NOTE

– ACQUISITION

May 4, 2016,

the Company acquired an

80.1%

ownership interest in Natural Habitat, an adventure travel and ecotourism company based in Colorado. The acquisition provided the Company with a platform to expand our land-based expeditions with a strong, trusted brand complimentary to Lindblad. In

2016,

the Company incurred

$1.0

million of acquisition costs related to the acquisition of Natural Habitat, which is included in general and administrative expenses of the Company’s consolidated statement of operations.

The Company recorded this transaction using the acquisition method for business combinations. The Company measured the identifiable assets, liabilities and non-controlling interest of Natural Habitat at their fair market value as of the acquisition date and separately measured goodwill at its fair market value as of the acquisition date. Goodwill is an intangible asset arising as a result of name, reputation, customer loyalty, location, products and similar factors

not

separately identified. The recorded goodwill has

tax basis and is therefore

not

tax deductible.

The Company recognized a noncontrolling interest in Natural Habitat and measured the noncontrolling interest at fair value on the acquisition date. The noncontrolling interest is recognized as a redeemable noncontrolling interest to the extent that the risks and rewards of ownership substantially remain with the noncontrolling interest.

Mr. Bressler, founder of Natural Habitat, retains a noncontrolling interest in the remaining

19.9%

interest in Natural Habitat which is subject to a put/call arrangement. The arrangement between the Company and Mr. Bressler was established in order to provide a formal exit opportunity for Mr. Bressler and a path to

100%

ownership for the Company. Mr. Bressler has a put option under certain conditions and subject to providing notice by

October 31, 2020,

that enables him, but does

not

obligate him, to sell his remaining interest in Natural Habitat on

December 31, 2020.

The Company has a call option, but

not

an obligation, with an expiration of

December 31, 2025,

under which it can buy Mr. Bressler’s remaining interest at a similar fair value measure as Mr. Bressler’s put option.

These rights to purchase or sell the noncontrolling interest

may

be at a fixed or variable price, or at fair value, and

may

be exercisable on a fixed date or any time at some point in the future. The existence of these rights impacts (

) whether separate assets or liabilities should be recognized for these rights, (

) the classification of any minority ownership as a liability, equity or redeemable noncontrolling interest, and (

) the amount of earnings recognized in the financial statements.

As the purchase prices indicated similar fair value measures, the put/call arrangement had been struck at fair value and each party is in agreement that the valuation is indicative of fair value, the asset and liability position would be netted and it is expected that the resulting value would be immaterial given the structure of the arrangement. As Mr. Bressler is responsible for the management of Natural Habitat, the risks and rewards of ownership substantially remain with the noncontrolling interest. The existence of the put/call arrangement does

not

indicate a separate obligation or liability for either party. Based on the existence of redemptive rights by Mr. Bressler, and the existence of risks and rewards of ownership, the noncontrolling interest was recorded separately as a redeemable noncontrolling interest. The put right is

not

redeemable unless notice is provided as per the requirements of the agreement.

The total purchase price of the acquisition is as follows:

(In thousands)
Cash consideration	$	14,850
Long-term debt		2,525
Lindblad restricted shares (264,208 shares)		2,650
Total purchase price	$	20,025

Below is a summary, which details the allocation of assets acquired and liabilities assumed as a result of this acquisition:

(In thousands)
Assets acquired:
Cash and cash equivalents	$	4,904
Prepaid expenses and other current assets		9,623
Property and equipment		2,068
Goodwill and other intangibles		28,305
Total assets	$	44,900

Liabilities assumed:
Accounts payable and accrued expenses	$	2,472
Unearned passenger revenues		15,000
Deferred tax liability		2,428
Noncontrolling interest in consolidated subsidiaries		4,975
Total liabilities	$	24,875

Total cash price paid upon acquisition and fair value of existing equity interest	$	20,025

The acquired business contributed revenues of

$34.5

million and operating income of

$2.2

million to Lindblad Expeditions for the period from

May 5, 2016

December 31, 2016.

The following unaudited pro forma summary presents consolidated information of Lindblad Expeditions as if the business combination had occurred on

January 1, 2015.

	Pro forma years ended
	December 31,
(In thousands)	2016		2015
Revenues	$	254,567	$	249,819
Operating income	$	15,345	$	17,883

The Company adjusted

$1.0

million for nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma earnings as a result of acquisition costs incurred by Lindblad Expeditions. These pro forma amounts have been calculated after applying the Company’s accounting policies and adjusting the results of Natural Habitat to reflect the additional depreciation and amortization that would have been charged assuming the fair value adjustments to property, plant and equipment and intangible assets had been applied from

January 1, 2015,

with tax effects.