Carnival Cruises 2006 Annual Report Download - page 19

Carnival฀Corporation฀&฀plc฀|฀page฀15
Upon฀the฀closing฀of฀the฀DLC฀transaction,฀Carnival฀Corporation ฀
and฀Carnival฀plc฀also฀executed฀the฀Equalization฀and฀Governance฀
Agreement,฀which฀provides฀for฀the฀equalization฀of฀dividends฀
and฀liquidation฀distributions฀based฀on฀an฀equalization฀ratio฀and฀
contains฀provisions฀relating฀to฀the฀governance฀of฀the฀DLC฀
structure.฀Because฀the฀current฀equalization฀ratio฀is฀1฀to฀1,฀one฀
Carnival฀plc฀ordinary฀share฀is฀entitled฀to฀the฀same฀distributions,฀
subject฀to฀the฀terms฀of฀the฀Equalization฀and฀Governance฀
Agreement,฀as฀one฀share฀of฀Carnival฀Corporation฀common฀
stock.฀In฀a฀liquidation฀of฀either฀company฀or฀both฀companies,฀฀
if฀the฀hypothetical฀potential฀per฀share฀liquidation฀distributions฀
to฀each฀company’s฀shareholders฀are฀not฀equivalent,฀taking฀into฀
account฀the฀relative฀value฀of฀the฀two฀companies’฀assets฀and฀
the฀indebtedness฀of฀each฀company,฀to฀the฀extent฀that฀one฀
company฀has฀greater฀net฀assets฀so฀that฀any฀liquidation฀distri-
bution฀to฀its฀shareholders฀would฀not฀be฀equivalent฀on฀a฀per฀
share฀basis,฀the฀company฀with฀the฀ability฀to฀make฀a฀higher฀฀
net฀distribution฀is฀required฀to฀make฀a฀payment฀to฀the฀other฀
company฀to฀equalize฀the฀possible฀net฀distribution฀to฀share-
holders,฀subject฀to฀certain฀exceptions.
At฀the฀closing฀of฀the฀DLC฀transaction,฀Carnival฀Corporation฀
and฀Carnival฀plc฀also฀executed฀deeds฀of฀guarantee.฀Under฀the฀
terms฀of฀Carnival฀Corporation’s฀deed฀of฀guarantee,฀Carnival฀
Corporation฀has฀agreed฀to฀guarantee฀all฀indebtedness฀and฀
certain฀other฀monetary฀obligations฀of฀Carnival฀plc฀that฀are฀
incurred฀under฀agreements฀entered฀into฀on฀or฀after฀the฀closing฀
date฀of฀the฀DLC฀transaction.฀The฀terms฀of฀Carnival฀plc’s฀deed฀
of฀guarantee฀are฀identical฀to฀those฀of฀Carnival฀Corporation’s.฀฀
In฀addition,฀Carnival฀Corporation฀and฀Carnival฀plc฀have฀each฀
extended฀their฀respective฀deeds฀of฀guarantee฀to฀the฀other’s฀
pre-DLC฀indebtedness฀and฀certain฀other฀monetary฀obligations,฀
or฀alternatively฀have฀provided฀standalone฀guarantees฀in฀lieu฀of฀
utilization฀of฀these฀deeds฀of฀guarantee,฀thus฀effectively฀cross฀
guaranteeing฀all฀Carnival฀Corporation฀and฀Carnival฀plc฀indebt-
edness฀and฀certain฀other฀monetary฀obligations.฀Each฀deed฀of฀
guarantee฀provides฀that฀the฀creditors฀to฀whom฀the฀obligations฀
are฀owed฀are฀intended฀third฀party฀beneficiaries฀of฀such฀deed฀
of฀guarantee.
The฀deeds฀of฀guarantee฀are฀governed฀and฀construed฀in฀
accordance฀with฀the฀laws฀of฀the฀Isle฀of฀Man.฀Subject฀to฀the฀
terms฀of฀the฀guarantees,฀the฀holders฀of฀indebtedness฀and฀
other฀obligations฀that฀are฀subject฀to฀the฀guarantees฀will฀have฀
recourse฀to฀both฀Carnival฀plc฀and฀Carnival฀Corporation฀though฀
a฀Carnival฀plc฀creditor฀must฀first฀make฀written฀demand฀on฀
Carnival฀plc฀and฀a฀Carnival฀Corporation฀creditor฀on฀Carnival฀
Corporation.฀Once฀the฀written฀demand฀is฀made฀by฀letter฀or฀
other฀form฀of฀notice,฀the฀holders฀of฀indebtedness฀or฀other฀
obligations฀may฀immediately฀commence฀an฀action฀against฀the฀
relevant฀guarantor.฀Accordingly,฀there฀is฀no฀requirement฀under฀
the฀deeds฀of฀guarantee฀to฀obtain฀a฀judgment,฀take฀other฀
enforcement฀actions฀or฀wait฀any฀period฀of฀time฀prior฀to฀taking฀
steps฀against฀the฀relevant฀guarantor.฀All฀actions฀or฀proceedings฀
arising฀out฀of฀or฀in฀connection฀with฀the฀deeds฀of฀guarantee฀
must฀be฀exclusively฀brought฀in฀courts฀in฀England.
Under฀the฀terms฀of฀the฀DLC฀transaction฀documents,฀Carnival฀
Corporation฀and฀Carnival฀plc฀are฀permitted฀to฀transfer฀assets฀
between฀the฀companies,฀make฀loans฀or฀investments฀in฀each฀
other฀and฀otherwise฀enter฀into฀intercompany฀transactions.฀฀
The฀companies฀have฀entered฀into฀some฀of฀these฀types฀of฀
transactions฀and฀expect฀to฀enter฀into฀additional฀transactions฀฀
in฀the฀future฀to฀take฀advantage฀of฀the฀flexibility฀provided฀by฀
the฀DLC฀structure฀and฀to฀operate฀both฀companies฀as฀a฀single฀
unified฀economic฀enterprise฀in฀the฀most฀effective฀manner.฀In฀
addition,฀under฀the฀terms฀of฀the฀Equalization฀and฀Governance฀
Agreement฀and฀the฀deeds฀of฀guarantee,฀the฀cash฀flow฀and฀
assets฀of฀one฀company฀are฀required฀to฀be฀used฀to฀pay฀the฀
obligations฀of฀the฀other฀company,฀if฀necessary.