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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
STEINER LEISURE LIMITED
(Exact name of Registrant as Specified in its Charter)
COMMISSION FILE NUMBER : 0-28972
COMMONWEALTH OF THE BAHAMAS 98-0164731
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
SUITE 104A, SAFFREY SQUARE
NASSAU, THE BAHAMAS NOT APPLICABLE
(Address of principal executive offices) (Zip Code)
(242) 356-0006
(Registrant's telephone number, including area code)
----------------------------------------------------------------------------
(Former name, former address and former
fiscal year, if changed since last report)
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. [ X ] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
CLASS OUTSTANDING
----- -----------
Common Shares, par value (U.S.) $.01 7,200,000 shares as of August 13, 1997
per share
<PAGE>
<TABLE>
<CAPTION>
STEINER LEISURE LIMITED
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
- ------------------------------ --------
<S> <C> <C>
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets as of December 31, 1996
and June 30, 1997 (Unaudited)............................................................... 3
Condensed Consolidated Statements of Operations for the Three and Six Months Ended June
30, 1996 (Unaudited) and June 30, 1997 (Unaudited).......................................... 4
Condensed Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1996 (Unaudited) and June 30, 1997 (Unaudited)............................... 5
Notes to Condensed Consolidated Financial Statements (Unaudited)............................ 6
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................................................... 8
PART II. OTHER INFORMATION
- ---------------------------
ITEM 4. Submission of Matters to a Vote of Security Holders.......................................... 13
ITEM 6. Exhibits and Reports on Form 8-K............................................................. 13
SIGNATURES ............................................................................................ 14
EXHIBIT INDEX........................................................................................... 15
</TABLE>
- 2 -
<PAGE>
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. FINANCIAL STATEMENTS
STEINER LEISURE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, June 30,
ASSETS 1996 1997
------ ------------ -----------
(Unaudited)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 13,625,000 $ 9,436,000
Marketable securities - 6,649,000
Accounts receivable 3,413,000 3,262,000
Inventories 5,232,000 4,803,000
Other current assets 810,000 938,000
-------------- --------------
Total current assets 23,080,000 25,088,000
PROPERTY AND EQUIPMENT, net 2,211,000 2,274,000
INTANGIBLE ASSETS, net 1,111,000 -
OTHER ASSETS 254,000 620,000
-------------- --------------
Total assets $ 26,656,000 $ 27,982,000
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 2,041,000 $ 1,469,000
Accrued expenses 3,732,000 4,167,000
Current portion of capital lease obligations 106,000 86,000
Current maturities of long-term debt 217,000 -
Income taxes payable 4,389,000 1,215,000
-------------- --------------
Total current liabilities 10,485,000 6,937,000
-------------- --------------
CAPITAL LEASE OBLIGATIONS, net of current portion 91,000 70,000
-------------- --------------
COMMITMENTS
SHAREHOLDERS' EQUITY:
Preferred shares, $.01 par value; 10,000,000 shares authorized,
none issued and outstanding - -
Common shares, $.01 par value; 20,000,000 shares authorized,
and 7,200,000 shares issued and outstanding at December 31, 1996
and June 30, 1997 72,000 72,000
Additional paid-in capital 10,532,000 10,539,000
Foreign currency translation adjustment 218,000 168,000
Retained earnings 5,258,000 10,196,000
-------------- --------------
Total shareholders' equity 16,080,000 20,975,000
-------------- --------------
Total liabilities and shareholders' equity $ 26,656,000 $ 27,982,000
============== ==============
The accompanying notes to condensed consolidated financial statements are an integral part of these balance sheets.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
STEINER LEISURE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1996 AND 1997
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------ ------------------------------
1996 1997 1996 1997
------------ ------------- ------------ -------------
REVENUES:
<S> <C> <C> <C> <C>
Services $10,465,000 $ 11,805,000 $20,801,000 $ 23,637,000
Products 6,304,000 8,275,000 12,460,000 16,103,000
------------ ------------- ------------ -------------
Total revenues 16,769,000 20,080,000 33,261,000 39,740,000
------------ ------------- ------------ -------------
COST OF SALES:
Cost of services 8,308,000 9,354,000 15,999,000 18,633,000
Cost of products 4,348,000 5,556,000 9,255,000 10,964,000
------------ ------------- ------------ -------------
Total cost of sales 12,656,000 14,910,000 25,254,000 29,597,000
------------ ------------- ------------ -------------
Gross profit 4,113,000 5,170,000 8,007,000 10,143,000
------------ ------------- ------------ -------------
OPERATING EXPENSES:
Administrative 624,000 928,000 1,342,000 1,839,000
Salary and payroll taxes 966,000 1,078,000 1,790,000 2,159,000
Amortization of intangibles 619,000 469,000 1,238,000 1,089,000
------------ ------------- ------------ -------------
Total operating expenses 2,209,000 2,475,000 4,370,000 5,087,000
------------ ------------- ------------ -------------
Income from operations 1,904,000 2,695,000 3,637,000 5,056,000
------------ ------------- ------------ -------------
OTHER INCOME (EXPENSE):
Interest income 17,000 201,000 37,000 362,000
Interest expense (83,000) (4,000) (178,000) (8,000)
------------- ------------- ------------- -------------
Total other income (expense) (66,000) 197,000 (141,000) 354,000
------------- ------------- ------------- -------------
Income before provision for income taxes 1,838,000 2,892,000 3,496,000 5,410,000
PROVISION FOR INCOME TAXES 504,000 250,000 979,000 472,000
------------ ------------- ------------ -------------
NET INCOME $ 1,334,000 $ 2,642,000 $ 2,517,000 $ 4,938,000
============ ============= ============ =============
NET INCOME PER SHARE $ 0.21 $ 0.36 $ 0.40 $ 0.67
============ ============= ============ =============
WEIGHTED AVERAGE SHARES
OUTSTANDING 6,372,000 7,383,000 6,372,000 7,357,000
============ ============= ============ =============
The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
STEINER LEISURE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997
(Unaudited)
Six Months Ended
June 30,
----------------------------------------
1996 1997
-------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 2,517,000 $ 4,938,000
Adjustments to reconcile net income to
net cash provided by operating activities-
Depreciation and amortization 1,534,000 1,434,000
Accretion of debt discount 115,000 -
Share options issued to nonemployees - 7,000
(Increase) decrease in-
Accounts receivable 1,123,000 127,000
Inventories (1,027,000) 371,000
Other current assets 29,000 (132,000)
Other assets (870,000) (356,000)
Increase (decrease) in-
Accounts payable 901,000 (555,000)
Accrued expenses (533,000) 443,000
Income taxes payable - (3,156,000)
-------------- ---------------
Net cash provided by operating activities 3,789,000 3,121,000
-------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investments - (6,649,000)
Capital expenditures (15,000) (401,000)
Acquisitions, net of cash acquired 105,000 -
Advances to related parties (1,496,000) -
Collection of advances to related parties 202,000 -
-------------- ---------------
Net cash used in investing activities (1,204,000) (7,050,000)
--------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations (39,000) (39,000)
Payments on long-term debt (1,173,000) (217,000)
Payments on advances from related parties (1,092,000) -
--------------- ---------------
Net cash used in financing activities (2,304,000) (256,000)
--------------- ----------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH - (4,000)
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 281,000 (4,189,000)
CASH AND CASH EQUIVALENTS, beginning of period 1,397,000 13,625,000
-------------- ---------------
CASH AND CASH EQUIVALENTS, end of period $ 1,678,000 $ 9,436,000
============== ===============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for-
Interest $ 161,000 $ 8,000
============== ==============
Income taxes $ 525,000 $ 3,629,000
============== ==============
The accompanying notes to condensed consolidated financial statements are an integral part of these statements.
</TABLE>
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<PAGE>
STEINER LEISURE LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) BASIS OF PRESENTATION OF INTERIM CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS:
The unaudited condensed consolidated statements of operations for the three and
six months ended June 30, 1996 and 1997 reflect, in the opinion of management,
all adjustments (which include only normal recurring adjustments) necessary to
fairly present the results of operations for the interim periods. The results of
operations for any interim period are not necessarily indicative of results for
the full year.
The year-end balance sheet data was derived from audited financial statements,
but does not include all disclosures required by generally accepted accounting
principles. The unaudited interim condensed consolidated financial statements
should be read in conjunction with the audited consolidated financial statements
included in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996.
(2) ORGANIZATION:
Steiner Leisure Limited (including its subsidiaries where the context requires,
the "Company") and subsidiaries provide spa services and skin and hair care
products to passengers on board cruise ships worldwide. The Company,
incorporated in the Bahamas, commenced operations effective November 1995 with
the contributions of substantially all of the assets and certain of the
liabilities of the Maritime Division (the "Maritime Division") of Steiner Group
Limited, now known as STGR Limited ("Steiner Group"), a U.K. company and an
affiliate of the Company, and all of the outstanding common stock of Coiffeur
Transocean (Overseas), Inc. ("CTO"), a Florida corporation and a wholly owned
subsidiary of Steiner Group. The contributions of the net assets of the Maritime
Division and CTO were recorded at historical cost in a manner similar to a
pooling of interests.
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
(A) MARKETABLE SECURITIES -
Marketable securities consist of investment grade commercial paper. The Company
accounts for marketable securities in accordance with Financial Accounting
Standards Board Statement No. 115, "Accounting for Certain Investments in Debt
and Equity Securities" and, accordingly, all such instruments are classified as
"available for sale" securities which are reported at fair value, with
unrealized gains and losses reported as a separate component of shareholders'
equity. As of June 30, 1997, the carrying value of marketable securities
approximates fair value.
(B) AMORTIZATION -
Intangible assets were amortized on a straight-line basis over a 3 year period
ended June 1, 1997. This period represented the approximate remaining life of
the acquired intangible assets of CTO, its concession agreements with cruise
lines. Subsequent to an acquisition, the Company continually evaluates whether
later events and circumstances have occurred that indicate that the remaining
net book value may warrant revision or may not be recoverable. When factors
indicate that the net book value should be evaluated for possible impairment,
the Company uses an estimate of the related business's undiscounted operating
income over the remaining life of the cost in excess of net assets of acquired
businesses, in measuring whether such cost is recoverable.
- 6 -
<PAGE>
(C) INCOME TAXES -
The Company files separate tax returns for its domestic subsidiaries. In
addition, the Company's foreign subsidiaries file income tax returns in their
respective countries of incorporation, where required. The Company follows
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS 109"). SFAS No. 109 utilizes the liability method and deferred
taxes are determined based on the estimated future tax effects of differences
between the financial statement and tax bases of assets and liabilities given
the provisions of enacted tax laws. SFAS No. 109 permits the recognition of
deferred tax assets. Deferred income tax provisions and benefits are based on
the changes to the asset or liability from period to period.
In November 1996, the Company liquidated CTO. As a result, CTO's functions were
assumed by the Company and its cruise line agreements were assigned to the
Company. The liquidation of CTO was a taxable transaction for income tax
purposes. CTO was treated as if it had sold all of its assets at fair value on
the date of distribution of these assets to the Company. Based on the value of
the assets of CTO as determined by an independent appraiser, the Company has
estimated that CTO's income tax liability resulting from the liquidation is
approximately $3.2 million. The entire $3.2 million estimated tax liability was
paid during the first quarter of 1997.
(D) TRANSLATION OF FOREIGN CURRENCIES -
Assets and liabilities of foreign subsidiaries are translated at the rate of
exchange in effect at the balance sheet date; income and expenses are translated
at the average rates of exchange prevailing during the year. The related
translation adjustments are reflected in the accumulated translation adjustment
section of the consolidated balance sheets. Foreign currency gains and losses
resulting from transactions, including intercompany transactions, are included
in results of operations.
(4) ACCRUED EXPENSES:
Accrued expenses consist of the following:
December 31, June 30,
1996 1997
------------ -----------
(Unaudited)
Operative commissions $ 963,000 $ 1,099,000
Guaranteed minimum rentals 1,333,000 1,229,000
Bonuses 440,000 424,000
Staff shipboard accommodations 163,000 192,000
Other 833,000 1,223,000
----------- -----------
$ 3,732,000 $ 4,167,000
=========== ===========
- 7 -
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
GENERAL
Steiner Leisure Limited is the leading provider of spa services and
skin and hair care products on board cruise ships worldwide. The Company,
through its predecessors, commenced operations on board cruise ships
approximately 35 years ago. Pursuant to cruise line concession agreements, the
Company sells its services and products to cruise passengers in return for
payments to cruise lines, which payments are based on a percentage of revenues
or a minimum annual rental or a combination of both.
The Company is a Bahamian IBC. The Bahamas does not tax Bahamian IBCs.
The Company believes that income from its maritime operations will be foreign
source income, which will not be subject to United States or United Kingdom
taxation. More than 75% of the Company's income for the first half of 1997 is
not subject to United States or United Kingdom income tax. To the extent that
the Company's income from non-maritime operations increases at a rate in excess
of any increase in its maritime-related income, the percentage of the Company's
income subject to tax would increase. A United States subsidiary of the Company
provides administrative services to the maritime operations, and its earnings
from such activities will generally be subject to U.S. federal income tax at
regular corporate rates (generally up to 35%) and is subject to additional state
taxes and may be subject to local income, franchise and other taxes. Earnings
from Steiner Training Limited and Elemis Limited, United Kingdom subsidiaries of
the Company which accounted for a total of 15% of the Company's pre-tax income
for the first half of 1997, will be subject to U.K. tax rates (generally up to
33%).
- 8 -
<PAGE>
EARNINGS PER SHARE. Statement of Financial Accounting Standards No.
128, "Earnings per Share" ("SFAS 128"), requires the disclosure of basic and
diluted earnings per share for periods ending after December 15, 1997. The
computation under SFAS No. 128 differs from the primary and fully diluted
earnings per share computed under APB Opinion No. 15 primarily in the manner in
which potential common stock is treated. Basic earnings per share is computed by
dividing net income by the weighted-average number of common shares outstanding.
In the computation of diluted earnings per share, the weighted average number of
common shares outstanding is adjusted for the effect of all potential common
stock. The Company does not expect the adoption of this pronouncement to
materially impact earnings per share.
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated, certain
selected income statement data expressed as a percentage of revenues:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ -----------------
JUNE 30, JUNE 30,
-------- --------
1996 1997 1996 1997
---- ----- ----- ----
Revenues:
<S> <C> <C> <C> <C>
Services............................................ 62.4% 58.8% 62.5% 59.5%
Products ........................................... 37.6 41.2 37.5 40.5
----- ----- ----- -----
Total revenues ................................... 100.0 100.0 100.0 100.0
----- ----- ----- -----
Cost of sales:
Cost of services.................................... 49.5 46.6 48.1 46.9
Cost of products.................................... 25.9 27.7 27.8 27.6
----- ----- ----- -----
Total cost of sales............................... 75.4 74.3 75.9 74.5
----- ----- ----- -----
Gross profit 24.6 25.7 24.1 25.5
Operating expenses:
Administrative...................................... 3.7 4.6 4.0 4.6
Salary and payroll taxes............................ 5.8 5.4 5.4 5.4
Amortization of intangibles......................... 3.7 2.3 3.7 2.8
----- ----- ----- -----
Total operating expenses ......................... 13.2 12.3 13.1 12.8
----- ----- ----- -----
Income from operations ........................... 11.4 13.4 11.0 12.8
Other income (expense).................................. (0.4) 1.0 (0.5) 0.9
----- ----- ----- -----
Income before provision for income taxes................ 11.0 14.4 10.6 13.6
Provision for income taxes.............................. 3.0 1.2 2.9 1.2
----- ----- ----- -----
Net income.............................................. 8.0% 13.2% 7.6% 12.4%
===== ===== ===== =====
</TABLE>
THREE MONTHS ENDED JUNE 30, 1997 COMPARED TO THREE MONTHS ENDED JUNE 30, 1996
REVENUES. Revenues increased approximately 19.7%, or $3.3 million, to
$20.1 million in the second quarter of 1997 from $16.8 million in the second
quarter of 1996. Of this increase, $1.3 million was attributable to increases in
services provided on cruise ships and $2.0 million was attributable to increases
in sales of products. The increase in revenues for the second quarter of 1997
compared to the second quarter of 1996 was primarily attributable to an increase
of five in the average number of ships in service with enhanced large spa
facilities, which generated greater aggregate revenues to the Company than the
aggregate revenues generated by the five non-spa ships on average which the
Company served in the second quarter of 1996, but did not serve in the second
quarter of 1997. The Company had 742 shipboard staff members in service on
average in the second quarter of 1997 compared to 692 shipboard staff members in
service on average in the second quarter of 1996. Revenues per staff per day
increased by 11.6% in the second quarter of 1997 compared to the second quarter
of 1996.
COST OF SERVICES. Cost of services as a percentage of services revenue
decreased to 79.2% in the second quarter of 1997 from 79.4% in the second
quarter of 1996. This decrease was due to increases in productivity of onboard
staff during the second quarter of 1997 compared to the second quarter of 1996
as well as increased revenues on ships where the Company is subject to minimum
annual rental payments. This decrease was partially offset by increases in rent
allocable to services on cruise ships covered by agreements which were renewed
in 1996 and became effective in the first quarter of 1997.
COST OF PRODUCTS. Cost of products as a percentage of products revenue
decreased to 67.1% in the second quarter of 1997 from 69.0% in the second
quarter of 1996. This decrease was due to increases in productivity of onboard
staff during the second quarter of 1997 compared to the second quarter of 1996
as well as increased revenues on ships where the Company is subject to minimum
annual rental payments. This decrease was partially offset by increases in rent
allocable to products sales on cruise ships covered by agreements which were
renewed in 1996 and became effective in the first quarter of 1997.
- 9 -
<PAGE>
OPERATING EXPENSES. Operating expenses as a percentage of revenues
decreased to 12.3% in the second quarter of 1997 from 13.2% in the second
quarter of 1996 as a result of the increase in aggregate revenues generated from
the additional ships in service with enhanced large spa facilities during the
second quarter of 1997 over the aggregate revenues generated from non-spa ships
in service during the second quarter of 1996, which were not in service in the
second quarter of 1997. Additionally, operating expenses as a percentage of
revenues decreased due to a decrease in goodwill amortization as a result of the
related intangible assets becoming fully amortized during the period. These
decreases were partially offset by an increase in administrative expenses as a
percentage of revenues related to compliance with the Company's reporting
obligations under the federal securities laws.
PROVISION FOR INCOME TAXES. The provision for income taxes decreased to
an overall effective rate of 8.6% for the second quarter of 1997 from an overall
effective rate of 27.4% for the second quarter of 1996 due to the tax savings
realized as a result of the liquidation of CTO in the fourth quarter of 1996.
Without the amortization of intangibles and interest, the overall effective rate
for the three months ended June 30, 1997 would have been 7.4% compared to 20.1%
for the three months ended June 30, 1996.
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
REVENUES. Revenues increased approximately 19.5%, or $6.4 million, to
$39.7 million for the six months ended June 30, 1997 from $33.3 million for the
six months ended June 30, 1996. Of this increase, $2.8 million was attributable
to increases in services provided on cruise ships and $3.6 million was
attributable to increases in sales of products. The increase in revenues for the
first half of 1997 compared to the same period in the prior year was primarily
attributable to an increase of seven in the average number of ships in service
with enhanced large spa facilities, which generated greater aggregate revenues
to the Company than the aggregate revenues generated by the eight non-spa ships
on average which the Company served during the first six months of 1996, but did
not serve during the comparable period of 1997. The Company had 736 shipboard
staff members in service on average during the six months ended June 30, 1997
compared to 679 shipboard staff members in service on average during the six
months ended June 30, 1996. Revenues per staff per day increased by 12.1% in the
first half of 1997 compared to the comparable period of 1996.
COST OF SERVICES. Cost of services as a percentage of services revenue
increased to 78.8% in the first six months of 1997 from 76.9% for the first six
months of 1996. This increase was due to an increase in rent allocable to
services on cruise ships covered by agreements which were renewed in 1996 and
became effective in the first quarter of 1997. This increase was partially
offset by increases in productivity of onboard staff during the second quarter
of 1997.
COST OF PRODUCTS. Cost of products as a percentage of products revenue
decreased to 68.1% in the first six months of 1997 from 74.3% for the first six
months of 1996. This decrease was primarily due to the lower product costs
realized during the entire first six months of 1997 as compared to the
realization of such lower costs for less than the entire first six months of
1996 as a result of the Company's acquisition of the "Elemis" and "La Therapie"
product lines in March 1996 (previously supplied to the Company by third
parties); partially offset by an increase in rent allocable to products sales on
cruise ships covered by agreements which were renewed in 1996 and became
effective in the first quarter of 1997.
OPERATING EXPENSES. Operating expenses as a percentage of revenues
decreased to 12.8% for the first six months of 1997 from 13.1% for the first six
months of 1996 as a result of the increase in aggregate revenues generated from
the additional ships in service with enhanced large spa facilities during the
first six months of 1997 over the aggregate revenues generated from non-spa
ships in service during the first six months of 1996, which were not in service
during the comparable period of 1997. Additionally, operating expenses as a
percentage of revenues decreased due to a decrease in goodwill amortization as a
result of the related intangible assets becoming fully amortized during the
period. These decreases were partially offset by an increase in administrative
expenses as a percentage of revenues related to compliance with the Company's
reporting obligations under the federal securities laws.
- 10 -
<PAGE>
PROVISION FOR INCOME TAXES. The provision for income taxes decreased to
an overall effective rate of 8.7% for the first six months of 1997 from an
overall effective rate of 28.0% for the first six months of 1996 due to the tax
savings realized as a result of the liquidation of CTO in the fourth quarter of
1996. Without the amortization of intangibles and interest, the overall
effective rate for the six months ended June 30, 1997 would have been 7.3%
compared to 20.2% for the six months ended June 30, 1996.
SEASONALITY
Although certain cruise lines have experienced moderate seasonality,
the Company believes that the introduction of cruise ships into service
throughout a year has mitigated the effect of seasonality on the Company's
results of operations. In addition, decreased passenger loads during slower
months for the cruise industry has not had a significant impact on the Company's
revenues. However, due to the Company's dependence on the cruise industry, the
Company's revenues may in the future be affected by seasonality.
LIQUIDITY AND CAPITAL RESOURCES
The business of the Company historically has been operated with cash
generated from operations, and borrowed funds have been utilized only for
acquisitions and limited capital expenditures.
In November 1996, the Company issued 828,000 of its common shares
pursuant to the initial public offering of common shares in November 1996 (the
"IPO") (which also included shares of a selling shareholder), which generated
net proceeds of approximately $9.7 million to the Company. Approximately $3.4
million of the net proceeds were used to repay the remaining outstanding
indebtedness assumed by the Company in connection with the contribution to the
capital of the Company of the assets of the Maritime Division and the common
stock of CTO. During the first quarter of 1997, approximately $3.2 million of
such proceeds were used to pay the estimated United States federal and state
income tax liability incurred in connection with the liquidation of CTO (the
"CTO Tax Payment"). The remaining net proceeds, in the approximate amount of
$3.1 million, will be used for working capital purposes and have been invested
in cash equivalents and high grade commercial paper.
During the first six months of 1997, cash flow from operating
activities was $3.1 million (reflecting, among other things, the $3.2 million
CTO Tax Payment), compared to $3.8 million for the first six months of 1996. At
June 30, 1997, the Company had working capital of approximately $18.2 million
compared to $12.6 million at December 31, 1996.
The Company believes that cash generated from operations, together with
the net proceeds received from the IPO, will be sufficient to satisfy its cash
requirements through at least the next twelve months. If the Company were to
engage in any significant acquisition, it may require additional financing from
a third party. The Company currently does not have any agreement with respect to
an acquisition.
INFLATION
The Company does not believe that inflation has had a material adverse
effect on revenues or results of operations. However, public demand for leisure
activities, including cruises, is influenced by general economic conditions,
including inflation. Periods of economic recession or high inflation,
particularly in North America where a number of cruise passengers reside, could
have a material adverse effect on the cruise industry, upon which the Company is
dependent.
- 11 -
<PAGE>
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
From time to time, including herein, the Company may publish
"forward-looking" statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. Because such statements involve risks and uncertainties, actual
results may differ materially from those expressed or implied by such
forward-looking statements. Factors that could cause actual results to differ
materially from those expressed or implied by such forward-looking statements
include, but are not limited to, the following: the Company's dependence on
cruise line concession agreements of specified terms and that are terminable by
cruise lines with limited or no advance notice under certain circumstances; the
Company's dependence on the cruise industry and its being subject to the risks
of that industry; the Company's obligation to make certain minimum payments to
certain cruise lines irrespective of the revenues received by the Company from
passengers; the Company's dependence on a limited number of cruise lines and on
a single product manufacturer; the Company's dependence for its success on its
ability to recruit and retain qualified personnel; changes in the non-U.S. tax
status of the Company's principal subsidiary; changing competitive conditions;
changes in laws and government regulations applicable to the Company and the
cruise industry; and product liability or other claims against the Company by
customers of the Company's products or services. The risks to which the Company
is subject are more fully described under "Certain Factors That May Affect
Future Operating Results" in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996, filed with the Securities and Exchange
Commission.
- 12 -
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The annual meeting of shareholders of the Company (the "Annual
Meeting") was held on June 6, 1997. At the Annual Meeting, Clive E.
Warshaw was elected as a director based on the results of the vote
indicated below, and the terms of office of the following directors
continued after the Annual Meeting: Charles E. Finkelstein, Leonard I.
Fluxman, Jonathan D. Mariner, Steven J. Preston and Michele Steiner
Warshaw. The votes cast with respect to the election of Mr. Warshaw
were as follows: 6,383,206 shares were voted for Mr. Warshaw and no
votes were voted against Mr. Warshaw or were withheld.
In addition, at the Annual Meeting, a proposal to ratify the
appointment of Arthur Andersen LLP as independent auditors for the
Company for the fiscal year ended December 31, 1997 was submitted to
the shareholders with the following results: 6,381,569 shares were
voted in favor of that proposal, 237 shares were voted against that
proposal and 1,400 shares abstained from such vote.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
The exhibits listed below have been filed as part of this Quarterly
Report on Form 10-Q.
3.2 Amended and Restated Articles of Association of Steiner
Leisure Limited
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the quarter
ended June 30, 1997.
- 13 -
<PAGE>
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.
Dated: August 13, 1997
STEINER LEISURE LIMITED
------------------------------------------
(Registrant)
/s/ Clive E. Warshaw
------------------------------------------
Chairman of the Board and Chief Executive
Officer
/s/ Leonard I. Fluxman
------------------------------------------
Chief Operating Officer and Chief Financial
Officer (Principal Financial and Accounting
Officer)
- 14 -
EXHIBIT 3.2
COMMONWEALTH OF THE BAHAMAS
New Providence
ADOPTED AS OF JULY 30, 1997
AMENDED AND RESTATED
ARTICLES OF ASSOCIATION
OF
STEINER LEISURE LIMITED
Harry B. Sands & Company
Counsel and Attorneys-at-Law
Chambers
Nassau, Bahamas
1
<PAGE>
The International Business Companies Act
Company Limited by Shares
AMENDED AND RESTATED ARTICLES OF ASSOCIATION
OF
STEINER LEISURE LIMITED
PRELIMINARY
1. In these Articles, if not inconsistent with the subject or context,
the words and expressions standing in the first column of the following table
shall bear the meanings set opposite them, respectively, in the second column
thereof.
WORDS MEANINGS
the Act The International Business Companies
Act 1989 (No. 2 of 1990)
these Articles These Amended and Restated Articles
of Association as originally framed
or as from time to time amended.
capital The sum of the aggregate par value
of all outstanding shares with par
value of the Company and shares with
par value held by the Company as
treasury shares plus
(a) the aggregate of the
amounts designated as
capital of all outstanding
shares without par value of
the Company and shares
withou par value held by
the Company as treasury
shares, and
(b) the amounts as are from
time to time transferred
from surplus to capital by
the directors.
2
<PAGE>
Chairman of
the Board The Chairman of the Board of
Directors of the Company.
Company Steiner Leisure Limited
company Any company or corporation.
corporate office The office of the Company located at
Suite 104A, Saffrey, Square, Nassau,
The Bahamas.
directors Members of the Board of Directors of
the Company.
majority In excess of 50 percent.
majority (or 66 2/3%)
of the Shareholders With respect to a vote of
shareholders means
(i) a majority (or 66 2/3%, as
applicable in the context
of the Article in question)
of the votes of the
shareholders who were
present at the meeting and
who voted and did not
abstain, or
(ii) a majority (or 66 2/3%, as
applicable in the context
of the Article in question)
of the votes of the
shareholders of each class
or series of shares which
were present at the meeting
and entitled to vote
thereon as a class or
series and who voted and
did not abstain and of a
majority (or 66 2/3%, as
applicable in the context
of the Article in question)
of the votes of the re-
maining shareholders
entitled to vote thereon
present at the meeting and
who voted and did not
abstain.
the Memorandum The Amended and Restated
Memorandum of Association of the
Company as originally framed or as
from time to time amended.
person An individual, a company, a trust,
the estate of a deceased individual,
a partnership, an unincorporated
association or other entity.
3
<PAGE>
resolution
of directors A resolution (i) approved at a duly
constituted meeting of directors of
the Company or of a committee of
directors of the Company by the
affirmative vote of a majority of
the directors present who voted and
did not abstain or (ii) consented to
in writing by all director or all
members of the committee, as the
case may be.
resolution of
shareholders (a) A resolution approved at a
duly constituted meeting of
the shareholders of the
Company by the affirmative
vote of
(i) except where the votes of a
larger percentage of
shareholders is specifically
provided for in these Articles
or in the Memorandum, a
majority of the votes of the
shareholders who were present
at the meeting and who voted
and did not abstain, or
(ii) except where the votes of a
larger percentage of
shareholders is specifically
provided for in these Articles
or in the Memorandum, a
majority of the votes of the
shareholders of each class or
series of shares which were
present at the meeting and
entitled to vote thereon as a
class or series and who voted
and did not abstain and of a
majority of the votes of the
remaining shareholders entitled
to vote thereon present at the
meeting and who voted and did
not abstain.
the Seal The Common Seal of the Company.
Secretary The person holding the office of
Secretary of the Company or, in the
absence of a Secretary, such other
officer of the Company who has
similar duties to the Secretary.
4
<PAGE>
securities Shares and debt obligations of every
kind, and options, warrants and
rights to acquire shares or debt
obligations.
shareholder A person who is a registered holder of
shares in the Company; a "member" under
the Act.
share register The register of shares required to be
kept pursuant to Section 28 of the Act.
special meetings Meetings of the shareholders other than
annual meetings.
surplus The excess, if any, at the time of
the determination, of the total
assets of the Company over the
aggregate of its total liabilities,
as shown in its books of account,
plus the Company's capital.
transfer agent Any person appointed by the directors to
serve as transfer agent and registrar of
the shares of the Company.
treasury
shares Shares of the Company that were
previously issued but were
repurchased, redeemed or otherwise
acquired by the Company and not
cancelled.
"Written" or any term of like import includes words typewritten, printed,
painted, engraved, lithographed, photographed or represented or reproduced by
any mode of representing or reproducing words in a visible form, including
telex, telefax, telegram, cable or other form of writing produced by electronic
communication.
Except as aforesaid any words or expressions defined in the Act shall bear the
same meaning in these Articles.
Whenever the singular or plural number, or the masculine, feminine or neuter
gender is used in these Articles, it shall equally, where the context admits,
include the others.
A reference in these Articles to voting or presence at a meeting in relation to
shares shall be construed as a reference to voting by shareholders holding the
shares except that it is the votes allocated to the shares that shall be counted
and not the number of shareholders who actually voted and a reference to shares
being present at a meeting shall be given a corresponding construction.
5
<PAGE>
A reference to money in these Articles is a reference to the currency of the
United States of America unless otherwise stated.
SHARES
2. Every shareholder shall be entitled to one certificate for the
shares registered in such shareholder's name provided that in respect of shares
held jointly by several persons the Company shall not be bound to issue more
than one certificate, and delivery of a certificate for a share to one of
several joint shareholders shall be sufficient delivery to all.
3. If a certificate for shares is worn out or lost it may be renewed on
production of the worn out certificate or on satisfactory proof of its loss
together with such indemnity as may be required by the Secretary.
4. If several persons are registered as joint holders of any
shares, any one of such persons may give an effectual receipt for
any dividend payable in respect of such shares.
5. Subject to the provisions of these Articles and any resolution of
shareholders, the unissued shares of the Company shall be at the disposal of the
directors who may without prejudice to any rights previously conferred on the
holders of any existing shares or class or series of shares, offer, allot, grant
options over or otherwise dispose of the shares to such persons, at such times
and upon such terms and conditions as the directors may determine.
6. Shares in the Company shall be issued for money, services rendered,
personal property (including other shares, debt obligations or other securities
in the Company), an estate in real property, a promissory note or other binding
obligation to contribute money or property or any combination of the foregoing
as shall be determined by the directors.
7. Shares in the Company may be issued for such amount of consideration
as the directors may from time to time determine, except that in the case of
shares with par value, the amount shall not be less than the par value and, in
the absence of fraud, the decision of the directors as to the value of the
consideration received by the Company in respect of the issue is conclusive
unless a question of law is involved. The consideration in respect of the shares
constitutes capital to the extent of the par value and the excess constitutes
surplus.
8. A share issued by the Company upon conversion of, or in exchange
for, another share or a debt obligation or other security in the Company, shall
be treated for all purposes as having been issued for money equal to the
consideration received or deemed to have been received by the Company in respect
of the other share, debt obligation or other security.
6
<PAGE>
9. Treasury shares may be disposed of by the Company on such
terms and conditions (not otherwise inconsistent with these
Articles) as the directors may determine.
10. The Company may issue fractions of a share and a fractional share
shall have the same corresponding fractional liabilities, limitations,
preferences, privileges, qualifications, restrictions, rights and other
attributes of a whole share of the same class or series of shares.
11. Upon the issue by the Company of a share without par value, the
consideration in respect of the share constitutes capital to the extent
designated by the directors and the excess constitutes surplus, except that the
directors must designate as capital an amount of the consideration that is at
least equal to the amount that the share is entitled to as a preference, if any,
in the assets of the Company upon liquidation of the Company.
12. The Company may purchase, redeem or otherwise acquire and hold its
own shares but no purchase, redemption or other acquisition which shall
constitute a reduction in capital shall be made otherwise than in compliance
with Articles 26 and 27.
13. Shares that the Company purchases, redeems or otherwise acquires
pursuant to Article 12 may be cancelled or held as treasury shares unless the
shares are purchased, redeemed or otherwise acquired out of capital and would
otherwise infringe upon the requirements of Articles 26 and 27. Upon the
cancellation of a share, the amount included as capital of the Company with
respect to that share shall be deducted from the capital of the Company.
14. Where shares in the Company are held by the Company as treasury
shares or are held by another company of which the Company holds, directly or
indirectly, shares having more than 50 percent of the votes in the election of
directors of the other company, such shares of the Company are not entitled to
vote or to have dividends paid thereon and shall not be treated as outstanding
for any purpose except for purposes of determining the capital of the Company.
15. No notice of a trust, whether expressed, implied or
constructive, shall be entered in the share register.
TRANSFER OF SHARES
16. Subject to any limitations in the Memorandum, registered shares in
the Company may be transferred by a written instrument of transfer signed by the
transferor and containing the name and address of the transferee. The instrument
of transfer of any share in the Company shall be executed by the transferor (or
its duly authorized agent), and the transferor shall be deemed to remain the
holder of the shares until the name of the transferee is entered in
7
<PAGE>
the share register in respect thereof. The transfer agent for the Company or the
directors shall determine if a form of transfer is acceptable in the case of any
question or dispute concerning a transfer.
17. The Company shall not be required to treat a transferee
of a share in the Company as a shareholder until the transferee's
name has been entered in the share register.
18. The Company, or any transfer agent on the application of the
transferor or transferee of a share in the Company, shall enter in the share
register the name of the transferee of the share except that (a) the directors
or the transfer agent may decline to register a transfer of shares unless the
instrument of transfer is accompanied by the certificate or certificates for the
shares and such other evidence as the directors or the transfer agent may
reasonably require to show the right of the transferor to make the transfer and
(b) the registration of transfers may be suspended and the share register closed
at such times and for such periods as the directors may from time to time
determine provided always that such registration shall not be suspended and the
share register closed for more than 60 days in any period of 12 months.
TRANSMISSION OF SHARES
19. The personal representative of a deceased shareholder, the guardian
of an incompetent shareholder or the trustee of a bankrupt shareholder shall be
the only persons recognized by the Company as having any title to the shares of
such shareholder but they shall not be entitled to exercise any rights as a
shareholder of the Company until they have proceeded as set forth in Articles 20
and 21. A person becoming entitled to shares by reason of the death,
incompetency or bankruptcy of the holder shall be entitled to the same dividends
and other advantages to which he or she would be entitled if he or she were the
registered holder of the shares, except that he or she shall not, before being
registered as a shareholder in respect of the shares, be entitled in respect of
such shares to exercise any right conferred by share ownership in relation to
meetings of the shareholders of the Company.
20. Any person becoming entitled by operation of law or otherwise to a
share or shares in consequence of the death, incompetence or bankruptcy of any
shareholder may be registered as a shareholder upon such evidence being produced
as may reasonably be required by the directors, the Secretary or any transfer
agent. An application by any such person to be registered as a shareholder shall
for all purposes be deemed to be a transfer of shares of the deceased,
incompetent or bankrupt shareholder and the directors shall treat it as such.
21. Any person who has become entitled to a share or shares
in consequence of the death, incompetence or bankruptcy of any
8
<PAGE>
shareholder may, instead of being registered himself or herself, request in
writing that some person to be named by such person be registered as the
transferee of such share or shares and such request shall likewise be treated as
if it were a transfer.
22. What amounts to incompetence on the part of a person is a matter to
be determined by the Bahamian courts under applicable law, having regard to all
the relevant evidence and the circumstances of the case.
REDUCTION OR INCREASE IN AUTHORIZED CAPITAL
23. Amendment to the Memorandum to increase or reduce the
Company's authorized capital must be approved by a majority of the
shareholders.
24. The directors may amend the Memorandum to
(a) divide the shares, including issued shares of a
class or series into a larger number of shares of
the same class or series; or
(b) combine the shares, including issued shares, of a
class or series into a smaller number of shares of
the same class or series, provided, however, that
where shares are divided or combined under (a) or (b)
of this Article 24, the aggregate par value of the
new shares must be equal to the aggregate par value
of the original shares.
25. The capital of the Company may by a resolution of directors be
increased by transferring an amount of the surplus of the Company to capital,
and, subject to the provisions of Articles 26 and 27, the capital of the Company
may be reduced by transferring an amount of the capital of the Company to
surplus.
26. No reduction of capital shall be effected that reduces the capital
of the Company to an amount that immediately after the reduction is less than
the aggregate par value of all outstanding shares with par value and all shares
with par value held by the Company as treasury shares and the aggregate of the
amounts designated as capital of all outstanding shares without par value and
all shares without par value held by the Company as treasury shares that are
entitled a preference, if any, in the assets of the Company upon liquidation of
the Company.
27. No reduction of capital shall be effected unless the directors
determine that immediately after the reduction the Company will be able to
satisfy its liabilities as they become due in the ordinary course of its
business and that the realizable assets of the Company will not be less than its
total liabilities, other than deferred taxes, as shown in the books of the
Company and
9
<PAGE>
its remaining capital, and, in the absence of fraud, the decision of the
directors as to the realizable value of the assets of the Company is conclusive,
unless a question of law is involved.
28. Where the Company reduces its capital under these
Articles the Company may
(a) return to its shareholders any amount received by
the Company upon the issue of any of its shares;
(b) purchase, redeem or otherwise acquire its shares
out of capital; or
(c) cancel any capital that is lost or not represented
by assets having a realizable value.
MEETINGS OF SHAREHOLDERS
29. Annual meetings of the shareholders shall be held during each
fiscal year of the Company commencing in 1997. The date, time and place of
annual meetings of shareholders shall be as determined by the directors of the
Company.
30. The directors of the Company or the Chairman of the Board may
convene special meetings of the shareholders of the Company at such times and in
such manner and places within or outside the Commonwealth of The Bahamas as the
directors consider necessary or desirable.
31. Upon the written request of shareholders holding more than 50
percent of the outstanding voting shares in the Company the directors shall
convene a special meeting of the shareholders. If a special meeting is requested
by such shareholders, a written request, specifying the business proposed to be
transacted, shall be delivered personally or sent by first class mail or by
express delivery service such as, for example, Federal Express. Upon receipt of
such a request, the Secretary shall cause notice of such meeting to be given,
within 45 days after the date the request was delivered to the Secretary, to the
shareholders entitled to vote on such proposal, in accordance with the
provisions of these Articles. Except as provided below, if the notice is not
given by the Secretary within 45 days after the date the request was delivered
to the Secretary, then the person or persons requesting the meeting may specify
the time and place of the meeting and give notice thereof; provided, however,
that at least 10 days' notice of such meeting is required to be given to the
shareholders.
32. In order that the Company may determine the shareholders entitled
to notice of or to vote at any meeting of shareholders or any adjournment
thereof or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion
10
<PAGE>
or exchange of shares or for the purpose of any other lawful action, the
directors may fix, but shall not be required to so fix, a record date; provided,
however, that such record date shall not precede the date upon which the action
of the directors fixing such record date is taken.
33. Whenever shareholders are required or authorized to take any action
at a meeting, a notice of such meeting, stating the place, day and hour of the
meeting and, in the case of a meeting other than an annual meeting, the purpose
or purposes for which the meeting is called shall be given no fewer than 10 days
before the date set for such meeting, either personally or by first-class mail,
by or at the direction of the Company's Chairman of the Board, Chief Executive
Officer or Secretary, to each shareholder of record entitled to vote at such
meeting. Such notice shall be deemed to be given when deposited in The Bahamas
postal system or the United States mail addressed to the shareholder, at the
shareholder's address as it appears on the share register of the Company, with
first-class postage prepaid thereon. Written waiver by a shareholder of notice
of a shareholders' meeting, signed by the shareholder, whether before or after
the time stated thereon, shall be equivalent to the giving of such notice.
Attendance of a shareholder at a meeting shall constitute a waiver of notice of
such meeting, except when the shareholder attends the meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully convened.
34. A meeting of shareholders held in contravention of the requirement
in Article 33 is valid if shareholders holding not less than 90 percent of the
total number of shares entitled to vote on all matters to be considered at the
meeting, or not less than 90 percent of the votes of each class or series of
shares where shareholders are entitled to vote thereon as a class or series
together with not less than 90 percent of the remaining votes, have agreed to
shorter notice of the meeting, or if all shareholders holding shares entitled to
vote on all or any matters to be considered at the meeting have waived notice of
the meeting, including by their presence at the meeting.
35. The inadvertent failure of the directors to give notice of a
meeting to a shareholder, or the fact that a shareholder has not received
notice, does not invalidate the meeting.
36. If a quorum pursuant to Article 42 is present at any meeting, (a)
in all matters other than the election of directors, the affirmative vote of the
majority of the shares present in person or represented by proxy at the meeting
and entitled to vote on the subject matter shall be the act of the shareholders,
and (b) directors shall be elected by a plurality of the votes of the shares
present in person or represented by proxy at the meeting and entitled to vote on
the election of directors, unless a different vote is required by these Articles
or the Memorandum or under
11
<PAGE>
applicable law, in which case such express provision shall govern and control
the decision of such question. Shareholders may act only at meetings duly called
and shareholders may not act by written consent or otherwise outside of such
meeting. Only those matters set forth in the notice of a special meeting may be
considered or acted upon at that meeting, unless otherwise required by law.
37. Subject to Article 51, if shareholder approval is required (a) for
the adoption of any agreement for the merger of the Company with or into any
other entity or for the consolidation of the Company with or into any other
entity or (b) to authorize any sale, lease, exchange or other transfer of all or
substantially all of the assets of the Company to any person, the affirmative
vote of at least 66 2/3% of the shares entitled to vote thereon is required to
approve such transaction; provided, however, that if such transaction is
approved in advance by the directors, such transaction may be approved by the
affirmative vote of a majority of the shares entitled to vote thereon.
38. A shareholder may be represented at a meeting of
shareholders by a proxy who may speak and vote on behalf of the
shareholder.
39. An instrument appointing a proxy shall be produced at such time
before the time for holding the meeting at which the person named in such
instrument proposes to vote and at such place as the directors or the Secretary
may designate.
40. Every proxy must be signed by the shareholder or such shareholder's
attorney in fact. No proxy shall be valid after the expiration of eleven (11)
months from the date thereof unless otherwise provided in the proxy. Every proxy
shall be revocable at the pleasure of the shareholder executing it, except as
otherwise provided by law. If a proxy expressly provides, any proxy-holder may
appoint in writing a substitute to act in such proxy-holder's place. An
instrument appointing a proxy shall be in such form as the presiding officer of
the meeting shall deem acceptable.
41. The following shall apply in respect of joint ownership
of shares:
(a) if two or more persons hold shares jointly, each of
them may be present in person or by proxy at a
meeting of shareholders and may speak as a
shareholder, but each of the shares so held jointly
shall only represent a single share;
(b) if only one of the joint owners is present in
person or by proxy, such joint owner may vote on
behalf of all joint owners; and
12
<PAGE>
(c) if two or more of the joint owners are present in
person or by proxy, they must vote as one.
42. A meeting of shareholders is duly constituted if, at the
commencement of the meeting, there are present in person or by proxy
shareholders representing more than one-half of the shares entitled to vote at
the meeting.
43. If within one-half hour from the time appointed for the meeting a
quorum pursuant to Article 42 is not present, the meeting, if convened upon the
request of shareholders, shall be dissolved; in any other case it shall stand
adjourned to the next business day at the same time and place or to such other
day, time and place as the directors may determine and, if at the adjourned
meeting there are present within one-half hour from the time appointed for the
meeting in person or by proxy not less than one third of the votes of the shares
of each class or series of shares entitled to vote on the matters to be
considered by the meeting, those present shall constitute a quorum, but
otherwise the meeting shall be dissolved.
44. At every meeting of shareholders, the Chairman of the Board shall
preside as chairman of the meeting. If there is no Chairman of the Board or if
the Chairman of the Board is not present at the meeting, the directors present
shall choose one of the directors to be the chairman.
45. The chairman may, with the consent of the meeting, adjourn any
meeting from time to time, and from place to place, but no business shall be
transacted at any adjourned meeting other than the business left unfinished at
the meeting from which the adjournment took place.
46. At any meeting of the shareholders the chairman shall be
responsible for deciding in such manner as the chairman shall consider
appropriate whether any resolution has been carried or not and the result of the
chairman's decision shall be announced to the meeting and recorded in the
minutes thereof. If the chairman shall have any doubt as to the outcome of any
resolution put to a vote, the chairman may cause a poll to be taken of all votes
cast upon such resolution, and any business other than upon which a poll has
been taken may proceed pending the taking of the poll.
47. Any person other than an individual shall be regarded as one
shareholder and, subject to Article 48, the right of any individual to speak for
or represent such shareholder shall be determined by the law of the jurisdiction
where, and by the documents by which, the person is constituted or derives its
existence. In case of doubt, the directors may in good faith seek legal advice
from any qualified person and unless and until a court of competent jurisdiction
shall otherwise rule the directors may rely and act upon such advice without
incurring any liability to any shareholder.
13
<PAGE>
48. Any person other than an individual which is a shareholder of the
Company may by resolution of its directors or other governing body authorize
such person as it thinks fit to act as its representative at any meeting of the
Company or of any class of shareholders of the Company, and the person so
authorized shall be entitled to exercise the same powers on behalf of the person
which he or she represents as that person could exercise if it were an
individual shareholder of the Company.
49. Directors of the Company may attend and speak at any
meeting of shareholders of the Company and at any separate meeting
of the holders of any class or series of shares of the Company.
50. At an annual meeting of the shareholders, only such business shall
be conducted as shall have been properly brought before the meeting. In addition
to any other applicable requirements, to be properly brought before an annual
meeting, business must be (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the directors, (b) brought
before the meeting by or at the direction of the directors, or (c) otherwise
properly brought before the meeting by a shareholder. For business to be
properly brought before an annual meeting by a shareholder, the shareholder must
have given timely notice thereof in writing to the Secretary and be present at
the meeting. To be timely for the first annual meeting of shareholders after the
Company's initial public offering of its shares, a shareholder's notice must be
received at the corporate office of the Company not later than the later of (a)
the 75th day prior to the scheduled date of the annual meeting and (b) the 10th
day following the day on which public announcement of the date of such annual
meeting is first made by the Company. For all subsequent annual meetings, a
shareholder's notice shall be timely if received by the Company at its corporate
office not less than 75 days nor more than 120 days prior to the anniversary
date of the immediately preceding annual meeting (the "Anniversary Date");
provided, however, that in the event the annual meeting is scheduled to be held
on a date more than 30 days before the Anniversary Date or more than 60 days
after the Anniversary Date, a notice shall be timely if received by the Company
at its corporate office not later than the close of business on the later of (a)
the 75th day prior to the scheduled date of such annual meeting or (b) the 10th
day following the day on which public announcement of the date of such annual
meeting is first made by the Company. For purposes of these Articles, "public
announcement" shall mean (a) disclosure in a press release reported by the Dow
Jones News Service, Associated Press or comparable United States national news
service, (b) a report or other document filed publicly with the Securities and
Exchange Commission (including, without limitation, a Form 8-K) or (c) a letter
or report sent to shareholders of record of the Company at the time of the
mailing of such letter or report. A shareholder's notice to the Secretary shall
set forth as to each matter the shareholder proposes to bring before the annual
meeting (a) a brief description of the business
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desired to be brought before the annual meeting, and the reasons for conducting
such business at such annual meeting, (b) the name and address, as they appear
on the Company's books, of the shareholder proposing such business, (c) the
class and number of shares of the Company which are beneficially owned by the
shareholder, (d) the names of any other beneficial owners of such shares, (e)
any material interest of the shareholder in such business and (f) the names and
addresses of other shareholders known by the shareholder proposing such business
to support such proposal and the class and numbers of shares beneficially owned
by such shareholders. Notwithstanding anything in these Articles to the
contrary, no business shall be conducted at an annual meeting except in
accordance with the procedures set forth in this Article 50. If the directors or
a designated committee thereof determines that any shareholder proposal was not
made in a timely fashion in accordance with the procedures of this Article 50 or
that the information provided in a shareholder's notice does not satisfy the
information requirements of this Article 50 in any material respect (a
"Non-Compliance Determination"), such proposal shall not be presented for action
at the annual meeting in question. If neither the directors nor such committee
makes a determination as to the validity of any shareholder proposal in the
manner set forth above, the presiding officer of an annual meeting shall
determine whether the shareholder proposal was made in accordance with the terms
of this Article 50. If such presiding officer makes a NonCompliance
Determination with respect to such proposal, such proposal shall not be
presented for action at the annual meeting in question. If the directors, a
designated committee thereof or the presiding officer determines that a
shareholder proposal was made in accordance with the requirements of this
Article 50, the presiding officer shall so declare at the annual meeting and
ballots shall be provided for use at the meeting with respect to such proposal.
BUSINESS COMBINATIONS WITH INTERESTED SHAREHOLDERS
51. Notwithstanding any other provisions of these Articles, the Company
shall not engage in any business combination with any interested shareholder for
a period of 3 years following the time that such shareholder became an
interested shareholder, unless:
(a) prior to such time the directors approved either
the business combination or the transaction which
resulted in the shareholder becoming an interested
shareholder, or
(b) upon consummation of the transaction which resulted
in the shareholder becoming an interested
shareholder, the interested shareholder owned at
least 85% of the voting shares of the Company
outstanding at the time the transaction commenced,
excluding for purposes of determining the number of
shares outstanding those shares owned (i) by
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persons who are directors and also officers of the
Company and (ii) employee share plans in which
employee participants do not have the right to
determine confidentially whether shares held subject
to the plan will be tendered in a tender or exchange
offer, or
(c) at or subsequent to such time the business
combination is approved by the directors and
authorized at an annual or special meeting of
shareholders by the affirmative vote of at least 66
2/3% of the shareholders excluding shares owned by
the interested shareholder.
52. The restrictions contained in Article 51 shall not apply
if:
(a) the Company does not have a class of voting shares
that is (i) listed on a United States national
securities exchange or (ii) authorized for
quotation on The Nasdaq Stock Market unless either
of the foregoing results from action taken,
directly or indirectly, by an interested
shareholder or from a transaction in which a person
becomes an interested shareholder;
(b) a shareholder becomes an interested shareholder
inadvertently and (i) as soon as practicable
divests itself of ownership of sufficient shares so
that the shareholder ceases to be an interested
shareholder and (ii) would not, at any time within
the 3 year period immediately prior to a business
combination between the Company and such
shareholder, have been an interested shareholder
but for the inadvertent acquisition of ownership;
(c) the business combination is proposed prior to the
consummation or abandonment of and subsequent to
the earlier of the public announcement or the
notice required hereunder of a proposed transaction
which (i) constitutes one of the transactions
described in the second sentence of this paragraph;
(ii) is with or by a person who either was not an
interested shareholder during the previous 3 years
or who became an interested shareholder with the
approval of the directors or during the period
described in paragraph (d) of this Article 53; and
(iii) is approved or not opposed by a majority of
the directors then in office (but not less than 1)
who were directors prior to any person becoming an
interested shareholder during the previous 3 years
or were recommended for election or elected to
succeed such directors by a majority of such
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directors. The proposed transactions referred to in
the preceding sentence are limited to (x) a merger or
consolidation of the Company; (y) a sale, lease,
exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of
transactions), whether as part of a dissolution or
otherwise, of assets of the Company or of any direct
or indirect majority-owned subsidiary of the Company
(other than to any direct or indirect wholly-owned
subsidiary or to the Company) having an aggregate
market value equal to 50% or more of either that
aggregate market value of all of the assets of the
Company determined on a consolidated basis or the
aggregate market value of all the outstanding shares
of the Company; or (z) a proposed tender or exchange
offer for 50% or more of the outstanding voting
shares of the Company. The Company shall give not
less then 10 days' notice to all interested
shareholders prior to the consummation of any of the
transactions described in clauses (x) or (y) of the
second sentence of this paragraph; or
(d) the business combination is with an interested
shareholder who became an interested shareholder at a
time when the restrictions contained in Article 51
did not apply by reason of any paragraph (a) of this
Article 52.
53. As used in Articles 51, 52 and/or, as the case may be,
53, the term:
(a) "affiliate" means a person that directly, or
indirectly through one or more intermediaries,
controls, or is controlled by, or is under common
control with, another person.
(b) "associate," when used to indicate a relationship
with any person, means (i) any company,
partnership, unincorporated association or other
entity of which such person is a director, officer
or partner or is, directly or indirectly, the owner
of 20% or more of any class of voting shares; (ii)
any trust or other estate in which such person has
at least a 20% beneficial interest or as to which
such person serves as trustee or in a similar
fiduciary capacity; and (iii) any relative or
spouse of such person, or any relative of such
spouse, who has the same residence as such person.
(c) "business combination," when used in reference to
the Company and any interested shareholder of the
Company, means:
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(i) any merger or consolidation of the
Company or any direct or indirect
majority-owned subsidiary of the Company
with (A) the interested shareholder or
(B) with any other company, partnership,
unincorporated association or other
entity if the merger or consolidation is
caused by the interested shareholder and
as a result of such merger or
consolidation Article 51 is not
applicable to the surviving entity;
(ii) any sale, lease, exchange, mortgage,
pledge, transfer or other disposition (in
one transaction or a series of
transactions), except proportionately as
a shareholder of the Company, to or with
the interested shareholder, whether as
part of a dissolution or otherwise, of
assets of the Company or of any direct or
indirect majority-owned subsidiary of the
Company which assets have an aggregate
market value equal to 10% or more of
either the aggregate market value of all
the assets of the Company determined on a
consolidated basis or the aggregate
market value of all the outstanding
shares of the Company;
(iii) any transaction which results in the
issuance or transfer by the Company or by
any direct or indirect majority-owned
subsidiary of the Company of any shares
of the Company or of such subsidiary to
the interested shareholder, except (A)
pursuant to the exercise, exchange or
conversion of securities exercisable for,
exchangeable for or convertible into
shares of the Company or any such
subsidiary which securities were
outstanding prior to the time that the
interested shareholder became such; (B)
pursuant to a dividend or distribution
paid or made, or the exercise, exchange
or conversion of securities exercisable
for, exchangeable for or convertible into
shares of the Company or any such
subsidiary which security is distributed,
pro rata to all holders of a class or
series of shares of the Company
subsequent to the time the interested
shareholder became such; (C) pursuant to
an exchange offer by the Company to
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purchase shares made on the same
terms to all holders of said shares;
or (D) any issuance or transfer of
shares by the Company, provided
however, that in no case under (B)
through (D), above, shall there be
an increase in the interested
shareholder's proportionate share of
the shares of any class or series of
the Company or of the voting shares
of the Company;
(iv) any transaction involving the Company or
any direct or indirect majority-owned
subsidiary of the Company which has the
effect, directly or indirectly, of
increasing the proportionate share of the
shares of any class or series, or
securities convertible into the shares of
any class or series of the Company or of
any such subsidiary which is owned by the
interested shareholder, except as a
result of immaterial changes due to
fractional share adjustments or as a
result of any purchase or redemption of
any shares not caused, directly or
indirectly, by the interested
shareholder; or
(v) any receipt by the interested shareholder
of the benefit, directly or indirectly
(except proportionately as a shareholder
of the Company) of any loans, advances,
guarantees, pledges, or other financial
benefits (other than those expressly
permitted in subparagraphs (i)-(iv),
above) provided by or through the Company
or any direct or indirect majority-owned
subsidiary of the Company.
(d) "control," including the term "controlling,"
"controlled by" and "under common control with,"
means the possession, directly or indirectly, of
the power to direct or cause the direction of the
management and policies of a person, whether
through the ownership of voting shares, by
contract, or otherwise. A person who is the owner
of 20% or more of the outstanding voting shares of
any company, partnership, unincorporated
association or other entity shall be presumed to
have control of such entity, in the absence of
proof by a preponderance of the evidence to the
contrary. Notwithstanding the foregoing, a pre-
sumption of control shall not apply where such
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person holds voting shares, in good faith and not for
the purpose of circumventing Article 51 as an agent,
bank, broker, nominee, custodian or trustee for one
or more owners who do not individually or as a group
have control of such entity.
(e) "interested shareholder" means any person (other
than the Company and any direct or indirect
majority-owned subsidiary of the Company) that (i)
is the owner of 15% or more of the outstanding
voting shares of the Company, or (ii) is an
affiliate or associate of the Company and was the
owner of 15% or more of the outstanding voting
shares of the Company at any time within the 3-year
period immediately prior to the date on which it is
sought to be determined whether such person is an
interested shareholder; and the affiliates and
associates of such person; provided, however, that
the term "interested shareholder" shall not include
(x) any person who (A) owned shares in excess of
the 15% limitation set forth herein as of the
effective date of the Company's Registration
Statement on Form F-1 under the Securities Act of
1933, as amended, with respect to its initial
public offering of shares and either (I) continued
to own shares in excess of such 15% limitation or
would have but for action by the Company or (II) is
an affiliate or associate of the Company and so
continued (or so would have continued but for
action by the Company) to be the owner of 15% or
more of the outstanding voting shares of the
Company at any time within the 3-year period
immediately prior to the date on which it is sought
to be determined whether such a person is an
interested shareholder or (B) acquired said shares
from a person described in (A), above, by gift,
inheritance or in a transaction in which no
consideration was exchanged; or (y) any person
whose ownership of shares in excess of the 15%
limitation set forth herein is the result of action
taken solely by the Company provided that such
person shall be an interested shareholder if
thereafter such person acquires additional voting
shares of the Company, except as a result of
further corporate action not caused, directly or
indirectly, by such person. For the purpose of
determining whether a person is an interested
shareholder, the voting shares of the Company
deemed to be outstanding shall include shares
deemed to be owned by the person through
application of paragraph (h) of this Article 53,
but shall not include any other unissued shares of
the Company which may be issuable pursuant to any
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agreement, arrangement or understanding, or upon
exercise of conversion rights, warrants or options,
or otherwise.
(f) "shares" means, with respect to any company or
similar entity, capital shares and, with respect to
any other entity, any equity interest.
(g) "voting shares" means, with respect to any company or
similar entity, shares of any class or series
entitled to vote generally in the election of
directors and, with respect to any other entity, any
equity interest entitled to vote generally in the
election of the governing body of such entity.
(h) "owner," including the terms "own" and "owned" when
used with respect to any shares, means a person that
individually or with or through any of its affiliates
or associates:
(i) beneficially owns such shares, directly
or indirectly; or
(ii) has (A) the right to acquire such shares
(whether such right is exercisable
immediately or only after the passage of
time) pursuant to any agreement,
arrangement or understanding, or upon the
exercise of conversion rights, exchange
rights, warrants or options, or
otherwise; provided, however, that a
person shall not be deemed the owner of
shares tendered pursuant to a tender or
exchange offer made by such person or any
of such person's affiliates or associates
until such tendered shares are accepted
for purchase or exchange; or (B) the
right to vote such shares pursuant to any
agreement, arrangement or understanding;
provided, however, that a person shall
not be deemed the owner of any shares
because of such person's right to vote
such shares if the agreement, arrangement
or understanding to vote such shares
arises solely from a revocable proxy or
consent given in response to a proxy or
consent solicitation made to 10 or more
persons; or
(iii) has any agreement, arrangement or
understanding for the purpose of
acquiring, holding, voting (except voting
pursuant to a revocable proxy or consent
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as described in item (B) of clause
(ii), above), or disposing of such
shares with any other person that
beneficially owns, or whose
affiliates or associates
beneficially own, directly or
indirectly, such shares.
DIRECTORS
54. Subject to Article 60, the directors shall be elected by
the shareholders for such term as the shareholders determine.
55. The minimum number of directors shall be one and the
maximum number shall be seven, as may be determined from time to
time by the Board of Directors.
56. Each director shall hold office until such director's successor
takes office or until his earlier death, resignation or removal.
57. Commencing at such time as the Board of Directors of the Company
shall consist of seven directors, the Board shall be divided into three classes
designated as Class I, Class II and Class III, respectively, and composed of
two, two and three individuals, respectively. Upon any change in the size of the
Board of Directors, each class shall consist, as nearly as may be possible, of
one-third of the total number of directors constituting the entire Board of
Directors. The initial term of office of directors of Class I shall expire at
the next annual meeting of shareholders of the Company following the initial
filing of these Articles; the initial term of office of directors of Class II
shall expire at the second annual meeting of shareholders of the Company
following the initial filing of these Articles; the initial term of office of
the directors of Class III shall expire at the third annual meeting of
shareholders of the Company following the initial filing of these Articles. At
each annual meeting of shareholders, the successors to the class of directors
whose term shall then expire shall be elected to hold office for a term expiring
at the third succeeding annual meeting of shareholders.
58. Subject to any rights of the holders of Preferred Shares, if and
when issued, to elect directors and to remove any directors whom the holders of
any such shares have the right to elect, any director of the Company may be
removed from office (a) with or without cause by a vote of a majority of the
directors then in office or (b) with cause and by the affirmative vote of a
majority of the total votes which would be eligible to be cast by shareholders
in the election of such director.
59. A director may resign such director's office by giving
written notice of such director's resignation to the Company and
the resignation shall have effect from the date the notice is
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<PAGE>
received by the Company or from such later date as may be specified
in the notice.
60. The directors shall have power at any time, and from time to time,
to appoint any other qualified person or persons as a director, either to fill a
vacancy or as an addition to the board; provided, however, that the total number
of directors shall not at any time exceed the maximum number fixed by these
Articles.
61. A director elected to fill a vacancy resulting from an increase in
the number of directors shall hold office for a term that shall coincide with
the remaining term of the class of directors to which he or she is elected. A
director elected to fill a vacancy not resulting from an increase in the number
of directors shall have the same remaining term as that of his or her
predecessor. Except in the case of newly created directorships where the
directors fail to fill any such vacancy, shareholders may not fill vacancies on
the Board of Directors. In such event, the shareholders may do so at the next
annual or special meeting called for that purpose.
62. The directors may fix the emoluments of directors with
respect to services to be rendered in any capacity to the Company.
63. A director shall not be required to own shares of the
Company.
64. A director of the Company may be or become a director or officer
of, or otherwise interested in, any company or other entity promoted by the
Company or in which the Company may be interested as a shareholder or otherwise,
and no such director shall be accountable to the Company for any remuneration or
other benefits received by such director as a director or officer of, or from
such director's interest in, such other Company unless the Company otherwise
directs.
POWERS OF DIRECTORS
65. The business and affairs of the Company shall be managed by the
directors who may pay all expenses incurred preliminary to and in connection
with the formation and registration of the Company and may exercise all such
powers of the Company as are not by the Act or by the Memorandum or these
Articles required to be exercised by the shareholders of the Company, subject to
any delegation of such powers as may be authorized by these Articles or
applicable law.
66. The directors may appoint any person, including an
individual who is a director, to be an officer, agent or liquidator
of the Company.
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67. Every officer or agent of the Company has such powers and authority
of the directors, including the power and authority to affix the Seal, as are
set forth in these Articles or in a resolution of directors, appointing the
officer or agent.
68. Without limitation on the other powers of the directors under these
Articles or applicable law, the directors may from time to time, at their
discretion, raise or borrow or secure the payment of any sum or sums of money
for the purposes of the Company in such manner and upon such terms and
conditions in all respects as they think fit and in particular by the issue of
bonds, mortgages, debentures or debenture shares perpetual or otherwise, notes
or other obligations of the Company charged upon all or any part of the property
of the Company (both present and future).
69. The continuing directors may act notwithstanding any
vacancy in their body.
LIMITATION OF LIABILITY OF DIRECTORS
70. A director shall not be personally liable to the Company or the
shareholders for damages for breach of such director's duties as a director;
provided, however, that such director has acted honestly and in good faith with
a view to the best interests of the Company and has exercised the care,
diligence and skill that a reasonably prudent person would exercise in
comparable circumstances. Neither repeal nor modification of this Article 70,
nor the adoption of any provision in these Articles or in the Memorandum
inconsistent with this Article 70, shall adversely affect any right or
protection afforded to a director by this Article 70 prior to such repeal,
modification or adoption of an inconsistent provision.
PROCEEDINGS OF DIRECTORS
71. The Directors shall hold an annual meeting each year as soon as
practicable after the annual meeting of the shareholders at the place where such
meeting of the shareholders was held or at such other place and time as to which
the directors and any new director nominees shall be notified prior to such
shareholders meeting for the purpose of consideration of business that may be
properly brought before the meeting. Except as aforesaid, no notice of any kind
to either old or new directors for such annual meeting shall be necessary.
72. Regular meetings, other than the annual meeting, of the directors
may be held without notice at such time and at such place as shall from time to
time be determined by the directors. Special meetings of the directors may be
called by any two directors or the Chairman of the Board on not less than 48
hours' written notice to each director, either personally; by express delivery
service such
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as, for example, Federal Express; telegram or telefax; provided, however, that
express delivery service may only be used if it is reasonably calculated to
provide delivery of such notice no later than twelve (12) hours prior to such
meeting. Notice of any special meeting of the directors need not be given to any
director who signs a waiver of notice either before or after the meeting.
Attendance by a director at a special meeting shall constitute a waiver of
notice of such special meeting, except where a director attends a meeting for
the express purpose of objecting to the transaction of any business because such
special meeting is not lawfully convened.
73. A director shall be deemed to be present at a meeting of directors
if he or she participates by telephone or other electronic means and all
directors participating in the meeting are able to hear each other and recognize
each other's voice. A resolution in writing, in one or more parts, signed by all
the directors, shall be as valid and effectual as if it had been passed at a
meeting of the directors duly called and constituted.
74. A majority of all the directors then in office shall constitute a
quorum for the transaction of business. The affirmative vote of the majority of
directors present at a meeting where a quorum is present shall be the act of the
directors. If a quorum shall not be present at any meeting of the directors, a
majority of the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
75. If the Company shall have only one director the provisions herein
contained for meetings of the directors shall not apply but such sole director
shall have full power to represent and act for the Company in all matters as are
not by the Act or the Memorandum or these Articles required to be exercised by
the shareholders of the Company and, in lieu of minutes of a meeting, shall
record in writing and sign a note or memorandum of all matters requiring a
resolution of directors. Such a note or memorandum shall constitute sufficient
evidence of such resolution for all purposes.
76. At every meeting of the directors the Chairman of the Board shall
preside as chairman of the meeting. If there is no Chairman of the Board or if
the Chairman of the Board is not present at the meeting, the directors present
shall choose one of the directors to be chairman of the meeting.
77. The directors may delegate any of their powers to committees each
consisting of two or more directors as they think fit. Any committee so formed
shall, in the exercise of the powers so delegated, conform to any requirements
that may from time to time be made or imposed upon it by the directors. Meetings
of any committee may be called by any member thereof by the giving of not less
than 48 hours' written notice to each other committee member,
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<PAGE>
either personally, by express delivery service, such as, for example, Federal
Express, telegram or telefax; provided, however, that express delivery service
may only be used if it is reasonably calculated to provide delivery of such
notice no later than 12 hours prior to such meeting. Notice of any meeting of a
committee need not be given to any committee member who signs a waiver of notice
either before or after the meeting. Attendance by a committee member at a
committee meeting shall constitute a waiver of notice of such committee meeting,
except where a committee member attends a meeting for the express purpose of
objecting to the transaction of any business because such committee meeting is
not lawfully convened. The terms of Article 73 shall apply to the conduct of
committee meetings. The majority of the members of a committee shall constitute
a quorum for the transaction of business of that committee. The second and third
sentences of Article 74 shall apply to the conduct of committee meetings.
OFFICERS
78. The directors may appoint officers of the Company at such times as
shall be considered desirable. Such officers may consist of a Chairman of the
Board, a Chief Executive Officer, a Chief Operating Officer and one or more
Vice-Presidents, a Secretary and one more Assistant Secretaries and such other
officers as may from time to time be deemed desirable. Any number of offices may
be held by the same person. A director may serve as an officer of the Company.
79. The officers shall perform such duties as shall be prescribed at
the time of their appointment subject to any modification in such duties as may
be prescribed thereafter by the directors but in the absence of any specific
allocation of duties it shall be the responsibility of the Chairman of the Board
to preside at meetings of directors and shareholders and to manage the day to
day affairs of the Company and the other officers to perform such duties as may
be delegated to them by the directors or by the Chairman of the Board.
80. The officers of the Company shall hold office until their
successors are duly elected and qualified, but any officer elected or appointed
by the directors may, subject to the terms of any applicable employment
agreement, be removed at any time, with or without cause, by the directors. Any
vacancy occurring in any office of the Company may be filled by resolution of
directors.
CONFLICT OF INTERESTS
81. Notwithstanding the provisions of Section 55 of the Act, if the
requirements of Article 82 are satisfied, no agreement or transaction between
the Company and one or more of its directors or liquidators, or any person in
which any director or liquidator has a financial interest or to whom any
director or liquidator is
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related, including as a director or liquidator of that other person, is void or
voidable for this reason only or by reason only that the director or liquidator
is present at the meeting of directors or liquidators or at the meeting of the
committee of directors or liquidators that approves the agreement or transaction
or that the vote or consent of the director or liquidator is counted for that
purpose.
82. An agreement or transaction referred to in Article 81 is
valid if
(a) the material facts of the interest of each director
or liquidator in the agreement or transaction and his
or her interest in or relationship to any other party
to the agreement or transaction are disclosed in good
faith or are known by the other directors or
liquidators; and
(b) the agreement or transaction is approved or
ratified by a majority of the disinterested
directors or liquidators.
83. A director or liquidator who has an interest in any particular
business to be considered at a meeting of directors, liquidators or shareholders
may be counted for purposes of determining whether the meeting is duly
constituted.
INDEMNIFICATION
84. Subject to Article 85, the Company shall indemnify to the fullest
extent permitted under Bahamian law, as against all expenses including legal
fees, and against all judgements, fines and amounts paid in settlement and
reasonably incurred in connection with legal, administrative or investigative
proceedings any person who
(a) is or was a party or is threatened to be made a party
to any threatened, pending or completed proceedings,
whether civil, criminal, administrative or
investigative, by reason of the fact that the person
is or was a director, an officer or liquidator of the
Company; or
(b) is or was, at the request of the Company, serving as
a director, officer or liquidator of, or in any other
capacity is or was acting for, another company or a
partnership, joint venture, trust or other
enterprise.
85. Article 84 only applies to a person referred to in that
Article if the person acted honestly and in good faith with a view
to the best interests of the Company and, in the case of criminal
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proceedings, the person had no reasonable cause to believe that such person's
conduct was unlawful. In addition, indemnification shall not be available with
respect to any claim against a person referred to in Article 84 pursuant to the
provisions of Section 16(b) of the United States Securities Exchange Act of
1934, as amended, or any similar provisions of any other United States federal
or state statute or rule.
86. The decision of the directors as to whether the person acted
honestly and in good faith and with a view to the best interests of the Company
and as to whether the person had no reasonable cause to believe that such
person's conduct was unlawful, is in the absence of fraud, sufficient for the
purposes of these Articles, unless a question of law is involved.
87. The termination of any proceedings by any judgement, order,
settlement, convictions or the entering of a nolle prosequi does not, by itself,
create a presumption that the person did not act honestly and in good faith and
with a view to the best interests of the Company or that the person had
reasonable cause to believe that such person's conduct was unlawful.
88. If a person referred to in Article 84 has been successful in
defense of any proceedings referred to in that Article the person is entitled to
be indemnified against all expenses, including legal fees, and against all
judgements, fines and amounts paid in settlement and reasonably incurred by the
person in connection with the proceedings.
89. Expenses incurred in defending any of the proceedings described in
Article 84 shall be paid in advance of the final disposition of such proceeding
upon receipt of an undertaking by or on behalf of the person entitled to
indemnification under Article 84 to repay such amount, if it shall ultimately be
determined that such person is not entitled to be indemnified by the Company
under Article 84.
90. The indemnification under Article 84 with respect to any person
shall not limit or restrict in any way the power of the Company to indemnify or
pay expenses for such person in any other manner permitted by law or be deemed
exclusive of, or invalidate, any other right which such person may have or
acquire under any law, agreement, vote of shareholders or disinterested
directors, or otherwise.
91. The Company may purchase and maintain insurance in relation to any
person who is or was a director, an officer or a liquidator of the Company, or
who at the request of the Company is or was serving as a director, an officer or
a liquidator of, or in any other capacity is or was acting for, another company
or a partnership, joint venture, trust or other enterprise, against any
liability asserted against the person and incurred by the person in that
capacity, whether or not the Company has or would have had the
28
<PAGE>
power to indemnify the person against the liability under
Article 84.
92. The right of indemnification provided for herein (i) shall be
deemed to create contractual rights in favor of persons entitled to
indemnification hereunder; (ii) shall inure to the benefit of the heirs and
legal representatives of persons entitled to indemnification hereunder; and
(iii) shall be applicable to actions, suits and proceedings commenced after the
original adoption date of these Articles of Association on October 31, 1995,
whether arising from acts or omissions occurring before or after the adoption of
this resolution.
93. If applicable Bahamian law is deemed at any time to permit broader
indemnification of the persons described in Article 84 than that provided for in
these Articles, then these Articles shall be deemed to be amended as of the time
that such broader indemnification is permitted to provide for such broader
indemnification.
94. Neither the repeal nor modification of any of Articles 84 through
93, nor the adoption of any provision in these Articles or in the Memorandum
inconsistent with any of Articles 84 through 93, shall adversely affect any
right or protection afforded to any person described in Article 84 by any of
Articles 84 through 93 prior to such repeal, modification or adoption of an
inconsistent provision.
SEAL
95. The directors shall provide for the safe custody of the Seal. The
Seal, when affixed to any written instrument shall be witnessed by a director or
any other person so authorized from time to time by the directors. The directors
may provide for a facsimile of the Seal and of the signature of any director or
authorized person which may be reproduced by printing or other means on any
instrument and it shall have the same force and validity as if the Seal had been
affixed to such instrument and the same had been signed as hereinbefore
described. The directors may authorize the adoption and use of one or more
corporate seals for use outside the Commonwealth of The Bahamas.
DIVIDENDS
96. The Company may by a resolution of directors declare and pay
dividends in money, shares or other property but dividends shall only be
declared and paid out of surplus. In the event that dividends are paid in specie
the directors shall have responsibility for establishing and recording in the
resolution of directors authorizing the dividends, a fair and proper value for
the assets to be so distributed.
29
<PAGE>
97. No dividend shall be declared and paid unless the directors
determine that immediately after the payment of the dividend the Company will be
able to satisfy its liabilities as they become due in the ordinary course of its
business and the realizable value of the assets of the Company will not be less
than the sum of its total liabilities, other than deferred taxes, as shown in
its books of account, and its capital. In the absence of fraud, the decision of
the directors as to the realizable value of the assets of the Company is
conclusive, unless a question of law is involved.
98. Notice of any dividend that may have been declared shall be given
to each shareholder in manner hereinafter mentioned and all dividends unclaimed
for 3 years after having been declared may be forfeited by resolution of
directors for the benefit of the Company.
99. No dividend shall bear interest as against the Company
and no dividend shall be paid on shares described in Article 14.
ACCOUNTS AND BOOKS OF THE COMPANY
100. The directors shall from time to time determine whether and to
what extent and at what times and places and under what conditions or
regulations the accounts and books of the Company or any of them shall be open
to inspection by the shareholders not being directors, and no shareholder (not
being a director) shall have any right of inspecting any account or book or
document of the Company except as conferred by statute or authorized by the
directors.
NOTICES
101. Any notice, information or written statement to be given by the
Company (including by the directors or any officer of the Company) to a
shareholder or the shareholders shall be deemed given when delivered personally,
or when deposited into the mail addressed to shareholder at the address shown in
the share register or, when an alternate means of delivery is deemed reasonable
by the directors, when given on behalf of the Company to a party outside of the
Company with instructions to deliver such notice, information or statement to a
shareholder or the shareholders.
VOLUNTARY WINDING UP AND DISSOLUTION
102. The Company may voluntarily commence to wind up and
dissolve by resolution of shareholders or by resolution of
directors.
AMENDMENT
30
<PAGE>
103. These Articles may be amended by (a) the directors or (b)
66 2/3% of the shareholders of each class or series entitled to
vote thereon.
HEADINGS
104. The headings in these Articles have been inserted solely for
convenience of reference and neither constitute a part of these Articles nor
affect the meaning, interpretation or effect of any provision of these Articles.
GOVERNING LAW
105. Except as otherwise specifically provided for herein,
Bahamian law shall govern all aspects of these Articles.
ADOPTED MARCH 23, 1997
Date
31
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONSOLIDATED
FINANCIAL STATEMENTS (UNAUDITED) AT AND FOR THE SIX MONTHS ENDED JUNE 30, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 9,436,000
<SECURITIES> 6,649,000
<RECEIVABLES> 3,262,000
<ALLOWANCES> 114,000
<INVENTORY> 4,803,000
<CURRENT-ASSETS> 25,088,000
<PP&E> 4,696,000
<DEPRECIATION> 2,422,000
<TOTAL-ASSETS> 27,982,000
<CURRENT-LIABILITIES> 6,937,000
<BONDS> 0
0
0
<COMMON> 72,000
<OTHER-SE> 20,903,000
<TOTAL-LIABILITY-AND-EQUITY> 27,982,000
<SALES> 16,103,000
<TOTAL-REVENUES> 39,740,000
<CGS> 10,964,000
<TOTAL-COSTS> 34,684,000
<OTHER-EXPENSES> 354,000
<LOSS-PROVISION> 65,000
<INTEREST-EXPENSE> 8,000
<INCOME-PRETAX> 5,410,000
<INCOME-TAX> 472,000
<INCOME-CONTINUING> 4,938,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,938,000
<EPS-PRIMARY> (0.67)
<EPS-DILUTED> (0.67)
</TABLE>
