NOTE

– COMMITMENTS AND CONTINGENCIES

Lease Commitments

The Company leases office space and equipment under long-term leases, which are classified as operating leases. Future minimum rental commitments, under non-cancellable operating leases as of

December 31, 2018

are as follows:

For the Years Ended December 31,	Minimum lease payments
(In thousands)
2019	$	1,180
2020		1,193
2021		1,226
2022		1,287
2023		1,212
Thereafter		1,603
Total	$	7,701

Rent expense was approximately

$1.3

million,

$1.2

million and

$1.1

million for the years ended

December 31, 2018,

2017

and

2016,

respectively. These amounts are recorded within general and administrative expenses on the accompanying consolidated statements of operations.

Fleet Expansion

November 2017,

the Company entered into an agreement with Ulstein Verft to construct a polar ice class vessel with a total purchase price of

1,066.0

million Norwegian Kroner (NOK). Subsequently, the Company exercised its right to make payments in United States Dollars, which resulted in a purchase price of

$134.6

million, including hedging costs. The purchase price is subject to potential adjustments from contract specifications for variations in speed, deadweight, fuel consumption and delivery date, and is due in installments. The

first

twenty

percent of the purchase price was paid shortly after execution of the Agreement with the remaining

eighty

percent due upon delivery and acceptance of the vessel. The vessel is targeted to be delivered in

January 2020.

See Note

- Long-Term Debt for more information.

February 2019,

the Company entered into an agreement with Ulstein Verft to construct a polar ice class vessel, a sister ship of the

National Geographic Endurance

, targeted to be delivered in

September 2021.

See Note

- Subsequent Events.

Royalty Agreement – National Geographic

The Company is engaged in an alliance and license agreement with National Geographic through

2025,

which allows the Company to use the National Geographic name and logo. In return for these rights, the Company is charged a royalty fee. The royalty fee is included within selling and marketing expense on the accompanying consolidated statements of operations. The amount is calculated based upon a percentage of certain ticket revenues less travel agent commission, including the revenues received from cancellation fees and any revenues received from the sale of voyage extensions. A voyage extension occurs when a guest extends his or her trip with pre- or post-voyage hotel nights and is included within tour revenues on the accompanying consolidated statements of operations. The royalty expense is recognized at the time of revenue recognition. See Note

– Summary of Significant Accounting Policies for a description of the Company’s revenue recognition policy. Royalty expense for the years ended

December 31, 2018,

2017

and

2016

totaled

$5.0

million,

$4.5

million and

$4.2

million, respectively.

The royalty balances payable to National Geographic as of

December 31, 2018

and

2017

was $

1.0

million and are included in accounts payable and accrued expenses on the accompanying consolidated balance sheets.

2015,

the Company, Mr. Lindblad and National Geographic entered into a call option agreement where Mr. Lindblad agreed to grant National Geographic an option to purchase

2,387,499

of Mr. Lindblad’s shares in the Company as consideration for the assumption of the alliance and license agreements and the tour operator agreement. The Company initially recorded a

$13.8

million long-term asset in other long-term assets, using a fair value of

$5.76

per option share, and is amortizing the cost through

March 31, 2020.

The balance of the license agreement as of

December 31, 2018

and

2017

was

$3.6

million and

$6.5

million, respectively. For the years ended

December 31, 2018,

2017

and

2016,

the Company recorded amortization of the National Geographic fee of

$2.9

million within selling and marketing expense on the consolidated statements of operations. The asset was valued using a Black-Scholes valuation method with the following assumptions:

Stock price at July 9, 2015:	$	10.75
Exercise price:	$	10.00
Expected term (years):		5
Volatility:		60	%
Risk free rate:		1.58	%
Dividend rate:		0	%

Royalty Agreement – World Wildlife Fund

Natural Habitat has a license agreement with World Wildlife Fund, which allows it to use the WWF name and logo. In return for these rights, Natural Habitat is charged a royalty fee and a fee based on annual gross sales. The fees are included within selling and marketing expense on the accompanying consolidated statements of operations. The annual royalty payment and gross sales fees are paid on a quarterly basis. For the years ended

December 31, 2018,

2017

and

2016,

these fees totaled

$0.8

million,

$0.6

million and

$0.5

million, respectively.

Royalty Agreement – Islander

Under a perpetual royalty agreement, the Company is obligated to pay a

third

party, based upon net revenues generated through tours conducted on the

National Geographic Islander

. Royalty payments are charged to cost of tours expenses. Royalty expense for each of the years ended

December 31 2018,

2017

and

2016

was

$0.7

million.

Charter Commitments

From time to time, the Company enters into agreements to charter vessels onto which it holds its tours and expeditions. Future minimum payments on its charter agreements are as follows:

For the years ended December 31,	Amount
(In thousands)
2019	$	10,921
2020		9,467
2021		2,031
2022		1,850
Total	$	24,269

Other Commitments

The Company participates, with other tour operators, in the Consumer Protection Insurance Plan sponsored by the United States Tour Operators Association (“USTOA”). The USTOA requires a

$1.0

million performance bond, letter of credit or assigned certificate of deposit from its members to insure this plan. The Company has assigned a

$1.0

million letter of credit to the USTOA to satisfy this requirement. This letter of credit will be used only if the Company becomes insolvent and cannot refund its customers’ deposits.

The Company self-insures cancellation insurance extended to guests. Further, the Company contracts with an unrelated insurance company to administer the guest insurance program, which includes additional guest-related insurance coverage purchased by guests. In connection with the program, the Company has provided a

$150,000

letter of credit to the insurance company to cover unpaid premiums.

Operational Agreement

The Company maintains an agreement with a

third

party in the Galápagos who provides advisory and administrative services, and operational support for the Company’s vessels stationed there, the

National Geographic Endeavour II

and

National Geographic Islander

. This agreement is in effect through

December 31, 2019.

Legal Proceedings

The Company is involved in various claims, legal actions and regulatory proceedings arising from time to time in the ordinary course of business. In the opinion of management, there are

outstanding proceedings that are expected to have a material adverse effect on our financial position, results of operations or cash flows.