FORM 10 - Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 2000
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ___________ to __________
Commission File Number: 0-20961
COMMODORE HOLDINGS LIMITED
--------------------------
(Exact Name of Registrant as Specified in its Charter)
BERMUDA N/A
--------------------------------- -------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
4000 Hollywood Boulevard, Suite 385, South Tower, Hollywood, FL 33021
- --------------------------------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
(954) 967-2100
--------------
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant has (1) filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) been subject to such filing requirements
for the past 90 days.
Yes [X] No [ ]
The Registrant had 8,649,118 shares of common stock, par value $.01 per share,
outstanding at May 15, 2000.
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COMMODORE HOLDINGS LIMITED
TABLE OF CONTENTS
<TABLE>
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PAGE NO.
<S> <C>
Part I Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets 2
Consolidated Statements of Operations 3
Consolidated Statement of Stockholders' Equity 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk 11
Part II Other Information
Item 1. Legal Proceedings 12
Item 2. Changes in Securities and Use of Proceeds 12
Item 3. Defaults upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other Information 13
Item 6. A - Exhibits 13
B - Reports on Form 8-K 13
</TABLE>
<PAGE>
Part I Financial Information
Item 1. Financial Statements
COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
2000 1999
------------ ------------
(UNAUDITED) (AUDITED)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 9,893,000 $ 20,504,000
Restricted cash 354,000 977,000
Trade and other receivables, net 1,385,000 1,044,000
Due from affiliates 741,000 2,903,000
Inventories 3,126,000 2,614,000
Prepaid expenses 7,049,000 2,214,000
Other current assets 101,000 69,000
------------ ------------
Total current assets 22,649,000 30,325,000
Property and equipment, net 157,243,000 49,722,000
Investment in joint ventures 1,463,000 1,974,000
Long-term receivable - affiliate 5,691,000 4,973,000
Other assets 3,966,000 1,693,000
------------ ------------
$191,012,000 $ 88,687,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current portion of long-term debt $ 4,006,000 $ 3,652,000
Accounts payable 18,565,000 8,692,000
Accrued liabilities 2,958,000 1,695,000
Due to affiliates 584,000 1,564,000
Customer deposits 12,676,000 8,720,000
Accrued interest 77,000 192,000
Capital lease obligations 171,000 61,000
------------ ------------
Total current liabilities 39,037,000 24,576,000
Long-term debt, including capital lease obligations
of $331,000 and $171,000, respectively 102,566,000 26,996,000
Convertible subordinated debentures 5,000,000 --
Minority interest in subsidiaries 4,939,000 2,940,000
Stockholders' equity
Preferred stock - authorized 10,000,000 shares
Preferred stock - Series B - authorized 800,000
shares of $.01 par value; issued and outstanding
500,000 and 400,000 shares, respectively 5,000 4,000
Preferred stock - Series C - authorized 300
shares of $.01 par value; issued and outstanding
250 and 0 shares, respectively -- --
Common stock - authorized 100,000,000 shares
of $.01 par value; issued and outstanding
8,649,118 and 7,647,618 shares, respectively 86,000 76,000
Paid-in capital 29,072,000 21,481,000
Retained earnings 10,307,000 12,614,000
------------ ------------
Total stockholders' equity 39,470,000 34,175,000
------------ ------------
$191,012,000 $ 88,687,000
============ ============
</TABLE>
The accompanying notes are an integral part of these statements
2
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COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS AND FOR THE SIX MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
MARCH 31, MARCH 31,
2000 1999 2000 1999
----------------------------- -----------------------------
<S> <C> <C> <C> <C>
Revenues $ 24,888,000 $ 11,978,000 $ 37,185,000 $ 24,266,000
Expenses
Operating 18,356,000 7,416,000 28,753,000 16,486,000
Marketing, selling and administrative 3,645,000 2,267,000 5,614,000 4,226,000
Depreciation and amortization 1,229,000 481,000 1,917,000 1,091,000
----------------------------- -----------------------------
23,230,000 10,164,000 36,284,000 21,803,000
----------------------------- -----------------------------
Operating income 1,658,000 1,814,000 901,000 2,463,000
Other income (expense)
Interest income 165,000 176,000 328,000 287,000
Interest expense (1,660,000) (411,000) (2,129,000) (797,000)
Minority interest share of earnings
of consolidated joint ventures (346,000) (531,000) (66,000) (332,000)
Equity in net loss of unconsolidated joint ventures (562,000) (266,000) (872,000) (576,000)
----------------------------- -----------------------------
(2,403,000) (1,032,000) (2,739,000) (1,418,000)
----------------------------- -----------------------------
Net (loss) earnings before cumulative effect of change
in accounting principle and provision for preferred
stock dividend (745,000) 782,000 (1,838,000) 1,045,000
Cumulative effect of change in accounting principle -- -- 231,000 --
----------------------------- -----------------------------
Net (loss) earnings before provision for
preferred stock dividend (745,000) 782,000 (2,069,000) 1,045,000
Preferred stock dividend 138,000 67,000 238,000 67,000
----------------------------- -----------------------------
Net (loss) earnings available for common stockholders $ (883,000) $ 715,000 $ (2,307,000) $ 978,000
============================= =============================
(Loss) earnings per share available for common
stockholders - Basic
Net (loss) earnings before cumulative effect of
change in accounting principle $ (0.12) $ 0.10 $ (0.27) $ 0.13
Cumulative effect of change in accounting principle -- -- (0.03) --
----------------------------- -----------------------------
Net (loss) earnings available for common stockholders $ (0.12) $ 0.10 $ (0.30) $ 0.13
============================= =============================
Weighted average number of common stock
outstanding - Basic 7,659,000 7,440,000 7,654,000 7,397,000
============================= =============================
(Loss) earnings per share available for common
stockholders - Diluted
Net (loss) earnings before cumulative effect of
change in accounting principle $ (0.12) $ 0.09 $ (0.27) $ 0.12
Cumulative effect of change in accounting principle -- -- (0.03) --
----------------------------- -----------------------------
Net (loss) earnings available for common stockholders $ (0.12) $ 0.09 $ (0.30) $ 0.12
============================= =============================
Weighted average number of common stock
outstanding - Diluted 7,659,000 8,921,000 7,654,000 8,791,000
============================= =============================
</TABLE>
The accompanying notes are an integral part of these statements
3
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COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED MARCH 31, 2000
(UNAUDITED)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
---------------------------------------------- ADDITIONAL
NUMBER OF PAR NUMBER OF PAR PAID-IN RETAINED
SHARES VALUE SHARES VALUE CAPITAL EARNINGS TOTAL
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at
September 30, 1999 400,000 $4,000 7,647,618 $76,000 $21,481,000 $12,614,000 $34,175,000
Issuance of
preferred stock, net 100,250 1,000 3,097,000 - 3,098,000
Issuance of
common stock 1,001,500 10,000 4,494,000 - 4,504,000
Net loss - - - - - (2,307,000) (2,307,000)
----------------------------------------------------------------------------------------------
Balances at
March 31, 2000 500,250 $5,000 8,649,118 $86,000 $29,072,000 $10,307,000 $39,470,000
==============================================================================================
</TABLE>
The accompanying notes are an integral part of these statements
4
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COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
2000 1999
------------- -------------
<S> <C> <C>
Cash flows from operating activities
Net (loss) earnings $ (2,069,000) $ 1,045,000
Adjustments to reconcile net earnings to net cash
provided by operating activities
Cumulative effect of change in accounting principle 231,000 --
Depreciation of property and equipment 1,917,000 1,091,000
Amortization of deferred drydock 1,122,000 770,000
Amortization of deferred loan costs 39,000 --
Fair value of options to nonemployees 53,000 88,000
Undistributed equity in loss of joint ventures 872,000 576,000
(Increase) decrease in operating assets
Restricted cash 623,000 (1,868,000)
Trade and other receivables (341,000) (269,000)
Due from affiliates 2,162,000 (842,000)
Inventories (512,000) 23,000
Prepaid expenses and other current assets (5,989,000) (1,363,000)
Other assets (2,295,000) (448,000)
Increase (decrease) in operating liabilities
Accounts payable 9,872,000 242,000
Accrued liabilities 1,263,000 549,000
Due to affiliate (980,000) 501,000
Customer deposits 3,956,000 1,356,000
Accrued interest (115,000) 21,000
------------- -------------
Net cash provided by operating activities 9,809,000 1,472,000
Cash Flows from investing activities
Capital expenditures (104,938,000) (566,000)
Long-term receivable-affiliate (718,000) (3,177,000)
Investments - restricted -- 4,629,000
Investment in unconsolidated joint venture (361,000) (251,000)
Increase in minority interest in subsidiaries 1,999,000 331,000
------------- -------------
Net cash (used in) provided by investing activities (104,018,000) 966,000
Cash flows from financing activities
Principal payments on debt (1,348,000) (11,425,000)
Proceeds from long-term debt 77,345,000 12,100,000
Proceeds from sale of preferred stock, net 3,095,000 3,670,000
Proceeds from exercise of warrants 4,000 507,000
Proceeds from sale of convertible subordinated debentures 5,000,000 --
Payment of loan costs (260,000) (313,000)
Preferred stock dividends paid (238,000) (228,000)
------------- -------------
Net cash provided by financing activities 83,598,000 4,311,000
Net (decrease) increase in cash and cash equivalents (10,611,000) 6,749,000
Cash and cash equivalents at beginning of period 20,504,000 3,172,000
------------- -------------
Cash and cash equivalents at end of period $ 9,893,000 $ 9,921,000
============= =============
Supplemental disclosure of cash flow information
Cash paid during the period for interest $ 2,545,000 $ 673,000
============= =============
Cash paid during the period for taxes $ -- $ --
============= =============
</TABLE>
The accompanying notes are an integral part of these statements
5
<PAGE>
COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The financial statements for the six months ended March 31, 2000 and 1999,
included herein have been prepared by Commodore Holdings Limited (the "Company")
without audit pursuant to the rules and regulations of the Securities and
Exchange Commission. All adjustments which are, in the opinion of management,
necessary for a fair statement for the results of the three months and six
months ended March 31, 2000 and 1999, are included. Certain information and
footnote disclosure normally included in Financial Statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. These financial statements
should be read in conjunction with the financial statements for the year ended
September 30, 1999, contained in the Company's annual report on Form 10-K.
2. EARNINGS PER SHARE. The Company's basic earnings per share is calculated by
dividing net earnings available for common shareholders by the weighted average
shares outstanding during the period. The computation of diluted earnings per
share includes all dilutive common stock equivalents in the weighted average
shares outstanding.
Financial Accounting Standards Board (FASB) Statement No. 128 "Earnings
Per Share" requires the dual presentation of basic and diluted earnings per
share on the face of the statement of earnings. The reconciliation between the
computation is as follows:
<TABLE>
<CAPTION>
THREE NET (LOSS) NET (LOSS)
MONTHS ENDED EARNINGS- BASIC BASIC EARNINGS- DILUTED DILUTED
MARCH 31, BASIC SHARES EPS DILUTED SHARES EPS
- --------- --------- ------ --- --------- ------ ---
<S> <C> <C> <C> <C> <C> <C>
2000 ($883,000) 7,659,000 ($0.12) ($883,000) 7,659,000 ($0.12)
1999 $715,000 7,440,000 $0.10 $782,000 8,921,000 $0.09
<CAPTION>
SIX NET (LOSS) NET (LOSS)
MONTHS ENDED EARNINGS- BASIC BASIC EARNINGS- DILUTED DILUTED
MARCH 31, BASIC SHARES EPS DILUTED SHARES EPS
- --------- --------- ------ --- --------- ------ ---
<C> <C> <C> <C> <C> <C> <C>
2000 ($2,307,000) 7,654,000 ($0.30) ($2,307,000) 7,654,000 ($0.30)
1999 $ 978,000 7,397,000 $0.13 $1,045,000 8,791,000 $0.12
</TABLE>
Included in diluted shares are common stock equivalents relating to
options, warrants and preferred stock of 0 and 1,481,000 for the three months
ended March 31, 2000 and 1999, respectively and 0 and 1,394,000 for the six
months ended March 31, 2000 and 1999, respectively. Net earnings were adjusted
to calculate the diluted earnings per share by adding back $67,000 of preferred
stock dividend for the three months ended March 31, 1999. Net earnings were
adjusted to calculate the diluted earnings per share by adding back $67,000 of
preferred stock dividend for the six months ended March 31, 1999. Common stock
equivalents were not considered in the calculation of diluted earnings per
share, for three and six month periods ended March 31, 2000, due to their
antidilutive effect.
6
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3. INVESTMENT IN UNCONSOLIDATED JOINT VENTURES
A condensed summary of the assets and liabilities and results of
operations of the joint ventures follows:
AS OF MARCH 31,
------------------------
2000 1999
---------- ----------
Current assets $2,426,000 $3,138,000
Property and equipment, net 4,803,000 4,147,000
Other assets 28,000 458,000
---------- ----------
Total assets $7,257,000 $7,743,000
========== ==========
Current liabilities $4,025,000 $4,836,000
Other liabilities 265,000 596,000
Partners' capital accounts 2,967,000 2,311,000
---------- ----------
Total liabilities and
partners' capital $7,257,000 $7,743,000
========== ==========
THREE MONTHS SIX MONTHS
ENDED MARCH 31, ENDED MARCH 31,
-------------------------- --------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
Revenues $ 5,293,000 $ 5,174,000 $11,090,000 $10,143,000
Expenses 6,778,000 5,705,000 13,505,000 11,294,000
----------- ----------- ----------- -----------
Net loss $ 1,485,000 $ 531,000 $ 2,415,000 $ 1,151,000
=========== =========== =========== ===========
4. PURCHASE OF CROWN DYNASTY. On January 28, 2000, Crown Cruises of Panama,
Inc., a wholly owned subsidiary of the Company, purchased the 916-passenger
cruise ship Crown Dynasty (the "Vessel") from Crown Dynasty, Inc., a Panamanian
corporation (the "Seller"), for $86,200,000. Prior to such purchase, the Company
operated the Vessel pursuant to a bareboat charter with the Seller. The Seller
granted the Company an option to purchase the Vessel as part of the charter. In
connection with the Company's exercise of its option to purchase the Vessel, the
parties agreed to apply the $4,500,000 security deposit under the charter to the
purchase price for the Vessel. The purchase price in such option was determined
through arm's length negotiations between the Company and the Seller.
The Company financed its purchase of the Vessel through loans in the
aggregate principal amount of $51,720,000 from Merita Bank Plc, Christiana Bank
og Kreditkasse ASA, and Skandinaviska Enskilda Banken AB (publ), and through a
loan in the principal amount of $24,480,000 provided by EFF-Shipping Limited, an
affiliate of the Seller. Such loans are guaranteed by the Company and secured by
mortgages on the Vessel and certain other collateral related to the Vessel. The
Company also used the proceeds from the issuance of 11% convertible subordinated
debentures in the principal amount of $5,000,000 and 11% Series B Convertible
Preferred Stock with a face value of $5,000,000 to finance the balance of the
purchase price. The debentures and preferred stock are convertible into Common
Stock beginning twelve months after issuance at $4.0625 per share. Sales of the
underlying Common Stock are restricted to not more than 25% of the total number
of shares of Common Stock that could be issued upon conversion per quarter,
which amount increases if the Company demands
7
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conversion, which it may do in certain cases. The Company also redeemed
$4,000,000 of Series B Convertible Preferred Stock at face value in connection
with the new issuances. The net proceeds from these financings, after reduction
for the redemption of the $4,000,000 of Series B Convertible Preferred Stock,
was approximately $81,131,000. The Company obtained the balance of the purchase
price for the Vessel from cash from its operations.
5. SERIES C PREFERRED STOCK. On March 30, 2000, the Company sold 250 shares of
its Series C Convertible Preferred Stock (the "Series C Stock") and a warrant to
purchase 75,000 shares of the Company's common stock at an exercise price of
$6.25 (the "Warrant") for an aggregate of $2,500,000. The Series C Stock is
convertible immediately in to shares of the Company's common stock at a rate of
$4.50 per share.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The following is an analysis of the Company's results of operations,
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.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2000, Compared to Three Months Ended March 31, 1999
Revenues increased by $12,910,000 for the quarter ended March 31, 2000
compared to the quarter ended March 31, 1999. Of this increase, $9,440,000 was
due to the addition of the Crown Dynasty to the Company's fleet. Additionally,
the Universe Explorer was out of service for 47 days during the quarter ended
March 31, 1999 for the installation of its sprinkler system.
The Company's operating expenses increased by $10,940,000 for the
quarter ended March 31, 2000 compared to the quarter ended March 31, 1999.
Of this increase, $8,009,000 was due to the addition of the Crown Dynasty to the
Company's fleet. The remainder of the increase was primarily due to additional
operating days on the Universe Explorer and increases in the cost of the
Company's fuel. The Company's marketing, selling and administrative expenses
increased by $1,378,000 primarily due to the addition of the Crown Dynasty to
the Company's fleet and start-up expenses associated with the Company's launch
of the Enchanted Sun.
Depreciation and amortization increased by $748,000 for the quarter
ended March 31, 2000 compared to the quarter ended March 31, 1999. Of this
increase, $525,000 was due to the addition of the Crown Dynasty to the Company's
fleet on January 28, 2000. The remainder of the increase was due to additional
capital expenditures incurred by the Company (and the associated increase in the
value of this ship) in conjunction with the installation of a sprinkler system
on the Universe Explorer in fiscal 1999. Depreciation on the Company's fifth
vessel, the Enchanted Sun, will begin in the third fiscal quarter of 2000 in an
amount of approximately $120,000 per month. Interest expense increased by
$1,249,000 primarily due to the loans associated with the purchase of the Crown
Dynasty. Interest expense on the Enchanted Sun has been capitalized to the
vessel cost and will be included in interest expense beginning in the third
fiscal quarter in an amount of approximately $85,000 per month.
8
<PAGE>
The line item for "Minority interest share of (earnings) of
consolidated joint ventures" in the amount of ($346,000) and ($531,000) for the
three months ended March 31, 2000 and 1999, respectively, relates primarily to
Sea-Comm.
"Equity in loss of unconsolidated joint ventures" during the second
quarter of fiscal 2000 represents losses associated with the Company's Coronado
Seas, LLC and Capri Cruises joint ventures. Coronado Seas began shoreside
operations during the first fiscal quarter of 2000. The Company expects these
losses to continue into the next quarter in that cruise operations between San
Diego, California and Rosarito, Mexico began on April 14, 2000. The Company
accounts for the Coronado and Capri Cruises joint ventures under the equity
method. The Company's 33% investment in Coronado resulted in a net loss of
$360,000 for the quarter ended March 31, 2000. The Company's 50% investment in
Capri Cruises resulted in a net loss of $202,000 for the quarter as compared to
a net loss of $266,000 for the quarter ended March 31, 1999.
Six Months Ended March 31, 2000, Compared to Six Months Ended March 31, 1999
Revenues increased by $12,919,000 for the six months ended March 31,
2000 compared to the six months ended March 31, 1999. Of this increase,
$12,091,000 was due to the addition of the Crown Dynasty to the Company's fleet.
Additionally, the Universe Explorer was out of service for 60 days during the
six months ended March 31, 1999 for the installation of its sprinkler system.
These increases were partially offset by a reduction in revenues from the
Enchanted Isle due to the drydock of the vessel for 21 days. The Company
extended its regularly scheduled dry-dock on the Enchanted Isle to allow the
start of the installation of a sprinkler system. The Company is not required to
install a sprinkler system until October 2005 but elected to have the start of
the installation commence in December 1999 to avoid another drydock for such
purpose at a later date.
The Company's operating expenses increased by $12,267,000, for the six
months ended March 31 2000 compared to the six months ended March 31, 1999. Of
this increase, $9,886,000 was due to the addition of the Crown Dynasty to the
Company's fleet. The remainder of the increase was due to additional operating
days on the Universe Explorer, increases in the cost of the Company's fuel and
start-up expenses associated with the Company's launch of both the Enchanted Sun
and its new premium Crown Cruise Line brand. This increase was partially offset
by a decline in operating expenses for the Enchanted Isle, which was in drydock
for 21 days.
Depreciation and amortization increased by $826,000 due to the addition
of the Crown Dynasty to the Company's fleet as well as additional capital
expenditures incurred by the Company (and the associated increase in the value
of this ship) in conjunction with the installation of a sprinkler system on the
Universe Explorer in fiscal 1999. Interest expense increased by $1,332,000
primarily due to the loans associated with the purchase of the Crown Dynasty.
The line item for "Minority interest share of (earnings) of
consolidated joint ventures" in the amount of ($66,000) and ($332,000) for the
six months ended March 31, 2000 and 1999, respectively, relates primarily to
Sea-Comm.
"Equity in loss of unconsolidated joint ventures" during the first half
of fiscal 2000 represents losses associated with the Company's Coronado Seas,
LLC and Capri Cruises joint ventures. Coronado Seas began shoreside operations
during the six months ended March 31, 2000. The Company expects these losses to
continue into the next quarter in that cruise operations between San Diego,
California and Rosarito, Mexico began on April 14, 2000. The Company accounts
for the Coronado and Capri Cruises joint ventures under the equity method. The
Company's 33% investment in Coronado resulted in a net loss of $670,000 for the
six months ended March 31, 2000. The Company's 50% investment in Capri Cruises
resulted in a net loss of $202,000 for the six months ended March 31, 2000 as
compared to a net loss of $576,000 for the six months ended March 31, 2000.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital deficiency was $16,388,000, at March 31,
2000 versus working capital of $5,749,000 at September 30, 1999. The Company's
working capital deficiency was primarily due to increases in accounts payable
(due to the costs related to renovations of the Enchanted Sun and the addition
of the Crown Dynasty to the Company's fleet), increases in customer deposits
(due to the addition of the Crown Dynasty) as well as the net loss for the six
months ended March 31, 2000 due in part to the start-up expenses associated with
the Company's launch of both the Enchanted Sun and its new premium Crown Cruise
Line brand, which was offset in part by increases in prepaid expenses (due to
the drydocking of the Crown Dynasty and Enchanted Isle).
Cash flows from operations provided $9,809,000 and $1,472,000 for the
six months ended March 31, 2000 and 1999, respectively. Cash flows used in
operations consisted primarily of the loss for the six months, increases in
prepaid expenses and other assets (due to the dry-docking of both the Enchanted
Isle and the Crown Dynasty). Cash flows provided by operations consisted
primarily of increases in customer deposits (due to the addition of the Crown
Dynasty), and increases in accounts payable and accrued liabilities (due to
payments owed on the construction in progress on the Enchanted Sun and the
addition of the Crown Dynasty to the Company's fleet).
The Company's cash flow used in investing activities in the first six
months of fiscal 2000 was $104,018,000 and provided $966,000 for the first six
months of fiscal 1999. The primary reasons for the increase were the capital
expenditures related to the purchase of the Crown Dynasty, the renovation of the
Enchanted Sun and the beginning of the installation of the sprinkler system on
the Enchanted Isle, these increases were partially offset by the additional
investment made by the Company's partner in Albuferra.
The Company's cash flow provided by financing activities was
$88,098,000 during the six months ended March 31, 2000 as compared to $4,311,000
for the six months ended March 31, 1999. The cash flow provided in the six
months ended March 31, 2000 was primarily due to the Company's drawdown on the
three loans for the purchase of the Crown Dynasty, the Company's drawdown on the
remainder of the proceeds of the Nordbanken loan (for the renovation of the
Enchanted Sun), which was partially offset by the payments the Company made on
its various loans in the quarter. During the six months ended March 31, 1999,
the Company refinanced the loan secured by the Universe Explorer, which
accounted for the increases in the principal payments and proceeds from
long-term debt during the quarter. The net proceeds from this loan were
approximately $1,100,000.
At March 31, 2000, the Company owed $106,241,000 pursuant to the
various loans it has outstanding. (See the financial statements for the year
ended September 30, 1999, contained in the Company's annual report on Form 10-K
for descriptions of the Company's various loans). In March 2000, the Company
sold its interest rate swap on the Key Loan for approximately $470,000. This
amount will be credited to the Company's interest expense over the life of the
Key Loan. The Company's loans bear interest at rates between 6.97% and 9.57%.
On January 28, 2000, Crown Cruises of Panama, Inc., a wholly owned
subsidiary of the Company, purchased the 916-passenger cruise ship Crown Dynasty
(the "Vessel") from Crown Dynasty, Inc., a Panamanian corporation (the
"Seller"), for $86,200,000. Prior to such purchase, the Company operated the
Vessel pursuant to a bareboat charter with the Seller. The Seller granted the
Company an option to purchase the Vessel as part of the charter. In connection
with the Company's exercise of its option to purchase the Vessel, the parties
agreed to apply the $4,500,000 security deposit under the charter to the
purchase price for the Vessel.
10
<PAGE>
The Company financed its purchase of the Vessel through loans in the
aggregate principal amount of $51,720,000 from Merita Bank Plc, Christiana Bank
og Kreditkasse ASA, and Skandinaviska Enskilda Banken AB (publ), and through a
loan in the principal amount of $24,480,000 provided by EFF-Shipping Limited, an
affiliate of the Seller. Such loans are guaranteed by the Company and secured by
mortgages on the Vessel and certain other collateral related to the Vessel. The
Company also used the proceeds from the issuance of 11% convertible subordinated
debentures in the principal amount of $5,000,000 and 11% Series B Convertible
Preferred Stock with a face value of $5,000,000 to finance the balance of the
purchase price. The debentures and preferred stock are convertible into Common
Stock beginning twelve months after issuance at $4.0625 per share. Sales of the
underlying Common Stock are restricted to not more than 25% of the Common Stock
per quarter, which amount increases if the Company demands conversion, which it
may do in certain cases. The Company also redeemed $4,000,000 of Series B
Convertible Preferred Stock at face value in connection with the new issuances.
The net proceeds from these financings, after reduction for the redemption of
the $4,000,000 of Series B Convertible Preferred Stock, was approximately
$81,131,000. The Company obtained the balance of the purchase price for the
Vessel from cash from its operations.
Under its new loan agreements, the Company has agreed not to incur or
create certain additional indebtedness or liens on the Company's assets without
the lenders' consents. The Company is further required to maintain certain
financial ratios related to liquidity, net worth, leverage and debt service
coverage and has further agreed to limit the amount of its dividends.
On March 30, 2000, the Company sold 250 shares of its Series C
Convertible Preferred Stock (the "Series C Stock") and a warrant to purchase
75,000 shares of the Company's common stock at an exercise price of $6.25 (the
"Warrant") for an aggregate of $2,500,000. The Series C Stock is convertible
immediately in to shares of the Company's common stock at a rate of $4.50 per
share. The proceeds of the sale were used for general working capital purposes.
If the Series C Stock is not converted within thirteen months after issuance,
the Company is obligated to repurchase it at the option of the holder at 105% of
the issuance price.
INFLATION
The impact of inflation on the Company's operations, other than
increases in fuel for the Company's fleet, has not been significant to date. The
Company's fuel cost for the six months ended March 31, 2000, on a per day basis,
increased by approximately 68% over the six months ended March 31, 1999, for the
Enchanted Isle and the Universe Explorer. Fuel expense represented approximately
15.5% and 11.2% of the Company's operating expenses for the six months ended
March 31, 2000 and 1999, respectively. 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES 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 $49,000.
The EffJohn Loan bears interest at LIBOR plus 2% and the Key Loan bears
interest at the prime rate plus .8%, and thus are affected by changes in
interest rates. In the event that interest rates increased by 10%, the Company's
interest obligations would increase by approximately $59,000, $105,000, $87,000,
$78,000 and $73,000, respectively, in each of its fiscal years 2000, 2001, 2002,
2003 and 2004.
11
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Part II. Other Information
Item 1. LEGAL PROCEEDINGS.
None.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
On January 5, 2000, the Company sold 500,000 shares of its Series B
Convertible Preferred Stock (the "Series B Stock") for $10 per share and 11%
Convertible Debentures in the principal amount of $5,000,000 (the "Debentures")
for face value to unaffiliated third parties. The Company also redeemed
$4,000,000 of Series B Stock at face value in connection with the new issuances.
The Series B Stock and the Debentures are convertible into shares of the
Company's common stock, beginning 12 months after the date of issuance, at a
rate of $4.0625 per share. The sale of the Series B Stock and the Debenture was
exempt from registration pursuant to Section 4(2) of the Securities Act.
On January 15, 2000, the Company issued a warrant to purchase 25,000
shares of the Company's common stock at an exercise price of $5.64 per share to
an unaffiliated third party in connection with services provided to the Company.
The issuance of the warrant was exempt from registration pursuant to Section
4(2) of the Securities Act.
On March 30, 2000, the Company sold 250 shares of its Series C
Convertible Preferred Stock (the "Series C Stock") and a warrant to purchase
75,000 shares of the Company's common stock at an exercise price of $6.25 (the
"Warrant") for an aggregate of $2,500,000. The Series C Stock is convertible
immediately in to shares of the Company's common stock at a rate of $4.50 per
share. The sale of the Series C Stock and the Warrant were exempt from
registration pursuant to Section 4(2) of the Securities Act and Rule 506
thereunder.
On March 31, 2000, the Company issued an aggregate of 1,000,000 shares
of the Company's common stock to unaffiliated third parties as partial
consideration for services rendered by such third parties in connection with the
renovation of the Enchanted Sun. The shares were valued at $4.50 per share. The
issuance of the shares was exempt from registration under Section 4(2) of the
Securities Act.
Item 3. DEFAULTS UPON SENIOR SECURITIES.
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) The Annual Meeting of Stockholders (the "Annual Meeting") was held on
Monday, February 28, 2000 at the offices of Broad and Cassel, Miami
Center, Suite 3000, 201 South Biscayne Boulevard, Miami, Florida 33131.
(b) The following individuals were elected directors until the annual
meeting of stockholders to be held in the year 2003 or until their
successors are elected and qualified:
VOTES ABSTENTIONS
AGAINST OR AND BROKER
VOTES FOR WITHHELD NON-VOTES
--------- ------- ---------
Ralph V. De Martino 7,095,159 211,100 0
Mark J. Maged 7,095,159 211,100 0
The term of office of each of the following directors continued after
the meeting: Jeffrey I. Binder, Frederick A. Mayer and Jeffrey B. Rabin.
(c) The stockholders voted to appoint Grant Thornton LLP as the Company's
independent auditors for the 2000 fiscal year and to authorize the
Board of Directors to set the auditor's fees.
12
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VOTES AGAINST OR ABSTENTIONS AND
VOTES FOR WITHHELD BROKER NON-VOTES
--------- -------- ----------------
7,012,559 223,700 70,000
The stockholders also voted to adopt the Company's 1999 Stock Plan.
VOTES AGAINST OR ABSTENTIONS AND
VOTES FOR WITHHELD BROKER NON-VOTES
--------- -------- ----------------
2,475,206 428,140 4,117,913
Item 5. OTHER INFORMATION.
None.
Item 6. EXHIBITS AND REPORT ON FORM 8-K.
(a) Exhibits.
EXHIBIT NUMBER DESCRIPTION
10.1 Form of Stock Purchase Agreement for Series B Convertible
Preferred Stock and 11% Convertible Debenture
10.2 Form of Stock Purchase Agreement for Series C Convertible
Preferred Stock and Warrant
27 Financial Data Schedule
(b) Reports on Form 8-K.
During the quarter ended March 31, 2000, the Company filed a Current
Report on Form 8-K dated January 28, 2000. In Item 2. of such report, the
Company reported the purchase of the M/V Crown Dynasty for a purchase price of
$86.2 million from Crown Dynasty, Inc.
13
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
COMMODORE HOLDINGS LIMITED
(Registrant)
/S/ ALAN PRITZKER
--------------------------------------------
Alan Pritzker
Vice President, Finance and
Chief Financial Officer
(Principal Financial and Accounting Officer)
May 15, 2000
14
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EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
10.1 Form of Stock Purchase Agreement for Series B Convertible
Preferred Stock and 11% Convertible Debenture
10.2 Form of Stock Purchase Agreement for Series C Convertible
Preferred Stock and Warrant
27 Financial Data Schedule
EXHIBIT 10.1
FORM OF PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT (the "Agreement") is dated as of this ___ day
of _______, 2000 among Commodore Holdings Limited, a Bermuda corporation (the
"Company") and _____________________________________________ (the "Purchasers").
R E C I T A L S:
WHEREAS, the Company has authorized the issuance of 800,000 shares of
Series B Convertible Preferred Stock (the "Series B Stock") with the rights,
preferences and limitations as set forth in EXHIBIT "A" attached hereto (the
"Preferred Stock Terms");
WHEREAS, the Company has authorized the issuance of convertible
subordinated debentures (the "Convertible Debentures") with an aggregate face
value in the amount of $5,000,000, which Convertible Debentures may be converted
into shares of the Company's common stock, par value $.01 per share (the "Common
Stock"); and
WHEREAS, the Company desires to sell and the Purchasers desire to
purchase some of the shares of the Company's Series B Stock and/or Convertible
Debentures.
NOW, THEREFORE, in consideration of the mutual agreements, covenants,
warranties and representations contained herein and for other valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto do hereby agree as follows:
1. PURCHASE OF SERIES B PREFERRED STOCK AND/OR CONVERTIBLE DEBENTURES.
The Company hereby sells, conveys and transfers to the Purchasers and the
Purchasers hereby purchase from the Company such number of shares of Series B
Stock and/or Convertible Debentures as set forth on the signature page of this
Agreement. The purchase price for the shares of Series B Stock shall be $10.00
per share. The purchase price of the Convertible Debentures shall be the face
value of such Convertible Debentures. The aggregate purchase price hereunder
shall be ________________ (the "Purchase Price").
2. DELIVERIES BY THE PARTIES. Upon delivery by the Purchasers of the
Purchase Price to the Company, the Company shall deliver to the Purchasers stock
certificates representing shares of Series B Stock and/or notes evidencing the
Convertible Debentures. The Series B Stock shall begin to accrue dividends and
the Convertible Debentures shall begin to accrue interest on the date the
Company receives the Purchase Price in cleared funds.
3. REPRESENTATIONS OF THE PURCHASERS. Each Purchaser acknowledges,
represents and warrants to the Company as follows:
(a) RECEIPT OF CORPORATE INFORMATION. Each Purchaser is familiar with
the business and financial condition of the Company, has been provided access
and an opportunity to review all material agreements, books and records of the
Company, has had the opportunity to ask questions and receive answers concerning
the terms and conditions of his purchase of the
<PAGE>
shares of Series B Stock and the Convertible Debentures and to obtain any
additional information which the Company possesses or can acquire without
unreasonable effort or expense.
(b) RISKS. Each Purchaser acknowledges and understands that the
purchase of the shares of Series B Stock and/or the Convertible Debentures and
the Common Stock issuable upon conversion of the Series B Stock and/or the
Convertible Debentures (collectively, the "Conversion Shares") involves a high
degree of risk and is suitable only for persons of adequate financial means who
have no need for liquidity in this investment in that (i) a Purchaser may not be
able to liquidate the investment in the event of an emergency; (ii)
transferability is extremely limited; and (iii) in the event of a disposition, a
Purchaser could sustain a complete loss of its entire investment. Each Purchaser
is sufficiently experienced in financial and business matters to be capable of
evaluating the merits and risks of an investment in the Company; has evaluated
such merits and risks, including risks particular to the Purchaser's situation;
and each Purchaser has determined that this investment is suitable for the
Purchaser. Each Purchaser has adequate financial resources and can bear a
complete loss of the Purchaser's investment.
(c) ACCREDITED INVESTOR STATUS. Each Purchaser is an "accredited
investor" as defined in Rule 501(a) of Regulation D promulgated by the
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended (the "Securities Act").
(d) INVESTMENT INTENT. Each Purchaser hereby represents that the shares
of Series B Stock and/or the Convertible Debentures are being acquired for the
Purchaser's own account with no intention of distributing such shares of Series
B Stock and/or the Convertible Debentures to others. No Purchaser has any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or otherwise distribute to any person or to have any person sell,
transfer or otherwise distribute for the Purchaser the shares of Series B Stock
and/or the Convertible Debentures or any interest therein.
(e) COMPLIANCE WITH FEDERAL, STATE AND FOREIGN SECURITIES LAWS. Each
Purchaser understands that the shares of Series B Stock, the Convertible
Debentures and the Conversion Shares have not been registered under the
Securities Act or applicable state or foreign securities laws. Each Purchaser
understands that the shares of Series B Stock, the Convertible Debentures and
the Conversion Shares must be held indefinitely unless the sale or other
transfer thereof is subsequently registered under the Securities Act and
applicable state and foreign securities laws or an exemption from such
registration is available. Each Purchaser also realizes that its right to
transfer the underlying Conversion Shares is subject to certain volume
restrictions set forth in Section 7 of this Agreement and that it may not be
able to sell or dispose of the shares of Series B Stock, the Convertible
Debentures or the Conversion Shares as there may be no public or other market
for them. Each Purchaser understands that certificates evidencing the shares of
Series B Stock and/or the Convertible Debentures being purchased hereunder shall
bear a legend substantially as follows:
The Securities represented by this certificate have
not been registered under the Securities Act of 1933,
as amended
2
<PAGE>
(the "Securities Act") or any applicable state or
foreign law. They may not be offered for sale, sold,
transferred or pledged without (1) registration under
the Securities Act and any applicable state and
foreign securities law, or (2) an opinion (reasonably
satisfactory to the Company) of counsel that
registration is not required.
(f) AUTHORITY. In the event that a Purchaser is a corporation, the
Purchaser is duly incorporated, validly existing and in good standing under the
laws of its state of incorporation and has full corporate power, authority and
legal right to own its properties and to conduct the businesses in which it is
now engaged. Each Purchaser has the requisite power and authority to execute and
deliver this Agreement and perform its covenants and agreements hereunder. The
execution and delivery by each Purchaser of this Agreement, the performance by
each Purchaser of its covenants and agreements hereunder and the consummation by
each Purchaser of the transactions contemplated hereby have been duly authorized
by all necessary corporate action.
(g) ENFORCEABILITY. This Agreement has been duly executed and delivered
and constitutes the valid and legally binding obligation of each Purchaser,
enforceable against each Purchaser in accordance with its terms except as such
enforceability may be limited by bankruptcy, insolvency, moratorium or similar
laws affecting the enforcement of creditors' rights generally or by the
principles governing the availability of specific performance, injunctive relief
and other equitable remedies (regardless of whether such enforceability is
considered in equity or at law).
(h) NONCONTRAVENTION. Neither the execution and delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
constitute a violation of or default under, or conflict with, any judgment,
decree, statute or regulation of any governmental authority applicable to any
Purchaser or any contract, commitment, agreement or restriction of any kind to
which a Purchaser is a party or by which its assets are bound. The execution and
delivery of this Agreement does not, and the consummation of the transactions
described herein will not, violate applicable law, or any mortgage, lien,
agreement, indenture, lease or understanding (whether oral or written) of any
kind outstanding relative to the Purchaser.
(i) APPROVALS. No approval, authorization, consent, order or other
action of, or filing with, any person, firm or corporation or any court,
administrative agency or other governmental authority is required in connection
with the execution and delivery of this Agreement by each Purchaser or the
consummation of the transactions described herein.
4. REPRESENTATIONS OF THE COMPANY. The Company acknowledges, represents
and warrants to each Purchaser as follows:
(a) CORPORATE ORGANIZATION. The Company is duly incorporated, validly
existing and in good standing under the laws of Bermuda and has full corporate
power, authority
3
<PAGE>
and legal right to own, lease and operate its properties and to conduct the
businesses in which it is now engaged. Each of the Company's subsidiaries is a
corporation duly incorporated, validly existing and in good standing under the
laws of the state or country of its organization. The Company and each of its
subsidiaries is duly licensed or qualified to transact business as a foreign
corporation and is in good standing in each jurisdiction where the ownership or
lease of its respective assets or the operation of its respective business
requires such qualification, except where the failure to be so qualified would
not have a "Material Adverse Effect". "Material Adverse Effect" shall mean any
effect on the business, operations, properties or financial condition of the
Company that is material and adverse to the Company and its subsidiaries and
affiliates, taken as a whole, and/or any condition, circumstance, or situation
that would prohibit or otherwise interfere with the ability of the Company to
enter into and perform any of its obligations under this Agreement in any
material respect.
(b) AUTHORITY. The Company has full corporate power and authority to
execute and deliver this Agreement, the shares of Series B Stock and the
Convertible Debentures and to perform all of its covenants and agreements
hereunder. The execution and delivery by the Company of this Agreement, the
shares of Series B Stock and the Convertible Debentures, the performance by the
Company of its covenants and agreements hereunder and the consummation by the
Company of the transactions contemplated hereby have been duly authorized by all
necessary corporate action and no further consent or authorization is required
of the Company's directors or stockholders.
(c) ENFORCEABILITY. This Agreement, the shares of Series B Stock and/or
the Convertible Debentures have been duly executed and delivered by the Company
and this Agreement and the Convertible Debentures constitute the valid and
legally binding obligations of the Company, enforceable against the Company in
accordance with their terms except as such enforceability may be limited by
bankruptcy, insolvency, moratorium or similar laws affecting the enforcement of
creditors' rights generally or by the principles governing the availability of
specific performance, injunctive relief and other equitable remedies (regardless
of whether such enforceability is considered in equity or at law).
(d) NONCONTRAVENTION. Neither the execution and delivery of this
Agreement, the shares of Series B Stock and/or the Convertible Debentures by the
Company, nor the consummation of the transactions contemplated hereby, nor the
performance by the Company of the transactions contemplated hereunder (i)
violate any provision of the Memorandum of Association or Bye-Laws of the
Company; (ii) violate any existing law, statute, ordinance, regulation, or any
order, judgment or decree of any court or governmental agency to which the
Company is a party or by which the Company or any of its assets is bound
(including applicable Federal or state securities laws and regulations); or
(iii) conflict with or will result in any breach of any of the terms of or
constitute a default under or result in the termination of or the creation of
any lien pursuant to the terms of any indenture, mortgage, real property lease,
securities purchase agreement, credit or loan agreement or other material
agreement to which the Company is a party or by which the Company or any of its
assets is bound, to the extent such violation thereof, conflict therewith,
breach thereof, default thereunder or termination thereof would have a Material
Adverse Effect.
4
<PAGE>
(e) THE SHARES OF SERIES B PREFERRED STOCK. The shares of Series B
Stock have been duly and validly authorized and, the Conversion Shares when
issued in accordance with the Preferred Stock Terms or Convertible Debentures,
as the case may be, will be duly and validly authorized; and the Series B Stock,
when issued for the consideration herein provided, and the Conversion Shares,
when issued in accordance with the Preferred Stock Terms or Convertible
Debentures, as the case may be, will be duly and validly issued and outstanding,
fully paid and nonassessable and the Purchaser of the Conversion Shares shall be
entitled to all rights accorded to the holders of the Common Stock, subject to
the restrictions contained in this Agreement. The Company has reserved and made
available out of its authorized but unissued shares of Common Stock such number
of shares of Common Stock as shall be sufficient to effect the conversion of the
Series B Stock and Convertible Debentures.
(f) APPROVALS. Except as may be required under federal, state and
Bermuda securities laws (which have been or, in the case of compliance required
on a post-sale basis, will be complied with), the execution, delivery and
performance of this Agreement by the Company does not require (i) the consent,
waiver, approval, license or authorization of or any filing with any person or
any governmental authority; or (ii) the approval or authorization of the
shareholders of the Company.
(g) CAPITALIZATION.
(i) The Company has authorized capital stock consisting of
100,000,000 shares of common stock, par value $.01 per share, of which _________
shares are issued and outstanding, as of the date hereof, and 10,000,000 shares
of preferred stock, par value $.01 per share (the "Preferred Stock"), 400,000 of
which were issued and outstanding prior to the consummation of the transactions
contemplated hereby. All of the outstanding shares of Common Stock and Preferred
Stock are duly and validly authorized and issued, fully paid and non-assessable,
and were offered, issued and sold in accordance with applicable Federal and
state securities laws.
(ii) Except for the options, warrants and obligations to issue
shares described in the Company's Annual Report on Form 10-K for the year ended
September 30, 1999 (the "Form 10-K"), and options proposed to be issued since
the date of the Form 10-K pursuant to the Company's stock option plans
(including the Company's 1999 Stock Plan that will be submitted to the Company's
stockholders for approval at its 2000 annual stockholders' meeting (the "Annual
Meeting")), the Company does not have outstanding any securities convertible
into capital stock, nor any rights to subscribe for or to purchase, or any
options for the purchase of, or any agreements providing for the issuance
(contingent or otherwise) of, or any calls, commitments or claims of any
character relating to, its capital stock or securities convertible into its
capital stock. Excluding rights granted to holders of outstanding Preferred
Stock, which Preferred Stock will be redeemed in connection with this
transaction, the Company has granted registration rights to holders of
securities presently exercisable for or convertible into _______ shares of
Common Stock, which rights have not yet been exercised.
5
<PAGE>
(iii) The Company is not a party to, and has no knowledge of,
any agreement restricting the voting of its Common Stock. No shares of Common
Stock are entitled to preemptive rights.
(h) COMMISSION DOCUMENTS, FINANCIAL STATEMENTS. The Common Stock of the
Company is registered pursuant to Section 12(g) of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and, during the past three (3) years,
the Company has timely filed (or with respect to the proxy statement for the
Annual Meeting, will timely file) all reports, schedules, forms, statements and
other documents required to be filed by it with the Securities and Exchange
Commission (the "Commission") pursuant to the reporting requirements of the
Exchange Act, including material filed pursuant to Section 13(a) or 15(d) of the
Exchange Act (all of the foregoing including filings incorporated by reference
therein being referred to herein as the "Commission Documents"). The Company
presently meets the eligibility requirements to file a registration statement on
Form S-3 with the Commission with respect to secondary offerings of its Common
Stock. The Company has delivered or made available to the Purchaser true and
complete copies of the Commission Documents filed with the Commission since
September 30, 1996. As of its filing date, and assuming that the Company files
the proxy statement in connection with its Annual Meeting with the Commission on
a timely basis, the Form 10-K complied in all material respects with the
requirements of the Exchange Act and the rules and regulations of the Commission
promulgated thereunder, and, as of its filing date, the Form 10-K did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the Commission
Documents comply as to form in all material respects with the published rules
and regulations of the Commission. Such financial statements have been prepared
in accordance with generally accepted accounting principles ("GAAP") applied on
a consistent basis during the periods involved (except as may be otherwise
indicated in such financial statements or the notes thereto) and fairly present
in all material respects the financial position of the Company and its
subsidiaries as of the dates thereof and the results of operations and cash
flows for the periods then ended.
(i) ACTIONS PENDING. There is no action, suit, claim, investigation or
proceeding pending or, to the knowledge of the Company, threatened against the
Company or any subsidiary which questions the validity of this Agreement or the
transactions contemplated hereby or any action taken or to be taken pursuant
hereto or thereto. Except as disclosed in the Commission Documents, there is no
action, suit, claim, investigation or proceeding pending or, to the knowledge of
the Company, threatened, against or involving the Company, any subsidiary of the
Company or any of their respective properties or assets that would have a
Material Adverse Effect. There are no outstanding orders, judgments,
injunctions, awards or decrees of any court, arbitrator or governmental or
regulatory body against the Company or any subsidiary that would have a Material
Adverse Effect.
(j) TAXES. The Company and each of the subsidiaries has accurately
prepared and filed all Federal, state and other tax returns required by law,
domestic and foreign, to be filed by it, has paid or made provisions for the
payment of all taxes shown to be due and all additional
6
<PAGE>
assessments, and adequate provisions have been and are reflected in the
financial statements of the Company and the subsidiaries of the Company for all
current taxes and other charges to which the Company or any subsidiary of the
Company is subject and which are not currently due and payable except where the
failure to prepare and file such tax returns or the failure to pay or make
provision for the payment of all such taxes could not reasonably result in a
Material Adverse Effect. None of the Federal income tax returns of the Company
or any subsidiary of the Company, since their respective organization, have been
audited by the Internal Revenue Service or other foreign governmental tax
agency. The Company has no knowledge of any additional assessments, adjustments
or contingent tax liability (whether federal or state) pending or threatened
against the Company or any subsidiary of the Company for any period that would
have a Material Adverse Effect, nor of any basis for any such assessment,
adjustment or contingency.
(k) DISCLOSURE. To the best of the Company's knowledge, neither this
Agreement nor any of the Commission Documents furnished to the Purchaser by or
on behalf of the Company in connection with the transactions contemplated by
this Agreement contain any untrue statement of a material fact or omits to state
a material fact necessary in order to make the statements made herein or
therein, in the light of the circumstances under and at the time at which they
were made herein or therein, not misleading.
(l) SECURITIES ACT OF 1933. The Company has complied and will comply
with all applicable Federal and state securities laws in connection with the
offer, issuance and sale of the Series B Stock and Convertible Debentures
hereunder in order that the issuance and sale of the Series B Stock and
Convertible Debentures will not be subject to the registration provisions of the
Securities Act of 1933, as amended (the "Securities Act"), and applicable state
securities laws. Neither the Company nor any of its affiliates, nor any person
acting on its or their behalf, has engaged in any form of general solicitation
or general advertising (within the meaning of Regulation D under the Securities
Act) in connection with the offer or sale of the Series B Stock and Convertible
Debentures.
(m) GOVERNMENTAL APPROVALS. Except for the filing of any notice prior
or subsequent to the consummation of the transactions contemplated hereby that
may be required under applicable state and/or Federal securities laws and/or
other applicable laws of territories in which the Company conducts business
(which if required, shall be filed on a timely basis), including the filing of a
registration statement or statements pursuant to this Agreement, no
authorization, consent, approval, license, exemption of, filing or registration
with any court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, is or will be necessary for, or in
connection with, the delivery of the Series B Stock and Convertible Debentures,
or for the performance by the Company of its obligations under this Agreement.
(n) USE OF PROCEEDS. The net proceeds from the sale of the Series B
Stock and Debentures will be used by the Company and its subsidiaries toward the
purchase of a cruise ship.
7
<PAGE>
(o) ABSENCE OF CERTAIN DEVELOPMENTS. Except as set forth in the
Commission Documents, since September 30, 1999, neither the Company nor any
subsidiary has:
(i) sold, assigned or transferred any tangible assets, or
canceled any debts or claims, except in the ordinary course of business;
(ii) suffered any losses or waived any rights of value,
whether or not in the ordinary course of business, which would result in a
Material Adverse Effect;
(iii) experienced any problems with labor or management in
connection with the terms and conditions of their employment, which would result
in a Material Adverse Effect;
(iv) entered into any agreements with its officers, directors
or significant shareholders that would be required to be disclosed in the Form
10-K if such agreement had been entered into prior to September 30, 1999;
(v) to the knowledge of the Company, incurred any liabilities,
indebtedness (except as described herein), obligations, claims or losses
(whether liquidated or unliquidated, secured or unsecured, absolute, accrued,
contingent or otherwise) that would have a Material Adverse Effect;
(vi) to the knowledge of the Company, suffered an event or
circumstance with respect to the Company or its subsidiaries or their respective
businesses, properties, prospects, operations or financial condition, which is
reasonably likely to have a Material Adverse Effect;
(vii) committed to expend in excess of $1,000,000 for future
capital expenditures; or
(viii) conducted its business in violation of any applicable
Federal, state or local governmental law, rule, regulation or ordinance,
domestic or foreign, except where the conduct of such business in violation
thereof has not resulted in and is not reasonably likely to result in a Material
Adverse Effect.
5. PAYMENT OF DIVIDENDS. The Board of Directors shall declare cash
dividends on the Series B Stock at the end of each calendar quarter unless
prohibited by applicable law in which event such dividends shall accrue. Such
dividends shall be paid in accordance with the Preferred Stock Terms.
6. RESTRICTION ON SALES OF COMMON STOCK. Any holder of Series B Stock
and/or Convertible Debentures may not sell more than 25% of the maximum number
of Conversion Shares that it could receive upon conversion of all of its Series
B Stock and/or Convertible Debentures during any 90-day period, without the
Company's prior written consent. The number of Conversion Shares that may be
sold during any 90-day period shall be increased to
8
<PAGE>
50% of the maximum number of Conversion Shares that it could receive upon
conversion of all of its Series B Stock and/or Convertible Debentures if the
Company delivers a Notice of Conversion (as defined in the Preferred Stock Terms
and in the form of Debenture attached hereto as EXHIBIT "B") to the holders of
Series B Stock and/or Convertible Debentures.
7. NOTICES. All notices, reports and other communications to the
Purchaser or the Company hereunder shall be in writing, shall refer specifically
to this Agreement and shall be hand delivered or sent by overnight courier,
facsimile transmission or by registered mail or certified mail, return receipt
requested, postage prepaid, in each case to the respective persons and addresses
specified below (or to such other persons or addresses as may be specified in
writing to the other party):
If to the Purchaser, to: ____________________________
____________________________
____________________________
Fax No.: ___________________
With Copy to: ____________________________
____________________________
____________________________
____________________________
____________________________
Fax: _______________________
If to the Company, to: Commodore Holdings Limited
9350 South Dixie Highway
Suite 1220
Miami, FL 33156
Attn: Jeffrey I. Binder, Chairman
Fax No.: (305) 670-0194
9
<PAGE>
With Copy to: Broad and Cassel
Miami Center - Suite 3000
201 S. Biscayne Boulevard
Miami, FL 33131
Attn: Kathleen L. Deutsch, P.A.
Fax No.: (305) 373-9443
Any notice or communication given in conformity with this Section shall
be deemed to be effective when received by the addressee if delivered by hand or
overnight courier or by facsimile (with confirmation of transmission), and three
days after mailing, if mailed.
8. NO IMPLIED WAIVERS; RIGHTS CUMULATIVE. No failure on the part of the
Purchaser or the Company to exercise and no delay in exercising any right,
power, remedy or privilege under this Agreement or provided by statute or at law
or in equity or otherwise, including, without limitation, the right or power to
terminate this Agreement, shall impair, prejudice or constitute a waiver of any
such right, power, remedy or privilege or be construed as a waiver of any breach
of this Agreement or as an acquiescence therein, nor shall any single or partial
exercise of any such right, power, remedy or privilege preclude any other or
further exercise thereof or the exercise of any other right, power, remedy or
privilege.
9. AMENDMENTS. No amendment, modification, waiver, termination or
discharge of any provision of this Agreement, nor consent to any departure
therefrom, shall in any event be effective unless the same shall be in writing
specifically identifying this Agreement and the provision(s) intended to be
amended, modified, waived, terminated or discharged and signed by the Purchaser
and the Company, and each amendment, modification, waiver, termination or
discharge shall be effective only in the specific instance and for the specific
purpose for which given. No provision of this Agreement shall be varied,
contradicted or explained by any oral agreement, course of dealing or
performance or any other matter not set forth in an agreement in writing and
signed by the Purchaser and the Company.
10. INTEGRATION. This Agreement, including any Exhibits hereto,
represents the entire understanding and agreement of the parties with respect to
the subject matter hereof. No other representations, statements or warranties
have been made, other than what is written herein.
11. COSTS OF PARTIES; ATTORNEYS' FEES. The Company shall bear its own
costs and up to $10,000 of costs of the Purchaser in connection with this
Agreement and the transactions contemplated hereby. Except as otherwise set
forth herein, all costs and expenses, including reasonable attorneys' fees,
incurred in the enforcement of this Agreement (including enforcement based on a
breach of a representation or warranty contained herein or any claim of a third
party resulting from a breach of this Agreement or as a result of the Company
entering into the transactions contemplated by this Agreement), shall be paid to
the prevailing party by the non-prevailing party, upon demand.
10
<PAGE>
12. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
each of which shall be deemed an original.
13. GOVERNING LAW. This Agreement shall be enforced, governed and
construed in all respects in accordance with the internal laws, and not the laws
pertaining to conflicts or choice of laws, of the State of New York.
14. BROKERS. Each Purchaser represents to the Company that he has not
employed or dealt with any broker, agent or finder in respect of the
transactions provided for herein. The Company acknowledges that it has dealt
with such a broker, agent or finder in respect of the transactions provided for
herein and that it shall be solely responsible for compensating such person.
Each party hereto agrees to indemnify and hold harmless the other party hereto
from and against all fees, in any way resulting from any contract or
understanding existing between the indemnifying party and such broker, agent or
finder.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto, through their duly authorized
officers, have executed this Agreement as of the date first written above.
COMPANY:
COMMODORE HOLDINGS LIMITED
By:
-------------------------------
Name: JEFFREY I. BINDER
-----------------------------
Title: CHAIRMAN OF THE BOARD
----------------------------
PURCHASERS:
Number of Shares of
Series B Stock Purchased: By:
________________________ -------------------------------
Name:
-----------------------------
Face Value of Convertible Debentures
Purchased:
________________________
12
<PAGE>
EXHIBIT A
SERIES B PREFERRED STOCK TERMS
<PAGE>
COMMODORE HOLDINGS LIMITED
SERIES B CONVERTIBLE PREFERRED STOCK
RIGHTS, PREFERENCES & LIMITATIONS
The Series B Convertible Preferred Stock (the "Series B Preferred Stock") shall
have the following rights, preferences and limitations:
1. DIVIDENDS. The holders of the Series B Preferred Stock shall be
entitled to receive, when and as declared by the Board of Directors, out of the
funds of Commodore Holdings Limited (the "Company") legally available therefor,
cash dividends at the rate of 11% per annum and no more, payable quarterly at
the end of each calendar quarter. Such cash dividends on Series B Preferred
Stock shall be cumulative so that, if for any quarter cash dividends at the
specified rate shall not have been declared and paid or set apart for payment on
the Series B Preferred 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, par value $0.01 per share (the
"Common Stock"). Cash dividends on Series B Preferred Stock shall accrue from
the date of issue of such Series B Preferred Stock. Upon the payment of all
dividends, current and accumulated, at the specified rate upon the outstanding
Series B Preferred Stock, the Directors of the Company may declare and pay
dividends upon the Common Stock.
2. CONVERSION.
(a) VOLUNTARY CONVERSION. Each share of Series B Preferred Stock shall
be convertible into a number of shares of Common Stock (the "Conversion Shares")
based upon a conversion price per share of Common Stock of $4.0625 (the
"Conversion Price"). Unless a holder of Series B Preferred Stock and the Company
agree otherwise or unless there is a "Change of Control" (as hereinafter
defined), the Series B Preferred Stock shall become convertible at any time
commencing twelve (12) months after the date of issuance. If a Change of Control
occurs or is contemplated, the Series B Preferred Stock shall become convertible
just prior to the consummation of the Change of Control. A "Change of Control"
shall have occurred if: (i) any "person" within the meaning of Section 14(d) of
the Securities Exchange Act of 1934 becomes the owner, directly or indirectly,
of more than 30% of the Company's outstanding Common Stock (excluding warrants,
options or other securities convertible into or exercisable for Common Stock);
or (ii) the Company's stockholders have approved the sale of all or
substantially all of the assets of the Company.
Conversion shall be effective on the third business day following the
receipt by the Company of the Notice of Conversion (as hereafter defined) from
the holder of the Series B Preferred Stock, together with the original stock
certificate evidencing the Series B Preferred Stock, executed stock powers and
signatures guaranteed.
(b) MANDATORY CONVERSION. Unless a holder of Series B Preferred Stock
and the Company agree otherwise, at any time after the Company files a
registration statement with the Securities and Exchange Commission ("SEC") with
respect to the sale of the Conversion Shares and such registration statement has
been declared effective by the SEC, the Company shall have the right to force
conversion of up to twenty-five percent (25%) of the shares of the Series B
Preferred Stock during any ninety (90) day period at the Conversion Price if at
any time the
<PAGE>
closing bid price of the Company's Common Stock on The Nasdaq Stock Market
equals or exceeds 150% of the Conversion Price per share for any ten (10)
consecutive trading days (a "Conversion Trigger Date"). For a period of ten (10)
business days after the Conversion Trigger Date, the Company shall have the
right to deliver to any or all of the holders of Series B Preferred Stock a
Notice of Conversion, which states that the Company has elected to exercise its
right to demand conversion of the number of shares of Series B Preferred Stock
into Common Stock as set forth in such Notice of Conversion. The Notice of
Conversion shall state the date that the conversion shall be effective (the
"Conversion Date"), which shall not be earlier than the date the Notice of
Conversion is delivered to the holders of the Series B Preferred Stock.
(c) ANTI-DILUTION ADJUSTMENTS TO CONVERSION PRICE. The Conversion Price
provided for herein shall be subject to the following adjustments:
(i) If the Company shall declare and pay to the holders of the
shares of Common Stock a dividend in shares of Common Stock, the Conversion
Price in effect immediately prior to the date fixed for the determination of
shareholders entitled to such dividends shall be proportionately decreased
(adjusted to the nearest 1/1,000 of a share of Common Stock), such adjustment to
become effective immediately after the date fixed for such determination.
(ii) If the Company shall subdivide the outstanding shares of
Common Stock into a greater number of shares of Common Stock or combine the
outstanding shares of Common Stock into a smaller number of shares of Common
Stock, the Conversion Price in effect immediately prior to such subdivision or
combination, as the case may be, shall be proportionately decreased or increased
(adjusted to the nearest 1/1,000 of a share of Common Stock), as the case may
require, such decrease or increase, as the case may be, to become effective when
such subdivision or combination becomes effective.
(iii) In the case of any reclassification or change of
outstanding shares of Common Stock issuable upon the conversion of the Series B
Preferred Stock, or in the case of any consolidation or merger of the Company
with or into another corporation, or in the case of any sale or conveyance to
another corporation of all or substantially all of the property of the Company,
the holder of each share of Series B Preferred Stock then outstanding shall have
the right thereafter, so long as such holder's conversion right hereunder shall
exist, to convert such Series B Preferred Stock into the same kind and amount of
shares of stock and other securities and property receivable upon such
reclassification, change, consolidation, merger, sale or conveyance by a holder
of the number of shares of Common Stock of the Company into which such shares of
Series B Preferred Stock might have been converted immediately prior to such
reclassification, change, consolidation, merger, sale or conveyance, and shall
have no other conversion rights under these provisions; PROVIDED, HOWEVER, that
effective provision(s) shall be made, in the Articles or Certificate of
Incorporation of the resulting, surviving or successor corporation or otherwise,
so that the provisions set forth herein for the protection of the conversion
rights of the shares of Series B Preferred Stock shall thereafter become
applicable, as nearly as reasonably may be, to any such other shares of stock
and other securities and property deliverable upon conversion of the shares of
Series B Preferred Stock remaining outstanding or other convertible preferred
shares receivable by the holders in place thereof; and provided, further, that
any such resulting, surviving, or successor corporations shall expressly assume
the
2
<PAGE>
obligation to deliver, upon the exercise of the conversion privilege, such
shares, securities, or property as the holders of the shares of Series B
Preferred Stock remaining outstanding, or other convertible preferred shares
receivable by the holders in place thereof, shall be entitled to receive
pursuant to the provisions hereof, and to make provisions for the protection of
the conversion right as above provided.
In case securities or property other than shares of Common
Stock shall be issuable or deliverable upon the conversion as aforesaid, then
all references in this section shall be deemed to apply, so far as appropriate
and as nearly as may be, to such other securities or property. The subdivision
or combination of shares of Common Stock at any time outstanding into a greater
or lesser number of shares of Common Stock (whether with or without par value)
shall not be deemed to be a reclassification of the Common Stock of the Company
for the purposes of this subsection (iii).
(iv) If at any time after the date hereof the Company shall
issue shares of Common Stock or rights, options or warrants or convertible or
exchangeable securities containing the right to subscribe for shares of Common
Stock (collectively the "Securities") for a consideration per share (the
"Issuance Price") less than the Conversion Price in effect immediately prior to
the issuance of such Securities, the Conversion Price shall be reduced to the
price determined by multiplying the Conversion Price then in effect by a
fraction (a) the numerator of which shall be the sum of (i) the number of shares
of Common Stock outstanding immediately prior to the issuance of the Securities,
and (ii) the number of shares of Common Stock underlying the Securities
multiplied by the consideration per share received (or in the case of warrants
or options, the exercise price to be received) by the Company for the Securities
divided by the Conversion Price then in effect, and (b) the denominator of which
shall be the number of shares of Common Stock outstanding immediately after such
issuance; provided, however, that if the Company issues an aggregate number of
Securities equal to or exceeding 100,000 shares of Common Stock (or rights to
receive upon exercise or conversion at least 100,000 shares of Common Stock)
after the date hereof, which Securities are issued, exercisable, or convertible
for less than the Conversion Price, the Conversion Price with respect to all
shares of Series B Preferred Stock shall be reduced to the Issuance Price.
Except as provided in the foregoing subsections (i-iv), there
shall be no adjustments to the Conversion Price received upon conversion set
forth above.
(d) NOTICE OF CONVERSION. In order to convert Series B Preferred Stock
into Common Stock, the holder or the Company, as the case may be, must deliver a
notice of conversion (the "Notice of Conversion"), in the form attached hereto.
Notices of Conversion shall be deemed delivered on the date sent, if personally
delivered or sent by facsimile (with confirmation of transmission) to the
address of record for each holder, or, if sent to the Company, to the Company's
Chief Executive Officer at the Company's principal place of business, or when
actually received if sent by another method. The Notice of Conversion, if sent
by a holder of Series B Preferred Stock, shall be accompanied by a facsimile
(which shall be followed by an original within one (1) business day) or original
certificate evidencing the Series B Preferred Stock to be converted.
3
<PAGE>
(e) CONVERSION PROCEDURE. The Company shall use its reasonable best
efforts to cause its transfer agent to issue the Common Stock within three (3)
business days after the Company receives a fully executed Notice of Conversion
and original certificates for the Series B Preferred Stock with executed stock
powers and signatures guaranteed. The Company shall bear the cost associated
with the issuance of the Common Stock. The Common Stock shall be issued with a
restrictive legend indicating that it was issued in a transaction which is
exempt from registration under the Securities Act of 1933, as amended, and that
it cannot be transferred unless it is so registered, or an exemption from
registration is available, in the opinion of counsel to the Company. The Common
Stock shall be issued in the same name as the person who is the holder of the
Series B Preferred Stock unless, in the opinion of counsel to the Company, such
transfer can be made in compliance with applicable securities laws. The person
in whose name the certificates of Common Stock are so registered shall be
treated as a common stockholder of the Company on the date the Common Stock
certificates are so issued. With respect to Mandatory Conversion, each holder of
Series B Preferred Stock shall deliver to the Company the appropriate number of
shares of Series B Preferred Stock promptly after the Company's delivery of the
Notice of Conversion, together with executed stock powers with signatures
guaranteed. In the event a holder of Series B Preferred Stock fails to deliver
shares of Series B Preferred Stock after the Company's delivery of the Notice of
Conversion, such shares of Series B Preferred Stock shall be deemed to have been
converted into Common Stock at the Conversion Price on the Conversion Date and
shall be issued and held by the Company until the appropriate certificates for
Series B Preferred Stock are presented for cancellation with executed stock
powers and signatures guaranteed. The certificates representing the Series B
Preferred Stock shall be cancelled, as reflected in the records of the Company
on the date of issuance of the Common Stock.
3. RESERVATION OF COMMON STOCK ISSUABLE UPON CONVERSION. The Company
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, such number of its shares of Common Stock as shall from
time to time be sufficient to effect the conversion of all then outstanding
shares of Series B Preferred Stock, the sufficiency of which shall be determined
by using the Conversion Price.
4. NO PREEMPTIVE RIGHTS. No holder of the Series B Preferred Stock
shall be entitled, as a right, to purchase or subscribe for any part of the
unissued capital stock of the Company, or to purchase or subscribe for any
bonds, certificates of indebtedness, debentures, or other securities convertible
into or carrying options or warrants to purchase stock or other securities of
the Company or by its nominee or nominees, or to have any other preemptive
rights now or hereafter defined by the laws of Bermuda.
5. NO VOTING RIGHTS. Holders of Series B Preferred Stock shall not have
voting rights.
6. LIQUIDATION PREFERENCE. Series B Preferred Stock shall have a
liquidation preference equal to $10.00 per share of Series B Preferred Stock
plus accrued and unpaid dividends.
7. NO FRACTIONAL SHARES. The Series B Preferred Stock shall not be
converted into fractions of a share and, where applicable, will be rounded to
the nearest whole number of shares upon conversion into Common Stock.
4
<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
(To be executed by the registered Holder in order to convert Series B Preferred
Stock)
The undersigned hereby irrevocably elects to convert _______ shares of Series B
Preferred Stock into shares of Common Stock of COMMODORE HOLDINGS LIMITED (the
"Company") according to the rights, preferences and limitations of the Series B
Preferred Stock, as of the date written below.
Date of Conversion: *
---------------------------
Signature:
------------------------------------
Name:
-----------------------------------------
Signature Guarantee:
--------------------------
Address:
--------------------------------------
----------------------------------------------
Social Security No.
---------------------------
*The Conversion Date shall be the third business day following the Company's
receipt of the original stock certificate evidencing the Series B Preferred
Stock with executed stock powers and signatures guaranteed and the Notice of
Conversion or, in the case of a Mandatory Conversion, the date set forth in the
Notice of Conversion.
<PAGE>
EXHIBIT B
FORM OF DEBENTURE
<PAGE>
8
NEITHER THIS DEBENTURE NOR THE COMMON STOCK ISSUABLE UPON
CONVERSION HEREOF HAS BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR UNDER
THE SECURITIES LAWS OF ANY STATE OR FOREIGN COUNTRY. THE
SECURITIES REPRESENTED HEREBY ARE RESTRICTED AND MAY NOT
BE OFFERED, RESOLD, PLEDGED OR TRANSFERRED EXCEPT IF SUCH
TRANSACTION IS REGISTERED UNDER THE SECURITIES ACT AND
APPLICABLE STATE AND FOREIGN SECURITIES LAWS OR IF SUCH
TRANSACTION IS EXEMPT FROM SUCH REGISTRATION, AS CONFIRMED
BY AN OPINION OF COUNSEL TO THE COMPANY.
No. D-_ US $_________
COMMODORE HOLDINGS LIMITED
11% CONVERTIBLE SUBORDINATED DEBENTURE DUE __________, 2006
FOR VALUE RECEIVED, COMMODORE HOLDINGS LIMITED, a Bermuda corporation
(the "Company"), promises to pay to ____________________________, the registered
Holder hereof (the "Holder"), the principal sum of ____________________ on
__________, 2006 (the "Maturity Date") and to pay interest on the principal sum
outstanding, in arrears, at the end of each calendar quarter, beginning on March
31, 2000, at the rate of 11% per annum, accruing from the date on which the
Company receives the principal amount of this Debenture in cleared funds.
Interest will be calculated on the basis of a 360-day year consisting of twelve
30-day months. Accrual of interest shall commence on the first such business day
to occur after the date on which the Company receives the principal amount of
this Debenture in cleared funds and continue until payment in full of the
principal sum has been made in cash or this Debenture is converted as provided
herein. Subject to the provisions of Section 4 below, interest on this Debenture
is payable in such coin or currency of the United States of America as at the
time of payment is legal tender for payment of public and private debts. The
Company shall pay the principal of and interest upon this Debenture, less any
amounts required by law to be deducted, to the Holder of this Debenture at the
address of such Holder which is the last address appearing on the Debenture
Register of the Company for such Holder. The forwarding of such payment shall
constitute a payment of principal and/or interest, as the case may be, hereunder
and shall satisfy and discharge the liability for principal and/or interest, as
the case may be, on this Debenture to the extent of the sum represented by such
payment plus any amounts so deducted.
This Debenture is subject to the following additional provisions:
1. EXCHANGE. This Debenture is exchangeable only at the office of the
Company by the surrender thereof for cancellation, and upon payment of any stamp
tax or other governmental charge connected with the exchange for Debenture
certificates representing an equal aggregate principal amount but issued in
different authorized denominations, as requested by the Holder surrendering the
same in denominations of $100,000 or multiples thereof.
<PAGE>
2. WITHHOLDING. The Company shall be entitled to withhold from all
payments of principal of and interest on this Debenture any amounts required to
be withheld under the applicable provisions of the United States income tax laws
or other applicable laws at the time of such payments, and the Holder shall
execute and deliver all required documentation in connection therewith.
3. RESTRICTIONS ON TRANSFER. This Debenture has been issued subject to
investment representations of the original purchaser hereof and may be
transferred or exchanged only in compliance with the Securities Act of 1933, as
amended (the "Securities Act"), and other applicable state and foreign
securities laws. In the event of any proposed transfer of this Debenture, the
Company may require, prior to issuance of a new Debenture in the name of such
other person, that it receive reasonable transfer documentation including
opinions of counsel that the issuance of the Debenture in such other name does
not and will not cause a violation of the Securities Act or any applicable state
or foreign securities laws. Prior to due presentment for transfer of this
Debenture, the Company and any agent of the Company may treat the person in
whose name this Debenture is duly registered on the Company's Debenture Register
as the owner hereof for the purpose of receiving payment as herein provided and
for all other purposes, whether or not this Debenture be overdue, and neither
the Company nor any such agent shall be affected by notice to the contrary.
4. INTEREST RATE. The Company shall pay the Holder interest at the rate
of 11% per annum, payable quarterly in arrears, and at maturity together with
principal.
5. CONVERSION.
A. VOLUNTARY CONVERSION. The Holder of this Debenture is entitled to
convert the face value of this Debenture or any portion thereof into a number of
shares of the Company's common stock, par value $.01 per share (the "Common
Stock"), based upon a conversion price per share of Common Stock of $4.0625 (the
"Conversion Price"). Unless the Holder of this Debenture and the Company agree
otherwise or unless there is a "Change of Control" (as hereinafter defined),
this Debenture shall become convertible at any time commencing twelve (12)
months after the date of issuance. If a Change of Control occurs or is
contemplated, this Debenture shall become convertible just prior to the
consummation of the Change of Control. A "Change of Control" shall have occurred
if: (i) any "person" within the meaning of Section 14(d) of the Securities
Exchange Act of 1934 becomes the owner, directly or indirectly, of more than 30%
of the Company's outstanding Common Stock (excluding warrants, options or other
securities convertible into or exercisable for Common Stock); or (ii) the
Company's stockholders have approved the sale of all or substantially all of the
assets of the Company.
B. MANDATORY CONVERSION. Unless a Holder of this Debenture and the
Company agree otherwise, at any time after the Company files a registration
statement with the Securities and Exchange Commission ("SEC") with respect to
the sale of the shares of Common Stock issuable upon conversion of this
Debenture (the "Conversion Shares") and such registration statement has been
declared effective by the SEC, the Company shall have the right to force
conversion of up to twenty-five percent (25%) of the face value of this
Debenture during any ninety (90) day period at the Conversion Price if at any
time the closing bid price of the Company's Common Stock as quoted on The Nasdaq
Stock Market equals or exceeds 150% of
2
<PAGE>
the Conversion Price per share for any ten (10) consecutive trading days (a
"Conversion Trigger Date"). For a period of ten (10) business days after the
Conversion Trigger Date, the Company shall have the right to deliver to any or
all of the Holders of the Debentures a notice of conversion (the "Company's
Notice of Conversion"), which states that the Company has elected to exercise
its right to demand conversion of the face value of the Debentures into Common
Stock as set forth in such Company's Notice of Conversion. The Company's Notice
of Conversion shall state the date that the conversion shall be effective, which
shall not be earlier than the date the Company's Notice of Conversion is
delivered to the Holders of the Debentures.
C. ANTI-DILUTION ADJUSTMENTS TO CONVERSION PRICE. The Conversion Price
provided for herein shall be subject to the following adjustments:
(i) If the Company shall declare and pay to the holders of the
shares of Common Stock a dividend in shares of Common Stock, the Conversion
Price in effect immediately prior to the date fixed for the determination of
shareholders entitled to such dividends shall be proportionately decreased
(adjusted to the nearest 1/1,000 of a share of Common Stock), such adjustment to
become effective immediately after the date fixed for such determination.
(ii) If the Company shall subdivide the outstanding shares of
Common Stock into a greater number of shares of Common Stock or combine the
outstanding shares of Common Stock into a smaller number of shares of Common
Stock, the Conversion Price in effect immediately prior to such subdivision or
combination, as the case may be, shall be proportionately decreased or increased
(adjusted to the nearest 1/1,000 of a share of Common Stock), as the case may
require, such decrease or increase, as the case may be, to become effective when
such subdivision or combination becomes effective.
(iii) In the case of any reclassification or change of
outstanding shares of Common Stock issuable upon the conversion of the Series B
Preferred Stock, or in the case of any consolidation or merger of the Company
with or into another corporation, or in the case of any sale or conveyance to
another corporation of all or substantially all of the property of the Company,
the holder of each share of Series B Preferred Stock then outstanding shall have
the right thereafter, so long as such holder's conversion right hereunder shall
exist, to convert such Series B Preferred Stock into the same kind and amount of
shares of stock and other securities and property receivable upon such
reclassification, change, consolidation, merger, sale or conveyance by a holder
of the number of shares of Common Stock of the Company into which such shares of
Series B Preferred Stock might have been converted immediately prior to such
reclassification, change, consolidation, merger, sale or conveyance, and shall
have no other conversion rights under these provisions; PROVIDED, HOWEVER, that
effective provision(s) shall be made, in the Articles or Certificate of
Incorporation of the resulting, surviving or successor corporation or otherwise,
so that the provisions set forth herein for the protection of the conversion
rights of the shares of Series B Preferred Stock shall thereafter become
applicable, as nearly as reasonably may be, to any such other shares of stock
and other securities and property deliverable upon conversion of the shares of
Series B Preferred Stock remaining outstanding or other convertible preferred
shares receivable by the holders in place thereof; and provided, further, that
any such resulting, surviving, or successor corporations shall expressly assume
the obligation to deliver, upon the exercise of the conversion privilege, such
shares, securities, or property as the holders of the shares of Series B
Preferred Stock remaining outstanding, or other
3
<PAGE>
convertible preferred shares receivable by the holders in place thereof, shall
be entitled to receive pursuant to the provisions hereof, and to make provisions
for the protection of the conversion right as above provided.
In case securities or property other than shares of Common Stock shall
be issuable or deliverable upon the conversion as aforesaid, then all references
in this section shall be deemed to apply, so far as appropriate and as nearly as
may be, to such other securities or property. The subdivision or combination of
shares of Common Stock at any time outstanding into a greater or lesser number
of shares of Common Stock (whether with or without par value) shall not be
deemed to be a reclassification of the Common Stock of the Company for the
purposes of this subsection (iii).
(iv) If at any time after the date hereof the Company shall
issue shares of Common Stock or rights, options or warrants or convertible or
exchangeable securities containing the right to subscribe for shares of Common
Stock (collectively the "Securities") for a consideration per share (the
"Issuance Price") less than the Conversion Price in effect immediately prior to
the issuance of such Securities, the Conversion Price shall be reduced to the
price determined by multiplying the Conversion Price then in effect by a
fraction (a) the numerator of which shall be the sum of (i) the number of shares
of Common Stock outstanding immediately prior to the issuance of the Securities,
and (ii) the number of shares of Common Stock underlying the Securities
multiplied by the consideration per share received (or in the case of warrants
or options, the exercise price to be received) by the Company for the Securities
divided by the Conversion Price then in effect, and (b) the denominator of which
shall be the number of shares of Common Stock outstanding immediately after such
issuance; provided, however, that if the Company issues an aggregate number of
Securities equal to or exceeding 100,000 shares of Common Stock (or rights to
receive upon exercise or conversion at least 100,000 shares of Common Stock),
after the date hereof, which Securities are issued, exercisable or convertible
for less than the Conversion Price, the Conversion Price with respect to all
shares of Series B Preferred Stock shall be reduced to the Issuance Price.
Except as provided in the foregoing subsections (i-iv), there shall be
no adjustments to the Conversion Price received upon conversion set forth above.
D. NOTICE OF CONVERSION. In order to convert the Debenture into Common
Stock, the Holder or the Company, as the case may be, must deliver a notice of
conversion (the "Notice of Conversion"), in the form attached hereto. Notices of
Conversion shall be deemed delivered on the date sent, if personally delivered
or sent by facsimile (with confirmation of transmission) to the address of
record for each Holder, or, if sent to the Company, to the Company's Chief
Executive Officer at the Company's principal place of business, or when actually
received if sent by another method. The Notice of Conversion, if sent by a
Holder of this Debenture, shall be accompanied by a facsimile (which shall be
followed by an original within one (1) business day) or original certificate
evidencing the Debenture to be converted.
E. CONVERSION PROCEDURE. The Company shall use its reasonable best
efforts to cause its transfer agent to issue the Common Stock within three (3)
business days after the Company receives a fully executed Notice of Conversion
and original certificates for the Debenture. The Company shall bear the cost
associated with the issuance of the Common Stock. The Common Stock shall be
issued with a restrictive legend indicating that it was issued in a
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<PAGE>
transaction which is exempt from registration under the Securities Act of 1933,
as amended, and that it cannot be transferred unless it is so registered, or an
exemption from registration is available, in the opinion of counsel to the
Company. The Common Stock shall be issued in the same name as the person who is
the Holder of this Debenture unless, in the opinion of counsel to the Company,
such transfer can be made in compliance with applicable securities laws. The
person in whose name the certificates of Common Stock are so registered shall be
treated as a common stockholder of the Company on the date the Common Stock
certificates are so issued. With respect to Mandatory Conversion, each Holder of
a Debenture shall deliver to the Company the appropriate Debenture promptly
after the Company's delivery of the Notice of Conversion. In the event a Holder
of a Debenture fails to deliver the Debenture after the Company's delivery of
the Notice of Conversion, such Debenture shall be deemed to have been converted
into Common Stock at the Conversion Price on the Conversion Date and shall be
issued and held by the Company until the appropriate certificates for the
Debentures are presented for cancellation. The certificates representing the
Debenture shall be cancelled, as reflected in the records of the Company on the
date of issuance of the Common Stock.
6. RESERVATION OF COMMON STOCK ISSUABLE UPON CONVERSION. The Company
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, such number of its shares of Common Stock as shall from
time to time be sufficient to effect the conversion of all then outstanding
Debentures, the sufficiency of which shall be determined by using the Conversion
Price.
7. SUBORDINATION. The Debenture shall be subordinated in right of
payment to all existing and future debt of the Company, whether secured or
unsecured, and any deferrals, renewals or extensions of such indebtedness, or
any debentures, bonds, or notes evidencing such indebtedness. This Debenture
will also be subordinate to any debt securities that the Company may issue in
the future.
8. UNSECURED OBLIGATION. This Debenture shall be unsecured. The Holder
shall have no recourse against any specific assets of the Company in the event
of nonpayment of the Debenture.
9. DIRECT OBLIGATION. Subject to prior conversion, no provision of this
Debenture shall alter or impair the obligation of the Company, which is absolute
and unconditional, to pay the principal of, and interest on, this Debenture at
the time, place, and rate, and in the manner herein prescribed. This Debenture
is a direct obligation of the Company.
10. INVESTMENT REPRESENTATIONS. The Holder of the Debenture, by
acceptance hereof, represents that the Holder is an "accredited investor" as
defined in the Securities Act and the rules promulgated thereunder, and agrees
that this Debenture is being acquired for investment and not with a view to the
distribution thereof, and that such Holder will not offer, sell or otherwise
dispose of this Debenture or the shares of Common Stock issuable upon conversion
thereof except under circumstances which will not result in a violation of the
Securities Act or any applicable state "blue sky" laws or similar state or
foreign laws relating to the sale of securities. Unless the issuance of the
shares of Common Stock issuable upon conversion of this Debenture shall have
been registered under the Securities Act, the Holder of this Debenture, by
tendering notice to the Company of the Holder's intent to convert all or part of
this Debenture pursuant to Section 4A hereof, shall be deemed to represent to
the Company that the Holder is
5
<PAGE>
acquiring such shares of Common Stock for investment and not with a view to the
distribution thereof.
11. GOVERNING LAW; JURISDICTION. This Debenture shall be governed by
and construed in accordance with the laws of the State of New York. Each of the
parties consents to the jurisdiction of the federal courts whose districts
encompass any part of New York County, New York or the state courts of the State
of New York sitting in New York County in connection with any dispute arising
under this Debenture and hereby waives, to the maximum extent permitted by law,
any objection, including any objection based on FORUM NON CONVENIENS, to the
bringing of any such proceeding in such jurisdictions.
12. DEFAULT. Each of the following shall constitute an "Event of
Default":
a. the Company fails to pay any interest on this Debenture when
it is due and payable, and the failure continues for a period
of ten (10) days;
b. the Company fails to pay the principal of this Debenture at
its maturity;
c. the Company commences any voluntary proceeding under any
bankruptcy, reorganization, insolvency, readjustment of debt,
receivership, dissolution, or liquidation law or statute, of
any jurisdiction, whether now or subsequently in effect; or
the Company is adjudicated insolvent or bankrupt by a court of
competent jurisdiction; or the Company petitions or applies
for, acquiesces in, or consents to, the appointment of any
receiver or trustee of the Company or for all or substantially
all of its property or assets; or the Company makes an
assignment for the benefit of its creditors; or the Company
admits in writing its inability to pay its debts as they
mature;
d. there is commenced against the Company any proceeding relating
to the Company under any bankruptcy, reorganization,
insolvency, readjustment of debt, receivership, dissolution,
or liquidation law or statute, of any jurisdiction, whether
now or subsequently in effect, and the proceeding remains
undismissed for a period of ninety (90) days or the Company by
any act indicates its consent to, approval of, or acquiescence
in, the proceedings; or a receiver or trustee is appointed for
the Company or for all or substantially all of its property or
assets, and the receivership or trusteeship remains
undischarged for a period of ninety (90) days; or a warrant of
attachment, execution or similar process is issued against any
substantial part of the property or assets of the Company, and
the warrant or similar process is not dismissed or bonded
within ninety (90) days after the levy;
e. any of the representations or warranties made by the Company
herein, or in the purchase agreement between the Company and
the Holder of even date herewith (the "Purchase Agreement"),
shall be false or misleading in any material respect;
f. the Company shall fail to perform or observe, in any material
respect, any covenant, term, provision, condition, agreement
or obligation of the Company
6
<PAGE>
under this Debenture, or the Purchase Agreement and such
failure shall continue uncured for a period of thirty (30)
days after notice from the Purchaser of such failure and
failure of the Company to cure such deficiency;
g. any governmental agency or any court of competent jurisdiction
at the instance of any governmental agency shall assume
custody or control of the whole or substantially all of the
properties or assets of the Company;
h. the Company shall have its Common Stock delisted from the
Nasdaq Stock Market or other market or exchange on which the
Common Stock is or becomes listed or trading in the Common
Stock shall be suspended for more than ten (10) consecutive
days, and the Company fails to cause the Common Stock to
commence trading on another market or exchange within ten (10)
days after such delisting or suspension;
i. (i) the Company has filed a Registration Statement (the
"Registration Statement") in accordance with the Registration
Rights Agreement between the Company and the Holder of even
date herewith (the "Registration Rights Agreement"); (ii) the
Company has filed the Registration Statement on Form S-3 based
upon the Purchaser's demand for registration pursuant to the
Registration Rights Agreement; (iii) the Registration
Statement has been declared effective by the Securities and
Exchange Commission; and (iv) the Company has failed to
deliver to the Purchaser certificates for Common Stock (the
"Certificates") pursuant to Section 5(E) herein or pursuant to
Section 2(e) of the Series B Convertible Preferred Stock
Rights, Preferences and Limitations of the Company, as amended
on January 5, 2000, within five (5) business days after the
Company receives a fully executed Notice of Conversion and the
original certificates for either the Debenture or the Holder's
Series B Convertible Preferred Stock of the Company with
Holder's signature thereon medallion guaranteed, as the case
may be, which Certificates are free from any legend relating
to limitations on transferability under the Securities Act of
1933, as amended; or
j. the Company does not file the Registration Statement in
accordance with the Registration Rights Agreement between the
Company and the Holder.
Then, or at any time thereafter, and in each and every such case, unless such
Event of Default shall have been waived in writing by the Holder (which waiver
shall not be deemed to be a waiver of any subsequent default), at the option of
the Holder and in the Holder's sole discretion, the Holder may consider this
Debenture immediately due and payable, without presentment, demand, protest or
notice of any kind, all of which are hereby expressly waived, anything herein or
in any note or other instruments contained to the contrary notwithstanding, and
the Holder may immediately enforce any and all of the Holder's rights and
remedies provided herein or any other rights or remedies afforded by law.
13. NO RIGHTS OF A SHAREHOLDER. Nothing contained in this Debenture
shall be construed as conferring upon the Holder the right to vote or to receive
dividends or to consent or receive notice as a shareholder in respect of any
meeting of shareholders or any rights
7
<PAGE>
whatsoever as a shareholder of the Company, unless and to the extent this
Debenture is converted in accordance with the terms hereof.
14. COLLECTION COSTS. In the event an Event of Default has occurred and
has not been waived by Holder, the Holder shall be entitled to collect from the
Company all costs and expenses incurred by Holder in enforcing its rights
hereunder, including reasonable attorneys' fees.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
Effective as of the ___ COMMODORE HOLDINGS LIMITED
day of _______, 2000
By:
-------------------------------
Name: JEFFREY I. BINDER
-----------------------------
Title: CHAIRMAN OF THE BOARD
----------------------------
8
<PAGE>
AFFIDAVIT FOR EXECUTION OF DEBENTURE
OUTSIDE OF THE STATE OF FLORIDA
STATE OF __________)
) ss:
COUNTY OF _________)
BEFORE ME, the undersigned Notary Public, duly authorized in the County
and State aforesaid to administer oaths and take acknowledgments, personally
appeared the undersigned witnesses, to me known to be the persons described as
witnesses to the foregoing Debenture and who witnessed the execution of the
foregoing Debenture, and who, first being duly sworn by me did each depose, say
and acknowledge before me that they were present at the time that the said
Debenture was executed, that they saw the same executed by Jeffrey I. Binder, of
COMMODORE HOLDINGS LIMITED, and that they saw the delivery of the Debenture on
this date to the Holder in the state and county above-referenced.
_________________________________________________
Subscribing Witness
Print Name:______________________________________
Address:_________________________________________
_________________________________________________
_________________________________________________
Subscribing Witness
Print Name:______________________________________
Address:_________________________________________
_________________________________________________
SWORN TO AND SUBSCRIBED before me and acknowledged to me this ___ day
of _____________,.
_________________________________________________
(Signature of Notary Public)
_________________________________________________
(Typed, printed or stamped name of Notary Public)
Notary Public, State of _________________________
Commission No.:
My commission expires:
<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
(To be executed by the registered Holder in order to convert the Debenture)
The undersigned hereby irrevocably elects to convert $__________ of the
principal amount of the above Debenture No. ______ into shares of Common Stock
of COMMODORE HOLDINGS LIMITED (the "Company") according to the conditions
hereof, as of the date written below.
Date of Conversion* ____________________________________________________________
Signature ______________________________________________________________________
Name ___________________________________________________________________________
Social Security No. ____________________________________________________________
Signature Guarantee ____________________________________________________________
Address ________________________________________________________________________
* The Conversion Date shall be the third business day following the
Company's receipt of the original certificate evidencing the Debenture
and the Notice of Conversion or, in the case of a Mandatory Conversion,
the date set forth in the Notice of Conversion.
EXHIBIT 10.2
- -------------------------------------------------------------------------------
FORM OF CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
Among
COMMODORE HOLDINGS LIMITED
and
THE INVESTORS SIGNATORY HERETO
Dated as of ________, 2000
- -------------------------------------------------------------------------------
<PAGE>
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (this "AGREEMENT"),
dated as of ________, 2000, among Commodore Holdings Limited, a Bermuda
corporation (the "COMPANY"), and the investors signatory hereto (each such
investor is a "PURCHASER" and all such investors are, collectively, the
"PURCHASERS").
WHEREAS, subject to the terms and conditions set forth in this
Agreement, the Company desires to issue and sell to the Purchasers and the
Purchasers, severally and not jointly, desire to purchase from the Company,
shares of the Company's Series C Convertible Preferred Stock, par value $.01 per
share (the "PREFERRED STOCK"), which are convertible into shares of the
Company's common stock, par value $.01 per share (the "COMMON STOCK").
IN CONSIDERATION of the mutual covenants contained in this Agreement,
and for other good and valuable consideration the receipt and adequacy are
hereby acknowledged, the Company and the Purchasers agree as follows:
ARTICLE I
PURCHASE AND SALE
I.1 THE CLOSING.
-----------
(a) THE CLOSING. (i) Subject to the terms and conditions set
forth in this Agreement, the Company shall issue and sell to the Purchasers and
the Purchasers shall, severally and not jointly, purchase _______ shares of
Preferred Stock (the "SHARES") for an aggregate purchase price of __________.
The closing of the purchase and sale of the Shares (the "CLOSING") shall take
place at ______________________________________________________________,
immediately following the execution hereof or such later date as the parties
shall agree. The date of the Closing is hereinafter referred to as the "CLOSING
DATE."
(ii) On the Closing Date, the parties shall deliver
or shall cause to be delivered the following: (A) the Company shall deliver to
each Purchaser (1) stock certificates, registered in the name of such Purchaser,
representing a number of Shares equal to the quotient obtained by dividing the
purchase price indicated below such Purchaser's name on the signature page to
this Agreement by 10,000, (2) a Common Stock purchase warrant, in the form of
EXHIBIT D, registered in the name of such Purchaser, pursuant to which such
Purchaser shall have the right to acquire the number of shares of Common Stock
indicated below such Purchaser's name on the signature page to this Agreement
(collectively, the "WARRANTS"), (3) the legal opinion of Broad and Cassel,
counsel to the Company in the form of EXHIBIT C, and (4) an executed
Registration Rights Agreement, dated the date hereof, among the Company and the
Purchasers, in the form of EXHIBIT B (the "REGISTRATION RIGHTS AGREEMENT") and
the Transfer Agent Instructions, in the form of EXHIBIT E, delivered to and
acknowledged by the Company's transfer agent (the "TRANSFER AGENT
INSTRUCTIONS"); and (B) each Purchaser shall deliver (1) the purchase price
indicated below such Purchaser's name on the signature page to this Agreement in
United States dollars in immediately
<PAGE>
available funds by wire transfer to an account designated in writing by the
Company for such purpose, and (2) an executed Registration Rights Agreement.
I.2 TERMS OF PREFERRED STOCK. The Preferred Stock shall have
the rights preferences and privileges set forth in EXHIBIT A, and shall be
incorporated into a Certificate of Designation (the "CERTIFICATE OF
DESIGNATION") which shall be filed on or prior to the Closing Date by the
Company in its books and records with its constituent documents, in form and
substance mutually agreed to by the parties.
I.3 CERTAIN DEFINED TERMS. For purposes of this Agreement,
"CONVERSION PRICE," "ORIGINAL ISSUE DATE" and "TRADING DAY" shall have the
meanings set forth in EXHIBIT A; "BUSINESS DAY" shall mean any day except
Saturday, Sunday and any day which shall be a federal legal holiday or a day on
which banking institutions in the State of New York or the State of Florida are
authorized or required by law or other governmental action to close; "PERSON"
means an individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or subdivision thereof) or other entity
of any kind.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
II.1 REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY. The
Company hereby makes the following representations and warranties to the
Purchasers:
(a) ORGANIZATION AND QUALIFICATION. The Company is an exempted
company duly incorporated, validly existing and in good standing under the laws
of Bermuda, with the requisite corporate power and authority to own and use its
properties and assets and to carry on its business as currently conducted. The
Company has no subsidiaries other than as set forth in the exhibits to its
annual report for its fiscal year ended September 30, 1999, as filed with the
Securities and Exchange Commission (the "1999 FORM 10-K") (collectively the
"SUBSIDIARIES"). Each of the Subsidiaries is an entity, duly incorporated or
otherwise organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization (as applicable), with the
requisite power and authority to own and use its properties and assets and to
carry on its business as currently conducted. Each of the Company and the
Subsidiaries is duly qualified to do business and is in good standing as a
foreign corporation in each jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary, except
where the failure to be so qualified or in good standing, as the case may be,
could not, individually or in the aggregate, (x) adversely affect the legality,
validity or enforceability of the Securities (as defined below) or any of this
Agreement, the Registration Rights Agreement, the Transfer Agent Instructions or
the Warrants (collectively, the "TRANSACTION DOCUMENTS"), (y) have or result in
a material adverse effect on the results of operations, assets, prospects, or
condition (financial or otherwise) of the Company and the Subsidiaries, taken as
a whole, or (z) adversely impair the Company's ability to perform on a timely
basis its obligations under any of the Transaction Documents (any of (x), (y) or
(z), a "MATERIAL ADVERSE EFFECT").
<PAGE>
(b) AUTHORIZATION; ENFORCEMENT. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by each of the Transaction Documents and otherwise to carry out its
obligations thereunder. The execution and delivery of each of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated thereby have been duly authorized by all necessary action on the
part of the Company and no further action is required by the Company. Each of
the Transaction Documents has been duly executed by the Company and, when
delivered (or filed, as the case may be) in accordance with the terms hereof,
will constitute the valid and binding obligation of the Company enforceable
against the Company in accordance with its terms. Neither the Company nor any
Subsidiary is in violation of any of the provisions of its respective
certificate or articles of incorporation, by-laws or other organizational or
charter documents. The laws of Bermuda permit the payment of dividends as
contemplated by the Certificate of Designation.
(c) CAPITALIZATION. Prior to the consummation of the
transactions contemplated hereby, the number of authorized, issued and
outstanding capital stock of the Company is set forth in SCHEDULE 2.1(C). No
shares of Common Stock are entitled to preemptive or similar rights, nor is any
holder of the Common Stock entitled to preemptive or similar rights arising out
of any agreement or understanding with the Company by virtue of any of the
Transaction Documents. Except as a result of the purchase and sale of the Shares
and the Warrants and except as disclosed in Schedule 2.1(c) and in Note H to the
Consolidated Financial Statements of the 1999 Form 10-K and Item 2 of the
Company's quarterly report on Form 10-Q for the quarter ended December 31, 1999
as filed with the Securities and Exchange Commission, there are no outstanding
options, warrants, script rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities, rights or obligations
convertible into or exchangeable for, or giving any Person (as defined below)
any right to subscribe for or acquire, any shares of Common Stock, or contracts,
commitments, understandings, or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common Stock, or
securities or rights convertible or exchangeable into shares of Common Stock.
(d) ISSUANCE OF THE SHARES AND THE WARRANTS. The Shares and
the Warrants are duly authorized and, when issued and paid for in accordance
with the terms hereof, will be duly and validly issued, fully paid and
nonassessable, free and clear of all liens, encumbrances and rights of first
refusal of any kind (collectively, "LIENS"). The Company has on the date hereof
and will, at all times while the Shares and the Warrants are outstanding,
maintain an adequate reserve of duly authorized shares of Common Stock, reserved
for issuance to the holders of the Shares and the Warrants, to enable it to
perform its conversion, exercise and other obligations under this Agreement, the
Certificate of Designation (assuming for such purposes that the Shares are
outstanding for three (3) years and that all dividends are added to the Stated
Value (as defined in the Certificate of Designation) (which shall not be less
than 655,555) and the Warrants. All such authorized shares of Common Stock shall
be duly reserved for issuance to the holders of the Shares and the Warrants. The
shares of Common Stock issuable upon conversion of the Shares and upon exercise
of the Warrants are collectively referred to herein as the "UNDERLYING SHARES."
The Shares, the Warrants and the Underlying Shares are collectively referred to
herein as, the "SECURITIES." When issued in
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<PAGE>
accordance with the Certificate of Designation and the Warrants, the Underlying
Shares will be duly authorized, validly issued, fully paid and nonassessable,
free and clear of all Liens.
(e) NO CONFLICTS. The execution, delivery and performance of
the Transaction Documents by the Company and the consummation by the Company of
the transactions contemplated thereby do not and will not (i) conflict with or
violate any provision of the Company's or any Subsidiary's certificate or
articles of incorporation, bylaws or other charter documents (each as amended
through the date hereof), or (ii) subject to obtaining the Required Approvals
(as defined below), conflict with, or constitute a default (or an event which
with notice or lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation (with
or without notice, lapse of time or both) of, any agreement, credit facility,
debt or other instrument (evidencing a Company or Subsidiary debt or otherwise)
or other understanding to which the Company or any Subsidiary is a party or by
which any property or asset of the Company or any Subsidiary is bound or
affected, or (iii) result in a violation of any law, rule, regulation, order,
judgment, injunction, decree or other restriction of any court or governmental
authority to which the Company or a Subsidiary is subject (including federal and
state securities laws and regulations), or by which any property or asset of the
Company is bound or affected; except in the case of each of clauses (ii) and
(iii), as could not, individually or in the aggregate, have or result in a
Material Adverse Effect. The business of the Company is not being conducted in
violation of any law, ordinance or regulation of any governmental authority,
except for violations which, individually or in the aggregate, could not have or
result in a Material Adverse Effect.
(f) FILINGS, CONSENTS AND APPROVALS. Neither the Company nor
any Subsidiary is required to obtain any consent, waiver, authorization or order
of, give any notice to, or make any filing or registration with, any court or
other federal, state, local or other governmental authority (excluding any
foreign securities filing with any Purchaser's country of organization or
residence, the need for which the Company makes no representation in connection
herewith) or other Person in connection with the execution, delivery and
performance by the Company of the Transaction Documents, other than (i) the
filings required pursuant to Section 3.8, (ii) the filing with the Securities
and Exchange Commission (the "Commission") of a registration statement meeting
the requirements set forth in the Registration Rights Agreement and covering the
resale of the Underlying Shares by the Purchasers (the "UNDERLYING SHARES
REGISTRATION STATEMENT"), (iii) the application(s) to the Nasdaq National Market
("NASDAQ") for the listing of the Underlying Shares for trading on the NASDAQ
(and with any other national securities exchange or market on which the Common
Stock is then listed), (iv) applicable Blue Sky filings and (v) in all other
cases where the failure to obtain such consent, waiver, authorization or order,
or to give such notice or make such filing or registration could not have or
result in, individually or in the aggregate, a Material Adverse Effect
(collectively, the "REQUIRED APPROVALS").
(g) LITIGATION; PROCEEDINGS. There is no action, suit,
inquiry, notice of violation, proceeding or investigation pending or, to the
knowledge of the Company, threatened against or adversely affecting the Company
or any of its Subsidiaries or any of their respective properties before or by
any court, arbitrator, governmental or administrative agency or regulatory
authority (federal, state, county, local or foreign) (collectively, an "ACTION")
which (i) adversely affects or
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<PAGE>
challenges the legality, validity or enforceability of any of the Transaction
Documents or the Securities or (ii) could, individually or in the aggregate,
have or result in a Material Adverse Effect.
(h) NO DEFAULT OR VIOLATION. Neither the Company nor any
Subsidiary (i) is in default under or in violation of (and no event has occurred
which has not been waived which, with notice or lapse of time or both, would
result in a default by the Company or any Subsidiary under), nor has the Company
or any Subsidiary received notice of a claim that it is in default under or that
it is in violation of, any indenture, loan or credit agreement or any other
agreement or instrument to which it is a party or by which it or any of its
properties is bound, (ii) is in violation of any order of any court, arbitrator
or governmental body, or (iii) is in violation of any statute, rule or
regulation of any governmental authority, in each case of clauses (i), (ii) or
(iii) above, except as could not individually or in the aggregate, have or
result in a Material Adverse Effect.
(i) PRIVATE OFFERING. Assuming the accuracy of the
representations and warranties of the Purchasers set forth in Sections
2.2(b)-(g), the offer, issuance and sale of the Securities to the Purchasers as
contemplated hereby are exempt from the registration requirements of the
Securities Act of 1933, as amended (the "SECURITIES ACT"). Neither the Company
nor any Person acting on its behalf has taken or is, to the knowledge of the
Company, contemplating taking any action which could subject the offering,
issuance or sale of the Securities to the registration requirements of the
Securities Act including soliciting any offer to buy or sell the Securities by
means of any form of general solicitation or advertising. Bermuda law does not
restrict or prohibit the ability of the Purchasers to own and convert the
Shares, exercise the Warrants or own or trade the Common Stock.
(j) SEC DOCUMENTS; FINANCIAL STATEMENTS. The Company has filed
all reports required to be filed by it under the Exchange Act of 1934, as
amended (the "EXCHANGE ACT"), including pursuant to Section 13(a) or 15(d)
thereof, for the two years preceding the date hereof (or such shorter period as
the Company was required by law to file such material) (the foregoing materials
being collectively referred to herein as the "SEC DOCUMENTS" and, together with
the Schedules to this Agreement, the "DISCLOSURE MATERIALS") on a timely basis
or has received a valid extension of such time of filing and has filed any such
SEC Documents prior to the expiration of any such extension. As of their
respective dates, the SEC Documents complied in all material respects with the
requirements of the Securities Act and the Exchange Act and the rules and
regulations of the Commission promulgated thereunder, and none of the SEC
Documents, when filed, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. All material agreements to which the Company is
a party or to which the property or assets of the Company are subject have been
filed as exhibits to the SEC Documents as required. The financial statements of
the Company included in the SEC Documents comply in all material respects with
applicable accounting requirements and the rules and regulations of the
Commission with respect thereto as in effect at the time of filing. Such
financial statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved
("GAAP"), except as may be otherwise specified in such financial statements or
the notes thereto, and fairly present in all material respects the financial
position of the
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Company and its consolidated subsidiaries as of and for the dates thereof and
the results of operations and cash flows for the periods then ended, subject, in
the case of unaudited statements, to normal, immaterial, year-end audit
adjustments. Since December 31, 1999, except as specifically disclosed in the
SEC Documents, (a) there has been no event, occurrence or development that has
or that could result in a Material Adverse Effect, (b) the Company has not
incurred any liabilities (contingent or otherwise) other than (x) liabilities
incurred in the ordinary course of business consistent with past practice and
(y) liabilities not required to be reflected in the Company's financial
statements pursuant to GAAP or required to be disclosed in filings made with the
Commission, (c) the Company has not altered its method of accounting or the
identity of its auditors and (d) the Company has not declared or made any
payment or distribution of cash or other property to its stockholders or
officers or directors (other than in compliance with existing Company stock
option plans) with respect to its capital stock, or purchased, redeemed (or made
any agreements to purchase or redeem) any shares of its capital stock.
(k) INVESTMENT COMPANY. The Company is not, and is not an
Affiliate (as defined in Rule 405 under the Securities Act) of, an "investment
company" within the meaning of the Investment Company Act of 1940, as amended.
(l) CERTAIN FEES. Except for certain fees payable to H.C.
Wainwright & Co., Inc. by the Company, no fees or commissions will be payable by
the Company to any broker, financial advisor or consultant, finder, placement
agent, investment banker, bank or other Person with respect to the transactions
contemplated by this Agreement. The Purchasers shall have no obligation with
respect to any fees or with respect to any claims made by or on behalf of other
Persons for fees of a type contemplated in this Section that may be due in
connection with the transactions contemplated by this Agreement. The Company
shall indemnify and hold harmless the Purchasers, their employees, officers,
directors, agents, and partners, and their respective Affiliates, from and
against all claims, losses, damages, costs (including the costs of preparation
and attorney's fees) and expenses suffered in respect of any such claimed or
existing fees, as such fees and expenses are incurred, by any Person not engaged
in writing by the Purchasers.
(m) SOLICITATION MATERIALS. Neither the Company nor any Person
acting on the Company's behalf has solicited any offer to buy or sell the
Securities by means of any form of general solicitation or advertising.
(n) FORM S-3 ELIGIBILITY. The Company is eligible to register
securities for resale in secondary transactions with the Commission under Form
S-3 promulgated under the Securities Act.
(o) SENIORITY. No class of equity securities of the Company is
senior to the Shares in right of payment, whether upon liquidation or
dissolution, or otherwise.
(p) LISTING AND MAINTENANCE REQUIREMENTS COMPLIANCE. Except as
set forth in the SEC Documents, the Company has not, in the two years preceding
the date hereof, received notice (written or oral) from the NASDAQ or any other
stock exchange, market or trading facility
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on which the Common Stock is or has been listed (or on which it has been quoted)
to the effect that the Company is not in compliance with the listing or
maintenance requirements of such exchange or market. The Company is, and has no
reason to believe that it will not in the foreseeable future continue to be, in
compliance with all such listing and maintenance requirements.
(q) PATENTS AND TRADEMARKS. The Company and its Subsidiaries
have, or have rights to use, all patents, patent applications, trademarks,
trademark applications, service marks, trade names, copyrights, licenses and
rights which are necessary or material for use in connection with their
respective business as described in the SEC Documents and which the failure to
so have would have a Material Adverse Effect (collectively, the "INTELLECTUAL
PROPERTY RIGHTS"). Neither the Company nor any Subsidiary has received a written
notice that the Intellectual Property Rights used by the Company or its
Subsidiaries violates or infringes upon the rights of any Person, to the best
knowledge of the Company. To the best knowledge of the Company, all such
Intellectual Property Rights are enforceable and there is no existing
infringement by another Person of any of the Intellectual Property Rights.
(r) REGISTRATION RIGHTS; RIGHTS OF PARTICIPATION. Except as
set forth on SCHEDULE 6(B) to the Registration Rights Agreement, the Company has
not granted or agreed to grant to any Person any rights (including "piggy-back"
registration rights) to have any securities of the Company registered with the
Commission or any other governmental authority which has not been satisfied. No
Person, has any right of first refusal, preemptive right, right of
participation, or any similar right to purchase any of the Securities.
(s) REGULATORY PERMITS. The Company and its Subsidiaries
possess all certificates, authorizations and permits issued by the appropriate
Federal, state or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Documents, except where the
failure to possess such permits could not, individually or in the aggregate,
have or result in a Material Adverse Effect ("MATERIAL PERMITS"), and neither
the Company nor any such Subsidiary has received any notice of proceedings
relating to the revocation or modification of any Material Permit.
(t) TITLE. The Company and the Subsidiaries have good and
marketable title in fee simple to all real property owned by them which is
material to the business of the Company and its Subsidiaries and except as set
forth in SCHEDULE 2.1(T) good and marketable title in all personal property
owned by them which is material to the business of the Company and its
Subsidiaries, in each case free and clear of all Liens, except for Liens as do
not materially affect the value of such property and do not interfere with the
use made and proposed to be made of such property by the Company and its
Subsidiaries. Any real property and business locations held under lease by the
Company and its Subsidiaries are held by them under valid, subsisting and
enforceable leases of which the Company and its Subsidiaries are in material
compliance and any deviation therefrom do not interfere with the use made and
proposed to be made of such property and buildings by the Company and its
Subsidiaries.
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(u) ABSENCE OF CERTAIN PROCEEDINGS. Except as described in the
SEC Documents, (i) there is no Action pending or, to the knowledge of the
Company, threatened against the Company, in any such case wherein an unfavorable
decision, ruling or finding could have or result in a Material Adverse Effect;
(ii) neither the Company nor any Subsidiary, nor any director or officer
thereof, is or has been the subject of any Action involving (A) a claim of
violation of or liability under federal or state securities laws or (B) a claim
of breach of fiduciary duty; (iii) the Company does not have pending before the
Commission any request for confidential treatment of information; and (iv) there
has not been, and to the best of the Company's knowledge there is not pending or
contemplated, any investigation by the Commission involving the Company or any
current or former director or officer of the Company.
(v) LABOR RELATIONS. No material labor problem exists or, to
the knowledge of the Company, is imminent with respect to any of the employees
of the Company.
(w) DISCLOSURE. The Company confirms that neither it nor any
other Person acting on its behalf has provided any of the Purchasers or its
agents or counsel with any information that constitutes or might constitute
material non-public information. The Company understands and confirms that the
Purchasers shall be relying on the foregoing representations in effecting
transactions in securities of the Company. The Transaction Documents and the SEC
Documents constitute all of the disclosure provided to the Purchasers regarding
the Company, its business and the transactions contemplated hereby, including
the Schedules to this Agreement. Such disclosure is true and correct and in all
material respects and does not contain any untrue statement of a material fact
or omit to state any material fact necessary in order to make the statements
made therein, in light of the circumstances under which they were made, not
misleading.
II.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each Purchaser
hereby for itself and for no other Purchaser represents and warrants to the
Company as follows:
(a) ORGANIZATION; AUTHORITY. Such Purchaser is an entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with the requisite corporate or partnership
power and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents and otherwise to carry out its
obligations thereunder. The purchase by such Purchaser of the Securities
hereunder has been duly authorized by all necessary action on the part of such
Purchaser. Each of this Agreement and the Registration Rights Agreement has been
duly executed by such Purchaser, and when delivered by such Purchaser in
accordance with the terms hereof, will constitute the valid and legally binding
obligation of such Purchaser, enforceable against it in accordance with its
terms.
(b) INVESTMENT INTENT. Such Purchaser is acquiring the
Securities as principal for its own account for investment purposes only and not
with a view to or for distributing or reselling such Securities or any part
thereof, without prejudice, however, to such Purchaser's right, subject to the
provisions of this Agreement and the Registration Rights Agreement, to sell or
otherwise dispose of all or any part of such Securities pursuant to an effective
registration statement under the
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Securities Act and in compliance with applicable federal, foreign and state
securities laws or under an exemption from such registration.
(c) PURCHASER STATUS. At the time such Purchaser was offered
the Shares and its respective Warrants, it was, and at the date hereof it is,
and at each exercise date under its respective Warrants, it will be, an
"accredited investor" as defined in Rule 501(a) under the Securities Act. Such
Purchaser has not been formed solely for the purpose of acquiring the
Securities. Such Purchaser is a resident of the state or country listed on the
signature page of this Agreement.
(d) EXPERIENCE OF SUCH PURCHASER. Such Purchaser, either alone
or together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Securities, and has so
evaluated the merits and risks of such investment.
(e) ABILITY OF SUCH PURCHASER TO BEAR RISK OF INVESTMENT. Such
Purchaser is able to bear the economic risk of an investment in the Securities
and, at the present time, is able to afford a complete loss of such investment.
(f) ACCESS TO INFORMATION. Such Purchaser acknowledges that it
has reviewed the Disclosure Materials and has been afforded (i) the opportunity
to ask such questions as it has deemed necessary of, and to receive answers
from, representatives of the Company concerning the terms and conditions of the
offering of the Securities and the merits and risks of investing in the
Securities; (ii) access to information about the Company and the Company's
financial condition, results of operations, business, properties, management and
prospects sufficient to enable it to evaluate its investment; and (iii) the
opportunity to obtain such additional information which the Company possesses or
can acquire without unreasonable effort or expense that is necessary to make an
informed investment decision with respect to the investment and to verify the
accuracy and completeness of the information contained in the Disclosure
Materials. Neither such inquiries nor any other investigation conducted by or on
behalf of such Purchaser or its representatives or counsel shall modify, amend
or affect such Purchaser's right to rely on the truth, accuracy and completeness
of the Disclosure Materials and the Company's representations and warranties
contained in the Transaction Documents.
(g) GENERAL SOLICITATION. Such Purchaser is not purchasing the
Securities as a result of or subsequent to any advertisement, article, notice or
other communication regarding the Securities published in any newspaper,
magazine or similar media or broadcast over television or radio or presented at
any seminar or any other general solicitation or general advertisement.
(h) RELIANCE. Such Purchaser understands and acknowledges that
(i) the Securities are being offered and sold to it without registration under
the Securities Act in a private placement that is exempt from the registration
provisions of the Securities Act and (ii) the availability of such exemption,
depends in part on, and the Company will rely upon the accuracy and truthfulness
of, the foregoing representations and such Purchaser hereby consents to such
reliance.
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(i) CERTAIN FEES. Except for certain fees payable to H.C.
Wainwright & Co., Inc., by the Company, no Purchaser has agreed in writing to
pay any fee or commission to any broker, financial advisor or consultant,
finder, placement agent, investment banker, bank or other Person in connection
with the transactions contemplated by this Agreement. Such Purchaser shall
indemnify and hold harmless the Company, its employees, officers, directors,
agents, and partners, and their respective Affiliates, from and against all
claims, losses, damages, costs (including the costs of preparation and
attorney's fees) and expenses suffered in respect of any such claimed or
existing fees, as such fees and expenses are incurred, by any Person engaged in
writing by such Purchaser.
The Company acknowledges and agrees that no Purchaser makes or
has made any representations or warranties with respect to the transactions
contemplated hereby other than those specifically set forth in this Section 2.2.
ARTICLE III
OTHER AGREEMENTS OF THE PARTIES
III.1 TRANSFER RESTRICTIONS. (a) Securities may only be disposed of
pursuant to an effective registration statement under the Securities Act, to the
Company or pursuant to an available exemption from or in a transaction not
subject to the registration requirements of the Securities Act, and in
compliance with any applicable federal, Bermuda and state securities laws. In
connection with any transfer of Securities other than pursuant to an effective
registration statement or to the Company, except as otherwise set forth herein,
the Company may require the transferor thereof to provide to the Company an
opinion of counsel selected by the transferor, the form and substance of which
opinion shall be reasonably satisfactory to the Company, to the effect that such
transfer does not require registration of such transferred securities under the
Securities Act or applicable state or Bermuda laws. Notwithstanding the
foregoing, the Company, without requiring a legal opinion as described in the
immediately preceding sentence, hereby consents to and agrees to register on the
books of the Company and with any transfer agent for the securities of the
Company any transfer of Securities by a Purchaser to an Affiliate of such
Purchaser or to one or more funds or managed accounts under common management
with such Purchaser (but in no event shall there be more than 10 such
transfers), and any transfer among any such Affiliates or one or more funds or
managed accounts, provided that the transferee certifies to the Company that it
is an "accredited investor" as defined in Rule 501(a) under the Securities Act
and that it is acquiring the Securities solely for investment purposes (subject
to the qualifications hereof). Any such transferee shall agree in writing to be
bound by the terms of this Agreement and shall have the rights of a Purchaser
under this Agreement and the Registration Rights Agreement.
(b) The Purchasers agree to the imprinting, so long as is
required by this Section 3.1(b), of the following legend on the Securities:
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE [CONVERTIBLE] [EXERCISABLE] HAVE BEEN REGISTERED WITH
THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
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COMMISSION OF ANY STATE OR THE COMMONWEALTH OF BERMUDA IN RELIANCE UPON
AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") AND BERMUDA LAW AND, ACCORDINGLY, MAY
NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE
STATE AND BERMUDA SECURITIES LAWS.
With respect to the Underlying Shares, the following
additional language shall be added to the end of such legend: "AND THE EXISTENCE
OF SUCH EXEMPTION SHALL BE CONFIRMED BY COUNSEL TO THE COMPANY OR A REPUTABLE
SECURITIES COUNSEL OTHER THAN COUNSEL TO THE COMPANY."
Underlying Shares shall not contain the legend set forth above
nor any other legend if the conversion of Shares and exercise of the Warrants or
other issuances of Underlying Shares as contemplated hereby, by the Certificate
of Designation or the Warrants occurs at any time while an Underlying Shares
Registration Statement is effective under the Securities Act (and the Company
has not notified the Purchasers that the Underlying Shares Registration
Statement is not accurate in all respects, which notification has not been
subsequently rescinded) or, in the event there is not an effective Underlying
Shares Registration Statement, at such time, in the opinion of counsel to the
Company, such legend is not required under applicable requirements of the
Securities Act (including judicial interpretations and pronouncements issued by
the staff of the Commission). The Company shall cause its counsel to issue the
legal opinion included in the Transfer Agent Instructions to the Company's
transfer agent on the day that the Underlying Shares Registration Statement is
declared effective by the Commission. The Company agrees that, in the event any
Underlying Shares are issued with a legend in accordance with this Section
3.1(b), it will, within three (3) Trading Days after request therefor by a
Purchaser, provide such Purchaser with a certificate or certificates
representing such Underlying Shares, free from such legend at such time as such
legend is no longer required under this Section 3.1(b). The Company may not make
any notation on its records or give instructions to any transfer agent of the
Company which enlarge the restrictions of transfer set forth in this Section.
III.2 FURNISHING OF INFORMATION. As long as the Purchasers own
Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to Section
13(a) or 15(d) of the Exchange Act. As long as the Purchasers own Securities, if
the Company is not required to file reports pursuant to such sections, it will
prepare and furnish to the Purchasers and make publicly available in accordance
with Rule 144(c) promulgated under the Securities Act such information as is
required for the Purchasers to sell the Securities under Rule 144 promulgated
under the Securities Act. The Company further covenants that it will take such
further action as any holder of Securities may reasonably request, all to the
extent required from time to time, to enable such holder to sell Underlying
Shares without registration under the Securities Act within the limitation
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of the exemptions provided by Rule 144 promulgated under the Securities Act,
which undertaking shall include providing such holder with any legal opinion
required in connection with such sale. Upon the request of any such Person, the
Company shall deliver to such Person a written certification of a duly
authorized officer as to whether it has complied with such requirements.
III.3 INTEGRATION. The Company shall not, and shall use its best
efforts to ensure that, no Affiliate of the Company shall, sell, offer for sale
or solicit offers to buy or otherwise negotiate in respect of any security (as
defined in Section 2 of the Securities Act) that would be integrated with the
offer or sale of the Securities in a manner that would require the registration
under the Securities Act of the sale of the Securities to the Purchasers.
III.4 INCREASE IN AUTHORIZED SHARES. If on any date the Company would
be, if a notice of conversion or exercise (as the case may be) were to be
delivered on such date, precluded from (a) issuing (a) the number of Underlying
Shares as would be issuable upon a conversion in full of the Shares, and (b) the
number of Underlying Shares issuable upon exercise in full of the Warrants, in
either case, due to the unavailability of a sufficient number of authorized but
unissued or reserved shares of Common Stock, then the Board of Directors of the
Company shall promptly (and in any case, within 30 Business Days from such date)
prepare and mail to the stockholders of the Company proxy materials requesting
authorization to amend the Company's certificate of incorporation to increase
the number of shares of Common Stock which the Company is authorized to issue to
at least such number of shares as reasonably requested by the Purchasers in
order to provide for such number of authorized and unissued shares of Common
Stock to enable the Company to comply with its issuance, conversion exercise and
reservation of shares obligations as set forth in this Agreement, the
Certificate of Designation and the Warrants. In connection therewith, the Board
of Directors shall (a) adopt proper resolutions authorizing such increase, (b)
recommend to and otherwise use its best efforts to promptly and duly obtain
stockholder approval to carry out such resolutions (and hold a special meeting
of the stockholders no later than the earlier to occur of the 60th day after
delivery of the proxy materials relating to such meeting and the 90th day after
request by a holder of Securities to issue the number of Underlying Shares in
accordance with the terms hereof) and (c) within five Business Days of obtaining
such stockholder authorization, file an appropriate amendment to the Company's
certificate or articles of incorporation to evidence such increase.
III.5 RESERVATION AND LISTING OF UNDERLYING SHARES. (a) The Company
shall (i) in the time and manner required by NASDAQ and such other exchange,
market or quotation system on which the Common Stock is traded, prepare and file
with the NASDAQ (and such other national securities exchange or market or
trading or quotation facility on which the Common Stock is then listed) an
additional shares listing application covering a number of shares of Common
Stock to satisfy its obligations under Section 2.1(d), (ii) take all steps
necessary to cause such shares of Common Stock to be approved for listing in the
NASDAQ (as well as on any such other national securities exchange or market or
trading or quotation facility on which the Common Stock is then listed) as soon
as possible thereafter, and (iii) provide to the Purchasers evidence of such
listing, and the Company shall maintain the listing of its Common Stock thereon.
If the number of Underlying Shares issuable upon conversion in full of the then
outstanding Shares and upon exercise of the then unexercised portion of the
Warrants exceeds 85% of the number of Underlying Shares previously listed on
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account thereof with NASDAQ (and any such other required exchanges), then the
Company shall take the necessary actions to immediately list a number of
Underlying Shares to bring such number of listed shares in full compliance with
this Section.
(b) The Company shall maintain a reserve of shares of Common
Stock for issuance upon the conversion of the Shares in full and upon exercise
in full of the Warrants in accordance with this Agreement, the Certificate of
Designation and the Warrants, respectively.
III.6 CONVERSION AND EXERCISE PROCEDURES. The Transfer Agent
Instructions, Conversion Notice (as defined in the Certificate of Designation),
Section 5 of the Certificate of Designation, Section 3 of the Warrants and
Notice of Exercise under the Warrants set forth the totality of the procedures
with respect to the conversion of the Shares and exercise of the Warrants,
including the form of legal opinion, if necessary, that shall be rendered to the
Company's transfer agent and such other information and instructions as may be
reasonably necessary to enable the Purchasers to convert their Shares and
exercise their Warrants as contemplated in the Certificate of Designation and
the Warrants (as applicable).
III.7 CERTAIN SECURITIES LAWS DISCLOSURES; PUBLICITY. The Company shall
timely file with the Commission a Form D promulgated under the Securities Act as
required under Regulation D promulgated under the Securities Act and provide a
copy thereof to the Purchasers promptly after the filing thereof. The Company
shall, no less than two (2) Business Days prior to the filing of such Form D,
provide a copy thereof to the Purchasers. No such filing or disclosure may be
made that mentions the Purchasers by name without the prior consent of the
Purchasers. The Company and the Purchasers shall consult with each other in
issuing any press releases or otherwise making public statements or filings and
other communications with the Commission or any regulatory agency or stock
market or trading facility with respect to the transactions contemplated hereby
and neither party shall issue any such press release or otherwise make any such
public statement, filings or other communications without the prior written
consent of the other, which consent shall not be unreasonably withheld or
delayed, except that no prior consent shall be required if such disclosure is
required by law, in which such case the disclosing party shall provide the other
party with prior notice of such public statement, filing or other communication.
Notwithstanding the foregoing, the Company shall not publicly disclose the names
of the Purchasers, or include the names of the Purchasers in any filing with the
Commission, or any regulatory agency, trading facility or stock market without
the prior written consent of the Purchasers, except to the extent such
disclosure (but not any disclosure as to the controlling Persons thereof) is
required by law, in which case the Company shall provide the Purchasers with
prior notice of such disclosure.
III.8 USE OF PROCEEDS. The Company shall use the net proceeds from the
sale of the Securities hereunder for working capital purposes and not for the
satisfaction of any portion of the Company's debt (other than payment of trade
payables in the ordinary course of the Company's business and prior practices),
to redeem any Company equity or equity-equivalent securities or to settle any
outstanding litigation.
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III.9 REIMBURSEMENT. If any Purchaser, other than by reason of its
breach of the Transaction Documents or its gross negligence or willful
misconduct, becomes involved in any capacity in any action, proceeding or
investigation brought by or against any Person (other than a Purchaser),
including stockholders of the Company, in connection with or as a result of the
consummation of the transactions contemplated by Transaction Documents, the
Company will reimburse such Purchaser for its reasonable legal (for purposes
hereof, the customary fees of Robinson Silverman shall be deemed reasonable) and
other expenses (including the cost of any investigation and preparation)
incurred in connection therewith, as such expenses are incurred. In addition,
other than with respect to any matter in which a Purchaser is a named party, the
Company will pay such Purchaser the charges, as reasonably determined by such
Purchaser, for the time of any officers or employees of such Purchaser devoted
to appearing and preparing to appear as witnesses, assisting in preparation for
hearings, trials or pretrial matters, or otherwise with respect to inquiries,
hearings, trials, and other proceedings relating to the subject matter of this
Agreement. The reimbursement obligations of the Company under this paragraph
shall be in addition to any liability which the Company may otherwise have,
shall extend upon the same terms and conditions to any Affiliates of the
Purchasers who are actually named in such action, proceeding or investigation,
and partners, directors, agents, employees and controlling persons (if any), as
the case may be, of the Purchasers and any such Affiliate, and shall be binding
upon and inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company, the Purchasers and any such Affiliate and any
such Person. The Company also agrees that neither the Purchasers nor any such
Affiliates, partners, directors, agents, employees or controlling persons shall
have any liability to the Company or any Person asserting claims on behalf of or
in right of the Company in connection with or as a result of the consummation of
the Transaction Documents except to the extent that any losses, claims, damages,
liabilities or expenses incurred by the Company result from the Purchasers
breach of the Transaction Documents gross negligence or willful misconduct of
the applicable Purchaser or entity in connection with the transactions
contemplated by this Agreement.
III.10 SHAREHOLDERS RIGHTS PLAN. Assuming that the Purchasers do not
own any securities of the Company prior to their purchase of the Securities,
neither the consummation of the transactions contemplated hereby nor the
issuance of the Underlying Shares will cause the Purchasers to be deemed an
"Acquiring Person" under the Company's stockholder rights plan.
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ARTICLE IV
MISCELLANEOUS
IV.1 FEES AND EXPENSES. At the Closing, the Company shall reimburse the
Purchasers for their legal fees and expenses incurred in connection with the
preparation and negotiation of the Transaction Documents by paying to Robinson
Silverman $20,000 for the preparation and negotiation of the Transaction
Documents. The amount contemplated by the immediately preceding sentence shall
be retained by the Purchasers and shall not be delivered to the Company at the
Closing. Other than the amount contemplated in the immediately preceding
sentence, and except as otherwise set forth in the Registration Rights
Agreement, each party shall pay the fees and expenses of its own advisers,
counsel, accountants and other experts, if any, and all other expenses incurred
by such party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement. The Company shall pay all stamp and other taxes
and duties levied in connection with the issuance of the Securities.
IV.2 ENTIRE AGREEMENT; AMENDMENTS. The Transaction Documents, together
with the Exhibits and Schedules thereto and the Transfer Agent Instructions
contain the entire understanding of the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings, oral or
written, with respect to such matters, which the parties acknowledge have been
merged into such documents, exhibits and schedules.
IV.3 NOTICES. Any and all notices or other communications or deliveries
required or permitted to be provided hereunder shall be in writing and shall be
deemed given and effective on the earliest of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Section prior to 6:30 p.m. (New York City
time) on a Business Day (with confirmation of transmission), (ii) the Business
Day after the date of transmission, if such notice or communication is delivered
via facsimile at the facsimile telephone number specified in this Agreement
later than 6:30 p.m. (New York City time) on any date and earlier than 11:59
p.m. (New York City time) on such date (with confirmation of transmission),
(iii) the Business Day following the date of mailing, if sent by nationally
recognized overnight courier service, or (iv) upon actual receipt by the party
to whom such notice is required to be given. The address for such notices and
communications shall be as follows:
If to the Company: Commodore Holding Limited
4000 Hollywood Boulevard, Suite 385-S
Hollywood, FL 33021
Facsimile No.: 954-967-2135
Attn: Chief Financial Officer
With copies to: Kathleen L. Deutsch, P.A.
Broad and Cassel
201 S. Biscayne Boulevard
Suite 3000
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<PAGE>
Miami, Florida 33131
Facsimile No.: 305-373-9443
If to a Purchaser: To the address and facsimile number set
forth under such Purchaser's name on the
signature pages hereto.
or such other address as may be designated in writing hereafter, in the same
manner, by such Person.
IV.4 AMENDMENTS; WAIVERS. No provision of this Agreement may be waived
or amended except in a written instrument signed, in the case of an amendment,
by the Company and each of the Purchasers or, in the case of a waiver, by the
party against whom enforcement of any such waiver is sought. No waiver of any
default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any other provision, condition or requirement hereof, nor shall any delay or
omission of either party to exercise any right hereunder in any manner impair
the exercise of any such right accruing to it thereafter.
IV.5 HEADINGS. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
IV.6 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Purchasers. Except as set forth in
Section 3.1(a), the Purchasers may not assign this Agreement or any of the
rights or obligations hereunder without the prior written consent of the
Company.
IV.7 NO THIRD-PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person.
IV.8 GOVERNING LAW. The corporate laws of Bermuda shall govern all
issues concerning the relative rights of the Company and its stockholders. All
other questions concerning the construction, validity, enforcement and
interpretation of this Agreement shall be governed by and construed and enforced
in accordance with the internal laws of the State of New York, without regard to
the principles of conflicts of law thereof. Each party hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting in
the City of New York, borough of Manhattan, for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein (including with respect to the enforcement of the any of the
Transaction Documents), and hereby irrevocably waives, and agrees not to assert
in any suit, action or proceeding, any claim that it is not personally subject
to the jurisdiction of any such court, that such suit, action or proceeding is
improper. Each party hereby irrevocably waives
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personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof via registered or certified
mail or overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law.
IV.9 SURVIVAL. The representations, warranties, agreements and
covenants contained herein shall survive the Closing and the delivery and
conversion or exercise (as the case may be) of the Shares and the Warrants.
IV.10 EXECUTION. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.
IV.11 SEVERABILITY. In case any one or more of the provisions of this
Agreement shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Agreement shall not
in any way be affecting or impaired thereby and the parties will attempt to
agree upon a valid and enforceable provision which shall be a reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Agreement.
IV.12 REMEDIES. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Purchasers will be entitled to specific performance of the obligations of the
Company under the Transaction Documents. The Company and each of the Purchasers
agree that monetary damages may not be adequate compensation for any loss
incurred by reason of any breach of its obligations described in the foregoing
sentence and hereby agrees to waive in any action for specific performance of
any such obligation the defense that a remedy at law would be adequate.
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IV.13 INDEPENDENT NATURE OF PURCHASERS' OBLIGATIONS AND RIGHTS. The
obligations of each Purchaser under any Transaction Document is several and not
joint with the obligations of any other Purchaser and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser under any Transaction Document. Nothing contained herein or in any
Transaction Document, and no action taken by any Purchaser pursuant thereto,
shall be deemed to constitute the Purchasers as a partnership, an association, a
joint venture or any other kind of entity, or create a presumption that the
Purchasers are in any way acting in concert with respect to such obligations or
the transactions contemplated by the Transaction Document. Each Purchaser shall
be entitled to independently protect and enforce its rights, including without
limitation the rights arising out of this Agreement, and it shall not be
necessary for any other Purchaser to be joined as an additional party in any
proceeding for such purpose.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGES FOLLOWS]
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Stock Purchase Agreement
IN WITNESS WHEREOF, the parties hereto have caused this
Convertible Preferred Stock Purchase Agreement to be duly executed by their
respective authorized signatories as of the date first indicated above.
COMMODORE HOLDINGS LIMITED
By:_____________________________________
Name:
Title:
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOR PURCHASERS FOLLOWS]
<PAGE>
______________________________
By:_____________________________________
Name: __________________________
Title: _________________________
Purchase Price for Shares to be acquired at Closing: __________
Number of Shares underlying Warrant: __________
Address for Notice:
<PAGE>
TERMS OF PREFERRED STOCK
Section 1. DESIGNATION, AMOUNT AND PAR VALUE. The series of preferred
stock shall be designated as its Series C Convertible Preferred Stock (the
"PREFERRED STOCK") and the number of shares so designated shall be 300 (which
shall not be subject to increase without the consent of the holders of the
Preferred Stock (each, a "HOLDER" and collectively, the "HOLDERS")). Each share
of Preferred Stock shall have a par value of $.01 and a stated value equal to
the sum of $10,000 plus all accrued dividends to the date of determination to
the extent not previously paid in cash in accordance with the terms hereof (the
"STATED VALUE").
Section 2. DIVIDENDS.
---------
(a) Holders shall be entitled to receive, out of funds legally
available therefor, and the Company shall pay, cumulative dividends at the rate
per share of 6% per annum (as a percentage of the Stated Value per share),
payable on the Conversion Date (as defined herein) for such share and on each
June 30 and December 31 for so long as such share shall be outstanding,
commencing June 30, 2000 (each of a Conversion Date and such semi-annual dates
are referred to herein as a "DIVIDEND PAYMENT DATE"), commencing on the earlier
to occur of such Conversion Date and June 30, 2000, in cash or shares of Common
Stock (as defined in Section 9). Subject to the terms and conditions herein, the
decision whether to pay dividends hereunder in Common Stock or cash shall be at
the discretion of the Holder. Each Holder shall provide the Company written
notice of its intention to cause the Company to pay dividends in cash or shares
of Common Stock not less than five (5) Trading Days prior to each Dividend
Payment Date for so long as shares of Preferred Stock are outstanding. Failure
to timely provide such written notice shall be deemed an election by such Holder
to receive dividends for such period in cash. Dividends on the Preferred Stock
shall be calculated on the basis of a 360-day year, shall accrue daily
commencing on the Original Issue Date (as defined in Section 9), and shall be
deemed to accrue from such date whether or not earned or declared and whether or
not there are profits, surplus or other funds of the Company legally available
for the payment of dividends. Except as otherwise provided herein, if at any
time the Company pays less than the total amount of dividends then accrued on
account of the Preferred Stock, such payment shall be distributed ratably among
the Holders based upon the number of shares of Preferred Stock held by each
Holder.
<PAGE>
(b) So long as any Preferred Stock shall remain outstanding, the
Company shall not redeem, purchase or otherwise acquire directly or indirectly
any preferred stock of the Company that ranks pari passu or is junior to the
Preferred Stock unless it offers to purchase Preferred Stock ratably with such
other preferred stock, nor shall the Company directly or indirectly pay or
declare any dividend or make any distribution with respect to Junior Securities
(as defined in Section 9) (other than a dividend or distribution described in
Section 5 or dividends due and paid in the ordinary course on preferred stock of
the Company at such times when the Company is in compliance with its payment and
other obligations hereunder), nor shall any monies be set aside for or applied
to the purchase or redemption (through a sinking fund or otherwise) of any
preferred stock of the Company that ranks pari passu or is junior to the
Preferred Stock unless the Company offers to the Holders to set aside or apply
such funds to the Preferred Stock ratably with such other preferred stock.
Section 3. VOTING RIGHTS. Except as otherwise provided herein and as
otherwise required by law, the Preferred Stock shall have no voting rights.
However, so long as any shares of Preferred Stock are outstanding, the Company
shall not, without the affirmative vote of the Holders of a majority of the
shares of the Preferred Stock then outstanding, (a) alter or change adversely
the powers, preferences or rights given to the Preferred Stock or alter or amend
this Certificate of Designation, (b) authorize or create any class of stock
ranking as to dividends or distribution of assets upon a Liquidation (as defined
in Section 4) senior to or otherwise pari passu with the Preferred Stock, (c)
amend its certificate or articles of incorporation or other charter documents so
as to affect adversely any rights of the Holders, (d) increase the authorized
number of shares of Preferred Stock, or (e) enter into any agreement with
respect to the foregoing.
Section 4. LIQUIDATION. Upon any liquidation, dissolution or winding-up
of the Company, whether voluntary or involuntary (a "LIQUIDATION"), the Holders
shall be entitled to receive out of the assets of the Company, whether such
assets are capital or surplus, for each share of Preferred Stock an amount equal
to the Stated Value plus all due but unpaid dividends per share before any
distribution or payment shall be made to the holders of any Junior Securities,
and if the assets of the Company shall be insufficient to pay in full such
amounts, then the entire assets to be distributed to the Holders shall be
distributed among the Holders ratably in accordance with the respective amounts
that would be payable on such shares if all amounts payable thereon were paid in
full. A sale, conveyance or disposition of all or substantially all of the
assets of the Company or the effectuation by the Company of a transaction or
series of related transactions in which more than 33% of the voting power of the
Company is disposed of, or a consolidation or merger of the Company with or into
any other company or companies into one or more companies not wholly- owned by
the Company shall not be treated as a Liquidation, but instead shall be subject
to the provisions of Section 5. The Company shall mail written notice of any
such Liquidation, not less than 45 days prior to the payment date stated
therein, to each record Holder.
Section 5. CONVERSION.
----------
(a)(i) CONVERSIONS AT OPTION OF HOLDER. Each share of Preferred Stock
shall be convertible into shares of Common Stock at the Conversion Ratio (as
defined in Section 9), at the option of the Holder, at any time and from time to
time from and after the earlier of (i) the date the
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Underlying Shares Registration Statement (as defined in Section 9) is first
declared effective by the Commission (as defined in Section 9) and (ii) the 90th
day following the Original Issue Date. Holders shall effect conversions by
surrendering the certificate or certificates representing the shares of
Preferred Stock duly endorsed in blank to be converted to the Company, together
with the form of conversion notice attached hereto as EXHIBIT A (a "HOLDER
CONVERSION NOTICE"). Each Holder Conversion Notice shall specify the number of
shares of Preferred Stock to be converted and the date on which such conversion
is to be effected, which date may not be prior to the date the Holder delivers
such Holder Conversion Notice by facsimile and no earlier than the date the
Company receives the certificate for the Preferred Stock duly endorsed in blank
(the "HOLDER CONVERSION DATE"). If no Holder Conversion Date is specified in a
Holder Conversion Notice, the Holder Conversion Date shall be the date that such
Holder Conversion Notice is deemed delivered hereunder. If the Holder is
converting less than all shares of Preferred Stock represented by the
certificate or certificates tendered by the Holder with the Holder Conversion
Notice, or if a conversion hereunder cannot be effected in full for any reason,
the Company shall promptly deliver to such Holder (in the manner and within the
time set forth in Section 5(b)) a certificate representing the number of shares
of Preferred Stock as have not been converted.
(ii) CONVERSIONS AT OPTION OF THE COMPANY. If at any time
after the Original Issue Date the average of the Per Share Market Values for the
20 consecutive Trading Days immediately preceding the date of the delivery by
the Company of a Company Conversion Notice (as defined below) shall equal or
exceed $7.50 (subject to equitable adjustment for stock splits, recombinations
and similar events pursuant to Section 5(c)(ii)), all or any portion of the
Preferred Stock shall be convertible into Common Stock (subject to the
limitations set forth in Section 5(a)(iv)) at the Conversion Ratio at the option
of the Company on the applicable Company Conversion Date (as defined below),
PROVIDED, that the Company shall not be permitted to deliver a Company
Conversion Notice (as defined below) at any time when the Underlying Securities
Registration Statement is not then effective or shares of Common Stock are not
actively traded on the Nasdaq National Market ("NASDAQ") or listed or quoted for
trading on the New York Stock Exchange, American Stock Exchange or Nasdaq
SmallCap Market (each, a "SUBSEQUENT MARKET"). The Company shall effect such
conversion by delivering to the Holder a written notice in the form attached
hereto as EXHIBIT B (the "COMPANY CONVERSION NOTICE"), which Company Conversion
Notice, once given, shall be irrevocable. Each Company Conversion Notice shall
specify the number of shares of Preferred Stock to be converted and the date on
which such conversion is to be effected, which date may not be prior to the date
the Company delivers such Company Conversion Notice by facsimile to the Holder
(the "COMPANY CONVERSION DATE"). If no conversion Date is specified in a Company
Conversion Notice, the Company Conversion Date shall be the date that the
Company Conversion Notice is deemed delivered hereunder. Upon its receipt of a
Company Conversion Notice, the Holder shall surrender the certificate
representing the shares of Preferred Stock duly endorsed in blank to the office
of the Company or of any transfer agent of the Common Stock. If the Company is
converting less than all shares of Preferred Stock represented by the
certificate or certificates surrendered by the Holder upon the Company's
Conversion Notice, the Company shall, upon conversion of the shares of Preferred
Stock subject to such Company Conversion Notice and receipt of the certificate
or certificates representing the shares of Preferred Stock duly endorsed in
blank surrendered for conversion, deliver to the Holder, (in the manner and
within the time period
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set forth in Section 5(b)) a certificate representing the number of shares of
Preferred Stock as have not been converted. Each of a Holder Conversion Notice
and a Company Conversion Notice is sometimes referred to herein as a "CONVERSION
NOTICE," and each of a Holder Conversion Date and a Company Conversion Date is
sometimes referred to herein as a "CONVERSION DATE."
(iii) AUTOMATIC CONVERSION. Subject to the provisions of this
paragraph and Section 5(a)(iv), all outstanding shares of Preferred Stock for
which conversion notices have not previously been received or for which
redemption has not been made or required hereunder shall be automatically
converted on the third (3rd) anniversary of the Original Issue Date at the then
applicable Conversion Price. The conversion contemplated by this paragraph shall
not occur at such time as (a)(1) an Underlying Shares Registration Statement is
not then effective or (2) the Holder is not permitted to resell Underlying
Shares (as defined in Section 9) pursuant to Rule 144(k) promulgated under the
Securities Act (as defined in Section 9), without volume restrictions, as
evidenced by an opinion letter of counsel acceptable to the Holder and the
transfer agent for the Common Stock; or (b) there are not sufficient shares of
Common Stock authorized and reserved for issuance upon such conversion.
Notwithstanding the foregoing, the three-year period for conversion under this
Section shall be extended (on a day-for-day basis) for any Trading Days after
the Effectiveness Date (as defined in the Registration Rights Agreement) that a
Holder is unable to resell Underlying Shares under an Underlying Shares
Registration Statement due to: (a) the Common Stock not being listed or quoted
for trading on the NASDAQ or any Subsequent Market, (b) the failure of such
Underlying Shares Registration Statement to be declared effective, or if so
declared, to remain effective during the Effectiveness Period (as defined in the
Registration Rights Agreement) as to all Underlying Shares, or (c) the
suspension of the Holder's right to resell Underlying Shares thereunder. The
provisions of Sections 5(a)(iv)(A) and (B) shall not apply to any automatic
conversion pursuant to this Section 5(a)(iii).
(iv) CERTAIN CONVERSION RESTRICTIONS.
--------------------------------
(A) A Holder may not convert shares of Preferred Stock or
receive shares of Common Stock as payment of dividends hereunder to the extent
such conversion or receipt of such dividend payment would result in the Holder,
together with any affiliate thereof, beneficially owning (as determined in
accordance with Section 13(d) of the Exchange Act (as defined in Section 9) and
the rules promulgated thereunder) in excess of 4.999% of the then issued and
outstanding shares of Common Stock, including shares issuable upon conversion
of, and payment of dividends on, the shares of Preferred Stock held by such
Holder after application of this Section. Since the Holder will not be obligated
to report to the Company the number of shares of Common Stock it may hold at the
time of a conversion hereunder, unless the conversion at issue would result in
the issuance of shares of Common Stock in excess of 4.999% of the then
outstanding shares of Common Stock without regard to any other shares which may
be beneficially owned by the Holder or an affiliate thereof, the Holder shall
have the authority and obligation to determine whether the restriction contained
in this Section will limit any particular conversion hereunder and to the extent
that the Holder determines that the limitation contained in this Section
applies, the determination of which portion of the shares of Preferred Stock are
convertible shall be the responsibility and obligation of the Holder. If the
Holder has delivered a Conversion Notice for shares of Preferred Stock that,
without regard to any
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<PAGE>
other shares that the Holder or its affiliates may beneficially own, would
result in the issuance in excess of the permitted amount hereunder, the Company
shall notify the Holder of this fact and shall honor the conversion for the
maximum number of shares of Preferred Stock permitted to be converted on such
Conversion Date in accordance with the periods described herein and, at the
option of the Holder, either retain shares of Preferred Stock tendered for
conversion in excess of the permitted amount hereunder for future conversions or
return such excess shares of Preferred Stock permitted to the Holder. The
provisions of this Section may be waived by a Holder (but only as to itself and
not to any other Holder) upon not less than 61 days prior written notice to the
Company. Other Holders shall be unaffected by any such waiver.
(B) A Holder may not convert shares of Preferred Stock or
receive shares of Common Stock as payment of dividends hereunder to the extent
such conversion or receipt of such dividend payment would result in the Holder,
together with any affiliate thereof, beneficially owning (as determined in
accordance with Section 13(d) of the Exchange Act and the rules promulgated
thereunder) in excess of 9.999% of the then issued and outstanding shares of
Common Stock, including shares issuable upon conversion of, and payment of
dividends on, the shares of Preferred Stock held by such Holder after
application of this Section. Since the Holder will not be obligated to report to
the Company the number of shares of Common Stock it may hold at the time of a
conversion hereunder, unless the conversion at issue would result in the
issuance of shares of Common Stock in excess of 9.999% of the then outstanding
shares of Common Stock without regard to any other shares which may be
beneficially owned by the Holder or an affiliate thereof, the Holder shall have
the authority and obligation to determine whether the restriction contained in
this Section will limit any particular conversion hereunder and to the extent
that the Holder determines that the limitation contained in this Section
applies, the determination of which portion of the shares of Preferred Stock are
convertible shall be the responsibility and obligation of the Holder. If the
Holder has delivered a Conversion Notice for shares of Preferred Stock that,
without regard to any other shares that the Holder or its affiliates may
beneficially own, would result in the issuance in excess of the permitted amount
hereunder, the Company shall notify the Holder of this fact and shall honor the
conversion for the maximum number of shares of Preferred Stock permitted to be
converted on such Conversion Date in accordance with the periods described
herein and, at the option of the Holder, either retain shares of Preferred Stock
tendered for conversion in excess of the permitted amount hereunder for future
conversions or return such excess shares of Preferred Stock permitted to the
Holder. The provisions of this Section may be waived by a Holder (but only as to
itself and not to any other Holder) upon not less than 61 days prior written
notice to the Company. Other Holders shall be unaffected by any such waiver.
(b)(i) Not later than three (3) Trading Days after each Conversion
Date, the Company will deliver to the Holder (A) a certificate or certificates
which shall be free of restrictive legends and trading restrictions (other than
those required by Section 3.1(b) of the Purchase Agreement (as defined in
Section 9)) representing the number of shares of Common Stock being acquired
upon the conversion of shares of Preferred Stock, (B) one or more certificates
representing the number of shares of Preferred Stock not converted (if
applicable) and (C) a bank check in the amount of accrued and unpaid dividends
(if the Company has elected or is required to pay accrued dividends in cash).
Notwithstanding the foregoing or anything to the contrary contained herein, the
Company shall not
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<PAGE>
be obligated to issue certificates evidencing the shares of Common Stock
issuable upon conversion of any shares of Preferred Stock until one Trading Day
after certificates evidencing such shares of Preferred Stock, duly endorsed in
blank, are delivered for conversion to the Company, or the Holder of such
Preferred Stock notifies the Company that such certificates have been lost,
stolen or destroyed and provides a bond (or other adequate security) reasonably
satisfactory to the Company to indemnify the Company from any loss incurred by
it in connection therewith. The Company shall, upon request of the Holder, if
available, use its reasonable efforts to deliver any certificate or certificates
required to be delivered by the Company under this Section electronically
through the Depository Trust Corporation or another established clearing
corporation performing similar functions. If in the case of any Conversion
Notice such certificate or certificates are not delivered to or as directed by
the applicable Holder by the fifth (5th) Trading Day after the Conversion Date,
the Holder shall be entitled to elect by written notice to the Company at any
time on or before its receipt of such certificate or certificates thereafter, to
rescind such conversion, in which event the Company shall immediately return the
certificates representing the shares of Preferred Stock tendered for conversion.
(ii) In addition to any other rights available to the Holder,
if the Company fails to deliver to the Holder such certificate or certificates
pursuant to Section 5(b)(i), by the fifth (5th) Trading Day after the Conversion
Date, and if after such fifth (5th) Trading Day the Holder purchases (in an open
market transaction or otherwise) Common Stock to deliver in satisfaction of a
sale by such Holder of the Underlying Shares which the Holder was entitled to
receive upon such conversion (a "BUY-IN"), then the Company shall (A) pay in
cash to the Holder the amount by which (x) the Holder's total purchase price
(including brokerage commissions, if any) for the Common Stock so purchased
exceeds (y) the product of (1) the aggregate number of shares of Common Stock
that such Holder was entitled to receive from the conversion at issue multiplied
by (2) the market price of the Common Stock at the time of the sale giving rise
to such purchase obligation and (B) at the option of the Holder, either return
the shares of Preferred Stock for which such conversion was not honored or
deliver to such Holder the number of shares of Common Stock that would have been
issued had the Company timely complied with its conversion and delivery
obligations under Section 5(b)(i). For example, if the Holder purchases Common
Stock having a total purchase price of $11,000 to cover a Buy-In with respect to
an attempted conversion of shares of Preferred Stock with respect to which the
market price of the Underlying Shares at the time of the sale giving rise to
such purchase obligation totaled $10,000, under clause (A) of the immediately
preceding sentence the Company shall be required to pay the Holder $1,000. The
Holder shall provide the Company written notice indicating the amounts payable
to the Holder in respect of the Buy-In. Nothing herein shall limit a Holder's
right to pursue any other remedies available to it hereunder, at law or in
equity including, without limitation, a decree of specific performance and/or
injunctive relief with respect to the Company's failure to timely deliver
certificates representing shares of Common Stock upon conversion of the shares
of Preferred Stock as required pursuant to the terms hereof.
(c)(i) The conversion price for each share of Preferred Stock in effect
on any Conversion Date shall be $4.50 (the "CONVERSION PRICE"). The Conversion
Price is subject to adjustment from time to time as set forth below.
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(ii) If the Company, at any time while any shares of Preferred
Stock are outstanding, shall (a) pay a stock dividend (except scheduled
dividends paid on preferred stock which contain a stated dividend rate) or
otherwise make a distribution or distributions on shares of its Common Stock or
on any other class of capital stock payable in shares of Common Stock, (b)
subdivide outstanding shares of Common Stock into a larger number of shares, or
(c) combine outstanding shares of Common Stock into a smaller number of shares,
then the Conversion Price shall be multiplied by a fraction of which the
numerator shall be the number of shares of Common Stock (excluding treasury
shares, if any) outstanding before such event and of which the denominator shall
be the number of shares of Common Stock (excluding treasury shares, if any)
outstanding after such event. Any adjustment made pursuant to this Section
5(c)(ii) shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in the case of a
subdivision or combination and shall apply to successive subdivisions and
combinations.
(iii) Except in the case of the Company issuing rights to
subscribe for shares of Common Stock distributed to all the holders of the
Common Stock and the exercise of such rights (such as the rights under the
Company's stockholders rights plan) or the grant or exercise of any stock,
warrant, stock appreciation rights or options which may hereafter be granted or
exercised under any employee benefit plan of the Company now existing or to be
implemented in the future, if the Company or any subsidiary thereof, as
applicable with respect to Common Stock Equivalents (as defined below), at any
time while any shares of Preferred Stock are outstanding, shall issue either (i)
shares of Common Stock at a price per share (the "Issuance Price") less than the
Conversion Price or (ii) rights, warrants, options or other securities or debt
that is convertible into or exchangeable for shares of Common Stock ("COMMON
STOCK EQUIVALENTS"), entitling any Person to acquire shares of Common Stock at
an Issuance Price less than the Conversion Price (if the holder of the Common
Stock Equivalent so issued shall at any time, whether by operation of purchase
price adjustments, reset provisions, floating conversion, exercise or exchange
prices or otherwise be entitled to receive shares of Common Stock at a
conversion or exercise price less than the Conversion Price, such issuance shall
be deemed to have occurred for less than the Conversion Price), then the
Conversion Price shall be reduced to the Issuance Price. Such adjustment shall
be made whenever Common Stock or Common Stock Equivalents are issued at a price
below the Conversion Price. However, upon the expiration of any Common Stock
Equivalents the issuance of which resulted in an adjustment in the Conversion
Price pursuant to this Section, if any such Common Stock Equivalents shall
expire and shall not have been exercised, the Conversion Price shall immediately
upon such expiration be recomputed and effective immediately upon such
expiration be increased to the price which it would have been (but reflecting
any other adjustments in the Conversion Price made pursuant to the provisions of
this Section after the issuance of such Common Stock Equivalents) had the
adjustment of the Conversion Price made upon the issuance of such Common Stock
Equivalents been made on the basis of offering for subscription or purchase only
that number of shares of the Common Stock actually purchased upon the exercise
of such Common Stock Equivalents actually exercised.
(iv) If the Company, at any time while shares of Preferred
Stock are outstanding, shall distribute to all holders of Common Stock (and not
to Holders) evidences of its
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indebtedness or assets or rights or warrants to subscribe for or purchase any
security (excluding those referred to in Sections 5(c)(ii)-(iii) and (vii)),
then in each such case the Conversion Price at which each share of Preferred
Stock shall thereafter be convertible shall be determined by multiplying the
Conversion Price in effect immediately prior to the record date fixed for
determination of stockholders entitled to receive such distribution by a
fraction of which the denominator shall be the Conversion Price determined as of
the record date mentioned above, and of which the numerator shall be such
Conversion Price on such record date less the then fair market value at such
record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of Common Stock as determined by
the Company's independent certified public accountants that regularly examines
the financial statements of the Company.
(v) All calculations under this Section 5 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be.
(vi) Whenever the Conversion Price is adjusted hereunder, the
Company shall promptly mail to each Holder, a notice setting forth the
Conversion Price after such adjustment and setting forth a brief statement of
the facts requiring such adjustment.
(vii) In case of any reclassification of the Common Stock or
any compulsory share exchange pursuant to which the Common Stock is converted
into other securities, cash or property, then the Holder shall have the right
thereafter to convert the shares of Preferred Stock only into the shares of
stock and other securities and property receivable upon or deemed to be held by
holders of Common Stock following such reclassification or share exchange, and
the Holder shall be entitled upon such event to receive such amount of
securities or property equal to the amount of shares of Common Stock such Holder
would have been entitled to had such Holder converted such shares of Preferred
Stock immediately prior to such reclassification or share exchange. The terms of
any such reclassification or share exchange shall include such terms so as to
continue to give to the Holder the right to receive the securities or property
set forth in this Section upon any conversion following any such
reclassification or share exchange.
(viii) In case of any (1) merger or consolidation of the
Company with or into another Person, or (2) sale by the Company of substantially
all of the assets of the Company (on a book value basis) in one or a series of
related transactions, the Holder shall have the right thereafter to convert its
shares of Preferred Stock into the shares of stock and other securities, cash
and property receivable upon or deemed to be held by holders of Common Stock
following such merger, consolidation or sale, and such Holder shall be entitled
upon such event or series of related events to receive such amount of
securities, cash and property as the shares of Common Stock into which such
shares of Preferred Stock could have been converted immediately prior to such
merger, consolidation or sales would have been entitled. The terms of any such
merger, sale or consolidation shall include such terms so as to give the Holder
the right to receive the securities, cash and property set forth in this Section
upon any conversion or redemption following such event. This provision shall
similarly apply to successive such events.
-8-
<PAGE>
(ix) If (a) the Company shall declare a dividend (or any other
distribution) on its Common Stock, (b) the Company shall declare a special
nonrecurring cash dividend on or a redemption of its Common Stock, (c) the
Company shall authorize the granting to all holders of Common Stock rights or
warrants to subscribe for or purchase any shares of capital stock of any class
or of any rights, (d) the approval of any stockholders of the Company shall be
required in connection with any reclassification of the Common Stock, any
consolidation or merger to which the Company is a party, any sale or transfer of
all or substantially all of the assets of the Company, of any compulsory share
of exchange whereby the Common Stock is converted into other securities, cash or
property, or (e) the Company shall authorize the voluntary or involuntary
dissolution, liquidation or winding up of the affairs of the Company; then the
Company shall cause to be mailed to the Holders at their last addresses as they
shall appear upon the stock books of the Company, at least 10 calendar days
prior to the applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is not to
be taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are to
be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their Common Stock for securities, cash or
other property deliverable upon such reclassification, consolidation, merger,
sale, transfer, share exchange, dissolution, liquidation or winding up;
PROVIDED, HOWEVER, that the failure to mail such notice or any defect therein or
in the mailing thereof shall not affect the validity of the corporate action
required to be specified in such notice. Holders are entitled to convert shares
of Preferred Stock during the 10-day period commencing the date of such notice
to the effective date of the event triggering such notice.
(d) The Company covenants that it will at all times reserve and keep
available out of its authorized and unissued shares of Common Stock solely for
the purpose of issuance upon conversion of Preferred Stock and payment of
dividends on Preferred Stock, each as herein provided, free from preemptive
rights or any other actual contingent purchase rights of persons other than the
Holders, not less than such number of shares of Common Stock as shall be
issuable (taking into account the provisions of Section 5(a) and Section 5(c))
upon the conversion of all outstanding shares of Preferred Stock. The Company
covenants that all shares of Common Stock that shall be so issuable shall, upon
issue, be duly and validly authorized, issued and fully paid, nonassessable.
(e) Upon a conversion hereunder the Company shall not be required to
issue stock certificates representing fractions of shares of Common Stock, but
shall round the number of shares of Common Stock to be issued to the closest
number of whole shares of Common Stock.
(f) The issuance of certificates for Common Stock on conversion of
Preferred Stock shall be made without charge to the Holders thereof for any
documentary stamp or similar taxes that may be payable in respect of the issue
or delivery of such certificate, provided that the Company shall not be required
to pay any tax that may be payable in respect of any transfer involved in the
issuance and delivery of any such certificate upon conversion in a name other
than that of the Holder of such shares of Preferred Stock so converted.
-9-
<PAGE>
(g) Shares of Preferred Stock converted into Common Stock or redeemed
in accordance with the terms hereof shall be canceled and may not be reissued.
(h) Any and all notices or other communications or deliveries to be
provided by the Holders of the Preferred Stock hereunder, including, without
limitation, any Conversion Notice, shall be in writing and delivered personally,
by facsimile or sent by a nationally recognized overnight courier service,
addressed to the attention of the Chief Financial Officer of the Company
addressed to 4000 Hollywood Blvd., Suite 385-S, South Tower, Hollywood, FL 33021
or to facsimile number 954-967-2135, or to such other address or facsimile
number as shall be specified in writing by the Company for such purpose. Any and
all notices or other communications or deliveries to be provided by the Company
hereunder shall be in writing and delivered personally, by facsimile or sent by
a nationally recognized overnight courier service, addressed to each Holder at
the facsimile telephone number or address of such Holder appearing on the books
of the Company, or if no such facsimile telephone number or address appears, at
the facsimile number or address of the Holder set forth in the Purchase
Agreement. Any notice or other communication or deliveries hereunder shall be
deemed given and effective on the earliest of (i) the date of transmission, if
such notice or communication is delivered via facsimile at the facsimile
telephone number specified in this Section prior to 6:30 p.m. (New York City
time)(with confirmation of transmission), (ii) the date after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section later than 6:30 p.m. (New
York City time) on any date and earlier than 11:59 p.m. (New York City time) on
such date (with confirmation of transmission), (iii) upon receipt, if sent by a
nationally recognized overnight courier service, or (iv) upon actual receipt by
the party to whom such notice is required to be given.
-10-
<PAGE>
Section 6. OPTIONAL REDEMPTION.
-------------------
(a) Subject to the provisions of this Section 6, from and after the
ninth month anniversary of the Original Issue Date (the "TRIGGER DATE"), the
Company shall have the right, upon 45 calendar days' notice (an "OPTIONAL
REDEMPTION NOTICE") to the Holders, to redeem all or any portion of the shares
of Preferred Stock which have not previously been redeemed or for which
Conversion Notices shall not have been delivered, at a price equal to the
Redemption Price (as defined in Section 9), PROVIDED, that the Trigger Date
shall be extended by the number of days during which any Blocking Notices (as
defined in the Registration Rights Agreement) shall be in effect. The Company
may only deliver an Optional Redemption Notice if: (i) the number of shares of
Common Stock at the time authorized, unissued and unreserved for all purposes is
sufficient to satisfy the Company's conversion obligations of all shares of
Preferred Stock then outstanding, (ii) the Underlying Shares then outstanding
are registered for resale pursuant to an effective Underlying Shares
Registration Statement pursuant to which the Holders are permitted to sell
Underlying Shares or the Underlying Shares may be resold without volume
restrictions pursuant to Rule 144(k) promulgated under the Securities Act, and
(iii) the Common Stock is listed for trading on the NASDAQ or on a Subsequent
Market. Each of clauses (i) - (iii) of the immediately preceding sentence must
be true during the entire 45 calendar days between the date of delivery of an
Optional Redemption Notice and the date of payment of the Redemption Price. The
entire Redemption Price shall be paid in cash. A Holder may, subject to Section
5(a)(i) hereof, convert (and the Company shall honor such conversions in
accordance with the terms hereof) any or all of the shares of Preferred Stock
subject to an Optional Redemption Notice, provided that the Conversion Notice
for such shares is delivered prior to the 43rd calendar day following the
receipt by such Holder of such an Optional Redemption Notice.
(b) Failure by the Company to pay any portion of the Redemption Price
by the tenth Trading Day following the date of an Optional Redemption Notice
shall result in the invalidation AB INITIO of the unpaid portion of such
optional redemption, and, notwithstanding anything herein to the contrary, the
Company shall thereafter have no further rights to optionally redeem any shares
of Preferred Stock. In such event, the Company shall, at the option of the
Holder, either, (i) not later than three Trading Days from receipt of Holder's
request for such election, return to the Holder all of the shares of Preferred
Stock for which such Redemption Price has not been paid in full (the "UNPAID
REDEMPTION SHARES") or (ii) convert of or any portion of the Unpaid Redemption
Shares. If the Holder elects option (ii) above, the Company shall within three
Trading Days of its receipt of such election deliver to the Holder the shares of
Common Stock issuable upon conversion of the Unpaid Redemption Shares subject to
such Holder's conversion demand and otherwise perform its obligations hereunder
with respect thereto.
Section 7. REDEMPTION UPON TRIGGERING EVENTS.
---------------------------------
(a) Upon the occurrence of a Triggering Event, each Holder shall (in
addition to all other rights it may have hereunder or under applicable law),
have the right, exercisable at the sole option of such Holder, to require the
Company to redeem all or a portion of the Preferred Stock then held by such
Holder for a redemption price, in cash, equal to the sum of (i) the Mandatory
-11-
<PAGE>
Redemption Amount (as defined in Section 9) plus (ii) the product of (A) the
number of Underlying Shares issued in respect of conversions hereunder and then
held by the Holder (the "REMAINING SHARES") and (B) the Per Share Market Value
on the date such redemption is demanded or the date the redemption price
hereunder is paid in full, whichever is greater (such sum, the "REDEMPTION
AMOUNT"). The Redemption Amount shall be due and payable within five (5) Trading
Days of the date on which the notice for the payment therefor is provided by a
Holder. If the Company fails to pay the Redemption Amount hereunder in full
pursuant to this Section on the date such amount is due in accordance with this
Section, the Company will pay interest thereon at a rate of 18% per annum (or
the lesser amount permitted by applicable law), accruing daily from such date
until the Redemption Amount, plus all such interest thereon, is paid in full.
For purposes of this Section, a share of Preferred Stock is outstanding until
such date as the Holder shall have received Underlying Shares upon a conversion
(or attempted conversion) thereof that meets the requirements hereof. Upon
receipt of the Redemption Amount, the Holder shall return the Remaining Shares
to the Company.
A "Triggering Event" means any one or more of the following events
(whatever the reason and whether it shall be voluntary or involuntary or
effected by operation of law or pursuant to any judgment, decree or order of any
court, or any order, rule or regulation of any administrative or governmental
body):
(i) the Company or any of its Material Subsidiaries (as
defined in Section 9) shall commence, or there shall be commenced against the
Company or any such Material Subsidiary a case under any applicable bankruptcy
or insolvency laws as now or hereafter in effect or any successor thereto which
remains undismissed for a period of 60 days, or the Company commences any other
proceeding under any reorganization, arrangement, adjustment of debt, relief of
debtors, dissolution, insolvency or liquidation or similar law of any
jurisdiction whether now or hereafter in effect relating to the Company or any
Material Subsidiary thereof or there is commenced against the Company or any
Material Subsidiary thereof any such bankruptcy, insolvency or other proceeding
which remains undismissed for a period of 60 days; or the Company or any
Material Subsidiary thereof is adjudicated insolvent or bankrupt; or any order
of relief or other similar order adjudicating the Company or any Material
Subsidiary insolvent in any such case or proceeding is entered; or the Company
or any Material Subsidiary thereof suffers any appointment of any custodian or
the like for it or any substantial part of its property which continues
undischarged or unstayed for a period of 60 days; or the Company or any Material
Subsidiary thereof makes a general assignment for the benefit of creditors; or
the Company shall fail to pay, or shall state that it is unable to pay, or shall
be unable to pay, its debts generally as they become due; or the Company or any
Material Subsidiary thereof shall call a meeting of its creditors with a view to
arranging a composition, adjustment or restructuring of its debts; or the
Company or any Material Subsidiary thereof shall by any act or failure to act
expressly indicate its consent to, approval of or acquiescence in any of the
foregoing; or any corporate or other action is taken by the Company or any
Material Subsidiary thereof for the purpose of effecting any of the foregoing;
(ii) the Company shall fail to pay the Redemption Price within
60 days of the date due; or
-12-
<PAGE>
(iii) the Company shall default in any of its obligations
under any currently existing credit agreement or facility or other instrument
evidencing any indebtedness for borrowed money, which agreement, facility or
instrument evidences a principal amount of $1,000,000 or more, where such
default continues after the Company's opportunities to cure such default
pursuant to the terms of such agreement, facility or instrument have expired and
such default has not been waived by the party to such agreement, facility or
instrument, unless the Holder provides a waiver of enforcement of this
provision, on a case by case basis, after notice of such condition is provided
to the Holder by the Company.
Section 8. PUT OPTION.
----------
(a) For a 90-day period following the 13th month anniversary of the
Original Issue Date, the Holder shall have the right (the "PUT RIGHT") to
request that the Company redeem all or a portion of the outstanding shares of
Preferred Stock at a price equal to the Redemption Price, by delivering to the
Company a written notice (a "PUT NOTICE") specifying the number of shares of
Preferred Stock subject to the Put Right, PROVIDED, that such 90-day period
shall be extended by the number of days during which any Blocking Notice shall
be in effect. On or prior to the fifth Trading Day following the date of the
delivery of the Put Notice (such fifth Trading Day, the "PUT EXERCISE DATE"):
(i) the Holder shall deliver to the Company the shares of Preferred Stock
subject to the Put Option, properly endorsed, and (ii) upon receipt of the
shares of Preferred Stock subject to the Put Option, the Company shall deliver
to the Holder, in immediately available funds, the Redemption Price. The
Redemption Price shall be paid in cash and shall be free of any claim of
subordination. If any portion of the Redemption Price shall not be paid on or
prior to the Put Exercise Date, then the Redemption Price shall be increased by
18% per annum (or such lesser maximum amount that is permitted to be paid by
applicable law) to accrue daily from the date such payment is due hereunder
through and including the date of payment (which amount shall be paid as
liquidated damages and not as a penalty), payable in cash, and the Holder shall
have the right to convert the shares of Preferred Stock subject to the Put Right
pursuant to Section 5(c)(i) hereof.
Section 9. DEFINITIONS. For the purposes hereof, the following terms
shall have the following meanings:
"CHANGE OF CONTROL TRANSACTION" means the occurrence of any of (i) an
acquisition after the date hereof by an individual or legal entity or "group"
(as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of
effective control (whether through legal or beneficial ownership of capital
stock of the Company, by contract or otherwise) of in excess of 33% of the
voting securities of the Company, (ii) a replacement at one time or over two
years of more than one- half of the members of the Company's board of directors
which is not approved by a majority of those individuals who are members of the
board of directors on the date hereof (or by those individuals who are serving
as members of the board of directors on any date whose nomination to the board
of directors was approved by a majority of the members of the board of directors
who are members on the date hereof), (iii) the merger of the Company with or
into another entity that is not wholly-owned by the Company, consolidation or
sale of all or substantially all of the assets of the
-13-
<PAGE>
Company in one or a series of related transactions, or (iv) the execution by the
Company of an agreement to which the Company is a party or by which it is bound,
providing for any of the events set forth above in (i), (ii) or (iii).
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the Company's common stock, par value $.01 per
share, and stock of any other class into which Common Stock may hereafter have
been reclassified or changed.
"CONVERSION RATIO" means, at any time, a fraction, the numerator of
which is Stated Value and the denominator of which is the Conversion Price at
such time.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"JUNIOR SECURITIES" means the Common Stock and all other equity
securities of the Company other than those securities that are outstanding on
the Original Issue Date and which are explicitly senior or pari passu in
dividend rights or liquidation preference to the Preferred Stock.
"MANDATORY REDEMPTION AMOUNT" for each share of Preferred Stock means
the sum of (i) the greater of (A) 120% of the Stated Value and (B) the product
of (a) the Per Share Market Value on the Trading Day immediately preceding (x)
the date of the Triggering Event or the Conversion Date, as the case may be, or
(y) the date of payment in full by the Company of the applicable redemption
price, whichever is greater, and (b) the Conversion Ratio calculated on the date
of the Triggering Event, or the Conversion Date, as the case may be, and (ii)
all other amounts, costs, expenses and liquidated damages due in respect of such
share of Preferred Stock.
"MATERIAL SUBSIDIARY" shall mean any subsidiary of the Company the loss
of which is reasonably likely to lead to the Company's insolvency or violation
under Section 7(a)(i) (as applicable to the Company).
"ORIGINAL ISSUE DATE" shall mean the date of the first issuance of any
shares of the Preferred Stock regardless of the number of transfers of any
particular shares of Preferred Stock and regardless of the number of
certificates which may be issued to evidence such Preferred Stock.
"PER SHARE MARKET VALUE" means on any particular date (a) the closing
sales price per share of Common Stock on such date on the NASDAQ or on the
Subsequent Market on which the Common Stock is then listed or quoted, or if
there is no such price on such date, then the closing sales price on the NASDAQ
or on such Subsequent Market on the date nearest preceding such date, or (b) if
the Common Stock is not then listed or quoted on the NASDAQ or on a Subsequent
Market, the closing sales price for a share of Common Stock in the
over-the-counter market, as reported by the National Quotation Bureau
Incorporated or similar organization or agency succeeding to its functions of
reporting prices) at the close of business on such date, or (c) if the Common
Stock is not then reported by the National Quotation Bureau Incorporated (or
similar organization or agency
-14-
<PAGE>
succeeding to its functions of reporting prices), then the average of the "Pink
Sheet" quotes for the twenty consecutive Trading Days, as determined in good
faith by the Holder, or (d) if the Common Stock is not then publicly traded the
fair market value of a share of Common Stock as determined by an Appraiser
selected in good faith by the Holders of a majority of the shares of the
Preferred Stock.
"PERSON" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
"PURCHASE AGREEMENT" means the Convertible Preferred Stock Purchase
Agreement, dated as of March 30, 2000, to which the Company and the original
Holder are parties, as amended, modified or supplemented from time to time in
accordance with its terms.
"REDEMPTION PRICE" shall be sum of (i) $10,500 per share of Preferred
Stock to be redeemed and (ii) all other amounts, costs, expenses and liquidated
damages due in respect of such share of Preferred Stock.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, dated as of March 30, 2000, to which the Company and the original
Holder are parties, as amended, modified or supplemented from time to time in
accordance with its terms.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"TRADING DAY" means (a) a day on which the Common Stock is traded on
the NASDAQ or on the Subsequent Market on which the Common Stock is then listed
or quoted, as the case may be, or (b) if the Common Stock is not listed on the
NASDAQ or on a Subsequent Market, a day on which the Common Stock is traded in
the over-the-counter market, as reported by the OTC Bulletin Board, or (c) if
the Common Stock is not quoted on the OTC Bulletin Board, a day on which the
Common Stock is quoted in the over-the-counter market as reported by the
National Quotation Bureau Incorporated (or any similar organization or agency
succeeding its functions of reporting prices); PROVIDED, HOWEVER, that in the
event that the Common Stock is not listed or quoted as set forth in (a), (b) and
(c) hereof, then Trading Day shall mean any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in the
State of New York are authorized or required by law or other government action
to close.
"TRANSACTION DOCUMENTS" shall have the meaning set forth in the
Purchase Agreement.
"UNDERLYING SHARES" means, collectively, the shares of Common Stock
into which the shares of Preferred Stock are convertible in accordance with the
terms hereof.
"UNDERLYING SHARES REGISTRATION STATEMENT" means a registration
statement that meets the requirements of the Registration Rights Agreement and
registers the resale of all Underlying Shares by the Holder, who shall be named
as a "selling stockholder" thereunder.
-15-
<PAGE>
EXHIBIT A
NOTICE OF CONVERSION AT OPTION OF THE HOLDER
(To be Executed by the Registered Holder
in order to Convert shares of Preferred Stock)
The undersigned hereby elects to convert the number of shares of Series C
Convertible Preferred Stock indicated below, into shares of Common Stock, par
value $.01 per share (the "COMMON STOCK"), of Commodore Holdings Limited, a
Bermuda exempt company (the "COMPANY"), according to the conditions hereof, as
of the date written below. If shares are to be issued in the name of a person
other than undersigned and a registration statement covering the resale of the
Common Stock into which the Preferred Stock may be converted is not then
effective (or effective, but not current and accurate in certain material
respects), then the undersigned shall comply with Section 3.1 of the Purchase
Agreement and pay all transfer taxes payable with respect thereto and is
delivering herewith such certificates and opinions as reasonably requested by
the Company in accordance therewith. No fee will be charged to the Holder for
any conversion, except for such transfer taxes, if any.
Conversion calculations:
-------------------------------------------------------------
Date to Effect Conversion
-------------------------------------------------------------
Number of shares of Preferred Stock to be Converted
-------------------------------------------------------------
Stated Value of shares of Preferred Stock to be Converted
-------------------------------------------------------------
Number of shares of Common Stock to be Issued
-------------------------------------------------------------
Applicable Conversion Price
-------------------------------------------------------------
Signature
-------------------------------------------------------------
Name
-------------------------------------------------------------
Address
-16-
<PAGE>
EXHIBIT B
NOTICE OF CONVERSION AT OPTION OF THE COMPANY
(To be Executed by the Company
in order to Convert shares of Preferred Stock)
The undersigned in the name and on behalf of Commodore Holdings Limited, a
Bermuda exempt company (the "COMPANY"), hereby notifies the addressee hereof of
its election to exercise its right to convert the number of shares of Series C
Convertible Preferred Stock indicated below, into shares of Common Stock, par
value $.01 per share (the "COMMON STOCK"), of the Company, according to the
conditions hereof, as of the date written below. No fee will be charged to the
Holder for any conversion, except for such transfer taxes, if any, which may be
incurred by the Company if shares are to be issued in the name of a person other
than in the name of the addressee.
Conversion calculations:
-------------------------------------------------------------
Date to Effect Conversion
-------------------------------------------------------------
Number of shares of Preferred Stock to be Converted
-------------------------------------------------------------
Stated Value of shares of Preferred Stock to be Converted
-------------------------------------------------------------
Number of shares of Common Stock to be Issued
-------------------------------------------------------------
Applicable Conversion Price
-------------------------------------------------------------
Signature
-------------------------------------------------------------
Name
-------------------------------------------------------------
Address
-17-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> MAR-31-2000
<CASH> 9,893,000
<SECURITIES> 0
<RECEIVABLES> 1,385,000
<ALLOWANCES> 0
<INVENTORY> 3,126,000
<CURRENT-ASSETS> 22,649,000
<PP&E> 162,980,912
<DEPRECIATION> 5,737,912
<TOTAL-ASSETS> 191,012,000
<CURRENT-LIABILITIES> 39,037,000
<BONDS> 107,566,000
0
5,000
<COMMON> 86,000
<OTHER-SE> 39,379,000
<TOTAL-LIABILITY-AND-EQUITY> 191,012,000
<SALES> 0
<TOTAL-REVENUES> 37,185,000
<CGS> 0
<TOTAL-COSTS> 36,284,000
<OTHER-EXPENSES> (938,000)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,129,000
<INCOME-PRETAX> 0
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<INCOME-CONTINUING> (1,838,000)
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<CHANGES> 231,000
<NET-INCOME> (2,307,000)
<EPS-BASIC> (0.30)
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