SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934.
For the fiscal year ended December 31, 1996
COMMISSION FILE NO: 0-17529
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EUROPA CRUISES CORPORATION
(name of small business issuer in its charter)
DELAWARE 59-2935476
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(State of Incorporation) (I.R.S. Employer
Identification Number)
150-153rd Avenue East, Suite 200, Madeira Beach, Florida 33708
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(Address of principal executive offices)
Registrant's telephone number, including area code: 813/393-2885 (Ext.326)
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Securities registered pursuant to Section 12 (b) of the Act: None
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Securities registered pursuant to Section 12 (g) of the Act: Common Stock,
par value $.001
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Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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. YES X NO
--- ---
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by references in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year: $ 19,252,778 .
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The aggregate market value of the voting stock held by non-affiliates of the
Company is $26,542,756 based on the last reported sales price of $1.25 per share
on March 14, 1997, multiplied by 21,234,205 shares of Common Stock outstanding
and held by non-affiliates of the Company on March 14, 1997.
As of the close of business March 14, 1997, there were 27,108,854 shares of the
Registrant's Common Stock outstanding (which includes 5,000,000 shares in the
Europa Cruises Corporation Employee Stock Ownership Plan).
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrants Proxy Statement for the Annual Meeting of
Stockholders to be held April 18, 1997 are incorporated by reference in Part
III.
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TABLE OF CONTENTS
PART 1
ITEM 1. DESCRIPTION OF BUSINESS ...................................... 3
ITEM 2. PROPERTIES ................................................... 10
ITEM 3. LEGAL PROCEEDINGS ............................................ 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........... 18
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS ......................................... 19
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ......................... 20
ITEM 7. FINANCIAL STATEMENTS ........................................ 26
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE ......................... 26
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS. COMPLIANCE WITH SECTION 16 (a) OF THE
EXCHANGE ACT ................................................. 26
ITEM 10. EXECUTIVE COMPENSATION ....................................... 28
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT ................................................... 28
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS ............... 28
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K ............................. 28
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PART I
ITEM 1. BUSINESS
Europa Cruises Corporation is a Delaware corporation which was founded in 1988.
The Company became a publicly held company in 1989. The Company trades on NASDAQ
under the symbol "KRUZ." The Company has twelve subsidiaries, eight of which are
still active. These eight subsidiaries are:
1. CASINO WORLD, INC.
2. MISSISSIPPI GAMING CORPORATION
3. EUROPA CRUISES OF FLORIDA 1, INC.
4. EUROPA CRUISES OF FLORIDA 2, INC.
5. EUROPA STARDANCER CORPORATION
6. EUROPASKY CORPORATION
7. EUROPA LEASING CORPORATION
8. EUROPA CASINO MANAGEMENT CORPORATION
FLORIDA OPERATIONS
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Europa Cruises Corporation is one of the largest day cruise operators in the
United States. It currently employs approximately 454 employees and owns and
operates four gaming ships, the EuropaSun, the EuropaStar, the EuropaSky, and
the M/V Stardancer. The four ships are operated through four of the above-named
subsidiaries. The Company operates day and evening gaming cruises out of three
ports located in Miami Beach, Ft. Myers Beach, and Madeira Beach, Florida. The
fourth port, in Tierra Verde, Florida, is temporarily closed. In addition to
blackjack, poker, slot machines, craps, and sports betting, the cruises offer
fine dining, dancing and entertainment. The Company has approximately 857 gaming
positions fleet wide, including 460 slot machines. All gambling is conducted in
international waters only. The Company operated 2,172 cruises in 1996 and
carried 332,156 passengers in 1996. The Company earned total revenues of
$19,252,778 in 1996.
EMPLOYEES
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The Company presently employs 454 persons. Of these, 7 are executive and
management personnel, 33 are engaged primarily in marketing and sales activities
and 15 are engaged in administrative and clerical positions. The remaining 399
persons are ship officers, crew and staff employed by the Company who work on
the Company's four vessels. None of the Company's employees is a party to a
collective bargaining agreement. The Company considers its employee relations to
be generally satisfactory.
VESSELS
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The EuropaSun and the EuropaStar were built in 1977, are registered in Panama
and were renovated in January 1987. Both vessels are approximately 100 gross
registered tons in size, 167 feet in length and 38 feet in width. Each vessel
has a capacity for 350 passengers. The EuropaSun has 189 gaming positions,
including 83 slot machines. The EuropaStar has 241 gaming positions, including
134 slot machines. Each vessel has a dining area, gift shop, entertainment
stage, dance floor, main lounge, bars, and fully equipped galleys. During 1996,
the Company committed approximately 1,000 square feet of additional gaming space
to these two vessels. The EuropaSun and the EuropaStar, which are currently
registered in Panama, were previously registered in the United States and at
that time received Certificates of Inspection from the United States Coast
Guard. Both vessels currently hold valid control verifications from the United
States Coast Guard.
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On July 14, 1992, the Company acquired the EuropaSky, which was renovated by a
U.S. shipyard and placed in operation in November of 1993. The vessel is 498
tons, 160 feet in length and 36 feet in width. The vessel has a capacity for 440
passengers. The EuropaSky has 227 gaming positions, including 121 slot machines.
The EuropaSky has two dining areas, including one for VIP's, a gift shop,
entertainment stage, dance floor, several lounges, a small conference and
television room, and a sun deck with seating for up to 100 persons. The
EuropaSky was built to U.S. safety standards in order to receive a United States
Coast Guard Certificate of Inspection. The EuropaSky's United States registry
was made possible by 1992 legislation that, for the first time, allowed U.S.
registered vessels to carry gambling equipment to and from U.S. ports for use in
international waters.
On August 26, 1994, the Company purchased the M/V Stardancer, a U.S. registry
vessel which was built in 1984, has a gross registered tonnage of 97 tons, is
150 feet in length, and has a capacity for 499 passengers. From November 2, 1994
to June 30, 1996, the M/V Stardancer was chartered to unrelated third parties.
From July, 1996 to November, 1996, the Stardancer operated as a "replacement"
vessel in each of the Company's existing operating ports while the Company's
other three vessels each went to drydock. In December, 1996, the M/V Stardancer
was placed in operation in Tierra Verde, Florida. In February, 1997, the Tierra
Verde operations were cited for noise pollution and the Company voluntarily
ceased operations. The Company had all the required permits to operate, however
the lessor/marina owner had not paid the county impact fee for parking.
Additionally, due to concerns brought by local residents, the lessor determined
he would have to make changes to the existing dock facility to avoid state
submerged land lease violations. The Company is now working closely with local
authorities, residents and the lessor to restart the Tierra Verde operations.
The suspension of operations at Tierra Verde will not have a material impact on
the Company's 1997 results of operations or financial position. In the event the
noise pollution problems cannot be resolved, the Company will seek alternative
arrangements for the M/V Stardancer. The M/V Stardancer has 200 gaming positions
including 122 slot machines. The Stardancer has a dining area, several bars, a
gift shop, and a sun deck with seating for up to 100 persons.
CRUISE OPERATIONS
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Competition in the day cruise industry is fierce. The Company must adjust its
passenger fares to remain competitive. The current prices for the Company's
cruises range from "FREE" to $34.95, depending on the port, the market, the
competition in that market, the day of the week, the time of day, the time of
year, and whether or not it is a holiday season. The Company offers various
discount passenger rates to groups, charterers of an entire vessel, and others
and offers various special fares and complimentary fare programs for its rated
casino patrons. The Company offers its vessels for charter cruises if such
charters do not interfere with the scheduled cruises offered to the general
public. The Company's vessels have been used for convention meetings, continuing
education programs, weddings and various other group gatherings. The Company
provides bus services and special arrangements for groups of 40 persons or more.
Charter discounts require a minimum of 150 passengers.
In addition to its regular cruises, the Company offers various "theme" cruises,
including those which feature different types of music, such as jazz, country,
50's, oldies, concert, and special holiday cruises for Easter, Mother's Day, the
4th of July, Halloween, Christmas and New Year's Eve. The theme cruises are
aimed at specific customer groups. In addition to theme cruises, the Company
offers specialty cruises for blackjack, slot and other gaming tournaments.
WEATHER AND SEASONAL FLUCTUATIONS
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The business of the Company suffers as a direct result of inclement weather.
Inclement weather has a direct effect on the number of cruises conducted and on
passenger counts. In addition, passenger counts are reduced immediately before
and immediately after inclement weather conditions. Unfortunately, the first and
last quarters of 1996 were characterized by an unusual amount of inclement
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weather. The Company was forced to cancel approximately 69 cruises due to
inclement weather and experienced decreased passenger counts due to inclement
weather on 106 cruises. The Company estimates it lost over 16,000 passengers due
to inclement weather in 1996. Likewise, the Company estimates it lost over
15,800 passengers due to inclement weather in 1995.
The business of the Company is also subject to seasonal fluctuations. Generally,
revenues and passenger counts are lower during the months of September through
January. The peak months appear to run from February to June. This seasonal
fluctuation has a greater effect on the Company's west coast operations.
SALES AND MARKETING
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The Company focuses its sales and marketing efforts in markets concentrated
within a one hundred mile radius of its port locations. The Company must attract
passengers from both the local population and the tourist population to survive
the seasonal fluctuations that are known to occur in the Florida tourist
industry. The Company focuses its efforts on local markets and on tourists
visiting the local markets on vacation. The Company markets its cruises through
general advertising, direct mailings, travel agents and the Company's own sales
force.
In 1996, the Company adopted new, lower-cost marketing strategies. For example,
through telemarketing, the Company partners with local businesses in each port's
respective county and adjacent outlying areas. Local businesses can enhance
their businesses product or service by offering their patrons a reduced rate
cruise or some other "special" cruise package available "exclusively" to their
customers. In addition, the Company is pursuing a national marketing effort in
which the Company packages together with area hotels, airlines and car rental
agencies to offer the vacationing public an all-inclusive getaway to each of the
Company's ports. These packages are included in the hotels' national reservation
systems and are available to the twenty-eight thousand travel agencies
nationwide. The package is per person, one price, and includes air fare, hotel,
car rental and a pass to sail one of the Company's vessels.
On March 13, 1997, the Company entered into a letter agreement with EnRoute
Holidays Limited III, a Canadian based tour operator with a European division,
to market the Company's operations to EnRoute's Florida-bound customers. EnRoute
customers can purchase a prepaid voucher for passage on one of the Company's
vessels as part of a complete travel package. The Company expects this agreement
to increase passenger counts in 1997 by an additional approximate 20,000
passengers.
TERMINATION OF GAMING CONCESSION AGREEMENT AND CONSULTING AGREEMENT WITH CASINO
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AUSTRIA MARITIME CORPORATION
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Through October 15, 1994, the casinos on the Company's vessels were operated by
Casinos Austria Maritime Corporation ("CAMC") as concessionaire pursuant to a
Gaming Concession Agreement entered into on February 18, 1993. On September 16,
1994, the Company terminated the Gaming Concession Agreement and entered into a
Consulting Agreement with CAMC. Under the Consulting Agreement, the Company
managed and operated all casinos on board the Company's vessels and CAMC's role
was limited to providing consulting services through December 31, 1997. Under
the Consulting Agreement, CAMC received $37,500 per month or 3.5% of gross
Gaming Revenue, whichever was greater. CAMC also received $140 per cruise for
the services of a Purser on board each vessel. In return for the Consulting
Agreement, CAMC waived a termination fee of approximately $1,400,000 that the
Company would have otherwise been required to pay for early termination of the
Gaming Concession Agreement.
On October 15, 1996, CAMC and the Company amended the Consulting Agreement with
CAMC to terminate the $140 per cruise Purser Fee. This Addendum became effective
as of October 15, 1996. On February 4, 1997, the Company entered into a
Termination Agreement with CAMC under the terms of which the parties agreed to
terminate the September 16, 1994 Consulting Agreement between the Company and
CAMC. Under the terms of the Termination Agreement, the Company paid CAMC
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$361,644 to terminate the Agreement. Under the terms of the Termination
Agreement, the Company will pay a monthly fee of 3.5% of the gross gaming
revenue, if any, from casino operations on the M/V Stardancer only through
December 31, 1997. However, if the M/V Stardancer is chartered or sold during
this period to an unrelated third party, no fee will be due during such charter
period. The funds used to terminate the Agreement were obtained as part of a
partial refinancing which occurred in October 1996. The funds were being held in
escrow pursuant to a Cash Collateral Account Agreement entered into on October
31, 1996, for the sole purpose of effecting the termination. The Termination
Agreement, coupled with the Addendum to the Agreement entered into in October,
1996, is expected to save the Company approximately $450,000 through December
1997, when the contract would otherwise have ended. See Item 6, Managements'
Discussion and Analysis of Financial Condition and Results of Operations.
On October 13, 1994, the Company entered into an Equipment Lease Agreement with
CAMC pursuant to which the Company leased all gaming equipment on the Company's
four vessels for a period of forty months at $46,398 per month. The Company has
the option to purchase the equipment for the sum of one dollar at the conclusion
of the lease. In February, 1997, the Equipment Lease was extended for an
additional five months and the lease payment was increased to $49,025.39 to
provide for previous lease payments not made. The lease is scheduled to end on
July 10, 1998. The Company presently intends to exercise its option to purchase
the equipment. See Item 6, Managements' Discussion and Analysis of Financial
Condition and Results of Operations.
STATE REGULATION - FLORIDA
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On or about March 6, 1996, Representative King from the Jacksonville, Florida
area, introduced a bill in the Florida State House of Representatives to ban all
cruises to nowhere originating from the State of Florida. This bill was
defeated.
The Governor of the State of Florida had proposed a bill that would provide the
State of Florida with a $5.00 per passenger tax on all cruises to nowhere
originating from the State of Florida. The Florida Day Cruise Association is
working closely with the Governor's budget office to develop a fair tax that
would not be burdensome to the passengers or those companies engaged in the
offshore gaming business.
In January, 1997, two bills were introduced and, if passed, would place a $1.00
per passenger surcharge on cruises of less than 24 hours and a $5.00 per
passenger surcharge on cruises of 24 hours or longer. This surcharge is intended
to fund a Trust Fund to be used for statewide beach restoration and management.
The bill has been referred to Committees, but no hearings have been scheduled.
Management does not expect a $1.00 tax, if imposed, to have a material impact on
the Company's financial position or results of operations. There can be no
assurance that there will not be additional attempts to tax the industry.
COMPETITION
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When the Company began its Florida operations in 1988, there were approximately
four other vessels operating gambling day cruises in the State. Today, there are
approximately 22 vessels offering such cruises, many of which compete directly
with the Company's vessels. At least five additional vessels advertised their
entry into the Florida market in 1997. All of the competing firms offer day
cruises with published fares ranging from "Free" to $49.00. Although the
Company's standard prices for its cruise currently ranges from "Free" to $34.95
per person, the Company may, in the future, be forced to adjust these rates due
to competitive pressures. The influx of operators into Florida has also placed a
premium on new port locations which makes expansion more difficult. Further,
these competitors could reposition their vessels to any area in which the
Company's vessels are currently positioned. Any such increase in competition
could have an adverse impact on the Company's financial position or results of
operations.
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In 1996, the Florida legislature enacted a law intended to promote economic
development for the Florida para-mutual industry by increasing full card
simulcasting and intertrack wagering and permitting low- stakes (the maximum
allowable pot is $10.00) card rooms at pari-mutual facilities. The pari-mutuals
must choose between operating card rooms or carrying simulcasts on the days they
operate. Local County Commissions must first authorize operation of card rooms
in their jurisdiction. Card rooms have been authorized in Miami and Tampa where
the Company operates vessels. The effect that these simulcasts or card rooms
will have on the Company's financial position or results of operations is
unknown.
In addition, the Company competes with a variety of other vacation activities in
the areas where it operates its vessels. These include, but are not limited to,
short-term cruises, resort attractions, various sporting activities and numerous
other recreational activities.
In November of 1994, Florida voters rejected an Amendment to the Florida
Constitution that would have authorized casinos throughout the State of Florida
at existing and operating parimutuel facilities, including race tracks and
Jai-Alai frontons and at up to seven other casinos in the state (but not more
than one per county) as authorized by the Florida Legislature. It is likely that
the gaming industry will continue to pursue the legalization of land-based
gaming in Florida. The Company believes that the legalization of land-based or
dockside gaming in Florida would have a material adverse impact on the Company's
operations.
FUTURE FLORIDA PORTS
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The Company may consider joint venture or other arrangements or opportunities to
expand it's day cruise operations in Florida. Important factors considered by
the Company in selecting sites for expanding its day cruise operations include:
site accessibility, a suitable population base, an established vacation market,
docking facilities, water depth, availability of U.S. Customs clearance, an
ability to comply with state and local laws, favorable year-round weather and
sea conditions, close proximity to international waters, and limited
competition. Due to the expenses associated with the repositioning of a vessel
from one port to another, the Company seeks to position its vessels in markets
that can support a vessel at a profitable level year round. If the Company
cannot find such markets, the Company will seek to position a vessel at two or
more different ports during peak seasons of the year and will incur additional
expenses in connection with the repositioning of a vessel. Such expenses,
including dock preparation and fuel, will vary depending upon, among other
things, the condition of docking facilities and the distance between port
locations.
NEW YORK
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The Company has no operations in New York, but is currently considering
potential joint venture agreements relating to New York. There can be no
assurance the Company will be able to successfully negotiate such an agreement.
The New York market is substantial and, even assuming competition, the Company
believes it is sufficient to support multiple gaming vessels. Moreover, the per
capita drop per New Yorker is expected to be heavier than that in Florida
inasmuch as Florida has a significant retirement-based, fixed-income population.
Legislation is currently pending in New York prohibiting gambling activity on a
vessel both embarking and disembarking within New York.
MISSISSIPPI
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Europa Cruises Corporation owns (through Mississippi Gaming Corporation
(hereafter "MGC")) or has options to purchase for ten dollars, a total of 404.5
acres of unimproved land in Diamondhead, Mississippi, on Bay St. Louis, in
Hancock County, immediately off Interstate 10. The site was appraised as of
March 26, 1996, at $8,000,000 by J. Daniel Schroeder Appraisal Company. The
appraisal was predicated on the site being zoned as a legally permissible
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water-based casino site. Europa Cruises Corporation is also the sole shareholder
of Casino World, Inc. (hereafter "CWI"). The Company maintains an office in
Mississippi for Casino World, Inc., but has no current operations in
Mississippi.
On January 31, 1997, the Company entered into an agreement with Hilton Gaming
Corporation (hereafter "Hilton"), the world's largest gaming company, which gave
Hilton the exclusive right to negotiate a joint venture agreement with Europa
for a 180 day period of time with respect to the development of Europa's
Diamondhead, Mississippi property located on Bay St. Louis, Diamondhead,
Mississippi. In exchange for the exclusive right to negotiate, Hilton paid
Europa a nonrefundable fee of $400,000. The joint venture agreement to be
negotiated between Hilton and Europa, if reached, would give Hilton majority
ownership, control, and management and would be formed for the purpose of
developing a destination resort at Europa's 404 acre site in Diamondhead,
Mississippi. The destination resort is expected to include a luxury hotel and
spa, a sports and entertainment center, approximately 120,000 square feet of
casino space and a golf course. Whether the Company enters into an agreement
with Hilton or another entity to develop the casino resort or has to raise the
funds necessary to develop the casino resort itself, the Company is committed to
developing the casino resort.
PERMITS
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Permits. On June 15, 1995, the Mississippi Gaming Commission granted site
approval for the Diamondhead casino resort site plan. On July 16, 1996, the
Mississippi Commission on Marine Resources granted approval to Casino World,
Inc. and the Hancock County Port and Harbor Commission for a change in the
Coastal Use Plan and associated permit to develop the approved site plan for the
Diamondhead resort. Local community organizations opposed to the granting of
this change and permit have appealed to the Mississippi courts. The appeal is
now pending and the permit remains subject to the appeal. On January 9, 1997,
the Mississippi Commission of Environmental Quality approved the issuance of the
Water Quality Certification by the Mississippi Department of Environmental
Quality, Office of Pollution Control to Casino World, Inc. and the Hancock
County Port and Harbor Commission. Local community organizations opposed to the
granting of this Certification have requested an evidentiary hearing on this
matter which is currently scheduled to be held in April 1997. On January 22,
1997, the Mississippi Department of Environmental Quality issued a Construction
Storm Water General (National Pollution Discharge Elimination System (NPDES))
permit to Casino World, Inc. The Company is in the process of obtaining the
final approvals needed to begin development of the site from the U.S. Army Corps
of Engineers. There can be no assurance that such approvals will be forthcoming.
Any modification of the approved site plan may require resubmission to and
reapproval by the Mississippi Gaming Commission, the Mississippi Department of
Marine Resources, the Mississippi Department of Environmental Quality and/or the
U.S. Army Corps of Engineers. Therefore, the conditions of these permits must be
considered in any negotiation with any potential joint venture partner.
In addition to the foregoing, on or about January 16, 1997, the Hancock County
Board of Supervisors adopted a county wide zoning plan. The Company's 404 acre
site was zoned as a Special Use District Waterfront Gaming District. The zoning
designation comports with the Diamondhead Casino Resort site plan approved by
the Mississippi Gaming Commission, the Mississippi Commission of Marine
Resources, the Hancock County Planning Commission and the Hancock County Board
of Supervisors.
MISSISSIPPI LICENSES
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The ownership and operation of a gaming business in Mississippi is subject to
extensive laws and regulations, including the Mississippi Gaming Control Act
(the "Mississippi Act") and the regulations (the "Mississippi Regulations")
promulgated thereunder by the Mississippi Gaming Commission (the "Mississippi
Commission") which is empowered to oversee and enforce the Mississippi Act.
Gaming in Mississippi can be legally conducted only on vessels of a certain
minimum size in navigable waters of the Mississippi River or in waters of the
State of Mississippi (so called dockside gaming) which lie adjacent and to the
south (principally in the Gulf of Mexico) of the Counties of Hancock, Harrison
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and Jackson, and only in counties in Mississippi in which the registered voters
have not voted to prohibit such activities.
Neither the Company nor any of its subsidiaries has a license to operate a
casino in Mississippi or in any other jurisdiction. The Mississippi Act requires
that a person (including any corporation or other entity) must be licensed by
Mississippi to conduct gaming activities in Mississippi. A license will be
issued only for a specified location that has been approved as a gaming site by
the Mississippi Commission prior to issuing a license. The Mississippi Act also
requires that each officer or director of a gaming licensee, or other person who
exercises a material degree of control over the licensee, must be found suitable
by the Mississippi Commission. Any person who, directly or indirectly, or in
association with others, acquires beneficial ownership of more than 5% of the
common stock of any gaming enterprise must notify the Mississippi Commission of
this acquisition and must be found suitable by the Mississippi Commission. The
finding of suitability is comparable to licensing and both require submission of
detailed personal financial information followed by a thorough investigation. In
addition, the Mississippi Commission will not issue a license unless it is
satisfied that the licensee is adequately financed or has a reasonable plan to
finance its proposed operations from acceptable sources.
Mr. Reddien and Ms. Vitale, Directors of Casino World, Inc. and Mississippi
Gaming Corporation were issued key person licenses by the Colorado Gaming
Commission during 1994. Neither Casino World, Inc. or Mississippi Gaming
Corporation presently intend to seek a gaming license in Colorado and a Colorado
license is ineffective in Mississippi. During 1996, Ms. Vitale's key person
license in Colorado expired and was not renewed. Mr. Bullock, President of
Europa Cruises Corporation was elected to the Board of Directors of Casino
World, Inc., and Mississippi Gaming Corporation in February 1996. Mr. Bullock is
not licensed in any state.
On June 19, 1994, Casino World, Inc. and Mississippi Gaming Corporation (MGC)
entered into a Management Agreement with Casinos Austria Maritime Corporation
(CAMC). Subject to certain conditions, under the Management Agreement, CAMC will
operate on an exclusive basis all of the proposed dockside gaming casinos in the
State of Mississippi. If the Company enters into a joint venture arrangement
pursuant to which the joint venture partner acquires a controlling interest, the
agreement with CAMC will terminate. The Management Agreement is for a term of
five (5) years and provides for the payment of an operational term management
fee of 1.2% of all gross gaming revenues between zero and one hundred million
dollars ($100,000,000); plus 0.75% of gross gaming revenue between $100,000,000
and $140,000,000; plus 0.5% of gross gaming revenue above $140,000,000; plus two
percent of the net gaming revenue between zero and twenty-five million dollars
($25,000,000); plus three percent of the net gaming revenue above twenty-five
million dollars ($25,000,000).
The political and regulatory environment in which the Company is and will be
operated with respect to gaming activities is uncertain, dynamic and subject to
rapid change. Existing operators often support legislation and litigation
designed to make it more difficult or impossible for competition to develop and
operate gaming facilities. This environment makes it impossible to predict the
effects, including costs, that the adoption of and changes in gaming laws, rules
and regulations and/or competition will have on proposed gaming operations.
Except for historical information contained herein, the matters discussed in
this Item 1, in particular, statements that use the words "believes," "expects,"
"intends," or "anticipates," are intended to identify forward looking statements
that are subject to risks and uncertainties including, but not limited to,
inclement weather, mechanical failures, increased competition, governmental
action, environmental opposition, legal actions, and other unforeseen factors.
The development of the Diamondhead, Mississippi project, in particular, is
subject to additional risks and uncertainties, including, but not limited to,
risks relating to permitting, financing, the activities of environmental groups
and government-related action.
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ITEM 2. PROPERTIES
OFFICES/OPERATING PORTS
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The Company owns an office condominium at 150 - 153rd Ave., Suite 202,
Madeira Beach, Florida.
The Company leases office space at the following locations:
FLORIDA:
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LOCATION LEASE TERMS
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150 - 153rd Ave., Suite 200, Twelve months with an option to renew
for Madeira Beach, Florida 33708 two additional one year periods.
150 - 153rd Ave., Suite 204 Twelve months with automatic renewal for
Madeira Beach, Florida 33708 additional two years.
150 - 153rd Ave., Suite 205 Twelve month, renewable on a 5 year basis.
Madeira Beach, Florida 33708
645 San Carlos Blvd. Five years commencing December 1, 1995
Ft. Myers Beach, Florida 33931 with option to renew for three years.
1280 5th Street Five years commencing March 1, 1995
Miami Beach, Florida 33139 with option to renew for two years. The
Company exercised its option to renew
in January, 1997.
200 Madonna Dr. One year with an option to renew for five
Tierra Verde, Florida 33715 additional, one year terms.
The Company leases dockage space at the following locations:
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LOCATION LEASE TERMS
- -------- -----------
150 - 129th Ave. Three years commencing October, 1996
Madeira Beach, Florida 33708 with option to renew for two additional
three year periods.
645 San Carlos Blvd. Five years commencing December 1, 1995
Ft. Myers Beach, Florida 33931 with option to renew for three years.
1280 5th Street Five years commencing March 1, 1995
Miami Beach, Florida 33139 with option to renew for two years. The
Company exercised its option to renew
in January, 1997.
200 Madonna Dr. One year with an option to renew for five
Tierra Verde, Florida 33715 additional, one year terms.
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MISSISSIPPI:
- ------------
5403 Indian Hill Blvd. Three years commencing June 1, 1995
Diamondhead, MS 39525
Diamondhead, Mississippi Property
- ---------------------------------
On June 19, 1993, the Company, through Mississippi Gaming Corporation ("MGC"),
exercised its option to purchase 404.5 acres of property at Diamondhead,
Mississippi for $4,000,000. To complete the purchase of the Diamondhead
property, MGC obtained a $2,000,000 loan from Casinos Austria Maritime
Corporation ("CAMC") that was secured by a first mortgage on the Diamondhead,
Mississippi property. The first mortgage loan was payable interest only at 8%
per annum for fifteen months. The full principal balance on the first mortgage
loan was due and payable on June 30, 1995. Prior to its due date, the first
mortgage was paid in full from proceeds of a loan obtained by the Company in May
1995 from First Union National Bank of Florida.
On June 19, 1993, MGC entered into an option agreement to purchase approximately
100 acres included within but separated from the total 404 acres of property
which is the site. This option expires in June 2003.
In order to insure that MGC has adequate access to the proposed gaming site at
Diamondhead, Mississippi, MGC acquired a 100-foot wide perpetual easement from
an adjoining property owner on December 22, 1994. The cost of the easement was
$60,000. MGC has the right to construct an asphalt roadway at its expense on the
easement property. If construction of the roadway does not commence in seven
years of the easement grant, the easement terminates and reverts to the
Grantors.
On February 1, 1996, MGC entered into a lease with the Hancock County Port and
Harbor Commission to lease 10.15 acres of tidelands (bottomlands) and .1 acre of
uplands. The bottomlands lease covers the area where the casino barges and the
pier between the hotel and the casinos will be moored. The term of the lease is
for five (5) years beginning 30 days after construction on the project
commences. There are four five (5) year option renewal periods. The cost of the
lease is $2,250,000 for the first five years of which $25,000 was paid on
signing, and of which $95,000 is payable upon commencement of construction. Both
payments are to be applied toward the lease payments which are $10,000 per month
during construction. The remainder of the $2,250,000 will be amortized over the
remainder of the lease after operation of the casino commences. Renewal options
will be at a fair market value as defined under Mississippi Code Ann. Section
29-1-107(2)(b)(Supp. 1994) or as amended by subsequent legislation and adopted
and published rules of the Secretary of State for the administration, control
and leasing of public trust tidelands, as amended and revised. The lease is
contingent on the project receiving all necessary approvals for construction and
compliance with the Memorandum of Understanding which transferred management and
control of the subject tidelands from the Mississippi Secretary of State to the
Hancock County Port and Harbor Commission. This memorandum required the Hancock
County Port and Harbor to enter into a tenant lease for the tidelands within one
year of signing of the transfer, November 19, 1995, and commencement of casino
operations within three years of signing of the transfer.
All applications for environmental approvals for the construction of the project
have been submitted based on the site plan as approved by the Mississippi Gaming
Commission. CWI/MGC is working closely with local, state and federal
governmental agencies to acquire all necessary approvals. There can be no
assurance that all necessary approvals will be forthcoming. Litigation brought
by environmental groups, neighbors, competitors and others opposed to the casino
resort or further gaming development in Mississippi may delay regulatory
approvals and the issuance of permits necessary for the construction of a casino
resort.
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ITEM 3. LEGAL PROCEEDINGS.
TAX-RELATED LITIGATION
----------------------
FLORIDA DEPARTMENT OF REVENUE TAX AUDIT
- ---------------------------------------
On November 28, 1994, the Florida Department of Revenue issued a Notice of
Intent to make Sales and Use Tax Audit Changes to the Company for the period
February 1, 1989 through June 30, 1994. The proposed Audit Changes, including
penalties and interest total approximately $6.5 million. The Florida Department
of Revenue seeks to assess sales tax on gaming revenue, passenger fares, the
purchase, sale and lease of fixed assets, repairs, and other items.
On June 28, 1989, the Department of Revenue issued Technical Assistance
Advisement (TAA 89 (A) - 034) to Europa Cruise Line, Ltd. (the entity that is
now known as Europa Cruises Corporation). This TAA appeared to resolve the
admissions tax issue and the tax on purchases issued in favor of Europa. The
Department revised this TAA in 1990, purporting to "clarify" that it had
actually intended to conclude that the admissions tax was applicable. The
revision did not revisit the tax on purchases. On April 21, 1995, the Assistant
General Counsel for the Florida Department of Revenue issued a recommendation to
the auditor responsible for the Europa sales tax assessments that the TAA issued
on June 28, 1989, should be honored. Therefore, the Assistant General Counsel
recommended that the assessment for Europa Cruise Line, Ltd. be eliminated for
the period from June 28, 1989 to May 2, 1990. For the period following May 2,
1990, the Company relies on Florida statutes that provide that vessels are not
establishments subject to admission sales tax. The Assistant General Counsel
further recommends that the TAA be honored for all purchases made by Europa
Cruise Line, Ltd., if such purchases were for supplies appropriate to carry out
the purposes for which the Vessel was designed. The recommendation is limited to
assessments for Europa Cruise Line, Ltd. However, the Company intends to pursue
the argument that the successor entities are entitled to the benefits of the
TAA.
In April, 1996, the Florida Department of Revenue and various Florida counties
issued Notices of Proposed Assessment that totaled the $6.5 million from the
November 28, 1994 Notice of Intent plus an additional $.1 million in accrued
interest for a total proposed assessment of $6.6 million of which $1.7 million
and $1.3 million represent interest and penalties respectively accrued through
April 1996. The Company estimates that additional interest accrued through
December 31, 1996, would be approximately $300,000, resulting in a total amount
claimed due at December 31, 1996, of approximately $6.9 million.
In July, 1996, the Company filed a Protest with the Florida Department of
Revenue contesting all amounts assessed. To date, no response has been received
from the Florida Department of Revenue regarding the Companys' Protest. The
Company strongly disagrees with the proposed Audit Changes and intends to
vigorously contest the factual, statutory, and regulatory issues which form the
basis for the proposed Audit Changes. The Company believes many of the proposed
Audit Changes will be resolved in the Company's favor. However, the outcome of
this matter is uncertain and if the Company is not successful in challenging the
proposed Audit Changes by the Florida Department of Revenue or in resolving and
settling this matter, the additional Sales and Use Tax the Company will be
required to pay would have a major, substantial, adverse impact on the Company's
financial condition and results of operations.
GALVESTON INDEPENDENT SCHOOL DISTRICT, ET AL. V. EUROPA CRUISE LINES OF TEXAS,
INC., ET AL. (In the District Court of Galveston County, Texas (Case No.
95TX0051)
On or about January 31, 1995, the Galveston Independent School District filed a
Petition in the District Court of Galveston County, Texas for ad valorem taxes
allegedly due for the year 1990 in the principal amount of $211,470 and for
interest and penalties in the amount of $177,635. The Company maintains that it
is not liable for this alleged tax. The Company believes the tax is a tangible
property tax which cannot be levied on a foreign flag vessel.
12
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GAMING-RELATED LITIGATION
WILLIAM POULOS, ET AL. V. AMBASSADOR CRUISE LINES, INC., ET AL. (United States
District Court, District of Nevada) (Case No. CV-S-95-936-LDG (RLH)
On or about November 29, 1994, William Poulos filed a class action lawsuit on
behalf of himself and all others similarly situated against approximately
thirty-three defendants, including Europa Cruises of Florida 1, Inc. and Europa
Cruises of Florida 2, Inc. in the United States District Court, Middle District
of Florida, Orlando Division (Case No. 94-1259-CIV-ORL-22). Europa Cruises of
Florida 1, Inc. and Europa Cruises of Florida 2, Inc. were served with the
Complaint on or about March 15, 1995. The suit was filed against the owners,
operators and distributors of cruise ship casinos which utilized casino video
poker machines and electronic slot machines. The Plaintiff alleges violation of
the Federal Civil RICO statute, common law fraud and deceit, unjust enrichment
and negligent misrepresentation. The plaintiff had filed a similar action
against most major, land-based casino operators in the United States. The
earlier action, which did not name the Company or any of its subsidiaries as
defendants, was transferred from the U.S. District Court in Orlando, Florida to
the U.S. District Court in Las Vegas, Nevada. The plaintiff contends in both
actions that the defendant owners and operators of casinos, including cruise
ship casinos, along with the distributors and manufacturers of video poker
machines and electronic slot machines have engaged in a course of fraudulent and
misleading conduct intended to induce people to play their machines based on a
false understanding that the machines operate in a truly random fashion. The
plaintiff alleges that these machines actually follow fixed, preordained
sequences that are not random, but rather are both predictable and subject to
manipulation by defendants and others. The plaintiff seeks damages in excess of
$1 billion dollars against all defendants. Although this action is in the very
early stages of litigation, management believes there is no support for
plaintiff's factual claims and the Company intends to vigorously defend this
lawsuit.
On September 13, 1995, the United States District Court for the Middle District
of Florida, Orlando Division, transferred the case pending in that Court against
Europa Cruises of Florida 1, Inc. and Europa Cruises of Florida 2, Inc. and
other defendants to the United States District Court for the District of Nevada,
Southern Division. Accordingly, the case against Europa and the other defendants
in the cruise ship industry will be litigated and perhaps tried together with
those cases now pending against the land-based casino operators and the
manufacturers, assemblers and distributors of gaming equipment previously sued
in federal court in Nevada. Management believes the Nevada forum provides a more
favorable forum in which to litigate the issues raised in the Complaint. The
Company is sharing the cost of litigation in this matter with other defendants.
ROBERT M. BAER, ET AL V. AMBASSADOR CRUISE LINES, INC. ET AL. (In the Circuit
Court of the Seventeenth Judicial Circuit In and For Broward County, Florida)
Case No. 96-6177 (21)
On May 7, 1995, Robert M. Baer, on Behalf of Himself and All Others Similarly
Situated, filed a class action lawsuit against approximately thirty-eight
defendants, including Europa Cruises of Florida I and Europa Cruises of Florida
II in the Circuit Court of the Seventeenth Judicial Circuit In and For Broward
County, Florida. (Case No. 96-6177 (21) Europa Cruises of Florida 1, Inc. and
Europa Cruises of Florida 2, Inc. were served with the Complaint on or about
July 11, 1996. The suit was filed against the manufacturers, distributors and
promoters of video poker and electronic slot machines and the owners, operators
and promoters of cruise ship casinos which utilized casino video poker machines
and electronic slot machines. The plaintiff alleges fraud in connection with the
labeling, design, promotion and operation of casino video poker machines and
electronic slot machines, violation of the Florida Racketeer Influenced and
Corrupt Organizations Act ("RICO"), common law fraud and deceit, unjust
enrichment, and negligent misrepresentation. The plaintiff contends that the
defendant owners, operators and promoters of cruise ship casinos, along with the
manufacturers, distributors, and promoters of video poker machines and
electronic slot machines, have engaged in a course of fraudulent and misleading
13
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conduct intended to induce people to play their machines based on a false
understanding that the machines operate in a random fashion and are
unpredictable. The plaintiff alleges that these machines actually follow fixed,
preordained sequences that are not random, but rather are both predictable and
subject to manipulation by defendants and others. The plaintiff seeks damages in
excess of one billion dollars, including treble their general and special
compensatory damages, punitive damages, consequential and incidental damages,
interest, costs, attorneys' fees and a preliminary and permanent injunction
requiring defendants to accurately and properly describe their video poker
machines and electronic slot machines. Although this action is in the very early
stages of litigation, management believes there is no support for plaintiff's
factual claims and the Company intends to vigorously defend this lawsuit. The
Company is sharing the cost of this litigation with certain other defendants who
have retained the same law firm to represent them.
OTHER LITIGATION
----------------
SEA LANE BAHAMAS LIMITED V. EUROPA CRUISES CORPORATION (United States District
Court for the Southern District of Florida)(Case No. 94-10004)
In February, 1994, following attachment of one of the Company's vessels by Sea
Lane Bahamas Limited, the Company entered into a partial settlement agreement
with Sea Lane with respect to the Company's obligations under a Bareboat Charter
Agreement. With respect to unpaid charterhire, the Company paid the sum of
$250,000 to Sea Lane plus an additional $386,000 in monthly payments of $30,000
per month plus interest at the rate of six percent (6%) per annum fully paid as
of December 31, 1995. The Company's liability, if any, for damages arising out
of the condition of the EuropaJet upon its redelivery to Sea Lane remains in
dispute. The Company believes its liability for required repairs and maintenance
to the EuropaJet when the vessel was returned to Sea Lane is approximately
$150,000. The Settlement Agreement provided that if the Company and Sea Lane are
unable to settle this dispute with respect to the condition of the EuropaJet
when it was redelivered to Sea Lane, the amount of the Company's remaining
obligation to Sea Lane would be determined in binding arbitration.
On or about September 26, 1994, Sea Lane filed a Petition to Compel Arbitration
in the United States District Court for the Southern District of Florida seeking
damages in excess of one million dollars. Sea Lane contends that it acquired the
EuropaJet from Europa for nonpayment of amounts due on a charterhire agreement
and that substantial expenses were incurred to make repairs for which Europa is
responsible. The Petition requested that the court direct Europa to proceed to
arbitration under the charterhire agreement. Europa objected to the demand for
arbitration and denied that it owed the amount requested by Sea Lane. On or
about April 10, 1995, the United States District Court entered an Order granting
Sea Lane's Petition to Compel Arbitration. The parties have selected arbitrators
and are in the process of taking discovery prior to arbitration. An arbitration
date is expected to be set in the near future. On or about August 2, 1995, the
EuropaJet sank off the coast of Florida in a hurricane. What, if any effect,
this will have on the Petitioner's ability to prove alleged damages is unknown.
IN RE BURTON SECURITIES, S.A., DEBTOR/HARRELL Z. BROWNING, LIQUIDATING TRUSTEE
OF BURTON SECURITIES, S.A. V. EUROPA CRUISES CORPORATION (In the United States
Bankruptcy Court for the Southern District of Texas, Corpus Christi Division
(Case No. 94-2199-C).
On June 17, 1994, Harrell Z. Browning, Liquidating Trustee under the Chapter 11
plan of Burton Securities, S.A., Debtor, entered into a binding Memorandum of
Agreement with Europa Cruises Corporation providing for the purchase by Europa
of the Panamanian-flag vessel M/V LE MISTRAL. Paragraph 4 of the Agreement gave
Europa the right to terminate the Agreement in the event closing did not occur
within sixty days from the date of the Agreement in which event, Europa would be
entitled to receive a refund of its full escrow deposit in the amount of
$85,000. Moreover, the Bankruptcy Court entered an Order on July 15, 1994,
approving the terms and condition of the Memorandum of Agreement in all respects
and specifically stating that "[i]f for any reason the closing [had] not taken
14
<PAGE>
place on or before August 16, 1994, Europa may, at its option, terminate the
Europa Agreement and, in such event, the Trustee shall refund the entire escrow
deposit plus any accrued interest to Europa and Europa shall have no obligation
to the Trustee or the estate." The Trustee was notified on August 15, 1994, that
Europa had determined to exercise its right to terminate the Agreement. Europa
has attempted to obtain the return of its deposit from the Trustee who has
refused to return same. On the contrary, on December 15, 1994, the Trustee filed
an action against Europa for breach of contract seeking damages in excess of
$750,000. The Company believes the agreement to purchase Le Mistral was properly
terminated and that the Company is entitled to a full refund of its $85,000
deposit. The case was tried on June 13 and 14, 1996. The Court has not yet
entered an Order as to its decision. The Company intends to appeal any finding
in favor of the Trustee.
TURNER V. EUROPA CRUISES CORPORATION, ET AL. (In the Chancery Court of the State
of Delaware In and For New Castle County (Civil Action No. 14482) CASE SETTLED
AND DISMISSED.
On or about August 15, 1995, Stephen M. Turner, former Chairman of the Board of
Europa Cruises Corporation, filed suit in the Chancery Court of the State of
Delaware in and for New Castle County, against Europa Cruises Corporation and
its then-three Directors, Deborah A. Vitale, Ernst Walter and Lester Bullock. On
or about September 1, 1995, Mr. Turner withdrew his claims against the
individual Directors. Mr. Turner was seeking a declaratory judgment from the
Court declaring him to be a member of the Board of Directors of Europa Cruises
Corporation. The Board of Directors maintained that Mr. Turner unequivocally
resigned on March 20, 1995 in the presence of four witnesses and that his
actions immediately following his resignation confirmed same. The Board of
Directors maintained that Mr. Turner's attempt to unilaterally resurrect himself
as a Director of the Company after having resigned was of no force and effect.
Depositions were taken on or about September 26, 1995. Trial in the matter was
scheduled for October 3, 1995. However, the parties agreed to a settlement under
the terms of which Mr. Turner would receive $17,500. Settlement documents were
signed on January 19, 1997. These contained a written confirmation of the
resignation of Mr. Turner from the Company and its subsidiaries effective March
20, 1995. A Stipulation of Dismissal was filed on February 18, 1997.
LONNIE AVANT, ET AL. V. EUROPA CRUISES CORPORATION (In the United States
District Court for the Middle District of Florida (Case No.96-217-CIV-FTM-24D)
On June 13, 1996, Lonnie Avant, on behalf of herself and all others similarly
situated, filed a class action lawsuit against Europa Cruises Corporation, d/b/a
Europa SeaKruz, Lester Bullock and John Does 1-10 (Europa's other directors,
officers and managers) in the United States District Court for the Middle
District of Florida, Fort Myers Division, Case No. 96-217-CIV-FTM-24D). The
Company was served with the Complaint on or about June 19, 1996. The suit was
filed against the Company and its directors, officers and managers. The
Plaintiff alleges that the Company and its directors, officers and managers
intentionally charged fictitious "port charges" and thereby overcharged numerous
customers and that this practice violated the federal Racketeer Influenced and
Corrupt Organizations Act (RICO). The plaintiff seeks treble damages, attorneys
fees, litigation expenses, costs and restitution. This is one of a number of
class action lawsuits relating to "port charges" recently filed against cruise
ship companies. The Company denies the allegations and intends to defend this
lawsuit vigorously. The parties are conducting discovery. A Pretrial Conference
is scheduled in the case for August 14, 1997. The case is set for a jury trial
for the trial term commencing September, 1997.
BAY ST. LOUIS COMMUNITY ASSOCIATION, PRESERVE DIAMONDHEAD QUALITY, INC., GULF
ISLANDS CONSERVANCY, INC. AND CONCERNED CITIZENS TO PROTECT THE ISLES AND POINT,
INC. V. THE COMMISSION ON MARINE RESOURCES, HANCOCK COUNTY PORT AND HARBOR
COMMISSION AND CASINO WORLD, INC. (Chancery Court of Hancock County,
Mississippi)(Case No. 960707)
15
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On September 18, 1996, Bay St. Louis Community Association, Preserve Diamondhead
Quality, Inc., Gulf Islands Conservancy, Inc. and Concerned Citizens to Protect
the Isles and Point, Inc. filed a Notice of Appeal and Complaint against the
Commission on Marine Resources, Hancock County Port and Harbor Commission and
Casino World, Inc., in the Chancery Court of Hancock County, Mississippi (Case
No. 960707), appealing the administrative decision of the Commission on Marine
Resources in granting Permit No. DMR-M 9612281-W and COE No. MS96-01566-U. On
October 17, 1996, the Mississippi Commission on Marine Resources filed a
Response to Notice of Appeal and Answer in which it maintained, in pertinent
part, that it had complied with all procedural requirements relevant to grants
of permits and use adjustments at issue, that its decision to grant the permit
and use adjustment was grounded upon legally sufficient evidentiary grounds and
that there was no proper ground at law warranting reversal of its decision. On
October 16, 1996, Casino World, Inc. and the Hancock County Port and Harbor
Commission filed a Joint Motion to Dismiss for Untimely Appeal in which they
alleged that the appellants had failed to file their Notice of Appeal and
Complaint within the proper time period. The Joint Motion to Dismiss was granted
on December 31, 1996.
On January 15, 1997, the Bay St. Louis Community Association, Preserve
Diamondhead Quality, Inc., Gulf Islands Conservancy, Inc. and Concerned Citizens
to Protect the Isles and Point, Inc. filed a Notice of Appeal from the decision
of the Chancery Court.
LIBERIS-RELATED LITIGATION
--------------------------
The following litigation relates to Charles S. Liberis, the founder of the
Company, a former Chairman of the Board of Directors, President, Director and
Chief Operating Officer of the Company.
1. LIBERIS V. EUROPA CRUISES CORPORATION (Court of Chancery of the State of
Delaware in and for New Castle County, C.A. 13103) CASE ON APPEAL
On July 30, 1993, Charles S. Liberis attempted to exercise 1,417,500 Europa
Common Stock options at $ .15625 per share. The Company refused Liberis' attempt
to exercise these alleged options. On August 30, 1993, Liberis filed a Complaint
for Specific Performance of Stock Options against the Company in the Court of
Chancery of the State of Delaware in and for New Castle County. On or about
October 7, 1993, the Company filed an Answer denying the substantive allegations
of the Complaint and asserting counterclaims against Liberis for breach of
fiduciary duties and mismanagement of corporate assets in connection with the
purchase and sale of Europa's interest in Sea Lane Bahamas/Marne Delaware. On or
about October 27, 1993, Liberis filed his reply to the counterclaims denying the
substantive allegations of the counterclaims. On or about May 2, 1995, Liberis
amended his Complaint seeking damages in the amount of $1,282,948.00 for
Europa's refusal to allow Liberis to exercise his stock options.
The case was tried from May 22, 1995 to May 25, 1995. On February 8, 1996, the
Court entered a Memorandum Opinion in which it ruled, in pertinent part, that
Liberis, who had filed suit to enforce an alleged stock option agreement to
purchase 1,417,500 shares of stock at $.15625 per share, "ha[d] no right to
enforce the alleged stock option agreement." The decision further requires
Liberis to return 250,000 shares of common stock to the Company. On October 9,
1996, the Court entered an Order and Judgment. Liberis filed a Notice of Appeal
from the Final Order on November 7, 1996. Liberis filed his appellate brief on
February 14, 1997. Europa's appellate brief is due on April 18, 1997.
16
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2. LIBERIS V. EUROPA CRUISES CORPORATION, CASINO WORLD, INC., CASINOS AUSTRIA
MARITIME CORPORATION (CAMC), SERCO INTERNATIONAL LIMITED, CHARLES H. REDDIEN,
STEPHEN M. TURNER, DEBORAH A. VITALE, WILLIAM A. HEROLD and SHARON E. PETTY (In
the Court of Chancery of the State of Delaware in and for New Castle County)
(Case No. 12955) CASE DISMISSED
On April 22, 1993, Charles S. Liberis filed an action in the Court of Chancery
of the State of Delaware in and for New Castle County against Europa and its
subsidiary, Casino World, Inc. (CWI) and the above-named entities and directors
of Europa. In the action, Liberis alleged a scheme on the part of CAMC and Serco
acting with Petty, Reddien and others to seize control of Europa by changing the
membership of the Board and transferring power to the directors nominated by
Serco, an alleged entrenchment by that Board by means of a proposed issuance of
Preferred Stock of Europa and an alleged scheme by that Board to entrench itself
in Casino World, Inc. by spinning off CWI to the stockholders of Europa and
selling 60% of CWI to outside investors and improper actions relating to the
retention of the services of CAMC. Count I of the Complaint sought the removal
of allegedly wrongfully elected directors and two officers and the reinstatement
of Liberis as CEO. Counts II and III sought relief against the issuance of the
Europa Preferred Stock. Count IV sought injunctive relief as to the proposed
spinoff of CWI. Count V sought relief against CAMC and Serco for civil
conspiracy. Liberis sought a preliminary injunction to enjoin three directors
elected at Europa's Board meeting on December 12, 1992 from acting on behalf of
Europa and CWI and to enjoin Reddien, the then Chief Executive Officer of both
Europa and CWI from taking any action on behalf of those entities. On May 17,
1993, the Court denied Liberis' application for a preliminary injunction finding
that Liberis had failed to establish a likelihood of success on the merits as
well as irreparable harm that would result in the event an injunction were not
entered.
On March 25, 1996, an Order was entered dismissing this case as moot.
3. CHARLES S. LIBERIS, AS TRUSTEE OF THE CHARLES S. LIBERIS, P.A., PROFIT
SHARING PLAN V. EUROPA CRUISES CORPORATION (In the Circuit Court in and for
Escambia County, Florida) (Case No. 93-1187-CA-01-J) CASE DISMISSED
In or about March, 1993, Charles S. Liberis, as Trustee of the Charles S.
Liberis, P.A. Profit Sharing Plan, filed suit against Europa for amounts
allegedly due from Europa in connection with a promissory note Liberis received
from Europa in conjunction with a purported December 1990 transfer to Europa of
Liberis' interest in Sea Lane. The Complaint alleges that a principal balance of
approximately $141,000.00 was owed on the note.
On April 5, 1996, the parties filed a Stipulation of Dismissal dismissing this
case without prejudice on grounds that the action was moot.
4. EUROPA CRUISES CORPORATION V. LIBERIS, et al. (In the United States District
Court for the Northern District of Florida (Case No. 93-30158) CASE DISMISSED
On or about May 11, 1993, the Company filed an action in the Untied States
District Court for the Northern District of Florida against Charles S. Liberis
and one of the Company's former Chief Financial Officers, seeking compensatory
and punitive damages. The Company and the former Chief Financial Officer
involved have settled this and other disputes between them. The Company is
seeking damages from Liberis for substantially the same events and transactions
alleged in Europa's counterclaim in Delaware Case No. 13103. Liberis also filed
a counterclaim requesting the same relief sought in Delaware Case No. 13103.
Most of Europa's claims against Liberis and all of Liberis' pending claims
17
<PAGE>
against Europa in this case were the subject of Delaware Case No. 13103. Europa
also made a claim for securities fraud against Liberis in this Florida case
which was not made in the Delaware case.
On April 8, 1996, an Order of Dismissal was entered dismissing the case with
prejudice.
5. LIBERIS V. STEVE TURNER, DEBORAH A. VITALE, WILLIAM A. HEROLD, ERNST G.
WALTER, SHARON E. PETTY, CHARLES H. REDDIEN, VICTOR B. GERSH, SERCO
INTERNATIONAL LIMITED, CASINOS AUSTRIA MARITIME CORPORATION (CAMC), and
AUSTROINVEST INTERNATIONAL LIMITED (Circuit Court in and for Pinellas County,
Florida)(Civil Action No. 93-001626-CI-008)
On or about May 5, 1993, Liberis filed suit in the Circuit Court in and for
Pinellas County, Florida (Case No. 93-001626-CI-008) for rescission, fraud and
conspiracy. On or about August 4, 1993, Liberis filed an Amended Complaint,
naming additional defendants and adding a count for defamation. Liberis alleges
that the defendants conspired to defraud, coerce and trick Liberis into
resigning his position as Chief Executive Officer and Chairman of the Board of
Europa Cruises Corporation and defamed him. Liberis seeks compensatory,
punitive, treble damages and attorneys' fees from the above-named defendants.
The defendants filed a motion to stay the action on grounds that Liberis had
filed a substantially similar action in the Court of Chancery of the State of
Delaware in and for New Castle County, styled Liberis v. Reddien, et al. (Civil
Action No. 12955) and that any substantive issues decided in Delaware would be
binding as to this case. On December 13, 1993, the Court entered an Order
staying this action as to all parties until the cases of Liberis v. Reddien,et
al (Civil Action No. 12955) and Liberis v. Europa Cruises Corporation (Civil
Action No. 13103) pending in Delaware were dismissed or final judgment on the
merits was entered with respect to all claims alleged in Count I of Civil Action
No. 12955 and as to all claims in Civil Action No. 13103. Count I of Delaware
Civil Action No. 12955 was for "Removal of Wrongfully Elected Directors and
Officers and Reinstatement of Liberis" (against Europa and Director Defendants).
On March 25, 1996, the Court of Chancery of the State of Delaware in and for New
Castle County entered an Order of Dismissal dismissing Liberis v. Reddien, et
al.(Civil Action No. 12955) as moot. On or about August 7, 1995, the defendants
agreed to lift the stay in the Pinellas County case for discovery purposes and
for the purpose of finalizing the pleadings. On or about April 22, 1996, Liberis
filed a motion for Leave to File a Second Amended Complaint to add a claim for
intentional infliction of emotional distress. The Court has not yet granted
Liberis' motion for leave to file a Second Amended Complaint. No trial date has
been set.
6. LIBERIS V. EUROPA CRUISES CORPORATION (In the Court of Chancery of the State
of Delaware In and For New Castle County) (Civil Action No. 14889)
On March 12, 1996, Charles S. Liberis filed Complaint Under 8 Delaware Code
Section 220 to inspect and/or copy the Company's shareholders' list and other
materials, books and records of the Company and for attorneys fees incident to
the action. On April 8, 1996, the Company filed an Answer denying that Mr.
Liberis was entitled to inspect and/or copy the Company's shareholders' list
and/or other materials, books and records of the Company. The Company maintains
that Mr. Liberis was not entitled to the inspection sought inasmuch as he was
not a shareholder of record, as required under the statute, at the time the
request to inspect was made. There have been no further proceedings in this
case.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1996.
18
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The shares of the Company's Common Stock, $.001 par value (the "Common Stock")
are traded on the over-the-counter market under the NASDAQ symbol KRUZ. The
following table sets forth the high and low bid price quotations of the Common
Stock in each full quarter during the periods set forth. The over-the-counter
quotations reflect inter-dealer prices without retail markup, markdown, or
commission and may not represent actual transactions.
1996 Quarters 1995 Quarters
------------- -------------
High Low High Low
---- --- ---- ---
First Quarter . . . 1 7/16 1-9/16 27/32
Second Quarter . . 1-5/16 19/32 1-3/4 5/8
Third Quarter . . . 1-7/32 5/8 1-9/16 27/32
Fourth Quarter . . . 7/8 19/32 1-3/16 21/32
On March 14, 1997, there were 808 registered holders of record of the
Common Stock.
The Company has never paid a cash dividend on its Common Stock.
19
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
---------------------
REVENUES
--------
The Company operated 2,172 cruises in 1996, as compared to 2,267 in 1995, a
decrease of 4.19% or 95 cruises. The Company carried 332,156 passengers in 1996
as compared to 323,270 passengers in 1995, or an additional 8,886 passengers, an
increase of 2.75%. This increase in total passengers carried from 1995 to 1996
is significant given the high number of cruises lost to inclement weather in
1996. The average revenue per passenger was approximately $57.96 in 1996. The
Company carried an average of 153 passengers per cruise in 1996.
WEATHER
- -------
One of the key variables necessary to understanding the Company's business is
inclement weather. Inclement weather has a direct effect on the number of
cruises conducted and on passenger counts. In addition, passenger counts are
reduced immediately before and immediately following inclement weather
conditions. The years ended 1996 and 1995 were characterized by significant
inclement weather in Florida which affected the ports in which the Company
operated. In 1996, the Company cancelled approximately 69 cruises due to
inclement weather. The Company estimates, based upon an average per cruise
passenger count of 153 and an average per passenger revenue of approximately
$57.96, that as a result of these 69 cancellations, it lost approximately 10,559
passengers and revenues of approximately $612,206. In addition, the Company
estimates it suffered decreased passenger counts before and after these
cancelled cruises on at least 35 cruises resulting in a loss of approximately
5,000 passengers and $300,000. Thus, the Company estimates that it suffered
decreased revenues due to inclement weather in 1996 of approximately $900,000.
In 1995, the Company cancelled approximately 74 cruises due to inclement
weather. The Company estimates, based upon an average per cruise passenger count
of 143 and an average per passenger revenue of approximately $59.52, that as a
result of these 74 cancellations, it lost approximately 10,582 passengers and
revenues of $629,840. Decreased passenger counts before and after these
cancelled cruises is approximately 5,250 or $312,000 for a total estimated
revenue loss of $942,000.
TOTAL REVENUES/GAMING REVENUES
- -------------------------------
The Company earned total revenues of $19,252,778 in 1996 as compared to total
revenues of $19,243,830 in 1995, thus experiencing only a slight increase in
total revenues. The Company increased its gaming revenues from $11,577,974 in
1995 to $13,258,289 in 1996, an increase of $1,680,315 or 14.51%. The Company
attributes the substantial increase in gaming revenues to the relocation of the
Europa Star to Snug Harbor in Ft. Myers Beach, an increase in passenger counts
in Miami Beach and an increase in the number of gaming positions available on
the Company's vessels.
RELOCATION OF PORT IN FT. MYERS BEACH, FLORIDA
- ----------------------------------------------
In December, 1995, the Company moved its port in Ft. Myers Beach, Florida to a
new location at Snug Harbor in Ft. Myers Beach. The relocation placed the
EuropaStar closer to international waters, thus decreasing the time necessary to
reach international waters wherein gaming activities could be conducted. The
Company estimates that the relocation resulted in significantly increased gaming
revenues based on the benefit conferred from gaining thirty minutes of
additional gaming time per cruise.
20
<PAGE>
PASSENGER FARES
- ---------------
Passenger fares continue to constitute a major threat to the Company's gross
revenues. Passenger fares fell from $4,635,650 in 1995 to $3,888,395 in 1996, a
decrease of $747,255 or 16.11%. The decrease in passenger fare revenue is a
direct result of increased and intense competition in the day cruise industry
and the fare wars that now characterize the industry. Passenger fares in the
industry range from "FREE" to whatever a particular port can command. The
Company must stay competitive with respect to passenger fares charged in the
industry if it is to maintain its passenger counts.
FOOD AND BEVERAGE REVENUES
- --------------------------
Revenue from food and beverage sales increased from $1,352,986 in 1995 to
$1,499,071 in 1996, an increase of $146,085 or 10.79%. The increase is
attributable to a separate fee charged for meals at the Miami Beach port.
CHARTER FEES
- ------------
Charter fee income decreased from $1,015,174 in 1995 to $383,905 in 1996, or
$631,269, a decrease of 62.18%. The decrease in charter fees is a result of the
M/V Stardancer being on charter for only half of the year as compared to a full
year in 1995. The Company normally charters its fourth vessel, the M/V
Stardancer, to unrelated third parties for a charter fee. However, in 1996, the
Company was required to place three of its operating vessels in drydock for
repair and maintenance and to meet U.S. Coast Guard and other safety
requirements. The M/V Stardancer, therefore, was not chartered during the five
months the Company's other three operating vessels were each placed in drydock.
Instead, the M/V Stardancer rotated through the Company's three operating ports
to replace each of the Company's three operating vessels as each operating
vessel went to drydock at separate times.
In December, the M/V Stardancer began operations in the Company's newest port,
Tierra Verde, Florida. In February, 1997, however, the Company was cited for
noise pollution at the Tierra Verde port and voluntarily ceased operations.
While the Company is seeking to correct the noise pollution concern by
mechanical means, alternative options, such as a third-party or other operating
port charter are under consideration in the event the M/V Stardancer is unable
to operate in the Tierra Verde port.
OTHER REVENUE
- -------------
Other revenue decreased from $662,046 in 1995 to $223,118 in 1996, a decrease of
$438,928 or 66.30%. During the first quarter of 1995, the Company managed the
casino on board the M/V Stardancer while the vessel was under charter to an
unrelated third party. The Company received a management fee for this service in
1995. In 1996, the Company did not manage any outside casinos and, accordingly,
had no management fee income in 1996.
COSTS AND EXPENSES
------------------
VESSEL OPERATING EXPENSES
- -------------------------
Vessel operating costs and expenses decreased from $13,852,562 in 1995 to
$12,802,466 in 1996, a decrease of $1,050,096 or 7.58%. This significant
decrease in vessel operating costs was attributable to cost reductions
instituted in all departments, except Marine. The majority of the decreases came
from payroll reductions in the casino, meal, entertainment and port accounting
departments and decreased food costs.
21
<PAGE>
Prior to 1995, drydocking costs were expensed evenly over the period to the next
scheduled drydocking. Due to uncertainty in estimating the amount of future
drydock costs, the Company believes that the deferral method is preferable and
changed its method of accounting for drydocking costs during the fourth quarter
of 1995. When incurred, drydocking costs are capitalized and amortized over the
two to three year period to the next drydock. This change had the effect of
reducing the 1995 net loss approximately $175,000 and of reducing the 1995 loss
before cumulative effect of the change in accounting principle by approximately
$40,000. See note 1 to the financial statements.
ADMINISTRATIVE AND GENERAL AND OTHER OPERATING
- ----------------------------------------------
Administrative and general costs and expenses fell from $2,632,150 in 1995 to
$2,150,942 in 1996, or $481,208, a decrease of 18.28%. Other operating expenses,
which include certain litigation costs, also fell from $490,192 in 1995 to
$276,597 in 1996 or $213,595, a decrease of 43.57%. These decreases are
primarily due to decreases in litigation costs, professional fees and payroll
reductions at the corporate and port levels.
LITIGATION COSTS
- ----------------
The Company dramatically reduced its litigation costs during 1996. In 1995, the
Company's legal fees were approximately $709,000. In 1996, the Company's legal
fees were $172,739, a difference of $536,261 or 75.64%. In 1995, the Company's
legal fees averaged $59,000 per month. In 1996, despite the fact that the
Company had been served with two new class action lawsuits and additional
Mississippi- related litigation, the Company's legal fees averaged only $14,400
per month, resulting in a monthly savings of $44,600 per month. This 75.64%
decrease in legal fees is directly attributable to the fact that the Chairman of
the Board, a trial attorney with substantial experience in complex litigation,
negotiated and drafted most of the Company's contracts and performed a
substantial amount of the Company's legal work.
The Company has taken an aggressive approach to the litigation and legal matters
pending against the Company. As a result of the Company's aggressive approach to
the litigation pending, a number of cases previously pending against the Company
have been resolved, settled, dismissed and/or tried.
PROXY CONTEST
- -------------
As a result of a proxy contest filed in February 1997, the Company's legal fees
will increase in 1997.
OUTSIDE ACCOUNTING COSTS
- ------------------------
The Company also significantly reduced its outside accounting fees in 1996. In
September, 1995, the Board of Directors replaced its Chief Financial Officer and
internalized certain accounting functions such as the Company's state tax audits
and SEC compliance. In 1995, the Company's outside accounting fees were
approximately $143,550 or $11,963 per month. In 1996, the Company's outside
accounting fees were approximately $86,650 or $7,221 per month, a decrease of
approximately 39.64%.
FOOD COSTS
- ----------
In September 1995, the Company assumed responsibility for the preparation and
service of all meals on board its vessels. This function was previously
performed pursuant to contract with unrelated third parties. As a result of the
transfer of this function in-house, net meal costs decreased from $2,526,794 in
1995 to $2,079,813 in 1996, a reduction of $446,981 or 17.69%.
22
<PAGE>
ESOP ADJUSTMENT
- ---------------
The 1995 loss includes a nonrecurring ESOP adjustment which decreased the net
loss by $279,000. This is a non-cash benefit. For accounting purposes, the
Company expenses the item, but cash is not paid. In 1996, this non-cash expense
was $208,125. See notes 1 and 7 to the financial statements.
ADVERTISING AND PROMOTION
- -------------------------
Advertising and promotion expenses decreased from $1,859,306 in 1995 to
$1,586,931 in 1996, or $272,375, a decrease of 14.64%. The decrease is
attributable to the move from costly media to less costly methods of
advertising, including telemarketing.
DEPRECIATION AND AMORTIZATION
- -----------------------------
Depreciation and amortization increased from $1,345,437 in 1995 to $1,544,359 in
1996, or $198,922, an increase of 14.78%. This increase results from the
addition of new gaming equipment to the vessels and from the increased
amortization of deferred 1996 drydock costs.
CERTAIN SAVINGS
---------------
TERMINATION AGREEMENT WITH CASINOS AUSTRIA MARITIME CORPORATION
- ---------------------------------------------------------------
The Company entered into a Termination Agreement with Casinos Austria Maritime
Corporation effective February 4, 1997, under the terms of which it agreed to
terminate a Consulting Agreement between the Company and Casinos Austria dated
September 16, 1994. Under the terms of the Agreement, the Company paid Casinos
Austria $361,644 to terminate the Agreement. Under the terms of the Termination
Agreement, the Company will pay a monthly fee of 3.5% of the gross gaming
revenue, if any, from casino operations on the M/V Stardancer only through
December 31, 1997. However, if the M/V Stardancer is chartered or sold during
this period to an unrelated third party, no fee will be due during such charter
period. The termination of the Agreement, coupled with an Addendum to the
Agreement entered into in October, 1996, will save the Company approximately
$450,000 through December 1997, when the contract would otherwise have ended.
The funds used to terminate the Agreement were obtained as part of a partial
refinancing which occurred in October 1996. The funds were being held in escrow
pursuant to a Cash Collateral Account Agreement entered into on October 31,
1996, for the sole purpose of effecting the termination.
DRYDOCK
- -------
Three of the Company's four vessels were required to be placed in drydock during
1996 for repair and maintenance and to comply with U.S. Coast Guard and other
safety requirements. The Company, which normally leased its fourth vessel, the
M/V Stardancer, to an outside party, arranged its lease so that when the lease
expired, the Stardancer could be used as a replacement vessel for each of the
Company's remaining operating vessels. The placement of three ships in drydock
would normally have resulted in drastic operating losses. However, by rotating
the Stardancer through each operating port, the Company lost only 21 cruises due
to drydock and its revenues (taking into account the related offset for reduced
charter fee revenue) were only slightly effected as compared to prior years
where the Company suffered severe revenue losses as a result of cruises lost to
drydock.
23
<PAGE>
M/V STARDANCER PURCHASE AGREEMENT
- ---------------------------------
In August, 1994, the Company had entered into a Subscription and Investment
Agreement with Lagoon Cruise Line, Inc. when the Company purchased the M/V
Stardancer, in return for cash and stock. Under the terms of the agreement,
Europa was required to pay Lagoon, in cash, the difference, if any, between the
average five day trading price of the stock for the period ending February 13,
1997 and $1.25 per share for the 1,200,000 shares of stock Lagoon received in
payment for the vessel. On February 13, 1997, the guarantee lapsed since the
stock was trading at an average price in excess of $1.25 per share. As a result,
the Company avoided a cash cost under this Agreement which had been reported in
the Company's 1995 Form 10-KSB at approximately $675,000 based on the stock
price at December 31, 1995.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
In 1996, the Company met its normal operating costs and expenses from its 1996
cash flow from operations. The Company, however, may be unable to meet any
unusual or unanticipated cash requirements should they arise during 1997 except
through the sale of common stock or borrowing. From October, 1995 to January,
1997, to meet certain unusual cash requirements, the Company sold an aggregate
of 3,851,869 shares of common stock for $1,850,000, the majority of which was
used to pay drydock cash requirements of approximately $1,466,000. See Drydock.
The Company's working capital deficiency is $1.67 million at December 31, 1996
as compared to $1.60 million at December 31, 1995.
During 1996, operating activities provided cash of $2,672,630, which is
principally attributable to non-cash expenses of approximately $1.8 million, a
$900,000 decrease in prepaids, and an increase in accounts payable and accrued
expenses.
Investing activities (principally vessel improvements, major vessel repair and
maintenance, gaming equipment purchases, and Mississippi development costs)
required cash of approximately $2.8 million in 1996, which was met through the
sale of common stock. See note 6 to the financial statements.
BANK REFINANCING
- ----------------
On May 23, 1995, the Company obtained an 11.35% term loan in the amount of
$6,446,332 from First Union National Bank of Florida. Proceeds from the loan
were used to pay off substantially all of the Company's then-existing debt
except for a capital equipment lease with Casinos Austria
Liegenschaftsverwaltung-Und Leasing, GESMBH.
In August 1995, Service America, Inc., the Company's then food vendor demanded
payment of all payables then due in the approximate amount of $1.2 million and
seized three of the Company's vessels to secure payment of same. On August 21,
1995, the Company borrowed $1.2 million from First Union National Bank of
Florida and used the proceeds to pay the outstanding payables. The $1.2 million
due to First Union National Bank of Florida initially matured September 1, 1996
and was extended to January 31, 1997.
On October 31, 1996, the Company obtained a $2,250,000 loan from dEBIS Financial
Services, Inc. The loan carries a fixed rate of interest of 10.5% over a term of
ten years with a balloon in 5 years. The Company used the proceeds of the loan
to pay off the $1,100,000 balance due on the loan with First Union National Bank
of Florida due January 31, 1997 and to pay an additional $600,000 to First Union
National Bank of Florida on its original loan of approximately $6,400,000 dated
May 25, 1995. Of the remaining proceeds, $400,000 was placed in an interest
bearing escrow account at First Union National Bank of Florida to be used to
24
<PAGE>
effect the buy-out of the Casinos Austria Consulting contract. The remaining
$150,000 of proceeds were used to purchase a new engine for the M/V Europa Sun
and to pay closing costs.
First Union National Bank of Florida, which holds the majority of the Company's
long-term debt, further agreed to modify certain loan covenants contained in
that Credit Agreement dated May 25, 1995. The bank agreed to release its
security interest in the EuropaSun to facilitate the dEBIS loan, revised the
cash flow covenant to reduce the cash flow requirements required to be met by
the Company, reduced the maturity date of the note from 7 years to 5 years with
no corresponding increase in monthly payments. First Union National Bank of
Florida was also granted two Warrants from the Company to purchase 200,000
shares of common stock at a price of $2.00 per share. First Union National Bank
of Florida has piggyback registration rights for one year and one demand
registration right after one year.
At December 31, 1996, the Company was not in compliance with its cash flow
covenant required under its loan agreement with First Union. First Union has
waived the covenant requirement through January 31, 1998.
DRYDOCK
- -------
Three of the Company's four vessels were required to be placed in drydock during
1996 for repair and maintenance and to comply with U.S. Coast Guard and other
safety requirements. The Company, which normally leased its fourth vessel, the
M/V Stardancer, to an outside party, arranged its lease so that when the lease
expired, the M/V Stardancer could be used as a replacement vessel for each of
the Company's remaining operating vessels. The placement of three ships in
drydock would normally have resulted in drastic operating losses. However, by
rotating the M/V Stardancer through each operating port, the Company lost only
21 cruises due to drydock and its revenues taking into consideration the offset
for lost charter fee revenues, were only slightly effected as compared to prior
years where the Company suffered severe revenue losses as a result of cruises
lost to drydock.
However, the costs associated with drydocking three vessels in one year were
substantial. The Company paid approximately $1,466,000 in 1996 for major repair
and maintenance during the regularly scheduled drydock for three of its vessels
and unanticipated major repairs in wetdock on its fourth vessel. The EuropaSky
was in drydock approximately 30 days at a cost of $305,000. The EuropaStar was
in drydock approximately six weeks at a cost of $521,000, which included
$250,000 for steel replacement. The EuropaSun was in drydock approximately five
weeks at a cost of $600,000, which included a new engine, a complete rebuilding
of a second engine for $155,000, and significant steel replacement costing
$212,000 and certain refurbishment to its interior.
The M/V Stardancer, which was not drydocked, required maintenance and repair to
its main engine and generator in wetdock. The cost was approximately $40,000.
The Company did not have the substantial funds required to pay for the drydock
costs associated with its three vessels. The Company was unsuccessful in
attempting to borrow funds from various banks and other lending entities or to
raise the required capital from traditional lending sources. The Company was
forced to cease making its monthly equipment lease payments to Casinos Austria
Liegenschaftsverwaltung-Und Leasing, GESMBH (hereafter "CAL") and consulting
payments then due to Casinos Austria Maritime Corporation (hereafter "CAMC"). On
January 10, 1997, CAL agreed to a revised repayment schedule for the outstanding
lease payments due. The repayment schedule basically extends the term of the
lease for five months while providing for somewhat higher lease payments. On
March 3, 1997, the Company signed a 9% promissory note for those outstanding
consulting fees due to CAMC which totalled $285,997. The note is secured by a
second mortgage on the Europa Sky. Payments of $17,045 are due monthly for
eighteen months.
In February, 1997, the Company received a $400,000 non-refundable option payment
from Hilton Gaming Corporation. These funds are earmarked for Diamondhead,
Mississippi-related expenses and development costs.
25
<PAGE>
The Company has no firm commitment for capital expenditures in 1997, except for
the regularly scheduled drydock of the Europa Stardancer in May, 1997. The
Company estimates that this drydocking will cost $100,000 which is expected to
be funded from operations.
On November 28, 1994, the Florida Department of Revenue (DOR) issued to the
Company a Notice of Intent to make Sales and Use Tax Audit Changes for the
period February 1, 1989 through June 30, 1994. The proposed audit changes,
including penalties and interest total approximately $6.6 million. The DOR seeks
to assess sales tax on gaming revenue, passenger fares, the purchase and sale of
leased fixed assets, repairs and other items. The Company strongly disagrees
with the proposed audit changes and intends to vigorously contest the factual,
statutory, and regulatory issues that form the basis for the proposed audit
changes. However, if the Company is not successful in challenging the proposed
audit changes or settling the matter, the additional tax the Company would be
required to pay would have a major, substantial, adverse impact on the Company's
financial condition. See note 9(d) to the financial statements.
Except for historical information contained herein, the matters discussed in
this Item 6, in particular, statements that use the words "believes," "intends,"
"anticipates" or "expects" are intended to identify forward looking statements
that are subject to risks and uncertainties including, but not limited to,
inclement weather, mechanical failures, increased competition, governmental
action, environmental opposition, legal actions, and other unforeseen factors.
The development of the Diamondhead, Mississippi project, in particular, is
subject to additional risks and uncertainties, including, but not limited to,
risks relating to permitting, financing, the activities of environmental groups
and government-related action. The results of financial operations reported
herein are not necessarily an indication of future prospects of the Company.
Future results may differ materially.
ITEM 7. FINANCIAL STATEMENTS
The consolidated financial statements and notes thereto are included
herein beginning at page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
--------
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTRACT PERSONS.
COMPLIANCE WITH SECTION 16 (a) OF THE EXCHANGE ACT.
The information on directors of the Company set forth in the Company's Proxy
Statement for its 1996 Annual Meeting of Stockholders under the caption
"Election of Directors" is incorporated herein by reference.
The information concerning compliance with Section 16(a) of the Securities
Exchange Act of 1934, as amended, set forth in the Company's Proxy Statement for
its 1996 Annual Meeting of Stockholders under the caption "Election of
Directors" is incorporated herein by reference.
26
<PAGE>
The executive officers and their titles are as follows:
Name Age Title
- ---- --- -----
Deborah A. Vitale 46 Chairman of the Board and Secretary
Lester E. Bullock 43 President, Chief Executive Officer
and Treasurer
Debra Gladstone 42 Chief Financial Officer and Assistant
Secretary
Charles H. Reddien 52 President, Casino World, Inc. and
Mississippi Gaming Corporation
DEBORAH A. VITALE, was elected Chairman of the Board of Directors in March 1995
and was appointed Secretary of the Company in November 1994. She has been a
director since December 1992. On February 14, 1997, Ms. Vitale was appointed
Chairman of the Board of Directors of Casino World, Inc. and Chairman of the
Board of Directors of Mississippi Gaming Corporation. She is in charge of
managing all legal activity of the Company including the retention and direction
of outside counsel in connection with the Company's various pending cases,
appeals, legal proceedings, permits and licenses and is also actively involved
in the day to day business operations of the Company. Ms. Vitale is responsible
for all negotiations to date with Hilton Gaming Corporation ("Hilton") and
supervises the Company's responses to Hilton's due diligence inquiries regarding
the Mississippi property. Ms. Vitale is a trial attorney with nineteen years of
experience handling complex civil litigation and is licensed to practice law in
Maryland, Virginia and Washington D.C. Ms. Vitale was a partner in the firm of
Miller & Vitale, P.C. from November 1990 to September 1992. From 1986 to 1990,
Ms. Vitale was Of Counsel to the firm of Jacobi & Miller in Alexandria,
Virginia. Ms. Vitale has, in the past, served as a staff attorney at the Federal
Communications Commission and had served as Listing Official for the
Environmental Protection Agency.
LESTER E. BULLOCK, has served as President of the Company since July 18, 1994,
and has served as a director of the Company since March 1995. Under the
Company's bylaws the President is also the Chief Executive Officer of the
Company. He is responsible for the day to day operations of the Company. From
January 1994 to June 1994, Mr. Bullock was Vice President of Operations at the
Company. From January 1, 1992 through December 31, 1993, Mr. Bullock was General
Manager of the Company and was responsible for all port operations. In 1991, Mr.
Bullock was Casino Pit Manager in Ft. Myers, Florida for Casinos Austria
Maritime Corporation. From 1989 to 1990, Mr. Bullock was General Manager of the
Sonesta Beach Resort and Crystal Casino in Oranjestead, Aruba. From 1984 through
1989, Mr. Bullock held various managerial and administrative positions at the
Tropicana Resort and Casino in Las Vegas, Nevada and the Dunes Hotel Casino and
Country Club in Las Vegas, Nevada. Mr. Bullock received a B.S. in Business, from
Arizona State University in 1974.
DEBRA L. GLADSTONE, CPA, joined the Company in September 1995 as Chief Financial
Officer. From July 1993 to September 1995 Ms. Gladstone was a Senior
Manager/Partner in the international accounting firm of, BDO Seidman, LLP. From
April 1992 to July 1993, Ms. Gladstone worked as a staff accountant in the
Division of Corporation Finance at the Securities and Exchange Commission
Headquarters in Washington, D.C.. Prior to April 1992, Ms. Gladstone was a
Senior Manager in a publicly held conglomerate, the Henley Group, Inc. and
started her accounting career in 1982 with the public accounting firm of Arthur
Andersen & Company.
27
<PAGE>
CHARLES H. REDDIEN, has served as President and as a Director of Casino World,
Inc. and Mississippi Gaming Corporations since March 7, 1993. Mr. Reddien served
as President and Chief Executive Officer and Chairman of the Board of Directors
of Europa Cruises Corporation from December 14, 1992 until July 18, 1994. Mr.
Reddien served as the managing Partner, President and a Director of Somerset
Group Ltd., a private investment banking company, from November 1988 until
December 1992. Mr. Reddien worked as a consultant to Casinos Austria
International. Mr. Reddien served as Vice President, Secretary and Director of
Casinos America Corporation, a subsidiary of Casinos Austria Holding Company,
from inception until October 1992. Mr. Reddien is an attorney licensed to
practice law in California and Colorado. Mr. Reddien holds a key-gaming license
in Colorado. Effective March 24, 1997, Mr. Reddien resigned from all positions
held in any subsidiary of the Company.
ITEM 10. EXECUTIVE COMPENSATION
The information set forth in the Company's Proxy Statement for its 1996 Annual
Meeting of Stockholders under the caption "Executive Compensation" is
incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth in the Company's Proxy Statement for its 1996 Annual
Meeting of Stockholders under the caption "Shareholders Entitled to Vote and
Principal Shareholders" is incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth in the Company's Proxy Statement for its 1996 Annual
Meeting of Stockholders under the captions"Executive Compensation" and "Certain
Transactions" is incorporated herein by reference.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
- --------
<TABLE>
<CAPTION>
<S> <C> <C>
(a) 3(a)(i) Certificate of Incorporation of the Company.
(ii) Amendment to Certificate of Incorporation of the Company.
(a) 3(b) By-laws of the Company.
(g) 4.1 Subscription and Investment Agreement between Europa Cruises
Corporation and Lagoon Cruise Line, Inc. dated August 26,
1994.
(g) 4.2 Warrant Agreement between Europa Cruises Corporation and FLC
Holding Corp dated July 8, 1992.
(g) 4.2.1 Consent and Amendment of Credit Agreement Note and Warrant by
and among FLC Holding Corp. ("FLC"), EuropaSky Corporation
("EuropaSky"), Europa Cruises Corporation and Casino World,
Inc. ("Casino"), dated May 27, 1993 without Exhibits.
28
<PAGE>
<S> <C> <C>
(g) 4.3 Warrant Agreement between Europa Cruises Corporation and The
Stuart-James Company Incorporated dated June 29, 1989.
(g) 4.3.1 Warrant Certificates and Assignments for 125,520 shares and
17,000 shares registered in the name of Marc N. Geman dated
June 22, 1994.
(g) 4.3.2 Motion to Approve Settlement Agreement Among Trustee, Marc N.
Geman and Chatfield Dean & Co., Inc. dated October 8, 1993
with Settlement Agreement dated October 6, 1993 attached.
(g) 4.3.4 Order Approving Settlement Agreement Among Trustee, Marc N.
Geman and Chatfield Dean & Co., Inc.
(g) 4.3.5 Agreement between Marc N. Geman and Europa Cruises
Corporation dated June 15, 1993.
(g) 4.4 Convertible Promissory Note between Europa Cruises
Corporation and Serco International Ltd. dated November 11,
1993: Transfer by Serco International Ltd. to Gaming Invest
Corp. and election to convert Promissory Note by Gaming-
Invest Corp.
5.1 Qualified plan determination letter from the
Internal Revenue Service dated April 4, 1996,
issued to the Europa Cruises Corporation
Employee Stock Ownership Plan.
(g) 10.1 Consulting Agreement between Europa Cruises Corporation and
Casinos Austria Maritime Corporation dated September 16,
1994.
(g) 10.1.1 Equipment Lease between Europa Cruises Corporation and
Casinos Austria Maritime Corporation dated October 13, 1994.
(g) 10.1.2 Promissory Note payable to Casinos Austria Maritime
Corporation dated December 30, 1994, and Second Naval
Mortgage on the M/V Stardancer.
(g) 10.1.3 Subordination Agreement between Lagoon Cruise Line, Inc.,
Europa Stardancer Incorporation and Casinos Austria Maritime
Corporation.
(a) 10(d) The Company's 1988 Stock Option Plan.
(b) 10(e) Standard Bareboat Charter Agreement, dated August, 1989,
between Sea Lanes Bahamas Limited and Europa Cruise Lines,
Ltd.
(c) 10(f) Service Agreement, dated April 12, 1991, between Service
America Corporation and Europa Cruise Lines.
(c) 10(g) Lease Agreement, dated June 30, 1991, between Palm Grove
Marina, Inc., and Europa Cruises of Florida 1, Inc.
(c) 10(h) Memorandum of Agreement for lease, dated March 29, 1992,
between Durwood Dunn and Mississippi Gaming Corporation.
29
<PAGE>
<S> <C> <C>
(c) 10(i) Lease Agreement, dated January 29, 1992, between Claiborne
County, Mississippi Port Commission and Mississippi Gaming
Corporation.
(c) 10(j) Contract of Sale, dated February 21, 1992, between Ferry
Binghamton, Inc., and Mississippi Gaming Corporation.
(b) 10(k) Lease Agreement, dated November 30, 1990, between Europa
Cruises of Florida 2, Inc., and Hubbard Enterprises, Inc.
(b) 10(l) Reciprocal Relationship Agreement, dated
December 28, 1990, amongst Europa Cruises of
Florida 1, Inc., Europa Cruises of Florida 2,
Inc., the Company and Cordis, A.G.
(b) 10(m) Promissory Note, dated December 31, 1990, and Addendum
thereto, dated May 2, 1991, from the Company to Charles S.
Liberis, P.A., Profit Sharing Plan.
(b) 10(n) Promissory Note, dated December 31, 1990, and Addenda
thereto, dated April 18 and May 2, 1991, from the Company to
Harlan G. Allen, Jr.
(b) 10(o) Stock Option and Agreement, dated December 31, 1990, between
the Company and Charles S. Liberis, P.A., Profit Sharing
Plan.
(b) 10(p) Stock Option and Agreement, dated December 31, 1990, between
the Company and Harlan G. Allen, Jr.
(b) 10(q) Promissory Note, dated January 25, 1992,
from Europa Cruises of Florida 1, Inc., and
Europa Cruises of Florida 2, Inc., to Cordis,
A.G.
(b) 10(r) Release, dated January 25, 1991, by Europa Cruise Lines, Ltd.
in favor of the St. Paul Fire & Marine Insurance Co. Lloyds
and certain London companies, through Bain Clarkson, Ltd.
(b) 10(s) Promissory Note, dated February 15, 1991, from Europa Cruises
of Florida 1, Inc., to Midlantic.
(b) 10(t) Assumption Modification and Security
Agreement, dated February 15, 1992, amongst
Europa Cruises of Florida 2, Inc., the Company
and Midlantic.
(b) 10(u) Mortgage Modification Agreement, dated February 15, 1992,
between Europa Cruises of Florida 2, Inc., and Midlantic.
(b) 10(v) Guarantee Agreement, dated February 15, 1991, between Europa
Cruises of Florida 2, Inc., and Midlantic, Re: Europa Cruises
of Florida 2, Inc.
(b) 10(w) Coordination Agreement, dated February 20, 1991, between
Midlantic and Cordis, A.G.
(b) 10(aa) Assignment of Note Receivable, Account Receivable and Common
Stock from Harlan G. Allen, Jr. to the Company.
(b) 10(bb) Stock Purchase Agreement, dated March 31, 1991, between the
Company and Freeport Cruise Line, Ltd.
30
<PAGE>
<S> <C> <C>
(b) 10(cc) Pledge Agreement and Addendum thereto, dated April 18, 1991,
between the Company and Harlan G. Allen, Jr.
(b) 10(dd) Franchise and Development Agreements between LoneStar
Hospitality Corporation and Miami Subs U.S.A., Inc., dated
July 1, 1992.
(d) 10(ee) Vessel Purchase Agreement dated July 8, 1992 between the
Company and FLC, Re: Purchase of the EuropaSky.
(d) 10(ff) Contract of Sale dated July 21, 1992, between the Company and
Ferry Binghamton, Inc. Re: the Purchase of Miss New York.
(d) 10(gg) Agreement to Lease and Option to Purchase dated July 7, 1992,
between the Company and A&M Developers, Inc. Re: Bossier City
site.
(d) 10(hh) Vessel Completion Contract by and between Eastern Shipyards,
Inc., and FLC Holding Corporation Re: EuropaSky.
(e) 10(ii) Stock Purchase Agreement dated December 21, 1992 between
Europa Cruises Corporation and Jeffrey L. Beck, Trustee.
(e) 10(jj) Copy of the Complaint filed by Charles S. Liberis vs. the
Company and others.
(f) 10(kk) Settlement agreement between the Company and Sea Lane
Bahamas, Ltd. dated February 4, 1994.
(f) 10(ll) Gaming Concession Agreement between the Company and Casinos
Austria Maritime Corporation dated February 18, 1993.
(f) 10(mm) Management Agreement between the Company and Casinos Austria
Maritime Corporation dated June 19, 1993.
(f) 10(nn) Diamondhead, Mississippi Loan Agreement, Continuing Guaranty,
Promissory Note, and Extension of Promissory Note between the
Company and Casinos Austria Maritime Corporation mortgage to
September 17, 1994.
(f) 10(oo) Convertible Promissory Note dated November 11, 1993 issued by
the Company to Serco International Ltd.
(f) 10(pp) Lease Agreement between the Company and Serco International
Ltd dated November 15, 1993.
(f) 10(qq) Casino World, Inc. 1993 Stock Option Plan dated March 25,
1993.
(f) 10(rr) Form of Stock Option Agreement dated as of August 31, 1994
issued to Deborah A. Vitale, Stephen M. Turner, Ernst G.
Walter and Lester E. Bullock.
(f) 10(ss) Easement dated December 22, 1994 granted to Mississippi
Gaming Corporation adjacent to proposed Diamondhead gaming
site.
31
<PAGE>
<S> <C> <C>
(f) 10(tt) Miami Beach Marina Lease dated February
10, 1995 as amended between Europa Cruises of
Florida, 2 and Tallahassee Building Corp.
(f) 10(uu) Settlement Agreement dated May 9, 1994 between Europa Cruises
Corporation and Harlan G. Allen, Jr.
(f) 10(vv) First Union National Bank Credit and
Security Agreement and Promissory Note dated
May 23, 1995 between Europa Cruises
Corporation, Europa Cruises of Florida 1, Inc.,
Europa Cruises of Florida 2, Inc., EuropaSky
Corporation and Europa Stardancer Corporation.
(f) 10(ww) First Union National Bank Credit and
Security Agreement and Promissory Note dated
August 25, 1995 between Europa Cruises
Corporation, Europa Cruises of Florida 1, Inc.,
Europa Cruises of Florida 2, Inc., EuropaSky
Corporation and Europa Stardancer Corporation.
(f) 10(xx) Snug Harbor Group, Inc. Lease dated September 20, 1996
between Snug Harbor Group, Inc. and Europa Cruises of Florida
1, Inc.
(f) 10(yy) Tidelands Lease and Land Lease dated February 1, 1996,
between Hancock County Port and Harbor Commission and
Mississippi Gaming Corporation.
10.2 Warrant Agreement Between First Union National Bank of
Florida and Europa Cruises Corporation dated October 30, 1996
and February 4, 1997.
10.2.1 Second Modification of Credit and Security
Agreement and other Loan Documents and Renewal
Promissory Note between First Union National
Bank of Florida and Europa Cruises Corporation
dated October 31, 1996.
10.2.2 Promissory Note between Europa Cruises of Florida 2, Inc. and
dEBIS Financial Services, Inc. dated October 30, 1996.
10.2.3 Form of Stock Option Agreements for options
granted April 18, 1996 to Lester Bullock,
Deborah Vitale, Piers Hedley, Debra Gladstone,
Andy Rufo, Michael Reeves, and Jim Monninger.
10.2.4 Lease Agreement between Tierra Verde Marina Development
Corporation and Europa Stardancer Corporation dated October
1, 1996.
(f) 18 Letter from BDO Seidman, LLP regarding 1995 change in
accounting principle.
27 Financial Data Schedule (Electronic filing only)
(a) Previously filed as an exhibit to the Company's Registration
Statement No. 33-26256-A and incorporated by reference.
(b) Previously filed as an exhibit to the Company's Annual Report on
Form 10-K for the year ended December 31, 1990 and incorporated by
reference.
(c) Previously filed as an exhibit to the Company's Annual Report on
Form 10-K for the year ended December 31, 1991 and incorporated by
reference.
(d) Previously filed as an exhibit to the Company's Form S-2
Registration Statement dated August 26, 1992 and incorporated by
reference.
32
<PAGE>
<S> <C>
(e) Previously filed as an exhibit to the Company's Annual Report on
Form 10-KSB for the year ended December 31, 1992 and incorporated by
reference.
(f) Previously filed as an exhibit to the Company's Annual Report on
Form 10-KSB for the years ended December 31, 1993 and 1994 and
incorporated by reference.
(g) Previously filed as an exhibit to the Company's S-2 Registration
Statement (No. 33-89014) filed January 31, 1995 and incorporated by
reference.
</TABLE>
Reports on Form 8-K
- -------------------
There were no reports on Form 8-K filed during the last quarter of
the period covered by this report.
Subsidiaries of the Registrant
- ------------------------------
Europa Cruise Line, Ltd. (Delaware)
Europa Cruises of Florida 1, Inc. (Delaware)
Europa Cruises of Florida 2, Inc. (Delaware)
EuropaJet Corporation (Delaware)
Europa Cruise Lines, Ltd. (Cayman Island)
Mississippi Gaming Corporation (Delaware)
EuropaSky Corporation (Delaware)
American Gaming Corporation (Delaware)
Casino World, Inc. (Delaware)
Europa Stardancer Corporation (Delaware)
Europa Casino Management Corporation (Delaware)
Europa Leasing Corporation (Delaware)
33
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
Registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
EUROPA CRUISES CORPORATION
/s/ Lester E. Bullock
DATE: March 27, 1997 ----------------------------------
By: Lester E. Bullock, President
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature and Title Date
- ------------------- ----
/s/ Lester E. Bullock March 27, 1997
- --------------------------------
Lester E. Bullock
President and Director
/s/ Deborah A. Vitale March 27, 1997
- --------------------------------
Deborah A. Vitale
Corporate Secretary and Director
/s/ Piers Hedley March 27, 1997
- --------------------------------
Piers Hedley
Director
/s/ Debra Gladstone March 27, 1997
- --------------------------------
Debra Gladstone
Chief Financial Officer
<PAGE>
Europa Cruises Corporation
and Subsidiaries
Contents
- --------------------------------------------------------------------------------
Page
----
Report of Independent Certified
Public Accountants...................................................F-2
Consolidated Balance Sheet as of
December 31, 1996 ............................................F-3 to F-4
Consolidated Statements of Operations
for the Years Ended
December 31, 1996 and 1995....................................F-5 to F-6
Consolidated Statements of Stockholders' Equity
for the Years Ended
December 31, 1996 and 1995...........................................F-7
Consolidated Statements of Cash Flows
for the Years Ended
December 31, 1996 and 1995....................................F-8 to F-9
Notes to Consolidated Financial
Statements..................................................F-10 to F-34
F-1
<PAGE>
Report of Independent Certified Public Accountants
To the Board of Directors
of Europa Cruises Corporation and Subsidiaries
We have audited the accompanying consolidated balance sheet of Europa Cruises
Corporation and Subsidiaries as of December 31, 1996 and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the two years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial
statements. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Europa Cruises
Corporation and Subsidiaries at December 31, 1996, and the results of their
operations and their cash flows for each of the two years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, in 1995 the
Company changed its method of accounting for drydock costs.
Miami, Florida
March 7, 1997 BDO Seidman, LLP
F-2
<PAGE>
Europa Cruises Corporation
and Subsidiaries
Consolidated Balance Sheet
- --------------------------------------------------------------------------------
December 31, 1996
- --------------------------------------------------------------------------------
Assets
Current
Cash and cash equivalents $ 548,080
Restricted cash (Note 9) 400,000
Accounts receivable (Note 5) 398,732
Prepaid insurance and other 531,302
- --------------------------------------------------------------------------------
Total current assets 1,878,114
Vessels, equipment and fixtures, less accumulated
depreciation (Notes 2 and 5) 13,906,962
Land under development for dockside gaming
(Note 4) 4,713,817
Dockside gaming development costs (Note 4) 188,279
Deferred drydock costs, net of amortization (Note 2) 855,976
Other assets 291,306
- --------------------------------------------------------------------------------
$21,834,454
================================================================================
F-3
<PAGE>
Europa Cruises Corporation
and Subsidiaries
Consolidated Balance Sheet
- --------------------------------------------------------------------------------
December 31, 1996
- --------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable and accrued expenses $ 1,915,564
Current maturities of long-term debt (Note 5) 1,570,824
Unearned cruise revenues 63,827
- --------------------------------------------------------------------------------
Total current liabilities 3,550,215
Long-term debt, less current maturities (Note 5) 7,001,759
Other liabilities 150,000
- --------------------------------------------------------------------------------
Total liabilities 10,701,974
- --------------------------------------------------------------------------------
Commitments and contingencies (Note 9)
- --------------------------------------------------------------------------------
Stockholders' equity (Notes 6 and 7):
Preferred stock, $.01 par value; shares authorized
5,000,000; outstanding 2,822,467 ($3,922,014 aggregate
liquidation preference) 28,225
Common stock, $.001 par value - shares authorized
50,000,000; issued 27,176,966; outstanding 21,426,966 27,176
Common stock subscribed 234,974
Additional paid-in capital 24,950,864
Unearned ESOP shares (6,709,376)
Deficit (7,209,227)
Treasury stock, at cost, 1,250,000 shares (190,156)
- --------------------------------------------------------------------------------
Total stockholders' equity 11,132,480
- --------------------------------------------------------------------------------
$ 21,834,454
===============================================================================
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
Europa Cruises Corporation
and Subsidiaries
Consolidated Statements of Operations
- --------------------------------------------------------------------------------
Year ended December 31, 1996 1995
- --------------------------------------------------------------------------------
Revenues
Gaming revenue $ 13,258,289 $ 11,577,974
Passenger fares 3,888,395 4,635,650
Food and beverage 1,499,071 1,352,986
Charter fees 383,905 1,015,174
Other 223,118 662,046
- --------------------------------------------------------------------------------
19,252,778 19,243,830
- --------------------------------------------------------------------------------
Costs and Expenses
Vessel operating 12,802,466 13,852,562
Administrative and general 2,150,942 2,632,150
Advertising and promotion 1,586,931 1,859,306
Depreciation and amortization (Note 2) 1,544,359 1,345,437
Interest, net (Note 5) 908,006 851,383
Other operating (Note 11) 276,597 490,192
- --------------------------------------------------------------------------------
19,269,301 21,031,030
- --------------------------------------------------------------------------------
Loss before cumulative effect of change
in accounting for drydock costs (16,523) (1,787,200)
- --------------------------------------------------------------------------------
Cumulative effect of change in accounting for
drydock costs (Note 1) -- 215,096
- --------------------------------------------------------------------------------
Net Loss (16,523) (1,572,104)
Preferred Stock Dividends (231,758) (283,124)
- --------------------------------------------------------------------------------
Net Loss Applicable To Common Stock $ (248,281) $ (1,855,228)
================================================================================
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
Europa Cruises Corporation
and Subsidiaries
Consolidated Statements of Operations
(Continued)
- --------------------------------------------------------------------------------
Year ended December 31, 1996 1995
- --------------------------------------------------------------------------------
Per Share Amounts
Net loss applicable to common stock before
cumulative effect of change in accounting
for drydock costs $ (.01) $ (.12)
Cumulative effect of change in accounting for
drydock costs -- .01
- --------------------------------------------------------------------------------
Net loss per common share $ (.01) $ (.11)
================================================================================
Weighted average number of common shares outstanding 20,171,730 17,571,692
================================================================================
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
Europa Cruises Corporation
and Subsidiaries
Consolidated Statements of Stockholders' Equity
(Notes 6 and 7)
- -----------------------------------------------------------------------------------------------
Additional
Preferred Common Paid-in Unearned Common Stock Treasury
Stock Stock Capital ESOP Shares Subscribed (Deficit) Stock Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 $ 32,160 $ 23,517 $ 23,523,724 $ (7,175,548) - $ (5,105,718) $ (190,156) $ 11,107,979
Issuances of common stock - 55 48,345 - - - - 48,400
ESOP compensation - - (110,937) 93,360 - - - (17,577)
Preferred stock dividends - 305 222,096 - - (283,124) - (60,723)
Common stock subscription - - - - 500,000 - - 500,000
Stock subscription receivable - - - - (300,000) - - (300,000)
Conversion of preferred to common (2,562) 256 2,306 - - - - -
Net loss for the year - - - - - (1,572,104) - (1,572,104)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 29,598 24,133 23,685,534 (7,082,188) 200,000 (6,960,946) (190,156) 9,705,975
Issuances of common stock, - 2,688 1,257,241 - (200,000) - - 1,059,929
net of offering costs
ESOP compensation - - (164,687) 372,812 - - - 208,125
Preferred stock dividends - 218 171,540 - - (231,758) - (60,000)
Common stock subscription - - - - 234,974 - - 234,974
Conversion of preferred to common (1,373) 137 1,236 - - - - -
Net loss for the year - - - - - (16,523) - (16,523)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 $ 28,225 $ 27,176 $ 24,950,864 $ (6,709,376) $ 234,974 $ (7,209,227) $ (190,156) $ 11,132,480
====================================================================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
F-7
<PAGE>
Europa Cruises Corporation
and Subsidiaries
Consolidated Statements of Cash Flows
(Note 10)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended December 31, 1996 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities:
Net loss $ (16,523) $ (1,572,104)
- --------------------------------------------------------------------------------------------
Adjustments to reconcile net loss
to net cash provided by (used in ) operating activities:
Depreciation and amortization 1,544,359 1,345,437
ESOP (benefit) provision 208,125 (17,577)
Cumulative effect of change in accounting principle -- (215,096)
(Increase) decrease in:
Accounts receivable (87,965) (227,046)
Prepaids and other 899,184 553,897
(Decrease) increase in:
Accounts payable and accrued expenses 133,662 (372,421)
Unearned cruise revenues (8,212) (120,582)
- --------------------------------------------------------------------------------------------
Total adjustments 2,689,153 946,612
- --------------------------------------------------------------------------------------------
Cash provided by (used in) operating activities 2,672,630 (625,492)
- --------------------------------------------------------------------------------------------
Investing Activities:
Purchases of property and equipment, net (1,337,681) (980,619)
Deferred drydock cost (938,996) --
Land under development for dockside gaming (171,140) (127,101)
Increase in restricted cash (400,000) --
- --------------------------------------------------------------------------------------------
Cash used in investing activities (2,847,817) (1,107,720)
- --------------------------------------------------------------------------------------------
</TABLE>
F-8
<PAGE>
Europa Cruises Corporation
and Subsidiaries
Consolidated Statements of Cash Flows
(Note 10)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Year ended December 31, 1996 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Financing Activities:
Proceeds from:
Stock subscription payments $ 234,974 $ 200,000
Issuance of common stock 1,059,929 --
Long-term debt 2,450,000 8,285,896
Repayment of:
Long-term debt (3,511,426) (9,261,694)
Preferred stock dividends (62,271) (60,723)
- --------------------------------------------------------------------------------------------
Cash provided by (used in) financing activities 171,206 (836,521)
- --------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (3,981) (2,569,733)
Cash and cash equivalents, beginning of year 552,061 3,121,794
- --------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 548,080 $ 552,061
============================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
F-9
<PAGE>
Europa Cruises Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
1. Summary of Organization and Business
Significant -------------------------
Accounting
Policies Europa Cruises Corporation and Subsidiaries (the Company)
principally owns, operates and promotes four cruise vessels
offering day and evening cruises. The Company's cruises
include a variety of shipboard activities such as dining,
casino operations, sightseeing, live music and other
entertainment.
Estimates
---------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results
could differ from those estimates.
It is at least reasonably possible that the Company's
estimate of the ultimate outcome of contingencies could
change in the near term.
Principles of Consolidation
---------------------------
The consolidated financial statements include the accounts
of Europa Cruises Corporation and all of its subsidiaries.
All material intercompany balances and transactions have
been eliminated.
Cash Equivalents
----------------
The Company considers all liquid debt instruments with
original maturities of three months or less to be cash
equivalents. Cash equivalents include investments in money
market accounts.
Vessels, Equipment and Fixtures
-------------------------------
Vessels are depreciated over 20 years using the
straight-line method. Vessel improvements, furniture,
F-10
<PAGE>
Europa Cruises Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
fixtures and equipment are recorded at cost and are
depreciated over their estimated useful lives (which range
from two to twenty years) using the straight-line method.
Expenditures for repairs and maintenance are expended as
incurred. Renovations and improvements which extend
estimated useful lives are capitalized and depreciated over
the period of their estimated useful life.
Casino Revenue and Promotional Allowances
-----------------------------------------
Casino revenue is the net win from gaming activities, which
is the difference between gaming wins and losses. Revenue
does not include the retail amount of fares, food, and
beverage provided gratuitously to customers, which was
$2,100,367 in 1996 and $1,063,340 in 1995.
Passenger Fare Revenue and Unearned Cruise Revenues
---------------------------------------------------
Unearned cruise revenues, which represent customer cruise
deposits, are included in the balance sheet when received
and are recognized as passenger fare or food revenue upon
completion of the voyage.
Land Held for Development
-------------------------
Land held for development of a dockside casino is carried at
lower of cost or market, which at December 31, 1996 was at
cost. Costs directly related to site development such as
licensing and permits, engineering and other costs are
capitalized to the land.
Dockside Gaming Development Costs
---------------------------------
Preopening expenses, which consist principally of payroll
and marketing costs are expensed as incurred. Expenditures
which result in acquisition of assets which benefit future
periods are deferred and amortized over the period of
expected future benefit.
F-11
<PAGE>
Europa Cruises Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Employee Stock Ownership Plan
-----------------------------
In August 1994, the Company established a leveraged Employee
Stock Ownership Plan (ESOP). Compensation expense is
measured at the fair market value of shares
committed-to-be-released. Shares are committed-to-
be-released ratably over the period of employees service.
Dividends, if any; (1) on un-allocated shares used to pay
debt service are reported as a reduction of the indebtedness
to the Company; (2) on un-allocated shares paid to
participants are reported as compensation cost and; (3) on
allocated shares are charged to retained earnings. The
Company has not paid any dividends.
Long-Lived Assets
-----------------
In March 1995, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards
No. 121 "Accounting for Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of" ("SFAS No. 121").
SFAS no. 121 requires, among other things, impairment loss
of assets to be held and gains or losses from assets that
are expected to be disposed of be included as a component of
income from continuing operations before taxes on income.
The Company adopted SFAS No. 121 as of January 1, 1996 and
its implementation did not have a material effect on the
financial statements.
Stock Based Compensation
------------------------
In October, 1995, FASB issued SFAS No. 123, "Accounting for
Stock- Based Compensation." SFAS No. 123 establishes a fair
value method for accounting for stock-based compensation
plans either through recognition or disclosure. The Company
did not adopt the fair value based method but instead
discloses the proforma effects of the calculation required
by the statement.
F-12
<PAGE>
Europa Cruises Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Taxes on Income
---------------
The Company accounts for income taxes pursuant to the
provisions of FASB No. 109, "Accounting for Income Taxes,"
which requires, among other things, a liability approach to
calculating deferred income taxes. The asset and liability
approach requires the recognition of deferred tax
liabilities and assets for the expected future tax
consequences of temporary differences between the carrying
amounts and the tax bases of assets and liabilities.
Net Loss Per Share
------------------
Net loss per share is based on net loss after preferred
stock dividend requirements and the weighted average number
of common shares outstanding during each year. Stock options
and warrants are not considered because their effect would
be anti-dilutive.
Common shares outstanding includes issued shares less shares
held in treasury, un-allocated and uncommitted shares held
by the ESOP trust.
Drydock Costs
-------------
Prior to 1995, the Company used the accrual method to
account for major repairs and maintenance in drydock,
accruing these costs over the two to three year period to
the next drydock. Due to the uncertainty in estimating
future drydock costs, the Company changed its method of
accounting to the deferral method in 1995, which the Company
believes is preferable under the circumstances, whereby
major repairs and maintenance are capitalized as incurred
and amortized over the period to the next drydock. This
change in accounting principle had the effect of decreasing
the 1995 loss before cumulative effect of change in
accounting principle by $40,000.
2. Vessels, Vessels, equipment and fixtures consist of the following:
Equipment
and Fixtures, 1996
and Deferred ------------------------------------------------------------
Drydock Costs
Vessels $ 13,497,221
Vessel improvements 1,681,694
Gaming equipment 2,023,627
F-13
<PAGE>
Europa Cruises Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Office and vessel equipment 581,162
Furniture, fixtures and other 237,728
Leasehold improvements 564,959
------------------------------------------------------------
18,586,391
Less accumulated depreciation (4,679,429)
------------------------------------------------------------
$ 13,906,962
------------------------------------------------------------
Deferred drydock costs consist of the following:
------------------------------------------------------------
Deferred $ 1,104,963
Less accumulated amortization (248,987)
------------------------------------------------------------
$ 855,976
============================================================
In August, 1994, the Company entered into a Subscription and
Investment Agreement with Lagoon Cruise Line, Inc. when the
Company purchased the M/V Stardancer, in return for cash and
stock. Under the terms of the agreement, Europa was required
to pay Lagoon, in cash, the difference, if any, between the
average five day trading price of the stock for the period
ending February 13, 1997 and $1.25 per share for the
1,200,000 shares of stock Lagoon received in payment for the
vessel. The average five-day stock price for the period
ending February 13, 1997 was $1.38. As a result, the stock
guarantee lapsed at no cost to the Company.
3. Investment In On December 31, 1990, the Company rescinded a transaction in
And which it had previously sold its twenty percent ownership
Advances To interest in Marne (Delaware), Inc. (Marne) by reacquiring
Unconsolidat- its investment and a $340,000 note receivable in exchange
ed Affiliate for $541,620 of promissory notes payable to a principal
stockholder and a former officer of the Company.
In October, 1996, a final Order and Judgement was issued by
the Court of Chancery of the State of Delaware in and for
New Castle County. Under the judgement, the former officer
is required to return 250,000 shares of common stock to the
F-14
<PAGE>
Europa Cruises Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Company and must pay money damages in the net amount of
$24,962 to rescind the Marne transaction. Accordingly, the
related investment, note receivable and promissory note
payable have been eliminated at December 31, 1996 at no gain
or loss. The former officer has appealed the judgement. The
Company intends to defend the appeal and believes the
ultimate outcome will not have an adverse effect on its
results of operations or financial condition.
4. Land Under The Company through its two wholly-owned subsidiaries,
Development Casino World, Inc. (CWI) and Mississippi Gaming Corporation
for Dockside (MGC) owns a total of 404.5 acres of unimproved land in
Gaming and Diamondhead, Mississippi which was granted site approval by
Dockside the Mississippi Gaming Commission in June, 1995. The
Gaming ownership and operation of a gaming business in Mississippi
Development are subject to numerous risks and uncertainties including
Costs but not limited to the availability of financing, licensing,
and the receipt of permits from the U.S. Army Corps of
Engineers. Litigation brought by environmental groups,
neighbors, and competitors may delay regulatory approvals
and the issuance of permits necessary for the construction
of a casino at the Company's proposed gaming operations in
Mississippi. In June 1995, the Company was granted site
approval by the Mississippi Gaming Commission. This site
approval is land specific, and therefore, the cost
associated with obtaining this site approval has been
capitalized to the land cost. On February 1, 1996, MGC
entered into a lease agreement with the Hancock County Port
and Harbor Commission to lease the tidelands under which the
casino barges will be moored and the area under the pier
from the hotel to the casinos. The lease term is five years
commencing 30 days after construction of the project begins.
There are four five (5) year renewal option periods. The
cost of the lease is $2,250,000 for the first five years of
which $25,000 was paid on signing, and $95,000 is payable
upon commencement of construction. Both payments are to be
applied toward the lease payments which are $10,000 per
month during construction and the remainder of the
$2,250,000 will be paid over the remainder of the lease
after operation of the casino commences. The lease
incorporates the Memorandum of Understanding between the
Mississippi Secretary of State and the Hancock County Port
and Harbor Commission dated November 19, 1995, which
transfers management and control of the subject tidelands to
the Port and Harbor Commission and requires a signing of a
tenant lease within one year of signing and commencement of
casino operations within three years of the signing of the
memorandum.
F-15
<PAGE>
Europa Cruises Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
On July 17, 1996, Casino World, Inc, in conjunction with the
Hancock County Port and Harbor Commission, received approval
from the Mississippi Commission on Marine Resources for a
Coastal Use Plan adjustment and associated permitting to
allow development of the Diamondhead resort. On January 9,
1997, the Mississippi Commission of Environmental Quality
approved the issuance of the Water Quality Certification by
the Mississippi Department of Environmental Quality, Office
of Pollution Control to Casino World, Inc. and the Hancock
County Port and Harbor Commission, pursuant to Section 401
of the Federal Water Pollution Control Act (U.S.C. 1251,
1341), Aggrieved parties have requested and have a right to
a hearing on the matter which is expected to be held in late
March or early April, 1997. On January 22, 1997, Casino
World, Inc. received from the Mississippi Department of
Environmental Quality a Construction Storm Water General
NPDES permit. In January 1997, the Hancock County Board of
Supervisors adopted a county wide zoning plan which
designated the Company's 404 acre site as a Special Use
District Waterfront Gaming District. The zoning designation
comports with all other approvals and permits the Company
has received to date. All of the approvals and permits are
based on the specific site plan approved by the Mississippi
Gaming Commission. A modification to that plan may require
resubmittal and approval by the appropriate regulatory
agencies. Therefore, permitting must be considered in
negotiations with any joint venture partner. Local community
organizations opposed to development of the property have
appealed to the Mississippi courts.
On January 31, 1997, the Company entered into an agreement
with Hilton Gaming Corporation, which gave Hilton the
exclusive right to negotiate a joint venture agreement with
Europa for a 180 day period of time with respect to the
development of Europa's Diamondhead, Mississippi property
located on Bay St. Louis, Diamondhead, Mississippi. In
exchange for the exclusive right to negotiate, Hilton paid
Europa a nonrefundable fee of $400,000. The Option payment
was subject to the provision of certain supporting
documentation which was provided. The joint venture
agreement to be negotiated between Hilton and Europa, if
reached, would give Hilton majority ownership, control, and
management and would be formed for the purpose of developing
a destination resort at the Company's Diamondhead site.
There are no assurances that the necessary regulatory
approvals can be obtained or that financing will be
available. The Company does not have the financial resources
to develop its proposed Mississippi dockside gaming
F-16
<PAGE>
Europa Cruises Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
facility. Accordingly, there are no assurances that the
development will be successfully completed.
The Company capitalized an aggregate $156,090 of interest on
the land in 1992 and 1993, at which time the land was
undergoing activities necessary to develop the gaming site.
The Company discontinued capitalizing interest on the land
effective for 1994.
Dockside gaming development costs consist of the following:
1996
------------------------------------------------------------
Licenses $ 77,000
Other development costs 111,279
------------------------------------------------------------
$ 188,279
============================================================
The legal, financial, political, tax, environmental,
regulatory and competitive environment in which the Company
currently operates gaming activities and in which it intends
to operate gaming activities is uncertain, dynamic and
subject to rapid change. In addition, existing operators
often support legislation and litigation designed to make it
difficult or impossible for competitors to develop and
operate gaming facilities. This environment makes it
impossible to predict the effects, including costs, that
changes in laws, rules, regulations and other variables will
have on the Company's proposed dockside gaming operations or
on existing operations.
5. Long-term Long-term debt consists of:
Debt 1996
------------------------------------------------------------
Bank term loan, principal and interest
payable $102,000 monthly through August 2002,
floating rate of interest at Libor plus 325
basis points (9% at December 31, 1996) capped
at 11.35% with an interest rate swap
agreement, collateralized by accounts
receivable, three vessels, equipment and
fixtures. (a) $ 5,058,822
F-17
<PAGE>
Europa Cruises Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Equipment finance company term loan,
principal and interest payable $30,360
monthly through January 2001, including
interest at 10.5% with a balloon payment due
of $1,442,000. 2,239,327
Capital lease obligation on gaming equipment,
payable $46,398 monthly to February 1998,
including interest at 9%. 818,769
9% note payable, principal and interest
payable $4,827 monthly through November 2000,
collateralized by 400,000 escrowed shares of
Europa common stock. 264,953
6.99% insurance financing arrangement,
payable $16,666 per month 150,000
Other 40,712
------------------------------------------------------------
Total 8,572,583
Less current maturities (1,570,824)
------------------------------------------------------------
$ 7,001,759
============================================================
(a) As of December 31, 1996, the Company was not in
compliance with its cash flow covenant required under the
terms of its bank loan agreement. The bank has waived the
Company's default through January 31, 1998 by deferring
compliance with the cash flow covenant requirement.
Annual maturities of long-term debt are as follows:
1997 $ 1,570,824
1998 1,243,192
1999 1,069,688
2000 1,193,740
2001 2,733,795
Thereafter 761,344
------------------------------------------------------------
$ 8,572,583
============================================================
F-18
<PAGE>
Europa Cruises Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Interest expense consists of:
1996 1995
------------------------------------------------------------
Interest expense $ 932,170 $ 952,046
Less:
Interest income (24,164) (100,663)
------------------------------------------------------------
Interest expense (net) $ 908,006 $ 851,383
============================================================
6. Stockholders' At December 31, 1996, the Company had a stock option plan
Equity and non-plan options, which are described below. The Company
applies APB Opinion 25. Accounting for Stock Issued to
Employees, and related Interpretations in accounting for
employee stock options. Under APB Opinion 25, because the
exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date
of grant, no compensation cost is recognized.
On December 19, 1988, the Company adopted a stock option
plan (the "Plan") for its officers and management personnel
under which options could be granted to purchase up to
1,000,000 shares of the Company's common stock. Accordingly,
the Company reserved for issuance 1,000,000 shares under the
Plan. The option price may not be less than 100% of the
market value of the shares on the date of the grant and
expire within ten years from the date of grant. As of
December 31, 1996, approximately 865,000 shares remain
available under the Plan and 810,000 options are
outstanding.
In April 1996, the Company granted five year fixed non-plan
stock options at an exercise price of $.75 (fair market
value at the date of grant) that expire in April, 2001. The
options were granted as follows:
Immediately exercisable options to acquire 250,000 shares of
common stock to each member of its Board of Directors; an
aggregate of 750,000 shares.
F-19
<PAGE>
Europa Cruises Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
Immediately exercisable options to acquire 550,000 shares of
common stock to the Chairman of the Board.
Options to acquire 300,000 shares of common stock to the
President and certain management personnel of the Company.
These shares became fully vested on December 31, 1996.
Options to acquire 200,000 shares of common stock to the
President of Casino World, Inc., a wholly owned subsidiary.
An option to acquire 50,000 shares of common stock to an
officer of the Company. These options will fully vest on
March 31, 1997.
FASB Statement 123, Accounting for Stock-Based Compensation,
requires the Company to provide pro forma information
regarding net loss and net loss per share as if compensation
cost for the Company's employee stock options had been
determined in accordance with the fair value based method
prescribed in FASB Statement 123. The Company estimates the
fair value of each employee stock option at the grant date
by using the Black-Scholes option-pricing model with the
following weighted-average assumptions used for grants in
1996: no dividend yield percent, expected volatility of
94.39 and risk-free interest rate of 5.84%.
Under the accounting provisions of FASB Statement 123, the
Company's net loss and loss per share would have been as
follows:
1996
----
Net Loss As Reported $(248,281)
Applicable to Proforma $(878,281)
Common Stock
Earning per As Reported $ (.01)
common share Proforma $ (.04)
A summary of status of the Company's fixed Plan and non-plan
options as of the December 31, 1996 and 1995, and changes
during the years ended on those dates is presented below:
F-20
<PAGE>
Europa Cruises Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
December 31, 1996 December 31,1995
----------------- ----------------
Weighted- Weighted-
Average Average
Exercise Exercise
Shares Price Shares Price
------------------------------------------------------------
Outstanding at beginning
of year 1,180,000 $ 1.27 1,180,000 $ 1.27
Granted 1,850,000 .75 - -
Exercised - - - -
Forfeited 30,000 1.06 - -
------------------------------------------------------------
Outstanding at
end of year 3,000,000 $ .95 1,180,000 $ 1.27
------------------------------------------------------------
Options exercisable
at year-end 3,000,000 - 1,180,000 -
Weighted-average fair
value of options
granted during
the year $ .34 - - -
------------------------------------------------------------
The following table summarizes information about stock options
outstanding at December 31, 1996:
Options Outstanding Options Exercisable
-------------------------------------------- ----------------------
Weighted-
Number Average Weighted Number Weighted-
Range of Outstanding Remaining Average Exercisable Average
Exercise at Contractual Exercise at Exercise
Price 12/31/96 Life Price 12/31/96 Price
--------------------------------------------------------------------
$ .75 - $2.25 3,000,000 3.4 .95 3,000,000 .95
--------------------------------------------------------------------
F-21
<PAGE>
Europa Cruises Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
On June 14, 1993, the Company issued to AustroInvest
International Inc. 926,000 shares of $.01 par value Series S
Voting, Non-Convertible, Redeemable Preferred Stock in
exchange for proceeds of $1,000,080. Cumulative three
percent per annum dividends are payable quarterly. These
shares may be redeemed at the option of the Company at $1.08
per share plus $1.08 cents per share for each quarter that
such shares are outstanding and have a $1.08 per share
preference in involuntary liquidation.
On September 13, 1993, the Company issued to Serco
International Limited (SERCO) (a wholly-owned subsidiary of
AustroInvest International Inc. and a stockholder of the
Company) 900,000 shares of its $.01 par value Series S-NR
Voting, Non-Convertible, Non-Redeemable, Preferred Stock, in
exchange for proceeds of $999,000. Non-cumulative three
percent per annum dividends are payable quarterly. Upon
involuntary liquidation of the Company, the liquidation
preference of each share is $1.11.
In March 1994, the Company offered, pursuant to Regulation
S, one million units at $5.50 per unit, each unit consisting
of one share of the Company's $.001 par value common stock
and two shares of the Company's Series S- PIK Junior,
cumulative, convertible, non-redeemable, non-voting $.01 par
value preferred stock. Each share of Series S-PIK preferred
stock is convertible into one share of the Company's voting
common stock, at any time after February 15, 1995. During
1996, 137,333 shares of these shares were converted to
137,333 common shares. The Series S-PIK preferred stock
ranks junior to the Series S and Series S-NR preferred
shares as to the distribution of assets upon liquidation,
dissolution or winding up of the Company. Upon liquidation
of the Company, the S-PIK preferred stock will have a
liquidation preference of $2.00 per share. A cumulative
quarterly dividend of $0.04 per share is payable on the
Series S-PIK preferred stock. At the option of the Company,
for a period of three years, dividends may be paid by
issuing shares of the Company's common stock. In connection
with this offering, the Company sold 695 units aggregating
695,000 shares of common stock and 1,390,000 shares of
preferred stock and collected approximately $3,399,297, net
of costs of approximately $423,203. During 1996, the Company
elected to pay all the dividends in common stock, of which
218,000 shares valued at $171,758 were issued in 1996
including accrued dividends from 1995.
In connection with the Regulation S offerings during 1994,
the Company agreed to grant an underwriter warrants to
purchase 145,000 shares of the Company's common stock at
F-22
<PAGE>
Europa Cruises Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
$1.50 per share which expired February 28, 1997; warrants to
purchase 208,500 shares of the Company's common stock at
$1.933 per share, which expire June 30, 1997, and warrants
to purchase 30,000 shares of the Companys' common stock at
$1.80, which expire June 30, 1997. No warrants have been
exercised.
In connection with a refinancing in 1996, the Company
granted to First Union National Bank of Florida five-year
warrants to purchase an aggregate 200,000 shares of the
Company's common stock at $2.00 per share.
In October 1995, the Company sold common stock for $500,000
in a Regulation S offering. At December 31, 1995, $200,000
proceeds had been received. The remaining proceeds were
received in May, 1996 and the Company issued 1,035,708
shares of the Company's common stock. An 8% commission, paid
in Common Stock of the company, was paid to Peerless
Associates, Ltd. Piers Hedley, a Director of the Company has
served as a Executive Managing Director and Consultant for
Peerless.
In February, 1996 the Company entered into a Placement
Agreement for approximately $650,000 in stock under several
Regulation S offerings and received aggregate net proceeds
of approximately $574,000 and issued 1,182,752 shares of the
Company's common stock. An 8% commission was paid, in cash,
to Suppes Securities, Inc.
In May, 1996, the Company sold common stock for $200,000 in
a Regulation S offering and issued 469,566 shares of the
Company's common stock. An 8% commission, paid in Common
Stock of the Company, was paid to Peerless Associates, Ltd.
In September 1996, the Company offered for sale up to
$500,000 in common stock in a Regulation S offering. At
December 31, 1996, $234,974 in proceeds had been received.
The remaining proceeds were received in January, 1997 and
the Company issued 1,163,843 shares of common stock. An 8%
commission, paid in Common Stock of the Company, was paid to
Peerless Associates, Ltd.
7. Employee On August 18, 1994, the Company established the Europa
Stock Cruises Corporation Employee Stock Ownership Plan (ESOP).
Ownership The ESOP, which is intended to be a qualified retirement
Plan plan under provisions of Section 401(a) of the Internal
Revenue Code and an employee stock ownership plan pursuant
to Section 4975(3)(7) of the Internal Revenue Code, was
F-23
<PAGE>
Europa Cruises Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
established primarily to invest in stock of the Company. All
employees as of December 31, 1994 and subsequent new
employees having completed one year of service are eligible
to participate in the ESOP. The Company also established a
trust called Europa Cruises Corporation Employee Stock
Ownership Plan Trust Agreement to serve as the funding
vehicle for the ESOP. On August 21, 1994, the Company loaned
$4,275,000 to the ESOP in exchange for a ten-year
promissory note bearing interest at eight percent per annum.
On August 24, 1994, the ESOP purchased 2,880,000 shares of
the Company's common stock with the proceeds of the loan. On
August 25, 1994, the Company loaned an additional $3,180,000
to the ESOP in exchange for a ten year promissory note
bearing interest at eight percent per annum. On August 26,
1994, the ESOP purchased an additional 2,120,000 shares of
the Company's common stock with the proceeds of the loan.
The shares of common stock are pledged to the Company as
security for the loans. The promissory notes are payable
from the proceeds of annual contributions made by the
Company to the ESOP. In 1995 the Company extended the
maturity of the loans to twenty years.
Shares are allocated to the participants' accounts in
relation to repayments of the loans from the Company. Cash
dividends paid by the Company, are used to repay the loans
from the Company or allocated to the participants' accounts
at the discretion of the plan administrator and stock
dividends are allocated to the participants' accounts. No
dividends have been paid by the Company.
The Company recorded an expense of $279,452 in 1994 for ESOP
benefits. In 1995, as permitted by the Plan, the Company
decided to permanently forgo allocation of shares to
participants for services rendered during 1994. Accordingly,
the Company reduced its $261,875 ESOP compensation expense
for 1995 by the amount of forgone benefits ($279,452),
resulting in a net $17,577 benefit in the accompanying
consolidated statement of operations for 1995. ESOP
compensation expense for 1996 was $208,125.
As of December 31, 1996, 500,000 shares have been legally
released of which, 250,000 have been allocated to
participants accounts. The remaining 250,000 are in the
process of being allocated to participants' accounts in
1997. At December 31, 1996, 4,500,000 shares with a fair
market value of $3,375,000 are unearned.
F-24
<PAGE>
Europa Cruises Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
8. Income At December 31, 1996, the Company had net operating loss
Taxes carry-forwards for income taxes of approximately $11.7
million which expire through 2011. Changes in ownership of
greater than fifty percent which occurred as a result of the
Company's issuances of common and preferred stock may result
in a substantial annual limitation of approximately
$1,500,000 being imposed upon the future utilization of
approximately $7.9 million of the net operating losses for
tax purposes.
Deferred income taxes are comprised of the following at
December 31, 1996:
1996
-------------------------------------------------------------
Depreciation $ 1,885,000
Deferred drydock 59,000
------------------------------------------------------------
Gross deferred tax liability 1,944,000
------------------------------------------------------------
Loss Carry forwards (4,400,000)
Other (13,000)
------------------------------------------------------------
Gross deferred tax asset (4,413,000)
Deferred tax asset valuation allowance 2,469,000
------------------------------------------------------------
Net deferred tax asset $ --
============================================================
Realization of any portion of the Company's deferred tax
asset at December 31, 1996 is not considered to be more
likely than not and accordingly a $2,469,000 valuation
allowance has been provided.
9. Commitments (a) Leases
And ------
Contingencies
The Company leases certain port facilities, sales and office
space and office equipment under lease agreements which
expire through 2001. The leases generally contain renewal
options and require that the Company pay for utilities,
insurance, property taxes, rental expense and maintenance.
The Company currently leases office space and dockage in
Florida and in Diamondhead, Mississippi. Rental expense,
F-25
<PAGE>
Europa Cruises Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
which is primarily based on a per passenger basis,
aggregated approximately $710,000 and $724,000 in 1996 and
1995, respectively.
Minimum rental obligations under all noncancelable operating
leases with terms of one year or more as of December 31,
1996, are as follows:
1997 $ 623,960
1998 623,960
1999 623,960
2000 470,000
2001 270,000
-----------
$ 2,611,880
============
Through December 31, 1993, the Company leased a vessel (the
EuropaJet) under a bareboat charterparty agreement with Sea
Lane Bahamas (Marne), an entity in which the Company
previously owned a twenty percent interest. As a result of
continued unprofitable operations of the EuropaJet during
the first quarter of 1993, the Company negotiated a lease
settlement with Marne, whereby, the lease was terminated as
of December 31, 1993 in exchange for payment of outstanding
lease charges of $888,000, paid as of December 31, 1995.
The Company's liability, for alleged damages arising out of
the condition of the EuropaJet upon its redelivery is in
dispute. The lessor claims the liability for damages to the
EuropaJet under the charterparty agreement is in excess of
$1 million. The Company and the lessor were unable to settle
this dispute with respect to the condition of the EuropaJet
when it was redelivered, and the amount of the Company's
remaining obligation will be determined in arbitration.
During 1995, the EuropaJet sank off the coast of Florida in
a hurricane. What, if any, effect this will have on the
lessors' claim is unknown. The Company has accrued
approximately $150,000 in anticipated settlement. Based upon
the report of an independent surveyor, the Company believes
that its ultimate liability, with respect to this matter
will be immaterial to its consolidated financial condition.
F-26
<PAGE>
Europa Cruises Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(b) Gaming Concession Agreement
---------------------------
On September 16, 1994, the company terminated a Gaming
Concession Agreement and entered into a consulting agreement
with Casinos Austria Maritime Corporation. Under the
consulting agreement, Europa manages and operates all
casinos on board its vessels and CAMC provides consulting
services through December 31, 1997. As a consultant to the
Company, CAMC received $37,500 per month or 3.5% of gross
gaming revenue, whichever is greater, CAMC also received
$140 per cruise for the services of a Purser on board each
vessel. In February, 1997, the Company terminated the
consulting agreement with CAMC by paying a termination fee
of $361,694. Under the terms of the Termination Agreement,
the Company will pay a monthly fee of 3.5% of the gross
gaming revenue, if any, from casino operations on the M/V
Stardancer only through December 31, 1997. However, if the
M/V Stardancer is chartered or sold during this period to an
unrelated third party, no fee will be due during such
charter period.
On June 19, 1994, Casino World, Inc. and Mississippi Gaming
Corporation (MGC) entered into a Management Agreement with
CAMC. Subject to certain conditions, under the Management
Agreement, CAMC will operate on an exclusive basis all of
the proposed dockside gaming casinos in the State of
Mississippi. If the Company enters into a joint venture
arrangement pursuant to which the joint venture partner
acquires a controlling interest, the agreement with CAMC
will terminate. The Management Agreement is for a term of
five (5) years and provides for the payment of an
operational term management fee of 1.2% of all gross gaming
revenues between zero and one hundred million dollars
($100,000,000); plus 0.75% of gross gaming revenue between
$100,000,000 and $140,000,000; plus 0.5% of gross gaming
revenue above $140,000,000; plus two percent of the net
gaming revenue between zero and twenty-five million dollars
($25,000,000); plus three percent of the net gaming revenue
above twenty-five million dollars ($25,000,000).
F-27
<PAGE>
Europa Cruises Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(c) Litigation
----------
On May 5, 1993, Charles S. Liberis, the Founder of the
Company and Former Chairperson of the Board of Directors,
filed a civil action in Florida seeking compensatory,
punitive, treble damages and attorneys' fees against Charles
H. Reddien, Sharon E. Petty, Ernst G. Walter, Deborah A.
Vitale, Stephen M. Turner, William A. Herold, Victor B.
Gersh, CAMC, Serco, AustroInvest International Ltd. and
others challenging the settlement agreement between Mr.
Liberis and Serco entered into on December 12 and 14, 1992.
The defendants filed a motion to stay the action on grounds
that Liberis had filed a substantially similar action in the
Court of Chancery of the State of Delaware in and for New
Castle County, styled LIBERIS V. REDDIEN, ET AL. (Civil
Action No. 12955) and that any substantive issues decided in
Delaware would be binding as to this case. On December 13,
1993, the Court entered an Order staying this action as to
all parties until the cases of LIBERIS V. REDDIEN,ET AL
(Civil Action No. 12955) and LIBERIS V. EUROPA CRUISES
CORPORATION (Civil Action No. 13103) pending in Delaware
were dismissed or final judgment on the merits was entered
with respect to all claims alleged in Count I of Civil
Action No. 12955 and as to all claims in Civil Action No.
13103. Count I of Delaware Civil Action No. 12955 was for
"Removal of Wrongfully Elected Directors and Officers and
Reinstatement of Liberis" (against Europa and Director
Defendants). On March 25, 1996, the Court of Chancery of the
State of Delaware in and for New Castle County entered an
Order of Dismissal dismissing LIBERIS V. REDDIEN, ET
AL.(Civil Action No. 12955) as moot. On or about August 7,
1995, the defendants agreed to lift the stay in the Pinellas
County case for discovery purposes and for the purpose of
finalizing the pleadings. On or about April 22, 1996,
Liberis filed a motion for Leave to File a Second Amended
Complaint to add a claim for intentional infliction of
emotional distress. The Court has not yet granted Liberis'
motion for leave to file a Second Amended Complaint. No
trial date has been set.
The litigation pending against the Company may have an
adverse impact on the Company's ability to secure financing
for its planned Mississippi expansion and on licensing by
F-28
<PAGE>
Europa Cruises Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
the Mississippi Gaming Commission. The ultimate outcome of
these matters cannot presently be determined. Accordingly,
the financial statements do not include any adjustments that
might result from this uncertainty.
(d) Sales and Use Taxes
-------------------
On November 28, 1994, the Florida Department of Revenue
issued to the Company, a Notice of Intent to make Sales and
Use Tax Audit Changes for the period February 1, 1989
through June 30, 1994. The proposed audit Changes, including
penalties and interest total approximately $6.5 million. The
Florida Department of Revenue seeks to assess sales tax on
gaming revenue, passenger fares, the purchase, sale and
lease of fixed assets, repairs, and other items.
On June 28, 1989, the Department of Revenue issued Technical
Assistance Advisement (TAA 89 (A) - 034) to Europa Cruise
Line, Ltd. (the entity which is now known as Europa Cruises
Corporation). This TAA appeared to resolve the admissions
tax issue and the tax on purchases issued in favor of
Europa. The Department revised this TAA in 1990, purporting
to "clarify" that it had actually intended to conclude that
the admissions tax was applicable. The revision did not
revisit the tax on purchases. On April 21, 1995, the
Assistant General Counsel for the Florida Department of
Revenue issued a recommendation to the auditor responsible
for the Europa sales tax assessments that the TAA issued on
June 28, 1989, should be honored. Therefore, the Assistant
General Counsel recommended that the assessment for Europa
Cruise Line, Ltd., be eliminated for the period from June
28, 1989 to May 2, 1990. For the period following May 2,
1990, the Company relies on Florida statutes that provide
that vessels are not establishments subject to admission
sales tax. The Assistant General Counsel further recommends
that the TAA be honored for all purchases made by Europa
Cruise Line, Ltd., if such purchases were for supplies
appropriate to carry out the purposes for which the Vessel
was designed. The recommendation is limited to assessments
for Europa Cruise Line, Ltd.
However, the Company intends to pursue the argument that the
successor entities are entitled to the benefits of the TAA.
F-29
<PAGE>
Europa Cruises Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
In late April 1996, the Florida Department of Revenue and
various Florida counties issued Notices of Proposed
Assessment that totaled the $6.5 million from the November
28, 1994, Notice of Intent plus an additional $.1 million in
accrued interest for a total proposed assessment of $6.6
million of which $1.7 million and $1.3 million represent
interest and penalties respectively. The Company estimates
that additional interest accrued through December 31, 1996,
would be approximately $300,000, resulting in a total amount
claimed due at December 31, 1996 of approximately $6.9
million. In July 1996, the Company filed a Protest with the
Florida Department of Revenue contesting all amounts
assessed. To date, no response has been received from the
Florida Department of Revenue regarding the Companys'
Protest.
The Company strongly disagrees with the proposed Audit
Changes and intends to vigorously contest the factual,
statutory, and regulatory issues which form the basis for
the proposed Audit Changes. The Company believes many of the
proposed Audit Changes will be resolved in the Company's
favor. However, the outcome of this matter is uncertain and
if the Company is not successful in challenging the proposed
Audit Changes by the Florida Department of Revenue, or
settling this matter, the additional Sales and Use Tax the
Company will be required to pay would have a major,
substantial, adverse impact on the Company's financial
condition and results of operations.
(e) Casino Industry Litigation
--------------------------
WILLIAM POULOS, ET AL. V. AMBASSADOR CRUISE LINES, INC., ET
AL (United States District Court, District of Nevada) (Case
No. CV-2- 95-936-LDG (RLH)
On or about November 29, 1994, William Poulos filed a class
action lawsuit on behalf of himself and all others similarly
situated against approximately thirty-three defendants,
including Europa Cruises of Florida 1, Inc. and Europa
Cruises of Florida 2, Inc., in the United States District
Court, Middle District of Florida, Orlando Division (Case
No. 94-1259-CIV-ORL- 22). Europa Cruises of Florida 1, Inc.,
and Europa Cruises of Florida 2, Inc., were served with the
Complaint on or about March 15, 1995. The suit was filed
against the owners, operators and distributors of cruise
ship casinos which utilized casino video poker machines and
F-30
<PAGE>
Europa Cruises Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
electronic slot machines. The Plaintiff alleges violation of
the Federal Civil RICO statute, common law fraud and deceit,
unjust enrichment and negligent misrepresentation. The
plaintiff had filed a similar action against most major,
land-based casino operators in the United States. The
earlier action, which did not name the Company or any of its
subsidiaries as defendants, was transferred from the U.S.
District Court in Orlando, Florida to the U.S. District
Court in Las Vegas, Nevada. The plaintiff contends in both
actions that the defendant owners and operators of casinos,
including cruise ship casinos, along with the distributors
and manufacturers of video poker machines and electronic
slot machines have engaged in a course of fraudulent and
misleading conduct intended to induce people to play their
machines based on a false understanding that the machine
operate in a truly random fashion. The plaintiff alleges
that these machines actually follow fixed, preordained
sequences that are not random, but rather are both
predicable and subject to manipulation by defendants and
others. The plaintiff seeks damages in excess of $1 billion
dollars against all defendants. Although this action is in
the very early stages of litigation, management believes
there is no support for the plaintiff's factual claims and
the Company intends to vigorously defend this lawsuit.
On September 13, 1995, the United States District court for
the Middle District of Florida, Orlando Division,
transferred the case pending in that Court against Europa
Cruises of Florida 1, Inc., and Europa Cruises of Florida 2,
Inc., and other defendant to the United States District
Court for the District of Nevada, Southern Division.
Accordingly the case against Europa and the Other Defendants
in the cruise ship industry will be litigated and perhaps
tried together with those cases now pending against the
land-based casino operators and the manufacturers,
assemblers and distributors of gaming equipment previously
sued in federal court in Nevada.
Management believes the Nevada forum provides a more
favorable forum in which to litigate the issues raised in
the Complaint. The Company is sharing the costs of
litigation in this matter with the other defendants.
ROBERT M. BAER, ET AL V. AMBASSADOR CRUISE LINES, INC. ET
AL. (In the Circuit Court of the Seventeenth Judicial
Circuit In and For Broward County, Florida) Case No. 96-6177
(21)
F-31
<PAGE>
Europa Cruises Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
On May 7, 1995, Robert M. Baer, on behalf of Himself and All
Others Similarly Situated, filed a class action lawsuit
against approximately thirty-eight defendants, including
Europa Cruises of Florida 1, and Europa Cruises of Florida
II in the Circuit Court of the Seventeenth Judicial Circuit
In and For Broward County, Florida (Case No. 96-6177 (21).
Europa Cruises of Florida 1, Inc. and Europa Cruises of
Florida 2, Inc., were served with the Complaint on or about
July 11, 1996. The suit was against manufacturers,
distributors and promoters of video poker and electronic
slot machines and the owners, operators and promoters of
cruise ship casinos which utilized casino video poker
machines and electronic slot machines. The plaintiff alleges
fraud in connection with the labeling, design, promotion and
operation of casino video poker machines and electronic slot
machines, violation of the Florida Racketeer Influenced and
Corrupt Organizations Act ("RICO"), common law fraud and
deceit, unjust enrichment, and negligent misrepresentation.
The plaintiff contends that the defendant owners, operators
and promoters of cruise ship casinos, along with he
manufacturers, distributors, and promoters of video poker
machines and electronic slot machines, have engaged in a
course of fraudulent and misleading conduct intended to
induce people to play their machines based on a false
understanding that the machines operate in a random fashion
and are unpredictable. The plaintiff alleges that these
machines actually follow fixed, preordained sequences that
are not random, but rather are both predictable and subject
to manipulation by defendants and others. The plaintiff
seeks damages in excess of one billion dollars, including
treble their general and special compensatory damages,
punitive damages, consequential and incidental damages,
interest, costs, attorneys fees and a preliminary and
permanent injunction requiring defendants to accurately and
properly describe their video poker machines and electronic
slot machines. Although this action is in the very early
stages of litigation, management believes there is no
support for plaintiff's factual claims and the Company
intends to vigorously defend this lawsuit. The Company is
sharing the costs of this litigation with certain other
defendants who have retained the same law firm to represent
them.
LONNIE AVANT, ET AL. V. EUROPA CRUISES CORPORATION (In the
United States District Court for the Middle District of
Florida (Case No.96-217-CIV-FTM-24D)
F-32
<PAGE>
Europa Cruises Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
On June 13, 1996, Lonnie Avant, on behalf of herself and all
others similarly situated, filed a class action lawsuit
against Europa Cruises Corporation, d/b/a Europa SeaKruz,
Lester Bullock and John Does 1-10 (Europa's other directors,
officers and managers) in the United States District Court
for the Middle District of Florida, Fort Myers Division,
Case No. 96-217-CIV-FTM-24D). The Company was served with
the Complaint on or about June 19, 1996. The suit was filed
against the Company and its directors, officers and
managers. The Plaintiff alleges that the Company and its
directors, officers and managers intentionally charged
fictitious "port charges" and thereby overcharged numerous
customers and that this practice violated the federal
Racketeer Influenced and Corrupt Organizations Act (RICO).
The plaintiff seeks treble damages, attorneys fees,
litigation expenses, costs and restitution. This is one of a
number of class action lawsuits relating to "port charges"
recently filed against cruise ship companies. The Company
denies the allegations and intends to defend this lawsuit
vigorously. The parties are conducting discovery. A Pretrial
Conference is scheduled in the case for August 14, 1997. The
case is set for a jury trial for the trial term commencing
September, 1997.
10. Supplemental Supplemental schedules of interest paid are as follows:
Cash Flow
Information 1996 1995
------------------------------------------------------------
Cash paid for interest $ 919,000 $ 998,000
Non-cash transactions are as follows:
1996 1995
------------------------------------------------------------
Expenditures paid in shares of
common stock $ 208,000 48,400
Financed insurance premiums -- 682,360
Preferred stock dividends 171,758 222,401
Gaming Equipment financed by seller 240,000 --
F-33
<PAGE>
Europa Cruises Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
11. Other Other operating costs consist of the following:
Operating
Costs 1996 1995
------------------------------------------------------------
ESOP provision (benefit) $ 208,125 $ (17,577)
Shareholder litigation 47,595 393,366
Write off Mexico
development costs -- 24,288
Other 20,877 90,115
------------------------------------------------------------
$ 276,597 $ 490,192
============================================================
12. Fair Value The Financial Accounting Standards Board ("FASB") has issued
of Financial Statement of Financial Accounting Standards ("SFAS") No. 107
Instruments which requires the estimated fair value amounts to be
determined by the Company's management using available
market information and other valuation methods. However,
considerable judgement is required to interpret market data
in developing the estimates of fair value. Accordingly, the
estimates are not necessarily indicative of the amounts the
Company could realize in a current market exchange. The use
of different market assumptions and/or estimation methods
may have a material effect on the estimated fair value
amounts. Furthermore, the Company does not intend to dispose
of a significant portion of its financial instruments.
The Company's financial instruments consist principally of
cash and cash equivalents, accounts receivable and long-term
debt. The carrying amounts of such financial instruments
approximated fair value at December 31, 1996.
F-34
INTERNAL REVENUE SERVICE DEPARTMENT OF THE TREASURY
DISTRICT DIRECTOR
P.O. BOX 1055
ATLANTA, GA 30370-0000 Employer Identification Number:
59-2935476
Date: APR 04 1996 File Folder Number:
590047786
EUROPA CRUISES CORPORATION Person to Contact:
150 153RD AVENUE EAST STE 200 EP/EO CUSTOMER SERVICE UNIT
MADEIRA BEACH, FL 33708 Contact Telephone Number:
(410) 962-6058
File Name:
EUROPA CRUISES CORPORATION EMPLOYEE
STOCK OWNERSHIP PLAN
Plan Number: 001
Dear Applicant:
We have made a favorable determination on your plan, identified above,
based on the information supplied. Please keep this letter in your permanent
records. ,
Continued qualification of the plan under its present form will depend on
its effect in operation. (See section 1.401-1(b)(3) of the Income Tax
Regulations.) We will review the status of the plan in operation periodically.
The enclosed document explains the significance of this favorable
determination letter, points out some features that may affect the qualified
status of your employee retirement plan, and provides information on the
reporting requirements for your plan. It also describes some events that
automatically nullify it. It is very important that you read the publication.
This letter relates only to the status of your plan under the Internal
Revenue Code. It is not a determination regarding the effect of other federal or
local statutes.
This determination letter is applicable for the amendment(s) adopted-on
SEPTEMBER 1, 1995.
This determination letter is applicable for the plan adopted on AUGUST 18
1994.
This plan satisfies the requirements of Code section 4975(e)(7).
This plan satisfies the nondiscrimination in amount requirement of section
1.401(a)(4)-1(b)(2) of the regulations on the basis of a design-based safe
harbor described in the regulations.
This letter is issued under Rev. Proc. 93-39 and considers the amendments
required by the Tax Reform Act of 1986 except as otherwise specified in this
letter.
This plan satisfies the nondiscriminatory current availability
requiremerits of section 1.401(a)(4)-4(b) of the regulations with respect to,
those benefits, rights, and features that are currently available to all
employees in the plan's coverage group, For this purpose, the plan's coverage
Letter 835 (DO/CG)
<PAGE>
EUROPA CRUISES CORPORATION
group consists of those employees treated as currently benefitting for purposes
of demonstrating that the plan satisfies the minimum coverage requirements of
section 410(b) of the Code.
This letter may not be relied upon with respect to whether the plan
satisfies the qualification requirements as amended by the Uraguay Round
Agreements Act, Pub. L. 103-465.
We have sent a copy of this letter to your representative as indicated in
the power of attorney.
If you have questions concerning this matter, please contact the person
whose name and telephone number are shown above.
Sincerely yours
/s/ Paul M. Harrington
---------------------------------
District Director
Enclosures:
Publication 794
Letter 835 (DO/CG)
NEITHER THE WARRANTS NOR THE SHARES OF COMMON STOCK TO BE ISSUED UPON THE
EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY OTHER JURISDICTION AND MAY NOT BE SOLD,
TRANSFERRED, OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT,
UNLESS IN THE OPINION OF COUNSEL TO THE COMPANY
SUCH REGISTRATION IS NOT REQUIRED.
WARRANT
For the Purchase of Common Stock of
EUROPA CRUISES CORPORATION
A DELAWARE CORPORATION
VOID AFTER 11:59 P.M. EASTERN STANDARD TIME ON OCTOBER 30, 2006
Warrant No.___________ Warrant to Purchase
100,000 Shares
THIS WARRANT CERTIFIES THAT, for value received, First Union National Bank
of Florida or its registered assigns (the "Holder") is entitled to acquire from
Europa Cruises Corporation, a Delaware corporation whose address is 150 - 153rd
Avenue, Suite 200, Madeira Beach, Florida 33708 (the "Company"), an aggregate of
One Hundred Thousand (100,000) shares of fully paid, nonassessable Common Stock,
par value $.001 of the Company ("Common Stock") at any time on or prior to 11:59
p.m. Eastern Standard Time on October 30, 2006 (the "Expiration Date"), at such
price and upon such terms and conditions as set forth herein. If not exercised
prior to the Expiration Date, this Warrant and all rights granted under this
Warrant shall expire and lapse.
The number and character of the securities purchasable upon exercise of
this Warrant and the Purchase Price (defined below) are subject to adjustment as
provided in Section 5 hereof. The term "Warrant" as used herein shall include
this Warrant and any warrants issued in substitution for or replacement of this
Warrant, or any warrant into which this Warrant may be divided or exchanged. The
shares of Common Stock purchasable upon exercise of this Warrant shall be
referred to hereinafter collectively as the "Warrant Shares."
I. EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES.
(a) PURCHASE PRICE. The purchase price of each Warrant Share
issuable upon exercise of this Warrant shall be $2.00 per Warrant Share, subject
to adjustment as provided in Section 5 hereof ("Purchase Price").
(b) WARRANT EXERCISE. The purchase rights represented by this
Warrant may be exercised by the Holder, in whole or in part, at any time, and
from time to time prior to the Expiration Date, by the surrender and presentment
of this Warrant accompanied by a duly executed Notice of Exercise in the form
-1-
<PAGE>
attached hereto (the "Exercise Notice"), together with the payment of the
aggregate Purchase Price (the "Aggregate Purchase Price") for the number of
Warrant Shares specified in the Exercise Notice in the manner specified in
Section 1(d) hereof, all of which shall be presented to the Company, at its
principal office as set forth on page 1 of this Warrant, or at such other place
as the Company may designate by notice in writing to the Holder.
As soon as practicable after full or partial exercise of this
Warrant, the Company at its expense (including, without limitation, the payment
by it of all taxes and governmental charges applicable to such exercise and
issuance of Warrant Shares) shall cause to be issued in the name of and
delivered to the Holder or such other persons as directed by the Holder, a
certificate or certificates for the total number of Warrant Shares for which
this Warrant is being exercised in such denominations as instructed by the
Holder, together with any other securities and property to which the Holder is
entitled upon exercise under the terms of this Warrant. This Warrant shall be
deemed to have been exercised, and the Warrant Shares acquired thereby shall be
deemed issued, and the Holder or any person(s) designated by the Holder shall be
deemed to have become holders of record of such Warrant Shares for all purposes,
as of the close of business on the date that this Warrant, the duly executed and
completed Exercise Notice, and full payment of the Aggregate Purchase Price has
been presented and surrendered to the Company in accordance with the provisions
of this Section 1(b), notwithstanding that the stock transfer books of the
Company may then be closed. In the event this Warrant is only partially
exercised, a new Warrant evidencing the right to acquire the number of Warrant
Shares with respect to which this Warrant shall not then have been exercised,
shall be executed, issued and delivered by the Company to the Holder
simultaneously with the delivery of the certificates representing the Warrant
Shares so purchased.
(c) CONDITIONS TO ACQUISITION OF WARRANT SHARES. The Company's
obligation to sell the Warrant Shares to the Holder upon exercise of this
Warrant is subject to the conditions that (i) no preliminary or permanent
injunction or other order against the acquisition, purchase, issuance, or
delivery of the Warrant Shares issued by any federal, state, or foreign court of
competent jurisdiction shall be in effect, and (ii) if the Holder is required by
law, rule, or regulation promulgated by any governmental entity to comply with
or seek approvals from any governmental entity prior to purchasing the Warrant
Shares, such compliance or approvals must have been achieved or obtained by the
Holder and proof thereof furnished to the Company; PROVIDED, HOWEVER, that any
failure by the Company to sell Warrant Shares to the Holder as a result of any
of the foregoing conditions shall not affect or prejudice the Holder's right to
acquire such Warrant Shares upon the subsequent satisfaction of such conditions.
(d) PAYMENT OF PURCHASE PRICE. The Aggregate Purchase Price of the
Warrant Shares being acquired upon exercise of this Warrant shall be paid by the
Holder to the Company by delivery of a certified bank or cashier's check payable
to the order of the Company in the amount of the Aggregate Purchase Price which
shall be determined by multiplying the Purchase Price by the number of Warrant
Shares specified in the Exercise Notice to be purchased upon such exercise.
1. STOCK FULLY PAID; RESERVATION OF SHARES. The Company hereby agrees
that it will at all times have authorized and will reserve and keep available,
solely for issuance and delivery to the Holder, that number of shares of its
Common Stock (or other securities and property) that may be required from time
to time for issuance and delivery upon the exercise of this Warrant. All Warrant
Shares when issued in accordance with this Warrant shall be duly and validly
issued, shall be fully paid and nonassessable, free and clear of any claim,
lien, encumbrance, or security interest of any kind whatsoever and free from all
preemptive rights of any security holder of the Company. The Company shall take
all action as may be necessary to assure that such Warrant Shares (and any other
-2-
<PAGE>
securities and property) may be issued and delivered as provided herein without
violation of any applicable law or regulation, or of any requirements of any
domestic securities exchange or inter-dealer quotation system upon which the
Common Stock may be listed; PROVIDED, HOWEVER, that the Company shall not be
required to effect a registration under federal or state securities laws except
as provided in Section 8. The Company will not take any action which would
restrict in any adjustment of the Purchase Price (as described in Section 5
hereof) if the total number of Warrant Shares issuable after such action upon
exercise of all outstanding Warrants, together with all Common Stock then
outstanding and all Common Stock then issuable upon exercise of all other
options and warrants and upon conversion of all convertible securities then
outstanding, would exceed the total number of shares of Common Stock then
authorized by the Company's Certificate of Incorporation, as amended.
2. EXCHANGE, ASSIGNMENT, OR LOSS OF WARRANT.
(a) This Warrant is exchangeable, without expense other than as
provided in this Section 3, at the option of the Holder upon presentation and
surrender hereof to the Company for other Warrants of different denominations
entitling the Holder thereof to acquire in the aggregate the same number of
Warrant Shares that may be acquired hereunder.
(b) All of the covenants and provisions of this Warrant by or for
the benefit of the Holder shall be binding upon and shall inure to the benefit
of, its successors and permitted assigns hereunder. This Warrant may be sold,
transferred, assigned, or hypothecated only in compliance with Section 7 herein.
If permitted under Section 7, any such assignment shall be made by surrender of
this Warrant to the Company, together with a duly executed assignment in the
form attached hereto ("Assignment Form"), whereupon the Company shall, without
charge, execute and deliver a new Warrant containing the same terms and
conditions of this Warrant in the name of the assignee as named in the
Assignment Form, and this Warrant shall be cancelled at that time. This Warrant,
if properly assigned, may be exercised by a new Holder without first having the
new Warrant issued.
(c) This Warrant may be divided or combined with other Warrants that
carry the same rights upon presentation and surrender of this Warrant at the
office of the Company, together with a written notice signed by the Holder,
specifying the names and denominations in which new Warrants are to be issued.
(d) The Company will execute and deliver to the Holder a new Warrant
of like tenor and date upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction, or mutilation of this
Warrant; provided, that (i) in the case of loss, theft, or destruction, the
Company receives a reasonably satisfactory indemnity or bond, or (ii) in the
case of mutilation, the Holder shall provide and surrender this Warrant to the
Company for cancellation.
(e) Any new Warrant executed and delivered by the Company in
substitution or replacement of this Warrant shall constitute a contractual
obligation of the Company regardless of whether this Warrant was lost, stolen,
destroyed, or mutilated, and shall be enforceable by any Holder thereof.
(f) The Holder shall pay all transfer and excise taxes applicable to
any issuance of new Warrants under this Section 3.
3. RIGHTS OF THE HOLDER. The Holder by virtue hereof shall not be
entitled to any rights of a shareholder in the Company (including, without
limitation, rights to receive dividends, vote or receive notice of meetings) or
-3-
<PAGE>
otherwise deemed to be a shareholder of the Company, either at law or equity,
except as specifically provided for herein. The Company covenants, however, that
for so long as this Warrant is at least partially unexercised, it will furnish
the Holder with copies of all reports and communications furnished to the
shareholders of the Company. The rights of the Holder are limited to those
expressed in this Warrant and are not enforceable against the Company except to
the extent set forth herein.
4. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF WARRANT SHARES. The
number and kind of securities that may be acquired upon the exercise of this
Warrant and the Purchase Price shall be subject to adjustment, from time to
time, upon the happening of any of the following events:
(a) DIVIDENDS, SUBDIVISIONS, COMBINATIONS, OR CONSOLIDATIONS OF
COMMON STOCK.
(i) In the event that the Company shall declare, pay, or make
any dividend upon its outstanding Common Stock payable in Common Stock or shall
effect a subdivision of the outstanding shares of Common Stock into a greater
number of shares of Common Stock, then the number of Warrant Shares that may
thereafter be purchased upon the exercise of the rights represented hereby shall
be increased in proportion to the increase in the number of outstanding shares
of Common Stock through such dividend or subdivision, and the Purchase Price
shall be decreased in such proportion. In case the Company shall at any time
combine the outstanding shares of its Common Stock into a smaller number of
shares of Common Stock, the number of Warrant Shares that may thereafter be
acquired upon the exercise of the rights represented hereby shall be decreased
in proportion to the decrease through such combination and the Purchase Price
shall be increased in such proportion.
(ii) If the Company declares, pays, or makes any dividend or
other distribution upon its outstanding Common Stock payable in securities or
other property (excluding cash dividends and dividends payable in Common Stock,
but including, without limitation, shares of any other class of the Company's
stock or stock or other securities convertible into or exchangeable for shares
of Common Stock or any other class of the Company's stock or other interests in
the Company or its assets ("Convertible Securities")), a proportionate part of
those securities or that other property shall be set aside by the Company and
delivered to the Holder in the event that the Holder exercises this Warrant. The
securities and other property then deliverable to the Holder upon the exercise
of this Warrant shall be in the same ratio to the total securities and property
set aside for the Holder as the number of Warrant Shares with respect to which
this Warrant is then exercised is to the total Warrant Shares that may be
acquired pursuant to this Warrant at the time the securities or property were
set aside for the Holder.
(iii) If the Company shall declare a dividend payable in money
on its outstanding Common Stock and at substantially the same time shall offer
to its shareholders a right to purchase new shares of Common Stock from the
proceeds of such dividend or for an amount substantially equal to the dividend,
all shares of Common Stock so issued shall, for purposes of this Warrant, be
deemed to have been issued as a stock dividend subject to the adjustments set
forth in Section 5(a)(i).
(iv) If the Company shall declare a dividend payable in money
on its outstanding Common Stock and at substantially the same time shall offer
to its shareholders a right to purchase new shares of a class of stock (other
than Common Stock), Convertible Securities, or other interests from the proceeds
of such dividend or for an amount substantially equal to the dividend, all
shares of stock, Convertible Securities, or other interests so issued or
transferred shall, for purposes of this Warrant, be deemed to have been issued
as a dividend or other distribution subject to Section 5(a)(ii).
-4-
<PAGE>
(b) PRO RATA SUBSCRIPTION RIGHTS. If at any time the Company
grants to its shareholders rights to subscribe pro rata for additional
securities of the Company, whether Common Stock, Convertible Securities, or for
any other securities or interests that the Holder would have been entitled to
subscribe for if, immediately prior to such grant, the Holder had exercised this
Warrant, then the Company shall also grant to the Holder the same subscription
rights that the Holder would be entitled to if the Holder had exercised this
Warrant in full immediately prior to such grant.
(c) EFFECT OF RECLASSIFICATION, REORGANIZATION, CONSOLIDATION,
MERGER, OR SALE OF ASSETS.
(i) Upon the occurrence of any of the following events, the
Company shall cause an effective provision to be made so that the Holder shall
have the right thereafter, by the exercise of this Warrant, to acquire for the
Aggregate Purchase Price described in this Warrant the kind and amount of shares
of stock and other securities, property, and interests as would be issued or
payable with respect to or in exchange for the number of Warrant Shares that are
then purchasable pursuant to this Warrant as if such Warrant Shares had been
issued to the Holder immediately prior to such event: (A) reclassification,
capital reorganization, or other change of outstanding Common Stock (other than
a change as a result of an issuance of Common Stock under Subsection 5(a)), (B)
consolidation or merger of the Company with or into another corporation or
entity (other than a consolidation or merger in which the Company is the
continuing corporation and that does not result in any reclassification, capital
reorganization or other change of the outstanding shares of Common Stock or the
Warrant Shares issuable upon exercise of this Warrant), or (C) spin-off of
assets, a subsidiary, or any affiliated entity, or the sale, lease, pledge,
mortgage, conveyance, or exchange of a significant portion of the Company's
assets taken as a whole, in a transaction pursuant to which the Company's
shareholders of record are to receive securities or other interests in a
successor entity. Any such provision made by the Company for adjustments with
respect to this Warrant shall be as nearly equivalent to the adjustments
otherwise provided for in this Warrant as is reasonably practicable. The
foregoing provisions of this Section 5(c)(i) shall similarly apply to successive
reclassifications, capital reorganizations and similar changes of shares of
Common Stock and to successive consolidations, mergers, spin-offs, sales, leases
or exchanges. In the event that in any such reclassification, capital
reorganization, change, consolidation, merger, spin-off, sale, lease, or
exchange, additional shares of Common Stock are issued in exchange, conversion,
substitution, or payment, in whole or in part, for securities of the Company
other than Common Stock, any such issue shall be determined in accordance with
Section 5(e)(ii) below.
(ii) If the result of any sale, lease, pledge, mortgage,
conveyance, or exchange of all, or substantially all, of the Company's assets or
business or any dissolution, liquidation or winding up of the Company (a
"Termination of Business"), is that shareholders of the Company are to receive
securities or other interests of a successor entity, the provisions of Section
5(c)(i) above shall apply. However, if the result of the Termination of Business
is that shareholders of the Company are to receive money or property other than
securities or other interests in a successor entity, the Holder of this Warrant
shall be entitled to exercise this Warrant and, with respect to any Warrant
Shares so acquired, shall be entitled to all of the rights of the other
shareholders of Common Stock with respect to any distribution by the Company in
connection with the Termination of Business. In the event no successor entity is
involved and Section 5(c)(i) does not apply, all acquisition rights under this
Warrant shall terminate at the close of business on the date as of which
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<PAGE>
shareholders of record of the Common Stock shall be entitled to participate in a
distribution of the assets of the Company in connection with the Termination of
Business.
(d) OBLIGATION OF SUCCESSORS OR TRANSFEREES. The Company shall not
effect any consolidation, merger, or sale or conveyance of assets within the
meaning of Section 5(c)(i)(B) or (C), unless prior to or simultaneously with the
consummation thereof the successor corporation (if other than the Company)
resulting from such consolidation or merger or the corporation purchasing such
assets shall assume by written instrument executed and mailed or delivered to
the Holder pursuant to Section 11 herein, the obligation to deliver to the
Holder such shares of stock, securities, or assets as, in accordance with the
foregoing provisions, the Holder may be entitled to acquire. In no event shall
the securities received pursuant to this Section be registerable or transferable
other than pursuant and subject to the terms of this Warrant.
(e) PURCHASE PRICE ADJUSTMENTS.
(i) Except as otherwise provided in this Section 5, upon any
adjustment of the Purchase Price, the Holder shall be entitled to purchase,
based upon the new Purchase Price, the number of shares of Common Stock,
calculated to the nearest full share, obtained by multiplying the number of
Warrant Shares that may be acquired pursuant to this Warrant immediately prior
to the adjustment of the Purchase Price by the Purchase Price in effect
immediately prior to its adjustment and dividing the product so obtained by the
new Purchase Price.
(ii) If consideration other than money is received or issued
by the Company upon the issuance, sale, or purchase of Common Stock, Convertible
Securities, or other securities or interests, the fair market value of such
consideration, as reasonably determined by the Company's independent public
accountant shall be used for purposes of any adjustment required by this Section
5. The fair market value of such consideration shall be determined as of the
date of the adoption of the resolution of the Board of Directors of the Company
that authorizes the transaction giving rise to the adjustment. In case of the
issuance or sale of the Common Stock, Convertible Securities, or other
securities or property without separate allocation of the purchase price, the
Company's independent public accountant shall reasonably determine an allocation
of the consideration among the items being issued or sold. The reclassification
of securities other than Common Stock into securities including Common Stock
shall be deemed to involve the issuance of that Common Stock for a consideration
other than money immediately prior to the close of business on the date fixed
for the determination of shareholders entitled to receive the Common Stock. The
Company shall promptly deliver written notice of all such determinations by its
independent public accountants to the Holder of this Warrant.
(f) APPLICATION OF THIS SECTION. The provisions of this Section 5
shall apply to successive events that may occur from time to time but shall only
apply to a particular event if it occurs prior to the expiration of this Warrant
either by its terms or by its exercise in full.
(g) DEFINITION OF COMMON STOCK. Unless the context requires
otherwise, whenever reference is made in this Section 5 to the issue or sale of
shares of Common Stock, the term "Common Stock" shall mean: (i) the $.001 par
value common shares of the Company, (ii) any other class of stock ranking on a
parity with, and having substantially similar rights and privileges as the
Company's $.001 par value common stock, and (iii) any Convertible Security
convertible into either (i) or (ii). However, subject to the provisions of
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Section 5(c)(i) above, Warrant Shares issuable upon exercise of this Warrant
shall include only shares of common stock designated as $.001 par value common
stock of the Company as of the date of this Warrant.
(h) FRACTIONAL SHARES. No fractional Warrant Shares of Common Stock
or scrip representing fractional shares of Common Stock shall be issued upon the
exercise of this Warrant. In the event that an adjustment in the number of
shares of Common Stock issuable upon exercise of this Warrant made pursuant to
this Section 5 hereof results in a number of shares issuable upon exercise which
includes a fraction, at the Holder's election, this Warrant may be exercised for
the next larger whole number of shares or the Company shall make a cash payment
equal to that fraction multiplied by the current market value of that share.
(i) COMPANY-HELD STOCK. For purposes of Sections 5(a) above, shares
of Common Stock owned or held at any relevant time by, or for the account of,
the Company in its treasury or otherwise, shall not be deemed to be outstanding
for purposes of the calculation and adjustments described therein.
5. NOTICE TO THE HOLDER.
(a) [Intentionally Deleted]
(b) Upon the happening of an event requiring adjustment of the
Purchase Price or the kind or amount of securities or property purchasable
hereunder, the Company shall forthwith give notice to the Holder which indicates
the event requiring the adjustment, the adjusted Purchase Price and the adjusted
number of Warrant Shares that may be acquired or the kind and amount of any such
securities or property so purchasable upon exercise of this Warrant, as the case
may be, and setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based. The Company's independent public
accountant shall determine the method of calculating the adjustment and shall
prepare a certificate setting forth such calculations, the reason for the
methodology chosen, and the facts upon which the calculation is based. Such
certificate shall accompany the notice to be provided to the Holder pursuant to
this Section 6(b).
6. TRANSFER TO COMPLY WITH THE SECURITIES ACT.
(a) This Warrant and the Warrant Shares or any other security issued
or issuable upon exercise of this Warrant may not be offered or sold except in
compliance with the Securities Act of 1933, as amended (the "Securities Act").
(b) The Company may cause the following legend, or its equivalent,
to be set forth on each certificate representing the Warrant Shares, or any
other security issued or issuable upon exercise of this Warrant, not theretofore
distributed to the public or sold to underwriters, as defined by the Securities
Act for distribution to the public pursuant to Section 7(d) below:
"The shares represented by this Certificate
may not be offered for sale, sold or
otherwise transferred except pursuant to an
effective registration statement under the
Securities Act of 1933 (the "Securities
Act") or pursuant to an exemption from
registration under the Securities Act, the
availability of which is to be established
to the satisfaction of the Company."
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<PAGE>
(c) The Holder agrees that, prior to the disposition of any Warrant
Shares acquired upon the exercise hereof under circumstances that might require
registration of such Warrant Shares or other security issued or issuable upon
exercise of this Warrant under the Securities Act, or any similar federal or
state statute, other than in connection with dispositions made pursuant to
Section 8 hereof, the Holder shall give written notice to the Company,
expressing his intention as to the disposition to be made of such Warrant Shares
or other security issued or issuable upon exercise of this Warrant; except, that
such notice shall not be required for a sale of the Warrant Shares or other
security issued or issuable upon exercise of this Warrant made pursuant to the
requirements of Rule 144 promulgated under the Securities Act. Promptly upon
receiving such notice, the Company shall present copies thereof to its counsel.
If, in the opinion of the Holder's counsel the proposed disposition does not
require registration of the Warrant Shares or any other security issuable or
issued upon the exercise of this Warrant under the Securities Act, or any
similar federal or state statute, the Company shall, as promptly as practicable,
notify the Holder of such opinion, whereupon the Holder shall be entitled to
dispose of such Warrant Shares issuable or issued upon the exercise thereof, all
in accordance with the terms of the notice delivered by the Holder to the
Company.
7. REGISTRATION RIGHTS. The Warrant Shares issuable upon the exercise
of this Warrant have not been registered under the Securities Act and may be
entitled to registration rights in accordance with the Registration Rights
Agreement, dated as of the date hereof, between the Company and the Holder (the
"Registration Rights Agreement"). A copy of the Registration Rights Agreement is
attached hereto as Exhibit A.
8. BEST EFFORTS. The Company covenants that it will not, by amendment
of its Certificate of Incorporation or bylaws, or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities, or any other voluntary action, avoid or seek to avoid the
observation or performance of any of the terms of this Warrant, but will at all
times in good faith assist in carrying out all those terms and in taking all
action necessary or appropriate to protect the rights of the Holder against
dilution or other impairment.
9. FURTHER ASSURANCES. The Company will take all such action as may be
necessary or appropriate in order that the Company may validly and legally issue
fully paid and nonassessable Warrant Shares or other securities upon the
exercise of all Warrants from time to time outstanding.
10. NOTICES. All notices, demands, requests, certificates, or other
communications by the Company to the Holder and by the Holder to the Company
shall be in writing and shall be deemed to have been delivered, given, and
received when personally given or on the third calendar day after it is mailed
by registered or certified mail to the Holder, postage pre-paid and addressed to
the Holder at his last registered address or, if the Holder has designated, by
notice in writing to the Company, any other address, to such other address; and,
if to the Company, addressed to it at that address appearing on page 1 of this
Warrant. The Company may change its address for purposes of service of notice by
written notice to the Holder at the address provided above, and the Holder may
change its address by written notice to the Company.
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<PAGE>
11. CORPORATE BOOKS. The Company will at no time close its transfer
books against the transfer of any warrant or of any Common Stock issued or
issuable upon the exercise of any warrant in any manner which interferes with
the timely exercise of this Warrant.
12. APPLICABLE LAW. This Warrant shall be governed by, and construed in
accordance with, the laws of the State of Delaware.
13. SURVIVAL. The various rights and obligations of the Holder and of
the Company set forth herein shall survive the exercise and
surrender of this Warrant.
14. NO AMENDMENTS OR MODIFICATIONS. Neither this Warrant nor any
provision hereof may be amended, modified, waived, or terminated
except upon the written consent of the Company and the Holders of
this Warrant.
15. DESCRIPTIVE HEADINGS. The descriptive headings of the several
Sections of this Warrant are inserted for convenience only and do
not constitute a part of this Warrant.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by an officer, thereunto duly authorized this 30th day of October,
1996.
EUROPA CRUISES CORPORATION
By________________________________________________
Lester E. Bullock
President
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<PAGE>
ASSIGNMENT
----------
FOR VALUE RECEIVED, the undersigned ____________________________ hereby
sell(s), assign(s), and transfer(s) unto _____________________________________,
the rights represented by the within Warrant to purchase _________ ( ) shares of
the Common Stock of _____________________________ pursuant to the terms and
conditions of this Warrant held by the undersigned. The undersigned hereby
authorizes and directs the Company (i) to issue and deliver to the above-named
assignee a new Warrant pursuant to which the rights to purchase being assigned
may be exercised, and (ii) if there are rights to purchase Warrant Shares
remaining pursuant to the undersigned's Warrant after the assignment
contemplated herein, to issue and deliver to the undersigned a new Warrant
evidencing the right to purchase the number of Warrant Shares remaining after
issuance and delivery of this Warrant to the above-named assignee. Except for
the number of shares that may be purchased, the new Warrants to be issued and
delivered by the Company are to contain the same terms and conditions as the
undersigned's Warrant. To complete the assignment contemplated by this
Assignment, the undersigned irrevocably appoints ______________________as the
undersigned's attorney-in-fact to transfer this Warrant and the rights
thereunder on the books of the Company with the full power of substitution for
these purposes.
Dated:_______________________, 19__
______________________________________
__________________
Printed Name of the Holder
____________________________________________
Signature
________________________________________________________________________________
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the within Warrant, in every particular, without
alteration or enlargement, or any change whatsoever, and must be guaranteed by a
bank, other than a savings bank, or trust company having an office or
correspondent in the State of Florida, or by a firm having membership on a
registered national securities exchange and an office in the State of Florida.
<PAGE>
NOTICE OF EXERCISE
------------------
(To be executed by the Holder desiring to exercise the right to acquire shares
of Common Stock of ________________, Inc., pursuant to this Warrant.)
The undersigned Holder of a Warrant to purchase shares of Common Stock
("Shares) of _______________, Inc., a Florida corporation, hereby elects to
purchase, pursuant to the provisions of the Holder's Warrant dated
_____________________ held by the undersigned, to the extent of purchasing the
following number of such Shares __________________ ( ); and requests that the
Certificate for such Shares be issued in the name of, and delivered
to_______________________________________________________________, whose address
is_________________________________________________________________; and further
requests, if the number of Shares transferred are not all the Shares that may be
acquired pursuant to the unexercised portion of this Warrant, that a new Warrant
of like tenor for the remaining Shares that may be acquired pursuant to this
Warrant be issued and delivered to the undersigned.
Dated:___________________, 1996.
Printed Name:______________________________
__________
Signature: ______________________________
__________
Address: ______________________________
_______________________
__________
(Signature must conform in all respects to the name of holder as specified on
the face of this Warrant.)
<PAGE>
NEITHER THE WARRANTS NOR THE SHARES OF COMMON STOCK TO BE ISSUED UPON THE
EXERCISE HEREOF HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY OTHER JURISDICTION AND MAY NOT BE SOLD,
TRANSFERRED, OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT,
UNLESS IN THE OPINION OF COUNSEL TO THE COMPANY
SUCH REGISTRATION IS NOT REQUIRED.
WARRANT
For the Purchase of Common Stock of
EUROPA CRUISES CORPORATION
A DELAWARE CORPORATION
VOID AFTER 11:59 P.M. EASTERN STANDARD TIME ON FEBRUARY 4, 2007
Warrant No. 2 Warrant to Purchase
______ 100,000 Shares
THIS WARRANT CERTIFIES THAT, for value received, First Union National Bank
of Florida or its registered assigns (the "Holder") is entitled to acquire from
Europa Cruises Corporation, a Delaware corporation whose address is 150 - 153rd
Avenue, Suite 200, Madeira Beach, Florida 33708 (the "Company"), an aggregate of
One Hundred Thousand (100,000) shares of fully paid, nonassessable Common Stock,
par value $.001 of the Company ("Common Stock") at any time on or prior to 11:59
p.m. Eastern Standard Time on February 4, 2007 (the "Expiration Date"), at such
price and upon such terms and conditions as set forth herein. If not exercised
prior to the Expiration Date, this Warrant and all rights granted under this
Warrant shall expire and lapse.
The number and character of the securities purchasable upon exercise of
this Warrant and the Purchase Price (defined below) are subject to adjustment as
provided in Section 5 hereof. The term "Warrant" as used herein shall include
this Warrant and any warrants issued in substitution for or replacement of this
Warrant, or any warrant into which this Warrant may be divided or exchanged. The
shares of Common Stock purchasable upon exercise of this Warrant shall be
referred to hereinafter collectively as the "Warrant Shares."
I. EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES.
(a) PURCHASE PRICE. The purchase price of each Warrant Share
issuable upon exercise of this Warrant shall be $2.00 per Warrant Share, subject
to adjustment as provided in Section 5 hereof ("Purchase Price").
(b) WARRANT EXERCISE. The purchase rights represented by this
Warrant may be exercised by the Holder, in whole or in part, at any time, and
from time to time prior to the Expiration Date, by the surrender and presentment
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<PAGE>
Exercise in the form attached hereto (the "Exercise Notice"), together with the
payment of the aggregate Purchase Price (the "Aggregate Purchase Price") for the
number of Warrant Shares specified in the Exercise Notice in the manner
specified in Section 1(d) hereof, all of which shall be presented to the
Company, at its principal office as set forth on page 1 of this Warrant, or at
such other place as the Company may designate by notice in writing to the
Holder.
As soon as practicable after full or partial exercise of this
Warrant, the Company at its expense (including, without limitation, the payment
by it of all taxes and governmental charges applicable to such exercise and
issuance of Warrant Shares) shall cause to be issued in the name of and
delivered to the Holder or such other persons as directed by the Holder, a
certificate or certificates for the total number of Warrant Shares for which
this Warrant is being exercised in such denominations as instructed by the
Holder, together with any other securities and property to which the Holder is
entitled upon exercise under the terms of this Warrant. This Warrant shall be
deemed to have been exercised, and the Warrant Shares acquired thereby shall be
deemed issued, and the Holder or any person(s) designated by the Holder shall be
deemed to have become holders of record of such Warrant Shares for all purposes,
as of the close of business on the date that this Warrant, the duly executed and
completed Exercise Notice, and full payment of the Aggregate Purchase Price has
been presented and surrendered to the Company in accordance with the provisions
of this Section 1(b), notwithstanding that the stock transfer books of the
Company may then be closed. In the event this Warrant is only partially
exercised, a new Warrant evidencing the right to acquire the number of Warrant
Shares with respect to which this Warrant shall not then have been exercised,
shall be executed, issued and delivered by the Company to the Holder
simultaneously with the delivery of the certificates representing the Warrant
Shares so purchased.
(c) CONDITIONS TO ACQUISITION OF WARRANT SHARES. The Company's
obligation to sell the Warrant Shares to the Holder upon exercise of this
Warrant is subject to the conditions that (i) no preliminary or permanent
injunction or other order against the acquisition, purchase, issuance, or
delivery of the Warrant Shares issued by any federal, state, or foreign court of
competent jurisdiction shall be in effect, and (ii) if the Holder is required by
law, rule, or regulation promulgated by any governmental entity to comply with
or seek approvals from any governmental entity prior to purchasing the Warrant
Shares, such compliance or approvals must have been achieved or obtained by the
Holder and proof thereof furnished to the Company; PROVIDED, HOWEVER, that any
failure by the Company to sell Warrant Shares to the Holder as a result of any
of the foregoing conditions shall not affect or prejudice the Holder's right to
acquire such Warrant Shares upon the subsequent satisfaction of such conditions.
(d) PAYMENT OF PURCHASE PRICE. The Aggregate Purchase Price of the
Warrant Shares being acquired upon exercise of this Warrant shall be paid by the
Holder to the Company by delivery of a certified bank or cashier's check payable
to the order of the Company in the amount of the Aggregate Purchase Price which
shall be determined by multiplying the Purchase Price by the number of Warrant
Shares specified in the Exercise Notice to be purchased upon such exercise.
1. STOCK FULLY PAID; RESERVATION OF SHARES. The Company hereby agrees
that it will at all times have authorized and will reserve and keep available,
solely for issuance and delivery to the Holder, that number of shares of its
Common Stock (or other securities and property) that may be required from time
to time for issuance and delivery upon the exercise of this Warrant. All Warrant
Shares when issued in accordance with this Warrant shall be duly and validly
issued, shall be fully paid and nonassessable, free and clear of any claim,
lien, encumbrance, or security interest of any kind whatsoever and free from all
preemptive rights of any security holder of the Company. The Company shall take
all action as may be necessary to assure that such Warrant Shares (and any other
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<PAGE>
securities and property) may be issued and delivered as provided herein without
violation of any applicable law or regulation, or of any requirements of any
domestic securities exchange or inter-dealer quotation system upon which the
Common Stock may be listed; PROVIDED, HOWEVER, that the Company shall not be
required to effect a registration under federal or state securities laws except
as provided in Section 8. The Company will not take any action which would
restrict in any adjustment of the Purchase Price (as described in Section 5
hereof) if the total number of Warrant Shares issuable after such action upon
exercise of all outstanding Warrants, together with all Common Stock then
outstanding and all Common Stock then issuable upon exercise of all other
options and warrants and upon conversion of all convertible securities then
outstanding, would exceed the total number of shares of Common Stock then
authorized by the Company's Certificate of Incorporation, as amended.
2. EXCHANGE, ASSIGNMENT, OR LOSS OF WARRANT.
(a) This Warrant is exchangeable, without expense other than as
provided in this Section 3, at the option of the Holder upon presentation and
surrender hereof to the Company for other Warrants of different denominations
entitling the Holder thereof to acquire in the aggregate the same number of
Warrant Shares that may be acquired hereunder.
(b) All of the covenants and provisions of this Warrant by or for
the benefit of the Holder shall be binding upon and shall inure to the benefit
of, its successors and permitted assigns hereunder. This Warrant may be sold,
transferred, assigned, or hypothecated only in compliance with Section 7 herein.
If permitted under Section 7, any such assignment shall be made by surrender of
this Warrant to the Company, together with a duly executed assignment in the
form attached hereto ("Assignment Form"), whereupon the Company shall, without
charge, execute and deliver a new Warrant containing the same terms and
conditions of this Warrant in the name of the assignee as named in the
Assignment Form, and this Warrant shall be cancelled at that time. This Warrant,
if properly assigned, may be exercised by a new Holder without first having the
new Warrant issued.
(c) This Warrant may be divided or combined with other Warrants
that carry the same rights upon presentation and surrender of this Warrant at
the office of the Company, together with a written notice signed by the Holder,
specifying the names and denominations in which new Warrants are to be issued.
(d) The Company will execute and deliver to the Holder a new
Warrant of like tenor and date upon receipt by the Company of evidence
reasonably satisfactory to it of the loss, theft, destruction, or mutilation of
this Warrant; provided, that (i) in the case of loss, theft, or destruction, the
Company receives a reasonably satisfactory indemnity or bond, or (ii) in the
case of mutilation, the Holder shall provide and surrender this Warrant to the
Company for cancellation.
(e) Any new Warrant executed and delivered by the Company in
substitution or replacement of this Warrant shall constitute a contractual
obligation of the Company regardless of whether this Warrant was lost, stolen,
destroyed, or mutilated, and shall be enforceable by any Holder thereof.
(f) The Holder shall pay all transfer and excise taxes applicable
to any issuance of new Warrants under this Section 3.
3. RIGHTS OF THE HOLDER. The Holder by virtue hereof shall not be
entitled to any rights of a shareholder in the Company (including, without
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<PAGE>
limitation, rights to receive dividends, vote or receive notice of meetings) or
otherwise deemed to be a shareholder of the Company, either at law or equity,
except as specifically provided for herein. The Company covenants, however, that
for so long as this Warrant is at least partially unexercised, it will furnish
the Holder with copies of all reports and communications furnished to the
shareholders of the Company. The rights of the Holder are limited to those
expressed in this Warrant and are not enforceable against the Company except to
the extent set forth herein.
4. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF WARRANT SHARES. The
number and kind of securities that may be acquired upon the exercise of this
Warrant and the Purchase Price shall be subject to adjustment, from time to
time, upon the happening of any of the following events:
(a) DIVIDENDS, SUBDIVISIONS, COMBINATIONS, OR CONSOLIDATIONS OF
COMMON STOCK.
(i) In the event that the Company shall declare, pay, or make
any dividend upon its outstanding Common Stock payable in Common Stock or shall
effect a subdivision of the outstanding shares of Common Stock into a greater
number of shares of Common Stock, then the number of Warrant Shares that may
thereafter be purchased upon the exercise of the rights represented hereby shall
be increased in proportion to the increase in the number of outstanding shares
of Common Stock through such dividend or subdivision, and the Purchase Price
shall be decreased in such proportion. In case the Company shall at any time
combine the outstanding shares of its Common Stock into a smaller number of
shares of Common Stock, the number of Warrant Shares that may thereafter be
acquired upon the exercise of the rights represented hereby shall be decreased
in proportion to the decrease through such combination and the Purchase Price
shall be increased in such proportion.
(ii) If the Company declares, pays, or makes any dividend or
other distribution upon its outstanding Common Stock payable in securities or
other property (excluding cash dividends and dividends payable in Common Stock,
but including, without limitation, shares of any other class of the Company's
stock or stock or other securities convertible into or exchangeable for shares
of Common Stock or any other class of the Company's stock or other interests in
the Company or its assets ("Convertible Securities")), a proportionate part of
those securities or that other property shall be set aside by the Company and
delivered to the Holder in the event that the Holder exercises this Warrant. The
securities and other property then deliverable to the Holder upon the exercise
of this Warrant shall be in the same ratio to the total securities and property
set aside for the Holder as the number of Warrant Shares with respect to which
this Warrant is then exercised is to the total Warrant Shares that may be
acquired pursuant to this Warrant at the time the securities or property were
set aside for the Holder.
(iii) If the Company shall declare a dividend payable in money
on its outstanding Common Stock and at substantially the same time shall offer
to its shareholders a right to purchase new shares of Common Stock from the
proceeds of such dividend or for an amount substantially equal to the dividend,
all shares of Common Stock so issued shall, for purposes of this Warrant, be
deemed to have been issued as a stock dividend subject to the adjustments set
forth in Section 5(a)(i).
(iv) If the Company shall declare a dividend payable in money
on its outstanding Common Stock and at substantially the same time shall offer
to its shareholders a right to purchase new shares of a class of stock (other
than Common Stock), Convertible Securities, or other interests from the proceeds
of such dividend or for an amount substantially equal to the dividend, all
shares of stock, Convertible Securities, or other interests so issued or
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<PAGE>
transferred shall, for purposes of this Warrant, be deemed to have been issued
as a dividend or other distribution subject to Section 5(a)(ii).
(b) PRO RATA SUBSCRIPTION RIGHTS. If at any time the Company
grants to its shareholders rights to subscribe pro rata for additional
securities of the Company, whether Common Stock, Convertible Securities, or for
any other securities or interests that the Holder would have been entitled to
subscribe for if, immediately prior to such grant, the Holder had exercised this
Warrant, then the Company shall also grant to the Holder the same subscription
rights that the Holder would be entitled to if the Holder had exercised this
Warrant in full immediately prior to such grant.
(c) EFFECT OF RECLASSIFICATION, REORGANIZATION, CONSOLIDATION,
MERGER, OR SALE OF ASSETS.
(i) Upon the occurrence of any of the following events, the
Company shall cause an effective provision to be made so that the Holder shall
have the right thereafter, by the exercise of this Warrant, to acquire for the
Aggregate Purchase Price described in this Warrant the kind and amount of shares
of stock and other securities, property, and interests as would be issued or
payable with respect to or in exchange for the number of Warrant Shares that are
then purchasable pursuant to this Warrant as if such Warrant Shares had been
issued to the Holder immediately prior to such event: (A) reclassification,
capital reorganization, or other change of outstanding Common Stock (other than
a change as a result of an issuance of Common Stock under Subsection 5(a)), (B)
consolidation or merger of the Company with or into another corporation or
entity (other than a consolidation or merger in which the Company is the
continuing corporation and that does not result in any reclassification, capital
reorganization or other change of the outstanding shares of Common Stock or the
Warrant Shares issuable upon exercise of this Warrant), or (C) spin-off of
assets, a subsidiary, or any affiliated entity, or the sale, lease, pledge,
mortgage, conveyance, or exchange of a significant portion of the Company's
assets taken as a whole, in a transaction pursuant to which the Company's
shareholders of record are to receive securities or other interests in a
successor entity. Any such provision made by the Company for adjustments with
respect to this Warrant shall be as nearly equivalent to the adjustments
otherwise provided for in this Warrant as is reasonably practicable. The
foregoing provisions of this Section 5(c)(i) shall similarly apply to successive
reclassifications, capital reorganizations and similar changes of shares of
Common Stock and to successive consolidations, mergers, spin-offs, sales, leases
or exchanges. In the event that in any such reclassification, capital
reorganization, change, consolidation, merger, spin-off, sale, lease, or
exchange, additional shares of Common Stock are issued in exchange, conversion,
substitution, or payment, in whole or in part, for securities of the Company
other than Common Stock, any such issue shall be determined in accordance with
Section 5(e)(ii) below.
(ii) If the result of any sale, lease, pledge, mortgage,
conveyance, or exchange of all, or substantially all, of the Company's assets or
business or any dissolution, liquidation or winding up of the Company (a
"Termination of Business"), is that shareholders of the Company are to receive
securities or other interests of a successor entity, the provisions of Section
5(c)(i) above shall apply. However, if the result of the Termination of Business
is that shareholders of the Company are to receive money or property other than
securities or other interests in a successor entity, the Holder of this Warrant
shall be entitled to exercise this Warrant and, with respect to any Warrant
Shares so acquired, shall be entitled to all of the rights of the other
shareholders of Common Stock with respect to any distribution by the Company in
connection with the Termination of Business. In the event no successor entity is
involved and Section 5(c)(i) does not apply, all acquisition rights under this
Warrant shall terminate at the close of business on the date as of which
-5-
<PAGE>
shareholders of record of the Common Stock shall be entitled to participate in a
distribution of the assets of the Company in connection with the Termination of
Business.
(d) OBLIGATION OF SUCCESSORS OR TRANSFEREES. The Company shall not
effect any consolidation, merger, or sale or conveyance of assets within the
meaning of Section 5(c)(i)(B) or (C), unless prior to or simultaneously with the
consummation thereof the successor corporation (if other than the Company)
resulting from such consolidation or merger or the corporation purchasing such
assets shall assume by written instrument executed and mailed or delivered to
the Holder pursuant to Section 11 herein, the obligation to deliver to the
Holder such shares of stock, securities, or assets as, in accordance with the
foregoing provisions, the Holder may be entitled to acquire. In no event shall
the securities received pursuant to this Section be registerable or transferable
other than pursuant and subject to the terms of this Warrant.
(e) PURCHASE PRICE ADJUSTMENTS.
(i) Except as otherwise provided in this Section 5, upon any
adjustment of the Purchase Price, the Holder shall be entitled to purchase,
based upon the new Purchase Price, the number of shares of Common Stock,
calculated to the nearest full share, obtained by multiplying the number of
Warrant Shares that may be acquired pursuant to this Warrant immediately prior
to the adjustment of the Purchase Price by the Purchase Price in effect
immediately prior to its adjustment and dividing the product so obtained by the
new Purchase Price.
(ii) If consideration other than money is received or issued
by the Company upon the issuance, sale, or purchase of Common Stock, Convertible
Securities, or other securities or interests, the fair market value of such
consideration, as reasonably determined by the Company's independent public
accountant shall be used for purposes of any adjustment required by this Section
5. The fair market value of such consideration shall be determined as of the
date of the adoption of the resolution of the Board of Directors of the Company
that authorizes the transaction giving rise to the adjustment. In case of the
issuance or sale of the Common Stock, Convertible Securities, or other
securities or property without separate allocation of the purchase price, the
Company's independent public accountant shall reasonably determine an allocation
of the consideration among the items being issued or sold. The reclassification
of securities other than Common Stock into securities including Common Stock
shall be deemed to involve the issuance of that Common Stock for a consideration
other than money immediately prior to the close of business on the date fixed
for the determination of shareholders entitled to receive the Common Stock. The
Company shall promptly deliver written notice of all such determinations by its
independent public accountants to the Holder of this Warrant.
(f) APPLICATION OF THIS SECTION. The provisions of this Section 5
shall apply to successive events that may occur from time to time but shall only
apply to a particular event if it occurs prior to the expiration of this Warrant
either by its terms or by its exercise in full.
(g) DEFINITION OF COMMON STOCK. Unless the context requires
otherwise, whenever reference is made in this Section 5 to the issue or sale of
shares of Common Stock, the term "Common Stock" shall mean: (i) the $.001 par
value common shares of the Company, (ii) any other class of stock ranking on a
parity with, and having substantially similar rights and privileges as the
Company's $.001 par value common stock, and (iii) any Convertible Security
convertible into either (i) or (ii). However, subject to the provisions of
Section 5(c)(i) above, Warrant Shares issuable upon exercise of this Warrant
-6-
<PAGE>
shall include only shares of common stock designated as $.001 par value common
stock of the Company as of the date of this Warrant.
(h) FRACTIONAL SHARES. No fractional Warrant Shares of Common
Stock or scrip representing fractional shares of Common Stock shall be issued
upon the exercise of this Warrant. In the event that an adjustment in the number
of shares of Common Stock issuable upon exercise of this Warrant made pursuant
to this Section 5 hereof results in a number of shares issuable upon exercise
which includes a fraction, at the Holder's election, this Warrant may be
exercised for the next larger whole number of shares or the Company shall make a
cash payment equal to that fraction multiplied by the current market value of
that share.
(i) COMPANY-HELD STOCK. For purposes of Sections 5(a) above,
shares of Common Stock owned or held at any relevant time by, or for the account
of, the Company in its treasury or otherwise, shall not be deemed to be
outstanding for purposes of the calculation and adjustments described therein.
5. NOTICE TO THE HOLDER.
(a) [Intentionally Deleted]
(b) Upon the happening of an event requiring adjustment of the
Purchase Price or the kind or amount of securities or property purchasable
hereunder, the Company shall forthwith give notice to the Holder which indicates
the event requiring the adjustment, the adjusted Purchase Price and the adjusted
number of Warrant Shares that may be acquired or the kind and amount of any such
securities or property so purchasable upon exercise of this Warrant, as the case
may be, and setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based. The Company's independent public
accountant shall determine the method of calculating the adjustment and shall
prepare a certificate setting forth such calculations, the reason for the
methodology chosen, and the facts upon which the calculation is based. Such
certificate shall accompany the notice to be provided to the Holder pursuant to
this Section 6(b).
6. TRANSFER TO COMPLY WITH THE SECURITIES ACT.
(a) This Warrant and the Warrant Shares or any
other security issued or issuable upon exercise of this Warrant may not be
offered or sold except in compliance with the Securities Act of 1933, as amended
(the "Securities Act").
(b) The Company may cause the following legend, or its equivalent,
to be set forth on each certificate representing the Warrant Shares, or any
other security issued or issuable upon exercise of this Warrant, not theretofore
distributed to the public or sold to underwriters, as defined by the Securities
Act for distribution to the public pursuant to Section 7(d) below:
"The shares represented by this Certificate
may not be offered for sale, sold or
otherwise transferred except pursuant to an
effective registration statement under the
Securities Act of 1933 (the "Securities
Act") or pursuant to an exemption from
registration under the Securities Act, the
availability of which is to be established
to the satisfaction of the Company."
-7-
<PAGE>
(c) The Holder agrees that, prior to the disposition of any
Warrant Shares acquired upon the exercise hereof under circumstances that might
require registration of such Warrant Shares or other security issued or issuable
upon exercise of this Warrant under the Securities Act, or any similar federal
or state statute, other than in connection with dispositions made pursuant to
Section 8 hereof, the Holder shall give written notice to the Company,
expressing his intention as to the disposition to be made of such Warrant Shares
or other security issued or issuable upon exercise of this Warrant; except, that
such notice shall not be required for a sale of the Warrant Shares or other
security issued or issuable upon exercise of this Warrant made pursuant to the
requirements of Rule 144 promulgated under the Securities Act. Promptly upon
receiving such notice, the Company shall present copies thereof to its counsel.
If, in the opinion of the Holder's counsel the proposed disposition does not
require registration of the Warrant Shares or any other security issuable or
issued upon the exercise of this Warrant under the Securities Act, or any
similar federal or state statute, the Company shall, as promptly as practicable,
notify the Holder of such opinion, whereupon the Holder shall be entitled to
dispose of such Warrant Shares issuable or issued upon the exercise thereof, all
in accordance with the terms of the notice delivered by the Holder to the
Company.
7. REGISTRATION RIGHTS. The Warrant Shares issuable upon the exercise
of this Warrant have not been registered under the Securities Act and may be
entitled to registration rights in accordance with the Registration Rights
Agreement, dated as of the date hereof, between the Company and the Holder (the
"Registration Rights Agreement"). A copy of the Registration Rights Agreement is
attached hereto as Exhibit A.
8. BEST EFFORTS. The Company covenants that it will not, by amendment
of its Certificate of Incorporation or bylaws, or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities, or any other voluntary action, avoid or seek to avoid the
observation or performance of any of the terms of this Warrant, but will at all
times in good faith assist in carrying out all those terms and in taking all
action necessary or appropriate to protect the rights of the Holder against
dilution or other impairment.
9. FURTHER ASSURANCES. The Company will take all such action as may be
necessary or appropriate in order that the Company may validly and legally issue
fully paid and nonassessable Warrant Shares or other securities upon the
exercise of all Warrants from time to time outstanding.
10. NOTICES. All notices, demands, requests, certificates, or other
communications by the Company to the Holder and by the Holder to the Company
shall be in writing and shall be deemed to have been delivered, given, and
received when personally given or on the third calendar day after it is mailed
by registered or certified mail to the Holder, postage pre-paid and addressed to
the Holder at his last registered address or, if the Holder has designated, by
notice in writing to the Company, any other address, to such other address; and,
if to the Company, addressed to it at that address appearing on page 1 of this
Warrant. The Company may change its address for purposes of service of notice by
written notice to the Holder at the address provided above, and the Holder may
change its address by written notice to the Company.
-8-
<PAGE>
11. CORPORATE BOOKS. The Company will at no time close its transfer
books against the transfer of any warrant or of any Common Stock issued or
issuable upon the exercise of any warrant in any manner which interferes with
the timely exercise of this Warrant.
12. APPLICABLE LAW. This Warrant shall be governed by, and construed in
accordance with, the laws of the State of Delaware.
13. SURVIVAL. The various rights and obligations of the Holder and of
the Company set forth herein shall survive the exercise and surrender of this
Warrant.
14. NO AMENDMENTS OR MODIFICATIONS. Neither this Warrant nor any
provision hereof may be amended, modified, waived, or terminated except upon the
written consent of the Company and the Holders of this Warrant.
15. DESCRIPTIVE HEADINGS. The descriptive headings of the several
Sections of this Warrant are inserted for convenience only and do not constitute
a part of this Warrant.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by an officer, thereunto duly authorized this 4th, day of February,
1997.
EUROPA CRUISES CORPORATION
By________________________________________________
Lester E. Bullock
President
-9-
<PAGE>
ASSIGNMENT
----------
FOR VALUE RECEIVED, the undersigned ____________________________ hereby
sell(s), assign(s), and transfer(s) unto _____________________________________,
the rights represented by the within Warrant to purchase _________ ( ) shares of
the Common Stock of _____________________________ pursuant to the terms and
conditions of this Warrant held by the undersigned. The undersigned hereby
authorizes and directs the Company (i) to issue and deliver to the above-named
assignee a new Warrant pursuant to which the rights to purchase being assigned
may be exercised, and (ii) if there are rights to purchase Warrant Shares
remaining pursuant to the undersigned's Warrant after the assignment
contemplated herein, to issue and deliver to the undersigned a new Warrant
evidencing the right to purchase the number of Warrant Shares remaining after
issuance and delivery of this Warrant to the above-named assignee. Except for
the number of shares that may be purchased, the new Warrants to be issued and
delivered by the Company are to contain the same terms and conditions as the
undersigned's Warrant. To complete the assignment contemplated by this
Assignment, the undersigned irrevocably appoints ______________________as the
undersigned's attorney-in-fact to transfer this Warrant and the rights
thereunder on the books of the Company with the full power of substitution for
these purposes.
Dated:_______________________, 19__
______________________________________
__________________
Printed Name of the Holder
____________________________________________
Signature
________________________________________________________________________________
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the within Warrant, in every particular, without
alteration or enlargement, or any change whatsoever, and must be guaranteed by a
bank, other than a savings bank, or trust company having an office or
correspondent in the State of Florida, or by a firm having membership on a
registered national securities exchange and an office in the State of Florida.
<PAGE>
NOTICE OF EXERCISE
------------------
(To be executed by the Holder desiring to exercise the right to acquire shares
of Common Stock of ________________, Inc., pursuant to this Warrant.)
The undersigned Holder of a Warrant to purchase shares of Common Stock
("Shares) of _______________, Inc., a Florida corporation, hereby elects to
purchase, pursuant to the provisions of the Holder's Warrant dated
_____________________ held by the undersigned, to the extent of purchasing the
following number of such Shares __________________ ( ); and requests that the
Certificate for such Shares be issued in the name of, and delivered
to_______________________________________________________________, whose address
is_________________________________________________________________; and further
requests, if the number of Shares transferred are not all the Shares that may be
acquired pursuant to the unexercised portion of this Warrant, that a new Warrant
of like tenor for the remaining Shares that may be acquired pursuant to this
Warrant be issued and delivered to the undersigned.
Dated:___________________, 1996.
Printed Name:______________________________
__________
Signature: ______________________________
__________
Address: ______________________________
_______________________
__________
(Signature must conform in all respects to the name of holder as specified on
the face of this Warrant.)
-11-
SECOND MODIFICATION OF CREDIT AND SECURITY AGREEMENT AND
OTHER LOAN DOCUMENTS
THIS SECOND MODIFICATION OF CREDIT AND SECURITY AGREEMENT AND OTHER LOAN
DOCUMENTS ("FIRST MODIFICATION") is made as of the 31st day of October, 1996, by
and between FIRST UNION NATIONAL BANK OF FLORIDA, a national banking association
("LENDER"), with offices at 410 Central Avenue, St. Petersburg, Florida 33701,
and EUROPA CRUISES CORPORATION, a Delaware corporation ("EUROPA PARENT"), EUROPA
CRUISES OF FLORIDA 1, INC., a Delaware corporation ("EUROPA FLORIDA 1"), EUROPA
CRUISES OF FLORIDA 2, INC., a Delaware corporation ("EUROPA FLORIDA 2"),
EUROPASKY CORPORATION, a Delaware corporation ("EUROPASKY"), and EUROPA
STARDANCER CORPORATION, a Delaware corporation ("EUROPA STARDANCER")
(individually, jointly and severally, and collectively, "BORROWER"), each with
its principal executive office located at, and having a mailing address of, 150
- - 153rd Avenue, Suite 200, Madeira Beach, Florida 33708.
RECITALS:
---------
I. Pursuant to the terms of that certain Credit and Security Agreement dated
as of May 23, 1995, executed by and between Borrower and Lender, as modified
pursuant to that certain First Modification of Credit and Security Agreement and
Other Loan Documents dated as of August 25, 1995, executed by and between
Borrower and Lender, as amended and restated pursuant to that certain Amended
and Restated First Modification of Credit and Security Agreement and Other Loan
Documents ("AMENDED AND RESTATED FIRST MODIFICATION"), dated as of July 2, 1996,
executed by and between Borrower and Lender (as further modified from time to
time, "AGREEMENT"), Lender made a term loan to Borrower in the principal amount
of $6,446,331.67 ("TERM LOAN").
A. Borrower has requested to make, and Lender has agreed accept, a
partial prepayment of the Term Loan ("PREPAYMENT").
B. As a condition to Lender's acceptance of the Prepayment, Lender has
required that Borrower execute and deliver or cause the execution and delivery
to Lender of certain loan modification documents in connection therewith.
C. As a further condition to Lender's acceptance of the Prepayment,
Lender has required the modification of the Other Agreements (as defined in the
Agreement) executed in connection with the Term Loan.
-1-
<PAGE>
AGREEMENT:
NOW, THEREFORE, in order to induce Lender to accept the Prepayment, and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Borrower and Lender hereby agree as follows:
-2-
<PAGE>
1. GENERAL.
1.1 AFFIRMATION OF RECITALS. The foregoing Recitals are true and
correct.
1.2 DEFINITIONS. Capitalized terms used herein and not otherwise defined
herein shall have the meanings ascribed to them in Section 2.2 hereof and in the
Agreement.
1.3 AFFIRMATION OF NO DEFENSES. Borrower acknowledges and agrees that
its obligations under the Agreement and all Other Agreements are not subject to
any defense, counterclaim, setoff, right of recoupment or abatement, or other
claim against Lender for any matter occurring or arising on or before the date
of this First Modification.
1.4 AFFIRMATION OF REPRESENTATIONS AND WARRANTIES. Borrower represents
and warrants to Lender that, except as described in SCHEDULE 1 attached hereto:
(a) all of its representations and warranties to Lender in the Agreement and all
Other Agreements are true and correct on this date, as if made on this date,
except to the extent any of them expressly relate to an earlier date; (b)
Borrower is not in default under the Agreement or Other Agreements except for
covenant defaults waived in writing by Lender, and no event has occurred that
with notice or lapse of time or both would constitute an Event of Default; and
(c) since the date of the most recent financial statements delivered to Lender,
there has not been any material adverse change in Borrower's financial
condition.
1.5 AFFIRMATION OF SURVIVAL. Borrower acknowledges and agrees that
Sections 3 and 7.3 of the Amended and Restated First Modification remain in full
force and effect.
1.6 NO WAIVER. Except as expressly provided herein, by its execution of
this First Modification, Lender does not waive, relinquish or release Borrower
from any of Borrower's representations, warranties, or covenants made pursuant
to the Agreement, nor does Lender waive any default or Event of Default of
Borrower under the Agreement and the Other Agreements, whether or not disclosed
to Lender pursuant to Section 1.4 hereof or otherwise; and no waiver of any
default or Event of Default shall be effective unless expressly made in writing
by Lender.
2. MODIFICATION OF CREDIT AND SECURITY AGREEMENT.
2.1 INCORPORATION OF SECOND MODIFICATION. All the foregoing terms and
provisions of this Second Modification are hereby incorporated into, and made a
part of, the Agreement.
2.2 DEFINITIONS. Section 1.1 of the Agreement is hereby modified as
follows:
a. The definition of "Maturity Date" is replaced in its entirety
with the following:
"MATURITY DATE: August 23, 2002, or such earlier date
resulting from a prepayment of the Term Loan and any adjustment of
the Amortization Schedule attached to the Term Note."
-3-
<PAGE>
b. The following definition is added:
"SECOND MODIFICATION: that certain Second Modification of
Credit and Security Agreement and Other Loan Documents dated as of
October 31, 1996, executed by and between Lender and Borrower."
2.3 MODIFICATIONS TO SECTION 8.2 OF THE AGREEMENT: Section 8.2 of the
Agreement is hereby modified as follows:
a. Section 8.2(i) is hereby modified to permit the lien by Europa
Florida 2 of the Vessel "Europa Sun" in favor of DDC-MTU Financial Services,
securing a maximum principal amount of $2,250,000.00.
b. Section 8.2(n) is hereby replaced in its entirety with the
following:
"at any time during the term of the Loan, permit net
income plus interest, taxes, depreciation, amortization, and
reduction in unearned employee stock ownership plan shares
less cash dividends to be equal to or less than 1.25 times the
sum of current maturities of long-term debt and capitalized
leases plus interest expense, measured quarterly based upon
the results of the previous four quarters on a rolling basis,
with the first measurement date being the four quarters ending
December 31, 1996;"
3. MODIFICATION OF OTHER LOAN DOCUMENTS.
3.1 MODIFICATION OF OTHER AGREEMENTS. The Other Agreements are hereby
modified so that (a) all references therein to the Agreement shall refer
to the Agreement, as modified by this Second Modification, and (b) all
references to any Other Agreements shall refer to the Other Agreements, as
modified hereby.
4. MISCELLANEOUS.
4.1 RATIFICATION. Except as modified herein, the Agreement and Other
Agreements remain in full force and effect without modification thereto and are
hereby ratified and affirmed.
4.2 NO NOVATION. This Second Modification will not constitute a novation
nor have the effect of discharging any liability or obligation evidenced by the
Agreement or Other Loan Agreements.
4.3 BORROWER'S WAIVER AND RELEASE OF LENDER. Borrower, on behalf of
itself and its successors, assigns, heirs and personal representatives, and any
and all other entities and persons claiming rights by or through the Borrower or
such other persons or entities, hereby acquits, releases and forever discharges
Lender and its affiliated corporations, and all of its current and former
directors, officers, agents, employees, principals, servants, attorneys and
-4-
<PAGE>
shareholders, and their successors, assigns, heirs and personal representatives,
from any and all manner of actions and causes of action, suits, rights, damages,
claims, pecuniary losses, debts, costs, expenses and attorneys' and other fees
whatsoever, in law or in equity, which Borrower ever had, may now have or may
hereafter have, whether known or unknown, foreseen or unforeseen, relating to or
arising in any way out of the Agreement or Other Agreements or any other
relationships between the parties, including any course of conduct, course of
dealing, verbal and written statement and actions and omissions of any kind in
connection with the Loan or any other relationship between the parties,
occurring at any time prior to or on the date hereof.
4.4 GOVERNING LAW. This Second Modification shall be governed by, and
construed in accordance with, the laws of the State of Florida.
4.5 SUCCESSORS AND ASSIGNS. This Second Modification shall be binding
upon, and shall inure to the benefit of, Borrower and Lender and their
respective successors and assigns.
4.6 WAIVER OF JURY TRIAL. NO PARTY TO THIS SECOND MODIFICATION NOR ANY
ASSIGNEE, SUCCESSOR, HEIR OR PERSONAL REPRESENTATIVE OF THE PARTIES SHALL SEEK A
JURY TRIAL IN ANY LAW SUIT, PROCEEDING, COUNTERCLAIM OR ANY OTHER LITIGATION
PROCEDURE BASED UPON OR ARISING OUT OF THIS FIRST MODIFICATION, ANY RELATED
AGREEMENT OR INSTRUMENT, ANY OTHER COLLATERAL FOR THE INDEBTEDNESS SECURED
HEREBY OR THE DEALINGS OR THE RELATIONSHIP BETWEEN OR AMONG THE PARTIES, OR ANY
OF THEM. NO PARTY WILL SEEK TO CONSOLIDATE ANY SUCH ACTION, IN WHICH A JURY
TRIAL HAS BEEN WAIVED, WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR
HAS NOT BEEN WAIVED. THE PROVISIONS OF THIS PARAGRAPH HAVE BEEN FULLY DISCUSSED
BY THE PARTIES HERETO, AND THESE PROVISIONS SHALL BE SUBJECT TO NO EXCEPTIONS.
NO PARTY HAS IN ANY WAY AGREED WITH OR REPRESENTED TO ANY OTHER PARTY THAT THE
PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED IN ALL INSTANCES.
IN WITNESS WHEREOF, Borrower and Lender have executed this Second
Modification as of the date first set forth above.
BORROWER:
EUROPA CRUISES CORPORATION, a Delaware
corporation
By:_______________________________________________
Lester E. Bullock, its President
[CORPORATE SEAL]
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<PAGE>
SIGNATURE PAGE TO SECOND MODIFICATION OF CREDIT AND SECURITY
AGREEMENT AND OTHER LOAN DOCUMENTS CONTINUED
EUROPA CRUISES OF FLORIDA 1, INC., a Delaware
corporation
By:_______________________________________________
Lester E. Bullock, its President
[CORPORATE SEAL]
EUROPA CRUISES OF FLORIDA 2, INC., a Delaware
corporation
By:_______________________________________________
Lester E. Bullock, its President
[CORPORATE SEAL]
EUROPASKY CORPORATION, a Delaware corporation
By:_______________________________________________
Lester E. Bullock, its President
[CORPORATE SEAL]
EUROPA STARDANCER CORPORATION, a Delaware
corporation
By:_______________________________________________
Lester E. Bullock, its President
[CORPORATE SEAL]
-6-
<PAGE>
SIGNATURE PAGE TO SECOND MODIFICATION OF CREDIT AND SECURITY
AGREEMENT AND OTHER LOAN DOCUMENTS CONTINUED
LENDER:
FIRST UNION NATIONAL BANK OF FLORIDA, a
national banking association
By: ____________________________________________
James R. Connors
Senior Vice President
STATE OF VIRGINIA
COUNTY OF FAIRFAX
The foregoing instrument was acknowledged before me this ____ day of
October, 1996, by Lester E. Bullock as President of EUROPA CRUISES CORPORATION,
a Delaware corporation. He is personally known to me or has produced
_____________________________________________ as identification.
My Commission Expires: __________________________________________
Notary Public (Signature)
(AFFIX NOTARY SEAL) __________________________________________
(Printed Name)
__________________________________________
(Title or Rank)
__________________________________________
(Serial Number, if any)
-7-
<PAGE>
STATE OF VIRGINIA
COUNTY OF FAIRFAX
The foregoing instrument was acknowledged before me this ____ day of
October, 1996, by Lester E. Bullock as President of EUROPA CRUISES OF FLORIDA 1,
INC., a Delaware corporation. He is personally known to me or has produced
________________________________________ as identification.
My Commission Expires: __________________________________________
Notary Public (Signature)
(AFFIX NOTARY SEAL) __________________________________________
(Printed Name)
__________________________________________
(Title or Rank)
__________________________________________
(Serial Number, if any)
STATE OF VIRGINIA
COUNTY OF FAIRFAX
The foregoing instrument was acknowledged before me this ____ day of
October, 1996, by Lester E. Bullock as President of EUROPA CRUISES OF FLORIDA 2,
INC., a Delaware corporation. He is personally known to me or has produced
________________________________________ as identification.
My Commission Expires: __________________________________________
Notary Public (Signature)
(AFFIX NOTARY SEAL) __________________________________________
(Printed Name)
__________________________________________
(Title or Rank)
__________________________________________
(Serial Number, if any)
-8-
<PAGE>
STATE OF VIRGINIA
COUNTY OF FAIRFAX
The foregoing instrument was acknowledged before me this ____ day of
October, 1996, by Lester E. Bullock as President of EUROPASKY CORPORATION, a
Delaware corporation. He is personally known to me or has produced
_____________________________________________ as identification.
My Commission Expires: __________________________________________
Notary Public (Signature)
(AFFIX NOTARY SEAL) __________________________________________
(Printed Name)
__________________________________________
(Title or Rank)
__________________________________________
(Serial Number, if any)
STATE OF VIRGINIA
COUNTY OF FAIRFAX
The foregoing instrument was acknowledged before me this ____ day of
October, 1996, by Lester E. Bullock as President of EUROPA STARDANCER
CORPORATION, a Delaware corporation. He is personally known to me or has
produced _____________________________________________ as identification.
My Commission Expires: __________________________________________
Notary Public (Signature)
(AFFIX NOTARY SEAL) __________________________________________
(Printed Name)
__________________________________________
(Title or Rank)
__________________________________________
(Serial Number, if any)
-9-
<PAGE>
STATE OF MISSISSIPPI
COUNTY OF HANCOCK
The foregoing instrument was acknowledged before me this ____ day of
October, 1996, by James R. Connors, as Senior Vice President of FIRST NATIONAL
BANK OF FLORIDA, a national banking association. He is personally known to me or
has produced _____________________________________________ as identification.
My Commission Expires: __________________________________________
Notary Public (Signature)
(AFFIX NOTARY SEAL) __________________________________________
(Printed Name)
__________________________________________
(Title or Rank)
__________________________________________
(Serial Number, if any)
-10-
<PAGE>
SCHEDULE 1
-11-
<PAGE>
THIS NOTE IS GIVEN IN RENEWAL OF THAT CERTAIN PROMISSORY NOTE DATED MAY 23,
1995, IN THE PRINCIPAL AMOUNT OF $6,446,331.67, MADE BY MAKER PAYABLE TO THE
ORDER OF LENDER AND DOES NOT CONSTITUTE NEW INDEBTEDNESS.
________________________________________________________________________________
RENEWAL PROMISSORY NOTE
$5,164,887.26 Alexandria, Virginia
October 31, 1996
FOR VALUE RECEIVED, the undersigned, EUROPA CRUISES CORPORATION, a Delaware
corporation, EUROPA CRUISES OF FLORIDA 1, INC., a Delaware corporation, EUROPA
CRUISES OF FLORIDA 2, INC., a Delaware corporation, EUROPASKY CORPORATION, a
Delaware corporation, and EUROPA STARDANCER CORPORATION, a Delaware corporation
(collectively, "MAKER"), jointly and severally promise to pay to the order of
FIRST UNION NATIONAL BANK OF FLORIDA, a
national banking association ("LENDER"), in lawful money of the United States of
America, in immediately available funds, at the principal office of Lender at
100 South Ashley Drive, Tampa, Florida 33602 or at such other location as the
Lender may designate from time to time, the principal sum of FIVE MILLION ONE
HUNDRED SIXTY-FOUR THOUSAND EIGHT HUNDRED EIGHTY-SEVEN AND 26/100 DOLLARS
($5,164,887.26), together with interest thereon, as described below.
This Note is issued pursuant to that certain Credit and Security Agreement dated
as of May 23, 1995, executed by and between Lender and Maker, as modified by (1)
that certain First Modification of Credit and Security Agreement and Other Loan
Documents dated as of August 25, 1995, executed by and between Lender and Maker,
as amended and restated pursuant to that certain Amended and Restated First
Modification of Credit and Security Agreement and Other Loan Documents dated as
of July 2, 1996, executed by and between Lender and Maker, and (2) that certain
Second Modification of Credit and Security Agreement and Other Loan Documents
dated as of even date herewith executed by and between Lender and Maker (as
further modified from time to time, "CREDIT AGREEMENT"), the terms of which are
incorporated herein by reference. The Credit Agreement contains provision, among
things, for the acceleration of the stated maturity of this Note upon the
happening of certain events set forth therein. Capitalized terms used in this
Note, unless otherwise defined herein, shall have the meaning given such terms
in the Credit Agreement.
Interest shall accrue from the date hereof on the average daily outstanding
principal balance hereof at a variable rate per annum (based on a year of 360
days and actual days elapsed) which shall at all times equal the LIBOR Rate PLUS
three hundred twenty-five (325) basis points.
-1-
<PAGE>
The outstanding principal balance hereof together with interest thereon shall be
due and payable as follows:
(a) principal, in the amounts set forth on the Amortization
Schedule attached hereto and hereby made a part hereof, plus accrued and unpaid
interest, shall be due on the dates specified on the Amortization Schedule
attached hereto and hereby made a part hereof; and
(b) the outstanding principal balance hereof, together with all
accrued and unpaid interest and charges thereon, shall be due and payable in
full on August 23, 2002, or such earlier date resulting from a prepayment of
this Note and any adjustment of the Amortization Schedule attached to this Note
("MATURITY DATE").
Any payment of principal or interest not made within ten (10) days following the
date due shall bear interest at a rate per annum (based on a year of 360 days
and actual days elapsed) which shall be the sum of the rate of interest stated
above PLUS four percent (4.0%) ("Default Rate"). The Default Rate shall continue
to apply whether or not judgment shall be entered on this Note. In addition, in
the event of the failure to make any payment of principal or interest within ten
(10) days following the due date for such payment pursuant hereto, Maker shall
pay to Lender a late charge equal to five percent (5.0%) of such payment, upon
demand.
If any payment of principal or interest on this Note shall become due on a
Saturday, Sunday or on any other day on which Lender is not open for business,
such payment shall be made on the next succeeding Business Day.
This Note may be prepaid in whole or in part at any time; provided however, a
termination fee may be charged as provided in the Credit Agreement.
All payments received by Lender hereunder shall be applied first to unpaid
interest and other charges payable by Maker and second to the principal balance
hereof.
In no contingency or event whatsoever shall the interest rate charged pursuant
to the terms of this Note exceed the highest rate permissible under applicable
state and federal law. In the event that Lender has received interest hereunder
in excess of the highest allowed rate, Lender shall promptly refund such excess
interest to Maker.
Maker hereby waives presentment, demand, protest and notice of any kind in
connection with this Note.
This Note shall bind Maker and its successors and assigns, and the benefits
hereof shall inure to the benefit of Lender and its successors and assigns. All
references herein to the "Maker" and "Lender" shall be deemed to apply to the
Maker and Lender, respectively, and their respective successors and assigns.
-2-
<PAGE>
This Note, for all purposes, shall be governed by, and construed in accordance
with, the laws of the State of Florida. In the event any provision of this Note
shall be prohibited or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity without invalidating
the remainder of such provision or the remaining provisions of this Note.
WAIVER OF JURY TRIAL. NO PARTY TO THIS NOTE OR ANY ASSIGNEE, SUCCESSOR, HEIR OR
PERSONAL REPRESENTATIVE OF A PARTY SHALL SEEK A JURY TRIAL IN ANY LAWSUIT,
PROCEEDING, COUNTERCLAIM, OR ANY OTHER LITIGATION PROCEDURE BASED UPON OR
ARISING OUT OF THIS NOTE, ANY RELATED AGREEMENT OR INSTRUMENT, ANY SECURITY FOR
THE INDEBTEDNESS EVIDENCED HEREBY OR THE DEALINGS OR THE RELATIONSHIP BETWEEN OR
AMONG THE PARTIES, OR ANY OF THEM. NO PARTY WILL SEEK TO CONSOLIDATE ANY SUCH
ACTION, IN WHICH A JURY TRIAL HAS BEEN WAIVED, WITH ANY OTHER ACTION IN WHICH A
JURY TRIAL CANNOT OR HAS NOT BEEN WAIVED. THE PROVISIONS OF THIS PARAGRAPH HAVE
BEEN FULLY DISCUSSED BY THE PARTIES HERETO, AND THESE PROVISIONS SHALL BE
SUBJECT TO NO EXCEPTIONS. NO PARTY HAS IN ANY WAY AGREED WITH OR REPRESENTED TO
ANY OTHER PARTY THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY ENFORCED
IN ALL INSTANCES.
IN WITNESS WHEREOF, Maker has executed this Note as of the date first set forth
above.
EUROPA CRUISES CORPORATION, a
Delaware corporation
By:_________________________________________
Lester E. Bullock, its President
[CORPORATE SEAL]
EUROPA CRUISES OF FLORIDA 1, INC., a
Delaware corporation
By:_________________________________________
Lester E. Bullock, its President
[CORPORATE SEAL]
-3-
<PAGE>
EUROPA CRUISES OF FLORIDA 2, INC., a
Delaware corporation
By:_________________________________________
Lester E. Bullock, its President
[CORPORATE SEAL]
EUROPASKY CORPORATION, a Delaware
corporation
By:_________________________________________
Lester E. Bullock, its President
[CORPORATE SEAL]
EUROPA STARDANCER CORPORATION, a
Delaware corporation
By:_________________________________________
Lester E. Bullock, its President
[CORPORATE SEAL]
-4-
<PAGE>
STATE OF VIRGINIA
COUNTY OF FAIRFAX
The foregoing instrument was acknowledged before me this ____ day of
October, 1996, by Lester E. Bullock as President of EUROPA CRUISES CORPORATION,
a Delaware corporation. He is personally known to me or has produced
_____________________________________________ as identification.
My Commission Expires: __________________________________________
Notary Public (Signature)
(AFFIX NOTARY SEAL) __________________________________________
(Printed Name)
__________________________________________
(Title or Rank)
__________________________________________
(Serial Number, if any)
STATE OF VIRGINIA
COUNTY OF FAIRFAX
The foregoing instrument was acknowledged before me this ____ day of
October, 1996, by Lester E. Bullock as President of EUROPA CRUISES OF FLORIDA 1,
INC., a Delaware corporation. He is personally known to me or has produced
________________________________________ as identification.
My Commission Expires: __________________________________________
Notary Public (Signature)
(AFFIX NOTARY SEAL) __________________________________________
(Printed Name)
__________________________________________
(Title or Rank)
__________________________________________
(Serial Number, if any)
-5-
<PAGE>
STATE OF VIRGINIA
COUNTY OF FAIRFAX
The foregoing instrument was acknowledged before me this ____ day of
October, 1996, by Lester E. Bullock as President of EUROPA CRUISES OF FLORIDA 2,
INC., a Delaware corporation. He is personally known to me or has produced
________________________________________ as identification.
My Commission Expires: __________________________________________
Notary Public (Signature)
(AFFIX NOTARY SEAL) __________________________________________
(Printed Name)
__________________________________________
(Title or Rank)
__________________________________________
(Serial Number, if any)
STATE OF VIRGINIA
COUNTY OF FAIRFAX
The foregoing instrument was acknowledged before me this ____ day of
October, 1996, by Lester E. Bullock as President of EUROPASKY CORPORATION, a
Delaware corporation. He is personally known to me or has produced
_____________________________________________ as identification.
My Commission Expires: __________________________________________
Notary Public (Signature)
(AFFIX NOTARY SEAL) __________________________________________
(Printed Name)
__________________________________________
(Title or Rank)
__________________________________________
(Serial Number, if any)
-6-
<PAGE>
STATE OF VIRGINIA
COUNTY OF FAIRFAX
The foregoing instrument was acknowledged before me this ____ day of
October, 1996, by Lester E. Bullock as President of EUROPA STARDANCER
CORPORATION, a Delaware corporation. He is personally known to me or has
produced _____________________________________________ as identification.
My Commission Expires: __________________________________________
Notary Public (Signature)
(AFFIX NOTARY SEAL) __________________________________________
(Printed Name)
__________________________________________
(Title or Rank)
__________________________________________
(Serial Number, if any)
-7-
EXHIBIT A
Promissory Note
(Vessel Financing)
US$2,250,000.00 30 October 1996
For value received, EUROPA CRUISES OF FLORIDA 2, INC., a company organized
under the laws of the STATE OF DELAWARE with its principal place of business at
150 - 153RD AVENUE, SUITE 200, MADEIRA BEACH, FLORIDA 33708 as Borrower
("MAKER") promises to pay to the order of DEBIS FINANCIAL SERVICES, INC.
("DFSI"), a Delaware corporation ("LENDER"), with its principal place of
business at 201 MERRITT 7, SUITE 700, NORWALK, CONNECTICUT 06856, U.S.A., or at
such other place as may be designated in writing, all in lawful money of the
united States of America, the principal, interest and other sums specified below
on the terms set forth below.
1. DEFINITIONS
It is contemplated that the amount advance by Lender under the First Naval
Mortgage the repayment obligation for which is evidenced by this Note, will be
advanced in increments. Those increments are referred to in this Note as
"Advances".
The date on which the first of the Advances is made to wit, October 31,
1996 is the "Initial Advance Date". The earlier of three months from the Initial
Advance Date, or the date on which the construction financed by the Advances is
completed, is the "Completion Date". The date which is sixty (60) months from
the Completion Date is the "Maturity Date" which date shall not be later than
January 31, 2002.
2. PRINCIPAL AMOUNT
The principal amount owning on this Note is US$2,250,000.00.
3. INTEREST RATE
(a) The interest rate for the period beginning on the Initial Advance Date
and ending on the Completion Date shall be the Bank of America Prime Loan Rate
plus ON AND ONE QUARTER PERCENT (1.25%), FLOATING.
The period described above shall be divided into calendar months. The
interest rate applicable to each monthly period shall be the Bank of American
Prime Loan Rate from time to time in effect, plus the above-described
percentage, per annum, compounded monthly.
(b) For the period beginning on the Completion Date and ending on the
Maturity Date until all sums owning under this Note are fully paid, the interest
rate applicable hereto shall be the BANK OF AMERICA PRIME LOAN RATE in effect as
of the first day following the Completion Date PLUS TWO AND ONE QUARTER PERCENT
(2.25%) per annum, compounded monthly, fixed for a period of SIXTY (60) MONTHS
from the first day following the Completion date. Interest begins to accrue on
the date funds are advanced on the loan represented by this Note, and interest
is calculated on the basis of a 360-day year and 30-day month.
<PAGE>
4. REPAYMENT
Interest will be charged on the then existing balance of the Advances
which compose this Note's principal form the date each Advance is made until the
total principal balance of the Advances is paid in full.
For the period from the Initial Advance date to the Completion Date:
The first monthly interest payment shall be due thirty (30) days from the
date of the initial disbursement of funds. Subsequent payments ("Monthly
Payments") shall be due thirty days thereafter, for each and every month
("Payment Due Date") until the Completion date. Monthly Payments associated with
all disbursements made in any thirty (30) day period shall be due on the Payment
Date for such thirty (30) day period.
However, for mutual convenience of dFSI and Borrower, Monthly Payments
shall be calculated approximately fifteen (15) days prior to the Payment Due
Date ("Payment Calculation Date") and shall include disbursements made prior to
the Payment Calculation Date. Monthly Payments associated with disbursements
made prior to the Payment Calculation Date for a given thirty (30) day period
shall be due upon that period's Payment Due Date. Monthly Payments associated
with disbursements made after the Payment Calculation Date for a given thirty
(30) day period shall be due upon the Payment Due Date for the following thirty
(30) day period, provided, however, that dFSI reserves the right to collect such
amounts on the Payment Due Date of the same period in which the disbursements
were made.
For purposes of calculating Monthly Payments, it shall be assumed that the
outstanding principal balance and the interest rate in effect as the Payment
Calculation Date shall remain constant from the Payment Calculation date through
the Payment Due Date. In the Event the outstanding principal balance or the
interest rate should change from the Payment Calculation Date through the
Payment Due Date, any such change shall be reflected by adding or subtracting
the appropriate amount to or from the next Monthly Payment. Monthly Payments
associated with such adjusted amounts shall be due on the Payment Due Date of
the next following Monthly Payment.
For the period from the Completion Date until the Maturity Date, the Make
shall pay to the holder of this Note SIXTY (60) equal monthly principal and
interest payments of the amount necessary to fully repay all principal and
interest under the First Naval Mortgage referenced by this Note, commencing
thirty days from the Completion Date on the same day of each and every month
thereafter until fully paid:
Months 1-59: 50 monthly payments of US$30,367.37, followed by:
Month 60: 1 payment of US$1,442,871.54:
Any prepayment of the outstanding principal balance prior to the last day
of the twelfth (12th) month of this Note shall be subject to an early
termination fee equal to three percent (3.0%) of any such principal repayment;
<PAGE>
any prepayment of the outstanding principal during the thirteenth (13th) of the
twenty-fourth (24th) month of this Note shall be subject to any early
termination fee equal to two percent (2.0%) of any such principal repayment, and
any prepayment of the outstanding principal during the twenty-fifth (25th) to
the thirty-sixth (36th) month of this Note shall be subject to any early
termination fee equal to one percent (1.0%) of any such principal repayment.
After four years, the loan may be prepaid, in part or in full, at any time
without penalty.
5. COLLATERAL
This Note is secured by a Vessel more particularly described in the FIRST
NAVAL MORTGAGE dated ____ October, 1996, signed by the Maker, and delivered to
Lender. This Note is also secured by a First Mortgage covering real property
known as Diamondhead Casino Resort, a Parcel of land situated in Sections 1,2, &
11, Township 8 South, Range 14 West, Hancock County, Mississippi.
6. LATER CHARGE
If any payment is not received is full by Lender within ten (130 days
after it is due, Maker agrees to pay an amount equal to five percent (55.0%) of
the past due payment, or the maximum amount permitted under applicable law if
less, in addition to the full amount of the past due payment.
7. DEFAULT
On Maker's failure to pay when due any amount required to be paid on this
Note, on Maker's sale or other transfer of an interest in the vessel collateral
more particularly described in the Mortgage, or on the occurrence of any other
event identified as a default in the Mortgage, Lender may at its option declare
the full amount owing on this Note immediately due and payable.
8. MISCELLANEOUS
Where necessary to properly give meaning to or to clarify the terms of
this Note, this Note is to be interpreted together with the Mortgage and any
other documents executed in connection with this Note and the Mortgage.
Payments made on this Note will be applied first to any accrued interest
and then to principal.
No delay or omission on the part of Lender in demanding payment of
exercising any right under this Note shall operate as a waiver of payment or any
other right. Maker waives presentment, demand, protest, and notice of dishonor.
The provisions of this Note shall be construed and interpreted and al
rights an obligations hereunder determined in accordance with the laws of the
state of Connecticut, United States of America.
<PAGE>
If there is more than one person or entity signing this Note as Maker, the
obligations under this Note shall be joint and several.
In any action brought on this Note in which Lender is the prevailing
party, Maker agrees to pay all reasonable attorney fees and costs incurred in
that action, whether at trial, on appeal, or in any bankruptcy proceeding.
Lender is hereby authorized to file a financing statement and any
amendments continuation statements or termination statements it may deem
necessary without the Borrower's signature or by executing the Borrower's name
thereto and for such limited purpose. Borrower grants Lender, and its agents(s),
a power of attorney to execute any such financing statements as may be necessary
to perfect Lender's interest in the Collateral. Notwithstanding the foregoing,
the Lender shall have no obligation to comply with any recording, re-recording,
filing, re-filing or other legal requirements, necessary to establish or
maintain the validity, priority, or enforceability of, or the Lender's right in
and to the Collateral or any part thereof.
Maker shall have an option to renew the Balloon Payment for a further five
year period upon terms, conditions, collateral and documentation in form and
substance satisfactory to Lender and its attorneys, which option must b
exercised by Maker giving Lender at least thirty days prior written notice
before Maturity date provided no event of default has occurred or is continuing
under this Note or the Mortgage.
MAKER: EUROPA CRUISES OF FLORIDA 2, INC.
BY: _______________________________________
ATTORNEY-IN-FACT
CASHLESS
OPTION TO PURCHASE COMMON STOCK
OF
EUROPA CRUISES CORPORATION
This is to Certify that, FOR VALUE RECEIVED, _____________________________
or permitted assigns ("Holder"), is entitled to purchase, subject to the
provisions of this Option, from EUROPA CRUISES CORPORATION, a Delaware
corporation (the "Company"), __________ shares of the Company's Common Stock,
$.001 par value ("Common Stock"), at a price of $______ per share at any time
during the period from ____________, 1996 to 5:00 p.m. Daylight Savings Time on
_____________, 2001, at which time this Option shall expire and become void. The
number of shares of Common Stock to be received upon exercise of this Option and
the price to be paid for each share of Common Stock may be adjusted from time to
time as hereinafter set forth. The shares of Common Stock deliverable upon such
exercise, and as adjusted from time to time, are hereinafter sometimes referred
to as "Option Shares", and the exercise price per share of Common Stock in
effect at any time and as adjusted from time to time is hereinafter sometimes
referred to as the "Exercise Price." Unless the content otherwise requires, the
term "Option" as used herein includes this Option and any other Option or
Options which may be issued pursuant to the provisions of this Option, whether
upon transfer, assignment, partial exercise, division, combination, exchange or
otherwise, and the term "Holder" includes any transferee or transferees or
assignee or assignees of the Holder named above limited, however, to the terms
of Section (d) herein restricting transfer of this Option, and, when used with
reference to Option Shares, means the holder or holders of such Option Shares.
1. EXERCISE OF OPTION. This Option may be exercised in whole or in part at
any time or from time to time on or after _____________, 1996 and before 5:00
p.m., Daylight Savings Time, on _____________, 2001, or if either such day is a
day on which banking institutions in the City of Washington, D.C. are authorized
by law to close, then on the next succeeding day which shall not be such a day,
by presentation and surrender hereof to the Company at its principal office, or
at the office of its stock transfer agent, if any, with the Purchase Form
annexed hereto duly executed and accompanied by payment of the Exercise Price
for the number of Option Shares specified in such form. If this Option should be
exercised in part only, the Company shall, upon presentation of this Option upon
such exercise, accompanied by the payment of the price for the Option Shares
exercised, execute and deliver a new Option evidencing the rights of the Holder
hereof to purchase the balance of the Option Shares purchasable hereunder. Upon
receipt by the Company or its stock transfer agent of this Option, in proper
form for exercise, the Holder shall be deemed to be the holder of record of the
Option Shares issuable upon such exercise notwithstanding that the stock
transfer books of the Company shall then be closed or that certificates
representing such Option Shares shall not then be actually delivered to the
Holder.
- 1 -
<PAGE>
(A) CASH EXERCISE. Payment for the shares may be made in cash (or by
certified or cashier's check) or in any combination of cash or securities of the
Company delivered to the Company at its principal office in the State of Florida
on the date specified in the notice referred to in Paragraph 2 above; provided,
however, that such date shall not exceed ninety (90) days from the date of such
notice, as specified in Paragraph 2 hereinabove, unless otherwise agreed in
writing by the Company.
(B) CASHLESS EXERCISE. If payment is made in whole or in part by
surrendering shares of the Company's Common Stock and/or options to purchase
Common Stock, the number of shares that will be issued by the Company in
exchange for such securities issued by the Company shall be determined as
follows: (a) with respect to the surrender of Common Stock by dividing the fair
market value of the surrendered shares by the purchase price for the shares
purchased pursuant to this Agreement; and (b) with respect to the surrender of
options to purchase Common Stock by dividing the fair market value of the
Company's Common Stock minus the purchase price by the purchase price. The term
"purchase price" refers to the price as set forth in Paragraph 4 of this
Agreement.
The fair market value of the Company's Common Stock surrendered to the
Company in payment for the shares shall be determined by the closing bid price
of the Company's Common Stock on the date of exercise as reported in the next
business day's edition of the WALL STREET JOURNAL. If payment is made in whole
or in part by surrendering Common Stock or Common Stock Purchase Options issued
by the Company, such securities must already be owned by the optionee at the
time of exercise.
2. RESERVATION OF SHARES. The Company hereby agrees that at all times
until this Option expires there shall be reserved for issuance and/or delivery
upon exercise of this Option such number of shares of its Common Stock as shall
be required for issuance or delivery upon exercise of this Option.
3. FRACTIONAL SHARES. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Option. With respect
to any fraction of a share called for upon exercise hereof, the Company shall
pay to the Holder an amount in cash equal to such fraction multiplied by the
current market value of such fractional share, determined as follows:
(A) If the Common Stock is listed on a national securities exchange
or admitted to unlisted trading privileges on such exchange, the current market
value shall be the last reported sale price of the Common Stock on such exchange
on the last business day prior to the date of exercise of this Option or, if no
such sale is made on such day, the last reported sales price of the Common Stock
on such exchange on the last preceding day on which a sale was made; or
- 2 -
<PAGE>
(B) If the Common Stock is not so listed or admitted to unlisted
trading privileges, the current market value shall be the mean of the last
reported bid and asked prices reported by the Nasdaq National Market System on
the last business day prior to the date of the exercise of this Option; or
(C) If the Common Stock is not so listed or admitted to unlisted
trading privileges and bid and asked prices are not so reported, the current
market value shall be an amount, not less than book value, determined in such
reasonable manner as may be prescribed by the Board of Directors of the Company.
4. EXCHANGE, ASSIGNMENT OR LOSS OF OPTION. This Option is exchangeable,
without expense, at the option of the Holder, upon presentation and surrender
hereof to the Company or at the office of its stock transfer agent, if any, for
other Options of different denominations entitling the Holder thereof to
purchase in the aggregate the same number of shares of Common Stock purchasable
hereunder. Notwithstanding anything herein contained, this Option is not
transferable or assignable except that it may be transferred or assigned in
whole or in part by will or by the laws of descent and distribution upon the
death of any Holder (transfers and assignments of the kind of referred to in the
foregoing clause, being hereinafter sometimes referred to as a "Permitted
Transfer"). Any Permitted Transfer or assignment as aforesaid of this Option
shall be made by surrender of this Option to the Company or at the office of its
stock transfer agent, if any, with the Assignment Form annexed hereto duly
executed and accompanied by funds sufficient to pay any transfer tax. Upon such
surrender, the Company shall, without charge, execute and deliver a new Option
in the name of the transferee or assignee named in such instrument of transfer
or assignment, and this Option shall promptly be cancelled. This Option may be
divided or combined with other Options which carry the same rights upon
presentation hereof at the office of the Company or at the office of its stock
transfer agent, if any, together with a written notice specifying the names and
denominations on which new Options are to be issued and signed by the Holder
hereof. Upon receipt by the Company of evidence satisfactory to it of the loss
theft, destruction or mutilation of this Option, and (in the case of loss, theft
or destruction) of reasonably satisfactory indemnification, and upon surrender
and cancellation of this Option, if mutilated, the Company shall execute and
deliver a new Option of like tenor and date. Any such new Option executed and
delivered shall constitute an additional contractual obligation on the part of
the Company, whether or not this Option so lost, stolen, destroyed, or mutilated
shall be at any time enforceable by anyone.
5. RIGHTS OF THE HOLDER. The holder of this Option shall not, by virtue
hereof, be entitled to any rights of a shareholder in the Company, either at law
or equity, and the rights of such Holder are limited to those expressed in this
Option and are not enforceable against the Company except to the extent set
forth herein.
- 3 -
<PAGE>
6. ANTI-DILUTION PROVISIONS.
(A) The initial Exercise Price in effect during the term of this
Option shall be as stated in the first paragraph hereof. Should there be any
adjustment in the Exercise Price in accordance with the provisions of this
Section 6 at any time during the term hereof, the Exercise Price shall
immediately be adjusted in accordance with the provisions of this Section 6. to
an amount which is in the same ratio to the initial Exercise Price for each such
subsequent period (as set forth in said first paragraph) as the Exercise Price
for the immediately preceding day (as from time to time adjusted hereunder) is
to the initial Exercise Price for such immediately preceding period (as set
forth in said first paragraph).
(B) In case, prior to the expiration of this Option by exercise of
by its terms, the Company shall issue any shares of its Common Stock as a stock
dividend or subdivide the number of outstanding shares of Common Stock into a
greater number of shares, then, in either of such cases, the Exercise Price per
share of the Option Shares purchasable pursuant tot his Option in effect at the
time of such action shall at that time be proportionately reduced and the number
of Option Shares at that time purchasable pursuant to this Option shall be
proportionately increased; and, conversely, in the event the Company shall
contract the number of outstanding shares of Common Stock by combining such
shares into a smaller number of shares, then, in such case, the Exercise Price
per share of the Option Shares purchasable pursuant to this Option in effect at
the time of such action shall be proportionately increased and the number of
Option Shares at that time purchasable pursuant to this Option shall be
proportionately decreased. If the Company shall at any time prior to the
expiration of this Option by exercise or by its terms declare a dividend payable
in cash on its Common Stock and at substantially the same time offer its
stockholders a right to purchase Common Stock from the proceeds of such dividend
or for an amount substantially equal to such dividend, at a price less than the
then prevailing market price as computed in section (c)(1) and (2), then, in
such case, all Common Stock so issued shall, for purpose of this Option, be
deemed to have been issued as a stock dividend. Any dividend paid or distributed
upon the Common Stock in stock of any other class or securities convertible into
shares of Common Stock shall be treated as a dividend paid in Common Stock to
the extent that shares of Common Stock are issuable upon the conversion thereof.
(C) RECLASSIFICATION, REORGANIZATION OR MERGER. In case of any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the Company, or in case of any consolidation or merger of the
Company with or into another corporation (other than a merger with a subsidiary
in which merger the Company is the continuing corporation and which does not
result in any reclassification, capital reorganization or other change of
outstanding shares of Common Stock of the class issuable upon exercise of this
Option or in case of any sale, lease or conveyance to another corporation of the
property and assets of the Company as an entirety or substantially as an
entirety, the Company shall, as a condition precedent to such transaction, case
effective provision to be made so that the Holder of this Option shall have the
right thereafter, by exercising this Option, to purchase the kind and amount of
- 4 -
<PAGE>
shares of stock and other securities and property receivable upon such
reclassification, capital reorganization and other change, consolidation,
merger, sale or conveyance by a holder of the number of shares of Common Stock
which might have been purchased upon exercise of this Option immediately prior
to such reclassification, change, consolidation, merger, sale or conveyance. Any
such provision shall include provision for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this Option.
The foregoing provisions of this Section 6(c) shall similarly apply to
successive reclassifications, capital reorganizations and changes of changes of
Common Stock and to successive consolidations, mergers, sales or conveyances.
(D) SPIN OFFS. In the event the Company spins-off a subsidiary by
distributing to the shareholders of the Company as a dividend or otherwise the
stock of the subsidiary, the Company shall reserve for the life of the Option,
shares of the subsidiary to be delivered to the holders of the Option upon
exercise to the same extent as if they were owners or record of the Option
shares on the record date for payment of the shares of the Subsidiary.
(E) OFFICER'S CERTIFICATE. Whenever any adjustment in the Exercise
Price or number of Option Shares or other adjustment shall be required by the
provisions of Sections 6(b) and (c), the Company shall forthwith file in the
custody of its Secretary or any Assistant Secretary at its principal office and
with its stock transfer agent, if any, an officer's certificate showing all such
adjustments and setting forth in reasonable detail the facts requiring such
adjustment, including a statement of the adjusted Exercise Price and adjusted
number of Option Shares, if any, determined in accordance with the provisions of
Sections 6(b) and (c), and such other facts as shall be necessary to show the
reason for and the manner of computing such adjustment. Each such officer's
certificate shall be made available at all reasonable times for inspection by
any Holder, and the Company shall, forthwith after each such adjustment, mail a
copy by certified mail of such certificate to each Holder.
7. NOTICES TO OPTION HOLDER. So long as this Option shall be outstanding,
(i) if the Company shall pay any dividend or make any distribution upon the
Common Stock or (ii) if the Company shall offer to the holders of Common Stock
for subscription or purchase by them of any shares of stock of any class or any
rights or (iii) if any capital reorganization of the Company, reclassification
of the capital stock of the Company, consolidation or merger of the Company with
or into another corporation, sale, lease or transfer of all or substantially all
of the property and assets of the Company to another corporation, or voluntary
or involuntary dissolution, liquidation or winding up of the Company shall be
effected, then, in any such case, the Company shall cause to be mailed by
certified mail to the Holder, at least thirty days prior to the date specified
in (x) and (y) below, as the case may be, a notice containing a brief
description of the proposed action and stating the date or expected date on
which (x) a record is to be taken for the purpose of such dividend, distribution
or rights, or (y) such reclassification, reorganization, consolidation, merger,
conveyance, lease, dissolution, liquidation or winding up is to take place and
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the date, if any is to be fixed, or expected date as of which the holders of
Common Stock of record shall be entitled to exchange their shares of Common
Stock for securities or other property deliverable upon such reclassification,
reorganization, consolidation, merger, conveyance, dissolution, liquidation or
winding up.
8. REGISTRATION UNDER THE SECURITIES ACT OF 1933.
(A) Upon the written request of Holder, or its assigns, the Company
will promptly take such steps as in the opinion of counsel for the Company, are
necessary to prepare the filing of and to process to effectiveness of a Form S-8
Registration Statement in order to permit a public offering of the Option Stock.
The Company shall pay all costs and expenses, including legal and accounting
fees and disbursements relating to such Form S-8 Registration Statement.
(B) If the Company should at any time file a Registration Statement
covering the offer and sale of any of its securities, the Company will at the
request of Holder include including all or part of the Option Shares in such
Registration Statement. Such inclusion shall be at the sole expense of the
Company. The Company will notify the Holder of Option Shares in writing of any
proposed filing pursuant to Section 8(b) at least thirty days prior thereto.
(C) The following provisions of this Section 8(c) shall also be
applicable:
(I) The Company shall upon the request of any Holder of Option
Shares forthwith supply such reasonable number of prospectuses
meeting the requirements of the Act as shall be requested by such
Holder to permit such Holder to make a public distribution of all
Option Shares from time to time offered or sold by such Holder,
provided that such Holder shall from time to time furnish the
Company with such appropriate information (relating to the
intentions of such Holder) in connection therewith as the Company
shall reasonably request in writing. The Company shall also use its
best efforts to qualify, at its expense, the Option Shares for sale
in such states as Holder may reasonably designate.
(II)(A) The Company shall indemnify and hold harmless each
Holder and each underwriter within the meaning of the Act who may
purchase from or sell for any Holder any Option Shares (and each
person, if any, who controls any such underwriter) against any and
all losses, claims, damages, liabilities and expenses (including
reasonable costs of investigation), joint or several, to which they
or any of them may become subject under the Act or under any other
statute or at common law or otherwise, and, except as hereinafter
provided, will reimburse each Holder and each underwriter (and each
such controlling person, if any) for any legal or other expenses
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reasonably incurred by them or any of them in connection with
investigating or defending any claims or actions, whether or not
resulting in any liability, insofar as such losses, claims, damages,
expenses, liabilities or actions arise out of or are based upon any
untrue statement or alleged untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement
or any post-effective amendment thereto or any registration
statement under the Act or any prospectus (preliminary or final)
included therein, or any amendment or supplement thereto, which is
required to be filed or furnished by reason of this Section or arise
out of or are based upon any omission or alleged omission to state
therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, except insofar as
such losses, claims, damages, expenses, liabilities or actions are
caused by any such untrue statement or omission (or allegation
thereof) made in reliance upon and in conformity with information
furnished in writing to the Company by or on behalf of any Holder or
underwriter expressly for use in connection therewith and except
that the indemnification agreement contained in this Section shall
not inure to the benefit of any Holder or underwriter to the extent
that any such loss, claim, damage, liability or expense results from
the failure of such Holder or underwriter, when required to do so by
the Act, to send or give a copy of any prospectus, or any amendment
or supplement thereto, to any purchaser of the Option Shares or such
Holder is otherwise responsible for the content of such Registration
Statement by virtue of being an executive officer or director of the
Company. A person who controls any underwriter shall be covered by
the indemnity agreement in this Section for all such losses, claims,
damages, liabilities, expenses and actions irrespective of whether
they are based on Section 15 of the Act. The indemnity agreement in
this Section shall be in addition to any liability which the Company
may otherwise have.
(II)(B) Anything in Section to the contrary notwithstanding,
the Company shall not be obligated so to indemnify any Holder or
underwriter or controlling person unless such Holder or underwriter
shall agree to indemnify and hold harmless the Company, its
directors and officers, any person who is named in the Registration
Statement with his consent as about to become a director, and each
person, if any, who controls the Company within the meaning of
Section 15 of the Act against any and all losses, claims, damages,
liabilities and expenses (including reasonable costs of
investigation), joint or several, to which they or any of them may
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become subject under the Act or under any other statute or at common
law or otherwise, and, except as hereinafter provided, to reimburse
such persons for any legal or other expenses reasonably incurred by
them or any of them in connection with investigating or defending
any claims or actions, whether or not resulting in any liability,
insofar as such losses, claims, damages, expenses, liabilities or
actions arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained in the
Registration Statement or any post-effective amendment thereto or
any registration statement under the Act or any prospectus
(preliminary or final) included therein, or any amendment or
supplement thereto, which is required to be filed or furnished by
reason of this Section or arise out of or are based upon any
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, but only to the extent that (i) such untrue
statement or alleged untrue statement, omission or alleged omission
is made in reliance upon and in conformity with information relating
to the Holder or underwriter furnished in writing by him or it or on
his or its behalf expressly for use in connection therewith or (ii)
such loss, claim, damage, liability or expense results from the
failure of the Holder or underwriter, when required to do so by the
Act, to send or give a copy of any prospectus, or any amendment or
supplement thereto, to any purchaser of the Option Shares or (iii)
such Holder is otherwise responsible for the contents of such
Registration Statement by virtue of being an executive officer or
director of the Company. The indemnity agreement in this Section
shall be in addition to any liability which the Holder or the
underwriter may otherwise have.
(II)(C) Promptly after receipt by an indemnified party under
this Section of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made
against the indemnifying party under such subsection, notify the
indemnifying parties in writing of the commencement thereof;
provided that the omission so to notify any indemnifying party shall
not relieve such indemnifying party from any liability which such
indemnifying party may have to any indemnified party under this
Section except for losses sustained by reason of the failure to give
such notice. In case any such action shall be brought against any
indemnified party, and it shall notify the indemnifying parties of
the commencement thereof, the indemnifying parties shall be entitled
to participate in, and, to the extent that they shall wish, jointly
with any other indemnifying party similarly notified, to assume the
defense thereof, with counsel satisfactory to such indemnified
party, and after notice from the indemnifying parties to such
indemnified party of their election so to assume the defense
thereof, the indemnifying parties shall not be liable to such
indemnified party under such Section for any legal or other expenses
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subsequently incurred by such indemnified party in connection with
the defense thereof. Any indemnifying party shall not be liable to
any indemnified party on account of any settlement of any claim or
action effected without the consent of such indemnifying party.
(II)(D) The Company's agreements with respect to the Option
Shares in this Section shall continue in effect regardless of any
transfer, assignment, exercise or surrender of this Option.
9. TRANSFER TO COMPANY WITH THE SECURITIES ACT OF 1933.
(A) This Option is non-transferable and non-assignable except as set
forth above in Section 4. The Option Shares or any other security issued or
issuable upon exercise of this Option may not sold or otherwise disposed of
except as follows:
(I) To a person who, in the opinion of counsel reasonably
satisfactory to the Company is a person to whom the Option Shares
may legally be transferred without registration and without the
delivery of a current prospectus under the Act with respect thereto
and then only against receipt of an agreement of such person to
comply with the provisions of this Section 9 with respect to any
resale or other disposition of such securities unless, in the
opinion of such counsel, such agreement is not required; or
(II) To any person upon delivery of a prospectus then meeting
the requirements of the Act relating to such securities and the
offering thereof for such sale or disposition.
(B) Each certificate for Option Shares or for any other security
issued or issuable upon exercise of this Option shall contain a legend on the
face thereof, in form and substance satisfactory to counsel for the Company,
setting forth the restrictions on transfer thereof contained in Section 9(a).
Dated as of _____________, 1996
EUROPA CRUISES CORPORATION
By:____________________________
__________________, President
[Seal]
ATTEST:
__________________________________
____________________, Secretary
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PURCHASE FORM
Dated ______________, 19__
The undersigned hereby irrevocably elects to exercise the within Option to
the extent of purchasing __________ shares of Common Stock and hereby makes
payment of $_________ in payment of the actual exercise price thereof.
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name______________________________________________________________________
(Please typewrite or print in block letters)
Address ______________________________________________________________
______________________________________________________________
Signature: ______________________________________
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<PAGE>
CASH
OPTION TO PURCHASE COMMON STOCK
OF
EUROPA CRUISES CORPORATION
This is to Certify that, FOR VALUE RECEIVED, _____________________________
or permitted assigns ("Holder"), is entitled to purchase, subject to the
provisions of this Option, from EUROPA CRUISES CORPORATION, a Delaware
corporation (the "Company"), __________ shares of the Company's Common Stock,
$.001 par value ("Common Stock"), at a price of $______ per share at any time
during the period from ____________, 1996 to 5:00 p.m. Daylight Savings Time on
______________, 2001, at which time this Option shall expire and become void.
The number of shares of Common Stock to be received upon exercise of this Option
and the price to be paid for each share of Common Stock may be adjusted from
time to time as hereinafter set forth. The shares of Common Stock deliverable
upon such exercise, and as adjusted from time to time, are hereinafter sometimes
referred to as "Option Shares", and the exercise price per share of Common Stock
in effect at any time and as adjusted from time to time is hereinafter sometimes
referred to as the "Exercise Price." Unless the content otherwise requires, the
term "Option" as used herein includes this Option and any other Option or
Options which may be issued pursuant to the provisions of this Option, whether
upon transfer, assignment, partial exercise, division, combination, exchange or
otherwise, and the term "Holder" includes any transferee or transferees or
assignee or assignees of the Holder named above limited, however, to the terms
of Section (d) herein restricting transfer of this Option, and, when used with
reference to Option Shares, means the holder or holders of such Option Shares.
1. EXERCISE OF OPTION. This Option may be exercised in whole or in part at
any time or from time to time on or after _____________, 1996 and before 5:00
p.m., Daylight Savings Time, on _____________, 2001, or if either such day is a
day on which banking institutions in the City of Washington, D.C. are authorized
by law to close, then on the next succeeding day which shall not be such a day,
by presentation and surrender hereof to the Company at its principal office, or
at the office of its stock transfer agent, if any, with the Purchase Form
annexed hereto duly executed and accompanied by payment of the Exercise Price
for the number of Option Shares specified in such form. If this Option should be
exercised in part only, the Company shall, upon presentation of this Option upon
such exercise, accompanied by the payment of the price for the Option Shares
exercised, execute and deliver a new Option evidencing the rights of the Holder
hereof to purchase the balance of the Option Shares purchasable hereunder. Upon
receipt by the Company or its stock transfer agent of this Option, in proper
form for exercise, the Holder shall be deemed to be the holder of record of the
Option Shares issuable upon such exercise notwithstanding that the stock
transfer books of the Company shall then be closed or that certificates
representing such Option Shares shall not then be actually delivered to the
Holder.
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<PAGE>
CASH EXERCISE. Payment for the shares may be made only in cash (or
by certified or cashier's check) delivered to the Company at its principal
office in the State of Florida on the date specified in the notice referred to
in Paragraph 2 above; provided, however, that such date shall not exceed ninety
(90) days from the date of such notice, as specified in Paragraph 2 hereinabove,
unless otherwise agreed in writing by the Company.
2. RESERVATION OF SHARES. The Company hereby agrees that at all times
until this Option expires there shall be reserved for issuance and/or delivery
upon exercise of this Option such number of shares of its Common Stock as shall
be required for issuance or delivery upon exercise of this Option.
3. FRACTIONAL SHARES. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Option. With respect
to any fraction of a share called for upon exercise hereof, the Company shall
pay to the Holder an amount in cash equal to such fraction multiplied by the
current market value of such fractional share, determined as follows:
(A) If the Common Stock is listed on a national securities exchange
or admitted to unlisted trading privileges on such exchange, the current market
value shall be the last reported sale price of the Common Stock on such exchange
on the last business day prior to the date of exercise of this Option or, if no
such sale is made on such day, the last reported sales price of the Common Stock
on such exchange on the last preceding day on which a sale was made; or
(B) If the Common Stock is not so listed or admitted to unlisted
trading privileges, the current market value shall be the mean of the last
reported bid and asked prices reported by the Nasdaq National Market System on
the last business day prior to the date of the exercise of this Option; or
(C) If the Common Stock is not so listed or admitted to unlisted
trading privileges and bid and asked prices are not so reported, the current
market value shall be an amount, not less than book value, determined in such
reasonable manner as may be prescribed by the Board of Directors of the Company.
4. EXCHANGE, ASSIGNMENT OR LOSS OF OPTION. This Option is exchangeable,
without expense, at the option of the Holder, upon presentation and surrender
hereof to the Company or at the office of its stock transfer agent, if any, for
other Options of different denominations entitling the Holder thereof to
purchase in the aggregate the same number of shares of Common Stock purchasable
hereunder. Notwithstanding anything herein contained, this Option is not
transferable or assignable except that it may be transferred or assigned in
whole or in part by will or by the laws of descent and distribution upon the
death of any Holder (transfers and assignments of the kind of referred to in the
foregoing clause, being hereinafter sometimes referred to as a "Permitted
Transfer"). Any Permitted Transfer or assignment as aforesaid of this Option
shall be made by surrender of this Option to the Company or at the office of its
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<PAGE>
stock transfer agent, if any, with the Assignment Form annexed hereto duly
executed and accompanied by funds sufficient to pay any transfer tax. Upon such
surrender, the Company shall, without charge, execute and deliver a new Option
in the name of the transferee or assignee named in such instrument of transfer
or assignment, and this Option shall promptly be cancelled. This Option may be
divided or combined with other Options which carry the same rights upon
presentation hereof at the office of the Company or at the office of its stock
transfer agent, if any, together with a written notice specifying the names and
denominations on which new Options are to be issued and signed by the Holder
hereof. Upon receipt by the Company of evidence satisfactory to it of the loss
theft, destruction or mutilation of this Option, and (in the case of loss, theft
or destruction) of reasonably satisfactory indemnification, and upon surrender
and cancellation of this Option, if mutilated, the Company shall execute and
deliver a new Option of like tenor and date. Any such new Option executed and
delivered shall constitute an additional contractual obligation on the part of
the Company, whether or not this Option so lost, stolen, destroyed, or mutilated
shall be at any time enforceable by anyone.
5. RIGHTS OF THE HOLDER. The holder of this Option shall not, by virtue
hereof, be entitled to any rights of a shareholder in the Company, either at law
or equity, and the rights of such Holder are limited to those expressed in this
Option and are not enforceable against the Company except to the extent set
forth herein.
6. ANTI-DILUTION PROVISIONS.
(A) The initial Exercise Price in effect during the term of this
Option shall be as stated in the first paragraph hereof. Should there be any
adjustment in the Exercise Price in accordance with the provisions of this
Section 6 at any time during the term hereof, the Exercise Price shall
immediately be adjusted in accordance with the provisions of this Section 6. to
an amount which is in the same ratio to the initial Exercise Price for each such
subsequent period (as set forth in said first paragraph) as the Exercise Price
for the immediately preceding day (as from time to time adjusted hereunder) is
to the initial Exercise Price for such immediately preceding period (as set
forth in said first paragraph).
(B) In case, prior to the expiration of this Option by exercise of
by its terms, the Company shall issue any shares of its Common Stock as a stock
dividend or subdivide the number of outstanding shares of Common Stock into a
greater number of shares, then, in either of such cases, the Exercise Price per
share of the Option Shares purchasable pursuant tot his Option in effect at the
time of such action shall at that time be proportionately reduced and the number
of Option Shares at that time purchasable pursuant to this Option shall be
proportionately increased; and, conversely, in the event the Company shall
contract the number of outstanding shares of Common Stock by combining such
shares into a smaller number of shares, then, in such case, the Exercise Price
per share of the Option Shares purchasable pursuant to this Option in effect at
the time of such action shall be proportionately increased and the number of
Option Shares at that time purchasable pursuant to this Option shall be
proportionately decreased. If the Company shall at any time prior to the
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<PAGE>
expiration of this Option by exercise or by its terms declare a dividend payable
in cash on its Common Stock and at substantially the same time offer its
stockholders a right to purchase Common Stock from the proceeds of such dividend
or for an amount substantially equal to such dividend, at a price less than the
then prevailing market price as computed in section (c)(1) and (2), then, in
such case, all Common Stock so issued shall, for purpose of this Option, be
deemed to have been issued as a stock dividend. Any dividend paid or distributed
upon the Common Stock in stock of any other class or securities convertible into
shares of Common Stock shall be treated as a dividend paid in Common Stock to
the extent that shares of Common Stock are issuable upon the conversion thereof.
(C) RECLASSIFICATION, REORGANIZATION OR MERGER. In case of any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the Company, or in case of any consolidation or merger of the
Company with or into another corporation (other than a merger with a subsidiary
in which merger the Company is the continuing corporation and which does not
result in any reclassification, capital reorganization or other change of
outstanding shares of Common Stock of the class issuable upon exercise of this
Option or in case of any sale, lease or conveyance to another corporation of the
property and assets of the Company as an entirety or substantially as an
entirety, the Company shall, as a condition precedent to such transaction, case
effective provision to be made so that the Holder of this Option shall have the
right thereafter, by exercising this Option, to purchase the kind and amount of
shares of stock and other securities and property receivable upon such
reclassification, capital reorganization and other change, consolidation,
merger, sale or conveyance by a holder of the number of shares of Common Stock
which might have been purchased upon exercise of this Option immediately prior
to such reclassification, change, consolidation, merger, sale or conveyance. Any
such provision shall include provision for adjustments which shall be as nearly
equivalent as may be practicable to the adjustments provided for in this Option.
The foregoing provisions of this Section 6(c) shall similarly apply to
successive reclassifications, capital reorganizations and changes of changes of
Common Stock and to successive consolidations, mergers, sales or conveyances.
(D) SPIN OFFS. In the event the Company spins-off a subsidiary by
distributing to the shareholders of the Company as a dividend or otherwise the
stock of the subsidiary, the Company shall reserve for the life of the Option,
shares of the subsidiary to be delivered to the holders of the Option upon
exercise to the same extent as if they were owners or record of the Option
shares on the record date for payment of the shares of the Subsidiary.
(E) OFFICER'S CERTIFICATE. Whenever any adjustment in the Exercise
Price or number of Option Shares or other adjustment shall be required by the
provisions of Sections 6(b) and (c), the Company shall forthwith file in the
custody of its Secretary or any Assistant Secretary at its principal office and
with its stock transfer agent, if any, an officer's certificate showing all such
adjustments and setting forth in reasonable detail the facts requiring such
adjustment, including a statement of the adjusted Exercise Price and adjusted
number of Option Shares, if any, determined in accordance with the provisions of
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<PAGE>
Sections 6(b) and (c), and such other facts as shall be necessary to show the
reason for and the manner of computing such adjustment. Each such officer's
certificate shall be made available at all reasonable times for inspection by
any Holder, and the Company shall, forthwith after each such adjustment, mail a
copy by certified mail of such certificate to each Holder.
7. NOTICES TO OPTION HOLDER. So long as this Option shall be outstanding,
(i) if the Company shall pay any dividend or make any distribution upon the
Common Stock or (ii) if the Company shall offer to the holders of Common Stock
for subscription or purchase by them of any shares of stock of any class or any
rights or (iii) if any capital reorganization of the Company, reclassification
of the capital stock of the Company, consolidation or merger of the Company with
or into another corporation, sale, lease or transfer of all or substantially all
of the property and assets of the Company to another corporation, or voluntary
or involuntary dissolution, liquidation or winding up of the Company shall be
effected, then, in any such case, the Company shall cause to be mailed by
certified mail to the Holder, at least thirty days prior to the date specified
in (x) and (y) below, as the case may be, a notice containing a brief
description of the proposed action and stating the date or expected date on
which (x) a record is to be taken for the purpose of such dividend, distribution
or rights, or (y) such reclassification, reorganization, consolidation, merger,
conveyance, lease, dissolution, liquidation or winding up is to take place and
the date, if any is to be fixed, or expected date as of which the holders of
Common Stock of record shall be entitled to exchange their shares of Common
Stock for securities or other property deliverable upon such reclassification,
reorganization, consolidation, merger, conveyance, dissolution, liquidation or
winding up.
8. REGISTRATION UNDER THE SECURITIES ACT OF 1933.
(A) Upon the written request of Holder, or its assigns, the Company
will promptly take such steps as in the opinion of counsel for the Company, are
necessary to prepare the filing of and to process to effectiveness of a Form S-8
Registration Statement in order to permit a public offering of the Option Stock.
The Company shall pay all costs and expenses, including legal and accounting
fees and disbursements relating to such Form S-8 Registration Statement.
(B) If the Company should at any time file a Registration Statement
covering the offer and sale of any of its securities, the Company will at the
request of Holder include including all or part of the Option Shares in such
Registration Statement. Such inclusion shall be at the sole expense of the
Company. The Company will notify the Holder of Option Shares in writing of any
proposed filing pursuant to Section 8(b) at least thirty days prior thereto.
(C) The following provisions of this Section 8(c) shall also be
applicable:
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(I) The Company shall upon the request of any Holder of Option
Shares forthwith supply such reasonable number of prospectuses
meeting the requirements of the Act as shall be requested by such
Holder to permit such Holder to make a public distribution of all
Option Shares from time to time offered or sold by such Holder,
provided that such Holder shall from time to time furnish the
Company with such appropriate information (relating to the
intentions of such Holder) in connection therewith as the Company
shall reasonably request in writing. The Company shall also use its
best efforts to qualify, at its expense, the Option Shares for sale
in such states as Holder may reasonably designate.
(II)(AThe Company shall indemnify and hold harmless each
Holder and each underwriter within the meaning of the Act who may
purchase from or sell for any Holder any Option Shares (and each
person, if any, who controls any such underwriter) against any and
all losses, claims, damages, liabilities and expenses (including
reasonable costs of investigation), joint or several, to which they
or any of them may become subject under the Act or under any other
statute or at common law or otherwise, and, except as hereinafter
provided, will reimburse each Holder and each underwriter (and each
such controlling person, if any) for any legal or other expenses
reasonably incurred by them or any of them in connection with
investigating or defending any claims or actions, whether or not
resulting in any liability, insofar as such losses, claims, damages,
expenses, liabilities or actions arise out of or are based upon any
untrue statement or alleged untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement
or any post-effective amendment thereto or any registration
statement under the Act or any prospectus (preliminary or final)
included therein, or any amendment or supplement thereto, which is
required to be filed or furnished by reason of this Section or arise
out of or are based upon any omission or alleged omission to state
therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, except insofar as
such losses, claims, damages, expenses, liabilities or actions are
caused by any such untrue statement or omission (or allegation
thereof) made in reliance upon and in conformity with information
furnished in writing to the Company by or on behalf of any Holder or
underwriter expressly for use in connection therewith and except
that the indemnification agreement contained in this Section shall
not inure to the benefit of any Holder or underwriter to the extent
that any such loss, claim, damage, liability or expense results from
the failure of such Holder or underwriter, when required to do so by
the Act, to send or give a copy of any prospectus, or any amendment
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or supplement thereto, to any purchaser of the Option Shares or such
Holder is otherwise responsible for the content of such Registration
Statement by virtue of being an executive officer or director of the
Company. A person who controls any underwriter shall be covered by
the indemnity agreement in this Section for all such losses, claims,
damages, liabilities, expenses and actions irrespective of whether
they are based on Section 15 of the Act. The indemnity agreement in
this Section shall be in addition to any liability which the Company
may otherwise have.
(II)(BAnything in Section to the contrary notwithstanding, the
Company shall not be obligated so to indemnify any Holder or
underwriter or controlling person unless such Holder or underwriter
shall agree to indemnify and hold harmless the Company, its
directors and officers, any person who is named in the Registration
Statement with his consent as about to become a director, and each
person, if any, who controls the Company within the meaning of
Section 15 of the Act against any and all losses, claims, damages,
liabilities and expenses (including reasonable costs of
investigation), joint or several, to which they or any of them may
become subject under the Act or under any other statute or at common
law or otherwise, and, except as hereinafter provided, to reimburse
such persons for any legal or other expenses reasonably incurred by
them or any of them in connection with investigating or defending
any claims or actions, whether or not resulting in any liability,
insofar as such losses, claims, damages, expenses, liabilities or
actions arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained in the
Registration Statement or any post-effective amendment thereto or
any registration statement under the Act or any prospectus
(preliminary or final) included therein, or any amendment or
supplement thereto, which is required to be filed or furnished by
reason of this Section or arise out of or are based upon any
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, but only to the extent that (i) such untrue
statement or alleged untrue statement, omission or alleged omission
is made in reliance upon and in conformity with information relating
to the Holder or underwriter furnished in writing by him or it or on
his or its behalf expressly for use in connection therewith or (ii)
such loss, claim, damage, liability or expense results from the
failure of the Holder or underwriter, when required to do so by the
Act, to send or give a copy of any prospectus, or any amendment or
supplement thereto, to any purchaser of the Option Shares or (iii)
such Holder is otherwise responsible for the contents of such
Registration Statement by virtue of being an executive officer or
director of the Company. The indemnity agreement in this Section
shall be in addition to any liability which the Holder or the
underwriter may otherwise have.
- 7 -
<PAGE>
(II)(CPromptly after receipt by an indemnified party under
this Section of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made
against the indemnifying party under such subsection, notify the
indemnifying parties in writing of the commencement thereof;
provided that the omission so to notify any indemnifying party shall
not relieve such indemnifying party from any liability which such
indemnifying party may have to any indemnified party under this
Section except for losses sustained by reason of the failure to give
such notice. In case any such action shall be brought against any
indemnified party, and it shall notify the indemnifying parties of
the commencement thereof, the indemnifying parties shall be entitled
to participate in, and, to the extent that they shall wish, jointly
with any other indemnifying party similarly notified, to assume the
defense thereof, with counsel satisfactory to such indemnified
party, and after notice from the indemnifying parties to such
indemnified party of their election so to assume the defense
thereof, the indemnifying parties shall not be liable to such
indemnified party under such Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with
the defense thereof. Any indemnifying party shall not be liable to
any indemnified party on account of any settlement of any claim or
action effected without the consent of such indemnifying party.
(II)(DThe Company's agreements with respect to the Option
Shares in this Section shall continue in effect regardless of any
transfer, assignment, exercise or surrender of this Option.
9. TRANSFER TO COMPANY WITH THE SECURITIES ACT OF 1933.
(A) This Option is non-transferable and non-assignable except as set
forth above in Section 4. The Option Shares or any other security issued or
issuable upon exercise of this Option may not sold or otherwise disposed of
except as follows:
(I) To a person who, in the opinion of counsel reasonably
satisfactory to the Company is a person to whom the Option Shares
may legally be transferred without registration and without the
delivery of a current prospectus under the Act with respect thereto
and then only against receipt of an agreement of such person to
comply with the provisions of this Section 9 with respect to any
resale or other disposition of such securities unless, in the
opinion of such counsel, such agreement is not required; or
- 8 -
<PAGE>
(II) To any person upon delivery of a prospectus then meeting
the requirements of the Act relating to such securities and the
offering thereof for such sale or disposition.
(B) Each certificate for Option Shares or for any other security
issued or issuable upon exercise of this Option shall contain a legend on the
face thereof, in form and substance satisfactory to counsel for the Company,
setting forth the restrictions on transfer thereof contained in Section 9(a).
Dated as of _____________, 1996
EUROPA CRUISES CORPORATION
By:__________________________
___________________, President
[Seal]
ATTEST:
_____________________________________
________________________, Secretary
- 9 -
<PAGE>
PURCHASE FORM
Dated ______________, 19__
The undersigned hereby irrevocably elects to exercise the within Option to
the extent of purchasing __________ shares of Common Stock and hereby makes
payment of $_________ in payment of the actual exercise price thereof.
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name______________________________________________________________________
(Please typewrite or print in block letters)
Address _____________________________________________________________
_____________________________________________________________
Signature: ______________________________________
- 10 -
LEASE AGREEMENT
This LEASE AGREEMENT made this 1st day of October,1996, by and between
TIERRA VERDE MARINA DEVELOPMENT CORPORATION., a Florida corporation, hereinafter
referred to as "Lessor", and EUROPA STARDANCER CORPORATION, a Delaware
corporation, authorized to do business in the State of Florida, hereinafter
referred to as "Lessee".
Whereas, Lessor is the owner of certain real property known as the TIERRA
VERDE RESORT AND MARINA (hereinafter:TVRM) suitable for the operation of a
cruise vessel; and,
Whereas, Lessee is in the business of operating cruise vessels and desires
to lease certain dockside facilities at the Tierra Verde Resort and Marina for
the operation of a cruise vessel. Now, therefore, the Parties mutually covenant
and agree as follows:
ARTICLE I - LEASED PREMISES, DESCRIPTION, TERM
----------------------------------------------
A. Lessors hereby lease and demise to Lessee, and Lessee hereby leases
from Lessors, the "LEASED PREMISES" which shall consist of: A.) One (1) wet
storage berth, at TVRM's current southwesternmost pier, for an excursion vessel
of 150' to 175' in length. B.) Space in the TVRM main lobby for a ticket booth
and small office. C.) A waiting area in the TVRM main lobby area sufficient to
accommodate the vessel's passengers. D.) A number of parking spaces, in the TVRM
parking lots adjacent to the TVRM main entrance, sufficient to accommodate 250
passengers. E.) Space at the now southwesternmost parking area of the TVRM for
the accommodation of VIP passengers and employees. F.) A small storage room for
the holding of supplies and equipment. The leased premises shall be located at
the Tierra Verde Resort and Marina, 200 Madonna Blvd., Tierra Verde, Florida
33715.
B. The initial term of this lease agreement shall be for twelve (12)
months commencing November 1, 1996, and ending on October 31, 1997. The initial
term of this lease may be extended at Lessee's option as provided in Article III
below.
C. This lease is subject to Lessee timely obtaining all necessary licenses
and permits required to operate a cruise operation similar to that Lessee
currently operates in its other Florida ports.
ARTICLE II - RENT AND ADDITIONAL CHARGES
----------------------------------------
A. Upon commencement of this Lease as set forth in Article I above, and
during the initial term, Lessee agrees to pay as annual rent Two Dollars ($2.00)
per paying passenger or Seventy Two Thousand Dollars ($72,000.00) per year,
whichever is greater. Lessee shall supply Lessors on or before the fifteenth day
(15th) of the month following each month of operation an accounting of the total
number of paying passengers accommodated by Lessee together with a check in
payment for the rent as computed herein. Lessee at its sole discression, shall
determine the operating schedule, if any, of the cruise vessel.
B. In addition to the rent as provided in Article II A. above and Article
III B. below, Lessee shall pay all state or local sales tax payments due on the
lease payments, which are, or may be, in effect at the time any rent payment is
due hereunder.
1
<PAGE>
ARTICLE III - OPTIONS TO EXTEND LEASE TERM
------------------------------------------
A. Prior to the expiration of the initial term of this lease, Lessee shall
have the option to extend the term of this lease for five (5) additional one (1)
year terms by providing Lessors with written notice of Lessee's intent to extend
the term of the lease for the next up-coming one-year term. Such notice to
extend will be provided by Lessee to Lessor not later than 60 days prior to the
expiration of the then-current lease term.
B. If Lessee elects to exercise its option(s) to extend the term of this
lease, Lessor and Lessee agree that the financial terms of the extended lease
agreement will remain the same as enumerated in Article II, A and B.
ARTICLE IV - INSURANCE
----------------------
Upon commencement of the lease, Lessee agrees to and shall secure from a
reputable insurance carrier or carriers licensed to do business in the State of
Florida, and shall maintain during the entire term of the lease, its own
liability insurance (in an amount not less than One Million Five Hundred
Thousand Dollars ($1,500,000.00), and property insurance on the leased building
space, on the berthed vessel or on any equipment, furniture, and fixtures
therein. Lessee further agrees that Lessors shall be named as an additional
insured on the aforementioned policy or policies of insurance.
ARTICLE V - UTILITIES
---------------------
A. Upon commencement of this lease, Lessee shall pay for all utilities
needed in connection with the berthing of the ship, except that Lessor will be
responsible for payment of electrical service charges necessary to properly
light walkways and docks leading to the ship's berth at the dock. Lessor will
pay all utility costs associated with the Ticket Booth/office/storage room
location excluding those enumerated in Article B below.
B. All telecommunications services, including installation, repairs, and
usage charges, shall be the sole responsibility of Lessee.
C. Lessor will pay for the installation of a one and one-quarter inch
(1-1/4") potable water line, with meter, to ship's dockside location. Lessee
will reimburse Lessor for actual water costs, including the associated sewer
charges, on a monthly basis, one month in arrears, based on metered consumption.
ARTICLE VI - ASSIGNMENT AND SUBLEASE
------------------------------------
Lessee hereby acknowledges and agrees that it shall not have the right to
assign or sublease Lessee's interest in this lease, without first having
obtained the written consent to said assignment or sublease from Lessor, which
consent will not be unreasonably withheld. Lessee shall have the right to assign
or sublease its interest to a parent company, a subsidiary corporation, or an
affiliate without requiring prior written consent of Lessors.
2
<PAGE>
ARTICLE VII - HOLD HARMLESS
---------------------------
Lessee hereby acknowledges and agrees that it shall protect and hold
harmless Lessors and the leased premises from liability from any and all
taxes, assessments, charges, liens, (including mechanics' liens), together
with any interest, penalties, or other sums thereby imposed, and from any and
all claims, suits, actions, damages or causes of action arising out of the
operations of the Lessee, during the term of this lease, for any personal
injury, loss of life or damage to property sustained in, on, or about the
leased premises by reason of, or as a result of, Lessee's negligence. Lessee
further acknowledges that Lessee will not, and cannot, subject the leased
premises or any portion of the property in which, and upon which, the leased
premises is located, to any lien of any sort, including mechanics' lien.
ARTICLE VIII - LESSEE'S OBLIGATIONS
-----------------------------------
A. Lessee hereby agrees to use the leased premises pursuant to the terms
of this lease and in accordance with all applicable laws and ordinances.
B. Lessee hereby acknowledges and agrees to exercise reasonable care while
using any of the common areas of the Lessors property with due regard for the
preservation of the property and the comfort of other tenants.
C. Lessee hereby acknowledges and agrees it shall not dispose of any waste
on the leased premises except those placed in proper receptacles which Lessee
agrees to secure for its use for the disposal of trash/garbage generated by its
operation. Lessor agrees to make space available to Lessee, without charge, for
placement of "dumpsters" at a location within reasonable proximity to ship's
berth. Lessee further agrees not to maintain, or permit the maintenance or
commission of, any nuisance on the leased premises.
D. Lessee hereby acknowledges and agrees that the leased space has been
received in good condition and that the execution of this lease and the taking
possession hereunder shall be conclusive evidence and any representations as to
the condition of said leased spaced by the Lessor have been met. Any
discrepancies will be agreed upon between the Lessor and Lessee or their
representatives before a notice of commencement is signed and initiated.
E. Lessee hereby acknowledges and agrees to keep and maintain the leased
space consistent with the general condition of the marina and in as good a
condition as said leased space was in upon execution of the lease, with
reasonable wear and tear expected.
F. Lessee hereby acknowledges and agrees not to make any alterations or
changes in leased premises without the express written consent of Lessor, which
consent will not be unreasonably withheld.
G. Lessee's business activities, on the leased premises and the adjoining
premises of the Lessor, shall be limited solely to implementing and carrying out
offshore pleasure cruises and charters, and specifically shall not include
fishing activities unless previously authorized in writing by the Lessor.
3
<PAGE>
ARTICLE IX - INSPECTION BY LESSORS
----------------------------------
Lessee hereby acknowledges and agrees that Lessor or its agent may enter
into and upon the demised areas at all reasonable times for the purpose or
inspection, making repairs or alterations, except that no repairs which would
prevent Lessee's operations from proceeding without interruption will be
commenced by Lessor without the prior agreement and consent of Lessee.
ARTICLE X - DEFAULTS AND REMEDIES
---------------------------------
If Lessee shall allow the rent to be in arrears more than ten (10) days
after the due date of any installment, after being advised in writing thereof,
or if there shall be any other default on the part of the Lessee which continues
for ten (10) days after delivery of written notice from Lessor of such default,
or should any person other than Lessee secure possession of the premises, or any
part thereof, by reason of receivership, bankruptcy proceedings, or operation of
law in any manner whatsoever, Lessor may, at its discretion, without notice to
Lessee, declare the lease to be breached and in default, and enter and take
possession of said premises, owned and leased herein, and remove all persons and
property therefrom without being deemed guilty of any manner of trespass, and
re-let the premises, or any part thereof, for all of any part of the remainder
of said term, to a party satisfactory to Lessor, and at such monthly rental as
Lessor may with reasonable diligence be able to secure. In the event Lessor
exercises its option to take possession, and should Lessor be unable to re-let
after reasonable efforts to do so, or should such rental be less than the rental
Lessee was obligated to pay under this lease, or any renewal thereof, plus the
expense of reletting, then Lessee shall pay the amount of such deficiency to
Lessor. In no event shall Lessor be obligated to find a new tenant on behalf of
Lessee.
ARTICLE XI - MISCELLANEOUS
--------------------------
A. Lessee will be permitted, at its expense, the erection of various signs
upon the Lessors' premises. All signs, their content, location, and construction
details shall be in compliance with any applicable laws or ordinances and shall
be approved by the Lessor, in writing, before erection, which approval shall not
be unreasonably withheld.
B. Lessee may use the existing parking facilities of the TVRM for its
customers, employees, and vendors. The use of the existing facilities shall not
interfere with the existing operations of the leased premises, or its patrons,
except as may be consistent with the Lessee's normal operations of a cruise
vessel business.
C. Lessee may use certain marina areas as a passenger waiting area,
provided the areas do not adversely interfere with Lessors' normal patron access
to its docking areas. All improvements of this area, if any, will be at Lessee's
option and will be at Lessee's expense and are subject to written approval of
Lessor.
Any improvements made by Lessor shall be at Lessor's expense.
D. It is understood that berthing accommodations for the cruise ship may
require additional breasting and/or mooring pilings and cleats, and the
installation of special metered electrical and water service. Lessee shall be
responsible for the actual design of the improvements, if any, and for prompt
payment of contractor(s) employed by Lessee to perform services in order that no
mechanic's lien attaches. Lessor shall be responsible for obtaining all
necessary license and approvals. Upon termination of the lease, Lessee shall be
entitled to remove all of its improvements, except pilings, docks, and the water
line and meter to be installed. Lessor shall reimburse Lessee for dredging
necessary within the TVRM area to provide draft for Lessee's vessel, if ever
necessary, subject to obtaining permits.
4
<PAGE>
E. With reference to D above, it is agreed that Lessor will reimburse
Lessee in an amount equal to fifty per cent (50%) of the total cost of design
and construction, if necessary, of enhanced mooring "dolphins", by providing one
hundred percent (100%) rental credit, beginning on the first day of passenger
operations, and lasting until the entire amount due Lessee has been credited.
F. Lessor will pay for necessary sidewalk installation and/or improvement,
including railings and lighting, suitable to Lessee, necessary to provide a
walkway from the Ticket Booth to the ship's gangway. Such installations and
improvements to be mutually agreeable to both parties.
G. Lessor will pay for necessary clean-up/landscaping of areas adjacent to
passenger parking areas and walkways to the ship.
H. Lessor shall have the right of first refusal to provide fuel for
Lessee's vessel at the leased premises. Lessor agrees that this right of first
refusal is conditioned upon Lessor being able to timely supply Lessee, at the
ship's berth, with the type and grade of fuel specified by Lessee, in quantity
required by Lessee, and at a total cost no greater than Lessee incurs from other
vendor(s). In the event that Lessor cannot meet these terms, Lessor understands
and agrees that Lessee will arrange for the fueling of its vessel with other
supplier(s) utilizing tanker truck delivery.
I. All notices provided to be given under this Agreement shall be given by
certified or registered mail, addressed to the proper party, at the following
address:
LESSOR: TIERRA VERDE RESORT, INC.
200 MADONNA BOULEVARD
TIERRA VERDE, FLORIDA 33715
LESSEE: EUROPA STARDANCER CORPORATION
150 153RD AVENUE, SUITE 200
MADEIRA BEACH, FLORIDA 33708
In the alternative, written notice required to be given under this
Agreement may be delivered by facsimile transmission as follows:
If to the Lessor:
Edward Medley (813) 867-9331
If to the Lessee:
Lester Bullock (813) 319-9125
AND TO
Deborah Vitale, Esq. (703) 683-6816
J. This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective heirs, executors, administrators, legal
representatives, successors, and assigns.
5
<PAGE>
K. This Agreement shall be construed under and in accordance with the laws
of the State of Florida.
L. In the event that any one or more of the provisions contained in this
lease shall, for any reason, be held to be invalid, illegal, or unenforceable in
any respect, such invalidity, illegality, or unenforceability shall not affect
any other provision thereof and this lease shall be construed as if such
invalid, illegal or unenforceable provisions had never been contained therein.
M. This lease constitutes the sole and only agreement of the parties
hereto and supersedes any prior understandings, or written or oral agreements
between the parties respecting the subject matter within it.
N. No amendment, modification, or alteration of the terms hereof shall be
binding unless the same be in writing, dated subsequent to the date hereof, and
duly executed by the parties hereto.
O. The rights and remedies provided by this lease are cumulative and the
use of any one right or remedy by either party shall not preclude or waive its
right to use any or all other remedies. Said rights and remedies are given in
addition to any other rights the parties may have by law, statue, ordinance, or
otherwise.
P. No waiver by the parties hereto of any default or breach of any term,
condition, or covenant of this lease shall be deemed to be a waiver of any other
breach of the same or any other term, condition, or covenant contained herein.
Q. Neither Lessor nor Lessee shall be required to perform any term,
condition, or covenant in this lease so long as such performance is delayed or
prevented by any acts of God, strikes, lockouts, material or labor interuptions,
restrictions by any governmental authority, civil riot, floods, and any other
cause not reasonably within the control of Lessor or Lessee, and which by the
exercise of due diligence Lessor or Lessee is unable, wholly or in part, to
prevent or overcome.
R. Lessor agrees that it shall not engage in or allow any business
activity on the leased premises which is in competition with Lessee's cruise
operation, including leasing space to any other cruise ship operation engaged in
on-board gaming, nor shall the Lessor engage in any cruise ship operation or
gaming activity on or about the leased premises. Lessor also agrees that at no
time during the length of this lease, shall any other person, entity, vessel or
association be permitted to engage in, or operate, on-board or other gaming from
premises owned, operated, or managed by Lessor, within one mile of the site
discussed in Article 1.
S. The exact method and physical location of parking for passenger and
employee vehicles will be by mutual agreement of Lessor and Lessee, except that
in no case will parking for either passenger or employee vehicles be required
away from the confines of the TVRM as it exists at the time of the signing of
this original lease agreement.
T. The exact method and physical routing of passengers from the Ticket
Booth to the ship's berth will be by mutual agreement of Lessor and Lessee,
except that all "VIP" passengers, who so desire, may drive directly to the "VIP
Parking Area" immediately adjacent to the ship's dock, and board the ship
directly, being ticketed on board the vessel. Lessee agrees that the "VIP"
privilege will not be used to circumvent the original intent of this paragraph
"T".
6
<PAGE>
ARTICLE XII
-----------
In the event that the State of Florida should succeed in banning cruise
casino vessels by moving to cancel the submerged land lease of Lessor's TVRM
property, and if Lessor is unable to prevent, via a vigorous legal defense, the
State of Florida from proceeding with such cancellation, the parties agree that
this lease will become null and void at the point at which the Court of final
jurisdiction rules that the State of Florida may proceed with its cancellation
of Lessor's submerged land lease.
ARTICLE XIII
------------
If Lessor's property is sold or leased to a third party during any term of
this lease, Lessor will have the right to cancel this lease upon the expiration
of the then-current term of the lease, plus one additional remaining term, if
any then remain. Lessor agrees, in the event of such a sale as described above,
to reimburse Lessee for any and all improvements, made at Lessee's expense, to
Lessor's property. Further, Lessor agrees to make any sale of its TVRM property
to any third party subject to the following provision:
"Purchaser(s) agree(s), as a condition of sale, that purchaser, its
agents, managers, fiduciaries, heirs, and/or assigns, shall not themselves
operate, nor shall they lease nor sell operating rights to any other individual,
group, or company, permitting the operation of any vessel engaged in on-board
gaming of any type whatsoever for a period of thirty-six (36) consecutive months
immediately following the date that Europa Stardancer Corporation's vessel
ceases operations at TVRM's port by reason of the sale or lease of said property
whereby new owners elect to cancel that certain lease dated October 1,1996, by
and between TIERRA VERDE MARINA DEVELOPMENT CORPORATION and EUROPA STARDANCER
CORPORATION."
IN WITNESS WHEREOF the undersigned Lessor and Lessee hereto execute this
lease as of the date and year first above written.
Witnesses: LESSOR
Terra Verde Marine Development Corp.,
_______________________________ a Florida Corporation
_______________________________ By:________________________________
Edward Medley, Vice President
LESSEE
Europa Stardancer Corporation,
________________________________ a Delaware Corporation
_______________________________ By:________________________________
Lester E. Bullock, President
7
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF EUROPA CRUISES CORPORATION FOR THE TWELVE MONTHS ENDED
DECEMBER 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 548,080
<SECURITIES> 0
<RECEIVABLES> 398,732
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,878,114
<PP&E> 18,586,391
<DEPRECIATION> 4,679,429
<TOTAL-ASSETS> 21,834,454
<CURRENT-LIABILITIES> 3,550,215
<BONDS> 0
0
28,225
<COMMON> 27,176
<OTHER-SE> 11,077,079
<TOTAL-LIABILITY-AND-EQUITY> 21,834,454
<SALES> 0
<TOTAL-REVENUES> 19,252,778
<CGS> 0
<TOTAL-COSTS> 19,269,301
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 908,006
<INCOME-PRETAX> (16,253)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (16,253)
<EPS-PRIMARY> (.01)
<EPS-DILUTED> (.01)
</TABLE>
