TO OUR SHAREHOLDERS
We are pleased to enclose Europa Cruises Corporation's Annual Report to
Shareholders for the year ended December 31, 1996. Although we urge you to read
the report in its entirety, we hope that this letter will help you to better
understand Europa's significant accomplishments during 1996 and Europa's goals
for 1997.
This year has been an extraordinary time of transition and promise for
Europa. When the present Board assumed control of Europa in 1995, we inherited a
company with significant problems which required immediate attention to insure
the survival of Europa and to preserve and enhance its value for shareholders.
We are proud of the significant operating results achieved during the latter
part of 1995 and 1996. During 1995, Europa lost $1,787,200, most of which was
associated with operating policies and procedures implemented by prior
management. During late 1995 and early 1996, we implemented drastic cost cutting
measures which resulted in significant savings to Europa.
As a direct result, Europa had a nearly break-even year in 1996 and
only a minuscule net operating loss of ($16,523). Europa is now poised for
significant growth in 1997. Indeed, Europa expects net income for the first
quarter to be $600,000. The expected net income would have been $700,000 if not
for the unexpected and unfortunate costs incurred to date with respect to a
proxy contest.
Europa's current operations and endeavors are focused on two lines of
business in two states: cruise ship operations in Florida and the proposed
development of a casino resort in Diamondhead, Mississippi. Our goal has been to
improve the profitability of cruise ship operations and to expand the cruise
ship business, while pushing ahead aggressively to obtain required permits and
to find a suitable joint venture partner to begin development of our
Diamondhead, Mississippi site. We have made great strides on both fronts.
DIAMONDHEAD, MISSISSIPPI
Europa is poised for an exciting future in Mississippi. Our
Diamondhead, Mississippi site represents the most significant opportunity for a
substantial increase in shareholder value. Europa owns 404 acres of land in
Diamondhead, Mississippi, on the Bay of St. Louis, immediately off Interstate
10. This site has generated significant interest from major entities in the
gaming industry. Indeed, the site is adjacent to a site on which Circus Circus
also plans to build a destination resort and casino.
Before March 20, 1995, when Ms. Vitale became Chairman of the Board of
Directors and Mr. Bullock became a member of the Board of Directors, progress in
Mississippi had been agonizingly slow and no permits had been obtained. The new
Board of Directors demanded action
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and got it. Indeed, we are pleased to report that since then, Europa has
obtained all but one of the permits required for construction of its destination
casino resort. Europa is now in the process of obtaining the final permit
necessary to develop the site from the U.S. Army Corps of Engineers. Some of the
permits obtained are subject to appeal, have been appealed and are working their
way through the appellate process, but the extraordinary progress that we have
made since March 1995 has put Europa well within sight of its goal.
On January 31, 1997, through the personal efforts and contacts of Ms.
Vitale, Chairman of the Board, Europa entered into an agreement with Hilton
Gaming Corporation, the world's largest gaming company. The agreement gave
Hilton the exclusive right for a 180-day period of time to negotiate a joint
venture agreement with Europa for the development of the Diamondhead site. In
exchange for this right, Hilton paid Europa a nonrefundable fee of $400,000,
which is specifically earmarked for costs and expenses relating to the
Diamondhead project. The joint venture agreement to be negotiated, if reached,
would provide for the development of a luxury hotel and spa, a sports and
entertainment center, 120,000 square feet of casino space, and a golf course and
would give Hilton majority ownership, control and management over the project.
However, Europa would retain minority ownership and would have substantial
involvement in the operation.
The current Chairman of Board of Directors, Ms. Vitale, enjoys an
excellent relationship with Hilton Gaming Corporation and all substantive
negotiations, to date, have taken place with the President of Hilton Gaming
Corporation. Whether Europa enters into an agreement with Hilton or another
entity or ends up developing the Diamondhead site on its own, this Board is
committed to development of the Diamondhead casino resort to achieve maximum
shareholder value.
CRUISE OPERATIONS
When the undersigned assumed control of Europa in March of 1995,
operating losses, cash flow problems, and legal crises threatened the very
viability of Europa. Management's efforts were consumed with survival and
getting costs and expenses under control. We are proud to report our success.
Europa, as the results so clearly show, has attacked expenses on every
level. In 1996, Europa realized savings of approximately $1,200,000 from casino,
food service, entertainment, and port accounting services. Europa's legal fees,
an enormous cash drain in prior years, dropped dramatically due to the efforts
of the Chairman. During each of 1994 and 1995, Europa's legal expenses were over
$700,000 per year, the majority of which were incurred before the Chairman
assumed responsibility for legal affairs. In 1996, however, the legal fees
dropped to $172,739. The savings in legal fees realized are attributable to the
fact that the Chairman, a practicing attorney, has negotiated and drafted most
of Europa's contracts and has performed a substantial amount of Europa's legal
work, including work directly necessary to the development of the Diamondhead,
Mississippi, project. The Chairman performed these services for two full years
without cash compensation. In addition, the Chairman has aggressively managed
Europa's legal work through outside counsel and insisting on tight cost
controls.
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In addition to aggressive cost controls, the Board is proud of its
other accomplishments. These include:
o The opening of a new port in Miami Beach.
o The relocation of its Ft. Myers port to a more favorable
location, thereby significantly increasing gaming revenues at
that port.
o Obtaining a $6,400,000 loan to pay off a loan then due on the
Diamondhead, Mississippi property, thus avoiding foreclosure.
o Entering into an Addendum to a prior agreement with Casinos
Austria which eliminated the expense of certain employees on
board Europa's vessels and terminating a prior consulting
agreement with Casinos Austria resulting in substantial
savings to Europa.
o Using Europa's normally-chartered fourth vessel as a
substitute vessel at its then operating ports so as to avoid
the loss of revenues from operating ports while three of
Europa's four vessels went to drydock for required maintenance
and repair.
o Obtaining the funds necessary, through several Regulation S
stock offerings, to pay the extraordinary costs of
approximately $1,450,000 associated with drydocking three of
Europa's four vessels at a time when Europa could not
otherwise obtain the required funds from any other source.
While 1996 was dedicated to reducing costs and moving forward in the
permit process in Mississippi, Europa's goals in 1997 will be to expand
operations and to market Europa to new shareholders.
Goals for 1997
We look forward to increased success in 1997. Our first goal in 1997 is
to move forward in Mississippi with negotiations for a joint venture partner.
Unfortunately, the momentum that followed our signing of an exclusive
negotiating agreement with Hilton on January 31, 1997 was lost as a result of
the filing of a proxy contest just three weeks later. Indeed, Europa's stock
price has plummeted since a proxy contest was initiated. We are sad to report
that the attention of management has been diverted from Hilton to the legal work
required to comply with the securities laws dealing with proxy contests. In
addition, the costs and expenses associated with the proxy contest will be
substantial. Despite the proxy contest, however, management continues to push
forward.
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Europa's second goal in 1997 is to expand its cruise ship operations
into new markets. At present, all of Europa's cruise ships operate out of
Florida. Europa has no current operations in New York, but is negotiating to
enter into a joint venture partnership in New York.
We believe that the market for gaming cruise operations in New York is
substantial even assuming competition. Moreover, the per capita "drop" per New
Yorker is expected to be heavier than that in Florida, which has a significant
retirement-based, fixed-income population. Management intends to aggressively
pursue this opportunity. In addition, management has embarked on a marketing
effort designed to increase passenger counts by associating with
nationally-marketed vacation packages.
Some Words about the Board and Shareholder Value
Above all else, this Board is committed to maximizing shareholder value
for the benefit of the shareholders. Since 1995, management's time has been
consumed with legal and unexpected crises and with the need to eliminate past
practices which resulted in poor operating performance, and financial, legal and
other crises. Until operating performance improved, or a dramatic breakthrough
occurred in Mississippi, there was little hope that the market for Europa's
shares would show significant appreciation. The market price of Europa's Common
Stock has been disappointing. While Europa has some so-called investment bankers
following it, Europa believes new investment bankers are needed. This will be
one of Europa's major goals in 1997. Indeed, Europa had planned to begin
promoting its stock through brokerage houses in Denver, New York and Florida
prior to the filing of the proxy contest. These plans, too, came to a halt.
Europa is convinced that it must find new investment bankers who are willing to
promote Europa to new shareholders if the value of the stock is to gain any
momentum. Europa has turned a critical corner, has demonstrated its ability to
overcome huge losses, and is on the verge of an exciting future in Mississippi.
Europa must find new investment bankers who are committed to spreading Europa's
news, who are committed to Europa's shareholders and who are committed to
maximizing shareholder value.
This Board and its executive officers are devoted to Europa and have a
huge personal stake in increasing the value of Europa's Common Stock. The
commitment of the Chairman of the Board underscores this fact. The Chairman of
the Board has devoted thousands of hours in the past two years to the service of
Europa. Other than a nominal director's fee, the Chairman has received no cash
compensation from Europa. Europa has saved hundreds of thousands of dollars that
Europa would otherwise have had to pay to outside counsel to perform the legal
services that the Chairman has performed. As reflected in the annual report, the
Chairman and the other Board members have received Common Stock options (at the
then fair market value of the stock). Unless the value of the Common Stock
increases, these stock options are absolutely worthless. The Chairman of the
Board benefits if and only if the shareholders benefit.
It must be remembered that Europa is, first and foremost, in the
transportation industry. In 1996, we assumed responsibility for the safe
transport of over 332,000 passengers by sea. This is a tremendous
responsibility. While Europa may be consumed with proxy contests, massive
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litigation, negotiations with Hilton, contract negotiations, financial
transactions, and hundreds of day-to-day corporate matters, management
recognizes that its highest duty is to the safety of our passengers, crew and
employees. While we have made tremendous strides in reducing costs and expenses,
we have not done so at the risk of life or limb. The shareholders of Europa may
take great pride in the safety record of Europa.
Europa is blessed with dedicated, competent and loyal employees. On
behalf of the Board of Directors and our shareholders, we would like to take
this opportunity to thank them for their commitment and dedication during some
very difficult times.
The Board of Directors sincerely appreciates the confidence and strong
support of both our large and small shareholders. We welcome your communications
and invite each of you to visit our offices and to sail with us. Finally, we
look forward to a closer relationship with our shareholders and to a mutually
rewarding and successful future.
With warmest personal regards, we remain
Very truly yours,
Lester E. Bullock Deborah A. Vitale
President and Director Chairman of the Board of Directors
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