NOTE

– COMMITMENTS AND CONTINGENCIES

Fleet Expansion

March 16, 2020,

the Company took possession of the

National Geographic Endurance

. The final balance due on the vessel, at the time of delivery, was primarily paid by borrowing

$107.7

million under the Company’s Export Credit Agreement (See Note

– Long-term Debt for more information).

February 2019,

the Company entered into an agreement, which was amended in

December 2019,

with Ulstein Verft, to construct a

second

polar ice class vessel, the

National Geographic

Resolution

, with a total purchase price of

1,291.0

million NOK. The purchase price is subject to potential adjustments from contract specifications for variations in speed, dead weight, fuel consumption and delivery date. The purchase price is due in installments, with the

first

20%

paid shortly after execution of the agreement,

50%

to be paid over the duration of the build, including

$30.5

million paid in

September

2019,

$30.6

million paid in

April

2020

and

$15.5

million due in

April 2021,

and the final

30%

due upon delivery and acceptance of the vessel. In

March 2019,

the Company entered into foreign exchange forward contracts to lock in a purchase price for the

second

polar ice class vessel of

$153.5

million, subject to potential contract specification adjustments. The vessel is scheduled to be delivered in the

fourth

quarter of

2021.

Royalty Agreement – National Geographic

The Company is party to an alliance and license agreement with National Geographic, 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 condensed 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 pre- and post-expedition extensions. Royalty expense for the

three

months ended

March 31, 2020

and

2019

was

$1.2

million and

$1.4

million, respectively.

The royalty balances outstanding to National Geographic as of

March 31, 2020

and

December 31, 2019

were

$1.2

million and

$2.2

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

Royalty Agreement – World Wildlife Fund

Natural Habitat has a license agreement with WWF, 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 condensed consolidated statements of operations. This royalty fee expense was

$0.2

million for the

three

months ended

March 31, 2020

and

2019.

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 as of

March 31, 2020

are as follows:

For the years ended December 31,	Amount
(In thousands)	(unaudited)
2020	$	6,538
2021		9,534
2022		1,850
Total	$	17,922

Natural Habitat

Redeemable Non-

Controlling

Interest

Mr. Bressler, founder of Natural Habitat, retains a

19.9%

noncontrolling 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, amended

May 1, 2020,

that under certain conditions and subject to providing notice by

January

31,

2024,

that enables him, but does

not

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

December 31, 2023.

The Company has a call option, but

not

an obligation, with an expiration of

March

31,

2029,

under which it can buy Mr. Bressler’s remaining interest at a similar fair value measure as Mr. Bressler’s put option, subject to a call purchase price minimum.

Since the redemption of the noncontrolling interest is

not

solely in the Company’s control, the Company is required to record the redeemable noncontrolling interest outside of stockholders’ equity but after its total liabilities. In addition, if it is probable that the instrument will become redeemable, as such solely due to the passage of time, the redeemable noncontrollable interest should be adjusted to the redemption value via

one

two

measurement methods.

The Company elected the income classification-excess adjustment and accretion methods for recognizing changes in the redemption value of Mr. Bressler’s put option. Under this methodology, a calculation of the present value of the redemption value is compared to the carrying value of the redeemable noncontrolling interest and the carrying value of the redeemable noncontrolling interest is adjusted to the redemption value’s present value. Any adjustments to the carrying value of the redeemable noncontrolling interest, up to the fair value of the noncontrolling interest, are classified to retained earnings. Adjustments in excess of the fair value of the noncontrolling interest, are treated as a decrease to net income available to common stockholders.

The fair value of Mr. Bressler’s put option was determined using a discounted cash flow model. The redemption value was adjusted to its present value using the Company’s weighted average cost of capital.

The following is a rollforward of redeemable non-controlling interest:

	Three Months Ended March 31,
(In thousands)	2020			2019
	(unaudited)				(unaudited)
Balance January 1,	$	16,112		$	6,502
Net income attributable to noncontrolling interest		(537	)		406
Fair value adjustment of put option		901			-
Balance March 31,	$	16,476		$	6,908

Legal Proceedings

From time to time, the Company is party to litigation and regulatory matters and claims. The Company expenses legal fees as incurred. The Company records a provision for contingent losses when it is both probable that a liability will be incurred and the amount or range of the loss can be reasonably estimated. The results of complex proceedings and reviews are difficult to predict and the Company’s view of these matters

may

change in the future as events related thereto unfold. An unfavorable outcome to any legal or regulatory matter, if material, could have an adverse effect on the Company’s operations or its financial position, liquidity or results of operations.