SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______TO _____
COMMISSION FILE NO. 0-20961
COMMODORE HOLDINGS LIMITED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
BERMUDA N/A
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
4000 HOLLYWOOD BOULEVARD, SUITE 385-S, SOUTH TOWER, HOLLYWOOD, FL 33021
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
954-967-2100
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
---------------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT
COMMON STOCK $.01 PAR VALUE
(TITLE OF CLASS)
REDEEMABLE WARRANTS TO PURCHASE COMMON STOCK AT $5.65 PER SHARE
(TITLE OF CLASS)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or
any amendment to this Form 10-K. [ ]
As of December 22, 1999, the aggregate market value of the Common Stock
held by non-affiliates was approximately $30,664,325.
As of December 22, 1999, the number of shares of Common Stock of the
registrant outstanding was 7,649,118.
DOCUMENTS INCORPORATED BY REFERENCE
Part III--Definitive Proxy Statement for the 2000 Annual Meeting of Shareholders
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TABLE OF CONTENTS
PAGE
PART I
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ITEM 1. BUSINESS..............................................................................................1
ITEM 2. PROPERTIES...........................................................................................15
ITEM 3. LEGAL PROCEEDINGS....................................................................................16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................................................16
OPTIONAL ITEM EXECUTIVE OFFICERS OF THE REGISTRANT..............................................................16
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS................................18
ITEM 6. SELECTED FINANCIAL DATA..............................................................................19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................21
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK............................................27
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..........................................................27
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.................27
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...................................................28
ITEM 11. EXECUTIVE COMPENSATION...............................................................................28
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.......................................28
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......................................................28
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K......................................28
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PART I
ITEM 1. BUSINESS
GENERAL
GENERAL
Commodore Holdings Limited, a Bermuda exempted company, was formed in
1995 and currently owns and/or operates five cruise ships through its wholly and
partially owned subsidiaries (collectively, the "Company"). The Company owns
three cruise ships, the S/S Enchanted Isle (the "Enchanted Isle"), the S/S
Universe Explorer (the "Universe Explorer"), and the M/V Enchanted Sun (the
"Enchanted Sun"), and has chartered two additional ships, the M/V Enchanted
Capri (the "Enchanted Capri") and the M/V Crown Dynasty (the "Crown
Dynasty")(collectively, the "Cruise Ships"). The Cruise Ships are matched to the
Company's various brands and operations depending upon each ship's design and
the Company's needs.
The Company offers two cruise brands, Commodore Cruise Line and Crown
Cruise Line, and also offers educational cruises. Commodore Cruise Line serves
the standard cruise market. A division of Commodore Cruise Line also offers both
single and multi-day cruises that emphasize casino gaming. The Company operates
both the Enchanted Isle and the Enchanted Capri under the Commodore Cruise Line
brand. The Company plans to add the Enchanted Sun to the Commodore Cruise Line
fleet once the renovation of the vessel is completed. In December 1999, the
Company launched its second cruise brand, Crown Cruise Line, which serves the
premium cruise market. Crown Cruise Line's first vessel, the Crown Dynasty,
commenced cruise service in December 1999.
The Company also offers educational cruises aboard the Universe
Explorer. The Universe Explorer is chartered to Sea-Comm, Ltd., a Liberian
corporation ("Sea-Comm"), a joint venture between the Company and Seawise
Foundation, Inc. ("Seawise"). Sea-Comm has space-chartered the vessel to
Seawise, which operates the "Semester at Sea" program during a portion of the
year. Sea-Comm operates cruises to Alaska aboard the Universe Explorer during
the balance of the year under the "World Explorer Cruises" brand.
VESSEL ACQUISITIONS AND FINANCINGS
The Company acquired the Enchanted Isle and the Enchanted Seas (now the
Universe Explorer) and certain other assets related thereto (collectively, the
"Commodore Assets") from EffJohn International B.V. ("EffJohn") in 1995. The
purchase price was paid, in part, with a $24,500,000 loan (the "EffJohn Loan")
to the Company from an affiliate of EffJohn (the "EffJohn Lender"). The EffJohn
Loan bears interest at LIBOR plus 2% (currently 6.97%) over six years and was
secured by substantially all of the assets of the Company's wholly owned
subsidiary, New Commodore Cruise Lines Limited, a Bermuda company ("New
Commodore"), including first preferred ship's mortgages on both the Enchanted
Isle and the Universe Explorer.
On December 4, 1998, the Company entered into a loan and security
agreement with KeyCorp Leasing Co. Inc. ("Key") for $10,000,000 (the "Key
Loan"). The Key Loan is secured by a first preferred ship's mortgage on the
Universe Explorer. In conjunction with this loan agreement, the Company entered
into an interest rate swap agreement with an affiliate of Key, whereby the
interest rate on the loan agreement is fixed at 9.14% over the term of the Key
Loan. The monthly principal payments of the Key Loan were fixed for the first
year at $41,667, and the remainder of the loan is based on an amortization
schedule of 14 years. The remaining unpaid principal and interest is due on
December 4, 2006, the date of maturity. The proceeds from the Key Loan were used
to repay a portion of the EffJohn Loan relating to the Universe Explorer, and
towards the installation of a sprinkler system on the Universe Explorer.
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In the event that the Company is required to withhold income tax on any
interest due to the EffJohn Lender or Key, the Company has agreed to pay the
required amount to be withheld and pay the EffJohn Lender or Key, the full
amount of interest due under their respective agreements with the Company.
In February 1999, the Company entered into a loan agreement with
NationsBank, N.A. for $2,100,000 (the "NationsBank Loan"). The NationsBank Loan
is secured by a letter of credit provided by Seawise. The NationsBank Loan bears
interest at a rate of LIBOR plus 150 basis points; however, the Company has
entered into an interest rate swap agreement pursuant to which the interest has
been fixed at 7.3% over the term of the NationsBank Loan. The net proceeds of
the NationsBank Loan were used by the Company towards the payment for the
sprinkler system on the Universe Explorer.
The terms of the EffJohn and Key Loans place certain restrictions on
the Company. First, the Company is not permitted to place any additional liens
on any of the Commodore Assets (including the Enchanted Isle) without the prior
consent of the EffJohn Lender. Second, the Company is prohibited from paying
more than 50% of its net profits as dividends on its common stock, par value
$.01 per share (the "Common Stock"). Third, the Key Loan prohibits the Company
from placing any additional liens on the Universe Explorer and requires the
Company to meet certain financial covenants with respect to tangible net worth,
leverage and debt service coverage ratios.
In March 1998, the Company entered into an agreement to bareboat
charter the Enchanted Capri. The charter was originally for a term of
approximately four and one-half years and has since been extended until
September 2005. The Company assigned its charter for the Enchanted Capri to
Capri Cruises, a joint venture formed in 1998 between the Company and Isle of
Capri Casinos, Inc. ("Isle of Capri") (formerly Casino America, Inc.), a
publicly owned company that operates riverboats, land-based and dockside
casinos.
In April 1999, the Company purchased the Enchanted Sun for $5,000,000.
The purchase price was partially funded through a partial drawdown on a credit
facility from Nordbanken AB (publ) in the principal amount of $14,250,000 (the
"Nordbanken Loan"). The Company is making significant renovations to the
Enchanted Sun's interior and exterior with the balance of the proceeds from such
loan and through the issuance of common stock. See "Management's Discussion and
Analysis of Financial Condition and Results of Operation -- Liquidity and
Capital Resources." The Company expects that renovations will be completed in
the second fiscal quarter of the year 2000 and that the Enchanted Sun will begin
cruise service in the same fiscal quarter. The Company plans to use the
Enchanted Sun as part of Commodore Cruise Line's new day cruise division
operating from San Diego and Los Angeles, California to Rosarito, Baja
California, Mexico.
In March 1999, the Company entered into an agreement with an affiliate
of EffJohn, Neptun Maritime ("Neptun"), to bareboat charter the Crown Dynasty.
The charter began on October 11, 1999 and is for a term of four years with
options for another six years. Pursuant to the charter and subject to agreement
upon certain financing terms, the Company is exercising its right to purchase
the vessel from Neptun and expects to close on the purchase in the first
calendar quarter of 2000. As part of the charter, the Company also acquired the
rights to the Crown Cruise Line name. The Company has entered into a space
charter agreement with Apple Vacations ("Apple") for a charter of approximately
72% of the passenger space onboard the vessel for a period of four years.
OPERATING STRATEGY
The Company's principal operating strategies are to identify
underserved markets where there are significant barriers to entry and niche
themes and to serve those markets by carefully selecting smaller classic ships
and refitting them to meet the needs of each market. The Company achieves these
goals by actively following consumer trends, identifying exclusive niche
opportunities that have a cruise component, selecting complementary successful
businesses in such markets, where appropriate, and developing strategic
alliances or joint ventures with such businesses to penetrate such markets. This
strategy permits the Company to leverage its cash assets and serve a variety of
niche markets efficiently and well.
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The Company's operations are presently divided between two brands:
Commodore Cruise Line and Crown Cruise Line. A division of Commodore Cruise Line
offers deep-sea single and multi-day cruises that emphasize casino gaming. In
addition, the Company, through Sea-Comm, charters one of its vessels for use in
the Semester at Sea program. See "Business -- The Sea-Comm Joint Venture."
Since acquiring the assets of Commodore Cruise Line in 1995, the
Company has endeavored to continue the Commodore tradition of delivering an
innovative, value-oriented standard market cruise product. The Company seeks to
maintain such standard by providing maximum value, emphasizing "old world"
tradition and a friendly and informal atmosphere combined with value and
service. Fleet configuration is a primary distinguishing variable in the cruise
industry and differentiates competitors serving a common passenger base.
Commodore Cruise Line offers vessels that are older and smaller than those of
most of its competitors. The Company believes that these smaller vessels enable
it to provide value-oriented service and a more personalized maritime
environment than the Company's giant vessel competitors. The Company believes
that good service coupled with a reputation for more personalized attention
enable it to command prices comparable to its competitors. Although Commodore's
older vessels will probably cost more to operate than new vessels, the Company
believes that its cost savings in debt service payments will more than offset
the higher maintenance and operating expenses.
Commodore Cruise Line operates the Enchanted Isle and the Enchanted
Capri. The Enchanted Capri is operated through Capri Cruises, the Company's
joint venture with Isle of Capri, which specializes in riverboat and dockside
casinos. See "Business -- Strategic Alliances and Joint Ventures." During fiscal
2000, the Company, through its Coronado Seas, LLC ("Coronado") joint venture,
plans to commence cruise operations aboard the Enchanted Sun. The Enchanted Sun
will operate day gaming cruises between San Diego or Los Angeles, California and
Rosarito, Baja California, Mexico, a small tourist-oriented town located 18
miles from San Diego. The Company plans to capitalize both on the gaming
opportunities and on its Mexican port-of-call through its Indian Tribe and
Mexican partners. See "Business -- Strategic Alliances and Joint Ventures."
In December 1999, the Company introduced its premium cruise brand,
Crown Cruise Line. The Company acquired the name of the cruise line in
conjunction with the Company's charter of the Crown Dynasty. Crown Cruise Line
was originally formed in 1984 and operated various ships in the premium segment
of the cruise industry until 1995, when Neptun sold or chartered the remaining
vessels to various entities. While in operation, the Company believes that Crown
Cruise Line developed a reputation for providing fine dining and impeccable
service aboard intimate ships. The Company will seek to continue this tradition
by offering guests a high staff to guest ratio aboard smaller vessels fitted
with fine furnishings and offering high-end amenities. Crown's first vessel, the
Crown Dynasty, operates seven-day cruises from Aruba in the winter, and will
offer cruises to Bermuda and Canada from the Philadelphia and Baltimore areas in
the summer. The Company has entered into a strategic relationship with Apple, an
experienced tour operator, to market and sell these cruises. See "Business --
Strategic Alliances and Joint Ventures."
In addition to its traditional cruise operations, the Company offers
educational cruises. The Company currently space charters the Universe Explorer
for use in the Semester at Sea program through its Sea-Comm joint venture with
Seawise. Seawise has offered this program through the Institute for Shipboard
Education, a Delaware not-for-profit corporation ("ISE"), and in conjunction
with the University of Pittsburgh, for 20 years. During the summer months,
Sea-Comm operates cruises to Alaska through World Explorer Cruises and Tours,
Inc. ("WEC") and Hemisphere Cruises & Tours, Inc. ("Hemisphere"). The Company
believes that the Semester at Sea program is the only program of its kind in the
world. Although a number of other cruise lines offer Alaska cruises, the
Company's cruises emphasize the educational experience with an unmatched number
of seminars and over 40 optional shore excursions. See "Business -- The Sea-Comm
Joint Venture."
The Company continually seeks expansion opportunities for Commodore
Cruise Line, Crown Cruise Line and its educational cruises where such
opportunities meet its niche marketing strategy and complement its existing
operations.
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CRUISE OPERATIONS
INDUSTRY OVERVIEW
Cruise lines compete intensely for consumer disposable leisure time
dollars with other vacation alternatives, such as land-based resort hotels and
sightseeing destinations. Public demand for such activities is influenced by
general economic conditions.
The Company believes that the modern passenger cruise industry has
experienced substantial growth over the past 25 years. The industry has evolved
from a trans-ocean carrier service into a vacation alternative to land-based
resorts and sightseeing destinations. According to CLIA, an industry trade
group, in 1980 approximately 1.4 million North American passengers took cruises
for two days or more. In comparison, the following table sets forth data
regarding industry growth over the past five years.
NORTH AMERICAN CRUISE
CALENDAR YEAR PASSENGERS(1)
-------------------------------- ---------------------------------
(IN MILLIONS)
1994 4.5
1995 4.4
1996 4.7
1997 5.1
1998 5.4
---------------------------
(1) SOURCE: CLIA
The North American cruise industry accounts for approximately 80% of
the world market. According to CLIA, the number of overall industry North
American cruise passengers in 1998 was 7.8% over the 1997 figure, with demand
increasing during 1999. The average growth rate for North American cruise
passengers from 1980 through 1998 was approximately 7.9% per year.
The Company believes that "repeat cruising" is a large source of
business in the cruise industry. Of all passengers who have cruised in the past
five years, CLIA estimates that the average number of cruises per person is 2.4.
CLIA has estimated that, in 1982, the capacity of cruise ships serving
the North American markets offering voyages of two or more days was
approximately 43,848 berths. According to CLIA's most recent estimate, in 1999,
the North American market was served by 32 cruise lines, operating 144 vessels.
Aggregate 1999 market capacity is estimated at 148,827 berths, an increase of
8.3% over the previous year. In addition, an estimated 12 new cruise vessels
offering 17,474 additional berths will be added to the market through the year
2000.
Numerous industry analysts, as reported in various newspaper articles,
predict a trend toward the continued growth of the large cruise lines and
decline of the smaller ones in the North American cruise industry. The larger
lines such as Carnival Cruise Lines, Royal Caribbean Cruise Lines and Princess
Cruises, with whom the Company competes, have been purchasing new vessels and
thereby adding to their fleets. These larger lines benefit from increased
economies of scale and have historically operated at higher percentage of
capacity than the smaller lines. In addition, the smaller lines, such as the
Company, own older ships with fewer amenities. Such ships will require costly
renovations and retrofitting in order to meet new industry safety guidelines.
See "Business -- Government Regulation." Industry analysts predict that
discounting of fares will play a large part in cruise ticket sales in response
to the relatively flat growth of the North American market and the substantial
increases in capacity planned over the next few years.
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MARKET POSITION
The cruise industry is generally viewed as the composite of three
partially overlapping segments, differentiated primarily by cruise cost, length
and itinerary. The standard, premium and luxury segments provide a wide
assortment of cruise experiences, appeal to different population segments and
attract varying demographic groupings. CLIA's luxury segment of the cruise
industry represents 10% of the total industry capacity. With list per diem rates
in excess of $800, the Company believes this market caters to the most affluent
segment of the population. Luxury market cruises are generally seven to ten
nights or more. CLIA's premium segment, in which the Company's Crown Cruise Line
brand competes, is somewhat more up-scale than the standard market, but not as
up-scale as the luxury segment, and represents 32% of the total cruise capacity.
The Company believes this market attracts an older, more affluent and
experienced clientele, with list per diem rates in the range of $290 - $600 and
itineraries that typically range from seven to ten days. CLIA's standard market,
in which market the Company's Commodore Cruise Line brand competes, is the
largest segment within the cruise industry, comprising 55% of industry-wide
capacity. The remaining 3% can be attributed to non-CLIA member lines. The
Company believes the standard market is characterized by affordable, shorter
cruises primarily serving first-time passengers with list per diem rates
generally of $290 or less. Standard market cruises range from three to ten days
in the most popular cruising areas.
Commodore Cruise Line seeks to position itself within the standard
market to capture the first-time cruising passenger with list per diem rates for
its Caribbean cruises that range from $173 - $262. In accordance with industry
practice, such prices may be discounted. The Company believes that the Commodore
Cruise Line name appeals to both first-time cruising passengers and repeat
passengers due to its presence in the Gulf of Mexico, Caribbean and embarkation
from the Port of New Orleans. The Port of New Orleans, which offers all of the
Southern charm, fine dining and nightlife of New Orleans, is an attractive
alternative port of embarkation for many passengers, and particularly for those
who prefer to drive, rather than fly, to begin their cruise vacation.
Crown Cruise Line seeks to position itself within the premium segment
to capture an upscale clientele with list per diem rates for its Caribbean
cruises that range from $201 - $587. In accordance with industry practice, such
prices may be discounted. The Company believes that the Crown Cruise Line name
appeals to both first-time cruising passengers and repeat passengers due to its
established name in the industry. The Company plans to select itineraries for
its Crown vessels, such as the Crown Dynasty's Bermuda itinerary, that will both
appeal to an upscale passenger and that are not already well-served by larger
premium cruise lines.
The division of Commodore Cruise Line that offers deep-sea gaming
cruises is not positioned within any of CLIA's three traditional cruise
segments. Rather, this division of Commodore Cruise Line will seek to attract
passengers who desire a single-day entertainment experience or short cruise that
emphasizes casino gaming entertainment. Commodore anticipates that its exclusive
day cruises to Rosarito, coupled with its ability to feature casino gaming,
should position it as a unique entertainment opportunity in Southern California.
SHIPS AND ITINERARIES
Commodore Cruise Line operates two-, five-, and seven-day cruises
aboard the Enchanted Isle and the Enchanted Capri that originate and end in New
Orleans. The two-day cruise is a "Weekender" cruise with no port calls. The
five-day cruise calls in Playa del Carmen (Mexico), Cozumel (Mexico), and
Progresso (Mexico) and the standard seven-day itinerary features calls in Playa
del Carmen (Mexico), Cozumel (Mexico), Grand Cayman (Cayman Islands), and
Montego Bay (Jamaica). Occasionally the Company varies its itineraries on the
seven-day route and offers Key West (Florida) or Roatan/Puerto Cortes (Honduras)
instead of Grand Cayman and Montego Bay. During the coming year, the Company
will also offer one fourteen-day cruise that includes a partial transit of the
Panama Canal that will call at Cozumel (Mexico), Roatan (Honduras), San Andres
(Colombia), Cartagena (Colombia), Aruba, and Ocho Rios (Jamaica). The two- and
five-day cruises are operated on the Enchanted Capri and emphasize casino gaming
and the seven- and fourteen-day cruises are aboard the Enchanted Isle.
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The Enchanted Isle was originally constructed by Ingals Shipbuilding
Corporation in the United States in 1958 and was most recently refurbished in
1994. The Enchanted Isle is designed to be a seagoing resort with restaurants,
discotheques, movie theaters, libraries, reading rooms, full service
communication facilities, jogging courses, aerobic classes, workout rooms,
numerous bars, two pools, sun deck areas and deck activities. The Enchanted Isle
has a complete casino with various gaming opportunities. Entertainment is
provided nightly and includes shipboard productions of Broadway show tunes and
Las Vegas-style revues, as well as performances by a variety of celebrity
entertainers. In addition, all passengers may take shore excursions provided at
various ports-of-call, including guided tours, visits to local attractions and
free time to explore on their own. Although the Enchanted Isle may not be as
modern, as large, or contain all the amenities of newer ships, the Company
believes that it provides the type of cruise environment that its passengers
expect.
The Enchanted Capri was originally constructed by the Wartsila Shipyard
in Turku, Finland in 1975. The Enchanted Capri is designed to be a seagoing
resort with restaurant, discotheque, movie theater, full service communication
facilities, jogging courses, workout rooms, numerous bars, pool, sun deck areas
and deck activities. The Enchanted Capri features an "Isle of Capri" casino with
various gaming opportunities. Entertainment is provided nightly and includes
shipboard productions of Broadway show tunes and Las Vegas-style revues, as well
as performances by a variety of celebrity entertainers. In addition, all
passengers may take shore excursions provided at various ports-of-call,
including guided tours, visits to local attractions and free time to explore on
their own.
During fiscal 2000, Commodore Cruise Line plans to commence day cruises
aboard the Enchanted Sun between San Diego, California and Rosaritio, Baja
California, Mexico. The State of California prohibits casino gaming on "cruises
to nowhere" thereby restricting such shipboard gaming to cruises that visit a
foreign port. Rosarito is the closest foreign port-of-call to Southern
California and the Company has secured an exclusive agreement to operate cruises
on this route for ten years, with an option to continue such cruises for an
additional ten years. The next closest port of call is Ensenada, which is an
additional 50 miles beyond Rosarito. The Company plans to offer one or two
cruises each day to Rosarito, with the duration of each cruise lasting
approximately 3-5 hours for half day cruises and 7-8 hours for full day cruises.
The Enchanted Sun will dock at Rosarito on each cruise and passengers will have
the opportunity to disembark and visit this small beach town and the surrounding
areas on the full day cruises. Passengers who wish to spend more time in
Rosarito will also have the opportunity to stay the night at a local resort and
return to San Diego the next day. See "Business -- Strategic Alliances and Joint
Ventures."
The Enchanted Sun was originally constructed by Kynossoura Dock Yard
Co. Ltd. in Pireaus, Greece in 1974 and is a 9,511 gross ton cruise vessel with
eight decks and, following her conversion, will have a day-cruise capacity of
850 passengers. The Enchanted Sun is being redesigned by the Company as a
seagoing resort with a large state-of-the-art casino in place of cabins, so as
to permit an increased passenger capacity. The vessel also will offer a
nightclub, restaurant, swimming pool, jogging course, workout room, aerobic
courses, and sundeck as well as other deck activities.
Crown Cruise Line operates seven-day cruises aboard the Crown Dynasty
that originate and end in Aruba and call at Barbados, St. Lucia, Grenada,
Curacao, and Bonaire. In the summer of the year 2000, the Crown Dynasty will
operate seven-day cruises to Bermuda from the Philadelphia and the Baltimore
areas. Passengers are given the opportunity to participate in a wide variety of
shore excursions at the various ports-of-call, including "cruise and stay"
packages during the ship's Bermuda season. The vessel is decorated with a
Bermuda theme to reflect her summer itinerary and features the works of Bermuda
artists in the cabins and common areas. The Crown Dynasty will be the only
cruise ship docked in Bermuda over the weekend and the only scheduled cruise
ship departing from the Philadelphia and Baltimore areas that sails to Bermuda.
The Crown Dynasty was originally constructed by the Union Naval
Shipyard in Valencia, Spain in 1993 and is a 19,089 gross ton cruise vessel
with eight passenger decks and a capacity of 820 passengers in 410 cabins. The
vessel is designed to be an elegant and intimate seagoing resort containing a
casino, nightclubs, restaurants, reading room, full-service communication
facilities, swimming pool, jogging course, aerobic courses, workout room, and
sundeck as well as other deck activities. The
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Crown Dynasty has a full casino and offers various gaming opportunities.
Entertainment is provided nightly and features both shipboard productions and
performances by celebrity entertainers.
MARKETING AND PROMOTION
The Company has committed significant resources to marketing and
promotion through advertising, public relations, and sales personnel. To enhance
the Company's awareness in, and coverage of travel agents and consumer
marketplaces, the Company employs a variety of complementary marketing and
promotional programs incorporating media, direct marketing and sales aids,
public relations, special events and strategic business alliances, with special
emphasis on trade and consumer advertising. The Company has an ongoing
advertising campaign that establishes its image as a provider of value-oriented
cruises with high quality service at sea. This advertising campaign is based
upon travel agent and consumer research and is placed in media in the five-state
area around Louisiana, including Texas and in additional states in which
residents have historically purchased the most cruises.
The Company focuses on consumer and trade advertising, particularly
through the use of newspaper advertising. The Company believes that this media
is equally effective in reaching both consumers and the travel agency trade. In
addition, the Company places advertisements on radio stations and television.
Developing strong cooperative marketing programs directly links travel agent
marketing and promotional efforts to those of the Company.
The Company places a strong emphasis on collateral development and
distribution to key producing travel agents for the Company. The Company
believes that detailed descriptions of the Company's ships, services,
itineraries and activities, pre- and post-cruise land package opportunities and
various elements of the product programs, are a significant factor in converting
the initial interest of consumers into actual cruise sales. The Company uses
direct marketing to target past passengers and various affinity organizations.
The Company views past Commodore passengers and leisure travelers using travel
organizations as persons with a high propensity to cruise with the Company. The
Company also places travel trade advertising via the most popular trade
publications, expanding the awareness of the Company's product and services.
TRAVEL AGENCY RELATIONSHIPS. The Company sells cruise vacations in the
United States and Canada almost exclusively through the travel agency
distribution system. According to CLIA, an estimated 95% of cruise packages are
sold with the assistance of travel agents, who normally receive commissions in
the range of 10-20% of the sale. Additional commission incentives are made
available for volume producers that consistently support the cruise line. In
order to maintain personal contact with travel agency owners, managers and
front-line retail agents, the Company maintains a field sales staff, supported
by an in-house service staff.
The Company's cruises, consistent with industry trends, are marketed to
passengers via travel agents in the United States. Well-informed travel agencies
are therefore crucial to the Company's effort in maintaining and expanding its
customer base. Accordingly, the Company places considerable emphasis on its
contacts with travel agencies and fostering goodwill towards the Company's
products, maximizing this efficient and productive relationship.
CAPRI CRUISES MARKETING. In addition to the Company's cruise marketing,
the Company's partner in Capri Cruises markets the Enchanted Capri to its list
of repeat gaming clients. As is customary in the casino industry, passengers who
have repeatedly gambled high amounts of money are given many complimentary
services, including but not limited to, cabin upgrades, drinks, complimentary
tokens or chips to play in the casino, and in the case of the best customers,
complimentary accommodations.
ENCHANTED SUN MARKETING. The Company plans to market the Enchanted Sun
primarily through consumer advertising, including newspapers, radio and
television, to encourage people to enjoy a relaxing and entertaining voyage to
Rosarito, complete with casino gaming, aboard the Enchanted Sun. The Company
also plans to market the Enchanted Sun to incentive, affinity and corporate
groups to encourage them to organize cruises for their clients, customers and
employees. Additionally, one of the Company's partners in Coronado, plans to
market the Enchanted Sun to its repeat gaming clients.
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As is customary in the casino industry, passengers who have repeatedly gambled
high amounts of money will be given many complimentary services, including but
not limited to, drinks and complimentary tokens or chips to play in the casino,
and in the case of the best customers, complimentary cruises.
INTERNATIONAL SALES. The Company intends to devote a portion of its
sales resources to developing sales from the European and Latin American
marketplaces. Although the North American market is static, the European cruise
market has been growing. Europe is, by far, the largest market outside of North
America, with Germany and the U.K. comprising the largest constituent parts.
Management has begun discussions with several major European travel operators.
The Company has dedicated one of its sales executives to concentrate exclusively
on international sales which includes expanding its sales efforts to Latin
America, which is also a significant resource for potential passengers to the
Company due to an established network of tour operators.
REVENUES AND PASSENGER SERVICES
Reservations are taken by trained reservations sales agents on a
computer and software system, capable of accepting reservations for a fleet of
at least 10 vessels. Staffing levels are maintained per industry standards to
ensure that calls are taken promptly. Reservations are the first point of
contact for most travel agents and, as such, play a key role in the sales
process. A full-time staff of approximately 31 people assist agents in securing
passenger reservations, arranging flights for air/sea passengers, coordinating
ground transportation and pre- and post-cruise tour hotel packages.
TICKET REVENUES
Commodore Cruise Line's cruises are list-priced per person per day
(based on double occupancy) from $173 to $262, excluding commissions to travel
agents. Crown Cruise Line's cruises are list-priced per person per day (based on
double occupancy) from $201 to $587, excluding commissions to travel agents.
Both Commodore and Crown offer discounts, particularly during off-season
periods, as is the practice in the industry. Prices vary depending on size and
location of cabin and the time of year in which the trip occurs. The cruise
price includes shipboard accommodations, use of all of the shipboard amenities
and all meals.
ON-BOARD AND OTHER REVENUES
Revenues onboard the Company's Cruise Ships are derived from certain
on-board activities and services operated by the Company including, casino
gaming, liquor sales in a variety of bars, restaurants, lounges and discotheques
and shore excursions. Additional revenue is earned from pre- and post-cruise
packages in each vessels' point of embarkation. The Company also earns
concession revenue from sales at duty-free shops, gift shops, art auctions, the
sale of photographs to passengers and from the beauty salon.
COMPETITION
Competition in the industry in which the Company competes is intense.
The Company competes with other cruise ship lines in both the standard and
premium segments that offer the same type of products in several markets, and
with land-based resorts, many of which have significantly greater financial
resources and experience, and are more well known than the Company. The Company
also competes for consumer disposable leisure time dollars with other vacation
alternatives such as land-based resort hotels and sight-seeing destinations, in
addition to approximately 25 other cruise lines operating in the standard
segment. In addition, public demand for such activities is influenced by general
economic conditions.
Commodore Cruise Line operates in the Caribbean where its principal
competitors are Carnival Cruise Lines, Royal Caribbean Cruise Lines, Norwegian
Cruise Lines and Premier Cruise Line. However, the Enchanted Isle and the
Enchanted Capri are currently two of only three regularly scheduled cruise
vessels, including one Carnival Cruise Lines' ship, that embarks passengers from
the Port of New Orleans.
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Crown Cruise Line operates in both the Southern Caribbean and Bermuda
markets where its principal competitors are Celebrity Cruise Lines, Royal
Caribbean International, and Holland America Line. The Crown Dynasty, however,
will be the only ship permitted to dock in Bermuda over the weekend and will be
the only scheduled cruise ship to depart from the Philadelphia and Baltimore
areas for Bermuda.
Competition in the standard cruise market is highly concentrated, with
three companies accounting for an estimated 68% of the available berths.
Competition in the premium market is similarly highly concentrated with four
companies accounting for an estimated 86% of the available berths. The three
largest cruise operators in the North American cruise industry are increasing
market share by adding new vessels to their fleets. Various articles concerning
the cruise line industry note that this trend is expected to continue for at
least the next few years. If this trend continues, the Company's ability to
compete with these larger operators may be substantially impaired.
EDUCATIONAL CRUISES
THE SEA-COMM JOINT VENTURE
On October 30, 1995, the Company entered into an agreement with Seawise
establishing Sea-Comm (the "Sea-Comm Agreement"). Pursuant to the Sea-Comm
Agreement, the Company purchased 50.005% of Sea-Comm's common stock, and 50% of
Sea-Comm's preferred stock. Seawise purchased 49.995% of Sea-Comm's common stock
and 50% of Sea-Comm's preferred stock.
The purpose of Sea-Comm is to space charter the Universe Explorer to an
entity who operates the Semester at Sea program, an educational program
conducted by the ISE and the University of Pittsburgh. Seawise has a contract
with the ISE pursuant to which it has operated the Semester at Sea program
aboard its own vessel for the last 20 years. In addition, Sea-Comm operates
cruises to Alaska (the "Alaska Program") through WEC and Hemisphere during
summer periods when the Universe Explorer is not being used for the Semester at
Sea program. Seawise is party to a tripartite agreement with WEC and Hemisphere
pursuant to which it has operated the Alaska Program for 20 years (the "Alaska
Agreement"). As part of the joint venture, Seawise has assigned its rights under
the Alaska Agreement to Sea-Comm.
Pursuant to the Sea-Comm Agreement, the Company has chartered the
Universe Explorer to Sea-Comm. Sea-Comm, in turn, has chartered the Universe
Explorer to Seawise so that it may operate the Semester at Sea program
exclusively aboard the vessel. In return for such charter, Seawise reimburses
Sea-Comm for 76% of its operating costs, 100% of food costs and 76% of the
principal and interest due on the portion of the EffJohn Loan (assuming that the
EffJohn Loan had continued for the Universe Explorer according to its original
terms) attributable to the Universe Explorer. Sea-Comm also earns revenue from
the sale of the other 24% of the cabins (which hold approximately 176 persons)
on the vessel. Seawise has purchased these cabins from Sea-Comm for $1,500,000
per semester during 1999 and 2000, $1,650,000 per semester during 2001 and 2002
and $1,732,500 per semester during 2003 through 2005.
During the summer when the Semester at Sea program is not operating,
Sea-Comm operates the Universe Explorer under the Alaska Agreement. WEC enjoys
certain permits issued by the U.S. Parks Service to cruise in the Glacier Bay,
Alaska area. Pursuant to the Alaska Agreement, Sea-Comm earns revenues from
ticket sales for all cabins and pay fees to WEC and Hemisphere for providing
certain services to Sea-Comm.
Sea-Comm is managed by a board of directors, which consists of five
people, three of which are appointed by the Company and two of which are
appointed by Seawise. Three of the Company's executive officers, Messrs.
Frederick A. Mayer, Ronald Kurtz and Alan Pritzker; the Company's Chief
Executive Officer, Executive Vice President and Chief Financial Officer,
respectively; act as directors of Sea-Comm. Mr. Mayer and Mr. Pritzker also act
as Sea-Comm's President and Secretary, respectively. Sea-Comm's Treasurer was
appointed by Seawise.
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Pursuant to the Sea-Comm Agreement, the Company granted Seawise
warrants to purchase 250,000 shares of the Company's Common Stock. The warrants
are presently exercisable at $6.00 per share and expire on January 7, 2001.
THE SEMESTER AT SEA PROGRAM. The Semester at Sea, which is administered
by the ISE and academically sponsored by the University of Pittsburgh, is a
program that takes approximately 600 students, from colleges and universities
across the United States and abroad, around the world each fall and spring
semester. Since 1963, over 27,000 students have studied and traveled to 60
countries around the world through this program. Seawise operated the Semester
at Sea program for the first time aboard the Universe Explorer in the spring of
1996. Semester at Sea gives students an opportunity to broaden their horizons
through educated travel. Students travel around the world aboard the Universe
Explorer and participate in a unique and dynamic learning environment. A limited
number of "non-student passengers" also participate in each Semester at Sea
voyage.
Students can choose from approximately 60 lower and upper division
courses in a variety of disciplines, including such offerings as anthropology,
biology, English, geology, history, fine arts, music, political science,
religious studies and theater arts. A number of one-credit courses are also
available. Non-student passengers may also attend courses. Courses are
accredited by the University of Pittsburgh and are fully transferable to most
institutions. Students are required to enroll in a minimum of 12 semester
credits during the fall and spring semesters and two courses, or six credits,
during the summer semester. Each program includes a mandatory three-credit core
course which provides an overview of the culture, environment, geography,
history and politics of the regions visited.
While in port, students take advantage of field trips which provide
both structured and informal activities enabling them to observe, interact and
participate in the local culture. Students may also choose to travel
independently. Excursions typically include university visits, cultural
performances, visits to archeological sites, museums, orphanages and rural
areas. Students are also frequently given opportunities to interact with
students and faculty at local universities. Stays in port typically range from
two to six days.
THE ALASKA PROGRAM. WEC has been operating Alaska cruises for 22 years.
The Company believes that Sea-Comm's operation of WEC's established program
offers a unique opportunity to cruise to Alaska due to its unmatched educational
seminars and over 40 optional shore excursions. Although the Alaska Program is
not part of the Semester at Sea program, the 15,000-volume library remains on
board the Universe Explorer in place of a casino. The passengers are free to use
the library to enhance the presentations by guest lecturers or simply to relax
and enjoy a quiet place to read. Passengers are also offered unique
presentations and educational lectures by guest professors and nature experts
from around the world. These presentations provide information about the art,
culture, geology and history of the ports-of-call and the region in general. The
Company believes that Sea-Comm is the only operator of Alaska cruises that
offers educational seminars in conjunction with a cruise experience.
SHIPS AND ITINERARIES
The fall and spring Semester at Sea programs last approximately 100
days. The spring semesters begin in late January or early February and end in
early May, and fall voyages depart in mid-September and return in mid-December.
Ports change with each voyage. In the summer of 1999, Sea-Comm operated, seven
fourteen-day and two nine-day Alaska cruises onboard the Universe Explorer. All
Alaska cruises begin and end in Vancouver, British Columbia. Ports-of-call are
Ketchikan, Juneau, Wrangell, Glacier Bay, Sitka, Yakutat Bay/Hubbard Glacier,
Seward, Skagway, and Victoria.
The Universe Explorer is a 23,900 gross ton registered vessel, which
has nine passenger decks and a capacity for approximately 860 passengers in 363
cabins. During the Semester at Sea program, the shipboard campus consists of
classrooms with closed-circuit television capabilities, a student union, a
theater, a 15,000-volume core library, study lounges, and a cafeteria, in
addition to standard facilities of any oceangoing vessel. Living areas are
supervised by a support team, which includes a complete student life staff. The
physical set-up on the Universe Explorer has been specifically designed for
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academic ventures and includes classrooms with blackboards, not substantially
different from land-based campuses. A closed-circuit video system further
supports classroom instruction. At the students disposal are also a computer
lab, exercise room, swimming pool, campus store, snack bar, and a sports deck
for volleyball, basketball and aerobics. Laundry facilities and satellite phone
calls and faxes are also available on board. Cabins are available in double,
triple and quadruple occupancy for students and single and double occupancy for
non-students.
The amenities on the Universe Explorer during the Semester at Sea
program; however, are not necessarily the same as those aboard the other cruise
ships. There are no formal dinners (except on a few special occasions), no
ballroom and no professional entertainers. However, the program staff includes
an adult coordinator who organizes a program of activities specifically geared
for the student/adult community. Cabin stewards provide daily limited cleaning
and linen services and all meals are served cafeteria-style for students,
faculty and staff. Attire is generally casual. The Universe Explorer houses four
lounges and two bars available for students, with alcoholic beverage service
limited to beer and wine, and an additional two lounges for faculty, staff and
adult passengers, which serve a full range of alcoholic beverages.
During the months when the Universe Explorer sails on its Alaska
itinerary, it is easily transformed back into a traditional cruise ship.
Classrooms are restored to lounges and dining areas, and the crew resumes formal
meals, maid service and room service. In addition, the ship features all of the
amenities and entertainment offered by the Company's other Cruise Ship, the
Enchanted Isle, except for casino gaming. Even during the Alaska Program, the
Universe Explorer retains its substantial library offering passengers the
opportunity to learn all about the ports they will visit during their voyage.
MARKETING AND PROMOTION
The ISE promotes the Semester at Sea program through its own network.
The ISE recruits campus volunteers on over 200 campuses in the United States and
abroad and such volunteers distribute brochures and respond to questions from
interested students. In addition, the ISE maintains a list of Semester at Sea
alumni and encourages such persons to recruit students for the program. Because
of the way Sea-Comm earns revenue from the Semester at Sea program (through a
space charter and agreed-upon payments for the balance of the cabins), its
revenue does not vary materially based on the number of students or adult
passengers aboard the vessel. As a result, marketing to passengers is not of
material importance to Sea-Comm.
With respect to the Alaska Program, WEC markets its cruises through
travel agents, and, in general, through the same avenues that the Company
markets its Caribbean cruises. WEC's cruise experience can be differentiated
from that of its competitors both based on the length of the cruise and on its
focus. Although WEC's cruises feature all of the cuisine, entertainment and
services that cruise passengers have come to expect, they offer a unique
educational undercurrent, which WEC promotes as a unique adventure for the body
and soul. The Universe Explorer features an extensive library in place of the
casino and allows passengers to study the ports the ship visits in depth if they
so desire.
TICKET REVENUES
The cost of Semester at Sea tuition ranges from $14,980 for double
occupancy, to $17,980 for single occupancy for standard accommodations during
the full semesters. Such rates are per person and include tuition, passage fare,
room, board, and student fees. Travel to and from ports of embarkation and
debarkation, text books, in-country travel, personal expenses and incidental
fees are additional. Financial aid is available to some students. Because the
Semester at Sea is operated by Seawise, neither the Company nor Sea-Comm earn
revenue from student ticket sales.
WEC's Alaska cruises are list-priced per person (based on double
occupancy) from $2,095 to $3,695 for its fourteen-day cruises and from $1,345 to
$2,395 for its nine-day cruise, excluding commissions to travel agents, which
will be paid by Sea-Comm. Prices vary depending on size and location of cabin.
The cruise price includes shipboard accommodations, use of all the shipboard
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amenities and all meals. At present there are no future plans for Caribbean
cruises on the Universe Explorer.
ON-BOARD AND OTHER REVENUES
Sea-Comm earns revenues from the Universe Explorer during the Semester
at Sea program from beverage and snack bar sales and miscellaneous services.
While the vessel is used in the Alaska Program, Sea-Comm earns on-board revenue
from certain on-board activities and services including beverage sales in a
variety of bars, restaurants, lounges, and shore excursions. Additional
concession revenue is earned from gift shop sales, beauty salon and the sale of
photographs to passengers.
COMPETITION
Seawise is the exclusive operator of the Semester at Sea program. To
the Company's knowledge, there is no other entity which operates a similar
shipboard educational program. Seawise competes for student passengers with
operators of land-based international educational programs, such as semesters
abroad. With respect to adult passengers, Sea-Comm competes with long cruise
providers, such as freighters with passenger accommodations and world cruises,
and to a lesser degree with traditional world cruises and land-based vacation
alternatives.
With respect to the Alaska Program, Sea-Comm competes with other cruise
operators who operate cruises to this region. Some of these operators carry
passengers from Canadian ports to Alaska and then return them by air, while
other operators carry passengers on a round trip voyage. Sea-Comm also competes
for consumer disposable leisure time dollars with other vacation alternatives.
STRATEGIC ALLIANCES AND JOINT VENTURES
In October 1995, the Company entered into the Sea-Comm Agreement with
Seawise. The purpose of Sea-Comm is to space charter the Universe Explorer to an
entity that operates the Semester at Sea program and to operate Alaska cruises
during summer periods when the Universe Explorer is not being used for the
Semester at Sea program. The Company owns 50.05% of Sea-Comm. See "Business -
Educational Cruises."
In April 1998, the Company entered into a joint venture agreement with
Isle of Capri, the owner of five riverboat and dockside casinos. Pursuant to the
joint venture agreement, subsidiaries of Isle of Capri and the Company formed a
general partnership known as Capri Cruises, to jointly operate the Enchanted
Capri from New Orleans, Louisiana, commencing in June 1998. The Company and Isle
of Capri each own equal portions of Capri Cruises. As a result, the Company has
assigned its interest in the Enchanted Capri charter to Capri Cruises. The
Enchanted Capri is operated pursuant to this agreement. The Company operates the
vessel while Isle of Capri manages the casino onboard the vessel as an "Isle of
Capri" casino, including establishing and maintaining the internal controls for
the casino. The Company and Isle of Capri also engage in joint marketing efforts
with the Company marketing the base cruise product and Isle of Capri marketing
the gaming product.
In July 1999, a subsidiary of the Company, Crown Cruises Limited
("Crown"), entered into a space charter agreement with Apple pursuant to which
Apple charters approximately 72% of the cabins aboard the Crown Dynasty. The
space charter is in effect until October 2003. Crown began operating seven-day
cruises from Aruba in December 1999. In April, the Crown Dynasty will be
repositioned to operate cruises to Bermuda and Canada from the Philadelphia and
Baltimore areas. The Company and Apple will jointly market and sell these
cruises.
In September 1999, the Company entered into a joint venture agreement
with Promociones Turisticas de Rosarito, S.A. de C.V. ("Proturo") and the Viejas
Band of Kumeyaay Indians ("Viejas"). Pursuant to the joint venture, a subsidiary
of the Company, Proturo and Viejas formed Coronado, a Delaware limited liability
company, to operate daily gaming cruises to Rosarito, Mexico on board the
Enchanted Sun. The Company, Proturo and Viejas each own an equal interest in
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Coronado. The Company will operate the Enchanted Sun while Viejas will operate
the casino onboard the vessel. Proturo will operate the pier located in
Rosarito, Mexico where the Enchanted Sun will dock. Coronado is expected to
commence operating daily gaming cruises to Rosarito, Mexico beginning in March
2000.
The Enchanted Sun is owned by Albuferra Investments, Inc.
("Albuferra"), a joint venture between the Company and Viejas. The Company owns
50.2% and Viejas owns 49.8% of Albuferra. The Company and Viejas have entered
into a stockholders' agreement to provide for the management and disposition or
transfer of the shares of common stock of Albuferra.
SHIP MAINTENANCE AND OPERATION
In addition to routine maintenance and repairs performed on an ongoing
basis, a vessel is generally taken out of service once every two years for a
period ranging from one to two weeks, during which time more substantial
maintenance work, repairs and improvements are performed in drydock. The
Universe Explorer was last taken out of service for maintenance in January 1999
and the Enchanted Isle was last taken out of service for maintenance in November
1999. The Enchanted Capri was out of service for approximately three months
prior to her delivery to the Company on June 3, 1998 and again for ten days in
June 1998 for additional work. This work typically is performed during non-peak
periods to minimize disruption of the Company's operations and any adverse
effect on revenues. To the extent practicable, the ship's crew, catering and
hotel staff remain with the ship during such period and assist in performing
maintenance and repair work.
Due to the age of the Enchanted Isle and the Universe Explorer, they
are expected to require more maintenance than new vessels. In addition, they are
more likely to break down and be removed from service at unscheduled times,
which could result in loss of revenue for the Company.
SUPPLIERS
The Company purchases air transportation, bunker and diesel fuel, food
and related products and hotel supplies from independent suppliers and does not
expect difficulties in obtaining adequate supplies of these items. The Company
is not dependent upon any one supplier for its needs.
EMPLOYEES
The Company employs approximately 1,304 people, of whom approximately
1,203 serve as officers and crew on the Cruise Ships and approximately 103 are
employed shoreside in various sales and marketing, as well as administrative and
management positions. The Company believes that its relationship with its
employees is good.
INSURANCE
The Company has procured protection and indemnity coverage and oil
pollution coverage, as well as other coverage through its insurers for the
Cruise Ships. The Company maintains insurance on the hull and machinery of the
Cruise Ships in an amount equal to the greater of 100% of the market value of
the ship, as such value is agreed upon with the insurer and the mortgage holder
of the vessel, or 120% of the outstanding amount of the loan on the vessel.
Coverage for hull and passenger interests (which includes earnings and increased
value) is maintained in amounts related to the value of the ship and its
anticipated revenues. In addition, the Company maintains war risk insurance on
each ship in amounts in excess of the market value of the ship as agreed upon
with the insurer. War risk insurance includes protection against liability
claims by passengers and crew, as well as other indemnity risks for which
coverage would be excluded under the Company's protection and indemnity coverage
by reason of war exclusion clauses.
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The Company also maintains coverage on the Cruise Ships in various
amounts for the loss of revenue in the event that any such vessel is unable to
operate during scheduled cruise periods as a result of an accident, mechanical
failure, or certain additional covered perils. In such event, the Company's
insurance would pay between $50,000 and $80,000 per day of lost service per
vessel, up to a maximum of ninety days, subject to a two- to fifteen-day
deductible. The Company has established insurance coverage in connection with
liability for death or injury to passengers and crew with respect to the
Enchanted Isle, Universe Explorer and Enchanted Capri. Such coverage has no
limitation, but is subject to a $25,000 - $35,000 deductible per incident. The
Company also provides a guaranty in respect of liability for non-performance of
transportation as required by the FMC with respect to the Cruise Ships. The
Company has posted a $15,000,000 surety bond with the FMC which covers the
Company's entire fleet.
GOVERNMENT REGULATION
The Company's vessels are registered in Panama and the Bahamas, and are
subject to regulations issued by Panama and the Bahamas, including regulations
issued pursuant to international treaties governing the safety of the ships and
its passengers. The country of registry conducts periodic inspections to verify
compliance with these regulations.
The Cruise Ships are subject to a continous five year hull and
machinery inspection schedule. In addition, ships operating out of U.S. ports
are subject to control verification by the U.S. Coast Guard for compliance with
international treaties, and by the U.S. Public Health Service for sanitary
conditions. The Cruise Ships will be inspected at least annually by the
Panamanian and Bahamian authorities and quarterly by the U.S. Coast Guard, and
on a regular basis by the U.S. Public Health Service. The Company believes that
the Cruise Ships are in substantial compliance with all applicable regulations
and that they have the licenses necessary to conduct their business.
The Company has obtained certificates from the FMC relating to its
ability to meet obligations to passengers for non-performance of cruises. The
FMC has proposed revisions to increase the amount of the bond needed. Depending
on the amount of any such increase, such change could have an adverse effect on
the Company. In the future, the Americans with Disabilities Act ("ADA") may be
applied to the Cruise Ships to make the Cruise Ships more accessible to disabled
persons. The Company cannot project how the ADA will be applied to the Cruise
Ships or the costs of compliance.
The Company is also subject to various U.S. laws and regulations
relating to environmental protection. Under such laws and regulations, the
Company is prohibited from, among other things, discharging materials, such as
petrochemicals and plastics, into the waterways. The Company has obtained
insurance against the costs of oil pollution occasioned at, or in transit to,
sea. The financial costs relating to U.S. environmental laws and regulations are
not expected to have a material adverse impact on the Company's results of
operations, financial condition or liquidity.
The Company believes that it is in compliance with all regulations
applicable to the Cruise Ships and has the licenses necessary to conduct its
business, however, there can be no assurance thereof. From time to time,
legislation and proposed regulations have been introduced which could have an
impact upon the Company's operations. During recent years, the International
Convention on Safety of Life at Sea ("SOLAS") was amended and requires that most
passenger vessels, not fitted with sprinkler systems, install such systems and
other safety arrangements, including the addition of smoke detector systems,
low-location lighting and enclosed escape stairwells by October 1997. In the
event a vessel meets certain requirements under SOLAS as amended through 1974,
but without reference to any subsequent amendments thereto ("SOLAS 1974"), it
will not be required to be fitted with a sprinkler system and other safety
equipment until on or before October 1, 2005.
The Company installed the systems and safety arrangements (other than
sprinkler systems) required by SOLAS on the Universe Explorer in June 1997, and
on the Enchanted Isle in October 1997. The Company carried out additional work
to the Universe Explorer in January 1998, in order to have that vessel in full
compliance with U.S. Coast Guard interpretations of the SOLAS requirements.
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All of the Company's Cruise Ships either are fitted with sprinkler
systems or comply with the SOLAS 1974 requirements. The Crown Dynasty was
constructed with a sprinkler system and the Company installed a sprinkler system
aboard the Universe Explorer in February 1999. The Enchanted Isle was fitted
with a partial sprinkler system during her recent drydock. However, the
installation of the remainder of the system will be completed while the vessel
is in service over the next several years at an estimated total cost of
$3,000,000. The Company has not yet determined whether it will install a
sprinkler system aboard the Enchanted Capri as the Company's charter of the
Enchanted Capri terminates prior to the date on which a sprinkler system must be
installed on this vessel. The Company has also not yet determined the cost to
install a sprinkler system on this vessel as it may elect to either replace this
vessel with another vessel or renew the charter. If the Company renews such
charter it will be responsible for half of such cost.
In 1993, SOLAS was amended to adopt the "International Safety
Management Code" (the "ISM Code"). The ISM Code provides an international
standard for the safe management and operations of ships and for pollution
prevention. The ISM Code became mandatory for passenger vessel operators on July
1, 1998. All of the Company's vessels have obtained the required certificates
demonstrating compliance with ISM Code.
There have been efforts in prior Congresses to adopt bills that would
apply United States labor laws to non-resident alien crew of foreign registered
ships sailing from U.S. ports and to exclude certain foreign-built ships from
U.S. ports if they received construction subsidies of a particular type. With
respect to the ship construction subsidies, the Enchanted Isle and the Universe
Explorer are U.S. built and thus would be at risk to such legislation only if it
were to apply to conversion and maintenance work performed on the vessels in
foreign countries. The application of U.S. labor laws to foreign-registered
passenger ships would have a very substantial impact on the cruise industry as a
whole and the Company cannot predict the implications on its operations.
The Cruise Ships maintain the standards of design, construction and
maintenance appropriate to their trades and are operated and maintained under
the continuous maintenance survey system of the American Bureau of Shipping,
Lloyds Register of Shipping, Det Norske Veritas, and Bureau Veritas,
respectively. In order for the Company to insure the Cruise Ships, it must
comply with the survey and maintenance requirements of each ship's respective
classification society. The cost of such required maintenance for older vessels,
such as the Cruise Ships, could be high.
TRADEMARK PROTECTION
The Company owns domestic and foreign trademark registrations (the
"Trademarks") relating to the name "Commodore" and the distinctive Commodore
logo. The Company believes such trademarks are widely recognized throughout
North America, although it has not independently verified this belief. The
Company is not aware of any actions against the Trademarks and has not received
any notice or claims of infringement in respect of the Trademarks.
ITEM 2. PROPERTIES
New Commodore subleases from EffJohn, on a pass-through basis,
approximately 14,194 square feet of office space in Hollywood, Florida. The
sublease terminates in June 2000. The Company uses such space for its
administrative and management operations. The Company has subleased, to an
unaffiliated third party, approximately 4,100 square feet of office space, at a
price of $12.00 per square foot until June 2000. The annual lease payment of
approximately $14.44 per square foot does not include taxes, utilities, or
certain other operating costs. The base rent will increase by 4% each year
during the term of the lease. Taxes, utilities and operating costs amount to
approximately an additional $9.26 per square foot. To provide for additional
office space due to the addition of Capri Cruises and Crown Cruise
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Line, the Company also leases approximately 6,421 square feet of additional
office space in Hollywood, at a price of $14.00 per square foot, until June
2000.
The Company has extended it lease of 16,515 square feet of its office
space in Hollywood, which includes 10,094 square feet of the space it currently
subleases from EffJohn and the 6,421 square feet of space it leases for Capri
Cruises and Crown Cruise Line. The extension terminates in June 2001. The annual
lease payments are approximately $16.13 per square foot, which amount does not
include taxes, utilities or certain other operating costs.
The Company also pays a portion of the rent for office space in Miami,
Florida used by its Chairman. The aggregate amount of such rent for fiscal 1999
was approximately $34,000.
The Company utilizes a pier at the Port of New Orleans, pursuant to a
written agreement, from which two of its Cruise Ships depart, and port
facilities at various Caribbean locations, pursuant to oral agreements with the
respective authorities, as is the custom in the Caribbean. The agreement with
the Port of New Orleans, as amended, which was assigned to the Company by Old
Commodore, permits the Company to operate a vessel from New Orleans until April
9, 2002. The Company has priority use of the terminal on weekends. No assurance
can be given that the Company will be able to continue to use the port of New
Orleans or its Caribbean ports, or that the Company will be able to locate
acceptable substitute ports.
The Company has entered into a berthing agreement with the Government
of Bermuda (the "Bermuda Berthing Agreement") pursuant to which the Company has
access to a berth at the Royal Dockyard and all facilities normally made
available to cruise ships that use berths at such dockyard. The Company has
access to such berth for a period of 22 weeks beginning on each of May 12, 2000
and the first week of May in 2001 and 2002. The Bermuda Berthing Agreement
provides that the Company shall have exclusive permission to call in Bermuda
with respect to cruise ships that sail from the Philadelphia and Baltimore
areas. In exchange for such berthing space, the Company is required to guaranty
that an average number of passengers will stay in Bermuda hotels during each
week of the cruise season. The company is obligated to pay for any room
guaranteed but not used by its passengers.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to claims and suits in the ordinary course of
its business, including those arising from personal injury to its passengers.
The Company believes that it has obtained insurance in the proper types and
amounts to cover such claims.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
OPTIONAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT
The following summaries set forth certain information regarding the
executive officers of the Company as of December 22, 1999. All executive
officers serve in their respective positions until their successors are
appointed.
JEFFREY I. BINDER, 53; Chairman of the Board since 1995; Chairman of
the Board of Tel-Med, a company which developed medical products and medical
related services, from 1991 to 1997; Chairman of the Board and a director of
H.P. America, Inc., a privately traded holding company that owns medical
practice companies since 1995; Chairman of the Board and a director of JeMJ
Financial Services, Inc., a private holding company since 1989.
FREDERICK A. MAYER, 65; Vice Chairman of the Board and Chief Executive
Officer since 1995; Co-founder and Vice Chairman of Regency Cruises Inc.
("Regency"), between 1984 and April 1995; President of Exprinter International
USA, a travel organization, between 1969 and 1995; President of Marmara Marine,
Inc. which owned the S/S United States, between 1992 and 1996. In November 1995,
Regency filed for Chapter 11 bankruptcy protection.
16
<PAGE>
ALAN PRITZKER, 45; Chief Financial Officer since 1995; senior vice
president of Regency from 1989 to May 1995; controller of Regency from 1985 to
1989. In November 1995, Regency filed Chapter 11 bankruptcy protection. Prior to
joining Regency, Mr. Pritzker was employed by Holland America Line and Vacation
Travel Concepts, a travel wholesaler, in various positions.
RONALD A. KURTZ, 57; Executive Vice President of the Company and
President of Crown Cruises Limited since May 1999; President of Management
Resource Group, Inc., a management consulting firm to clients such as Merrill
Lynch, Home Shopping Network, Cable & Wireless, Philip Morris and various cruise
lines, hotels and others in the travel Industry, between 1989 and 1999; Senior
Vice President of Windstar Cruises between 1986 and 1987; founding President of
Sea Goddess Cruises between 1982 and 1986. Prior to such time, Mr. Kurtz was the
senior vice president of Marketing and Sales at Norwegian Cruise Line.
JAMES R. SULLIVAN, 62; President of New Commodore Cruise Lines Limited
since 1995; President of the Company between 1995 and 1999; business and
marketing consultant for the Sullivan Group, a marketing consulting company,
from 1993 to 1995; senior vice president, director of Cunard Line Ltd.'s
("Cunard") Eastern Hemisphere from 1989 to 1993; senior vice president sales and
marketing for Cunard from 1981 to1989; vice president of sales for Cunard from
1977 to 1981; vice president of marketing and sales for Cunard's hotel division
from 1973 to 1977.
RODOLFO SPINELLI, 41; Senior Vice President - Operations since 1999;
co-owner and Managing Director of SeaHawk Ltd., a marine project management
company between 1994 and 1999; Project Manager and Captain for EffJohn for Crown
Cruise Line between 1990 and 1994. From 1985 to 1990, Captain Spinelli held
various Master and Staff Captain positions with Commodore Cruise Lines and from
1979 to 1985 held various Deck department positions with Commodore Cruise Lines,
Scan Lines and Alianza Naviera.
RICHARD A. DIPPLE, 45; Senior Vice President - Hotel Operations since
1998; co-owner of SeaHawk Ltd. and Managing Director of SeaHawk Asia Ltd., both
marine project management companies, from 1994 to 1999; Hotel Manager for
EffJohn aboard the Crown Dynasty during 1994; Project Site Manager for EffJohn
for the Crown Dynasty and Crown Jewel between 1990 and 1993. Mr. Dipple held
various Hotel positions with Commodore Cruise Lines, Shaw Savill and Albion and
Fred Olsen Lines between 1971 and 1990.
17
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock of the Company is traded on the Nasdaq National Market
under the symbol CCLN.
PRICE RANGE OF SECURITIES
The following table reflects the high and low closing bid prices for
the Company's Common Stock as reported by the Nasdaq National Market during each
quarter between October 1, 1997, and September 30, 1999. Such quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission, and may
not necessarily represent actual transactions.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Fiscal Year Quarter High Low
1998 First 3 7/8 2 1/8
Second 5 11/16 2 5/8
Third 6 11/16 4 3/8
Fourth 6 3/8 4
1999 First 7 1/32 5 7/32
Second 6 21/32 5
Third 7 11/16 5 5/8
Fourth 7 1/8 4 13/16
</TABLE>
As of December 22, 1999 there were 52 record holders of the Company's
Common Stock and approximately 1,670 beneficial owners of the Company's Common
Stock. The closing bid price for the Common Stock on that day was $4.88.
DIVIDENDS
The Company has not declared any dividends on its Common Stock since
its inception, and has no present intention of paying any dividends on its
Common Stock in the foreseeable future. Pursuant to the terms of the EffJohn
Loan, the Company is prohibited from paying more than 50% of its net profits as
dividends on its Common Stock.
In January 1999, the Board of Directors designated 800,000 shares of
the Company's Preferred Stock as Series B Convertible Preferred Stock (the
"Series B Stock"). The holders of the Series B Stock are entitled to receive
cash dividends at the rate of 10%, payable quarterly within thirty (30) days
after the end of each calendar quarter. The cash dividends are cumulative so
that, if for any quarter cash dividends at the specified rate have not been
declared and paid or set apart for payment on the Series B Stock outstanding,
the deficiency shall be declared and paid or set apart for payment prior to the
making of any dividend or other distribution on the Company's Common Stock. Cash
dividends on the Series B Stock accrue from the date of issue of such Series B
Stock. The Directors of the Company may only declare and pay dividends upon the
Common Stock after the payment of all current and accumulated dividends on the
Series B Stock have been paid.
CERTAIN FOREIGN ISSUER CONSIDERATIONS
The Company has been designated as a non-resident for Bermuda exchange
control purposes. As a result, there are no restrictions on the Company's
ability to transfer funds into and out of Bermuda or to pay dividends to
non-resident holders of the Company's Common Stock, other than in respect of
local Bermuda currency. In addition, holders of the Company's Common Stock are
not subject to any taxes under Bermuda law. There does not exist any reciprocal
tax treaties between Bermuda and the United States regarding withholding.
18
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following is a summary of the Company's financial information
extracted from the indicated year-end audited Consolidated Financial Statements
of the Company, and is qualified in its entirety by the detailed financial
information appearing in the Consolidated Financial Statements and the Notes
thereto included in Item 14 herein.
<TABLE>
<CAPTION>
THE COMPANY PRO FORMA
PERIOD ENDED YEAR ENDED THE COMPANY
SEPTEMBER 30, SEPTEMBER 30, YEARS ENDED SEPTEMBER 30,
------------- ------------ -------------------------------------------------------------
1995(2) 1995(1) 1996 1997 1998 1999
------- ------- ---- ---- ---- ----
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenues $ 7,256 $ 35,075 $ 47,817 $ 57,977 $ 63,128 $ 61,488
Operating expenses 4,941 33,337 35,490 44,912 43,306 40,793
Selling & administrative
expenses 1,664 9,899 7,238 8,741 11,481 12,669
Depreciation and amortization 198 1,693 1,614 2,108 2,216 2,265
Interest expense, net 133 1,933 1,266 1,359 1,250 1,135
Other income -- -- 341 6 80 --
Loss on vessel fire -- 1,367 397 -- -- --
Minority interest share of (earnings)
loss of consolidated joint venture -- -- (143) 1,420 7 354
Equity in net loss of unconsolidated
joint venture -- -- -- -- (769) (107)
Net earnings (loss) before tax 320 (13,154) 2,009 2,283 4,193 4,873
Provision for taxes 8 -- -- -- -- --
Net earnings (loss) before
preferred stock dividend 312 (13,154) 2,009 2,283 4,193 4,873
Preferred stock dividend 60 280 280 280 170 267
Net earnings (loss) available for
Common Stockholders $ 252 $ (13,434) $ 1,729 $ 2,003 $ 4,023 $ 4,606
Net earnings (loss) per share -
Basic $ 0.06 $ (2.59) $ 0.31 $ 0.36 $ 0.64 $ 0.62
Average shares outstanding -
Basic (000's) 4,378 5,185 5,582 5,582 6,296 7,487
Net earnings per share -
Diluted(3) $ 0.06 $ -- $ 0.29 $ 0.33 $ 0.54 $ 0.52
Average shares outstanding -
Diluted (000's) 4,378 5,185 6,849 6,876 7,937 9,292
OPERATING DATA (UNAUDITED):
Sailings 11 64 56 63 63 62
Traffic days(4) 77 444 569 690 675 666
Passenger days(5) 53,221 271,171 384,638 479,386 492,254 487,483
Load factor(6) 94.81% 83.78% 92.66% 95.30% 100.04% 100.71%
BALANCE SHEET DATA:
Property and equipment, net
of depreciation $ 33,085 $ 36,147 $ 37,193 $ 38,296 $ 49,722
Total assets $ 44,097 $ 53,285 $ 53,118 $ 59,137 $ 88,687
Total borrowings $ 24,500 $ 24,239 $ 21,230 $ 16,838 $ 30,648
Total stockholders' equity $ 12,519 $ 16,196 $ 18,341 $ 24,589 $ 34,175
</TABLE>
- ----------------------------------
(1) Assumes that the Company acquired the Commodore Assets on October 1, 1994.
19
<PAGE>
(2) Such period begins April 13, 1995 (date of inception) and ends on September
30, 1995; however, the Company commenced cruise operations July 15, 1995,
immediately following the closing of its purchase of the Commodore Assets.
(3) Net earnings per share - diluted is based upon the weighted average number
of shares and equivalents outstanding during each period after giving effect to
dilutive common stock equivalents, and adding to net earnings the dividends on
the preferred stock and interest expense on the convertible debentures.
(4) Represents the number of sailings, multiplied by the number of days per
cruise, excluding Enchanted Capri the results of operation for which are not
consolidated with the Company. See "Management's Discussion and Analysis of
Financial Condition and Results of Operation."
(5) Represents the number of passengers, multiplied by the number of days of
their respective cruises, excluding Enchanted Capri the results of operation for
which are not consolidated with the Company. See "Management's Discussion and
Analysis of Financial Condition and Results of Operation."
(6) In accordance with cruise industry practice, total capacity is calculated
based on double occupancy per cabin even though some cabins accommodate three or
four passengers. A percentage in excess of 100% indicates that more than two
passengers occupied some cabins. Because the Universe Explorer is space
chartered to Seawise during the majority of the year for the Semester at Sea
program, the load factor during these sailings is not as material to the Company
as it is during normal cruise operations. The Company has computed the load
factor for the Semester at Sea voyages by including all passengers, including
university staff and faculty, as well as student and adult participants.
20
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD LOOKING STATEMENTS
THE FOLLOWING IS AN ANALYSIS OF THE COMPANY'S RESULTS OF OPERATION,
LIQUIDITY AND CAPITAL RESOURCES. TO THE EXTENT THAT SUCH ANALYSIS CONTAINS
STATEMENTS WHICH ARE NOT OF A HISTORICAL NATURE, SUCH STATEMENTS ARE
FORWARD-LOOKING STATEMENTS, WHICH INVOLVE RISKS AND UNCERTAINTIES. THESE RISKS
INCLUDE COMPETING IN A SATURATED INDUSTRY AGAINST MODERN AND LARGER FLEETS; THE
ABILITY OF THE COMPANY TO OBTAIN ADDITIONAL FINANCING FOR THE ACQUISITION OF
ADDITIONAL SHIPS; A HIGH PERCENTAGE OF DEBT ON ASSETS OWNED BY THE COMPANY; THE
POTENTIAL FOR ADDITIONAL GOVERNMENTAL REGULATIONS; THE NEED FOR EXPENSIVE
UPGRADES AND/OR MAINTENANCE TO AGING VESSELS; GENERAL ECONOMIC FACTORS IN
MARKETS WHERE THE COMPANY OPERATES; AND OTHER FACTORS DISCUSSED IN THE COMPANY'S
FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION.
GENERAL
With respect to the Company's cruise operations, the Company earns
revenues primarily from: (i) the sale of passenger tickets, which include
accommodations, meals, substantially all shipboard activities, and airfare and
hotel packages, if applicable; and (ii) the sale of goods and services on board
the Cruise Ships including, but not limited to, casino gaming (excluding the
Universe Explorer), liquor sales and concession income.
The Company's operating expenses include travel agency commissions,
shipboard costs of goods sold and all shipboard operating expenses, including
food, fuel, port charges, crew wages and benefits, cabin consumables,
entertainment, ship insurance, ship maintenance expenses, vessel management fees
and transportation and lodging (airfare, hotel, and transfer costs), if
applicable. Travel agency commissions, passenger food, port charges and air
transportation and hotel lodging expenses generally vary directly with the
number of passengers while most of the shipboard operating expenses are fixed
per voyage.
The Company's marketing, selling and administrative expenses include
media advertising, brochures and promotional materials, costs of the Company's
direct sales force and related selling activities, all shoreside activities such
as reservations, inventory control, air transportation coordination, human
resources, finance and information technology. Other income (expense) includes
interest expense and interest income. The majority of the Company's transactions
are in U.S. dollars.
With respect to Sea-Comm's operations, the Company earns revenue
primarily from reimbursements from Sea-Comm for all operating costs, food costs
and all of the principal and interest due on the portion of the EffJohn Loan
attributable to the Universe Explorer (assuming such EffJohn Loan was still in
existence) during the approximately 320 days each year the vessel is used in the
Semester at Sea and Alaska programs. As the majority owner of Sea-Comm, the
Company includes all of Sea-Comm's revenues and expenses in its consolidated
financial statements and makes an appropriate entry to account for the minority
interest of its partner. Because the Semester at Sea program is operated by
Seawise pursuant to a charter, the income and losses of the Semester at Sea
program are substantially realized by Seawise, not Sea-Comm. With respect to the
Alaska Program, however, all income and losses are borne by Sea-Comm.
As the majority owner of Albuferra, the Company includes all of
Albuferra's revenues and expenses in its consolidated financial statements and
makes an appropriate entry to account for the minority interest of its partner.
With respect to Capri Cruises, the Company earns income from the profit
or loss of the Capri Cruises venture as a whole. Because the Company owns
exactly half of Capri Cruises, it accounts for its interest in Capri Cruises
using the equity method and does not consolidate the revenues and expenses of
the venture in its consolidated financial statements. Instead, such financial
statements are prepared independently and the Company includes an appropriate
line item for its 50% equity in the net income or loss from this unconsolidated
joint venture in its financial statements.
21
<PAGE>
The following table presents statements of operations data as a percentage of
total revenues:
<TABLE>
<CAPTION>
THE COMPANY
YEARS ENDED SEPTEMBER 30,
1999 1998 1997
-------------- --------------- ----------------
<S> <C> <C> <C>
Revenues....................................... 100.0% 100.0% 100.0%
Expenses:
Operating.................................... 66.3% 68.6% 77.5%
Selling and administrative................... 20.6% 18.2% 15.1%
Depreciation and amortization................ 3.7% 3.5% 3.6%
-------------- --------------- ----------------
Total...................................... 90.6% 90.3% 96.2%
Operating income............................... 9.4% 9.7% 3.8%
Other income (expense)......................... (1.5)% (3.1)% 0.1%
Net earnings before
Provision for preferred stock dividend....... 7.9% 6.6% 3.9%
============== =============== ================
</TABLE>
Due to its New Orleans point of embarkation, the Company's revenues are
more seasonal than other cruises with similar itineraries that depart from
Florida ports. The greatest demand for the Company's cruises occurs in June
through August, and demand from February through May and November through
December is also very good. The Company's slowest months are January, September
and October.
RESULTS OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1999, COMPARED TO YEAR ENDED SEPTEMBER 30, 1998
Revenues decreased by $1,640,000, or 2.6%, for fiscal 1999 compared to
fiscal 1998, primarily due to the Universe Explorer being out of service for 60
days during the year ended September 30, 1999 for the installation of a
sprinkler system as well as a lucrative eight-day charter of the Enchanted Isle
during the fiscal year ended September 30, 1998.
The Company's operating expenses decreased by $2,513,000, or 5.8%, in
fiscal 1999 compared to fiscal 1998. As a percentage of revenue, operating
expenses represented 66.3% of revenues in fiscal 1999, as compared to 68.6% of
revenue in fiscal 1998. The primary reason for the decrease in operating
expenses as a percentage of revenue was the savings related to the Universe
Explorer being out of service for 60 days during the year ended September 30,
1999 for the installation of a sprinkler system. Due to rising fuel costs at the
end of fiscal 1999, the Company expects an increase in fuel cost in fiscal 2000.
Marketing, selling and administrative expenses increased by $1,188,000,
or 10.3%, in fiscal 1999 compared to fiscal 1998. The higher expenses were
primarily due to expenses incurred in adding personnel and systems to
accommodate the Company's expansion from three ships in fiscal 1999 to five
ships in fiscal 2000.
Depreciation and amortization increased by $49,000, or 2.2%, in fiscal
1999 compared to fiscal 1998, due to the additional capital expenditures
incurred by the Company in conjunction with installing the sprinkler system on
the Universe Explorer, which increase was largely offset by the extension of
the original depreciable life on that vessel, from 18 years to 25 years. The
effect of this change in accounting estimate on the fiscal 1999 statement of
earnings was $207,000, which results in a decrease of $.03 per share-basic and
$.02 per share-diluted. Interest expense, net, decreased by $115,000 from fiscal
1998 to fiscal 1999 primarily due to increased interest income associated with
the Company's higher cash balances in 1999 versus 1998.
22
<PAGE>
The minority interests in the Company's consolidated joint ventures
(Sea-Comm and Albuferra) are reflected in the $354,000, $7,000 and $1,420,000
line item for "Minority interest in loss of consolidated joint ventures" for
fiscal 1999, 1998 and 1997, respectively. Sea-Comm posted a profit of $1,533,000
in fiscal 1999 as compared to a loss of $14,000 during fiscal 1998. The return
to profitability was primarily due to the discontinuation of the WEC Caribbean
program, which was unprofitable in fiscal 1998, and the continued high load
factors (97.8% in fiscal 1999) for the Alaska Program. In September 1999,
approximately $2,250,000 of expenses attributable to Albuferra were allocated on
a one-time basis, to the joint venture, resulting in an increase in minority
interest in loss of consolidated joint ventures of approximately $1,121,000. The
minority interests each account for approximately 50% of their respective
profits or losses.
The Company accounts for the Capri Cruises joint venture under the
equity method. The Company's 50% investment in Capri Cruises resulted in a net
loss of $107,000 for fiscal 1999 as compared to a loss of $769,000 for the
period ended September 30, 1998. These fiscal 1998 losses were due to costs
related to the start up operation, including losses related to the late delivery
of the vessel and other expenses for which Capri Cruises was not contractually
responsible. Capri Cruises became profitable during the third quarter of fiscal
1999 and remained profitable during the fourth quarter. The Company expects such
profitability to continue as Capri Cruises successfully defined its market in
fiscal 1999.
The Company's preferred stock dividend increased to $267,000 in fiscal
1999 from $170,000 in fiscal 1998. The dividend in fiscal 1999 relates to the
Company's Series B Stock, which was issued in February 1999. The dividend in
fiscal 1998 relates to the Company's Series A Preference Shares which were all
converted into Common Stock during fiscal 1998.
YEAR ENDED SEPTEMBER 30, 1998, COMPARED TO YEAR ENDED SEPTEMBER 30, 1997
Revenues increased by $5,151,000, or 8.9%, for fiscal 1998 compared to
fiscal 1997, primarily due to higher passenger yields and an eight-day charter,
on the Company's New Orleans itinerary. Revenues also increased during fiscal
1998 due to the increase in load factors for the Alaska program which increased
from approximately 75% in fiscal 1997 to approximately 96% in fiscal 1998. The
increased loads yielded higher revenues.
The Company's operating expenses decreased by $1,606,000, or 3.6%, in
fiscal 1998 compared to fiscal 1997. As a percentage of revenue, operating
expenses represented 68.6% of revenues in fiscal 1998, as compared to 77.5% of
revenue in fiscal 1997. The primary reason for the decrease in operating
expenses as a percentage of revenue is a result of the 8.9% increase in
revenues, as a majority of the Company's operating expenses are fixed costs.
Marketing, selling and administrative expenses increased by $2,740,000,
or 31.3%, in fiscal 1998 compared to fiscal 1997. The higher expenses were
primarily due to increased salary and related expenses. Additionally, the
Company operated more WEC Alaska and Caribbean cruises during fiscal 1998 than
in fiscal 1997, which required additional advertising and promotional expenses.
Depreciation and amortization increased by $108,000, or 5.1%, in fiscal
1998 compared to fiscal 1997, due to the additional capital expenditures
incurred by the Company in conjunction with meeting its SOLAS requirements on
its two owned vessels. Interest expense, net, decreased by $109,000, or 8.0%,
from fiscal 1997 to fiscal 1998 due to lower outstanding principal amounts on
the Company's loans.
Seawise's interest in the Company's Sea-Comm joint venture is reflected
in the $7,000 and $1,420,000 line item for "Minority interest share of loss of
consolidated joint venture" for fiscal 1998 and 1997, respectively. Sea-Comm
lost $14,000 during fiscal 1998 as compared to $2,840,000 during fiscal 1997.
The decline in such loss was primarily due to the increase in load factors for
the Alaska Program, which increased from approximately 75% in fiscal 1997 to
approximately 96% in fiscal 1998. The increased loads yielded higher revenues
and a better net result. Seawise, through its minority interest, absorbs
approximately 50% of the Company's loss on the Sea-Comm joint venture.
23
<PAGE>
The Company accounts for the Capri Cruises joint venture under the
equity method. The Company's 50% investment in Capri Cruises resulted in a net
loss of $769,000 for the period ended September 30, 1998. These losses were due
to costs related to the start up operation, including losses related to the late
delivery of the vessel and other expenses for which Capri Cruises was not
contractually responsible. The Company expects Capri Cruises to become
profitable in the future, however, Capri Cruises is expected to continue to
incur losses, on a declining basis, in the near future as it defines its market.
Such losses, if significant, could have a material impact on the Company's
operations.
The provision for preferred stock dividend decreased from $280,000 in
fiscal 1997 to $170,000 in fiscal 1998 as a result of the conversion of all of
the Company's Series A Preference Shares into Common Stock during fiscal 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company had working capital of $5,749,000 at September 30, 1999 as
compared to a working capital deficiency of $10,426,000 at September 30, 1998.
The improvement in the Company's working capital position was primarily due to
the private sale of $4,000,000 of Series B Stock, the refinancing of the loan on
the Universe Explorer, as well as a change in the Company's FMC arrangement.
During fiscal 1999, the Company arranged for a surety bond to guarantee the
Enchanted Isle's FMC requirements thereby freeing the $4,629,000 long-term
deposit that had been securing the Company's FMC certificate.
Cash flows from operations provided $10,857,000, $7,752,000 and
$7,202,000 for fiscal years 1999, 1998 and 1997, respectively. Cash flows for
fiscal 1999 consisted primarily of decreases in restricted cash due to the
Company's revised FMC arrangement and increases in accounts payable due to
payments owed for the construction in progress on the Enchanted Sun, which were
partially offset by increases in trade and other receivables related to a
cancelled cruise charter and a reimbursement on the Company's liability
insurance premiums which was paid subsequent to year-end.
The Company's cash flow used in investing activities in fiscal 1999
exceeded the fiscal 1998 outlay by $3,122,000. The primary reason was the
increase in capital expenditures related to the purchase of the Enchanted Sun,
the installation of the sprinkler system on the Universe Explorer, and the
improvements to the Company's existing fleet. This increase was partially offset
by the investment made by Viejas in Albuferra in September 1999 and the release
of the deposit securing the Company's FMC certificate.
The Company's cash flow provided by financing activities during fiscal
1999 was $15,848,000 compared to cash flow used in financing activities of
$1,859,000 and $3,210,000 for fiscal years 1998 and 1997, respectively. This
change was primarily due to approximately $1,100,000 in net proceeds from the
Key Loan used for the partial repayment of the EffJohn Loan and for the Universe
Explorer sprinkler system, $2,100,000 in proceeds from the NationsBank Loan for
the installation of the sprinkler system aboard the Universe Explorer, and
approximately $13,394,000 in proceeds from the Nordbanken Loan for the purchase
and renovation of the Enchanted Sun.
At September 30, 1999, the Company owed a total of $30,477,000 pursuant
to the EffJohn Loan, Key Loan, NationsBank Loan and Nordbanken Loan, which loans
bear interest at 6.97%, 9.14%, 7.30% and 7.79%, respectively. The EffJohn Loan,
Key Loan and Nordbanken Loan are secured by mortgages on the Company's vessels,
and the NationsBank Loan is secured by a letter of credit provided by Seawise.
The Key Loan and the EffJohn Loan also require the Company to meet certain
financial covenants.
In February 1999, the Company closed on a $4,000,000 private offering
of its Series B Stock. The Series B Stock accrues dividends at the rate of 10%
per annum and are convertible into the Company's Common Stock at the rate of
$5.50 per share beginning 18 months from the date of issuance. The net proceeds
to the Company were $3,670,000 after deducting brokers' commissions and expenses
of the offering.
24
<PAGE>
The Company expects to fund the cash needs for its Capri Cruises
operation from cash from its established operations. Capri Cruises earned a
profit in the third and fourth quarters of fiscal 1999.
The Company's plans to expend approximately $12,000,000 for capital
improvements to the Enchanted Sun and the Crown Dynasty during the first half of
fiscal 2000. The Company will finance approximately $857,000 of that amount with
the remaining proceeds of the Nordbanken Loan, $4,500,000 of that amount through
the issuance of 1,000,000 shares of Common Stock to the general contractor and
its subcontractors for the renovations, and the balance from the Company's
operating funds.
During fiscal 2000, the Company anticipates that it may require
additional capital for acquisitions of additional vessels or new business
opportunities. The Company has reached an agreement to purchase the Crown
Dynasty for $86,200,000, subject to its approval of final documentation. The
Company currently anticipates that the purchase price will be funded through a
combination of seller-provided and third-party loans and approximately
$6,000,000 to $10,000,000 from the proceeds of an equity financing by the
Company. The Company has not reached an agreement with respect to any other
proposed ventures. In the event the Company proceeds with any additional
business opportunities, it anticipates that the capital requirements will be
funded from cash from operations or from financings arranged in connection
therewith.
In 1998, the AICPA issued Statement of Position (SOP) 98-1, "Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use." SOP
98-1 establishes standards for accounting for internal use software projects.
This Statement is effective for financial statements for fiscal years beginning
after December 15, 1998 for costs incurred in those fiscal years for all
projects, including projects in progress when the SOP was adopted. Management
does not expect this Statement to have a material impact on the Company's
financial statements.
In 1998, the AICPA issued Statement of Position (SOP) 98-5, "Reporting
on the Costs of Start-Up Activities." SOP 98-5 provides guidance on accounting
for start-up costs and organization costs, which must be expensed as incurred.
This Statement is effective for financial statements for fiscal years beginning
after December 15, 1998. As a result of this Statement, the Company will incur a
charge of approximately $229,000 as of October 1, 1999, which on a pro forma
basis would have decreased the fiscal 1999 earnings per share-basic by $.04 and
the earnings per share-diluted by $.02.
YEAR 2000
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Computer
equipment and software and devices with embedded technology that are
time-sensitive may recognize a date using "00" as the year 1900 rather than the
year 2000. This could result in a system failure or a miscalculation, causing
disruptions of operations, including, among other things, temporary inability to
process transactions, send invoices, or engage in similar normal business
activities.
Due to the expansion of the Company's business, the Company purchased a
new AS400 for its reservations system in fiscal 1999, along with the operating
systems, that were the latest versions available. The Company also installed new
workstations for most of its non-reservations staff. Additionally, the Company
installed a new general ledger and accounts payable system in May 1999. The
Company has undertaken various initiatives intended to ensure that its computer
equipment and software will function properly with respect to dates in the Year
2000 and thereafter. The Company has evaluated its on-board point of sale
computer equipment and reservations computer software and made the changes and
25
<PAGE>
upgrades necessary, based on the opinion of the consultants and vendors it has
hired for such purpose, to assure that such equipment will function properly in
the Year 2000. The Company believes that it has identified all Year 2000
problems with respect to its own computer equipment and software. All of the
Company's systems functioned properly on September 9, 1999, a date that was
commonly used by computer programmers as a default date for an expiration or
termination date in many older programs and systems.
The Company also contacted its significant vendors, customers and
service providers, including its technical manager, to determine the extent to
which such entities are vulnerable to Year 2000 issues and whether the products
and services purchased from or by such entities are Year 2000 compliant.
The Company has incurred an immaterial amount in costs associated with
the identification and remediation of its Year 2000 issues as it has
reprogrammed its reservations system using in-house personnel. The cost of the
AS400 system, internal network of workstations and the accounts payable/general
ledger system was approximately, $162,000, $55,000 and $50,000, respectively.
The Company believes that both it and its significant vendors and
service providers are Year 2000 compliant. However, the difference in the
interpretations of "compliant with Year 2000" may lead to different levels of
compliance by the Company, its vendors and service providers. As a result, the
Company has developed a contingency plan for its business and each of its
vessels that identifies and sets forth how it will handle its most reasonably
likely worst case scenario in the event of any system failures. This plan
assesses the impact of system failures on the Company's operations and provides
for back-up and alternative procedures to be followed if a failure should occur.
The Company has identified the following areas as those that could be
affected by such failures: (i) passenger air transportation to the Cruise Ships'
points of embarkation (especially Aruba, to which virtually all of the Company's
passengers rely on air transportation); (ii) shipboard systems; (iii) shipboard
revenue points; (iv) third party supplied items; and (v) reservations. The plan
provides for the Company to (i) establish a central operations center at the
Company's principal offices during the Year 2000 rollover; (ii) assign key
internal personnel to be on-call during the Year 2000 rollover; (iii) provide
for key external suppliers, such as the Company's technical manager, to be
on-call during the Year 2000 rollover, (iv) operate the Company's shipboard
systems, shipboard revenue points and reservations systems manually, if
necessary; (v) use various airlines and flights to carry passengers to the
Company's cities of embarkation to ensure that the maximum number of passengers
are able to reach such cities in the event of cancellation of some flights; and
(vi) stockpile food, fuel and other consumable essentials, to the extent the
Company is able to do so, prior to the Year 2000 rollover. As part of the
Company's plan, the Company has completed United States Coast Guard mandated
drills on board its vessels with its shipboard personnel and Company training
sessions with its shoreside reservations personnel to simulate the conditions
that may occur during the rollover.
If the Company ultimately relies upon a portion of its contingency plan
because either the Company or its vendors and service providers have failed to
identify and remediate all of their respective Year 2000 issues, there can be no
assurance that the Year 2000 issue will not have a material adverse effect on
the Company's operations or its relationships with its customers, vendors and
service providers, or that a partial lack of compliance will not lead to claims
against the Company, the magnitude of which are not currently estimable. No
assurance can be given that such claims will not have a material adverse effect
on the Company's results of operations.
INFLATION
The impact of inflation on the Company's operations has not been
significant to date. There can be no assurance that a high rate of inflation in
the future would not have an adverse effect on the Company's operations.
26
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company's major market risk exposure is to changing interest rates.
The Company's policy is to manage interest rate risk through the use of a
combination of fixed and floating rate instruments, with respect to both its
liquid assets and its debt instruments.
The Company maintains a portion of its cash and cash equivalents in
financial instruments with original maturities of three months or less. These
financial instruments are subject to interest rate declines. An immediate
decline of 10% in interest rates would reduce the Company's annual interest
income by $105,000.
The Key Loan is a variable rate loan; however, the Company has
purchased interest rate protection for such loan in the form of an interest rate
swap. As a result, although the Key Loan bears interest at the prime rate plus
80 basis points, the interest rate swap provides that the rate shall effectively
be fixed at 9.14% over the term of the loan. The NationsBank Loan is also a
variable rate loan; however, the Company has also purchased interest rate
protection for such loan in the form of an interest rate swap. As a result,
although the NationsBank Loan bears interest at LIBOR plus 150 basis points, the
interest rate swap provides that the rate shall effectively be fixed at 7.3%
over the term of the loan.
The EffJohn Loan bears interest at LIBOR plus 2%, and thus is affected
by changes in interest rates. In the event that interest rates increased by 10%,
the Company's interest obligation would increase by $34,000, $20,000, and
$6,000, respectively, in each of its fiscal years 2000, 2001 and 2002.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Item 14(a) hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
27
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information concerning the directors of the Company set forth under
the caption "Election of Directors" in the definitive Proxy Statement of the
Company for its 2000 Annual Meeting of Stockholders (the "2000 Proxy Statement")
is incorporated herein by reference.
Information concerning the executive officers of the Company is
included in Part I herein under the caption "Executive Officers of the
Registrant."
ITEM 11. EXECUTIVE COMPENSATION
The information set forth in the 2000 Proxy Statement under the caption
"Compensation of Officers" and "Board of Directors--Compensation" is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the caption "Principal Stockholders and
Security Ownership of Management" in the 2000 Proxy Statement is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Transactions with
Management and Others" in the 2000 Proxy Statement is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
See "Index to Financial Statements" on Page F-1.
2. Financial Statement Schedules
All schedules have been omitted because they are not
applicable or the required information is shown in the financial
statements herein.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of fiscal
1999.
(c) Exhibits
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
3a Memorandum of Association of the Company, as amended (1)
3b Bye-Laws (1)
4a Form of Common Stock Certificate (2)
4b Form of Warrant Certificate (3)
4c Form of Warrant Agent Agreement (3)
4d Form of Underwriter's Warrant Agreement (3)
4e Stockholder Rights Plan (4)
4f Assignment and Assumption of Underwriter's Warrant Agreement (8)
10a Employment Agreement dated May 3, 1995 between the Company and
Jeffrey I. Binder (1)
28
<PAGE>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
10b Employment Agreement dated May 3, 1995 between New Commodore and
Frederick A. Mayer, as amended (1)
10c USD $24,500,000 Loan Facility Agreement, dated July 14, 1995 among
the EffJohn Lender, Almira, Azure, New Commodore and the Company (1)
10d 1995 Stock Option Plan (1)
10e Joint Venture Agreement dated October 30, 1995 between the Company,
Seawise and Sea-Comm (1)
10f Management Services Agreement dated July 5, 1995 between New
Commodore and IMC (3)
10g Sublease for Office Space at 4000 Hollywood Boulevard dated June 30,
1995 between EffJohn and New Commodore (3)
10h Sublease of computer equipment and software between Old Commodore
and New Commodore (IBM Sublease) (3)
10i Assignment of Financing and Berthing Agreement dated June 29, 1995
between New Commodore and Old Commodore as consented to by the Board
of Commissioners of the Port of New Orleans (2)
10j Warrant Certificate for 250,000 shares of Common Stock of the
Company dated October 30, 1995 in favor of Seawise (3)
10k First Priority Panamanian Mortgage on the Enchanted Isle dated July
14, 1995 between Almira and the EffJohn Lender (3)
10l First Priority Charge over the shares of Almira dated July 14, 1995
between the EffJohn Lender and New Commodore (3)
10m First Priority Tripartite Deed in respect of the Enchanted Isle
dated July 14, 1995 between Almira, New Commodore and the EffJohn
Lender (3)
10n Second Amendment to Employment Agreement by and between New
Commodore and Frederick Mayer dated May 3, 1997 (5)
10o First Amendment to Employment Agreement by and between the Company
and Jeffrey I. Binder dated July 15, 1997 (6)
10p First Amendment to USD $24,500,000 Loan Facility Agreement dated
December 4, 1998 among the EffJohn Lender, Azure, Almira, New
Commodore and the Company (8)
10q Modification Agreement dated December 4, 1998 among Sea-Comm,
Seawise, WEC, HCT, Azure, New Commodore and the Company (8)
10r Extension of the Financing and Berthing Agreement between New
Commodore and the Port of New Orleans dated August 24, 1998 (8)
10s Restated Warrant Certificate for 520,455 Shares of Common Stock of
the Company dated October 15, 1998 in favor of Jeffrey I. and
Rosalie Binder (8)
10t Restated Warrant Certificate for 545,455 Shares of Common Stock of
the Company dated April 15, 1998 in favor of JeMJ Financial
Services, Inc. (8)
10u First Preferred Marine Mortgage dated December 4, 1998 executed by
Azure in favor of Key (8)
10v Assignment of Mortgage in respect of the Enchanted Isle (8)
10w Joint Venture Agreement of Capri Cruises dated April 17, 1998
between the Commodore Cruises Limited and Isle of Capri (7)
10x Loan and Security Agreement dated December 4, 1998 between Azure and
Key (8)
10y Promissory Note dated December 4, 1998 executed by Azure in favor of
Key (8)
10z ISDA Master Agreement dated December 4, 1998 between Azure and Key,
and the Schedule and Confirmation thereto (8)
10aa Corporate Guaranty Agreement dated December 4, 1998 between the
Company and Key (8)
10bb Charter Agreement dated March 1, 1999 between Crown Dynasty, Inc.
and Crown Cruises Limited *(9)
10cc Form of Stock Purchase Agreement (9)
10dd Loan Agreement dated February 12, 1999 between the Company and
NationsBank, N.A. (9)
10ee Promissory Note dated February 12, 1999 in the principal amount of
$2,100,000 executed by the Company in favor of NationsBank, N.A. (9)
29
<PAGE>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
10ff ISDA Master Agreement dated February 12, 1999 between the Company
and NationsBank, N.A., and the Schedule and Confirmation thereto (9)
10gg Employment Agreement dated March 1999 by and between New Commodore
and Ronald Kurtz (10)
10hh Employment Agreement dated May 1, 1999 by and between New Commodore
and Alan Pritzker (10)
10ii Employment Agreement dated May 17, 1999 by and between New Commodore
and James Sullivan (10)
10jj Rosarito Pier Docking Contract dated April 6, 1999, between
Inversiones Rosarito, S.A. de C.V., Coronado Seas, LLC, Playas de
Rosarito Marina Resort, S.A. de C.V. and Banco Internacional, S.A.*
(10)
10kk Bareboat Charter Agreement dated May 13, 1999, between Capri Cruises
and Norsong Shipping, Ltd.* (10)
10ll Loan and Guarantee Facility Agreement dated April 23, 1999, by and
between Albuferra Investments, Inc. and Nordbanken AB (publ) (10)
10mm Guarantee and Indemnity Agreement dated April 23, 1999, executed by
the Company in favor of Nordbanken AB (publ) (10)
10nn Amended and Restated Operating Agreement for Coronado Seas, LLC
dated September 17, 1999 by and among Commodore Day Cruises Limited,
Promociones Turisticas de Rosarito, S.A. de C.V. and Viejas Band of
Kumeyaay Indians**
10oo First Amendment to Pier Docking Agreement dated September 17, 1999,
by and among Inversiones Rosarito, S.A. de C.V., Playas de Rosarito
Marina Resort, S.A. de C.V., Coronado Seas, LLC and Banco
Interncional, S.A.
10pp Space Charter dated July 12, 1999, by and between Crown and Atkinson
and Mullen, Inc. d/b/a Apple Vacations**
10qq Bermuda Berthing Agreement dated July 14, 1999, between the
Government of Bermuda and Crown
10rr 1999 Stock Plan
10ss Loan and Security Agreement Amendment No. 1 dated September 30, 1999
between Azure and Key
21 Subsidiaries of the Company
24 Power of Attorney (included on signature page)
27 Financial Data Schedule (11)
- -------------------------------------------------------------------------------
(1) Incorporated by reference from the Company's Registration
Statement on Form S-1 (No. 333-01270) filed on February 12, 1996.
(2) Incorporated by reference from Amendment No. 2 to the
Company's Registration Statement on Form S-1 (No. 333-01270) filed on June
18, 1996.
(3) Incorporated by reference from Amendment No. 1 to the
Company's Registration Statement on Form S-1 (No. 333-01270) filed on May
28, 1996.
(4) Incorporated by reference from the Company's Current Report
on Form 8-K filed on October 29, 1998.
(5) Incorporated by reference from the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1996.
(6) Incorporated by reference from the Company's Annual Report on
Form 10-K for the year ended September 30, 1997.
(7) Incorporated by reference from the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1998.
(8) Incorporated by reference from the Company's Annual Report on
Form 10-K for the year ended September 30, 1998.
30
<PAGE>
(9) Incorporated by reference from the Company's Quarterly Report
on Form 10-Q for the quarter ended March 31, 1999.
(10) Incorporated by reference from the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1999.
(11) Included only in electronic filing.
* Portions of this document omitted pursuant to an order by the Securities
and Exchange Commission (the "SEC") granting confidential treatment pursuant to
Rule 24b-2 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Confidential portions of this document have been filed separately with
the SEC.
** Portions of this document omitted pursuant to an application for an order
for confidential treatment pursuant to Rule 24b-2 under the Exchange Act.
Confidential portions of this document have been filed separately with the SEC.
31
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Hollywood, Florida on the 28th day of December, 1999. The registrant and each
person whose signature appears below hereby authorizes and appoints Frederick A.
Mayer as attorney-in-fact to sign and file on behalf of the registrant and each
such person in each capacity below, any and all amendments to this report.
COMMODORE HOLDINGS LIMITED
BY /S/ FREDERICK A. MAYER
------------------------------------
Frederick A. Mayer, Vice-Chairman
Pursuant to the requirements of the Securities 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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- -------------------------------- --------------------------------- -------------------------
<S> <C> <C>
/S/ JEFFREY I. BINDER Chairman of the Board December 28, 1999
- ---------------------
Jeffrey I. Binder
/S/ FREDERICK A. MAYER Vice-Chairman of the Board December 28, 1999
- ---------------------- (Principal Executive Officer)
Frederick A. Mayer
/S/ RALPH V. DE MARTINO Director December 28, 1999
- -----------------------
Ralph V. De Martino
/S/ MARK J. MAGED Director December 28, 1999
- -----------------
Mark J. Maged
/S/ JEFFREY B. RABIN Director December 28, 1999
- --------------------
Jeffrey B. Rabin
/S/ ALAN PRITZKER Vice President, Finance and December 28, 1999
- ----------------- Chief Financial Officer
Alan Pritzker (Principal Financial and
Accounting Officer)
</TABLE>
32
<PAGE>
INDEX TO FINANCIAL STATEMENTS PAGE
------------
COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES
Report of Independent Certified Public Accountants....................... F-1
Consolidated Balance Sheets--September 30, 1999 and 1998............... F-2
Consolidated Statements of Earnings-- Years Ended September 30, 1999,
1998 and 1997...................................................... F-3
Consolidated Statement of Stockholders' Equity--September 30, 1999..... F-4
Consolidated Statements of Cash Flows-- Years Ended September 30, 1999,
1998 and 1997........................................................F-5
Notes to Consolidated Financial Statements............................. F-7
<PAGE>
REPORT OF INDEPENDENT CERTIFIED
PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Commodore Holdings Limited and Subsidiaries
We have audited the accompanying consolidated balance sheets of Commodore
Holdings Limited and Subsidiaries as of September 30, 1999 and 1998 and the
related consolidated statements of earnings, stockholders' equity and cash flows
for each of the three years in the period ended September 30, 1999. 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 financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above, present fairly, in
all material respects, the consolidated financial position of Commodore Holdings
Limited and Subsidiaries as of September 30, 1999 and 1998 and the consolidated
results of their operations and their consolidated cash flows for each of the
three years in the period ended September 30, 1999 in conformity with generally
accepted accounting principles.
/s/ Grant Thornton LLP
Miami, Florida
December 3, 1999
F-1
<PAGE>
COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30,
ASSETS
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Current assets
Cash and cash equivalents $20,504,000 $ 3,172,000
Restricted cash 977,000 2,326,000
Trade and other receivables 1,044,000 482,000
Due from affiliates 2,903,000 1,061,000
Inventories 2,614,000 1,751,000
Prepaid expenses 2,214,000 2,580,000
Other current assets 69,000 77,000
----------- -----------
Total current assets 30,325,000 11,449,000
Property and equipment, net 49,722,000 38,296,000
Investment in joint ventures 1,974,000 1,481,000
Long-term receivable-affiliates 4,973,000 2,550,000
Investments restricted -- 4,629,000
Other assets 1,693,000 732,000
----------- -----------
$88,687,000 $59,137,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $ 3,652,000 $ 4,393,000
Note payable -- 1,300,000
Accounts payable 8,692,000 6,457,000
Accrued liabilities 1,695,000 710,000
Due to affiliates 1,564,000 1,201,000
Customer and other deposits 8,720,000 7,741,000
Accrued interest 192,000 73,000
Capital lease obligations 61,000 --
----------- -----------
Total current liabilities 24,576,000 21,875,000
Long-term debt, including capital lease obligations of $171,000 26,996,000 12,445,000
Minority interests in subsidiaries 2,940,000 228,000
Stockholders' equity
Preferred stock - authorized 10,000,000 shares
of $.01 par value; issued and outstanding,
400,000 in 1999 and 0 in 1998 4,000 --
Common stock - authorized 100,000,000 shares of $.01 par
value; issued 7,647,618 in 1999 and 7,264,821 in 1998 76,000 72,000
Additional paid-in capital 21,481,000 16,348,000
Retained earnings 12,614,000 8,169,000
----------- -----------
Total stockholders' equity 34,175,000 24,589,000
----------- -----------
$88,687,000 $59,137,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements
F-2
<PAGE>
COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Revenues $ 61,488,000 $ 63,128,000 $ 57,977,000
Expenses
Operating 40,793,000 43,306,000 44,912,000
Marketing, selling and administrative 12,669,000 11,481,000 8,741,000
Depreciation and amortization 2,265,000 2,216,000 2,108,000
------------ ------------ ------------
55,727,000 57,003,000 55,761,000
------------ ------------ ------------
Operating income 5,761,000 6,125,000 2,216,000
Other income (expense)
Other income -- 80,000 6,000
Interest income 629,000 436,000 483,000
Interest expense (1,764,000) (1,686,000) (1,842,000)
Minority interest share of loss
of consolidated joint ventures 354,000 7,000 1,420,000
Equity in net loss of unconsolidated
joint ventures (107,000) (769,000) --
------------ ------------ ------------
(888,000) (1,932,000) 67,000
------------ ------------ ------------
Earnings before provision for
preferred stock dividend 4,873,000 4,193,000 2,283,000
Preferred stock dividend 267,000 170,000 280,000
------------ ------------ ------------
Net earnings available for
common stockholders $ 4,606,000 $ 4,023,000 $ 2,003,000
============ ============ ============
Earnings per share - Basic $ .62 $ .64 $ .36
============ ============ ============
Earnings per share - Diluted $ .52 $ .54 $ .33
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these statements
F-3
<PAGE>
COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
------------------------ ------------------------- ADDITIONAL
NUMBER NUMBER PAID-IN RETAINED
OF SHARES PAR VALUE OF SHARES PAR VALUE CAPITAL EARNINGS TOTAL
---------- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1996 1,006,979 $ 10,000 5,581,933 $ 56,000 $ 13,869,000 $ 2,262,000 $ 16,197,000
Fair value of warrants to nonemployees -- -- -- -- 63,000 -- 63,000
Preferred stock dividend (Note H) 20,251 -- -- -- 81,000 (282,000) (201,000)
Net earnings -- -- -- -- -- 2,283,000 2,283,000
---------- ------------ ------------ ------------ ------------ ------------ ------------
Balance at September 30, 1997 1,027,230 10,000 5,581,933 56,000 14,013,000 4,263,000 18,342,000
Fair value of warrants to nonemployees -- -- -- -- 277,000 -- 277,000
Preferred stock dividend (Note H) 14,825 -- -- -- 59,000 (287,000) (228,000)
Conversion of preferred stock
to common stock (Note H) (1,042,055) (10,000) 1,042,055 10,000 -- -- --
Conversion of subordinated
debentures to common stock (Note F) -- -- 537,500 5,000 1,391,000 -- 1,396,000
Exercise of employee stock options -- -- 3,333 -- 9,000 -- 9,000
Issuance of common stock (Note H) -- -- 100,000 1,000 599,000 -- 600,000
Net earnings -- -- -- -- -- 4,193,000 4,193,000
---------- ------------ ------------ ------------ ------------ ------------ ------------
Balance at September 30, 1998 -- -- 7,264,821 72,000 16,348,000 8,169,000 24,589,000
Fair value of warrants to nonemployees -- -- -- -- 943,000 -- 943,000
Issuance of common stock upon
exercise of stock options and warrants -- -- 382,797 4,000 524,000 -- 528,000
Issuance of preferred stock, net
of offering cost of $330,000 400,000 4,000 -- -- 3,666,000 -- 3,670,000
Preferred stock dividend (Note H) -- -- -- -- -- (428,000) (428,000)
Net earnings -- -- -- -- -- 4,873,000 4,873,000
---------- ------------ ------------ ------------ ------------ ------------ ------------
Balance at September 30, 1999 400,000 $ 4,000 7,647,618 $ 76,000 $ 21,481,000 $ 12,614,000 $ 34,175,000
========== ============ ============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of this statement
F-4
<PAGE>
COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 4,873,000 $ 4,193,000 $ 2,283,000
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation of property and equipment 2,220,000 2,171,000 2,082,000
Amortization of deferred dry-dock 1,546,000 1,521,000 1,283,000
Amortization of organization cost 45,000 45,000 45,000
Amortization of deferred loan costs 100,000 -- --
Fair value of options to nonemployees 263,000 222,000 63,000
Undistributed equity in loss of joint venture 107,000 769,000 --
(Increase) decrease in operating assets
Restricted cash 1,349,000 (2,135,000) 1,222,000
Trade and other receivables (562,000) (160,000) 8,000
Insurance claim receivable -- 305,000 2,165,000
Due from affiliates (1,842,000) (778,000) (28,000)
Inventories (1,148,000) 404,000 (40,000)
Prepaid expenses and other current assets (624,000) (1,576,000) (1,870,000)
Other assets (151,000) -- --
Increase (decrease) in operating liabilities
Accounts payable 2,235,000 945,000 245,000
Accrued liabilities 985,000 (866,000) 88,000
Due to affiliates 363,000 626,000 (175,000)
Customer and other deposits 979,000 2,066,000 (165,000)
Accrued interest 119,000 -- (4,000)
------------ ------------ ------------
Net cash provided by operating activities 10,857,000 7,752,000 7,202,000
Cash flows from investing activities:
Capital expenditures (13,691,000) (3,274,000) (2,362,000)
Long-term receivable - affiliates (2,423,000) (1,032,000) (1,518,000)
Decrease in investments restricted 4,629,000 -- --
Investment in joint ventures (600,000) (2,038,000) --
Minority interest in subsidiaries 2,712,000 93,000 (58,000)
------------ ------------ ------------
Net cash used in investing activities (9,373,000) (6,251,000) (3,938,000)
Cash flows from financing activities:
Principal payments on debt (12,872,000) (4,592,000) (3,009,000)
Proceeds from long term debt 25,494,000 -- --
Proceeds from sale of preferred stock, net 3,670,000 -- --
Proceeds from exercise of stock options and warrants 528,000 9,000 --
Proceeds from issuance of note payable -- 1,500,000 --
Proceeds from issuance of subordinated debentures, net -- 1,452,000 --
Payment of capital lease obligations (51,000) -- --
Payment of loan costs (493,000) -- --
Preferred stock dividends paid (428,000) (228,000) (201,000)
------------ ------------ ------------
Net cash provided by (used in) financing activities 15,848,000 (1,859,000) (3,210,000)
------------ ------------ ------------
Net increase (decrease ) in cash and cash equivalents 17,332,000 (358,000) 54,000
Cash and cash equivalents at beginning of period 3,172,000 3,530,000 3,476,000
------------ ------------ ------------
Cash and cash equivalents at end of period $ 20,504,000 $ 3,172,000 $ 3,530,000
============ ============ ============
(continued)
</TABLE>
The accompanying notes are an integral part of these statements
F-5
<PAGE>
COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
YEARS ENDED SEPTEMBER 30,
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 1,771,000 $ 1,686,000 $ 1,846,000
============ ============ ============
Cash paid during the period for taxes $ -- $ -- $ --
============ ============ ============
</TABLE>
Supplemental schedule of noncash investing and financing activities:
In March 1998, the Company issued 100,000 shares of common stock to acquire
a leasehold interest in a vessel. The market value of the common stock at
the date of issuance was $600,000.
In January 1998 and 1997, the Company issued 14,825 and 20,251 shares,
respectively, of its Series A preference shares in partial payment of its
preferred share dividend.
In May 1998, the Company exercised its right to demand conversion of
$2,150,000 of convertible debentures. As a result, the debentures were
converted into 537,500 shares of the Company's common stock.
During fiscal 1998, all of the Series A preference shares were converted to
1,042,055 shares of the Company's common stock.
During fiscal 1999, the Company's Chairman completed a noncash exercise of
stock options in which the Chairman delivered options to purchase up to
312,821 shares of the Company's common stock in lieu of a cash payment to
exercise stock options to purchase 200,000 shares of the Company's common
stock.
In fiscal 1999, the Company acquired approximately $283,000 of computer
equipment under leasing arrangements which are classified as capital lease
obligations as of September 30, 1999.
In fiscal 1999, the Company capitalized $129,000 of interest expense to
construction in progress.
In fiscal 1999, the Company issued warrants to Promociones Turisticas de
Rosarito, S.A. de C.V. ("Proturo") to purchase up to 250,000 shares of the
Company's common stock as part of obtaining a leasehold interest. As a
result, the Company recorded $538,000 as part of other assets and paid-in
capital as of September 30, 1999.
The accompanying notes are an integral part of these statements
F-6
<PAGE>
COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Commodore Holdings Limited ("CHL") and its wholly owned subsidiary New
Commodore Cruise Lines Limited ("NCCL") were organized under the laws of
Bermuda in April 1995. In October 1995, the Company entered into a joint
venture agreement with the Seawise Foundation, Inc. ("Seawise"), a Liberian
Corporation. The Company has chartered the Universe Explorer to Sea-Comm,
Ltd., a Liberian Corporation ("Sea-Comm") formed pursuant to the joint
venture agreement, for a fee equivalent to all operating costs plus
principal and interest on its ship mortgage. The Company owns 50.005% of
Sea-Comm and Seawise owns the remaining 49.995%. In June 1999, the Company
formed Albuferra Investments, Inc., ("Albuferra"), for the purpose of
purchasing and renovating the Enchanted Sun. In September 1999, the Company
entered into a joint venture agreement with the Viejas Band of Kumeyaay
Indians ("Viejas") in which 49.8% of Albuferra was sold to Viejas for
approximately $4,000,000. In September 1999, the Company received the
proceeds for the sale of 31.2% of Albuferra from Viejas with the remaining
proceeds received in October 1999.
CHL, NCCL, Sea-Comm and Albuferra and their wholly owned subsidiaries are
collectively referred to as the "Company."
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of CHL, its
wholly owned subsidiaries and majority owned subsidiaries. All material
intercompany balances and transactions have been eliminated in
consolidation. The Company reflects its investments in its 50%-owned joint
venture at cost plus/(minus) its equity in undistributed net
earnings/(loss).
SEA-COMM
Sea-Comm has chartered the Universe Explorer to Seawise for 200 days per
year for an educational program. The terms of the charter provide that
Seawise has the use of 76% of the cabins in exchange for payment of 76% of
the operating costs, including 76% of the labor, 100% of food costs and 76%
of the principal and interest due calculated based on the Company's
original ship mortgage. Sea-Comm will earn additional revenue from onboard
revenues and has sold the remaining 24% of the cabins on the vessel to
Seawise. Seawise has purchased these cabins from Sea-Comm for $3 million
per year. During the summer, Sea-Comm operates the Universe Explorer in
Alaska.
(continued)
F-7
<PAGE>
COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
REVENUE AND EXPENSE RECOGNITION
Deposits received on sales of passenger cruises are recorded as customer
deposits and are recognized, together with revenues from shipboard
activities and all associated direct costs of a voyage, upon completion of
voyages with durations of 10 days or less and on a pro rata basis for
voyages in excess of 10 days.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with original
maturities of three months or less to be cash equivalents.
RESTRICTED CASH
In fiscal 1998, the Company entered into an escrow agreement whereas the
Company maintains certain advance passenger deposits in an escrow account
until the completion of the associated voyage. In May 1999, the Company
stopped placing passenger deposits in the escrow account due to a change in
the Company's Federal Maritime Commission ("FMC") arrangements (See Note
I). In addition, commencing in November 1996, the Company had entered into
an agreement with a credit card processor, which requires a chargeback
reserve account that equals approximately 2.5% of the Company's Visa/Master
Card deposits. The amounts in the escrow account and the reserve account
are classified as restricted cash.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
by the first in, first out method.
DRY-DOCKING
Costs associated with the dry-docking of the vessels are charged to prepaid
expenses when incurred and expensed over the estimated period until the
next scheduled dry-dock (not to exceed two years). Prepaid dry-docking
costs of $394,000 and $1,502,000 (net of accumulated amortization of
$1,900,000 and $2,744,000) were recorded in prepaid expenses and other
assets as of September 30, 1999 and 1998, respectively.
(continued)
F-8
<PAGE>
COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
MANAGEMENT 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 at
September 30, 1999 and 1998 and revenues and expenses during the reporting
periods. The actual outcome of the estimates could differ from these
estimates made in the preparation of the financial statements.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash and cash equivalents, trade receivables and
accounts payable approximate fair value due to the short term maturities of
these instruments. The carrying value of the long-term receivable
affiliates approximates fair value as the interest rate earned on the
receivable approximates the current market rate.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Significant vessel refurbishing
costs are capitalized as additions to the vessel, while costs of repairs
and maintenance are charged to expense as incurred. Depreciation has been
provided using the straight-line method over original useful lives of 18 to
25 years after a reduction for the estimated salvage value for vessels and
five to ten years for furniture and fixtures, improvements and other
property and equipment. In February 1999, the Company changed its estimate
for the original useful life of the Universe Explorer from 18 years to 25
years due to the installation of a sprinkler system, as the ship is now
SOLAS compliant. The effect of this accounting change on the statement of
earnings for the year ended September 30, 1999 was $207,000, which results
in $.03 per share - basic and $.02 per share - diluted.
ADVERTISING COSTS
Advertising costs are expensed as incurred and are included in marketing,
selling and administrative expenses. Total advertising costs for the years
ended September 30, 1999, 1998 and 1997 totaled approximately $777,000,
$548,000 and $683,000, respectively.
INCOME TAXES
Deferred tax assets and liabilities are recorded based on the difference
between the tax basis of assets and liabilities and their carrying amounts
for financial reporting purposes. In addition, the current or deferred tax
consequences of a transaction are
(continued)
F-9
<PAGE>
COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
measured by applying the provisions of enacted tax laws to determine the
amount of taxes payable currently or in future years.
EARNINGS PER SHARE
The Company adopted Financial Accounting Standards No. 128 (FAS 128),
"Earnings Per Share" in fiscal 1998. FAS 128 requires dual presentation of
basic and diluted earnings per share on the face of the statement of
earnings as well as the restatement of prior periods presented.
Basic net earnings per share equals net earnings divided by the weighted
average shares outstanding during the year. The computation of diluted net
earnings per share includes dilutive common stock equivalents in the
weighted average shares outstanding. The reconciliation between the
computations is as follows:
NET
EARNINGS - BASIC BASIC DILUTED DILUTED
FISCAL YEAR ENDED BASIC SHARES EPS SHARES EPS
- ----------------- ----------- --------- ------- --------- -------
1999 $4,606,000 7,487,000 $ .62 9,292,000 $ .52
1998 $4,023,000 6,296,000 $ .64 7,937,000 $ .54
1997 $2,003,000 5,582,000 $ .36 6,876,000 $ .33
Included in diluted shares are common stock equivalents relating to
options, warrants and preferred stock of 1,805,000, 1,641,000 and 1,294,000
for fiscal 1999, 1998 and 1997, respectively. Added back to net earnings
for diluted EPS purposes are the preferred stock dividends of $267,000,
$170,000 and $280,000 for the years ended September 30, 1999, 1998 and
1997, respectively, as well as interest expense on convertible debentures
of approximately $58,000 for the year ended September 30, 1998. Warrants to
purchase 209,000 shares of the Company's common stock ranging from a per
share exercise price of $6.59 to $8.00, which were outstanding during
fiscal 1999, were not included in the computation of diluted EPS because
the warrants' exercise prices were greater than the annual average market
price of the common shares. These warrants are all exercisable as of
September 30, 1999. In addition, in March 1999, the Company entered into an
agreement with a general contractor related to completing improvements to
one of its vessels. In accordance with this agreement, the Company is
required to issue 1,000,000 shares of the Company's common stock upon the
adequate completion of these improvements. As the issuance of these shares
is contingent, they were not included in the computation of diluted EPS.
(continued)
F-10
<PAGE>
COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
RECLASSIFICATIONS
Certain amounts in the prior year financial statements have been
reclassified to conform to the current year presentation.
NEW ACCOUNTING PRONOUNCEMENTS
In 1998, the AICPA issued Statement of Position (SOP) 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use." SOP
98-1 establishes standards for accounting for internal use software
projects. This Statement is effective for financial statements for fiscal
years beginning after December 15, 1998 for costs incurred in those fiscal
years for all projects, including projects in progress when the SOP was
adopted. Management does not expect this Statement to have a material
impact on the Company's financial statements.
In 1998, the AICPA issued Statement of Position (SOP) 98-5, "Reporting on
the Costs of Start-Up Activities." SOP 98-5 provides guidance on accounting
for start-up costs and organization costs, which must be expensed as
incurred. This Statement is effective for financial statements for fiscal
years beginning after December 15, 1998. As a result of this Statement, the
Company will incur a charge of approximately $229,000 as of October 1,
1999, which on a pro forma basis would have decreased the EPS - Basic by
$.04 and the EPS - Diluted by $.02.
In June 1998, the FASB issued Statement of Financial Accounting Standards
(FAS) No. 133, "Accounting for Derivative Instruments and Hedging
Activities." FAS No. 133 establishes standards for accounting and reporting
for derivative instruments, and conforms the requirements for treatment of
different types of hedging activities. This statement is effective for all
fiscal years beginning after June 15, 2000. Management does not expect this
standard to have a significant impact on the Company's operations.
NOTE B - INVESTMENT IN JOINT VENTURES
In April 1998, the Company formed a joint venture, Capri Cruises, with Isle
of Capri Casinos, Inc., to operate the Enchanted Capri on 2- and 5-day
cruises from New Orleans. The Company assigned its rights for the charter
of the Enchanted Capri to Capri Cruises. Pursuant to the agreement, Capri
Cruises and the Company will jointly operate cruises in strategic markets.
The Company is accounting for the joint venture under the equity method.
In April 1999, the Company formed a joint venture, Coronado Seas, LLC,
("Coronado") with Promociones Turisticas de Rosarito, S.A. de C.V.
("Proturo") to operate the Enchanted Sun on day cruises between San Diego,
CA and Rosarito, Baja California, Mexico. In September 1999, the joint
venture added Viejas as an equal partner. The Company is accounting for the
joint venture under the equity method.
(continued)
F-11
<PAGE>
COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE B - INVESTMENT IN JOINT VENTURES - Continued
A condensed summary of the assets and liabilities and results of operations
of the joint ventures (Coronado had no operations for the year ended
September 30, 1999) follows:
AS OF
SEPTEMBER 30,
-------------------------
1999 1998
---------- ----------
Current assets $4,246,000 $2,735,000
Property and equipment, net 4,302,000 3,973,000
Other assets 382,000 865,000
---------- ----------
Total assets $8,930,000 $7,573,000
========== ==========
Current liabilities $4,048,000 $4,299,000
Other liabilities 363,000 312,000
Capital accounts 4,519,000 2,962,000
---------- ----------
Total liabilities and capital $8,930,000 $7,573,000
========== ==========
PERIOD FROM
APRIL 16, 1998
YEAR ENDED THROUGH
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
----------- ----------
Revenues $23,137,000 $6,166,000
Expenses 23,351,000 7,704,000
----------- ----------
Net loss $ 214,000 $1,538,000
=========== ==========
The Company performs certain administrative services on behalf of the joint
ventures. As a result, the Company charges certain expenses related to
these administrative services to the joint ventures. For the year ended
September 30, 1999 and the period ended September 30, 1998, the Company
charged approximately $735,000 and $239,000 to the joint ventures which is
included as a reduction in marketing, selling, and administrative expenses.
Included in the Company's retained earnings is approximately $876,000 of
accumulated deficit relating to these joint ventures.
F-12
<PAGE>
COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE C - PROPERTY AND EQUIPMENT
1999 1998
------------ ------------
Vessels $ 50,001,000 $ 42,637,000
Equipment and other 2,479,000 1,211,000
Construction in progress 5,554,000 470,000
------------ ------------
58,034,000 44,318,000
Accumulated depreciation (8,312,000) (6,022,000)
------------ ------------
$ 49,722,000 $ 38,296,000
============ ============
As of September 30, 1999, the Company capitalized $129,000 of interest
expense related to the improvements to the Enchanted Sun. There was no
capitalized interest as of September 30, 1998.
NOTE D - INVENTORIES
1999 1998
---------- ----------
Food, beverage and supplies $2,249,000 $1,582,000
Fuel 365,000 169,000
---------- ----------
$2,614,000 $1,751,000
========== ==========
NOTE E - DEBT
NOTE PAYABLE
On April 22, 1998, the Company borrowed $1.5 million on an unsecured basis,
from an unrelated third party. As of September 30, 1998, the unpaid balance
of this note was $1.3 million. This amount was paid in full in December
1998. The interest on the loan was 10% per annum. In connection with these
loans, the Company issued the lender warrants to purchase 50,000 shares of
the Company's common stock at an exercise price of $5 per share. These
warrants are exercisable commencing on April 22, 1999 and expire on April
23, 2003.
LONG-TERM DEBT
In July 1995 the Company entered into a loan agreement with an affiliate of
EffJohn (the "Lender") in the amount of $24,500,000. The loan was secured
by first
(continued)
F-13
<PAGE>
COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE E - DEBT - Continued
preferred ship mortgages on both the Enchanted Isle and the Universe
Explorer. The loan bears interest at LIBOR plus 2% per annum (6.97% at
September 30, 1999). In December 1998, the Company refinanced the portion
of the loan securing the Universe Explorer, thus paying down $8.5 million
of this loan. Commencing in February 1999, the remaining principal balance
is due in monthly installments which are in the amount of approximately
$172,000, plus accrued interest, continuing until maturity, in July 2002.
In the event that the Company is required to withhold tax on any interest
due to the Lender, the Company has agreed to pay the required amount to be
withheld and pay the Lender the full amount of interest due.
On December 4, 1998, the Company borrowed $10 million under a Loan and
Security Agreement with a leasing company. In conjunction with this loan
agreement, the Company entered into an Interest Rate Swap Agreement with an
affiliate of the leasing company, whereas the interest rate on the loan
agreement is fixed at 9.14% over the term of the loan. This financial
instrument was not entered into for trading or speculative purposes, but
rather as an interest rate hedge. The market value of the interest rate
swap was $324,000 at September 30, 1999, as determined by quoted market
prices. The monthly principal payments of the loan are fixed at
approximately $42,000 for the first 12 months, at which time the remaining
monthly principal and interest payments are fixed at approximately $97,000,
with the remaining unpaid principal and interest due on December 4, 2006,
the date of maturity. The proceeds from this loan were used to repay
$8,419,000 on the loan from EffJohn and for working capital. This new loan
is secured by a first mortgage on the Universe Explorer.
The terms of these loans places certain restrictions on the Company
including the limitation of the amount of dividends the Company can pay and
the maintenance of certain financial covenants.
On February 12, 1999, the Company borrowed $2,100,000 loan from NationsBank
to finance a portion of the sprinkler system installation aboard the
Universe Explorer (the "NationsBank Loan"). The NationsBank Loan, which is
secured by a letter of credit provided by Seawise, has a term of 5.5 years
and bears an interest rate of LIBOR plus 1.5%. In conjunction with this
loan agreement, the Company entered into an interest rate swap agreement,
whereas the interest rate is fixed at 7.3% over the term of the loan. This
financial instrument was not entered into for trading or speculative
purposes, but rather as an interest rate hedge. The market value of the
interest rate swap at September 30, 1999 is not material.
On April 23, 1999, Albuferra purchased the Enchanted Sun for $5,000,000.
The purchase price was partially funded through a partial drawdown on a
$14,250,000 credit facility from Nordbanken AB (publ). The Company is
making significant renovations to the vessel's interior and exterior with
the balance of the proceeds from such loan. This loan is collateralized by
a first mortgage on the Enchanted Sun. The principal and interest is based
on
(continued)
F-14
<PAGE>
COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE E - DEBT - Continued
108 monthly installments of $184,000, commencing on October 15, 1999. The
loan bears interest at 7.79% per annum. Total expenditures for the vessel
and improvements are estimated to be approximately $22,250,000. Upon
completion of these renovations, Albuferra will charter the vessel to
Coronado, for use in its gaming cruises operating from San Diego to
Rosarito, Baja California, Mexico.
The minimum required principal payments as of September 30, 1999 on
long-term debt, are as follows:
2000 $ 3,652,000
2001 4,043,000
2002 3,855,000
2003 2,318,000
2004 2,458,000
Thereafter 14,151,000
-------------
$ 30,477,000
=============
NOTE F - CONVERTIBLE DEBT
In December 1997, the Company sold $2,150,000 of 7% convertible
subordinated debentures due December 31, 2003, at a 20% discount. In May
1998, the Company exercised its right to demand conversion of the
debentures into 537,500 shares of the Company's common stock. As a result
of this transaction, the Company's long-term debt decreased by $2,150,000
and stockholders' equity increased by approximately $1,400,000, after
deducting approximately $753,000 of deferred financing costs.
NOTE G - CAPITAL LEASE OBLIGATIONS
In fiscal 1999, the Company leased computer equipment and software, which
the Company has classified as a capital lease. The following is a schedule
of equipment under capital leases:
SEPTEMBER 30, SEPTEMBER 30,
1999 1998
------------- -------------
Computer equipment $ 283,000 $ --
Less: Accumulated depreciation (70,000) --
--------- -----------
$ 213,000 $ --
========= ===========
(continued)
F-15
<PAGE>
COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE G - CAPITAL LEASE OBLIGATIONS - Continued
The following is a schedule of future minimum lease payments under capital lease
obligations as of September 30, 1999:
FISCAL YEAR ENDING, AMOUNT
------------------- --------------
2000 $ 79,000
2001 74,000
2002 59,000
2003 53,000
2004 11,000
--------------
Total minimum lease payments 276,000
Less: Amount representing interest 44,000
--------------
Present value of minimum lease payments 232,000
Less: Current portion 61,000
--------------
Long-term obligation under capital leases $ 171,000
==============
NOTE H - STOCKHOLDERS' EQUITY
COMMON STOCK
In June 1998, the Company issued 100,000 shares of common stock to acquire
a leasehold interest in the M/V Enchanted Capri.
COMMON STOCK PURCHASE RIGHTS PLAN
In September 1998, the Company implemented a Common Stock Purchase Rights
Plan and declared a dividend of one Common Stock Purchase Right ("Right")
for each share of the Company's common stock outstanding. The dividend was
paid on November 2, 1998 to stockholders of record on that date and for
each share of the Company's common stock issued during the term of the
Plan. Each Right entitles the registered holder to purchase from the
Company one share of common stock at a per share price of $28.34, subject
to certain adjustments. The Rights are not exercisable or transferable,
apart from the Company's common stock, until after a person or group
acquires, or has the right to acquire, beneficial ownership of 15 percent
or more of the Company's common stock or announces a tender or exchange
offer to acquire ownership of 30 percent or more of the Company's common
stock. The Rights will expire in November 2008, unless earlier redeemed
(continued)
F-16
<PAGE>
COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE H - STOCKHOLDERS' EQUITY - Continued
by the Company at the option of the Company for $.01 per Right. In the
event that the Rights are not redeemed, become exercisable, and any person,
group of affiliated or associated persons becomes an Acquiring Person, as
defined by the agreement, the holder of a Right (other than an acquiring
person, whose Rights will be void) will have the right to receive, upon
payment of the exercise price, that number of shares of common stock having
a market value at the time of the transaction equal to two times the
exercise price.
PREFERRED STOCK
As part of the consideration for the sale of the cruise line, EffJohn
received 1,000,000 shares of 7% Cumulative Convertible Redeemable Series A
Preferred Stock at a value of $4.00 per share totaling $4,000,000. The cash
payment of the dividend was limited to 10% of the Company's net profits for
each year. The remaining portion of the dividend, if any, was payable in
preferred stock based on a value of $4.00 per share.
In fiscal 1999, 1998 and 1997, the Company paid a dividend to the holders
of its Series A preference shares. The Company issued 14,825 and 20,251
shares, in January 1998 and January 1997, respectively, of Series A
preference shares in partial payment of the dividend and paid, in cash, an
additional $161,000, $228,000 and $201,000, respectively. During fiscal
1998, all the Series A preference shares were sold by the original holders
and converted to 1,042,055 shares of the Company's common stock.
On January 14, 1999, the Company sold 400,000 shares of its Series B
Convertible Preferred Stock (the "Series B Stock") to an unaffiliated third
party for $4,000,000. The Series B Stock has a dividend rate of 10%, and is
convertible into common stock, beginning 18 months from the date of
issuance, at a rate of $5.50 per share, which was the fair market value of
the Company's common stock on January 14, 1999. The sale of Series B Stock
was exempt from registration pursuant to Section 4(2) of the Securities Act
of 1933, as amended (the "Securities Act"). The Series B Stock has a
liquidation preference equal to $10 per share plus accrued and unpaid
dividends.
STOCK OPTION PLANS
In 1995 and in 1999, the Company adopted two Stock Option Plans (the
"Plans") pursuant to which 1,500,000 shares of Common Stock have been
reserved for issuance upon exercise of options designated as "incentive
stock options" within the meaning of Section 422A of the Internal Revenue
Code of 1986, as amended (the "Code")or "non-qualified options". The
purpose of the Plans is to encourage stock ownership by certain officers
and employees of the Company, and give them a
(continued)
F-17
<PAGE>
COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE H - STOCKHOLDER'S EQUITY - Continued
greater personal interest in the success of the Company. The Plans are
administered by the Compensation Committee of the Board of Directors of the
Company, which determines among other things, the persons to be granted
options under the Plans, the number of shares subject to each option, and
the option price.
In October 1996, July 1997, and March 1999, the Company issued to its
employees and nonemployee directors options under the Plans to purchase
326,000, 60,000 and 772,012 shares, respectively, of the Company's common
stock at $2.75, $2.75 and $5.00 per share, respectively. The options vest
at variable rates based on each employee's length of service, and expire
ten years after issuance. Options to purchase 68,000 shares were cancelled
as of September 30, 1999.
The exercise price of all options granted by the Company to its employees
equals or exceeds the market price of the Company's common stock at the
date of the grant. Accordingly, no compensation expense has been
recognized.
Had compensation cost for the Plans and non-qualified options to employees
been determined based on the fair value of the options at the grant dates
consistent with the method of SFAS 123, the Company's net earnings and
earnings per share would have changed to the pro forma amounts below:
<TABLE>
<CAPTION>
1999 1998 1997
--------------- --------------- ----------------
<S> <C> <C> <C>
Net earnings, available for
common stockholders
As reported $ 4,606,000 $ 4,023,000 $ 2,003,000
Pro forma $ 4,217,000 $ 3,492,000 $ 1,912,000
Basic earnings per share
As reported $ .62 $ .64 $ .36
Pro forma $ .56 $ .55 $ .34
Diluted earnings per share
As reported $ .52 $ .54 $ .33
Pro forma $ .48 $ .47 $ .32
</TABLE>
The above pro forma disclosures may not be representative of the effects on
reported net earnings for future years as certain options vest over several
0 years and the Company may continue to grant options and warrants to
employees.
(continued)
F-18
<PAGE>
COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE H - STOCKHOLDERS' EQUITY - Continued
The fair value of each option grant is estimated on the date of grant using
the binomial option-pricing model with the following weighted-average
assumptions used for grants in fiscal 1999, fiscal 1998 and fiscal 1997,
respectively: dividend yield of 0.0 percent for all years; expected
volatility of 61% for the fiscal 1999 grants 53% to 58% for the fiscal 1998
grants and 38% for the fiscal 1997 grants; risk-free interest rates of
4.75% for fiscal 1999 and 5.5% for fiscal 1998 and 1997; and expected
holding periods of 2 years for fiscal 1999 and 6 years for fiscal 1998 and
1997.
WARRANTS
During fiscal 1999, 1998 and 1997 the Company issued warrants to purchase
481,663, 454,952 and 192,000 shares of common stock respectively, to
unrelated third parties. The warrants were issued with exercise prices
ranging from $2.75 to $8.00 per share. The total fair value of the options,
as determined under SFAS 123, was $943,000, $277,000 and $63,000,
respectively. A total of $263,000, $222,000 and $63,000 of those amounts
were recorded as expense in fiscal 1999, 1998 and 1997, respectively.
In fiscal 1998, certain antidilutive provisions of existing warrant
agreements were triggered as a result of the issuance of additional
warrants during the year, as well as the conversion of the convertible debt
into common stock. As a result of these transactions, the number of
outstanding warrants as well as the related exercise prices of certain of
the warrants were adjusted, resulting in the issuance of additional
warrants to purchase 604,709 shares of the Company's common stock. 590,910
of the 604,709 of additional shares were issued at an exercise price of
$2.75 per share, while the remaining shares were issued at exercise prices
ranging from $5.67 - $7.05 per share. In addition to the additional shares
issued, the exercise price of warrants to purchase 500,000 shares of the
Company's common stock was adjusted from $6.00 per share to $2.75 per
share.
(continued)
F-19
<PAGE>
COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE H - STOCKHOLDERS' EQUITY - Continued
A summary of the status of the Company's fixed stock options and warrants
as of September 30, 1999 and 1998, and changes during the years ending on
those dates is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
--------------------------- -------------------------- --------------------------
WEIGHTED - WEIGHTED - WEIGHTED -
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
---------- -------------- --------- -------------- --------- --------------
<S> <C> <C> <C> <C>
Outstanding at beginning of
year 3,361,000 $ 3.67 2,318,000 $ 4.57 1,800,000 $ 5.10
Granted 1,279,000 $ 5.51 1,059,000 $ 3.18 536,000 $ 2.75
Exercised (382,000) $ 2.75 (3,000) $ 2.75 -- --
Expired -- -- -- -- --
Cancelled (118,000) $ 2.75 (13,000) $ 2.75 (18,000) $ 2.75
---------- ---------- ---------
Outstanding at end of year 4,140,000 $ 4.30 3,361,000 $ 3.67 2,318,000 $ 4.57
Options exercisable at end
of year 3,241,000 2,885,000 1,585,000
Weighted average fair value
of options and warrants
granted during the year $ 2.38 $ 1.75 $ .89
</TABLE>
The following information applies to warrants and options outstanding at
September 30, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------- --------------------------
WEIGHTED -
AVERAGE WEIGHTED - WEIGHTED -
RANGES OF REMAINING AVERAGE AVERAGE
EXERCISE PRICES SHARES CONTRACTUAL LIFE EXERCISE PRICE SHARES EXERCISE PRICE
- --------------- --------- ----------------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C>
$1.00 - $1.00 325,000 3.08 years $ 1.00 325,000 $ 1.00
$2.75 - $4.00 1,473,000 2.50 years $ 2.90 1,335,000 $ 2.92
$4.75 - $6.59 2,242,000 5.81 years $ 5.54 1,481,000 $ 5.82
$7.50 - $8.00 100,000 2.46 years $ 7.75 100,000 $ 7.75
--------- ---------
4,140,000 3,241,000
========= =========
</TABLE>
F-20
<PAGE>
COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE I - COMMITMENTS AND CONTINGENCIES
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with all of its
executive officers that have a remaining term of between two and three
years. These agreements contain provisions for compensation, benefits and
certain covenants not to compete.
LITIGATION
In October 1995, the Company, along with its vice-chairman and EffJohn were
named in a lawsuit brought by an individual who had made an offer to buy
the cruise line from EffJohn in 1993. In fiscal 1999, the lawsuit was
settled for an immaterial amount. The Company is subject to other legal
proceedings and claims which arise in the ordinary course of its business.
In the opinion of management, the amount of ultimate liability, if any,
with respect to these actions will either be covered by insurance or will
not materially affect the financial position of the Company.
FEDERAL MARITIME COMMISSION CERTIFICATES OF FINANCIAL RESPONSIBILITY
In order to operate a passenger cruise vessel from U.S. ports, the Company
is required to obtain FMC Certificates of Financial Responsibility. The
Company has posted a surety bond in the amount of $15,000,000, which is the
maximum currently required by the FMC in the event of non-performance of
obligations to passengers. The Company had placed $4,629,000 on deposit
with a bank to secure the FMC Certificate for the Enchanted Isle and had
arranged, through a bank in New England, an escrow account for the purpose
of selling cruises from U.S. ports on the Universe Explorer and on the
Enchanted Capri. This escrow arrangement required the Company to deposit
all monies received for such sailings, plus a minimum cash amount as
defined by the escrow agreement. The Company has approximately $500,000 in
the escrow account at September 30, 1999. This amount will be unrestricted
by the end of the first quarter of fiscal 2000.
ADVANCE DEPOSITS RELATED TO THE ENCHANTED CAPRI
NCCL acts as the sole operating and ticketing agent for the Enchanted
Capri. Accordingly, the Company maintains all of the Enchanted Capri
advance passenger deposits until the completion of the voyages, at which
time, the amounts are remitted to Capri Cruises. As of September 30, 1999,
and 1998, the Company has
(continued)
F-21
<PAGE>
COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE I - COMMITMENTS AND CONTINGENCIES - Continued
approximately $1,933,000 and $1,919,000, respectively, of advance deposits
related to future sailings onboard the Enchanted Capri.
OPERATING LEASES
Commencing October 11, 1999 the Company chartered the M/V Crown Dynasty
from an unrelated third party under a noncancellable operating lease. The
payments under the charter are based on a minimum monthly rental plus a
percentage of the net income from the vessel. On October 13, 1999, the
Company notified the owner of the vessel that it intends to acquire the
vessel under the terms of the buy-out option in the charter agreement,
however, this purchase is subject to the completion of certain events,
including but not limited to obtaining the necessary financing.
In addition, the Company leases office space under noncancellable,
operating leases.
Future minimum annual lease commitments at September 30, 1999 are as
follows:
2000 $ 9,182,000
2001 9,027,000
2002 9,021,000
2003 9,005,000
---------------
$ 36,235,000
===============
Rental and lease expense for the years ended September 30, 1999, 1998 and
1997, amounted to approximately $474,000, $450,000 and $442,000,
respectively.
SAFETY OF LIFE AT SEA
During recent years, Safety of Life at Sea (SOLAS) standards have been
amended and require among other things, most passenger vessels not fitted
with sprinkler systems to install such systems and other safety
arrangements, including the addition of smoke detectors systems,
low-location lighting and enclosed escape stairwells by October 1, 1997. In
the event a vessel meets the SOLAS 1974 requirements, it will not be
required to be fitted with a sprinkler system until on or before October 1,
2005. In fiscal 1997, the ships were fitted with the safety arrangements
required by SOLAS and thus currently comply with SOLAS requirements.
In January 1999, the Company placed the Universe Explorer in drydock
primarily for the installation of a sprinkler system aboard the vessel. The
installation of the sprinkler system was completed in February 1999 and
brought the ship into compliance with SOLAS. The Company intends to install
a sprinkler system aboard the Enchanted Isle over the next several years
while the ship is in service. The expected cost of this installation is $3
million.
(continued)
F-22
<PAGE>
COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE I - COMMITMENTS AND CONTINGENCIES - Continued
EMPLOYEE BENEFIT PLAN
Effective October 1, 1996, the Company joined a group Retirement and
Savings Plan. The Plan is a defined contribution plan under Section 401(k)
of the Internal Revenue Service Code covering all eligible employees of the
Company. Employees who have attained the age of 21 are eligible to become
participants on the first day of the calendar month following the year of
service in which they have worked a minimum of 1,000 hours. The Company may
contribute a discretionary matching contribution equal to a percentage of
the employee's contribution. This percentage may vary from year to year.
The amounts charged to earnings for this plan during the three years ended
September 30, 1999 were not significant.
NOTE J - RELATED PARTIES
Sea-Comm operates cruises to Alaska through World Explorer Cruises and
Tours, Inc. (WEC). WEC and Seawise may be deemed to be under common
control. Sea-Comm and WEC are parties to an agreement whereby the Universe
Explorer enjoys certain permits issued by the U.S. Parks Service to cruise
in the Glacier Bay Alaska area. Pursuant to this agreement, Sea-Comm earns
all revenues and pays all of WEC's marketing and overhead expenses in
conjunction with the Alaska cruises. As of September 30, 1999 and 1998, the
Company has a receivable due from WEC of $1,739,000 and $1,140,000,
respectively, of which $400,000 is included in long-term
receivable-affiliates and the remaining amount is included in due from
affiliates.
The Company advanced Capri Cruises certain amounts during the year and pays
certain expenses on their behalf. As of September 30, 1999 and 1998, the
amount due from Capri Cruises was $500,000 and $511,000, respectively. This
receivable is included in due from affiliates.
During fiscal 1998 and 1997, the Company received a series of unsecured
loans totaling $500,000 and $575,000, respectively, from Seawise, its joint
venture partner as well as capital contributions totaling $100,000 and
$1,362,000, respectively. In fiscal 1999, an additional $85,000 is due
related to loans from Seawise who helped finance the installation of the
sprinkler system. The interest rate on these loans is 8% per annum and
these loans have no set maturity date. The liability of $1,160,000 and
$1,075,000 related to the loans is recorded as part of due to affiliates as
of September 30, 1999 and 1998, respectively. Also, included in due to
affiliates is a payable of $0 and $126,000 due to WEC as of September 30,
1999 and 1998, respectively, and a payable of $185,000 and $0 due to
Seawise as of September 30, 1999 and 1998, respectively.
(continued)
F-23
<PAGE>
COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE J - RELATED PARTIES - Continued
As part of the joint venture agreement with Seawise (Note A), the Company
is entitled to be reimbursed by Seawise for certain improvements made to
the Universe Explorer. The terms of the reimbursement are based on the
joint venture agreement. As of September 30, 1999 and 1998, the related
receivable from Seawise is $5,169,000 and $2,150,000, respectively, of
which $563,000 and $0, respectively is included as a due from affiliates
and the remaining amount is included in long-term receivable affiliates.
As part of the Coronado joint venture (Note B), the Company loaned Proturo
$436,000. This loan is evidenced by two notes receivable, one for $150,000
and one for $286,000. The note for $150,000 bears interest at an above
market rate, is payable over 3 1/2 years, and is collateralized by
Proturo's ownership interest in the joint venture. The note for $286,000
bears interest at the market rate, is due in two years and is
collateralized by Proturo's ownership interest in the joint venture. The
related loans are recorded in long-term receivable affiliates as of
September 30, 1999. In addition, Viejas advanced the Company $150,000 as
part of the Coronado joint venture. This advance is non-interest bearing
and has no set maturity date.
In September 1999,approximately $2,250,000 of expenses attributable to
Albuferra, were allocated to the joint venture, resulting in an increase in
minority interest in loss of consolidated joint ventures of approximately
$1,121,000.
On January 7, 1996, the Company entered into an agreement to space charter
the Universe Explorer to Seawise. The term of the charter agreement is ten
years. During the years ended September 30, 1999, 1998, and 1997, the
Company received $9,391,000, $10,571,000 and $9,313,000, respectively, from
Seawise related to this charter agreement, which is included in revenues.
NOTE K - INCOME TAXES
Certain entities are exempt from U.S. corporate income tax on U.S. source
income from their international shipping operations if (i) their countries
of incorporation exempt shipping operations of U.S. persons from income tax
(the "Incorporation Test") and (ii) they meet the "Ultimate Owner Test." A
foreign company meets the Ultimate Owner Test if its stock is primarily and
regularly traded on a U.S. stock exchange or on a stock exchange in a
foreign country that exempts U.S. persons from tax on shipping earnings.
The Company is involved in international shipping operations which meet the
Incorporation Test because the Company and its subsidiaries are
incorporated in Bermuda and Panama, respectively, which provide the
required exemption to U.S. persons involved in shipping operations, and the
Company believes it meets the Ultimate Owner Test due to its stock being
primarily and regularly traded on the NASDAQ National Market. The issue of
residence is, however, inherently factual and cannot be determined with
certainty. The Company is subject to U.S. income tax on its U.S. source
income that is not from the international operation of a ship.
(continued)
F-24
<PAGE>
COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
SEPTEMBER 30, 1999, 1998 AND 1997
NOTE K - INCOME TAXES - Continued
However, because there are no regulations to date interpreting this
exemption and because satisfying the requirements under the exemption
depends upon meeting certain factual tests, there is no assurance that the
Company will continue to qualify for the tax exemption.
Based on the foregoing, the Company expects most of its income to remain
exempt from United States income taxes. Also, as the earnings from shipping
operations are derived from sources outside of Panama, such earnings are
not subject to Panamanian taxes. Bermuda imposes no income tax on
corporations.
The Company has a deferred tax asset of approximately $119,000 as of
September 30, 1999 related to the domestic operations of Capri Cruises.
The temporary differences which cause the deferred tax asset are the
Company's portion of the net operating loss carryforward of Capri
Cruises of $298,000 and depreciation differences of $15,000. A 100%
valuation allowance against this deferred tax has been recorded as the
Company has determined that it's more likely than not that the asset
will not be realized. The net operating loss carryforward expires in
fiscal 2008 and fiscal 2009.
NOTE L - SUMMARIZED QUARTERLY FINANCIAL DATA FOR
1999 AND 1998 (UNAUDITED)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER YEAR
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT FOR PER SHARE INFORMATION)
1999
Revenues $12,288 $11,978 $16,755 $20,467 $61,488
Operating income 649 1,814 2,799 499 5,761
Net earnings
Available
for common
stockholders 263 715 2,065 1,563 $ 4,606
Earnings per
share - basic .04 .10 .28 .20 .62
Earnings per
share - diluted .03 .09 .22 .18 .52
1998
Revenues $11,529 $13,858 $18,428 $19,313 $63,128
Operating income 403 840 3,267 1,615 6,125
Net earnings
available
for common
stockholders 111 563 2,410 939 4,023
Earnings per
share - basic .02 .10 .36 .16 .64
Earnings per
share - diluted .02 .08 .29 .16 .54
F-25
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
10nn Amended and Restated Operating Agreement for Coronado Seas, LLC
dated September 17, 1999 by and among Commodore Day Cruises Limited,
Promociones Turisticas de Rosarito, S.A. de C.V. and Viejas Band of
Kumeyaay Indians
10oo First Amendment to Pier Docking Agreement dated September 17, 1999,
by and among Inversiones Rosarito, S.A. de C.V., Playas de Rosarito
Marina Resort, S.A. de C.V., Coronado Seas, LLC and Banco
Interncional, S.A.
10pp Space Charter dated July 12, 1999, by and between Crown and Atkinson
and Mullen, Inc. d/b/a Apple Vacations
10qq Bermuda Berthing Agreement dated July 14, 1999, between the
Government of Bermuda and Crown
10rr 1999 Stock Plan
10ss Loan and Security Agreement Amendment No. 1 dated September 30, 1999
between Azure and Key
21 Subsidiaries of the Company
27 Financial Data Schedule
EXHIBIT 10.nn
AMENDED AND RESTATED
OPERATING AGREEMENT
OF
CORONADO SEAS, LLC
AMONG
COMMODORE DAY CRUISES LIMITED
AND
PROMOCIONES TURISTICAS DE ROSARITO, S.A. DE C.V.
AND
VIEJAS BAND OF KUMEYAAY INDIANS
DATED SEPTEMBER 17, 1999
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE 1 DEFINITIONS..................................................1
ARTICLE 2 OFFICES AND STATUTORY AGENT..................................6
2.1 Principal Executive Office...................................6
2.2 Other Offices................................................6
2.3 Statutory Agent..............................................6
ARTICLE 3 ESTABLISHMENT OF THE JOINT VENTURE...........................6
3.1 Establishment of the Joint Venture; Purpose..................6
3.2 Organization as a Limited Liability Company..................6
3.3 Name.........................................................6
3.4 Charter of Vessel............................................6
3.5 Operations...................................................7
3.6 Reservations.................................................9
3.7 Cost Reimbursement...........................................9
3.8 Intellectual Property Assets.................................9
3.9 Representations and Warranties of the Members................9
3.10 Covenants of Members........................................10
ARTICLE 4 MEMBERS; MANAGEMENT; VOTING RIGHTS; MEETINGS OF DIRECTORS...11
4.1 Members.....................................................11
4.2 Management Committee........................................11
4.3 Management Committee Meetings...............................11
4.4 Voting......................................................12
4.5 Intentionally Deleted.......................................13
4.6 Chief Executive Officer.....................................14
4.7 Executive Officers..........................................14
4.8 Business Plan...............................................14
4.9 Budget Approval.............................................15
4.10 Employees and Employee Benefits.............................15
4.11 Arrangements with Members or Affiliates.....................16
4.12 Duty of Members to Cooperate................................16
4.13 Insurance and Risk Management...............................16
4.14 Limitations on Member's Authority...........................16
-i-
<PAGE>
PAGE
ARTICLE 5 CAPITAL CONTRIBUTIONS.......................................16
5.1 Initial Capital Contributions...............................16
5.2 Adjustments to Capital Accounts.............................17
5.3 Additional Capital Contributions............................18
5.4 Procedure for Making Capital Calls by the Management
Committee...................................................18
5.5 Failure of Member to Contribute Capital.....................18
5.6 No Third Party Beneficiaries................................18
5.7 No Withdrawal of, or Payment of Interest on, Capitals
Accounts....................................................19
5.8 Obligation to Restore.......................................19
ARTICLE 6 ALLOCATIONS, DISTRIBUTIONS, ACCOUNTING AND TAX MATTERS......19
6.1 Allocations.................................................19
6.2 Distributions and Reserves..................................19
6.3 Accounting Matters..........................................21
6.4 Tax Status and Returns......................................21
6.5 Tax Matters Member..........................................21
6.6 754 Election................................................22
6.7 Membership Classification...................................22
ARTICLE 7 TRANSFER OF INTERESTS; ADMISSION AND RESIGNATION OF
MEMBERS.....................................................22
7.1 Transfer of Interests.......................................22
7.2 Right of First Refusal......................................23
7.3 Exempt Transfers............................................23
7.4 Legend......................................................24
7.5 Admission of New Members....................................25
7.6 Resignation of Members......................................24
ARTICLE 8 DISSOLUTION/MANDATORY SALE..................................25
8.1 No Default Dissolution......................................25
8.2 Default Dissolution.........................................25
8.3 Mandatory Sale..............................................26
8.4 Notice......................................................27
8.5 Dissolution Procedures......................................27
8.6 Settling of Accounts........................................28
8.7 Distribution of Proceeds....................................28
-ii-
<PAGE>
PAGE
8.8 Certified Liquidation Statement.............................28
8.9 Mandatory Sale Procedures...................................29
ARTICLE 9 OUTSIDE ACTIVITIES; CONFIDENTIALITY.........................30
9.1 Outside Activities..........................................30
9.2 Duties of Members...........................................31
9.3 Confidential Information....................................31
ARTICLE 10 INDEMNIFICATION.............................................32
10.1 Limitation of Liability.....................................32
10.2 Indemnification: Proceeding other than by Joint Venture.....32
10.3 Indemnification: Proceeding by Joint Venture................33
10.4 Mandatory Indemnification...................................33
10.5 Authorization of Indemnification............................33
10.6 Mandatory Advancement of Expenses...........................33
10.7 Effect and Continuation.....................................34
10.8 Insurance and Other Financial Arrangements..................34
10.9 Limitation on Liability.....................................34
10.10 Notice of Indemnification and Advancement...................34
10.11 Repeal or Modification......................................34
ARTICLE 11 INSPECTION OF JOINT VENTURE RECORDS; ANNUAL AND OTHER
REPORTS.....................................................34
11.1 Records to be Kept..........................................34
11.2 Inspection of Joint Venture Records.........................35
11.3 Financial Reports...........................................35
11.4 Joint Venture Auditors......................................35
ARTICLE 12 DEFAULTS AND REMEDIES.......................................35
12.1 Defaults....................................................35
12.2 Remedies....................................................35
12.3 No Waiver...................................................35
ARTICLE 13 DISPUTE RESOLUTION..........................................36
13.1 Disputes....................................................36
13.2 Arbitration.................................................36
ARTICLE 14 MISCELLANEOUS...............................................39
14.1 Term........................................................39
-iii-
<PAGE>
PAGE
14.2 Amendments..................................................39
14.4 Nature of Membership Interest; Agreement Is Binding
Upon Successors.............................................39
14.5 Title to Property...........................................39
14.6 Attorney Fees...............................................39
14.7 Venue, Jurisdiction; Service of Process.....................40
14.8 Seal........................................................40
14.9 Entire Agreement............................................40
14.10 Third Parties...............................................40
14.11 Governing Law...............................................40
14.12 Counterparts................................................40
14.13 Titles and Subtitles; Form of Pronouns; Construction
and Definitions.............................................41
14.14 Severability................................................41
14.15 Costs.......................................................41
SCHEDULE 1 - PIER LOAN AND INVESTOR LOAN REPAYMENT SCHEDULE.................. 1
SCHEDULE 2 - NAMES, ADDRESSES AND INITIAL CAPITAL CONTRIBUTIONS
OF MEMBERS...................................................... 2
SCHEDULE 3 - INITIAL PERCENTAGE INTERESTS.................................... 3
EXHIBIT A - AMENDED GUARANTY................................................. A
EXHIBIT B - DOCKING AGREEMENT................................................ B
EXHIBIT C - LOAN DOCUMENTS................................................... C
EXHIBIT D - COMMODORE WARRANT................................................ D
EXHIBIT E - LICENSE AGREEMENT................................................ E
EXHIBIT F - BUSINESS PLAN.................................................... F
EXHIBIT G - BUDGET........................................................... G
-iv-
<PAGE>
AMENDED AND RESTATED
OPERATING AGREEMENT
OF
CORONADO SEAS, LLC
THIS OPERATING AGREEMENT is made and entered into as of the 17th day of
September, 1999 by and among COMMODORE DAY CRUISES LIMITED, a Bermuda
corporation ("Commodore"), PROMOCIONES TURISTICAS DE ROSARITO, S.A. de C.V., a
Mexican corporation ("Proturo"), and VIEJAS BAND OF KUMEYAAY INDIANS, a
federally recognized Indian Tribe ("Viejas").
W I T N E S S E T H
WHEREAS, on April 6, 1999, Commodore and Proturo entered into an
operating agreement in connection with the formation of Coronado Seas, LLC (the
"Joint Venture") under and pursuant to Chapter 18 of the Delaware Statutes (the
Revised Delaware Limited Liability Company Act);
WHEREAS, the parties hereto wish to amend and restate the operating
agreement for the Joint Venture to admit Viejas as an additional Member of the
Joint Venture;
WHEREAS, the purpose of the Joint Venture shall be to operate a cruise
ship from San Diego and Los Angeles and to engage in such other business
activities as shall be approved by the Members from time to time; and
WHEREAS, the parties agree that their respective rights, powers, duties
and obligations as Members of the Joint Venture, and the management, operations
and activities of the Joint Venture, shall be governed by this Agreement.
NOW, THEREFORE, in consideration of the mutual terms, covenants, and
conditions contained herein, the parties hereby agree as follows:
ARTICLE 1
DEFINITIONS
Capitalized terms used in this Agreement without other definition
shall, unless expressly stated otherwise, have the meanings specified in this
Article 1.
"ACT" means Chapter 18 of the Delaware Statutes (the Revised Delaware
Limited Liability Company Act), as from time to time in effect in the State of
Delaware, or any corresponding provision or provisions of any succeeding or
successor law of such State; provided, however, that in the event that any
amendment to the Act, or any succeeding or successor law, is applicable to the
Joint Venture only if the Joint Venture has elected to be governed by the Act as
so amended or by
<PAGE>
such succeeding or successor law, as the case may be, the term "Act" shall refer
to the Act as so amended or to such succeeding or successor law only after the
appropriate election by the Joint Venture has been made and has become
effective.
"AFFILIATE" means any Person other than a Member directly or indirectly
controlling, controlled by, or under common control with, a Member; provided,
however, that no party to this Agreement shall be considered to be an affiliate
of any other party solely by reason of its membership in the Joint Venture.
"AGREEMENT" means this Amended and Restated Operating Agreement. Words
such as "herein," "hereafter," "hereof," "hereto," "hereby" and "hereunder,"
when used with reference to this Agreement, refer to this Agreement as a whole,
unless the context otherwise requires.
"BUSINESS" means the operation of a day cruise ship from San Diego or
Los Angeles to Rosarito, and such other business activities as shall be approved
by the Members from time to time.
"BUSINESS PLAN" means the business plan of the Joint Venture attached
hereto as Exhibit "F," as amended from time to time by the Management Committee.
"CAPITAL ACCOUNT" means a Member's account, calculated in accordance
with, and intended to comply with, Treasury Regulations section 1.704-1(b),
pursuant to Article 5 hereof.
"CAPITAL CONTRIBUTION" means the contribution made by each Member to
the Joint Venture pursuant to Article 5 hereof and, in the case of all the
Members, the aggregate of all such Capital Contributions.
"CODE" means the United States Internal Revenue Code of 1986, as
amended, and as to any specific Code section, any corresponding provision or
provisions of any succeeding law.
"COMMENCEMENT OF CRUISE OPERATIONS" means the date the Joint Venture
first embarks passengers and sails to another port.
"CONCESSION" means the right to construct and operate a pier in
Rosarito, granted by the Mexican Secretaria de Comunicaciones y Transportes to
Banco International, S.A. on March 12, 1998, which right was placed in trust on
June 2, 1998, the trustee and beneficiary of which is IRO.
"CONCESSION FEES" means those sums due and payable to Proturo, as agent
for IRO, pursuant to Section 7 of the Docking Agreement.
"CONFIDENTIAL INFORMATION" means all confidential documents and
information (including, without limitation, confidential commercial information
and information with respect to customers and proprietary processes and the
design and development of new services) concerning the Joint Venture or the
Joint Venture Business, any Member, or any Affiliate of a Member furnished to a
Member, an Affiliate of a Member or the Joint Venture in connection with the
transactions leading up to and contemplated by this Agreement and the operation
of the Joint Venture or its Business, except to the extent that such information
can be shown to have been (a) generally available to the
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public other than as a result of a breach of the provisions of Article 9.3 of
this Agreement; (b) already in the possession of the receiving Person (as
defined below in this Article) or its Representatives (as such term defined in
Article 9.3 hereof) without restriction (including restrictions contained in any
confidentiality agreement or other nondisclosure obligation entered into by the
Member) and prior to any disclosure in connection with the Joint Venture or
pursuant to any of the terms of this Agreement; (c) lawfully disclosed to the
receiving Person or its Representatives by a third party who is free lawfully to
disclose the same; or (d) independently developed by the receiving Person
without use of any Confidential Information obtained in connection with the
transactions leading up to and contemplated by this Agreement and the operation
of the Joint Venture or its Business.
"DEFAULT RATE" means the rate announced from time to time by
NationsBank N.A. as its prime rate plus 5%.
"DOCKING AGREEMENT" means the Agreement, as amended, between the Joint
Venture and IRO attached hereto as EXHIBIT "B."
"GAAP" means generally accepted United States accounting principles,
applied on a basis consistent with the basis on which the balance sheet and the
other financial statements preceding the ones with respect to which such term is
used were prepared.
"GOVERNMENTAL BODY" means any: (a) nation, state, county, city, town,
village, district, or other jurisdiction of any nature; (b) federal, state,
local, municipal, foreign, or other government; (c) governmental or
quasi-governmental authority of any nature (including any governmental agency,
branch, department, official, or entity and any court or other tribunal); (d)
multi-national organization or body; or (e) body exercising, or entitled to
exercise, any administrative, executive, judicial, legislative, police,
regulatory, or taxing authority or power of any nature.
"GUARANTY" means the Amended Guaranty executed by each of Commodore,
Proturo and Viejas, in the form of EXHIBIT "A" hereto.
"GUARANTY LOAN" means a Guaranty Loan as defined in the Guaranty.
"INTELLECTUAL PROPERTY ASSETS" means:
(a) all patents, patent applications and inventions and discoveries
that may be patentable;
(b) all copyrights in both published and unpublished works;
(c) all know-how, trade secrets, confidential information, customer
lists, software, programs, prototypes, designs, technical information, data,
process technology, engineering and manufacturing information, procedures,
specifications, plans, drawings and blue prints; and
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(d) all trademarks (whether registered or unregistered) and trademark
applications owned, used, or licensed by the Person with respect to whom the
term is used either as licensee or licensor.
"INITIAL START-UP CAPITAL" means the capital necessary and required by
the Joint Venture to establish and commence operations, and shall include, but
shall not be limited to, the costs incurred in connection with the acquisition,
fitting, and preparation of the Vessel, its relocation to San Diego, advertising
and marketing for the Joint Venture and other amounts set forth on the Joint
Venture's Initial Budget, which is attached hereto as EXHIBIT "G."
"INTEREST" means the entire ownership interest of a Member in the Joint
Venture at any particular time, including, without limitation, the right of such
Member to participate in the Joint Venture's income or losses and its Net Cash
Flow, and any and all other benefits to which a Member may be entitled as
provided in this Agreement and the Act, subject to the obligations of such
Member to comply with all the terms and provisions of this Agreement.
"IRO" means Inversiones Rosarito, S.A. de C.V., a Mexican corporation.
"LOS ANGELES" means the Los Angeles, California metropolitan area.
"MANAGEMENT COMMITTEE" means the governing body with the exclusive
power to direct and control the business affairs or the Joint Venture. The
members of the Management Committee shall be selected in accordance with Article
4.
"MEMBER" shall mean each of the parties to this Agreement and any
Person who becomes a Member of the Joint Venture pursuant to the Act and the
terms of this Agreement provided that such party or Person has not disposed of
its entire Interest in the Joint Venture pursuant to Article 7 hereof.
"NET CASH FLOW" means, with respect to any fiscal period, the excess of
operating revenues and receipts over operating expenses and other expenditures
for such fiscal period, (a) decreased by any amounts added to Reserves during
such fiscal period, and (b) increased by the amount (if any) of all allowances
for cost recovery, amortization or depreciation with respect to property of the
Joint Venture for such fiscal period, and (c) increased by any amounts withdrawn
from Reserves during such fiscal period. The foregoing computation shall be
performed in accordance with GAAP, consistently applied.
"OPERATIONS" means all transactions in the ordinary course of the Joint
Venture's Business, but does not include the making of Capital Contributions to
the Joint Venture.
"OWNER" means Albuferra Investments, Inc., a Panama corporation.
"PARENT ENTITY" means, as to any Member, an Affiliate of which such
Member is a wholly or majority owned subsidiary.
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"PERCENTAGE INTEREST" means the allocable interest of each Member in
the income, gain, losses, deductions or credits of the Joint Venture. The
Percentage Interests of the Members are as set forth in SCHEDULE 3 hereto.
"PERSON" means any partnership, joint venture, association,
corporation, limited liability company, trust or other entity, or, where the
contexts so permits or requires, a natural person.
"PRESENT OPERATIONS" means the Operations of the Joint Venture as
described in the Business Plan for its then present fiscal year.
"PROTURO FEES" means those amounts payable by the Joint Venture to
Proturo at the rate of * per day, payable monthly, in arrears, and shall be paid
in addition to those sums payable as "Concession Fees" to Proturo, as IRO's
agent, pursuant to the Docking Agreement.
"REFERENCE RATE" means the rate announced from time to time by Citibank
N.A. as its prime rate.
"RESERVES" means the reserves established and maintained from time to
time by the Management Committee for the purposes set forth in Article 6.2(b).
"ROSARITO" means the city of Rosarito, Baja California, Mexico.
"SAN DIEGO" means the San Diego, California metropolitan area.
"SEAWORTHINESS" means that the Vessel complies with all requirements of
its classification society, country of registry, United States Public Health
Service, United States Coast Guard, the International Convention of Safety of
Life at Sea, and that all equipment aboard the Vessel, including air
conditioning systems, water pumps and desalinization systems, are operational.
"TREASURY REGULATIONS" means the regulations issued by the Treasury
Department under the Code, as such regulations may be amended form time to time,
including any successor regulations.
"VESSEL" means the M/V Enchanted Sun f/k/a Sofia, or any other ships as
may be operated by the Joint Venture in the future.
"VESSEL PRE-OPERATING FEES" means the amount of * per month plus
interest at the rate of * per annum, which amount shall accrue beginning on the
date the renovation of the Vessel has been substantially completed and the
Vessel is ready for redelivery by the shipyard and ending on the date the
construction of the Rosarito Pier (including the seawall) has been substantially
completed and the Rosarito Pier is capable of receiving the Vessel safely
alongside.
"VESSEL RULES" means the Vessel's operating manual and such rules and
regulations concerning safety, discipline, shipboard conduct and compliance with
applicable laws as may be promulgated by Commodore and the Vessel's captain from
time to time.
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"WHOLLY OWNED SUBSIDIARY" means, as to any Person, a corporation or
other entity of which all of the capital stock or other equity interest is
owned, directly or indirectly, through one or more intermediaries, or both, by
such Person.
ARTICLE 2
OFFICES AND STATUTORY AGENT
2.1 PRINCIPAL EXECUTIVE OFFICE. The principal executive office for the
transaction of the Business of the Joint Venture shall initially be at 4000
Hollywood Boulevard, Suite 385-S, South Tower, Hollywood, Florida 33021, and may
be changed from time to time by the Members within or without the State of
Florida.
2.2 OTHER OFFICES. The Members may at any time and from time to time
establish other business offices within or without the State of Florida.
2.3 STATUTORY AGENT. The initial registered agent for the Joint Venture
shall be Corporate Service Company, 1013 Centre Road, Wilmington, Delaware
19805, which registered agent may be changed from time to time by the Joint
Venture.
ARTICLE 3
ESTABLISHMENT OF THE JOINT VENTURE
3.1 ESTABLISHMENT OF THE JOINT VENTURE; PURPOSE. The Joint Venture
commenced its existence on January 11, 1999. The purpose of the Joint Venture
shall be for each of the Members to provide its unique expertise and experience
to the joint project of operating a cruise ship between San Diego or Los Angeles
and Rosarito, and to engage in such other business activities as shall be
approved by the Members from time to time so as to maximize the profitability
and value of the Joint Venture.
3.2 ORGANIZATION AS A LIMITED LIABILITY COMPANY. Notwithstanding the
reference to the Joint Venture as a "Joint Venture," the Joint Venture shall
operate as a Delaware Limited Liability Company. The Joint Venture will be
managed by a Management Committee and no Member shall have the authority to bind
the Joint Venture by virtue of its status as a Member.
3.3 NAME. The name of the Joint Venture shall be Coronado Seas, LLC and
the Joint Venture shall make such filings and take such other actions as shall
be necessary to conduct the business of the Joint Venture under such name.
3.4 CHARTER OF VESSEL. All expenses associated with relocating the
Vessel from its then-current location to San Diego will be borne by the Joint
Venture. The Owner shall charter the M/V Enchanted Sun to the Joint Venture (the
"Joint Venture Charter") at a rate equal to * per day. Each of Commodore,
Proturo and Viejas shall execute an amended guaranty (the "Guaranty") in the
form of EXHIBIT "A," attached hereto.
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3.5 OPERATIONS. The Members shall operate the Joint Venture so as to
take advantage of their particular areas of expertise and experience.
Accordingly, the operation of the Joint Venture shall be divided among the
Members in the following manner:
(a) Commodore will operate the Vessel, including providing
hotel and technical management services, in exchange for reimbursement of its
costs. Proturo will operate the Mexican pier located in Rosarito (the "Rosarito
Pier") on behalf of IRO for Proturo Fees. The Members shall jointly select the
decor, layout and equipment for the casino on board the Vessel, decide whether
to engage a consultant with respect to such tasks, and establish the policies
for the operation of the casino. Viejas will be responsible for operating the
casino in exchange for reimbursement of its costs, and for implementing policies
adopted with respect to the casino. Viejas shall use its best efforts to
effectively market the Vessel's cruises to the database customers of its
land-based casino. Commodore may provide services for the Vessel directly or
through contractors. The Joint Venture shall provide Viejas with a reasonable
amount of concession selling space on board the Vessel from which to sell its
products at a rate *.
(b) Commodore shall establish a sales and marketing office for
the Joint Venture in San Diego to market, promote, and operate the Vessel, and
Proturo shall coordinate and operate all facets of the Rosarito Pier, including,
but not limited to, obtaining all port and pier permits and permissions,
ensuring that passengers are able to safely and legally disembark at Rosarito,
B.C., Mexico and complying with all immigration and customs matters pertaining
to docking the Vessel and disembarking numerous passengers of U.S. and other
citizenship.
(c) MARKETING. The marketing for the Joint Venture will be
shared between the Members, with Commodore marketing the base cruise from its
office in Florida and the Joint Venture's office in San Diego, Proturo marketing
the Rosarito Pier (including shore excursions) and Viejas marketing the casino.
The Management Committee of the Joint Venture will agree upon the marketing and
pricing schedule, which plans will be included in the proposed Business Plan and
Budget submitted to the Management Committee of the Joint Venture on an annual
basis by the CEO of the Joint Venture pursuant to Article 4.9.
(d) PROTURO FEES. Proturo shall ensure that the Rosarito Pier
is fully constructed, operational, and capable of receiving cruise ships, such
as the Vessel, not later than March 10, 2000. Proturo shall also arrange with
IRO for a port pilot or equivalent official to guide the Vessel into port at
Rosarito, B.C., Mexico. As compensation to Proturo for managing the Joint
Venture's use of the Rosarito Pier, the Joint Venture shall pay Proturo Fees to
Proturo at any time when the Joint Venture has use of the Rosarito Pier in
accordance with the Docking Agreement and its paying Concession Fees in
accordance therewith. The Joint Venture shall commence paying Proturo Fees 30
days after repayment in full of the Pier Loan and the Investor Loan (as such
terms are hereafter defined) and shall continue to pay Proturo Fees monthly as
and when required to pay Concession Fees until the expiration or other
termination of the Docking Agreement.
(e) DOCKING AGREEMENT. Proturo has caused IRO to enter into
the Docking Agreement with the Joint Venture granting the Joint Venture the
right to land, dock and embark
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the Vessel at the Rosarito Pier, to the exclusion of any other cruise ship or
cruise line departing from either the greater San Diego or Los Angeles
geographical area.
(f) FINANCING OF PIER. Proturo shall arrange for the financing
necessary for IRO to complete the construction of the Rosarito Pier, which
arrangements shall be subject to Commodore's and Viejas's reasonable approval. A
private investor has loaned Proturo * without interest (the "Investor Loan").
Commodore and IRO will loan Proturo an aggregate of * (the "Pier Loan"). Viejas
has purchased * of Commodore's portion of the Pier Loan from it. The Pier Loan
bears interest at the rate of * per cent per annum and, together with the
Investor Loan, shall be repaid in * of principal plus accrued interest, pursuant
to the principal repayment schedule attached hereto as SCHEDULE 1. It is
intended by the parties that * that the Joint Venture uses the Rosarito Pier so
that if the Joint Venture receives continuous use of the Rosarito Pier for the
first * of the Docking Agreement, the Pier Loan and the Investor Loan will be
paid in full, including interest, at the end of such *. To the extent the Joint
Venture receives use of the Rosarito Pier during the * of the Docking Agreement
(as such * period may be extended to the extent the Joint Venture does not
receive use of the Rosarito Pier for any period or periods of time therein), the
scheduled amount of principal and interest due under the Pier Loan and the
Investor Loan (as such amounts may be prorated to reflect the availability of
the Rosarito Pier) shall be credited against amounts due by the Joint Venture to
Proturo, as and when due, and the Joint Venture shall remit such amounts to
Commodore, IRO and the Investor in accordance with SCHEDULE 1 as and when such
payments are due. Commodore's portion of the Pier Loan has been memorialized by
the loan agreement and promissory note (collectively the "Loan Documents"),
attached hereto as EXHIBIT "C." Commodore has assigned a portion of its interest
in the Loan Documents to Viejas.
(g) CONCESSION FEES. Pursuant to the terms of this Agreement
and the Docking Agreement, Proturo is entitled to a Concession Fee for the Joint
Venture's use of the Rosarito Pier as set forth in the Docking Agreement. The
Joint Venture shall pay the Concession Fee to Proturo monthly, in arrears,
commencing 30 days after the Vessel first docks at the Rosarito Pier, and
continuing on the same day of each consecutive month thereafter, pursuant to the
terms of the Docking Agreement.
(h) COMMODORE WARRANTS. Commodore has granted Proturo warrants
(the "Warrants") to purchase 250,000 shares of common stock of Commodore
Holdings Limited at an exercise price of $6.00 per share, in the form attached
hereto as EXHIBIT "D." Notwithstanding the foregoing, the Warrants may not be
exercised at any time when a Subsequent Capital Loan, Capital Call Loan, Pier
Loan or Guaranty Loan is outstanding and the Warrants shall act as security for
the repayment of any such loans. Upon exercise of any or all of the Warrants,
Proturo may not sell or transfer more than 62,500 shares of common stock of
Commodore Holdings Limited during any 90-day period without Commodore's prior
written consent.
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(i) INITIAL FINANCING OF VENTURE. Subject to Commodore's and
Viejas' rights under Article 8.1(e), during the first two years of this
Agreement, * that are in excess of Proturo's * Capital Contribution set forth on
SCHEDULE 2. The terms of such loans shall vary depending on the nature of each
such loan (Subsequent Capital Loan or Capital Call Loan). Commodore's and
Viejas' obligation to make loans to Proturo shall run solely to Proturo's
benefit and shall not be enforceable by any creditor of the Joint Venture or
Proturo.
(j) CASINO GAMING EQUIPMENT. The Members agree to honor the
terms of the Gaming Agreement (as defined in Section 3.9(c)) in the procurement
of casino gaming equipment for the Vessel.
3.6 RESERVATIONS. Reservations for the Joint Venture's Vessel will be
made through Commodore's reservations office using employees of an Affiliate of
Commodore who will be trained regarding the Joint Venture.
3.7 COST REIMBURSEMENT. In order to best take advantage of the
experience, expertise and economies of scale which each of the Members can
provide to the Joint Venture, the Members may, where necessary and appropriate,
utilize the services of employees of each of the Members to provide services to
the Joint Venture instead of hiring new employees specifically for the Joint
Venture. As such, the cost of each Member's services that it provides to the
Joint Venture will be charged to the Joint Venture, at cost, with the amounts
proposed to be charged set forth in the proposed Budget submitted to the
Management Committee by the CEO each year and as may be approved by such
Management Committee. In addition, each Member will be reimbursed by the Joint
Venture for all out-of-pocket monies expended on behalf of the Joint Venture, to
be budgeted and approved by the Joint Venture's Management Committee in advance.
The Members anticipate that these costs will relate primarily to marketing costs
and management staff, and reimbursement for advances made in connection with the
formation and operation of the Joint Venture. The parties shall be required to
provide such back-up documentation of such expenses as shall be required by the
Joint Venture's public accountants and in such detail as shall be required by
the Joint Venture. To the extent such Budgets include a salary for any officer
of Proturo, the Budget shall allocate the same amount of money to each of
Commodore and Viejas as reimbursement for a portion of the salaries of its
executive officers who dedicate time to the Joint Venture.
3.8 INTELLECTUAL PROPERTY ASSETS. Each of the Members, as needed, shall
grant a limited non-exclusive license with respect to certain of its
Intellectual Property Assets to the Joint Venture for a fee equal to US$1 per
year for as long as such Member owns an Interest in the Joint Venture and the
Vessel is operating. Specifically, Commodore shall license its Intellectual
Property Assets related to its "Commodore Cruise Lines" products and services to
the Joint Venture and Viejas shall license its Intellectual Property assets
related to its "Viejas" products and services to the Joint Venture. The Joint
Venture has entered into a license agreement with Commodore and shall enter into
a license agreement with Viejas on terms substantially similar to the those
contained in EXHIBIT "E" hereto.
3.9 REPRESENTATIONS AND WARRANTIES OF THE MEMBERS. Each Member
represents and warrants to each other Member and the Joint Venture as follows:
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(a) Each of Commodore and Proturo is a corporation duly
incorporated, validly existing, and in good standing under the laws of its state
or country of incorporation, with full corporate power and authority to own,
lease, and operate its properties and to carry on its business as it is now
being conducted. Each such corporation is in good standing as a foreign
corporation in each jurisdiction in which the ownership of its property or the
conduct of its business makes such qualification necessary. Each such
corporation has taken all action necessary to authorize the execution, delivery,
and performance of this Agreement. Viejas is a federally recognized Indian
Tribe. Viejas has adopted Tribal Council Resolutions authorizing it to enter
into this Agreement and the transactions contemplates hereby, authorizing the
creation of the rights, duties and obligations hereunder and authorizing the
person(s) executing this Agreement on behalf of Viejas to execute such Agreement
(and the agreements contemplated hereby) on behalf of Viejas.
(b) Neither the execution nor the delivery of this Agreement
or any document or instrument contemplated hereby to be executed and delivered
by any Member or its Affiliate, nor the fulfillment of or compliance with the
terms and provisions of this Agreement and such other documents and instruments,
will conflict with or will result in a breach of the terms, conditions, or
provisions of, or constitute a default under, or result in any violation of, any
judgment, decree, or any order of any court or any arbitration authority, or any
statute, law, rule, or regulation by which any such Member, or its Affiliate, or
its respective assets are affected or bound.
(c) Except for that agreement dated February 26, 1999 between
New Gaming Systems and Rosarito Marina Resort d/b/a Promociones Turisticas de
Rosarito, S.A. de C.V. relative to the procurement of certain gaming devices
(the "Gaming Agreement"), there are no oral or written contracts, agreements, or
undertakings binding upon or affecting any Member or its Affiliate, or its
respective assets that would alter or impair the ability of such Member or
Affiliate to enter into and perform its obligations under this Agreement or any
document or instrument contemplated hereby to be executed and delivered by any
Member or its Affiliate. Proturo and its principal shareholder shall indemnify
the Joint Venture, Commodore and Viejas from any losses or expenses any of them
may incur as a result of any claims by New Gaming Systems that any agreements
other than the Gaming Agreement are binding upon the Joint Venture.
3.10 COVENANTS OF MEMBERS. Each Member covenants to each other Member
as follows:
(a) Commodore will use its reasonable best efforts to operate
the Vessel in accordance with industry practices and to cause the Joint Venture
to remain in compliance with the terms of the Joint Venture Charter (and to
notify the Management Committee promptly if it appears that the Joint Venture
may fail to comply with the terms of the Joint Venture Charter in any material
respect).
(b) Proturo will use its reasonable best efforts to operate
the Rosarito Pier on behalf of IRO, in accordance with applicable Mexican law
and the Docking Agreement and to implement and maintain internal controls with
respect to the Rosarito Pier as customarily implemented in the industry.
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(c) Viejas will use its reasonable best efforts to operate the
casino on board the Vessel in accordance with industry practices and to
implement and maintain internal controls with respect to the casino as customary
in such industry.
ARTICLE 4
MEMBERS; MANAGEMENT; VOTING RIGHTS; MEETINGS OF DIRECTORS
4.1 MEMBERS. Each of the parties to this Agreement, and each Person
admitted as a Member of the Joint Venture pursuant to the Act and Article 7 of
this Agreement, shall be a Member of the Joint Venture until ceasing to be a
Member as a result of the provisions of the Act or this Agreement. The names of
the Members are set forth on SCHEDULE 2 hereto.
4.2 MANAGEMENT COMMITTEE.
(a) Except as otherwise provided in this Agreement, complete
and exclusive power to direct and control the business affairs of the Joint
Venture is delegated to a Management Committee, which will consist of 6 members.
Each Member shall appoint two members of the Management Committee (the
"Directors").
(b) Effective upon the giving of written notice to the other
Member, a Member may, at any time in its sole discretion, remove, replace or
fill a vacancy relating to any or all of its appointed Directors with other
individuals and may designate one or more alternates for any or all of its
Directors. Each Director must be an officer or employee of a Member or an
Affiliate thereof. Each Director shall serve on the Management Committee until
his successor is appointed or until his earlier death, resignation or removal.
(c) Except as otherwise provided in this Agreement, the
Management Committee shall have the exclusive authority and power to act on
behalf of the Joint Venture on all matters, including without limitation on the
matters set forth in Article 4.4 or elsewhere herein and including without
limitation the following matters:
(i) The approval of the Business Plan and Budget (as
defined in Article 4.9) or any material change to it and the determination to
require any additional capital contributions; and
(ii) any other matters coming before the Management
Committee.
Each Member agrees to, consents to and acknowledges the delegation of powers and
authority to such Management Committee.
(d) Any member of the Management Committee may receive all
reports and information from the CEO and the Executive Officers as he shall
request, in his sole discretion.
(e) The Management Committee may delegate any portion of its
authority (other than with respect to the matters set forth in Article 4.4(b))
to the CEO or to any other Executive Officer.
4.3 MANAGEMENT COMMITTEE MEETINGS.
(a) The Management Committee shall hold regular meetings (at
least monthly) at such time and place as shall be determined by the Management
Committee (or by the
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CEO). Special meetings of the Management Committee may be called at any time by
any Director by delivering the notice as provided in Subsection (g) below.
(b) The Management Committee shall appoint a Chairman from
among the Directors. The Chairman shall establish the agendas for, and regulate
the proceedings of the Management Committee, and must include on such agendas
matters requested by any Director in writing received at least two business days
prior to the meeting.
(c) Directors may participate in a meeting of the Management
Committee by conference telephone or similar communications equipment by means
of which all Persons participating in the meetings can hear each other, and such
participation shall constitute presence in person or at such a meeting.
(d) Any action required or permitted to be taken at any
meeting of the Management Committee may be taken without a meeting upon the
unanimous written consent of the Directors. Such written consent or consents
shall be filed with the minutes of the proceedings of the Management Committee
and shall have the same force and effect as a vote of the Directors required to
approve the actions contained in such consent (in accordance with Article 4.4).
(e) The Management Committee shall appoint a Secretary from
time to time. The Secretary shall keep written minutes of all Management
Committee meetings and written consents, a copy of which meetings shall be
provided to each Director.
(f) The Management Committee shall appoint such other officers
as it deems appropriate. Such additional officers may or may not be employees of
either Commodore, Proturo or Viejas.
(g) Each Director shall have the right to designate an
alternate to attend meetings of the Management Committee, instead and in place
of such Director, and to exercise all of the functions of such Director. Any
such alternate shall be an officer or employee of a Member or of an Affiliate
thereof. Any such alternate shall be deemed to be a Director for all purposes
hereunder until such designation is revoked.
(h) Notice of each regular meeting and each special meeting of
the Management Committee shall be given to each Director at least three business
days before such meeting. Notices of special meetings shall contain a
description, in reasonable detail, of the items of business to be conducted at
such meeting and no business other than those items (unless expressly agreed to
by the Directors representing the Members who did not call that special meeting)
may be conducted at such special meeting. Notice of a meeting need not be given
to any Director who signs a waiver of notice or a consent to holding the meeting
or an approval of the minutes thereof, whether before or after the meeting, or
who attends the meeting without protesting prior thereto or at its commencement.
All such waivers, consents and approvals shall be filed with the Joint Venture's
records and made a part of the minutes of the meeting.
4.4 VOTING.
(a) On any matter on which a vote is taken, each of the
Directors shall have one vote. That number of Directors which is 2 less than the
number of Directors on the Management Committee shall constitute a quorum for
the transaction of business; provided that all of the Directors are required in
order to have a quorum for the transaction of business that requires an
affirmative vote of all of the Directors. All actions by the Management
Committee
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shall require the affirmative vote of a majority of the Directors present at a
meeting of the Management Committee at which a quorum is present, except for the
actions set forth in Subsection (b) below, which shall require the affirmative
vote of all of the Directors.
(b) Except as otherwise expressly provided in this Agreement,
the Joint Venture shall not take any of the following actions unless such action
has been approved by an affirmative vote of all of the Directors:
(i) Any amendment of this Agreement that changes any
Member's Percentage Interest, as addressed in Section 7.5, or right to appoint
Directors;
(ii) A determination to require an Additional Capital
Contribution in accordance with Article 5.3, other than an Additional Capital
Contribution required to maintain the Seaworthiness of the Vessel or for items
of necessity to continue the Present Operations of the Joint Venture; and
(iii) Any other matter which the Management Committee
determines, pursuant to its unanimous vote, shall require the unanimous approval
of the Directors.
(c) The Joint Venture may require a Capital Contribution in
excess of the amounts set forth on SCHEDULE 2 (an "Additional Capital
Contribution") from each Member to be used solely for the purposes of
maintaining the Seaworthiness of the Vessel or for items of necessity to
continue the Present Operations of the Joint Venture if at least 2 of the
Directors determine that such Additional Capital Contribution is required for
such purpose. In the event that at least 2 but fewer than all of the Directors
vote to require such Additional Capital Contribution, the Director or Directors
who vote against such action (the "Opposed Directors") may require that such
decision (the "Capital Call Decision") be submitted to arbitration pursuant to
Article 13 of the Opposed Directors dispute whether the Additional Capital
Contribution is required (or the amount that is required) to maintain the
Seaworthiness of the Vessel or for items of necessity to continue the Present
Operations of the Joint Venture. If the Arbitration Tribunal (as defined in
Article 13) finds that the Additional Capital Contribution is required for
either Seaworthiness or for items of necessity to continue Present Operations,
the Member represented by the Opposed Directors shall have a period of 120 days
to remit such Additional Capital Contribution to the Joint Venture together with
interest at the Default Rate or to be treated as a Defaulting Member. In the
event such party fails to make such Additional Capital Contribution within the
120-day period, the non-defaulting Member(s) may elect any of the options under
Article 5.5 with respect to the Defaulting Member's Additional Capital
Contribution, may purchase the Defaulting Member's Interest pursuant to Article
8.3 or dissolve the Joint Venture pursuant to Article 8.2. During the period
between the date such Additional Capital Contribution is demanded and the
expiration of the 120-day period, the Member(s) who do(es) not dispute the
Additional Capital Contribution may, but shall not be required to, make a Member
Loan to the Joint Venture in the amount of the other Member's Additional Capital
Contribution, which Member Loan shall bear interest at the Reference Rate until
the Arbitration Tribunal has rendered its award. In the event that the
Arbitration Tribunal determines that the Additional Capital Contribution was not
required, the Joint Venture shall refund any Member Loan to the Member(s) who
made such Member Loan without interest and refund any Additional Capital
Contributions made in response to the Capital Call Decision. In the event that
such decision supports such Additional Capital Contribution, the interest rate
on any Member Loan shall increase on the day that the Arbitration Tribunal has
rendered its award to the Default Rate.
4.5 Intentionally Deleted.
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4.6 CHIEF EXECUTIVE OFFICER.
(a) Except as limited by Articles 4.7 and 4.10(c), the Chief
Executive Officer (the "CEO") shall have such authority and power as shall be
delegated to him by the
(b) Management Committee, including management of the Joint
Venture's day-to-day operations, in a manner consistent with the Business Plan
and then current Budget.
(c) Mr. Frederick Mayer shall be the initial CEO of the Joint
Venture and shall serve at the discretion of the Management Committee. The CEO
may also serve as an executive officer or employee of one of the Members or an
Affiliate thereof.
(d) Subject to Articles 4.2, 4.4, 4.7 and 4.10(c), the CEO
will be responsible for and have the authority, discretion, and primary
responsibility in managing the staff and the day-to-day operations of the Joint
Venture, including:
(i) Implementing the Business Plan and Budget as
approved by the Management Committee;
(ii) Making any immaterial changes to or taking
actions which would constitute an immaterial deviation from, an approved
Business Plan or approved Budget;
(iii) Operating and managing the Business;
(iv) Preparing, on an annual basis, proposed
revisions to the Business Plan and Budget for submission to the Management
Committee for approval;
(v) Authorizing the Joint Venture to enter into
transactions up to $100,000 for any transaction or series of related
transactions;
(vi) The delegation of powers and authorities to the
Executive Officers consistent with the other provisions of this Agreement; and
(vii) Ensuring that the Joint Venture complies with
all applicable legal requirements.
4.7 EXECUTIVE OFFICERS.
(a) The Management Committee shall appoint such other officers
as it deems appropriate (the "Executive Officers"). An Executive Officer may
also be an officer or employee of one of the Members or an Affiliate.
(b) While on board the Vessel, all Executive Officers shall
comply with the directions of the captain of the Vessel (the "Captain") as to
matters relating to Vessel Rules.
4.8 BUSINESS PLAN. The Business Plan is hereby approved by the Members
and consists of a pre-operation business plan from October 1, 1999 to December
22, 1999, and an operational business plan from December 23, 1999 to September
30, 2000. The CEO shall submit to the Management Committee proposed revisions to
the Business Plan not less frequently than annually, at least 60 days prior to
the start of each fiscal year covered by such Business Plan. Each such Business
Plan shall be considered at the first meeting of the Management Committee
following its submissions and shall be subject to the approval of a majority of
the Directors.
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4.9 BUDGET APPROVAL.
(a) The Initial Budget is hereby approved by the Members.
(b) The CEO shall include a proposed budget for the Joint
Venture (the "Budget") for the fiscal year commencing October 1, 2000 in his
submission of the revised Business Plan. The Budget shall include an income
statement, balance sheet, and capital budget prepared consistently with the
Joint Venture's method of accounting, for the forthcoming fiscal year and a cash
flow statement which shall show in reasonable detail the anticipated receipts
and disbursements (including anticipated distributions) projected for the Joint
Venture for the forthcoming fiscal year and the amount of any corresponding cash
deficiency or surplus, and the amount and due dates of any proposed Additional
Capital Contributions. The Budget shall be prepared on a basis consistent with
the Joint Venture's financial statements and shall be prepared in accordance
with the provisions of this Agreement.
(c) Each Budget shall be considered at the first meeting of
the Management Committee following its submission and shall be subject to the
approval of a majority of the Directors.
(d) Each Budget shall also include a detailed explanation of
the proposed related party charges for corporate overhead or services proposed
to be charged by any Member in connection with services to be provided by such
Member and/or its Affiliates to the Joint Venture.
(e) Without the unanimous approval of the Directors, a Budget
shall not include a requirement for Additional Capital Contributions.
(f) If for any fiscal year no new Budget is agreed upon and
approved, then the Joint Venture will be managed in a manner consistent with the
Operations for the prior fiscal year, as adjusted by the CEO to reflect the
Joint Venture's contractual obligations for the year and other items of
necessity for the Joint Venture to conduct its Present Operations.
Notwithstanding anything to the contrary in this Agreement, a failure by the
Management Committee to approve any Budget shall not be subject to arbitration
under Article 13 hereof.
4.10 EMPLOYEES AND EMPLOYEE BENEFITS.
(a) GENERALLY. The CEO shall determine, or shall delegate
authority to others to determine, how many people will be required for the
operation of the Joint Venture and which personnel shall be hired by the Joint
Venture, in accordance with the Business Plan and Budget and subject to
arrangements under Article 4.11. Except for personnel who are employees of a
Member and who are appointed by such Member to work for the Joint Venture and
for Executive Officers who also are employees of a Member or an Affiliate
thereof, unless otherwise agreed to, all Joint Venture personnel will be
employees of the Joint Venture and not of any Member. In the event that the
Joint Venture hires an employee of a Member, such Member shall indemnify the
Joint Venture against any claims that the transfer of that employee amounted to
a termination of employment.
(b) Notwithstanding anything contained in this Article 4.10,
while on board the Vessel all personnel (including casino employees) shall
comply with the directions of the Captain of the Vessel as to matters relating
to Vessel Rules.
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4.11 ARRANGEMENTS WITH MEMBERS OR AFFILIATES.
(a) If the Management Committee decides that any services
should be provided by a contractor rather than by the Joint Venture, the
Management Committee shall request from one or more Members a bona fide written
offer for such a contract. Unless otherwise provided in the Agreement, if any
Member or any Affiliate of a Member elects to bid for any such contract, the
Management Committee may, by unanimous approval, award a contract to the bidding
Member or Affiliate of a Member if that bid is in the Joint Venture's best
interest. In making the determination as to services to be provided by a
contractor and/or by the Members, the Management Committee shall be guided by
Article 3 hereof and shall not award a contract for any type of services already
being provided to the Joint Venture by a Member pursuant to a corporate overhead
allocation.
(b) Subject to Article 4.11(a), the Joint Venture may enter
into contracts with a Member or any of its Affiliates provided that any such
transaction shall be on terms no more favorable to the Member than those
afforded to unrelated third parties. The validity of any transaction, agreement
or payment involving the Joint Venture and a Member or any Affiliate of Member
shall not be affected by reason of the relationship between the Joint Venture
and a Member or such Affiliate of a Member.
4.12 DUTY OF MEMBERS TO COOPERATE. Each Member will, to the extent
permitted by applicable law, furnish such information, execute such applications
and similar documents as are required by any Government Body, and take such
other actions as may be reasonably requested by the Management Committee and as
may be necessary or reasonably desirable in connection with the Business.
4.13 INSURANCE AND RISK MANAGEMENT. As long as the premiums and other
terms remain advantageous to the Joint Venture, the property and casualty
insurance program for the Joint Venture (including the insurance for the Vessel)
shall be integrated into the insurance program of Commodore. Each Member hereby
consents and agrees that the Joint Venture shall compensate Commodore for an
agreed-upon budgeted amount for insurance premiums and related expenses. Said
insurance shall comply with the requirements of the Joint Venture Charter. The
Joint Venture and each Member shall be named as additional assureds under that
program.
4.14 LIMITATIONS ON MEMBER'S AUTHORITY. No Member shall have the right
to bind the Joint Venture or act on behalf of the Joint Venture by virtue of
such Member's ownership of an Interest, it being the intention of the Members
that the Joint Venture be managed by the Management Committee and the Executive
Officers, including the CEO, appointed by such Management Committee.
ARTICLE 5
CAPITAL CONTRIBUTIONS
5.1 INITIAL CAPITAL CONTRIBUTIONS. Each Member shall make a Capital
Contribution to the Joint Venture in cash, in installments pursuant to the
funding schedule, as set forth on SCHEDULE 2 hereto. Upon receipt of each such
Capital Contribution, the Joint Venture shall credit each Member's Capital
Account with the amount of such Member's Capital Contribution. Prior
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to the execution of this Agreement, each of Commodore and Proturo had
contributed * to the Joint Venture. Upon execution of this Agreement, Viejas
shall contribute * to the Joint Venture, and each of Commodore and Proturo shall
contribute an additional * to the Joint Venture. The balance of the Capital
Contributions (the "Subsequent Capital Contributions") shall be paid as provided
in SCHEDULE 2 hereto. In the event Proturo is unable to contribute any or all of
the Subsequent Capital Contributions, *. The Subsequent Capital Loan shall be
repaid, to the extent funds are available, as described in Article 6.2(a)(ii);
provided, however, that in the event distributions under Article 6.2(a)(ii) are
insufficient to repay such loan, according to its terms, the balance of any such
loan, if and only if, made within two years after the date hereof, shall not
become due until * years after the date of this Agreement (the "Deferral Date"),
at which time such loan shall be due and payable in full. Amounts deferred until
the Deferral Date pursuant to this Article 5.1 shall not be deemed past due.
5.2 ADJUSTMENTS TO CAPITAL ACCOUNTS.
(a) GENERALLY. Subject to Article 5.1, each Member's Capital
Account shall be increased by:
(i) the amount of money contributed by it or on its
behalf to the Joint Venture;
(ii) the fair market value of any property
contributed by it to the Joint Venture (net of any liabilities secured by such
contributed property that the Joint Venture is considered to assume or take
subject to under Code /section/752); and
(iii) allocations to it of profit and other items of
book income and gain, including income and gain exempt from tax and income and
gain described in Treas. Reg. 1.704-1(b)(2)(iv)(g), but excluding income and
gain described in Treas. Reg. 1.704-1 (b)(4)(i);
and shall be decreased by:
(iv) the amount of money distributed to it by the
Joint Venture;
(v) the fair market value of property distributed to
it by the Joint Venture (net of liabilities secured by such distributed property
that such Member is considered to assume or take subject to under Code
/section/752); and
(vi) allocations of loss and other items of book
loss, including items of loss and deduction described in Code /section/
705(a)(2)(B) and Treas. Reg. /section/1.7041(b)(2)(iv)(g), but excluding items
described in Treas. Reg. /sections/1.704-1 (b)(4)(i) or (b)(4)(iii), and shall
otherwise be adjusted in accordance with the additional rules set forth in
Treas. Reg. /section/1.704-1(b)(2)(iv).
(b) CERTAIN ADJUSTMENTS TO CAPITAL ACCOUNTS. If the book
values of Joint Venture assets are adjusted pursuant to Treas. Reg.
/section/1.704-1(b), the Capital Accounts of all the Members shall be adjusted
simultaneously to reflect the allocations of gain or loss that would be
allocated among the Members if there were a taxable disposition of the Joint
Venture's property for its fair market value. If any assets of the Joint Venture
are to be distributed in kind, such
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* Marked text omitted pursuant to an application for an order for
confidential treatment by Commodore Holdings Limited.
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assets shall be distributed on the basis of their fair market values after the
Members' Capital Accounts have been adjusted to reflect the manner in which any
unrealized gain and loss with respect to such assets (that has not been
reflected in the Capital Accounts previously) would be allocated among the
Members if there were a taxable disposition of the property for its fair market
value.
(c) DEFINITION OF ADJUSTED CAPITAL ACCOUNT. As used in this
Agreement, "Adjusted Capital Account" means, with respect to each Member, such
Member's Capital Account as determined under the preceding provisions of this
Article 5.2, increased by such Member's share of Joint Venture minimum gain and
minimum gain attributable to partnership nonrecourse debt as determined under
Treas. Reg. /section/1.704-2.
5.3 ADDITIONAL CAPITAL CONTRIBUTIONS. Subject to Article 4.4(c), if all
of the Directors determine from time to time that additional cash is needed by
the Joint Venture for the payment of the debts and obligations of the Joint
Venture relating to the Vessel or otherwise for the carrying on of the Business,
then upon call of the Management Committee, each Member shall contribute as an
Additional Capital Contribution in accordance with its Percentage Interest, the
amount of cash determined by the Management Committee to be needed for such
purposes.
5.4 PROCEDURE FOR MAKING CAPITAL CALLS BY THE MANAGEMENT COMMITTEE.
Subject to Article 4.4(c), all calls for Additional Capital Contributions
pursuant to Article 5.3: (a) shall have been unanimously approved by the
Management Committee, (b) shall be in writing delivered to each Member, (c)
shall state the aggregate amount of funds needed by the Joint Venture, the
expected use or uses of such funds, and the amount of each Member's
proportionate share of such capital contribution, and (d) shall specify the date
on which the capital contribution is to be made, which shall in no event be
sooner than 60 days following the Member's receipt of the written call.
5.5 FAILURE OF MEMBER TO CONTRIBUTE CAPITAL. If a Member (the "Debtor
Member") fails to make an Additional Capital Contribution within 30 days after
such contribution is due under the procedures set forth in Article 5.4, the
other Member(s) (the "Non-Debtor Members") may exercise one or more of the
following remedies:
(a) ASSIST DEBTOR MEMBER. Assist the Debtor Member in securing
third-party financing for the Additional Capital Contribution.
(b) SET-OFFS. Cause the Joint Venture to set-off against any
distributions otherwise due from the Joint Venture to the Debtor Member the
amount of capital due the Joint Venture from the Debtor Member, and apply such
amount to such capital contribution required to be made by the Debtor Member.
(c) LOAN BY THIRD PARTY. Cause the Joint Venture to borrow
from a third party the amount otherwise due from each Member without the consent
of the Debtor Member or its representative Directors in lieu of an Additional
Capital Contribution by any Member.
(d) LOAN TO DEBTOR MEMBER. Loan the Debtor Member the amounts
required to meet the Additional Capital Contribution requirements. During the
first * years of this Agreement, *. Any loan made under such circumstances (a
"Capital Call Loan") shall have the same terms as *.
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* Marked text omitted pursuant to an application for an order for
confidential treatment by Commodore Holdings Limited.
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(e) REFUSE TO MAKE CAPITAL CONTRIBUTION. Refuse to make any
Additional Capital Contributions without being in default of any provision of
this Agreement.
(f) EFFECT OF SET-OFF. In the event the Joint Venture
exercises any right to set off any amount against any distribution otherwise
payable to any Member, the amount set off shall be deemed to have been
distributed to the Member and contributed by the Member to the Capital of the
Joint Venture.
5.6 NO THIRD PARTY BENEFICIARIES. The rights of the Joint Venture, or
any Member, to require Additional Capital Contributions under the terms of this
Agreement are not intended to, and do not, confer any rights or benefits to or
upon any Person who is not a party to this Agreement other than the Joint
Venture itself.
5.7 NO WITHDRAWAL OF, OR PAYMENT OF INTEREST ON, CAPITALS ACCOUNTS. No
Member shall have any right to withdraw or make a demand for withdrawal of all
or any portion of such Member's capital (or the amount, if any, reflected in
such Member's Capital Account). No interest or additional share of profits shall
be paid or credited to the Members on their Capital Accounts, or on any
undistributed profits or funds left on deposit with the Joint Venture; provided,
however, that nothing contained in this Agreement shall be construed to prevent
or prohibit the payment of interest on account of loans by Members.
5.8 OBLIGATION TO RESTORE. Upon liquidation of the Joint Venture (or
any Member's interest in the Joint Venture), a Member which has a deficit
balance in its book Capital Account following the liquidation of its interest in
the Joint Venture after taking into account all capital account adjustments for
the Joint Venture's taxable year during which such liquidation occurs need not,
except as otherwise provided by law, restore the amount of such deficit balance
to the Joint Venture or to any other Member.
ARTICLE 6
ALLOCATIONS, DISTRIBUTIONS, ACCOUNTING AND TAX MATTERS
6.1 ALLOCATIONS. The allocations of profits and losses shall be as set
forth in SCHEDULE 4 hereto.
6.2 DISTRIBUTIONS AND RESERVES.
(a) CASH DISTRIBUTIONS. Unless otherwise determined by the
Management Committee and except as reserved against in accordance with
Subsection (b) below, the Net Cash Flow realized in any fiscal quarter shall be
distributed within 60 days after the end of such quarter, as follows:
(i) PAY VESSEL PRE-OPERATING FEES. First, to the
Owner, to pay Vessel Pre-Operating Fees, until such Vessel Pre-Operation Fees,
including accrued interest, have been paid in full;
(ii) REPAY MEMBER LOANS. Second, to repay any
principal and interest on loans to the Joint Venture by Members ("Member
Loans"); and
(iii) THE BALANCE. Finally, to the Members in
accordance with their respective Percentage Interests; PROVIDED, HOWEVER, that
at any time when there is a Subsequent
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Capital Loan, Capital Call Loan, Pier Loan or Guaranty Loan outstanding,
* of all distributions and Proturo Fees to be paid to Proturo shall be applied
toward principal and interest outstanding on the loan or loans. Such amounts
shall be paid * to Commodore and * to Viejas.
(b) RESERVES. The Joint Venture shall establish reserves for:
(i) Federal income taxes (the "Tax Reserve") to be
held by the Joint Venture and distributed in accordance with Article 6.2(d). The
Tax Reserve for any fiscal period shall be determined by multiplying the
reasonably estimated federal taxable income of the Joint Venture by 40%. In
determining such federal taxable income, the fact that any Member may not be
taxable on that Member's share of such income (e.g., because that Member may be
exempt from tax on such income under Article 883(a) of the Code, or because that
Member has losses from other sources to offset such income), shall not be taken
into account. The Tax Reserve shall be paid to the Members in accordance with
their respective Percentage Interests (even if different from their respective
percentage of Joint Venture taxable income); and
(ii) Contingent or unforeseen obligations, debts or
liabilities of the Joint Venture which may be deemed reasonably necessary in the
opinion of the Management Committee;
(iii) Amounts required by any contracts or agreements
of the Joint Venture; and
(iv) Such other purposes as the Management Committee
may decide.
(c) PRIORITY AND DISTRIBUTION OF PROPERTY. Except as expressly
provided in this Agreement, no Member shall have priority over any other Member
as to the return of capital, allocation of income or losses, or distributions of
cash or any other distributions. No Member shall have the right to demand or
receive property other than cash for its Capital Contributions to the Joint
Venture or in payment of its share of cash or other distributions.
(d) DISTRIBUTION OF TAX RESERVE. Within 60 days after the end
of each Joint Venture fiscal year during which a Tax Reserve has been created,
the Joint Venture shall distribute such Tax Reserve (less any amounts withheld
pursuant to Articles 1441, 1442, 1445 or 1446 of the Code, unless otherwise
provided in Article 6.2(g)) to the Members, such distribution to be allocated
among the Members based on each Member's Percentage Interest.
(e) ADDITIONAL DISTRIBUTION PROVISIONS. Upon liquidation of
any Member's Interest in the Joint Venture, liquidating distributions shall be
made in accordance with Article 8.7.
(f) FOREIGN MEMBERS. If the Joint Venture withholds any income
tax with respect to any foreign Member pursuant to Articles 1441, 1442, 1445 or
1446 of the Code or pursuant to applicable Mexican tax laws, the Joint Venture
will, at its option, either (x) require the foreign Member to repay such amount
to the Joint Venture within 45 days thereafter; or (y) offset any distributions
otherwise payable to the foreign Member by the amount of such payments.
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* Marked text omitted pursuant to an application for an order for
confidential treatment by Commodore Holdings Limited.
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6.3 ACCOUNTING MATTERS. The Members shall cause to be maintained
complete books and records accurately reflecting the accounts, business and
transactions of the Joint Venture, on a September 30th fiscal-year basis and in
accordance with GAAP; provided, however, that books and records with respect to
the Joint Venture's Capital Accounts and allocations of income, gain, loss,
deduction or credit (or item thereof) shall also be kept under U.S. federal
income tax accounting principles as applied to partnerships on the same fiscal
year as Commodore's. Commodore shall perform such services for the Joint Venture
and charge the Joint Venture for such services pursuant to the overhead
allocation in the Budget.
6.4 TAX STATUS AND RETURNS.
(a) Any provision hereof to the contrary notwithstanding,
solely for United States federal income tax purposes, each of the Members hereby
recognizes that the Joint Venture will be subject to all provisions of
Subchapter K of Chapter 1 of Subtitle A of the Code; provided, however, the
filing of U.S. Partnership Returns of Income shall not be construed to extend
the purposes of the Joint Venture or expand the obligations or liabilities of
the Members.
(b) The Members shall prepare or shall direct such other
Person to prepare or cause to be prepared all tax returns and statements, if
any, that must be filed on behalf of the Joint Venture with any taxing authority
and shall make timely filing thereof. Further, the Members shall prepare or
shall direct such other Person to prepare or cause to be prepared all tax
statements, if any, that must, by law, be provided to any Member, employee or
other Person and shall timely deliver such statements to such Persons. Within 90
days after the end of each fiscal year, the Members or such other Person as the
Members may direct shall prepare or cause to be prepared and delivered to each
Member a report setting forth in reasonable detail the information with respect
to the Joint Venture during such calendar year reasonably required to enable
each Member to prepare its federal, state and local income tax returns in
accordance with applicable law then prevailing.
6.5 TAX MATTERS MEMBER.
(a) The Tax Matters Member of the Joint Venture within the
meaning of Section 6231(a)(7) of the Code shall be Commodore. Unless otherwise
expressly provided herein or in the Code and the regulations issued thereunder
(or the laws of other relevant taxing jurisdictions), the Tax Matters Member is
authorized to take any action for or on behalf of the Joint Venture that it
determines to be necessary or appropriate with respect to all tax matters.
Notwithstanding the foregoing, the Tax Matters Member shall take no action for
or on behalf of the Joint Venture, except as emergency situations may dictate,
without the prior agreement of all the Directors.
(b) The Tax Matters Member shall promptly advise the other
Members of all audits or other actions by the Internal Revenue Service and shall
furnish to the Joint Venture and to each Member a copy of each notice or other
communication received by the Tax Matters Member from the Internal Revenue
Service except such notice or communication sent directly to the Members by the
Internal Revenue Service. All reasonable expenses incurred by the Tax Matters
Member in its capacity as such shall be expenses of the Joint Venture and shall
be paid by the Joint Venture. Such fees must be approved in advance by Proturo
and Viejas, which consent shall not be unreasonably withheld.
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(c) To the fullest extent permitted by law, the Joint Venture
shall indemnify the Members on an after-tax basis against any liabilities
incurred while acting as the Tax Matters Member of the Joint Venture but only to
the extent such Member acts within the scope of its authority as Tax Matters
Member under this Agreement. The Tax Matters Member shall not be indemnified
against any liability regarding Joint Venture tax matters arising by reason of
the willful misconduct, bad faith, gross negligence or reckless disregard of the
duties of the Tax Matters Member.
(d) No Member shall file a notice with the Internal Revenue
Service under Section 6222(b) of the Code in connection with such Member's
intention to treat an item on such Member's federal income tax return in a
manner that is inconsistent with the treatment of such item on the Joint
Venture's federal income tax return unless such Member has, not less than 30
days prior to the filing of such notice, provided the other Member with a copy
of the notice and thereafter in a timely manner provides such other information
related thereto as the other Member shall reasonably request.
6.6 754 ELECTION. In the event of a distribution of property to a
Member or a transfer of any interest in the Joint Venture permitted under the
Act or this Agreement, the Joint Venture, upon the written request of the
transferor or transferee, shall file a timely election under section 754 of the
Code and the Income Tax Regulations thereunder to adjust the basis of the Joint
Venture's assets under Section 734(b) or 743(b) of the Code and a corresponding
election under the applicable provisions of state and local law, and the Person
making such request shall pay all costs incurred by the Joint Venture in
connection therewith, including reasonable attorneys' and accountants' fees.
6.7 MEMBERSHIP CLASSIFICATION. The Joint Venture shall be treated as a
partnership for federal tax purposes and shall not elect, under Section
301.7701-3 of the Income Tax Regulations, to be taxed as an association.
ARTICLE 7
TRANSFER OF INTERESTS; ADMISSION AND RESIGNATION OF MEMBERS
7.1 TRANSFER OF INTERESTS. Except as set forth in this Article 7, no
Member may transfer all or any portion of its Interest in the Joint Venture to
any Person or another Member, unless all Members approve the transfer in
writing. Any involuntary transfer or transfer by operation of law of any portion
of a Member's Interest in the Joint Venture shall also constitute a prohibited
transfer unless all Members approve the transfer in writing. Any transfer of all
or any portion of a Member's Interest in the Joint Venture, in violation of this
Article (other than an involuntary transfer or a transfer by operation of law),
shall be null, void and of no effect. In the event that all or any portion of a
Member's Interest is transferred involuntarily or by operation of law, the
transferee of such Interest shall not be a Member unless and until admitted to
Membership in accordance with the provisions of Article 7.5 and shall, until
such time, be considered merely an assignee of Economic Interests (as hereafter
defined). Notwithstanding the foregoing, any pledge, hypothecation or grant of a
security interest in any Interest shall not require the consent of any Members
and shall not violate this Article 7. The pledge or granting of a security
interest, lien or other encumbrance in or against all or any part of a Member's
Interest shall not cause the Member to cease to be a Member. Upon foreclosure or
sale in lieu of foreclosure of any such security interest, the secured party
will be entitled to receive allocations
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and distributions from the Joint Venture as to which a security interest has
been granted by such Member ("Economic Interests"). In no event will any secured
party be entitled to exercise any rights under this Agreement, and such secured
party may look only to such Member for the enforcement of any of its rights as a
creditor. In no event will the Joint Venture have any liability or obligation to
any Person by reason of the Joint Venture's payment of a distribution to any
secured party as long as the Joint Venture makes such payment in reliance upon
written instructions from the Member to whom such distributions would otherwise
be payable. Any secured party will be entitled, with respect to the security
interest granted, only to the distributions to which the assigning Member would
be entitled under this Agreement, and only if, as and when such distributions
are made by the Joint Venture. Neither the Joint Venture nor any Member will owe
any fiduciary duty of any nature to a secured party. Reference to any secured
party includes any assignee or successor-in-interest of such Person.
7.2 RIGHT OF FIRST REFUSAL.
(a) Each of Commodore, Proturo and Viejas shall have a right
of first refusal with respect to the other Members' Interests in the Joint
Venture (which right shall include the ability to assign such right to a
purchaser preferred by the other Members). If any Member proposes to sell or
transfer to any Person all or any portion of its Interest in one or more related
transactions (the "Proposed Sale"), then, at least 45 days prior to the proposed
closing (the "Sale Closing") of such sale or transfer, such Member (the
"Seller") shall promptly give written notice (the "Notice") to the Joint Venture
and to the other Members (the "Non-Selling Members") of such proposed sale or
transfer. The Notice shall describe in reasonable detail the Proposed Sale,
including, without limitation, the Percentage Interest to be sold, transferred
or issued (the "Percentage Interest To Be Sold"), the nature of such sale,
transfer or issuance, the consideration to be paid, and the name and address of
each prospective purchaser or transferee. Notwithstanding the foregoing,
Proturo's right of first refusal shall only be valid at a time when there is no
Subsequent Capital Loan, Capital Call Loan, Pier Loan or Guaranty Loan
outstanding or, if such a loan or loans is outstanding, when Proturo's exercise
of its right of first refusal is conditioned upon repayment of any Subsequent
Capital Loan, Capital Call Loan, Pier Loan or Guaranty Loan in full (whether by
Proturo or by a third party) concurrently with the closing of the sale of the
Proposed Sale.
(b) The Non-Selling Members shall have the right, on a pro
rata basis, exercisable upon written notice to the Seller within 30 days after
receipt of the Notice, to purchase a portion of the Percentage Interest To Be
Sold on the same terms and conditions of the Proposed Sale.
(c) In the event the Non-Selling Members either individually
or together decline to purchase the Percentage Interest To Be Sold, the Seller
may consummate the Proposed Sale with the third party.
(d) Notwithstanding anything to the contrary herein, the
Seller may not consummate a Proposed Sale to a Person if any Non-Selling Member
objects to such Person and the objection is based on a reasonable concern.
7.3 EXEMPT TRANSFERS. Notwithstanding the foregoing, the first refusal
rights of the Members shall not apply to (i) any pledge of Percentage Interests
made pursuant to a bona fide loan transaction that creates a mere security
interest (as described in Article 7.1); (ii) transfers occurring subsequent to
the 2 year anniversary date of the execution of this Agreement of any
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Member's entire Interest to an Affiliate, provided the transferring Member has
provided prior written notice to the other parties hereto of such transfer, and
such transferee has agreed to be bound by the terms hereof; (iii) the Joint
Venture; (iv) to a Person approved by all of the Members; or (v) another Person
as part of a merger, reorganization, consolidation or sale of all or
substantially all of the assets of Proturo, Commodore or Viejas, where such
Person is the surviving entity provided that such Person is not objectionable as
provided in Article 7.2(d) above. Such transferred Percentage Interests shall
remain "Percentage Interests" hereunder.
7.4 LEGEND.
(a) Each certificate representing Percentage Interests now or
hereafter owned by the Members or issued to any Person in connection with a
transfer pursuant to Article 7.3 hereof shall be endorsed with the following
legend:
"THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT
TO THE TERMS AND CONDITIONS OF A CERTAIN AGREEMENT
AMONG THE INITIAL HOLDER OF THE SECURITIES, THE JOINT
VENTURE AND CERTAIN MEMBERS OF THE JOINT VENTURE.
COPIES OF SUCH AGREEMENT MAY BE OBTAINED BY BONA FIDE
PROSPECTIVE PURCHASERS OR PLEDGEES UPON WRITTEN
REQUEST TO THE SECRETARY OF THE JOINT VENTURE AND
AGREEMENT TO KEEP THE CONTENTS THEREOF CONFIDENTIAL."
(b) Under no circumstances shall any transfer of any Interests
subject hereto be valid until the proposed transferee thereof shall have
executed and become a party to this Agreement and thereby shall have become
subject to all of the provisions hereof; and notwithstanding any other
provisions of this Agreement, no transfer of any kind shall in any event result
in the non-applicability of the provisions hereof at any time to any of the
Percentage Interests subject hereto.
(c) The Joint Venture may instruct its transfer agent to
impose transfer restrictions on the Percentage Interests represented by
certificates bearing the legend referred to in Article 7.4(a) above to enforce
the provisions of this Agreement and the Joint Venture agrees to promptly do so.
The legend shall be removed upon termination of this Agreement.
7.5 ADMISSION OF NEW MEMBERS.
(a) Subject to this Article and to the Act, no Person shall be
admitted as a Member of the Joint Venture unless all the Directors shall have
unanimously approved the admission of such Person as a new Member and shall have
agreed in writing upon the amendments, if any, to be made to this Agreement as a
result of such admission.
(b) Upon the admission of a new Member in accordance with the
Act and this Agreement, there shall be a special closing of the books solely for
the purpose of determining the value of the Joint Venture's investments on such
date by whatever method the existing Members,
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in their sole and absolute discretion, consider reasonable, and the Capital
Accounts of the existing Members shall be adjusted accordingly. After such
adjustment, the Joint Venture shall establish a Capital Account which shall be
credited with the Capital Contribution of the new Member.
(c) Notwithstanding the foregoing, without the prior approval
of Proturo, Commodore and Viejas, the Joint Venture shall not sell additional
Interests in the Joint Venture to any other person or dilute or otherwise change
the Percentage Interests of any of Commodore, Proturo or Viejas in the Joint
Venture except as a result of a default on a Capital Call Loan or the transfer
of any Member's Interest in the Joint Venture as described herein.
7.6 RESIGNATION OF MEMBERS. No Member may resign or withdraw from the
Joint Venture without the prior express written consent of all the other
Members.
ARTICLE 8
DISSOLUTION/MANDATORY SALE
8.1 NO DEFAULT DISSOLUTION. The Joint Venture shall be dissolved and
its affairs wound up in accordance with Article 8.5 hereof upon the first to
occur of the following:
(a) Upon the expiration of the term specified in Article 14.1
of this Agreement;
(b) Issuance of an order by a court of competent jurisdiction,
requiring the dissolution of the Joint Venture;
(c) *;
(d) *;
(e) *; or
(f) The written consent of all the Members.
8.2 DEFAULT DISSOLUTION. The Non-Defaulting Members, jointly but not
individually, may give notice to a Defaulting Member dissolving the Joint
Venture upon the occurrence of any one of the following events with respect to
the Defaulting Member (unless there is a Dispute with respect to whether a
Default has occurred and such Dispute has not yet been resolved pursuant to the
terms of this Agreement):
(a) any action or proceeding is commenced by the Defaulting
Member or its Parent Entity to wind up, dissolve, cancel its incorporation or
otherwise terminate its corporate existence; or
(b) any action or proceeding is commenced against the
Defaulting Member which seeks or requires the winding up, dissolution,
revocation or cancellation of its incorporation or other termination of its
corporate existence unless the action or proceeding is defended or contested in
good faith by the Defaulting Member within 30 days of the commencement of the
action or proceeding in a manner that stays the winding up, dissolution,
- --------
* Marked text omitted pursuant to an application for an order for
confidential treatment by Commodore Holdings Limited.
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revocation or cancellation of its incorporation or other termination of its
corporate existence and is pursued diligently thereafter; or
(c) the agreement of the Defaulting Member to sell, assign,
transfer or otherwise dispose of the whole or any part of its Interest in the
Joint Venture in contravention of the terms of this Agreement; or
(d) any Event of Default by the Defaulting Member pursuant to
Article 12.1, which has not been cured within the applicable cure period; or
(e) the Defaulting Member becomes bankrupt or seeks relief by
any proceedings of any nature under any laws of the United States or any state
for the relief of debtors; or
(f) the appointment of a receiver, receiver-manager, trustee,
custodian or like officer for all or a substantial part of the business or
assets of the Defaulting Member unless the appointment is defended or contested
in good faith by the Defaulting Member within 30 days of the commencement of the
appointment in a manner that stays the appointment and is pursued diligently
thereafter; or
(g) the institution against the Defaulting Member of a
proceeding under the Bankruptcy Reform Act of 1978, or any law of the United
States now in existence or hereafter enacted having the same general purpose
unless the proceeding is defended or contested in good faith by the Defaulting
Member within 30 days of the commencement of the proceeding in a manner that
stays the proceedings and is pursued diligently thereafter; or
(h) the Defaulting Member makes an assignment for the benefit
of its creditors; or
(i) if any execution, attachment, distress or other process of
any court is made or attached to the Interest of the Defaulting Member in the
Joint Venture unless the execution, attachment, distress or other process of any
court is stayed within 30 days of the commencement of the proceedings in a
manner that stays attachment, distress or other proceedings and is pursued
diligently thereafter;
(j) a breach by Proturo, Commodore or Viejas of the Guaranty,
which breach is not cured within 10 days of receipt of written notice from a
non-breaching party describing in reasonable detail the facts giving rise to the
breach; or
(k) any failure by the Defaulting Member to make any
Additional Capital Contribution pursuant to Article 4.4(c) within 120 days after
the Arbitration Tribunal has rendered its award pursuant to Article 13 that such
Additional Capital Contribution is required for Seaworthiness or for items of
necessity to continue the Present Operations or pursuant to Article 5.5 within
the period specified therein; provided, however, it shall not be an Event of
Default by Proturo if it fails to make an *, in the amount of such Additional
Capital Contribution, and Proturo has refused *.
8.3 MANDATORY SALE. Upon the occurrence of any of the events set out in
Article 8.2(a) through (k) with respect to a Member, as an alternative to giving
notice dissolving the
- --------
* Marked text omitted pursuant to an application for an order for
confidential treatment by Commodore Holdings Limited.
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Joint Venture, the Members entitled to dissolve the Joint Venture (in this
Article 8 referred to as the "Purchasing Member") may give notice to the other
Members (in this Article 8 referred to as the "Selling Member") requiring the
Selling Member to sell its Interest in the Joint Venture to the Purchasing
Member (on a pro rata basis) for the Purchase Price (as defined in Article 8.9)
and on the terms and conditions hereinafter provided.
8.4 NOTICE.
(a) NOTICE OF ELECTION TO DISSOLVE. The Member(s) electing to
dissolve the Joint Venture pursuant to Article 8.2, must give notice of
dissolution to the other Member(s) within 60 days of first acquiring actual
knowledge of the event or circumstances giving rise to the right of dissolution.
Following any such notice pursuant to Article 8.2 (unless there is a Dispute as
to the right to dissolve), the Member(s) who has(ve) received notice of
dissolution shall not be entitled to vote (or to have its (their) Directors
vote) with respect to any matter relating to the affairs of the Joint Venture
and shall be deemed to have given its (their) proxy to the Member(s) giving the
notice for all matters requiring the vote of the Members with respect to the
Joint Venture.
(b) NOTICE OF INTENTION TO BUY. The Purchasing Member under
Article 8.3 must give notice of its intention to buy the interest of the Selling
Member in the Joint Venture (the "Purchase Notice") within 60 days of the date
upon which the Purchasing Member first acquires actual knowledge of the
occurrence of the event or circumstances giving rise to the right to purchase.
Following such notice (unless there is a Dispute as to the existence of a right
to purchase), the Selling Member shall not be entitled to vote (or to have its
Directors vote) with respect to any matter relating to the affairs of the Joint
Venture and the Selling Member shall be deemed to have given its proxy to the
Purchasing Member for all matters requiring the vote of the Members with respect
to the Joint Venture.
8.5 DISSOLUTION PROCEDURES.
(a) GENERALLY. Unless there is a Dispute as to whether an
event causing a dissolution has occurred, promptly following the giving of
notice of dissolution of the Joint Venture:
(i) NO DEFAULT DISSOLUTION. Pursuant to Article 8.1,
the Members shall proceed to wind up the affairs of the Joint Venture in the
manner hereinafter provided; or
(ii) DEFAULT DISSOLUTION. Pursuant to Article 8.2,
the Member giving notice of dissolution shall wind up the affairs of the Joint
Venture in the manner hereinafter provided on behalf of the Members.
(b) USE OF BUSINESS OR SHIP BROKER. If the Business of the
Joint Venture is in operation, the parties shall consider retaining a business
or ship broker, and the Business of the Joint Venture shall be listed for sale
as a going concern. If an offer acceptable to the Members or the Non-Defaulting
Member, as the case may be, acting reasonably, has not been received within 120
days of listing the business for sale, then the assets of the Joint Venture
shall be sold and the Vessel subchartered in a piecemeal manner. The liquidation
of assets and the discharge of liabilities of the Joint Venture shall occur over
a reasonable time so as to minimize the losses which may otherwise be attendant
upon an immediate liquidation.
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(c) PAYMENTS OWED BY MEMBERS. Each Member shall immediately
pay to the Joint Venture all amounts owing to the Joint Venture, less any
amounts owed by the Joint Venture to the Member.
(d) CANCELLATION OF VESSEL CHARTER. The Joint Venture and
Commodore or its wholly owned subsidiary shall agree to cancel the charter of
the vessel. Such cancellation shall be without penalty to the Joint Venture
except that the Owner shall retain all amounts paid by the Joint Venture
pursuant to the Joint Venture Charter.
(e) DISTRIBUTIONS. During the course of liquidation, the
Members shall continue to share profits and losses as provided in Article 6 of
this Agreement, but there shall be no cash distributions to the Members until
the distribution pursuant to Article 8.7(d).
8.6 SETTLING OF ACCOUNTS. Subject to Section 18-801 of the Act, upon
the dissolution and liquidation of the Joint Venture, the proceeds of
liquidation shall be applied as follows: (a) first, to pay all expenses of
liquidation and winding up; (b) second, to pay all debts, obligations and
liabilities of the Joint Venture, in the order of priority as provided by law,
other than debts owing to the Members or on account of Members' contributions;
(c) third, to pay all debts of the Joint Venture owing to a Member; and (d) to
establish reasonable reserves for any remaining contingent or unforeseen
liabilities of the Joint Venture not otherwise provided for, which reserves
shall be maintained by the liquidator on behalf of the Joint Venture in a
regular interest-bearing trust account for a reasonable period of time as
determined by the liquidator. If any excess funds remain in such reserves at the
end of such reasonable time, then such remaining funds shall be distributed by
the Joint Venture to the Members pursuant to Article 8.7 hereof.
8.7 DISTRIBUTION OF PROCEEDS. Subject to Article 18-801 of the Act,
upon final liquidation of the Joint Venture, the net proceeds of liquidation
shall be distributed to the Members in the following order of priority:
(a) to creditors, including Members who are owed Member Loans
to the extent of any unpaid expenses or any outstanding loan or advance;
(b) to the Members in respect of the costs of winding up the
affairs of the Joint Venture, discharging the liabilities of the Joint Venture,
distributing the assets of the Joint Venture and dissolving the Joint Venture in
accordance with this Article 8;
(c) to the Members who are owed on a Subsequent Capital Loan,
Capital Call Loan, Pier Loan or Guaranty Loan to the extent of any outstanding
loan or advance;
(d) to the Members in the proportion of their respective
positive Capital Accounts as those accounts are determined after all adjustments
to such accounts for the taxable year of the Joint Venture during which the
liquidation occurs as are required by this Agreement and Treasury Regulations
/section/1.704-1(b), such adjustments to be made within the time specified in
such Treasury Regulations; and
(e) after each Member has received the amount in its Capital
Account, to the Members in proportion to their respective Percentage Interests.
8.8 CERTIFIED LIQUIDATION STATEMENT. The Members, in the event of a
liquidation of the Joint Venture following dissolution pursuant to Article 8.1,
or the Non-Defaulting Members, in the event of a liquidation of the Joint
Venture following dissolution pursuant to Article 8.2,
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shall cause the independent auditors of the Joint Venture to prepare a certified
liquidation statement of the Joint Venture which shall contain:
(i) a summarized statement of receipts and
disbursements;
(ii) a statement of the debts and liabilities of the
Joint Venture owing to each Member;
(iii) a determination of the Capital Account of each
Member;
(iv) an allocation among the Members of all gains or
losses realized on the liquidation of the property and assets of the Joint
Venture; and
(v) an allocation of any tax benefits among the
Members.
Each Member agrees to prepare its financial statements and to prepare and file
all tax returns required to be filed by it in accordance with the liquidation
statement prepared by the independent auditors of the Joint Venture.
8.9 MANDATORY SALE PROCEDURES.
(a) AMOUNT. The Purchase Price payable by the Purchasing
Member for the Interest of the Selling Member in the Joint Venture (the
"Purchase Price") shall be an amount equal to 100% of the net book value of the
Selling Member's Interest in the Joint Venture as determined pursuant to GAAP as
of the date of the Purchase Notice ("Book Value") and paid in equal quarterly
installments over a period of five years commencing on the Closing Date, plus
interest on such amount from the Closing date at the Reference Rate.
(b) CLOSING -- GENERALLY. The purchase and sale of the Selling
Member's Interest in the Joint Venture shall be consummated (the "Closing") at
the office of the Purchasing Member's counsel, on the date which is 30 days
following the receipt by the Selling Member of the Purchaser Notice.
(c) CLOSING -- SELLING MEMBER DELIVERIES. At the Closing, the
Selling Member shall deliver to the Purchasing Member the following duly
executed documentation, in form acceptable to the purchasing Member acting
reasonably:
(i) an assignment of its Interest in the Joint
Venture;
(ii) the resignation of each of its designees as
Directors of the Management Committee and as Executive Officers of the Joint
Venture;
(iii) a representation and warranty by the Selling
Member that its Interest in the Joint Venture is free and clear of all liens,
mortgages, pledges, charges, security interests, restrictions or encumbrances
whatsoever, which representation and warranty shall survive Closing and shall
continue forever;
(iv) a general release of all claims against the
Joint Venture or the Purchasing Member by the Selling Member in respect of the
Joint Venture except for claims arising from the unauthorized actions of the
Purchasing Member in respect of the Joint Venture which have not been disclosed
to the Selling Member; and
(v) such other documentation as the attorneys for the
Purchasing Member may require, acting reasonably, in order to vest in the
Purchasing Member full right, title and interest in and to the Interest of the
Selling Member in the Joint Venture and to reflect
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the assignment and transfer of the interest of the Selling Member in all of the
underlying assets of the Joint Venture, including, without limitation, the
interest in the Vessel.
(d) CLOSING -- PURCHASING MEMBER DELIVERIES. At the Closing,
the Purchasing Member shall pay the Selling Member the Purchase Price for the
Interest of the Selling Member in the Joint Venture by means of immediately
available funds for the cash portion of the Purchase Price and by means of a
promissory note with respect to the deferred portion of the Purchase Price and
the Purchasing Member shall deliver to the Selling Member the following duly
executed documentation in a form acceptable to the Selling Member, acting
reasonably:
(i) an indemnity of the Joint Venture and the
Purchasing Member indemnifying the Selling Member against any claims arising
from the conduct of the business of the Joint Venture from and after the time of
Closing; and
(ii) a general release of all claims against the
Selling Member by the Joint Venture or the Purchasing Member in respect of the
Joint Venture except for claims arising from the unauthorized actions of the
Selling Member in respect of the Joint Venture which have not been disclosed to
the Purchasing Member.
(e) At the Closing, the Selling Member shall repay to the
Joint Venture or the Purchasing Member, as the case may be, any amounts owing to
such parties, and the Joint Venture or the Purchasing Member, as the case may
be, shall repay to the Selling Member any amounts owing to it, which repayments
may occur as a set off of the respective amounts. If the amounts owed to the
Purchasing Member by the Selling Member and the Joint Venture exceed the amount
owed by the Purchasing Member to such parties, the Purchasing Member may reduce
the amount of the Purchase Price by such excess amount.
ARTICLE 9
OUTSIDE ACTIVITIES; CONFIDENTIALITY
9.1 OUTSIDE ACTIVITIES.
(a) Except as otherwise expressly provided in this Article 9,
any Member or Affiliate thereof may engage in or possess any interest in any
business, and may do so through itself or through any other business venture of
any nature independently or with others, and neither the Joint Venture nor any
other Member shall have any right by virtue of this Agreement in or to such
Member's business or its other ventures or in or to any income or profits
derived therefrom.
(b) For as long as the Joint Venture exists, and except as
described herein, no Member or Affiliate thereof may, directly or indirectly
(except through the Joint Venture), engage (or possess any interest in any
business or venture that engages), in the Business within the geographical zone
as described herein as the greater San Diego and Los Angeles metropolitan areas.
(c) This Agreement shall not be deemed to create any duties
other than as expressly provided for herein or imposed by applicable law, nor
shall its existence be deemed to alter the legal duties and obligations that any
Member or any Affiliate has to the other Members or their Affiliates as to
matters outside the scope of this Agreement.
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9.2 DUTIES OF MEMBERS. The fiduciary duties of Members shall not
restrict any Member or Affiliate from:
(a) engaging in conduct not expressly prohibited by Article 9;
or
(b) acting to prevent the Joint Venture from engaging in an
activity that is outside the scope of the Business;
whether or not such Member or Affiliate is motivated in whole or in part by a
desire to further the interests of a Person other than the Joint Venture.
9.3 CONFIDENTIAL INFORMATION.
(a) Each Member shall, and shall cause each of its Affiliates,
and its and their respective partners, shareholders, directors, officers,
employees and agents (collectively, "Representatives") to keep secret and retain
in strictest confidence, except as provided in subsection (c) hereof, any and
all Confidential Information and shall not distribute, disseminate or disclose
such Confidential Information, and shall cause its Representatives not to
distribute, disseminate or disclose such Confidential Information, except to (i)
the Joint Venture and its respective agents on a need-to-know basis or (ii) any
Member or any of their respective Affiliates or other Representatives on a
"need-to-know" basis in connection with the transactions leading up to and
contemplated by this Agreement and the operation of the Joint Venture, or (iii)
any other Person on a "need to know" basis in connection with this Agreement or
the operation of the Joint Venture that agrees in writing to keep in confidence
such Confidential Information in accordance with the terms of this Article 9.3;
and such Member disclosing Confidential Information pursuant to this Article 9.3
shall use, and shall cause its Affiliates and other Representatives or Persons
to use, such Confidential Information only for the benefit of the Joint Venture
in conducting the Business or for any other specific purposes for which it was
disclosed to such party; provided that the disclosure of financial statements
of, or other information relating to, the Joint Venture shall not be deemed to
be the disclosure of Confidential Information (A) to the extent that any Member
is required by law, GAAP or a Governmental Body that regulates it to disclose
such financial statements or other information or (B) to the extent that in
order to sustain a position taken for tax purposes, any Member deems it
necessary and appropriate to disclose such financial statements or other
information. All Confidential Information disclosed in connection with the Joint
Venture or pursuant to this Agreement shall remain the property of the Person
whose property it was prior to such disclosure.
(b) No Confidential Information regarding the plans or
operations of any Member or any Affiliate thereof received or acquired by or
disclosed to any other Member or Affiliate thereof in the course of the conduct
of Business, or otherwise as a result of the existence of the Joint Venture, may
be used by such other Member or Affiliate thereof for any purpose other than for
the benefit of the Joint Venture in conducting the Business.
(c) In the event that a Member or anyone to whom a Member
transmits any Confidential Information becomes legally compelled (by oral
questions, interrogatories, requests for information or documents, subpoena,
investigative demand, similar process or request) to disclose any of the
Confidential information, such Member will use its best efforts to provide the
other Members and the Joint Venture with prompt written notice prior to
disclosure (not less than 24 hours) so that the other Members and the Joint
Venture may seek a protective order or other appropriate remedy and/or waive
compliance with the provisions of this Agreement in the event
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that such protective order or other remedy is not obtained, or that the Joint
Venture and the other Members waive compliance with the provisions of this
Article 9.3, the Member or Person who is compelled to disclose such Confidential
Information will furnish only that portion of the Confidential Information which
(based on the advice of counsel) it is legally required to disclose and will
exercise its best efforts to obtain reliable assurance that protective treatment
will be accorded the Confidential Information.
(d) Each Member who ceases to be such will, and will cause its
Affiliates and Representatives to, maintain the confidentiality required by this
Article 9.3 and to destroy or return upon request, all documents and other
materials, and all copies thereof, obtained by such Member or on its behalf from
either the Joint Venture or the other Members or any of their Affiliates in
connection with the transactions leading up to and contemplated by this Joint
Venture. The obligations under this Article 9.3 shall survive the termination of
the Joint Venture for a period of ten years or, if shorter, the maximum period
permitted by applicable law.
(e) To the fullest extent permitted by law, if a Member or any
of its Affiliates or Representatives breaches, or threatens to commit a breach
of, this Article 9.3, the other Member and the Joint Venture shall have the
right and remedy to have this Article 9.3 specifically enforced, it being
acknowledged and agreed that money damages will not provide an adequate remedy
to such other Member or the Joint Venture. Nothing in this Article 9.3 shall be
construed to limit the right of any Member or the Joint Venture to collect money
damages in the event of breach of this Article 9.3.
ARTICLE 10
INDEMNIFICATION
10.1 LIMITATION OF LIABILITY. A Director, CEO or Executive Officer of
the Joint Venture shall perform his duties as such in good faith, in a manner he
reasonably believes to be in the best interest of the Joint Venture and the
Members, and with such care as an ordinarily prudent person in a like position
would use under similar circumstances. A Director, CEO or Executive Officer who
so performs his duties shall not have any liability by reason of being or having
been a Director, CEO or Executive Officer of the Joint Venture. The Directors,
CEO and Executive Officers shall not be liable, responsible or accountable in
damages or otherwise to the Joint Venture or any Member for any action taken or
failure to act on behalf of the Joint Venture within the scope of authority
conferred on the Directors, CEO and Executive Officers under this Agreement or
the Act, except where the claim at issue is based on the fraud, gross negligence
or bad faith of the Directors, CEO or Executive Officers.
10.2 INDEMNIFICATION: PROCEEDING OTHER THAN BY JOINT VENTURE. The Joint
Venture shall indemnify any Member, Affiliate of a Member, member of the
Management Committee or Executive Officer and may indemnify any other Person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, except an action by or in the right of the Joint Venture, by
reason of the fact that he is or was a Member, officer, employee or agent of the
Joint Venture, or is or was serving at the request of the Joint Venture as a
manager, member, director, officer, employee or agent of another limited
liability company, corporation, partnership, joint venture, trust or other
enterprise, against expenses, including attorneys' fees, judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with the
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action, suit or proceeding if he acted in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the Joint
Venture, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contender or its equivalent, does not, of itself, create a
presumption that the Person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the Joint
Venture, and that, with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful.
10.3 INDEMNIFICATION: PROCEEDING BY JOINT VENTURE. The Joint Venture
may indemnify any Person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the right
of the Joint Venture to procure a judgment in its favor by reason of the fact
that he is or was a Member, officer, employee or agent of the Joint Venture, or
is or was serving at the request of the Joint Venture as a manager, member,
director, officer, employee or agent of another limited liability company,
corporation, partnership, joint venture, trust or other enterprise against
expenses, including amounts paid in settlement and attorneys' fees actually and
reasonably incurred by him in connection with the defense or settlement of the
action or suit if he acted in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the Joint Venture.
Indemnification may not be made for any claim, issue or matters as to which such
a Person has been adjudged by a court of competent jurisdiction, after
exhaustion of all appeals therefrom, to be liable to the Joint Venture or for
amounts paid in settlement to the Joint Venture, unless and only to the extent
that the court in which the action or suit was brought or other court of
competent jurisdiction determines upon application that in view of all the
circumstances of the case, the Person is fairly and reasonably entitled to
indemnity for such expenses as the court deems proper.
10.4 MANDATORY INDEMNIFICATION. To the extent that a Member, officer,
employee or agent of the Joint Venture requests indemnification pursuant to
Article 10.2 or has been successful on the merits or otherwise in defense of any
action, suit or proceeding described in Articles 10.2 and 10.3, or in defense of
any claim, issue or matter therein, he must be indemnified by the Joint Venture
against expenses, including attorneys' fees, actually and reasonably incurred by
him in connection with the defense.
10.5 AUTHORIZATION OF INDEMNIFICATION. Any indemnification under
Article 10.3, unless ordered by a court or advanced pursuant to Article 10.4,
may be made by the Joint Venture only as authorized in the specific case upon a
determination that indemnification of the Member, officer, employee or agent is
proper in the circumstances.
10.6 MANDATORY ADVANCEMENT OF EXPENSES. The expenses of Members and
officers incurred in defending a civil or criminal action, suit or proceeding
must be paid by the Joint Venture as they are incurred and in advance of the
final disposition of the action, suit or proceeding, if such indemnification is
being provided pursuant to Article 10.2 or upon receipt of an undertaking by or
on behalf of the Member or officer to repay the amount if it is ultimately
determined by a court of competent jurisdiction that he is not entitled to be
indemnified by the Joint Venture. The provisions of this Article 10.6 do not
affect any rights to advancement of expenses to which personnel of the Joint
Venture other than Members or officers may be entitled under any contract or
otherwise.
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10.7 EFFECT AND CONTINUATION. The indemnification and advancement of
expenses authorized in or ordered by a court pursuant to this Article 10:
(a) Does not exclude any other rights to which a Person
seeking indemnification or advancement of expenses may be entitled under any
limited liability company agreement, vote of Members, or otherwise, for either
an action in his official capacity or an action in another capacity while
holding his office, except that indemnification, unless ordered by a court
pursuant to Article 10.4 for the advancement of expenses made pursuant to
Article 10.6, may not be made to or on behalf of any Member or officer if a
final adjudication establishes that his acts or omissions involved intentional
misconduct, fraud or a knowing violation of the law and was material to the
cause of action.
(b) Continues for a Person who has ceased to be a Member,
officer, employee or agent and inures to the benefit of his heirs, executors and
administrators.
10.8 INSURANCE AND OTHER FINANCIAL ARRANGEMENTS. The Joint Venture may
purchase and maintain insurance or make other financial arrangements on behalf
of any Person who is or was a Member, officer, employee or agent of the Joint
Venture, or is or was serving at the request of the Joint Venture as a manager,
member, director, officer, employee or Agent of another limited liability
company, corporation, partnership, joint venture, trust or other enterprise for
any liability asserted against him and liability and expenses incurred by him in
his capacity as a Member, director, officer, employee or agent, or arising out
of his status as such, whether or not the Joint Venture has the authority to
indemnify him against such liability and expenses.
10.9 LIMITATION ON LIABILITY. The liability of Viejas hereunder, except
with respect to the amounts to be paid by it in accordance with Sections 3.5(i),
4.4(c), 5.1 and 5.3 of this Agreement, to the Joint Venture and to the other
Members, collectively, shall not exceed the value of its Interest in the Joint
Venture.
10.10 NOTICE OF INDEMNIFICATION AND ADVANCEMENT. Any indemnification
of, or advancement of expenses to, a Member or officer in accordance with this
Article 10, if arising out of a proceeding by or on behalf of the Joint Venture,
shall be reported in writing to the Members with or before the notice of the
next Members' meeting.
10.11 REPEAL OR MODIFICATION. Any repeal or modification of this
Article 10 by the Members of the Joint Venture shall not adversely affect any
right of a Member or officer of the Joint Venture existing hereunder at the time
of such repeal or modification.
ARTICLE 11
INSPECTION OF JOINT VENTURE RECORDS; ANNUAL AND OTHER REPORTS
11.1 RECORDS TO BE KEPT. The Joint Venture shall keep at its registered
office:
(a) A current list of the full name and last known business,
resident or mailing address of each Member and its designated Directors
separately identifying the Members in alphabetical order and the Directors in
alphabetical order;
(b) Copies of this Agreement, and all amendments hereto;
(c) Copies of the Joint Venture's income tax returns and
reports, if any, for the 3 most recent years; and
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(d) Copies of any financial statements of the Joint Venture
for the 3 most recent years.
11.2 INSPECTION OF JOINT VENTURE RECORDS. The accounting books and
records, the records of the Management Committee, and any other records
maintained by the Joint Venture shall be open to inspection upon the request of
any Member at any reasonable time during usual business hours. Such inspection
by a Member may be made in person or by agent or attorney, and the right of
inspection includes the right to copy and make extracts. The requesting Member
shall bear all expenses incurred in connection with any examination made for
such Member.
11.3 FINANCIAL REPORTS. The Joint Venture shall within 45 days after
the close of each fiscal quarter and within 90 days after the close of each
fiscal year, deliver or mail to the Members the quarterly financial statements
and annual financial statements, respectively, of the Joint Venture. The Joint
Venture shall also prepare abbreviated monthly financial reports with respect to
the Joint Venture and provide such reports to the Members within 15 days after
the end of each month. A copy of any such statements shall be kept on file in
the principal executive office of the Joint Venture and shall be exhibited at
all reasonable times to any Member demanding an examination of them or a copy
shall be mailed to such Member. The quarterly income statements and balance
sheets referred to in this Article shall be accompanied by the report thereon,
if any, of any independent accountants engaged by the Joint Venture. The annual
financial statements of the Joint Venture shall be audited and shall be
accompanied by a report from the independent auditors.
11.4 JOINT VENTURE AUDITORS. The initial auditors for the Joint Venture
shall be Grant Thornton, LLP, or such other independent public accounting firm
of national standing selected by Commodore, with Proturo's and Viejas'
reasonable approval.
ARTICLE 12
DEFAULTS AND REMEDIES
12.1 DEFAULTS. An Event of Default shall occur if a Member commits an
act described in Article 8.2 as being an act of a Defaulting Member or
materially defaults in the performance of its obligations, covenants or
representations and warranties under this Agreement, and such default is not
cured within 30 days after notice of such default is given by a Member to the
Defaulting Member, or action has not been taken to begin curing such Default
within such 30-day period and such cure is being diligently pursued, if the
Default is not reasonably capable of being cured within 30 days.
12.2 REMEDIES. Upon the occurrence of an Event of Default, the
non-defaulting Member shall have the right, in addition to all other rights and
remedies provided herein (including rights under Article 8.3), to pursue any and
all available legal and equitable remedies under Article 13 on behalf of itself
or the Joint Venture or elect to dissolve the Joint Venture pursuant to Article
8.2, or both.
12.3 NO WAIVER. No consent or waiver, express or implied, by a Member
to or of any breach or default by another Member in the performance by such
other Member of its obligations under this Agreement shall constitute a consent
to or waiver of any similar breach or default by such Member. Failure by a
Member to complain of any act or omission to act by another Member, or to
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declare such other Member in default, irrespective of how long such failure
continues, shall not constitute a waiver by such Member of its rights under this
Agreement.
ARTICLE 13
DISPUTE RESOLUTION
13.1 DISPUTES. Except for actions described in Article 4.4(b) or as
expressly otherwise provided in this Agreement, any and all claims, disputes,
controversies, and other matters in question (whether contractual or
non-contractual) arising out of or relating to this Agreement, or the formation,
validity, binding effect, applicability, scope, interpretation, construction,
modification, performance, breach, termination, or enforcement thereof
(including all such issues pertaining to this subsection) (singly, the "Dispute"
and collectively, the "Disputes") shall be resolved by alternative dispute
resolution in accordance with this Article 13.
13.2 ARBITRATION.
(a) COMPULSORY ARBITRATION. All Disputes shall be settled
exclusively by final and binding arbitration in accordance with this Article
13.2 (Arbitration). Except as provided in Section 13.2(b), judgment upon the
award may be entered, at the option of the respondent, in any court sitting in
Miami, Florida or San Diego, California. If a petition to recognize or enforce
an award is brought in a court other than one chosen by the respondent, the
petitioner will not oppose any motion or other action that may be taken to
remove the action to a court sitting in Miami, Florida or San Diego, California,
as the case may be.
(b) LIMITATION ON LIABILITY. Except with respect to
arbitration or litigation arising out of Disputes concerning the amounts to be
paid by Viejas in accordance with Sections 3.5(i), 4.4(c), 5.1 and 5.3 of this
Agreement, no arbitration award rendered against Viejas or judgment entered
against Viejas with respect to this Agreement may exceed the value of its
Interest in the Joint Venture. Any award or judgment that violates the foregoing
limitation shall be void and unenforceable as to any such excess. Except with
respect to arbitration or litigation arising out of disputes concerning the
amounts to be paid by Viejas in accordance with Sections 3.5(i), 4.4(c), 5.1 and
5.3 of this Agreement, no judgment against Viejas with respect to this Agreement
may be satisfied from, against, or out of any asset of Viejas other than its
Interest in the Joint Venture.
(c) ARBITRATION TRIBUNAL, RULES, AND ADMINISTRATION. The sole
arbitrator or the panel of arbitrators constituted for the resolution of the
Dispute will be called the "Arbitration Tribunal." Except as otherwise provided
in this Article, the arbitration proceeding (the "Arbitration Case") will be
administered by the American Arbitration Association (the "Case Administrator")
and conducted by the Arbitration Tribunal in substantial accordance with the
Commercial Arbitration Rules of the American Arbitration Association then in
effect (the "Procedural Rules"). In the event of any conflict between the
Procedural Rules and this Article 13.2 (Arbitration), the provisions of this
Article 13.2 (Arbitration) will control.
(d) CONDITIONS PRECEDENT TO ARBITRATION. A party may initiate
arbitration at any time after a Dispute arises.
(e) INITIATION OF ARBITRATION CASE. The Arbitration Case must
be initiated by the initiating party (the "Petitioner") in accordance with the
Procedural Rules by giving to the other party (the "Respondent") in a demand for
arbitration ("Petitioner's Demand") written notice of the Dispute and
Petitioner's claim.
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(f) APPOINTMENT OF ARBITRATION TRIBUNAL BY PARTIES OR
APPOINTING AUTHORITY. In Petitioner's Demand, the Petitioner shall select 1
neutral arbitrator from the panel or roster of arbitrators established and
maintained by the Appointing Authority. Within 10 days of receipt of
Petitioner's Demand, the Respondent shall mail or deliver to the Petitioner and
the Appointing Authority an answering statement to Petitioner's Demand in which
the Respondent answers Petitioner's Demand and selects 1 neutral arbitrator from
the panel or roster of arbitrators established and maintained by the Appointing
Authority. If no answering statement is mailed or delivered within the stated
time, the claim set forth in Petitioner's Demand is deemed denied by the
Respondent and the Appointing Authority shall select the second neutral
arbitrator. Within ten days of receipt of notice of their selection as
arbitrators, the 2 arbitrators shall select a third neutral arbitrator. If the 2
arbitrators do not agree upon the third arbitrator within the stated time, the
Appointing Authority shall select the third neutral arbitrator. The 3 neutral
arbitrators so selected will constitute the Arbitration Tribunal. Unless the
parties otherwise mutually agree, if Petitioner's Demand names 2 or more parties
as Petitioner or 2 or more parties as Respondent, the Appointing Authority shall
appoint all 3 members of the Arbitration Tribunal. The Appointing Authority has
the exclusive right and power to resolve any Dispute arising out of or related
to the appointment of the Arbitration Tribunal. In this regard, in addition to
any other action it deems just and equitable in order to resolve any such
Dispute, the Appointing Authority may appoint an arbitrator or arbitrators to
serve in place of any arbitrator or arbitrators selected by the Petitioner or
the Respondent. The American Arbitration Association is designated as the
Appointing Authority.
(g) QUALIFICATIONS OF ARBITRATORS. Each member of the
Arbitration Tribunal must be independent, impartial, neutral and have experience
in the subject matter of the Dispute. At least one member of the Arbitration
Tribunal must be actively engaged in or retired from the practice of law, or a
retired member of the state or federal judiciary, and must have at least ten
years' experience in resolving disputes in the area of law directly related to
the subject matter of the Dispute. Subject to the terms of this Agreement, the
Arbitration Tribunal will be the judge of its own qualifications and
jurisdiction.
(h) INTERIM MEASURES. The Arbitration Tribunal may grant and
order such interim, provisional, ancillary, and special remedies and relief as
it deems just and equitable and necessary or desirable under the circumstances
including, without limitation, protective orders, sanctions for abuse or
frustration of the arbitration process, temporary restraining orders,
preliminary injunctions, attachment, sequestration, specific performance, and
the appointment of a receiver. Such interim measures may be taken in the form of
an interim award. The Arbitration Tribunal may require security for the payment
of costs and damages. A request for interim measures by a party to a court shall
not be deemed incompatible with this Article 13 or a waiver of that party's
right to arbitrate. Without limiting the generality of the foregoing provisions,
a party may seek interim relief from the Arbitration Tribunal or from the
appropriate court having jurisdiction for a breach or threatened breach of
Article 9.3 (Confidential Information).
(i) PRE-HEARING CONFERENCE. A pre-hearing conference will be
held and conducted by the Arbitration Tribunal within 30 days of its appointment
for the purpose of expediting the Arbitration Case, directing and controlling
the exchange of information, and setting the date for the opening of the
hearing.
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(j) EXCHANGE OF INFORMATION. Consistent with the expedited
nature of arbitration, the Arbitration Tribunal will direct and control the
scope and timing of the exchange of information between the parties and will
take such steps as it deems necessary or desirable to avoid delay and achieve a
just, speedy, and cost-effective resolution of the Dispute. The Arbitration
Tribunal may order (i) the production of documents and other information and the
entry upon designated land or other property, and (ii) the identification of
witnesses to be called. When the demands of justice require such extraordinary
measures and upon good cause shown, the Arbitration Tribunal may order the
taking of the testimony of any Person, including a party, by deposition upon
oral examination or upon written questions, or the propounding of
interrogatories, but no party is entitled to conduct discovery of this nature as
a matter of right. At least ten days prior to the hearing, the parties shall
exchange copies of all exhibits they intend to submit at the hearing and final
witness lists. The Arbitration Tribunal has the exclusive right and power to
resolve all Disputes related to the exchange of information.
(k) LANGUAGE AND LOCALE. The Arbitration Case will be
conducted in the English language in either San Diego County, California or
Miami-Dade or Broward County, Florida, at the option of the responding party.
(l) OPENING AND CLOSING OF HEARING; TIME OF AWARD. The hearing
will be opened within 60 days of the initial pre-hearing conference and will be
closed within 60 days of the opening of the hearing. To secure a just, speedy,
and cost-effective resolution of the Dispute and for good cause, the Arbitration
Tribunal may shorten or lengthen the time for opening or closing the hearing.
Unless the parties otherwise agree, the Arbitration Tribunal shall render the
award within 30 days from the date of closing of the hearing. The failure of the
Arbitration Tribunal to render the award within that time will not deprive the
Arbitration Tribunal of its jurisdiction or authority to render the award.
(m) FORM OF AWARD. The award will be written in the English
language and signed by a majority of the members of the Arbitration Tribunal.
The Arbitration Tribunal will provide a concise, written breakdown of the award.
If requested in writing by the parties prior to the opening of the hearing, or
if the Arbitration Tribunal believes it is appropriate to do so, the Arbitration
Tribunal will also provide a concise, written explanation of the award not
exceeding 5 pages in length. Detailed findings of fact and conclusions of law
and a reasoned opinion in the form of a judicial opinion are not required and
will not be provided.
(n) GOVERNING LAW. The Arbitration Case shall be governed by
the United States Arbitration Act, 9 U.S.C. ss.ss. 1 - 16 and the substantive
governing law designated by the parties to this Agreement without regard to
conflicts of laws principles. In the absence of any such designation, the
Arbitration Tribunal may apply such law or laws as it considers appropriate.
(o) SCOPE OF AWARD; PUNITIVE DAMAGES. The Arbitration Tribunal
may grant any remedy or relief that it deems just and equitable and not outside
of the scope of this Agreement, including, but not limited to, specific
performance and other equitable relief. The Arbitration Tribunal is not
empowered to and may not award punitive damages.
(p) ASSESSMENT OF FEES, COMPENSATION, AND EXPENSES. Unless the
parties have otherwise agreed to bear such costs equally or in some other
manner, the Arbitration Tribunal, in the award, will allocate and assess against
the parties in such manner as it deems just and equitable the fees,
compensation, and expenses of the Arbitration Tribunal, the Case
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Administrator, and the Appointing Authority. Except as otherwise provided in
this subsection or the following subsection, all other costs and expenses
incurred in connection with resolution of the Dispute or Disputes shall be borne
by the party that incurs such costs and expenses.
(q) ATTORNEYS' FEES. The Arbitration Tribunal shall provide in
the award for the recovery of all or part of a prevailing party's reasonable
attorneys' fees incurred in connection with resolution of the Dispute from the
date of inception thereof through enforcement and collection of the award in
accordance with Article 14.5 of this Agreement. In addition, the Arbitration
Tribunal may award reasonable attorneys' fees to a party (whether or not the
party prevails on the merits of the Dispute) if the Arbitration Tribunal finds
and concludes that the party participated in good faith in the manner
contemplated by this Agreement in the Arbitration Case and other alternative
dispute resolution procedures described in this Article 13 and that the other
party materially breached its obligations under this Article 13.
(r) INTEREST. The Arbitration Tribunal may provide in the
award for the recovery of pre-award interest and post-award interest on such
principal amounts and at such rates and from such date or dates as the
Arbitration Tribunal may deem just and equitable. Interest on any judgment
entered upon the award will accrue from the date of entry of judgment at the
judgment rate prescribed by applicable law.
(s) FINALITY OF AWARD. The award shall be final and binding on
the parties. The award may be vacated, modified, or corrected and an appeal may
be taken only as provided in the Procedural Rules and the United States
Arbitration Act, 9 U.S.C. /sections/ 1 - 16.
(t) CONFIDENTIALITY. The parties, the Arbitration Tribunal,
the Appointing Authority, and the Case Administrator shall treat the proceedings
of the Arbitration Case including, without limitation, the award and decisions
of the tribunal, the testimony of witnesses, the documentary evidence exchanged,
offered, or introduced, and other papers and data related thereto, as
confidential. Upon request of any party, each party agrees to execute prior to
the exchange of any information a confidentiality agreement in form and
substance satisfactory to the Arbitration Tribunal that restricts disclosure of
confidential information during and after the conclusion of the Arbitration
Case, subject to disclosure required by the federal securities laws.
ARTICLE 14
MISCELLANEOUS
14.1 TERM. The existence of the Joint Venture shall be for a period of
10 years from the date of the filing of its certificate of formation with the
Delaware Secretary of State.
14.2 AMENDMENTS. This Agreement may be amended only by the affirmative
vote of all the Members. Any such amendment shall be in writing, duly executed
by all the Members.
14.3 FINDERS. Each Member represents that no person has acted as finder
in connection with the Joint Venture and each agrees to indemnify the others
with respect to any claim for any finder's fee as a result of the transactions
contemplated hereby. In the event of any claim for a fee made by Malcolm Harris,
Proturo shall be responsible for such fee and shall indemnify Commodore and
Viejas with respect to such claim.
14.4 NATURE OF MEMBERSHIP INTEREST; AGREEMENT IS BINDING UPON
SUCCESSORS. A membership interest is personal property. A Member shall have no
interest in any specific property of the Joint Venture except to the extent such
interest is evidenced by a separate
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agreement between such Member and the Joint Venture. The successor of any Member
shall be bound by the provisions of this Agreement, including without
limitation, Article 7.
14.5 TITLE TO PROPERTY. Title to all Joint Venture property shall be
held in the name of the Joint Venture. Except as otherwise permitted by this
Agreement, no Member shall have the right, and each Member does hereby agree
that it shall not seek, to cause a partition of the Joint Venture's property
whether by court action or otherwise.
14.6 ATTORNEY FEES. In the event that any dispute between the Joint
Venture and the Members or among the Members should result in litigation or
arbitration, the prevailing party in such dispute shall be entitled to recover
from the other party all reasonable fees, costs and expenses of enforcing any
right of the prevailing party, including without limitation, reasonable
attorneys' fees and expenses, all of which shall be deemed to have accrued upon
the commencement of such action and shall be paid whether or not such action is
prosecuted to judgment as long as the recipient is a prevailing party as defined
herein. Any judgment or order entered in such action shall contain a specific
provision providing for the recovery of attorney fees and costs incurred in
enforcing such judgment and an award of prejudgment interest from the date of
the breach at the maximum rate of interest allowed by law. For the purposes of
this Article: (a) attorney fees shall include, without limitation, fees incurred
in the following: (i) post-judgment motions; (ii) contempt proceedings; (iii)
garnishment, levy, and debtor and third party examinations; (iv) discovery; and
(v) bankruptcy litigation; and (b) prevailing party shall mean the party who is
determined in the proceeding to have prevailed or who prevailed by dismissal,
default or otherwise.
14.7 VENUE, JURISDICTION; SERVICE OF PROCESS. In any action or
proceeding arising out of or relating to this Agreement (an "Action"), each of
the Members hereby irrevocably submits to the exclusive jurisdiction of any
federal or state court sitting in either San Diego, California or Miami, Florida
(the "Forum"). The defendant in any such Action shall have the right, which
shall not be opposed by the other party, to remove the Action to any of the
courts mentioned above which has subject matter jurisdiction. Each party hereby
irrevocably waives, to the fullest extent it may effectively do so, the defense
of an inconvenient forum to the maintenance of any Action in the Forum. Each
Member hereby irrevocably agrees to accept service of process at its address as
set forth on SCHEDULE 2 to this Agreement. Service on any Member, when delivered
by certified or registered mail, return receipt requested, shall be good and
valid service on each Member and, accordingly, each Member does hereby waive, to
the extent permitted by applicable law, any and all defenses or immunities that
may otherwise exist to the effectiveness of such service. Viejas hereby waives
its sovereign immunity with respect to any Action arising under this Agreement
or any other agreement contemplated hereby, including immunity from unconsented
suit and its rights, if any, to require exhaustion of tribal court remedies.
Viejas further waives any rights it may have under any treaties to which it is a
party, which rights are in conflict with any provision of this Agreement. It is
understood and agreed that this provision for jurisdiction, venue, service of
process and waiver of immunities and rights under treaties is part of the
consideration given by each Member and relied upon by each Member in connection
with the execution of this Agreement.
14.8 SEAL. The Members may adopt a seal of the Joint Venture in such
form as the Members shall decide.
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14.9 ENTIRE AGREEMENT. This Agreement, including the exhibits and
schedules hereto, constitutes the entire agreement among the Members with
respect to the subject matter hereof, and supersedes all prior and
contemporaneous agreements, representations, and understandings of the parties,
including the letter agreements between Commodore and Viejas dated February 17,
1999, April 16, 1999 and June 24, 1999. No party hereto shall be liable or bound
to the other in any manner by any warranties, representations or covenants with
respect to the subject matter hereof except as specifically set forth herein.
14.10 THIRD PARTIES. Nothing in this Agreement, express or implied, is
intended to confer upon any party, other than the parties hereto, and their
respective successors and permitted assigns, any rights, remedies, obligations
or liabilities under or by reason of this Agreement, except as expressly
provided herein or in the Exhibits hereto.
14.11 GOVERNING LAW. This Agreement shall be governed by and construed
under the substantive laws of the State of New York, without regard to New York
choice of law provisions.
14.12 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument, and shall become
effective when there exist copies hereof which, when taken together, bear the
authorized signatures of each of the parties hereto. Only one such counterpart
signed by the party against whom enforceability is sought need be produced to
evidence the existence of this Agreement.
14.13 TITLES AND SUBTITLES; FORM OF PRONOUNS; CONSTRUCTION AND
DEFINITIONS. The titles of the sections and paragraphs of this Agreement are for
convenience only and are not to be considered in construing this Agreement. All
pronouns used in this Agreement shall be deemed to include masculine, feminine
and neuter forms, the singular number includes the plural and the plural number
includes the singular. Unless otherwise specified, references to Articles or
Articles are to the Articles or Articles in this Agreement. Unless the context
otherwise requires, the term "including" shall mean "including, without
limitation."
14.14 SEVERABILITY. If one or more provisions of this Agreement are
held by a proper court to be unenforceable under applicable law, portions of
such provisions, or such provisions in their entirety, to the extent necessary
and permitted by law, shall be severed herefrom, and the balance of this
Agreement shall be enforceable in accordance with its terms.
14.15 COSTS. Each Member, and its respective Affiliates, shall bear its
own costs (including legal and accounting fees) in connection with the
transactions leading up to, and the negotiating and entering into, this
Agreement.
IN WITNESS WHEREOF, the Members of CORONADO SEAS, LLC have executed
this Amended and Restated Operating Agreement as of the day set forth on the
first page of this Agreement.
COMMODORE DAY CRUISES LIMITED, a
Bermuda Corporation
By: /s/ Jeffrey I. Binder
---------------------------------
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Name: Jeffrey I. Binder
Title: Chairman of the Board
PROMOCIONES TURISTICAS DE
ROSARITO, S.A. DE C.V.,
a Mexican corporation
By: /s/ Angel R. Calzada
---------------------------------
Name: Angel R. Calzada
Title: Attorney in Fact
VIEJAS BAND OF KUMEYAAY INDIANS,
a federally recognized Indian Tribe
By: /s/ Steven F. TeSam
---------------------------------
Name: Steven F. TeSam
Title: Vice-Chairman
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EXHIBIT 10.oo
AMENDMENT TO
ROSARITO PIER DOCKING CONTRACT
THIS AMENDMENT (the "Amendment") is made and entered into by and
between Inversiones Rosarito, S.A. de C.V., a Mexican corporation ("IRO"),
represented in this act by C.P. Hugo Torres Chabert, Coronado Seas, LLC, a
Delaware limited liability company (the "Venture"), represented in this act by
Frederick A. Mayer, Playas de Rosarito Marina Resort, S.A. de C.V., a Mexican
corporation ("PLAYMAR"), represented in this act by Mr. Manuel Gamboa, and Banco
Internacional, S.A., a Mexican corporation ("BITAL"), represented in this act by
C.P. Hugo Torres Chabert, in conformity with the following Declarations and
Clauses:
DECLARATIONS
I. BITAL DECLARES:
(a) That it is a corporation duly organized under General Commercial
Law, as evidenced in public document number 12,718, dated July 22, 1941,
executed before Lic. Jose Bandera Olavarria, Notary Public No. 28 of the Federal
District, registered in the Public Registry of Mexico City under number 170,
page 114, book 3, dated August 16, 1941.
(b) That it is dedicated, among other activities, to the rendering of
banking services and elements necessary thereto.
(c) That C.P. Hugo Torres Chabert, its representative, has sufficient
legal capacity to execute this contract on behalf of Bital, as evidenced in
public document number 5,482 and 260, dated March 6, 1974 and August 1, 1997,
executed before C.C. Lics. Eduardo Illades Villafana and Luis A. Durazo Bazua,
Notaries No. 6 of Tijuana and No. 1 of Playas de Rosarito, B.C., respectively,
and that said powers have not been withdrawn nor modified in any way. Copies of
such documents are attached hereto as EXHIBITS 1 AND 2.
(d) That on March 12, 1998, it became a concessionaire of the Secretary
of Communications and Transportation Concession for the use and development of a
federal maritime zone for the construction and operation of a marina and pier
located in the port of Rosarito, Baja California (the "Concession").
(e) On June 2, 1982, it entered into a trust as evidenced in Public
Document No. 16,807 dated June 2, 1982, executed before Eduardo Illades
Villafana, Public Notary No. 6 of
1
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Tijuana. Under the terms of said trust, IRO in its capacity as settlor and
trustee, has the authority to develop the concession referenced in paragraph (d)
above. A copy of such document is attached hereto as EXHIBIT 3.
(f) That on April 6, 1999, it entered into the Rosarito Pier Docking
Contract (the "Docking Contract"), attached hereto as EXHIBIT 4, with respect to
the operation of the pier referenced in paragraph (d) above.
II. IRO DECLARES:
(a) That it is a corporation with variable capital duly organized under
Mexican law as evidenced in Public Document No. 7,490 of May 23, 1960 executed
before Lic. Gustavo Cardenas y Estrada, Public Notary No. 3 of Tijuana, Baja
California and registered with the Public Registry of Tijuana under No. 3611
book XXX, of June 29, 1960, with Federal Registry No. 840828-CY7 and with a
purpose, among other activities, of the construction, use, operation and
development of ports, port areas, terminals, marinas, wharves, landings, etc.,
and the establishment and development of tourist centers such as hotels,
restaurants, bars, recreational facilities and the celebration of contracts
necessary for such activities, including lease, rental and loan agreements, and
the preparation and execution of all acts necessary to further these goals, as
stated in the corporate articles, attached hereto as EXHIBIT 5.
(b) That in accordance with the terms of the trust referenced in
paragraph I(e), above, it is responsible for and beneficiary of a concession
granted by the Mexican Secretary of Communications and Transportation, to
construct and operate a private pier and marina in Playas de Rosarito, Baja
California (the "Pier"), and desires to encourage, develop and commence the flow
of waterborne passenger commerce to said pier. A copy of the Concession is
attached hereto as EXHIBIT 6.
(c) That currently it has entered into a contract for construction of
the Pier referred to in the previous Declaration, which provides for the
completion of construction by August 15, 1999 (the "Construction Contract"),
which Construction Contract is being amended on the date hereof.
(d) That C.P. Hugo Torres Chabert is the lawful representative of IRO,
as verified under Public Document Number 5,482, dated March 6, 1974,
respectively, duly executed before Notaries Public Number 1 of Playas de
Rosarito and number 6 of Tijuana, Lics. Luis A. Durazo Bazua and Eduardo Llades
Villafana, respectively, and that the powers granted under said documents have
not been withdrawn nor limited in any way. A copy of said power of attorney is
attached hereto as EXHIBIT 1.
(e) That on April 6, 1999, it entered into the Docking Contract,
attached hereto as EXHIBIT 4, with respect to the operation of the Pier.
III. PLAYMAR DECLARES:
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(a) That it is a corporation with variable capital duly organized under
Mexican laws, as evidenced in Public Document No. 1,460 of February 15, 1999,
executed before Lic. Luis A. Durazo Bazua, Public Notary No. 1 of Playas de
Rosarito, B.C., and with a purpose as stated in the Corporate Articles, attached
hereto as EXHIBIT 7.
(b) That it entered into a Services Agreement with IRO, dated March 10,
1999, for the operation of the Pier (the "Services Agreement") which is the
subject of the Docking Contract, as evidenced in EXHIBIT 8, hereto.
(c) That Mr. Manuel Gamboa is the lawful representative of PLAYMAR
under Public Document Number 1,460, dated February 15, 1999, duly executed
before Lic. Luis A. Durazo Bazva, Public Notary No. 1 of Playas de Rosarito,
B.C., and registered with the Public Registry under number 5166954, dated
February 19, 1999, as evidenced in EXHIBIT 7.
(d) That on April 6, 1999, it entered into the Docking Contract
attached hereto as EXHIBIT 4, with respect to the operation of the Pier.
IV. THE VENTURE DECLARES:
(a) That it is a limited liability company duly organized under the
laws of the State of Delaware, United States of America, as evidenced in the
Certificate of Formation of Commodore Day Cruises, LLC, Authentication Number
9514996, of January 11, 1999, which is attached hereto as EXHIBIT 9.
(b) That it duly changed its name with the State of Delaware to Baja
California, LLC, effective March 1, 1999, and that on March 5, 1999, it duly
changed its name with the State of Delaware to Coronado Seas, LLC.
(c) That it intends to operate a passenger cruise ship between San
Diego, California, USA and Playas de Rosarito, Baja California, Mexico, and it
wishes to dock at the Pier referred to in the Docking Contract at the Beginning
of Operations Date (as defined in the Docking Contract).
(d) That Mr. Jeffrey I. Binder is the Venture's lawful representative,
as evidenced in the Unanimous Written Consent of the Members of the Venture, and
that the rights and duties granted under such document have not been withdrawn
nor limited in any way. A copy of such document is attached hereto as EXHIBIT
10.
(e) That on April 6, 1999, it entered into the Docking Contract,
attached hereto as EXHIBIT 4, with respect to the Pier.
V. BITAL, IRO, PLAYMAR AND THE VENTURE DECLARE:
(a) Based on revisions to the proposed business of the Venture and the
benefits that are likely to be derived by both IRO and the Venture therefrom,
IRO has agreed to expand the Venture's rights to use the Pier in accordance with
the terms of this Amendment.
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(b) Based on changes to the construction plans for the Pier, IRO has
modified the Construction Contract with the contractor, Estructuras y Puertos,
S.A. de C.V., the amendment to which is attached hereto as EXHIBIT 12A.
C L A U S E S
FIRST. BERTHING RIGHTS. The parties hereto agree to modify Clause Fourth of the
Docking Contract, which originally stated:
"IRO hereby grants to the Venture the exclusive berthing rights at the
Pier for a Cruise Ship, in connection with voyages departing from the
San Diego metropolitan area."
So that it shall now read:
"IRO hereby grants to the Venture the exclusive berthing rights at the
Pier for a Cruise Ship, in connection with voyages departing from the
metropolitan areas of San Diego and Los Angeles."
SECOND. DEFINED TERMS. Furthermore, the parties agree to redefine certain
concepts established in the definitions section of the Docking Contract. The
term "The Route" shall be modified, which originally stated:
"The Route: The route taken by the Cruise Ship between San Diego and
Rosarito."
So that it shall now read:
"The Route: The route taken by the Cruise Ship among San Diego, Los
Angeles and Rosarito."
In the same manner, the term "Other Route" shall be modified, which originally
read:
"Other Route: Any route taken by the Cruise Ship other than between San
Diego and Rosarito."
So that it shall now read:
"Other Route: Any route taken by the Cruise Ship other than among San
Diego, Los Angeles and Rosarito."
In the same manner, the term "Beginning of Operations Date" shall be modified,
which originally read:
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"Beginning of Operations Date: The date on which the Pier is capable of
safely receiving a cruise ship for dockage, which in no case shall be
earlier than July 15, 1999, or later than August 15, 1999, subject to
authorization from the SCT."
So that it shall now read:
"Beginning of Operations Date: The date on which the Pier is capable of
safely receiving a cruise ship for dockage, which in no case shall be
earlier than February 28, 2000 or later than March 18, 2000, subject to
authorization from the SCT."
THIRD. CONDITION OF THE PIER. The parties hereto agree to modify the first
sentence of Clause Sixth of the Docking Contract, which originally stated:
"IRO, to ensure compliance with the requirements for the construction
of the Pier as set forth by SCT in the Concession, and to satisfy the
terms of this Contract, shall contract "Estructuras y Puertos S.A. de
C.V.," (a copy of the Construction Contract is attached hereto as
EXHIBIT 12), setting forth in such contract August 15, 1999 as the
completion date for the Pier."
So that it shall now read:
"IRO, to ensure compliance with the requirements for the construction
of the Pier as set forth by SCT in the Concession, and to satisfy the
terms of this Contract, shall contract "Estructuras y Puertos, S.A. de
C.V.," (a copy of the First Amendment to the Construction Contract is
attached hereto as EXHIBIT 12A), setting forth in such amended contract
March 18, 2000, as the completion date for the Pier."
FOURTH. RATIFICATION. Except as specifically modified herein, the Docking
Contract shall continue in full force and effect.
[SIGNATURES ON FOLLOWING PAGE]
5
<PAGE>
This Amendment, read and heard by all parties, all aware of its
contents and legal effect of each and every one of its clauses, is executed
before the witnesses at the city of Rosarito, on September 17, 1999.
WITNESS: INVERSIONES ROSARITO S.A. de C.V.,
/s/ Jose A. Arroyo By: /s/ C.P. HUGO TORRES CHABERT
- -------------------------------------- --------------------------
C.P. Hugo Torres Chabert
Attorney-in-Fact
WITNESS: CORONADO SEAS, LLC:
/s/ Jose A. Arroyo By: /s/ JEFFREY I. BINDER
- -------------------------------------- --------------------------
Jeffrey I. Binder
Attorney-in-Fact
WITNESS:
PLAYAS DE ROSARITO MARINA
RESORT, S.A. de C.V.
/s/ Jose A. Arroyo By: /s/ ANGEL ROSALIO CALZADA
- -------------------------------------- --------------------------
Angel Rosalio Calzada
Attorney-in-Fact
WITNESS: BANCO INTERNACIONAL, S.A.
/s/ Jose A. Arroyo By: /s/ C.P. HUGO TORRES CHABERT
- -------------------------------------- --------------------------
C.P. Hugo Torres Chabert
Attorney-in-Fact
6
<PAGE>
CERTIFICATION
I, Alan Pritzker, Chief Financial Officer of Commodore Holdings Limited, hereby
represent that the previously attached document is a fair and accurate English
translation of the First Amendment to the Rosarito Pier Docking Agreement which
was executed in Spanish.
/s/ ALAN PRITZKER
--------------------------
Alan Pritzker
Chief Financial Officer
7
EXHIBIT 10.pp
SPACE CHARTER
MV "NORWEGIAN DYNASTY"
(to be renamed "CROWN DYNASTY")
This SPACE CHARTER ("Space Charter") is made and entered into as of the
12th day of July, 1999 (the "Effective Date") by and between CROWN CRUISES
LIMITED, a Bermuda company having its registered office at Cedarpark Centre, 48
Cedar Avenue, Hamilton HM11, Bermuda, ("Owners"), as owners of the
Panamanian-flag passenger vessel the MV "CROWN DYNASTY," Registered No.
20933-93B (the "Vessel"), and ATKINSON AND MULLEN, INC., a Pennsylvania
corporation doing business as "APPLE VACATIONS" and having its office at 7
Campus Boulevard, Newtown Square, Pennsylvania 19073 ("Space Charterers").
Owners and Space Charterers agree to a charter of certain space
aboard the Vessel during the cruises and the special event at Philadelphia
herein specified (collectively "the Cruises" and individually "a" or "the
Cruise") and on the terms and conditions, hereinafter set forth.
1. DESCRIPTION AND CONDITION OF THE VESSEL.
(a) On the commencement of the first Cruise contemplated herein, the
Vessel shall:
(i) be classed DNV+1A1 Passenger Ship NAUT-B-BO with Det Norske
Veritas (the "Classification Society");
(ii) be in possession of a valid Passenger Certificate for at
least the number of passengers she will be carrying for Space Charterers as
provided in Clause 7(b), issued by competent authorities;
(iii) be tight, staunch, strong, in good order and condition, and
in every way fit for the service, be well and sufficiently tackled, appareled,
furnished and equipped in
<PAGE>
every respect, with her passenger accommodations, machinery, boilers, hull and
other equipment in a good and thoroughly efficient state;
(iv) be of the description set out in the Description of the
Vessel and Passenger Accommodation Plan attached as part of EXHIBIT 1 (a) (iv)
hereto;
(v) be fully equipped with bed linen, cutlery, crockery, glass,
furniture, furnishings and accessories;
(vi) be fully air conditioned in all passenger areas and have hot
and cold running water in sufficient quantities for wash basins and showers;
(vii) have on board all certificates, documents and equipment
required from time to time by any applicable law to enable her to perform the
charter service without delay, including all trading, safety and other
certificates required under the International Convention for Safety of Life at
Sea, as amended, and all certificates of financial responsibility required by
the United States Federal Maritime Commission; and
(viii) comply with all applicable laws, regulations and
requirements, and other regulations in force, so as to enable her to enter and
operate in the territorial waters of the countries whose ports are specified in
the itineraries for the Cruises.
(b) All accommodations and spaces of whatsoever kind available to
passengers pursuant to Section 5 hereof shall have been cleaned to Space
Charterers' reasonable satisfaction.
2. SHIPBOARD PERSONNEL AND THEIR DUTIES.
(a) At the commencement of the first Cruise as specified in EXHIBIT
4 (c) hereto, the Vessel shall have a full and efficient complement of master,
officers, crew and hotel staff for a passenger cruise vessel of her type and
tonnage, who shall be in any event not less
2
<PAGE>
than the number required by the laws of the flag state and who shall be trained
to operate the Vessel and her equipment competently and safely. The Master, all
key officers, hotel staff and other personnel serving in critical positions
shall speak the English language.
(b) Space Charterers shall always be responsible for the acts or
omissions of any employees, representatives or agents of Space Charterers that
embark on the Vessel (collectively "Space Charterers' Representatives").
3. DUTY TO MAINTAIN. Throughout the Cruises, Owners shall, whenever the
passage of time, wear and tear or any event, requires steps to be taken to
maintain or restore the conditions stipulated in Clauses 1 and 2, exercise due
diligence to maintain or restore the Vessel, provided, however, that Space
Charterers shall be responsible for any damage to equipment caused by the
negligent or improper use by any of Space Charterers' Representatives.
4. SPACE CHARTER; TERM.
(a) For the duration of the Cruises, Owners shall make available to
Space Charterers the space on the Vessel identified in Clause 5 hereof. This
Space Charter is not a demise of the Vessel, but is a charter of the space
specified in Clause 5 hereof for the duration of the Cruises.
(b) The term of this Space Charter (the "Term") shall commence on
the Effective Date and shall end on *. However, until and unless the Owners
purchase the Vessel, this Space Charter is subject to earlier termination
pursuant to the terms of Section 47 of that certain "Barecon 89" Standard
Bareboat Charter Agreement between Crown Dynasty, Inc. and Crown Cruise, Ltd.,
dated March 1, 1999.
- ----------
*Marked text ommitted pursuant to an application for an order for confidential
treatment by Commodore Holdings Limited.
3
<PAGE>
(c) The Cruises shall be between the ports on the itineraries
specified in EXHIBIT 4(c) hereto with the first Cruise commencing at Aruba on
December 18, 1999 and the last Cruise ending on October 25, 2003 at a port near
Baltimore, Maryland via Philadelphia, Pennsylvania to be nominated by Owners (on
or before June 1, 2003). For purposes of this Space Charter, the period
beginning December 18, 1999, and ending upon the arrival of the Canada Cruise on
October 25, 2000, is called "Cruise Year 1;" the period beginning immediately
after the end of Cruise Year 1 and ending upon the end of the Canada season in
2001 (approximately October 25) is called "Cruise Year 2;" the period beginning
immediately after the end of Cruise Year 2 and ending upon the end of the Canada
season in 2002 (approximately October 25) is called "Cruise Year 3;" and the
period beginning immediately after the end of Cruise Year 3 and ending upon the
end of the Canada season in 2003 (approximately October 25) is called "Cruise
Year 4."
5. SPACE AVAILABLE TO SPACE CHARTERERS.
(a) The Vessel's public accommodation areas, including state rooms,
public decks, dining rooms, lounges and entertainment areas (all such areas
being herein called the "Public Areas"), plus the passenger cabins specified in
paragraph (b) of this Clause 5, shall be available to Space Charterers. Space
Charterers' passengers shall be restricted to such part of the Vessel as are
customarily used by passengers, reserving proper and sufficient space for the
Master, crew, hotel staff, tackle, apparel, furniture, bunkers, provisions and
stores.
(b) Space Charterers shall have the right to embark the minimum
respective numbers of passengers on each of the Cruises indicated in Clause 6
hereof. A listing of the applicable passenger cabins allocated to Space
Charterers and the Vessel's layout is part of EXHIBIT 1 (a) (iv) hereto. Certain
of the passenger cabins allocated to Space Charterers and
4
<PAGE>
identified in EXHIBIT 1 (a) (iv) will accommodate a third or fourth passenger
and Space Charterers will be permitted to house three (3) or four (4)
passengers, as the case may be, in such cabins, subject to the provisions of
Clause 27 hereof as to such extra berth sales. In the event either Owners or
Space Charterers desires to exchange cabins, the parties will use their
reasonable efforts to accommodate the reasonable requests of one another.
(c) Owners shall at all times be entitled to embark their own or
other third parties' passengers in the other passenger cabins of the Vessel (not
allocated to Space Charterers pursuant to paragraph (b) of this Clause 5 and
EXHIBIT 1 (a) (iv) hereto) up to the full berth capacity of such other cabins
and to make available to such other passengers all the Public Areas. The
standard and quantity of food, drink and services provided to such other
passengers by Owners shall be the same as those provided by Owners under this
Charter to the passengers embarked by Space Charterers.
(d) Unless the context otherwise requires, or unless otherwise
specified herein, the term "passengers" as used in this Space Charter, shall be
deemed to refer to passengers embarked on the Vessel by Space Charterers.
6. SPACE CHARTER HIRE AND SECURITY FOR SPACE CHARTERERS' AND OWNERS'
OBLIGATIONS.
(a) Hire shall be comprised of the amounts and shall be payable as
specified in the following sub-paragraphs (i) through (iv) of this Clause 6(a)
(such amounts being collectively called "Charter Hire"):
(i) For each of the Cruises to take place as specified in EXHIBIT
4 (c) hereto (1) from Aruba to Aruba, (2) from Aruba to Philadelphia, (3) from
Baltimore to Baltimore via Philadelphia, New York and Canada between October 11,
2000 and October 25, 2000, and
5
<PAGE>
(4) the special event at Philadelphia, * per day, or pro rata for any part of a
day for the duration of each such Cruise, based in each case on * passengers at
* per passenger per day.
(ii) For each of the Cruises to take place as specified in
EXHIBIT 4 (C) hereto (1) from Bermuda to Bermuda between May 10, 2000 and June
7, 2000, and (2) from Bermuda to Bermuda between August 30, 2000 and October 11,
2000, * per day or pro rata for any part of a day for the duration of each such
Cruise, based on a * passengers at * per passenger per day.
(iii) For the Cruises to take place as specified in EXHIBIT 4 (C)
hereto from Bermuda to Bermuda between June 7, 2000 and August 30, 2000, * per
day or pro rata for any part of a day for the duration of each such Cruise,
based on a * passengers at * per passenger per day.
(iv) For Cruise Years 2001 - 2003 the Cruises described in (i) -
(iii) above will continue as set forth therein, except (a) for chronological
changes in the dates to reflect annual changes in the calendar, and except as
otherwise jointly agreed upon by Owners and Space Charterers, (b) for changes in
the Cruises as mutually determined by the parties, and (c) the Charter Hire
described therein will be increased (x) for Cruise Year 2 by *, compounded; (y)
for Cruise Year 3 by another *, compounded; and (z) for Cruise Year 4 by another
*, compounded. These increases are called, collectively the "Percentage
Increases."
(v) If the cost of Vessel fuel increases by an extraordinary
amount (e.g., as the result of an oil boycott), Space Charterers agree to meet
with Owners to discuss the problem and the parties will reach a mutually
satisfactory agreement as to how to resolve the problem. On the other hand, if
the cost of Vessel fuel decreases, Space Charterers may be
- ----------
* Marked text ommitted pursuant to an application for an order for confidential
treatment by Commodore Holdings Limited.
6
<PAGE>
entitled to a credit as described herein. The current price (Philadelphia) for
Vessel fuel is $101.90 ("Base Price"). Beginning upon the purchase by Owners of
Vessel fuel for Cruise Year 1, Owners will, throughout Cruise Year 1, determine
the average cost paid by Owners per ton for Vessel fuel ("Average Cost"). If,
for Cruise Year 1, the Average Cost is less than the Base Price, for Cruise Year
2 Space Charterers will receive a credit equal to (a) the difference between the
average price and the Base Price, multiplied by (b) the number of tons of Vessel
fuel purchased during Cruise Year 1 for the Cruises. The same procedure will be
applied in Cruise Years 3 and 4. Any credit to which Space Charterers is
entitled will be given through a reduction in the Charter Hire for the next
Cruise Year, which reduction will be spread ratably over the entirety of such
Cruise Year. Whether or not a credit is due will always be based upon the Base
Price. For example, if in Cruise Year 1 the Average Cost is $104 per ton, no
credit would be due Space Charterers because the Average Cost exceeded the Base
Price. If thereafter, in Cruise Year 3, the Average Cost was $103 per ton, Space
Charterers would not be entitled to a credit because the Average Cost was still
more than the Base Price, even though it was less than the Average Cost in
Cruise Year 2. Any credit to which Space Charterers is entitled but has not been
utilized at the end of the term of the Space Charter will be paid by Owners to
Space Charterers, either by an offset against amounts owed to Owners by Space
Charterers, or in cash.
(vi) On or before September 1, 1999, Owners shall provide to
Space Charterers a list of itemized start-up costs incurred by Owner in
connection with the Vessel with copies attached of paid receipts or final
billings in respect of such costs. These start-up costs, together with the
verified costs attributable to the items listed on EXHIBIT 6 (a) (vi), are
herewith called the "Costs." Space Charterers will pay Owners in unrestricted
funds, as a supplement to
7
<PAGE>
Charter Hire, * of the Costs, up to a maximun of *, as follows: (a) * will be
paid on or before September 27, 1999; and (b) the remaining amount will be paid
in three equal annual installments on or before September 27th of Cruise Years
2000, 2001 and 2002, provided that no installment shall exceed the amount of *.
During the lay up periods when the Costs are being incurred, the Vessel will not
be used for any outside cruises or otherwise except for repositioning ferry.
(b) (i) As security for their Charter Hire and their other
obligations under this Space Charter, Space Charterers shall cause to be
delivered to Owners on or before July 30, 1999, a stand-by irrevocable letter of
credit (the "SC Letter of Credit") issued by Brown Brothers, Citibank, N.A. or
Chase Manhattan Bank N.A. or any other U.S. bank acceptable to Owners in the
face amount of *, having an expiry date no earlier than 30 days after the last
Cruise under this Space Charter or of the last Cruise under any extension
hereof, otherwise containing terms acceptable to Owners, and payable in one or
more drawings against a draft and a certificate purporting to be signed by an
authorized signatory of Owners stating that Space Charterers have defaulted in
their payment obligations to Owners and that the accompanying draft is for an
amount not in excess of the amount of such defaulted obligations.
(ii) As security for their obligations under this Space Charter,
Owners shall cause to be delivered to Space Charterers on or before August 1,
1999, a standby irrevocable letter of credit (the "Owners Letter of Credit")
issued by Brown Brothers, Citibank, N.A., or Chase Manhattan Bank, N.A. or any
other U.S. bank acceptable to Space Charterers in the face amount of * having an
expiry date no earlier than 30 days after the last Cruise under this Space
Charter or of the last Cruise under any extension hereof, otherwise containing
terms acceptable to Space Charterers; and payable in one or more drawings
against a draft and
- ----------
* Marked text ommitted pursuant to an application for an order for confidential
treatment by Commodore Holdings Limited.
8
<PAGE>
certificate purporting to be signed by an authorized signatory of Space
Charterers stating that Owners have defaulted in their obligations to Space
Charterers and that the accompanying draft is for an amount not to exceed the
amount of such defaulted obligations.
(c) Space Charterers hereby represent that (i) it is the ultimate
parent entity that operates "Apple Vacations," and (ii) it owns substantially
all of the assets of "Apple Vacations." Each of Owners and Space Charterers
shall (i) cause its independent counsel and auditors to answer all such
inquiries as the other may reasonably make as to its financial ability to
perform its respective obligations under this Space Charter, and (ii) promptly
notify the other of any change in its financial condition having or likely to
have a material adverse effect upon its ability to perform its obligations
hereunder.
(d) Beginning on or before the 14th day prior to a Cruise, Space
Charterers shall deposit all receipts from passengers in respect of the Cruises
in an escrow account (the "SC Escrow Account") with Founder's Bank as escrow
agent (the "SC Escrow Agent"), and as further security for Space Charterers'
obligations under this Space Charter, shall create and hereby creates a security
interest in all balances in the SC Escrow Account in favor of Owners; provided
however that such security interest shall be subordinated in all respects to any
security interest in said balances as may exist from time to time in favor of
the Federal Maritime Commission or in favor of customers of Space Charterers for
refunds of passage moneys paid in advance in respect of non-performance of
transportation agreed with such customers. To the extent necessary to perfect
said subordinated security interest in favor of Owners, Space Charterers shall
execute and deliver to Owners on or before August 1, 1999, a Form UCC-1 or other
financing forms or instruments as Owners may require. Space Charterers shall
provide Owners with a copy of the escrow agreement (the "SC Escrow Agreement")
with respect to the
9
<PAGE>
SC Escrow Account, which shall be in a form reasonably acceptable to Owners;
shall include a provision requiring that a copy of all notices given under the
SC Escrow Agreement be provided to Owners; shall include a provision that there
will be no disbursements from the SC Escrow Account until forty-eight (48) hours
after passengers disembark from the Cruise; and shall not permit any amendment
to be made to the SC Escrow Account (including any change in the SC Escrow
Agent) without the prior written consent of Owners, which consent shall not be
unreasonably withheld. The cost of the SC Escrow Account shall be shared equally
between Space Charterers and Owners.
(e) The SC Escrow Agreement will also provide that, if Owners are
liquidated or dissolved the SC Escrow Account balance, if any, will be
distributed to Space Charterers. Further, if Owners are required to pay funds,
pursuant to Clauses 21A, 21B and 6 (i) below, it will provide for distribution
as so required.
(f) PORT CHARGES AND PASSENGER SUPPLEMENT. Not more than fourteen
(14) days before the commencement of each Cruise, Owners shall invoice Space
Charterers, who shall thereupon promptly (and in any event not later than two
business days from receipt of such invoice) pay Owners all actual out-of-pocket
passenger-related port charges of the categories described in EXHIBIT 6(f)
incurred or to be incurred by Owners for the Cruise in question PLUS (i) in the
case of Cruises not commencing at Aruba a supplement of * for each passenger
actually booked on such Cruise as a handling charge, and (ii) in the case of
Cruises commencing at Aruba, a supplement of * for each passenger actually
booked on such Cruise as a handling charge, in each case multiplied by the
number of days of such Cruise. Concurrently with the departure of each Cruise,
the parties shall determine the exact number of Space Charterers passengers on
board each such Cruise, and
- ----------
* Marked text ommitted pursuant to an application for an order for confidential
treatment by Commodore Holdings Limited.
10
<PAGE>
Owner shall provide either a supplemental invoice or credit to Space Charterer
to reflect the amount due under this Clause 6(f) based on the actual number of
passengers on board the Vessel.
(g) All references herein to "Dollars" are to Dollars of the United
States of America.
(h) If Space Charterers at any time default in the punctual payment
of any Charter Hire or any other amount due hereunder, Owners may demand in
writing that Space Charterers make payment of said amount within seventy-two
(72) hours of receipt of such notification (with respect to amounts due under
Clause 6(a) of this Space Charter) or within five (5) calendar days of receipt
of such notification (with respect to all amounts due under this Space Charter
other than pursuant to Clause 6(a)), failing which Owners shall have the option,
exercisable by written notice to Space Charterers at the end of such seventy-two
(72) hour or five (5) day period, as the case may be, beginning after the end of
the seventy-two (72) hours or five (5) day period, as the case may be, by
written notice to Space Charterers, to draw upon the SC Letter of Credit for the
amount due. Thereafter, if within a seven (7) day period, Space Charterers fail
to notify Owners that they have replenished the SC Letter of Credit to its full
amount of *, Owners may, by notice to Space Charterers, terminate this Space
Charter, in which case Space Charterers shall have no further rights in respect
of any spaces in the Vessel, and without prejudice to any further claim Owners
may have against Space Charterers, Owners shall be entitled to retain all
amounts thereunto paid by Space Charterers, and to the extent that such amounts
do not compensate Owners fully for all amounts remaining due under this Charter,
to draw upon the SC Letter of Credit for any remaining amount.
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* Marked text ommitted pursuant to an application for an order for confidential
treatment by Commodore Holdings Limited.
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(i) Any Charter Hire paid in advance and not earned shall be
refunded to Space Charterers within seventy-two (72) hours unless such amounts
are not earned by reason of Space Charterers' default and provided that if the
Vessel be lost, Charter Hire shall be paid up to and inclusive of the time of
loss or, if missing, up to and inclusive of the time last reported. Should the
Vessel become a constructive and/or compromised and/or arranged total loss, such
loss shall be deemed to have occurred and the Charter Hire shall cease as from
the time of the casualty resulting in such loss.
7. DAMAGE TO THE VESSEL.
(a) Space Charterers shall be liable for any and all damage caused
to the Vessel by Space Charterers' Representatives. The Master or his Officers
shall advise Space Charterers' representative on board as soon as any damage to
the Vessel is discovered for which Space Charterers may be liable. A list of
such damage shall be presented in writing to Space Charterers or their
representatives at the end of each voyage.
(b) Space Charterers shall not be responsible for loss or damage
sustained by the Vessel through negligence of passengers, pilots, masters,
officers, crew, hotel staff or tugboats.
8. OWNERS TO PROVIDE. Owners undertake throughout the Cruises to
provide (except to the extent otherwise specifically provided):
(a) (i) for the management, maintenance, furnishings, facilities,
services and navigation of the Vessel, all to a standard equal to that generally
prevailing on the Vessel as heretofore operated by Norwegian Cruise Line, except
that the Owners shall replace carpeting in the Vessel prior to delivery to Space
Charterers where appropriate and shall maintain the paint and carpet aboard the
Vessel throughout the term of the Space Charter in order to maintain the
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Vessel in a first class status and except in respect of the standard of meals
and dining room and kitchen staff as to which the standard specified in (iv)
below shall prevail;
(ii) all deck and engine room officers and crew, fuel, lubricants
and stores;
(iii) all pursers and hotel staff (other than dining room and
kitchen staff as provided in (iv) below);
(iv) all meals for passengers at the standard consistent with the
menus attached as EXHIBIT 8 (a) (iv), and Owners shall utilize the services of
Apollo Catering (or if Apollo Catering is unavailable for any reason, a similar
quality caterer) as the exclusive caterer of the Vessel for the Cruises (which
caterer shall also provide all dining room and kitchen staff), based on such
menus and an agreed assumption as to a daily food cost of * per passenger
per day. Should such caterers demand a higher amount of daily food cost as a
condition to their providing catering services at such level for the Cruises,
Charter Hire hereunder shall be correspondingly increased to cover such
increased cost of Owners;
(v) to enter the Vessel in a Protection and Indemnity ("P&I")
Club which is a member of the International Group of P&I Clubs for coverage
against customary P&I risks, including risks of death, personal injury or loss
of effects of passengers or Space Charterers' Representatives;
(vi) to appoint all agents required in connection with Owners'
undertakings herein;
(vii) to provide performance guarantees to the extent required by
applicable law, including Subpart A of Part 540 of Title 46 of the U.S. Code of
Federal Regulations;
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* Marked text ommitted pursuant to an application for an order for confidential
treatment by Commodore Holdings Limited.
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(viii) to pay for any embarkation and disembarkation taxes or any
head taxes, other taxes or fees imposed by any authorities on passengers;
(ix) to pay for shore excursions and any other expenses solely
relating to the passengers, such as usage of local launches, tenders, luggage
transportation from shore to the Vessel and vice versa, etc.;
(x) to include, as a minimum, as guest amenities bathrobes in
every cabin, toiletries of high quality and design (e.g. Crabtree & Evelyn,
Smith & Vandiver, Neutrogina or similar), satellite TVs with remotes in every
cabin, in-cabin safes, hairdryers and high-quality soft goods (towels, bath
sheets, linens) and to place fresh flowers in all cabins and public areas to
replenish as needed; and
(xi) to make the upgrades to the Vessel as described at EXHIBIT 8
(a).
(b) *
(c) If Owners have reason to be dissatisfied with the conduct of any
of Space Charterers' Representatives, Space Charterers shall, on receiving
particulars of the complaint, promptly investigate the matter and consult with
Owners on how to resolve the situation.
(d) Owners shall be responsible for all documentation of or relating
to passengers and their baggage and shall provide Space Charterers with an
adequate supply of Owners standard terms passenger ticket for issuance to
passengers as contemplated by Clause 12 hereof.
9. ON BOARD REVENUES AND PORT CHARGES.
(a) Owners shall be solely entitled to receive and shall retain all
amounts received in respect of on-board sales to passengers, including without
limitation, receipts from
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* Marked text ommitted pursuant to an application for an order for confidential
treatment by Commodore Holdings Limited.
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all bars, laundry, shops, facsimile, telephones, copying charges and all
concessions on the Vessel.
(b) Owners shall supply the Vessel's bars and all liquor (including
restaurant liquor and beverage sales) at their expense.
(c) The prices for all shore excursions for passengers shall be
established by and shall be the sole responsibility of Owners and Owners shall
retain all proceeds derived therefrom.
(d) For purposes of this Clause 9, the sale of cabin upgrades by
Space Charterers on-board the Vessel shall not be deemed to be on-board revenue
as long as the upgraded cabins are cabins assigned to Space Charterer pursuant
to EXHIBIT 1 (a) (iv).
10. SPACE CHARTERERS' REPRESENTATIVE.
(a) Space Charterers shall have on board a representative who will
be responsible to the Master for all matters affecting Space Charterers'
interests and the welfare of the passengers and Space Charterers'
Representatives. Space Charterers' Representatives shall occupy cabins allocated
to Space Charterer pursuant to this Charter.
(b) Space Charterers' Representatives shall be at Space Charterers'
full risk and expense but shall be signed on as supernumeraries on the Vessel's
Articles.
(c) Owners shall supply the Space Charterers' Representative with a
usable office. The office will have a telephone and fax machine for his/her use,
the costs of which will be billed to and paid by Space Charterers at cost.
(d) Space Charterers' Representatives on board the vessel will
receive a 50% discount on beverages and will pay excursion charges at Owners'
cost.
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11. SMUGGLING. Any delay, expenses or fines incurred on account of
smuggling if caused by Space Charterers' Representatives (unless provided by
Owners) or Space Charterers' passengers shall be for Space Charterers' account,
but if incurred by Owners passengers or Owners' officers, crew or hotel staff
shall be for Owners' account.
12. PASSENGER TICKETS. Space Charterers shall issue to passengers
Owners standard form of ticket, a copy of which has been supplied to Space
Charterers. Space Charterers shall not make any alterations or amendments to the
terms and conditions of the ticket without Owners' approval, which approval
shall not be unreasonably withheld. Owners shall only be liable to the
passengers to the extent provided in the terms and conditions of the tickets and
not otherwise. All rights, exemptions and limitations of whatsoever nature
effective for Owners under this Space Charter, in whatsoever connection, also
apply in favor of the Master, officers, crew members, hotel staff, other
servants, agents and independent contractors irrespective of whether the latter
are acting on behalf of Owners or as contractual partners of the passengers.
13. INDEMNIFICATIONS.
(a) Owners shall indemnify, defend and hold harmless Space
Charterers from and against any liability or expenses resulting from any and all
claims asserted by any person or entity claiming a loss, asserting any rights or
prosecuting any action against Space Charterers arising from or in connection
with conditions or operation of the Vessel, including but not limited to the
negligent acts or omissions of the Master, officers, crew members, hotel staff,
other employees, servants, agents and independent contractors of Owners.
(b) Space Charterers shall indemnify, defend and hold harmless
Owners from and against any liability or expenses resulting from any and all
claims asserted by any person or entity claiming a loss, asserting any rights or
prosecuting any action against Owners arising from
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or in connection with any negligent acts or omissions of Space Charterers'
Representatives, or other employees, servants, agents and independent
contractors of Space Charterers.
14. BOOKING. Space Charterers shall be solely responsible for the
general booking plan and the actual berthing arrangements for the passengers
within the cabins allocated to Space Charterers as shown on EXHIBIT 1 (a) (iv)
hereto. At least fourteen (14) days prior to the departure of the Vessel on each
Cruise, Space Charterers shall provide the Owners with a complete passenger
manifest, in duplicate, of the name of each of the passengers who will be
embarking, the berth reserved for each, each passenger's date of birth and
passport number and place and date of issue. Such manifest shall contain such
information relating to each passenger as may be required by the authorities of
the various ports of call of the Vessel. Owners shall allow Space Charterers to
reasonably update such manifest until the date of departure of each Cruise.
15. COMPLIANCE WITH REGULATIONS. Space Charterers and Owners shall
comply with all rules and laws of the various governments regarding exchange
control and customs control, and Space Charterers undertake to inform all
passengers and Owners undertake to inform its crew and other employees
accordingly. Owners shall not be responsible for breaches of the respective laws
committed by Space Charterers or Space Charterers' Representatives (unless
provided by Owners) and Space Charterers shall indemnify Owners for any loss,
damage or expense incurred thereby. Space Charterers shall not be responsible
for breaches of the respective laws committed by Owners, the master, officers,
crew, hotel staff and/or other employees of Owners, and Owners shall indemnify
Space Charterers for any loss, damage or expense incurred thereby.
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16. SHORE EXCURSIONS. The planning and execution of all shore
excursions during the Cruises offered by Owners to passengers shall be the sole
responsibility of Owners, and all revenues and costs associated therewith shall
be for Owners' account; provided, however, that Owners shall allow Space
Charterers to participate in the selection and planning of shore excursions in
order to assure the most successful shore excursion program, and Owners shall
notify Space Charterers of the available shore excursions as soon as they have
been finalized so that Space Charterers may include them in their marketing
program. Owners will make available to Space Charterers' passengers the same
shore excursions as Owners organize for their own passengers, on the same terms
as for Owners' passengers.
17. AGENTS. Owners shall appoint their agents at each port of call of
the Vessel as shown on the agreed itinerary for the purpose of the Vessel's
clearance inward and outward.
18. PASSPORTS. Space Charterers undertake that all their passengers
shall be in possession of valid passports, visas and health certificates as
required by applicable law.
19. DEVIATION.
(a) The Vessel shall have liberty to tow or to be towed, to assist
ships in distress and to deviate for the purpose of saving or attempting to save
life or property at sea; any reasonable deviation shall not be deemed to be a
breach of the contract of carriage and Owners shall not be liable for any loss
or damage resulting therefrom. All salvage shall be for Owners, benefit and time
lost during salvage operations shall be treated as a period of off hire.
(b) Following any deviation, the Vessel shall resume, as far as
possible, the original itinerary without altering the date and hours of arrival
at the last port of call of the same cruise/voyage.
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(c) If, upon arrival at or off any port, the Master is of the
opinion that by reason of bad weather or any other cause beyond his control
affecting the security of passengers or the Vessel, it is inadvisable for
passengers to land or for the Vessel to enter the port, the Vessel may omit the
call at that port and shall proceed to the next port in the itinerary of the
cruise or such other destinations as are reasonably agreed between Owners and
Space Charterers. If, on account of any cause whatsoever beyond the control of
Owners, the Vessel is unable to adhere to the itinerary of a cruise, such
itinerary shall be altered by mutual agreement between Owners and Space
Charterers.
(d) If the Vessel must omit a port in its itinerary pursuant to this
Clause 19, the Owners shall notify the Space Charterers promptly after the
decision to omit a port has been made, and allow Space Charterer's to
participate in the decision of what port will be omitted; provided, however,
that if the omission of a port relates to a safety concern, the parties shall
defer such decision to the Master.
20. FORCE MAJEURE. Neither the Vessel, her Master or Owners, nor Space
Charterers shall, unless otherwise in this Space Charter expressly provided, be
responsible for any loss or damage or delay or failure in performing hereunder
arising or resulting from: act of God; act of war; perils of the seas; act of
public enemies, pirates or assailing thieves; arrest or restraint of princes,
rulers or people, or seizure under legal process provided bond is promptly
furnished to release the Vessel, strike or lockout or stoppage or restraint of
labor from whatever cause, either partial or general; or riot or civil
commotion.
21. WAR RISKS.
(a) The Vessel shall be at liberty as against Space Charterers and
passengers, without liability for loss or damage, to comply with any order or
direction as to departure,
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arrival, routes, ports of call, stoppages, destinations, delivery or otherwise
howsoever given by the Government of the Nation under whose flag the Vessel
sails or any department thereof, or by any other government or any department
thereof, or any person acting or purporting to act with the authority of such
Government or of any department thereof, or by any committee or person having,
under the terms of the War Risks Insurance on the Vessel, the right to give such
orders or directions and if by reason of and in compliance with any such orders
or directions anything is done or is not done, the same shall not be deemed a
deviation, and acts or omissions in accordance with such orders or directions
shall be a fulfillment of this Charter and the hire shall be payable
accordingly.
(b) In the event of:
(i) outbreak of war (whether declared or not) or hostilities
between any two of the following countries -- United Kingdom, United States of
America, Venezuela, Bermuda, Canada or any of the countries in the Caribbean;
(ii) the nation under whose flag the Vessel sails becoming
involved in war (whether declared or not) or hostilities;
(iii) revolution, civil war, insurrection;
(iv) arrests and restraints of princes, rulers or people or
requisition by or in compliance with the orders of the government under whose
flag the Vessel sails;
(v) the issuance of a travel advisory by the U.S. Government, or
serious threat of terrorism;
(vi) acts of God, perils of the sea, pirates, assailing thieves,
collision, stranding, grounding and other accidents of navigation (even if
caused by the negligence, default or error in judgment of the Master, officers
and crew) explosions, bursting of boilers, breakages
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of shafts or any latent defects of the Vessel's hull or machinery not resulting
from negligence or any want of due diligence on the part of Owners (the possible
events described in (i) - (vi) hereof are collectively called the "Extraordinary
Events");
which directly affect the fulfillment of this Charter in such a
material way that either or both of the parties hereto cannot reasonably be
expected to continue, then either Owners or Space Charterers may terminate this
Charter, whereupon Space Charterers shall complete any voyage in progress and
redeliver the Vessel to Owners at the port of redelivery for such Cruise as
shown on EXHIBIT 4 (C) hereto, and each party shall return to the other any
advance payment that may have been made, but subject thereto neither party shall
have any claim against the other arising out of the termination or the event or
events giving rise to the termination.
21A. DISABILITY OF VESSEL. If the Vessel is at any time disabled (other
than as the result of an Extraordinary Event) prior to or during a Cruise for a
period exceeding 48 hours, Space Charterer, in its sole discretion, may cancel
the Cruise and Owners and Space Charterers will direct the SC Escrow Agent to
refund passengers the advances paid by them. In addition, upon a cancellation,
Owners will be responsible to fully protect the rights to outside travel agents
to their commissions, upon receipt of appropriate and verifiable information
obtained from Space Charterers setting forth the names, full addresses and
amounts owed by Space Charterers to all outside travel agents on account of the
Cruise. Further, upon a cancellation, Owners will be responsible to pay for all
reasonable costs of repatriating any passengers to their cities of residence.
Finally, upon a cancellation causing a full refund to Passengers, Owners will
provide Space Charterers a one-time fifty percent (50%) on the Charter Hire for
any passenger of a Cruise commencing within 12 months of the cancellation who
was also a passenger on the
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cancelled Cruise. This Charter Hire reduction will be subject to Space
Charterers providing appropriate documentation to Owners.
21B. DELAY OF VESSEL. If (a) a delay in embarkation occurs (excluding
one caused by an Extraordinary Event or the reasonable expectation of an
Extraordinary Event), and the scheduled Cruise ultimately occurs but the delay
continues for a period exceeding twenty-four (24) hour from the scheduled
departure time for such voyage, or (b) there is a delay in the Cruise which
occurs after embarkation, and the delay causes the Cruise to arrive at its final
destination more than twelve (12) hours after the scheduled arrival, then in
those events Owner shall refund to Space Charterers a prorated portion of the
Charter Hire (exclusive of the port and handling charge or gratuities) for each
such twenty-four (24) hour or twelve (12) hour (as the case may be) period of
delay. If the 24- or 12-hour delay in arrival causes any passengers to miss
their connecting air transportation, Owners shall pay all reasonable costs of
repatriating such passengers to their cities of residence.
22. ADVERTISING. Each party hereto guarantees that all advertising or
other promotional material used by such party to solicit and/or book passengers
on the Vessel shall comply with all applicable governmental laws and
regulations, failing which the party using such unlawful material shall
indemnify, defend and hold harmless the other party hereto from any liability
resulting therefrom or fines levied on the Vessel or such other party. Space
Charterers shall obtain Owners' advance approval of its brochures, which
approval shall not be unreasonably withheld. All national trade advertising for
Cruises from Aruba to Aruba and from Aruba to Philadelphia shall list the
telephone numbers for both Owners and Space Charterers and shall instruct
persons from identified states and countries to call the telephone number for
the appropriate person (either Owners or Space Charterers, as set forth in
EXHIBIT 22) responsible for
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such state or country. Owners shall obtain Space Charterers' advance approval of
any national trade advertising and expense budget for same, which approval shall
not be unreasonably withheld. The cost of such national trade advertising shall
be shared equally between Space Charterers and Owners.
23. INTENTIONALLY OMITTED.
24. MARKETING ALLOWANCE AND RELATED EXTRA PER PASSENGER PAYMENTS.
(a) In addition to the passenger cabins allocated to Charterers and
covered by Clause 6 and EXHIBIT 1 (a) (iv) hereto, Owners shall provide Space
Charterers with a further (i) * cabins for a total of * extra passengers on the
Cruises beginning at Aruba (other than the Cruise from Aruba to Philadelphia),
and (ii) * cabins for a total of * extra passengers on the Cruise from Aruba to
Philadelphia (the "Marketing Allowance Cabins").
(b) Space Charterers shall pay Owners for all passengers booked into
the Marketing Allowance Cabins not later than fourteen (14) days prior to
commencement of each Cruise in question (i) * per passenger per day of the
Cruise (said amount subject to the Percentage Increase as described at Clause 6
(a) (iv) above); and (ii) Owners' out-of-pocket port charges incurred by Owners
and the related per passenger supplements, specified in Clause 6(f) hereof.
25. BERMUDA HOTEL GUARANTY AND CHARTER FLIGHTS. Space Charterers
understand that Owners will enter into a three-year agreement with the relevant
authorities in Bermuda to cause passengers to occupy a certain number of hotel
rooms in Bermuda during times that the Vessel visits Bermuda (the "Bermuda Hotel
Guaranty"). Space Charterers and Owners shall jointly select the hotels and
negotiate the room rates to meet the Bermuda Hotel Guaranty, and agree
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* Marked text ommitted pursuant to an application for an order for confidential
treatment by Commodore Holdings Limited.
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that each will use their respective best marketing efforts so that Owners
fulfill this obligation during the term of the Space Charter including any
extensions thereof. In the event Owners and Space Charterers are unable to sell
such required number of hotel rooms, Space Charterers shall reimburse and
indemnify Owners for the cost of one-half of such unsold but guaranteed rooms at
rates to be agreed upon by the parties. The parties acknowledge that Space
Charterer will arrange for certain charter flights to and from Bermuda, in part,
to serve passengers who will stay in Bermuda to meet the Bermuda Hotel Guaranty,
and that Space Charterer will reserve up to 50 seats on such charter flights for
such persons. If Space Charterers are unable to meet the Bermuda Hotel Guaranty,
it will release the associated charter flight seats for sale to others not less
than thirty (30) days before the departure of each Cruise, and will use its best
efforts to sell such seats to others. If, despite using such efforts, certain of
such reserved seats go unsold, the parties shall share the cost of such seats
equally, which cost is estimated to be between $175 and $195 per seat per round
trip flight. Owners and Space Charterers agree to work together in good faith to
attempt to extend the Bermuda Hotel Guaranty to fully cover the Term. If they
cannot accomplish that objective, they will mutually agree upon an alternative
plan for the Cruise Year 4.
26. CHARTER FLIGHTS TO ARUBA. Space Charterers shall use its best
efforts to sub-charter to Owners from December 18, 1999, commercial passenger
jet aircraft with a capacity of approximately 172 passengers at the same cost as
Space Charterers itself is able to charter such aircraft, for the purpose of
providing Owners air seats for Owners' own passengers between Miami, Fort
Lauderdale and Aruba and back. Space Charterers shall advise Owners of the
availability and costs of such 172 passenger aircraft as soon as possible, but
in all events within 15 days from the date hereof.
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27. ADDITIONAL CABIN AND BERTH SALES. For those Cruises where Space
Charterers are not chartering at least * cabins, Space Charterers may charter
additional cabins, space permitting and with the Owners' prior approval. The
cost of such extra cabin space (in excess of * cabins) shall be * per passenger
per day (said costs subject to the Percentage Increase as described at Clause 6
(a) (iv) above). If Space Charterers sell berths in cabins to a third and/or
fourth passenger on any Cruise (whether or not in cabins allocated to Space
Charterers in EXHIBIT 1 (a) (iv) hereto), the additional cost payable by them
therefor shall be * per passenger per day (said costs subject to the Percentage
Increase as described at Clause 6 (a) (iv) above), plus all out-of-pocket port
charges incurred by Owners and the amounts by way of supplements specified in
Clause 6(f) hereof.
28. RESERVATIONS SYSTEM. At Space Charterers' option, Owners shall
provide Space Charterers with access to Owners' computer reservations system at
no charge and shall permit Space Charterers to book reservations through such
system. Space Charterers shall bear the costs of installing and maintaining the
link to such reservations system and the associated telephone lines in Space
Charterers' offices.
29. MARKETING EFFORTS FOR CRUISES. The parties shall allocate between
them the territories to be marketed by them respectively for the Cruises as set
forth in EXHIBIT 22.
30. SPACE CHARTERERS' RIGHT TO USE "CROWN CRUISE LINE" NAME. Owners
shall grant Space Charterers a non-exclusive license to market the Cruises under
either the "Crown Cruise Line" name, or if such name is not available to Owners,
the "Dynasty Cruise Line" name, but such name shall at all times remain the
exclusive property of Owners. Owners shall notify Space Charterers within 15
days of which name Space Charterers may use.
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* Marked text ommitted pursuant to an application for an order for confidential
treatment by Commodore Holdings Limited.
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31. LUGGAGE. Space Charterers shall ensure that all passenger luggage
is legibly labeled with the passenger's name, cabin number, port of embarkation
and disembarkation and sailing date, failing which Owners shall not be
responsible for loss, confusion and/or errors in the loading or discharging of
such luggage. Space Charterers shall be responsible for delivering all passenger
luggage to the pier at which the Vessel is docked not less than two (2) hours
before the scheduled departure time for the Vessel. Owners shall be responsible
for such passenger luggage from the point it is timely delivered to the pier
until it is re-delivered to such pier upon the conclusion of each Cruise. Owners
will exercise its best efforts to provide sufficient staffing to enable timely
passenger check-ins and disembarkation with minimal waiting periods.
32. OWNERS' LIMITATION OF LIABILITY. Owners shall retain all of their
rights, statutory or otherwise, as owners and operators of the Vessel, and this
Space Charter shall not be construed as constituting a bareboat or demise
charter of the Vessel. Any provision of this Charter to the contrary
notwithstanding, Owners shall have the benefit of all limitations of and
exemptions from liability accorded to Owners of vessels by any statute, rule of
law, international convention or treaty as may be applicable.
33. LIENS. Space Charterers will not suffer, nor permit to be
continued, any lien or encumbrance on the Vessel incurred by them or their
agents.
34. SEVERABILITY. Any provision of this Space Charter which is
prohibited or unenforceable in any jurisdiction shall be, as to such
jurisdiction, ineffective to the extent of such prohibition or unenforceability
without invalidating the remaining provisions hereof, and any such prohibition
or unenforceability in any jurisdiction shall not invalidate surrender
unenforceable such provision in any other jurisdiction.
35. NOTICES.
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(a) Whenever written notice is required to be given by either party
to the other party, such notice shall be sent by hand delivery, facsimile,
overnight courier service or certified mail, return receipt requested, to the
following addresses:
NOTICE TO OWNERS:
c/o Commodore Cruise Line
4000 Hollywood Blvd.,
Suite 385 South,
Hollywood, Florida 33021
Telephone: 954-967-2100
Fax: 954-967-2147
Attention: Mr. Fred A. Mayer, Chief
Executive Officer
With a copy to:
Broad and Cassel
201 S. Biscayne Blvd., Suite 3000
Miami, Florida 33131
Telephone: 305-373-9400
Fax: 305-373-9443
Attention: Kathleen L. Deutsch, P.A.
NOTICE TO SPACE CHARTERERS:
c/o APPLE VACATIONS
7 Campus Boulevard
Newtown Square, Pennsylvania 19073
Telephone: 610-359-6515
Fax: 610-359-6519
Attention: Mr. John Mullen
With a copy to:
Edward T. Lawlor, Esq.
297 South Newtown Road
Newtown Square, PA 19073
Telephone: 610-356-1400
Fax: 610-359-1737
or to such other address as the parties may respectively from time to time
designate by notice in writing.
(b) Any notice required under this Space Charter to be given in
writing shall be deemed to be duly received:
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(i) in the case of a letter, whether delivered in course of the
post or by hand or by courier, at the date and time of its actual delivery if
deliverance is within normal business hours on a working day at the place of
receipt, otherwise at the commencement of normal business on the next such
working day; and
(ii) in the case of a telecopier/photographic facsimile
transmission, at the time recorded together with the telephone dialing code of
the receiving machine on the message if such time is within normal business
hours on a working day at the place of receipt, otherwise at the commencement of
normal business hours on the next such working day, but only if the time of
receipt and the said code appear on the received facsimile copy.
36. ASSIGNMENT. Neither Owners nor Space Charterers may assign any of
their rights or obligations hereunder without the prior written consent of the
other party hereto; provided, that Owners may assign their rights (but not
obligations) hereunder to any lender as security for the repayment of funds
advanced by such lender to Owners.
37. AMENDMENTS. This Space Charter may be amended or supplemented at
any time only by written instrument executed by both of the parties hereto.
38. GOVERNING LAW. This Space Charter shall be governed by and
construed in accordance with the general maritime laws of the United States of
America and the substantive laws of the State of New York, as applicable. The
parties hereto agree that if any controversy or claim arises out of or relating
to this Space Charter or the breach thereof, the venue for any such action or
claim shall be in Miami, Florida (if initiated by Space Charterers) or in
Philadelphia, Pennsylvania (if initiated by Owners).
39. ENTIRE AGREEMENT. This Space Charter constitutes the full and
complete understanding between the parties hereto with respect to the
transactions contemplated herein
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and supersedes all prior arrangements, understandings and agreements concerning
the transactions contemplated herein, oral or written, between the parties
hereto.
40. COUNTERPARTS. This Space Charter may be signed in counterparts.
IN WITNESS WHEREOF, the parties hereto have executed this Space Charter
with effect as of the date first set forth above.
CROWN CRUISES LIMITED
By: /s/ Frederick A. Mayer
--------------------------------------------------
Chief Executive Officer
ATKINSON AND MULLEN, INC., doing
business as
APPLE VACATIONS
By: Illegible
--------------------------------------------------
29
EXHIBIT 10.qq
BERMUDA BERTHING AGREEMENT
THIS AGREEMENT (the "Agreement") is made the 14th day of July, 1999
BETWEEN THE GOVERNMENT OF BERMUDA (hereinafter called "The Government") and
CROWN CRUISES LIMITED, a Bermuda corporation having its principal place of
business at 4000 Hollywood Boulevard, Suite 385-S, South Tower, Hollywood,
Florida 33021, (hereinafter called the "Company").
WHEREAS, the Government has berths and facilities for cruise vessels at
the former Royal Dockyard in the Bermuda islands (hereinafter called the
"Dockyard") and considers it imperative to promote and use those berths and
facilities for the wellbeing of Bermuda's tourism industry and the business
community generally and in particular that of the Dockyard.
AND WHEREAS, the Company has agreed to provide regularly scheduled
cruise ship services between the Philadelphia/Baltimore/Washington, D.C. area
and the Dockyard and for that purpose has agreed to procure and utilize a vessel
named M/V Crown Dynasty (hereinafter called "the Vessel," which expression
shall, where the context admits, include any ship properly substituted for the
same under the provisions of Clause 2 hereof).
AND WHEREAS, the Vessel will be operated by the Company or its
affiliated appointee;
AND WHEREAS, the Government has agreed to make available to the Company
at the Dockyard a berth, and the facilities normally pertaining thereto,
suitable in size and location for the Vessel; and
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AND WHEREAS, the Company has applied to the Minister responsible for
Tourism to issue an appropriate permit as required under the provisions of the
Bermuda Passenger Ships Act 1972.
NOW, in consideration of the mutual agreements hereinafter contained IT
IS HEREBY AGREED, as follows:
1. The Government hereby grants to the Company for the benefit of
itself and its parent or subsidiary companies if any:
(a) The use of a berth at the Dockyard for a period of 22 weeks
extending over Friday, Saturday and Sunday of each week during the period
beginning on May 12, 2000 and beginning during the first week in May (as
requested by the Company) in 2001 and 2002 (such three-year period is
hereinafter called the "Term"). The exact time of arrival and departure on each
occasion shall be agreed with, and subject to the control of, the Bermuda
Harbourmaster;
(b) The use of all facilities normally made available at the
Dockyard to cruise ships at berth there; and
(c) The exclusive permission to call in Bermuda with respect to a
cruise ship sailing from the Philadelphia, PA/Baltimore, MD/Washington, D.C.
area (the "Baltimore Area") during the Term; provided, always that such
permission shall not prevent the Government from granting permission to another
vessel to sail to Bermuda from the Baltimore Area on an occasional basis during
the second or third year of the Term. And so that the Government will ensure, so
far as it is able, that if for any reason such berth cannot be used then, the
Government will permit the Company to use another suitable and safe berth to be
designated by the Harbourmaster, if one is available at that time, or a safe
anchorage.
2. The Company hereby agrees that it will:
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(a) Procure the use of and operate the Vessel (or another ship of
comparable size and quality as may be approved in writing by the Minister
responsible for tourism, such approval not to be unreasonably withheld) for the
said regularly scheduled weekly cruises during the Term.
(b) Redecorate the Vessel with a strong Bermuda theme, including
re-naming the decks with Bermuda names and displaying pieces of Bermuda art.
(c) Promote on board the Vessel during each of the said cruises to
the Dockyard the shopping and recreational opportunities in the Dockyard in
particular and in Bermuda generally in a manner and to the extent reasonably
required by the Government's Department of Tourism and ensure that the Bermuda
Cruise magazine or any other similar publications are freely distributed on
board the Vessel and a copy placed in each cabin.
(d) Retain a total of up to 30 Bermuda summer interns to work aboard
the Vessel to gain hospitality experience in five four-week rotations of six
persons each. The Company shall provide such interns with food and lodging on
the Vessel but no other compensation.
(e) Establish food and drink menus aboard the Vessel that includes
Bermuda drinks and specialty meals.
(f) Provide the plans for the redecoration of the Vessel to reflect
the Bermuda theme for the review of the Government in advance to ensure that the
Government has an adequate opportunity to provide the Company with its
meaningful input, notify the Government of the progress of the redecoration of
the Vessel and provide the Government with an opportunity or opportunities to
inspect the Vessel to ensure that the redecoration is proceeding
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in accordance with the agreed upon plans prior to the commencement of the first
cruise to Bermuda during the Term in May 2000.
(g) Guaranty that an average number of cruise passengers will stay
in Bermuda hotel rooms each week of the cruise season as follows: 100 passengers
(300 bed nights) per week in 2000, 150 passengers (450 bed nights) per week in
2001 and 200 passengers (600 bed nights) in 2002.
(h) Provide weekly lists of cruise passengers aboard the Vessel who
have elected to take advantage of the "cruise and stay" program described in
(g).
(i) Arrange for the marketing of the Bermuda cruises aboard the
Vessel to passengers in the Chicago, IL and other areas and arrange for charter
flights for passengers from Chicago, IL to Bermuda and returning through
Philadelphia, PA.
(j) In all aspects of the Vessel's operation and maintenance and in
respect of any other work carried out to the Vessel, have regard to the physical
environment of Bermuda, and observe and comply with the provisions of the
International Convention for the Safety of Life at Sea (1974) as amended and the
International Convention for the Prevention of Pollution from Ships (1973) as
amended and any other legislation or treaty which has effect in Bermuda and is
designed or intended or, which, in the opinion of the Government, has the effect
of enhancing or preserving the physical environment of Bermuda or of protecting
Bermuda or its people from harm or damage resulting from the operation of the
Vessel.
(k) Fully indemnify the Government and its employees against all
proceedings, claims, costs, expenses and liabilities whatsoever which may be
occasioned by the Company's servants or by the use of said berth or anchorage by
the Company, except that such indemnity in favour of the Government shall not
extend to any claims, costs, expenses and
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liabilities occasioned by reason of any negligence or misconduct on the part of
the Government or its employees.
(l) At all times during the Term of this Agreement, provide the
Government with such insurance protection as is usual, customary and appropriate
in the cruise industry to protect the Government against third-party risks and
any claims against the Government or its employees under this Agreement that may
arise in connection with the Company's use of the said berth or anchorage, pay
all premiums necessary for that purpose within seven (7) days after the same
shall become due and deliver to the Government on written demand the policy or
policies of such insurance and the receipt for the current premium for the same.
3. (a) Should the Vessel fail to call at Bermuda in accordance with
Clause 2 hereof then the Company shall pay to the Government for each such
voyage not so undertaken, by way of liquidated damages and not as a penalty, and
as a complete remedy for such failure, a sum equal to the average of the
"passenger departure tax" paid per voyage together with pilotage, bouyage and
berthing charges in respect of the failed arrival or arrivals. Provided always
that if there are no, or an insufficient number of voyages, then the sum shall
be computed as if the appropriate voyages had been undertaken at ninety percent
(90%) of the capacity of the Vessel. If the Company fails to comply with Clause
2(g), the Company shall pay to the hotels contracted to provide the rooms the
contract rate for each bed night guaranteed but not used. Provided also,
however, that no such payment shall fail to be made if the failure is caused by
an act of God, war, riot, civil commotion, strike, lock-out, substantial
mechanical breakdown or other force majeure (being an event outside the
reasonable control of the Company).
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(b) For the purposes of this Agreement the term "passenger departure
tax" shall have the meaning assigned to it by the Miscellaneous Taxes Act, 1976,
as amended from time to time, or in any substitution or re-enactment thereof.
(c) No increase in the passenger departure tax or the passenger
cabin tax under the Miscellaneous Taxes Act 1976 and the Miscellaneous Taxes
(Rates) Act 1980, respectively, or the port fees under the Marine and Ports
Authority (Port Dues) Regulations 1969 shall be binding on the Company until
twelve (12) months after notice of such increase shall have been given to the
Company by or on behalf of the Government.
4. If the Company shall at any time give notice to the Government of
its intention to withdraw the Vessel without substituting an alternative vessel
under the provisions of Clause 2 hereof or if the Vessel does not make three or
more consecutive visits in accordance with the terms of this Agreement without
the consent in writing of the Government or, without such consent misses five or
more of such visits during any one calendar year, the Government shall, without
prejudice to any other rights it may have under the terms of this Agreement or
at law, be entitled to terminate this Agreement by giving notice to the Company.
Notwithstanding the foregoing, the Company shall not have violated this Clause 4
if its failure to visit the Dockyard is due to an act of God, war, riot, civil
commotion, strike, lock-out or other force majeure (being an event outside the
reasonable control of the Company).
5. (a) If during the Term of this Agreement the Government has
reasonable and proper cause to claim, and does claim, that the quality of the
service and equipment provided by the Company under the terms of this Agreement
have deteriorated in a material respect (fair wear and tear of equipment
excepted), it shall promptly give written notice thereof to the Company giving
reasons for any such claim.
6
<PAGE>
(b) The Company agrees that it will within ninety (90) days, if it
accepts the claim, commence and diligently prosecute to completion reasonable
measures to correct such deterioration or, if it does not accept the claim,
discuss with the Government how to resolve the matter complained of and, failing
agreement thereon either party shall be entitled to refer the dispute to
arbitration as provided in Clause 8 hereof and the decision of the arbitrator or
arbitrators shall be final binding and conclusive. Provided, however that a
delay in or failure by the Company to so commence or diligently prosecute to
completion such measures shall not constitute a default or breach under this
Agreement to the extent such delay or failure is occasioned by an act of God,
war, riot, civil commotion, unavailability or embargo of materials or equipment,
strike, lockout, or other force majeure (being an event outside the reasonable
control of the Company).
6. (a) If during the Term of this Agreement, the Company has reasonable
and proper cause to claim, and does claim, that the berth or any alternative
berth or safe anchorage available to it is unsafe or unsuitable in a material
respect or that the facilities provided or agreed to be proved by the Government
have deteriorated in a material respect, the Company shall promptly give written
notice thereof to the Government giving reasons for any such claim.
(b) The Government agrees that it will within 90 days, if it accepts
the claim, take all reasonable measures to remedy the matters complained of or,
if it does not accept the claim, discuss with the Company how to resolve the
complaint and, failing agreement thereon, either party shall be entitled to
refer the dispute to arbitration as provided in Clause 8 hereof and the decision
of the arbitrator or arbitrators shall be final binding and conclusive.
Provided, however that a delay in or failure by the Government to so commence or
diligently prosecute to completion such measures shall not constitute a default
or breach under this Agreement to the
7
<PAGE>
extent such delay or failure is occasioned by an act of God, war, riot, civil
commotion, unavailability or embargo of materials or equipment, strike, lockout,
or other force majeure (being an event outside the reasonable control of the
Government).
7. Should this Agreement be, for any reason terminated by the Company,
the Company shall pay to the Government by way of liquidated damages, and not as
a penalty, and as complete remedy therefor, a sum equal to the amount that would
have been payable to the Government under the provisions of Clause 3(a) of this
Agreement as if the Company had failed to provide a Vessel to call at Bermuda
for a period equal to the lesser of the balance of the Term or of two (2) years
following the date of such termination. Notwithstanding the foregoing, in the
event the Company determines during the first year of the Term that its
operation of the Vessel is not successful, it shall notify the Government on or
before August 15, 2000 and the parties shall modify this Agreement to achieve a
resolution to such problem.
8. In the event of a reference to arbitration pursuant to the
provisions of Clause 5 or 6 of this Agreement, the same shall be submitted to
arbitration by three (3) arbitrators, one to be chosen by the Government, one by
the Company and the third to be appointed by the President for the time being of
the London Maritime Arbitrators Association from its members. Such arbitration
shall be conducted in Bermuda in accordance with the Bermuda International
Conciliation and Arbitration Act 1993 or any re-enactment or statutory
modification thereof for the time being in force to the extent consistent with
this clause. The party desiring arbitration shall serve upon the other party
written notice of its desire, specifying the issues to be arbitrated and the
name of the arbitrator whom it appoints. Within fourteen (14) days after receipt
of notice of such demand for arbitration, the other party shall in turn appoint
an arbitrator and give notice in writing of such appointment to the party
demanding an arbitration. If a party fails to appoint an arbitrator as aforesaid
within fourteen (14) days following receipt of notice of demand for arbitration
by the other party, the party failing to appoint
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an arbitrator shall be deemed to have accepted as its own arbitrator the
arbitrator appointed by the party demanding arbitration and any arbitration
shall proceed before the two remaining arbitrators who, in such event, shall
constitute the arbitration Tribunal.
9. The Company acknowledges that it is in the final stages of
negotiations with Apple Vacations ("Apple") to formalize Apple's role in the
Vessel's Bermuda operation. In the event such arrangements are not consummated,
the Company shall enter into a marketing arrangement with another comparable
company to assure that the Company fully meets its obligations under this
Agreement. The Company shall advise the Government of the name of the company
whom it engages to assist in the marketing of the Bermuda operation as soon as
such engagement is finalized, and shall obtain the written approval of the
Minister of Tourism of such engagement, which approval shall not be unreasonably
withheld. The Government consents to Apple's (or such other company's)
fulfillment of some of the Company's obligations under this Agreement including
the development of the "cruise and stay" program, the provision of charter
flights and the marketing of cruises aboard the Vessel to Bermuda; provided,
however, that the Company shall remain primarily responsible for fulfilling all
of its obligations under this Agreement.
10. This Agreement:
(a) shall inure to the benefit of and be binding on the Company and
its successors and assigns.
(b) shall be governed by and construed according to the law of
Bermuda.
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(c) shall be subject to the grant of a permit by the Minister
responsible for Tourism under the provisions of the Passenger Ships Act 1972,
such grant of a permit not to be unreasonably withheld, and the payment of any
fee which shall from time to time be properly charged by regulation and the
observance and performance of the conditions set out in such permit.
11. Neither the Company nor the Government shall be entitled to assign,
underlet or dispose of the benefits accruing to it under this Agreement or any
part thereof without the previous written consent of the other party, such
consent not to be unreasonably withheld, except that the Company shall be
permitted to assign responsibilities to Apple (or to another company with whom
it may enter into a marketing arrangement) in accordance with Clause 9, provided
that the Company has obtained the approval of the Minister of Tourism in
accordance with Clause 9.
12. The Government hereby irrevocably and unconditionally:
(a) agrees with the Company that should the Company bring legal
proceedings against the Government or its property or assets in relation to its
obligations under this Agreement it will not claim immunity for such assets;
(b) waives any such right of immunity which it or its property or
assets now has or may hereafter acquire; and
(c) consents generally in respect of any such proceedings to the
giving of any relief or the issue of any process in connection with such
proceedings including, without limitation, the making, enforcement or execution
against any property whatsoever (irrespective of its use or intended use) or any
order of judgment which may be made or given in such proceedings.
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13. This Agreement may be executed in any number of counterparts each
of which shall constitute one and the same document.
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be
signed by their duly authorized representative on the day and year first before
written.
THE MINISTER OF TOURISM, FOR AND ON
BEHALF OF THE GOVERNMENT OF BERMUDA
By: Illegible Witness:
-------------------------------------
Name: /s/ Gary L. Phillips
------------------------------
------------------------------
Title: Minister of Tourism Name: Gary L. Phillips
------------------------------ -----------------------
FOR CROWN CRUISES LIMITED
By: /s/ Frederick A. Mayer Witness:
-------------------------------------
Name: Frederick A. Mayer /s/ Amanda Outerbridge
------------------------------ ------------------------------
Title: CEO Name: Amanda Outerbridge
------------------------------ -----------------------
11
EXHIBIT 10.rr
COMMODORE HOLDINGS LIMITED
1999 STOCK PLAN
1. PURPOSES.
The COMMODORE HOLDINGS LIMITED 1999 STOCK PLAN (the "Plan") is intended
to provide the employees, directors, independent contractors and consultants of
Commodore Holdings Limited (the "Company") and its subsidiaries with an added
incentive to provide their services to the Company and its subsidiaries and to
induce them to exert their maximum efforts toward the Company's success. By thus
encouraging employees, directors, independent contractors and consultants and
promoting their continued association with the Company and its subsidiaries, the
Plan may be expected to benefit the Company and its stockholders. The Plan
allows the Company to grant Incentive Stock Options ("ISOs") (as defined in
Section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code") to
employees of the Company and its subsidiaries, and NonQualified Stock Options
("NQSOs") not intended to qualify under Section 422(b) of the Code (ISOs and
NQSOs are hereinafter collectively referred to as the "Options") to employees,
directors, independent contractors and consultants of the Company and its
subsidiaries.
2. SHARES SUBJECT TO THE PLAN.
The total number of shares of common stock of the Company, $.01 par
value per share (the "Common Stock"), that may be subject to Options granted
under the Plan shall be 1,000,000 shares, subject to adjustment as provided in
Paragraph 8 hereunder. The Company shall at all times while the Plan is in force
reserve such number of shares of Common Stock as will be sufficient to satisfy
the requirement of outstanding Options granted under the Plan. In the event any
Option granted under the Plan shall expire or terminate for any reason without
having been exercised in full or shall cease for any reason to be exercisable in
whole or in part, the unpurchased shares subject thereto shall again be
available for the granting of Options.
3. ELIGIBILITY.
ISOs may be granted from time to time under the Plan to one or more
employees of the Company or of a "subsidiary" or "parent" of the Company, as the
quoted terms are defined within Section 424 of the Code. An officer is an
employee for the above purposes. NQSOs may be granted from time to time under
the plan to one or more employees of the Company, officers, members of the Board
of Directors, independent contractors, consultants and other individuals who are
not employees of, but are involved in the continuing development and success of
the Company and/or of a subsidiary of the Company.
4. ADMINISTRATION OF THE PLAN.
(a) The Plan shall be administered by the Board of Directors of the
Company ("the Board"), or a committee of the Board of Directors (the
"Committee"), comprised solely of two or more outside directors in accordance
with the requirements of Rule 16b-3 promulgated under the Securities Exchange
Act of 1934 (the "Exchange Act"). Within the limits of the express provisions of
the Plan, the Board or Committee shall have the authority, in its discretion, to
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determine the individuals to whom, and the time or times at which Options shall
be granted, the character of such Options (whether ISOs or NQSOs), the number of
shares of Common Stock to be subject to each Option, and the vesting period for
each Option and to interpret the Plan, to prescribe, amend and rescind rules and
regulations relating to the Plan, to determine the terms and provisions of
option agreements that may be entered into in connection with Options (which
need not be identical), subject to the limitation that option agreements
granting ISOs must be consistent with the requirements for the ISOs being
qualified as "incentive stock options" as provided in Section 422 of the Code,
and to make all other determinations and take all other actions necessary or
advisable for the administration of the Plan. In making such determinations, the
Board or Committee may take into account the nature of the services rendered by
such individuals, their present and potential contributions to the Company's
success, and such other factors as the Board or Committee, in its discretion,
shall deem relevant. The Board's or the Committee's determinations on the
matters referred to in this paragraph shall be conclusive.
(b) Notwithstanding anything contained herein to the contrary, the
Board or the Committee, (which shall be deemed to be the Company's Compensation
Committee for the purposes of this subparagraph) if no Committee exists, shall
have the exclusive right to grant Options to persons subject to Section 16 of
the Exchange Act and set forth the terms and conditions thereof. With respect to
persons subject to Section 16 of the Exchange Act, transactions under the Plan
are intended to comply with all applicable conditions of Rule 16b-3, as amended
from time to time (and its successor provisions, if any) under the Exchange Act.
To the extent any provision of the Plan or action by the Board or Committee
fails to comply, it shall be deemed null and void to the extent required by law
and to the extent deemed advisable by the Board and/or the Committee.
5. TERMS AND OPTIONS.
Within the limits of the express provisions of the Plan, the Board or
Committee may grant either ISOs to employees of the Company or its subsidiaries
or NQSOs to employees, directors, independent contractors and consultants. An
ISO or an NQSO enables the optionee to purchase from the Company, at any time
during a specified exercise period, a specified number of shares of Common Stock
at a specified price (the "Option Price"). The character and terms of each
Option granted under the Plan shall be determined by the Board or Committee
consistent with the provisions of the Plan, including the following:
(a) An Option granted under the Plan must be granted within 10 years
from the date the Plan is adopted by the Board, or the date the Plan is approved
by the stockholders of the Company, whichever is earlier.
(b) The Option Price of the shares of Common Stock subject to each
Option shall not be less than the fair market value of such shares of Common
Stock as of the date such ISO is granted. Such fair market value shall be
determined by the Board and if the shares of Common Stock are listed as of such
date on a national securities exchange, the fair market value shall be the
closing price on such date. If the shares are not then listed on a national
securities exchange and if the shares of Common Stock are then listed on The
Nasdaq Stock Market ("Nasdaq") or traded on the over-the-counter market, the
fair market value shall be the closing bid price on Nasdaq, or the mean of the
closing bid and asked prices of the shares of Common Stock on the
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<PAGE>
over-the-counter market, as reported by Nasdaq, the National Association of
Securities Dealers OTC Bulletin Board or the National Quotation Bureau, Inc., as
the case may be, on the day on which the Option is granted or, if there is no
closing bid price or bid or asked price on that day, the closing bid price or
mean of the closing bid and asked price on the most recent day preceding the day
on which the Option is granted for which such prices are available. If an ISO is
granted to any individual who, immediately before the ISO is to be granted, owns
(directly or through attribution) more than 10% of the total combined voting
power of all classes of capital stock of the Company or a subsidiary or parent
of the Company, the Option Price of the shares of Common Stock subject to such
ISO shall not be less than 110% of the fair market value per share of the shares
of Common Stock on the date such ISO is granted.
(c) In no event shall any Option granted under the Plan have an
expiration date later than 10 years from the date of its grant, and all Options
granted under the Plan shall be subject to earlier termination as expressly
provided in Section 6 hereof. If an ISO is granted to any individual, who
immediately before the ISO is granted, owns (directly or through attribution)
more than 10% of the total combined voting power of all classes of capital stock
of the Company or of a subsidiary or parent of the Company, such ISO shall by
its terms expire and shall not be exercisable after the expiration of five (5)
years from the date of its grant.
(d) Unless otherwise provided in any option agreement under the Plan,
an Option granted under the Plan shall become exercisable, in whole at any time
or in part from time to time, but in no case may an Option: (i) be exercised as
to less than one hundred (100) shares of Common Stock at any one time, or the
remaining shares of Common Stock covered by the Option if less than one hundred
(100), and (ii) become fully exercisable more than ten years from the date of
its grant.
(e) An Option granted under the Plan shall be exercised by the delivery
by the holder thereof to the Company at its principal office (to the attention
of the Secretary) of written notice of the number of full shares of Common Stock
with respect to which the Option is being exercised, accompanied by payment in
full, in cash or by certified or bank check payable to the order of the Company,
of the Option Price of such shares of Common Stock, or, at the discretion of the
Board or the Committee, by the delivery of exercisable Options and/or shares of
Common Stock having a fair market value equal to the Option Price, or at the
option of the Board or the Committee, by a combination of cash and such
exercisable Options and/or shares (subject to the restriction above) held by an
optionee that have a fair market value together with such cash that shall equal
the Option Price, and, in the case of a NQSO, at the discretion of the Board or
Committee by having the Company withhold from the shares of Common Stock to be
issued upon exercise of the Option that number of shares having a fair market
value equal to the tax withholding amount due, or otherwise provide for
withholding as set forth in Section 10(c) hereof. The Option Price may also be
paid in full by a broker-dealer to whom the optionee has submitted an exercise
notice consisting of a fully endorsed Option, or through any other medium of
payment as the Board or the Committee, in its discretion, shall authorize.
(f) The holder of an Option shall have none of the rights of a
stockholder with respect to the shares of Common Stock covered by such holder's
Option until such shares of Common Stock shall be issued to such holder upon the
exercise of the Option.
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(g) All Options granted under the Plan shall not be transferable
otherwise than by will or the laws of descent and distribution, and any Option
granted under the Plan may be exercised during the lifetime of the holder
thereof only by the holder. No Option granted under the Plan shall be subject to
execution, attachment or other process.
(h) The aggregate fair market value, determined as of the time any ISO
is granted and in the manner provided for by subsection (b) of this Section 5,
of the shares of Common Stock with respect to which ISOs granted under the Plan
are exercisable for the first time during any calendar year and under incentive
stock options qualifying as such in accordance with Section 422 of the Code
granted under any other incentive stock option plan maintained by the Company or
its parent or subsidiary corporations, shall not exceed $100,000. Any grant of
Options in excess of such amount shall be deemed a grant of NQSOs.
6. DEATH, TERMINATION OF EMPLOYMENT, OR DISABILITY; CHANGE IN CONTROL.
(a) Except as otherwise provided herein, upon termination of employment
with the Company due to retirement, a holder of an Option under the Plan may
exercise such Options to the extent such Options were exercisable as of the date
of termination at any time within three (3) months after the date of such
termination, subject to the provisions of subsection (b) of this Section 6. Upon
termination of employment due to death or permanent disability, the
aforementioned time period shall be extended to twelve (12) months after the
date of termination. Notwithstanding anything contained herein to the contrary,
any options granted hereunder to an optionee and then outstanding shall
immediately terminate in the event the optionee is convicted of a felony
committed against the Company, and the provisions of this subsection (a) shall
not be applicable thereto. In addition, notwithstanding anything contained to
the contrary, upon termination of employment or retention with the Company other
than pursuant to death, permanent disability or retirement, all Options must be
exercised by the time of such termination, subject to the provisions of
subsection (b) of this Section 6. In addition, and anything contained herein to
the contrary notwithstanding, the term during which an optionee may exercise
Options subsequent to the date of termination may, in the Board's or Committee's
discretion, be modified, subject to applicable law and regulation, from the term
specified above, as specified in an option agreement evidencing the grant of
Options under the Plan.
(b) An Option may not be exercised pursuant to this Section 6 except to
the extent that the holder was entitled to exercise the Option at the time of
termination of employment or death, and in any event may not be exercised after
the original expiration date of the Option.
(c) Notwithstanding anything in this Plan to the contrary, any Options
granted hereunder and then outstanding shall become immediately exercisable in
full in the event the optionee's employment with the Company is terminated by
the Company subsequent to the consummation of a tender offer or exchange offer
made by any "person" within the meaning of Section 14(d) of the Exchange Act or
subsequent to a Change in Control, as defined below, provided however, that if
in the opinion of counsel to the Company the immediate exercisability of such
Options when taken into consideration with all other "parachute payments" as
defined in Section 280G of the Code would result in an "excess parachute
payment" as defined in such Section, as well as an excise tax imposed by Section
4999 of the Code, such Options shall not become immediately exercisable, except
as and to the extent the Board or the Committee, in its
4
<PAGE>
sole discretion, shall otherwise determine and which determination by the Board
or the Committee shall be based solely upon maximizing the after-tax benefits to
be received by any such optionee. For purposes of this subsection, a "Change in
Control" shall have occurred if:
(1) any "person" within the meaning of Section 14(d) of the
Exchange Act becomes the "beneficial owner" as defined in Rule 13d-3 thereunder,
directly or indirectly, of more than 15% of the Company's Common Stock (other
than a person owning, in excess of such amount on November 1, 1997);
(2) any "person" acquires by proxy or otherwise the right to vote
more than 15% of the Company's Common Stock for the election of Directors (other
than a person owning in excess of such amount on November 1, 1997 other than
solicitation of proxies by the Incumbent Board (as hereinafter defined), for any
merger or consolidation of the Company or for any other matter or question;
(3) during any two-year period, individuals who constitute the
Board of the Company (the "Incumbent Board") as of the beginning of the period
cease for any reason to constitute at least a majority thereof, provided that
any person becoming a Director during such period whose election or nomination
for election by the Company's stockholders was approved by a vote of at least
three quarters of the Incumbent Board (either by specific vote or by approval of
the proxy statement of the Company in which such person is named as a nominee
for Director without objection to such nomination) shall be, for purposes of
this clause (3), considered as though such person were a member of the Incumbent
Board: or
(4) The Company's stockholders have approved the sale of all or
substantially all of the assets of the Company.
(d) In addition, and notwithstanding anything contained herein to the
contrary, in the event an optionee dies during such time as the optionee is
employed by the Company, then fifty percent (50%) of any outstanding Options
which have not vested and are not exercisable by the optionee as of the date of
death shall be automatically deemed vested and exercisable by the optionee's
estate and/or his legatees in accordance with subsection 6(a) hereof.
7. LEAVE OF ABSENCE.
For the purposes of the Plan, an individual who is on military or sick
leave or other bona fide leave of absence (such as temporary employment by the
government) shall be considered as remaining in the employ of the Company or of
a subsidiary or parent corporation for ninety (90) days or such longer period as
such individual's right to reemployment is guaranteed either by statute or by
contract.
8. ADJUSTMENT UPON CHANGES IN CAPITALIZATION.
(a) In the event that the outstanding shares of Common Stock are
hereinafter changed by reason of recapitalization, reclassification, stock
split, combination or exchange of shares of Common Stock or the like, or by the
issuance of dividends payable in shares of Common Stock, an appropriate
adjustment shall be made by the Board or the Committee, in the aggregate number
of shares of Common Stock available under the Plan, in the number of shares of
Common Stock
5
<PAGE>
issuable upon exercise of outstanding Options, and the Option Price
per share. In the event of any consolidation or merger of the Company with or
into another company, or the conveyance of all or substantially all of the
assets of the Company to another company, each then outstanding Option shall
upon exercise thereafter entitle the holder thereof to such number of shares of
Common Stock or other securities or property to which a holder of shares of
Common Stock of the Company would have been entitled to upon such consolidation,
merger or conveyance; and in any such case appropriate adjustment, as determined
by the Board or the Committee shall be made as set forth above with respect to
any future changes in the capitalization of the Company or its successor entity.
In the event of the proposed dissolution or liquidation of the Company, all
outstanding Options under the Plan will automatically terminate, unless
otherwise provided by the Board of the Company or any authorized committee
thereof.
(b) Any adjustment in the number of shares of Common Stock shall apply
proportionately to only the unexercised portion of the Options granted
hereunder. If fractions of shares of Common Stock would result from any such
adjustment, the adjustment shall be revised to the next higher whole number of
shares of Common Stock.
9. FURTHER CONDITIONS OF EXERCISE.
(a) Unless the shares of Common Stock issuable upon the exercise of an
Option under the Plan have been registered with the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the "Act"), prior to
the exercise of the Option, an optionee must represent in writing to the Company
that such shares of Common Stock are being acquired for investment purposes only
and not with a view towards the further resale or distribution thereof, and must
supply to the Company such other documentation as may be required by the
Company, unless in the opinion of counsel to the Company such representation,
agreement or documentation is not necessary to comply with said Act.
(b) The Company shall not be obligated to deliver any shares of Common
Stock until they have been listed on each securities exchange or automatic
quotation system on which the shares of Common Stock may then be listed or until
there has been qualification under or compliance with such state, federal or
foreign laws, rules or regulations as the Company may deem applicable. The
Company shall use reasonable efforts to obtain such listing, qualification and
compliance.
(c) The Board or Committee may make such provisions and take such steps
as it may deem necessary or appropriate for the withholding of any taxes that
the Company is required by any law or regulation of any governmental authority,
whether federal, state or local, domestic or foreign, to withhold in connection
with the exercise of any Option, including, but not limited to: (i) the
withholding of delivery of shares of Common Stock upon exercise of Options until
the holder reimburses the Company for the amount the Company is required to
withhold with respect to such taxes, (ii) the canceling of any number of shares
of Common Stock issuable upon exercise of such Options in an amount sufficient
to reimburse the Company for the amount it is required to so withhold, or (iii)
withholding the amount due such person.
6
<PAGE>
10. TERMINATION, MODIFICATION AND AMENDMENT.
(a) The Plan (but not Options previously granted under the Plan) shall
terminate ten (10) years from the earliest of the date of its adoption by the
Board, or the date the Plan is approved by the stockholders of the Company, and
no Option shall be granted after termination of the Plan.
(b) The Plan may from time to time be terminated, modified or amended
by the affirmative vote of the holders of a majority of the shares of Common
Stock of the Company, represented in person or by proxy at a meeting duly
noticed, at which a quorum is present.
(c) The Board may at any time, prior to ten (10) years from the earlier
of the date of the adoption of the Plan by the Board or the date the Plan is
approved by the stockholders, terminate the Plan or from time to time make such
modifications or amendments of the Plan as it may deem advisable; provided,
however, that the Board shall not, without approval by the affirmative vote of
the holders of a majority of the shares of Common Stock of the Company, voting
as a single class, and entitled to vote thereon, represented in person or by
proxy at a meeting duly noticed, at which a quorum is present increase the
maximum number of shares of Common Stock as to which Options may be granted
under the Plan (except as provided by Section 8, with respect to which
stockholder approval is not required) or materially change the standards of
eligibility under the Plan. Any amendment to the Plan which, in the opinion of
counsel to the Company, will be deemed to result in the adoption of a new Plan,
will not be effective until approved by the affirmative vote of the holders of a
majority of the shares of Common Stock of the Company, voting as a single class,
and entitled to vote thereon, represented in person or by proxy at a meeting
duly noticed, at which a quorum is present.
(d) No termination, modification or amendment of the Plan may adversely
affect the rights under any outstanding Option without the consent of the
individual to whom such Option shall have been previously granted.
11. EFFECTIVE DATE OF THE PLAN.
The Plan shall become effective upon adoption by the Board of the
Company as to the grant of NQSOs. ISOs may also be granted under this Plan, but
such ISOs shall be treated as NQSOs unless and until the Plan is approved by the
affirmative vote of the holders of a majority of the shares of Common Stock of
the Company, represented in person or by proxy at a meeting duly noticed, at
which a quorum is present, within one year after adoption of the Plan by the
Board. Prior to the approval of the Plan by the Company's shareholders, as
described above, the Company may also grant NQSOs, which will automatically
convert to ISOs, if and when the Plan is approved by the Company's shareholders,
and if the number of shares of Common Stock underlying such NSQOs and the
exercise price thereof remain fixed at the amounts set on the date of grant of
the NSQOs.
12. NOT A CONTRACT OF EMPLOYMENT.
Nothing contained in the Plan or in any option agreement executed
pursuant hereto shall be deemed to confer upon any individual to whom an Option
is or may be granted hereunder any right to remain in the employ of the Company
or of a subsidiary or parent of the Company or in any way limit the right of the
Company, or of any parent or subsidiary thereof, to terminate the employment of
an employee, or to terminate any other relationship with an Optionee, including
that of independent contractor or consultant. Notwithstanding anything contained
herein to the contrary, and except as otherwise provided at the time of grant,
all references hereunder to
7
<PAGE>
termination of employment shall with respect to consultants and independent
contractors mean the termination of retention of their services with or for the
Company.
13. OTHER COMPENSATION PLANS.
The adoption of the Plan shall not affect any other stock option plan,
incentive plan or any other compensation plan in effect for the Company, nor
shall the Plan preclude the Company from establishing any other form of stock
option plan, incentive plan or any other compensation plan.
8
EXHIBIT 10.ss
LOAN AND SECURITY AGREEMENT
AMENDMENT NO. 1
(Financial Covenants)
- --------------------------------------------------------------------------------
This Loan and Security Agreement Amendment is made as of September 30,
1999 and is annexed to and made a part of the Loan and Security Agreement dated
as of December 4, 1998 between KEYCORP LEASING, A DIVISION OF KEY CORPORATE
CAPITAL INC., ("Lender") and AZURE INVESTMENTS, INC., as Borrower (the
"Agreement"). Lender and Borrower hereby agree as follows:
1) The terms of this Amendment replace and supersede in their entirety the
terms of all prior Financial Covenants. COMMODORE HOLDINGS, LTD.
("Guarantor") shall comply with the following financial covenants.
2) This Amendment is effective from and after September 30, 1999.
1. Tangible Net Worth: Its Tangible Net Worth (including the AG Edwards
or preferred share proceeds executed prior to the closing on the
facility agreements) shall not be less than $30,000,000 through
September 2000, and $50,000,000 thereafter, as measured on a quarterly
basis.
2. Leverage Ratio: Its Leverage Ratio shall not exceed 2.35 to 1.00, as
of September 1999, 2.00 to 1.00 as of September 1999 and thereafter,
as measured on a quarterly basis.
3. Debt Service Coverage Ratio: Its Debt Service Coverage Ratio shall not
be less than 1.25 to 1.00, through September 2002, and 1.50 to 1.00
thereafter, as measured on a quarterly basis.
4. Minimum Liquidity: Its minimum liquidity will be $13,500,000 through
the debt closing for the Crown Dynasty acquisition and $7,500,000
thereafter, as measured on a quarterly basis. (Only to include freely
available and unencumbered cash but to include all minimum liquidity
held with the Borrower).
5. Minimum Capital (Sovency) Ratio: Its Capital Ratio (including the AG
Edwards or preferred share proceeds executed prior to the closing on
the facility agreements) shall not be less than 30% until September
30, 2001, 35% until September 2002, and 40% thereafter, as measured on
a quarterly basis.
6. DEFINITIONS:
a) "Tangible Net Worth" shall mean (1) the gross book value of all
assets, excluding goodwill, patents, trademarks, licenses, trade
names, organizational expenses, treasury stock, unamortized debt
discount and expense, deferred research and developmental costs,
and other like intangibles, less (2) Total Liabilities.
<PAGE>
b) "Total Liabilities" shall mean all debt and other obligations,
including, without limitation, Current Liabilities and long term
debt (including, without limitation, term loans, bond issuances,
debentures or notes, capital leases and deferred credit).
c) "Leverage Ratio" shall mean the ratio of Total Liabilities to
Tangible Net Worth.
d) "Current Assets" shall mean the gross book value of all assets
that are expected to be realized in cash or sold or consumed
during a normal operating cycle or within one year, including,
without limitation, cash, cash equivalents, accounts, and notes
receivable, and inventories, but excluding prepaid expenses.
e) "Current Liabilities" shall mean all debt and other obligations
that are to be paid by use of Current Assets during a normal
operating cycle or within one year, including, without
limitation, deposits received, advance payments, trade
acceptances, accrued expenses, notes payable, short-term bank
loans, current maturities of long term debt and capital leases,
accrued and deferred income taxes, and any reserves against
assets.
f) "Debt Service Coverage Ratio" shall mean the ratio of (1) the sum
of net income before taxes, interest expense, depreciation,
amortization and other non-cash expenses, excluding any
extraordinary gains or losses, to (2) the sum of interest
expense, current maturities of long term debt and capital lease
obligations, excluding the balloon payment due in October 2001 on
the bridge loan facility.
7. Any default in the covenants contained herein shall be a default
under the Agreement.
EXCEPT AS EXPRESSLY MODIFIED HEREBY, ALL OF THE TERMS, COVENANTS AND
CONDITIONS OF THE AGREEMENT SHALL REMAIN IN FULL FORCE AND EFFECT AND ARE IN ALL
RESPECTS HEREBY RATIFIED AND AFFIRMED.
2
<PAGE>
IN WITNESS WHEREOF, Lender and Borrower have executed this Security
Agreement Amendment as of the 30th day of September, 1999.
LENDER: BORROWER:
KEYCORP LEASING, AZURE INVESTMENTS, INC.
A DIVISION OF KEY CORPORATE
CAPITAL INC.
By: /s/ LOUIS M. SOMBAT By:/s/ FREDERICK A. MAYER
----------------------------------------- -----------------------------
Name: LOUIS M. SOMBAT Name: FREDERICK A. MAYER
--------------------------------------- ---------------------------
Title: REGIONAL BUSINESS PROCESSING MANAGER Title: ATTORNEY-IN-FACT
-------------------------------------- ---------------------------
GUARANTOR:
COMMODORE HOLDINGS, INC.
By: /s/ FREDERICK A. MAYER
-----------------------------
Name: FREDERICK A. MAYER
---------------------------
Title: VICE CHAIRMAN OF THE
BOARD & CEO
--------------------------
3
EXHIBIT 21
SUBSIDIARIES OF COMMODORE HOLDINGS LIMITED
1. Albuferra Investments, Inc., a partially owned Panama corporation
2. Almira Enterprises, Inc., a Panamanian corporation
3. Azure Investments, Inc., a Panamanian corporation
4. Capri Cruises, a partially owned Florida general partnership
5. Commodore Cruises Limited, a Bermudan corporation
6. Commodore Day Cruises Limited, a Bermudan corporation
7. Coronado Seas, LLC, a partially owned Delaware limited liability
corporation
8. Crown Cruises Limited, a Bermudan corporation
9. Crown Cruises of Panama, Inc., a Panamanian corporation
10. New Commodore Cruise Lines Limited, a Bermudan corporation
11. Sea-Comm, Ltd., a partially owned Liberian corporation
12. Seahawk Limited, a partially owned Isle of Jersey corporation
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> SEP-30-1999
<CASH> 20,504,000
<SECURITIES> 0
<RECEIVABLES> 1,044,000
<ALLOWANCES> 0
<INVENTORY> 2,614,000
<CURRENT-ASSETS> 30,325,000
<PP&E> 58,033,000
<DEPRECIATION> 8,311,000
<TOTAL-ASSETS> 88,687,000
<CURRENT-LIABILITIES> 24,576,000
<BONDS> 30,709,000
0
4,000
<COMMON> 76,000
<OTHER-SE> 34,095,000
<TOTAL-LIABILITY-AND-EQUITY> 88,687,000
<SALES> 0
<TOTAL-REVENUES> 61,488,000
<CGS> 0
<TOTAL-COSTS> 55,727,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,764,000
<INCOME-PRETAX> 4,873,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,606,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,606,000
<EPS-BASIC> 0.62
<EPS-DILUTED> 0.52
</TABLE>
