity had no transfer occurred, (v) Borrower, the Agent, the Issuing Bank and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and with regard to any and all payments to be made under this Agreement, and (vi) the holder of any such participation shall not be entitled to voting rights under this Agreement; provided that the participation agreement between a Lender and its participants may provide that such Lender will obtain the approval of such participant prior to any amendment or waiver of any provisions of this Agreement which would (A) extend the Termination Date or the time of payment of interest thereon or fees, (B) reduce the interest rate or any fees here under, or the principal amount of the Loans or LC Disbursements, (C) increase the aggregate amount of the Commitment or the Revolving Credit Exposure of the Lender granting the participation, or increase such Lender's Pro Rata Share, (D) release all or substantially all of the Collateral, or (E) release any of the Subsidiary Guaranties. (f) Upon the acceptance by the Agent of any Assignment and Acceptance, the parties to such Assignment and Acceptance may at any time request that new Notes be issued to the Lender assignor and the Lender assignee by (i) providing written notice of such request to the Agent and the Borrower and (ii) delivering to the Borrower such assigning Lender's Note for cancellation and substitution. Promptly following receipt by the Borrower of any such notice, and verification from the Agent that the applicable Assignment and Acceptance shall have been accepted by the Agent, the Borrower forthwith shall cause to be executed, and shall deliver to the Lender assignee, a new Note to the order of the assignee and, if applicable, a replacement Note to the order of the Lender assignor, and such Notes shall equal the aggregate principal amount of such assigning Lender's Note issued by the Borrower immediately prior to the acceptance by the Agent of the applicable Assignment and Acceptance. The Borrower shall immediately upon delivery of such new Note(s), cancel the original Note delivered by the Lender assignor to the Borrower. (g) Notwithstanding anything herein to the contrary, each Lender may assign all or any portion of its rights under this Agreement as collateral security to any Federal Reserve Bank or any Governmental Authority succeeding to its functions. (h) Notwithstanding the foregoing, no Lender, assignee or participant shall assign any portion of its rights or obligations under this Agreement or sell a participating interest in any Note held by such Lender, assignee or participant or assign, sell or otherwise transfer any stock pursuant to any Pledge Agreement to (i) any individual not a citizen of the United States, or (ii) any entity that is not a citizen of the United States qualified to operate vessels in coastwise trade within the meanings of Section 2 of the Shipping Act, 1916 as amended (46 App. U.S.C. Section 802); provided, however, that the foregoing restriction as to assignment, sale or transfer to entities not qualified to operate vessels in coastwise trade may be waived if, in the opinion of counsel to the Agent, said 86 93 assignment, sale or transfer does not result in the loss of U.S. citizen status of the Borrower or any of its Subsidiaries. Within the meaning of the Shipping Act, no corporation, partnership, or association is a citizen of the United States for purposes of operating a vessel in coastwise trade unless at least 75% of the interest in the entity is owned by citizens of the United States. A corporation is not a citizen of the United States unless (a) its president or other chief executive officer and the chairman of its board of directors are citizens of the United States and (b) no more of its directors than a minority of the number necessary to constitute a quorum are noncitizens and (c) the corporation itself is organized under the laws of the United States or of a State, Territory, District, or possession thereof. In the case of a corporation, 75% of the stock is not deemed to be owned by a citizen of the United States (a) if title to 75% of the stock is not vested in citizens of the United States free from any trust or fiduciary obligation in favor of any person not a citizen of the United States; or (b) if 75% of the voting power in such corporation is not vested in citizens of the United States; or (c) if, through any contract or understanding, it is so arranged that more than 25% of the voting power in such corporation may be exercised, directly or indirectly, in behalf of any person who is not a citizen of the Untied States; or (d) if by any other means whatsoever control of any interest in the corporation in excess of 25% is conferred upon or permitted to be exercised by any person who is not a citizen of the United States. 11.03. Expenses. (a) Generally. Whether or not any Funding Date shall have occurred, Borrower agrees upon demand to pay, or reimburse the Agent for all such Agent's and any of its Affiliates' costs and expenses of every type and nature (including, without limitation, the reasonable fees, expenses and disbursements of attorneys and legal assistants (including allocated costs of internal counsel and legal assistants), and such auditors, accountants, appraisers, printers, insurance and environmental advisers, and other consultants retained by the Agent as shall have been reasonably approved by Borrower, and other legal, travel, search and filing fees and expenses and all fees, taxes (except income and franchise taxes), assessments and duties incurred by any of them) incurred by the Agent or its Affiliates in connection with (i) the negotiation, preparation and execution of this Agreement and any amendments or waivers thereto (including, without limitation, the satisfaction or attempted satisfaction of any of the conditions set forth in Article III, the Collateral Documents and the other Transaction Documents or any amendment or waiver thereto and the making of the Loans); (ii) the creation, perfection or protection of the Agent's Liens in the Collateral for the benefit of itself and the Holders of Secured Obligations (including, without limitation, any fees and expenses for title and lien searches, filing and recording fees and taxes, trustee's fees, duplication costs and corporate search fees); (iii) reasonable fees, expenses and disbursements of the Agent's legal counsel (including allocated costs of internal counsel and legal assistants) in connection with the administration of this Agreement, the Transaction Documents, the Loans and the Collateral; and (iv) the protection, collection or enforcement of any of the Obligations or the Collateral. 87 94 (b) After Default. Borrower further agrees to pay, or reimburse the Agent, the Issuing Bank and the Lenders for all out-of-pocket costs and expenses, including, without limitation, reasonable attorneys' and legal assistants' fees, expenses and disbursements (including allocated costs of internal counsel and costs of settlement) incurred by the Agent, the Issuing Bank or any Lender after the occurrence of an Event of Default (i) in enforcing any of the Obligations or in foreclosing against the Collateral or exercising or enforcing any other right or remedy available by reason of such Event of Default; (ii) in connection with any refinancing or restructuring of the credit arrangements provided under this Agreement in the nature of a "work-out" or in any insolvency or bankruptcy proceeding; (iii) in commencing, defending or intervening in any litigation or in filing a petition, complaint, answer, motion or other pleading in any legal proceeding relating to Borrower or any of its Subsidiaries and related to or arising out of the transactions contemplated hereby or by any of the Transaction Documents; (iv) in protecting, preserving, collecting, leasing, selling, taking possession of, or liquidating any of the Collateral; or (v) in attempting to enforce or enforcing any security interest in any of the Collateral or any other rights under the Collateral Documents. Any payments made by Borrower or received by the Agent and applied as reimbursements for costs and expenses under this Section 11.03(b) shall be apportioned among the Agent, the Issuing Bank and the Lenders in the order of priority set forth in Section 2.07. 11.04. Indemnification and Waiver. Borrower agrees to defend, protect, indemnify, and hold harmless the Agent, the Issuing Bank, each Lender and each Related Party of each of the foregoing (collectively called the "Indemnitees") from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, expenses and disbursements of any kind or nature whatsoever (including, without limitation, the reasonable fees and disbursements of counsel for such Indemnitees) in connection with any investigative, administrative or judicial proceeding, whether or not such Indemnitees shall be designated a party thereto that may be imposed on, incurred by, or asserted against such Indemnitees (whether direct, indirect or consequential and whether based on any federal or state laws or other statutory regulations, including, without limitation, securities and commercial laws and regulations, under common law or at equitable cause, or on contract or otherwise, including any liabilities and costs under federal, state or local environmental, health or safety laws, regulations, or common law principles, arising from or in connection with the past, present or future operations of Borrower and of its Subsidiaries, or their respective predecessors in interest, or the past, present or future environmental condition of the Property of Borrower or any of its Subsidiaries, the presence of asbestos-containing materials at any such Property, or the Release or threatened Release of any Contaminant into the environment from any such Property) in any manner relating to or arising out of this Agreement, the Collateral Documents or any of the other Transaction Documents, the capitalization of Borrower, the Lenders' Commitments, the making or issuance of, management of and participation in the Loans or the Letters of Credit or the use or intended use of and the proceeds of the Loans or the Letters of Credit hereunder (collectively, the "Indemnified Matters"); provided that Borrower shall have no obligation to an Indemnitee hereunder with respect to (i) matters for which such Indemnitee has been compensated pursuant to or for which an exemption is provided in Section 2.09(d) or 2.11(b) or any other provision of this Agreement and (ii) Indemnified Matters caused by or resulting from the gross negligence or willful misconduct of that Indemnitee, as determined by a final judgment of a court 88 95 of competent jurisdiction. To the extent that the undertaking to indemnify, pay and hold harmless set forth in this Section 11.04 may be unenforceable because it is violative of any law or public policy, Borrower shall contribute the maximum portion which it is permitted to pay and satisfy under applicable law, to the payment and satisfaction of all Indemnified Matters incurred by the Indemnitees. Without prejudice to the survival of any other agreement of Borrower hereunder, the agreements and obligations of Borrower contained in this Section 11.04 shall survive the payment in full of principal and interest hereunder and the termination of this Agreement. 11.05. Limitation of Liability. No claim may be made by Borrower, any Lender or other Person against the Agent, the Issuing Bank, any Lender or any Related Party of any of them for any special, indirect, consequential or punitive damages in respect of any claim for breach of contract or any other theory of liability arising out of or related to the transactions contemplated by this Agreement or any other Transaction Document, or any act, omission or event occurring in connection therewith, and Borrower and each Lender hereby waives, releases and agrees not to sue upon any claim for any such damages, whether or not accrued and whether or not known or suspected to exist in its favor. 11.06. Ratable Sharing. Subject to Sections 2.07, the Lenders agree among themselves that (i) with respect to all amounts received by them which are applicable to the payment of the Agreement Obligations (excluding amounts payable under this Agreement which are determined on a non-pro-rata basis, including, without limitation, amounts payable under Sections 2.02(c), 2.05(b), 2.09(d), 2.10, 2.11, 2.14, 11.03 and 11.04), equitable adjustment will be made so that, in effect, all such amounts will be shared among them ratably in accordance with their Pro Rata Shares, whether received by voluntary payment, by the exercise of the right of set-off or banker's lien, by counterclaim or cross action or by the enforcement of any or all of the Agreement Obligations (excluding amounts payable under this Agreement which are determined on a non-pro-rata basis, including, without limitation, amounts payable under Sections 2.02(c), 2.05(b), 2.09(d), 2.10, 2.11, 2.14, 11.03 and 11.04) or the Collateral, (ii) if any of them shall by voluntary payment or by the exercise of any right of counterclaim, setoff, banker's lien or otherwise, receive payment of a proportion of the aggregate amount of the Agreement Obligations held by it which is greater than its Pro Rata Share of the payments on account of the Agreement Obligations (excluding the fees described or referred to in Section 2.05), the one receiving such excess payment shall purchase, without recourse or warranty, an undivided interest and participation (which it shall be deemed to have been done simultaneously upon the receipt of such payment) in such Agreement Obligations owed to the others so that all such recoveries with respect to such Agreement Obligations shall be applied ratably in accordance with their Pro Rata Shares; provided that if all or part of such excess payment received by the purchasing party is thereafter recovered from it, those purchases shall be rescinded and the purchase prices paid for such participations shall be returned to that party to the extent necessary to adjust for such recovery, but without interest except to the extent the purchasing party is required to pay interest in connection with such recovery. Borrower agrees that any Lender so purchasing a participation from another Lender pursuant to this Section 11.06 may, to the fullest extent permitted by law, exercise all its rights of payment with respect to such participation as fully as if such Lender were the direct creditor of Borrower in the amount of such participation. 89 96 11.07. Amendments and Waivers. Subject to the provisions of Section 2.07(b)(ii) no amendment or modification of any provision of this Agreement shall be effective without the written agreement of the Requisite Lenders and Borrower, and no termination or waiver of any provision of this Agreement, or consent to any departure by Borrower therefrom, shall in any event be effective without the written concurrence of the Requisite Lenders, which the Requisite Lenders shall have the right to grant or withhold at their sole discretion; provided that any amendment, modification, or waiver of any provision of this Agreement which would (i) extend the time of expiration or termination of any of the Commitments or the Termination Date or the time of payment of principal on any Loan or LC Disbursement, interest thereon or fees or waive any prescribed prepayment (including, without limitation by any amendment to or waiver of Section 9.02(a)), (ii) reduce the interest rate, the amount of any fees, indemnities or reimbursements hereunder, or the principal amount of the Loans or LC Disbursements (including, without limitation by any amendment to or waiver of Section 9.02(a)), (iii) increase the aggregate amount of the Commitments or the Loans of the Lenders or the Lenders' participations in Letters of Credit or LC Disbursements or increase any Lender's Pro Rata Share or waive any prescribed reduction in the Commitments, (iv) release the security interest of the Holders of Secured Obligations in all or substantially all of the Collateral or, except in connection with a sale or other disposition permitted under Section 7.02, any of the Delta Queen, the Mississippi Queen or any New Vessel, (v) release any of the Subsidiary Guaranties or (vi) amend the definitions of "Requisite Lenders" or "Pro Rata Share," the provisions of Section 2.01(b), the provisions of Section 7.02(a), the next to the last sentence of Section 11.15 or the provisions contained in Section 11.06 or in this Section 11.07 or the parties whose consent is required for action hereunder or under the other Loan Documents, shall be effective only if evidenced by a writing signed by or on behalf of all Lenders. No amendment, modification, termination, or waiver of any provision of Article X or any other provision referring to the Agent shall be effective without the written concurrence of the Agent, and no amendment, modification, termination or waiver of any provision of this Agreement affecting the rights or obligations of the Issuing Bank shall be effective without the written concurrence of the Issuing Bank. The Agent may, but shall have no obligation to, with the concurrence of any Lender, execute amendments, modifications, waivers or consents on behalf of such Lender. Any waiver or consent shall be effective only in the specific instance and for the specific purpose for which it was given. No notice to or demand on Borrower in any case shall entitle Borrower to any other or further notice or demand in similar or other circumstances. The making of a Loan or the issuance of a Letter of Credit shall not be construed as a waiver of any Event of Default or Potential Event of Default, regardless of whether the Agent, any Lender or the Issuing Bank may have had notice or knowledge thereof at the time. Any amendment, modification, termination, waiver or consent effected in accordance with this Section 11.07 shall be binding on each assignee, transferee or recipient of a Lender's Commitment or Revolving Credit Exposure, each future assignee, transferee, recipient of a Lender's Commitment or Revolving Credit Exposure, and, if signed by Borrower, on Borrower. 11.08. Notices. Unless otherwise specifically provided herein, any notice or other communication herein required or permitted to be given shall be in writing and may be personally served, telecopied, telexed or sent by courier service or United States mail and shall be deemed to have been given when delivered in person or by courier service, upon receipt of a telecopy or telex 90 97 or upon delivery or refusal to accept delivery if deposited in the United States mail (registered or certified, with postage prepaid and properly addressed). Notices to the Agent shall not be effective until received by the Agent. For the purposes hereof, the addresses of the parties hereto (until notice of a change thereof is delivered as provided in this Section 11.08) shall be as set forth in Schedule A or on the applicable Assignment and Acceptance, or, as to each party, at such other address as may be designated by such party in a written notice to all of the other parties. 11.09. Failure or Indulgence Not Waiver; Remedies Cumulative. No failure or delay on the part of the Agent or any Lender in the exercise of any power, right or privilege under any of the Loan Documents shall impair such power, right or privilege or be construed to be a waiver of any default or acquiescence therein, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. All rights and remedies existing under the Loan Documents are cumulative to and not exclusive of any rights or remedies otherwise available. 11.10. Termination. Upon the termination in whole of the Commitments pursuant to the terms of this Agreement, Borrower shall pay to the Agent for the benefit of the Lenders an amount equal to any and all Agreement Obligations then outstanding. 11.11. Marshalling; Recourse to Security; Payments Set Aside. Neither any Lender nor the Agent shall be under any obligation to marshal any assets in favor of Borrower or any other party or against or in payment of any or all of the Obligations. Recourse to security shall not be required at any time. To the extent that Borrower makes a payment or payments to the Agent, the Issuing Bank or the Lenders, or the Agent, the Issuing Bank or the Lenders enforce their security interests or exercise their rights of setoff, and such payment or payments or the proceeds of such enforcement or setoff or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, state or federal law, common law or equitable cause, then to the extent of such recovery, the obligation or part thereof originally intended to be satisfied, and all Liens, right and remedies therefor, shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred. 11.12. Severability. In case any provision in or obligation under this Agreement or the other Loan Documents shall be invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining provisions or obligations, or of such provision or obligation in any other jurisdiction, shall not in any way be affected or impaired thereby. 11.13. Headings. Article and Section headings in this Agreement and in the Table of Contents hereto are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose or be given any substantive effect. 11.14. GOVERNING LAW. THE AGENT HEREBY ACCEPTS THIS AGREEMENT, ON BEHALF OF ITSELF AND THE LENDERS, AT NEW YORK, NEW 91 98 YORK BY ACKNOWLEDGING AND AGREEING TO IT THERE. ANY DISPUTE AMONG THE BORROWER, THE AGENT, THE ISSUING BANK, ANY LENDER OR ANY OTHER HOLDER OF SECURED OBLIGATIONS ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, AND WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK AND THE GENERAL MARITIME LAWS OF THE UNITED STATES. 11.15. Successors and Assigns; Subsequent Holders of Notes. This Agreement and the other Loan Documents shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. The terms and provisions of this Agreement shall inure to the benefit of any assignee or transferee of the Revolving Credit Exposure and Commitment of any Lender (to the extent such assignment or transfer is effected in accordance with Section 11.02), and in the event of such transfer or assignment, the rights and privileges herein conferred upon Lenders shall automatically extend to and be vested in such transferee or assignee, all subject to the terms and conditions hereof. Borrower's rights or any interest therein hereunder, and Borrower's duties and Obligations hereunder, may not be assigned without the written consent of all of the Lenders. All of Borrower's obligations and duties under this Agreement and under each of the other Loan Documents shall be binding upon each of Borrower's successors and assigns, including, without limitation, any receiver, trustee or debtor-in-possession of or for Borrower. 11.16. CONSENT TO JURISDICTION; SERVICE OF PROCESS; JURY TRIAL. (A) EXCLUSIVE JURISDICTION. EXCEPT AS PROVIDED IN SUBSECTION (B), EACH OF THE PARTIES HERETO AGREES THAT ALL DISPUTES AMONG THEM ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED EXCLUSIVELY BY STATE OR FEDERAL COURTS LOCATED IN NEW YORK, NEW YORK, BUT THE PARTIES HERETO ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF NEW YORK, NEW YORK. EACH OF THE PARTIES HERETO WAIVES IN ALL DISPUTES BROUGHT PURSUANT TO THIS SUBSECTION ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT CONSIDERING THE DISPUTE. (B) OTHER JURISDICTIONS. BORROWER AGREES THAT THE AGENT, THE ISSUING BANK OR ANY LENDER SHALL HAVE THE RIGHT TO PROCEED AGAINST BORROWER OR ITS PROPERTY IN A COURT IN ANY LOCATION TO ENABLE SUCH PERSON TO (1) OBTAIN PERSONAL JURISDICTION OVER THE BORROWER OR (2) REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS 92 99 OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF SUCH PERSON. BORROWER AGREES THAT IT WILL NOT ASSERT ANY PERMISSIVE COUNTERCLAIMS IN ANY PROCEEDING BROUGHT BY SUCH PERSON TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF SUCH PERSON. BORROWER WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN WHICH SUCH PERSON HAS COMMENCED A PROCEEDING DESCRIBED IN THIS SUBSECTION. (C) SERVICE OF PROCESS. BORROWER WAIVES PERSONAL SERVICE OF ANY PROCESS UPON IT AND, AS ADDITIONAL SECURITY FOR THE OBLIGATIONS, IRREVOCABLY APPOINTS THE PRENTICE HALL CORPORATION SYSTEM, INC., WHOSE ADDRESS IS 500 CENTRAL AVENUE, ALBANY, NEW YORK, 12206, AS BORROWER'S AGENT FOR THE PURPOSE OF ACCEPTING SERVICE OF PROCESS ISSUED BY ANY COURT. BORROWER IRREVOCABLY WAIVES ANY OBJECTION (INCLUDING, WITHOUT LIMITATION, ANY OBJECTION OF THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS) WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH IN ANY JURISDICTION SET FORTH ABOVE. (D) WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, ARISING OUT OF, CONNECTED WITH, RELATED TO OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH. EACH OF THE PARTIES HERETO AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT ANY PARTY HERETO MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. (E) WAIVER OF BOND. BORROWER WAIVES THE POSTING OF ANY BOND OTHERWISE REQUIRED OF ANY PARTY HERETO IN CONNECTION WITH ANY JUDICIAL PROCESS OR PROCEEDING TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS OR TO ENFORCE ANY JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF SUCH PARTY, OR TO ENFORCE BY SPECIFIC PERFORMANCE, TEMPORARY RESTRAINING ORDER, PRELIMINARY OR PERMANENT INJUNCTION, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT. 93 100 (F) ADVICE OF COUNSEL. EACH OF THE PARTIES REPRESENTS TO EACH OTHER PARTY HERETO THAT IT HAS DISCUSSED THIS AGREEMENT AND, SPECIFICALLY, THE PROVISIONS OF THIS SECTION 11.16, WITH ITS COUNSEL. 11.17. Counterparts; Effectiveness; Inconsistencies. This Agreement and any amendments, waivers, consents, or supplements may be executed in counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. This Agreement shall become effective against Borrower, each Lender, the Issuing Bank and the Agent on the date when all of such parties have duly executed and delivered this Agreement to each other (delivery by Borrower to the Lenders and the Issuing Bank and by any Lender or the Issuing Bank to the Borrower and any other Lender being deemed to have been made by delivery to the Agent). This Agreement and each of the other Loan Documents shall be construed to the extent reasonable to be consistent one with the other, but to the extent that the terms and conditions of this Agreement are actually inconsistent with the terms and conditions of any other Loan Document, this Agreement shall govern. 11.18. Performance of Obligations. Borrower agrees that the Agent may, but shall have no obligation to, make any payment or perform any act required of Borrower under any Loan Document or take any other action which the Agent in its discretion deems necessary or desirable to protect or preserve the Collateral, including, without limitation, any action to (i) pay or discharge taxes, liens, security interests or other encumbrances levied or placed on or threatened against any Collateral, (ii) effect any repairs or obtain any insurance called for by the terms of any of the Loan Documents and to pay all or any part of the premiums therefor and the costs thereof and (iii) pay any rents payable by Borrower which are more than 30 days past due, or as to which the landlord has given notice of termination, under any lease. The Agent shall use its best efforts to give Borrower notice of any action taken under this Section 11.18 prior to the taking of such action or promptly thereafter provided the failure to give such notice shall not affect Borrower's obligations in respect thereof. The Borrower agrees to pay the Agent, upon demand, the principal amount of all funds advanced by the Agent under this Section 11.18, together with interest thereon at the rate from time to time applicable to Base Rate Loans from the date of such advance until the outstanding principal balance thereof is paid in full. If the Borrower fails to make payment in respect of any such advance under this Section 11.18 within one (1) Business Day after the date the Borrower receives written demand therefor from the Agent, the Agent shall promptly notify each Lender and each Lender agrees that it shall thereupon make available to the Agent, in Dollars in immediately available funds, the amount equal to such Lender's Pro Rata Share of such advance. If such funds are not made available to the Agent by such Lender within one (1) Business Day after the Agent's demand therefor, the Agent will be entitled to recover any such amount from such Lender together with interest thereon at the Federal Funds Effective Rate for each day during the period commencing on the date of such demand and ending on the date such amount is received. The failure of any Lender to make available to the Agent its Pro Rata Share of any such unreimbursed advance under this Section 11.18 shall neither relieve any other Lender of its obligation hereunder to make available to the Agent such other Lender's Pro Rata Share of such advance on the date such payment is to be made nor increase the obligation of any other Lender to make such payment to the Agent. All 94 101 outstanding principal of, and interest on, advances made under this Section 11.18 shall constitute Obligations secured by the Collateral until paid in full by the Borrower. 11.19. ENTIRE AGREEMENT. THIS WRITTEN CREDIT AGREEMENT, TOGETHER WITH THE OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL AGREEMENT AMONG THE PARTIES AS TO ITS SUBJECT MATTER AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS AMONG THE PARTIES. THERE ARE NO ORAL AGREEMENTS AMONG THE PARTIES. 11.20. Confidentiality. Each of the Agent, the Issuing Bank and the Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its and its Affiliates' directors, officers, employees, accountants, legal counsel and other advisors who are actively and directly participating in the preparation, evaluation, administration or enforcement of the Loan Documents (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by any regulatory authority, (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (d) to any other party to this Agreement, (e) in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Agreement or the enforcement of rights hereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section, to any assignee of or participant in, or any prospective assignee of or participant in, any of its rights or obligations under this Agreement, (g) with the consent of the Borrower or (h) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section or (ii) becomes available to the Agent, the Issuing Bank or any Lender on a nonconfidential basis from a source other than the Borrower. For the purposes of this Section, "Information" means all information received from the Borrower relating to the Borrower or its business, other than any such information that is available to the Agent, the Issuing Bank or any Lender on a nonconfidential basis prior to disclosure by the Borrower. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information. 95 102 IN WITNESS WHEREOF, this Agreement has been duly executed on the date set forth above. THE DELTA QUEEN STEAMBOAT CO. as Borrower By: /s/ JORDAN B. ALLEN ------------------------------------- Name: Jordan B. Allen -------------------------------- Title: Executive Vice President ------------------------------- THE CHASE MANHATTAN BANK, as Administrative Agent, as Issuing Bank and as a Lender By: /s/ STEVEN J. FALISKI ------------------------------------- Name: Steven J. Faliski -------------------------------- Title: Vice President ------------------------------- HIBERNIA NATIONAL BANK, as Documentation Agent and as a Lender By: /s/ WILLIAM P. HERRINGTON ------------------------------------- Name: William P. Herrington -------------------------------- Title: Sr. Vice President ------------------------------- BANK ONE, LOUISIANA, NATIONAL ASSOCIATION as a Lender By: /s/ LIZETTE TERRAL ------------------------------------- Name: Lizette Terral -------------------------------- Title: Sr. Vice President ------------------------------- CREDIT AGRICOLE INDOSUEZ, as a Lender By: /s/ KATHERINE L. ABBOTT ------------------------------------- Name: Katherine L. Abbott -------------------------------- Title: First Vice President ------------------------------- By: /s/ DAVID BOUHL ------------------------------------- Name: David Bouhl -------------------------------- Title: First Vice President ------------------------------- THE BANK OF NEW YORK, as a Lender By: /s/ RICHARD RAFFETO ------------------------------------- Name: RICHARD RAFFETO -------------------------------- Title: Vice President ------------------------------- 96 EX-4.(II)(A)(2) 5 SECURITY AGREEMENT 1 4(ii)(a)(2) EXECUTION COPY [BORROWER] SECURITY AGREEMENT SECURITY AGREEMENT ("Agreement"), dated as of February 25, 1999, is made and entered into by and between The Delta Queen Steamboat Co., a Delaware corporation (the "Grantor") and THE CHASE MANHATTAN BANK, a New York banking corporation, as agent (hereinafter in such capacity, the "Agent") for its benefit and for the benefit of the other Holders of Secured Obligations (as referred to and defined in the "Credit Agreement" described below). WHEREAS, the Grantor, certain financial institutions and each other financial institution which from time to time becomes a party thereto in accordance with Section 11.02(a) (together with their respective successors and permitted assigns, individually, a "Lender" and, collectively, the "Lenders") and the Agent are parties to that certain Credit Agreement, dated as of February 25, 1999, (such agreement as it may be amended, restated, supplemented or otherwise modified from time to time, the "Credit Agreement"); WHEREAS, it is a condition precedent to the Lenders' making any loans or otherwise extending credit to the Grantor under the Credit Agreement that the Grantor execute and deliver to the Agent, for its benefit and the benefit of the other Holders of Secured Obligations, a security agreement in substantially the form hereof; and WHEREAS, the Grantor wishes to grant security interests in favor of the Agent, for its benefit and the benefit of the Holders of Secured Obligations, as herein provided; NOW, THEREFORE, in connection of the promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: Section 1. Definitions. All capitalized terms used herein without definitions shall have the respective meanings provided therefor in the Credit Agreement. The term "Uniform Commercial Code" shall mean the Uniform Commercial Code as the same may, from time to time, be in effect in the State of Louisiana; and terms defined therein shall be used herein as defined therein; provided, however, in the event that by reason of mandatory provisions of law, any and all of the attachment, perfection, or priority of the security interest created hereunder is governed by the Uniform Commercial Code as in effect in any jurisdiction other than the State of Louisiana, the term "Uniform Commercial Code" shall mean the Uniform Commercial Code as in effect in such other jurisdiction for the purposes of the provisions hereof related to such attachment, perfection or priority and for purposes of definitions related as such provisions. 2 Section 2. Grant of Security Interest. (a) The Grantor hereby grants to the Agent, for its benefit and the benefit of the other Holders of Secured Obligations, to secure the prompt payment and performance in full when due of the Obligations (whether at stated maturity, by acceleration or otherwise), a security interest in and so pledges and assigns to the Agent, for its benefit and the benefit of the other Holders of Secured Obligations, the following properties, assets and rights of the Grantor, wherever located, whether now owned or hereafter acquired or arising, and all proceeds and products thereof (all of the same being hereinafter called the "Collateral"): All personal and fixture property of every kind and nature including without limitation all furniture, fixtures, machinery, equipment, raw materials, inventory, goods, accounts, contract rights, rights to the payment of money, charter hire, earnings and freight, insurance refund claims and all other insurance claims and proceeds, tort claims, chattel paper, documents, instruments, deposit accounts, investment property and all general intangibles including, without limitation, all membership interests in limited liability companies, partnership interests, tax refund claims, license fees, patents, patent applications, trademarks, trademark applications, trade names, copyrights, copyright applications, rights to sue and recover for past infringement of patents, trademarks and copyrights, technology, know-how and processes, computer programs, computer software, engineering drawings, service marks, customer lists, goodwill, and all licenses, permits agreements of any kind or nature pursuant to which the Grantor possesses, uses or has authority to posses or use property (whether tangible or intangible) of others or which others possess, use or have authority to possess or use property (whether tangible or intangible) of the Grantor, and all recorded data of any kind or nature, regardless of the medium of recording including, without limitation, all software, writings, plans, specifications and schematics, but excluding all trademarks, servicemarks, designs, logos, indicia, trade names, corporate names, company names, business names, fictitious business names, source and product or service identifiers comprised in whole or in part by the words "American Queen" and any designs, logos or other depictions of the vessel known as the American Queen. (b) Pursuant to the terms hereof, the Grantor has endorsed, assigned and delivered to the Agent all negotiable or nonnegotiable instruments, certificated securities and chattel paper pledged by it hereunder, together with instruments of transfer or assignment duly executed in blank as the Agent may have specified. In the event that the Grantor shall, after the date of this Agreement, acquire any other negotiable or nonnegotiable instruments, certificated securities or chattel paper to be pledged by it hereunder, the Grantor shall promptly endorse, assign and deliver the same to the Agent, accompanied by such instruments of transfer or assignment duly executed in blank as the Agent may from time to time specify. To the extent that any securities are uncertificated, the issuer thereof has agreed or, in the case of uncertificated securities hereafter acquired by the Grantor, will agree at the time of such acquisition to comply -2- 3 with instructions originated by the Agent without further consent by the Grantor, with the Agent having at all times the right to obtain definitive certificates (in the Agent's name or in the name of one or more nominees of the Agent) where the issuer customarily issues certificates, all to be held as Collateral hereunder. To the extent that the Grantor has, or acquires after the date of this Agreement, any security entitlement with respect to a financial asset held in a securities account, the securities intermediary maintaining the account has agreed, or will at the time of such acquisition agree, to comply with entitlement orders originated by the Agent without further consent by the Grantor. The Grantor hereby acknowledges that the Agent may, in its discretion, appoint one or more financial institutions to act as the Agent's agent in holding in a custodial account instruments or other financial assets in which the Agent on behalf of the Agent and the other Holders of Secured Obligations is granted a security interest hereunder, including, without limitation, certificates of deposit and other instruments evidencing short-term obligations. (c) Notwithstanding the foregoing provisions of this Section 2, such grant of security interest shall not extend to, and the term "Collateral" shall not include, any chattel paper and general intangibles which are now or hereafter held by the Grantor as licensee, lessee or otherwise, to the extent that (i) such chattel paper and general intangibles are not assignable or capable of being encumbered as a matter of law or under the terms of the license, lease or other agreement applications thereto (but solely to the extent that any such restriction shall be enforceable under applicable law), without the consent of the licensor or lessor thereof or other applicable party thereto and (ii) such consent has not been obtained; provided, however, that the foregoing grant of security interest shall extend to, and the term "Collateral" shall include, (A) any and all proceeds of such chattel paper and general intangibles to the extent that the assignment or encumbering of such proceeds is not so restricted and (B) upon any such licensor, lessor or other applicable party consent with respect to any otherwise excluded chattel paper or general intangibles being obtained, thereafter such chattel paper or general intangibles as well as any and all proceeds thereof that might have theretofore have been excluded from such grant of a security interest and the term "Collateral". Section 3. Title to Collateral, etc. The Grantor is the owner of the Collateral free from any adverse lien, security interest or other encumbrance, except for the security interest created by this Agreement and other liens permitted by the Credit Agreement. None of the Collateral constitutes, or is the proceeds of, "farm products" as defined in Section 9-109(3) of the Uniform Commercial Code of the State of Louisiana. None of the account debtors in respect of any accounts, chattel paper or general intangibles and none of the obligors in respect of any instruments included in the Collateral is a Governmental Authority subject to the Federal Assignment of Claims Act. Section 4. Continuous Perfection. The Grantor's place or places of business and, if it has more than one place of business, its chief executive office are indicated on Schedule 1 attached hereto. The Grantor will not change the same, or the name, identity or corporate structure of the Grantor in any manner, without providing at least 30 days' prior written notice to the Agent. The Collateral other than the Delta Queen and the Mississippi Queen and any Collateral located thereon, to the extent not delivered to the Agent pursuant to Section 2(b), will -3- 4 be kept at those locations listed on Schedule 1 and the Grantor will not remove the Collateral from such locations, except with respect to inventory as required in the ordinary course of business, without providing at least 30 days' prior written notice to the Agent. Section 5. No Liens. Except for the security interest herein granted and liens permitted by the Credit Agreement, the Grantor shall be the owner of the Collateral free from any lien, security interest or other encumbrance, and the Grantor shall defend the same against all claims and demands of all Persons at any time claiming the same or any interests therein adverse to the Agent or any of the other Holders of Secured Obligations. The Grantor shall not pledge, mortgage or create, or suffer to exist a security interest in the Collateral in favor of any Person other than Agent, for its benefit and the benefit of the other Holders of Secured Obligations, except for liens permitted by the Credit Agreement. Section 6. No Transfers. Subject to the provisions of the Credit Agreement, the Grantor will not sell or offer to sell or otherwise transfer the Collateral or any interest therein except for sales or other dispositions of obsolescent items of equipment in the ordinary course of business consistent with past practices. Section 7. Insurance. Grantor shall maintain casualty insurance with respect to the Collateral in accordance with Section 6.05 of the Credit Agreement. Section 8. Maintenance of Collateral; Compliance with Law. The Grantor will keep the Collateral in good order and repair and will not use the same in violation of law or any policy of insurance thereon. The Agent, or its designee, upon reasonable advance notice to Grantor may inspect the Collateral at any reasonable time, wherever located. Section 9. Collateral Protection Expenses; Preservation of Collateral. (a) In its discretion, the Agent may, upon ten (10) days' prior written notice to the Grantor so long as no Event of Default has occurred and is continuing (and otherwise without prior notice), discharge taxes and other encumbrances at any time levied or placed on any of the Collateral (except for taxes and encumbrances being contested by the Grantor in accordance with Section 6.04 of the Credit Agreement), make repairs thereto and pay any necessary filing fees. The Grantor agrees to reimburse the Agent on demand for any and all expenditures so made. The Agent shall have no obligation to the Grantor to make any such expenditures, nor shall the making thereof relieve the Grantor of any default. (b) Anything herein to the contrary notwithstanding, the Grantor shall remain liable under each contract or agreement comprised in the Collateral to be observed or performed by the Grantor thereunder. Neither the Agent nor any other Holder of Secured Obligations shall have any obligation or liability under any such contract or agreement by reason of or arising out of this Agreement or the receipt by the Agent or any other Holder of Secured Obligations of any payment relating to any of the Collateral, nor shall the Agent or any other Holder of Secured Obligations be obligated in any manner to perform any of the obligations of the Grantor under or -4- 5 pursuant to any such contract or agreement, to make inquiry as to the nature or sufficiency of any payment received by the Agent or any other Holder of Secured Obligations in respect of the Collateral or as to the sufficiency of any performance by any party under any such contract or agreement, to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to the Agent or to which the Agent or any other Holder of Secured Obligations may be entitled at any time or times. The Agent's sole duty with respect to the custody, safe keeping and physical preservation of the Collateral in its possession, under Section 9-207 of the Uniform Commercial Code or otherwise, shall be to deal with such Collateral in the same manner as the Agent deals with similar property for its own account. Section 10. Securities and Deposits. If an Event of Default shall have occurred and be continuing, (i) the Agent may at any time, at its option, transfer to itself or any nominee any investment property constituting Collateral, receive any income thereon and hold such income as additional Collateral or apply it to the Obligations, and (ii) whether or not any Obligations are due, the Agent may demand, sue for, collect, or make any settlement or compromise which it deems desirable with respect to the Collateral. Regardless of the adequacy of Collateral or any other security for the Obligations, any deposits or other sums at any time credited by or due from the Agent or any other Holder of Secured Obligations to the Grantor may at any time be applied to or set off against any of the Obligations. Section 11. Notification to Account Debtors and Other Obligors. If an Event of Default shall have occurred and be continuing, the Grantor shall, at the request of the Agent, notify account debtors on accounts, chattel paper and general intangibles of the Grantor and obligors on instruments for which the Grantor is an obligee of the security interest of the Agent in any account, chattel paper, general intangible or instrument and that payment thereof is to be made directly to the Agent or to any financial institution designated by the Agent as the Agent's agent therefor, and the Agent may itself, if an Event of Default shall have occurred and be continuing, without notice to or demand upon the Grantor, so notify account debtors and obligors. After the making of such a request or the giving of any such notification, the Grantor shall hold any proceeds of collection of accounts, chattel paper, general intangibles and instruments received by the Grantor as trustee for the Agent, for its benefit and the benefit of the other Holders of Secured Obligations, without commingling the same with other funds of the Grantor and shall turn the same over to the Agent in the identical form received, together with any necessary endorsements or assignments. The Agent shall apply the proceeds of collection of accounts, chattel paper, general intangibles and instruments received by the Agent to the Obligations, such proceeds to be immediately entered after final payment in cash or solvent credits of the items giving rise to them. Section 12. Further Assurances. The Grantor, at its own expense, shall do, make, execute and deliver all such additional and further acts, things, deeds assurances and instruments as the Agent may reasonably require more completely to vest in and assure to the Agent and the other Holders of Secured Obligations their respective rights hereunder or in any of the Collateral, including, without limitation, (a) executing, delivering and, where appropriate, filing financing -5- 6 statements and continuation statements under the Uniform Commercial Code, (b) obtaining any consent of any licensor, lessor or other applicable party referred to in Section 2(c), (c) obtaining waivers from mortgagees and landlords and (d) taking all actions required by Sections 8-106, 8-301 and 9-115 of the Uniform Commercial Code, as applicable in each relevant jurisdiction, with respect to certificated and uncertificated securities. The Grantor agrees that a carbon, photographic or other reproduction of this security agreement or a financing statement is sufficient as a financing statement. Section 13. Power of Attorney. (a) The Grantor hereby irrevocably constitutes and appoints the Agent and any officer or agent thereof, with full power of substitution, as its true and lawful attorneys-in-fact during the existence of any Event of Default with full irrevocable power and authority in the place and stead of the Grantor or in the Agent's own name, for the purpose of carrying out the terms of this Agreement, without notice to or assent by the Grantor, to do the following: (i) generally to sell, transfer, pledge, make any agreement with respect to or otherwise deal with any of the Collateral in such manner as is consistent with the Uniform Commercial Code and as fully and completely as though the Agent were the absolute owner thereof for all purposes, and to do at the Grantor's expense, at any time, or from time to time, all acts and things which the Agent deems necessary to protect, preserve or realize upon the Collateral and the Agent's security interest therein, in order to effect the intent of this Agreement, all as fully and effectively as the Grantor might do, including, without limitation, (A) the filing and prosecuting of registration and transfer applications with the appropriate federal or local agencies or authorities with respect to trademarks, copyrights and patentable inventions and processes, (B) upon written notice to the Grantor, the exercise of voting rights with respect to voting securities, which rights may be exercised, if the Agent so elects, with a view to causing the liquidation in a commercially reasonable manner of assets of the issuer of any such securities and (C) the execution, delivery and recording, in connection with any sale or other disposition of any Collateral, of the endorsements, assignments or other instruments of conveyance or transfer with respect to such Collateral; and (ii) to file such financing statements with respect hereto, with or without the Grantor's signature, or a photocopy or carbon copy of this Agreement or of a signed financing statement in substitution for a financing statement, as the Agent may deem appropriate and to execute in the Grantor's name such financing statements and continuation statements which may require the Grantor's signature. (b) To the extent permitted by law, the Grantor hereby ratifies all that said attorneys shall lawfully do or cause to be done by virtue hereof. This power of attorney is a power coupled with an interest and shall be irrevocable. -6- 7 (c) The powers conferred on the Agent hereunder are solely to protect the interests of the Agent and the other Holders of Secured Obligations in the Collateral and shall not impose any duty upon the Agent to exercise any such powers. The Agent shall be accountable only for the amounts that it actually receives as a result of the exercise of such powers and neither it nor any of its officers, directors, employees or agents shall be responsible to the Grantor for any act or failure to act, except for the Agent's own gross negligence or willful misconduct. Section 14. Remedies. If an Event of Default shall have occurred and be continuing, the Agent may, without notice to or demand upon the Grantor, declare this Agreement to be in default, and the Agent shall thereafter have in any jurisdiction in which enforcement hereof is sought, in addition to all other rights and remedies, the rights and remedies of a secured party under the Uniform Commercial Code, including, without limitation, the right to take possession of the Collateral, and for that purpose the Agent may, so far as the Grantor can give authority therefor, enter upon any premises on which the Collateral may be situated and remove the same therefrom. The Agent may require the Grantor to assemble all or any part of the Collateral at such location or locations within the state(s) of the Grantor's principal office(s) or at such other locations as the Agent may designate. Unless the Collateral is perishable or threatens to decline speedily in value or is of a type customarily sold on a recognized market, the Agent shall give to the Grantor at least ten (10) Business Days' prior written notice of the time and place of any public sale of Collateral or of the time after which any private sale or any other intended disposition is to be made. The Grantor hereby acknowledges that ten (10) Business Days' prior written notice of such sale or sales shall be reasonable notice. In addition, the Grantor waives any and all rights that it may have to a judicial hearing in advance of the enforcement of any of the Agent's rights hereunder, including, without limitation, its right following an Event of Default to take immediate possession of the Collateral and to exercise its rights with respect thereto. To the extent that any of the Obligations are to be paid or performed by a Person other than the Grantor, the Grantor waives and agrees not to assert any rights or privileges which it may have under Section 9-112 of the Uniform Commercial Code. Section 15. Special Louisiana Provisions. The Grantor hereby agrees as follows: (a) For purposes of Louisiana executory process, the Grantor acknowledges the Obligations secured hereby, whether now existing or to arise hereafter, and confesses judgment thereon. Upon the occurrence of an Event of Default and at any time thereafter so long as the same shall be continuing, and in addition to all other rights and remedies granted the Agent hereunder, it shall be lawful for and the Grantor hereby authorizes the Agent without making a demand or putting the Grantor in default, a putting in default being expressly waived, to cause all and singular the Collateral to be seized and sold after due process of law, the Grantor waiving the benefit of any and all laws or parts of laws relative to the appraisement of property seized and sold under executory process or other legal process, and consenting that the Collateral be sold without appraisement, either in its entirety or in lots or parcels, as the Agent may determine, to the highest bidder for cash or on such other terms as the plaintiff in such proceedings may direct. In addition, the Agent shall have all of the rights and remedies available to it under this -7- 8 Agreement or under the Louisiana Commercial Laws (Louisiana Revised Statutes, Title 10), then in effect, and under Chapter 9 of the Louisiana Commercial Laws, then in effect (La. R.S. 10:9-101 et seq.). (b) the Grantor hereby waives: (i) the benefit of appraisement provided for in Articles 2332, 2336, 2723 and 2724 of the Louisiana Code of Civil Procedure and all other laws conferring the same; (ii) the demand and three (3) days' notice of demand as provided in Articles 2639 and 2721 of the Louisiana Code of Civil Procedure; (iii) the notice of seizure provided by Articles 2293 and 2721 of the Louisiana Code of Civil Procedure; and (iv) the three (3) days' delay provided for in Articles 2331 and 2722 of the Louisiana Code of Civil Procedure. (c) the Grantor expressly authorizes and agrees that the Agent shall have the right to appoint a keeper of the Collateral, or any part thereof, pursuant to the terms and provisions of La. R.S. 9:5136. Section 16. No Waiver, etc. The Grantor waives demand, notice, protest, notice of acceptance of this Agreement, notice of loans made, credit extended, Collateral received or delivered or other action taken in reliance hereon and all other demands and notices of any description. With respect to both the Obligations and the Collateral, the Grantor assents to any extension or postponement of the time of payment or any other indulgence, to any substitution, exchange or release of Collateral, to the addition or release of any party or Person primarily or secondarily liable, to the acceptance of partial payment thereon and the settlement, compromising or adjusting of any thereof, all in such manner and at such time or times as the Agent may deem advisable. The Agent shall have no duty as to the collection or protection of the Collateral or any income thereon, nor as to the preservation of rights against prior parties, nor as to the preservation of any rights pertaining thereto beyond the safe custody thereof as set forth in Section 9(b). The Agent shall not be deemed to have waived any of its rights upon or under the Obligations or the Collateral unless such waiver shall be in writing and signed by the Agent. No delay or omission on the part of the Agent in exercising any right shall operate as a waiver of such right or any other right. A waiver on any one occasion shall not be construed as a bar to or waiver of any right on any future occasion. All rights and remedies of the Agent with respect to the Obligations or the Collateral, whether evidenced hereby or by any other instrument or papers, shall be cumulative and may be exercised singularly, alternatively, successively or concurrently at such time or at such times as the Agent deems expedient. -8- 9 Section 17. Marshalling. Neither the Agent nor any other Holder of Secured Obligations shall be required to marshal any present or future collateral security (including but not limited to this Agreement and the Collateral) for, or other assurances of payment of, the Obligations or any of them or to resort to such collateral security or other assurances of payment in any particular order, and all of the rights of the Agent hereunder and of the Agent or any other Holder of Secured Obligations in respect of such collateral security and other assurances of payment shall be cumulative and in addition to all other rights, however existing or arising. To the extent that it lawfully may, the Grantor hereby agrees that it will not invoke any law relating to the marshalling of collateral which might cause delay in or impede the enforcement of the Agent's rights under this Agreement or under any other instrument creating or evidencing any of the Obligations or under which any of the Obligations is outstanding or by which any of the Obligations is secured or payment thereof is otherwise assured, and, to the extent that it lawfully may, the Grantor hereby irrevocably waives the benefits of all such laws. Section 18. Proceeds of Dispositions; Expenses. The Grantor shall pay to the Agent on demand any and all expenses, including reasonable attorneys' fees and disbursements, incurred or paid by the Agent in protecting, preserving or enforcing the Agent's rights under or in respect of any of the Collateral. After deducting all of said expenses, the residue of any proceeds of collection or sale of the Collateral shall, to the extent actually received in cash, be applied to the payment of the Obligations in accordance with Section 2.07(b) of the Credit Agreement. Upon the indefeasible payment and satisfaction in full of all of the Obligations and the termination of all financial arrangements among the Grantor and the Holders of Secured Obligations (other than continuing contingent indemnity obligations), and after making any payments required by Section 9-504(1)(c) of the Uniform Commercial Code, any excess shall be returned to the Grantor, and the Grantor shall remain liable for any deficiency in the payment of the Obligations. Section 19. Agent. The Agent shall exercise its rights and remedies hereunder in accordance with the provisions of the Credit Agreement, including without limitation the provisions for acting upon the request or at the direction of one or more of the Lenders. Section 20. Overdue Amounts. Until paid, all amounts due and payable by the Grantor hereunder shall be a debt secured by the Collateral and shall bear, whether before or after judgment, interest at the Default Rate as set forth in the Credit Agreement. Section 21. GOVERNING LAW. THIS AGREEMENT AND ANY DISPUTE AMONG THE GRANTOR, THE AGENT OR ANY OTHER HOLDER OF SECURED OBLIGATIONS ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, AND WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE INTERPRETED AND RESOLVED IN ACCORDANCE WITH THE LAWS OF THE STATE OF LOUISIANA. Section 22. CONSENT TO JURISDICTION; SERVICE OF PROCESS; JURY TRIAL. -9- 10 (A) EXCLUSIVE JURISDICTION. EXCEPT AS PROVIDED IN SUBSECTION (B), EACH OF THE PARTIES HERETO AGREES THAT ALL DISPUTES AMONG THEM ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED EXCLUSIVELY BY STATE OR FEDERAL COURTS LOCATED IN NEW YORK, NEW YORK, BUT THE PARTIES HERETO ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF NEW YORK, NEW YORK. EACH OF THE PARTIES HERETO WAIVES IN ALL DISPUTES BROUGHT PURSUANT TO THIS SUBSECTION ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT CONSIDERING THE DISPUTE. (B) OTHER JURISDICTIONS. THE GRANTOR AGREES THAT THE AGENT OR ANY OTHER HOLDER OF SECURED OBLIGATIONS SHALL HAVE THE RIGHT TO PROCEED AGAINST THE GRANTOR OR ITS PROPERTY IN A COURT IN ANY LOCATION TO ENABLE SUCH PERSON TO (1) OBTAIN PERSONAL JURISDICTION OVER THE GRANTOR OR (2) REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF SUCH PERSON. THE GRANTOR AGREES THAT IT WILL NOT ASSERT ANY PERMISSIVE COUNTERCLAIMS IN ANY PROCEEDING BROUGHT BY SUCH PERSON TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF SUCH PERSON. THE GRANTOR WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN WHICH SUCH PERSON HAS COMMENCED A PROCEEDING DESCRIBED IN THIS SUBSECTION. (C) SERVICE OF PROCESS. THE GRANTOR WAIVES PERSONAL SERVICE OF ANY PROCESS UPON IT AND, AS ADDITIONAL SECURITY FOR THE OBLIGATIONS, IRREVOCABLY APPOINTS THE PRENTICE-HALL CORPORATION SYSTEM, INC., WHOSE ADDRESS IS 500 CENTRAL AVENUE, ALBANY, NEW YORK, 12206, AS THE GRANTOR'S AGENT FOR THE PURPOSE OF ACCEPTING SERVICE OF PROCESS ISSUED BY ANY COURT. THE GRANTOR IRREVOCABLY WAIVES ANY OBJECTION (INCLUDING, WITHOUT LIMITATION, ANY OBJECTION OF THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS) WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH IN ANY JURISDICTION SET FORTH ABOVE. (D) WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR -10- 11 OTHERWISE, ARISING OUT OF, CONNECTED WITH, RELATED TO OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH. EACH OF THE PARTIES HERETO AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT ANY PARTY HERETO MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. (E) WAIVER OF BOND. THE GRANTOR WAIVES THE POSTING OF ANY BOND OTHERWISE REQUIRED OF ANY PARTY HERETO IN CONNECTION WITH ANY JUDICIAL PROCESS OR PROCEEDING TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS OR TO ENFORCE ANY JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF SUCH PARTY, OR TO ENFORCE BY SPECIFIC PERFORMANCE, TEMPORARY RESTRAINING ORDER, PRELIMINARY OR PERMANENT INJUNCTION, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT. Section 23. Miscellaneous. The headings of each section of this Agreement are for convenience only and shall not define or limit the provisions thereof. This Agreement and all rights and obligations hereunder shall be binding upon the Grantor and its respective successors and assigns, and shall inure to the benefit of the Agent, the other Holders of Secured Obligations and their respective successors and permitted assigns. If any term of this Agreement shall be held to be invalid, illegal or unenforceable, the validity of all other terms hereof shall in no way be affected thereby, and this Agreement shall be construed and be enforceable as if such invalid, illegal or unenforceable term had not been included herein. The Grantor acknowledges receipt of a copy of this Agreement. Section 24. Notice, Etc. All notices, requests, consents, approvals, waivers and other communications under this Agreement to the Grantor shall be given in the manner and to the addresses set forth in the Credit Agreement. -11- 12 IN WITNESS WHEREOF, this Agreement has been duly executed as of the date first above written. THE DELTA QUEEN STEAMBOAT CO. By: /s/ JORDAN B. ALLEN -------------------------------- Name: Jordan B. Allen Title: Executive Vice President THE CHASE MANHATTAN BANK, as Agent By: /s/ STEVEN J. FALISKI -------------------------------- Name: Steven J. Faliski ------------------------------ Title: Vice President ------------------------------ -12- 13 CERTIFICATE OF ACKNOWLEDGMENT STATE OF ILLINOIS ) ) ss COUNTY OF COOK ) Before me, the undersigned, a Notary Public in and for the county aforesaid, on this ____ day of February, 1999, personally appeared Jordan B. Allen to me known personally, and who, being by me duly sworn, deposes and says that he is the Executive Vice President of The Delta Queen Steamboat Co., and that said instrument was signed and sealed on behalf of said corporation by authority of its Board of Directors, and said Executive Vice President acknowledged said instrument to be the free act and deed of said corporation. -------------------------------- Notary Public My Commission Expires: -13- 14 SCHEDULE 1 to SECURITY AGREEMENT dated as of February , 1999 Places of Business and Chief Executive Office of the Grantor The Delta Queen Steamboat Co Robin Street Wharf 1380 Port of New Orleans Place New Orleans, LA 70130 -14- EX-4.(II)(A)(3) 6 STOCK PLEDGE AGREEMENT 1 4(ii)(a)(3) EXECUTION COPY BORROWER STOCK PLEDGE AGREEMENT THIS STOCK PLEDGE AGREEMENT ("Agreement") is made as of February 25, 1999, by and between THE DELTA QUEEN STEAMBOAT CO., a Delaware corporation (the "Pledgor") and THE CHASE MANHATTAN BANK, a New York banking corporation, as agent (hereinafter in such capacity, the "Agent") for its benefit and the benefit of the other Holders of Secured Obligations (as such term is referred to and defined in the "Credit Agreement" described below). WHEREAS, the Pledgor, THE FINANCIAL INSTITUTIONS LISTED ON THE SIGNATURE PAGES THEREOF and each other financial institution which from time to time becomes a party thereto in accordance with Section 11.02(a) thereof (together with their respective successors and permitted assigns, individually, a "Lender" and, collectively, the "Lenders") and the Agent are parties to that certain Credit Agreement, dated as of February 25, 1999 (as amended, restated, supplemented or otherwise modified from time to time, the "Credit Agreement"); WHEREAS, it is a condition precedent to the Lenders' making any loans or otherwise extending credit to the Pledgor under the Credit Agreement that the Pledgor execute and deliver to the Agent, for its benefit and the benefit of the other Holders of Secured Obligations, a pledge agreement in substantially the form hereof with respect to all the issued and outstanding shares of the capital stock or other form of equity interest in certain Subsidiaries described on Annex A; and WHEREAS, the Pledgor is presently the record and beneficial owner of all of the issued and outstanding shares of the capital stock (or other form of equity) of each of the Subsidiaries described on Annex A; and WHEREAS, the Pledgor wishes to grant and pledge the security interests in favor of the Agent, for its benefit and the benefit of the other Holders of Secured Obligations, as herein provided; NOW, THEREFORE, in consideration of the premises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: Section 1. Pledge of Stock, Etc. 2 (a) The Pledgor hereby pledges, assigns, grants a security interest in, and delivers to the Agent, for its benefit and the benefit of the other Holders of Secured Obligations, all the shares of capital stock (or other equity) of the Subsidiaries of every class described on Annex A hereto, to be held by the Agent, for its benefit and the benefit of the other Holders of Secured Obligations, subject to the terms and conditions hereinafter set forth. The certificates for such shares, accompanied by stock powers or other appropriate instruments of assignment thereof duly executed in blank by the Pledgor, have been delivered to the Agent. (b) In case the Pledgor shall acquire any additional shares of the capital stock (or other equity) of any Subsidiary, or corporation or other business entity which is the successor of a Subsidiary described on Annex A hereto, or any securities exchangeable for or convertible into shares of such capital stock (or other equity) of any class of such Subsidiary, by purchase or otherwise, then the Pledgor shall forthwith deliver to and pledge such shares or other securities to the Agent, for its benefit and the benefit of the other Holders of Secured Obligations, under this Agreement. (c) The Pledgor also hereby pledges, assigns, grants a security interest in, and delivers to the Agent, for its benefit and the benefit of the other Holders of Secured Obligations, the Cash Collateral Account and all of the Cash Collateral as such terms are hereinafter defined. (d) In the event the Pledgor shall acquire any shares of the capital stock (or other equity) of any additional Subsidiary formed or acquired as a corporation the capital stock of which is required to be pledged to the Agent hereunder pursuant to Section 6.10 of the Credit Agreement, the Pledgor shall execute and deliver to the Agent, for its benefit and the benefit of the other Holders of Secured Obligations, a supplement to this Agreement in the form of Exhibit A attached hereto with respect to all classes of such capital stock and shall deliver to the Agent therewith all certificates for the shares of such capital stock, which shall be described on Annex A thereto, accompanied by stock powers or other appropriate instruments of assignment thereof duly executed in blank by the Pledgor, all within the time period prescribed by Section 6.10 of the Credit Agreement. Section 2. Definitions. The term "Obligations" and all other capitalized terms used herein without definition shall have the respective meanings provided therefor in the Credit Agreement. Terms used herein and not defined in the Credit Agreement or otherwise defined herein that are defined in the Uniform Commercial Code of New York have such defined meanings herein, unless the context otherwise indicated or requires, and the following terms shall have the following meanings: Cash Collateral. See Section 4. Cash Collateral Account. See Section 4. -2- 3 Stock. Includes the shares of capital stock or other equity described in Annex A attached hereto and any additional shares of stock or other forms of equity interest of a Subsidiary listed on Annex A hereto at the time of reference pledged with the Agent hereunder. Stock Collateral. The property at any time pledged to the Agent hereunder and all income therefrom, increases therein and proceeds thereof, including without limitation that included in Cash Collateral, but excluding from the definition of "Stock Collateral" any income, increases or proceeds received by the Pledgor to the extent expressly permitted by Section 6. Time Deposits. See Section 4. Section 3. Security for Obligations. This Agreement and the security interest in and pledge of the Stock Collateral hereunder are made with and granted to the Agent, for its benefit and the benefit of the other Holders of Secured Obligations, as security for the payment and performance in full of all the Obligations. Section 4. Liquidation, Recapitalization, Etc. (a) Any sums or other property paid or distributed upon or with respect to any of the Stock, whether by dividend or redemption or upon the liquidation or dissolution of the issuer thereof or otherwise, shall, except to the limited extent provided in Section 6, be paid over and delivered to the Agent to be held by the Agent, for its benefit and the benefit of the other Holders of Secured Obligations, as security for the payment and performance in full of all of the Obligations. In case, pursuant to the recapitalization or reclassification of the capital of the issuer thereof or pursuant to the reorganization thereof, any distribution of capital shall be made on or in respect of any of the Stock or any property shall be distributed upon or with respect to any of the Stock, the property so distributed shall be delivered to the Agent, for its benefit and the benefit of the other Holders of Secured Obligations, to be held by it as security for the Obligations. Except to the limited extent provided in Section 6, all sums of money and property paid or distributed in respect of the Stock, whether as a dividend or upon such a liquidation, dissolution, recapitalization or reclassification or otherwise, that are received by the Pledgor shall, until paid or delivered to the Agent, be held in trust for the Agent, for its benefit and the benefit of the other Holders of Secured Obligations, as security for the payment and performance in full of all of the Obligations. (b) All sums of money that are delivered to the Agent pursuant to this Section 4 shall be deposited into an interest bearing account with the Agent (the "Cash Collateral Account"). Some or all of the funds from time to time in the Cash Collateral Account may be invested in time deposits, including, without limitation, certificates of deposit issued by the Agent (such certificates of deposit or other time deposits being hereinafter referred to, collectively, as "Time Deposits"), that are reasonably satisfactory to the Agent after consultation with the Pledgor. Interest earned on the Cash Collateral Account and on the Time Deposits, and the principal of the Time Deposits at maturity that is not invested in new Time Deposits, shall be -3- 4 deposited in the Cash Collateral Account. The Cash Collateral Account, all sums from time to time standing to the credit of the Cash Collateral Account, any and all Time Deposits, any and all instruments or other writings evidencing Time Deposits and any and all proceeds or any thereof are hereinafter referred to as the "Cash Collateral." (c) Except as otherwise expressly provided in Section 15, the Pledgor shall have no right to withdraw sums from the Cash Collateral Account, to receive any of the Cash Collateral or to require the agent to part with the Agent's possession of any instruments or other writings evidencing any Time Deposits. Section 5. Warranty of Title; Authority. The Pledgor hereby represents and warrants that: (a) the Pledgor is the sole owner of the Stock described in Section 1, subject to no pledges, liens, security interests, charges, options or other encumbrances except the pledge and security interest in favor of the Agent on behalf of itself and the other Holders of Secured Obligations pursuant to the Loan Documents and (b) the Pledgor has full power, authority and legal right to execute, deliver and perform its obligations under this Agreement and to pledge and grant a security interest in all of the Stock Collateral pursuant to this Agreement, and the execution, delivery and performance hereof and the pledge of and granting of a security interest in the Stock Collateral hereunder have been duly authorized by all necessary corporate or other action and do not contravene in any material respect any applicable law, rule or regulation or any provision of the Pledgor's charter documents or by-laws or of any applicable judgment, decree or order of any tribunal or of any agreement or instrument to which the Pledgor is a party or by which it or any of its property is bound or affected or constitute a default thereunder. The Pledgor covenants that it will defend the rights of the Agent and the other Holders of Secured Obligations and security interest of the Agent, for its benefit and the benefit of the other Holders of Secured Obligations, in such Stock against the claims and demands of all other Persons whomsoever. The Pledgor further covenants that it will have the like title to and right to pledge and grant a security interest in the Stock Collateral hereafter pledged or in which a security interest is granted to the Agent hereunder and will likewise defend the rights, pledge and security interest thereof and therein of the Agent and the other Holders of Secured Obligations. Section 6. Dividends, Voting, Etc., Prior to Maturity. So long as no Event of Default shall have occurred and be continuing, the Pledgor shall be entitled to directly receive all cash dividends and cash distributions paid in respect of the Stock (except liquidation distributions), to vote the Stock and to give consents, waivers and ratifications in respect of the Stock; provided, however, that no vote shall be cast or consent, waiver or ratification given by the Pledgor if the effect thereof would result in any violation of any of the provisions of the Credit Agreement, the Notes or any of the other Loan Documents. All such rights of the Pledgor to receive cash dividends shall cease in case an Event of Default shall have occurred and be continuing. All such rights of the Pledgor to vote and give consents, waivers and ratifications with respect to the Stock shall, at the Agent's option, as evidenced by the Agent's notifying the Pledgor of such election, cease in case an Event of Default shall have occurred and be continuing. -4- 5 Section 7. Remedies. (a) If an Event of Default shall have occurred and be continuing, the Agent shall thereafter have the following rights and remedies (to the extent permitted by applicable law) in addition to the rights and remedies of a secured party under the Uniform Commercial Code of New York, all such rights and remedies being cumulative, not exclusive, and enforceable alternatively, successively or concurrently by the Agent at such time or times as the Agent deems expedient: (i) if the Agent so elects and gives notice of such election to the Pledgor, the Agent may vote any or all shares of the Stock (whether or not the same shall have been transferred into its name or the name of its nominee or nominees) for any lawful purpose, including, without limitation, if the Agent so elects, for the liquidation of the assets of the issuer thereof, and give all consents, waivers and ratifications in respect though it were the outright owner thereof, including without limitation, act by shareholder consent to remove any director of the Pledgor, (the Pledgor hereby irrevocably constituting and appointing the Agent the proxy and attorney-in-fact of the Pledgor, with full power of substitution, to do so long as an Event of Default exists); (ii) the Agent may demand, sue for, collect or make any compromise or settlement the Agent deems suitable in respect of any Stock Collateral; (iii) the Agent may sell, resell, assign and deliver, or otherwise dispose of any or all of the Stock Collateral, for cash or credit or both and upon such terms at such place or places, at such time or Agent thinks expedient, all without demand for performance by the Pledgor or any notice or advertisement whatsoever except as expressly provided herein or as may otherwise be required by law; (iv) the Agent may cause all or any part of the Stock held by it to be transferred into its name or the name of its nominee or nominees; and (v) the Agent may set off against the Obligations any and all sums deposited with it or held by it, including without limitation, any sums standing to the credit of the Cash Collateral Account and any Time Deposits issued by the Agent. (b) In the event of any disposition of the Stock Collateral as provided in clause (iii) of Section 7(a), the Agent shall give to the Pledgor at least ten (10) Business Days' prior written notice of the time and place of any public sale of the Stock Collateral or of the time after which any private sale or any other intended disposition is to be made. The Pledgor hereby acknowledges that ten (10) Business Days' prior written notice of such sale or sales shall be reasonable notice. The Agent may enforce its rights hereunder without any other notice and -5- 6 without compliance with any other condition precedent now or hereunder imposed by statute, rule of law or otherwise (all of which are hereby expressly waived by the Pledgor, to the fullest extent permitted by law). The Agent may buy any part or all of the Stock Collateral at any public sale and if any part or all of the Stock Collateral is of a type customarily sold in a recognized market or is of the type which is the subject of widely-distributed standard price quotations, the Agent may buy at private sale and may make payments thereof by any means. The Agent may apply the cash proceeds actually received from any sale or other disposition to the reasonable expenses of retaking, attorneys' fees, travel and all other expenses which may be incurred by the Agent in attempting to collect the obligations or action or proceeding related to the subject matter of this such order or preference as the Agent may determine after proper allowance for Obligations not then due. Only after such required by Section 9-504(1)(c) of the Uniform Commercial Code of the State of New York, need the Agent account to the Pledgor for any surplus. To the extent that any of the Obligations are to be paid or performed by a Person other than the Pledgor, the Pledgor waives and agrees not to assert any rights or privileges which it may have under Section 9-112 of the Uniform Commercial Code of the State of New York. (c) The Pledgor recognizes that the Agent may be unable to effect a public sale of the Stock by reason of certain prohibitions contained in the Securities Act of 1933, as amended (the "Securities Act"), federal banking laws, and other applicable laws, but may be compelled to resort to one or more private sales thereof to restricted group of purchasers. The Pledgor agrees that any such private sales may be at prices and other terms less favorable to the seller than if sold at public sales and that such private sales shall not by reason thereof be deemed not to have been made in a commercially reasonable manner. The Agent shall be under no obligation to delay a sale of any of the Stock for the period of time necessary to permit the issuer of such securities to register such securities for public sale under the Securities Act, or such other federal banking or other applicable laws, even if the issuer would agree to do so. Section 8. Marshaling. Neither the Agent nor any other Holder of Secured Obligations shall be required to Marshall any present or future collateral security for (including but not limited to this Agreement and the Stock Collateral), or other assurances of payment of, the Obligations or any of them, or to resort to such collateral security or other assurances of payment in any particular order. All of the Agent's rights hereunder and of the Agent and the other Holders of Secured Obligations in respect of such collateral security and other assurances of payment shall be cumulative and in addition to all other rights, however existing or arising. To the extent that it lawfully may, the Pledgor hereby agrees that it will not invoke any law relating to the marshalling of collateral that might cause delay in or impede the enforcement of the Agent's rights under this Agreement or under any other instrument evidencing any of the Obligations or under which any of the obligations is outstanding or by which any of the Obligations is secured or payment thereof is otherwise assured, and to the extent that it lawfully may the Pledgor hereby irrevocably waives the benefits of all such laws. Section 9. Pledgor's Obligations Not Affected. The obligations of the Pledgor hereunder shall remain in full force and effect without regard to, and shall not be impaired by (a) -6- 7 any exercise or nonexercise, or any waiver, by the Agent or any other Holder of Secured Obligations of any right, remedy, power or privilege under or in respect of any of the Obligations or any security therefor (including this Agreement) except to the extent set forth in any writing executed by the Agent; (b) any amendment to or modification of the Credit Agreement, the Note, the other Loan Documents or any of the Obligations; (c) any amendment to or modification of any instrument (other than this Agreement) securing any of the Obligations, including, without limitation, any of the Collateral Documents; (d) the taking of additional security for, or any other assurance of payment of, any of the Obligations of the release or discharge or termination of any security or other assurances of payment or performance for any of the Obligations or (e) any other circumstance which might otherwise constitute a defense available to, or a discharge of, the Pledgor in respect of the obligations or of this Agreement; whether or not the Pledgor shall have notice or knowledge of an of the foregoing. Section 10. Transfer, Etc., by Pledgor. Without the prior written consent of the Agent, the Pledgor will not sell, assign, transfer or otherwise dispose of, grant any option with restrict any of the Stock Collateral or any interest therein, except for the pledge or grant any security interest in or otherwise encumber or restrict any of the Stock Collateral or any interest therein, except for the pledge thereof and security interest therein provided for in this Agreement. Section 11. Further Assurances. The Pledgor will do all such acts, and will furnish to the Agent all such financing statements, certificates, legal opinions, corporate approvals and other documents, as the Agent may reasonably request from time to time in order to give full effect to this Agreement and to secure the rights of the Agent and the other Holders of Secured Obligations hereunder, all without any cost or expense to the Agent or any such Holder. If the Agent so elects, a photocopy of this Agreement may at any time and from time to time be filed by the Agent as a financing statement in any recording office in any jurisdiction. Section 12. Agent; Agent's Exoneration. The Agent shall exercise its rights and remedies hereunder in accordance with the provisions of the Credit Agreement, including without limitation the provisions for acting upon the request or at the direction of one or more of the Holders of Secured Obligations. Under no circumstances shall the Agent be deemed to assume any responsibility for or obligation or duty with respect to any part or all of the Stock Collateral of any nature or kind or any matter or proceedings arising out of or relating thereto, other than (a) to exercise reasonable care in the physical custody of the Stock Collateral and (b) after an Event of Default shall have occurred and be continuing to act in a commercially reasonable manner. Neither the Agent nor any other Holder of Secured Obligation shall be required to take any action of any kind to collect, preserve or protect its or the Pledgor's rights in the Stock Collateral or against other parties thereto. The Agent's prior recourse to any part or all of the Stock Collateral shall not constitute a condition of any demand, suit or proceeding for payment or collection of any of the Obligations. Section 13. No Waiver, Etc. Neither this Agreement nor any term hereof may be changed, waived, discharged or terminated except by a written instrument expressly referring to -7- 8 this Agreement and to the provisions so modified or limited, and executed by the Agent and the Pledgor. No act, failure or delay by the Agent shall constitute a waiver of its rights and remedies hereunder or otherwise. No single or partial waiver by the Agent of any default or right or remedy that it may have shall operate as a waiver of any other default, right or remedy or of the same default, right or remedy on a future occasion. The Pledgor hereby waives presentment, notice of dishonor and protest of all instruments, included in or evidencing any of the Obligations or the Stock Collateral, and any and all other notices and demands whatsoever (except as expressly provided herein, in the Credit Agreement or in the other Loan Documents). Section 14. Notice, Etc. All notices, requests and other communications hereunder shall be made in the manner set forth in the Credit Agreement. Section 15. Termination. Upon indefeasible payment and satisfaction in full of all of the Obligations and after termination of all financial arrangements among the Pledgor and the Holders of Secured Obligations (other than continuing contingent indemnity obligations), and after making any payments required by Section 9-504(1)(c) of the Uniform Commercial Code, this Agreement shall terminate and the Agent shall, at the Pledgor's request and expense, promptly return such Stock Collateral in the possession or control of the Agent as has not theretofore been disposed of pursuant to the provisions hereof, together with any moneys and other property at the time held by the Agent hereunder. Section 16. Overdue Amounts. Until paid, all amounts due and payable by the Pledgor hereunder shall be a debt secured by the Stock Collateral and shall bear, whether before or after judgment, interest at the Default Rate set forth in the Credit Agreement. Section 17. GOVERNING LAW. THE AGENT HEREBY ACCEPTS THIS AGREEMENT ON BEHALF OF ITSELF AND THE OTHER HOLDERS OF SECURED OBLIGATIONS, AT NEW YORK, NEW YORK BY ACKNOWLEDGING AND AGREEING TO IT THERE. ANY DISPUTE AMONG THE PLEDGOR, THE AGENT AND ANY OTHER HOLDER OF SECURED OBLIGATIONS ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, AND WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. Section 18. CONSENT TO JURISDICTION; SERVICE OF PROCESS; JURY TRIAL. (A) EXCLUSIVE JURISDICTION. EXCEPT AS PROVIDED IN SUBSECTION (B), EACH OF THE PARTIES HERETO AGREES THAT ALL DISPUTES AMONG THEM ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN -8- 9 CONNECTION WITH, THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED EXCLUSIVELY BY STATE OR FEDERAL COURTS LOCATED IN NEW YORK, NEW YORK, BUT THE PARTIES HERETO ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF NEW YORK, NEW YORK. EACH OF THE PARTIES HERETO WAIVES IN ALL DISPUTES BROUGHT PURSUANT TO THIS SUBSECTION ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT CONSIDERING THE DISPUTE. (B) OTHER JURISDICTIONS. THE PLEDGOR AGREES THAT THE AGENT OR ANY OTHER HOLDER OF SECURED OBLIGATIONS SHALL HAVE THE RIGHT TO PROCEED AGAINST THE PLEDGOR OR ITS PROPERTY IN A COURT IN ANY LOCATION TO ENABLE SUCH PERSON TO (1) OBTAIN PERSONAL JURISDICTION OVER THE PLEDGOR OR (2) REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF SUCH PERSON. THE PLEDGOR AGREES THAT IT WILL NOT ASSERT ANY PERMISSIVE COUNTERCLAIMS IN ANY PROCEEDING BROUGHT BY SUCH PERSON TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF SUCH PERSON. EXCEPT AS PROHIBITED BY LAW, THE PLEDGOR WAIVES ANY RIGHT WHICH IT MAY HAVE TO CLAIM OR RECOVER IN ANY LITIGATION REFERRED TO IN THE PRECEDING SENTENCE ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES. THE PLEDGOR WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN WHICH SUCH PERSON HAS COMMENCED A PROCEEDING DESCRIBED IN THIS SUBSECTION. (C) SERVICE OF PROCESS. THE PLEDGOR WAIVES PERSONAL SERVICE OF ANY PROCESS UPON IT AND, AS ADDITIONAL SECURITY FOR THE OBLIGATIONS, IRREVOCABLY APPOINTS THE PRENTICE HALL CORPORATION SYSTEM, INC., WHOSE ADDRESS IS 500 CENTRAL AVENUE, ALBANY, NEW YORK, 12206, AS THE PLEDGOR'S AGENT FOR THE PURPOSE OF ACCEPTING SERVICE OR PROCESS ISSUED BY ANY COURT. THE PLEDGOR IRREVOCABLY WAIVES ANY OBJECTION (INCLUDING, WITHOUT LIMITATION, ANY OBJECTION OF THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS) WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH IN ANY JURISDICTION SET FORTH ABOVE. -9- 10 (D) WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, ARISING OUT OF, CONNECTED WITH, RELATED TO OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH. EACH OF THE PARTIES HERETO AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT ANY PARTY HERETO MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. (E) WAIVER OF BOND. THE PLEDGOR WAIVES THE POSTING OF ANY BOND OTHERWISE REQUIRED OF ANY PARTY HERETO IN CONNECTION WITH ANY JUDICIAL PROCESS OR PROCEEDING TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS OR TO ENFORCE ANY JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF SUCH PARTY, OR TO ENFORCE BY SPECIFIC PERFORMANCE, TEMPORARY RESTRAINING ORDER, PRELIMINARY OR PERMANENT INJUNCTION, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT. Section 19. Miscellaneous. The headings of each section of this Agreement are for convenience only and shall not define or limit the provisions thereof. This Agreement and all rights and obligations hereunder shall be binding upon the Pledgor and its respective successors and assigns, and shall inure to the benefit of the Agent and the other Holders of Secured Obligations and their respective successors and assigns. If any term of this Agreement shall be held to be invalid, illegal or unenforceable, the validity of all other terms hereof shall be in no way affected thereby, and this Agreement shall be construed and be enforceable as if such invalid, illegal or unenforceable term had not been included herein. The Pledgor acknowledges receive of a copy of this Agreement. -10- 11 IN WITNESS WHEREOF, intending to be legally bound, the Pledgor and the Agent have caused this Agreement to be executed as of the date first above written. THE DELTA QUEEN STEAMBOAT CO. By: /s/ JORDAN B. ALLEN -------------------------------- Name: Jordan B. Allen ------------------------------ Title: Executive Vice President ----------------------------- THE CHASE MANHATTAN BANK, as Agent By: /s/ STEVEN J. FALISKI -------------------------------- Name: Steven J. Faliski ------------------------------ Title: Vice President ----------------------------- -11- 12 The undersigned Subsidiaries hereby join in the above Agreement for the sole purpose of consenting to and being bound by the provisions of Sections 4(a), 6 and 7 thereof, the undersigned hereby agreeing to cooperate fully and in good faith with the Agent and the Pledgor in carrying out such provisions. CRUISE AMERICA TRAVEL, INCORPORATED By: /s/ JORDAN B. ALLEN -------------------------------- Name: Jordan B. Allen ------------------------------ Title: Executive Vice President ----------------------------- DQSC PROPERTY CO. By: /s/ JORDAN B. ALLEN -------------------------------- Name: Jordan B. Allen ------------------------------ Title: Executive Vice President ----------------------------- DQSB II, INC. By: /s/ JORDAN B. ALLEN -------------------------------- Name: Jordan B. Allen ------------------------------ Title: Executive Vice President ----------------------------- -12- 13 ANNEX A to STOCK PLEDGE AGREEMENT
Subsidiary Class Number of Shares - ---------- ----- ---------------- Cruise America Travel, Incorporated Common 100 DQSC Property Co. Common 1,000 DQSB II, Inc. Common 1,000
-13- 14 EXHIBIT A SUPPLEMENT to STOCK PLEDGE AGREEMENT This Supplement is made as of , to the Stock Pledge Agreement dated as of February , 1999 (as amended, supplemented, modified or restated from time to time, the "Pledge Agreement"), by and between THE DELTA QUEEN STEAMBOAT CO., a Delaware corporation (the "Pledgor") and THE CHASE MANHATTAN BANK, as Agent, for its benefit and the benefit of the other Holders of Secured Obligations (as such term is referred to and defined in the "Credit Agreement" referred to below). RECITALS: The Pledgor, certain Lenders and the Agent are parties to that certain Credit Agreement dated as of February , 1999, (as amended, supplemented, modified or restated from time to time, the "Credit Agreement"; capitalized terms used herein without definition shall have the respective meanings assigned thereto in the Credit Agreement or the Pledge Agreement). Pursuant to Section 1(d) of the Pledge Agreement, the Pledgor is required to execute and deliver to the Agent, for its benefit and the benefit of the other Holders of Secured Obligations, this Supplement and all of the issued and outstanding shares of capital stock (or other equity) of the Subsidiaries of every class described on Annex A attached hereto, together with an undated stock power executed by the Pledgor in blank with respect to each stock certificate so delivered. ACCORDINGLY, the Pledgor agrees with the Agent as follows: 1. Pledge of Stock. The shares of capital stock of each of the Subsidiaries described on Annex A hereto and delivered to the Agent herewith (the "Pledged Stock") shall constitute "Stock" and "Stock Collateral" as defined in the Pledge Agreement as if such shares had originally been described on Annex A to the Pledge Agreement, shall be subject to the pledge and security interest created by, and all other terms, conditions and covenants contained in, the Pledge Agreement, and shall secure the payment and performance of the Obligations as provided in the Pledge Agreement. 2. Representations and Warranties. The representations and warranties of the Pledgor contained in Section 5 of the Pledge Agreement are true and correct in all material respects with respect to the Pledged Stock as of the date hereof. -14- 15 THE DELTA QUEEN STEAMBOAT CO. By: __________________________ Name: Title: -15- 16 ANNEX A TO SUPPLEMENT TO STOCK PLEDGE AGREEMENT
Number Subsidiary Class of Shares - ---------- ----- ---------
-16- 17 ACKNOWLEDGMENT Dated as of __________,_______ The undersigned hereby acknowledges the pledge set forth in the foregoing Supplement and agrees (i) to be bound by the provisions of Sections 4(a), 6 and 7 of the Pledge Agreement and (ii) to cooperate fully and in good faith with the Agent and the Pledgor in carrying out such provisions. [SUBSIDIARY] By: __________________________ Name: Title: -17- EX-4.(II)(A)(4) 7 LIMITED LIABILITY COMPANY PLEDGE AGREEMENT 1 4(ii)(a)(4) EXECUTION COPY [BORROWER] LIMITED LIABILITY COMPANY PLEDGE AGREEMENT THIS LIMITED LIABILITY COMPANY PLEDGE AGREEMENT ("AGREEMENT") is made as of February 25, 1999 by and between THE DELTA QUEEN STEAMBOAT CO., a Delaware corporation ("PLEDGOR"), and THE CHASE MANHATTAN BANK, as agent (the "AGENT"), for its benefit and the benefit of the other Holders of Secured Obligations (as such term is defined in the Credit Agreement referred to below). Capitalized terms used herein and not herein defined shall have the same meanings assigned to such terms in the Credit Agreement described below. WHEREAS, the Pledgor, certain financial institutions (such financial institutions being herein referred to collectively as the "LENDERS"), and the Agent as one of the Lenders and as the agent for the Lenders are parties to that certain Credit Agreement dated as of February 25, 1999 (as such agreement may be amended, restated, supplemented or modified from time to time, the "CREDIT AGREEMENT"), pursuant to which the Lenders have agreed, subject to certain conditions precedent, to make loans and other financial accommodations to the Pledgor from time to time. WHEREAS, it is a condition precedent to the making of the loans to the Pledgor under the Credit Agreement that this Agreement shall be executed and delivered by the Pledgor to the Agent, for its benefit and the benefit of the other Holders of Secured Obligations, and that this Agreement shall be in full force and effect. WHEREAS, the Pledgor desires to secure its "LIABILITIES" (as hereinafter defined) by the grant to the Agent, for its benefit and the benefit of the other Holders of Secured Obligations of a first priority security interest in the Pledged Collateral (as hereinafter defined). ACCORDINGLY, for and in consideration of the foregoing and of any financial accommodations or extensions of credit (including, without limitation, any loan or advance by renewal, refinancing or extension of the agreements described hereinabove or otherwise) heretofore, now or hereafter made to or for the benefit of the Pledgor pursuant to the Credit Agreement or any other agreement, instrument or document executed pursuant to or in connection therewith, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Pledgor and the Agent hereby agree as follows: 2 1. Pledge. (a) The Pledgor hereby pledges, grants and assigns to the Agent, for the benefit of the Agent and the other Holders of Secured Obligations, and grants to the Agent for the benefit of the Agent and the other Holders of Secured Obligations, a security interest in, the following (collectively, the "PLEDGED COLLATERAL"): (i) The membership interests of Pledgor in each Subsidiary of the Pledgor organized as a limited liability company and listed on Exhibit A attached hereto and made a part hereof (the "LLC SUBSIDIARIES") now or at any time or times hereafter owned by the Pledgor, and any certificates representing such membership interests (such membership interests being identified on Exhibit A, all of the right, title and interest of the Pledgor in, to and under its respective percentage interest, shares or units as a member in each LLC Subsidiary, including, without limitation, Pledgor's interest in (or allocation of) the profits, losses, income, gains, deductions, credits or similar items of each LLC Subsidiary and the right to receive distributions of each LLC Subsidiary's cash, other property, assets, and all options and warrants for the purchase of membership interests, whether now existing or hereafter arising, whether arising under the terms of the Certificate of Formation, the Limited Liability Company Agreement or any of the other organizational documents (such documents hereinafter collectively referred to as the "OPERATING AGREEMENTS") of any LLC Subsidiary, or at law or in equity, or otherwise and any and all of the proceeds thereof (all of said membership interests, certificates, and warrants being hereinafter collectively referred to as the "PLEDGED MEMBERSHIP INTEREST") herewith delivered to the Agent accompanied by the certificates or other writings evidencing the same, accompanied by duly executed instruments of transfer or assignments in blank, all in form and substance satisfactory to the Agent (such instruments being collectively referred to hereinafter as the "POWERS") duly executed in blank, and all distributions, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of, or in exchange for, any or all of the Pledged Membership Interest; (ii) Any additional membership interests in each LLC Subsidiary from time to time acquired by the Pledgor in any manner, and any certificates representing such additional membership interests or any additional percentage interests, shares, units, options or warrants of membership interests in each LLC Subsidiary (any such additional interests shall constitute part of the Pledged Membership Interest and the Agent is irrevocably authorized to amend Exhibit A from time to time to reflect such additional interests), and all options, warrants, distributions, cash, instruments and other rights and options from time to time received, receivable or otherwise distributed in respect of or in exchange for any or all of such interests and will promptly thereafter deliver to the Lender, a certificate duly executed by the Pledgor describing such percentage interests, certificates, units, options or warrants and certifying that the same have been duly pledged hereunder; 2 3 (iii) The property and interests in property described in Section 3 below; and (iv) All proceeds of the foregoing. (b) In the event that the Pledgor shall acquire any membership interests (or other equity) of any additional Subsidiary formed or acquired as a limited liability company the membership interests of which are required to be pledged to the Agent hereunder pursuant to Section 6.10 of the Credit Agreement, the Pledgor shall execute and deliver to the Agent, for its benefit and the benefit of the other Holders of Secured Obligations, a supplement to this Agreement in the form of Exhibit B attached hereto (the "Supplement"), shall describe such membership interests on Annex A thereto and shall deliver to the Agent therewith all certificates and other writings representing such membership interests in such Subsidiary, accompanied by duly executed instruments of transfer or assignment duly executed in blank by the Pledgor, all within the time period prescribed by Section 6.10 of the Credit Agreement. 2. Security for Liabilities. The Pledged Collateral secures the prompt payment, performance and observance of (i) the Obligations and (ii) the Pledgor's obligations and liabilities under this Agreement and each agreement, document or instrument executed by the Pledgor pursuant to or in connection with this Agreement (all such obligations and liabilities of the Pledgor now or hereafter existing being hereinafter referred to as the "LIABILITIES"). 3. Pledged Collateral Adjustments. If, during the term of this Agreement: (a) Any reclassification, readjustment or other change is declared or made in the capital structure of any LLC Subsidiary, or any option included within the Pledged Collateral is exercised, or both, or (b) Any subscription, warrants or any other rights or options shall be issued in connection with the Pledged Collateral, then all new, substituted and additional membership interests, certificates, warrants, rights, options or other securities, issued by reason of any of the foregoing, shall be immediately delivered to and held by the Agent under the terms of this Agreement and shall constitute Pledged Collateral hereunder; provided, however, that nothing contained in this Section 3 shall be deemed to permit any distribution, issuance of additional membership interests, warrants, rights or options, reclassification, readjustment or other change in the capital structure of any LLC Subsidiary which is not expressly permitted in the Credit Agreement. 4. Subsequent Changes Affecting Pledged Collateral. The Pledgor represents and warrants that it has made its own arrangements for keeping itself informed of changes or potential changes affecting the Pledged Collateral (including, but not limited to, rights to convert, 3 4 rights to subscribe, cash distributions or other distributions, reorganization or other exchanges, tender offers and voting rights), and the Pledgor agrees that neither the Agent nor any of the other Holders of Secured Obligations shall have any obligation to inform the Pledgor of any such changes or potential changes or to take any action or omit to take any action with respect thereto. The Agent may, after the occurrence of an Event of Default, without notice and at its option, transfer or register the Pledged Collateral or any part thereof into its or its nominee's name with or without any indication that such Pledged Collateral is subject to the security interest hereunder. In addition, the Agent may at any time exchange certificates or instruments representing or evidencing Pledged Membership Interests for certificates or instruments of smaller or larger denominations. 5. Representations and Warranties. The Pledgor represents and warrants as follows: (a) The Pledgor is the sole legal and beneficial owner of the membership interests in the LLC Subsidiaries pledged to the Agent pursuant to this Agreement; (b) This Agreement has been duly and validly authorized, executed and delivered by Pledgor and constitutes the legal, valid and binding obligation of the Pledgor enforceable against the Pledgor in accordance with its terms except as enforcement may be limited by bankruptcy, insolvency and other similar laws affecting the enforcement of creditors' rights generally and by moratorium laws from time to time in effect and general equitable principles; (c) The Pledgor is the direct beneficial owner of the Pledged Collateral hereby pledged by it; (d) The Pledgor owns such Pledged Collateral free and clear of any Lien, except for the pledge and security interest granted to the Agent and the other Holders of Secured Obligations pursuant to the Loan Documents; (e) The Pledgor shall cause each LLC Subsidiary to make a notation on its records, which notation shall indicate the security interest granted hereby, and the Pledgor agrees to execute and file financing statements pursuant to the Uniform Commercial Code as the Agent may reasonably request to perfect the security interest granted hereby; (f) The pledge of the Pledged Collateral by the Pledgor does not violate (1) the Operating Agreements of any LLC Subsidiary or any of the other organizational documents of any LLC Subsidiary; (2) the certificate of incorporation or by-laws of the Pledgor; (3) any indenture, mortgage, loan or credit agreement to which the Pledgor or any LLC Subsidiary is a party or by which any of their respective properties or assets 4 5 may be bound; or (4) any restriction on such transfer or encumbrance of such Pledged Collateral; (g) Except as set forth in the Operating Agreements, there are no restrictions upon the voting rights associated with, or upon the transfer of, any of the Pledged Collateral; (h) Except as set forth in the Operating Agreements, the Pledgor has the right to vote, pledge, assign and grant a security interest in or otherwise transfer such Pledged Collateral free of any Liens; (i) No authorization, approval, or other action by, and no notice to or filing with, any governmental authority or regulatory body is required either (i) for the pledge of the Pledged Collateral pursuant to this Agreement or for the execution, delivery or performance of this Agreement by the Pledgor or (ii) for the exercise by the Agent of the voting or other rights provided for in this Agreement or the remedies in respect of the Pledged Collateral pursuant to this Agreement (except as may be required in connection with such disposition by laws affecting the offering and sale of securities generally); (j) The pledge of the Pledged Collateral pursuant to this Agreement creates a valid and perfected first priority security interest in the Pledged Collateral, in favor of the Agent for the benefit of the Agent and the other Holders of Secured Obligations, securing the payment and performance of the Liabilities; and (k) With respect to each LLC Subsidiary organized under the laws of Delaware, the pledge of the Pledged Collateral pursuant to this Agreement constitutes a complete assignment of the Pledged Collateral pursuant to 6 Del. Code Ann. Section 18-702 (1996). 6. Voting Rights and Other Powers. During the term of this Agreement, and except as provided in this Section 6 below, the Pledgor shall have (i) the right to vote the Pledged Membership Interest on all questions in a manner not inconsistent with the terms of this Agreement, the Credit Agreement and any other agreement, instrument or document executed pursuant thereto or in connection therewith, and (ii) the right to be the member and manager of each LLC Subsidiary, and shall be entitled to exercise all managerial, election and other rights relating to the Pledged Collateral. After the occurrence or during the continuance of an Event of Default, the Agent or the Agent's nominee may, at the Agent's or such nominee's option and following written notice ("ELECTION NOTICE") from the Agent to the Pledgor (x) exercise, or direct such Pledgor as to the exercise of (whereupon such Pledgor shall exercise as so directed), all voting, consent, managerial, election and other membership and manager rights to the Pledged Collateral of the Pledgor; such authorization shall constitute an irrevocable voting proxy from the Pledgor to the Agent or, at the Agent's option, to the Agent's nominee; and (y) exercise, or direct such Pledgor as to the exercise of (whereupon the Pledgor shall exercise as so directed), any and 5 6 all rights of conversion, exchange, subscription or any other rights, privileges or options pertaining to the Pledged Collateral of the Pledgor as if the Agent were the absolute owner thereof, all without liability except to account for property actually received by it, but the Agent shall have no duty to exercise any of the aforesaid rights, privileges or options and shall not be responsible for any failure so to do or delay in so doing. Under no circumstances shall the Agent have, or be deemed to have or to have had, any right to exercise, or to direct the Pledgor to exercise, any voting, managerial, election or other rights of an owner of the Pledged Collateral, or arising under the Pledged Collateral, unless and until the Agent shall have delivered to such Pledgor an Election Notice as described hereinabove. 7. Cash and Other Distributions. (a) So long as no Event of Default shall have occurred and be continuing: (i) The Pledgor shall be entitled to receive and retain for its own account free and clear of the lien and security interest created by this Agreement any and all cash distributions and interest paid in respect of the Pledged Collateral (including a distribution of net cash flow) to the extent such distributions are not prohibited by the Credit Agreement, provided, however, that any and all (A) distributions and interest paid or payable other than in cash with respect to, and instruments and other property received, receivable or otherwise distributed with respect to, or in exchange for, any of the Pledged Collateral; (B) other distributions paid or payable in cash with respect to any of the Pledged Collateral on account of a partial or total liquidation or dissolution or in connection with a reduction of capital, capital surplus or paid-in surplus; and (C) cash paid, payable or otherwise distributed with respect to principal of, or in redemption of, or in exchange for, any of the Pledged Collateral; shall be Pledged Collateral, and shall be forthwith delivered to the Agent to hold, for the benefit of the Agent and the other Holders of Secured Obligations, as Pledged Collateral and shall, if received by the Pledgor, be received in trust for the Agent, for the benefit of the Agent and the other Holders of Secured Obligations, be segregated from the other property or funds of the Pledgor, and be delivered immediately to the Agent as Pledged Collateral in the same form as so received (with any necessary endorsement); and (ii) The Agent shall execute and deliver (or cause to be executed and delivered) to the Pledgor all such proxies and other instruments as the Pledgor may reasonably request for the purpose of enabling the Pledgor to receive the distributions or interest payments which it is authorized to receive and retain pursuant to clause (i) above. 6 7 (b) After the occurrence and during the continuance of an Event of Default: (i) All rights of the Pledgor to receive the distributions and interest payments which it would otherwise be authorized to receive and retain pursuant to Section 7(a)(i) hereof shall cease, and all such rights shall thereupon become vested in the Agent, for the benefit of the Agent and the other Holders of Secured Obligations, which shall thereupon have the sole right to receive and hold as Pledged Collateral such distributions and interest payments; (ii) All distributions and interest payments which are received by the Pledgor contrary to the provisions of clause (i) of this Section 7(b) shall be received in trust for the Agent, for the benefit of the Agent and the other Holders of Secured Obligations, shall be segregated from other funds of the Pledgor and shall be paid over immediately to the Agent as Pledged Collateral in the same form as so received (with any necessary endorsements). (c) All sums of money that are delivered to the Agent pursuant to this Section 7 shall be deposited into an interest bearing account with the Agent (the "CASH COLLATERAL ACCOUNT"). Some or all of the funds from time to time in the Cash Collateral Account may be invested in time deposits, including, without limitation, certificates of deposit issued by the Agent (such certificates of deposit or other time deposits being hereinafter referred to, collectively, as "TIME DEPOSITS"), that are reasonably satisfactory to the Agent after consultation with the Pledgor. Interest earned on the Cash Collateral Account and on the Time Deposits, and the principal of the Time Deposits at maturity that is not invested in new Time Deposits, shall be deposited in the Cash Collateral Account. The Cash Collateral Account, all sums from time to time standing to the credit of the Cash Collateral Account, any and all Time Deposits, any and all instruments or other writings evidencing Time Deposits and any and all proceeds of any thereof are hereinafter referred to as the "Cash Collateral" and shall constitute Pledged Collateral hereunder. Except as otherwise expressly provided in Section 13, the Pledgor shall have no right to withdraw sums from the Cash Collateral Account, to receive any of the Cash Collateral or to require the agent to part with the Agent's possession of any instruments or other writings evidencing any Time Deposits. 8. Transfers and Other Liens. The Pledgor agrees that except as may be permitted by the Credit Agreement, it will not (i) sell or otherwise dispose of, or grant any option with respect to, any of the Pledged Collateral without the prior written consent of the Agent, or (ii) create or permit to exist any Lien upon or with respect to any of the Pledged Collateral, except for the security interest under this Agreement. To the extent additional or different members of any LLC Subsidiary are permitted, Pledgor shall cause as a condition to permitting such entity to become a member that the new member consent to (i) the terms of this Agreement; (ii) the pledge and assignment of the Pledged Collateral; and (iii) the rights granted hereunder for the Agent to become the/a member of such LLC Subsidiary at its election. 7 8 9. Remedies. (a) The Agent shall have, in addition to any other rights given under this Agreement or by law, all of the rights and remedies with respect to the Pledged Collateral of a secured party under the Uniform Commercial Code as in effect in the State of New York. After the occurrence and during the continuance of an Event of Default and following written notice to the Pledgor, the Agent (personally or through an agent) is hereby authorized and empowered to transfer and register in its name or in the name of its nominee the whole or any part of the Pledged Collateral, to exercise all voting rights with respect thereto, to collect and receive all cash distributions and other distributions made thereon, and to otherwise act with respect to the Pledged Collateral as though the Agent were the outright owner thereof and the sole member and manager of each LLC Subsidiary, the Pledgor hereby irrevocably constituting and appointing the Agent as the proxy and attorney-in-fact of the Pledgor, with full power of substitution to do so, such proxy being effective during the existence of an Event of Default and following written notice thereof; provided, however, that the Agent shall have no duty to exercise any such right or to preserve the same and shall not be liable for any failure to do so or for any delay in doing so. In addition, after the occurrence of an Event of Default, the Agent shall have such powers of sale and other powers as may be conferred by applicable law. With respect to the Pledged Collateral or any part thereof which shall then be in or shall thereafter come into the possession or custody of the Agent or which the Agent shall otherwise have the ability to transfer under applicable law, the Agent may, in its sole discretion, without notice except as specified below, after the occurrence of an Event of Default, sell or cause the same to be sold at any exchange, broker's board or at public or private sale, in one or more sales or lots, at such price as the Agent may deem best, for cash or on credit or for future delivery, without assumption of any credit risk, and the purchaser of any or all of the Pledged Collateral so sold shall thereafter own the same, absolutely free from any claim, encumbrance or right of any kind whatsoever. The Agent and each of the other Holders of Secured Obligations may, in its own name, or in the name of a designee or nominee, buy the Pledged Collateral at any public sale and, if permitted by applicable law, buy the Pledged Collateral at any private sale. The Pledgor will pay to the Agent all reasonable expenses (including, without limitation, court costs and reasonable attorneys' and paralegals' fees and expenses) of, or incidental to, the enforcement of any of the provisions hereof. The Agent agrees to distribute any proceeds of the sale of the Pledged Collateral in accordance with the Credit Agreement and the Pledgor shall remain liable for any deficiency following the sale of the Pledged Collateral. (b) Unless any of the Pledged Collateral threatens to decline speedily in value or is or becomes of a type sold on a recognized market, the Agent will give the Pledgor reasonable notice of the time and place of any public sale thereof, or of the time after which any private sale or other intended disposition is to be made. Any sale of the Pledged Collateral conducted in conformity with reasonable commercial practices of banks, commercial finance companies, insurance companies or other financial institutions disposing of property similar to the Pledged Collateral shall be deemed to be commercially reasonable. Notwithstanding any provision to the contrary contained herein, the Pledgor agrees that any requirements of reasonable notice shall be met if such notice is received by the Pledgor as provided in Section 25 below at least ten (10) 8 9 Business Days before the time of the sale or disposition; provided, however, that Agent may give any shorter notice that is commercially reasonable under the circumstances. Any other requirement of notice, demand or advertisement for sale is waived, to the extent permitted by law. (c) In view of the fact that federal and state securities laws may impose certain restrictions on the method by which a sale of the Pledged Collateral may be effected after a Default, the Pledgor agrees that after the occurrence of an Event of Default, the Agent may, from time to time, attempt to sell all or any part of the Pledged Collateral by means of a private placement restricting the bidders and prospective purchasers to those who are qualified and will represent and agree that they are purchasing for investment only and not for distribution. In so doing, the Agent may solicit offers to buy the Pledged Collateral, or any part of it, from a limited number of investors deemed by the Agent, in its reasonable judgment, to be financially responsible parties who might be interested in purchasing the Pledged Collateral. If the Agent solicits such offers from not less than four (4) such investors, then the acceptance by the Agent of the highest offer obtained therefrom shall be deemed to be a commercially reasonable method of disposing of such Pledged Collateral; provided, however, that this Section does not impose a requirement that the Agent solicit offers from four or more investors in order for the sale to be commercially reasonable. 10. Security Interest Absolute. All rights of the Agent and security interests hereunder, and all obligations of the Pledgor hereunder, shall be absolute and unconditional irrespective of: (i) Any lack of validity or enforceability of the Credit Agreement or any other agreement or instrument relating thereto; (ii) Any change in the time, manner or place of payment of, or in any other term of, all or any part of the Liabilities, or any other amendment or waiver of or any consent to any departure from the Credit Agreement; (iii) Any exchange, release or non-perfection of any other collateral, or any release or amendment or waiver of or consent to departure from any guaranty, for all or any part of the Liabilities; or (iv) any other circumstance which might otherwise constitute a defense available to, or a discharge of, the Pledgor in respect of the Liabilities or of this Agreement. 11. Agent Appointed Attorney-in-Fact. The Pledgor hereby appoints the Agent its attorney-in-fact, with full authority, in the name of the Pledgor or otherwise, after the occurrence and during the continuation of an Event of Default, from time to time in the Agent's sole discretion, to take any action and to execute any instrument which the Agent may deem 9 10 necessary or advisable to accomplish the purposes of this Agreement, including, without limitation, to receive, endorse and collect all instruments made payable to the Pledgor representing any cash distribution, interest payment or other distribution in respect of the Pledged Collateral or any part thereof and to give full discharge for the same, to exercise all rights of a member and manager (upon the election of the Agent) such as all voting, consent, managerial and other member rights, and to arrange for the transfer of all or any part of the Pledged Collateral on the books of any LLC Subsidiary to the name of the Agent or the Agent's nominee. 12. Waivers; Marshalling. (a) The Pledgor waives presentment and demand for payment of any of the Liabilities, protest and notice of dishonor or default with respect to any of the Liabilities and all other notices to which the Pledgor might otherwise be entitled except as otherwise expressly provided herein or in the Credit Agreement. (b) Neither the Agent nor any other Holder of Secured Obligations shall be required to marshall any present or future collateral security for (including but not limited to this Agreement and the Pledged Collateral), or other assurances of payment of, the Obligations or any of them, or to resort to such collateral security or other assurances of payment in any particular order. All of the Agent's rights hereunder and of the other Holders of Secured Obligations in respect of such collateral security and other assurances of payment shall be cumulative and in addition to all other rights, however existing or arising. To the extent that it lawfully may, the Pledgor hereby agrees that it will not invoke any law relating to the marshalling of collateral that might cause delay in or impede the enforcement of the Agent's rights under this Agreement or under any other instrument evidencing any of the Obligations or under which any of the Obligations is outstanding or by which any of the Obligations is secured or payment thereof is otherwise assured, and to the extent that it lawfully may, the Pledgor hereby irrevocably waives the benefits of all such laws. 13. Term. This Agreement shall remain in full force and effect until the Liabilities (other than continuing contingent indemnity obligations) have been fully and indefeasibly paid in cash and the Credit Agreement has terminated pursuant to its terms. Upon the termination of this Agreement as provided above (other than as a result of the sale of the Pledged Collateral), the Agent will release the security interest created hereunder and, if it then has possession of the Pledged Membership Interest or other Pledged Collateral, will promptly deliver the Pledged Membership Interest and the Powers or such other Pledged Collateral to the Pledgor. 14. Definitions. The singular shall include the plural and vice versa and any gender shall include any other gender as the context may require. 15. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Pledgor, the Agent, for the benefit of itself and the other Holders of Secured 10 11 Obligations, and their respective successors and assigns. The Pledgor's successors and assigns shall include, without limitation, a receiver, trustee or debtor-in-possession of or for the Pledgor. 16. GOVERNING LAW. THE AGENT HEREBY ACCEPTS THIS AGREEMENT, ON BEHALF OF ITSELF AND THE OTHER HOLDERS OF SECURED OBLIGATIONS, AT NEW YORK, NEW YORK BY ACKNOWLEDGING AND AGREEING TO IT THERE. ANY DISPUTE BETWEEN THE AGENT OR ANY OTHER HOLDER OF SECURED OBLIGATIONS AND THE PLEDGOR ARISING OUT OF OR RELATED TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS AGREEMENT, AND WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. 17. Consent to Jurisdiction; Counterclaims; Forum Non Conveniens. (a) Exclusive Jurisdiction. Except as provided in subsection (b) of this Section 17, the Agent, on behalf of itself and the other Holders of Secured Obligations, and the Pledgor agree that all disputes between them arising out of or related to the relationship established between them in connection with this Agreement, whether arising in contract, tort, equity, or otherwise, shall be resolved only by state or federal courts located in New York, New York, but the parties acknowledge that any appeals from those courts may have to be heard by a court located outside of New York, New York. (b) Other Jurisdictions. The Agent shall have the right to proceed against the Pledgor or its real or personal property in a court in any location to enable the Agent to obtain personal jurisdiction over the Pledgor, to realize on the Pledged Collateral or any other security for the Liabilities or to enforce a judgment or other court order entered in favor of the Agent. The Pledgor shall not assert any permissive counterclaims in any proceeding brought by the Agent arising out of or relating to this Agreement. (c) Venue; Forum Non Conveniens. Each of the Pledgor and the Agent, for itself and on behalf of the other Holders of Secured Obligations, waives any objection that it may have (including, without limitation, any objection to the laying of venue or based on forum non conveniens) to the location of the court in which any proceeding is commenced in accordance with this Section 17. 18. Service of Process. The Pledgor waives personal service of any process upon it and, as security for the Liabilities, irrevocably appoints [The Prentice Hall Corporation System, Inc., 1013 Centre Road, Wilmington, Delaware 19805], as its registered agent for the purpose of accepting service of process issued by any court. 19. WAIVER OF JURY TRIAL. EACH OF THE PLEDGOR AND THE AGENT, FOR ITSELF AND ON BEHALF OF THE OTHER HOLDERS OF SECURED OBLIGATIONS, WAIVES ANY RIGHT TO TRIAL BY JURY IN ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, BETWEEN THE AGENT OR ANY OTHER HOLDER OF SECURED OBLIGATIONS AND THE PLEDGOR ARISING OUT OF OR RELATED TO THE 11 12 TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH. THE PLEDGOR, THE AGENT OR ANY OTHER HOLDER OF SECURED OBLIGATIONS MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. 20. Waiver of Bond. The Pledgor waives the posting of any bond otherwise required of the Agent in connection with any judicial process or proceeding to realize on the Pledged Collateral or any other security for the Liabilities, to enforce any judgment or other court order entered in favor of the Agent, or to enforce by specific performance, temporary restraining order, or preliminary or permanent injunction, this Agreement or any other agreement or document between the Agent and the Pledgor. 21. Advice of Counsel. The Pledgor represents and warrants to the Agent and the other Holders of Secured Obligations that it has consulted with its legal counsel regarding all waivers under this Agreement, including without limitation those under Section 12 and Sections 16 through 20 hereof, that it believes that it fully understands all rights that it is waiving and the effect of such waivers, that it assumes the risk of any misunderstanding that it may have regarding any of the foregoing, and that it intends that such waivers shall be a material inducement to the Agent and the other Holders of Secured Obligations to extend the indebtedness secured hereby. 22. Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but, if any provision of this Agreement shall be held to be prohibited or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement. 23. Further Assurances. The Pledgor agrees that it will cooperate with the Agent and will execute and deliver, or cause to be executed and delivered, all such other stock powers, proxies, instruments and documents, and will take all such other actions, including, without limitation, the execution and filing of financing statements, as the Agent may reasonably request from time to time in order to carry out the provisions and purposes of this Agreement. 24. The Agent's Duty of Care. The Agent shall not be liable for any acts, omissions, errors of judgment or mistakes of fact or law, including, without limitation, acts, omissions, errors or mistakes with respect to the Pledged Collateral, except for those arising out of or in connection with the Agent's (i) gross negligence or willful misconduct, or (ii) failure to use reasonable care with respect to the safe custody of the Pledged Collateral in the Agent's possession. Without limiting the generality of the foregoing, the Agent shall be under no obligation to take any steps necessary to preserve rights in the Pledged Collateral against any 12 13 other parties but may do so at its option. All expenses incurred in connection therewith shall be for the sole account of the Pledgor, and shall constitute part of the Liabilities secured hereby. 25. Notices. All notices and other communications required or desired to be served, given or delivered hereunder shall be made in the manner set forth in the Credit Agreement. 26. Amendments, Waivers and Consents. No amendment or waiver of any provision of this Agreement nor consent to any departure by the Pledgor herefrom, shall in any event be effective unless the same shall be in writing and signed by the Agent pursuant to the terms of the Credit Agreement, and then such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. 27. Section Headings. The section headings herein are for convenience of reference only, and shall not affect in any way the interpretation of any of the provisions hereof. 28. Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which shall together constitute one and the same agreement. 29. Merger. This Agreement represents the final agreement of the Pledgor, the Agent and the other Holders of Secured Obligations with respect to the matters contained herein and may not be contradicted by evidence of prior or contemporaneous agreements, or subsequent oral agreements, between the Pledgor and the Agent or any other Holder of Secured Obligations. 30. No Strict Construction. The parties hereto have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto and no presumption or burden or proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement. IN WITNESS WHEREOF, the Pledgor and the Agent have executed this Agreement as of the date set forth above. THE DELTA QUEEN STEAMBOAT CO. By: /s/ JORDAN B. ALLEN ------------------------------ Name: Jordan B. Allen Title: Executive Vice President 13 14 THE CHASE MANHATTAN BANK, as Agent By: /s/ STEVEN J. FALISKI ------------------------ Name: Steven J. Faliski ---------------------- Title: Vice President --------------------- 14 15 ACKNOWLEDGMENT The undersigned hereby acknowledges receipt of a copy of the foregoing Agreement, agrees promptly to note on its books the security interests and assignment granted under such Agreement, and waives any rights or requirement at any time hereafter to receive a copy of such Agreement in connection with the registration of any Pledged Collateral in the name of the Agent or its nominee or the exercise of voting rights by the Agent or its nominee. GREAT RIVER CRUISE LINE, L.L.C. By: The Delta Queen Steamboat Co., a Managing Member By: /s/ JORDAN B. ALLEN ------------------------------ Name: Jordan B. Allen Title: Executive Vice President By: DQSB II, Inc., a Managing Member By: /s/ JORDAN B. ALLEN ------------------------------ Name: Jordan B. Allen Title: Executive Vice President 15 16 ACKNOWLEDGMENT The undersigned hereby acknowledges receipt of a copy of the foregoing Agreement, agrees promptly to note on its books the security interests and assignment granted under such Agreement, and waives any rights or requirement at any time hereafter to receive a copy of such Agreement in connection with the registration of any Pledged Collateral in the name of the Agent or its nominee or the exercise of voting rights by the Agent or its nominee. GREAT OCEAN CRUISE LINE, L.L.C. By: The Delta Queen Steamboat Co., a Managing Member By: /s/ JORDAN B. ALLEN ------------------------------ Name: Jordan B. Allen Title: Executive Vice President By: DQSB II, Inc., a Managing Member By: /s/ JORDAN B. ALLEN ------------------------------ Name: Jordan B. Allen Title: Executive Vice President 16 17 CONSENT The undersigned hereby acknowledges receipt of a copy of the foregoing Agreement and consents to the pledge by The Delta Queen Steamboat Co. of its membership interests in GRCL and GOCL to the Agent. DQSB II, INC. By:___________________________ Name: Jordan B. Allen Title: Executive Vice President 17 18 EXHIBIT A to LIMITED LIABILITY COMPANY PLEDGE AGREEMENT dated as of February _____, 1999 Pledged Membership Interests
Percentage of Membership Interest Name of the Pledgor - ---- ------------------- Great River Cruise Line, L.L.C. 99% Great Ocean Cruise Line, L.L.C. 99%
18 19 EXHIBIT B SUPPLEMENT to LIMITED LIABILITY COMPANY PLEDGE AGREEMENT This Supplement is made as of , to the Limited Liability Company Pledge Agreement dated as of February , 1999 (as amended, supplemented, modified or restated from time to time, the "LLC Pledge Agreement"), by and between THE DELTA QUEEN STEAMBOAT CO., a Delaware corporation (the "Pledgor") and THE CHASE MANHATTAN BANK, as Agent, for its benefit and the benefit of the other Holders of Secured Obligations (as such term is referred to and defined in the "Credit Agreement" referred to below). RECITALS: The Pledgor, certain Lenders and the Agent are parties to that certain Credit Agreement dated as of February , 1999, (as amended, supplemented, modified or restated from time to time, the "Credit Agreement"; capitalized terms used herein without definition shall have the respective meanings assigned thereto in the Credit Agreement or the LLC Pledge Agreement). Pursuant to Section 1(b) of the LLC Pledge Agreement, the Pledgor is required to execute and deliver to the Agent, for its benefit and the benefit of the other Holders of Secured Obligations, this Supplement and all of the membership interests of the Subsidiaries listed on Annex 1 attached hereto, together with any certificate or other writing representing such membership interests. ACCORDINGLY, the Pledgor agrees with the Agent as follows: 1. Pledge of Membership Interests. The membership interests of each of the Subsidiaries described on Annex 1 hereto, together with any certificates representing such membership interest and delivered to the Agent herewith (the "Pledged Interests") shall constitute "Pledged Collateral" as defined in the LLC Pledge Agreement as if such membership interests had originally been described on Exhibit A to the LLC Pledge Agreement, shall be subject to the pledge and security interest created by, and all other terms, conditions and covenants contained in, the LLC Pledge Agreement, and shall secure the payment and performance of the Obligations as provided in the LLC Pledge Agreement. 2. Representations and Warranties. The representations and warranties of the Pledgor contained in Section 5 of the LLC Pledge Agreement are true and correct in all material respects with respect to the Pledged Interests as of the date hereof. 19 20 THE DELTA QUEEN STEAMBOAT CO. By: __________________________ Name: Title: 20 21 ACKNOWLEDGMENT The undersigned hereby acknowledges receipt of a copy of the foregoing Supplement, agrees promptly to note on its books the security interests and assignment granted under such Supplement, and waives any rights or requirement at any time hereafter to receive a copy of such Supplement in connection with the registration of any Pledged Collateral in the name of the Agent or its nominee or the exercise of voting rights by the Agent or its nominee. [SUBSIDIARY] By: [ ], a Managing Member By: _________________________ Name: Title: By: [ ], a Managing Member By: _________________________ Name: Title: 21 22 CONSENT The undersigned hereby acknowledges receipt of a copy of the foregoing Supplement and consents to the pledge by The Delta Queen Steamboat Co. of its membership interests in [SUBSIDIARY NAME] to the Agent. [OTHER MEMBER] By:___________________________ Name: Title: 22 23 ANNEX 1 to SUPPLEMENT to LIMITED LIABILITY COMPANY PLEDGE AGREEMENT Pledged Membership Interests
Percentage of Membership Interest [SUBSIDIARY NAME] of the Pledgor - ----------------- -------------------
23 EX-4.(II)(A)(5) 8 GUARANTY OF THE OBLIGATIONS OF THE BORROWER 1 4(ii)(a)(5) EXECUTION COPY SUBSIDIARY GUARANTY This SUBSIDIARY GUARANTY ("Guaranty") is made as of February 25, 1999, by Cruise America Travel, Incorporated, a Delaware corporation, DQSC Property Co., a Delaware corporation, DQSB II, Inc., a Delaware corporation, Great Ocean Cruise Line, L.L.C., a Delaware limited liability company and Great River Cruise Line, L.L.C., a Delaware limited liability company (each individually, a "Guarantor" and collectively, the "Guarantors") in favor of The Chase Manhattan Bank, a New York banking corporation, as agent (hereinafter in such capacity, the "Agent") for its benefit and the benefit of the other "Holders of Secured Obligations" (as defined in that certain Credit Agreement referred to below). Unless otherwise defined herein, capitalized terms used herein shall have the meanings ascribed to them in the Credit Agreement. WHEREAS, THE DELTA QUEEN STEAMBOAT CO., a Delaware corporation, (the "Borrower"), THE FINANCIAL INSTITUTIONS LISTED ON THE SIGNATURE PAGES THEREOF and each other financial institution which from time to time becomes a party thereto in accordance with Section 11.02(a) thereof (together with their respective successors and permitted assigns, individually, a "Lender" and, collectively, the "Lenders") and the Agent are parties to that certain Credit Agreement, dated as of February 25, 1999 (as amended, restated, supplemented or otherwise modified from time to time, the "Credit Agreement") providing, subject to the terms and conditions thereof, for extensions of credit to be made by the Lenders to the Borrower; WHEREAS, each of the Guarantors is a direct Subsidiary of Borrower and will derive both direct and indirect benefits from the loans made to the Borrower pursuant to the Credit Agreement; WHEREAS, as a condition to the Lenders' and the Agent's willingness to enter into the Credit Agreement and the Lenders' willingness to extend credit to Borrower under the Credit Agreement, the Lenders have required that each of the Guarantors enter into this Guaranty. NOW, THEREFORE, in consideration of the premises set forth herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each of the Guarantors agrees as follows: 2 1. Guaranty. (a) For value received and in consideration of any loan, advance or financial accommodation of any kind whatsoever heretofore, now or hereafter made, given or granted to the Borrower by the Lenders, each of the Guarantors, jointly and severally, unconditionally and irrevocably guarantees for the benefit of the Agent and the other Holders of the Secured Obligations the full and prompt payment when due (whether at maturity or earlier, by reason of acceleration or otherwise, and at all times thereafter), and the performance of (i) all of the Obligations of Borrower under the Credit Agreement (including, without limitation, interest accruing following the filing of a bankruptcy petition by or against Borrower, at the applicable rate specified in the Credit Agreement, whether or not such interest is allowed as a claim in bankruptcy) and (ii) all other Obligations of Borrower to the Agent or any other Holder of Secured Obligations under the Loan Documents (the Obligations of Borrower which are described in clauses(i) through (ii) of this Section 1(a) are hereinafter referred to collectively as the "Obligations"). (b) At any time after the occurrence and during the continuance of an Event of Default, each of the Guarantors shall pay to the Agent, for the benefit of the Agent and the other Holders of Secured Obligations, on demand by the Agent and in immediately available funds, the full amount of the Obligations then due and payable. Each of the Guarantors jointly and severally and unconditionally further agrees to pay to the Agent, for the benefit of the Agent and the other Holders of Secured Obligations, as applicable, and reimburse the Agent for the benefit of the Agent and the other Holders of Secured Obligations, as applicable, for, on demand and in immediately available funds, (a) all losses, reasonable fees, reasonable costs and expenses of the type and to the extent permitted under Section 11.03 of the Credit Agreement (including, without limitation, all court costs and reasonable attorneys' and paralegals' fees, costs and expenses) paid or incurred by the Agent or any other Holder of Secured Obligations in: (1) endeavoring to collect all or any part of the Obligations from, or in prosecuting any action against, Borrower or any of the Guarantors relating to the Credit Agreement, this Guaranty, the other Loan Documents or the transactions contemplated thereby; (2) taking any action with respect to any security or collateral securing the Obligations or obligations of any of the Guarantors hereunder; and (3) preserving, protecting or defending the enforceability of, or enforcing, this Guaranty or their respective rights hereunder (all such costs and expenses described in clauses (1) through (3) of this Section 1(b)(a) are hereinafter referred to as the "Expenses") and (b) interest on the Expenses, from the date of demand under this Guaranty until paid in full at the Default Rate described in Section 2.03(d) of the Credit Agreement (the "Interest Rate") (all such Obligations and other indebtedness, liabilities and obligations set forth in this Section 1 being hereinafter collectively referred to as the "Guaranteed Obligations"). Each of the Guarantors hereby agrees that this Guaranty is an absolute guaranty of payment and is not a guaranty of collection. (c) In the event that any additional Subsidiary is formed or acquired that is required to become a Guarantor hereunder pursuant to Section 6.10 of the Credit Agreement, such Subsidiary shall execute and deliver to the Agent, for its benefit and the benefit of the other Holders of Secured Obligations, a supplement to this Guaranty in the form of Exhibit A attached hereto within the time period prescribed by Section 6.10 of the Credit Agreement. -2- 3 2. Obligations Unconditional. Each of the Guarantors hereby agrees that its obligations under this Guaranty shall be unconditional, irrespective of: (i) The validity, enforceability, avoidance, assignment or subordination of any of the Guaranteed Obligations or any of the Loan Documents; (ii) the absence of any attempt by, or on behalf of, the Agent or any other Holder of Secured Obligations to collect, or to take any other action to enforce, all or any part of the Guaranteed Obligations whether from or against Borrower, any of the other Guarantors or any other Person; (iii) the election of any remedy by, or on behalf of, the Agent or any other Holder of Secured Obligations with respect to all or any part of the Guaranteed Obligations; (iv) any change in the time, manner or place of payment of, or in any other term of, or any increase in the amount of, all or any of the Obligations, or the waiver, consent, extension, forbearance or granting of any indulgence, by, or on behalf of, the Agent or any other Holder of Secured Obligations with respect to any provision of any of the Loan Documents; (v) the failure of the Agent or any other Holder of Secured Obligations to take any steps to perfect and maintain its security interest in, or to preserve its rights to, any security or collateral for any or any part of the Guaranteed Obligations; (vi) the election by, or on behalf of, the Agent or any one or more of the other Holders of Secured Obligations, in any proceeding instituted under Chapter 11 of Title 11 of the United States Code (11 U.S.C. 101 et seq.) (the "Bankruptcy Code"), of the application of Section 1111(b)(2) of the Bankruptcy Code; (vii) any borrowing or grant of a security interest by Borrower as debtor-in-possession under Section 364 of the Bankruptcy Code; (viii) the disallowance, under Section 502 of the Bankruptcy Code, of all or any portion of the claims of any of the Agent or any other Holder of Secured Obligations for repayment of all or any part of the Guaranteed Obligations; (ix) any other circumstance which might otherwise constitute a legal or equitable discharge or defense of Borrower or any of the Guarantors; or (x) any change, restructuring or termination of or to the corporate structure or existence of any Guarantor, Borrower or any restructuring or refinancing of all or any portion of the Guaranteed Obligations. -3- 4 3. Enforcement; Application of Payments. Upon the occurrence and during the continuance of an Event of Default, the Agent may proceed directly and at once, without notice, against any of the Guarantors to obtain performance of and to collect and recover the full amount, or any portion, of the Guaranteed Obligations, without first proceeding against Borrower or any other Guarantors hereunder, or any other Person, or against any security or collateral for the Guaranteed Obligations. Subject only to the terms and provisions of the Credit Agreement, the Agent shall have the exclusive right to determine the application of payments and credits, if any, from any of the Guarantors, Borrower or from any other Person on account of the Guaranteed Obligations or any other liability of any of the Guarantors to the Agent or any other Holder of Secured Obligations. 4. Waivers. (i) Each of the Guarantors hereby waives promptness, diligence, presentment, demand of payment, filing of claims with a court in the event of receivership or bankruptcy of Borrower, protest or notice with respect to any or any part of the Guaranteed Obligations, all setoffs and counterclaims and all presentments, demands for performance, notices of nonperformance, protests, notices of protest, notices of dishonor and notices of acceptance of this Guaranty or any other guaranty, the benefits of all statutes of limitation, the benefits of any statute the effect of which would require the Agent or any other Holder of Secured Obligations to first proceed against Borrower, any other Guarantor or any other Person to enforce or collect all or any portion of the Guaranteed Obligations before proceeding against such Guarantor for the enforcement of such Guarantor's obligations and indebtedness hereunder, and all other demands whatsoever (and shall not require that the same be made on Borrower or any Guarantor as a condition precedent to the obligations of any of the Guarantors hereunder), and covenants that this Guaranty will not be discharged, except by indefeasible payment and performance in full of all of the Guaranteed Obligations and any other obligations contained herein. Each of the Guarantors further waives all notices of the existence, creation or incurring of new or additional indebtedness, arising either from additional loans extended to Borrower or otherwise, and also waives all notices that the principal amount, or any portion thereof, and/or any interest on any instrument or document evidencing all or any part of the Guaranteed Obligations is due, notices of any and all proceedings to collect from the maker, any endorser or any other guarantor of all or any part of the Guaranteed Obligations, or from any other Person, and, to the extent permitted by law, notices of exchange, sale, surrender or other handling of any security or collateral given to the Agent or any other Holder of Secured Obligations to secure payment of all or any part of the Guaranteed Obligations. Each of the Guarantors further waives any requirement that the Agent or any other Holder of Secured Obligations protect, secure, perfect or insure any security interest or exhaust any right to take action against Borrower or any other Person or any collateral. (ii) Each of the Guarantors hereby waives, to the fullest extent permitted by applicable law in accordance with Section 2856 of the California Civil Code, all rights and benefits under California Civil Code Sections 2787 to 2855, inclusive (or any similar laws in other jurisdictions) and all rights and benefits of California Civil Code Sections 2899 and 3433 (or any similar laws in any other jurisdiction). In addition, without limiting the generality of the -4- 5 foregoing or any other provision hereof, each of the Guarantors hereby waives, in accordance with Section 2856 of the California Civil Code, all rights and defenses (including, without limitation, all rights and defenses arising out of an election of remedies by the Agent or any other Holder of Secured Obligations) that such Guarantor may have because the Obligations are secured by real property. This means, among other things: (i) the Agent or any other Holder of Secured Obligations may collect from each of the Guarantors without first foreclosing on any real or personal property collateral pledged to or for the benefit of the Agent or any other Holder of Secured Obligations; and (ii) if the Agent or any other Holder of Secured Obligations forecloses on any real property collateral pledged by the Borrower: (A) the amount of the debt may be reduced only by the price for which that collateral is sold at the foreclosure sale, even if the collateral is worth more than the sale price; and (B) the Agent or any other Holder of Secured Obligations may collect from each of the Guarantors even if the Agent or any other Holder of Secured Obligations, by foreclosing on the real property collateral, has destroyed any right the Guarantors may have to collect from the Borrower. This is an unconditional and irrevocable waiver of any rights and defenses each of the Guarantors may have because the Guaranteed Obligations are or may be secured by real property. These rights and defenses include, but are not limited to, any rights or defenses based upon Section 580a, 580b, 580d or 726 of the California Code of Civil Procedure (or any similar laws in any other jurisdiction). In accordance with Section 15 below, this Guaranty shall be governed by, and shall be construed and enforced in accordance with, the internal laws (as opposed to the conflicts of laws provisions other than those contained in New York General Obligations Law Section 5-1401) of the State of New York. This Section 4(ii) and any other referenced provisions of California law are included solely out of an abundance of caution, and shall not be construed to mean that any of the referenced provisions of California law are in any way applicable to this Guaranty or to any of the Guaranteed Obligations. (iii) Each Guarantor agrees that notwithstanding the foregoing and without limiting the generality of the foregoing if, after the occurrence and during the continuance of an Event of Default, any of the Agent or any other Holder of Secured Obligations is prevented by applicable law from exercising its rights to accelerate the maturity of the Obligations, to collect interest on the Obligations, or to enforce or exercise any other right or remedy with respect to the Obligations, or the Agent is prevented from taking any action to realize on the Collateral, each such Guarantor agrees to pay to the Agent for the account of the Agent and the other Holders of Secured Obligations, upon demand therefor, the amount which otherwise would have been due -5- 6 and payable had such rights and remedies been permitted to be exercised by the Agent or such Holder. (iv) The Holders of Secured Obligations, either themselves or acting through the Agent, are hereby authorized, without notice or demand and without affecting the liability of any of the Guarantors hereunder, from time to time, (a) to renew, extend, accelerate or otherwise change the time for payment of, or other terms relating to, all or any part of the Guaranteed Obligations, or to otherwise modify, amend or change the terms of any of the Loan Documents; (b) to accept partial payments on all or any part of the Guaranteed Obligations; (c) to take and hold security or collateral for the payment of all or any part of the Guaranteed Obligations, this Guaranty, or any other guaranty of all or any part of the Guaranteed Obligations or other liabilities of Borrower or any of the Guarantors, (d) to exchange, enforce, waive and release any such security or collateral; (e) to apply such security or collateral and direct the order or manner of sale thereof as in their discretion they may determine; (f) to settle, release, exchange, enforce, waive, compromise or collect or otherwise liquidate all or any part of the Guaranteed Obligations, this Guaranty, any other guaranty of all or any part of the Guaranteed Obligations, and any security or collateral for the Guaranteed Obligations or for any such guaranty; or (g) to the extent permitted under the Credit Agreement, to assign all or any portion of their rights and interests in the Guaranteed Obligations and/or any collateral or other security therefor to any Person. Any of the foregoing may be done in any manner, without affecting or impairing the obligations of any of the Guarantors hereunder. 5. Financial Information. Each of the Guarantors hereby assumes responsibility for keeping itself informed of the financial condition of Borrower and the other Guarantors, any endorsers and/or other guarantors of all or any part of the Guaranteed Obligations, and of all other circumstances bearing upon the risk of nonpayment of the Guaranteed Obligations, or any part thereof, that diligent inquiry would reveal, and each of the Guarantors hereby agrees that neither the Agent nor any other Holder of Secured Obligations shall have any duty to advise any of the Guarantors of information known to any of them regarding such condition or any such circumstances. In the event the Agent or any other Holder of Secured Obligations, in its sole discretion, undertakes at any time or from time to time to provide any such information to any of the Guarantors, such Holder or the Agent shall be under no obligation (i) to undertake any investigation not a part of its regular business routine (ii) to disclose any information which such Holder or the Agent pursuant to accepted or reasonable commercial finance or banking practices, wishes to maintain confidential or (iii) to make any other or future disclosure of such information or any other information to any of the Guarantors. 6. No Marshaling; Reinstatement. Each of the Guarantors consents and agrees that neither the Agent nor any other Holder of Secured Obligations nor any Person acting for or on behalf of the Agent or any other Holder of Secured Obligations shall be under any obligation to marshall any assets in favor of any of the Guarantors or against or in payment of any or all of the Guaranteed Obligations. Each of the Guarantors further agrees that, to the extent that Borrower, any of the Guarantors or any other guarantor of all or any part of the Guaranteed -6- 7 Obligations makes a payment or payments to the Agent or any other Holder of Secured Obligations receives any proceeds of Collateral, which payment or payments or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to Borrower, any of the Guarantors, such other guarantors or any other Person, or their respective estates, trustees, receivers or any other party, including, without limitation, any of the Guarantors, under any bankruptcy law, state or federal law, common law or equitable cause, then, to the extent of such payment or repayment, the part of the Guaranteed Obligations which has been paid, reduced or satisfied by such amount shall be reinstated and continued in full force and effect as of the time immediately proceeding such initial payment, reduction or satisfaction. 7. Waiver of Subrogation. EACH GUARANTOR HEREBY IRREVOCABLY WAIVES ALL RIGHTS OF SUBROGATION (WHETHER CONTRACTUAL, UNDER SECTION 509 OF THE BANKRUPTCY CODE, UNDER COMMON LAW, OR OTHERWISE) TO THE CLAIMS OF THE HOLDERS OF SECURED OBLIGATIONS OR THE AGENT AGAINST THE BORROWER AND ALL CONTRACTUAL, STATUTORY OR COMMON LAW RIGHTS OF CONTRIBUTION, REIMBURSEMENT, INDEMNIFICATION AND SIMILAR RIGHTS AND "CLAIMS" (AS SUCH TERM IS DEFINED IN THE BANKRUPTCY CODE) AGAINST THE BORROWER WHICH ARISE IN CONNECTION WITH, OR AS A RESULT OF, THIS GUARANTY OR PAYMENT BY ANY SUCH GUARANTOR OF ANY OF THE GUARANTEED OBLIGATIONS. 8. Subordination. Each of the Guarantors agrees that any and all claims of such Guarantor against any endorser or any other guarantor of all or any part of the Obligations, or against any of their respective properties, shall be subordinate and subject in right of payment to the prior payment, in full, of all of the Guaranteed Obligations. Notwithstanding any right of any of the Guarantors to ask, demand, sue for, take or receive any payment from any other Guarantor, all rights, liens and security interests of such Guarantor, whether now or hereafter arising and howsoever existing, in any assets of any other Guarantor (whether constituting part of the security or collateral given to the Agent, for the benefit of itself and the other Holders of Secured Obligations, to secure payment of all or any part of the Guaranteed Obligations or otherwise) shall be and hereby are subordinated to the rights of the Agent and the other Holders of Secured Obligations in those assets. None of the Guarantors shall have any rights to possession of any such asset or to foreclose upon any such asset, whether by judicial action of otherwise, unless and until all of the Guaranteed Obligations are indefeasibly paid and performed in full and financing arrangements between Borrower and the Holders of Secured Obligations have been terminated. Should any payment, distribution, security or instrument or proceeds thereof be received by any of the Guarantors upon or with respect to any indebtedness of any Guarantor to any of the other Guarantors after the occurrence and during the continuance of an Event of Default and prior to the satisfaction of all of the Guaranteed Obligations and the termination of all financing arrangements between the Borrowers and the Holders of Secured Obligations, such Guarantor shall receive and hold the same in trust, as trustee for the benefit of -7- 8 the Agent and the other Holders of Secured Obligations and shall forthwith deliver the same to the Agent, in precisely the form received (except for the endorsement or assignment of such Guarantor where necessary), for application on any of the Guaranteed Obligations, due or not due, and, until so delivered, the same shall be held in trust by such Guarantor as the property of the Agent and the other Holders of Secured Obligations. If any of the Guarantors fails to make any such endorsement or assignment to the Agent, the Agent or any of its officers or employees are hereby irrevocably authorized to make the same. Each of the Guarantors agrees that until the Guaranteed Obligations are indefeasibly paid and performed in full and all financing arrangements between the Borrowers and the Holders of Secured Obligations have been terminated, such Guarantor will not assign or transfer to others any claim of such Guarantor has or may have against Borrower except for items payable by the Borrower and deposited by any Guarantor with a financial institution for payment. 9. Enforcement; Amendments; Waivers. No delay on the part of the Agent or any other Holder of Secured Obligations in the exercise of any right or remedy arising under this Guaranty, the Credit Agreement, any of the other Loan Documents or otherwise with respect to all or any part of the Guaranteed Obligations, the Collateral or any other guaranty of or security for all or any part of the Guaranteed Obligations, shall operate as a waiver thereof, and no single or partial exercise by any such Person of any such right or remedy shall preclude any further exercise thereof. The remedies set forth herein are cumulative and not exclusive of any remedies provided by law or the other Loan Documents. No modification or waiver of any of the provisions of this Guaranty shall be binding upon the Agent or any other Holder of Secured Obligations, except as expressly set forth in a writing duly signed and delivered in accordance with the provisions of Section 11.07 of the Credit Agreement. Failure by the Agent or any other Holder of Secured Obligations at any time or times hereafter to require strict performance by Borrower, any of the Guarantors, any other guarantor of all or any part of the Guaranteed Obligations or any other Person of any of the provisions, warranties, terms and conditions contained in any of the Loan Documents now or at any time or times hereafter executed by such Persons and delivered to the Agent or any other Holder of Secured Obligations shall not waive, affect or diminish any right of the Agent or such Holder of Secured Obligations at any time or times hereafter to demand strict performance thereof and such right shall not be deemed to have been waived by any act or knowledge of the Agent or any other Holder of Secured Obligations, or their respective agents, officers or employees, unless such waiver is contained in an instrument in writing, directed and delivered to Borrower or each of the Guarantors, as applicable, specifying such waiver, and is signed by the party or parties necessary to give such waiver under Section 11.07 of the Credit Agreement. No waiver of any Event of Default by the Agent or any other Holder of Secured Obligations shall operate as a waiver of any other Event of Default or the same Event of Default on a future occasion, and no action by the Agent or any other Holder of Secured Obligations permitted hereunder shall in any way affect or impair the Agent's or such Holder's rights and remedies or the obligations of any of the Guarantors under this Guaranty. Any determination by a court of competent jurisdiction of the amount of any principal and/or interest owing by Borrower or any of the Guarantors to any Holder of Secured Obligations shall -8- 9 be conclusive and binding on each of the Guarantors irrespective of whether such Guarantor was a party to the suit or action in which such determination was made. 10. Effectiveness; Termination; Release. This Guaranty shall become effective upon its execution by each of the Guarantors and shall continue in full force and effect and may not be terminated or otherwise revoked until the Credit Agreement and all financing arrangements governed by the Loan Documents among the Borrower, the Agent and the other Holders of Secured Obligations shall have been terminated (other than continuing contingent indemnity obligations) and the Guaranteed Obligations shall have been indefeasibly and fully paid and discharged. If, notwithstanding the foregoing, any of the Guarantors shall have any right under applicable law to terminate or revoke its Guaranty, each of the Guarantors agrees that such termination or revocation shall not be effective until a written notice of such revocation or termination, specifically referring hereto, signed by such Guarantor, is actually received by the Agent and each of the Lenders. Such notice shall not affect the right and power of any of the Agent or any other Holder of Secured Obligations to enforce rights arising prior to receipt thereof by the Agent and each other Holder of Secured Obligations. If the Agent or any other Holder of Secured Obligations grants loans or takes other action after any of the Guarantors terminates or revokes this Guaranty but before such Person receives such written notice, the rights of such Person with respect thereto shall be the same as if such termination or revocation had not occurred. Notwithstanding anything to the contrary contained in this Guaranty or any of the other Loan Documents, any Guarantor shall be released from its obligations hereunder and under the other Loan Documents upon the consummation of a sale or other disposition of all of the capital stock or membership interest of such Guarantor by Borrower or another Guarantor which is permitted under the Credit Agreement or consented to by the Lenders. 11. Successors and Assigns. This Guaranty shall be binding upon each of the Guarantors and upon their respective successors and assigns and shall inure to the benefit of the Agent and the other Holders of Secured Obligations and their respective successors and assigns; all references herein to Borrower and to the Guarantors shall be deemed to include their respective successors and assigns. The successors and assigns of the Guarantors and Borrower shall include, without limitation, their respective receivers, trustees or debtors-in-possession; provided, however, that none of the Guarantors shall voluntarily assign or transfer its rights or obligations hereunder without the Agent's prior written consent. 12. Definitions. All references to the singular shall be deemed to include the plural and vice versa where the context so requires. 13. Payments to be Free of Deductions; Withholding Tax Exemption. All payments by the Guarantors under this Guaranty shall be made without setoff or counterclaim and free and clear of, and without deductions of the type and to the extent described in Section 2.10 of the Credit Agreement. A delivery by a Lender that is not incorporated under the laws of the United States of America of its IRS Form 1001 or 4224 to Borrower pursuant to the Credit Agreement shall be deemed a delivery of such form to each of the Guarantors hereunder. -9- 10 14. Officer Authority. Each of the undersigned hereby certifies that he/she has all necessary authority to execute and deliver this Guaranty on behalf of the Guarantors for whom he/she has executed and delivered this Guaranty. 15. GOVERNING LAW. THE AGENT HEREBY ACCEPTS THIS GUARANTY, ON BEHALF OF ITSELF AND THE OTHER HOLDERS OF SECURED OBLIGATIONS, AT NEW YORK, NEW YORK, BY ACKNOWLEDGING AND AGREEING TO IT THERE. ANY DISPUTE AMONG THE AGENT, ANY OTHER HOLDERS OF SECURED OBLIGATIONS AND ANY OF THE GUARANTORS ARISING OUT OF OR RELATED TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS GUARANTY, AND WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED IN ACCORDANCE WITH THE INTERNAL LAWS, AND NOT THE CONFLICTS OF LAW PROVISIONS OTHER THAN THOSE CONTAINED IN NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1401, OF THE STATE OF NEW YORK. 16. CONSENT TO JURISDICTION; SERVICE OF PROCESS; JURY TRIAL. (A) EXCLUSIVE JURISDICTION. EXCEPT AS PROVIDED IN SUBSECTION (B), EACH OF THE PARTIES HERETO AGREES THAT ALL DISPUTES AMONG THEM ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED EXCLUSIVELY BY STATE OR FEDERAL COURTS LOCATED IN NEW YORK, NEW YORK, BUT THE PARTIES HERETO ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF NEW YORK, NEW YORK. EACH OF THE PARTIES HERETO WAIVES IN ALL DISPUTES BROUGHT PURSUANT TO THIS SUBSECTION ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT CONSIDERING THE DISPUTE. (B) OTHER JURISDICTIONS. EACH OF THE GUARANTORS AGREES THAT THE AGENT OR ANY OTHER HOLDER OF SECURED OBLIGATIONS SHALL HAVE THE RIGHT TO PROCEED AGAINST EACH OF THE GUARANTORS OR ITS PROPERTY IN A COURT IN ANY LOCATION TO ENABLE SUCH PERSON TO (1) OBTAIN PERSONAL JURISDICTION OVER ANY OF THE GUARANTORS OR (2) REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF SUCH PERSON. EACH OF THE GUARANTORS AGREES THAT IT WILL NOT ASSERT ANY PERMISSIBLE COUNTERCLAIMS IN AN PROCEEDING BROUGHT BY SUCH PERSON TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF SUCH PERSON. EACH OF THE GUARANTORS WAIVES ANY OBJECTION THAT IT -10- 11 MAY HAVE TO THE LOCATION OF THE COURT IN WHICH SUCH PERSON HAS COMMENCED A PROCEEDING DESCRIBED IN THIS SUBSECTION. (C) SERVICE OF PROCESS. EACH OF THE GUARANTORS WAIVES PERSONAL SERVICE OF ANY PROCESS UPON IT AND, AS ADDITIONAL SECURITY FOR THE OBLIGATIONS, IRREVOCABLY APPOINTS THE PRENTICE HALL CORPORATION SYSTEM, INC., WHOSE ADDRESS IS 500 CENTRAL AVENUE, ALBANY, NEW YORK, 12206, AS SUCH GUARANTORS' AGENT FOR THE PURPOSE OF ACCEPTING SERVICE OF PROCESS ISSUED BY ANY COURT. EACH OF THE GUARANTORS IRREVOCABLY WAIVES ANY OBJECTION (INCLUDING, WITHOUT LIMITATION, ANY OBJECTION OF THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS) WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH IN ANY JURISDICTION SET FORTH ABOVE. (D) WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, ARISING OUT OF, CONNECT WITH, RELATED TO OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH. EACH OF THE PARTIES HERETO AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT ANY PARTY HEREWITH MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY. (E) WAIVER OF BOND. EACH OF THE GUARANTORS WAIVES THE POSTING OF ANY BOND OTHERWISE REQUIRED OF ANY PARTY HERETO IN CONNECTION WITH ANY JUDICIAL PROCESS OR PROCEEDING TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS OR TO ENFORCE ANY JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF SUCH PARTY, OR TO ENFORCE BY SPECIFIC PERFORMANCE, TEMPORARY RESTRAINING ORDER, PRELIMINARY OR PERMANENT INJUNCTION, THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT. 17. Advice of Counsel. Each of the Guarantors represents and warrants to the Agent and the other Holders of Secured Obligations that it has discussed this Guaranty and, specifically, the provisions of Sections 16 hereof, with its lawyers. -11- 12 18. Notices. Each of the Guarantors appoints Borrower as such Guarantor's agent to receive notices and other communications under this Guaranty. Any such notice or communication received by Borrower under this Guaranty shall be deemed to have been received by each such Guarantor. All such notices to Borrower shall be given in the manner and to the addresses set forth in the Credit Agreement. 19. Severability. Wherever possible, each provision of this Guaranty shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Guaranty shall be prohibited by or invalid under such law, such provision shall be ineffective to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Guaranty. 20. Collateral. Each of the Guarantors hereby acknowledges and agrees that its obligations under this Guaranty are secured pursuant to the terms and provisions of the Collateral Documents to which it is a party. 21. Merger. This Guaranty represents the final agreement of each of the Guarantors with respect to the matters contained herein and may not be contradicted by evidence of prior or contemporaneous agreements, or prior or subsequent oral agreements, among any of the Guarantors and the Agent or any other Holder of Secured Obligations. 22. Execution in Counterparts. This Guaranty may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. 23. Definitions. The singular shall include the plural and vice versa and any general shall include any other gender as the context may require. 24. Section Headings. The section headings herein are for convenience of reference only, and shall not affect in any way the interpretation of any of the provisions hereof. -12- 13 IN WITNESS WHEREOF, this Guaranty has been duly executed by each of the Guarantors as of the day and year first set forth above. CRUISE AMERICA TRAVEL, INCORPORATED DQSC PROPERTY CO. DQSB II, INC. By: /s/ JORDAN B. ALLEN -------------------------------------- Name: Jordan B. Allen Title: Executive Vice President GREAT RIVER CRUISE LINE, L.L.C. By: The Delta Queen Steamboat Co., a Managing Member By: /s/ JORDAN B. ALLEN ------------------------------- Name: Jordan B. Allen Title: Executive Vice President By: DQSB II, Inc., a Managing Member By: /s/ JORDAN B. ALLEN ------------------------------- Name: Jordan B. Allen Title: Executive Vice President GREAT OCEAN CRUISE LINE, L.L.C. By: The Delta Queen Steamboat Co., a Managing Member By: /s/ JORDAN B. ALLEN ------------------------------- Name: Jordan B. Allen Title: Executive Vice President By: DQSB II, Inc., a Managing Member By: /s/ JORDAN B. ALLEN ------------------------------- Name: Jordan B. Allen Title: Executive Vice President -13- 14 EXHIBIT A SUPPLEMENT TO SUBSIDIARY GUARANTY Reference is hereby made to the Subsidiary Guaranty (the "Guaranty") made as of February , 1999, by Cruise America Travel, Incorporated, a Delaware corporation, DQSC Property Co., a Delaware corporation, DQSB II, Inc., a Delaware corporation, Great Ocean Cruise Line, L.L.C., a Delaware limited liability company and Great River Cruise Line, L.L.C., a Delaware limited liability company (each individually, a "Guarantor" and collectively, the "Guarantors") in favor of The Chase Manhattan Bank, a New York banking corporation, as Agent, for its benefit and the benefit of the other "Holders of Secured Obligations" (as defined in the Credit Agreement). Capitalized terms used herein shall have the meaning given to them in the Guaranty. By its execution below, the undersigned [NAME OF NEW GUARANTOR], a , agrees to become, and does hereby become, a Guarantor under the Guaranty and agrees to be bound by the Guaranty as if originally a party thereto. By its execution below, the undersigned represents and warrants as to itself that all of the representations and warranties contained in the Guaranty are true and correct in all material respects as of the date hereof. IN WITNESS WHEREOF, [NAME OF NEW GUARANTOR], a has executed and delivered this Supplement to the Guaranty as of , . [NAME OF NEW GUARANTOR] By: ----------------------------- Name: ----------------------------- Title: ----------------------------- -14- EX-4.(II)(A)(6) 9 TRUST INDENTURE 1 4(ii)(a)(6) EXECUTION COPY TRUST INDENTURE THIS TRUST INDENTURE (this "Indenture") dated as of this 25th day of February, 1999 is entered into by and among GREAT RIVER CRUISE LINE, L.L.C., a Delaware limited liability company ("Mortgagor"), and THE CHASE MANHATTAN BANK, a New York banking corporation, as Agent (hereinafter in such capacity, the "Agent"), as referred to and defined in the Credit Agreement described below, THE FINANCIAL INSTITUTIONS LISTED ON THE SIGNATURE PAGES THEREOF of the Credit Agreement described below and each other financial institution which from time to time becomes a party thereto in accordance with Section 11.02(a) thereof (together with their respective successors and permitted assigns, individually, a "Lender" and, collectively, the "Lenders"), and THE CHASE MANHATTAN BANK, not in its individual capacity but as trustee under this Indenture ("the Trustee"). PRELIMINARY STATEMENT A. The Agent, Hibernia National Bank, as Documentation Agent, the Lenders and The Delta Queen Steamboat Co. (the "Borrower") have entered into a Credit Agreement dated as of February 25, 1999 (as amended, restated, supplemented or otherwise modified from time to time, the "Credit Agreement"). Capitalized terms used herein and not otherwise defined shall have the meanings assigned thereto in the Credit Agreement; and B. In order to secure the Obligations (as defined in the Credit Agreement ), the Mortgagor has executed and delivered a Preferred Ship Mortgage dated February 25, 1999 (the "Mortgage") in favor of the Agent, as Agent and Trustee for the Lenders, which Mortgage encumbers one hundred percent (100%) of the Vessel "Delta Queen" (the "Vessel"); and C. In accordance with the provisions of Chapter 313 of Title 46 of the United States Code, as amended (the "Act"), the Lenders and the Mortgagor have requested that the Trustee serve as Trustee and Mortgagee for the benefit of the Lenders under the Mortgage, and to hold the Mortgage to secure the Obligations and such additional sums as the Mortgagor may be obligated to pay under and pursuant to the Mortgage (collectively, the "Mortgage Obligations"). The Lenders and the Mortgagor are sometimes referred to individually as a "Settlor" and collectively as "Settlors"; and D. The Trustee has obtained the approval of the Maritime Administration, United States Department of Transportation ("MARAD") to act as an "approved trustee" pursuant to Public Law 89-346 and 46 U.S.C.A. Section 31328 to hold security instruments and other items in connection with the financing of vessels documented under the laws of the United States; NOW, THEREFORE, in consideration of the following declaration of trust and of the mutual agreements herein set forth, the Settlors and the Trustee hereby agree as follows: 2 ARTICLE I The Settlors, in furtherance of the aforesaid purposes and in order to secure the payment and performance of the Mortgage Obligations, do hereby constitute and appoint the Trustee to act as trustee under the Mortgage for the benefit of the Lenders, and the Trustee does hereby declare that it does and will hold as trustee all right, title and interest of the Lenders under the Mortgage. The Mortgage Obligations are to be fully secured by the Mortgage and the Mortgage is to be held by the Trustee in trust, for the benefit of the Lenders upon the terms and conditions of this Indenture. Capitalized terms used herein without definition and otherwise defined in the Credit Agreement shall have the same meanings used herein as therein. ARTICLE II This Indenture is irrevocable and may not be altered or amended in any respect except as stated herein and may not be terminated except upon the written agreement of the Settlors and the Trustee or upon the occurrence of events stated herein. ARTICLE III To secure the Obligations owed by the Mortgagor to the Agent and the Lenders, and the other Mortgage Obligations (including all obligations of Borrower under the Credit Agreement) the Trustee shall be, or has been, granted the Mortgage on the Vessel to be held in trust as provided herein. ARTICLE IV Under the terms of this Indenture, the Trustee shall have the following rights and duties: (a) The Trustee shall hold the Mortgage for the benefit of the Agent and the Lenders as collateral security for the Mortgage Obligations owed to the Agent or the Lenders until such time as the Mortgage Obligations shall have been fully satisfied and all of the Mortgagor's obligations under and pursuant to the Mortgage Obligations and the Mortgage shall have extinguished. (b) The Trustee shall exercise all the rights and powers granted under the Mortgage except as limited herein or therein, and except as the Requisite Lenders (as defined in the Credit Agreement) may further request the Trustee to limit the exercise of its power and rights under the Mortgage, and the Trustee shall use its best efforts, at all times, to preserve its status as a "United States citizen" under 46 U.S.C.A. Section 802(c) and as otherwISE may be required by federal law, and to timely renew its status as an approved trustee under 46 CFR Section 221.35. Page 2 3 (c) Upon default by the Mortgagor under the Mortgage and notice thereof from the Requisite Lenders, the Trustee shall make demand upon the Mortgagor for payment of the Mortgage Obligations and full and punctual performance of its obligations under the Mortgage. If the Mortgagor should fail to make payment in full to the Trustee when due, the Trustee shall exercise its rights, as may be directed by the Requisite Lenders, to foreclose under the Mortgage and/or to exercise any other rights granted to the Trustee under the Mortgage or as be authorized under applicable law. (d) If the Mortgage Obligations shall be fully discharged, including, without limitation, all fees and expenses of the Trustee duly paid, and any obligations secured by the Mortgage fully discharged by the Mortgagor, and all of Lenders' obligations under the Credit Agreement or the Mortgage shall have terminated, the obligations and powers of Trustee hereunder shall terminate and the lien of the Mortgage shall be extinguished. (e) The Trustee, at the Requisite Lenders' election, upon default by Mortgagor under the Mortgage securing the Obligations, shall have the right to take and operate the Vessel and any other property, encumbered by the Mortgage as provided by the Mortgage, subject to prior written approval of the U.S. Secretary of Transportation to the extent required by 46 U.S.C.A. Sections 808 and 835, 46 U.S.C.A. 31328(e) and/or pursuant to 46 U.S.C.A. Section 31325(e) or to the extent authorized by the court pursuant to 46 U.S.C.A. Section 31325(e) provided, however, that this Indenture shall be subject to any statute of the United States and any regulations of MARAD, that may be in conflict herewith. (f) If the Trustee upon direction from the Requisite Lenders shall foreclose upon the Mortgage, the proceeds of the sale shall be applied as set forth in the Mortgage. (g) The Trustee shall be allowed to exercise such rights as provided under the Mortgage, including without limitation, the advance of funds or payment of expenses where such exercise will, in the reasonable determination of the Trustee, result in the preservation of the Vessel and be in the best interests of the Agent and the Lenders. (h) The Trustee is authorized to employ any custodian, receiver, attorney or other agent to assist the Trustee in the administration of this Indenture or the exercise of its rights under the Mortgage. (i) Upon the written direction of the Requisite Lenders, the Trustee is authorized to execute appropriate documentation releasing and discharging the Vessel from the lien of the Mortgage, and to execute, deliver and record any and all documents necessary in connection therewith. (j) The Mortgagor agrees to deliver to the Lenders copies of all notices, documents and other instruments required to be delivered to the Trustee under the Mortgage at the same time the same are delivered to Trustee. Page 3 4 (k) The Trustee shall fulfill all obligations imposed on it under 46 CFR Part 221 and 46 U.S.C.A. Chapter 313, including the giving of any notices required under 46 CFR Section 221.37. ARTICLE V The Trustee may resign at any time by giving sixty (60) days' written notice to the Settlors, provided, however, that such resignation shall only be effective upon the appointment of a successor trustee, qualifying as an approved trustee under the provisions of 46 U.S.C.A. Sections 808, 835 and/or 46 U.S.C.A. Section 31328(b) as listed by MARAD. In addition, the Requisite Lenders may at any time remove the Trustee with or without cause by an instrument in writing delivered to the Trustee, such removal to be effective upon the acceptance of appointment of a successor trustee as hereinafter provided. In the case of resignation or removal of the Trustee, the Requisite Lenders shall appoint a successor trustee by an instrument signed by each such Lender, which need not be executed by the Mortgagor. At such time as a successor trustee shall be qualified, the Trustee shall assign all of its right, title and interest in and to the Mortgage to said successor trustee, and thereafter each reference in this Indenture to the Trustee shall be deemed to mean such successor trustee. Any corporation into which the Trustee may be merged or converted with which it may be consolidated or any corporation resulting from or surviving any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation to which substantially all the corporate trust business of the Trustee may be transferred, shall immediately become the successor trustee under this Indenture, provided that such successor trustee qualifies as a "citizen of the United States" within the meaning of 46 U.S.C.A. Section 802 and satisfies the requirements of 46 U.S.C.A. 31328. Notwithstanding anything to the contrary contained in this Indenture, in the event that the Trustee, or any successor trustee shall at any time fail to be a citizen of the United States within the meaning of 46 U.S.C.A. Section 802, such that the Vessel subjected to this Indenture or the Mortgage should fail to qualify for coastwise trading, the Trustee or successor trustee, whose United States citizenship status then jeopardized the coastal trading license of the Vessel, shall be deemed to have resigned immediately prior to such loss of United States citizenship, and shall notify the Lenders thereof, and the Lenders shall thereafter designate a successor trustee under the procedures set forth in this Indenture. ARTICLE VI No bond shall be required of the Trustee or of any Person appointed as successor trustee for the faithful performance of its duties as trustee and funds in the hands of the Trustee may be deposited with the Trustee without the necessity of posting collateral. Page 4 5 ARTICLE VII The Trustee shall be reimbursed for all costs and expenses incurred in the administration of this Indenture and in the exercise of its rights and obligations under the Mortgage. Fees for usual or special services, including services rendered hereunder as a result of a default by the Mortgagor under the Mortgage or the obligation secured thereby will be reasonable. The Mortgagor shall pay all of the Trustee's fees, costs, expenses, attorneys' and paralegals' fees and charges. To the extent such fees and expenses are incurred during a period of default under the Mortgage or Credit Agreement and are not paid timely by the Mortgagor, the Lenders agree to pay or reimburse the Trustee for such unpaid amounts. ARTICLE VIII The validity, construction and interpretation of this Indenture, and the administration of the trust created hereunder, shall be governed by the laws of the State of Louisiana (without regard to the laws applicable to conflicts or choice of law) except to the extent preempted by federal or maritime law of the United States. This Indenture and any amendments, waivers, consents or supplements may be executed in counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument. ARTICLE IX If any provision of this Indenture is contrary to, prohibited by or deemed invalid under any applicable law or regulation, such provision shall be inapplicable and deemed omitted to the extent so contrary, prohibited or invalid, but the remainder of this Indenture shall not be invalidated thereby and shall be given full force and effect so far as possible. ARTICLE X The Mortgagor hereby agrees to defend, indemnify and hold the Trustee and its successors, assigns, legal representatives and agents, harmless from and against any and all liabilities, obligations, losses, damages, fines, penalties, taxes, claims, actions, suits, costs or disbursements (including without limitation, reasonable attorneys' fees and expenses) of any kind or nature whatsoever (except such arising from the wilful misconduct or gross negligence on the part of the Trustee) incurred by the Trustee which may be imposed on, incurred or assessed against the Trustee arising out of or in connection with the acceptance or administration of the Indenture created hereby. Page 5 6 ARTICLE XI The Lenders shall have the right to sell or assign the Obligations, and any part thereof, with or without recourse, in accordance with the provisions of the Credit Agreement and upon presentation to the Trustee of such instrument(s) and/or other documents required pursuant to the Credit Agreement evidencing such sale or assignment, in form reasonably satisfactory to the Trustee, such purchaser or assignee of the Obligations shall succeed to all of the rights and obligations of the Lenders hereunder. ARTICLE XII All notices, consents, approvals, requests, demands and other communications hereunder shall be in writing and shall be sent by mail (by registered or certified mail, return receipt requested), Federal Express or similar overnight delivery service, telecopy or hand delivery, as follows: (a) To the Owner: c/o The Delta Queen Steamboat Co. Two North Riverside Plaza, 2nd Floor Chicago, IL 60606 Attention: Jordan Allen Telephone: (312) 466-6202 Telecopy: (312) 466-6151 with a copy to: Rosenberg & Liebentritt, P.C. Two North Riverside Plaza, Suite 1600 Chicago, IL 60606 Attention: Jim Phipps Telephone: (312) 466-3623 Telecopy: (312) 575-7000 and Adams and Reese, L.L.P. 4500 One Shell Square New Orleans, Louisiana 70139 Attention: Louis A. Wilson, Jr. Telephone: (504) 581-3234 Telecopy: (504) 566-0210 Page 6 7 (b) To the Mortgagee: The Chase Manhattan Bank c/o Chase Securities Inc. 10 South LaSalle Street Chicago, Illinois 60603 Attention: Jon Hinard Telephone: (312) 807-4550 Telecopy: (312) 807-4046 with a copy to: Sidley & Austin One First National Plaza, Chicago, Illinois 60603 Attention: Douglas H. Williams Telephone: (312) 853-7667 Telecopy: (312) 853-7036 with notice, request or communication hereunder deemed to have been given when delivered in person or by courier service, upon receipt of a telecopy or telex or upon delivery or refusal to accept delivery if deposited in the United States mail (registered or certified, with postage prepaid and properly addressed). Any party may change the Person or address to whom or which the notices are to be given hereunder, by notice duly given hereunder. [END OF PAGE] Page 7 8 SIGNATURE PAGE - TRUSTEE IN WITNESS WHEREOF, the parties have caused this Indenture to be executed by their duly authorized officers as of the date first above written. WITNESSES: THE CHASE MANHATTAN BANK, NOT IN ITS INDIVIDUAL CAPACITY, BUT AS TRUSTEE /s/ STEVEN J. FALISKI - ------------------------------------ ------------------------------------ Name: STEVEN J. FALISKI - ------------------------------------ ------------------------------- Title: Vice President ------------------------------- Page 8 9 SIGNATURE PAGE - SETTLORS IN WITNESS WHEREOF, the parties have caused this Indenture to be executed by their duly authorized officers as of the date first above written. WITNESSES: THE CHASE MANHATTAN BANK, AS LENDER /s/ STEVEN J. FALISKI - ------------------------------------ ------------------------------------ Name: Steven J. Faliski - ------------------------------------ ------------------------------- Title: Vice President ------------------------------- HIBERNIA NATIONAL BANK, AS LENDER - ------------------------------------ ------------------------------------ Name: - ------------------------------------ ------------------------------- Title: ------------------------------- BANK ONE, LOUISIANA, NATIONAL ASSOCIATION, AS LENDER - ------------------------------------ ------------------------------------ Name: - ------------------------------------ ------------------------------- Title: ------------------------------- Page 9 10 WITNESSES: CREDIT AGRICOLE INDOSUEZ, AS LENDER /s/ KATHERINE L. ABBOTT - ------------------------------------ ------------------------------------ Name: Katherine L. Abbott - ------------------------------------ ------------------------------- Title: First Vice President ------------------------------- THE BANK OF NEW YORK, AS LENDER /s/ RICHARD RAFFETTO - ------------------------------------ ------------------------------------ Name: Richard Raffetto - ------------------------------------ ------------------------------- Title: Vice President ------------------------------- GREAT RIVER CRUISE LINE, L.L.C. BY: THE DELTA QUEEN STEAMBOAT CO., A MANAGING MEMBER /s/ JORDAN B. ALLEN - ------------------------------------ ------------------------------------ Name: Jordan B. Allen - ------------------------------------ Title: Executive Vice President BY: DQSB II, INC., A MANAGING MEMBER /s/ JORDAN B. ALLEN - ------------------------------------ ------------------------------------ Name: Jordan B. Allen - ------------------------------------ Title: Executive Vice President Page 10 11 ACKNOWLEDGMENT OF TRUSTEE STATE OF ILLINOIS COUNTY OF COOK On this 25th day of February, 1999, before me, the undersigned authority, duly commissioned and qualified in and for the aforesaid jurisdiction, personally came and appeared: /s/ STEVEN J. FALISKI --------------------------------------------- appearing herein in his capacity as Vice President of The Chase Manhattan Bank, a New York banking corporation, as Trustee under the aforesaid Trust Indenture (the "Indenture"), to me personally known to be the identical person whose name is subscribed to the Indenture, who declared and acknowledged, that he executed the same on behalf of such with full authority, and that the instrument is the free act and deed of such Bank, executed for the uses, purposes and benefits therein expressed. By: ------------------------------ Title: ------------------------------------ NOTARY PUBLIC Page 11 12 ACKNOWLEDGMENT OF SETTLOR STATE OF ILLINOIS COUNTY OF COOK On this 25th day of February, 1999, before me, the undersigned authority, duly commissioned and qualified in and for the aforesaid jurisdiction, personally came and appeared: /s/ STEVEN J. FALISKI --------------------------------------------- appearing herein in his capacity as Vice President of The Chase Manhattan Bank, a New York banking corporation, as Lender under the aforesaid Trust Indenture (the "Indenture"), to me personally known to be the identical person whose name is subscribed to the Indenture, who declared and acknowledged, that he executed the same on behalf of such with full authority, and that the instrument is the free act and deed of such Bank, executed for the uses, purposes and benefits therein expressed. By: ------------------------------ Title: ------------------------------------ NOTARY PUBLIC Page 12 13 ACKNOWLEDGMENT OF SETTLOR STATE OF LOUISIANA PARISH OF ORLEANS On this 25th day of February, 1999, before me, the undersigned authority, duly commissioned and qualified in and for the aforesaid jurisdiction, personally came and appeared: /s/ WILLIAM P. HERRINGTON --------------------------------------------- appearing herein in his capacity as Sr. Vice President of Hibernia National Bank, as Lender under the aforesaid Trust Indenture (the "Indenture"), to me personally known to be the identical person whose name is subscribed to the Indenture, who declared and acknowledged, that he executed the same on behalf of such with full authority, and that the instrument is the free act and deed of such Bank, executed for the uses, purposes and benefits therein expressed. By: ------------------------------ Title: ------------------------------------ NOTARY PUBLIC Page 13 14 ACKNOWLEDGMENT OF SETTLOR STATE OF LOUISIANA PARISH OF ORLEANS On this 25th day of February, 1999, before me, the undersigned authority, duly commissioned and qualified in and for the aforesaid jurisdiction, personally came and appeared: /s/ LIZETTE TERRAL --------------------------------------------- appearing herein in his capacity as Sr. Vice President of Bank One, Louisiana, N.A., as Lender under the aforesaid Trust Indenture (the "Indenture"), to me personally known to be the identical person whose name is subscribed to the Indenture, who declared and acknowledged, that he executed the same on behalf of such with full authority, and that the instrument is the free act and deed of such Bank, executed for the uses, purposes and benefits therein expressed. By: ------------------------------------ Title: ------------------------------------- NOTARY PUBLIC Page 14 15 ACKNOWLEDGMENT OF SETTLOR STATE OF ILLINOIS COUNTY OF COOK On this 25th day of February, 1999, before me, the undersigned authority, duly commissioned and qualified in and for the aforesaid jurisdiction, personally came and appeared: /s/ DAVID BOUHL --------------------------------------------- appearing herein in his capacity as First VP of Credit Agricole Indosuez, as Lender under the aforesaid Trust Indenture (the "Indenture"), to me personally known to be the identical person whose name is subscribed to the Indenture, who declared and acknowledged, that he executed the same on behalf of such with full authority, and that the instrument is the free act and deed of such Bank, executed for the uses, purposes and benefits therein expressed. By: ------------------------------ Title: ------------------------------------ NOTARY PUBLIC Page 15 16 ACKNOWLEDGMENT OF SETTLOR STATE OF NEW YORK COUNTY OF NEW YORK On this 25th day of February, 1999, before me, the undersigned authority, duly commissioned and qualified in and for the aforesaid jurisdiction, personally came and appeared: /s/ RICHARD RAFFETTO --------------------------------------------- appearing herein in his capacity as Vice President of The Bank of New York, as Lender under the aforesaid Trust Indenture (the "Indenture"), to me personally known to be the identical person whose name is subscribed to the Indenture, who declared and acknowledged, that he executed the same on behalf of such with full authority, and that the instrument is the free act and deed of such Bank, executed for the uses, purposes and benefits therein expressed. By: ------------------------------ Title: ------------------------------------ NOTARY PUBLIC Page 16 17 ACKNOWLEDGMENT OF SETTLOR STATE OF ILLINOIS COUNTY OF COOK On this 25th day of February, 1999, before me, the undersigned authority, duly commissioned and qualified in and for the aforesaid jurisdiction, personally came and appeared: JORDAN B. ALLEN the duly authorized Executive Vice President and representative of THE DELTA QUEEN STEAMBOAT CO. and DQSB II, INC., which said corporations are the sole managing members of GREAT RIVER CRUISE LINE, L.L.C., a Delaware limited liability company, as Settlor under the aforesaid Trust Indenture (the "Indenture"), to me personally known to be the identical person whose name is subscribed to the Indenture, who declared and acknowledged, that he executed the same on behalf of such with full authority, and that the instrument is the free act and deed of such Bank, executed for the uses, purposes and benefits therein expressed. By: ------------------------------ Title: ------------------------------------ NOTARY PUBLIC Page 17 EX-4.(II)(A)(7) 10 PREFERRED SHIP MORTGAGE 1 Exhibit 4(ii)(a)(7) PREFERRED SHIP MORTGAGE ON 100.000% OF THE VESSEL "DELTA QUEEN" OFFICIAL NUMBER 225875 EXECUTED BY GREAT RIVER CRUISE LINE, L.L.C. IN FAVOR OF THE CHASE MANHATTAN BANK, AS AGENT AND TRUSTEE FOR THE BENEFIT OF THE FINANCIAL INSTITUTIONS DESIGNATED IN THE TRUST INDENTURE DATED AS OF FEBRUARY 25, 1999 EXECUTED ON THE 25TH DAY OF FEBRUARY, 1999 OBLIGATIONS SECURED, DIRECT OR CONTINGENT (EXCLUSIVE OF INTEREST, EXPENSES AND FEES) PURSUANT TO 46 U.S.C.A. SECTION 31321(b)(3) AND 46 CFR SECTION 67.235, MAXIMUM PRINCIPAL BALANCE: $70,000,000 VESSEL NAME: DELTA QUEEN HOME PORT: NEW ORLEANS, LOUISIANA GROSS TONNAGE: 3,360 TONS NET TONNAGE: 1,160 TONS YEAR BUILD: 1926 OWNER AND MORTGAGOR: MORTGAGEE: GREAT RIVER CRUISE LINE, L.L.C. THE CHASE MANHATTAN BANK, ROBIN STREET WHARF AS AGENT AND TRUSTEE FOR THE BENEFIT OF 1380 PORT OF NEW ORLEANS PLACE THE FINANCIAL INSTITUTIONS DESIGNATED NEW ORLEANS, LOUISIANA 70130-1890 HEREIN (TIN: 13-499-4650) 270 PARK AVENUE NEW YORK, NEW YORK 10017 2 EXECUTION COPY PREFERRED SHIP MORTGAGE UNITED STATES OF AMERICA BY: STATE OF ILLINOIS GREAT RIVER CRUISE LINE, L.L.C. COUNTY OF COOK IN FAVOR OF: THE CHASE MANHATTAN BANK, A NEW YORK BANKING CORPORATION, AS AGENT AND TRUSTEE (IN SUCH CAPACITY, "AGENT") FOR ITSELF AND THE FINANCIAL INSTITUTIONS DESIGNATED IN THE TRUST INDENTURE DATED AS OF FEBRUARY 25, 1999 BE IT KNOWN, that on the 25th day of February, 1999, in the presence of the undersigned competent witnesses; PERSONALLY CAME AND APPEARED: GREAT RIVER CRUISE LINE, L.L.C. , a Delaware limited liability company (the "Owner") whose Louisiana mailing address is Robin Street Wharf, 1380 Port of New Orleans Place, New Orleans, Louisiana 70130, whose taxpayer identification number is 72-1353488, successor by merger to GREAT RIVER CRUISE LINE, INC., a Delaware corporation, as evidenced by Certificate of Merger filed with the Delaware Secretary of State on December 27, 1996, but effective as of December 31, 1996, represented herein by and through The Delta Queen Steamboat Co., a Delaware corporation, a managing member, itself appearing through Jordan Allen, its executive vice president and duly authorized representative pursuant to a resolution of its board of directors, a certified copy of which is attached hereto, and DQSB II, Inc., a Delaware corporation, a managing member, itself appearing through Jordan Allen, its executive vice president and duly authorized representative pursuant to a resolution of its board of directors, a certified copy of which is attached hereto; which managing members are authorized under the terms of Owner's operating agreement and a unanimous consent resolution of its members, a certified copy of which is attached hereto; WHO DECLARED THAT: PRELIMINARY STATEMENT: A. The Owner is the sole owner of the whole of the Vessel "DELTA QUEEN", of 3,360 gross tons, 1,160 net tons, official number 225875, documented in the name of the Owner under and Page 1 3 pursuant to the laws of the United States of America, having its home port at New Orleans, Louisiana (hereinafter called the "Vessel"). B. Pursuant to the terms of that certain Credit Agreement, dated as of February 25, 1999 (as amended, restated, supplemented or otherwise modified from time to time, the "Credit Agreement"), by and among THE DELTA QUEEN STEAMBOAT CO. ("Borrower"), the owner of a 99% direct interest and a 1% indirect beneficial interest in the Owner, THE FINANCIAL INSTITUTIONS LISTED ON THE SIGNATURE PAGES THEREOF and each other financial institution which from time to time becomes a party thereto in accordance with Section 11.02(a) (together with their respective successors and assigns, individually, a "Lender" and, collectively, the "Lenders") and the Agent (a copy of which is attached hereto as Exhibit A (without exhibits and schedules) and incorporated by reference herein, with the same force and effect as if fully set forth to herein), the Lenders have agreed to provide the Borrower (subject to the conditions set forth in the Credit Agreement) Revolving Loans with the maximum amount that may be outstanding (exclusive of interest, expenses and fees) at any one time being the aggregate amount of Seventy Million Dollars ($70,000,000), which the Borrower has agreed to repay pursuant to the terms stated therein. Capitalized terms used herein without definition and otherwise defined in the Credit Agreement shall have the same meanings used herein as therein. C. The Revolving Loans are evidenced by certain Notes of the Borrower dated the 25th day of February, 1999, due and payable in the amounts and upon the terms and conditions therein recited, to the order of the payee therein named, with interest as set forth in or by reference in said Notes, a form of which is attached hereto and incorporated by reference herein as Exhibit B, with the same force and effect as if fully set forth herein. D. The Owner has executed a Subsidiary Guaranty ("Guaranty") dated February 25, 1999 pursuant to which it has guaranteed payment and performance of the Obligations, a form of which Guaranty is attached hereto and incorporated herein by reference as Exhibit C, with the same force and effect as if fully set forth herein. E. The Owner, in order to secure the payment of the Obligations, and such additional sums as the Owner may be obligated to pay pursuant to the Guaranty and under the covenants, terms and conditions in this Preferred Ship Mortgage (this "Mortgage"), and in order to secure the performance and observance of and compliance with all agreements, covenants, terms and conditions in the Guaranty and this Mortgage, has duly authorized the execution and delivery of this Mortgage under and pursuant to Title 46 U.S.C.A. Section 31301 et seq in favor of The Chase Manhattan Bank, as Agent and Trustee for the benefit of the Lenders (the "Mortgage") pursuant to a Trust Indenture dated as of February 25, 1999 (the "Indenture"). NOW, THEREFORE, IN CONSIDERATION OF THE FOREGOING, THIS MORTGAGE WITNESSETH: That in consideration of the premises and of the sums loaned as above recited, and of other good and valuable consideration, the receipt whereof is hereby acknowledged, and in order to secure the payment of the Obligations, and such additional sums as the Owner may be obligated to pay under the agreements, covenants, terms and conditions in the Guaranty and this Mortgage, and in order to Page 2 4 secure the performance and observance of and compliance with all the agreements, covenants, terms and conditions in the Credit Agreement, the Notes, the Guaranty and this Mortgage, the Owner has granted, conveyed, mortgaged, pledged, set over and confirmed and does by these presents grant, convey, mortgage, pledge, set over and confirm unto the Mortgagee, its successors and assigns, the whole of the Vessel, together with all engines, machinery, masts, boats, anchors, cables, chains, rigging, tackle, apparel, furniture, spare parts and gear and all other appurtenances thereunto appertaining or belonging, whether now owned or hereafter acquired, whether on board or not, and any and all additions, improvements and replacements hereafter made in or to the Vessel, or any part thereof, or in or to the equipment and appurtenances aforesaid (said Vessel and all items thereof above enumerated being included in the term "Vessel" as used in this Mortgage); TO HAVE AND TO HOLD all and singular the above mortgaged and described Vessel unto the Mortgagee, and its successors and assigns, forever; upon the terms herein set forth for the enforcement of the payment of the Obligations in accordance with the terms of the Credit Agreement and the Notes and to secure the performance and observance of, and compliance with, all agreements, covenants, terms and conditions in the Guaranty and this Mortgage; PROVIDED ONLY, and the condition of these presents is such, that if the Owner and the Borrower, or their respective successors or assigns, shall fully discharge the Obligations, including, without limitation, the indefeasible payment and satisfaction in full of all of the indebtedness evidence by the Notes and all interest, expenses and fees thereon, and all other such sums as may hereafter become secured by this Mortgage and shall perform, observe and comply with all agreements, covenants, terms and conditions in this Mortgage, expressed or implied, to be performed, observed or complied with by and on the part of the Owner and the Borrower, then these presents and the rights hereunder shall cease, determine and be void, and otherwise shall be and remain in full force and effect. IT IS HEREBY COVENANTED, DECLARED AND AGREED that the Vessel is to be held subject to the further covenants, conditions, provisions, terms and uses hereinafter set forth: ARTICLE I COVENANTS OF THE OWNER The Owner represents to, and covenants and agrees with, the Mortgagee as follows: SECTION 1.1. The Owner will observe, perform and comply with all the covenants, terms and conditions herein and in the Guaranty, expressed or implied, on its part to be observed, performed or complied with in accordance with the terms thereof. SECTION 1.2. The Owner was duly organized and is now validly existing as a limited liability company under the laws of the State of Delaware with a principal place of business at Robin Street Wharf, 1380 Port of New Orleans Place, New Orleans, Louisiana 70130-1890. The Owner is now, and shall so remain during the life of this Mortgage, a citizen of the United States as defined in Section 2 of the Shipping Act of 1916, as amended, for the purpose of operating a vessel in the Page 3 5 coastwise trade in accordance with the provisions of said Section 2. The Owner is duly authorized to mortgage the Vessel; all action of the Owner necessary for the execution and delivery of the Guaranty and this Mortgage has been duly and effectively taken; and the Guaranty and this Mortgage in the hands of the holder thereof are the valid and enforceable obligations of the Owner in accordance with their terms. SECTION 1.3. The Owner lawfully owns and is lawfully possessed of the Vessel, free from any lien, encumbrance, security interest or charge of any kind (except liens arising out of trade debt incurred in the ordinary course of business none of which shall be (a) outstanding longer than sixty (60) days and (b) greater than $250,000 in the aggregate, unless covered by a bond, or a letter of undertaking issued by an insurance underwriter or its authorized agent, or unless an adequate funded reserve is maintained, none of which shall be permitted to have priority over this Mortgage), and the Owner warrants, and will defend the title and possession thereto and to every part thereof for the benefit of the Mortgagee against the claims and demands of all Persons whosoever. The Vessel is tight, staunch and strong and well and sufficiently tackled, appareled, furnished and equipped and in all respects seaworthy. SECTION 1.4. The Owner will comply with and satisfy all the provisions of Title 46 U.S.C.A. Section 31301 et seq. in order to establish and maintain this Mortgage as a first preferred mortgage thereunder upon the Vessel. SECTION 1.5. The Owner will at all times operate the Vessel as a United States inland waterway vessel, engaged exclusively in the passenger cruise trade in the Mississippi, Missouri, Tennessee, Cumberland and Ohio Rivers, the Intercoastal Waterway, their tributaries and connecting waterways, and in compliance, in all material respects with the requirements of 46 U.S.C.A. Section 3503 and all orders and regulations promulgated thereunder (collectively, the "Exemptive Order"); and pursuant to the provisions of such Exemptive Order, the Vessel is in compliance with all applicable governmental requirements for domestic transportation of passengers for hire. The Owner will neither cause nor permit the Vessel to be operated in any manner contrary to the applicable law or to carry any cargo that will expose the Vessel to penalty, forfeiture or capture and will not do or suffer or permit anything to be done which can or might adversely affect the documentation of the Vessel under the laws and regulations of the United States of America and will at all times keep the Vessel duly documented thereunder. SECTION 1.6. The Owner will pay and discharge or cause to be paid and discharged, when due and payable from time to time, all taxes, assessments, governmental charges, fines and penalties imposed on the Vessel or any income therefrom and all lawful claims which if unpaid might become a lien or charge upon the Vessel, except that it shall be entitled to contest any such taxes, assessments, governmental charges, fines and penalties in good faith, provided it obtains a bond, or an insurance underwriter's letter of undertaking or sets aside on its books adequate reserves with respect thereto. SECTION 1.7. Except as otherwise provided in Section 1.3 hereof, neither the Owner, the Master of the Vessel, any charterer nor any other Person has or shall have any right, power or authority to suffer to continue, create, incur or permit to be placed or imposed upon the Vessel, its Page 4 6 freights, profits or hire, any liens, encumbrance, security interest or charge whatsoever other than liens for crew's wages and salvage and the lien of this Mortgage. SECTION 1.8. The Owner will carry or cause to be carried a properly certified copy of this Mortgage on board the Vessel with its documents and will cause such certified copy and the documents of the Vessel to be exhibited to any and all Persons having business with the Vessel which might give rise to a maritime lien thereon or to any sale, conveyance, mortgage or lease thereof, and to any representative of the Mortgagee; and will cause to be placed and kept prominently displayed in the chart room and in the Master's cabin of the Vessel a notice, framed under glass, printed in plain type of such size that the paragraph of reading matter shall cover a space not less than four inches wide and six inches long, reading as follows: NOTICE OF PREFERRED SHIP MORTGAGE This Vessel is owned by Great River Cruise Line, L.L.C. and is subject to a Preferred Ship Mortgage, dated February 25, 1999, in favor of The Chase Manhattan Bank, as Agent and Trustee pursuant to a Trust Indenture dated as of February 25, 1999 among the aforesaid Agent and Trustee, as Mortgagee, and the financial institutions designated therein, under authority of Title 46 U.S.C.A. Section 31301 et seq. Under the terms of said Mortgage neither the Owner, any charterer, the Master, nor any other Person has any right, power or authority to create, incur or permit to be placed or imposed upon this Vessel, its freights, profits or hire, any lien whatsoever, other than the lien of, and liens permitted by, said Mortgage. SECTION 1.9. If a notice of claim of lien be recorded against the Vessel, or a libel be filed against the Vessel and the Vessel be attached, levied upon or taken into custody as a result thereof, or if the Vessel be otherwise attached, levied upon or taken into custody by virtue of any proceedings in any court or tribunal, the Owner will promptly notify the Mortgagee thereof by telecopy or telex, confirmed by letter; and within thirty (30) days of such recording, filing, attachment, levy, or taking, will cause a certificate of discharge to be recorded in the case of any such recording of notice of claim or will cause the Vessel to be released in the case of any such attachment, levy or other taking into custody and will cause all liens thereon relating to such recording, libel, attachment, levy or other taking into custody to be discharged and will promptly notify the Mortgagee thereof. SECTION 1.10. The Owner will at all times and without cost and expense to the Mortgagee maintain and preserve or cause to be maintained and preserved the Vessel in good running order and repair, and will cause all equipment and parts thereof which become worn out, broken or damaged to be repaired or replaced and will keep the Vessel, or cause it to be kept, in such condition that is in the highest state of maintenance for vessels of like age and type. The Vessel shall, and the Owner covenants that it will, at all times comply with all applicable United States law, treaties and conventions, and rules and regulations issued thereunder, and shall have on board, when required thereby, valid certificates showing compliance therewith. The Owner will not make, or permit to be made, any substantial change in the structure, type or speed of the Vessel or change in its rig without first receiving the written approval thereof by the Mortgagee. Page 5 7 SECTION 1.11. The Owner will at all reasonable times and upon reasonable prior notice afford the Mortgagee or its authorized representatives full and complete access to the Vessel where located for the purpose of inspecting the same and its cargoes and papers and, at the request of the Mortgagee, will deliver for inspection copies of any and all contracts and documents relating to the Vessel, whether on board or not. SECTION 1.12. The Owner will not sell, mortgage, transfer or demise charter the Vessel without the prior written consent of the Mortgagee, and any such written consent to any one sale, mortgage, transfer or demise charter shall not be construed to be a waiver of this provision with respect to any subsequent proposed sale, mortgage, transfer or demise charter. SECTION 1.13. At all times while and so long as this Mortgage shall be outstanding: (a) The Owner will, at its own expense insure the Vessel and keep the same insured (in lawful money of the United States) for hull and machinery, general mortgagee's interest, and against protection and indemnity risks, generally insured against by prudent shipowners in such form, and with reputable and financially sound insurance companies, underwriters, funds, mutual insurance associations or clubs. (b) Until otherwise required by the Mortgagee, the protection and indemnity, hull and machinery and mortgagee's interest insurance required by this Section 13 may be on the American Institute forms current at the time such insurance takes effect with deductibles or franchises no higher than the following: Hull and Machinery: All claims, each accident or occurrence....................................$750,000 Protection and indemnity insurance in respect to the Vessel shall be by unlimited entry in a British, Scandinavian or Bermuda mutual insurance association or placed with underwriters acceptable to the Mortgagee and shall include pollution liabilities (including coverage for third party claims, statutory and governmental cleanup liabilities, penalties and fines in the minimum amount of $500,000,000 for any one occurrence) with deductibles or franchises no higher than $200,000. For the purposes of insurance against total loss, the Vessel shall be insured for and valued at an amount at least equal to the full commercial value of the Vessel. For purposes of the broker's reports and opinions referred to above, the broker giving the same may rely on a statement as to the full commercial value of the Vessel and the gross tonnage of the Vessel as furnished annually by the Owner to such broker and the Mortgagee at the time insurance is negotiated with underwriters. Page 6 8 (c) All insurance other than protection and indemnity insurance shall be taken out in the names of the Owner and the Mortgagee as their respective interests may appear; the policies or certificates shall provide that there shall be no recourse against the Mortgagee for payment of premiums; and all insurance shall provide for at least ten (10) days' prior notice to be given to the Mortgagee by the underwriters in event of cancellation or any material change in coverage. Protection and indemnity insurance cover notes shall indicate the interest of the Mortgagee. (d) Subject to the terms of the Credit Agreement, all hull and machinery and mortgagee's interest insurance policies or certificates shall provide that losses thereunder shall be payable to the Mortgagee, and all insurance moneys received by the Mortgagee shall be distributed as provided below in this Section 1.13. However, the policies or certificates may provide that unless the underwriters shall have been otherwise instructed by notice in writing from the Mortgagee that an Event of Default shall have occurred and is continuing: (i) any loss under any insurance on the Vessel with respect to protection and indemnity or collision liability risks may be paid directly to the Person to whom any liability covered by such insurance has been incurred, or to the Owner to reimburse it for any loss, damage or expense incurred by it and covered by such insurance, provided that in the latter event the underwriter shall have first received evidence that the liability insured against has been discharged; and (ii) in the case of any loss (other than a loss covered by subparagraph (i) above in this paragraph (d) or by paragraph (e) of this Section 1.13) under any insurance with respect to the Vessel involving any damage to the Vessel or liability of the Vessel, the underwriters may pay directly for the repair, salvage, liability or other charges involved, or, if the Owner shall have first fully repaired the damage and paid the cost thereof or discharged the liability or paid other charges and the underwriters shall have first received evidence thereof, may pay the Owner as reimbursement therefor; provided, however, that (a) if such damage involves a loss in excess of Five Million Dollars ($5,000,000), the underwriters shall not make such payment without first obtaining the written consent of the Mortgagee (which consent shall not be unreasonably withheld, conditioned or delayed), and (b) no payment shall be made to the Owner if there shall have occurred an Event of Default. Any loss which is paid to the Mortgagee but which should have been paid, in accordance with the provisions of this paragraph, directly to the Owner, shall be paid by the Mortgagee to or as directed by the Owner, but only if there shall not have occurred any Event of Default. (e) Subject to the terms of the Credit Agreement, in the event of an actual or constructive total loss or an agreed or a compromised constructive total loss of or requisition of title to or seizure or forfeiture of the Vessel, all amounts payable therefor shall be paid to the Mortgagee and shall be applied: first, to the payment of the expenses of the Mortgagee in collecting such payments; second, to the payment of the then accrued but unpaid interest on the Notes; third, to the payment of the unpaid principal indebtedness evidenced by the Notes; fourth, to the payment of such additional sums as the Owner may be obligated to pay the Mortgagee or the Lenders under the terms of this Mortgage, the Guaranty, the Notes and the Credit Agreement; and any Page 7 9 funds remaining after such payments shall be paid to the Owner, its successors in interest or its assigns or to whomsoever may be entitled thereto. (f) The Owner shall deliver to the Mortgagee the originals of all cover notes, binders and certificates of entry in protection and indemnity associations, and all endorsements and riders amendatory thereof in respect of insurance maintained under this Mortgage. (g) The Owner agrees that it will not do any act, or voluntarily suffer or permit any act to be done, whereby any insurance required hereunder shall or may be suspended, impaired or defeated and will not suffer or permit the Vessel to engage in any voyage or to carry any cargo not permitted under the policies of insurance in effect, without first covering the Vessel with insurance, satisfactory in all respects, including the amount thereof, to the Mortgagee in the exercise of its reasonable discretion, for such voyage or the carriage of such cargo. (h) In the event that any claim or lien is asserted against the Vessel for loss, damage or expense which is covered by insurance hereunder, and it is necessary for the Owner to obtain a bond or supply other security to prevent the arrest of the Vessel or to release the Vessel from arrest on account of such claim or lien, the Mortgagee may, in its sole discretion, and upon notice to the Owner, assign to any Person, firm or corporation executing a surety or guarantee bond or other agreement to save or release the Vessel from such arrest, all right, title and interest of the Mortgagee in and to said insurance covering said loss, damage or expense, as collateral security to indemnify such Person, firm or corporation against liability under said bond or other agreement. SECTION 1.14. The Owner will, within five (5) days following written demand therefor, pay or reimburse the Mortgagee, with interest at the Default Rate, for: (i) any and all expenses or expenditures which the Mortgagee may from time to time incur or make in connection with insurance premiums, discharge or purchase of liens, taxes, dues, assessments, governmental charges, fines and penalties, repairs, attorneys' fees and any other expenses or expenditures which the Owner is obligated herein to incur or make, but fails to incur or make; and (ii) all costs, fees and expenses suffered, incurred or made by the Mortgagee in exercising, protecting or pursuing its rights or remedies under this Mortgage (including, but not limited to, expenses of any sales or taking of the Vessel, attorneys' fees and court costs). Such obligation of the Owner to reimburse the Mortgagee shall be an additional indebtedness due from the Owner, secured by this Mortgage, and shall be payable by the Owner on demand. The Mortgagee, though privileged so to do, shall be under no obligation to the Owner or to any other Person to incur or make any such expenses or expenditures, nor shall the incurring or making thereof relieve the Owner of any default in that respect. ARTICLE II EVENTS OF DEFAULT AND REMEDIES SECTION 2.1. If any Event of Default shall have occurred and be continuing, then and in each and every such case the Mortgagee shall have the right to: Page 8 10 (a) Exercise all of the rights and remedies in foreclosure and otherwise given to mortgagees by the provisions of Title 46 U.S.C.A. Section 31301 et seq. and all acts amendatory thereof and supplemental thereto, or the applicable law of any other jurisdiction; (b) Bring suit at law, in equity or in admiralty to recover judgment for any and all outstanding Obligations or any sum secured by this Mortgage, or otherwise, and collect the same out of any and all property of the Owner whether covered by this Mortgage or otherwise; (c) Take and enter into possession of the Vessel, at any time, wherever the same may be, without legal process and without being responsible for loss or damage; and the Owner or other Person in possession forthwith upon demand of the Mortgagee shall surrender to the Mortgagee possession of the Vessel, and the Mortgagee may, without being responsible for loss or damage, hold, lay up, lease, charter, operate or otherwise use the Vessel, for such time and upon such terms as it may deem to be for its best advantage, and demand, collect and retain, compromise and sue for all hire, freights, earnings, issues, revenues, income, profits, return premiums, salvage awards or recoveries, recoveries in general average, and all other sums due or to become due in respect of the Vessel, including any amounts payable in respect of any insurance in connection with the Vessel, from any Person whomsoever, accounting only for the net profits, if any, arising from such use of the Vessel and charging upon all receipts from the use of the Vessel or from the sale thereof by court proceedings or pursuant to subparagraph (4) next following, all costs, expenses, charges, damages or losses by reason of such use; and if at any time the Mortgagee shall avail itself of the right herein given to take the Vessel, the Mortgagee shall have the right to dock the Vessel for a reasonable time at any dock, pier or other premises of the Owner without charge, or to dock it at any other place at the cost and expense of the Owner; (d) Take and enter into possession of the Vessel, at any time, wherever the same may be, without legal process, and if it seems desirable to the Mortgagee and without being responsible for loss or damage, sell the Vessel at public or private sale, at any place and at such time as the Mortgagee may deem advisable, free from any claim by the Owner in admiralty, in equity, at law or by statute. In the case of a public sale, the Mortgagee shall give notice of the time and place of the sale with a general description of the property in the following manner: (i) By publishing such notice for ten (10) consecutive days in a daily newspaper of general circulation such as The Times Picayune, published in New Orleans, Louisiana; (ii) If the place of sale should not be in New Orleans, Louisiana, then also by publication of a similar notice in a daily newspaper, if any, published at the place of sale; and (iii) By mailing a similar notice to the Owner at least fourteen (14) days prior to the date fixed for such sale. In the case of a private sale no newspaper publication of notice shall be required, but the Mortgagee shall mail written notice of sale to the Owner at least fourteen (14) days prior to the date fixed for entering into the contract of sale. The Mortgagee may, without notice or Page 9 11 publication, adjourn any public or private sale or cause such sale to be adjourned from time to time by announcement at the time and place fixed for sale or for entering into a contract of sale, and such sale or contract of sale may, without further notice, be made at the time and place to which the sale or contract of sale was so adjourned. The Mortgagee shall not be obligated to make any sale of the Vessel if it shall determine not to do so, regardless of the fact that notice of sale may have been given. Any sale may be conducted without bringing the Vessel to the place designated for such sale and in such manner as the Mortgagee may deem to be for the best advantage of the Mortgagee. (e) Instruct the Owner to terminate any existing management agreement affecting the Vessel, and the Owner shall, upon the giving of such instructions by the Mortgagee, immediately terminate any such management agreement and shall appoint other managers satisfactory to the Mortgagee and upon terms and conditions satisfactory to the Mortgagee. (f) Instruct the Owner to make application, if relevant, to the United States Maritime Administration ("MARAD") for permission of MARAD to sell the Vessel for purposes of foreign scrapping of the Vessel, and the Owner shall, upon the giving of such instructions by the Mortgagee, immediately apply for permission of MARAD for such foreign scrapping. SECTION 2.2. Any sale of the Vessel made in pursuant of this Mortgage, whether by exercise of the power of sale granted herein or by virtue of any judicial proceedings, shall operate to divest all right, title and interest of any nature whatsoever of the Owner therein and thereto, and shall bar the Owner, its successors and assigns, and all Persons claiming by, through or under them. No purchaser shall be bound to inquire whether notice has been given, or whether any default has occurred, or as to the propriety of the sale, or as to the application of the proceeds thereof. In the case of any such sale, any purchaser who is the holder of any of the Notes shall be entitled, for the purpose of making settlement or payment for the property purchased, to apply the balance due under such Note or a part thereof as part or all of the purchase price to the extent of the amount remaining due and unpaid thereon. At any such sale, the holder of a Note may bid for and purchase such property and upon compliance with the terms of sale may hold, retain and dispose of such property without further accountability therefor. SECTION 2.3. The Mortgagee is hereby appointed attorney-in-fact of the Owner, with full power of substitution, upon the occurrence of any Event of Default, to make application, if relevant, to MARAD for permission of MARAD to sell the Vessel for purposes of foreign scrapping of the Vessel. SECTION 2.4. The Mortgagee is hereby appointed attorney-in-fact of the Owner, with full power of substitution, upon the occurrence of any Event of Default, to execute and deliver to any purchaser upon any sale of the Vessel made in pursuance of this Mortgage, whether by exercise of the power of sale granted herein or by virtue of any judicial proceedings, and is hereby vested with full power and authority to make, in the name and on behalf of the Owner, a good conveyance of the title to the Vessel when so sold. In the event of any sale of the Vessel by exercise of any power herein contained, the Owner will, if and when required by the Mortgagee, execute such form of conveyance of the Vessel as the Mortgagee may direct or approve. Page 10 12 SECTION 2.5. The Mortgagee is hereby irrevocably appointed attorney-in-fact of the Owner, with full power of substitution, upon the occurrence of any Event of Default, in the name of the Owner to demand, collect, receive, compromise and sue for, so far as may be permitted by law, all freights, hire, earnings, issues, revenues, income and profits of the Vessel, including all amounts due from underwriters under any insurance thereon as payment of losses or as return premiums or otherwise, salvage awards and recoveries, recoveries in general average or otherwise, and all other sums due or to become due at the time of the occurrence of any Event of Default in respect of the Vessel, or in respect of any insurance thereon, from any Person whomsoever, and to make, give and execute in the name of the Owner acquittance, receipts, releases or other discharges for the same, whether under seal or otherwise, to take possession of, sell or otherwise dispose of or manage or employ the Vessel, to execute and deliver charters, and a bill of sale with respect to the Vessel and to endorse and accept in the name of the Owner all checks, notes, drafts, warrants, agreements and other instruments in writing with respect to the foregoing. SECTION 2.6. Whenever any right to enter and take possession of the Vessel accrues to the Mortgagee, it may require the Owner to deliver and the Owner shall on demand, at its own cost and expense, deliver the Vessel to the Mortgagee. If any legal proceedings shall be taken to enforce any right under this Mortgage, the Mortgagee shall be entitled as a matter of right to the appointment of a receiver of the Vessel and the freights, hire, earnings, issues, revenues and profits due or to become due and arising from the operation thereof. SECTION 2.7. The Owner authorizes and empowers the Mortgagee or its appointees or any of them to appear in the name of the Owner, its successors and assigns, in any court of any country or nation of the world where a suit is pending against the Vessel because of or on account of any alleged lien against the Vessel from which the Vessel has not been released and to take such proceedings as to them may seem proper toward the defense of such suit, and the purchase or discharge of such lien, and all expenditures made or incurred by them for the purpose of such defense or purchase or discharge shall be a debt due from the Owner, its successors and assigns, to the Mortgagee and shall be secured by the lien of this Mortgage. SECTION 2.8. Each and every power and remedy herein given to the Mortgagee shall be cumulative and shall be in addition to every other power and remedy herein given or now or hereafter existing at law, in equity, in admiralty or by statute, and each and every power and remedy, whether herein given or otherwise existing, may be exercised from time to time and as often and in such order as may be deemed expedient by the Mortgagee, and the exercise or the beginning of the exercise of any power or remedy shall not be construed to be a waiver of the right to exercise at the same time or thereafter any other consistent or inconsistent power or remedy. No delay or omission by the Mortgagee in the exercise of any right or power or in the prosecution of any remedy accruing upon any Event of Default shall impair any such right, power or remedy or be construed to be a waiver of any such Event of Default or to be an acquiescence therein; nor shall the acceptance by the Mortgagee of any security or of any payment maturing after any Event of Default or of any payment on account of any past default be construed to be a waiver of any right arising out of any future Event of Default or of any past Event of Default not completely cured thereby. Page 11 13 SECTION 2.9. If at any time after the occurrence of an Event of Default and prior to the actual sale of the Vessel by the Mortgagee or prior to commencement of any foreclosure proceedings, the Owner offers to cure completely all events of default and to pay all expenses and advances to the Mortgagee consequent on such Event of Default, with interest at the Default Rate, then the Mortgagee may, if it in its sole discretion so elects, accept such offer and payment and restore the Owner to its former position, but such action shall not affect any subsequent Event of Default or impair any rights consequent thereon. SECTION 2.10. In case the Mortgagee shall have proceeded to enforce any right, power or remedy under this Mortgage by foreclosure, entry or otherwise, and such proceedings shall have been discontinued or abandoned for any reason or shall have been determined adversely to the Mortgagee, then, and in every such case, the Owner and the Mortgagee shall be restored to their former positions and rights hereunder with respect to the property subject or intended to be subject to this Mortgage, and all rights, remedies and powers of the Mortgagee shall continue as if no such proceedings had been taken. SECTION 2.11. In the event of any taking of the Vessel by the Mortgagee or any sale of the Vessel under any of the powers herein specified, the proceeds of any such sale and the net earnings of any charter operation or other use of the Vessel by the Mortgagee under any such power, together with any and all moneys received by the Mortgagee pursuant to or under the terms of this Mortgage or in any proceedings hereunder or with respect hereto, the application of which has not elsewhere herein been specifically provided for, shall be applied as follows: FIRST: To the payment of all expenses and charges, including the expenses of any sale, the expenses of any taking, attorneys' and paralegals' fees, court costs, and any other expenses or advances made or incurred by the Mortgagee or any of the Lenders in the protection of their rights or the pursuance of their remedies hereunder or under the Credit Agreement; SECOND: To the payment of the unpaid interest on the Notes; THIRD: To the payment of principal of the Notes then due, by acceleration or otherwise; FOURTH: To the payment of any additional unpaid Obligations under the Credit Agreement; FIFTH: To the payment of such additional sums as the Owner may be obligated to pay the Mortgagee or the Lenders under the terms of this Mortgage; and SIXTH: To the payment of any surplus thereafter remaining to the Owner or to whomsoever may be entitled thereto. SECTION 2.12. In the event that this Mortgage, the Guaranty, the Credit Agreement or the Notes, or any provision hereof or thereof, shall be deemed invalid in whole or in part by reason of any present or future law or any decision of any court having jurisdiction, or if the documents at any time held by the Mortgagee shall be deemed by the Mortgagee for any reason insufficient to carry out the provisions, true intent or spirit of this Mortgage, the Guaranty, the Credit Agreement or the Page 12 14 Notes, then, from time to time, then Owner will execute, on its own behalf, such other and future assurances and documents as in the opinion of the Mortgagee may be required more effectually to subject the Vessel to the payment of the principal sum of the Obligations, as in the Credit Agreement and as herein provided, and to the performance of the terms and provisions of the Notes, the Credit Agreement, the Guaranty and this Mortgage. SECTION 2.13. Any provision of this Mortgage which is prohibited, unenforceable or not authorized in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition, unenforceability or nonauthorization without invalidating the remaining provisions hereof or affecting the validity, enforceability or legality of such provision in any other jurisdiction. SECTION 2.14. In the event that the title or ownership of the Vessel shall be requisitioned, purchased or taken by any government of any country or any department, agency or representative thereof, pursuant to any present or future law, proclamation, decree, order or otherwise, the lien of this Mortgage shall be deemed to attach to the claim for compensation therefor, and the compensation, purchase price, reimbursement or award for such requisition, purchase or other taking of such title or ownership is hereby agreed to be payable to the Mortgagee, who shall be entitled to receive the same and shall apply it as provided in Section 2.11 of this Article II. In the event of any such requisition, purchase or taking, and the failure of the Mortgagee to receive proceeds as herein provided, the Owner shall promptly execute and deliver to the Mortgagee such documents, if any, and shall promptly do and perform such acts, if any, as in the opinion of the Mortgagee may be necessary or useful to facilitate or expedite the collection by the Mortgagee of such part of the compensation, purchase price, reimbursement or award as is payable to it hereunder. ARTICLE III DEFEASANCE SECTION 3.1. If the Owner shall pay and discharge the entire indebtedness secured hereby by well and truly paying or causing to be paid the principal of and interest due under the Notes and all of the Obligations under the Credit Agreement as and when the same becomes due and payable and if the Owner shall also pay or cause to be paid all other sums payable hereunder by the Owner, all such payments being indefeasible, then this Mortgage and the lien, rights and interest hereby granted shall cease, determine and become null and void, and the Mortgagee shall, at the request of the Owner, execute and deliver such instrument or instruments of satisfaction as may be necessary to satisfy and discharge the lien hereof; and forthwith the estate, right, title and interest of the Mortgagee in and to all property subject to this Mortgage shall thereupon cease, determine and become null and void. ARTICLE IV MISCELLANEOUS PROVISIONS SECTION 4.1. For purpose of recording of this Mortgage, as required by Title 46 U.S.C.A. Section 31301 et seq., the total amount of the Mortgage is the principal sum of Seventy Million Dollars ($70,000,000) plus interest, expenses and fees, plus any additional amounts for which the Owner Page 13 15 may become liable in connection with the performance of the covenants of this Mortgage, the Guaranty and the Credit Agreement. The discharge amount is the same as the total amount. SECTION 4.2. All of the covenants, promises, stipulations and agreements of the Owner in this Mortgage contained shall bind the Owner and its successors and assigns and shall inure to the benefit of the Mortgagee and its successors and assigns. SECTION 4.3. Wherever and whenever herein any right, power or authority is granted or given to the Mortgagee, such right, power or authority may be exercised in all cases by the Mortgagee or such agent or agents as it may appoint, and the act or acts of such agent or agents when taken shall constitute the act or acts of the Mortgagee hereunder. SECTION 4.4. Any notice, request, demand, direction, consent or waiver or other documents in respect of this Mortgage shall be sufficient for every purpose if in writing and sent either by telecopy or letter (delivered by hand or sent by registered or certified mail, return receipt requested, postage prepaid or by reputable overnight courier) or telecopy confirmed by letter (sent as aforesaid), addressed as follows: (a) To the Owner: c/o The Delta Queen Steamboat Co. Two North Riverside Plaza, 2nd Floor Chicago, IL 60606 Attention: Jordan Allen Telephone: (312) 466-6202 Telecopy: (312) 466-6151 with a copy to: Rosenberg & Liebentritt, P.C. Two North Riverside Plaza, Suite 1600 Chicago, IL 60606 Attention: Jim Phipps Telephone: (312) 466-3623 Telecopy: (312) 575-7000 and Adams and Reese, L.L.P. 4500 One Shell Square New Orleans, Louisiana 70139 Attention: Louis A. Wilson, Jr. Telephone: (504) 581-3234 Telecopy: (504) 566-0210 Page 14 16 (b) To the Mortgagee: The Chase Manhattan Bank c/o Chase Securities Inc. 10 South LaSalle Street Chicago, Illinois 60603 Attention: Jon Hinard Telephone: (312) 807-4550 Telecopy: (312) 807-4046 with a copy to: Sidley & Austin One First National Plaza, Chicago, Illinois 60603 Attention: Douglas H. Williams Telephone: (312) 853-7667 Telecopy: (312) 853-7036 with notice, request or communication hereunder deemed to have been given when delivered in person or by courier service, upon receipt of a telecopy or telex or upon delivery or refusal to accept delivery if deposited in the United States mail (registered or certified, with postage prepaid and properly addressed). Any party may change the Person or address to whom or which the notices are to be given hereunder, by notice duly given hereunder. SECTION 4.5. Notwithstanding anything contained in this Mortgage to the contrary, nothing herein shall waive the preferred status of this Mortgage and if any provision herein shall be construed to waive such status, then such provision shall to the extent so construed be void and of no effect. IN WITNESS WHEREOF, the Owner has executed this Mortgage on the day, month and year hereinbefore first written. WITNESSES: GREAT RIVER CRUISE LINE, L.L.C. By: The Delta Queen Steamboat Co., a Managing Member /s/ JORDAN B. ALLEN - ---------------------------------- --------------------------------------- Name: Jordan B. Allen Title: Executive Vice President By: DQSB II, Inc., a Managing Member /s/ JORDAN B. ALLEN - ---------------------------------- --------------------------------------- Name: Jordan B. Allen Page 15 17 Title: Executive Vice President ACKNOWLEDGMENT STATE OF ILLINOIS COUNTY OF COOK On this 25th day of February, 1999, before me, the undersigned Notary Public, personally came and appeared JORDAN B. ALLEN, the duly authorized Executive Vice President and representative of THE DELTA QUEEN STEAMBOAT CO. and DQSB II, INC., which said corporations are the sole managing members of GREAT RIVER CRUISE LINE, L.L.C. ("GREAT RIVER"), who declared under oath that he is the duly authorized representative of GREAT RIVER and its aforesaid managing members, and that he signed the foregoing Preferred Ship Mortgage with full authorization under the articles of organization of GREAT RIVER and the board of directors of each of the managing members; and that the foregoing Preferred Ship Mortgage is the free and voluntary act and deed of GREAT RIVER and its managing members, as well as said appearer in his capacity as the representative of GREAT RIVER, for the uses, purposes and covenants therein expressed. --------------------------------------- Notary Public My Commission expires: --------------. [SEAL] Page 16 18 EXHIBIT "A" FORM OF CREDIT AGREEMENT (WITHOUT EXHIBITS OR SCHEDULES) Page 17 19 EXHIBIT "B" FORM OF REVOLVING LOAN NOTES Page 18 EX-10.(II)(A)(3) 11 FIRST AMENDMENT DATED 3/12/97 1 10(ii)(a)(3) FIRST AMENDMENT This First Amendment (the "Amendment") is made and entered into as of the 12th day of March, 1997, by and between Equity Office Properties, L.L.C. as agent for beneficial owner ("Landlord") and Great Hawaiian Properties Corporation, a Delaware corporation, d/b/a American Hawaii Cruises ("Tenant"). WITNESSETH A. WHEREAS, Landlord and Tenant are parties to that certain lease dated the 30th day of May, 1995 currently containing approximately 37,367 rentable square feet of space on the second (2nd) floor of the building commonly known as Two North Riverside Plaza, Chicago, Illinois 60606 (the "Building"), which lease has not been previously amended or assigned (the "Lease"); and B. WHEREAS, Tenant and Landlord mutually desire that the Lease be amended on and subject to the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained and other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant agree as follows: I. AMENDMENT. Landlord and Tenant agree that the Lease shall be amended in accordance with the following terms and conditions: A. Commencement Dates Notwithstanding anything to the contrary in Sections I.A.3.a, b, c or in Section III.A. of the Lease, the Commencement Dates for the Premises are the following: 1. The Premises A Commencement Date is bifurcated. It is July 1, 1994 as applicable to the 12,482 rentable square feet colloquially referred to as the "Reservation Area." It is September 9, 1994 as applicable to the 5,250 rentable square feet colloquially referred to as the "MIS Area." 2. The Premises B Commencement Date is August 19, 1994. 3. The Premises C Commencement Date is June 1, 1995. The Termination Date as to the entire Premises is December 31, 2004. B. Base Rental Exhibit B-1 is deleted from the Lease in its entirety, and Exhibit A attached hereto and by this reference made a part hereof is substituted therefor. C. Base Rental Abatement. Landlord and Tenant acknowledge and agree that Tenant's obligation to pay Base Rental in accordance with the provisions of Exhibit A attached hereto shall be fully abated for the period beginning July 1, 1994 and ending May 15, 1998. The total amount of such Base Rental abated during such period is $578,323,87. Such Base Rental Abatement shall be in full and complete satisfaction of Landlord's obligation to abate Base Rental as described in the fourth (4th), fifth (5th) and sixth (6th) sentences of Paragraph 1.A and in Paragraph 1.B of Exhibit E to the Lease. D. Right of First Refusal. Landlord and Tenant acknowledge and agree that space shown as dotted on Exhibit A-1 of the Lease and specifically identified thereon as Suite 212 and labeled "World Express Travel" is not Refusal Space for the purposes of Paragraph 2 of Exhibit E to the Lease, and Tenant acknowledges and agrees that Tenant has no Right of First Refusal as to said Suite 212. Landlord and Tenant acknowledge and agree that Tenant has a Right of First Refusal only on the dotted space shown on Exhibit A-1 of the Lease and identified thereon as Suite 267 and labeled as "Cyborg Solution Center." 1 2 E. Members Advantage Credit Union. Landlord acknowledges and agrees that Tenant has completely satisfied its reimbursement obligations pursuant to Paragraph 6 of Exhibit E of the Lease. Accordingly, the provisions of said Paragraph 6 of Exhibit E of the Lease are deleted in their entirety and are null, void and of no further force and effect. F. Temporary Space and Signage. Landlord and Tenant acknowledge and agree that Paragraphs 7 and 8 of Exhibit E to the Lease are deleted in their entirety and are null, void and of no further force and effect. G. License Agreement to Use Roof Space. Landlord and Tenant acknowledge and agree that Exhibit G-2 is deleted from the Lease in its entirety and its provisions are null, void and of no further force and effect. The license to use the roof of the Building is hereby revoked, and Tenant agrees to eliminate as soon as reasonably practical any roofdeck or roof penetrations, to repair any damage caused by their installation or removal, and to restore the roof to the condition in which it existed prior to the execution of the Lease. Any and all such repair and removal work shall be performed at Tenant's sole cost and expense and in accordance with Article X.B of the Lease. H. Guaranty. Tenant acknowledges and agrees that, by oversight, the Guaranty attached hereto as Exhibit B was not signed contemporaneously with the Lease and that Landlord's willingness to enter into this Amendment is conditioned upon the execution of the attached Exhibit B by Guarantor simultaneous with Tenant's execution of this Amendment. I. Entry by Landlord. Article XII of the Lease shall be amended by deleting the parenthetical "(during the final 6 months of the Lease Term)" from the first sentence of Article XII and substituting the following therefor: "(during the final six months of the Lease Term; provided, however, with regard to Premises C, Landlord shall have the right to enter Premises C to show Premises C to prospective tenants throughout the Lease Term)". J. Landlord's Termination Option. The following shall be added as a new Paragraph 10 to Exhibit E to the Lease: Landlord Termination Option. Landlord shall have the right from and after the Effective Date at Landlord's cost and expense to market Premises C for lease to third parties and should Landlord identify a bona fide prospective tenant who evidences an interest in leasing Premises C on terms Landlord would be willing to accept ("Third Party Interest"), Landlord shall have the further right and option (the "Premises C Termination Option") to be exercised on thirty (30) days' prior notice to Tenant to terminate this Lease as to the space measuring approximately 6,707 rentable square feet and identified as Premises C in the Lease. Tenant agrees to vacate and surrender possession of Premises C on and as of the effective date of Landlord's termination just as if that were the scheduled Termination Date of the Lease for Premises C; provided that Tenant, within five (5) days after receipt of Landlord's notice of termination, shall have the right to lease said Premises C or whatever portion thereof is covered by the Third Party Interest on the same terms and conditions as in this Lease in which case Landlord's notice of termination shall be null and void and of no further force and effect. In the event of this Lease's being terminated as to Premises C, Landlord shall prepare an amendment to the Lease to reflect changes in the Premises, Rentable Area of the Premises, Tenant's Pro Rata Share, and any other affected terms and shall submit same to Tenant within a reasonable time following five (5) days after Landlord's exercise of its Termination Option. Tenant agrees to execute same within ten (10) days following receipt of the amendment from Landlord. Tenant specifically acknowledges and agrees that should Landlord exercise the Premises C Termination Option and Tenant does not elect to continue to lease same on the terms of this Lease, Premises C and the Rentable Area of Premises C shall no longer be subject to the Lease, but Base Rental as reflected on Exhibit A to this Amendment shall not be reduced so long as the Base Rental Abatement has not been fully exhausted in accordance with the provisions of Paragraph C of this Amendment. II. EFFECTIVE DATE. This Amendment shall become effective as of, on and after September 1, 1996 (the "Effective Date") and shall continue in effect until otherwise amended by the parties in writing or until expiration or sooner termination of the Lease. 2 3 III. MISCELLANEOUS. A. This Amendment sets forth the entire agreement between the parties with respect to the matters set forth herein. There have been no additional oral or written representations or agreements. B. Except as herein modified or amended, the provisions, conditions and terms of the Lease shall remain unchanged and in full force and effect. C. In the case of any inconsistency between the provisions of the Lease and this Amendment, the provisions of this Amendment shall govern and control. D. Submission of this Amendment by Landlord is not an offer to enter into this Amendment but rather is a solicitation for such an offer by Tenant. Landlord shall not be bound by this Amendment until Landlord has executed and delivered the same to Tenant. E. The capitalized terms used in this Amendment shall have the same definitions as set forth in the Lease to the extent that such capitalized terms are defined therein and not redefined in this Amendment. F. This Amendment shall be of no force and effect unless and until accepted by any guarantors of the Lease, who by signing below shall agree that their guarantee shall apply to the Lease as amended herein. IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Amendment as of the day and year first above written. WITNESSES; ATTESTATION LANDLORD: EQUITY OFFICE PROPERTIES, L.L.C., as Agent for beneficial owner By: --------------------------------------- Name: Michael Sheinkop - ----------------------------- Name (print): Title: Senior Vice President-Asset Management ---------------- TENANT: GREAT HAWAIIAN PROPERTIES CORPORATION, a Delaware corporation d/b/a American Hawaii Cruises By: - ------------------------------ --------------------------------------- Name (print): Its: ----------------- --------------------------------------- GUARANTOR: - ------------------------------ GREAT HAWAIIAN CRUISE LINE, INC., a Name (print): corporation ----------------- ----------------------- By: --------------------------------------- Its: --------------------------------------- 3 4 EXHIBIT A SCHEDULE OF BASE RENTAL This Exhibit is attached to and made a part of the First Amendment dated , 1997 by and between Equity Office Properties, L.L.C., as agent for Beneficial Owner ("Landlord") and Great Hawaiian Properties Corporation, a Delaware corporation, d/b/a American Hawaii Cruises ("Tenant") for space in the Building located at Two North Riverside. A. Tenant shall pay Landlord the sum of One Million Eight Hundred Sixty Five Thousand Five Hundred Twenty Nine and 88/100's Dollars ($1,865,529.88) as Base Rental for the Lease Term in monthly installments as follows: 1. One (1) monthly installment of $4,160.67 payable on or before the first day of July 1994 as applicable to the period beginning July 1, 1994, and ending July 31, 1994. 2. One (1) monthly installment of $5,967.81 payable on or before the first day of August 1994 as applicable to the period beginning August 1, 1994, and ending August 31, 1994. 3. One (1) monthly installment of $9,753.33 payable on or before the first day of September 1994 as applicable to the period beginning September 1, 1994 and ending September 30, 1994. 4. Eight (8) equal monthly installments of $10,220.00 payable on or before the first day of each month during the period beginning October 1, 1994, and ending May 31, 1995. 5. One (1) monthly installment of $12,455.67 payable on or before the first day of June 1995 as applicable to the period beginning June 1, 1995 and ending June 30, 1995. 6. Twelve (12) equal monthly installments of $12,953.90 each payable on or before the first day of each month during the period beginning July 1, 1995, and ending June 30, 1996. 7. Twelve (12) equal monthly installments of $13,472.06 each payable on or before the first day of each month during the period beginning July 1, 1996, and ending June 30, 1997. 8. Twelve (12) equal monthly installments of $14,010.94 each payable on or before the first day of each month during the period beginning July 1, 1997, and ending June 30, 1998. 9. Twelve (12) equal monthly installments of $14,571.38 each payable on or before the first day of each month during the period beginning July 1, 1998, and ending June 30, 1999. 10. Twelve (12) equal monthly installments of $15,154.24 each payable on or before the first day of each month during the period beginning July 1, 1999, and ending June 30, 2000. 11. Twelve (12) equal monthly installments of $15,760.41 each payable on or before the first day of each month during the period beginning July 1, 2000, and ending June 30, 2001. 12. Twelve (12) equal monthly installments of $16,390.83 each payable on or before the first day of each month during the period beginning July 1, 2001, and ending June 30, 2002. 5 13. Twelve (12) equal monthly installments of $17,046.46 each payable on or before the first day of each month during the period beginning July 1, 2002, and ending June 30, 2003. 14. Eighteen (18) equal monthly installments of $17,728.32 each payable on or before the first day of each month during the period beginning July 1, 2003, and ending December 31, 2004. B. All such Base Rental shall be payable by Tenant in accordance with the terms of Article V of the Lease. IN WITNESS WHEREOF, Landlord and Tenant have entered into this Lease as of the date first written above. WITNESSES; ATTESTATION LANDLORD: EQUITY OFFICE PROPERTIES, L.L.C., as Agent for beneficial owner By: --------------------------------------- Name: Michael Sheinkop - ------------------------------- Title: Senior Vice President-Asset - ------------------------------- Management TENANT: GREAT HAWAIIAN PROPERTIES CORPORATION, a Delaware corporation, d/b/a American Hawaii Cruises By: - ------------------------------- -------------------------------------- Its: - ------------------------------- -------------------------------------- 6 EXHIBIT B GUARANTY OF LEASE DATED MAY 30, 1995 BETWEEN EQUITY OFFICE PROPERTIES, L.L.C. AS AGENT FOR BENEFICIAL OWNER ("LANDLORD") AND GREAT HAWAIIAN PROPERTIES CORPORATION, A DELAWARE CORPORATION, D/B/A AMERICAN HAWAII CRUISES ("TENANT") FOR VALUE RECEIVED and in consideration for and as an inducement to EQUITY OFFICE PROPERTIES, L.L.C., as Agent for Beneficial Owner ("Landlord") to lease certain real property to GREAT HAWAIIAN PROPERTIES CORPORATION, A DELAWARE CORPORATION, D/B/A AMERICAN HAWAII CRUISES as Tenant ("Tenant"), pursuant to a lease (the "Lease") of even date herewith, the undersigned does hereby unconditionally and irrevocably guarantee to Landlord the punctual payment of all Rent, (as such term is defined in the Lease) payable by Tenant under the Lease throughout the term of the Lease and any and all renewals and extensions thereof in accordance with and subject to the provisions of the Lease, and the full performance and observance of all other terms, covenants, conditions and agreements therein provided to be performed and observed by Tenant under the terms of the Lease, for which the undersigned shall be jointly and severally liable with Tenant. If any default on the part of Tenant shall occur under the Lease, the undersigned does hereby covenant and agree to pay to Landlord in each and every instance such sum or sums of money and to perform each and every covenant, condition and agreement under the Lease as Tenant is and shall become liable for or obligated to pay or perform under the Lease, together with the costs reasonably incurred by Landlord in connection therewith, including without limitation reasonable attorneys' fees. Such payments of Rent and other sums shall be made monthly or at such other intervals as the same shall or may become payable under the Lease, including any accelerations thereof, all without requiring any notice from Landlord (other than any notice required by the Lease) of such non-payment or non performance, all of which the undersigned hereby expressly waives. The maintenance of any action or proceeding by Landlord to recover any sum or sums that may be or become due under the Lease and to secure the performance of any of the other terms, covenants and conditions of the Lease shall not preclude Landlord from thereafter instituting and maintaining subsequent actions or proceedings for any subsequent default or defaults of Tenant under the Lease. The undersigned does hereby consent that without affecting the liability of the undersigned under this Guaranty and without notice to the undersigned, time may be given by Landlord to Tenant for payment of Rent and such other sums and performance of said other terms, covenants and conditions, or any of them, and such time extended and indulgence granted, from time to time, or Tenant may be dispossessed or Landlord may avail itself of or exercise any or all of the rights and remedies against Tenant provided by law or by the Lease, and may proceed either against Tenant alone or jointly against Tenant and the undersigned or against the undersigned alone without first prosecuting or exhausting any remedy or claim against Tenant. The undersigned does hereby further consent to any subsequent change, modification or amendment of the Lease in any of its terms, covenants or conditions, or in the Rent payable thereunder, or in the premises demised thereby, or in the term thereof, and to any assignment or assignments of the Lease, and to any subletting or sublettings of the premises demised by the Lease, and to any renewals or extensions thereof, all of which may be made without notice to or consent of the undersigned and without in any manner releasing or relieving the undersigned from liability under this Guaranty. The undersigned does hereby agree that the bankruptcy of Tenant shall have no effect on the obligations of the undersigned hereunder. The undersigned does hereby further agree that in respect of any payments made by the undersigned hereunder, the undersigned shall not have any rights based on suretyship, subrogation or otherwise to stand in the place of Landlord so as to compete with Landlord as a creditor of Tenant, unless and until all claims of Landlord under the Lease shall have been fully paid and satisfied. 7 Neither this Guaranty nor any of the provisions hereof can be modified, waived or terminated, except by a written instrument signed by Landlord. The provisions of this Guaranty shall apply to, bind and inure to the benefit of the undersigned and Landlord and their respective heirs, legal representatives, successors and assigns. The undersigned, if there be more than one, shall be jointly and severally liable hereunder, and for purposes of such several liability the word "undersigned" wherever used herein shall be construed to refer to each of the undersigned parties separately, all in the same manner and with the same effect as if each of them had signed separate instruments, and this Guaranty shall not be revoked or impaired as to any of such parties by the death or another party or by revocation or release of any obligations hereunder of any other party. This Guaranty shall be governed by and construed in accordance with the internal laws of the state where the premises demised by the Lease are located. For the purpose solely of litigating any dispute under this Guaranty, the undersigned submits to the jurisdiction of the courts of said state. IN WITNESS WHEREOF, the undersigned has executed this Guaranty as of the date of the Lease. GUARANTOR: ATTEST/WITNESS: GREAT HAWAIIAN CRUISE LINE, INC., a -------------------------------- By: - -------------------------------- -------------------------------- Name (print): Name: ------------------- -------------------------------- Title: - -------------------------------- -------------------------------- Name (print): ------------------- STATE OF ) ---------------- ) SS COUNTY OF ) ---------------- BE IT REMEMBERED, that on the day of , 1995, before me, a Notary Public in and for said County personally appeared , by , its President, the GUARANTOR in the foregoing GUARANTY who acknowledged that the signing thereof was the duly authorized act and deed of said corporation and his free and voluntary act and deed as said officer for the uses and purposes therein mentioned. IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed my official seal on the day and year first above written. ----------------------------------- Notary Public My Commission Expires: - ----------------------- EX-10.(II)(A)(4) 12 ASSIGNMENT AND ASSUMPTION OF LEASE 1 10(ii)(a)(4) ASSIGNMENT AND ASSUMPTION OF LEASE THIS ASSIGNMENT AND ASSUMPTION OF LEASE (this "Assignment") is entered into as of the 1st day of January, 1998, between GREAT HAWAIIAN PROPERTIES CORPORATION, d/b/a AMERICAN HAWAII CRUISES ("Assignor"), a Delaware corporation and AMERICAN CLASSIC VOYAGES CO. ("Assignee"), a Delaware corporation having an office at Two North Riverside Plaza, Suite 200, Chicago, Illinois 60606. 1. Lease. The "Lease" shall mean that certain Lease Agreement dated May 30, 1995, as amended by First Amendment dated March 12, 1997, by and between Equity Office Properties, L.L.C., as agent for beneficial owner, as Landlord, and Great Hawaiian Properties Corporation, d/b/a American Hawaii Cruises, as Tenant. 2. Assignment. For good and valuable consideration received by Assignor, the receipt and sufficiency of which are hereby acknowledged, Assignor hereby assigns to Assignee the entire right, title and interest of Assignor in and to the Lease to the extent applicable to the period from and after the date hereof. 3. Assumption. Assignee hereby assumes, and agrees to be bound by and to perform, all of the covenants, agreements and obligations of Assignor under the Lease as applicable to the period from and after the date hereof. IN WITNESS WHEREOF, Assignor and Assignee have executed this Assignment the day and year first written above. ASSIGNOR: GREAT HAWAIIAN PROPERTIES CORPORATION, d/b/a American Hawaii Cruises, a Delaware corporation By: /s/ Jordan B. Allen ----------------------------------------------- Title: Executive Vice President ASSIGNEE: AMERICAN CLASSIC VOYAGES CO., a Delaware corporation By: /s/ Jordan B. Allen ----------------------------------------------- Title: Executive Vice President ACCEPTED: EQUITY OFFICE PROPERTIES, L.L.C., as agent for beneficial owner By: ----------------------------------------------- Title: EX-10.(II)(A)(5) 13 SECOND AMENDMENT 1 10.(ii)(a)(5) SECOND AMENDMENT This Second Amendment (the "Amendment") is made and entered into as of the 10th day of August, 1998, by and between TWO NORTH RIVERSIDE PLAZA JOINT VENTURE LIMITED PARTNERSHIP, AN ILLINOIS LIMITED PARTNERSHIP, SOLE BENEFICIARY OF LASALLE NATIONAL TRUST, N.A., SUCCESSOR TRUSTEE UNDER TRUST AGREEMENT DATED JUNE 26, 1969 AND KNOWN AS TRUST NO. 39712 ("Landlord") BY ITS AGENT, EQUITY OFFICE PROPERTIES MANAGEMENT CORP., A DELAWARE CORPORATION and AMERICAN CLASSIC VOYAGES CO., A DELAWARE CORPORATION ("Tenant"). WITNESSETH A. WHEREAS, Landlord and GREAT HAWAIIAN PROPERTIES CORPORATION, a Delaware corporation ("Original Tenant") are parties to that certain lease dated the 30th day of May, 1995, for space currently containing approximately 37,367 rentable square feet of space (the "Original Premises") on the second (2nd) floor of the building commonly known as Two North Riverside Plaza and the address of which is Two North Riverside Plaza, Chicago, Illinois 60606 (the "Building"), which lease has been previously amended by instrument dated March 12, 1997 (collectively, the "Lease"); and B. WHEREAS, Effective as of January 1, 1998, Original Tenant assigned its rights under the Lease to Tenant pursuant to the Assignment and Assumption Agreement, a copy of which is attached hereto as Exhibit B, which assignment did not require Landlord's consent pursuant to the terms of the Lease; and C. WHEREAS, Tenant desires to surrender a portion of the Premises to Landlord containing approximately 16,732 rentable square feet on the second (2nd) floor of the Building as shown on Exhibit A hereto (the "Reduction Space") and that the Lease be appropriately amended, and Landlord is willing to accept such surrender on the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Landlord and Tenant agree as follows: I. REDUCTION. Effective as of May 31, 1998 (the "Reduction Effective Date"), the Premises is decreased from 37,367 rentable square feet on the second (2nd) floor to 20,635 rentable square feet on the second (2nd) floor by the elimination of the Reduction Space. As of the Reduction Effective Date, the Reduction Space shall be deemed surrendered by Tenant to Landlord, the Lease shall be deemed terminated with respect to the Reduction Space, and the "Premises", as defined in the Lease, shall be deemed to mean the Original Premises, less the Reduction Space. Tenant shall fully comply with all obligations under the Lease respecting the Reduction Space through the Reduction Effective Date, including those provisions relating to the condition of the Reduction Space and removal of Tenant's Property therefrom upon termination or expiration of the Lease. II. MONTHLY BASE RENTAL. As of the Reduction Effective Date, the schedule of monthly installments of Base Rental contained in the Lease is deleted, and the following is substituted therefor: Tenant shall pay Landlord the sum of Seven Hundred Six Thousand Seven Hundred Forty Eight and 75/100 Dollars ($706,748.75) as Base Rental for the balance of the Lease Term in seventy nine (79) monthly installments as follows: A. One (1) installment of Seven Thousand Seven Hundred Thirty Eight and 13/100 Dollars ($7,738.13) ($4.50 per rentable square foot) payable on or before June 1, 1998 for the period beginning June 1, 1998, and ending June 30, 1998. B. Twelve (12) equal installments of Eight Thousand Forty Seven and 65/100 Dollars ($8,047.65) ($4.68 per rentable square foot) each payable on or before the first day of each month during the period beginning July 1, 1998, and ending June 30, 1999. C. Twelve (12) equal installments of Eight Thousand Three Hundred Seventy Four and 37/100 Dollars ($8,374.37) ($4.87 per rentable square foot) each payable on or before the first day of each month during the period beginning July 1, 1999, and ending June 30, 2000. D. Twelve (12) equal installments of Eight Thousand Seven Hundred One and 09/100 Dollars ($8,701.09) ($5.06 per rentable square foot) each payable on or before the first day of each month during the period beginning July 1, 2000, and ending June 30, 2001. E. Twelve (12) equal installments of Nine Thousand Forty Five and 01/100 Dollars ($9,045.01) ($5.26 per rentable square foot) each payable on or 2 before the first day of each month during the period beginning July 1, 2001, and ending June 30, 2002. F. Twelve (12) equal installments of Nine Thousand Four Hundred Six and 12/100 Dollars ($9,406.12) ($5.47 per rentable square foot) each payable on or before the first day of each month during the period beginning July 1, 2002, and ending June 30, 2003. G. Eighteen (18) equal installments of Nine Thousand Seven Hundred Eighty Four and 43/100 Dollars ($9,784.43) ($5.69 per rentable square foot) each payable on or before the first day of each month during the period beginning July 1, 2003, and ending December 31, 2004. All such Base Rental shall be payable by Tenant in accordance with the terms of Article V of the Lease. III. ADDITIONAL CONSIDERATION. As additional consideration for this Amendment, Landlord agrees to give Tenant an abatement in the amount of Six Hundred Thousand and 00/100 Dollars ($600,000.00), which abatement shall be applied against Rent, Base Rental and Tax Adjustments coming due under the Lease as amended by this Agreement as follows: (a) against the full amount of any Rent due Landlord as of the date hereof; then, on a monthly basis, (b) against the full amount of monthly Base Rental coming due under the Lease as amended by this Agreement and (c) $4,692.98 first against Tenant's monthly payment of the estimate of Tenant's Tax Adjustment and, with respect to said $4,692.98 thereafter against any additional rent due under the Lease. The abatement shall be applied against the foregoing payments until it is exhausted. At no time shall a cash payment be owed to Tenant with respect to this abatement. IV. TENANT'S PRO RATA SHARE. Notwithstanding the reduction of the Premises, for the period commencing with the Reduction Effective Date and ending on the Termination Date, Tenant's Pro Rata Share for the purposes of calculating Tenant's Tax Adjustment shall remain seven and two thousand eight hundred forty nine ten thousandths percent (7.2849%). Such Tax Adjustment shall be paid at the time, in the manner and otherwise in accordance with the terms of the Lease, unless otherwise specified herein. V. REPRESENTATIONS. Each party represents to the other that it has full power and authority to execute this Amendment. Tenant represents that it has not made any assignment, sublease, transfer, conveyance of the Lease or any interest therein or in the Reduction Space other than subleases to EOP Operating and Chicago Cares, which have been previously consented to by Landlord and further represents that there is not and will not hereafter be any claim, demand, obligation, liability, action or cause of action by any other party respecting, relating to or arising out of the Reduction Space. In addition, each party represents to the other that it has no knowledge of any fact or circumstance which would give rise to any claim, demand, obligation, liability, action or cause of action arising out of or in connection with the Lease. VI. OTHER PERTINENT PROVISIONS. Landlord and Tenant agree that, effective as of the date hereof (unless different effective date(s) is/are specifically referenced in this Section), the Lease shall be amended in the following additional respects: A. Any Right of First Refusal in the Lease is hereby deemed null and void. B. Nothing herein shall be deemed to waive any rights Landlord has to require Tenant to remove Required Removables at the end of the Lease Term including, without limitation, the "wave wall". C. Tenant hereby grants a license to Landlord and any occupant of the Reduction Space to access the corridor leased by Tenant. D. Any amount owed to Tenant pursuant to the provisions of Article XX of the Lease (as the unamortized value of the Initial Alterations) shall be reduced by an amount equal to that part of the additional consideration set forth in Article III of this Amendment which has been credited against Rent payments due (as set forth in said Article III) through the date payment under Article XX is due. 2 3 E. Tenant shall be entitled to a Base Rental abatement (the "Chicago Cares Abatement") equal to Eleven Thousand One Hundred Fifty Six and 25/100 Dollars ($11,156.25) (4,250 X $4.50 X 7/12). The Chicago Cares Abatement shall be applied against the next Base Rental due under the Lease. VII. MISCELLANEOUS. A. This Amendment sets forth the entire agreement between the parties with respect to the matters set forth herein. There have been no additional oral or written representations or agreements. Under no circumstances shall Tenant be entitled to any Rent abatement, improvement allowance, leasehold improvements, or other work to the Premises, or any similar economic incentives that may have been provided Tenant in connection with entering into the Lease, unless specifically set forth in this Amendment. This Amendment shall not be relied upon by any other party, individual, corporation, partnership or entity as a basis for reducing its lease obligations with Landlord. Tenant agrees that it shall not disclose any matters set forth in this Amendment or disseminate or distribute any information concerning the terms, details or conditions hereof to any person, firm or entity without obtaining the express written consent of Landlord. B. Except as herein modified or amended, the provisions, conditions and terms of the Lease shall remain unchanged and in full force and effect. C. In the case of any inconsistency between the provisions of the Lease and this Amendment, the provisions of this Amendment shall govern and control. D. Submission of this Amendment by Landlord is not an offer to enter into this Amendment but rather is a solicitation for such an offer by Tenant. Landlord shall not be bound by this Amendment until Landlord has executed and delivered the same to Tenant. E. The capitalized terms used in this Amendment shall have the same definitions as set forth in the Lease to the extent that such capitalized terms are defined therein and not redefined in this Amendment. F. Tenant agrees to indemnify and hold Landlord, its members, principals, beneficiaries, partners, officers, directors, employees, mortgagee(s) and agents, and the respective principals and members of any such agents (collectively, the "Landlord Related Parties") harmless from all claims of any brokers claiming to have represented Tenant in connection with this Amendment. Landlord hereby represents to Tenant that Landlord has dealt with no broker in connection with this Amendment. Landlord agrees to indemnify and hold Tenant, its members, principals, beneficiaries, partners, officers, directors, employees, and agents, and the respective principals and members of any such agents (collectively, the "Tenant Related Parties") harmless from all claims of any brokers claiming to have represented Landlord in connection with this Amendment. G. This Amendment shall be of no force and effect unless and until accepted by any guarantors of the Lease, who by signing below shall agree that their guarantee shall apply to the Lease as amended herein, unless such requirement is waived by Landlord in writing. 3 4 IN WITNESS WHEREOF, Landlord and Tenant have duly executed this Amendment as of the day and year first above written. WITNESSES; ATTESTATION LANDLORD: TWO NORTH RIVERSIDE PLAZA JOINT VENTURE LIMITED PARTNERSHIP, AN ILLINOIS LIMITED /s/ Diane Pantaleo PARTNERSHIP, SOLE BENEFICIARY OF LASALLE NATIONAL TRUST, N.A.,N.A., SUCCESSOR Name (print): Diane Pantaleo TRUSTEE UNDER TRUST AGREEMENT DATED JUNE ------------------- 26, 1969 AND KNOW AS TRUST NO. 39712 - --------------------------------- By:Equity Office Properties Management Corp., a Delaware corporation, as agent Name (print): --------------------- By: /s/ Christopher D. Wood --------------------------------- Name: Christopher D. Wood ------------------------------ Title: Vice President - Leasing ------------------------------ TENANT: AMERICAN CLASSIC VOYAGES CO., A DELAWARE CORPORATION /s/ Nancy A. Warchol By: /s/ Jordan B. Allen - ------------------------- ------------------------------------- Name: Jordan B. Allen /s/ Shahem Zenni ------------------------------------ - ------------------------- Title: Executive Vice President ----------------------------------- GUARANTORS: GREAT HAWAIIAN CRUISE LINE, INC. Nancy Warchol /s/ Jordan B. Allen - ------------------------- ----------------------------------------- Shahem Zenni Executive Vice President - ------------------------- ----------------------------------------- 4 5 EXHIBIT A Floor Plan Showing Reduction Space 5 6 EXHIBIT B Assignment and Assumption of Lease 6 EX-10.(II)(A)(6) 14 LEASE DATED OCTOBER 16, 1998 1 10.(ii)(a)(6) AMFAC CENTER OFFICE LEASE THIS INDENTURE OF LEASE made this 16th day of October, 1998, by and between MFD PARTNERS, a Hawaii General Partnership, hereinafter called "Landlord", and AMERICAN HAWAIIAN PROPERTIES CORPORATION hereinafter called "Tenant;" W I T N E S S E T H Landlord, in consideration of the rents hereinafter reserved and subject to the provisions, covenants and conditions hereinafter set forth, does hereby lease to Tenant, and Tenant does hereby lease from Landlord, those certain premises hereinafter described (the "Premises"), situated within the building identified in Paragraph I(A) below (the "Building"), which Building is a part of the office, parking and commercial complex commonly known as Amfac Center (the "Property") located on that certain property bounded by Fort, Queen and Bishop Streets and Nimitz Highway, Honolulu, Hawaii (the "Land"), together with the nonexclusive right of access to the Premises over and across the common areas within the property. I. SPECIFIC PROVISIONS The following subparagraphs constitute certain specific provisions of this lease which are or may be referred to elsewhere herein:
(A). Building and floor(s) on which Premises are located: Amfac Building, ------ Eighth Floor(s) --------- (B). Approximate area of Premises: (1) Usable area 11,357 sq. ft. ------ (2) Allocable share of common area -0- sq. ft. ---- (3) Rentable area 11,357 sq. ft. ------ (4) Rentable area as percentage of the total rentable area of the Property 2.401% -----
(C). Tenant's Premises are designated as Suite 800 and shown outlined in red on the floor plan(s) attached as Exhibit A. (D). The term of this Lease shall be ten (10) years, unless sooner terminated as herein provided, and shall commence on the first day of the month immediately following the completion of Tenant's initial buildout of the Premises (the "Commencement Date"); provided, however, that the Commencement Date shall not be earlier than February 1, 1999, nor shall it occur later than April 1, 1999. (E). Monthly Rent: the sum of (1) Base or minimum rent:
AMOUNT FOR THE PERIOD $ 0.00 from and including Month 1 through Month 12 $11,357.00 ($1.00/RSF) from and including Month 13 through Month 60 $14,764.10 ($1.30/RSF) from and including Month 61 through Month 120
(2) Additional rent in the amount of $11,243.43, representing Tenant's share of estimated operating expenses for the calendar year 1998, subject to adjustment as set forth in Paragraph 4 below; and (3) Hawaii State General Excise Tax (as provided for and subject to adjustment under Paragraph 3.2.). (F). Amount of Security Deposit: None. -1- 2 (G). Uses to be made of Premises: General office. (H). Tenant's address for notice shall be as follows: 700 Bishop Street, Suite 800 Honolulu, Hawaii 96813 Attn: Townsend Carman, Senior V.P. with copies of all notices delivered to: American Classic Voyages Co. 2 North Riverside Plaza, Suite 200 Chicago, Il. 60606 Attn: Jordan B. Allen, Exec. V.P. and General Counsel (I). Landlord's address for notice shall be as follows: MFD 700 BISHOP, INC. 745 Fort Street, Lobby Honolulu, Hawaii 96813 (J). Parking: During the lease term, Landlord shall make available to the employees of Tenant, two (2) reserved level, twenty (20) unreserved level, and an additional ten (10) month to month parking space(s) for automobile(s) in the Property's parking facility. The parking spaces shall not be assigned, subleased or otherwise transferred separate from the Premises and this lease. The fees charged for Tenant's employees use of the parking space shall be established by Landlord from time to time in accordance with the prevailing market rate; provided, however, that the monthly amount charged for the spaces shall not be less than the initially established monthly fees which are $175.00 per space for reserved level and $145.00 per space for unreserved level parking, plus the General Excise Tax payable in accordance with Paragraph 3.2. below (See Exhibit E, Special Conditions, No. 9). If Landlord becomes unable to provide the number of parking spaces agreed upon above by reason of government regulation or other causes beyond Landlord's reasonable control, then such inability shall not constitute a breach of this lease on the part of the Landlord. (K). EXHIBITS: The following drawings, specifications and other items are attached hereto as exhibits and made a part of this lease. Exhibit A: Floor Plan of Premises. Exhibit B: General Conditions of Lease. Exhibit C: Rules and Regulations. Exhibit D: Specifications for Tenant Improvements. Exhibit E: Special Conditions (if any). Exhibit F: Cleaning Schedule Exhibit G: Guaranty Agreement -2- 3 IN WITNESS WHEREOF, Landlord and Tenant have executed these presents as of the day and year first above written. MFD PARTNERS, a Hawaii general partnership MFD 700 BISHOP, INC., its Managing Agent By /s/ Lawrence Chasy ---------------------------------------- Its Senior Vice President and CFO Landlord AMERICAN HAWAIIAN PROPERTIES CORPORATION By /s/ Townsend Carman ---------------------------------------- TOWNSEND CARMAN Its Senior Vice President Tenant -3- 4 EXHIBIT B GENERAL CONDITIONS OF THE LEASE 1. QUIET ENJOYMENT. Landlord hereby covenants with Tenant that upon payment by Tenant of the rents and upon observance and performance of the covenants and conditions by Tenant, Tenant shall peaceably hold and enjoy the Premises for the term demised without hindrance or interruption by Landlord or any other person or persons lawfully or equitably claiming through Landlord, except as expressly provided in this Lease. 2. SERVICES PROVIDED BY LANDLORD AS PART OF OPERATING EXPENSES. If Tenant shall not be in default, Landlord agrees to furnish, in reasonable quantities, unheated water to public restrooms, electric current for lighting and normal office use only, automatic elevator service, common restroom facilities, air conditioning at such times as specified in the Rules and Regulations (Exhibit C), reasonable janitorial services (as specified in Exhibit F) on the basis of Tenant's 5-day workweek or Tuesday - Saturday (exclusive of holidays) or such other schedule as Landlord may from time to time determine to be appropriate, as provided in the Rules and Regulations, window washing with reasonable frequency, and reasonable rubbish and trash removal service. The air conditioning system shall maintain the temperature at 74 degrees FDB +/- 2 degrees FDB during the summer, and 72 degrees FDB +/- 2 degrees FDB during the winter throughout the demised Premises, unless otherwise prohibited by local codes or ordinances. Landlord shall not be liable for any damage or injuries caused or resulting from the stoppage or interruption of any of the services mentioned in this paragraph caused by maintenance, labor disturbances or labor disputes, accident, repairs, wars, riots or other causes beyond the Landlord's control, nor shall any such failure relieve tenant from the obligation to pay the full amount of rent or constitute a constructive or other eviction of Tenant. 3. RENT. 3.1. RENT PAYMENT. Tenant shall pay the Monthly Rent to Landlord or Landlord's designated agent at the office of Landlord, the office of Landlord's agent, or such other place designated by Landlord, on the first day of each calendar month during the term of this Lease ("Due Date"), and, except as may otherwise be provided herein, without any demand, notice, set-off, offset, counterclaim or deduction whatsoever. If the rental period commences on a day other than the first day of a calendar month, then the rent for the first fractional month shall be computed on a daily basis for the period from the date of commencement to the end of such calendar month. The daily basis shall be calculated by dividing the monthly rent by thirty (30) and the amount being multiplied by the number of days remaining in the fractional month. If a fractional month shall occur upon the termination of this Lease, then the rent for that period shall be computed using the foregoing formula. 3.2. EXCISE AND OTHER TAXES. Tenant shall pay to Landlord as additional rent, together with each payment of rent or any other payment which is subject to the State of Hawaii general excise tax on gross income, as the same may be amended, an amount which, when added to the rent or other payment shall yield to Landlord, after deduction of all the taxes payable by Landlord with respect to all the payments, a net amount equal to that which Landlord would have realized from the payments had no taxes been imposed. This paragraph shall be applicable to all other similar taxes imposed on Landlord on rent or other payments in the nature of a gross receipts tax, sales tax, privilege tax or the like (excluding federal or state net income taxes), whether imposed by the United State of America, or the State of Hawaii, the City and County of Honolulu, or any other duly authorized taxing body. 3.3. ADDITIONAL PAYMENTS. (1) Tenant shall also pay as additional rent those payments required by the provisions of Paragraph I.(J), and Paragraphs 4, 5, 6, 7, 8, 9, 10, 11, 12 and 18 below and any other payments which may now or hereafter be imposed. (2) Tenant shall pay any additional payments required as provided above no later than on the first day of each calendar month following the month of the billing or ten (10) days after the billing date, whichever is later. 3.4. RENTAL DETERMINATION. If the base rent for the entire lease term has not been fixed at the time of execution of this Lease, then the base rent for each successive rental period following the last period for which base rent was fixed, and for any subsequent period, shall be determined by mutual agreement. If the Landlord and Tenant are unable to agree on the base rent for each period at least three (3) months prior to the date of commencement, the base rent shall be the fair market rental value of the Premises (at least commensurate with base rents typical of similar space in other first class office buildings in comparable locations), including amenities offered, but exclusive of any fixtures, equipment, alterations, additions or improvements installed or made by Tenant, or rent abatement, tenant improvement allowances or other incentives provided to new tenants, as determined by a real estate appraiser agreed upon by Landlord and Tenant. In case of failure to agree on the appraiser at least sixty (60) days prior to the commencement of the period, the determination of the monthly rent shall be made by three impartial real -4- 5 estate appraisers. Either party may give to the other written notice to have a determination of such fair market rental value and indicate the name of one of the appraisers. The other party, within ten (10) days after receipt of the notice, shall name another appraiser and give notice to the party who gave the initial notice. In case of failure of the second to do so, the party who has named an appraiser shall have the right to apply to any judge of the First Circuit Court of the State of Hawaii to appoint an appraiser. The two appraisers thus appointed (in either manner) shall select and appoint a third appraiser, and give notice to Landlord and Tenant. If the two appraisers so appointed shall, within ten (10) days after the naming of the second appraiser, fail to appoint the third appraiser, either party may have the appraiser selected and appointed by any judge of the First Circuit Court. The three appraisers so appointed shall proceed to determine the fair market rental value under the guidelines stated above. The decision of any two appraisers shall be final and binding upon both parties for the particular rental period then under consideration, unless the decision shall be vacated, modified or corrected, as provided in Chapter 658, Hawaii Revised Statutes, as the same may be amended. Notwithstanding the fair market rental value, the base rent for the period shall not be less than the base rent being paid for the immediately preceding period. Tenant shall pay for all costs of any determination, including without limitation, appraiser's, witness' and reasonable attorney's fees of Landlord. If the fixing of such base rent is under arbitration, Tenant, pending its determination, shall continue to pay the same base rent which Tenant had been paying during the immediately preceding rental period and shall pay the deficiency, if any, within ten (10) days from the date other new base rent is determined. The rental redetermination shall be the only issue resolved by arbitration. All other disputes involving this Lease shall be resolved through litigation in a court of law. 3.5. COMPONENTS OF MONTHLY RENT. The monthly rent provided in Paragraph I.(E) above is (a) base rent as set forth in Paragraph I.(E)(1), plus (b) Tenant's share of the estimated operating expenses (computed on the basis of known or estimated operating expenses for each calendar year), plus (c) the Hawaii State General Excise Tax and other taxes, if any, as set forth in Paragraph 3.2. above. The amount of Tenant's share of the estimated operating expenses for the calendar year in which the term commences shall be as stated in Paragraph I.(E)(2) above. 4. OPERATING EXPENSES. 4.1. ESTIMATED OPERATING EXPENSES. (1) The monthly rent payable to Landlord shall be adjusted annually as of the commencement of each calendar year (the "current year") (a) by increasing the additional rent for the current year over the additional rent for the preceding year by the amount of Tenant's share of any increase in the estimated operating expenses for the current year, or (b) by reducing (except as provided in Paragraph 4.3. below) the additional rent for the current year by the amount of Tenant's share of any reduction in the operating expenses from the preceding year. Landlord shall notify Tenant of Tenant's share of the estimated operating expenses for the year. (2) The additional rent during the current year shall be adjusted, effective as of the commencement of the current year, and shall be payable in equal monthly installments. Tenant's share of the operating expenses shall be in the same percentage as the percentage set forth in Paragraph I.(B)(4) above. 4.2. ACTUAL OPERATING EXPENSES. (1) After the end of each calendar year (including the years in which the term commences and terminates), Landlord shall compute the actual operating expenses for such calendar year. Landlord shall notify Tenant of any correction from the estimated operating expenses as soon as reasonably possible after the end of each year. (2) Within thirty (30) days after receiving notice that the actual expenses were greater than the estimated expenses, Tenant shall pay to Landlord an amount equal to Tenant's share of the excess of the actual operating expense over the estimated operating expenses upon which Tenant's rent had been based during the preceding year. (3) If the actual operating expenses for the calendar year were less than the estimated operating expenses, Tenant shall be entitled to a credit against future rent payments, or a refund in the case of the last year of the term, in an amount equal to Tenant's share of the difference between the actual operating expenses and the estimated operating expenses. 4.3. OPERATING EXPENSES DEFINED. Operating expenses shall be determined in accordance with acceptable principles of sound accounting practice as applied to the operating and maintenance of first class office buildings. The term "operating expenses" shall mean all of the expenses which shall be incurred or paid on account of the operation and maintenance of the Property, including, without limitation, expenses of operation of the parking facility except as provided below. (1) Operating expenses shall include, without limiting the generality of the foregoing, the costs and expenses (including capital costs) of: utilities, automated control systems, security control, elevators, air conditioning, sprinkler systems, trash disposal, supplies, repair and maintenance (including without limitation, waterproofing and repair and maintenance of roofs, exterior walls and utility and other installations and services), the cost of management contracts or the cost of equivalent management services, wages and salaries of employees used in management, maintenance and general operations, (as distinguished from the cost of management contracts or equivalent management services), and payroll -5- 6 taxes, insurance, employee benefits and similar other charges with respect thereto, depreciation or rental of equipment used in operations and maintenance, audit and bookkeeping expenses, legal fees and expenses and financing expenses relating to operation and management, cost of insurance (including but not limited to, fire and extended coverage, vandalism and malicious mischief, difference in conditions coverage, public liability and property damage and workers' compensation insurance customarily carried by owners of first class office buildings), property taxes and other taxes, charges and assessments imposed by governmental authority and paid by Landlord with respect to the Property and the Land, including without limitation, taxes upon or measured by Landlord's gross income to the extent that such taxes have not already been recovered under Paragraph 3 of this or similar leases (but excluding taxes upon or measured by Landlord's net income), and the cost and expenses of any contest by appropriate legal proceedings of the amount or validity of any taxes, charges or other assessments, and the cost of repairs, alterations, additions and improvements required by laws, codes, regulations or ordinances now or hereafter in effect or made by Landlord to reduce energy requirements. Real property tax expense shall be the full amount of real property taxes applicable to the Property and the Land prior to any exemptions which may be granted due to the occupancy of space within the Property by any tenants or other occupants which may be entitled to receive real property tax exemptions. (2) Operating expenses shall not include capital costs or its depreciation/amortization (except as above mentioned), or direct wages and benefits of operating personnel employed wholly within the parking facility, special supplies and materials used exclusively in connection with the production of revenue from the parking facility or management fees paid on account of the operation of the parking facility, and cost of tenant alterations or improvements; depreciation and interest and principal payments on mortgages, and any other debt or refinancing costs, if any; real estate broker leasing commissions or compensation; marketing costs; attorneys' fees incurred in lease negotiations or lease disputes; costs of Landlord remedying violations of laws or leases; ground rent and related costs; management fees in excess of 3% of gross receipts; interest or penalties resulting from late payments by Landlord; costs reimbursable from tenants, insurance companies, governmental authorities or other third parties; special services paid for by other tenants; and costs associated with off-site personal and overhead. Further, operating expenses shall not include taxes on Landlord's net income, federal excess profit taxes, franchise, transfer, capital stock, or gift, estate or inheritance taxes of Landlord. 4.4. CALCULATION OF EXPENSES. For the purpose of determining increase or decrease in rent payable by Tenant under this Paragraph 4, the calculation and adjustment shall be based on a full calendar year. Any additional rent computed as herein set forth shall be deemed to have accrued uniformly during the calendar year. The additional rent payment under the provisions of this Paragraph 4 for the year in which this Lease terminates shall be prorated, based on the actual expenses for such year, through the termination of this Lease. Any additional rent shall be due or any refund of overpayment shall be made thirty (30) days after notification to Tenant of any adjustment as provided in Paragraphs 4.1 to 4.3. If any part of the Property is not fully occupied, serviced and used during any calendar year, for the purpose of calculations under this Paragraph 4, the operating expenses, both estimated and actual for such year, shall be adjusted by adding amounts and items of operating expenses which would normally have been incurred if the Property had been fully occupied, serviced and used during the entire year, as estimated by Landlord. 4.5. INDIVIDUAL TENANT EXPENSES. If any expense above normal operating expenses is incurred or paid by Landlord specifically for the benefit of a particular tenant, such expense shall be charged directly against the particular tenant and shall not be included in operating expenses for the purpose of this Paragraph 4. There shall be deducted from the operating expenses for any period all amounts paid to Landlord by any particular tenant, including Tenant, on account of the cost of repairs or extra services for which the particular tenant is directly responsible that have been included in the operating expenses for the period. 4.6. AREAS DEFINED. (1) The term "rentable area" for an entire floor shall mean the area computed by measuring the inside finish of permanent outer building walls or to the glass line where the permanent outer building walls have glass installed and shall exclude any major vertical penetrations of the floor. Major vertical penetrations shall include stairs, elevator shafts, flues, pipe shafts, vertical ducts and their enclosing walls, which serve more than one floor of the building, but shall not include stairs, dumbwaiters, lifts, and the like, exclusively serving one tenant occupying offices on more than one floor. (2) The "usable area" of any premises on a multiple tenancy floor shall be computed by measuring to the finished surface of the premises side of corridor and other permanent walls, to the center of partitions that separate the premises from adjoining usable areas, and to the inside finished surface of the permanent outer building walls or to the glass line where the permanent outer building walls have glass installed. In determining usable area, no deductions shall be made for columns and projections necessary to the building. (3) The "rentable area" of any premises on a single tenancy floor or the ground floor shall be the same as the usable area of such premises. (4) Except for premises on the ground floor, if Tenant's premises is located on a multiple tenancy floor, the percentage set forth in Paragraph I. (B)(4) above shall be the percentage applicable to the Premises after conversion of the usable area of the Premises to rentable area by adding to -6- 7 the usable floor area set forth in Paragraph I. (B) (1) an appropriate allocable share of the common areas on the floor. (5) The rentable area is subject to adjustment from time to time to correct any error in measurement or if changes are made to the Premises, and the percentage applicable to the Premises shall be adjusted accordingly. (6) The rentable area of the basement health club, for calculating of the total rentable area, shall be assumed to be 5,000 square feet. Accordingly, as of the date of execution of this Lease, Landlord and Tenant agree that the total rentable area for the purposes of calculating Tenant's percentage in Paragraph I.(B)(4) is 473,000 square feet. The percentage as shown in Paragraph I.(B)(4) is as determined as of the date of this Lease. (7) Landlord reserves the right, from time to time, to reconstruct or reconfigure portions of the Property. 4.7. EXPENSE REPORT. Operating expenses shall be audited annually by Landlord's certified public accountant. The audited statement shall be available for inspection by Tenant during normal business hours. Tenant and/or its agents may, upon reasonable notice, inspect the books and records of Landlord pertaining to operating expenses, including the invoices and other accounting data on which operating expenses were billed, subject to reasonable restrictions as to time and manner. If such examination of Landlord's records by Tenant and/or its agents discloses any charge which is not allowed by the terms of this Lease, Landlord shall reimburse Tenant within thirty (30) days of Tenant's request for any amount not permitted to be charged; and if such amount is in excess of two percent (2%) of Tenant's actual share or operating expenses, Landlord shall reimburse Tenant for the reasonable costs of such examination or audit. In the event Tenant disputes any amount of such charges owed pursuant to this Lease, Tenant shall have the right to pay such amount "under protest" without waiver of any right or remedy hereunder. 5. SECURITY DEPOSIT. [Intentionally Omitted] 6. INTEREST AND COLLECTION COSTS. Every installment of rent and every other payment due from Tenant to Landlord not received by Landlord by 4:00 p.m. on the 5th day after notice from Landlord that the same has not been received and is due shall bear interest at one percent (1%) per month or at the maximum rate allowable by law, if one percent (1%) per month exceeds the maximum rate allowable by law, from the Due Date, as defined in Paragraph 3.1, to and including the date of payment. "Interest" as used in this Lease shall be as defined herein. It is also agreed that collection of any past due amount represents a cost to Landlord even where no collection agent or attorney is employed, and, accordingly, it is agreed that Tenant will pay Landlord on demand not only Landlord's out-of-pocket costs of collection with respect to any past due sum, including the reasonable fees of collection agents and attorneys, but also a sum to reimburse Landlord for its other costs in an amount equal to the higher of (a) One Cent of every Dollar ($1.00) past due, or (b) Five Dollars ($5.00) for each billing rendered by Landlord to Tenant for a past due amount for the first three (3) times that Tenant fails to make payment within the specified time period, and (a) Five Cents of every Dollar ($1.00) past due, or (b) Five Dollars ($5.00) for each billing rendered by Landlord to Tenant for a past due amount for each time thereafter. Tenant's obligation to pay collection costs and interests on amounts due Landlord in accordance with the terms of this Lease shall continue subsequent to termination of this Lease and shall cease only upon payment of all amounts and accrued interest in full. 7. ATTORNEY'S FEES. If Landlord and Tenant litigate any provision of this Lease or the subject matter of this Lease, the unsuccessful litigant will pay to the successful litigant all costs and expenses, including reasonable attorneys' fees and court costs, incurred by the successful litigant. If litigation or legal expense is incurred by Landlord or Tenant in connection with any litigation commenced by or against the other (other than condemnation proceedings) in which Landlord or Tenant shall without fault be made a party, the other party will be entitled to recover from such party all of its costs and expenses so incurred, including reasonable attorneys' fees. If Landlord or Tenant is required to use the services of an attorney or collection agent to collect amounts due under this Lease, the one party agrees to reimburse the other reasonable attorneys' fees and costs incurred by such party, whether or not such collection results in suit being filed. 8. EXPENDITURES BY LANDLORD. Whenever Tenant shall be obligated to make any payment or expenditure or to do any act or to incur any liability, and Tenant does not perform or pay as required within five (5) calendar days after written notice from Landlord, Landlord shall be entitled, but shall not be obligated, to perform or pay at the cost and for the account of Tenant. In such event the cost, together with interest, shall be deemed additional rent and shall be added to the next installment of rent becoming due from Tenant or shall be paid by Tenant upon demand. 9. CONVEYANCE TAXES AND TAXES ON TENANT'S PROPERTY. Tenant shall pay when due, as additional rent, any conveyance tax imposed by the State of Hawaii by reason of the execution of this Lease or any extension, amendment or renewal. Tenant shall, at Landlord's request, timely execute such -7- 8 affidavits and other documentation as may be required. Tenant shall also pay before the same become delinquent all taxes assessed during the term of this Lease against any leasehold interest, leasehold improvements, or personal property of any kind, owned by or placed in, the Premises by or for the Tenant. 10. REPAIRS AND MAINTENANCE. 10.1. LANDLORD OBLIGATION. Landlord shall be under no obligation to make any repairs, alterations, or improvements to the Premises or any part thereof at any time except as in this Lease expressly provided. Landlord shall be responsible for maintaining and keeping in good service, condition and repair consistent with a first-class office building all common areas at the Property, including but not limited to the roof, exterior portions of the Building, the landscaped areas, retention/detention facilities, lighting fixtures and equipment, loading areas, parking lots and sidewalks, all interior portions of the Building which are not part of the Premises or any other tenant's demised premises and all structural supports and elements of the Premises and the Building. Landlord shall provide trash storage and removal services as is customary for similar buildings in the metropolitan Honolulu area, including but not limited to emptying the compactor on a regular basis and keeping the trash area in a sightly manner. Landlord agrees, at Landlord's expense, subject to Paragraph 4, to perform all maintenance and to make all necessary repairs, replacements and substitutions, to keep the Building and the Premises and fixtures thereon in good condition and repair, except for such repairs and maintenance to the Premises as are required of Tenant pursuant to the terms and provisions of this Lease. 10.2. TENANT OBLIGATION TO REPAIR. Tenant shall, at its sole cost, maintain the Premises in substantially similar condition and repair as of the commencement of this Lease and, if necessary, improve the Premises to be in compliance with all applicable laws and regulations, including but not limited to compliance with the American Disabilities Act. Tenant shall, at its sole cost, repair any damage to the roof or exterior walls of the Premises resulting from acts or omissions of Tenant, Tenant's agents, employees or invitees. All repairs required shall be made with the least inconvenience possible under the circumstances. 10.3. LANDLORD'S OPTION TO REPAIR. If Tenant fails to repair the Premises as required to the reasonable satisfaction of Landlord after the time limit stated in the written demand, Landlord may make such repairs without liability to Tenant for any loss or damage to Tenant's stock or other property or to Tenant's business. Tenant shall pay Landlord's costs in making such repairs, together with interest, as additional rent. 10.4. STRUCTURAL AND INTERIOR REPAIRS. If any repairs appear necessary to the structural portions of the Premises, then Tenant shall immediately notify Landlord in writing stating the necessity for and the nature of the repairs, and Landlord, with reasonable promptness, shall determine the necessity of the repairs. Landlord shall not be required to make repairs to the interior surfaces of the Premises it being the intention of this Lease that any such damage shall be insured against by Tenant on behalf of Tenant with Landlord and the Management Company named as an additional insureds. Landlord shall not be responsible for damage or destruction of Tenant's personal property, business records or equipment, or for damage to or interruption of Tenant's business, all of which are the responsibility of the Tenant under the Tenant's required insurance coverages. 11. CONSTRUCTION, ADDITIONS AND ALTERATIONS. 11.1. ACCEPTANCE BY TENANT. Except as may be specially provided by this Lease or by an exhibit attached to this Lease, Landlord has rented and Tenant hereby approves and accepts the Premises, the common areas, and the utility pipes, structural walls and supports and other installations and services available to and designated for the Premises in an "as is" condition. 11.2. APPROVAL OF CONSTRUCTION, ADDITIONS, ALTERATIONS AND REPAIRS. All work involving construction, additions, alterations and repairs performed by Tenant pursuant to Paragraphs 10 and 11 of this Lease shall be completed at the sole cost of Tenant and in accordance with all governmental laws, rules and regulations. If required by applicable law or by Landlord, Tenant shall, at Tenant's cost, retain experts or consultants for any work approved by Landlord that may involve asbestos containing or any other such material, extensions or modifications of utility lines and other systems and services in the Premises or in the Building or the Property which may be affected by Tenant's work and construction and additions and alterations which may overburden or otherwise affect the safety and structural integrity of the Building or the Property. 11.3. APPROVAL OF PLANS. Landlord may withhold approval of any construction, alterations, additions and improvements if the plans or specifications are not acceptable to the architect or engineer, if any, retained by Landlord. In connection with requests by Tenant for approval, Landlord may retain the services of an architect, consultant and/or engineer and their reasonable fees shall be reimbursed to Landlord by Tenant or paid directly by Tenant if required by Landlord. Landlord's approval of any plans and specifications and suggestions for their revision shall not be construed to be an agreement or representation on Landlord's part of the adequacy or suitability of the construction, alterations, additions or improvements proposed by Tenant. 11.4. CONSTRUCTION BY TENANT. Tenant, at Tenant's cost, shall perform all work for construction of Tenant improvements and supply all materials necessary to prepare the Premises for -8- 9 Tenant's failure to cure within five (5) calendar days thereafter, at the cost and for the account of Tenant, from obtaining and filing a bond to discharge the lien application if Tenant fails to furnish the letter of credit or cash security within the 30-day period. If Landlord shall assign to its successor in interest Tenant's letter of credit or cash security, Tenant agrees to look solely to the successor in interest for the letter of credit or cash security deposit. 12.3. DISCHARGE OF JUDGMENT LIEN. Should for whatever reason a lien attach or a final judgment be entered, Tenant shall immediately bond over or fully pay and discharge the judgment and lien. Tenant shall reimburse Landlord for any loss, damage and expense, including reasonable attorney's fees, which Landlord may incur. Nothing contained herein shall prevent Landlord upon prior written notice to Tenant and Tenant's failure to cure within five (5) calendar days thereafter, at the cost and for the account of Tenant, from satisfying any judgment or lien if Tenant fails to do so. 12.4. NOTICE BY TENANT REQUIRED. If any claim or lien is filed against the Premises, or any action is instituted affecting the title to the Premises, Tenant shall give Landlord written notice as soon as Tenant obtains knowledge of the claim, lien or action. 13. INDEMNITY. 13.1 INDEMNIFICATION OF LANDLORD. Tenant, as a material part of the consideration to Landlord for this Lease, will and does hereby assume all risk of bodily injury, wrongful death and/or property damage occasioned by any accident or nuisance made or suffered in the demised Premises or resulting from any failure on the part of Tenant to maintain the demised Premises in a safe condition or by reason of the use, occupancy and enjoyment of the demised Premises by the Tenant or any person thereon or holding under Tenant. Tenant hereby waives all claims in respect thereof against the Landlord and its officers, directors, partners, managers, trustees, employees, agents, licensees, contractors and invitees (as used in this Paragraph the term Landlord shall include all such persons). Tenant hereby agrees to indemnify and save harmless the Landlord from and against any and all claims, liens, loss, cost and liability for bodily injury, wrongful death and/or property damage suffered by any persons (including, without limitation, Tenant's employees) arising out of, caused or occasioned by, or resulting from any accident, fire or nuisance in the demised Premises, or failure to maintain the demised Premises, except where such injury, death or damage is caused by the negligence or willful act or omission of the Landlord or the failure of the Landlord after reasonable written notice, to repair any structural defect or any other repair which Landlord is responsible under this Lease. Without limitation, Tenant will indemnify and save harmless the Landlord against and from any and all claims by or on behalf of any person or persons, firm or firms, corporation or corporations, arising from the conduct or management of any work or thing whatsoever done by Tenant or Tenant's employees in or about the Premises, and will further indemnify and save Landlord, harmless against and from any and all claims arising from any breach or default on the part of Tenant in the performance of any covenant or agreement on the part of Tenant to be performed pursuant to the terms of this Lease, or arising from any act or negligence of Tenant or Tenant's employees, and shall reimburse Landlord the reasonable costs, attorneys' fees, expenses and liabilities incurred in connection with any such claim or any action or proceeding brought thereon. Tenant further agrees that in case of any claim, demand, proceeding, action or cause of action, threatened or actual, against Landlord, upon its written requests, Tenant shall defend Landlord at Tenant's expense by counsel satisfactory to Landlord as the case may be. INDEMNIFICATION OF TENANT. Landlord hereby agrees to indemnify, save and hold Tenant harmless from any and all claims, loss, cost and liability for bodily injury, wrongful death and/or property damage suffered by any persons arising out of, caused or occasioned by, or resulting from the use of the common areas of the Building and/or Premises when due to the negligence or willful act or omission of Landlord or due to the failure of the Landlord after reasonable written notice, to repair any structural defect or any other repair which Landlord is responsible under this Lease, unless due to Tenant's negligence or willful act or omission or failure to perform its obligations under this Lease. 13.2 NON-LIABILITY OF LANDLORD. Tenant, as a material part of the consideration to Landlord for this Lease, will and hereby does assume all risk of loss or damage to furniture, fixtures, supplies, merchandise, and other property, by whomsoever owned, stored or placed in, upon or about the demised Premises, and does hereby agree that the Landlord will not be responsible for loss or damage to any such property, unless caused by the negligence or willful act or omission of Landlord, and waives all claims in respect thereof against Landlord. It is the intent of this Lease that damage to the Tenant's Premises and property shall be covered by the Tenant's insurance. Tenant hereby agrees to indemnify and save harmless the Landlord from and against any and all claims for such loss or damage, other than damage caused by the negligence or willful act or omission of Landlord or the failure of Landlord after reasonable written notice to replace any structural defect or repair any other item for which Landlord is responsible under this Lease. Without prejudice to the generality of the foregoing, Landlord shall not be liable for any damage to any property entrusted to Landlord, nor for damage to any property at any time stored or kept in the demised Premises, arising from rain or from any other water which may leak, issue or flow from any part of the Building, or from the pipes or plumbing from the same or any other place or quarter, nor for any damage to property in the Building caused by theft or for damage of any character arising out of defects of -10- 10 construction of the Building, the demised Premises or any machinery, equipment, electrical wiring or facility therein or failure or breakdown thereof, or from lack of repair or proper Tenant operation of the same, or from acts of negligence of co-tenants, or other occupants of the Property. Landlord shall not be liable for any damage to or loss of any property of Tenant, including but not limited to automobiles, personal effects and other property kept in the automobiles or in other areas of the Premises, the Building and the parking facility. Landlord shall not be responsible to Tenant for any loss of or damage to Tenant's effects by any independent janitorial personnel. NON-LIABILITY OF TENANT. Except as otherwise provided herein, Landlord will and hereby does assume all risk of loss or damage to furniture, fixtures, supplies, merchandise, and other property, by whomsoever owned, stored or placed in, upon or about the common areas of the Property and Building, and does hereby agree that the Tenant will not be responsible for loss or damage to any such property, unless caused by the negligence or willful act or omission of Tenant, and waives all claims that it may have in respect thereof against Tenant. 13.3 CONDITION OF THE DEMISED PREMISES. Tenant agrees that Tenant assumes all risks occasioned by any nonconforming improvements of the demised premises and agrees to indemnify and save harmless Landlord from and against any and all claims arising out of, occasioned by or resulting from any nonconforming improvements of the demised premises, whether alleged or established and agrees to indemnify Landlord from and against all costs, attorneys' fees, expenses, fines and liabilities incurred by landlord in connection with any such claim or any action or proceeding brought thereon and further agrees that Tenant shall have no claim or cause of action or right of offset or set off or any other defense against Landlord or its obligations under this Section whatsoever. 14. INSURANCE 14.1. GENERAL REQUIREMENTS. Tenant will, at its own expense, at all times during said term of this Lease, keep in force policies of insurance as required in this Lease. All policies shall be issued by insurance companies that are Best's rate A- or better, financial category class VII or greater, and licensed as an admitted insurer in the State of Hawaii. All insurance policies shall contain an endorsement specifically naming Landlord and the Building's Management Company as additional insured, and all such insurance shall be primary to any other insurance that may be available to Landlord, and not contributing with and not in excess of coverage which Landlord may carry. All insurance policies shall contain an endorsement stating that the insurer will not cancel, reduce coverages, or materially change coverages without first giving Landlord thirty (30) days prior written notice. Tenant will provide Landlord with current certificates of such insurance within thirty (30) days after execution of this Lease, and will provide true and complete copies of such insurance policies upon Landlord's reasonable request. All commercial general liability and property damage policies shall contain a provision that Landlord, although named as an additional insured, shall nevertheless be entitled to recovery under the policies for any loss occasioned to it, its agents and employees by reason of the negligence of Tenant. 14.2. WAIVER OF SUBROGATION. For the purpose of waiver of subrogation, the parties mutually release and waive unto the other all rights to claim damages, costs or expenses for any damages to property caused by a casualty of any type in, on or about the Property if the amount of such damages, cost or expense has been paid to such damaged party under the terms of any policy of insurance. Tenant and Landlord each agree to have their insurance companies insuring their respective properties waive any right of subrogation against the other; provided, however, that the mutual waiver hereunder shall pertain only to property coverage and not to any other liability that may exist. 14.3. PROPERTY INSURANCE. Tenant will keep the Premises and Improvements (whether installed or paid for by Landlord or Tenant), including alterations, additions, repairs, and business personal property, inventory, stock, Tenant machinery and equipment on the demised Premises insured against loss or damage by fire and all other causes of loss as provided in the standard "Causes of Loss Special Form" (copyright by ISO Commercial Risk Services, Inc.), in an amount as near as practicable to the full replacement cost thereof, and including debris removal without limitation, an agreed amount endorsement, building ordinance coverage, including coverage for contingent liability from operation of building laws, demolition, and increased cost of construction, exclusive of foundation and excavation costs, which amount Tenant will review as to the sufficiency at least annually and, if insufficient, will increase. The deductible for any one insurance policy shall not exceed the sum of $10,000.00 per occurrence. 14.4. RENT INSURANCE. [Intentionally Omitted] 14.5. OTHER PROPERTY INSURANCE. Tenant will, at its own expense, effect and maintain such other property insurance with respect to said Premises or said rent as Landlord may reasonably from time to time require; provided that such is consistent with prevailing prudent business practice for first-class commercial buildings in the metropolitan Honolulu area. 14.6. LIABILITY INSURANCE. Tenant shall maintain commercial general liability insurance for the Premises and any business operations conducted by Tenant, its independent contractors and sublessees, if any. Said insurance shall provide coverages for: bodily injury and property damage liability; premises operations liability; broad form property damage; personal and advertising injury liability; blanket -11- 11 contractual liability; independent contractors liability; fire damage legal liability; products/completed operations liability; host liquor liability; limited worldwide liability; additional persons insured-employees; coverage of newly acquired or created organizations (90 days); and, exception to pollution exclusion for bodily injury or property damage arising from hostile file. If Tenant or its independent contractor(s) engage in any construction, demolition or excavation operations, all policies covering these operations shall be endorsed to provide coverages for explosion, collapse and underground hazards. Liquor liability insurance will be provided if Tenant or any sublessee sells, serves or distributes alcoholic beverages on the covered premises. Tenant shall also maintain automobile liability coverage that covers Tenant owned automobiles driven by employees on the Property. The policy or policies of insurance shall provide coverage on an "occurrence" basis (not on a "claims made" form) and shall provide limits of not less than two million dollars ($2,000,000.00) per occurrence with a general aggregate limit per location or project. Landlord may from time to time require, with due regard to prevailing prudent business practices, that these limits be increased, or that additional liability coverages be provided, as may be adequate for Landlord's protection. 14.7 FIRE INSURANCE PREMIUM INCREASES. Tenant agrees to pay to Landlord forthwith upon demand the amount of any increase in premiums for insurance against loss by fire or other risks that may be charged on the amount of insurance maintained by Landlord on the Property, resulting from Tenant doing any act on the Premises which increases the insurance, whether or not Landlord shall have consented to such act by Tenant. If Tenant installs upon the Premises any electrical equipment which overloads the electrical lines of the Premises, Tenant shall, at its own expense, make whatever changes are necessary to comply with the requirements of the insurance underwriters and appropriate governmental authority, but nothing herein contained shall be deemed to constitute Landlord's consent to such overloading. 14.8 LANDLORD'S INSURANCE. .1 PROPERTY INSURANCE. Landlord shall purchase and maintain property insurance written on a layered loss limit basis on the Building, improvements and betterments, machinery and equipment under a standard ISO "Special" property insurance form. The "Special" form shall provide coverage for "all direct causes of physical loss" subject to policy exclusions, limitations and deductibles. Flood and earthquake coverage shall also be provided subject to deductibles. .2 GENERAL LIABILITY/UMBRELLA LIABILITY INSURANCE. Landlord shall be responsible for purchasing and maintaining the Landlord's usual General liability insurance covering the entire Amfac Center Property. All "standard" ISO coverages shall be included within the coverage. Higher limits of coverage may be secured under a layered umbrella/excess liability insurance program. .3 WORKER'S COMPENSATION INSURANCE. Landlord shall purchase and maintain statutory worker's compensation insurance for all employees of the Amfac Center. .4 BUSINESS AUTO/GARAGE LIABILITY INSURANCE. Landlord shall purchase and maintain business auto coverage for vehicles owned by Mitsui Fudosan (Hawaii), Inc. and its subsidiaries. Coverage shall also be provided for "hired" and "non-owned" vehicles for Mitsui Fudosan (Hawaii), Inc. Garage liability insurance shall be provided for the garage operations. Garagekeepers coverage shall be provided for physical damage to vehicles in the care, custody and control of Amfac Center. 15. FIRE OR DAMAGE TO PREMISES. 15.1. TERMINATION BY LANDLORD. If the Property, Building or Premises shall be damaged or destroyed to such an extent that in the sole and absolute opinion of Landlord the Property, Building or Premises cannot economically be rendered tenantable, this Lease may be terminated by Landlord. Termination shall be effective upon written notice by Landlord to the Tenant given within sixty (60) days after the damage or destruction. Unless so terminated, this Lease shall continue in full force and effect. 15.2. REPAIR BY LANDLORD. If this Lease is not terminated as set forth in Paragraph 15.1, then the Landlord shall repair and/or rebuild the demised Premises and/or the Building to substantially the same condition that they were in at the time they were turned over to Tenant within one hundred twenty (120) days from the date of such casualty; provided, however, that in the event Landlord fails to so complete such repair and/or rebuilding work due to an act or event of force majeure (as such term is defined below), then the one hundred twenty (120) day time period shall be extended on a day for day basis equal to the number of days of force majeure delay. The term "force majeure" is defined in Paragraph 35 hereof. If Landlord fails to complete, such repairs within the one hundred twenty (120) day period, as may be extended, Tenant shall have the right to terminate this Lease upon thirty (30) days' written notice to Landlord. Provided that the damage or destruction occurred through no fault or neglect of the Tenant or Tenant's agents or employees or any one upon the Premises with Tenant's express or implied consent, all base rent and any additional rent or other charges payable hereunder from the date of such casualty until the completion of the Landlord's repair and/or rebuilding work shall be abated. Any abatement shall terminate upon the earlier of (a) the date upon which Tenant commences to use substantially all of the demised Premises for office use, or (b) five (5) days after the date upon which Landlord completes its repair and/or rebuilding work. Tenant shall, at Tenant's sole cost and expense, restore any and all improvements, -12- 12 additions, fixtures, alterations, decorations, installations, furniture, furnishings, equipment, and machinery brought on to or made to the Premises following the delivery of the Premises to the Tenant at the beginning of this Lease term to substantially the same condition that it was in prior to the damage or destruction. Once the Landlord makes the determination that the Premises are unfit for occupancy, the Landlord has the right to secure and bar entry to the Premises. If Tenant enters the Premises after it has been determined by Landlord to be unfit, Tenant releases Landlord from any damage or injury to Tenant or anyone who enters through Tenant. 16. DAMAGE CAUSED BY OTHER TENANTS AND PERSONS. Landlord shall not be liable or responsible for any loss or damage sustained by Tenant, Tenant's agents, employees, business guests, invitees, or subtenants, by reason of the negligence, willfulness or malice of any other tenant, occupant or licensee of the Property, or of any other person. Tenant shall not be liable or responsible for any loss or damage sustained by Landlord, Landlord's agents, employees, business guests, invitees, or subtenants, by reason of the negligence, willfulness or malice of any other tenant, occupant or licensee of the Property, or of any other person other than Tenant, Tenant's agents, employees, business guests, invitees, or subtenants. 17. RELEASE OF LIABILITY OF LANDLORD. In the event of the sale or conveyance of the Building or the Property by Landlord, Landlord shall be and hereby is released from any future liability with respect to the covenants or conditions, express or implied, in favor of Tenant. This Lease shall not otherwise be affected by any such sale or conveyance and Tenant agrees to attorn to the purchaser or assignee. 18. ELECTRICAL AND HEAT-PRODUCING EQUIPMENT. 18.1. USE OF ELECTRICAL POWER. Tenant's use of electrical power shall not exceed the requirements for normal office use or other such amount set and agreed to by Landlord and Tenant. Tenant shall not install or use or connect with any electric wires in the Premises any x-ray machine, motor, water heater, stove or furnace or any other apparatus requiring comparable electric power, without the prior written consent of Landlord. Tenant shall pay as additional rent the cost of additional electric power over and above normal office use (or other such amount set and agreed to) within the Building as may be reasonably established by Landlord. Landlord may, at its option, cause electric submeters and/or BTUH meters to be installed in the Premises, at the sole cost of Landlord, and kept in repair, at the sole cost of Landlord, to measure the amount of electricity consumed by Tenant; provided, however, that if the installation of such meters is due to specific needs of Tenant, such as separate air conditioning units installed solely for Tenant's use, then such costs shall be borne by Tenant and shall include Landlord's reasonable administrative expenses in conjunction with the installation and service. 18.2. USE OF ADDITIONAL EQUIPMENT. Tenant shall not install or use any equipment which may cause heat or other substances to be emitted into the surrounding air, other than those in normal office use within the Building, without the prior written consent of Landlord, which consent shall not be unreasonably withheld, conditioned or delayed by Landlord. If Landlord is providing air conditioning to the Premises and nevertheless consents to such installation or use, Tenant shall pay as additional rent the additional cost of operation and maintenance of the air conditioning and ventilating system of the Property, the cost of purchase, installation, operation and maintenance of any additional air conditioning or other equipment resulting from such use and the cost of measuring the additional use, as may be reasonably established by Landlord. Any costs established by Landlord for additional electric power or for additional cost of air conditioning based on Hawaiian Electric Company projections made from time to time shall be conclusively deemed to be reasonable. If agreed to by Landlord and Tenant, the projections made by another qualified electrical consultant may be used. 19. USE OF PREMISES AND COMPLIANCE WITH LAW. Except with the prior written consent of Landlord, Tenant shall not use the Premises for any purpose or purposes other than set forth in Paragraph I.(G). Tenant shall not commit any waste in the Premises or maintain any public or private nuisance or any other action which may interfere with the quiet enjoyment of any other tenant of the Building or the Property. Tenant shall not use the Premises for any improper, offensive, or unlawful purpose and will keep the Premises in a clean and safe condition. Tenant shall not permit anything to be done or kept in the Premises which will increase the rate of fire or other insurance on the Building or the Property or its contents. Tenant shall comply with all laws, ordinances, rules and regulations of health and other governmental authorities applicable to the Premises, including but not limited to the safe maintenance of all utility and other installations and the proper and lawful use of the Premises. Tenant shall comply with the terms and provisions of all insurance policies at any time duly issued or enforced which are applicable to the conduct of Tenant's business in the Premises and will indemnify Landlord against all actions and claims by reason of the nonperformance or nonobservance of such laws, ordinances, rules and regulations or of this covenant. Notwithstanding anything contained in this paragraph to the contrary, Landlord shall be responsible for any repairs, modifications or alterations to the structural portions of the Premises or the Building required by any changes in applicable laws, orders or ordinances of governmental authorities having jurisdiction over the demised Premises and/or the Building, unless such repairs, alterations or -13- 13 modifications are required solely as a result of Tenant utilizing the demised Premises in a manner which is unique to Tenant and not generally associated with general office use. Landlord covenants that the Building and all common areas or other areas under Landlord's direct control do comply with all applicable laws, orders, ordinances of governmental authorities having jurisdiction, including but not limited to compliance with the Americans With Disabilities Act, and with all applicable board of fire insurance and underwriter's regulations, if any, respecting all matters of occupancy, respecting all matters of occupancy, condition or maintenance. 19.1 ADA COMPLIANCE. Tenant shall, with respect to the Premises, at its own cost and expense: (a) comply with all requirements of the federal Americans with Disabilities Act, as amended from time to time (the "ADA"), and the rules now or in the future promulgated under the ADA (the "Rules"), to the extent applicable to the Tenant's use, construction, repair, remodeling, rehabilitation or alteration of the Premises, or any part thereof; and (b) immediately provide to the Landlord written notice of any and all notices of actual, potential or alleged violations of the ADA or the Rules and any and all governmental investigations or regulatory or private actions instituted or threatened, regarding the ADA or the Rules. Prior to undertaking any alterations or new construction on the Premises the Tenant, in addition to all other requirements for such alterations or new construction contained in this Lease, shall provide to the Landlord a certification by an ADA Consultant that the plans and specifications for the alteration or new construction comply with the ADA and the Rules. Anything herein to the contrary notwithstanding, Tenant, with respect to the restrooms located in the elevator lobby on floor on which the Premises are located, shall not be responsible for compliance the requirements of the ADA. 19.2. USE OF HAZARDOUS MATERIALS. Except as provided herein, Tenant shall not cause or permit any Hazardous Material to be brought upon, kept or used in or about the Demised Premises by Tenant, its agents, employees, contractors or invitees without the prior written consent of Landlord, which consent may be granted or withheld in Landlord's sole discretion. As a condition to obtaining Landlord's consent, Tenant must demonstrate to Landlord's sole satisfaction that such Hazardous Material is necessary or useful to Tenant's business and will be used, kept, stored and disposed of in a manner that complies with all laws regulating any such Hazardous Material so brought upon or used or kept in or about the Demised Premises. If Tenant breaches the obligations stated in the preceding sentences, or if the presence of Hazardous Material on the Demised Premises caused or permitted by Tenant results in contamination of the Demised Premises, or if contamination of the Demised Premises by Hazardous Material otherwise occurs for which Tenant is legally liable to Landlord for damage resulting therefrom, then Tenant shall indemnify, defend and hold Landlord harmless from any and all claims, judgments, damages, penalties, fines, costs, liabilities or losses (including, without limitation, diminution in value of the Demised Premises and reasonable attorneys' fees, consultant fees and expert fees) which arise during or after the Lease term as a result of such contamination. This indemnification of Landlord by Tenant includes, without limitation, costs incurred in connection with any investigation of site conditions or any cleanup, remedial, removal or restoration work required by any federal, state or local governmental agency or political subdivision because of Hazardous Material present in the soil or ground water on or under the Demised Premises and is caused by Tenant. Without limiting the foregoing, if the presence of any Hazardous Material on the Demised Premises caused or permitted by Tenant results in any contamination of the Demised Premises, Tenant shall promptly take all actions at its sole expense as are necessary to return the Demised Premises to the condition existing prior to the introduction of any such Hazardous materials to the Demised Premises; provided that Landlord's approval of such actions shall first be obtained, which approval shall not be unreasonably withheld so long as such actions would not potentially have any material adverse long-term or short-term effect on the Demised Premises. The foregoing indemnity shall survive the expiration or earlier termination of this Lease. (1) Definitions. As used herein, the term "Hazardous Material" means any hazardous or toxic substance, material or waste, including, but not limited to, those substances, materials, and wastes listed in the United States Department of Transportation Hazardous Materials Table (49 CFR 172.101) or by the Environmental Protection Agency as hazardous substances (40 CFR Part 302) and amendments thereto, or such substances, materials and wastes that are or become regulated under any applicable local, state or federal law. (2) Disclosure. [Intentionally Omitted]. (3) Inspection. During Tenant's business hours and upon at least one (1) business day's notice to Tenant, Landlord and its agents shall have the right, but not the duty, to inspect the Demised Premises at any time to determine whether Tenant is complying with the terms of this Lease. If Tenant is not in compliance with this Lease, Landlord shall, after written notice to Tenant and Tenant's failure to cure such non-compliance within five (5) calendar days, have the right to immediately enter upon the demised Premises to remedy any contamination caused by Tenant's failure to comply notwithstanding any other provision of this Lease. Landlord shall use its best efforts to minimize interference with Tenant's business but shall not be liable for any interference caused thereby. (4) Reports. To the extent Tenant is required to file any reports with the Environmental Protection Agency or any other federal, state, city or county agency having jurisdiction over the subject matter contained herein, Tenant shall concurrently provided Landlord a copy of such report. (5) Default. Any default under this Paragraph 19.2 shall be a material default enabling -14- 14 Landlord to exercise of the remedies set forth in this Lease. (6) Cleanup Obligations. In the event Tenant does not fully perform its obligations under this Paragraph, Landlord may at its option, after written notice to Tenant and Tenant's failure to fully perform within five (5) calendar days thereafter, perform or cause to be performed those obligations, and recover the cost of such performance from Tenant. In the performance of the foregoing obligations, Landlord shall have full access to the Demised Premises, and Tenant shall fully cooperate with Landlord. Tenant shall bear full responsibility for the performance of those obligations, as Tenant should have if it had performed them itself, and shall hold harmless and indemnify Landlord from any liability, loss, cost or expense (including, without limitation, all court costs and reasonable attorneys' fees) arising from or in any way related to such cleanup. (7) Should Landlord allow Tenant to perform an environmental site assessment, said assessment shall be prepared for the sole and exclusive use of Tenant and Landlord, and Tenant shall not release such assessment, or any information contained therein, to any third party (including, without limitation, any governmental agency) except if required by law or upon the prior written consent of Landlord, which consent may be withheld in Landlord's sole discretion. Tenant shall indemnify, defend upon request, and hold Landlord harmless from any and all costs, claims or losses suffered or claimed by Landlord, based in whole or in part upon the breach of this Clause by Tenant. The obligations of this Clause shall survive the expiration or earlier termination of this Lease. LANDLORD'S REPRESENTATIONS. Landlord covenants and agrees not to permit, store, use, dump or dispose of any hazardous substance on any part of the demised Premises, the Building or the Property in any manner that would cause the demised Premises to be in violation of any applicable environmental law or regulation. Landlord indemnifies and holds Tenant harmless, and agrees to defend Tenant from and against any claims or actions arising from any alleged hazardous substance upon any part of the demised Premises as a result of a prior condition or Landlord's actions. Landlord represents and warrants to Tenant to the best of its knowledge, that the demised Premises and the Building (except for the improvements, fixtures and appurtenances thereto installed by Tenant or otherwise disclosed to Tenant) do not contain any hazardous substance or material nor has Landlord received notice of any violation or alleged violation of any environmental law with respect to the demised Premises, the Property or the Building. Landlord hereby agrees to save, defend, indemnify and hold Tenant harmless for any claims, causes of action or liabilities occasioned by the existence of any toxic or hazardous substance located in, on or under the Property in violation of any applicable laws caused by Landlord, its agents, employees, contractors, or invitees; provided, however, that the indemnity set forth in this sentence shall not apply to any such condition which is caused by Tenant, its agents, employees, contractors, or invitees. The indemnifications by Landlord and Tenant shall survive termination of this Lease. 20. RULES AND REGULATIONS. (See Exhibit C) Tenant shall, and Tenant shall cause Tenant's employees, agents, subtenants, invitees and licensees, to observe faithfully and comply strictly with the Rules and Regulations attached as Exhibit C and such other reasonable rules and regulations as Landlord may from time to time adopt for the safety, cleanliness and preservation of the Building and the Property; provided that any such additional rules and regulations prescribed by Landlord shall not be binding upon Tenant unless ten (10) days' notice has been given to Tenant and such rules and regulations shall be applicable to all tenants and enforced by Landlord in a non-discriminatory fashion. Landlord shall not be responsible to Tenant for the nonperformance of any of the Rules and Regulations by any other occupant or tenant of the Building or the Property. Landlord shall, however, use reasonable efforts to secure compliance by other tenants. By Tenant's signature below, Tenant agrees to abide by all Rules and Regulations. 21. OFFSET STATEMENT, SUBORDINATION AND ATTORNMENT. 21.1. OFFSET STATEMENT. It is understood that Landlord may at any time assign or transfer, by sale, assignment or hypothecation, its interest as Landlord in this Lease, or any part thereof, or its interest in the whole or any portion of the Building, the Property or the Land. Upon any sale, assignment or hypothecation, Tenant agrees, within ten (10) days after demand by Landlord, to execute and deliver to Landlord or to any proposed mortgagee, trustee, beneficiary or purchaser, a certificate such as an estoppel certificate in recordable form certifying (a) that this Lease is in full force and effect, (b) that this Lease is unmodified, or if modified stating any such modifications, (c) that there are no defenses or offsets thereto, or stating such defenses or offsets as are claimed by Tenant, and (d) the current rental amount and the dates to which all rents have been paid. In addition, upon sale, assignment or hypothecation by Tenant of its leasehold interest as permitted under the terms of this Lease, Landlord agrees, within ten (10) days after demand by Tenant, to execute and deliver to Tenant, a certificate such as an estoppel certificate in recordable form certifying (a) that this Lease is in full force and effect, (b) that this Lease is unmodified, or if modified stating any such modifications, (c) that there are no defenses or offsets thereto, or stating such defenses or offsets as are claimed by Landlord, and (d) the current rental amount and the dates to which all rents have been paid. 21.2. SUBORDINATION. This Lease shall be subject and subordinated at all times to the lien of all mortgages and deeds of trust in any amount now or hereafter placed against the building or the -15- 15 paid by the governmental authority shall be prorated as of the date of termination of this Lease. Tenant covenants that at the termination of the taking prior to the expiration of this Lease, Tenant shall, at its sole cost, restore the Premises and improvements as nearly as may be reasonably possible to the same condition which they were in prior to the taking. (4) Tenant hereby assigns the proceeds to Landlord and appoints Landlord its attorney in fact for the limited and sole purpose of collecting the proceeds from the governmental authority. In the event of a lump sum award, Landlord shall retain for itself an amount sufficient to equal those amounts payable by Tenant in accordance with the terms hereof. This amount shall be calculated in terms of the present dollar value of the anticipated rental income stream in accordance with recognized standard accounting practices. If the award is made on a monthly basis, Landlord shall retain that amount due it in accordance with the terms hereof. In both cases, any excess shall be paid to Tenant. 24. DEFAULT BY LANDLORD. If Landlord fails or refuses to observe or perform any of the provisions, covenants or conditions of this Lease, Tenant shall give a thirty (30) day written notice to Landlord of such default, specifying in the notice the default by Landlord. Tenant agrees that if the default specified in the notice can be cured by Landlord, but cannot with reasonable diligence be cured within the 30-day period, then the default shall be deemed to be cured if Landlord within the 30-day period shall have commenced and shall thereafter diligently prosecute to completion the curing of the default. Notwithstanding the foregoing, in the event of an emergency, Tenant shall only be obligated to give such notice as is reasonably practical under the circumstances. In the event Landlord fails to do so in a reasonably timely manner, Tenant may, but is under no obligation to perform such uncured obligations. In said event, Landlord shall reimburse Tenant for the reasonable costs of such performance within thirty (30) days of receipt of an invoice therefor. Tenant acknowledges that any one or more of the services provided for in Paragraph 2 may be interrupted or suspended by reason of accident, repair, alterations or improvements necessary to be made, strikes, lockout, and, except as hereinafter provided, Landlord shall not be liable to Tenant therefor; provided however, that (a) Landlord shall use its best efforts to restore such services as soon as reasonably possible, (b) in the event such services is not restored within five (5) business days, through the fault of Landlord, to the extent that Tenant cannot reasonably use all or any part of the Premises, rent and other charges shall abate as to such part effective on the sixth (6th) business day and continue abated until such service is restored, and (c) in the event such interruption continues for thirty (30) calendar days, whether or not through the fault of Landlord, then Tenant shall have the right and option to cancel and terminate this Lease, upon ten (10) days written notice to Landlord, and thereafter shall be relieved of all further liability under this Lease, provided, however, that if the cause of the interruption or stoppage cannot be cured solely by the payment of money and that more than thirty (30) calendar days may be reasonably required for such cure, then Tenant shall not have the option to cancel and terminate this Lease if Landlord shall commence such cure within such thirty days (30) day period and shall thereafter diligently prosecute such cure to completion. Item (c), notwithstanding, in the event such interruption continues for sixty (60) calendar days, Tenant shall have the right and option to cancel and terminate this Lease, upon ten (10) days written notice to Landlord. In the event, that a suspension of service is caused due to the Tenant's fault or neglect, items (b) and (c) of this subparagraph (j) shall not apply. 25. DEFAULT BY TENANT. 25.1. NOTICE AND TERMINATION. Tenant shall be in default if: (1) Tenant shall fail to pay when due any sums required to be paid under this Lease and such failure shall continue for five (5) days after notice to Tenant that the such payment is due; or (2) Any event shall occur which shall be a breach of the paragraph regulating the conduct of the business and use of the Premises and such breach continues beyond twenty-four (24) hours after notice from Landlord to Tenant; or (3) Tenant shall default in the performance of any other provision, covenant or condition of this Lease and such default continues for thirty (30) days after written notice from Landlord specifying the default by Tenant; provided, that the default shall be deemed to be cured if the default specified in the notice cannot with reasonable diligence be cured within the 30-day period, if Tenant within the 30-day period shall have commenced and shall thereafter diligently prosecute to completion the curing of the default; or (4) Any event shall occur which shall be a breach of any provision of the bankruptcy paragraph herein; or (5) Tenant should abandon the Premises for a period of fifteen (15) days during the term of this Lease. 25.2. LANDLORD'S OPTIONS. If Tenant is in default, Landlord, at its option, shall have the following rights in addition to all other rights and remedies it may have under this Lease or by law: (1) The right to declare the term of this Lease ended and to re-enter the Premises and take possession of the Premises and to terminate all of the rights of Tenant; or (2) The right, without terminating this Lease, to re-enter the Premises and to occupy -18- 16 and similar facilities within the Premises. Landlord shall have the right to erect and maintain, scaffolding, canopies, barriers, fences and props as may be required, without any rebate of rent or liability to Tenant for any loss of use or quiet enjoyment of the Premises, provided, that all such work shall be done promptly with as little interference as is reasonably practicable. 28.2. PASSKEY USE. Tenant agrees that Landlord and its agents may retain a passkey to the Premises and may enter the Premises during normal business hours or at any time during emergencies by the use of the passkey. Landlord shall not be liable for the consequences of admitting or refusing to admit Tenant or Tenant's agents or employees to the Premises by the use of the passkey. Tenant shall not change any lock on the doors of the Premises without the prior written consent of Landlord, which consent shall not be withheld, provided the passkey to the new lock conforms to the passkey system established by Landlord. If Tenant changes locks without prior written consent or fails to supply Landlord with a passkey, Landlord shall have the right to use any means to gain access in an emergency. Any entry made by Landlord under these circumstances shall not be deemed to be an unlawful entry. Landlord shall not be liable to Tenant for any damage or loss resulting from the use of force in effecting entry. 28.3. PROSPECTIVE TENANTS. Tenant will permit Landlord to bring prospective tenants upon the Premises at reasonable times within ninety (90) days prior to the expiration of this Lease. 29. RELOCATION. [Intentionally Omitted] 30. NO RENT REDUCTION. Except as provided elsewhere under those provisions of this Lease which specifically refer to rent reduction, Tenant shall not be entitled to any abatement or reduction of rent, nor to the recovery of any sums for any loss or damage on account of the interruption of the use of the Premises or of any of the services required to be furnished by Landlord by reason of delays beyond the reasonable control of Landlord. 31. DIMINUTION OF VIEW, LIGHT OR AIR BY ADJACENT STRUCTURE. It is expressly understood and agreed that any diminution or shutting off of view, light or air by any structure which may be erected adjacent to the Building or the Property, whether by Landlord or by others, shall in no way affect this Lease or impose any liability on Landlord or be construed as a constructive eviction or grounds for abatement or reduction of rent. 32. CANCELLATION NOT MERGER. The voluntary or other surrender of this Lease by Tenant, or a mutual cancellation, or the termination by Landlord pursuant to any provision of this Lease, shall not work as a merger, but, at the option of Landlord, shall either terminate any or all existing subleases or subtenancies under this Lease, or operate as an assignment to Landlord of any or all of such subleases or subtenancies. 33. SURRENDER OF LEASE OR HOLDING OVER. 33.1. HOLDING OVER WITH CONSENT. Any holding over after the expiration of this Lease, with the consent of Landlord, shall be construed, in the sole discretion of the Landlord, to be a tenancy from month-to-month at the higher of (a) the monthly rent and monthly operating expenses or (b) the then prevailing rate for comparable space in the Property as determined by Landlord, and shall otherwise be on the terms and conditions of this Lease, so far as is applicable. 33.2. HOLDING OVER WITHOUT CONSENT. If Tenant shall, at the expiration or other termination of this Lease, continue in possession of the Premises, either actually or constructively, then the monthly rent shall be 125% of the monthly rent and other amounts payable for the last month of the term for the first three (3) months of any such holdover, and thereafter, two (2) times the monthly rent and other amounts payable for the last month of the term, prorated on a daily basis for each day that Tenant remains in possession. Tenant shall not be liable to Landlord for any and all consequential damages sustained by Landlord as a result of such continued possession if the holdover period is six (6) months or less, thereafter Tenant shall be liable to Landlord for any and all consequential damages sustained by Landlord. Landlord may, but shall not be obligated to, take action to terminate the holding over by Tenant. 33.3. TERM OF LEASE DEFINED. Whenever reference is made to the term of this Lease, the reference shall include the original term and any renewal or extension of the term of this Lease. 34. SERVICE OF NOTICES. 34.1. PERSONAL OR MAIL SERVICE. Any notice and demand by or from Landlord to Tenant, or by or from Tenant to Landlord, required or desired to be given shall be in writing and shall be validly given if served either personally or if deposited in the United States mail, certified or registered, postage prepaid, return receipt requested. If notice or demand is served personally, service shall be conclusively deemed made at the time of personal service. If the notice or demand is served by registered or certified mail, service shall be conclusively deemed made forty-eight (48) hours after deposit in the United States mail addressed to the party to whom the notice or demand is given as follows: (1) Any notice or demand to Landlord shall be addressed to the individual or entity specified above (and at Landlord's option, any notice or demand shall be given to any other persons, firms -21- 17 or corporations designated by Landlord). (2) Any notice or demand to Tenant shall be addressed to Tenant at the Premises and at the address noted above or in the event of assignment, sublease, abandonment or surrender by Tenant, at the last address specified by Tenant. (3) Any party may change its address for the purpose of receiving notices or demands by a written notice given to the other party in the manner provided in this paragraph. 34.2. NOTICE TO MULTIPLE, CORPORATE, PARTNERSHIP, ETC. TENANTS. If there are multiple Tenants, notice to one Tenant shall be deemed to be notice to all Tenants. Notice to one partner of a partnership shall be deemed to be notice to all partners. Notice to an officer or director or agent of a corporation shall be deemed to be notice to the corporation. 35. FORCE MAJEURE CLAUSE. If either party shall be delayed or prevented from the performance of any provision of this Lease by reason of strikes, lockouts, labor troubles, inability to procure material, failure of power, restrictive governmental laws or regulations, riots, insurrection, war or other reason of a like nature not the fault of the party delayed in performing work under the terms of this Lease, the performance, unless otherwise provided herein, shall be excused for the period of the delay and the period for performance shall be extended for a period equivalent to the period of the delay; provided that the party so delayed shall notify the other party within five (5) days after the onset of the event causing delay. It is understood, however, that this provision shall not operate to excuse Tenant from the prompt payment of rent or any other payments required by this Lease. It is also understood that a party's financial ability to perform shall not be deemed to excuse nonperformance or delayed performance. 36. BROKER'S COMMISSION. Landlord and Tenant acknowledge that CB Commercial is the real estate broker which brought about this Lease transaction, and Landlord shall pay the brokerage commission to such broker pursuant to separate agreement. Landlord hereby indemnifies Tenant against the claims of any other broker arising from Landlord's acts, and Tenant hereby indemnifies Landlord against the claims of any other broker arising from Tenant's acts. 37. SUBMISSION FOR REVIEW. The submission of this Lease for examination does not constitute a reservation of or an option for the Premises. This Lease shall become effective according to its terms only upon execution in full by all parties and its delivery by Landlord to Tenant. 38. RESERVATIONS OF LANDLORD. Landlord reserves the right to construct, place, maintain, repair, replace, renovate, remodel, make additions to, or demolish such structures, utility lines, pipes, tunneling wails, ceilings, floors, public areas, restrooms, elevators, stairs, common areas and the like, in, under, over and upon the Premises as may be reasonably necessary or advisable for the operation, servicing, remodeling, or repairing of the Premises or of other portions of the Building, the Property or the Land. Notwithstanding the foregoing, Landlord agrees that reasonable access to the demised Premises shall be maintained during the hours of business conducted by Tenant on the demised Premises and the business of Tenant shall not be interfered with unreasonably and any repairs to the demised Premises or which would affect access to the demised Premises shall, except in the event of an emergency be performed only upon prior written notice to Tenant. Additionally, Landlord shall use its best efforts to minimize any interference with the operation of Tenant's business during the course of any repairs, alterations, additions or improvements. Further, Tenant shall be entitled to have access to the Premises, parking areas and other common areas of the Property 24 hours per day, 365 days per year, subject to reasonable restrictions by Landlord imposed in a nondiscriminatory fashion. Landlord further reserves the right to change the name of the Building and the Property in Landlord's sole discretion. 39. DIRECTORY AND OFFICE SIGNS. Landlord, at its cost, shall place a directory in the lobby of the Building in which the Premises are located, exclusively for the display of the names of tenants and their respective suite numbers. Landlord shall include in the directory Tenant's name and the names of at least twelve (12) of Tenant's employees. Landlord shall paint or attach Tenant's trade name in the location established by Landlord on or next to the door that is the principal entry to the Premises, the cost of the sign and its installation to be paid by Tenant. Landlord has the sole right to determine the type of directory and sign and the size and content of each, including, but not limited to, the size of letters, motif, style, color, material and whether painted, attached or free standing, with the cost of the directory inserts and door signage to be paid by Tenant. Landlord's acceptance of any name for listing on the Building Directory and/or for placement on Tenant's principal entry will not be deemed, nor will it substitute for, Landlord's consent, as required by this Lease, to any sublease, assignment, or other occupancy of the demised Premises. 40. PARTIAL INVALIDITY. If any provision, covenant or condition of this Lease is held by a court of competent jurisdiction to be void or unenforceable, the remainder of this Lease shall continue in full force and effect. If any interest rate, late charges, fees or other charges shall be in excess of the permissible rate under any applicable usury statute or similar law, then such rate of interest and late charges, fees or -22- 18 other charges shall be reduced to the maximum rate permitted by law. 41. LIMITATION ON RIGHT OF RECOVERY AGAINST LANDLORD. Tenant acknowledges and agrees that the liability of Landlord or any partner in Landlord shall be limited to Landlord's interest in the Property. Any judgments against Landlord or any partner in Landlord shall be satisfied solely out of the proceeds of sale of Landlord's or the partner's interest in the Property. No personal judgment shall be against Landlord or any partner in Landlord and shall not give any right of execution or levy against Landlord's or partner's other assets. These provisions shall inure to Landlord's and the partner's successors and assigns, including any mortgagee, its successors and assigns. These provisions are not intended to relieve Landlord from the performance of any of Landlord's obligations under this Lease, but only to limit the personal liability of Landlord and any partner in Landlord. These provisions shall not limit Tenant's rights to obtain injunctive relief or specific performance or to avail itself of any other right or remedy which may be available by law or under this Lease. 42. TIME OF THE ESSENCE. Time is of the essence of all of the provisions, covenants and conditions of this Lease. 43. RECORDATION. This Lease shall not be recorded, but the parties shall, at the request of either party, execute and deliver a memorandum of lease, in recordable form, sufficient to give constructive notice of the leasehold estate hereby created. The memorandum may be filed in the Office of the Assistant Registrar of the Land Court of Hawaii at the sole cost of the party filing the memorandum. Upon termination, Tenant agrees that Landlord can file a recordable instrument evidencing the termination. Tenant agrees that it shall cooperate with Landlord in the execution and filing of an appropriate document as evidence of the termination of this Lease. 44. SUCCESSORS AND ASSIGNS. All provisions, covenants and conditions of this Lease shall inure to the benefit of and be binding upon the successors and assigns of Landlord and (subject to the restrictions of assignment) the heirs, personal representatives, successors and permitted assigns of Tenant. 45. GENERAL PROVISIONS. 45.1. PREMISES DEFINED. The term "Premises" shall mean the area specifically described in the demise from Landlord to Tenant, except where such meaning would be clearly repugnant to the context, together with all rights, easements, interests, privileges and appurtenances relating thereto. The area demised shall consist of the area shown outlined in red on Exhibit A and shall be bounded by the unfinished interior surfaces of the perimeter walls and windows, the unfinished surfaces of interior loadbearing walls, the unfinished top of the floor slab and the unfinished bottom of the floor slab of the floor above, excluding, however, any items within the boundaries which are not included in rentable area as defined in Paragraph 4.6. above. 45.2. IMPROVEMENTS DEFINED. (1) The term "improvements" shall include all improvements existing at the commencement of the term or at any time thereafter built by anyone in the space demised, including, without limitation, walls and partitions which are not loadbearing, the interior decorated or finished surfaces of perimeter and loadbearing walls and floor slabs, ceilings and ceiling light fixtures, interior windows, entrance doors, mechanical and electrical conduits, wiring, fixtures and equipment, floor tile, carpeting and wall covering and other fixtures of all kinds. (2) The term "improvements" shall not include water, electric, telephone and other utility lines, ducts, conduits and other facilities serving other portions of the Property which may pass through the demised area. (3) The excluded items shall be the responsibility of Landlord, and with respect to which landlord reserves the right to install, repair, replace, maintain and remove the items in its discretion. 45.3. APPLICABLE LAW. The laws of the State of Hawaii shall govern the validity, performance and enforcement of this Lease. 45.4. GRAMMATICAL REFERENCES. The grammatical changes required to make the singular apply in the plural sense where there is more than one tenant and to apply to corporations, associations, partnerships, or individuals, males or females, shall be made where appropriate. 45.5. JOINT AND SEVERAL LIABILITY. Where there is more than one tenant, the obligations shall be joint and several. 45.6. CAPTION REFERENCES. The captions of the paragraphs are for convenience only and do not define, limit, describe or construe the contents of the paragraphs. 46. ENTIRE AGREEMENT. This agreement constitutes the entire agreement of Landlord and Tenant and supersedes all oral and written agreements and understandings, if any, between the parties prior to the date of this Lease. Except as otherwise provided, no subsequent alteration, amendment, modification or addition to this Lease shall be binding upon Landlord or Tenant unless reduced to writing and signed by each of them. -23- 19 EXHIBIT C RULES AND REGULATIONS 1. RULES AND REGULATIONS. These rules and regulations have been adopted for the purpose of insuring order and safety on the Property and to maintain the rights of Tenants and Landlord. Landlord reserves the right to modify, supplement or rescind any of these rules. Landlord may waive any one or more of these rules and regulations for the benefit of any particular Tenant or Tenants, but no such waiver by Landlord shall be construed as a waiver of such rules and regulations in favor of any other Tenant or Tenants, nor prevent Landlord from thereafter enforcing any such rules and regulations against any or all for the infraction of any of these rules by Tenant, its employees, agents or invitees. Each Tenant shall be liable for injury or damage caused by the infraction of any of these rules and regulations by it, its employees, agents or invitees. Landlord may repair such damage, charging the cost to Tenant, which amount shall be added to rent due for the ensuing month. These rules and regulations are in addition to, and shall not be construed in any way to modify or amend, in whole or in part, the terms, covenants and conditions of any lease of premises on the Property. 2. ACCESS. Property will be open from 7:00 a.m. to 8:00 p.m. weekdays and 7:00 a.m. to 5:00 p.m. Saturdays. On Sundays, holidays and after normal access hours, access to the Premises without proper identification may be refused. 3. CLOSING PREMISES. Each Tenant shall be responsible for its Premises to be securely locked and all water faucets and powered equipment to be shut off before Tenant or Tenant's employees leave the Property. 4. COMMON ROOMS. Rooms used in common by Tenant shall be subject to regulations adopted by Landlord. 5. DEDICATION-PREVENTION OF. Landlord reserves the right to close off any and all of the plazas, promenades and sidewalks of the Properly for twenty-four hours once every five years to prevent dedication. 6. DELIVERIES AND SERVICE AREA. Only hand trucks equipped with rubber tires and side guards will be permitted on the Property. All deliveries shall be made only through the service entrance of the Properly on Nimitz Highway. All deliveries requiring exclusive use of an elevator shall be scheduled through the Management Office. Exclusive use will not be permitted without the use of elevator protective padding and will be permitted only between the hours of 9:30 a.m. to 11:30 a.m. and 1:30 p.m. to 3:30 p.m., Monday through Friday. 7. HEAVY ITEMS. All carrying in or out of heavy freight, packages or other bulky matter of any description must take place only during hours selected by Landlord and only with prior notice to and approval by Landlord. No object beyond the rated capacity of elevators shall be brought on the Property. Landlord shall have the right to prescribe the location of heavy objects and, if considered necessary, the means to distribute the weight to no more than 50 pounds per square foot. Any damage to the Property caused by Tenant or its contractor, delivery or moving service, will be repaired at Tenant's expense. 8. DIRECTORIES. The Tenant directories are provided for displaying the name and location of each Tenant. A charge will be made in accordance with the standard sign order form for the initial listing and for each name added to or other change to Tenant's name. The initial listing and all additions or changes will require Landlord's approval. Tenant shall provide Landlord with a written request for any additions or changes to the directory. 9. ELECTRICAL AND AIR CONDITIONING SYSTEMS. The electrical and air conditioning systems shall operate without additional charges, except for additional power and equipment use and service, between the hours of 7:00 a.m. and 6:00 p.m. Tuesdays through Saturdays excluding holidays. Additional charges for electrical and air conditioning services will be made after normal operating hours of 7:00 a.m. and 6:00 p.m. on Tuesdays through Saturdays and for all hours on Mondays, Sundays and holidays. Additional charges for excess energy consumption beyond normal consumption shall be made by Landlord and assessed to the Tenant. The standard building lighting and air conditioning system shall not be altered and any wiring or abnormal power consuming equipment shall not be installed without the prior written approval of Landlord. 10. DETERMINATION OF ADDITIONAL CHARGES FOR SERVICE. The additional charges for electrical and air conditioning services and all other services during beyond normal operating hours on -24- 20 Tuesdays through Saturdays and for all hours on Mondays, Sundays and holidays, and additional charges for excess energy consumption shall be based upon the rate schedule or energy agreement in effect for such services. If no rate schedule or energy agreement shall be in effect, the additional charges shall be based upon the actual cost of providing such services. The actual cost shall include the cost of labor and fringe benefits for required operating personnel, electricity at the per kilowatt hour rate applicable to the Property, water and sewerage at the posted rate, consumable supplies and materials, if any, and any other direct costs associated with providing such services, and may be adjusted from time to time by Landlord. 11. JANITORIAL SERVICE. Janitorial personnel approved in writing by Landlord shall be the only personnel permitted to perform janitorial service on the Property. Janitorial service, if supplied by Landlord, shall not include shampooing, spot cleaning of carpets or special cleaning of vinyl-covered. hardwood, or other non-carpeted surfaces or dry cleaning of draperies. Landlord shall not be responsible for any loss of or damage to Tenant's property by the janitorial personnel or any other person performing janitorial services. 12. KEYS AND LOCKS. Two keys per lock will be furnished to Tenant by Landlord. No locks other than those provided by Landlord shall be placed on any doors without the written consent of the Landlord. Lock cylinders and keys shall be changed by Landlord at Tenant's expense upon written request from Tenant. All keys will be surrendered upon termination of Tenant's lease. Janitors and contract cleaners will be provided with a passkey to Tenant's premises. If Tenant declines in writing to provide a passkey, Landlord shall not be responsible for providing janitorial services and emergency access to Tenant's premises. 13. OBSTRUCTION OF COMMON AREA. All common areas will be used only for ingress and egress to Tenant's premises. Landlord retains the right to control and prevent access onto the Property by any and all persons other than those persons having a legal right to ingress and egress from Tenant's premises. Only persons authorized by Landlord will be permitted in areas housing mechanical, electrical or equipment of any kind on the Property. 14. ANIMALS. No animals or pets are allowed on the Property or in Tenant's premises at any time, except for Seeing Eye dogs. 15. BICYCLES. Bicycles shall be parked only in those areas designated for bicycles in the parking garage. 16. REMOVAL OF PROPERTY. [Intentionally Omitted] 17. REPAIRS/ALTERATIONS/ADDITIONS TO PREMISES. Prior to commencement of any construction work on the Premises. Tenant shall submit to Landlord in writing for Landlord's written approval the following: 1) Work Description; 2) Work Schedule; 3) Names of Architect, General Contractor and any Sub-Contractors; 4) Final Plans, Working Drawings and Specifications; 5) Copy of Building Permit; and 6) Copy of Construction Contract. Tenant shall also provide Landlord with lien releases upon request. If asbestos containing or any other deleterious material may be involved in the construction work the submittal for approval to Landlord shall detail procedures for removal and disposal of such material in accordance with all state and federal laws and regulations. Only contractors approved by Landlord shall be permitted to perform any work within the Premises and on the Property. Tenant shall comply with all requirements of Paragraph 11 in the General Conditions. 18. MAINTENANCE REQUESTS. Maintenance and other requests of Tenant will be attended to only upon application by Tenant to Landlord. Landlord's employees will not perform any work outside of regular duties unless under special instructions from Landlord. 19. WINDOW DISPLAYS. Tenant shall not use any display or window advertising without Landlord's prior written approval. 20. SIGNS, SCREENS AND AWNINGS. No notice or advertisement visible from the exterior of the Property or in Tenant's premises shall be permitted without prior written approval of Landlord. All graphics, curtains, blinds, shades, signs, screens, awnings and other such furnishings visible from the exterior of the Property or any other premises, where permitted, shall conform to the standards specified by Landlord from time to time. In the event of the violation of this rule, Landlord may, upon prior written notice to Tenant and failure to cure within five (5) days thereafter, remove same without any liability, and may charge the expense incurred to Tenant. -25- 21 21. HOLIDAYS. The Property will be secured, a security officer will be on duty, and air conditioning and other services will not be provided on the following days: New Year's Day Memorial Day Independence Day Labor Day Thanksgiving Day Christmas Day The above holidays may be changed from time to time and the designated holidays shall be based on the predominant practice in the business community as reasonably determined by Landlord. 22. SOLICITORS. Landlord reserves the right to eject from the Property, any solicitors, canvassers or peddlers and any other persons who, in the judgment of Landlord, are annoying or interfering with any of Tenant's or Landlord's operations or who are otherwise detrimental to the Property and its Tenants. Canvassing, peddling, soliciting and distribution of any written materials on the Property are prohibited and each Tenant shall cooperate to prevent any such activity. 23. TRASH. Each Tenant shall store all trash and garbage for removal by janitorial personnel within the interior of its own Premises. No material, rubbish or debris shall be placed in trash boxes or receptacles if such materials are of such nature as to be in violation of any law or ordinance governing their disposal. All Tenant construction debris shall be removed from the Premises and the Property by Tenant, its contractors or its employees. Janitorial personnel shall not be required to remove bulk trash, crates, packing material and other debris resulting from Tenant's move-in, move-out, construction, repairs and renovations. 24. USE OF PREMISES. Except with prior written consent of Landlord, Tenant shall not conduct any business other than that specifically provided for in its lease. Tenant shall not permit its Premises to be used in a manner offensive or objectionable to the other Tenants or Landlord. No cooking, other than microwave or toaster oven cooking, shall be permitted in the Premises nor shall Tenant cause any unusual or objectionable odors to be produced upon or permeate from the Premises. Tenant shall not at any time use or keep on the Premises any asbestos containing and other such material or any flammable, combustible or explosive fluid, chemical or substance in such quantities as may endanger the Premises or the Property or safety of other persons. Tenant shall not make any unreasonable vibration, unseemly noise or disturb or interfere with occupants of the Property or adjoining buildings by the use of any business machines and other equipment, musical instruments, radio or television sets, or other such activities. The Premises shall not be used for lodging or as sleeping quarters. 25. VIOLATIONS. Landlord shall not be responsible to any Tenant for the non-observance or violation of any rules and regulations by any other Tenant or other person. Tenant shall be deemed to have read these rules and regulations and to have agreed to abide by them as a condition to occupancy of its Premises. 26. WASHROOMS. The lavatory facilities and other water apparatus shall not be used for any purpose other than that for which they were constructed. The expense to repair any breakage, stoppage or damage shall be paid by the Tenant responsible for, or whose employees or invitees are responsible for, the violation of this rule. 27. WATER. Water will be supplied by the Landlord for drinking and toilet purposes only. 28. WINDOWS AND DOORS. Windows, glass doors or any other light sources that reflect into the lobbies or other places of the Property shall not be obstructed or covered except in a manner approved in writing by Landlord. Suggestions for the betterment of services in Amfac Center should be directed to MFD 700 BISHOP, INC. Manager of Amfac Center 745 Fort Street, Lobby Honolulu, Hawaii 96813 -26- 22 EXHIBIT D SPECIFICATIONS FOR TENANT IMPROVEMENTS The following are Minimum Requirements Only: 1.COMMON AREAS. Common areas which occur when a full floor Tenant subdivides and subleases to another occupant shall conform to the design of the common areas of Multiple Tenant floors. Tenant entries and partitions shall be of the Building Standard design. 2.TENANT SPACE 2.1 FLOOR COVERINGS. Standard floor covering shall be commercial quality carpet (Commercial on 44-00 II or other Landlord approved carpet) and shall not be affixed to the floor in any manner except by a tack strip, paste, or other material which may be easily removed with water. The use of cement or other similar adhesive materials is expressly prohibited. The method of affixing the floor covering to the floor shall be specified in the plans and specifications submitted to Landlord for its written approval. The expense of repairing any damage resulting from a violation of this rule and any expense of removing any floor covering affixed to the Premises in violation of this rule shall be paid by Tenant. Requests for non-standard floor coverings shall be submitted to Landlord for its written approval. A base material (e.g., vinyl, wood) shall be used on all walls and partitions. 2.2 INTERIOR PARTITIONS. Partitions shall be constructed of metal stud and drywall or other similar forms of construction in accordance with the Uniform Building Code. Partitions meeting the interior face of the glazed external building wall shall terminate only on the window mullions. 2.3 INTERIOR DOORS. Doors and frames shall be as specified reasonably by Landlord. 2.4 FINISH HARDWARE. Butt hinges, locksets, lanterns and knobsets shall be as specified by Landlord and shall be purchased by Tenant from Landlord. 2.5 DRAPERIES AND DRAPERY TRACK. Draperies or other Landlord approved window coverings at the glazed external building wail and drapery track shall be provided and installed by Tenant. 2.6 GRAPHICS. Specifications shall be as determined by Landlord. 2.7 LIGHTING PATTERN. The lighting pattern shall conform to the task lighting orientation and design as established by Landlord. 2.8 CONCRETE FLOORS. Holes for electrical and telephone services or chases may be cut through the concrete floor slabs only with prior written approval of and under the direction of Landlord and its consultants. 2.9 CONCRETE WALLS. Chases and holes may be cut in any concrete wall or column only with the prior written approval of and under the direction of Landlord and its consultants. 2.10 OFFICE/STORE FURNITURE AND FIXTURES. All furniture and fixtures exposed to public view must be new or fully reconditioned and suitable for use within a building of similar location and character as the Property. Design of furniture, fixtures, equipment and interiors which are visible through Tenant entries and storefronts shall be subject to approval by Landlord. -27- 23 EXHIBIT E SPECIAL CONDITIONS 1. Base Rent Concession: Landlord will provide twelve (12) months base rent abatement to Tenant at the beginning of the Lease term. 2. Renewal Option: Provided Tenant is not in default of the terms and conditions of the lease at the time of exercise of the option and at the time for commencement of the extended term, Tenant shall have two (2), five (5) year options to renew the term of the lease at the same terms and conditions other than base rent. The option shall be exercised, if at all, not later than 180 days prior to the expiration of the initial term hereof. The option is personal to Tenant and shall not be assignable nor may the option be exercised for the benefit of any sublessee or successor-in-interest. Base rent for the option period shall be ninety-five percent (95%) of the then Fair Market Value of comparable office space in the downtown Honolulu business district. Upon Tenant's notice to renew, Landlord and Tenant shall have thirty (30) days to agree upon the base rent to be paid by Tenant to Landlord during the option extension period, it being intended that the new base rent shall be equal to ninety-five percent (95%) of the fair market value for similar space in the submarket in which the demised Premises is located. In the event Landlord and Tenant are unable to agree on the new base rent for such option extension period, each of the Landlord and Tenant shall designate an appraiser holding the MAI designation who has a minimum of ten (10) years experience in appraising office buildings of similar size and class in the submarket in which the demised Premises is located. Each such appraiser shall determine the fair market rental of the demised Premises based upon an analysis of similar buildings in the area in which the demised Premises is located and considering all other factors which an experienced appraiser would consider when determining the fair market value of office rental space, including but not limited to concessions being granted at the time to tenants in similar type buildings. In the event each appraiser identifies a fair market rental value for the Premises which is within ten percent (10%) of the other appraiser's fair market rental value, it shall be conclusively determined that the fair market rental value of the Premises shall be equal to the average of the two amounts. In the event the two appraisers' figures for fair market rental value differ by more than ten percent (10%), the two appraisers shall jointly choose a third appraiser holding the same qualifications, which appraiser shall make a determination as to the fair market rental value of the Premises; in such event it shall be conclusively determined that the fair market rental value of the Premises shall be equal to the average of such third appraiser's fair market rental value and the next closest fair market rental value as determined by the first two appraisers. All fees, costs and expenses incurred in connection with the foregoing procedure shall be paid in equal part by the Tenant and Landlord. Landlord shall provide a $20.00 per useable square foot improvement allowance upon each exercise of its option. 3. Right of First Refusal: Provided Tenant is not in default of the terms and conditions of the lease, Tenant shall have a continuing Right of First Refusal on all available contiguous floors or to contiguous space on the same floor to its original premises upon its availability subject to any existing first rights. Base rent on said expansion space shall be the then current rent payable by Tenant for the initial premises and the term of the expansion space shall be coterminous with the initial lease and any extensions thereof. Subject to previously existing Rights of First Refusal, when appropriate, Landlord agrees to notify Tenant in writing from time to time of its receipt of any acceptable proposal to lease all or a portion of contiguous space on same floor to its original premises or on a contiguous floor to its original premises. Tenant shall then have ten (10) calendar days from the date of Landlord's written notice to notify Landlord of its intent to exercise its Right of First Refusal. If Tenant notifies Landlord in writing of its intent to exercise any such right of first refusal, Landlord and Tenant shall enter into a written agreement agreeing to lease such space and to 24 Exhibit E - Special Conditions Page Two execute a lease for such space (or an amendment to this Lease) within thirty (30) days thereafter, upon the same terms and conditions of this Lease. Landlord further agrees to provide a non-cash allowance for improvements for refurbishment of the expansion space to be calculated as follows: (1) during the first five (5) years of the original term, the improvement allowance shall be $40.00 per useable square foot of the additional space being leased, or (2) during the remaining five (5) years of the original term, the improvement allowance shall be equal to the amount obtained by multiplying $40.00 by the useable area of the additional space and then multiplying such product by the fraction whose denominator is sixty (60) months and the numerator is the remaining number of months on the Lease. 4. Contraction Option: Tenant shall have a one-time option to reduce its occupancy in the Building by up to twenty-five (25%) of the useable space that constitutes Tenant's Initial Premises at the end of the fifth (5th) year of the initial ten (10) year lease term. Tenant shall notify the Landlord of its intent to contract no later than six (6) months prior to such effective contraction date and pay to Landlord a contraction fee equal to the unamortized portion (straight-line, no interest) of all concessions given to Tenant to include the following: Base Rent Abatement, Tenant Improvement Allowance, Space Planning Allowance, Moving Allowance, and Brokerage Commissions, as it relates to the reduced square footage. Tenant's reimbursement shall be payable to Landlord on or before the end of the month preceding the effective contraction date. If Tenant exercises its right to contract, Tenant's First Right of Refusal option shall be terminated. In the event that the contraction option is exercised, the parties shall each execute an amendment to this Lease so reflecting the new terms. 5. Option To Cancel: Tenant shall have a one-time option to cancel the lease or any portion thereof effective at the end of the fifth (5th) year of the initial ten (10) year lease term provided Tenant has notified Landlord in writing of its intent to cancel said lease at least six (6) months prior to the effective date of cancellation, and upon the cancellation, pay to Landlord a cancellation fee equal to any unamortized portion (straight-line, no interest) of all concessions given to Tenant to include the following: Base Rent Abatement, Tenant Improvement Allowance, Space Planning Allowance, Moving Allowance, and Brokerage Commissions. In addition to the payment of the unamortized portion of all concessions provided, Tenant agrees to pay a "cost of money" cancellation fee. This cost of money fee is defined as a 2.5% annual interest (compounded monthly) based on a total concessions figure of $770,380. This figure includes allowances for tenant improvements, space planning, moving, leasing commissions, and free base rent (base rent abatement is discounted using a rate of seven percent (7%) since the total amount is not fully realized at the commencement of the lease term). This additional "cost of money" cancellation fee calculates out to be $102,461.40 and shall be payable along with the unamortized portion of all concessions provided on or before the end of the prior month preceding the effective cancellation date. 6. Assignment/Sublease Rights: Tenant shall have the right, without Landlord's consent, to assign or sublease the Premises to a subsidiary, affiliate or related company of Tenant. In addition, Tenant shall be permitted to assign or sublease all or a portion of its demised Premises to any other entity, subject to Landlord's consent, which consent shall not be unreasonably withheld or delayed. All sublease premiums, profits or other consideration, if any, derived from such sublease(s), shall be subject to the terms and conditions of Landlord's standard lease form. 7. Tenant Improvement Allowance: Landlord shall provide Tenant with a Tenant Improvement Allowance of $45.00 per useable square foot leased for constructing the space to Tenant's specifications, which specifications shall meet or exceed the minimum building standard requirements and conform with all governmental laws, codes, regulations and ordinances. 25 Exhibit E - Special Conditions Page Three The following shall apply to the tenant improvements for the initial premises or other space leased by Tenant during the initial lease term: i) Landlord shall not charge Tenant any fee or other charges for review of plans or specifications, or the supervision and/or overhead associated with tenant improvement construction; provided, however, that if Landlord should request clarification of such plans or specifications, Tenant's architect shall provide such clarification at no cost to Landlord. Landlord agrees that such costs, if any, may be paid out of the Tenant Improvement Allowance. ii) Tenant shall have the right to bid and construct all improvements. Tenant shall have the right to select contractors, subcontractors, architects and engineers of Tenant's choice for the construction of tenant improvements, subject to Landlord's approval, which shall not be unreasonably or arbitrarily withheld or delayed. Landlord hereby approves the following contractors: Jay Kadowaki. iii) All renovation work and activities shall conform to and comply with the building standard requirements, as well as all governmental regulations, codes and requirements, including the Americans with Disabilities Act (ADA). All renovation work is subject to the review and approval of the Landlord. iv) Landlord shall disburse the Tenant Improvement Allowance to the Tenant in periodic installments, as evidenced by submittal of a Request for Progress Payment, fully executed by Tenant's architect and contractor, along with all appropriate supporting documents, such as lien releases, invoices, etc., in accordance with its normal payment practices. v) Landlord shall make available to Tenant's architect, all working and "as built" drawings of the premises as are available in Landlord's files and records at no cost to Tenant. vi) Any unused portion of the Tenant Improvement Allowance shall be applied to free Base Rent. vii) During construction, Landlord agrees to provide free parking (up to seven (7) stalls) for Tenant's contractors. Parking stalls to be provided for a maximum of four (4) months. 8. Moving Allowance: Landlord shall provide Tenant with up to $3.00 per useable square foot for moving allowance upon receipt of applicable invoices. 9. Parking: Landlord shall provide twenty-two (22) parking stalls, two (2) of which shall be on the reserved level, plus an additional ten (10) parking stalls if available, at the prevailing monthly rate during the term of the lease or any extensions thereof. Landlord agrees to fix the parking rate for the first five (5) years of the initial lease term at $145.00 per month for an unreserved level stall and $175.00 per month for a reserved level stall, plus General Excise Tax payable in accordance with Paragraph 3.2 in the General Conditions of the Lease. After the first five (5) years of the initial term of the lease, the Landlord agrees to limit increases to the parking rates at three percent (3%) annually. 10. Space Planning/Working Drawings: Tenant will contract directly with an architect selected by Tenant subject to Landlord's approval. Landlord shall reimburse Tenant $3.00 per usable square foot for working drawings and space plans, upon receipt of applicable invoices. 11. Security Deposit: Based upon review of Tenant's financial condition, Landlord shall not require a security deposit. 26 Exhibit E - Special Conditions Page Four 12. Broker's Commission: Landlord acknowledges CB Richard Ellis, Inc. as Tenant's representatives in this transaction and agrees to compensate CB Richard Ellis, Inc. on the following basis: a) For all space leased and occupied by Tenant, approximately 11,357 rentable square feet, a total fee of $5.00 per rentable square foot plus Hawaii State general excise tax. b) Real estate commissions shall be disbursed fifty percent (50%) upon full execution of the Landlord's building standard lease form and fifty percent (50%) upon commencement of new lease term. 13. Landlord and Tenant shall mutually agree that in the event of any conflict between the terms, provisions and covenants of the Lease and this Exhibit "E", the terms, provisions and covenants of this Exhibit "E" shall control. 14. Landlord shall provide the following building services for the operation and maintenance of the Amfac Center to be covered by operating expenses recovered from tenants pursuant to the terms and conditions of the building standard lease form and include, without limiting the generality of the foregoing: a) Air Conditioning for normal office use. b) Electricity for normal office use. c) Restroom facilities and supplies. d) Janitorial service and supplies for office tower and common areas. e) Security control. f) Window cleaning. g) Elevator service. h) Refuse removal for office tower and common areas. 15. Landlord warrants, to the best of its knowledge, that there are no asbestos or other hazardous materials in the demised Premises. 16. Landlord warrants, to the best of its knowledge, that the Building is in compliance with the current Americans with Disabilities Act ("ADA") requirements. Tenant acknowledges that Tenant is solely responsible for compliance with the ADA for the Premises. Tenant shall pay for capital improvements if Landlord is required to make additional changes to bring the building up to code due to changes in the ADA, to the same all other tenants in the Building are required to pay for such improvements. 17. In all cases where consent or approval shall be required of either Tenant or Landlord, pursuant to the Lease, the giving of such consent shall not be unreasonably withheld or delayed by the party from whom such consent is required. 18. 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 ("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 the Landlord, and Landlord shall take reasonable steps to prevent any employee, invitee, independent contractor or other representative of the Landlord from violating the terms of this Section 15. Landlord acknowledges and agrees that in the event that disclosure by the Landlord of any Confidential Information is discovered in violation of this Section 15, Tenant shall be entitled to an injunction to be issued by any court of competent jurisdiction restraining the Landlord from committing or continuing such violation. The obligation of the Landlord to maintain confidentiality shall survive the termination of this Lease. Further, Tenant, subject to the written consent of Landlord which shall not be unreasonably withheld, shall have the right to designate certain areas of the demised Premises as "Secured Areas", which the 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 27 Exhibit E - Special Conditions Page Five necessary to enter such Secured Areas due to an emergency, any documents, information or other items contained in such Secured Areas shall be deemed Confidential Information. 19. Guaranty: As an inducement to the Landlord to execute this Lease, Great Hawaiian Cruise Line, Inc. ("Guarantor") has executed and delivered a Guaranty Agreement of even date herewith attached to the Lease as Exhibit "G". In the event that Guarantor files any petition in bankruptcy, or the adjudication of Guarantor as bankrupt or insolvent, or the appointment of a receiver or trustee to take possession of all or substantially all of the assets of Guarantor, or a general assignment by Guarantor for the benefit of creditors, or any action taken or suffered by Guarantor under any state or federal insolvency or bankruptcy act, or any similar law now or hereafter in effect, including, without limitation, the filing of any petition for or in reorganization shall constitute a breach of this Lease by Tenant and, in any such event, Landlord may, at its option, terminate this Lease upon written notice to Tenant in accordance with Paragraph 25 of this Lease. Should the Landlord opt to terminate this Lease, all subleases under this Lease shall, at Landlord's sole option, be terminated. EX-10.(III)(A)(6) 15 DEFERRED COMPENSATION PLAN 1 10(iii)(a)(6) AMERICAN CLASSIC VOYAGES CO. DEFERRED COMPENSATION PLAN PLAN DOCUMENT EFFECTIVE AUGUST 1, 1998 2 - 2 - TABLE OF CONTENTS PAGE 1. Definitions................................................... 1 2. Deferral Contributions........................................ 3 3. Matching Contributions........................................ 4 4. Accounts...................................................... 5 5. Funding of Deferred Amounts................................... 5 6. Distribution.................................................. 6 7. Deferral Agreements Irrevocable............................... 8 8. Administration................................................ 8 9. Arbitration................................................... 8 10. Amendments to the Plan........................................ 8 11. Termination of the Plan....................................... 8 12. Expenses...................................................... 9 13. Notices....................................................... 9 14. No Guarantee of Employment.................................... 9 15. Governing Law................................................. 9 16. Incapacity.................................................... 9 17. Liability Limited............................................. 9 18. Claims Procedure.............................................. 9 3 1 AMERICAN CLASSIC VOYAGES CO. DEFERRED COMPENSATION PLAN This Deferred Compensation Plan is adopted to provide certain employees an opportunity to elect to defer a portion of their compensation otherwise payable by American Classic Voyages Co. and its related companies (ACV). NOW, THEREFORE, ACV HEREBY ADOPTS THE PLAN, EFFECTIVE AUGUST 1, 1998, TO READ AS FOLLOWS: 1. DEFINITIONS. DEFINITIONS. DEFINITIONS. (a) Account shall mean the record of contributions, earnings and distributions maintained for a Participant pursuant to Paragraph 4. Each Account shall consist of a Deferral Contribution sub-account and a Matching Contribution sub-account. Accounts under the Plan shall consist solely of bookkeeping records of Plan participation, shall not (except as provided in Paragraph 5) require a segregation of the assets of any Employer and shall not make the Plan funded for purposes of the Code or ERISA. (b) "ACV" shall mean American Classic Voyages Co., a Delaware corporation, and any successor by merger or acquisition. (c) "Code" shall mean the Internal Revenue Code of 1986, as amended. (d) "Compensation" shall mean the total compensation of each Eligible Employee paid by the Employer during any Plan Year, including bonuses (except as provided below), overtime pay and commissioned earnings, and before reductions for salary reduction contributions contributed to this Plan, the Qualified Plan, or to a cafeteria plan under Code Section 125. Compensation shall not include (i) relocation pay or related payments; (ii) severance pay; (iii) automobile allowances; (iv) disposition of incentive stock options; (v) miscellaneous compensation; (vi) non-qualified stock options; (vii) tips; or (viii) any bonus that is not a performance-based incentive bonus. Any Eligible Employee's Compensation for any Plan Year in excess of $160,000 (or such other amount provided pursuant to Section 401(a)(17) of the Code) shall be disregarded for all purposes under the Plan. (e) "Deferral Agreement" shall mean a written election by a Participant to defer Compensation as a Deferral Contribution under the Plan in the form prescribed by the Plan Administrator. (f) "Deferral Contribution" shall mean an amount of Compensation deferred by a Participant and contributed to the Plan on behalf of the Participant pursuant to the provisions of Paragraph 2. 4 2 (g) "Eligible Employee" shall mean any employee of an Employer who is an active participant in the Qualified Plan and who has Compensation in excess of $80,000 (or such higher amount as determined by the Plan Administrator), determined as of each Entry Date for the preceding fifty-two (52) week period; provided, however, that such employee is a member of a select group of management or highly compensated employees as such group is described under Sections 201(2), 301(a)(3), and 401(a)(1) of ERISA. (h) "Employer" shall mean ACV or each other Related Employer that has been authorized to and adopts the Plan. (i) Entry Date shall mean January 1 and July 1 of each Plan Year, and in addition, for the first Plan Year the Entry Date shall be August 1. (j) ERISA shall mean the Employee Retirement Income Security Act of 1974, as amended from time to time. (k) Matching Contribution shall mean the Employer contribution contributed to the Plan on behalf of the Participant pursuant to the provisions of Paragraph 3. (l) "Participant" shall mean an Eligible Employee who has made the election described in Paragraph 2. Any such Eligible Employee shall remain a Participant until no election to defer Compensation under the Plan remains effective for him or her and all amounts contributed to the Plan for him or her have been distributed. (m) "Plan" shall mean the American Classic Voyages Co. Deferred Compensation Plan set forth herein. (n) "Plan Administrator" shall mean ACV or such person(s) or entity designated by ACV from time to time. (o) "Plan Year" shall mean each January 1 through December 31 from and after the effective date of the Plan; provided that the first Plan Year shall be the short Plan Year commencing August 1, 1998 and ending December 31, 1998. (p) Qualified Plan shall mean the American Classic Voyages Co. ADVANTAGE Retirement Savings Plan. (q) "Related Employer" shall mean any company that is related to ACV as described in Section 414(b), (c), (m) or (o) of the Code, or any other company determined by the Plan Administrator to be related by ownership or otherwise to an extent justifying the participation of its Eligible Employees hereunder. (r) "Trust" shall mean the grantor trust maintained by ACV for the purpose of funding amounts deferred under the Plan. (s) "Trustee" shall mean the trustee of the Trust. 5 3 (t) "Unforeseeable Emergency" shall mean a severe financial hardship to the Participant resulting from a sudden and unexpected illness or accident of the Participant or of a dependent (as defined in Section 152(a) of the Code) of the Participant, loss of the Participant's property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. The circumstances that will constitute an unforeseeable emergency will depend upon the facts of each case, but, in any case, payment may not be made to the extent that such hardship is or may be relieved: (i) through reimbursement or compensation by insurance or otherwise; (ii) by liquidation of the Participant's assets, to the extent the liquidation of such assets would not itself cause severe financial hardship; or (iii) by cessation of deferrals under the Plan. For purposes of the Plan, an "Unforeseeable Emergency" shall not include a Participant's need to send his or her child to college or a Participant's desire to purchase a home. 2. DEFERRAL CONTRIBUTIONS. DEFERRAL CONTRIBUTIONS. DEFERRAL CONTRIBUTIONS. (a) For each Plan Year, each Eligible Employee may elect to file a Deferral Agreement and thereby elect to defer the amounts (if any) described in subparagraphs (b) and (c). Each Deferral Agreement shall be filed in accordance with subparagraphs (d) or (e) below. Subject to subparagraph (f) and Paragraph 7, each Deferral Agreement filed with the Plan Administrator shall be effective for a Plan Year or the remainder of a Plan Year. A Participant filing a Deferral Agreement for a Plan Year shall also agree to restrict his or her ability to change or suspend contributions under the Qualified Plan to the same extent that his or her ability to change or suspend contributions under this Plan is limited. (b) If a Participant has a Deferral Agreement filed with the Plan Administrator for a Plan Year, ACV shall determine the maximum amount of elective contributions that the Employer may make under Section 4.01 of the Qualified Plan on behalf of each Participant for such current year, consistent with the limitations of Code Section 401(k)(3). If a Participants elective deferrals under the Qualified Plan for the Plan Year exceed the limitations of Code Section 401(k)(3), amounts in excess of the Code Section 401(k)(3) limitations shall be transferred from the Qualified Plan to the Trustee on the Participants behalf as Deferral Contributions, no later than March 15th of the following Plan Year. (c) During each Plan Year for which a Participant has a Deferral Agreement filed with the Plan Administrator, if a Participants elective deferrals under the Qualified Plan for the Plan Year exceed the maximum dollar amount under Code Section 402(g), amounts in excess of the Code Section 402(g) limitation shall be withheld by the Participants Employer and paid directly to the Trustee on the Participants behalf as Deferral Contributions. 6 4 (d) For the Plan Year in which a person first becomes an Eligible Employee, a Deferral Agreement will be effective as of the first day of the calendar quarter beginning after the date the Deferral Agreement is filed with the Plan Administrator with respect to Compensation earned after the first day of such calendar quarter. Notwithstanding the foregoing, for the first Plan Year, an Eligible Employees Deferral Agreement will be effective with respect to Compensation earned after August 1, 1998, if the Deferral Agreement is filed with the Plan Administrator on or before the deadline established by the Plan Administrator, but in no event later than July 31, 1998. (e) For each subsequent Plan Year, a Deferral Agreement shall be effective as of the beginning of such Plan Year, if the Eligible Employee files the Deferral Agreement with the Plan Administrator on or before the deadline established by the Plan Administrator for the applicable Plan Year, but in no event later than the December 31 that precedes the first day of such Plan Year. For each Plan Year, an Eligible Employee who does not file a Deferral Agreement to become effective January 1 of such Plan Year may elect to make a Deferral Contribution by filing a Deferral Agreement with the Plan Administrator no fewer than sixty (60) days before the July 1st Entry Date; provided that such deferral election shall apply only to Compensation earned after July 1st of such Plan Year. (f) Once a Participant has entered into a Deferral Agreement with an Employer, the Participant may not change or revoke such Agreement for the remainder of the Plan Year, unless the Participant incurs an Unforeseeable Emergency, or except as provided in this subparagraph (f). A Participant who filed a Deferral Agreement to become effective January 1 of a Plan Year may elect to increase the amount of his or her Compensation subject to the Deferral Agreement by filing a new Deferral Agreement no fewer than sixty (60) days before the July 1st Entry Date; provided that such deferral election shall apply only to Compensation earned after July 1st of such Plan Year. (g) A Participants Deferral Agreement shall be suspended as of any Entry Date that the Plan Administrator, in its sole discretion, reasonably determines that the Participant ceases to be an Eligible Employee. In such event, no additional Deferral Contributions shall be made to the Account of the Participant for the period his or her Deferral Agreement is suspended. A Participant whose Deferral Agreement has been suspended pursuant to this subparagraph shall not be deemed to have incurred a termination of employment, and, subject to subparagraph 6(f), his or her Account shall continue to be maintained under the terms of the Plan. 3. MATCHING CONTRIBUTIONS. MATCHING CONTRIBUTIONS. MATCHING CONTRIBUTIONS. Each Plan Year, the Employer shall make a Matching Contribution on behalf of each Participant in accordance with this Paragraph 3. At the end of the Plan Year for which a Participants Deferral Agreement is effective and not later than March 15th of the following calendar year, ACV shall determine the maximum amount of employer matching contributions that the Employer may make under Section 4.04 of the Qualified Plan on behalf of each Participant for such current year, consistent with the limitations under Code Section 401(m)(2). Each Participants Employer shall make a Matching Contribution to the Plan equal to the amount by which the employer matching contributions made on the Participants behalf under the Qualified Plan for the Plan Year are reduced because of the limitations of Code Section 401(m)(2). 7 5 Matching Contributions shall be paid directly to the Trustee on the Participants behalf, no later than October 15th of the following Plan Year. 4. ACCOUNTS. ACCOUNTS. ACCOUNTS. (a) An Account shall be established for each Participant. The Participant's Account shall be credited with the amount of all contributions on behalf of the Participant, and charged for distributions made to him or her under the Plan. The Account of each Participant shall consist of a Deferral Contribution sub-account and a Matching Contribution sub-account. Each Participant shall direct, pursuant to procedures established by the Plan Administrator, the allocation of his Account among investment alternatives designated by the Plan Administrator. (b) Periodically, but not less frequently than annually, the Trustee (or in the case that the Trust terminates, the Plan Administrator if there is no Trustee) shall value the Plan's assets and shall allocate earnings, gains and losses among all Accounts. Each Account shall share proportionately based on its average balance over the period since the most recent preceding date as of which the assets of the Plan were valued. If an Account is invested specifically in certain investments, the foregoing shall be accomplished in a manner that considers the different investments of the various Accounts. Wherever, under the Plan, distribution of a portion of the Participants Account is made, such amount shall be as adjusted pursuant to this subparagraph. (c) A Participant shall always have a fully vested interest in the adjusted balance of his or her Deferral Contribution sub-account. A Participant shall be vested in a percentage of the adjusted balance of his or her Matching Contribution sub-account that is derived from Matching Contributions in an amount equal to the Participants vested interest in his or her Employer contributions under the Qualified Plan, as determined under Section 6.05(b)(ii) of the Qualified Plan. Notwithstanding the foregoing, the Participant shall become 100% vested in his or her Matching Contribution sub-account upon Plan termination. (d) If a Participant terminates employment before becoming fully vested, any non-vested Matching Contributions shall be forfeited to ACV. (e) An Account may not be encumbered or assigned by a Participant or any beneficiary and any attempt to encumber or assign an Account shall be null and void. No interest of any person or entity in, or right to receive a benefit under, the Plan shall be subject in any manner to sale, transfer, assignment, pledge, attachment, garnishment, or other alienation or encumbrance of any kind; nor may such interest or right to receive a benefit be taken, either voluntarily or involuntarily, for the satisfaction of the debts of, or other obligations or claims against, such person or entity, including claims for alimony, support, separate maintenance and claims in bankruptcy proceedings. 5. FUNDING OF DEFERRED AMOUNTS. FUNDING OF DEFERRED AMOUNTS. FUNDING OF DEFERRED AMOUNTS. (a) ACV has established the Trust as an irrevocable grantor trust. Notwithstanding the foregoing, ACV may amend the Plan, including this Paragraph 5, at any time to provide that 8 6 contributions for subsequent Plan Years shall not be segregated from the general assets of ACV through the Trust or in any other manner. (b) ACV shall be under no obligation to secure an opinion of counsel, a private letter ruling from the Internal Revenue Service, or any other assurance as to the tax status of any Deferral Agreement or of the Trust but shall use its best efforts, consistent with the Plan, to establish and maintain the Plan and the Trust so that amounts contributed to the Trust and earnings thereon shall not be taxable to Participants until they are distributed from the Trust. Amounts held in the Trust shall be held for purposes of the Plan and shall be subject to the claims of creditors of the Employer in the event of its insolvency. (c) The Plan and the Trust shall be maintained and administered so that the Plan is and continues to be unfunded for purposes of ERISA and the Code. 6. DISTRIBUTION. DISTRIBUTION. DISTRIBUTION. (a) A Participant may specify a distribution date applicable to his or her vested Account, in accordance with the following: (i) On the Deferral Agreement filed for the Plan Year in which he or she first becomes a Participant, the Participant may specify the date on which distribution of the portion of the Participants vested Account described in the last sentence of this subparagraph (i), as adjusted for earnings, gains and losses, is to be made. Such specified date shall not be earlier than the January 1 that is at least one year after the Plan Year subject to such Deferral Agreement. Such election shall apply to Deferral Contributions and Matching Contributions (as adjusted) for the Plan Year for which the Deferral Agreement is filed, and for any subsequent Plan Year the last day of which is at least one full Plan Year before the Participants elected distribution date. (ii) On the Deferral Agreement filed for the first Plan Year with respect to which a distribution date election under subparagraph (i) would not be applicable (and for the first Plan Year with respect to which an election under this subparagraph would not be applicable pursuant to the last sentence of this subparagraph), a Participant may specify the date on which distribution of the portion of the Participants vested Account described in the last sentence of this subparagraph (ii), as adjusted for earnings, gains and losses, is to be made. Such specified date shall not be earlier than the January 1 that is at least one year after the Plan Year subject to such Deferral Agreement. Such election shall apply to Deferral Contributions and Matching Contributions (as adjusted) for the Plan Year for which the Deferral Agreement is filed, and for any subsequent Plan Year the last day of which is at least one full Plan Year before the Participants elected distribution date. 9 7 (b) If approved by the Plan Administrator, a Participant may change a date elected for distribution pursuant to subparagraph (a); provided that (i) the change is filed with the Plan Administrator no later than the December 31 that is at least one year before the Plan Year in which the previously elected date occurs; (ii) the new date for distribution occurs no earlier than the second Plan Year after the Plan Year in which the previously elected date occurs; and (iii) no more than one change in distribution dates may be made by a Participant during any five-year period. (c) If a Participant elects a specified date for distribution pursuant to subparagraphs (a) or (b), the Participant will be entitled to a distribution of his or her vested Account balance, as of such specified date. If a Participant has not specified a distribution date, the Participant will be deemed to have elected as a distribution date, the date that the Participants employment with all Employers terminates. (d) A Participant may specify on a Deferral Agreement that upon the Participants termination of employment he or she will be entitled to the distribution of the vested balance of his or her Account, even if a later distribution date is specified by the Participant pursuant to subparagraphs (a) or (b). (e) If a Participants Account is maintained under the Plan following the Participants termination of employment, such Participants Account shall be charged an administrative fee in an amount determined by the Plan Administrator in its discretion for each calendar month following the Participants termination of employment that the Participants Account balance remains in the Plan. (f) Notwithstanding any provision of the Plan to the contrary, if a Participant does not qualify as an Eligible Employee for any twenty-four (24) consecutive month period, distribution of the vested balance of his or her Account shall be made within the first ninety (90) days of the fifth Plan Year following the Plan Year in which the Participant first fails to qualify as an Eligible Employee, except to the extent an earlier distribution date has been elected pursuant to subparagraph (a) or (b) above or would apply pursuant to subparagraph (c) or (d) above. (g) Notwithstanding any provision of the Plan to the contrary, if a Participant incurs an Unforeseeable Emergency, he or she may elect to make a withdrawal from the vested balance of his or her Account, but only to the extent reasonably needed to satisfy the emergency need. A Participant who wishes to receive a distribution pursuant to this subparagraph (g) shall apply for such distribution on forms prescribed by the Plan Administrator and shall provide information to the Plan Administrator reasonably necessary to permit the Plan Administrator to determine whether an Unforeseeable Emergency exists and the amount of the distribution reasonably needed to satisfy the emergency need. (h) If a Participant dies before his or her Account has been distributed under the Plan, the Participants Account shall be paid in a lump sum to the beneficiary or beneficiaries designated in the Participant's Deferral Agreement or on other forms prescribed by the Plan 10 8 Administrator as soon as practicable after the Participants death. If no beneficiary designation has been made, then such distribution shall be made in a lump sum to the Participant's estate. (i) Upon the request of a Participant, the Plan Administrator, in its sole discretion, may pay to the Participant any amount up to the full vested balance of the Participant's Account. A Participant requesting a withdrawal under this section shall apply for the payment in writing on a form prescribed by the Plan Administrator for that purpose, and shall provide such additional information as the Plan Administrator may require. The Plan Administrator will pay 90% of the withdrawn amount to the Participant and the remaining 10% will be forfeited to ACV. A Participant shall be suspended from making Deferral Contributions under the Plan until the first day of the Plan Year that is at least twelve (12) months following the receipt of a distribution under this subparagraph (i). (j) All distributions under the Plan shall be made in cash in a lump sum. 7. DEFERRAL AGREEMENTS IRREVOCABLE. DEFERRAL AGREEMENTS IRREVOCABLE. DEFERRAL AGREEMENTS IRREVOCABLE. Except as provided in subparagraph 2(f), any election to defer Compensation made by a Participant for a Plan Year shall be irrevocable. Notwithstanding the foregoing, if a Participant incurs an Unforeseeable Emergency, he or she may amend or revoke his or her Deferral Agreement (but only to the extent reasonably needed to relieve the Unforeseeable Emergency) by filing such forms as are prescribed by the Plan Administrator. Any election to amend or revoke the Deferral Agreement shall be effective for at least the remainder of the calendar year in which the election is made; provided that if the Deferral Agreement was amended, the Participant will be entitled to further amend or revoke the Deferral Agreement if the Participant incurs an Unforeseeable Emergency. 8. ADMINISTRATION. ADMINISTRATION. ADMINISTRATION. The Plan shall be administered by the Plan Administrator, who shall have all powers necessary to carry out the provisions of the Plan. The Plan Administrator shall have the sole, final and discretionary authority to interpret the Plan, and its determinations including those regarding the eligibility, status, and rights of Eligible Employees and Participants and factual determinations shall be conclusive and binding on all persons; provided that if the Plan Administrator or one of the persons constituting the Plan Administrator is a Participant, then determinations regarding such Participant's benefits under the Plan shall be made by the Chief Executive Officer of ACV. 9. ARBITRATION. ARBITRATION. ARBITRATION. At the election of ACV, disputes under the Plan shall be submitted to binding arbitration, conducted in the principal offices of ACV, in accordance with the rules of the American Arbitration Association. Each party to such arbitration shall bear its own costs provided that any unallocated costs shall be borne equally by the parties. 10. AMENDMENTS TO THE PLAN. AMENDMENTS TO THE PLAN. AMENDMENTS TO THE PLAN. ACV or its delegate may amend the Plan at any time, without the consent of Participants or their beneficiaries, provided, however, that no amendment shall divest any Participant or beneficiary of the credits to his or her Accounts, or of any rights to which he or she would have 11 9 been entitled if the Plan had been terminated immediately prior to the effective date of such amendment. 11. TERMINATION OF THE PLAN. TERMINATION OF THE PLAN. TERMINATION OF THE PLAN. ACV may terminate the Plan at any time. Upon termination of the Plan, distribution of Participants' Accounts shall be made in the manner and at the time heretofore prescribed; provided that no additional amounts shall be credited to the Account of a Participant following termination of the Plan other than pursuant to subparagraph 4(b). 12. EXPENSES. EXPENSES. EXPENSES. Costs of administration of the Plan will be paid out of the Trust except as provided in subparagraph 6(e) herein or to the extent that ACV elects to pay such expenses. 13. NOTICES. NOTICES. NOTICES. Any notice or election required or permitted to be given to an Employer or the Plan Administrator hereunder shall be in writing and shall be deemed to be filed (a) on the date it is personally delivered to the Plan Administrator, or (b) three business days after it is sent by registered or certified mail, addressed to the Plan Administrator at ACV's principal offices. 14. NO GUARANTEE OF EMPLOYMENT. NO GUARANTEE OF EMPLOYMENT. NO GUARANTEE OF EMPLOYMENT. Nothing in the Plan shall constitute a contract or guarantee of employment or impede or otherwise affect the right of ACV to terminate the employment of any Participant or Eligible Employee. 15. GOVERNING LAW. GOVERNING LAW. GOVERNING LAW. Except to the extent preempted by Federal law, the Plan, Deferral Agreements, and matters related thereto, shall be construed under and governed by the laws of the State of Illinois. 16. INCAPACITY. INCAPACITY. INCAPACITY. If any person entitled to a payment under the Plan is deemed by the Plan Administrator to be incapable of personally receiving and giving a valid receipt for such payment, then, unless and until claim therefor shall have been made by a duly appointed guardian or other legal representative of such person, ACV may provide for such payment or any part thereof to be made to any other person or institution then contributing toward or providing for the care and maintenance of such person. Any such payment shall be a payment for the account of such person and a complete discharge of any liability of all Employers, the Plan Administrator, and the Plan therefor. 17. LIABILITY LIMITED. LIABILITY LIMITED. LIABILITY LIMITED. Notwithstanding any of the preceding provisions of the Plan, any Employer, the Plan Administrator, or any individual acting as an employee or agent of any Employer or the Plan Administrator shall not be liable to any Participant, former Participant, beneficiary or any other person for any claim, loss, liability, or expense incurred in connection with the Plan. 12 10 18. CLAIMS PROCEDURE. CLAIMS PROCEDURE. CLAIMS PROCEDURE. (a) Any person claiming a benefit, requesting an interpretation or ruling under the Plan, or requesting information under the Plan shall present the request in writing to the Plan Administrator, which shall respond in writing within 60 days. (b) If the claim or request is denied, the written notice of denial shall state: (i) The reason for denial, with specific reference to the Plan provision on which the denial is based. (ii) A description of any additional material or information required and an explanation of why it is necessary. (iii) An explanation of the Plan's claim review procedure. (c) Any person whose claim or request is denied or who has not received a response within 60 days may request review by notice given in writing to the Plan Administrator. The claim or request shall be reviewed by the Plan Administrator who may, but shall not be required to, grant the claimant a hearing. On review, the claimant may have representation, examine pertinent documents, and submit issues and comments in writing. (d) The decision on review shall normally be made within 60 days. If an extension of time is required for a hearing or other special circumstances, the claimant shall be notified and the time limit shall be 120 days. The decision shall be in writing and shall state the reason and the relevant Plan provisions. All decisions on review shall be final and binding on all parties concerned. IN WITNESS WHEREOF, ACV has caused this document to be executed by its duly authorized officers as of the day of , 1998. AMERICAN CLASSIC VOYAGES CO. ---------------------------- ATTEST: - ------------------------ 13 The undersigned shareholders, owning beneficially and of record in the aggregate 7,405,747 shares or 51.8% of the outstanding shares of the Common Stock of American Classic Voyages Co., a Delaware corporation (the "Corporation"), hereby covenant to and agree with the Corporation and each other as follows: (i) to vote those number of shares set forth below their names in favor of the attached Action by Shareholders when so directed by the Corporation; and (ii) not to sell, transfer, assign or otherwise dispose of those number of shares set forth below their names prior to the earlier of the taking of such action or April 15, 1999. EGI HOLDINGS, INC., an Illinois corporation (3,641,873 shares) By: /s/ Sheli Z. Rosenberg ------------------------------- Name: Sheli Z. Rosenberg Its: Vice President EGIL INVESTMENTS, INC., an Illinois corporation (3,641,874 shares) By: /s/ Mark Slezak ------------------------------- Name: Mark Slezak Its: Vice President SAMSTOCK, L.L.C., a Delaware limited liability company (52,500 shares) By: /s/ Sheli Z. Rosenberg ------------------------------- Name: Sheli Z. Rosenberg Its: Vice President ANDA PARTNERSHIP, an Illinois general partnership (52,500 shares) By: Ann Only Trust, a general partner By: /s/ Mark Slezak ---------------------------------- Name: Mark Slezak Its: Trustee By: Ann and Descendants Trust, a general partner By: /s/ Mark Slezak ---------------------------------- Name: Mark Slezak Its: Trustee ANN LURIE REVOCABLE TRUST (17,000 shares) By: /s/ Mark Slezak, pursuant to power of attorney ------------------------------------------------ Name: Ann Lurie Its: Trustee Dated: February 22, 1999 EX-21 16 SUBSIDIARIES OF THE COMPANY 1 EXHIBIT 21 SUBSIDIARIES OF AMERICAN CLASSIC VOYAGES CO. AS OF DECEMBER 31, 1998
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 Hawaiian Cruise Line, Inc. Delaware 100% Great Independence Ship Co. Delaware (3) Oceanic Ship Co. Delaware (3) Great Hawaiian Properties Corporation Delaware (3) American Hawaii Properties Corporation Delaware (3) CAT II, Inc. Delaware (3)
(1) 100% owned subsidiaries of The Delta Queen Steamboat Co. (2) 99% owned subsidiaries of The Delta Queen Steamboat Co. and 1% owned subsidiaries of DQSB II, Inc. (3) 100% owned subsidiaries of Great Hawaiian Cruise Line, Inc. EX-23 17 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 19, 1999, relating to the consolidated balance sheets of American Classic Voyages Co. and subsidiaries as of December 31, 1998 and 1997, 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, 1998, and the related financial statement schedule, which report appears in the December 31, 1998 annual report on Form 10-K of American Classic Voyages Co. /s/ KPMG LLP KPMG LLP Chicago, Illinois March 31, 1999 EX-27 18 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS DEC-31-1998 DEC-31-1998 27,064 0 1,989 0 2,413 38,106 237,922 75,793 212,792 73,390 77,388 0 0 143 61,871 212,792 0 192,225 0 125,595 0 0 6,639 264 107 157 0 0 0 157 0.01 0.01 Includes restricted short-term investments of $60.
EX-99.(I) 19 AGREEMENT OF AUTHORIZED SHARES OF COMMON STOCK 1 Exhibit 99.(i) ACTION BY SHAREHOLDERS OF AMERICAN CLASSIC VOYAGES CO. The undersigned shareholders, owning beneficially and of record in the aggregate 7,405,747 shares or 51.8% of the outstanding shares of the Common Stock of American Classic Voyages Co., a Delaware corporation (the "Corporation"), hereby adopt, by this unanimous written consent (which may be executed in counterparts), in accordance with Section 228 of the General Corporation Law of the State of Delaware, the following resolutions, with the same force and effect as if they had been unanimously adopted at a duly convened meeting of the shareholders of the Corporation, as of the date consent to the following actions by the shareholders of Directors of the Corporation: WHEREAS, the Board of Directors of the Corporation has approved a resolution amending the Corporation's Amended and Restated Certificate of Incorporation to provide that the maximum number of shares of capital stock which the Corporation is authorized to have outstanding at any time is 45,000,000 shares of which 40,000,000 shall be Common Stock and 5,000,000 of which shall be Preferred Stock; WHEREAS, the Board of Directors of the Corporation directed that said amendment be submitted to the undersigned for approval; RESOLVED, that Article FOURTH of the Corporation's Amended and Restated Certificate of Incorporation shall be amended and restated in its entirety to read as follows: "FOURTH: The maximum number of shares of capital stock which the Corporation is authorized to issue or to have outstanding at any time shall be 45,000,000 shares of which 40,000,000 shall be Common Stock of $.01 (one cent) par value, and 5,000,000 shall be Preferred Stock of $.01 (one cent) par value. The Preferred Stock may be issued from time to time in one or more series, upon resolution or resolutions providing for such series adopted by the Board of Directors, with such distinctive designations as shall be stated in such resolution or resolutions. The resolution or resolutions providing 2 for the issue of shares of a particular series shall fix, subject to the applicable laws and provisions of this Article FOURTH, the designation, rights, preferences and limitations of the shares of each such series. The authority of the Board of Directors with respect to each series shall include, but not be limited to, the determination of the following: (a) The number of shares constituting such series, including the authority to increase or decrease such number, and the distinctive designation of such series; (b) The dividend rate of the shares of such series, whether the dividends shall be cumulative and, if so, the date from which they shall be cumulative, and the relative rights of priority, if any, of payment of dividends on shares of such series; (c) The right, if any, of the Corporation to redeem shares of such series and the terms and conditions of such redemption including the redemption price; (d) The rights of shares in case of a voluntary or involuntary liquidation, dissolution or winding up of the Corporation, and the relative rights of priority, if any, of payment of shares of such series; (e) The voting rights, if any, for such series and the terms and conditions under which such voting rights may be exercised; (f) The obligation, if any, of the Corporation to retire shares of such series pursuant to a retirement or sinking fund or fund of a similar nature and the terms and conditions of such obligation; (g) The terms and conditions, if any, upon which shares of such series shall be convertible into or exchangeable for shares of stock of any other class or classes or of any other series of preferred stock, including the price or prices or the rate or rates of conversion or exchange and the terms of adjustment, if any; and (h) Any other rights, preferences or limitations of the shares of such series as may be permitted by law." 3 FURTHER RESOLVED, that the officers of the Corporation are hereby authorized and directed to (i) file with the Secretary of State of the State of Delaware a Certificate of Amendment to the Corporation's Certificate as soon as practicable on or after, but in no event before, 20 calendar days following the mailing of the Information Statement, and (ii) provide prompt notice to the Corporation's shareholders of the taking of corporate action described herein; RESOLVED, that the officers of the Corporation are hereby authorized and directed to do and perform, or cause to be done or performed, all such acts, deeds and things and to make, execute and deliver, or cause to be made, executed or delivered, all such documents, instruments or certificates in the name of, for and on behalf of the Corporation or otherwise as he or she may deem necessary or appropriate to effectuate or carry out fully the purpose and intent of the foregoing resolutions and to comply with all applicable laws and rules in connection therewith. This Written Consent may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which when taken together will constitute but one and the same instrument. 4 IN WITNESS WHEREOF, the undersigned have executed this Action as of the 22 day of February, 1999. EGI HOLDINGS, INC., an Illinois corporation (3,641,873 shares) By: /s/ SHELI Z. ROSENBERG ---------------------------------- Name: Sheli Z. Rosenberg Its: Vice President EGIL INVESTMENTS, INC., an Illinois corporation (3,641,874 shares) By: /s/ MARK SLEZAK ---------------------------------- Name: Mark Slezak Its: Vice President SAMSTOCK, L.L.C., a Delaware limited liability company (52,500 shares) By: /s/ SHELI Z. ROSENBERG ---------------------------------- Name: Sheli Z. Rosenberg Its: Vice President ANDA PARTNERSHIP, an Illinois general partnership (52,500 shares) By: Ann Only Trust, a general partner By: /s/ MARK SLEZAK ------------------------------------ Name: Mark Slezak Its: Trustee By: Ann and Descendants Trust, a general partner By: /s/ MARK SLEZAK ------------------------------------ Name: Mark Slezak Its: Trustee ANN LURIE REVOCABLE TRUST (17,000 shares) By: /s/ ANN LURIE ------------------------------- Name: Ann Lurie Its: Trustee EX-99.(II) 20 EMPLOYEE STOCK PURCHASE PLAN 1 EXHIBIT 99.(ii) AMERICAN CLASSIC VOYAGES CO. Amended and Restated 1995 Employee Stock Purchase Plan FINANCIAL STATEMENTS As of and for the year Ended December 31, 1998 CONTENTS PAGE Independent Auditors' Report........................................... 1 Statement of Financial Condition....................................... 2 Statement of Changes in Plan Equity.................................... 3 Notes to Financial Statements.......................................... 4 Signatures............................................................. 6 Consent of KPMG LLP.................................................... 7 2 Independent Auditors' Report Compensation Committee of the Board of Directors American Classic Voyages Co. We have audited the accompanying statement of financial condition of the American Classic Voyages Co. Amended and Restated 1995 Employee Stock Purchase Plan (the "Plan") as of December 31, 1998, and the related statement of changes in plan equity for the year ended December 31, 1998. These financial statements are the responsibility of the Plan's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. 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 audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial condition of the Plan at December 31, 1998 and the Plan's changes in plan equity for the year ended December 31, 1998, in conformity with generally accepted accounting principles. KPMG LLP Chicago, Illinois February 26, 1999 1 3 AMERICAN CLASSIC VOYAGES CO. Amended and Restated 1995 Employee Stock Purchase Plan Statement of Financial Condition December 31, 1998
Assets: Cash............................................................... $ 953 American Classic Voyages Co. stock options, at fair market value (3,664 options, total cost of $46,716)................. 54,960 --------- Total assets....................................................... 55,913 ========= Plan equity................................................................ $ 55,913 =========
The accompanying notes are an integral part of these financial statements. 2 4 AMERICAN CLASSIC VOYAGES CO. Amended and Restated 1995 Employee Stock Purchase Plan Statement of Changes in Plan Equity For the Year Ended December 31,1998
Plan equity at the beginning of the year................................. $ 41,922 Additions Participant contributions........................................... 155,446 Unrealized discount................................................. 27,373 ----------------------- Total additions.................................... 182,819 Deductions Purchase and distribution of common stock to participants................................................. 168,612 Cash distributed to terminated participants......................... 216 ----------------------- Total deductions..................................... 168,828 Plan equity at the end of the year....................................... $ 55,913 -----------------------
The accompanying notes are an integral part of these financial statements. 3 5 AMERICAN CLASSIC VOYAGES CO. Amended and Restated 1995 Employee Stock Purchase Plan Notes to Financial Statements (1) Summary of Significant Accounting Policies The financial statements of the American Classic Voyages Co. Amended and Restated 1995 Employee Stock Purchase Plan (the "Plan") have been prepared under the accrual basis of accounting. All administrative expenses of the Plan are paid by American Classic Voyages Co. (the "Company"). (2) Description of Plan The Plan was adopted by the Company's Board of Directors during March 1995 and became effective on June 15, 1995. The Plan was amended and restated on July 1, 1998. The Plan is a voluntary contribution plan that meets the requirements of Section 423(b) of the Internal Revenue Code ("IRC") and is designed to enable eligible employees (the participants) of the Company to purchase common stock in the Company at a discount by exercising options to purchase common stock (options). The Plan is administered by the Company which has delegated certain administrative responsibilities to the Compensation Committee of the Board of Directors of the Company. The Plan provides for a series of quarterly purchase periods (offering period). An offering period is a period of three months beginning each January 1, April 1, July 1 and October 1 and ending on the last day of each quarter, respectively. The Company has reserved 500,000 shares of common stock for participants under the Plan. For the year ended December 31, 1998, 11,622 shares of common stock were issued. At December 31, 1998, 460,542 shares remain issuable under the Plan. Eligibility Full time employees who have completed 90 days of service with the Company are eligible to participate in the Plan's next offering period by contributing payroll withholdings during each offering period. Participants elect to participate in the Plan by completing and submitting an election form to the Plan administrator. Grant of Options Under the Plan, the Company grants options to all eligible employees at the beginning of each offering period. The number of shares subject to option for each participant is the quotient of the aggregate payroll deductions authorized by the participant for the option period plus any remaining cash balance from the prior offering period in the participant's account divided by the applicable option price per share; provided, however, that the maximum number of shares for which options may be granted to a participant for any option period shall not exceed $25,000 of fair market value (as provided by Section 423(b) of the IRC). For purposes of the Plan, "fair market value" of the common stock on each of the date of grant, the date of exercise or other applicable date is determined on the basis of the per share closing price of the last sale of the common stock on the applicable date as reported by The Nasdaq Stock Market. 4 6 Exercise of Options Each participant is considered to have exercised his or her option on the last business day of each offering period to the extent of the maximum number of whole shares of the Company's common stock that may be purchased with the balance on that date in the participant's account under the Plan for such option. Unless a participant elects otherwise, the Company carries the remaining balance of his or her account to the next offering period; provided that only amounts less than the price of a single share in an offering period are carried over from the offering period to the next offering period. The option price per share is equal to 85 percent of the lesser of (i) the closing price of such shares on the last business day of each offering period, or (ii) the greater of (a) the average closing price for the offering period and (b) the closing price on the first business day of each offering period. Contributions to the Plan Eligible employees may contribute annually to the Plan up to the smaller of (1) 20% of their annual compensation (not including commissions, bonuses, overtime, other or special payments, fees or allowances) or (2) an amount which complies with the $25,000 limitation discussed previously. Participant Accounts All payroll deductions during the offering period are held in the general assets of the Company and credited to a special account established under the Plan in the employee's name. No interest is paid or credited to amounts accumulated in the special account under the Plan. On the last business day of an offering period, the Company issues whole shares of common stock in return for the funds accumulated in the special account under the Plan. Unrealized Discount Unrealized discount represents the discount or aggregate difference between the market value price of the Company's common stock and the established discount purchase price for the offering period. Withdrawals An employee can withdraw from the Plan at any time with proper notice. Employees are entitled to a full refund of monies previously withheld under the Plan during the current Plan offering period upon withdrawal. Withdrawal from the Plan is also effected by termination of service with the Company, other than because of death, disability or retirement, at which time the cash balance in the participant's account is returned to him or her. Distributions The Company's transfer agent issues shares of stock in the form of a book entry to each participant's account upon receipt of authorization from the Company. The transfer agent issues stock certificates, which are registered in the participant's name, to the participant upon their written request or upon termination of employment with the Company. All shares purchased under the provisions of the Plan are deemed to be immediately distributed to the participants as of the last business day of each offering period. (3) Internal Revenue Service Status The Plan meets the requirements of Section 423(b) of the IRC. 5 7 AMERICAN CLASSIC VOYAGES CO. Amended and Restated 1995 Employee Stock Purchase Plan SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Plan Administration Committee has duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized. AMERICAN CLASSIC VOYAGES CO. Amended and Restated 1995 Employee Stock Purchase Plan Dated: March 31, 1999 By: /s/Mark Slezak ------------------------------------------- Member of the Compensation Committee of the Board of Directors of American Classic Voyages Co. 6 8 Consent of KPMG LLP Compensation Committee of the Board of Directors American Classic Voyages Co. We consent to incorporation by reference in the previously filed registration statement (No. 33-92382) on Form S-8 of American Classic Voyages Co. of our report dated February 26, 1999, relating to the statement of financial condition of the American Classic Voyages Co. Amended and Restated 1995 Employee Stock Purchase Plan as of December 31, 1998 and the related statement of changes in plan equity for the year ended December 31, 1998 which report appears in Exhibit 99.(ii) of the December 31, 1998 Annual Report on Form 10-K of American Classic Voyages Co. /s/ KPMG LLP KPMG LLP Chicago, Illinois March 31, 1999 7 -----END PRIVACY-ENHANCED MESSAGE-----