-----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, RiHwd2qCXprLMtrOuSbQkablIAwhZPdoYfne+4L52CBIXThYAkVdUkuHvOfPOX2D Mo0Hm+Oj+UFZXm3ygf/OKw== 0000950137-99-004126.txt : 19991117 0000950137-99-004126.hdr.sgml : 19991117 ACCESSION NUMBER: 0000950137-99-004126 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 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-Q SEC ACT: SEC FILE NUMBER: 000-09264 FILM NUMBER: 99751669 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-Q 1 FORM 10-Q 1 ============================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 --------------------------- FORM 10-Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER: 0-9264 AMERICAN CLASSIC VOYAGES CO. (Exact name of registrant as specified in its charter) DELAWARE (State or other jurisdiction of 31-0303330 incorporation or organization) (I.R.S. Employer identification No.) TWO NORTH RIVERSIDE PLAZA, CHICAGO, IL 60606 (Address of principal executive offices) (Zip Code) (312) 258-1890 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] As of November 5, 1999, there were 18,484,233 shares of Common Stock outstanding. ============================================================================= 2 AMERICAN CLASSIC VOYAGES CO. INDEX
ITEM DESCRIPTION PAGE - ---------------- ---- Part I. Financial Information: Item 1. Condensed Consolidated Financial Statements (Unaudited) Condensed Consolidated Balance Sheets at September 30, 1999 and December 31, 1998......................................... 3 Condensed Consolidated Statements of Operations for the Three Months and Nine Months Ended September 30, 1999 and 1998...................................................... 4 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1999 and 1998................. 5 Notes to Condensed Consolidated Financial Statements.......... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..................................... 10 Item 3. Quantitative and Qualitative Disclosures About Market Risk ... 17 Part II. Other Information: Item 1. Legal Proceedings............................................. 18 Item 6. Exhibits and Reports on Form 8-K.............................. 18
2 3 AMERICAN CLASSIC VOYAGES CO. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except shares and par value) (Unaudited)
September 30, December 31, 1999 1998 ---------------- ------------- ASSETS Cash and cash equivalents................................................ $ 69,747 $27,004 Restricted short-term investments........................................ 1,060 60 Accounts receivable...................................................... 1,533 1,989 Prepaid air tickets...................................................... 4,339 2,527 Prepaid expenses and other current assets................................ 6,684 6,526 -------- -------- Total current assets................................................ 83,363 38,106 Property and equipment, net.............................................. 151,015 159,079 Vessels under construction............................................... 43,589 3,050 Deferred income taxes, net............................................... 11,317 10,011 Other assets............................................................. 4,052 2,546 -------- -------- Total assets........................................................ $293,336 $212,792 ======== ======== LIABILITIES Accounts payable......................................................... $ 10,161 $13,493 Other accrued liabilities................................................ 16,835 16,500 Current portion of long-term debt........................................ 4,100 4,100 Unearned passenger revenues.............................................. 61,340 39,297 -------- -------- Total current liabilities........................................... 92,436 73,390 Long-term debt, less current portion..................................... 74,126 77,388 -------- -------- Total liabilities................................................... $166,562 $150,778 ======== ======== COMMITMENTS AND CONTINGENCIES (NOTE 6) STOCKHOLDERS' EQUITY Preferred stock, $.01 par value (5,000,000 shares authorized, none issued and outstanding)............................. $ -- $ -- Common stock, $.01 par value (40,000,000 and 20,000,000 shares authorized, respectively; 18,522,867 and 14,293,931 shares issued, respectively)................................................ 185 143 Additional paid-in capital............................................... 147,934 80,451 Accumulated deficit...................................................... (19,540) (17,823) Common stock in treasury, at cost (51,000 shares)........................ (757) (757) Unearned restricted stock................................................ (1,048) -- -------- -------- Total stockholders' equity.......................................... 126,774 62,014 -------- -------- Total liabilities and stockholders' equity.......................... $293,336 $212,792 ======== ========
The accompanying notes are an integral part of these condensed consolidated financial statements. 3 4 AMERICAN CLASSIC VOYAGES CO. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited)
For the Three Months For the Nine Months Ended September 30, Ended September 30, ----------------------- ------------------------ 1999 1998 1999 1998 -------- -------- --------- --------- Revenues................................................ $ 57,460 $ 50,920 $ 153,226 $ 145,123 Cost of operations (exclusive of depreciation expense shown below).......................................... 35,768 32,736 98,230 95,168 -------- -------- --------- --------- Gross profit............................................ 21,692 18,184 54,996 49,955 Selling, general and administrative expenses............ 13,848 10,156 43,297 35,544 Depreciation expense.................................... 4,130 4,230 12,472 12,719 -------- -------- --------- --------- Operating income (loss)................................. 3,714 3,798 (773) 1,692 Interest income......................................... 1,071 272 2,282 786 Interest expense........................................ 1,306 1,646 4,376 5,002 Other income............................................ -- -- -- 300 -------- -------- --------- --------- Income (loss) before income taxes....................... 3,479 2,424 (2,867) (2,224) Income tax (expense) benefit............................ (1,388) (970) 1,150 890 -------- -------- --------- --------- Net income (loss)....................................... $ 2,091 $ 1,454 $ (1,717) $ (1,334) ======== ======== ========= ========= Per Share Information Basic: Basic weighted average shares outstanding.......... 18,505 14,145 16,694 14,111 Earnings (loss) per share.......................... $ 0.11 $ 0.10 $ (0.10) $ (0.09) Diluted: Diluted weighted average shares outstanding........ 19,629 14,543 16,694 14,111 Earnings (loss) per share.......................... $ 0.11 $ 0.10 $ (0.10) $ (0.09)
The accompanying notes are an integral part of these condensed consolidated financial statements. 4 5 AMERICAN CLASSIC VOYAGES CO. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
For the Nine Months Ended September 30, -------------------------- 1999 1998 ----------- ----------- OPERATING ACTIVITIES: Net loss................................................... $ (1,717) $ (1,334) Depreciation expense................................... 12,472 12,719 Gain on sale of assets................................. -- (300) Changes in working capital and other: Working capital changes and other.................. (4,450) (5,307) Unearned passenger revenues........................ 22,043 10,126 ----------- ---------- Net cash provided by operating activities.............. 28,348 15,904 ----------- ---------- INVESTING ACTIVITIES: (Increase) decrease in restricted short-term investments .. (1,000) 265 Capital expenditures....................................... (45,108) (6,104) Proceeds from sale of assets............................... -- 300 ----------- ---------- Net cash used in investing activities.................. (46,108) (5,539) ----------- ---------- FINANCING ACTIVITIES: Proceeds from borrowings................................... 2,000 -- Repayment of borrowings.................................... (5,262) (3,262) Purchase of common stock................................... -- (757) Proceeds from issuance of common stock, net................ 65,989 2,219 Deferred financing fees.................................... (2,224) (519) ----------- ---------- Net cash provided by (used in) financing activities.... 60,503 (2,319) ----------- ---------- Increase in cash and cash equivalents......................... 42,743 8,046 Cash and cash equivalents, beginning of period................ 27,004 19,187 ----------- ---------- Cash and cash equivalents, end of period...................... $ 69,747 $ 27,233 =========== ========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest (net of capitalized interest)................. $ 4,676 $ 4,982 Income taxes........................................... 165 --
The accompanying notes are an integral part of these condensed consolidated financial statements. 5 6 AMERICAN CLASSIC VOYAGES CO. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1999 (Unaudited) 1. BASIS OF PRESENTATION These accompanying unaudited Condensed Consolidated Financial Statements ("Financial Statements") have been prepared pursuant to Securities and Exchange Commission ("SEC") rules and regulations and should be read in conjunction with the Consolidated Financial Statements and Notes thereto included on Form 10-K for the year ended December 31, 1998 (the "Form 10-K") for American Classic Voyages Co. ("AMCV") and its subsidiaries. These Financial Statements include the accounts of AMCV and its wholly owned subsidiaries, The Delta Queen Steamboat Co. ("DQSC"), Great Hawaiian Cruise Line, Inc. ("GHCL") and Project America, Inc. (collectively with such subsidiaries, the "Company"). The following notes to the Financial Statements highlight changes to the notes included in the Form 10-K and such interim disclosures as required by the SEC. These Financial Statements reflect, in the opinion of management, all adjustments necessary for a fair presentation of the interim financial statements. All such adjustments are of a normal and recurring nature. Certain previously reported amounts have been reclassified to conform to the 1999 presentation. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 2. EARNINGS PER SHARE Earnings per share have been computed as follows (in thousands, except per share data):
For the Three Months Ended September 30, --------------------- 1999 1998 ---------- --------- Basic: Net income............................................... $ 2,091 $ 1,454 Weighted average shares outstanding...................... 18,505 14,145 ---------- --------- Earnings per share ...................................... $ 0.11 $ 0.10 ========== ========= Diluted: Net income............................................... $ 2,091 $ 1,454 Weighted average shares outstanding...................... 18,505 14,145 Additional shares issuable under various stock plans..... 1,124 398 ---------- --------- Diluted weighted average shares outstanding.............. 19,629 14,543 ---------- --------- Earnings per share ...................................... $ 0.11 $ 0.10 ========== =========
As the Company reported net losses for the nine months ended September 30, 1999 and 1998, diluted earnings per share was computed in the same manner as basic earnings per share. 3. VESSELS UNDER CONSTRUCTION Vessels under construction consists mainly of payments to shipyards as part of the Company's various new shipbuilding programs (see Note 6 for further information). Additional capitalized costs include technical design, engineering, and architectural fees. Interest cost associated with the DQSC vessels under construction are capitalized during the construction period and amounted to $0.3 million and $ 0.5 million, respectively, for the three and nine months ended September 30, 1999. No interest costs were capitalized in 1998. 6 7 4. DEBT Long-term debt consisted of (in thousands):
September 30, December 31, 1999 1998 -------------- -------------- U.S. Government Guaranteed Ship Financing Note, American Queen Series, LIBOR + 0.25% floating rate notes due semi-annually beginning February 24, 1996 through August 24, 2005...................................................................... $ 14,385 $ 16,809 U.S. Government Guaranteed Ship Financing Bond, American Queen Series, 7.68% fixed rate, sinking fund bonds due semi-annually beginning February 24, 2006 through September 2, 2020.................................................................... 36,198 36,198 U.S. Government Guaranteed Ship Financing Note, Independence Series A, LIBOR + 0.27% floating rate notes due semi-annually beginning June 7, 1996 through December 7, 2005..................................................................... 8,587 9,248 U.S. Government Guaranteed Ship Financing Bond, Independence Series A, 6.84% fixed rate sinking fund bonds due semi-annually beginning June 7, 2006 through December 7, 2015..................................................................... 13,215 13,215 U.S. Government Guaranteed Ship Financing Note, Independence Series B, LIBOR + 0.27% floating rate notes due semi-annually beginning December 7, 1996 through December 7, 2005..................................................................... 2,301 2,478 U.S. Government Guaranteed Ship Financing Bond, Independence Series B, 7.46% fixed rate sinking fund bonds due semi-annually beginning June 7, 2006 through December 7, 2015..................................................................... 3,540 3,540 Revolving credit facility (maximum availability of $70 million) ......................... -- -- ----------- ----------- 78,226 81,488 Less current portion..................................................................... 4,100 4,100 ----------- ----------- $ 74,126 $ 77,388 =========== ===========
In the first quarter of 1999, DQSC, as borrower, closed on a new long-term credit facility with The Chase Manhattan Bank, as agent, and several participant banks (the "Chase Facility"). The Chase Facility, which is a $70 million revolving credit facility maturing in February 2004, replaces the previous credit facility with Chase Manhattan. Borrowings under the new facility bear interest at a rate, at the option of DQSC, equal to either (1) the greater of Chase's prime rate or certain alternative base rates plus a margin ranging from 0.50% to 1.50%, or (2) the London Interbank Offered Rate plus a margin ranging from 1.50% to 2.50%. DQSC is also required to pay an unused commitment fee at a rate of 0.50% per annum. The Chase Facility will be used for the conversion of the fourth Delta Queen riverboat, the construction of the first two coastal vessels, and Delta Queen working capital. The new facility is secured by all of the assets of DQSC except the American Queen, and has various limitations and restrictions on investments, additional indebtedness, the construction costs of the new vessels, and other capital expenditures. The Chase Facility also limits dividends by DQSC, when aggregated with investments and certain other payments, to amounts ranging from $5 million to $15 million per annum. DQSC is required to comply with certain financial covenants, including maintenance of minimum interest coverage ratios and maximum leverage ratios. On April 8, 1999, the Company received a commitment from the Maritime Administration for up to $1.1 billion in financing guarantees. The commitment amount represents 87.5% of the total cost of the initial two Hawaii vessels, including shipyard costs, capitalized interest, and fees. As of September 30, 1999, the Company complied with all covenants under its various debt agreements. 7 8 5. STOCKHOLDERS' EQUITY COMMON STOCK OFFERING In the second quarter of 1999, the Company completed a public offering of an additional 4,025,000 shares of common stock. The net proceeds to the Company, after offering expenses, were $63.5 million and are being used for construction of the initial Hawaii vessel. ACCUMULATED DEFICIT Changes in accumulated deficit for the nine months ended September 30, 1999 were (in thousands): Accumulated deficit at December 31, 1998......... $(17,823) Net loss......................................... (1,717) -------- Accumulated deficit at September 30, 1999........ $(19,540) ======== RESTRICTED STOCK In February 1999, the Company reserved and set aside 72,122 shares of restricted common stock as compensation for a key salaried employee. Issuance and sale of these shares is restricted prior to the employee's retirement from the Company. Unearned compensation was recorded at the date of the restricted stock award based on the market value of shares. Unearned compensation, which is shown as a separate component of stockholders' equity, is being amortized to expense over a four year vesting period, which began in July 1999. 6. COMMITMENTS AND CONTINGENCIES HAWAII VESSELS On March 9, 1999, the Company executed definitive agreements with Ingalls Shipbuilding, Inc. to construct at least two new vessels for the Hawaii cruise market. The new Hawaii cruise ships will have the capacity to accommodate approximately 1,900 passengers each and are currently estimated to cost $440 million each, plus approximately $30 million each for furnishings, fixtures and equipment. The contract provides that Ingalls Shipbuilding will deliver the first new ship in January 2003 and the second ship in January 2004. In addition, the shipbuilding contract provides the Company an option to build up to four additional vessels. The estimated contract price of the first option vessel is $487 million and the contract price for the subsequent option vessels will be negotiated between the parties. Ingalls Shipbuilding will provide a limited warranty for the design, material, and workmanship of each vessel for one year after delivery. On August 5, 1999, the Company entered into an agreement with Holland America Line to purchase the ms Nieuw Amsterdam for $114.5 million. The 1,214 passenger cruise ship is expected to be transferred to the Company in the Fall of 2000 and will be operated in the Hawaiian Islands as a U.S.-flag vessel. See Note 7 for further information. COASTAL VESSELS The Company entered into a construction contract, as of May 1, 1999, with Atlantic Marine, Inc. of Jacksonville, Florida to construct at least two coastal cruise vessels for its Delta Queen line. This contract is the culmination of the previously announced plans to build a series of up to five new vessels to provide cruises along U.S. coastal waterways. Under the construction contract, the contract price of the vessels will be $30 million each and will have a total project cost, including Company provided furnishings, fixtures and equipment, of approximately $35 million. The coastal cruise vessels will be approximately 300 feet long and provide accommodations for up to 226 passengers. The contract provides that the delivery date will be early March 2001 for the first vessel and June 2001 for the second vessel. Atlantic Marine will provide a limited warranty for the work, parts, and components of each vessel fabricated by the yard for one year after delivery. 8 9 RIVERBOAT ACQUISITION On May 25, 1999, the Company acquired a substantially complete riverboat originally built for the casino trade that the Company will convert and operate as the fourth Delta Queen riverboat. The Company expects the vessel, which will be known as the Columbia Queen, will enter service in April 2000 operating weekly cruise vacations out of Portland on the Columbia River system. The Company recently entered into an agreement with Nichols Brothers Boat Builders, Inc. ("Nichols Brothers") to convert the 218 foot boat into an overnight passenger vessel with 161 passenger berths. The Company paid $3.2 million to acquire the vessel and estimates the total renovation, relocation, start-up and marketing costs, inclusive of the $6.5 million contract with Nichols Brothers, will require an additional $13 million to $16 million. 7. SUBSEQUENT EVENTS SHIP ACQUISITION On October 15, 1999, the Company finalized its agreement with Holland America Line to purchase the ms Nieuw Amsterdam for $114.5 million. $1.0 million previously placed in escrow by the Company upon entering the agreement with Holland America Line was released back to the Company. The purchase agreement required the Company to make an earnest money deposit of $18 million by October 18, 1999 and an additional $12 million by January 17, 2000. The Company has arranged for an unsecured letter of credit facility with Chase Manhattan Bank for up to $30 million and satisfied the first deposit requirement by posting an $18 million letter of credit. Outstanding letters of credit under this facility bear interest at a rate of 2.125% per annum. The Company is also required to pay a commitment fee of 0.375% per annum on the unused portion of the facility. Persons and entities affiliated with Equity Group Investments, Inc. ("EGI"), the Company's largest shareholder, guaranteed the letter of credit facility to Chase Manhattan Bank, thereby allowing the Company to obtain the facility. The Company has paid EGI a commitment fee of $0.5 million and has agreed to pay EGI additional compensation contingent upon appreciation in the Company's common stock. EGI's rights to receive this additional compensation will vest, on a monthly basis, during the period that the guarantee remains outstanding and will increase to the extent that amounts are paid by EGI pursuant to the guarantee. EGI has a period of five years to exercise its rights to receive such payment, subject to the Company's right to pay such additional fee at any time within the next three years at escalating amounts and tied to the rights vested by EGI. A committee comprised of the Company's independent directors negotiated the arrangement with EGI. The committee received independent legal and financial advice. The purchase agreement with Holland America Line provides for the transaction to close in October 2000. As part of the purchase agreement, Holland America Line has agreed to make available to the Company $84.5 million of financing secured by the vessel. Paired with the EGI commitment to provide up to $30.0 million, this represents all of the funds needed by the Company to purchase the ms Nieuw Amsterdam. On October 27, 1999, the Company announced that its Project America subsidiary will operate under the United States Lines brand name and that the ms Nieuw Amsterdam will be renamed the ms Patriot. RESCISSION OF ACCOUNTING METHOD On November 2, 1999, the Company announced that it had rescinded its prior adoption of the American Institute of Certified Public Accountants Accounting Standards Executive Committee's Statement of Position ("SOP") No. 93-7, "Reporting on Advertising Costs," relating to the deferral of direct response advertising costs. The deferral method provided for in SOP 93-7 was adopted in 1999, and made effective as of January 1, 1999. Pursuant to SOP 93-7, the Company deferred recognition of direct response advertising costs related to certain direct response advertising efforts. These deferred costs were recognized in the periods that the cruises promoted by the efforts were completed, and the related cruise revenue recognized. The Company rescinded its adoption of SOP 93-7 due to difficulties encountered in implementing the new method. In rescinding SOP 93-7, the Company returned to its prior method of recognizing expenses for direct response advertising costs when those costs are incurred. As a result of the rescission of SOP 93-7, the Company has restated its earnings for the first quarter of 1999 to reflect a loss of $6.3 million, or ($0.44) per share, compared to its previously reported loss of $4.5 million, or ($0.32) per share. The Company has also restated its earnings for the second quarter of 1999 to $2.5 million, or $0.14 per share, compared to its previously reported earnings of $2.3 million, or $0.13 per share. For the six months ended June 30, 1999, the Company has restated its earnings to reflect a loss of $3.8 million, or ($0.24) per share, compared to its previously reported loss of $2.2 million, or ($0.14) per share. 9 10 AMERICAN CLASSIC VOYAGES CO. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL American Classic Voyages Co. is a holding company which owns and controls The Delta Queen Steamboat Co., Great Hawaiian Cruise Line, Inc. and Project America, Inc. Through our various subsidiaries, we currently operate two cruise lines: Delta Queen, which owns and operates the American Queen, Mississippi Queen and Delta Queen steamboats; and American Hawaii, which owns and operates the Independence steamship. We have formed a third cruise line, United States Lines, to operate the ms Patriot and the new Hawaii cruise vessels following their renovation or construction. Our revenues are comprised of: (1) cruise fares, (2) onboard revenues, such as those from gift shops and shore excursions, and (3) trip cancellation insurance and pre- and post-cruise hotel packages. Additional revenue is also derived from the sale of airplane tickets to and from points of embarkation or disembarkation. Our cost for air tickets typically matches the revenue we generate from sales of airline tickets, so we recognize minimal profits from such sales. Our cost of operations is comprised of: (1) passenger expenses, such as employee payroll and benefits and the cost of food and beverages, (2) vessel operating costs including lay-up and drydocking costs for our vessels, (3) insurance costs, (4) commissions paid to travel agents, and (5) air ticket and hotel costs. When we receive deposits from passengers for cruises, we establish a liability for unearned passenger revenue. We recognize revenue when the passengers take their cruises and make a corresponding reduction in our unearned passenger revenues. Our revenues and some of our expenses vary considerably when measured on a quarterly basis. This is due to the seasonality of our Delta Queen revenues, the timing of our Delta Queen and American Hawaii lay-ups and drydockings, and fluctuations in airfares. These variations are reflected in our fare revenues per passenger night, which are commonly referred to as fare per diems, and our occupancy rates. Delta Queen's operations are seasonal. Historically, we have had greater passenger interest and higher yields in the spring and fall months of the year. The vessels typically undergo their annual lay-ups in December or January. While American Hawaii has historically experienced greater passenger interest in the summer and fall months of the year, quarterly variations in its revenues are much smaller than those of Delta Queen. During the summer months, in particular, American Hawaii tends to have average occupancies in excess of 100% as the number of families sharing cabins with children increases significantly during this period. The following discusses the Company's consolidated results of operations and financial condition for the three months and nine months ended September 30, 1999 and 1998. This section should be read in conjunction with the Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Form 10-K for the year ended December 31, 1998. 10 11 RESULTS OF OPERATIONS Operations data expressed as a percentage of total revenue for the periods indicated is as follows:
Three Months Nine Months Ended September 30, Ended September 30, -------------------------------- ------------------------------- 1999 1998 1999 1998 ------------ ------------- ------------ ----------- Revenues 100% 100% 100% 100% Costs and Expenses: Operating expenses.................... 62 64 64 66 Selling, general and administrative... 24 20 28 24 Depreciation.......................... 7 8 8 9 Operating income (loss).................... 6 7 (1) 1 Net income (loss).......................... 4 3 (1) (1)
Selected operating statistics for the periods indicated are as follows:
Three Months Nine Months Ended September 30, Ended September 30, -------------------------------- ------------------------------ 1999 1998 1999 1998 ----------- ----------- ----------- ---------- Fare revenue per passenger night............. $ 231 $ 222 $ 227 $ 222 Total revenue per passenger night............ $ 325 $ 308 $ 322 $ 313 Weighted average operating days (1): DELTA QUEEN............................. 92 92 250 256 AMERICAN HAWAII......................... 92 92 273 273 Vessels capacity per day (berths) (2): DELTA QUEEN............................. 1,026 1,026 1,026 1,026 AMERICAN HAWAII......................... 867 867 867 867 Passenger nights (3)......................... 176,805 165,539 476,460 464,361 Physical occupancy percentage (berths) (4)... 102% 95% 97% 93%
(1) Weighted average operating days for each cruise line is determined by dividing capacity passenger nights for each cruise line by the cruise line's total vessel capacity per day. Capacity passenger nights is determined by multiplying, for the respective period, the actual operating days of each vessel by each vessel's capacity per day. (2) Vessel capacity per day represents the number of passengers each cruise line can carry assuming double occupancy for cabins which accommodate two or more passengers. Some cabins on the Independence and the American Queen can accommodate three or four passengers. (3) A passenger night represents one passenger spending one night on a vessel; for example, one passenger taking a three-night cruise would generate three passenger nights. (4) Physical occupancy percentage is passenger nights divided by capacity passenger nights. 11 12 QUARTER ENDED SEPTEMBER 30, 1999 COMPARED TO QUARTER ENDED SEPTEMBER 30, 1998 Consolidated third quarter 1999 revenues increased $6.6 million to $57.5 million from $50.9 million for the third quarter 1998. This represents a $4.2 million increase in fare revenues combined with a $2.4 million increase in other revenues. Delta Queen's fare revenues increased $3.1 million, reflecting a 7% increase in fare per diems and a 5% increase in occupancy. American Hawaii's fare revenues increased $1.1 million on an 8% increase in occupancy while fare per diems were consistent with the prior year. Of the $2.4 million increase in other revenues, $1.9 million is attributable to increases in passenger air and hotel revenue corresponding to the occupancy increase at both cruise lines. American Hawaii's onboard revenue also increased by $0.6 million reflecting an 11% improvement in onboard revenue per passenger night combined with the 8% occupancy increase. Consolidated cost of operations increased $3.0 million to $35.8 million for the third quarter of 1999 from $32.8 million or the comparable period of 1998. Delta Queen's operating costs increased $1.4 million due to an increase in passenger, commission, and air and hotel expenses. American Hawaii's operating costs increased $1.6 million mainly corresponding to the increases in onboard, air and hotel revenue noted above. Consolidated gross profit increased $3.5 million for the third quarter 1999 as compared to 1998. Consolidated selling, general and administrative expenses, before capacity expansion expenses, increased $2.6 million to $12.1 million for the third quarter of 1999 from $9.5 million for the same period in 1998. The increase was a result of higher selling and marketing expenses, which increased by $3.0 million from the prior year. In the third quarter of 1999, both American Hawaii and Delta Queen began to promote year 2000 sailings whereas in the third quarter of 1998, minimal amounts were incurred for 1999 sailings. Capacity expansion expenses increased $1.0 million to $1.7 million from $0.7 million in 1998. Beginning in the third quarter of 1999, marketing and public relations expenses for the Columbia Queen were incurred, which amounted to $0.8 million. Additionally, $0.3 million of compensation expense was recognized in the third quarter of 1999 for restricted stock vesting. Depreciation expense for the third quarter of 1999 was consistent with 1998. The consolidated operating income for the third quarter of 1999 was $3.7 million as compared to $3.8 million for the comparable period of 1998. Interest expense decreased by $0.3 million due to the capitalization of interest expense and a lower outstanding debt balance in the third quarter of 1999. Interest income increased by $0.8 million in the third quarter of 1999 as a result of proceeds received by us upon the sale of additional common stock in the second quarter of 1999. Our consolidated effective tax rate was 40% for both periods in 1999 and 1998. NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1998 Consolidated revenues for the first nine months of 1999 increased $8.1 million to $153.2 million from $145.1 million for the first nine months of 1998 representing a $5.1 million increase in fare revenues combined with a $3.0 million increase in other revenues. Delta Queen's fare revenues increased $2.6 million, reflecting a 6% increase in fare per diems and a 1% increase in occupancy, offset by a 2% decrease in capacity due to six fewer average operating days. American Hawaii's fare revenues increased $2.5 million on a 7% increase in occupancy while fare per diems decreased by 1%. Of the $3.0 million increase in other revenues, $1.8 million is attributable to an increase in passenger air and hotel revenue at both cruise lines. American Hawaii's onboard revenue also increased by $1.4 million reflecting a 9% improvement in onboard revenues per passenger night combined with a 7% occupancy increase while Delta Queen's onboard revenue decreased by $0.2 million reflecting the decrease in capacity. Consolidated cost of operations for the first nine months of 1999 increased $3.1 million over the comparable period of 1998. Delta Queen's operating costs increased by $0.7 million primarily corresponding to the increase in air revenue. American Hawaii's operating costs increased $2.4 million corresponding to the increases in onboard, air and hotel revenue noted above. Consolidated gross profit increased $5.0 million for the first nine months of 1999. 12 13 Consolidated selling, general and administrative expenses, before capacity expansion expenses, increased by $6.7 million to $40.5 million for the first nine months of 1999 from $33.8 million for the same period in 1998. The increase was a result of higher selling and marketing expenses, which increased by $6.4 million from the prior year. Increased selling and marketing expenses were incurred earlier in 1999 to promote cruises occurring in 1999. Higher selling and marketing expenses in the third quarter of 1999 were incurred to promote year 2000 sailings. Capacity expansion expenses increased by $1.1 million to $2.8 million from $1.7 million in the first nine months of 1998. Beginning in the third quarter of 1999, marketing and public relations expenses for the Columbia Queen were incurred, which amounted to $0.8 million. The remainder of the increase is attributable to salary and benefits associated with new personnel hired during 1999 to run our capacity expansion program. Depreciation expense for the first nine months of 1999 was consistent with 1998. The consolidated operating loss for the first nine months of 1999 was $0.8 million as compared to operating income of $1.7 million for the first nine months of 1998. Interest expense decreased by $0.6 million due to the capitalization of interest expense and a lower outstanding debt balance in the first nine months of 1999. Interest income increased $1.5 million in the first nine months of 1999 as a result of proceeds received by us upon the sale of additional common stock in late April and early May. In February 1998, we received $0.3 million of final proceeds from the buyer of the Maison Dupuy hotel which we sold in October 1996. Our consolidated effective tax rate was 40% for both periods in 1999 and 1998. LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION Operating Activities For the nine months ended September 30, 1999, cash provided by operations was $28.3 million compared to $15.9 million in 1998. The improvement reflected a greater seasonal increase in unearned passenger revenues, which increased $22.0 million in 1999, as compared to an increase of $10.1 million in 1998. The increase in unearned passenger revenues was greater in 1999 than in 1998 primarily due to (1) an improvement in American Hawaii's and Delta Queen's advance bookings and (2) deposits received in 1999 for millennium charter cruises at Delta Queen. Investing Activities During 1999, we made a $1.0 million deposit into escrow upon entering into an agreement with Holland America Line to purchase the ms Nieuw Amsterdam, which was subsequently returned to us. Our capital expenditures of $45.1 million included $40.5 million for vessels under construction which is comprised mainly of payments to shipyards. Other capital costs for the new shipbuilding programs include technical design, engineering and architectural fees. For the Hawaii cruise ships under construction, we have spent $28.0 million during 1999, while $12.5 million has been spent in 1999 on the Columbia Queen and Delta Queen coastal vessels projects. Other capital expenditures of $4.6 million were mainly related to our existing vessels such as lay-ups for our Delta Queen vessels, which were completed earlier in 1999. Financing Activities For the nine months ended September 30, 1999, we made scheduled principal payments of $3.3 million under the American Queen and Independence ship financing notes and borrowed and repaid $2.0 million under our credit facility. In the second quarter of 1999, the Company completed a public offering of an additional 4,025,000 shares of common stock. The net proceeds to the Company, after offering expenses, were $63.5 million and are being used for construction of the initial Hawaii vessel. Additional proceeds from the issuance of common stock were received from employee stock option exercises. We also paid $2.2 million for financing efforts related to our new credit facility and Maritime Administration financing, as discussed below. Capital Expenditures and Debt For the Hawaii cruise market, we are constructing two new cruise ships over the next five years and plan to introduce an existing foreign-built cruise ship, which we have a contract to acquire, in the Hawaii market prior to delivery of the new vessels. On March 9, 1999, we signed a definitive agreement with Ingalls Shipbuilding to construct two passenger ships, each containing approximately 1,900 passengers berths, with options to build up to four additional vessels. The estimated construction cost of the two initial ships, inclusive of shipyard contract price, furniture, fixtures, and owner-furnished equipment, will be approximately $470 million each. The agreement provides that the first ship will be delivered in January 2003 and the second ship in January 2004. 13 14 We will finance a significant portion of the construction cost of the Hawaii cruise ships through the Maritime Administration, which provides guarantees of private financing for new vessel construction projects conducted in U.S. shipyards. In April 1999, we received financing guarantees for debt up to 87.5% of the cost of the vessels. The guaranteed debt will be accessed during the construction period, with net interest payments during that period capitalized as part of the cost of construction. In the current market, this type of debt generally bears interest at a rate of 100 to 150 basis points over the comparable U.S. government obligations and can have a term of up to 25 years from the date of delivery of the vessel. The loans generally amortize on a straight line basis over the term of the loan commencing after the delivery date. Fees associated with obtaining the financing guarantees included a one-time investigation fee of approximately $1.4 million, which we paid to the Maritime Administration in April 1999. In addition, the Maritime Administration imposes an annual guarantee fee of not less than 1/4 of 1% and not more than 1% of the indebtedness, reduced by any required escrow, based upon the obligor's ratio of long-term debt to stockholders' equity. The present value of the annual guarantee fees is payable at the closing of the Maritime Administration guaranteed financing and will be capitalized as part of the vessel cost. Over the next twelve months, we expect to spend approximately $125 million on building the two new Hawaii cruise vessels, which includes anticipated payments to Ingalls Shipbuilding. On October 15, 1999, the Company finalized an agreement with Holland America Line to purchase the ms Nieuw Amsterdam for $114.5 million. The purchase agreement required the Company to make an earnest money deposit of $18 million by October 18, 1999 and an additional $12 million by January 17, 2000. The Company has arranged for an unsecured letter of credit facility with Chase Manhattan Bank for up to $30 million and satisfied the first deposit requirement by posting an $18 million letter of credit. Outstanding letters of credit under this facility bear interest at a rate of 2.125% per annum. The Company is also required to pay a commitment fee of 0.375% per annum on the unused portion of the facility. Persons and entities affiliated with Equity Group Investments, Inc. ("EGI"), the Company's largest shareholder, guaranteed the letter of credit facility to Chase Manhattan Bank thereby allowing the Company to obtain the facility. The Company has paid EGI a commitment fee of $0.5 million and has agreed to pay EGI additional compensation contingent upon appreciation in the Company's common stock. EGI's rights to receive this additional compensation will vest, on a monthly basis, during the period that the guarantee remains outstanding and will increase to the extent that amounts are paid by EGI pursuant to the guarantee. EGI has a period of five years to exercise its rights to receive such payment, subject to the Company's right to pay such additional fee at any time within the next three years at escalating amounts and tied to the rights vested by EGI. Under the purchase agreement, at the closing scheduled for October 2000, we are required to fund the $30 million deposit. If EGI funds the $30 million deposit, we will pay EGI interest at 15% per annum and the obligation will mature 24 months after funding. In addition, Holland America Line has agreed to provide financing for the remaining portion of the purchase price totaling $84.5 million for 75 months at the prevailing prime rate. The Holland America Line financing will be secured by a first preferred ship mortgage. Prior to introducing the ms Patriot into service in December 2000, we expect to spend approximately $10 to 15 million on improvements to the ship. This will be funded from cash on hand, funds from operations, new borrowings from lenders, and possibly through the capital markets. For the Delta Queen line, we intend to build up to five new small coastal ships over the next seven to 10 years. We entered into a construction contract, as of May 1, 1999, with Atlantic Marine, Inc. of Jacksonville, Florida to construct at least two coastal cruise vessels for our Delta Queen line. Under the construction contract, the contract price of the vessels will be $30 million each and will have a total project cost, including furnishing, fixtures and equipment, of approximately $35 million. The coastal cruise vessels will be approximately 300 feet long and provide accommodations for up to 226 passengers. The contract provides that the delivery date will be early March 2001 for the first vessel and June 2001 for the second vessel. Atlantic Marine will provide a limited warranty for the work, parts, and components of each vessel fabricated by the yard for one year after delivery. Over the next twelve months, we expect to spend approximately $35 million to $40 million on building the new coastal cruise vessels, which also includes anticipated payments to Atlantic Marine, Inc. On May 25, 1999, we acquired a substantially complete riverboat originally built for the casino trade that we will convert and operate as the fourth Delta Queen riverboat. We expect the vessel, which will be known as the Columbia Queen, will enter service in April 2000 operating weekly cruise vacations out of Portland on the Columbia River system. We recently entered into an agreement with Nichols Brothers Boat Builders, Inc. ("Nichols Brothers") to convert the 218 foot boat into an overnight passenger vessel with 161 passenger berths. We paid $3.2 million to acquire the vessel and estimate the total renovation, relocation, start-up and marketing costs, inclusive of the $6.5 million contract with Nichols Brothers, will require an additional $13 million to $16 million. 14 15 On February 25, 1999, The Delta Queen Steamboat Co. entered into a credit agreement with a group of lenders, with The Chase Manhattan Bank as agent. This credit agreement provides for a revolving credit facility of up to $70 million to fund the expansion of our Delta Queen line. This new $70 million facility replaced our prior credit facility with Chase Manhattan. Borrowings under the new credit facility bear interest at either (1) the greater of Chase Manhattan's prime rate or alternative base rates plus a margin ranging from 0.50% to 1.50%, or (2) the London Interbank Offered Rate plus a margin ranging from 1.50% to 2.50%. We are also charged a fee of 0.50% per annum on any unused commitment. The new credit facility is secured by all of the assets of The Delta Queen Steamboat Co., except for the American Queen. The new credit facility limits the dividends The Delta Queen Steamboat Co. may pay to between $5 million and $15 million per year when aggregated with investments and other payments. In the first quarter of 2000, the three existing Delta Queen vessels will undergo lay-ups which are expected to cost approximately $6.7 million, including repairs and maintenance. These amounts will be funded from working capital and the Delta Queen credit facility. The Independence will undergo an 18-day drydock in early 2000, which is expected to cost approximately $5.5 million, including repairs and maintenance, and will be funded from cash on hand. As of September 30, 1999, we complied with all covenants under our various debt agreements. We believe we will have adequate access to capital resources, both internally and externally, to meet our current short-term and long-term capital commitments. Such resources may include cash on hand, new borrowings from lenders, and the ability to secure additional financing through the capital markets. We continually evaluate opportunities to increase capacity at both Delta Queen and in Hawaii and to strategically grow our business. Although we believe that we will be able to obtain sufficient equity and debt financing from the capital markets to satisfy our financial obligations relating to construction of the new vessels, and to acquire, renovate and introduce the ms Patriot into service, we cannot assure you that we will be able to obtain additional financing at commercially acceptable levels to finance these projects and, if we so choose, to pursue strategic business opportunities. If we fail to obtain such financing, we may have to postpone or abandon some of our construction plans. In June 1997, our board of directors approved a stock repurchase plan. The plan authorizes us to repurchase up to one million shares of our stock. These shares may be purchased from time to time in the public market or through privately negotiated transactions. As of September 30, 1999, we had repurchased 51,000 shares at an average purchase price of $14.84 per share under the plan. We currently have no intention to repurchase any additional shares of common stock. Impact of Year 2000 Many computer programs have been written using two digits rather than four to define the applicable year. Any of our computer programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a major system failure, miscalculations and/or other unanticipated problems. State of Readiness We have established internally staffed project teams to address Year 2000 issues. Each team has formulated a plan that focuses on Year 2000 compliance efforts for information technology systems and non-information technology systems. This plan addresses (1) information technology systems software and hardware such as reservations, accounting and associated systems, personal computers and software and (2) non-information technology systems such as embedded chip systems in building facilities, shipboard navigation, control, power generation systems, and communication systems. Our Year 2000 plan addresses the Year 2000 issues in various phases for both types of systems including: (1) inventory of our systems, equipment and suppliers that may be vulnerable to Year 2000 issues; (2) assessment of inventoried items to determine the risks associated with their possible failure to be Year 2000 compliant; (3) testing of systems and components to determine if they are Year 2000 compliant, both prior to and subsequent to remediation; (4) remediation and implementation of new systems; and (5) contingency planning to address reasonably likely worst case scenarios. For information technology systems, inventories and risk assessments have been completed for all our shoreside software applications, hardware and operating systems. Our reservations systems functions have been tested and were found to be compliant. We have also determined that our shoreside phone system and onboard financial systems on the Delta Queen vessels are Year 2000 compliant. Our new shoreside financial system, which replaced our prior non-Year 2000 compliant system, became operational on October 4, 1999. The Independence's onboard financial system is now Year 2000 compliant. We anticipate that these modifications and improvements will enable our information systems to function properly with respect to dates in the Year 2000 and thereafter. 15 16 Inventories and risk assessments have been completed for all non-information technology systems. No Year 2000 issues with respect to navigation, control and propulsion systems are believed to exist on our vessels. Risks of Year 2000 Issues If any of our suppliers or travel partners do not, or if we do not, successfully implement solutions to any Year 2000 issues, we could experience delays in scheduled cruises which could result in lost revenues or increases in costs and could subject us to claims and damages. To determine the most reasonably likely sources of these risks, we have been communicating with our major suppliers and travel partners on their Year 2000 compliance issues. For example, our external air ticketing and credit card processing software have been determined to be Year 2000 compliant. Based on these procedures, management believes that the most reasonably likely sources of risk to us include (1) the disruption of transportation channels relevant to our operations, including ports and transportation vendors, primarily airlines, as a result of a general failure of support systems and necessary infrastructure; (2) the disruption of travel agency and other sales distribution systems; and (3) the inability of principal product suppliers to deliver goods and services. The severity of these possible problems would depend on the nature of these problems and how quickly they could be corrected or alternatives implemented. Our major suppliers and travel partners consist of our transportation vendors, our primary external airline ticketing vendors, and our primary credit card processing software vendors. Our primary external airline ticketing vendor has certified that its systems are Year 2000 compliant. Our primary credit card processing software vendors have also certified that their systems are Year 2000 compliant. We have not received written assurance from our transportation vendors indicating that they will be Year 2000 compliant before the end of 1999. Because we have no contingency plan to transport our customers long distances to and from our embarkation and disembarkation points, failure by our transportation vendors to provide transportation services could have a material adverse effect on our operations and our financial condition. Some risks of the Year 2000 issue are beyond our control and our other travel partners and suppliers. For example, no preparations or contingency plan will protect us from a downturn in economic activity caused by the possible ripple effect throughout the entire economy that could be caused by problems of others with Year 2000 issues. Costs We have estimated our total costs for system improvements and the Year 2000 project to be approximately $1.0 million. These efforts are being funded from working capital. Of the total project cost, approximately $0.5 million is attributable to the implementation of a new accounting system. This amount includes new software, new hardware, and consulting fees, all of which are being capitalized. Another $0.2 million of capital outlays is attributable to the upgrading of the Independence's onboard financial system. The remaining $0.3 million is expected to be expensed as incurred and is not expected to have a material impact on the results of operations. The Year 2000 project represents less than 10% of our information systems budget. To date, we have incurred and expensed approximately $0.2 million related to our systems improvements and the Year 2000 project. These costs do not include costs incurred by us as a result of the failure of any third parties, including suppliers, to become Year 2000 compliant or costs to implement any contingency plans. The costs of the project and the date on which we believe we will complete the Year 2000 modifications are based on our best estimates given presently available information. These estimates were derived utilizing numerous assumptions of future events, including the continued availability of the resources we rely on, third party modification plans and other factors. We cannot assure you, however, that these estimates will be achieved, and actual results could differ materially from those anticipated. Specific factors that might cause such material differences include, but are not limited to, the availability and cost of personnel trained in this area, the ability to locate and correct all relevant computer code, and similar uncertainties. Contingency Plans We are preparing our contingency plans to identify and determine how to handle our most probable worst case scenarios. Preliminary contingency plans are currently being reviewed. Comprehensive contingency plans are estimated to be substantially completed by November 30, 1999 and continued refinements are expected to occur throughout the remainder of the year. 16 17 Factors Concerning Forward-Looking Statements Certain statements in "Management's Discussion and Analysis of Financial Condition and Results of Operations" constitute "forward-looking statements" which we believe are within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. These forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions. Such factors include, among others, the following: construction delays and deviations from specifications for the new vessels may adversely affect expansion plans and future financial performance; limited remedies against shipyards in the event of shipbuilding delays which would delay the introduction of new vessels; failure to obtain significant amounts of capital to build, purchase and renovate vessels, may adversely affect our expansion plans and future operating results; increased leverage may adversely affect our financial performance and cash flow; inability to locate and introduce a foreign-built vessel in Hawaii would delay our growth in Hawaii; inability to manage our financial resources during our expansion may adversely affect our financial performance; if demand for our new cruise products fails to develop as expected or competition increases, our business may be adversely affected; increased capacity in Hawaii may reduce occupancy at the Independence, adversely affecting revenues; increased expenditures for the Independence may adversely impact our operating results; loss of exclusive rights of the Pilot Project Statute may adversely affect our revenue growth in Hawaii; modification of existing governmental regulations may adversely affect our business; increased competition in the Hawaii cruise market and from other vacation alternatives may adversely impact our financial performance; sensitivity of the vacation and leisure industry to general economic and business conditions; failure to complete drydocking on schedule or within budget may adversely affect our revenues; weather factors can adversely affect our operations and our financial performance; the loss of vessels from service would adversely impact our business; our controlling stockholder may take actions that adversely affect our business; sales of our controlling stockholder's shares could have an adverse effect on our ability to raise capital; and our controlling stockholder may have conflicts of interest with competing interests. ITEM 3. Quantitative and Qualitative Disclosures About Market Risk For a discussion of certain market risks related to us, see Part I Item 7A "Quantitative and Qualitative Disclosures About Market Risks" in our Annual Report on Form 10-K for the fiscal year ended December 31, 1998. There have been no significant developments with respect to exposure to market risk. 17 18 AMERICAN CLASSIC VOYAGES CO. PART II - OTHER INFORMATION ITEM 1. Legal Proceedings There are no other material legal proceedings, to which the Company is a party or of which any of its property is the subject, other than ordinary routine litigation and claims incidental to the business. The Company believes it maintains adequate insurance coverage and reserves for such claims. ITEM 6. Exhibits and Reports on Form 8-K a) Exhibits: 3.(ii) Third Amended and Restated By-Laws of the Company 10.(iv)(a)(9) Vessel Conversion Agreement dated August 20, 1999 between Nichols Brothers Boat Builders, Inc. and The Delta Queen Steamboat Co.* 27. Financial Data Schedule. b) Reports on Form 8-K: None. *Certain portions of this exhibit filed herewith have been omitted pursuant to an application for an order of confidential treatment pursuant to Rule 24b-2 under the Securities and Exchange Act of 1934, as amended. This non-public information has been filed separately with the Securities and Exchange Commission. 18 19 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AMERICAN CLASSIC VOYAGES CO. By: /s/ Philip C. Calian --------------------------------- Philip C. Calian Chief Executive Officer By: /s/ Randall L. Talcott --------------------------------- Randall L. Talcott Vice President-Finance and Treasurer (Principal Financial and Accounting Officer) Dated: November 12, 1999 - ------------------------ 19 EX-3.(II) 2 THIRD AMENDED & RESTATED BY-LAWS OF THE COMPANY 1 THIRD AMENDED AND RESTATED BY-LAWS OF AMERICAN CLASSIC VOYAGES CO. ARTICLE I OFFICES The Corporation shall continuously maintain in the State of Delaware a registered office and a registered agent whose business office is identical with such registered office, and may have other offices within or without the State. ARTICLE II SHAREHOLDERS SECTION 1. ANNUAL MEETING. An annual meeting of the shareholders shall be held on the third Wednesday in June of each year or at such time as the Board of Directors may designate for the purpose of electing directors and for the transaction of such other business as may come before the meeting. If the day fixed for the annual meeting shall be a legal holiday, such meeting shall be held on the next succeeding business day. If the election of directors shall not be held on the day designated herein for any annual meeting, or at any adjournment thereof, the Board of Directors shall cause the election to be held at a meeting of the shareholders as soon thereafter as may be convenient. SECTION 2. SPECIAL MEETINGS. Special meetings of the shareholders may be called either by the President, by the Board of Directors or by the holders of not less than a majority of all the outstanding shares of the Corporation entitled to vote, for the purpose or purposes stated in the call of the meeting. SECTION 3. PLACE OF MEETING. The Board of Directors may designate any place, either within or without the State of Delaware, as the place of meeting for any annual meeting or for any special meeting called by the Board of Directors. A waiver of notice signed by all shareholders may designate any place, either within or without the State of Delaware, as the place for the holding of such meeting. If no designation is made, or if a special meeting be otherwise called, the place of meeting shall be at Two North Riverside Plaza, Chicago, Illinois 60606, except as otherwise provided in Section 5 of this Article II. 2 SECTION 4. NOTICE OF MEETINGS. Written notice stating the place, date, and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than 10 nor more than 60 days before the date of the meeting, or in the case of a merger, consolidation, share exchange, dissolution or sale, lease or exchange of assets, not less than 20 nor more than 60 days before the date of the meeting, either personally or by mail, by or at the direction of the President, or the Secretary, or the officer or persons calling the meeting, to each shareholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail addressed to the shareholder at his or her address as it appears on the records of the corporation, with postage thereon prepaid. When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. SECTION 5. MEETING OF ALL SHAREHOLDERS. If all of the shareholders shall meet at any time and place, either within or without the State of Delaware, and consent to the holding of a meeting at such time and place, such meeting shall be valid without call or notice, and at such meeting any corporate action may be taken. SECTION 6. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. For the purpose of determining the shareholders entitled to notice of or to vote at any meeting of shareholders, or shareholders entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other proper purpose, the Board of Directors may fix in advance a date as the record date for any such determination of shareholders, such date in any case to be not more than 60 days and, for a meeting of shareholders, not less than 10 days or, in the case of a merger, consolidation, share exchange, dissolution or sale, lease or exchange of assets, not less than 20 days before the date of such meeting. If no record date is fixed for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders, or shareholders entitled to receive payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the Board of Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of shareholders. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this Section, such determination shall also apply to any adjournment thereof. SECTION 7. VOTING LISTS. The officer or agent having charge of the transfer book for shares of the Corporation shall make, within 20 days after the record date for a meeting of shareholders or 10 days before such meeting, whichever is earlier, a complete list of the shareholders entitled to vote at such meeting, arranged in alphabetical order, with the address of and the number of shares held by each, which list, for a period of 10 days prior to such meeting, shall be kept on file at the registered office of the Corporation and shall be subject to inspection by any shareholder, and to copying at the shareholder's expense, at any time during usual business hours. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any shareholder during the whole time of the meeting. The original share ledger or transfer book, or a duplicate thereof kept in the State of Delaware, shall be prima facie evidence as to who are the shareholders entitled to examine such list or share ledger or transfer book or to vote at any meeting of shareholders. 2 3 SECTION 8. QUORUM. The holders of a majority of the outstanding shares of the Corporation entitled to vote on a matter, represented in person or by proxy, shall constitute a quorum for consideration of such matter at any meeting of shareholders, but in no event shall a quorum consist of less than one-third of the outstanding shares entitled so to vote; provided that if less than a majority of the outstanding shares are represented at said meeting, a majority of the shares so represented may adjourn the meeting at any time without further notice. If a quorum is present, the affirmative vote of the majority of the shares represented at the meeting shall be the act of the shareholders, unless the vote of a greater number or voting by classes is required by the General Corporation Law of Delaware (as now in effect or as amended from time to time, the "Act"), the certificate of incorporation or these by-laws. At any adjourned meeting at which a quorum shall be present, any business may be transacted which might have been transacted at the original meeting. Withdrawal of shareholders from any meeting shall not cause failure of a duly constituted quorum at that meeting. SECTION 9. PROXIES. At all meetings of shareholders, a shareholder may vote by proxy executed in writing by the shareholder or by his duly authorized attorney-in-fact. Such proxy shall be filed with the Secretary of the Corporation before or at the time of the meeting. No proxy shall be valid after eleven months from the date of its execution, unless otherwise provided in the proxy. SECTION 10. VOTING OF SHARES. Unless otherwise provided in the articles of incorporation, each outstanding share shall be entitled to one (1) vote upon each matter submitted to vote at a meeting of shareholders. SECTION 11. VOTING OF SHARES BY CERTAIN HOLDERS. Shares held by the Corporation in a fiduciary capacity may be voted and shall be counted in determining the total number of outstanding shares entitled to vote at any given time. Shares registered in the name of another corporation, domestic or foreign, may be voted by any officer, agent, proxy or other legal representative authorized to vote such shares under the law of incorporation of such corporation. The Corporation may treat the president or other person holding the position of chief executive officer of such other corporation as authorized to vote such shares, together with any other person indicated and any other holder of any office indicated by the corporate shareholder to the Corporation as a person or an officer authorized to vote such shares. Such persons and officers indicated shall be registered by the Corporation on the transfer books for shares and included in any voting list prepared in accordance with Section 7 of this Article II. Shares registered in the name of a deceased person, a minor ward or a person under legal disability may be voted by his or her administrator, executor or court appointed guardian, either in person or by proxy without a transfer of such shares into the name of such administrator, executor or court appointed guardian. Shares registered in the name of a trustee may be voted by him or her, either in person or by proxy. Shares registered in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by such receiver without the transfer thereof into his or her name if authority to do so is contained in an appropriate order of the court by which such receiver was appointed. 3 4 A shareholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter the pledgee shall be entitled to vote the shares so transferred. Any number of shareholders may create a voting trust for the purpose of conferring upon a trustee or trustees the right to vote or otherwise represent their shares, for a period not to exceed 10 years, by entering into a written voting trust agreement specifying the terms and conditions of the voting trust and by transferring their shares to such trustee or trustees for the purpose of the agreement. Any such trust agreement shall not become effective until a counterpart of the agreement is deposited with the Corporation at its registered office. The counterpart of the voting trust agreement so deposited with the Corporation shall be subject to the same right of examination by a shareholder of the Corporation, in person or by agent or attorney, as are the books and records of the Corporation, and shall be subject to examination by any holder of a beneficial interest in the voting trust, either in person or by agent or attorney, at any reasonable time for any proper purpose. Shares of its own stock belonging to the Corporation shall not be voted, directly or indirectly, at any meeting and shall not be counted in determining the total number of outstanding shares at any given time, but shares of its own stock held by it in a fiduciary capacity may be voted and shall be counted in determining the total number of outstanding shares at any given time. SECTION 12. INSPECTORS. At any meeting of shareholders, the presiding officer may, or upon the request of any shareholder shall, appoint one or more persons as inspectors for such meeting. Such inspectors shall ascertain and report the number of shares represented at the meeting, based upon their determination of the validity and effect of proxies; count all votes and report the results; and do such other acts as are proper to conduct the election and voting with impartiality and fairness to all the shareholders. Each report of an inspector shall be in writing and signed by him or her or by a majority of them if there be more than one inspector acting at such meeting. If there is more than one inspector, the report of a majority shall be the report of the inspectors. The report of the inspector or inspectors on the number of shares represented at the meeting and the results of the voting shall be prima facie evidence thereof. SECTION 13. INFORMAL ACTION BY SHAREHOLDERS. Any action required to be taken at a meeting of the shareholders, or any other action which may be taken at a meeting of the shareholders, may be taken without a meeting and without a vote if a consent in writing, setting forth the action so taken, shall be signed (a) by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voting or (b) by all of the shareholders entitled to vote with respect to the subject matter thereof. 4 5 Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given in writing to those shareholders who have not consented in writing. In the event that the action which is consented to is such as would have required the filing of a certificate under any section of the Act if such action had been voted on by the shareholders at a meeting thereof, the certificate filed under such section shall state, in lieu of any statement required by such section concerning any vote of shareholders, that written consent has been given in accordance with the provisions of SECTION 228 of the Act and that written notice has been given as provided in such SECTION 228. SECTION 14. VOTING BY BALLOT. Voting on any question or in any election may be by voice unless the presiding officer shall order or any shareholder shall demand that voting be by ballot. ARTICLE III DIRECTORS SECTION 1. GENERAL POWERS. The business of the Corporation shall be managed by or under the direction of its Board of Directors. SECTION 2. NUMBER, TENURE AND QUALIFICATIONS. The number of directors of the Corporation shall be not less than two (2) and not more than thirteen (13). Each director shall hold office until the next annual meeting of shareholders; or until his successor shall have been elected and qualified. Directors need not be residents of Delaware or shareholders of the Corporation. The number of directors may be increased or decreased from time to time by the amendment of this Section 2. No decrease shall have the effect of shortening the term of any incumbent director. SECTION 3. REGULAR MEETINGS. A regular meeting of the Board of Directors shall be held, without other notice than this by-law, immediately after the annual meeting of shareholders. The Board of Directors may provide, by resolution, the time and place for holding of additional regular meetings without other notice than such resolution. SECTION 4. SPECIAL MEETINGS. Special meetings of the Board of Directors may be called by or at the request of the President or any two directors. The person or persons authorized to call special meetings of the Board of Directors may fix any place as the place for holding any special meeting of the Board of Directors called by them. SECTION 5. NOTICE. Notice of any special meeting shall be given at least two business days previous thereto by written notice to each director at his business address. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail so addressed, with postage thereon prepaid. If notice be given by telegram, such notice shall be deemed to be delivered when the telegram is delivered to the telegram company. The attendance of a director at any meeting shall constitute a waiver of notice of such meeting, except where a director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting. 5 6 SECTION 6. QUORUM. Unless otherwise provided in the articles of incorporation, a majority of the number of directors fixed by these by-laws shall constitute a quorum for transaction of business at any meeting of the Board of Directors, provided that if less than a majority of such number of directors are present at said meeting, a majority of the directors present may adjourn the meeting at any time without further notice. Unless specifically prohibited by the articles of incorporation, members of the Board of Directors or of any committee of the Board of Directors may participate in and act at any meeting of the Board or such committee through the use of a conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other. Participation in such meeting shall constitute attendance and presence in person at the meeting of the person or persons so participating. SECTION 7. MANNER OF ACTING. The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors, unless the act of a greater number is required by statute, these by-laws, or the articles of incorporation. SECTION 8. VACANCIES. Any vacancy on the Board of Directors and any directorship to be filled by reason of an increase in the number of directors may be filled by election at the next annual or special meeting of shareholders. A majority of the Board of Directors may fill any vacancy or any newly created directorship prior to such annual or special meeting of shareholders. SECTION 9. RESIGNATION OF DIRECTORS. A director may resign at any time upon written notice to the Board of Directors, its chairman, if any, or to the chief executive officer or Secretary of the Corporation. SECTION 10. INFORMAL ACTION BY DIRECTORS. Unless specifically prohibited by the articles of incorporation or by other provisions of these by-laws, any action required to be taken at a meeting of the Board of Directors, or any other action which may be taken at a meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all the directors entitled to vote with respect to the subject matter thereof or by all the members of such committee, as the case may be. Any such consent signed by all the directors or all the members of the committee shall have the same effect as a unanimous vote, and may be stated as such in any document filed with the Secretary of State or with anyone else. SECTION 11. COMMITTEES. A majority of the directors fixed by these by-laws may, by resolution, create one or more committees and appoint members of the Board to serve on any one or more of such committees. Each committee shall have two or more members who shall serve at the pleasure of the Board. A majority of any committee shall constitute a quorum and a majority of a quorum is necessary for committee action. Each committee, to the extent provided by the Board of Directors in such resolution, shall have and exercise all of the authority of the Board of Directors in the management of the Corporation, except that a committee may not: authorize distributions; approve or recommend to shareholders any act required by statute to be approved by shareholders; fill vacancies on the Board or on any of its committees; elect or remove officers or fix the compensation of any member of the committee; 6 7 adopt, amend or repeal the by-laws; approve a plan of merger not requiring shareholder approval; authorize or approve the reacquisition of shares, except according to a general formula or method prescribed by the Board; authorize or approve the issuance or sale, or contract for sale, of shares or determine the designation and relative rights, preferences, and limitations of a series of shares, except that the Board may direct a committee to fix the specific terms of issuance or sale or contract for sale or the number of shares to be allocated to particular employees under an employee benefit plan; or, amend, alter, repeal, or take action inconsistent with any resolution or action of the Board of Directors when the resolution or action of the Board of Directors provides by its terms that it shall not be amended, altered or repealed by action of a committee. Vacancies in the membership of any committee shall be filled by the Board of Directors. Each committee shall keep regular minutes of its proceedings and report the same to the Board when required. A committee may act by unanimous consent in writing without a meeting and, subject to action by the Board of Directors, each committee, by a majority vote of its members, shall determine the time and place of meetings and the notice therefor. SECTION 12. COMPENSATION. The Board of Directors, by the affirmative vote of a majority of directors then in office, and irrespective of any personal interest of any of its members, shall have authority to establish reasonable compensation of all directors for services to the Corporation as directors, officers or otherwise notwithstanding any director conflict of interest. By resolution of the Board of Directors, the directors may be paid their expenses, if any, of attendance at each meeting of the Board. No such payment previously mentioned in this Section shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. SECTION 13. PRESUMPTION OF ASSENT. A director of the Corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be conclusively presumed to have assented to the action taken unless his or her dissent shall be entered in the minutes of the meeting or unless he or she shall file his or her written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered or certified mail to the Secretary of the Corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a director who voted in favor of such action. SECTION 14. REMOVAL OF DIRECTORS. One or more of the directors may be removed, with or without cause, at a meeting of shareholders by the affirmative vote of the holders of a majority of the outstanding shares then entitled to vote at an election of directors, except that no director shall be removed at a meeting of shareholders unless the notice of such meeting shall state that a purpose of the meeting is to vote upon the removal of one or more directors named in the notice, and then only the named director or directors may be removed at such meeting. If a director has been elected by a class or series of shares, he may be removed only by the shareholders of that class or series. 7 8 SECTION 15. DISINTERESTED DIRECTORS; VOTING. A majority of the Corporation's disinterested directors shall be required to approve any business dealing between the Corporation and (i) any one or more of the directors of the Corporation or (ii) any person affiliated with or under common control with any one or more of the directors of the Corporation. Any such person described in clauses (i) or (ii) of this Section 15 who enters into or intends to enter into a business dealing with the Corporation shall, for purposes of this Section 15, be referred to as an "interested person." For the purposes of this Section 15, the terms "affiliate," "control," "under common control with," "disinterested directors" and "business dealing" shall have the following meanings: (a) an "affiliate" of, or person "affiliated" with, a specified person shall mean a person that directly, or indirectly through one or more intermediaries, controls or is controlled by or is under common control with the person specified; (b) the word "control" (the meaning of which hereunder shall also be applicable to the term "under common control with") shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of the person, whether through board representation, the ownership of voting securities, by contract or otherwise; (c) the word "person" shall mean any natural person, corporation, firm, association, trust, government, governmental agency or other entity, whether acting in an individual, fiduciary or other capacity; (d) the term "disinterested directors" shall mean any director of the Corporation who is not (i) an employee, officer, director, trustee, general partner, 5% shareholder (through beneficial ownership or otherwise) or fiduciary of a person (other than the Corporation) who is affiliated with or under common control with an interested person; or (ii) an employee, officer, director, trustee, partner or fiduciary of any of the persons described in subsection d(i) above; and (e) the term "business dealing" shall mean any transaction providing for the sale, lease or exchange of property or the rendering of any service, other than the sale, lease or exchange of property or the rendering of any service made or undertaken pursuant to and in accordance with an Administrative Services Agreement to be executed between Equity Group Investments, Inc., an Illinois corporation, and the Corporation in such form as the Board of Directors shall approve. 8 9 ARTICLE IV OFFICERS SECTION 1. NUMBER. The officers of the Corporation shall be a President, a Treasurer and a Secretary and may include a Chairman of the Board (or one or more Co-Chairmen of the Board), Chief Executive Officer, one or more Vice Presidents, a Chief Operating Officer, a Chief Financial Officer, one or more Assistant Treasurers, and one or more Assistant Secretaries. In addition, the Board of Directors may, from time to time, appoint such other officers with such powers and duties as they shall deem necessary or desirable. Any two or more offices may be held by the same person. SECTION 2. ELECTION AND TERM OF OFFICE. The officers of the Corporation shall be elected annually by the Board of Directors at the first meeting of the Board of Directors held after each annual meeting of shareholders. If the election of officers shall not be held at such meeting, such election shall be held as soon thereafter as conveniently may be. Vacancies may be filled or new offices created and filled at any meeting of the Board of Directors. Each officer shall hold office until his successor shall have been duly elected and shall have qualified or until his death or until he shall resign or shall have been removed in the manner hereinafter provided. Election of an officer shall not of itself create contract rights. SECTION 3. REMOVAL AND RESIGNATION. Any officer elected or appointed by the Board of Directors may be removed by the Board of Directors whenever in its judgment the best interest of the Corporation would be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Any officer of the Corporation may resign at any time by giving written notice thereof to the Board of Directors, the Chairman of the Board, the President or the Secretary. Any resignation shall take effect at the time specified in the notice, or, if the time when it shall become effective is not specified therein, immediately upon its receipt. The acceptance of a resignation shall not be necessary to make it effective unless otherwise stated in the resignation. SECTION 4. VACANCIES. A vacancy in any office because of death, resignation, removal, disqualification or otherwise may be filled by the Board of Directors for the unexpired portion of the term. SECTION 5. CHAIRMAN OF THE BOARD. The Board of Directors may designate a Chairman of the Board (or one or more Co-Chairmen of the Board). The Chairman of the Board shall preside over the meetings of the Board of Directors and of the stockholders at which he shall be present. If there be more than one, the Co-Chairmen designated by the Board of Directors will perform such duties. The Chairman of the Board shall perform such other duties as may be assigned to him or them by the Board of Directors. 9 10 SECTION 6. CHIEF EXECUTIVE OFFICER. The Board of Directors shall designate a Chief Executive Officer. In the absence of such designation, the Chairman of the Board (or, if more than one, the Co-Chairmen of the Board in the order designated at the time of their election or, in the absence of any designation, then in the order of their election) shall be the Chief Executive Officer of the Corporation. The Chief Executive Officer shall have general responsibility for implementing the policies of the Corporation, as determined by the Board of Directors, and for the management of the business and affairs of the Corporation. SECTION 7. PRESIDENT. The President or the Chief Executive Officer, as the case may be, shall be the principal executive officer of the Corporation and shall in general supervise and control all of the business and affairs of the Corporation. In the absence of a designation of a Chief Operating Officer by the Board of Directors, the President shall be the Chief Operating Officer. Subject to the direction and control of the Board of Directors, he/she shall, in general: supervise and control the business and affairs of the Corporation; see that the resolutions and directions of the Board of Directors are carried into effect except in those instances in which that responsibility is specifically assigned to some other person by the Board of Directors; and discharge all duties incident to the office of President and such other duties as may be prescribed by the Board of Directors from time to time. Except in those instances in which the authority to execute is expressly delegated to another officer or agent of the Corporation or a different mode of execution is expressly prescribed by the Board of Directors or these by-laws, he/she may execute for the Corporation certificates for its shares and any contracts, deeds, mortgages, bonds, or other instruments which the Board of Directors has authorized to be executed, and he/she may accomplish such execution either under or without the seal of the Corporation and either individually or with the Secretary, any Assistant Secretary, or any other officer thereunto authorized by the Board of Directors, according to the requirements of the form of the instrument. He/she may vote all securities which the Corporation is entitled to vote except as and to the extent such authority shall be vested in a different officer or agent of the Corporation by the Board of Directors. SECTION 8. CHIEF OPERATING OFFICER. The Board of Directors may designate a Chief Operating Officer. The Chief Operating Officer shall have the responsibilities and duties as set forth by the Board of Directors or the Chief Executive Officer or President, as the case may be. SECTION 9. CHIEF FINANCIAL OFFICER. The Board of Directors may designate a Chief Financial Officer. The Chief Financial Officer shall have the responsibilities and duties as set forth by the Board of Directors or the Chief Executive Officer or President, as the case may be. SECTION 10. THE VICE PRESIDENTS. The Vice President (or in the event there be more than one Vice President, each of the Vice Presidents) shall assist the President in the discharge of his/her duties as the President may direct and shall perform such other duties as from time to time may be assigned to him/her by the President or by the Board of Directors. In the absence of the President or in the event of his/her inability or refusal to act, the Vice President (or in the event there be more than one Vice President, the Vice Presidents in the order designated by the Board of Directors or by the President if the Board of Directors has not made such a designation or, in the absence of any designation, then in the order of seniority of tenure as Vice President) shall perform the duties of the President and, when so acting, shall have all the powers 10 11 of and be subject to all the restrictions upon the President. Except in those instances in which the authority to execute is expressly delegated to another officer or agent of the Corporation or a different mode of execution is expressly prescribed by the Board of Directors or these by-laws, the Vice President (or each of them if there are more than one) may execute for the Corporation certificates for its shares and any contracts, deeds, mortgages, bonds or other instruments which the Board of Directors has authorized to be executed, and he/she may accomplish such execution either under or without the seal of the Corporation and either individually or with the Secretary, any Assistant Secretary, or any other officer thereunto authorized by the Board of Directors, according to the requirements of the form of the instrument, except when a different mode of execution is expressly prescribed by the Board of Directors or these by-laws. SECTION 11. THE TREASURER. The Treasurer shall: (a) have charge of and be responsible for the maintenance of adequate books of account for the Corporation; (b) have charge and custody of all funds and securities of the Corporation and be responsible therefor and for the receipt and disbursement thereof; and (c) perform all the duties incident to the office of treasurer and such other duties as from time to time may be assigned to him/her by the President or by the Board of Directors. If required by the Board of Directors, the Treasurer shall give a bond for the faithful discharge of his duties in such sum and with such surety or sureties as the Board of Directors may determine. SECTION 12. THE SECRETARY. The Secretary shall: (a) record the minutes of the shareholders' and of the Board of Directors' meetings in one or more books provided for that purpose; (b) see that all notices are duly given in accordance with the provisions of these by-laws; (c) be custodian of the corporate records and of the seal of the Corporation; (d) keep a register of the post office address of each shareholder which shall be furnished to the Secretary by such shareholder; (e) sign, with the President or a Vice President or any other officer thereunto authorized by the Board of Directors, certificates for shares of the Corporation, the issue of which shall have been authorized by the Board of Directors, and any contracts, deeds, mortgages, bonds, or other instruments which the Board of Directors has authorized to be executed, according to the requirements of the form of the instrument, except when a different mode of execution is expressly prescribed by the Board of Directors or these by-laws; (f) have general charge of the stock transfer books of the Corporation; (g) have authority to certify the by-laws, resolutions of the shareholders and Board of Directors and committees thereof, and other documents of the Corporation as true and correct copies thereof; and (h) perform all duties incident to the office of secretary and such other duties as from time to time may be assigned to him/her by the President or by the Board of Directors. SECTION 13. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES. The Assistant Treasurers and Assistant Secretaries shall perform such duties as shall be assigned to them by the Treasurer or the Secretary, respectively, or by the President or the Board of Directors. The Assistant Secretaries may sign with the President or a Vice President, or any other officer thereunto authorized by the Board of Directors, certificates for shares of the Corporation, the issue of which shall have been authorized by the Board of Directors, and any contracts, deeds, mortgages, bonds, or other instruments which the Board of Directors has authorized to be executed, according to the requirements of the form of the instrument, except when a different mode of execution is expressly prescribed by the Board of Directors or these by-laws. The Assistant Treasurers shall, if required by the Board of Directors, give bonds for the faithful discharge of their duties in such sums and with such sureties as the board of directors shall determine. 11 12 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. 12 13 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. 13 14 ARTICLE VII FISCAL YEAR The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors. ARTICLE VIII DISTRIBUTIONS The Board of Directors may authorize, and the Corporation may make, distributions to its shareholders, subject to any restrictions in its articles of incorporation or provided by law. ARTICLE IX SEAL The corporate seal shall have inscribed thereon the name of the Corporation and the words "Corporate Seal, Delaware." The seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced, provided that the affixing of the corporate seal to an instrument shall not give the instrument additional force or effect, or change the construction thereof, and the use of the corporate seal is not mandatory. ARTICLE X WAIVER OF NOTICE Whenever any notice is required to be given under the provisions of these by-laws or under the provisions of the articles of incorporation or under the provisions of the Act, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Attendance at any meeting shall constitute waiver of notice thereof unless the person at the meeting objects to the holding of the meeting because proper notice was not given. 14 15 ARTICLE XI INDEMNIFICATION Each person who at any time is or shall have been a director, officer, employee or agent of this Corporation, or is or shall have been serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall be indemnified by this Corporation in accordance with and to the full extent permitted by the Act. The foregoing right of indemnification shall not be deemed exclusive of any other rights to which a person seeking indemnification may be entitled under any by-law, agreement, vote of shareholders or disinterested directors or otherwise. If authorized by the Board of Directors, the Corporation may purchase and maintain insurance on behalf of any person to the full extent permitted by the Act. If the Corporation pays indemnity or makes an advance of expenses to a director, officer, employee or agent, the Corporation shall report the indemnification or advance in writing to the shareholders with or before the notice of the next shareholders' meeting. ARTICLE XII AMENDMENTS Unless otherwise provided in the articles of incorporation, these by-laws may be made, altered, amended or repealed by the shareholders or the Board of Directors, but no by-law adopted by the shareholders may be altered, amended or repealed by the Board of Directors. 15 EX-10.(IV)(A)(9) 3 VESSEL CONVERSION AGREEMENT DATED 8/20/99 1 OWNER: /s/ JBA BUILDER: /s/ MJN VESSEL CONVERSION AGREEMENT HULL NUMBER: S-137 MAXIMUM PRICE: $6,454,432.00 REDELIVERY DATE: March 21, 2000 at Langley, Washington CONTRACT This Agreement entered into as of the 20th day of August 1999 BETWEEN NICHOLS BROTHERS BOAT BUILDERS, INC. (hereinafter called "BUILDER"). AND THE DELTA QUEEN STEAMBOAT CO. (hereinafter called "OWNER"). WITNESSETH: ARTICLE I - SCOPE A. All dates specified in this Agreement are material and of the essence unless otherwise stated. Subject to the terms of this Agreement and in exchange for the payment by OWNER to BUILDER on the Time and Materials basis hereafter defined but not to exceed the sum of Six Million Four Hundred Fifty Four Thousand Nine Hundred Four Hundred Thirty Two U.S. Dollars ($6,454,432.00), BUILDER agrees, at its own risk and expense, subject to and as qualified by the other terms and conditions of this Agreement, to complete the scope of conversion work defined herein and redeliver to OWNER afloat at the redelivery point specified in Article II-D below, on or before the REDELIVERY DATE specified above, the M/V Columbia Queen (hereinafter called the "Vessel") converted, outfitted, trialed and issued a temporary Certificate of Inspection ("COI") by the United States Coast Guard ("USCG") following ship conversion and outfit approval by the USCG Marine Safety Center ("MSC") in accordance with the following defined materials (collectively the "Contract Drawings"): (1) A preliminary ship construction specification ("Preliminary Ship Construction Specification") prepared by the BUILDER and agreed to by the OWNER consisting of 27 pages but which excludes specifying the Interior of the Vessel; 2 OWNER: /s/ JBA BUILDER: /s/ MJN (2) A package prepared by Hopeman Brothers Marine Interiors ("Hopeman"), a subcontractor of the OWNER whose work and responsibilities are outside of the BUILDER's scope, agreed to by the OWNER and BUILDER, to describe the Interior of the Vessel consisting of 74 pages of drawings and narrative matter amounting to an additional 12 pages (the "Interior Specification"), and when the capitalized work "Interior" is used hereafter, it shall mean the Interior of the Vessel as is defined in the Interior Specification; (3) A preliminary and unfinalized general arrangement drawing prepared by Rodney E. Lay & Associates (the "Architects"), the OWNER's naval architects, and a drawing of the transverse sections prepared by Andrea Piacentiai (together 5 pages called the "Preliminary GA"); (4) Additional technical drawings and accompanying technical narrative explanation as yet unprepared by the Architects in final form but which are listed in a 14 page writing for the conversion of the Vessel and for all of its systems and outfit excluding the Interior to be completed by the OWNER's Architects and agreed with the BUILDER under paragraph D(1) of this Article I and when so prepared to be known as the "Architects Technical Conversion Plans"; and (5) A complete and final specification for the conversion and outfit including systems of the Vessel excluding the Interior (the "Final Ship Construction Specification"), as yet unprepared but to be completed by the BUILDER and agreed with the OWNER under paragraph C of this Article I. A true and complete copy of the Preliminary Ship Construction Specification, the Interior Specification, the Preliminary GA and the writing listing the drawings to be the Architects Technical Conversion Plans have been certified by the parties by initialing each page thereof and reflecting the date of certification as concurrent with execution of this Agreement and are sometimes referred to collectively hereafter as the Preliminary Conversion Scope. The Architects Technical Conversion Plans and the Final Ship Construction Specification when completed shall be likewise certified and when so completed, approved and certified shall together with the Interior Specification be sometimes collectively referred to hereafter as the Final Conversion Scope. Should Hopeman later prepare and the OWNER and BUILDER both assent to a more detailed specification and description of the Interior than that certified as of the date of this Agreement, then such later and more detailed matter shall be reduced to writing, referred to thereafter as the Final Interior Specification and considered within the Final Conversion Scope, and be likewise certified. Any Additional Work required of the BUILDER in the Architects Technical Conversion Plans or in any such Final Interior Specification which is additional to work required of or the capacity of systems to be supplied by the BUILDER under the Preliminary Ship Construction Specification and considering the Interior Specification certified as of the date of this Agreement (specifically including, without limitation, increased main 2 3 OWNER: /s/ JBA BUILDER: /s/ MJN propulsion plant, electrical power generation requirements, or increased HVAC system cooling or heating requirements) will be subject to the provisions of Article VII hereof. B. OWNER shall at the times hereafter specified pay BUILDER (i) the sum of USD ___ per hour for all production and shipyard production management and engineering time spent on the Vessel under this Agreement; (ii) the BUILDER's actual cost (including freight and insurance in transit) to purchase all materials, equipment, systems and to pay all subcontract and professional work together with a markup of ___ thereon; and (iii) the premiums for the builder's risk and ship repairer's liability insurance coverages required of the BUILDER together with no markup; all not to exceed $6,454,432 (the "Maximum Price") unless the Maximum Price is increased pursuant to Article VII hereof. The BUILDER's scope of work within the Maximum Price and presently defined in the Preliminary Ship Construction Specification includes an allowance of ________ for types of support work identified in the Preliminary Ship Construction Specification on the part of the BUILDER for Hopeman's construction and installation of the Interior (hereafter the "Hopeman Builder Support Allowance"). If the final total of the Builder's charges under subclauses (i) through (iii) in this paragraph B upon Redelivery including the net expense of all changes under Article VII (the "Final Price") is less than the Maximum Price, the savings shall be shared equally by OWNER and BUILDER and the amount of the Article IV-B Redelivery Payment shall be adjusted accordingly. For the avoidance of doubt, the OWNER may not assert that BUILDER having accomplished one particular budgeted area of its work (such as, for example, piping) for less than the BUILDER's budgeted sum for such area operates, taken alone, to amount to a saving below the Maximum Price. To the contrary, the Final Price is measured and computed as provided in this paragraph and Article and under Article VII as a single aggregate number for all BUILDER work, then to be measured as a single Final Price number against the Maximum Price. C. BUILDER agrees to furnish a suitable location at its shipyard for the conversion of the Vessel, and all labor, tools, equipment, materials, services and fees necessary for the conversion of said Vessel, except for the construction and installation and outfit of the Interior and except as otherwise indicated in the Preliminary or Final Conversion Scope. BUILDER agrees by not later than September 10, 1999, to complete and furnish to OWNER, for OWNER'S approval to be given or withheld within ten days of receipt thereof, and not to be withheld unreasonably, the Final Ship Construction Specification. The Final Ship Conversion Specification shall, except for any additional work not identified in the Preliminary Conversion Scope but identified by the BUILDER, OWNER or any regulatory body as necessary for USCG or U.S. Public Health Service ("USPHS") regulatory approvals and agreed to by both BUILDER and OWNER (which shall be deemed "Additional Work"), comport with the scope and quality and extent of conversion, outfit and finish work for the Vessel presently defined in The Preliminary Ship Construction Specification and the Preliminary GA and be consistent with the Vessel's system performance requirements derived from the Interior Specification (as distinguished from the Final Interior Specification); and shall comply with and be to a level of detail adequate for USCG MSC and USPHS regulatory approval for an overnight USCG Subchapter H vessel restricted to operate in protected harbors and navigable 3 4 OWNER: /s/ JBA BUILDER: /s/ MJN inland waterways excepting the Great Lakes. Work by the BUILDER under this Agreement is based on the understanding that the OWNER intends to operate the Vessel east of Astoria in the Columbia/Snake/Willamette system. D. (1) OWNER agrees to furnish, through the Architects selected and engaged by Owner, to BUILDER for BUILDER'S approval, to be given or withheld within ten days of receipt thereof, and not to be withheld unreasonably, by September 10, 1999, the entirety of the Architects Technical Conversion Plans completed to preliminary design level or to any greater level of detail necessary for USCG MSC and USPHS regulatory approval for an overnight USCG Subchapter H vessel restricted to operate in navigable inland waterways east of Astoria in the Columbia/Snake/Willamette system. Although the Interior Specification and not the Architects Technical Conversion Plans will specify the Interior, it shall be the responsibility of the Architects to include in the Architects Technical Conversion Plans such fire load and other safety aspects of the Interior as may be required by USCG for the USCG approvals sought. The Architects Technical Conversion Plans shall, except for any Additional Work identified by the Architects as necessary for USCG or USPHS Vessel regulatory approvals (which shall be included but noted as Additional Work), comport with the scope and quality and extent of conversion, outfit and finish work for the Vessel and her Interior presently defined in the Preliminary Conversion Scope and shall comply with the requirements of the USCG and USPHS for approval of an overnight USCG Subchapter H vessel to operate in navigable inland waterways east of Astoria in the Columbia/Snake/Willamette system. The OWNER and the Architects shall be solely responsible to provide in the Architects Technical Conversion Plans, and otherwise to notify the BUILDER in writing, of any changes or measures not already provided for in the Preliminary Conversion Scope which the OWNER desires or requires for accesses and measures responsive to such if any of the ADA Accessibility Guidelines as may be applicable to the Vessel and which, if so identified in the Architects Technical Conversion Plans or otherwise, shall be subject to the provisions of Article VII hereof together with any Additional Work identified in the Architects Technical Conversion Plans. The BUILDER shall have no responsibility for compliance with the ADA except to faithfully perform and not deviate from the scope of work identified in this Agreement. It shall be the responsibility of OWNER and the Architects to apply and pay all fees for and make all necessary submissions to USCG for MSC approval; but it shall be the responsibility of BUILDER to furnish timely to OWNER or the Architects all matters required of the BUILDER under this Agreement which are necessary to support such USCG MSC approval process. (2) Utilizing the Preliminary Conversion Scope documents and when completed and certified the Final Conversion Scope documents, BUILDER shall be responsible within the Maximum Price to prepare all Production Drawings which are necessary or useful for the personnel and vendors and subcontractors of the BUILDER to complete timely the conversion by the Redelivery Date in accordance with the Final Conversion Scope, except that this responsibility does not extend to preparing Production Drawings for Hopeman's work to construct the Interior. The BUILDER shall furnish any and all to-then completed Production Drawings requested by OWNER or the Architects to assist in any USCG MSC or other reviews, and BUILDER shall upon Redelivery furnish one copy 4 5 OWNER: /s/ JBA BUILDER: /s/ MJN of all Production Drawings to the OWNER. BUILDER shall in addition be responsible to prepare drawings which reflect the Vessel and all of her converted systems as actually constructed, except for the Interior (the "As-Built Drawings"), and shall furnish to OWNER upon Redelivery one copy of the As-Built Drawings as are to-then completed and two copies of all of the final As-Built Drawings within 90 days after Redelivery. (3) If the Final Conversion Scope increases the amount of the Hopeman Builder Support Allowance or the OWNER determines to have it include any other contingency factor, the same shall be identified and the Maximum Price shall be increased accordingly. In such event the cost of any changes under Article VII shall not further increase the adjusted Maximum Price unless, if at all, aggregate costs of changes net of changes which decrease cost under Article VII exceed the amount of the increased allowance and/or any such added contingency factor. E. BUILDER will provide and install ready for use all parts, equipment and appurtenances shown in the Final Conversion Scope and including such OWNER Furnished Items as are identified in the Final Conversion Scope but excepting all parts, equipment and appurtenances in the Interior Specification. The OWNER shall supply the OWNER Furnished Items identified in the Final Conversion Scope by the dates for the same listed in the Final Conversion Scope (or such other dates as may be later agreed in writing between OWNER and BUILDER). BUILDER shall store, safeguard and handle all OWNER Furnished Items both prior to and after placement on board and BUILDER shall allow sufficient working area and time to allow the timely and safe installation of equipment and loading of supplies by Redelivery. F. BUILDER will allow OWNER and the OWNER Representative at all reasonable times to examine the Vessel during conversion. The rights to inspect, if and when exercised, shall not be deemed a waiver of BUILDER's responsibilities hereunder, subject to the terms of Article XIII-B. G. BUILDER shall, by not later than September 10, 1999, provide to OWNER in writing for approval within five (5) business days, not to be withheld unreasonably, an initial Construction Schedule. The Construction Schedule shall be updated by BUILDER every thirty (30) days thereafter if necessary to reflect changed circumstances as a result of the Architects Technical Conversion Plans, any Final Interior Specification, Additional Work, or changes or events otherwise arising under Articles V or VII hereof. Any such updates to the Completion Schedule shall identify any changes reasonably required from dates in the Final Conversion Scope required for delivery by OWNER to BUILDER of OWNER Furnished Items. It shall be the responsibility of OWNER to insure that the construction and installation activities of Hopeman do not interfere with so as to delay the BUILDER's ability to meet the Construction Schedule. It shall be the responsibility of BUILDER timely to provide the support in the Hopeman Builder Support Allowance and to in good faith cooperate with the OWNER and its contractors. H. BUILDER will do all work hereunder in a good and workman-like manner in accordance with the Final Conversion Scope (and, in the interim, the Preliminary Conversion Scope). 5 6 OWNER: /s/ JBA BUILDER: /s/ MJN All material and equipment shall be in accordance with the Final Conversion Scope (and, in the interim, the Preliminary Conversion Scope). I. Any dispute between OWNER and BUILDER as to whether the Builder has legitimately identified Additional Work in the Final Ship Construction Specification or whether either party has reasonably or unreasonably withheld their approval under paragraphs C, D(1) or G of this Article I shall be determined summarily pursuant to paragraph B of Article XI hereof. ARTICLE II - DELIVERY & REDELIVERY A. OWNER shall, at its own expense and risk, transport and deliver the Vessel afloat on her own bottom positioned above BUILDER's launch/haul submerged apparatus to the BUILDER close inshore within Holmes Harbor for conversion in accordance with the terms and conditions of this Agreement to so arrive at the facility of the BUILDER no later than September 21, 1999, and by such date the OWNER shall have performed the OWNER's scope and extents of removal and preparatory work upon and within the Vessel as are specified in the Preliminary Conversion Scope. Upon delivery, the OWNER and the BUILDER shall execute a certificate of delivery and release. B. The BUILDER shall, at its own expense and risk, receive, store, protect, and install aboard the Vessel all Owner Furnished Items identified by the Final Conversion Scope (or, in the interim, the Preliminary Conversion Scope). The BUILDER shall be liable to the OWNER for any damage or loss of OWNER Furnished Items occurring during the BUILDER's custody thereof except as otherwise provided in this Agreement. C. BUILDER agrees, subject to the other provisions of this Agreement, to complete the conversion excepting the Interior and to redeliver the Vessel to OWNER free and clear of all liens, claims and encumbrances, except any arising by or through OWNER (including any of OWNER's subcontractors and/or vendors); and OWNER agrees to accept Redelivery and pay all unpaid sums due to the BUILDER under this Agreement upon completion of conversion of the Vessel, satisfactory trials specified in the Final Conversion Scope ("Trials"), and issuance of USCG regulatory approvals for the Vessel as converted and a temporary COI for her operation. It shall be the responsibility of the OWNER and not the BUILDER to create and submit the Architects Technical Conversion Plans to levels of detail and having content acceptable to MSC and USCG, to specify and construct and install the Interior to levels and in manners (including by selecting materials relative to fire load calculations) likewise acceptable to MSC and USCG, and to demonstrate to USCG the compliance and qualification of its crew and any of its management and training and monitoring systems and facilities relating to the Vessel which are necessary for issuance of the COI (collectively, the "OWNER Regulatory Responsibilities"). If lack of qualification, compliance or demonstration under the immediately preceding sentence or if delay or default by OWNER or its Architects or Hopeman under such OWNER Regulatory Responsibilities is the cause which prevents one or more such issuances, OWNER shall pay BUILDER the Redelivery 6 7 OWNER: /s/ JBA BUILDER: /s/ MJN Payment notwithstanding the absence of such USCG regulatory approvals and notwithstanding that a temporary or permanent COI has not been issued. D. BUILDER agrees to redeliver the Vessel to OWNER in accordance with this Agreement at BUILDER's berth at Langley, Washington, safely afloat, following satisfactory completion of Trials, on or before the Redelivery Date specified on page 1 of this Agreement or such later date as may be allowed by reason of changes in the Vessel under Article VII hereof or Permitted Delays under Article V hereof. E. The Vessel shall be inspected by OWNER at BUILDER's shipyard and during Trials. BUILDER shall execute a Certificate of Completion and Redelivery in a form reasonably acceptable to OWNER which certifies compliance with and full performance of the obligations of the BUILDER under this Agreement at the time of Redelivery for such Vessel. OWNER shall accept the Vessel if it is completed in accordance with the Final Conversion Scope and any changes performed in accordance with Article VII hereof. F. In the event that any work required of the BUILDER under this Agreement is not in fact completed at the time BUILDER tenders the Certificate of Completion and Redelivery, OWNER, shall have the option, if it in its sole discretion deems the Vessel fit for service, to take Redelivery of the Vessel and treat all "unfinished work" as a warranty obligation of the BUILDER under Article IX. In that event, Builder's Certificate of Completion and Redelivery shall specify all unfinished work. The parties shall agree as to the amount to be withheld from the Redelivery Payment and the Vessel shall be redelivered to OWNER upon OWNER paying the undisputed amount to BUILDER and by withholding the amount for "unfinished work" until such time that BUILDER completes the "unfinished work" and OWNER accepts the "unfinished work" as complete. BUILDER shall invoice OWNER for completion of "unfinished work" and, provided the work meets the standards of the Final Conversion Scope, OWNER shall, within ten (10) days of receipt of invoice, pay BUILDER. If OWNER does not exercise such option, BUILDER shall completely finish all contract work. G. BUILDER shall furnish OWNER on redelivery of the Vessel a Bill of Sale for the Vessel excepting the Interior, together with an assignment of all warranties by makers and manufacturers and the originals of all such warranties, and with such other documents as may be required by law or by any other regulatory agency of the United States having jurisdiction in the premises in order for OWNER to redocument the Vessel (excepting that BUILDER has no such responsibility relating to the Interior); and will assist OWNER, or its agent, in acquiring all required information to enable OWNER to obtain all documentation necessary to operate the Vessel as intended. However, it is understood that the required USCG approved drawings, the Interior and the OWNER Regulatory Responsibilities are the responsibility of the OWNER and/or the Architects and/or Hopeman. Any expense in connection with documentation of the Vessel shall be paid by OWNER. 7 8 OWNER: /s/ JBA BUILDER: /s/ MJN ARTICLE III - DOWN PAYMENT Before the date of this Agreement OWNER paid BUILDER the sum of $150,000 US dollars towards the OWNER down payment. Concurrent with the execution of this Agreement, OWNER shall pay BUILDER by wire transfer to the bank and account designated by BUILDER the additional sum of $815,765 which, together with the $150,000 so paid, equals $965,765 or approximately 15% of the Maximum Price. ARTICLE IV - SUBSEQUENT PAYMENTS A. OWNER agrees to pay to BUILDER by wire transfer at the place and in the manner specified in preceding Article III-A the following additional Interim Installment Payments for such Vessel: (i) 15% ($965,765) on September 2, 1999 provided that, by such date, the Vessel has been hauled at BUILDER's yard (unless the OWNER did not deliver it by September 1st in which case this element is eliminated), 60% of all materials and equipment have been ordered, 15% of engineering is complete, and 10% of steel prefabrication is complete; and (ii) 15% ($965,765) on October 4, 1999 provided that, by such date, the BUILDER has delivered the proposed Final Ship Construction Specification to OWNER, 90% of all materials and equipment have been ordered, 30% of engineering is complete, 70% of steel prefabrication is complete, and 20% of steel construction is complete; and (iii) 10% ($643,843) on November 1, 1999 provided that, by such date, 50% of engineering is complete, 70% of steel construction is complete, and 15% of all new Vessel systems preassembly or installation is complete; and (iv) 10% ($643,843) on November 29, 1999 provided that, by such date, 75% of engineering is complete, 90% of steel construction is complete and 50% of all new Vessel systems preassembly or installation is complete; and (v) 10% ($643,843) on December 27, 1999 provided that, by such date, 90% of engineering is complete, 70% of all new Vessel systems preassembly or installation is complete, and the main engines and reduction gears have been received at Builder's facility; and (vi) 10% ($643,843) on January 24, 2000 provided that, by such date, 80% of all new Vessel systems preassembly or installation is complete, 10% of exterior painting is complete, and 65% of deck equipment has been installed; and (vii) 10% ($643,843) on February 14, 2000 provided that, by such date, the main engines and reduction gears have been installed with the propulsion system 95% complete, 90% of all new Vessel systems installation is complete, 50% of exterior painting is complete, 8 9 OWNER: /s/ JBA BUILDER: /s/ MJN 90% of deck equipment has been installed, and 50% of the bridge equipment has been installed. In addition: B. Upon Redelivery of the Vessel in accordance with this Agreement, and upon acceptance thereof by OWNER at BUILDER's shipyard in accordance with the Agreement, OWNER agrees to pay the BUILDER against BUILDER's invoice the Redelivery Payment consisting of: 1. $321,922 (5%). 2. Any applicable State or Local Sales and/or Use Taxes none of which will be due for the State of Washington provided OWNER timely executes and files its certificate of tax exemption for a Vessel exported from such State's waters within 45 days of completion. 3. Plus any changes resulting from agreed or determined changes under Article VII in the Preliminary Conversion Scope or in the Final Conversion Scope, or if the Final Price is less than the Maximum Price, then instead Less one-half the savings achieved. 4. Less any liquidated damages for delay in accordance with Article VI below. The parties agree that the sum of the foregoing installment payments and the Down Payment are $16,000 less than the Maximum Price. The Maximum Price includes an allowance of $16,000 towards the estimated cost of the Builder's Risk Insurance premiums for 6 months for which OWNER is responsible under this Agreement but which are to be billed monthly by BUILDER to OWNER and paid by OWNER separate from the foregoing installment payments. Notwithstanding the foregoing, OWNER may initiate and BUILDER shall approve a change in accordance with Article VII for the full amount of any Builder's Risk premium included in the Maximum Price. In such case, OWNER shall be obligated to place the Builder's Risk Insurance required under this Agreement and tender the policy to the BUILDER. C. BUILDER will give OWNER notice of intended date of issuance of each "Stage Completion Certificate" not less than seven days calendar before issuance and OWNER's Representative shall forthwith inspect progress claimed in such Certificate so that payment for work if completed as claimed is not delayed. All Interim Installment Payments and the Redelivery Payment will be due by wire transfer to such bank and account for the BUILDER as BUILDER specifies to OWNER in writing. D. Each of the Interim Installment Payments shall be payable within seven calendar days after presentation of BUILDER's invoice and the accompanying BUILDER's Stage Completion Certificate provided that BUILDER is then not in breach of this Agreement; and the Redelivery Payment shall be payable upon BUILDER's invoice at time of Redelivery provided that BUILDER has fulfilled its obligations due under this Agreement to OWNER and owed at or before the time of Redelivery. E. The BUILDER shall furnish a Stage Completion Certificate for each Interim Installment Payment which shall state (i) the stage of contract work achieved in specific relation to 9 10 OWNER: /s/ JBA BUILDER: /s/ MJN the subparts of paragraph A of Article IV hereof; (ii) that the contract work completed complies with the Final Conversion Scope (or, if before the Final Conversion Scope is defined, with the Preliminary Conversion Scope) and this Agreement; and (iii) that there are no liens or claims upon said Vessel for labor, materials or equipment for said Vessels, except those created by or through the OWNER. The Stage Completion Completion Certificate shall be executed and certified by an officer of BUILDER. F. If OWNER objects upon receipt of the Stage Completion Certificate on grounds that the pertinent stage has not been reached, or for any other bona fide reason, any such dispute shall be summarily determined under paragraph B of Article XI hereof. The OWNER shall be entitled to withhold payment until the matter is determined, but if the dispute is determined in favor of the BUILDER the OWNER shall be obligated to pay BUILDER (irrespective of whether or not expressly stated in the decision) forthwith the stage payment due and in addition interest at the prime rate plus two percent (on a per annum basis) for the period during which payment was withheld. G. The BUILDER shall certify in the Certificate of Completion and Redelivery that, excepting that no representation is made as to the Interior: (i) the Vessel has been completed; (ii) all Trials have been satisfactorily completed; (iii) the Vessel complies with the Final Conversion Scope and this Agreement and is free from defects in materials and workmanship; (iv) there are no liens or claims upon the Vessel for materials, equipment or labor for said Vessel except any created or incurred by or through the OWNER; and (v) the BUILDER has performed all obligations due from it to the OWNER under this Agreement at time of Redelivery. H. The making of the Interim Installment Payments or Redelivery Payment with respect to the Vessel shall not stop the OWNER from thereafter asserting any right or remedy accruing to it because of the failure of the BUILDER to convert and redeliver the completed Vessel in accordance with the terms hereof. ARTICLE V - PERMITTED DELAYS A. All agreements of the BUILDER contained in this Contract respecting the Date of Redelivery of the Vessel shall be subject to extension by one day for each day: (i) after September 21, 1999 that the Vessel is delivered by OWNER to BUILDER; (ii) that the OWNER is in violation of its payment obligations under this Agreement (excluding any periods of withholding permitted under paragraph F of preceding Article IV); (iii) that the Architects Technical Conversion Plans are late, that activity by Hopeman delays BUILDER meeting the Construction Schedule, that Hopeman completes the Interior after March 20, 2000, or that the OWNER is late in delivering OWNER Furnished Items by the dates required under this Agreement; and (iv) by reason of "Force Majeure," which term is hereby declared to be actual delay (subject to the limitation on delay in paragraph B of this Article) in the course of conversion caused by natural forces, fire, explosion, or persons not under the control of BUILDER and not caused or contributed to by the negligence of the BUILDER and subject to the succeeding paragraphs of this Article V. 10 11 OWNER: /s/ JBA BUILDER: /s/ MJN B. Delays in receiving supplies, materials and equipment shall not be considered Force Majeure unless (a) caused by strikes or lockouts of workmen other than employees of the BUILDER or (b) BUILDER establishes to the reasonable satisfaction of OWNER that (1) BUILDER timely ordered such supplies, materials and equipment, (2) BUILDER exercised due diligence to obtain delivery, and (3) no other source of supply was reasonably available (relative price being a factor to be considered). C. Delays caused by weather conditions shall not be Force Majeure except where caused by lightning, flood, windstorm, hurricane, tornado, calamitous act of God or nature, or by extraordinary rains which prevent work for three (3) consecutive days. D. BUILDER may rely on the provisions of this Article V to complete the conversion and redeliver without liquidated damages later than the Redelivery Date specified at page 1 of this Agreement provided that BUILDER informs the OWNER in writing of the occurrence of a circumstance of Permitted Delays within five (5) business days of its occurrence and to include with that notice a description of the event and its expected duration; but there shall be no such requirement for such notice or notice under the next following sentence as to any circumstance of Permitted Delay under subclauses (i) or (ii) of paragraph A of this Article. BUILDER shall inform OWNER of the end of a circumstance of Permitted Delay within five (5) business days of its cessation and include an estimate of the delay in Redelivery Date, if any, caused by that event. Failing such notices, BUILDER shall not have the benefit of this Article for said event. The BUILDER shall maintain records of such delays and allow OWNER to inspect same upon request at all reasonable times. The Redelivery Date for the Vessel shall automatically be extended for the period specified in paragraph A of this Article unless the OWNER, within five (5) business days after receiving either of the aforesaid notices, shall state with particularity its objections in writing to BUILDER, in which event any such dispute shall be determined summarily under the provisions of paragraph B of Article XI hereof. ARTICLE VI - LIQUIDATED DAMAGES PROVISIONS A. All work on the Vessel contemplated hereunder shall be completed (including completion of satisfactory Trials) and redelivery on the Vessel effected on or before the Redelivery Date set forth on the first page of this Agreement or such extensions of time as are provided for herein, except that BUILDER has no responsibility for the Interior and no responsibility for late Redelivery if construction or installation of the Interior delays Redelivery, except that BUILDER must timely perform its defined work tasks within the Hopeman Builder Support Allowance. Both parties recognize that during conversion OWNER will make contracts depending upon the use of the Vessel so that redelivery time is of the essence and that redelivery delay will result in substantial damages not susceptible of accurate calculation. In the event the Vessel is not converted and redelivered to the OWNER on the Redelivery Date (or on such later date as is permitted to the BUILDER without liability under Article V hereof), OWNER will deduct from 11 12 OWNER: /s/ JBA BUILDER: /s/ MJN Redelivery Payment for the Vessel the sum of _____________ U.S. Currency (US _________) per day for the first twenty-one (21) days after which redelivery was due but not made until the actual redelivery, and the additional sum of ____________________ U.S. currency ____________ per day for each day after the first twenty-one days after which redelivery was due but not made until actual redelivery, but with such deduction to in no event exceed in the aggregate the sum of ______________________________________ ($_______). This agreement for the payment of liquidated damages for late delivery is not a penalty but a good faith agreement to compensate the OWNER for foreseeable damages presently difficult or impossible later to calculate; is in lieu of all other damages, direct or consequential, which may result to OWNER from delay; and is OWNER'S sole and exclusive remedy for late redelivery. B. In the event the parties are unable to agree on the above reduction of the Redelivery Payment, the Vessel shall nevertheless be redelivered to OWNER upon OWNER paying the undisputed amount to BUILDER and by placing the disputed portion of the delivery in a Certificate of Deposit with a bank or in prime grade commercial paper of OWNER's choice, withdrawable only upon signatures of both OWNER's and BUILDER's attorneys, interest to be accumulated and payable in proportion to the resolution of the dispute, and the certificate to be held by BUILDER'S attorneys. Funds shall be disbursed according to the determination made as to the disputed portion under Article XI. ARTICLE VII - CHANGES IN SPECIFICATIONS AND CONTRACT DRAWINGS A. Subject to the provisions of this Article, the right is reserved by OWNER to make any deductions for or additions or substitutions to the Preliminary Conversion Scope and to the Final Conversion Scope on giving due notice in writing to BUILDER. If so, the cost (if any) of any such changes shall be paid to the BUILDER under this Article and if applicable added to the Maximum Price to the extent permitted under paragraph B of Article I hereof. If any such change will delay the completion of the work, BUILDER will be allowed additional time sufficient to cover such delay. Within three (3) business days after receiving a proposed change order from OWNER, the BUILDER shall advise the OWNER in writing of the increased or reduced cost and any additional time required or any reduction in conversion completion time occasioned by the change, if the change is performed, and the OWNER shall accept or reject the advised impacts from the BUILDER within three (3) further business days after receipt of the advised impacts from BUILDER. The provisions of the last sentence of paragraph B of Article I shall apply if aggregate changes decrease the Maximum Price of the Final Conversion Scope. BUILDER also may propose changes in writing to OWNER and if so shall include advised impacts. If so, OWNER, while hereby agreed to be under no obligation to agree to any of the same, promises to give good faith consideration to any changes proposed which will reduce cost without sacrifice in Vessel outfit, finish or performance. B. The BUILDER shall advise the cost (or reduced cost impact) of any change on a fixed price or fixed sum basis unless, in an unusual circumstance where the BUILDER states and the OWNER agrees that unknown variables involved with a change make fixed price 12 13 OWNER: /s/ JBA BUILDER: /s/ MJN performance not reasonably possible, the OWNER and BUILDER instead agree to effect a change on a time at ___/hour and materials/subcontract at cost plus ___ markup basis (with or without overtime at ___/hour to mitigate delay impacts), but in such event not to exceed a specified overall limit for the cost of the change. C. Changes from the Final Conversion Scope (or, when earlier applicable, from the Preliminary Conversion Scope) and which are Additional Work or are required by the Architects based upon regulatory considerations or required by the USCG or other regulatory body shall be performed by the BUILDER notwithstanding paragraph E of this Article. All such mandatory changes shall be considered as if coming from the OWNER under paragraph A of this Article and handled and determined under this Article; but if mandatory changes require work different from that specified in the Final Ship Construction Specification because the Final Ship Construction Specification failed or omitted to identify work required by regulatory considerations published as of the date of this Agreement, the cost of such work shall be absorbed by the BUILDER without charge or expense to the OWNER and without increase in the Maximum Price or extension of the Redelivery Date. D. BUILDER's scope of work under this Agreement assumes that construction work previously performed by the first builder of the Vessel on those portions of the Vessel not to be repaired or modified by BUILDER under this Agreement were then and will remain acceptable to USCG. Rework in such areas to the extent required by USCG shall be deemed a change for purposes of this Article except for defects actually observed by the BUILDER during preliminary inspection of the Vessel at berth in Louisiana before the date of this Agreement and which were neither informally reported by BUILDER to OWNER as representing a risk of required work nor provided to be performed within the Preliminary Conversion Scope. Work and assistance by the BUILDER for Hopeman to the extent provided for in the ________ Hopeman Builder Support Allowance shall not be a change under this Article; but if work requested by Hopeman or by OWNER for Hopeman exceeds such Hopeman Builder Support Allowance and there is then no increase of such Allowance or other contingency factor in the Final Conversion Scope for such excess, then any such Additional Work request relating to Hopeman shall be deemed a request for a change coming from the OWNER under paragraph A of this Article and to be determined in accordance with the applicable provisions of this Article. E. Except for changes falling under paragraph C of this Article, BUILDER shall not be obligated to perform a change directed by OWNER unless the amount and impacts have first been agreed under this Article or have otherwise been summarily determined, as all such disputes over proposed changes under this Article shall be, under paragraph B of Article XI hereof. F. No provision has been made for the performance of overtime work by the BUILDER which, if authorized by the OWNER and performed, will require a labor charge of ___ per hour. The OWNER shall not be required to pay overtime labor rates unless OWNER expressly agrees or is otherwise specifically required to do so under this Article on account of a change. 13 14 OWNER: /s/ JBA BUILDER: /s/ MJN G. Notwithstanding any provision of this Article, the OWNER may not propose by change order to redesignate any major ship's systems specified by BUILDER in the Preliminary Ship Construction Specification or in the Final Ship Construction Specification (such as main propulsion, electrical power generation, HVAC, LSA, communications aids or navigation or monitoring/alarm systems, to be removed from the BUILDER's scope and responsibility and instead to be supplied as OWNER Furnished Items. For the avoidance of doubt, the OWNER may further specify the detail of Vessel systems and outfit but may not delete entire systems from BUILDER's scope. H. If aggregate OWNER changes so reduce the Final Conversion Scope as to reduce the Maximum Price below __________, then BUILDER is relieved of its agreement to have charged ___/hour for labor and shall instead be deemed to have charged, and the OWNER deemed to have agreed to pay, from inception, the sum of ___/hour for labor. ARTICLE VIII - RISKS AND INSURANCE A. Excepting all labor and the value of work for Hopeman and all materials and components and equipment and elements intended to comprise the Interior, all risks of damage to or destruction of the Vessel, to all machinery, materials and equipment provided by BUILDER and any OWNER Furnished Items timely reported by OWNER to BUILDER under this Article, and all liability to or for labor employed by the BUILDER and subcontracted effort arranged for by the BUILDER on or about the Vessel from the time the Vessel is delivered and released to the BUILDER during conversion (including Trials) and up to redelivery and acceptance shall be the responsibility of the BUILDER. Full form Builder's Risk Insurance acceptable to OWNER (including loss or damage caused by strikes, locked-out workmen or persons taking part in labor disturbances or riots, or civil commotions, without deletions of protection and indemnity and collision clauses, and including risks of earthquakes, with endorsements attached covering losses or damage caused by vandalism and malicious mischief) will be maintained by BUILDER at BUILDER's expense and cover the cash value of BUILDER's work in progress, the value of timely reported OWNER Furnished Items and, notwithstanding the initial sentence of this paragraph excepting the Interior from BUILDER's uninsured risk, include in such coverage the timely reported value of work in progress by Hopeman. BUILDER shall invoice OWNER monthly for the premium cost of the Builder's Risk insurance for the declared Hopeman and Owner Furnished Items and OWNER shall pay such invoice with 14 days. BUILDER shall maintain Workmen's Compensation, Longshoreman's and Harborworker's Compensation not less than minimum required by statute, and Public Liability Insurance of $5,000,000. BUILDER shall provide relevant copies of insurance policies prior to signing of this Agreement. OWNER and OWNER's subcontractors, including specifically but without limitation Hopeman, shall maintain workman's compensation, longshoreman's and harbor worker's compensation insurance not less than the minimum required by statute, and public liability insurance of $5,000,000. OWNER and OWNER'S subcontractors shall provide relevant copies of insurance policies prior to commencing any work at BUILDER's shipyard or on Vessels. 14 15 OWNER: /s/ JBA BUILDER: /s/ MJN In addition, OWNER shall procure or otherwise require Hopeman to procure and maintain in full force and effect at all times from the date of this Agreement until redelivery, Ship Repairers Liability Insurance (that is, third party liability with products liability or completed operations coverage) meeting the same standards of coverage as are required of the BUILDER's coverage under paragraphs A and B of this Article, and which names BUILDER as an additional insured as interests may appear. This policy shall provide physical damage loss coverage in an amount and with insurance carriers reasonably acceptable to BUILDER and OWNER. B. The Builder's Risk Insurance and Public Liability Insurance required of the BUILDER shall be taken out in the name of BUILDER and OWNER and any "Construction Financing Entity," and all casualty losses under such policies shall be payable to the BUILDER and OWNER and "Construction Financing Entity," as their interests may appear. The policy shall provide that there shall be no recourse against the OWNER for payment of premiums or other charges and shall further provide that at least thirty (30) days' prior written notice of any cancellation for the non-payment of premiums or other charges shall be given to the OWNER by the insurance underwriters. The originals of all cover notes and policies shall be delivered to the BUILDER, with duplicates thereof to OWNER. Policies not in conformance herewith shall be conformed or surrendered and canceled upon direction of the OWNER and new policies procured in conformance herewith. C. If, prior to Redelivery and Acceptance by OWNER, the Vessel, its machinery, equipment or material including OWNER Furnished Items timely reported under this Article (but excluding the value of labor for and of all materials and equipment and components and elements of the Interior) shall be damaged, such damage shall be repaired by the BUILDER or replacement shall be supplied by the BUILDER at its sole cost and expense but in such event all proceeds of insurance covering such loss shall be payable only to the BUILDER. The BUILDER shall have no responsibility to repair damage to the Interior unless caused by or through the BUILDER and, if not so caused by or through the BUILDER, unless paid for such work by insurance proceeds or by the OWNER. D. For actions from the time of Delivery and Release of the Vessel by the OWNER to the BUILDER up to Redelivery and Acceptance of the Vessels, the BUILDER shall at its own cost and expense indemnify, protect and defend the Vessel and the OWNER against any and all claims and costs and expenses incident thereto (including reasonable Attorney's fees and costs) arising from injury to, or death of, employees, workmen, BUILDER's subcontractors, trespassers, licensees, invitees (other than private entity invitees of OWNER) and all other persons (except for Hopeman and all employees, subcontractors, vendors, freight forwarders, and agents of Hopeman) and from property damage to the property of BUILDER, BUILDER's subcontractors, their employees, workmen, licensees, invitees or vendors, whether in or on or about the Vessel and the work to be performed hereunder regardless of cause unless caused by the active negligence of OWNER or OWNER's subcontractors, their employees, agents or vendors. It is expressly understood that workmen other than compensated employees or 15 16 OWNER: /s/ JBA BUILDER: /s/ MJN subcontractors of OWNER, engaged upon the work on the Vessel, shall at all times be employees or subcontractors of the BUILDER and not of the OWNER. E. For actions prior to Redelivery and Acceptance of the Vessels, the OWNER shall at its own cost and expense indemnify, protect and defend the Vessel and the BUILDER against any claim and costs and expenses incident thereto (including reasonable Attorneys' fees and costs) arising from injury to or death of OWNER's and Hopeman's employees, workmen, subcontractors, vendors, freight and other agents, and private entity invitees; and from property damage to the property of OWNER and Hopeman, OWNER's subcontractors, their employees, workmen, freight and other agents, and private entity business invitees and vendors, whether in or on or about the Vessel and the work to be performed hereunder, regardless of cause but unless caused by the active negligence of BUILDER, BUILDER's subcontractors, their agents, employees or vendors. F. In the event there is an actual total loss or constructive total loss of the Vessel, this Agreement shall be terminated upon receipt of payment of any such loss to OWNER and BUILDER, and any "Construction Financing Entity" as interest may appear, of the proceeds of the insurance required pursuant to this Article VIII for such actual loss or constructive total loss, or if such actual total loss or constructive total loss shall occur through the operation of a risk not covered by insurance for which the BUILDER assumes the risk as herein set forth, upon receipt by OWNER of payment of the full amount as interest may appear. G. For purposes of this Article VIII, it is agreed that "as interest may appear" shall be construed to mean that OWNER and any "Construction Finance Entity" are entitled to a refund of amounts paid by OWNER as Down Payment and Interim Installment Payments, BUILDER is entitled to amounts owing for conversion work completed and/or damage repair work completed or due but not yet billed and paid, and OWNER is entitled to the balance of any insurance proceeds. H. OWNER shall identify and report to BUILDER the cash value and a description in detail sufficient to BUILDER's insurer of OWNER Furnished Items and of and for the Interior at least monthly to permit the BUILDER's reporting to same to its insurer in order to obtain Builder's Risk coverage therefor. I. OWNER shall assure that OWNER and OWNER's subcontractors and vendors and agents and private entity invitees, and all of their respective employees, while on the premises of the BUILDER, obey all identified shipyard safety rules and regulations (including specifically maintaining fire watch and fire safety provisions) and obey all applicable state and federal OSHA standards for worker safety; and do not damage or disrupt the facilities of the BUILDER or the BUILDER's various works in progress. 16 17 OWNER: /s/ JBA BUILDER: /s/ MJN ARTICLE IX - BUILDER'S WARRANTY A. Except for the Interior, BUILDER warrants that the Vessel will be converted in accordance with the Final Conversion Scope in a good and workmanlike manner, free from defects in material and workmanship; and BUILDER agrees at BUILDER's expense including transporting labor and supplies to repair or replace any defects discovered within 365 days of Redelivery excepting defects in Owner Furnished Items or in machinery and equipment manufactured and warranted by others and excluded from BUILDER's express limited warranty under this Article; and BUILDER shall assign and subrogate to OWNER all warranties by said manufacturers and agrees to extend full cooperation to OWNER, as needed, to coordinate in enforcing such warranties. This express written limited warranty is in lieu of all other express or implied warranties. This limited warranty is Builder's only warranty to Owner that survives or continues in force after the Redelivery of the Vessel and is expressly in lieu of any other warranties. THE TERMS OF THIS EXPRESS, LIMITED WARRANTY EXCLUDE ANY AND ALL WARRANTIES WHICH ARE OR MAY BE IMPLIED BY LAW INCLUDING, WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND OF FITNESS FOR A PARTICULAR USE OR SPECIFIED PURPOSE. TO THE MAXIMUM EXTENT PERMITTED BY LAW, BUILDER SHALL NOT BE RESPONSIBLE FOR AND HEREBY DISCLAIMS ALL LIABILITY FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING WITHOUT LIMITATION ANY LOSS OF TIME, REVENUE AND/OR USE IN OPERATING OR REPAIRING THE VESSEL) SUFFERED BY OWNER OR ANY OTHER PERSON. Some states do not allow the exclusion or limitation of incidental or consequential damages so the above limitation or exclusion may not apply. This warranty gives Owner specific legal rights and Owner may have other legal rights which vary from state to state. ALL RIGHTS GRANTED TO OWNER UNDER THIS LIMITED WARRANTY ARE CONDITIONED UPON BEING EXERCISED IN THE TIME AND MANNER SPECIFIED IN THIS AGREEMENT AND THERE IS A SOLE AND EXCLUSIVE REMEDY OF REPAIR OR REPLACEMENT SPECIFIED IN THIS AGREEMENT. Builder's limited warranty does not apply to or include defects, damages or claims related to or arising from: (i) The Interior of the Vessel as defined in the Interior Specification; (ii) failure of Owner to perform required maintenance and servicing; (iii) abuse, misuse, accident, neglect, or improper operation by Owner; (iv) repairs or replacements not authorized by Builder or in violation of warranty terms; (v) normal wear and tear of any part that has a life inherently less than one year (for example: hoses, bulbs, belts, gaskets, filters, lubricants, etc.); (vi) Owner Furnished Items and any items or systems which are separately warranted by their makers 17 18 OWNER: /s/ JBA BUILDER: /s/ MJN for periods of not less than 12 months from the date of delivery, such as main engines, reduction gears, propellers, generators, watermakers, HVAC, bilge and fire pumps, refrigerators, stoves, life rafts, radars, navigation systems and radios, and the Interior; (vii) erroneous, inadequate or incomplete provisions in the Architects Technical Conversion Plans or in the Interior Specification or in any Final Interior Specification; (viii) latent defects in the steel hull and/or decks of the Vessel existing upon initial delivery of the Vessel to the BUILDER and not within the scope of BUILDER's responsibilities under this Agreement; and (ix) defects first appearing more than one year after Redelivery. B. No warranty is made by BUILDER with respect to paint, regardless of whether procured by BUILDER, except that same will be applied neatly in accordance with the manufacturer's recommendations and in accordance with Final Conversion Scope. C. In the event of any defect covered by BUILDER's guarantee, BUILDER promptly will make repairs or replacements at the expense of BUILDER at its yard, if practical, without expense to BUILDER for transporting the Vessel to and from the yard. Should it be economically impractical to deliver the Vessel to BUILDER's yard for warranty work which it presumptively shall be for warranty work having a reasonably foreseeable cost of less than ________, or should the warranty defect be such that it is unsafe to deliver the Vessel to BUILDER's yard or if the Vessel is not within 300 miles of the yard, BUILDER will pay the cost of repair or replacement performed at a mutually agreed place at or nearby OWNER's area of Vessel operations including all costs of transporting labor and supplies; and if any part of warranty correction work is not so performed by the BUILDER promptly after due notice, the BUILDER shall reimburse the OWNER for any cost incurred by the OWNER in effecting such repairs including, without limitation, if it does so with its own personnel. On a warranty claim the following procedure shall be followed: 1. OWNER shall give prompt notice and BUILDER shall have reasonable time and opportunity, under the circumstances, to inspect the Vessel before work is undertaken; 2. BUILDER shall have the right, reasonable time, and opportunity, under the circumstances, to negotiate price with the shipyard or repairman; and 3. BUILDER, at its sole option and expense, may have a representative present during repairs. D. BUILDER shall have no obligation under this guarantee unless such defect becomes manifest within 365 days after Redelivery and Acceptance of the Vessel and written notice of claim is given within ten (10) days thereafter. The BUILDER is specifically 18 19 OWNER: /s/ JBA BUILDER: /s/ MJN relieved of any responsibility for a latent defect not discovered within 365 days after Redelivery and Acceptance of the Vessel. The BUILDER shall not be liable for any consequential or incidental damage occasioned by any defect. E. To additionally assure the faithful performance by the BUILDER of its obligations under this Article following Redelivery, the Builder shall, at time of Redelivery, cause a national banking association of BUILDER's choosing to issue a one-year irrevocable standby letter of credit ("SLC") in favor of OWNER in the amount of ________ which, upon any material payment default by BUILDER under this Agreement, may be presented by OWNER to such issuer for a single draw in the full amount of such SLC. As to the cash received from such issuer upon such presentment and as to the SLC, BUILDER hereby grants OWNER a security interest in the SLC and in its proceeds, and in and to all cash paid on presentment of such SLC, and further agrees that OWNER alone shall be entitled to hold and possess all such proceeds and cash and that such possession by OWNER constitutes perfection of OWNER's security interests. OWNER shall not be restricted as to its use and application of any and all of such proceeds and cash and may instead use and apply it in any manner permitted by law and consistent with the terms of this Agreement; and may (but only for the remainder of the warranty term) retain all cash from such a single SLC draw not expended to remedy the particular warranted defect not remedied by the BUILDER as cash collateral to secure BUILDER's future performance of any additional warranty obligations hereunder, returning any unexpended portion to BUILDER at the end of the warranty term. BUILDER agrees that OWNER shall at all times have recourse to BUILDER and agrees that any presentment of the SLC by OWNER shall not be deemed an election of one sole form or type of action or of an exclusive or preclusive remedy, except to the extent (if at all) that such presentment and receipt and use of proceeds and cash satisfies in full all compensatory damages to which OWNER was entitled on account of such BUILDER breach. BUILDER shall invoice OWNER for the BUILDER's actual cost to have such SLC issued and shall include with such invoice the issuer's actual record of charges for such issuance; whereupon the OWNER shall pay the BUILDER the amount so invoiced, not to exceed $5,000, within 14 days of the date of BUILDER's invoice therefor. ARTICLE X - DEFAULT BY BUILDER A. BUILDER shall be considered in default under this Agreement in the event that (a) during a period of fifteen (15) consecutive days (plus the number of days from the beginning of such period when work has been prevented or its continuation excused under Article V hereof), except for progress on the Interior, no substantial progress has been made in the conversion of the Vessel; or (b) the Vessel has not been redelivered within forty-two (42) days after the Redelivery Date or later date permitted under this Agreement. B. BUILDER shall be considered in default under this Agreement if it does not perform its obligations under this Agreement. 19 20 OWNER: /s/ JBA BUILDER: /s/ MJN C. If BUILDER is in default as that word is defined in X-A above, then at OWNER's option OWNER may terminate this Agreement, in which event BUILDER shall promptly repay to OWNER the Down Payment and Interim Installment Payments made by OWNER under Articles III and IV above, plus interest from the date monies were paid to BUILDER at the Wall Street Journal prime rate, less any credit due the BUILDER at law or in equity on a quantum meruit basis for net benefit conferred to the OWNER's Vessel to the extent that OWNER or OWNER's successors or assigns have the use and benefit of such Vessel. D. Payment to OWNER of the Down Payment and Interim Installment Payments in accordance with this Article by the BUILDER will not prejudice OWNER as to all other rights and remedies available to OWNER in the event of default in respects set out in X-A above or in any other respects. E. X-A above lists the causes of default applicable only to the provision for repayment of the Down Payment and Interim Installment Payments. For any such default and any other default, OWNER shall have all rights and remedies otherwise available to it, including specifically (but not by way of limitation) any rights to specific performance or mandatory injunction. ARTICLE XI - ARBITRATION, JURISDICTION AND LAW A. Any dispute or controversy arising under or related to this Agreement where the amount in controversy does not exceed $500,000.00, excepting disputes under paragraphs B and C of this Article, shall be submitted to binding arbitration before the person or entity agreed by the parties within 14 days of the date of this Agreement under paragraph D of this Article or, failing agreement under said paragraph D, then the Chief Surveyor of the American Bureau of Shipping ("ABS") in the City of Seattle, Washington who shall be the single arbitrator appointed jointly by the parties; or if such Chief Surveyor be unwilling or unable to act, then such other single qualified and unbiased individual as the ABS Chief Surveyor will name. Attorney's fees shall be awarded to the prevailing party together with their costs of the arbitration. B. All disputes to be summarily determined under paragraphs B, D(1) or G of Article I concerning Additional Work or whether an approval was reasonably withheld, under Article V concerning Permitted Delays, or under Article VII concerning Changes, shall be solely determined by summary arbitration to be conducted at Builder's facility within five (5) calendar days of the time of the dispute arising, with the sole arbiter the same arbitrator designated or appointed to act under paragraph A of this Article; to be paid such firm or appointee's prevailing fees including actual travel costs but not to exceed fees of $1,500 per day. No rules of evidence shall apply. If either party to the dispute fails to attend the summary arbitration, the arbitrator shall rule in favor of the attending party without requirement of proof or argument by the attending party. The decision of the arbitrator respecting all matters within the scope of the dispute arbitrated shall absolutely bind the parties. The arbitrator's decision may be summary and need not detail reasons 20 21 OWNER: /s/ JBA BUILDER: /s/ MJN but shall be in writing. The party which did not prevail on the dispute shall promptly pay all of the arbitrator's fees and costs. This paragraph B of this Article XI makes special provision for an extremely rapid summary arbitration to address special matters which, if not immediately resolved, are likely to frustrate both parties' expectations or the ability of each to govern their behavior under this Agreement. C. This Agreement shall be governed by and construed in accordance with the laws of the State of Washington. Except for disputes required to be submitted to arbitration under paragraph A or B of this Article, the sole forum to adjudicate any dispute arising under or related to this Agreement shall be the United States District Court for the District of Washington, at Seattle, or if such Court lacks subject matter jurisdiction, then the State Court of general jurisdiction for King County in Seattle; and each party hereby consents to such Court exercising jurisdiction over their person. Nothing in paragraph A or B of this Article shall preclude either party from resorting to the specified sole judicial forum to obtain permanent equitable remedies, or to seek provisional equitable remedies pending the outcome of arbitration, or to carry into effect any determination made by arbitration. Upon any dispute arising under or related to this Agreement, excepting matters within the scope of paragraph B of this Article XI, attorneys fees shall be awarded to the prevailing party. This exclusive forum provision shall not limit a party's ability to enforce any judgment rendered by the exclusive forum in any Court or jurisdiction useful or convenient for execution or enforcement. D. As of the date of this Agreement, BUILDER nominates Kirt Quick (or such other qualified person employed by Hainline & Associates) as arbitrator but such person and firm is unknown to OWNER. The parties agree to exchange nominations and information about the same and promise in good faith to attempt to agree in writing to an individual or entity as arbitrator within 14 days of the date of this Agreement; but in the absence of such agreement, the existing provisions of paragraphs A and B shall control. ARTICLE XII - AGREEMENT CONTROLLING A. This Agreement together with the Contract Drawings contains the fully-integrated entire and final agreement between the BUILDER and the OWNER; and there are no promises or representations by either of them other than those set forth herein. This Agreement shall not be altered or modified except by an agreement in writing signed by the parties hereto, and no officer, agent, or employee of either the BUILDER or the OWNER shall have the power to waive any provisions hereof unless such waiver be in writing and signed by a duly authorized representative of each of the parties hereto. B. In the event of conflict between this Agreement and the Final Conversion Scope (or, for the period before the Final Conversion Scope comes into existence, then the Preliminary Conversion Scope), this Agreement governs; as between the Final Ship Construction Specification and the Architects Technical Conversion Plans, the former governs; and in case of internal conflict within the Interior Specification, its drawings govern over textual matters. 21 22 OWNER: /s/ JBA BUILDER: /s/ MJN ARTICLE XIII - INSPECTION, ACCESS, TESTS AND OFFICIAL CERTIFICATES A. During conversion, BUILDER shall provide OWNER, or its appointed representative, facilities and access to inspect the Vessel, material, workmanship, plans, tests and movements. BUILDER shall provide a suitable office for OWNER's representative and BUILDER shall provide access to suitable facilities and conditions such as a telephone, fax, copy machine, heat and air conditioning. BUILDER will perform all of the tests and Trials required of BUILDER in the Final Conversion Scope and reasonably necessary for OWNER's acceptance of the Vessel. Except for OWNER Furnished Items (but as to which OWNER has informed BUILDER that no testing or vendor attendance will be necessary), BUILDER will supply all vendor representatives necessary for installation and Trials, and all crew, stores and ballast reasonably necessary for Trials and for transit to the place of Redelivery. OWNER will supply all fuel and lubricants for Trials and all licensed and employed crew reasonably necessary for tests or demonstrations relating to the crew or to OWNER's operations required by USCG for the COI. BUILDER will give OWNER at least ten (10) business days' notice of the date of commencement of Trials. B. All of the workmanship and material required under this Agreement, while the same is in the process of fabrication, erection, construction, installation and performance, shall be inspected promptly by the OWNER and his agents and shall be accepted promptly in accordance with this Agreement and the Exhibits hereto or rejected promptly in accordance therewith. The OWNER shall promptly notify the BUILDER if the OWNER's Representative has actual awareness of a particular defect. C. OWNER hereby appoints Thomas Gourguechon as the OWNER's Representative. Until BUILDER is notified in writing that such OWNER`s Representative's appointment has been revoked, said Representative shall have full and complete authority to act for the OWNER in any and every manner required, permitted or contemplated under this Agreement, except that unless specially notified by the OWNER in writing to the BUILDER the OWNER's Representative shall not have the authority to amend this Agreement on behalf of the OWNER. BUILDER hereby appoints Kevin Dallman as its Representative. Each party shall have one and only one Representative appointed at any given time for the entire period from the date of this Agreement until Redelivery and shall replace said Representative within seven (7) days in the event the position is vacated. D. BUILDER shall provide access to the Vessel while under conversion to inspectors from any public authority reasonably requested by OWNER and to private business invitees of the OWNER provided that all private business invitees are themselves or by the OWNER insured against injury and death from any cause while on the BUILDER's premises; and OWNER shall defend, indemnify and hold BUILDER harmless from any liability for injury asserted by or on behalf of any such private business invitee against BUILDER save to the extent caused by the BUILDER's active negligence. 22 23 OWNER: /s/ JBA BUILDER: /s/ MJN E. During conversion, the OWNER will from time to time be required to make decisions on the selection of items to be purchased by the BUILDER to complete the conversion by the Redelivery Date. The OWNER agrees that the OWNER's Representative shall make decisions on all purchase items requested by BUILDER within 5 business days of BUILDER requesting such OWNER decision and having given a reasonable level of detail on the matters requiring decision. The OWNER hereby agrees that its consent shall be deemed given on the purchase source, color or particular item proposed by the BUILDER if OWNER's Representative fails to so decide within 5 business days of BUILDER making the decision request. ARTICLE XIV - ASSIGNMENT OF THE AGREEMENT This Agreement shall inure to the benefit of the BUILDER and OWNER and their successors and assigns and shall be binding upon the BUILDER and OWNER and their successors and assigns; provided, however, that BUILDER shall not assign this Agreement or any interest hereunder without the prior written consent of OWNER, and any assignment without said prior written consent shall be null and void. OWNER may at any time sell, transfer or mortgage the Vessel and/or assign this Agreement, but shall at all times remain liable under the Agreement. BUILDER agrees that such a sale and/or assignment shall not be grounds for termination of this Agreement. ARTICLE XV - COMPLIANCE WITH REGULATIONS The BUILDER shall comply with all laws, rules, regulations and requirements of the departments or agencies of the United Sates affecting the construction of works, plants and vessels in or on navigable waters and the shores thereof and all other waters subject to the control of the United States, and shall procure at its own expense such permits from the United States and from state and local authorities as may be necessary in connection with beginning or carrying on the completion of the contract work, and shall at all times comply with all applicable and legally enforceable United States, State and local laws in any way affecting the contract work. It shall be the responsibility of OWNER and not BUILDER to make provision in the Vessel and in any of OWNER's shoreside facilities for any compliance necessary with the ADA Accessibility Guidelines now or hereafter in force. Nothing in this Article shall reduce the OWNER's responsibility under Article I-D hereof. ARTICLE XVI - PATENTS OWNER agrees to protect and hold harmless BUILDER against claims of third persons for damages sustained by reason of the infringement of the patent rights with respect to materials, processes, machinery, equipment, and hull form selected and used by OWNER, Hopeman, or the Architects in such works. OWNER agrees to protect and hold harmless BUILDER against claims of third persons for damages sustained by reason 23 24 OWNER: /s/ JBA BUILDER: /s/ MJN of infringement of patent rights with respect to materials, processes, machinery and equipment supplied or specifically acquired by OWNER or required by the Preliminary GA, the Architects Technical Conversion Plans or the Interior Specification and any Final Interior Specification. BUILDER agrees to protect and hold harmless OWNER against claims of third persons for damages sustained by reason of infringement of patent rights with respect to materials, processes, machinery and equipment supplied or specifically acquired or applied by or through BUILDER. ARTICLE XVII - OWNERSHIP OF THE DRAWINGS AND SPECIFICATIONS The Interior Specification, any Final Interior Specification, the Preliminary GA and the Architects Technical Conversion Plans are and shall remain the sole property of the OWNER. The Preliminary and Final Ship Construction Specifications, the Production Drawings and the As-Built Drawings are and shall be deemed jointly owned by OWNER and BUILDER. BUILDER shall be entitled to retain permanently one archive copy of The Interior Specification, any Final Interior Specification, the Preliminary GA and the Architects Technical Conversion Plans. BUILDER shall not permit any third party who may wish to contract with BUILDER for the construction or conversion of an overnight riverboat to utilize the archive copy of the specified materials which are the sole or joint property of the OWNER for any material portion of a design for another vessel unless it has first obtained the OWNER's written consent to so allow, given or withheld in the Owner's sole and absolute discretion. ARTICLE XVIII - NOTICES AND COMMUNICATIONS Communication and notices shall be in writing addressed to the OWNER under this agreement shall be addressed to the OWNER at the following address: The Delta Queen Steamboat Co. c/o American Classic Voyages Co. Two North Riverside Plaza, Suite 200 Chicago, Illinois 60606 Attn: Thomas Gourguechon Fax: 847-328-0336 With a copy to: Jordan Allen Fax: 312-466-6151 Communications and notices shall be in writing addressed to the BUILDER under this Agreement shall be addressed to the BUILDER at the following address: Nichols Brothers Boat Builders, Inc. P.O. Box 580, 5400 South Cameron Road Freeland, Washington 98249 Attn: Matthew J. Nichols Fax: 360-331-7484 24 25 OWNER: /s/ JBA BUILDER: /s/ MJN Notices shall be personally delivered or, if not, sent both by letter and by fax provided good transmission of the fax is electronically confirmed; and if not so confirmed, shall be sent by Federal Express or like overnight delivery service. ARTICLE XIX - TITLE AND COLLATERAL SECURITY A. OWNER shall remain the owner of the Vessel to be converted pursuant to this Agreement. Title to all work performed, materials delivered, and components fabricated shall vest in the OWNER as and when performed, delivered to the shipyard, or fabricated. Title to all scrap and title to any material surplus to the requirements of this Agreement shall be and remain vested in the BUILDER. B. OWNER has disclosed to BUILDER that the Vessel at time of this Agreement is subject to a first preferred mortgage recorded in favor of a lender to OWNER in the approximate amount of $70 million, will remain subject to such mortgage throughout the conversion, and that such lender is unwilling to subordinate the lien of its mortgage to the lien of any security interest in favor of the BUILDER. To protect the interests of BUILDER under such circumstances, OWNER acknowledges that it has agreed to installment payments and a down payment under Articles III and IV hereof to make BUILDER's performance of work hereunder cash flow neutral instead of being in the nature of payments in arrears. To additionally protect BUILDER under such disclosed circumstances, OWNER agrees within 15 days of the date of this Agreement to cause a national banking association of OWNER's choosing to issue a one-year irrevocable standby letter of credit ("SLC") in favor of BUILDER in the amount of $500,000 which, upon any material payment default by OWNER under this Agreement, may be presented by BUILDER to such issuer for a single draw in the full amount of such SLC. As to the cash received from such issuer upon such presentment and as to the SLC, OWNER hereby grants BUILDER a security interest in the SLC and in its proceeds, and in and to all cash paid on presentment of such SLC, and further agrees that BUILDER alone shall be entitled to hold and possess all such proceeds and cash and that such possession by BUILDER constitutes perfection of BUILDER's security interests. BUILDER shall not be restricted as to its use and application of any and all of such proceeds and cash and may instead use and apply it in any manners permitted by law and not inconsistent with the terms of this Agreement. OWNER agrees that BUILDER shall at all times have recourse to OWNER and agrees that any presentment of the SLC by BUILDER shall not be deemed an election of one sole form or type of action or of an exclusive or preclusive remedy, except to the extent (if at all) that such presentment and receipt and use of proceeds and cash satisfies in full all compensatory damages to which BUILDER was entitled on account of such OWNER breach. OWNER shall invoice BUILDER for the OWNER's actual cost to have such SLC issued and shall include with such invoice the issuer's actual record of charges for such issuance; whereupon the BUILDER shall pay the OWNER the amount so invoiced, not to exceed $15,000, within 14 days of the date of OWNER's invoice therefor. If not 25 26 OWNER: /s/ JBA BUILDER: /s/ MJN sooner presented and drawn against, the SLC shall be expressly released by the BUILDER on Redelivery. C. To protect the OWNER's interests in having the BUILDER fully perform its obligations under this Agreement, BUILDER agrees within 15 days of the date of this Agreement to cause a national banking association of BUILDER's choosing to issue a one-year irrevocable standby letter of credit ("SLC") in favor of OWNER in the amount of $1,000,000 which, upon any material payment default by BUILDER under this Agreement, may be presented by OWNER to such issuer for a single draw in the full amount of such SLC. As to the cash received from such issuer upon such presentment and as to the SLC, BUILDER hereby grants OWNER a security interest in the SLC and in its proceeds, and in and to all cash paid on presentment of such SLC, and further agrees that OWNER alone shall be entitled to hold and possess all such proceeds and cash and that such possession by OWNER constitutes perfection of OWNER's security interests. OWNER shall not be restricted as to its use and application of any and all of such proceeds and cash and may instead use and apply it in any manners permitted by law and not inconsistent with the terms of this Agreement. BUILDER agrees that OWNER shall at all times have recourse to BUILDER and agrees that any presentment of the SLC by OWNER shall not be deemed an election of one sole form or type of action or of an exclusive or preclusive remedy, except to the extent (if at all) that such presentment and receipt and use of proceeds and cash satisfies in full all compensatory damages to which OWNER was entitled on account of such BUILDER breach. BUILDER shall invoice OWNER for the BUILDER's actual cost to have such SLC issued and shall include with such invoice the issuer's actual record of charges for such issuance; whereupon the OWNER shall pay the BUILDER the amount so invoiced, not to exceed $30,000, within 14 days of the date of BUILDER's invoice therefor. If not sooner presented and drawn against, the SLC shall be expressly released by the OWNER on Redelivery. ARTICLE XX - CERTAIN DEFAULT PROVISIONS A. On the eleventh calendar day following any material default by the OWNER in paying any sum due to the BUILDER under this Agreement and which has not been fully cured, the BUILDER shall be at liberty to stop all work in progress on the Vessel and shall be at liberty to cancel such of its vendor and subcontract agreements which relate to the Vessel as it is entitled to do or where affected third parties consent. B. If a payment default by OWNER continues for 11 days after the actual date when the defaulted payment was due and has not been fully cured: (1) all remaining unpaid portions of the purchase price shall be accelerated and then be all due and payable together with interest on such sum at the rate of one and one-quarter percent (1.25%) per month until paid, but the total indebtedness due shall subtract any actual expense saved by the BUILDER on account of the breach from not having to perform the balance of the contract; 26 27 OWNER: /s/ JBA BUILDER: /s/ MJN (2) Owner shall in addition pay to BUILDER as liquidated damages for involuntary productive shipyard space consumption and for profit lost from other potential contracts delayed or prevented by the occupation the sum of ______ for each day, after the actual date of default, that the Vessel or the equipment and materials and components intended to become the Vessel continue to occupy space at the BUILDER's facility, and in addition a one-time work force demobilization fee of _______, but all amounts under this subparagraph shall not in any event exceed the sum of ________; and (3) Respecting the sums specified in preceding subparagraph 2, the parties agree that the sums are not penalties but instead a good faith agreement to sums meant to compensate the BUILDER for damages foreseeable but presently impossible or difficult to calculate. XXI: SPECIAL EARLY TERMINATION PROVISION Should the Vessel during transit from her present location in Louisiana to the BUILDER's facility sink or be so damaged in transit that she is an actual or implied constructive total loss for purposes of the expectations of the parties under this Agreement (and if damage suffered in transit would necessitate $1 million or more work beyond the scope of the Preliminary Conversion Scope and delay the Redelivery Date by 30 days or more, the Vessel shall conclusively be deemed an implied constructive total loss); then in such event the OWNER may by written notice to the BUILDER declare this Agreement terminated effective as of the date of BUILDER's receipt of such notice. Forthwith upon receipt of such notice, the BUILDER shall notify its vendors and subcontractors to, and shall itself, stop all work and activity under this Agreement; and shall thereafter promptly notify the OWNER in writing of the total of its labor, subcontract, equipment and materials charges actually paid or incurred under this Agreement to such date less the amount of any refunds and relief from liability insurance which BUILDER can actually effect with commercially reasonable effort with its subcontractors, vendors and suppliers; and if such total is greater than the sums paid by OWNER to BUILDER under Articles III and IV of this Agreement, BUILDER shall invoice the OWNER for the difference which OWNER shall pay within fourteen calendar days of date of invoice; but if such total is less than such payments, BUILDER shall with such notice refund the difference to the OWNER. [Only a concluding single un-numbered paragraph and the signatures of the parties appear on the single page following.] 27 28 OWNER: /s/ JBA BUILDER: /s/ MJN IN WITNESS WHEREOF the parties hereto have caused this Agreement to be executed by their proper authorized representatives, thereunto duly authorized, with this Agreement being deemed made and completed at Freeland, Washington. This Agreement may be executed at different places and the signatures transmitted by facsimile which, if so done, will bind a party transmitting their signature by facsimile as fully as if their original signature had been delivered; and, or in addition, this Agreement may be executed in original counterparts which, if so done, shall when taken together bind the parties fully and as if both had originally subscribed to a single instrument. Each person signing this Agreement individually warrants their ability to bind the party on whose behalf each signs. NICHOLS BROTHERS BOAT BUILDERS, INC. By: /s/ Matthew J. Nichols -------------------------------------------- Name/title: Matthew J. Nichols, President THE DELTA QUEEN STEAMBOAT CO. By: /s/ Jordan Allen -------------------------------------------- Name/title: Jordan Allen, Senior Vice-President EX-27 4 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS DEC-31-1999 SEP-30-1999 69,747 0 1,533 0 0 83,363 239,128 88,113 293,336 92,436 74,126 0 0 185 126,589 293,336 0 153,226 0 98,230 0 0 4,376 (2,867) 1,150 (1,717) 0 0 0 (1,717) (0.10) (0.10) Includes restricted short-term investments of $1,060.
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