-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WyqZlvwSYKjm/3xxhK9pGtUrf/NpdIX/WGHLnS93MnLz4TTCv9fIzTyRPhg50UAt B5aesGC7t+xv8tXK6y9Erw== 0000950109-96-003418.txt : 19960529 0000950109-96-003418.hdr.sgml : 19960529 ACCESSION NUMBER: 0000950109-96-003418 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 22 FILED AS OF DATE: 19960528 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMMODORE HOLDINGS LTD CENTRAL INDEX KEY: 0000945524 STANDARD INDUSTRIAL CLASSIFICATION: WATER TRANSPORTATION [4400] FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-01270 FILM NUMBER: 96572806 BUSINESS ADDRESS: STREET 1: 4000 HOLLYWOOD BLVD STREET 2: STE 385 SOUTH TOWER CITY: HOLLYWOOD STATE: FL ZIP: 33021 BUSINESS PHONE: 9549672100 MAIL ADDRESS: STREET 1: 4000 HOLLYWOOD BLVD STREET 2: SUITE 385 SOUTH TOWER CITY: HGOLLYWOOD STATE: FL ZIP: 33021 S-1/A 1 AMENDMENT #1 TO THE FORM S-1 As filed with the Securities and Exchange Commission on May 28, 1996 Registration No. 333-01270 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 AMENDMENT NO. 1 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 COMMODORE HOLDINGS LIMITED (Exact Name of Registrant as Specified in its Charter)
Bermuda 4400 N/A - --------------------------------- ---------------------------- ---------------------- (State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Incorporation or Organization) Classification Code Number) Identification Number)
4000 Hollywood Boulevard Suite 385, South Tower Hollywood, Florida 33021 (954) 967-2100 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) Mr. Frederick A. Mayer Vice Chairman of the Board Commodore Holdings Limited 4000 Hollywood Boulevard Suite 385, South Tower Hollywood, Florida 33021 (954) 967-2100 (Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service) Copies To: P. Michael Segal, P.A. Jay M. Kaplowitz Kathleen L. Deutsch Gersten, Savage, Broad and Cassel Kaplowitz & Curtin, LLP Miami Center 575 Lexington Avenue 201 South Biscayne Boulevard New York, N.Y. 10022-6102 Suite 3000 (212) 752-9700 Miami, Florida 33131 (305) 373-9400 Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement. If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. [X] ================================================================================
CALCULATION OF REGISTRATION FEE ======================================================================================== Title of Proposed Each Class Maximum Maximum of Securities Amount Offering Aggregate Amount of To Be To Be Price Per Offering Registration Registered Registered Share/(1)/ Price/(1)/ Fee - ---------------------------------------------------------------------------------------- Units/(2)/ 1,150,000 $ 4.60 $ 5,290,000 $ 1,824.14 Common Stock underlying Units/(2)/ 1,150,000 $ /(2)/ $ /(2)/ $ None Warrants underlying Units/(3)/ 1,150,000 $ 6.00/(3)/ $ 3,450,000/(3)/ $ 1,189.66 Common Stock underlying Warrants/(4)/ 575,000 $ /(4)/ $ /(4)/ $ None Underwriter's Warrant/(5)/ 1 $ 10.00 $ 10 $ 0 Units underlying Under- writer's Warrants 100,000 $ 6.90 $ 690,000 $ 237.93 Common Stock underlying Under- writer's Warrant 100,000 $ /(5)/ $ /(5)/ $ None Warrants underlying Underwriter's Warrant/(3)/ 100,000 $ 6.00/(3)/ $ 300,000/(3)/ $ 103.45 Common Stock underlying Warrants contained in Under- writer's Warrant 50,000 $ /(4)/ $ /(4)/ $ None Common Stock offered by Selling Stock- holders 4,331,933 $ 4.50 $19,493,699 $ 6,721.82 Convertible Series A Preference Shares 1,006,979 $ 4.50 $ 4,531,406 $ 1,562.55 Common Stock reserved for Conversion of Convertible Series A Preference Shares 1,006,979 $ /(6)/ $ /(6)/ $ None -------------- Total $ 11,639.55 ==============
(ii) ================================================================================ /(1)/ Estimated solely for purposes of calculating the registration fee pursuant to Rule 457. /(2)/ Units are composed of one share of Common Stock and one Warrant to purchase one-half share of Common Stock. The amount to be registered includes 150,000 shares of Common Stock, 150,000 Warrants and 75,000 shares of Common Stock underlying the Warrants, which may be purchased by the Underwriter to cover over-allotments, if any. This amount includes 500,000 shares of Common Stock being offered by certain Initial Selling Stockholders. /(3)/ The exercise price of the Warrants has been included for purposes of calculating the registration fee. Each Warrant entitles the holder to purchase one-half share of Common Stock. /(4)/ Shares of Common Stock issuable upon the exercise of Warrants. Pursuant to Rule 457(i), no additional registration fee is required. /(5)/ The Underwriter's Warrant is composed of the option to purchase 100,000 Units. /(6)/ Shares of Common Stock issuable upon the conversion of the Series A Preference Shares, including such indeterminate number of shares of Common Stock as may be required for issuance upon conversion of the Series A Preference Shares being registered hereunder, and including such additional shares as may be issuable as a result of adjustments to the conversion price. Pursuant to Rule 457, no additional registration fee is required. The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. (iii) EXPLANATORY NOTE This Registration Statement contains two forms of prospectus: one to be used in connection with an offering of 1,000,000 Units (the "Prospectus") and one to be used in connection with the sale of Common Stock by certain selling stockholders (the "Selling Stockholder Prospectus"). The Prospectus and the Selling Stockholder Prospectus will be identical in all respects except for the alternate pages for the Selling Stockholder Prospectus included herein which are labeled "Alternate Page for Selling Stockholder Prospectus." (iv) COMMODORE HOLDINGS LIMITED CROSS-REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS OF INFORMATION REQUIRED BY ITEMS OF FORM S-1
REGISTRATION STATEMENT CAPTION OR ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS ----------------------- ---------------------- 1. Forepart of Registration Outside Front Cover Page Statement and Outside Front Cover Page of Prospectus 2. Inside Front and Outside Back Inside Front and Outside Back Cover Cover Pages of Prospectus Pages of Prospectus 3. Summary Information, Risk Factors Prospectus Summary; Summary Financial and Ratio of Earnings to Fixed Information; Risk Factors Charges 4. Use of Proceeds Use of Proceeds 5. Determination of Offering Price Front Page of Prospectus; Risk Factors; Underwriting 6. Dilution Dilution 7. Selling Security Holders Selling Stockholders 8. Plan of Distribution Underwriting 9. Description of Securities to be Description of Securities Registered 10. Interests of Named Experts and Not Applicable Counsel 11. Information with Respect to the Risk Factors; Dividend Policy; Registrant Management; Certain Tax Considerations; Business; Certain Foreign Issuer Considerations; Management's Discussion and Analysis of Results of Operations and Financial Condition 12. Disclosure of Commission Not Applicable Position on Indemnification for Securities Act Liabilities 13. Other Expenses of Issuance and Other Expenses Distribution 14. Indemnification of Officers and Indemnification of Directors and Directors Officers 15. Recent Sales of Unregistered Recent Sales of Unregistered Securities Securities 16. Exhibits and Financial Statement List of Exhibits; Financial Statement Schedules Schedules 17. Undertakings Undertakings
(v) Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any state in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state. SUBJECT TO COMPLETION, DATED May 28, 1996 -- PROSPECTUS 1,000,000 UNITS [COMMODORE LOGO] COMMODORE HOLDINGS LIMITED Commodore Holdings Limited, a Bermuda corporation (the "Company"), hereby offers for sale (the "Offering") 1,000,000 units (the "Units") of the Company. Each Unit consists of one share of Common Stock, $.01 par value per share (the "Common Stock") and one redeemable warrant to purchase one-half share of Common Stock (the "Warrants") for $6.00 per share. The Warrants are exercisable only in pairs, with two Warrants entitling the registered holder to purchase one share of Common Stock. The Warrants are exercisable for a period of four years commencing one year from the date of issuance, subject to prior redemption. The Warrants may be redeemed by the Company on 25 days' notice at any time after one year from the date of issuance for $.05 per Warrant if the closing bid price of the Common Stock exceeds $9.00 per share for 20 consecutive trading days ending not more than 15 days prior to the date of any redemption notice. See "Description of Securities - Warrants." The Common Stock and Warrants will be detachable and separately tradeable at such time as the Underwriter (as hereinafter defined) determines, in its sole discretion. See "Underwriting" and "Description of Securities - Warrants." Of the 1,000,000 shares of Common Stock underlying the Units, 500,000 shares are being sold by the Company and 500,000 shares are being sold by certain of the selling stockholders (the "Initial Selling Stockholders"). The Company will not receive any of the proceeds from the sale of Common Stock by the Initial Selling Stockholders. The share of Common Stock underlying each Unit accounts for $4.50 of the $4.60 price of each Unit. Prior to the Offering, there has been no public market for the Units, Common Stock or Warrants, and there can be no assurance that any such market will develop. The offering price for the Units has been determined by negotiations between the Company and First Hanover Securities, Inc. (the "Underwriter") and is not necessarily related to the Company's asset value, net worth or other established criteria of value. See "Underwriting." The Company has applied to The Nasdaq National Market for inclusion, respectively, of the Units, Common Stock and Warrants. The proposed trading symbols for the Units, Common Stock and Warrants are __________, __________ and __________, respectively. See "Underwriting." SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE UNITS. THE SECURITIES OFFERED HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION") OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
========================================================================================== UNDERWRITING PROCEEDS TO PRICE TO DISCOUNTS PROCEEDS TO INITIAL SELLING PUBLIC AND COMMISSIONS/(1)/ COMPANY/(2)/ STOCKHOLDERS - ------------------------------------------------------------------------------------------ Per Unit $ 4.60 $ .46 $ 4.14/(3)/ $ 4.05 Total/(4)/ $ 4,600,000 $ 460,000 $ 2,115,000 $ 2,025,000 ==========================================================================================
____________________ /(1)/ Does not include additional compensation to the Underwriter consisting of: (a) a non-accountable expense allowance equal to 3% of the gross proceeds of the Offering; (b) a five-year warrant, exercisable after one year, to purchase 100,000 Units at $6.90 per Unit; (c) a management and financial consulting agreement for a period of twenty-four months for an aggregate consideration of $48,000 payable on the closing of the Offering; and (d) a right of first refusal with respect to certain public or private sales of securities by the Company during the next one year. The Company has also agreed to pay to the Underwriter, a warrant solicitation fee of 5% under certain circumstances and to indemnify the Underwriter against certain liabilities including those arising under the Securities Act of 1933, as amended (the "Securities Act"). See "Underwriting." /(2)/ After deducting discounts and commissions payable to the Underwriter, but before payment of the Underwriter's non-accountable expense allowance and other expenses of the Offering (estimated at $449,716), payable by the Company. See "Underwriting." /(3)/ The Company will receive $4.14 in proceeds from the sale of Units in which newly issued shares constitute the underlying Common Stock, and $.09 in proceeds from the sale of Units in which the Initial Selling Stockholders' shares constitute the underlying Common Stock. Such $.09 represents the proceeds from the Warrant underlying each Unit. /(4)/ The Company has granted the Underwriter an option, exercisable for 30 calendar days after the closing of the Offering (the "Closing"), to purchase up to 150,000 additional Units, upon the same terms and conditions set forth above, solely for the purpose of covering over- allotments, if any (the "Over-Allotment Option"). If the Over-Allotment Option is exercised in full, the total Price to Public, Underwriting Discounts and Commissions, and Proceeds to the Company will be $3,040,000, $304,000 and $2,736,000, respectively. All shares of Common Stock underlying the Units comprising the Over-Allotment Option will be sold by the Company. Accordingly, no proceeds from the sale therefrom will be paid to the Initial Selling Stock holders. See "Underwriting." The Units are offered by the Underwriter on a firm commitment basis, subject to prior receipt and acceptance, the approval of certain legal matters by counsel and prior sale, when, as and if issued. The Underwriter reserves the right to withdraw, cancel or modify the Offering and to reject any order, in whole or in part. It is expected that delivery of the certificates representing the Units will be made against payment therefor at the offices of the Underwriter, 100 Wall Street, New York, New York on or about ____________, 1996. FIRST HANOVER SECURITIES, INC. LOGO The date of this Prospectus is ____________, 1996 [INSIDE FRONT COVER PAGE] This Prospectus also relates to the offer and sale by certain persons (the "Selling Stockholders") of up to 5,338,912 shares of Common Stock, which include 1,006,979 shares of Common Stock, which presently may be issued upon the conversion of the Company's Convertible Series A Preference Shares (the "Series A Preference Shares"). All of the Selling Stockholders are prohibited from selling any of such shares for a period of one year without the prior written consent of the Underwriter. See "Concurrent Registration of Common Stock." IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. ENFORCEABILITY OF CIVIL LIABILITIES UNDER UNITED STATES FEDERAL SECURITIES LAWS The Company is a Bermuda company and certain of its directors are residents of jurisdictions outside the United States. All or a substantial portion of the assets of such directors and of the Company are or may be located in jurisdictions outside the United States. Therefore, it ordinarily could be difficult for investors to effect service of process within the United States on any of these parties who reside outside the United States or to recover against them on judgments of U.S. courts predicated upon civil liability under the U.S. federal securities laws. The Company has been advised by its legal advisor in Bermuda, Richards, Francis & Francis, that the United States and Bermuda do not have a treaty providing for the reciprocal recognition and enforcement of judgments (other than arbitration awards) in civil and commercial matters. Therefore, a final judgment for the payment of money rendered by any federal or state court in the United States based on civil liability, whether or not predicated solely upon the U.S. federal securities laws, would not be automatically enforceable in Bermuda. However, a final and conclusive judgment of a state or federal court of the United States under which a sum of money is payable (not being a sum payable in respect of taxes or other charges of a like nature, in respect of a fine or penalty, or in respect of multiple damages as defined in The Protection of Trading Interests Act 1981 Bermuda) may be the subject of enforcement proceedings in the Supreme Court of Bermuda under the common law doctrine of obligation by action for the debt evidenced by the United States court's judgment. On general principles, such proceedings should be successful upon proof that the sum of money is due and payable, and without having to prove the facts supporting the underlying judgment, provided that (i) such court had proper jurisdiction over the parties subject to such judgment, (ii) such court did not contravene the rules of natural justice of Bermuda, (iii) such judgment was not obtained by fraud, (iv) the enforcement of the judgment would not be contrary to the public policy of Bermuda, (v) no new admissible evidence relevant to the action is submitted prior to the rendering of the judgment by the courts of Bermuda and (vi) due compliance was made with the correct procedures under the laws of Bermuda. Based on the foregoing, there can be no assurance that U.S. investors will be able to enforce in Bermuda judgments in civil and commercial matters obtained in any federal or state court in the United States. A Bermuda court may impose civil liability on the Company or the Company's directors or officers in a suit brought in the Supreme Court of Bermuda against the Company or such persons with respect to a violation of U.S. federal securities laws, provided that the facts surrounding such violation would constitute or give rise to a cause of action under Bermuda law. 2 PROSPECTUS SUMMARY The following is a summary of certain information contained in this Prospectus and is qualified in its entirety by the more detailed information and financial statements, including the notes thereto, appearing elsewhere in this Prospectus. As used in this Prospectus, (i) all references to "U.S." mean the United States of America, its states, its territories, its possessions and all areas subject to its jurisdiction; (ii) references to a "fiscal" year or references to the Company's operating results and other data in respect of a specific year shall be references to the year ended September 30; and (iii) the source of all industry data except where otherwise indicated is as reported by Cruise Lines International Association ("CLIA"), an industry trade group, without any independent verification. References in this Prospectus to the Company include references to the Company's subsidiaries whenever appropriate. THE COMPANY GENERAL Commodore Holdings Limited, a Bermuda exempted company (the "Company"), owns two cruise ships, the S/S Enchanted Isle (the "Enchanted Isle") and the S/S Universe Explorer (formerly the S/S Enchanted Seas) (the "Universe Explorer" or the "Enchanted Seas"). The Enchanted Isle offers Caribbean cruises from New Orleans and the Universe Explorer is chartered to Sea-Comm, Ltd., a Liberian corporation ("Sea-Comm"), a joint venture between the Company and Seawise Foundation, Inc. ("Seawise"), which in turn has space-chartered the vessel to Seawise, which operates the educational "Semester at Sea" program during a portion of the year. Sea-Comm will operate cruises to Alaska aboard the Universe Explorer during the balance of the year. The Company acquired the Enchanted Isle and the Enchanted Seas in July 1995 from Commodore Cruise Line Limited, a Cayman Islands Company and certain of its subsidiaries ("Old Commodore"). Since April 1995, the Enchanted Isle has offered seven day cruises from New Orleans to the Western Caribbean with ports-of-call at Cancun, Cozumel, Grand Cayman and Montego Bay (alternately, Key West). It is a 23,395 gross registered ton cruise vessel, has nine passenger decks, a capacity of approximately 729 passengers in 366 cabins (on a double occupancy basis), is of Panamanian registry and was built in 1958. The Enchanted Isle is designed to be a seagoing resort containing a casino, nightclub, movie theater, swimming pool, restaurants, workout room, sundeck and deck activities. Old Commodore acquired the Enchanted Isle in May 1989, and from May 1989 until May 1993, the Enchanted Isle was operated as a cruise ship. From May 1993 until August 1994, Old Commodore chartered the Enchanted Isle to an entity which operated it as a floating hotel in St. Petersburg, Russia. The ship was then removed from service before being renovated between August 1994 and December 1994 and returned to Caribbean cruise service. In December 1994, while on a cruise to Barbados, the cruise vessel caught fire near San Juan, Puerto Rico and was out of service for repair until February 1995 when it began an itinerary from Barbados to ports-of-call in the Caribbean. In April 1995, the Enchanted Isle was repositioned to New Orleans. Revenues from the Enchanted Isle are derived from ticket sales and from certain on-board activities and services operated by the Company including casino gambling, liquor sales in a variety of bars, restaurants, lounges, and a discotheque. Additional revenue is earned from the sale of pre- 3 and post-cruise packages in the vessel's city of embarkation. The Company earns concession revenue from duty-free shops, gift shops, the sale of photographs to passengers, shore excursions and from the beauty salon. See "Business - On- Board and Other Revenues." The Universe Explorer is a 23,900 gross registered ton cruise vessel, has nine passenger decks, a capacity of approximately 739 passengers in 363 cabins (on a double occupancy basis), is of Panamanian registry and was built in 1958. The Universe Explorer was designed to be a seagoing resort containing a casino, discotheque, movie theater, library, reading room, restaurants, full service communication facilities, two pools, jogging course, aerobic classes, workout room, sun deck areas and deck activities. Old Commodore acquired the Enchanted Seas in May 1989. The Enchanted Seas operated as a cruise ship on different itineraries between May 1989 and April 1995. The Enchanted Seas was then laid up and placed in drydock for maintenance and refurbishing between April 1995 and January 1996. During this time, the Company renovated portions of it to prepare it for use both as a cruise vessel and for use in the Semester at Sea program. The Company removed the vessel's casino to install a library, and installed various partitions so that certain lounges and dining areas could be easily converted to classrooms when needed for the Semester at Sea program and returned to their prior state when used for cruises. The Company also renamed the vessel the "Universe Explorer." See "Business - The Joint Venture." Revenues from the Universe Explorer are derived from charter revenue. Sea- Comm derives revenues from different sources depending on whether the vessel is being used as a cruise vessel or for the Semester at Sea program. Cruise revenues include those from ticket sales and certain on-board activities and services such as beverage sales, shore excursions, and concession revenue. Revenues from the Semester at Sea program are derived from space charter fees and ticket sales to adult (non-student) passengers, who may represent up to 24% of the passengers on each voyage. Seawise has guaranteed ticket sales to 60 adult passengers on each voyage during 1996, which number increases in subsequent years. Additional revenue is earned from beverage and snack bar sales and from other miscellaneous on-board services. See "Business - The Joint Venture", "Business - Ticket Revenues" and "Business - On-Board and Other Revenues." Cruises in general are differentiated primarily by cruise cost, length and itinerary. Segments within the cruise industry include the standard, premium and luxury cruises, each of which, the Company believes, appeals to different population segments and attracts varying demographic groups. The standard market, in which the Company competes, is the largest of the three segments, comprising approximately 55% of industry-wide capacity. See "Business - Market Position." The Company believes that the Semester at Sea program is unique, and to its knowledge, the Universe Explorer is the only such floating university in the world. The program competes indirectly, however, with land-based semester or year abroad programs offered to college students. See "Business - Competition." The Company was incorporated in Bermuda on April 13, 1995. The executive offices of the Company are located at 4000 Hollywood Boulevard, Suite 385, South Tower, Hollywood, Florida 33021, and its telephone number is (954) 967-2100. 4 THE COMMODORE ACQUISITION The Company and its wholly-owned subsidiaries were established for the purpose of acquiring certain assets (the "Commodore Acquisition") of an existing cruise line operation from Old Commodore. The Commodore Acquisition included the trade names "Commodore" and "Commodore Cruise Line" ("Commodore"), as well as certain related trade names and trademarks (collectively, the "Trademarks"), the Enchanted Isle and the Enchanted Seas, and all of Old Commodore's existing operations with regard to the Enchanted Isle and the Enchanted Seas (together the "Cruise Ships"), including certain advance ticket sales, marketing and sales information, and certain shoreside assets (collectively, the "Commodore Assets"). The Company closed the Commodore Acquisition on July 14, 1995 (the "Commodore Closing"). The purchase price for the Commodore Assets was $33,500,000. The Company paid $5,000,000 to Old Commodore, which represented the cash portion of the purchase price. In addition, the Company issued 1,000,000 shares of its convertible series A preference shares (the "Series A Preference Shares") at an agreed value of $4.00 per share to EffJohn International B.V. ("EffJohn"), the parent company of Old Commodore, as partial payment of the purchase price. EffJohn International Cruise Holdings, Inc. (the "Lender"), an affiliate of EffJohn, loaned the balance of the purchase price, $24,500,000, to the Company (the "Loan"), which is secured by substantially all of the assets of the Company's wholly-owned subsidiary New Commodore Cruise Line Limited, a Bermuda exempted company ("New Commodore"), including first preferred ship's mortgages on the Cruise Ships. For additional terms of the Commodore Acquisition, see "Business - The Commodore Acquisition." References herein to the operations of the Company are to the historical operations of Old Commodore prior to the Commodore Closing and to those of the Company subsequent thereto. THE OFFERING Securities Offered............ 1,000,000 Units. Each Unit consists of one share of Common Stock and one Warrant to purchase one- half share of Common Stock. See "Description of Securities." Terms of Warrants............ The Warrants are exercisable only in pairs, with two Warrants entitling the holder to purchase one share of Common Stock for an exercise price of $6.00 per share commencing one year after the date of this Prospectus and terminating five years after the date of this Prospectus (the "Expiration Date"), subject, in certain circumstances, to earlier redemption by the Company. The exercise price and number of shares issuable upon exercise of the Warrants are subject to adjustment in certain circumstances. The Warrants will be detachable from the Common Stock and separately tradeable at such time as the Underwriter 5 determines, in its sole discretion. See "Description of Securities - Warrants." Common Stock Outstanding Prior to Offering/(1)(2)/..... 4,931,933 shares of Common Stock. Common Stock to be Outstanding After the Offering/(1)(2)(3)/........... 5,431,933 shares of Common Stock and warrants to purchase 1,575,000 shares of Common Stock (assuming the Underwriter does not exercise the Over-Allotment Option.) See "Management," "Principal Stockholders" and "Certain Transactions." Warrants Outstanding Prior to Offering/(4)/............. 1,075,000 warrants. Warrants to be Outstanding After the Offering/(5)/...... 1,000,000 Warrants and 1,075,000 warrants. Series A Preference Shares Outstanding/(6)/............. 1,006,979 shares. Use of Proceeds............... The net proceeds to the Company from the sale of the Units will be $1,665,284, after deducting commissions and expenses of the Offering estimated at $684,716. The Company intends to use the net proceeds of this Offering for renovations to its vessels and for working capital purposes. See "Use of Proceeds." Risk Factors.................. An investment in the Units is speculative and involves a high degree of risk and should not be purchased by anyone who cannot afford the loss of his entire investment. See "Risk Factors" and "Dilution." Proposed Nasdaq National Market Symbols/(7)/.......... Units - ____________ Common Stock - ____________ Warrants - ___________ ____________________ /(1)/ Does not include an aggregate of 500,000 shares of Common Stock reserved for issuance upon the exercise of options available for future grant under the Company's stock option plan (the "Plan"). See "Management - Stock Option Plan." 6 /(2)/ Does not include the Series A Preference Shares, which are currently convertible into shares of Common Stock at the conversion rate of the higher of US$4.00 or eight times the annual primary earnings per share of Common Stock for the previous fiscal year. /(3)/ Does not include 225,000 shares of Common Stock issuable upon exercise in full of the Over-Allotment Option and the Warrants and underlying shares of Common Stock included therein, or 150,000 shares of Common Stock issuable upon exercise of the Underwriter's Warrant and the shares of Common Stock underlying the Warrants contained therein. See "Underwriting." /(4)/ These warrants do not contain the same terms as the Warrants offered herein. See "Description of Securities." /(5)/ Does not include 150,000 Warrants underlying the Units in the Over- Allotment Option or 100,000 Warrants underlying the Units in the Underwriter's Warrant. /(6)/ Convertible into Common Stock at the conversion rate of the higher of US$4.00 or eight times the annual primary earnings per share of Common Stock for the previous fiscal year. See "Description of Securities - Series A Preference Shares." /(7)/ The proposed symbols do not imply that a liquid and active market will develop or be sustained for the securities upon completion of the Offering. 7 SUMMARY FINANCIAL INFORMATION The following summary financial information has been extracted from, and should be read in conjunction with, the Consolidated Financial Statements and related Notes thereto of the Company and the Combined Financial Statements of the S/S Enchanted Seas and S/S Enchanted Isle, operating units of EffJohn International B.V. (the "Predecessor") included elsewhere in this Prospectus. Pro forma information is presented assuming the acquisition of the Cruise Ships and the associated secured indebtedness, and the elimination of the redemption feature of the Series A Preference Shares, as of October 1, 1994. (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
New Commodore New Period Pro forma Predecessor Commodore Predecessor Ended Year Ended Six Month Ended Years Ended December 31, September 30, September 30, March 31, ----------------------------------------------- ------------- ------------- ----------------------- INCOME STATEMENT DATA: 1991 1992 1993 1994 1995(1) 1995 1995 1996 ----------- ----------- ---------- ---------- ------------- ----------- ------------ ----------- (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) Total revenues $ 60,465 $ 54,368 $ 45,650 $ 41,860 $ 7,256 $ 35,075 $ 17,606 $ 19,174 Operating expenses 45,705 44,229 34,265 28,527 4,941 34,704 18,244 13,955 Selling & administrative expenses 12,261 11,114 6,833 6,484 1,664 9,899 5,609 3,766 Depreciation and amortization 5,139 5,530 4,903 3,599 198 1,693 1,780 620 Interest Expense, net 3,277 1,980 1,682 1,294 133 1,929 1,367 486 Write-off of goodwill - - 6,023 - - - - - Other Income - - - - - 4 - (341) Loss on Vessel Fire - - - 1,367 - - 1,367 - Minority interest in earnings of consolidated joint venture - - - - - - - 412 Net earnings (loss) before tax (5,917) (8,485) (8,056) 589 320 (13,154) (10,761) 276 Provision for taxes - - - - 8 - - - Net earnings (loss) before $(5,917) $(8,485) $(8,056) $ 589 $ 312 $(13,154) $(10,761) $ 276 preferred stock dividend Provision for preferred stock dividend - - - - 60 280 - 140 Net earnings (loss) available for Common Stockholders $(5,917) $(8,485) $(8,056) $ 589 $ 252 $(13,434) $(10,761) 136 ======= ======= ======= ========= ======= ======== ======== ======= Net earnings (loss) per share(2)(3) -- -- -- -- 0.06 (2.59) .03 ======= ======= ======= ========= ======= ======== ======= Average shares outstanding (000's) 4,378 5,185 5,185 ======= ======== ======= BALANCE SHEET DATA: Property and equipment, net of depreciation $ 37,565 $33,085 $37,450 Total assets $ 40,232 $44,097 $47,751 Total borrowings $ 30,020 $28,500 $24,367 Total stockholders' equity (deficit) ($ 5,585) $ 8,519 $ 8,795
____________________ (1) The period is from April 13, 1995 (date of inception) through September 30, 1995; however, the Company commenced cruise operations on July 15, 1995 when the Company acquired the vessels. (2) Net earnings (loss) per common equivalent share is based upon the weighted average number of shares and equivalents outstanding during each period after giving effect for dividends on the Series A Preference Shares. (3) Earnings per share does not apply to fiscal years 1991-1994 and the six months ended March 31, 1995 because during such periods Old Commodore was an operating unit of EffJohn International B.V. 8 RISK FACTORS THE SECURITIES OFFERED HEREBY ARE HIGHLY SPECULATIVE AND SHOULD BE PURCHASED ONLY BY PERSONS WHO CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT IN THE COMPANY. EACH PROSPECTIVE INVESTOR SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS, AS WELL AS ALL OTHER INFORMATION SET FORTH ELSEWHERE IN THIS PROSPECTUS. 1. LACK OF OPERATING HISTORY OF THE COMPANY; LACK OF EXPERIENCE OF MANAGEMENT The Company was formed in April 1995 for the purpose of acquiring the Commodore Assets. Although certain members of the Company's management have experience in the operation of cruise ship lines while in the employ of others, a number of members of the Company's management lack such experience, and those members of management with such experience have not necessarily worked together as a management team previously. In addition, although the Cruise Ships have an audited operating history, such operating history may not be indicative of the results of the Company if the Company's cost structure and planned operations vary from that of the Predecessor. Accordingly, prospective investors should recognize that as a new venture, the Company lacks a substantial operating history, as a result of which no assurance can be given as to its ability to operate profitably or to sustain profitability if achieved. See "Management's Discussion and Analysis of Results of Operations and Financial Condition," "Management," "Consolidated Financial Statements" and "Combined Financial Statements." 2. HISTORY OF LOSSES; WORKING CAPITAL DEFICITS During the six months ended March 31, 1996, the Company had net income of $275,708 resulting, in large part, from $425,000 in revenue from the cancellation of a charter agreement with an affiliate, as well as $340,000 in other income. Absent such revenue, the Company would have incurred a net loss for this period. During the five and one-half month period ended September 30, 1995, the Company had net income of $311,535, which also resulted, in large part, from $425,000 in revenue from the cancellation of a charter agreement with an affiliate. Absent such revenue, the Company would have incurred a net loss for the five and one-half month period ended September 30, 1995 as well. Moreover, for the six and one-half month period ended July 14, 1995, the Predecessor incurred a net loss of $17,093,049. For the years ended December 31, 1994 and 1993, the Predecessor earned income of $589,151, and incurred a net losses of $8,056,183, respectively. Furthermore, the Company also had a working capital deficiency at March 31, 1996 of $5,078,070. There can be no assurance as to when, if ever, the Company will achieve profitability. See "Business," "Consolidated Financial Statements" and "Combined Financial Statements." 3. NEED FOR ADDITIONAL FINANCING The Company estimates that the net proceeds of the Offering and operating cash flow from the Cruise Ships will be sufficient to satisfy its anticipated cash requirements for a period of approximately 12 months following the consummation of the Offering. In the event that such proceeds prove to be insufficient, and the Company does not generate sufficient cash flow from operations to satisfy cash requirements, the Company may find itself in a position in which it may 9 be required to seek additional equity or debt financing to support its ongoing operations. No assurance can be given that such funds, if required, will be available on terms that are satisfactory to the Company, if they are available at all. If the Company is unable to obtain such financing when needed, it might default under the Loan, cause the Cruise Ships to be foreclosed upon and cease its operations. See "Use of Proceeds" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." 4. SUBSTANTIAL INDEBTEDNESS; EXISTENCE OF LIENS ON ALL ASSETS Upon the Commodore Closing, the Company became indebted to the Lender in the amount of U.S. $24,500,000 (the "Acquisition Indebtedness"), which indebtedness is secured by a lien on substantially all of New Commodore's assets. While the Acquisition Indebtedness may increase the potential return on invested capital, it also presents additional elements of risk, including the following: (i) the Company's ability to obtain additional financing in the future for working capital, capital expenditures, ship and other acquisitions, general corporate purposes or other purposes may be impaired; (ii) a substantial portion of the Company's cash flow from operations must be dedicated to the payment of the principal and interest on its indebtedness and if such funds are insufficient the Company will be forced to raise additional funds or curtail activities such as marketing; (iii) the Company's degree of leverage may make it more vulnerable to economic downturns and may limit its ability to withstand competitive pressures; and (iv) the Company's borrowing at variable rates of interest will subject the Company to fluctuations in interest rates. Moreover, to the extent that the Company's assets continue to be pledged to secure the Acquisition Indebtedness, such assets will be unavailable to secure additional debt financing, which may adversely affect the Company's ability to borrow in the future. A substantial portion of the Company's cash flow will be used for debt service. If the Company fails to satisfy obligations with respect to the Acquisition Indebtedness, including without limitation making required payments of principal and interest, the Acquisition Indebtedness could be declared in default and the Company's assets foreclosed upon. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "The Company - - The Commodore Acquisition." 5. EXEMPTION FROM CERTAIN U.S. INCOME TAXES The Company is a foreign corporation which is engaged in a trade or business in the United States. The Internal Revenue Code of 1986, as amended (the "Code") provides a complex set of tax rules concerning the taxation of foreign corporations engaged in business in the United States. Under these rules, such a foreign corporation may be subject to various U.S. taxes, including the regular U.S. corporation income tax (or alternative minimum tax); an additional branch profits tax; a gross basis tax on certain gross rentals derived from bareboat charters of ships to affiliated or unaffiliated companies; and branch taxes on certain interest paid or accrued. The Company expects that, unless and except to the extent that it qualifies for the tax exemption provided by Code sec tion 883(a), it will be subject to these U.S. income taxes. The Company anticipates that upon completion of this Offering it will qualify for this exemption because Code section 883(c) generally makes eligible for the Code section 883(a) exemption wholly-owned foreign subsidiaries of a foreign corporation, provided that both the country of incorporation of the foreign subsidiary, and the country of incorporation of the foreign parent, reciprocally exempt the international shipping income of U.S. shipping corporations, and the foreign --- 10 parent's stock is primarily and regularly traded on an established securities market in the United States or in certain foreign countries. However, there is no assurance that the Company will successfully complete this Offering. Even if this Offering is completed, there are certain events, such as decline in the market value of the Company's Common Stock relative to the value of its Series A Preference Shares, a de-listing from Nasdaq, a change in the Bermuda or Panama tax laws governing shipping income, or a change in Code section 883(a) or regulations issued thereunder, which could cause the Company to not qualify for the reciprocal exemption provided by that section. Therefore there can be no absolute assurance that the corporate tax exemption provided by Code section 883(a) will be available. See "Certain Tax Considerations - Taxation of the Company - Possible U.S. Tax Exemption under Section 883(a) of the Code." 6. COMPETITION The cruise line industry is extremely competitive. The Company operates in the Gulf of Mexico, the Caribbean and in Alaska, and competition for passengers in such geographic areas is intense. The Company competes with other cruise ship lines in the standard segment that offer the same type of products in several markets, and land-based resorts, many of which have significantly greater financial resources and experience, and are more well known than the Company. The Company competes with its competitors principally on the basis of quality of service, type and variety of itineraries and price. In particular, since the Company presently has only two vessels, with limited itineraries, it may be disadvantaged in attracting passengers. Fixed costs represent the major portion of a cruise line's operating expenses and cannot be reduced when competition causes a reduction in load factors or ticket prices. In addition, cruise demand declined slightly during 1994 and 1995 for the first time in several years. As a result, there can be no assurance that satisfactory occupancy percentages will be reached and maintained or that the Company will be able to sustain or enhance any penetration and competitive position. Recent statistics indicate that the larger cruise lines are increasing existing capacity by acquiring new ships, making it very difficult for smaller operators, such as the Company, to compete with the glamorous new ships for passengers. Industry sources predict that the increase in capacity will not be matched by a sufficient increase in passenger volume and that the older ships will not operate at full capacity. Various articles concerning the cruise line industry note that this trend is expected to continue in the foreseeable future. If this trend continues, the Company's ability to compete with these larger operators may be substantially impaired. Although the Company believes that the Universe Explorer offers the only ocean-going accredited educational program, such as the Semester at Sea program, this program competes for student passengers with operators of land- based university programs, such as semesters abroad. Many of these universities have substantially greater experience and resources than the operators of the Semester at Sea program. In addition, the Semester at Sea program competes for adult passengers with extended cruise providers, such as freighters which offer passenger quarters. In the event such programs are not successful, the operator could, in certain circumstances, cancel the charter of the Universe Explorer, and the Company would have to seek another use of this vessel. There can be no assurance that the Company could successfully identify a profitable alternative for such vessel. 11 7. THE CRUISE SHIPS; PURCHASE OF COMMODORE ASSETS "AS IS" The Enchanted Isle underwent an overhaul and refitting from August 1994 until December 1994. The Company just completed a substantial overhaul on the Universe Explorer to prepare it for the Semester at Sea program. There can be no assurance, however, that required drydock maintenance will be completed in the future on a timely basis. Delays in completing future maintenance may be caused by technical matters, strikes, acts of God, or negligence. The Cruise Ships were built in 1958. Their age makes them particularly susceptible to this risk. In the event of any such delay, the Company would likely lose substantial revenue while such vessel was out of service. Although the Company has obtained insurance to recover lost revenues when either of the Cruise Ships is out of service due to a covered event for more than two weeks, there can be no assurance that insurance proceeds will be adequate to cover the Company's losses. Moreover, the Company acquired the Commodore Assets "AS IS", and thus did not receive any assurances from EffJohn as to the condition of the Commodore Assets. The Company did, however, have a professional surveyor survey the Cruise Ships and EffJohn was obligated to deliver them to the Company in substantially the same condition as each vessel was in at the time of its inspection. In addition, EffJohn was obligated to perform specified maintenance and repairs on the Universe Explorer and deliver this vessel to the Company upon satisfactory completion of such repairs as confirmed by the vessel's classification society. Each vessel was inspected by its respective classification society prior to delivery to the Company and was delivered up to its class standards. Despite these inspections, deficiencies in one or both of the vessels may exist which were not noted by the surveyor. In addition, although management of the Company has attempted to review the operations of Old Commodore and the other assets of Old Commodore which the Company acquired, it may not have uncovered all material problems or defects which exist with respect to the Commodore Assets. If the Company discovers any such defects or deficiencies with respect to the Commodore Assets, including the vessels, in the future, it will not have any recourse against EffJohn or Old Commodore, and will have to bear any such loss without contribution from such entities. See "Business - The Commodore Acquisition." 8. GOVERNMENT REGULATION The Cruise Ships are registered in Panama, and are subject to regulations issued by Panama, including regulations issued pursuant to international treaties governing the safety of the ships and its passengers. The country of registry will conduct periodic inspections to verify compliance with these regulations. The United States Coast Guard periodically carries out Port State control verification of the condition of the Cruise Ships and their compliance with international and Panama regulations, as permitted under international treaties. The Company believes that the Cruise Ships are in substantial compliance with all applicable regulations and that they have the licenses necessary to conduct their business; however, there can be no assurance that the Cruise Ships comply with all such regulations. The Company is also subject to international treaties prohibiting ocean dumping and to various U.S. laws and regulations relating to environmental protection. Under such laws and regulations, the Company will be prohibited from, among other things, discharging materials, such as petrochemicals and plastics, into the waterways. The Company has obtained insurance against the costs of environmental damage due to oil pollution occasioned at, or in transit to, sea. However, 12 the civil and criminal fines that may be imposed for environmental damage or for illegal ocean dumping are not and cannot be insured against and the Company remains exposed to this risk although the Company does have and expects to continue regular training and to maintain established procedures to prohibit and prevent the discharge or dumping of prohibited substances. Although the financial costs relating to U.S. environmental laws and regulations are not expected to have a material adverse impact on the Company's results of operations, financial condition or liquidity, there can be no assurance that an uninsured loss will not occur. The Company believes that it is in substantial compliance with all regulations applicable to the operation of the Cruise Ships and has the licenses necessary to conduct its business, however, there can be no assurance thereof. From time to time, legislation has been introduced and new regulations proposed which could have an impact upon the Company's operations. During recent years, the International Convention on Safety of Life at Sea ("SOLAS") has been amended and will, among other things, require most passenger vessels not fitted with sprinkler systems to install such systems and other safety arrangements, including smoke detection systems, low-location lighting and enclosed escape stairwells, by October 1997. In the event a vessel meets certain requirements under SOLAS as amended through 1974, but without reference to any subsequent amendments thereto ("SOLAS 1974"), it will not be required to be fitted with a sprinkler system or to make other required safety modifications until on or before October 1, 2005. The Cruise Ships are not currently fitted with sprinkler systems. The Company believes that the Cruise Ships meet the necessary requirements under SOLAS 1974 and thus that it will not have to fit them with sprinkler systems or make other modifications until October 1, 2005. Neither the U.S. Coast Guard nor either of the Cruise Ships' classification societies has definitely confirmed that the Cruise Ships meet the SOLAS 1974 requirements. Thus, there is a risk that the Company will have to install such systems and make such modifications aboard the vessels in 1997. The cost of such installation and modifications is presently estimated to be approximately $3,000,000 per vessel. The Company has not set aside or otherwise anticipated where it will obtain such funds if it must meet the 1997 deadline. In addition, the installation of the sprinkler systems could require that the Cruise Ships be out of service for approximately three months with the attendant loss of revenue. The installation of sprinkler systems aboard the Cruise Ships in 1997, if required, could have a material adverse effect on the financial condition of the Company. There have been efforts in prior Congresses to adopt bills that would apply United States labor laws to non-resident alien crews of foreign registered ships sailing from U.S. ports and to exclude certain foreign-built ships from U.S. ports if they received construction subsidies of a particular type. With respect to the ship construction subsidies, the Cruise Ships are U.S. built and thus would be at risk to such legislation only if it were to apply to conversion and maintenance work performed on the vessels in foreign countries. The application of U.S. labor laws to foreign-registered passenger ships would have a very substantial impact on the cruise industry as a whole and the Company cannot predict the implications on its operations. Such proposed legislation is not presently under consideration by the 104th Congress, but there can be no assurance that it will not be re-introduced. See "Business - Government Regulation." 13 9. INTERNATIONAL FACTORS The Company's itineraries typically include ports outside the U.S. Thus, the Company and its business may be affected by the risks of doing business abroad, including changes in foreign governments, foreign laws and regulations, economic and political conditions, restrictions on currency transfer, exchange fluctuations, currency devaluations, customs duties, tariffs, import quotas and other possible adverse regulations, which could result in increased costs, delayed or reduced revenues from foreign operations, adverse effects on the Company's ability to generate revenue and other adverse consequences. See "Business - Government Regulation." 10. NO DIVIDENDS To date, the Company has not paid any dividends on its Common Stock and does not expect to declare or pay dividends on the Common Stock in the foreseeable future. The Loan documents and the terms of the Series A Preference Shares contain additional restrictions on the Company's ability to pay a dividend on the Common Stock. See "Business", "Description of Securities - Series A Preference Shares" and "Dividend Policy." 11. JOINT VENTURE RISKS Pursuant to the agreement governing the joint venture between the Company and Seawise (the "Agreement"), Seawise has the right to terminate the Agreement, and thus the Company's charter of the Universe Explorer for use in the Semester at Sea and Alaska cruise programs, on 15 months' notice at any time after January 14, 1999. In the event Seawise terminates the Agreement, there can be no assurance that the Company will find an acceptable alternate use for the Universe Explorer. See "Business - The Joint Venture." 12. DAMAGE TO OR DESTRUCTION OF THE CRUISE SHIPS The Company's profitability is dependent on the operation of the Cruise Ships. If either of the Cruise Ships were to be damaged due to a hurricane, storm, or other natural disaster or for some other reason, the Company's operations could be terminated until such Cruise Ship was repaired or replaced. Furthermore, such repairs or replacement could be delayed if funds are not available to pay for such repairs or replacement. The Company maintains hull and machinery insurance as well as increased value insurance on both the Universe Explorer and the Enchanted Isle, as required by the terms of the Loan, as well as loss of hire insurance to cover loss of revenues in certain situations. See "Business - Insurance." Despite such insurance coverage, there can be no assurance that the insurance proceeds will be sufficient to fully compensate the Company for its losses. See "Business - Insurance." 13. CERTAIN BUSINESS RISKS The Company's operations may be adversely affected by numerous other factors, including, among others, labor disturbances or strikes, either by shipboard employees or land based personnel, government regulatory orders or rules, or the failure of its reservations system. The Company's activities will also be subject to risks generally associated with the operation of a business, including changes in general and local economic conditions, fiscal policies affecting the 14 business and related industries, acts of God and other factors which are beyond the control of the Company. Finally, the Company's business will be faced with risks generally found in the cruise business, such as fluctuations in the cost of fuel, claims for property damage or personal injury to passengers or crew. The Company has obtained insurance to protect it against these types of claims, but there can be no assurance that such insurance will provide coverage for all types of claims or that the amount of coverage will be sufficient in all cases. See "Business-Insurance." 14. TRADEMARK PROTECTION The Company owns the Trademarks, which include Commodore Cruise Line and the distinctive Commodore logo. The Company believes that the Trademarks are widely recognized and have considerable value, of which no assurance can be given. The Company has not yet recorded the transfer of certain of its foreign Trademarks to it due to the substantial cost involved and the potentially limited value of certain of such Trademarks. The Company is not aware of any actions against its Trademarks and, to the Company's knowledge, no notice or claim of infringement in respect of its Trademarks exists. There can be no assurance that the Company's Trademarks do not violate the proprietary rights of others, that they would be upheld if challenged, that the Company would not, in such an event, be prevented for using the Trademarks or that its failure to record the transfer of certain of its foreign Trademarks will not have an adverse effect on the Company. See "Business - Trademark Protection." 15. RELIANCE ON CURRENT MANAGEMENT The Company's operations and future success are greatly dependent upon certain members of its senior management, particularly the services of its Vice- Chairman, Frederick A. Mayer, New Commodore's President, James R. Sullivan, and New Commodore's Chief Financial Officer, Alan Pritzker. Mr. Mayer, Mr. Sullivan and Mr. Pritzker have executed employment agreements with New Commodore; however, the Company does not maintain key-man life insurance on any of their lives. The termination of any of their employment or loss of any of their services for any other reason could have a significant adverse effect upon the Company's operations. The Company's success is also dependent upon the ability of the Company to hire and retain additional financial and marketing personnel. Competition for qualified employees among cruise line companies is intense, and the inability to attract, retain and motivate additional highly skilled employees, could adversely affect the Company's business and prospects. There can be no assurance that the Company will be able to retain its existing personnel or attract additional qualified employees. See "Business - Employees" and "Management." 16. BROAD DISCRETION IN APPLICATION OF PROCEEDS A substantial portion of the net proceeds from this Offering will be applied to working capital and general corporate purposes. Accordingly, the Company will have broad discretion as to the application of such proceeds. See "Use of Proceeds." 15 17. CONTROL BY MANAGEMENT AND PRINCIPAL STOCKHOLDERS After completion of the Offering, the Company's officers and directors will own, in the aggregate, approximately 29.2% of the issued and outstanding shares of Common Stock of the Company, excluding any Common Stock which may be issued upon the conversion of the Series A Preference Shares, the exercise of the Warrants or the exercise of certain outstanding warrants to purchase Common Stock. Mr. Binder, the Chairman of the Company, and Mr. Mayer, the Vice- Chairman of the Company, will beneficially own approximately 20.3% and 9.7% of the outstanding Common Stock of the Company, respectively, excluding any shares of Common Stock which may be issued upon the conversion of the Series A Preference Shares, the exercise of the Warrants or the exercise of certain outstanding warrants to purchase Common Stock. The foregoing computations assume that none of the Company's officers or directors will purchase any Units in the Offering. In the event that any of such persons purchase Units, such ownership percentages will increase. Accordingly, management will be able to substantially influence the election of the Company's board of directors and have the ability to influence the Company's affairs and the conduct of its business. See "Management" and "Securities Ownership of Principal and Initial Selling Stockholders." 18. RIGHTS OF SECURITY HOLDERS UNDER BERMUDA LAW MAY BE LESS THAN UNDER U.S. JURISDICTIONS The Company's corporate affairs are governed by its Memorandum of Association, Bye-laws, and the corporate law of Bermuda. Principles of law relating to such matters as the validity of company procedures, the fiduciary duties of management and the rights of the Company's security holders may differ from those that would apply if the Company were incorporated in a jurisdiction within the United States. The rights of security holders under Bermuda law are not as extensive as are the rights of security holders under the law or judicial precedent in many United States jurisdictions. Thus, the holders of securities of the Company may have more difficulty in protecting their interests from actions by the Company's Board of Directors than they might have as security holders of a company incorporated in many United States jurisdictions. In addition, there is uncertainty whether the courts of Bermuda would enforce judgments of the courts of the United States and of other foreign jurisdictions. There is also uncertainty whether the courts of Bermuda would entertain actions brought in Bermuda which are predicated upon the securities laws of the United States. See "Enforceability of Civil Liabilities," "Description of Securities" and "Certain Foreign Issuer Considerations." 19. AUTHORIZATION OF PREFERENCE SHARES The Company's Bye-Laws authorize the issuance of 10,000,000 preference shares, including 9,000,000 "blank check" preference shares with such designations, rights and preferences as may be determined from time to time by the Company's Board of Directors. Accordingly, the Board of Directors is empowered, without stockholder approval, to issue additional preference shares with dividend, liquidation, conversion, voting, or other rights which could adversely affect the voting power or other rights of the holders of the Common Stock. In the event of issuance, the preference shares could be utilized, under certain circumstances, as a method of discouraging, delaying, or preventing a change in control of the Company. The Company issued 1,000,000 Series A Preference Shares to EffJohn in connection with the Commodore Acquisition. The Series A Preference Shares are convertible into Common Stock and have other rights which could discourage a takeover 16 of the Company and which could dilute the Common Stock. See "Description of Securities -Series A Preference Shares." 20. CERTAIN RIGHTS OF SERIES A PREFERENCE SHARES The Series A Preference Shares are entitled to a preference with respect to liquidation or the distribution of assets of the Company over any other shares of capital stock of the Company. In the event of any such liquidation or distribution of assets, the holders of the Series A Preference Shares will receive any accrued but unpaid dividends and USD$4.00 per Series A Preference Share before the holders of other series of preferred stock or the Common Stock receive any distribution of the Company's assets. In addition, the holders of the Series A Preference Shares are entitled to receive a dividend equal to seven percent of the issuance price of the Series A Preference Shares per annum before the Company may pay any dividends on the Common Stock. See "Dividend Policy" and "Description of Securities - Series A Preference Shares." 21. SUBSTANTIAL AND IMMEDIATE DILUTION Purchasers of Units in the Offering will suffer immediate dilution of $2.37 per share, or 52.7%, in the net tangible book value of their Common Stock from the initial public offering price of $4.60 per Unit, or $4.50 per share of Common Stock (assuming that the Warrants are valued at $.10 as of the date hereof). See "Dilution." 22. DETERMINATION OF OFFERING PRICE AND EXERCISE PRICE; NO ASSURANCE OF PUBLIC MARKET Prior to the Offering, there has been no public trading market for the Company's securities. Consequently, the initial public offering price of the Units, and the exercise price of the Warrants was determined through negotiations between the Company and the Underwriter, and bears no relationship whatsoever to the Company's asset value, book value or other such criteria of value. Factors considered in determining the offering price included, among other things, the prospects for the industry in which the Company operates, the Company's management, the general condition of the securities markets and the demand for securities in similar industries. There can be no assurance that an active trading market for any of the Company's securities will develop after the Offering or that, if developed, it will be sustained. The exercise price of the Warrants also has been determined by the Company and the Underwriter and does not relate to any recognized criteria of value. In no event should the exercise price of the Warrants be considered an indication of the future market price of the Common Stock, should a market develop therefor. See "Underwriting." 23. UNDERWRITER'S LIMITED UNDERWRITING EXPERIENCE While certain of the officers of the Underwriter have significant experience in corporate finance and the underwriting of securities, the Underwriter has previously underwritten only one public offering. Accordingly, there can be no assurance that the Underwriter's limited public offering experience will not affect the Company's Offering of the Units and subsequent development of a trading market, if any, in the Company's securities. See "Underwriting." 17 24. STOCK OPTIONS AND WARRANTS As of the date of this Prospectus, there are 500,000 shares of Common Stock reserved for issuance upon the exercise of stock options under the Plan, of which no options have been granted to date, and 1,075,000 shares of Common Stock reserved for issuance upon the exercise of outstanding warrants. In addition, the Company plans to issue 1,000,000 Warrants in connection with this Offering (an aggregate of 1,150,000 Warrants if the Over-Allotment Option is exercised in full and 100,000 Warrants which will underlie the Underwriter's Warrant). Each two Warrants entitle the holder to purchase one share of Common Stock. Exercise of any such options or warrants could have an adverse effect on the terms upon which the Company may be able to obtain additional equity, since the holders of the options and warrants can be expected to exercise them, if at all, at a time when the Company would, in all likelihood, be able to obtain any needed capital on terms more favorable to the Company than those provided in the options or warrants. See "Description of Securities" and "Underwriting." 25. SHARES ELIGIBLE FOR FUTURE SALE All of the 4,931,933 shares of Common Stock outstanding as of the date of this Prospectus are restricted securities, as that term is defined in Rule 144, promulgated under the Securities Act, and 4,831,933 of such shares have been registered for sale concurrently herewith. Except for the 500,000 shares being offered by the Initial Selling Stockholders herein as part of the Units, such shares may not be sold, transferred or otherwise disposed of for a period of one year without the prior written consent of the Underwriter. Of the 4,931,933 shares, 1,300,000 shares are owned by affiliates of the Company, as that term is defined under the Securities Act. Absent registration under the Securities Act, the sale of such shares is subject to Rule 144, as promulgated under the Securities Act. In general, under Rule 144, subject to satisfaction of certain other conditions, a person, including an affiliate of the Company, who has beneficially owned restricted shares of Common Stock for at least two years, is entitled to sell, within any three-month period, a number of shares that does not exceed the greater of 1% of the total number of outstanding shares of the same class, or if the Common Stock is quoted on Nasdaq, the average weekly trading volume during the four calendar weeks preceding the sale. A person who has not been an affiliate of the Company for at least three months immediately preceding the sale and who has beneficially owned the shares of Common Stock for at least three years is entitled to sell such shares under Rule 144 without regard to any of the volume limitations described above. No prediction can be made as to the effect, if any, that sales of shares or the availability of such shares for sale will have on the market prices prevailing from time to time. Nevertheless, the possibility that substantial amounts of Common Stock may be sold in the public market may adversely affect prevailing market prices for the Common Stock and could impair the Company's ability to raise capital in the future through the sale of equity securities. See "Shares Eligible For Future Sale." 26. NASDAQ MAINTENANCE REQUIREMENTS; POSSIBLE DE-LISTING OF SECURITIES FROM NASDAQ SYSTEM; RISKS OF LOW-PRICED STOCKS The Securities and Exchange Commission (the "Commission") has approved rules imposing stringent criteria for the listing of securities on Nasdaq, including standards for maintenance of such listing. The Company has applied for listing on The Nasdaq National Market, although it has not yet been accepted for listing on Nasdaq. Assuming the Company's securities are 18 accepted on Nasdaq, it still must meet certain maintenance criteria. If the Company is unable to satisfy Nasdaq's maintenance criteria in the future, its securities will be subject to being de-listed and trading, if any, would thereafter be conducted in the over-the-counter market in the so-called "pink sheets," or the "electronic bulletin board" of the National Association of Securities Dealers, Inc. ("NASD"). As a consequence of such de-listing, an investor could find it more difficult to dispose of, or to obtain accurate quotations as to the price of, the Company's securities. The Securities Enforcement and Penny Stock Reform Act of 1990 requires additional disclosure, relating to the market for penny stocks, in connection with trades in any stock defined as a penny stock. The Commission recently adopted regulations that generally define a penny stock to be any equity security that has a market value of less than $5.00 per share, subject to certain exceptions. Such exceptions include any equity security listed on Nasdaq, and any equity security issued by an issuer that has: (i) net tangible assets of at least $2 million, if such issuer has been in continuous operation for three (3) years; (ii) net tangible assets of at least $5 million, if such issuer has been in continuous operation for less than three (3) years; or (iii) average annual revenue of at least $6 million, for the last three (3) years. Unless an exception is available, the regulations require delivery, prior to any transaction involving a penny stock, of a disclosure schedule explaining the penny stock market and the risks associated therewith. In addition, if the Company's securities are not quoted on Nasdaq, or the Company does not have $2 million in net tangible assets, trading in the Common Stock would be covered by Rule 15g-9, promulgated under the Securities Exchange Act of 1934 (the "Exchange Act"), for non-Nasdaq and non-Exchange- listed securities. Under such Rule, broker-dealers who recommend such securities to persons other than established customers and accredited investors must make a special written suitability determination for the customer, and receive the purchaser's written agreement to a transaction prior to sale. Securities are also exempt from this Rule if the market price is at least $5.00 per share. Although the Company's Common Stock should be, as of the date of this Prospectus, outside the definitional scope of the penny stock rules, as it is proposed to be listed on Nasdaq, in the event the Common Stock is not accepted for listing on Nasdaq, or was subsequently to become characterized as a penny stock, the market liquidity for the Company's securities could be severely affected. In such an event, the regulations on penny stocks could limit the ability of broker-dealers to sell the Company's securities, and thus the ability of purchasers of the Company's securities to sell their securities in the secondary market. 27. SELLING STOCKHOLDER RISKS The Initial Selling Stockholders will sell their Common Stock pursuant to this Prospectus for $4.50 per share of Common Stock underlying each Unit, less underwriting discounts of approximately $.45 per share of Common Stock. The other Selling Stockholders may not sell their Common Stock for up to one year in the discretion of the Underwriter. As a result of such timing differences, the price per share of Common Stock received by the Initial Selling Stockholders could be materially higher or lower than that which the other Selling Stockholders receive. See "Selling Stockholders." 19 28. REQUIREMENTS TO EXERCISE WARRANTS; ADVERSE EFFECT OF REDEMPTION OF WARRANTS The Warrants, which are part of the Units offered hereby, will be detachable from the Units and separately tradeable at such time as the Underwriter determines, in its sole discretion. Although the Units will not knowingly be sold to purchasers in jurisdictions in which the Units are not registered or otherwise qualified for sale, purchasers may buy Units (or the components thereof) in the aftermarket who so reside in or move to jurisdictions in which the securities underlying the Warrants are not so registered or qualified during the period that the Warrants are exercisable. In this event, the Company would be unable to issue securities to those persons desiring to exercise their Warrants unless and until the underlying securities could be qualified for sale in the jurisdictions in which such purchasers reside, or an exemption to such qualification exists in such jurisdictions. No assurance can be given that the Company will be able to effect any such required registration or qualification. Additionally, purchasers of the Units will be able to exercise the Warrants included therein only if a current prospectus relating to the securities underlying the Warrants is then in effect under the Securities Act and such securities are qualified for sale or exempt from qualification under the applicable securities or "blue sky" laws of the states in which the various holders of the Warrants then reside. Although the Company has undertaken to use reasonable efforts to maintain the effectiveness of a current prospectus covering the securities underlying the Warrants, there can be no assurance that the Company will be able to do so. The value of the Warrants may be greatly reduced if a current prospectus covering the securities issuable upon the exercise of the Warrants is not kept effective or if such securities are not qualified or exempt from qualification in the states in which the holders of the Warrants then reside. The Warrants are also subject to redemption by the Company, commencing on the date one year from the date of this Prospectus, on at least 25 days' prior written notice if the closing bid price of the Common Stock for 20 consecutive business days ending not more than 15 days prior to the date any redemption notice exceeds $9.00 per share. If the Warrants are redeemed, holders of Warrants will lose their right to exercise the Warrants, except during such 25-day notice of redemption period. Upon the receipt of a notice of redemption of the Warrants, the holders thereof would be required to exercise the Warrants and pay the exercise price at a time when it may be disadvantageous for them to do so; sell the Warrants at the then market price (if any) when they might otherwise wish to hold the Warrants; or accept the redemption price, of $.05 per Warrant, which is likely to be substantially less than the market value of the Warrants at the time of redemption. See "Description of Securities - The Warrants." USE OF PROCEEDS The net proceeds to be received by the Company from the sale of the Units after deducting underwriting discounts and commissions and other expenses of the Offering (estimated to be 20 $449,716), are estimated to be approximately $1,665,284. The Company anticipates that the net proceeds of the Offering will be utilized substantially as follows:
Application of Proceeds Amount Percentage - ----------------------- ------ ---------- Renovations to Cruise Ships (1) $1,500,000 90% Working capital and general corporate purposes(2) $ 165,284 10%
__________________ (1) The Company plans to upgrade its vessels, cosmetically and mechanically, so that they will remain in compliance with applicable law, be more aesthetically pleasing, and operate more efficiently with the intent that they will ultimately be more profitable to the Company. (2) Working capital includes, but is not limited to, fees and expenses associated with marketing, promotion and advertising. The foregoing table represents the Company's best estimate of its allocation of the net proceeds of this Offering based upon the Company's current plans and estimates regarding its anticipated expenditures. Actual expenditures may vary substantially from these estimates, and the Company may find it necessary or advisable to use portions of the net proceeds for other purposes. The foregoing gives effect to the sale of the Units offered hereby, and the receipt of $1,665,284 of net proceeds therefrom. Pending utilization, the net proceeds of this Offering will be invested in short-term bank certificates of deposit, interest bearing savings accounts, United States government obligations or other short-term interest bearing investments. The Company believes that the net proceeds from the Offering, along with the cash flow from its operations, will be sufficient to meet its anticipated cash requirements for a period of approximately 12 months following the consummation of the Offering. DIVIDEND POLICY The payment by the Company of dividends, if any, rests within the discretion of its Board of Directors and, among other things, will depend upon the Company's earnings, capital requirements and financial condition, as well as other relevant factors. The Company has not declared any dividends on its Common Stock since its inception, has no present intention of paying any dividends on its Common Stock in the foreseeable future, and intends to use its earnings, if any, to generate increased growth. Pursuant to the terms of the Series A Preference Shares, the Company is required to pay the holders of the Series A Preference Shares a cumulative dividend equal to seven per cent per annum before it may pay dividends on the Common Stock. In addition, the terms of the Loan prohibit the Company from paying a dividend that exceeds 50% of the Company's net profits within eighteen 21 months following the Commodore Closing, unless the Common Stock has first been listed on Nasdaq. DILUTION At March 31, 1996, the Company had a net tangible book value of $8,330,216, or approximately $1.61 per share of Common Stock. The net tangible book value per share is equal to the Company's tangible assets less its total liabilities, divided by the number of shares of Common Stock outstanding on such date (attributing $4.50 of the Unit purchase price to each share of Common Stock sold as a component of the Unit). Assuming that the 1,006,979/(1)/ Series A Preference Shares were included in stockholders equity, the net tangible book value would be $12,330,216 or $1.99 per share. For purposes of calculating dilution, all Warrants offered hereby were deemed not to have been exercised because exercise would be anti-dilutive. The net tangible book value after the Offering (after deducting the underwriting discount and other expenses of the Offering) will be $14,235,422, or $2.13 per share, representing an immediate increase in net tangible book value of $0.14 per share of Common Stock to the existing stockholders and an immediate dilution of $2.37 per share of Common Stock, or 52.7%, to new investors. "Dilution" is the difference between the initial public offering price and the net tangible book value per share. The following table illustrates the per share dilution to the new investors as of March 31, 1996: Public offering price per share of Common Stock..... $ 4.50 ---- Net tangible book value............................. 1.61 Increase attributable to elimination of redemption feature of Series A Preference Shares.............. 0.38 Increase attributable to new investors.............. 0.14 ----- Net tangible book value per share of Common Stock after Offering..................................... 2.13 ---- Dilution(to new investors)(2)....................... 2.37 ====
____________________ (1) Includes 6,979 shares issued on April 1, 1996 as partial payment of the dividend on the Series A Preference Shares. (2) Does not include; (i) 500,000 shares of Common Stock reserved for issuance under the Plan; (ii) 750,000 shares of Common Stock reserved for issuance upon the exercise of outstanding warrants; (iii) 225,000 shares of Common Stock received for issuance upon the exercise of the Over-Allotment Option (including the shares of Common Stock underlying the Warrants); (iv) 500,000 shares of Common Stock reserved for issuance upon exercise of the Warrants; and (v) 150,000 shares of Common Stock reserved for issuance upon exercise of the Underwriter's 22 Warrant and the Warrants underlying the Underwriter's Warrant. The calculation includes 325,000 shares of Common Stock issuable upon exercise of the warrants held by certain executives officers as they are dilutive. See "Management - Stock Option Plan," "Management - Employment Agreements," "Certain Transactions" and "Underwriting." The following table summarizes the number of shares of Common Stock purchased from the Company, the total consideration and the average price per share paid to the Company by existing stockholders or their predecessors and to be paid by purchasers in the Offering:
PERCENTAGE OF OUTSTANDING PERCENT OF SHARES OF TOTAL TOTAL AVERAGE PRICE SHARES OF COMMON CONSIDERATION CONSIDERATION PER SHARE OF COMMON STOCK STOCK PAID PAID COMMON STOCK Existing 5,938,912 92.2% $12,207,895 88.6% $2.06 Stockholders(1) New Investors(2) 500,000 7.8% $ 1,575,284/(3)/ 11.4% $3.15 --------- ----- ---------- ----- Total 6,438,912 100.0% $13,783,179 100.0% $2.14 ========= ===== ========== =====
____________________ (1) Assumes that the holders of the Series A Preference Shares converted their stock into 1,006,979 shares of Common Stock. (2) The exercise of the Underwriter's Over-Allotment Option would reduce the dilution to purchasers in the Offering by increasing the net tangible book value after the Offering from $14,235,422 to $14,856,422. (3) Does not include consideration paid for Warrants. 23 CAPITALIZATION The following table sets forth the capitalization of the Company at March 31, 1996, and as adjusted to give effect to the sale of Units pursuant to the Offering and the application of the net proceeds therefrom and the elimination of the redemption feature of the Series A Preference Shares. See "Use of Proceeds." The information set forth below should be read in conjunction with the Company's Consolidated Financial Statements and related notes thereto, included elsewhere in this Prospectus.
MARCH 31, 1996 -------------- (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) ACTUAL AS ADJUSTED/(1)(2)/ ------ ----------- Current portion of long-term debt.............................. $ 201 $ 201 ====== ====== Long-term debt: Total long-term debt..................................... $ 24,166 $ 24,166 Series A Preference Shares..................................... $ 4,000 -- Stockholders' equity: Series A Preference Shares ($.01 par value, 10,000,000 shares authorized; 1,006,979 shares of Series A issued and outstanding)............................................... $ -- $ 10 Common Stock ($.01 par value; 100,000,000 shares authorized; 4,931,933 shares outstanding, actual; 5,431,933 shares outstanding, pro forma)........... $ 49 $ 54 Paid in capital............................................. $ 8,159 $ 13,837 Retained earnings........................................... $ 587 $ 587 Total stockholders' equity.................................. $ 8,795 $ 14,488 Total capitalization........................................... $ 36,961 $ 38,654
____________________ (1) Gives effect to the elimination of the right of the holders of the Series A Preference Shares to require redemption of the Series A Preference Shares. See Note D to the consolidated financial statements. (2) Gives effect to the sale of the Units offered hereby, and the receipt of $1,665,284 of net proceeds therefrom. Assumes that the Over-Allotment Option is not exercised. 24 SELECTED FINANCIAL DATA The following is a summary of the Company's financial information extracted from the indicated year-end audited Combined or Consolidated Financial Statements of the Predecessor and the Company, and is qualified in its entirety by the detailed financial information appearing in the Combined and Consolidated Financial Statements and the Notes thereto. The unaudited Combined and Consolidated Financial Statements of the Predecessor and the Company for the interim periods ended March 31, 1995 and 1996, respectively, have been prepared by management from the books and records of each of the Predecessor and the Company, respectively, and reflect, in the opinion of management, all adjustments (consisting of normally occurring accruals), necessary for a fair presentation of the financial position and results of operations of each of the Predecessor and the Company, as at the periods indicated therein. Results for interim periods are not necessarily indicative of results which can be expected for the entire year. (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Predecessor Years Ended December 31, --------------------------------------------------------- INCOME STATEMENT DATA: 1991 1992 1993 1994 -------- -------- -------- -------- (Unaudited) (Unaudited) Total revenues $ 60,465 $ 54,368 $ 45,650 $ 41,860 Operating expenses 45,705 44,229 34,265 28,527 Selling & administrative expenses 12,261 11,114 6,833 6,484 Depreciation and amortization 5,139 5,530 4,903 3,599 Interest Expense, net 3,277 1,980 1,682 1,294 Write-off of goodwill - - 6,023 - Other Income - - - - Loss on Vessel Fire - - - 1,367 Minority interest in earnings of consolidated joint venture - - - - Net earnings (loss) before tax (5,917) (8,485) (8,056) 589 Provision for taxes - - - - Net earnings (loss) before $ (5,917) $ (8,485) $ (8,056) $ 589 preferred stock dividend Provision for preferred stock dividend - - - - Net earnings (loss) available for Common Stockholders $ (5,917) $ (8,485) $ (8,056) $ 589 ======= ======= ======= ====== Net earnings (loss) per share(3)(4) -- -- -- -- ======= ======= ======= ====== Average shares outstanding (000's) OPERATING DATA (Unaudited): Sailings 94 98 64 53 Traffic days(5) 715 673 466 371 Passenger days(6) 461,672 452,394 316,157 271,075 Load factor(7) 88.57% 92.21% 92.67% 100.22% BALANCE SHEET DATA: Property and equipment, net of depreciation $37,565 Total assets $40,232 Total borrowings $30,020 Total stockholders' equity (deficit) ($ 5,585) New Commodore New Period Pro forma Predecessor Commodore Ended Year Ended Six Months Ended September 30, September 30, March 31, ------------- ------------- ---------------------------- INCOME STATEMENT DATA: 1995 (2) 1995(1) 1995 1996 --------- ------- -------- -------- (Unaudited) (Unaudited) (Unaudited) Total revenues $ 7,256 $35,075 $ 17,606 $19,174 Operating expenses 4,941 34,704 18,244 13,955 Selling & administrative expenses 1,664 9,899 5,609 3,766 Depreciation and amortization 198 1,693 1,780 620 Interest Expense, net 133 1,929 1,367 486 Write-off of goodwill - - - - Other Income - 4 - (341) Loss on Vessel Fire - - 1,367 - Minority interest in earnings of consolidated joint venture - - - 412 Net earnings (loss) before tax 320 (13,154) (10,761) 276 Provision for taxes 8 - - - Net earnings (loss) before $ 312 $(13,154) $(10,761) $ 276 preferred stock dividend Provision for preferred stock dividend 60 280 - 140 Net earnings (loss) available for Common Stockholders $ 252 $(13,434) $(10,761) 136 ======== ======== ======== ======== Net earnings (loss) per share(3)(4) 0.06 (2.59) .03 ======== ======== ======== Average shares outstanding (000's) 4,378 5,185 5,185 ======== ======== ======== OPERATING DATA (Unaudited): Sailings 11 64 34 26 Traffic days(5) 77 444 234 239 Passenger days(6) 53,221 271,171 137,065 163,833 Load factor(7) 94.81% 83.78% 80.35% 94.03% BALANCE SHEET DATA: Property and equipment, net of depreciation $33,085 $37,450 Total assets $44,097 $ 47,751 Total borrowings $28,500 $24,367 Total stockholders' equity (deficit) $ 8,519 $ 8,795
25 __________________ (1) Assumes the Commodore Acquisition occurred and the redemption feature of the Series A Preference Shares was eliminated. (2) Such period begins April 13, 1995 (date of inception) and terminates on September 30, 1995; however, the Company commenced cruise operations July 15, 1995, immediately following the Commodore Closing. (3) Net earnings (loss) per common equivalent share is based upon the weighted average number of shares and equivalents outstanding during each period after giving effect for dividends on the Series A Preference Shares. (4) Earnings per share does not apply to fiscal years 1991-1994 and the six months ended March 31, 1995 because during such periods Old Commodore was an operating unit of EffJohn International B.V. (5) Represents the number of sailings, multiplied by the number of days per cruise. (6) Represents the number of passengers, multiplied by the number of days of their respective cruises. (7) In accordance with cruise industry practice, total capacity is calculated based on double occupancy per cabin even though some cabins accommodate three or four passengers. A percentage in excess of 100% indicates that more than two passengers occupied some cabins. 26 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following should be read in conjunction with the Company's Consolidated Financial Statements and the Predecessor's Combined Financial Statements and the related matters thereto contained elsewhere in the Prospectus. GENERAL With respect to the Company's cruise operations, the Company earns revenues primarily from: (i) the sale of passenger tickets, which include accommodations, meals, substantially all shipboard activities, and airfare and hotel packages, if applicable; and (ii) the sale of goods and services on board the Cruise Ships including, but not limited to, casino gambling, liquor sales and concession income. The Company's operating expenses include travel agency commissions, shipboard costs of goods sold and all shipboard operating expenses, including food, fuel, port charges, crew wages and benefits, cabin consumables, entertainment, ship insurance, ship maintenance expenses, vessel management fees and transportation and lodging (airfare, hotel, and transfer costs), if applicable. Travel agency commissions, passenger food, port charges and air transportation and hotel lodging expenses generally vary directly with the number of passengers while most of the shipboard operating expenses are fixed per voyage. The Company's marketing, selling and administrative expenses include media advertising, brochures and promotional materials, costs of the Company's direct sales force and related selling activities, all shoreside activities such as reservations, inventory control, air transportation coordination, human resources, finance and information technology. Other income (expense) includes interest expense and interest income. The majority of the Company's transactions are in U.S. dollars. With respect to Sea-Comm's (as hereafter defined) operations, the Company earns revenue primarily from: (i) reimbursements from Sea-Comm for all operating costs, food costs and all of the principal and interest due on the portion of the Loan attributable to the Universe Explorer during the approximately 320 days each year the vessel is used in the Semester at Sea and Alaska programs; and (ii) approximately 50% of Sea-Comm's net profits, which Sea-Comm net distributes to its shareholders. See "Business - The Joint Venture." 27 The following table presents statements of operations data as a percentage of total revenues:
Predecessor New Predecessor and the Company New Commodore Predecessor Commodore For the Year Ended For the Six Months Ended --------------------------------------------------- December 31, Pro Forma Period Ended March 31, ---------------------- -------------------------- 1993 1994 September 30, 1995 September 30, 1995 1995 1996 ---- ---- ------------------ ------------------ -------- -------- (Unaudited) (Unaudited) (Unaudited) Revenues 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% Expenses: Operating 75.06 68.15 98.94 68.1 111.4 72.8% Selling and Administrative 14.97 15.49 28.22 22.9 31.9 19.6% Depreciation and Amortization 10.74 8.60 4.83 2.7 4.8 3.2% Loss on Vessel-fire 3.27 ------ ------ ------ ----- ----- ---- Total 100.77 95.51 131.99 93.7 148.1 95.6% ===== ===== ==== Operating Income (loss) (.77) 4.49 (31.99) 6.3 (48.1) 4.4% Other Income (Expenses) (16.88) (3.09) (5.51) (2.0) (5.2) (.8%) Minority Interest in Earnings (2.2%) Net Earnings (Loss) before Provision for Pre- ferred Stock Dividend (17.65)% 1.40% (37.50) 4.3% (53.3) 1.4% ======= ==== ===== ==== ==== ===
Due to its New Orleans point of embarkation, the Company's revenues are more seasonal than other cruises with similar itineraries that depart from Florida ports. The greatest demand for the Company's cruises occurs in June through August, and demand from February through May and November through December is also very good. The Company's slowest months are January, September and October. The Company's operations began on July 15, 1995, following the Commodore Closing. For the two and one-half months ended September 30, 1995, revenues from the operation of one cruise vessel were $7,256,000 including charter cancellation fees of $425,000. In January 1996, the Company placed its second vessel into service. As a result, for the six months ended March 31, 1996, revenues from the operation of two cruise vessels increased to $19,174,089, which included charter cancellation fees of $425,000. The results of operations for the years ended December 31, 1993 and December 31, 1994 are of the Predecessor. The Company's fiscal year ends on September 30. As a result, the results of operations for the pro forma year ended September 30, 1995 include the fourth calendar quarter of 1994, which is also included in the December 31, 1994 fiscal year. The pro forma 1995 fiscal year includes results of operations of the Predecessor from September 30, 1994 until July 14, 1995, and those of the Company for the balance of such fiscal year. Old Commodore operated two vessels during the 1995 fiscal year. Old Commodore operated the Enchanted Seas primarily on the New Orleans itinerary during fiscal 1995 and placed this vessel in drydock just prior to the Commodore Closing. Concurrently therewith, Old Commodore placed the Enchanted Isle on the New Orleans itinerary. 28 Prior to such time in fiscal 1995, Old Commodore operated the Enchanted Isle for 73 days on a Barbados itinerary, and before that, chartered the vessel to a company that operated it as a floating hotel in St. Petersburg, Russia. All of these activities occurred during fiscal 1995. The Company, however, operated only one vessel on the New Orleans itinerary during the 1995 fiscal year. As a result of the differences in the number of ships operated, the itinerary served, and the use of each ship by each of Old Commodore and the Company, a comparison of the 1995 fiscal year to the 1994 and 1993 fiscal years may not be representative of the Company's future performance. The historical operating results for the Predecessor were prepared by management from the books and records of Old Commodore. Revenues and ship operating expenses are specifically those of the Cruise Ships. However, Old Commodore operated up to five ships during the period since January 1, 1993. As a result, administration and marketing expenses were commingled and have been allocated to the Predecessor based on the number of traffic days of all of Old Commodore's ships. This may not be indicative of actual expenses which would have been incurred in connection with the operation of one ship by the Company. In addition, the Predecessor's depreciation expenses vary from those of the Company primarily due to its higher cost basis on the vessels. Accordingly, such expenses are not comparable. RESULTS OF OPERATIONS SIX MONTHS ENDED MARCH 31, 1996, COMPARED TO SIX MONTHS ENDED MARCH 31, 1995 Revenues increased by $1,568,133, or 8.9%, for the first half of fiscal 1996 compared to the first half of fiscal 1995, primarily due to the Company's profitable joint venture for the Universe Explorer in fiscal 1996 as compared to the unprofitable Barbados cruise operation, which commenced during the first half of 1995. Included in the fiscal 1996 revenues are non-recurring charter cancellation fees of $425,000. See "Business - The Commodore Acquisition - Settlement Agreement." The Company's operating expenses decreased by $5,655,767, or 28.8%, for the first half of fiscal 1996 compared to the first half of fiscal 1995. This decline was due in part to the termination of the Barbados itinerary in April 1995, as well as the impact of the fire aboard the Enchanted Isle in December 1994, which resulted in a loss of $1,367,347, and which also had a negative impact on the selling and marketing of this itinerary. Marketing, selling and administrative expenses decreased by $1,842,009, or 32.8%, for the first six months of fiscal 1996 compared to the first six months of fiscal 1995 due to the introduction of the Barbados program in February 1995. The foregoing results may not be representative of the Company's future performance due to the different manner in which Old Commodore and the Company report expenses. In addition, in the first half of fiscal 1995, Old Commodore operated the Enchanted Seas on the New Orleans itinerary. In the first half of fiscal 1996, the Company operated the Enchanted Isle on this route. Although these two ships were built as "sister ships," and are similar, they are not identical either with respect to number of cabins or costs of operation. As a result, a comparison of their results from operations may not be meaningful. 29 PRO FORMA FOR THE YEAR ENDED SEPTEMBER 30, 1995, COMPARED TO THE YEAR ENDED DECEMBER 31, 1994 Revenues decreased by $6,785,649, or 16.2%, for fiscal 1994 compared to pro forma 1995 primarily due to (i) an 11.9% reduction in the number of passengers carried as well as a reduction in the average rate per passenger on the Company's New Orleans itinerary, and (ii) low load factors and average rates on Old Commodore's Barbados itinerary. This decrease was partially offset by the receipt of $425,000 in pro forma 1995 from the cancellation of a charter agreement. The Company received an additional cancellation fee of $425,000 in fiscal 1996, but does not anticipate that it will receive such fees in future years. See "Business - The Commodore Acquisition - Settlement Agreement." The load factor for the New Orleans itinerary decreased to 89.54% in pro forma 1995 from 100.23% in 1994. The Company's operating expenses increased by $6,176,847, or 21.7%, in pro forma 1995 compared to fiscal 1994. This increase was due to a fire on the Enchanted Isle on December 28, 1994, the termination of Old Commodore's Barbados itinerary, which operated for only 73 days in 1995, as well as increased competition in the New Orleans market. The Barbados itinerary was cancelled in April 1995, in connection with the Commodore Acquisition. Marketing, selling and administrative expenses increased by $3,414,416, or 52.7%, in pro forma 1995 to fiscal 1994 due to a variation in the way Old Commodore and the Company attribute such expenses. Given that the Company acquired the vessels in the fourth quarter of pro forma 1995, the full effect of such variations is not reflected herein. Depreciation and amortization decreased by $1,905,975, or 53.0%, in pro forma 1995 compared to fiscal 1994 due to the difference in cost basis of the assets acquired by the Company as compared to Old Commodore. Interest expenses increased by $635,960 from fiscal 1994 to pro forma 1995 due to the Company's acquisition of Commodore Cruise Line and the financing procured to consummate the acquisition. FOR THE YEAR ENDED DECEMBER 31, 1994, COMPARED TO THE YEAR ENDED DECEMBER 31, 1993 Total revenues decreased by $3,789,643, or 8.3%, in fiscal 1994 compared to fiscal 1993. This decrease is attributable primarily to the Enchanted Isle being out of cruise service for most of 1994 while under charter as a floating hotel in St. Petersburg, Russia. Old Commodore received charter income of $10,000 per day from an affiliate during such period. This decline was offset in part by an increase in revenues related to the New Orleans itinerary of $4,710,908, or 14.4%, from fiscal 1993 to fiscal 1994. This increase is attributable primarily to an increase in the number of passengers on that itinerary as well as higher ticket prices. The load factor for the New Orleans itinerary increased to 100.2% in 1994 from 95.4% in 1993. In 1994, New Orleans passenger loads totaled 271,075 passenger days, 12.4% above the volume who sailed from New Orleans in 1993. Operating expenses decreased by $5,738,041, or 16.7% in fiscal 1994 compared to fiscal 1993, due to the Enchanted Isle's withdrawal from cruise service. On the New Orleans itinerary, operating expenses increased by $1,158,517, or 4.7%, from 1993 to 1994. This increase in costs was due to increases in the variable costs of the Company, such as food and port charges, which increase when the number of passengers aboard a vessel increases. 30 Marketing, selling and administrative expenses decreased by $348,982, or 5.1%, in fiscal 1994 compared to fiscal 1993 resulting from a decrease in marketing expenses. Depreciation and amortization decreased by $1,303,253, or 26.6%, in fiscal 1994 compared to fiscal 1993 in part due to a one-time write-off of goodwill in the amount of $6,023,118 during 1993. In connection with the anticipated sale of the vessels, the Predecessor determined that the goodwill was not recoverable and accordingly wrote-off the remaining goodwill balance. Interest expenses decreased by $388,930, or 23.1%, in fiscal 1994 compared to fiscal 1993 due to a reduction in the principal amount due by the Predecessor. In addition, other income increased in fiscal 1994 since the Predecessor had a one-time write-off of goodwill, described previously, during 1993. LIQUIDITY AND CAPITAL RESOURCES The Company's working capital deficiency was $5,078,070 and $916,161 at March 31, 1996 and September 30, 1995, respectively. The Company's working capital deficit at March 31, 1996 and September 30, 1995 was primarily due to the inclusion, in non-current assets, of a $4,629,000 deposit securing the Company's FMC bond. The corresponding liability, customer deposits, is included in current liabilities. The other increases in working capital at March 31, 1996 and September 30, 1995 were the result of cash flow provided by operations, and particularly the $425,000 in income from the cancellation of the charter agreement. The Company also received working capital from the proceeds of its Private Offering (as hereinafter defined) during its 1995 fiscal year. See "Business - The Private Offering." Cash flows from operations provided $3,451,324 and $661,137, for the first half of fiscal 1996, and fiscal 1995, respectively. Cash flows for the first half of fiscal 1996 consisted primarily of increases in customer deposits, accounts payable and accrued liabilities. At March 31, 1996, the Company owed $24,366,985 to the Lender in connection with the Commodore Acquisition. The Loan is secured by substantially all of the assets of New Commodore, including preferred ships mortgages on both Cruise Ships, and bears interest at LIBOR plus 2%. The Loan must be repaid in 12 semi- annual installments of principal and interest beginning January 14, 1997. Interest which accrues during the first year following the Commodore Closing will be paid to the Lender on a monthly basis. See "Business - The Commodore Acquisition." On November 15, 1995, the Company and the Lender amended the terms of the Loan to require the Company to remit monthly installments of principal and interest toward the January 14, 1997 payment. Such monthly payment schedule will end on January 14, 1997. See "Business - The Commodore Acquisition." In the event that the Company is required to withhold income tax on any amounts due to the Lender, the Company has agreed to pay the required amount to be withheld and pay the Lender the full amount of interest due under its agreements with the Company. The terms of the Loan place certain restrictions on the Company. First, the Company is not permitted to place any additional liens on any of its assets (including the Cruise Ships) without the prior consent of the Lender. Second, the Company is prohibited from paying any dividends on its Common Stock until the earlier of such time as its Common Stock becomes traded on Nasdaq or a U.S. stock exchange, or 18 months after the Commodore Closing and, after such time, the Company 31 may not pay more than 50% of its net profits as dividends. Third, beginning in February 1997, the Company must make monthly payments into a restricted retention account in an amount estimated to pay the next installment of principal and interest under the Loan, divided by the number of months before the next installment is due. In addition to the foregoing, New Commodore must maintain a minimum cash balance in its operating accounts of $1 million, after deducting amounts of principal and interest due to the Lender. The Universe Explorer was in drydock between the Commodore Closing and January 1996. Because the Company received charter cancellation fees for charters scheduled between the Commodore Closing and December 1995, the time the vessel was out of service is not expected to have an adverse effect on the Company's fiscal 1996 revenues. In November 1995, the Company began to prepare the vessel for use in the Semester at Sea program. See "Business - the Joint Venture." The Company used approximately $535,000, which it received from EffJohn, to repair certain technical items aboard the vessel. The Company also paid the first $200,000 of renovations to the ship to convert it for use in the Semester at Sea program. Any excess amounts which the Company requires for such conversion will be paid by Seawise. The vessel departed on its first Semester at Sea voyage in January 1996. The Enchanted Isle was sent to drydock in February 1996 for approximately two weeks to repair its propeller and complete certain other repairs. EffJohn reimbursed the Company for approximately $140,000 of such costs. See "Business- The Commodore Acquisition - The Settlement Agreement." The time the vessel was out of service for such repairs is not expected to have a material adverse effect on the Company's fiscal 1996 net income. INFLATION The impact on the Company's operations has not been significant to date. There can be no assurance that a high rate of inflation in the future would not have an adverse effect on the Company's operations. 32 BUSINESS GENERAL The Company owns two Cruise Ships. The Enchanted Isle offers Caribbean cruises from New Orleans and the Universe Explorer is chartered to Sea-Comm, which in turn has space-chartered the vessel to an organization which operates the educational "Semester at Sea" program during a portion of the year. Sea-Comm will operate cruises to Alaska aboard the Universe Explorer during the balance of the year. THE COMMODORE ACQUISITION The Acquisition Agreements. The Company entered into definitive agreements -------------------------- with EffJohn, Old Commodore, and its subsidiaries on April 28, 1995 (the "Acquisition Agreements"). Pursuant to the Acquisition Agreements, the Company acquired the Trademarks, two cruise vessels known as the Enchanted Seas (now known as the "Universe Explorer") and the Enchanted Isle, substantially all of Old Commodore's existing operations, certain advance ticket sales, marketing and sales personnel and information and certain shoreside assets from EffJohn and its subsidiaries. The Commodore Acquisition closed on July 14, 1995. The Company purchased all of the Commodore Assets "AS IS", and thus did not receive any assurances from, EffJohn as to the condition of the Commodore Assets. See "Risk Factors - The Cruise Ships;" and "Risk Factors -Purchase of Commodore Assets "AS IS"." The Company did, however, have a professional surveyor survey the Cruise Ships and EffJohn was obligated to deliver them in substantially the same condition as each vessel was in at the time of its inspection. In addition, EffJohn was obligated to perform specified maintenance and repairs on the Enchanted Seas and deliver this vessel to the Company following the satisfactory completion of such repairs, as confirmed by the vessel's classification society. Each vessel was inspected by its respective classification society prior to delivery to the Company and was delivered up to its class standards. The purchase price (the "Purchase Price") for the Commodore Assets was $33,500,000 payable at the Commodore Closing as follows: $5,000,000 in cash; $4,000,000 through the Company's issuance of 1,000,000 redeemable Series A Preference Shares at an agreed value of $4.00 per share; and $24,500,000 in promissory notes issued by the Company. The promissory notes are secured by substantially all of the assets of New Commodore, including first preferred ships mortgages on the Cruise Ships. Pursuant to the Acquisition Agreements, Old Commodore and EffJohn agreed not to compete with the Company for up to ten years with respect to all routes in and out of the Port of New Orleans, and for up to eight years with respect to all routes commencing and terminating in any North American port at which port the Company operates or has publicly announced an intention to operate. Customer Deposits and the FMC Certificates of Financial Responsibility. As ---------------------------------------------------------------------- part of the Commodore Assets, the Company received customer deposits for future cruises and related items such as hotel and airfare packages. The Company placed $4,629,000 on deposit with a bank to secure the U.S. Federal Maritime Commission ("FMC") Certificate of Financial Responsibility in the Event of Non-Performance of Obligations to Passengers as required by the FMC (the "Certificate 33 of Financial Responsibility"). The FMC requires companies to establish a Certificate of Financial Responsibility in amounts and through methods set by the FMC. Since the Universe Explorer does not depart from any U.S. port, the Company presently needs to post a bond with the FMC only with respect to the Enchanted Isle's customer deposits. See "Business - The Joint Venture." Consumable Items. The Commodore Assets included consumable items intended ---------------- for use on board the Cruise Ships, regardless of where such items were stored or located as of the Commodore Closing. At the Commodore Closing, Old Commodore supplied consumables for use on the Enchanted Isle to the Company in the amount of $500,000, calculated by reference to the cost thereof to Old Commodore. Subsequent to the Commodore Closing, Old Commodore provided the Company with an adjustment to the Purchase Price in exchange for the cancellation of its obligation to provide consumables for use on the Enchanted Seas to the Company in an amount not less than $500,000. The Company did not pay any additional consideration for such consumables. Drydock of Enchanted Seas. As of April 15, 1995, EffJohn caused the ------------------------- Enchanted Isle to discontinue its cruises from Barbados and delivered the Enchanted Isle to New Orleans to replace the Enchanted Seas so that the Enchanted Seas could undergo maintenance while at drydock. EffJohn bore all costs relating to the termination of the Barbados itinerary as well as all costs associated with the Enchanted Seas while it remained out of service during drydock, including the costs of insurance. EffJohn paid for maintenance and repairs to the Enchanted Seas while it was in drydock up to certain agreed upon limits. The required repairs are set forth in detail in the Acquisition Agreements. Once the repairs were completed, the vessel was returned to New Orleans. The Company then refitted the vessel to prepare it for the Semester at Sea program. The Loans. The Lender loaned the Company $24,500,000 for purposes of --------- acquiring the Cruise Ships. The Loan is secured by substantially all of the assets of New Commodore including first preferred ships mortgages on both Cruise Ships. The Loan bears interest at LIBOR plus 2% (currently 7.875%) and must be repaid in 12 semi-annual installments of principal and interest beginning on January 14, 1997. On November 15, 1995, the Company and the Lender amended the terms of the Loan to require the Company to remit monthly installments of principal and interest toward the January 14, 1997 payment. Such monthly payment schedule will end on January 14, 1997. In connection with the Loan, the Company also paid, at the Commodore Closing, $50,000 of duties, stamp fees and attorneys' fees rendered in connection with the Commodore Acquisition and the Loan, and an arrangement fee of $100,000 to the Lender. In the event that the Company is required to withhold income tax on any interest due to the Lender, the Company has agreed to pay the required amount to be withheld and pay the Lender the full amount of interest due under its agreements with the Company. The terms of the Loan place certain restrictions on the Company. First, the Company is not permitted to place any additional liens on any of the Commodore Assets (including the Cruise Ships) without the prior consent of the Lender. Second, the Company is prohibited from paying any dividends on its Common Stock until the earlier of such time as its Common Stock becomes traded on Nasdaq or a U.S. Stock Exchange, or 18 months after the Commodore Closing and, after such time, the Company cannot pay more than 50% of its net profits as dividends. Third, the Company was required to make a monthly payment into a restricted retention account, in an amount estimated to pay the next installment of principal and interest under the Loan, divided by the number of months before the installment is due. In November 1995, the Company and the Lender amended the Loan 34 to temporarily eliminate the segregated account and require the Company to pay the monthly retention amount directly to the Lender until January 1997. In February 1997, the Company must resume setting aside monthly payments in the retention account. Fourth, in addition to the foregoing requirement, New Commodore must maintain a minimum cash balance in its operating accounts of $1 million throughout the term of the Loan. If the Company fails to meet any of the foregoing requirements or cure any defaults within the permitted time periods, the Lender could declare the Company in default under the Loan, and potentially foreclose upon the Cruise Ships and the Company's other assets. Series A Preference Shares. As part of the consideration for the Commodore -------------------------- Assets, the Company issued EffJohn 1,000,000 of its Series A Preference Shares. The Series A Preference Shares are entitled to a cumulative 7% dividend on an annual basis. This dividend is payable from a maximum of 10% of New Commodore's net profits for such year. EffJohn, as holder of the Series A Preference Shares, is entitled to elect one member of the Board of Directors of the Company, as long as it owns at least 125,000 Series A Preference Shares. EffJohn may convert its Series A Preference Shares into Common Stock of the Company at any time at a conversion rate equal to the greater of USD$4.00 per share or a price per share equal to 8 times the Company's earnings per share for its prior fiscal year. EffJohn may sell to third parties up to a maximum of approximately 45,000 Series A Preferred Shares in any 90 day period at any time after the Commodore Closing, subject to compliance with applicable securities laws. The Company has the option to redeem all or any part of the Series A Preference Shares at USD$4.00 per share at any time commencing three years after their issuance. EffJohn may not sell, transfer, or otherwise dispose of shares of Common Stock issued upon conversion of the Series A Preference Shares for a period of one year from the date of this Prospectus without the prior consent of the Underwriter, except that EffJohn may sell, transfer or dispose of up to 45,454 of such shares without the Underwriter's consent. See "Description of Securities - Series A Preference Shares." Settlement Agreement. At the Commodore Closing, the Company and EffJohn -------------------- entered into a settlement agreement (the "Settlement Agreement") to resolve certain issues with respect to repairs to the Cruise Ships and with respect to EffJohn's prior agreement to charter the Enchanted Seas. EffJohn agreed to pay the Company a total of $535,000 for repairs to be made to the Enchanted Seas, which amount was paid in two installments: $460,000 on July 31, 1995, and $75,000 on September 15, 1995. Of this amount, $189,000 was allocated to specific repairs to the vessel. EffJohn further agreed to pay the Company $50,000 to offset insurance costs from July 14, 1995 until December 14, 1995, while the Enchanted Seas was to be under charter by EffJohn. Pursuant to the Settlement Agreement, EffJohn also paid $140,000 for damage to the propeller of the Enchanted Isle, the costs associated with the initial damage survey and temporary repairs, and the cost of agreed repairs to shafting, bearings, and struts. EffJohn also paid $53,750 to the Company for the cost of additional fuel required as a result of the lost efficiency due to the damaged propeller. The Enchanted Isle was placed in drydock for two weeks in February 1996 for such repairs. With respect to the charter of the Enchanted Seas, EffJohn agreed that if it did not enter into a bareboat charter for the vessel by September 1, 1995, it would pay the Company $425,000 within 15 days thereafter. EffJohn did not charter the vessel, and paid this sum in fiscal 1995. EffJohn further agreed that if it did not enter into a bareboat charter for the vessel by October 15, 1995, it 35 would pay the Company an additional $425,000. EffJohn paid this additional sum to the Company in October 1995. THE PRIVATE OFFERING Contemporaneously with the Commodore Closing, the Company consummated a private offering of 1,500,000 shares of the Company's Common Stock at a price of $4.00 per share (the "Private Offering"). The Company used the proceeds of the sale of Common Stock in the Private Offering primarily to consummate the Commodore Acquisition. Pursuant to the terms of the Private Offering, the Company agreed to effect an initial public offering of its Common Stock as soon as possible after the Commodore Closing. The Company also agreed to register in such public offering the sale of the Common Stock purchased by investors in the Private Offering. As a result, the Company has registered such shares, subject to a 12 month "lock- up" period. Thus, the investors may not sell such Common Stock prior to the expiration of such period without the consent of the Underwriter. See "Concurrent Registration of Common Stock." INDUSTRY OVERVIEW Cruise lines compete intensely for consumer disposable leisure time dollars with other vacation alternatives, such as land based resort hotels and sightseeing destinations. Public demand for such activities is influenced by general economic conditions. The Company believes that the modern passenger cruise industry has experienced substantial growth over the past 25 years. The industry has evolved from a trans-ocean carrier service into a vacation alternative to land-based resorts and sightseeing destinations. According to CLIA, an industry trade group, in 1982 approximately 1.5 million North American passengers took cruises for two days or more. In comparison, the following table sets forth data regarding industry growth over the past five years.
CALENDAR YEAR NORTH AMERICAN CRUISE PASSENGERS/(1)/ ------------- -------------------------------- (IN MILLIONS) 1990 3.6 1991 4.0 1992 4.1 1993 4.5 1994 4.4 1995 4.5
______________________ /(1)/ SOURCE: CLIA The North American cruise industry accounts for approximately 80% of the world market. According to CLIA, the number of overall industry North American cruise passengers in 1994 was 36 .7% below the 1993 figure, with demand increasing only slightly during 1995. The average growth rate for North American cruise passengers from 1980 through 1994 was approximately 9.2% per year. The Company believes that "repeat cruising" is a large source of business in the cruise industry. Of all passengers who have cruised in the past five years, CLIA estimates that the average number of cruises per person is 2.4. CLIA has estimated that, in 1982, the capacity of Cruise Ships serving the North American markets offering voyages of two or more days was approximately 43,848 berths. According to CLIA's most recent estimate, in 1995, the North American market was served by 39 cruise lines, operating 133 vessels. Aggregate 1995 market capacity is estimated at 112,869 berths, an increase of 7.4% over the previous year. In addition, according to an article in Lloyd's List dated ------------ February 22, 1996, an estimated 29 new cruise vessels offering 50,000 additional berths will be added to the market by 1998. Numerous industry analysts, as reported in various newspaper articles, predict a trend toward the continued growth of the large cruise lines and decline of the smaller ones in the North American cruise industry. The larger lines such as Carnival Cruise Lines, Royal Caribbean Cruise Lines and Princess Cruises, with whom the Company competes, have been purchasing new vessels and thereby adding to their fleets. These larger lines benefit from increased economies of scale and have historically operated at higher capacity than the smaller lines. In addition, the smaller lines, such as the Company, own older ships with fewer amenities. Such ships will require costly renovations and retrofitting in order to meet new industry safety guidelines. See "Risk Factors - Regulation." Industry analysts predict that discounting of fares will play a large part in cruise ticket sales in response to the relatively flat growth of the North American market and the substantial increases in capacity planned over the next few years. Despite the recent softening in demand and future increase in capacity, the Company believes that the cruise industry should continue to represent an attractive growth segment of the leisure market. MARKET POSITION The cruise industry is generally viewed as the composite of three partially overlapping segments, differentiated primarily by cruise cost, length and itinerary. The standard, premium and luxury segments provide a wide assortment of cruise experiences, appeal to different population segments and attract varying demographic groupings. CLIA's luxury segment of the cruise industry represents 10% of the total industry capacity. With list per diem rates in excess of $400, the Company believes this market caters to the most affluent segment of the population. Luxury market cruises are generally ten nights or more. CLIA's premium segment is somewhat more up-scale than the standard market, but not as up-scale as the luxury segment, and represents 32% of the total cruise capacity. The Company believes this market attracts an older, more affluent and experienced clientele, with list per diem rates in the range of $291-$399 and itineraries which typically range from seven to 14 days. CLIA's standard market, in which market the Company competes, is the largest segment within the cruise industry, comprising 55% of industry-wide capacity. The remaining 3% can be attributed to non-CLIA member lines. The Company believes the standard market is characterized by affordable, shorter cruises primarily serving first-time passengers with 37 list per diem rates generally of $290 or less. Standard market cruises range from three to ten days in the most popular cruising areas. The Company believes that the standard segment represents the greatest opportunity for growth, although no assurance can be given that this will prove to be correct. The Company seeks to position itself within the standard market to capture the first-time cruising passenger with list per diem rates for its Caribbean cruises that range from $84-$208. In accordance with industry practice, such prices may be discounted by the Company. The Company believes that the Commodore name appeals to both first-time cruising passengers and repeat passengers due to its presence in the Gulf of Mexico, Caribbean and embarkation from the Port of New Orleans. The Port of New Orleans is a port offering many alternatives, particularly for those who prefer to drive, rather than fly, to begin their cruise vacation. OPERATING STRATEGIES The Company believes that Old Commodore consistently delivered an innovative, value-oriented standard market cruise product. The Company seeks to maintain such standard by providing maximum value, emphasizing "old world" tradition and a friendly and informal atmosphere combined with value and service. Fleet configuration is a primary distinguishing variable in the cruise industry, differentiating competitors serving a common passenger base. The Company's vessels are older and smaller than those of most of its competitors. The Company believes that these smaller vessels will enable it to provide value- oriented service and a more personalized maritime environment than the Company's giant vessel competitors. The Company believes that good service, coupled with a reputation for more personalized attention, will enable the Company to command prices comparable to its competitors. Although the Company's older vessels will probably cost more to operate than new vessels, the Company believes that its cost savings in debt service payments will more than offset the higher maintenance and operating expenses. There can be no assurance, however, that the Company can operate its vessels profitably. Both the Universe Explorer and the Enchanted Isle were constructed in the United States. As a result, the Company may, in the future, be able to change the flag of the Cruise Ships from that of a foreign country to the U.S. A U.S. flag vessel may carry passengers between U.S. ports, an option which is unavailable to foreign flag vessels. If the Company is able to change the flags of its fleet, and chooses to do so, it could offer seminars at sea and other off-shore activities between U.S. ports. Companies who choose to provide seminars or meetings aboard the Company's ships could, under current tax laws, deduct a portion of the cost of such seminars or meetings, and individual participants could, under current tax laws and subject to certain limits, deduct the cost of attending such seminars. The Company has not yet determined whether it wishes to incur the additional costs associated with operating a U.S. subsidiary and U.S. flag vessels, which include potential additional labor, insurance and income tax costs. Accordingly, there can be no assurance that the Company will change the flags of any of its vessels. 38 CRUISE OPERATIONS FACILITIES, ON-BOARD SERVICES AND PROGRAMS The Enchanted Isle was originally constructed by Ingals Shipbuilding Corporation in the United States in 1958 and was most recently refurbished in 1994. The Enchanted Isle is designed to be a seagoing resort with restaurants, discotheques, movie theaters, libraries, reading rooms, full service communication facilities, jogging courses, aerobic classes, workout rooms, numerous bars, two pools, sun deck areas and deck activities. The Enchanted Isle has a complete casino with various gaming opportunities. Entertainment is provided nightly and includes shipboard productions of Broadway show tunes and Las Vegas-style revues, as well as performances by a variety of celebrity entertainers. In addition, all passengers may take shore excursions provided at various ports-of-call, including guided tours, visits to local attractions and free time to explore on their own. Although the Enchanted Isle may not be as modern, as large or contain all the amenities of newer ships, the Company believes that it provides the cruise environment that its passengers expect. MARKETING AND PROMOTION The Company has committed significant resources to marketing and promotion through advertising, public relations, and additional sales personnel. To enhance the Company's awareness in, and coverage of travel agents and consumer marketplaces, the Company employs a variety of complementary marketing and promotional programs incorporating media, direct marketing and sales aids, public relations, special events and strategic business alliances, with special emphasis on trade and consumer advertising. The Company has initiated a new advertising campaign to reestablish its image as a provider of value-oriented cruises with high quality service at sea in a larger geographic region than Old Commodore has solicited in the past few years. This new advertising campaign is based upon travel agent and consumer research and is placed in media reaching a wider audience than those historically employed. In the past, Old Commodore advertised mainly in the five-state area around Louisiana, including Texas. The Company's new marketing plan extends such advertis ing to at least five additional states in which residents have historically purchased the most cruises. These states are California, New York, Pennsylvania, New Jersey and Florida. The Company focuses on consumer and trade advertising, particularly through the use of newspaper advertising. The Company believes that this media is equally effective in reaching both consumers and the travel agency trade. In addition, the Company places advertisements on radio stations and television. Developing a strong cooperative marketing programs directly links travel agent marketing and promotional efforts to those of the Company. The Company places a strong emphasis on collateral development and distribution to key producing travel agents for the Company. The Company believes that detailed descriptions of the Company's ships, services, itineraries and activities, pre- and post-cruise land package opportunities and various elements of the product programs, are a significant factor in converting the initial interest of consumers into actual cruise sales. The Company may use direct marketing to target past passengers and various affinity organizations. The Company views past Commodore passengers and leisure travelers using travel organizations as persons with a high propensity to cruise with the 39 Company. The Company may also place travel trade advertising via the most popular trade publications, expanding the awareness of the Company's product and services. The foregoing marketing strategy requires a significant amount of the Company's cash resources. In the event that the Company is short on working capital, the Company may delay or cancel certain components of the foregoing marketing plan. TRAVEL AGENCY RELATIONSHIPS The Company sells cruise vacations in the United States and Canada almost exclusively through the travel agency distribution system. According to CLIA, an estimated 95% of cruise packages are sold with the assistance of travel agents, who normally receive commissions in the range of 10-15% of the sale. Additional commission incentives are made available for volume producers that consistently support the cruise line. In order to maintain personal contact with travel agency owners, managers and front-line retail agents, the Company maintains a field sales staff of at least eight, supported by an in-house service staff. The Company's cruises, consistent with industry trends, are marketed to passengers via travel agents in the United States. Well informed travel agencies are therefore crucial to the Company's effort in maintaining and expanding its customer base. Accordingly, the Company places considerable emphasis on its contacts with travel agencies and fostering goodwill towards the Company's products, maximizing this efficient and productive relationship although there can be no assurance that the Company will succeed in its efforts. RESERVATIONS AND PASSENGER SERVICES Reservations are taken by trained reservations sales agents on a computer and software system, capable of accepting reservations for a fleet of at least 10 vessels. The Company purchased this reservations system and software from EffJohn as part of the Commodore Assets. Staffing levels are maintained per industry standards to ensure that calls are taken promptly. Reservations are the first point of contact for most travel agents and, as such, play a key role in the sales process. A full time staff of approximately 18 people assist agents in securing passenger reservations, arranging flights for air/sea passengers, coordinating ground transportation and pre- and post-cruise tour hotel packages. In the event the Company does not have sufficient working capital to implement the foregoing plan, it may reduce the number of people it employs in reservations. Accordingly, there can be no assurance that the Company will be able to maintain optimum staffing levels. INTERNATIONAL SALES The Company intends to devote a portion of its sales resources to developing sales from the European and Latin American marketplaces. Although the North American market is static, the European cruise market has been growing. According to industry publications, in 1995 the European cruise market reached 1 million passengers, up from 300,000 in 1988. Europe is, by far, the largest market outside of North America, with Germany and the U.K. comprising the largest constituent parts. Management has begun discussions with several major European travel operators. The Company's president, Mr. Sullivan, has substantial previous experience developing the cruise market in England. See "Management." The Company is also considering expanding its sales to Latin 40 America, which is also a significant resource for potential passengers to the Company due to an established network of tour operators. MARKET PRESENCE The Company intends to continue to expand Commodore's image as an operator of value-oriented cruises in the standard market. The selection of a cruise line for travel agents and passengers depends upon the reputation of the line and recommendations. The Company believes that Commodore has a 28-year history of serving travel agents and passengers with friendly service and consistent quality. The Company believes that the Caribbean itinerary, intimacy and grace of "old world" service, combined with a Port of New Orleans embarkation are significant factors supporting a strong foundation for attracting passengers seeking an affordable cruise vacation product. The Company's choice of New Orleans as its point of embarkation will allow it access to passengers who might not otherwise choose to take a cruise. Although not considered a traditional cruise port, both the allure of New Orleans as a vacation destination, and the convenience for local residents make New Orleans an attractive alternative to Florida and New York based cruises. However, since Commodore provides one of only three regularly scheduled cruises from New Orleans, New Commodore will continue to devote significant resources to develop consumer awareness and acceptance. FACILITIES, ON-BOARD SERVICES AND PROGRAMS The Enchanted Isle was originally constructed by Ingals Shipbuilding Corporation in the United States in 1958 and was most recently refurbished in 1994. The Enchanted Isle is designed to be a seagoing resort with restaurants, discotheques, movie theaters, libraries, reading rooms, full service communication facilities, jogging courses, aerobic classes, workout rooms, numerous bars, two pools, sun deck areas and deck activities. The Enchanted Isle has a complete casino with various gaming opportunities. Entertainment is provided nightly and includes shipboard productions of Broadway show tunes and Las Vegas-style revues, as well as performances by a variety of celebrity entertainers. In addition, all passengers may take shore excursions provided at various ports-of-call, including guided tours, visits to local attractions and free time to explore on their own. Although the Enchanted Isle may not be as modern, as large or contain all the amenities of newer ships, the Company believes that it provides the cruise environment that its passengers expect. TICKET REVENUES New Commodore's cruises are list-priced per person per day (based on double occupancy) from $84 to $208, excluding commissions to travel agents. The Company offers discounts, particularly during off-season periods, as is the practice in the industry. Prices vary depending on size and location of cabin and the time of year in which the trip occurs. The cruise price includes shipboard accommodations, use of all of the shipboard amenities and all meals. 41 ON-BOARD AND OTHER REVENUES Revenues from the Enchanted Isle are derived from certain on-board activities and services operated by the Company including, casino gambling, liquor sales in a variety of bars, restaurants, lounges and discotheques. Additional revenue is earned from pre- and post-cruise packages in each vessels' point of embarkation. The Company also earns concession revenue from sales at duty-free shops, gift shops, the sale of photographs to passengers, shore excursions and from the beauty salon. COMPETITION Competition in the industry in which the Company competes is intense. The Company competes with other cruise ship lines in the standard segment that offer the same type of products in several markets and land-based resorts, many of which have significantly greater financial resources and experience, and are more well known than the Company. The Company also competes for consumer disposable leisure time dollars with other vacation alternatives such as land based resort hotels and sight-seeing destinations, in addition to approximately 25 other cruise lines operating in the standard segment. In addition, public demand for such activities is influenced by general economic conditions. The Company operates in the Caribbean where its principal competitors are Carnival Cruise Lines, Royal Caribbean Cruise Lines, Norwegian Cruise Lines and Dolphin Cruise Line. However, the Enchanted Isle is currently one of only three regularly scheduled cruise vessels, including one Carnival Cruise Lines ship, that embarks passengers from the Port of New Orleans. According to CLIA, prior to the end of 1996, eight additional ships (representing approximately 14,040 berths) will be placed in service by the Company's competitors and eight additional ships (representing approximately 10,114 berths) will be placed in service by other cruise lines in the North American market. The number of ships which will be retired from service during the next two years cannot accurately be predicted. In addition, CLIA reported that cruise demand declined by .7% during 1994 and increased only slightly in 1995. While there can be no assurance that the cruise ship industry will not experience an imbalance between supply and demand following the introduction of such additional capacity, the aforementioned currently known level of capacity increases through 1996 is lower on a percentage increase basis than the industry experienced over the past 12 years. Competition in the standard cruise market is highly concentrated, with three companies accounting for an estimated 71% of the available berths. Recent statistics indicate that the large cruise lines are growing increasingly larger and running at full capacity while the smaller lines, such as the Company's, are forced to discount and run at approximately 70% of capacity. The three largest cruise operators in the North American cruise industry are increasing market share by adding new vessels to their fleets. Various articles concerning the cruise line industry note that this trend is expected to continue for at least the next few years. If this trend continues, the Company's ability to compete with these larger operators may be substantially impaired. 42 THE JOINT VENTURE On October 30, 1995, the Company entered into the Agreement with Seawise establishing Sea-Comm. Pursuant to the Agreement, the Company purchased 50.005% of Sea-Comm's Common Stock, and 50% of Sea-Comm's outstanding Preferred Stock. Seawise purchased 49.995% of Sea-Comm's Common Stock and 50.0% of Sea-Comm's Preferred Stock. The purpose of Sea-Comm is to space charter the Universe Explorer to an entity who operates the Semester at Sea program, an educational program conducted by the Institute for Shipboard Education, a Delaware not-for-profit corporation ("ISE"), and the University of Pittsburgh. Seawise has a contract with the ISE pursuant to which it has operated the Semester at Sea program aboard its own vessel for the last 20 years. In addition, Sea-Comm will operate cruises to Alaska (the "Alaska Program") through World Explorer Cruises and Tours Inc. ("WEC") and Hemisphere Cruises & Tours, Inc. ("Hemisphere"), during summer periods when the Universe Explorer is not being used for the Semester at Sea program. Seawise is party to a tripartite agreement with WEC and Hemisphere pursuant to which it has operated the Alaska Program for the past 19 years (the "Alaska Agreement"). As part of the joint venture, Seawise has assigned its rights under the Alaska Agreement to Sea-Comm. Pursuant to the Agreement, the Company has chartered the Universe Explorer to Sea-Comm. Sea-Comm, in turn, has chartered the Universe Explorer to Seawise so that it may operate the Semester at Sea program exclusively aboard the vessel. In return for such charter, Seawise reimburses Sea-Comm for 76% of its operating costs, 100% of food costs and 76% of the principal and interest due on the portion of the Loan attributable to the Universe Explorer. Sea-Comm also earns revenue from the sale of the other 24% of the cabins on the vessel, which hold approximately 176 persons, to non-student passengers. Seawise has guaranteed the sale of tickets to 60 non-student passengers on each voyage at pre-determined rates during 1996. The number of guaranteed non-student passengers increases in subsequent years. During a portion of the year when the Semester at Sea program is not operating (approximately 49 days), Sea-Comm operates the Universe Explorer under the Alaska Agreement. WEC enjoys certain permits issued by the U.S. Parks Service to cruise in the Glacier Bay, Alaska area. Pursuant to the Alaska Agreement, Sea-Comm will earn revenues from ticket sales for all cabins and pay license fees to WEC and Hemisphere for providing certain services to Sea-Comm. For the use of the Universe Explorer in both the Semester at Sea and Alaska programs, Sea-Comm has agreed to reimburse the Company for all of its operating costs, all food costs and all of the principal and interest due on the portion of the Loan attributable to the Universe Explorer which is incurred during the approximate 320 days each year that the Universe Explorer is under charter to Sea-Comm. Seawise also reimbursed the Company for $250,000 in expenses it incurred due to the cancellation by the Company of other arrangements for the use of the vessel. The Company used approximately $535,000, which it received from EffJohn pursuant to the Settlement Agreement, to repair certain technical items aboard the vessel. The Company also paid the first $200,000 of renovations to the ship to convert it for use in the Semester at Sea program. Any excess amounts which the Company requires for such conversion will be paid by Seawise. 43 Sea-Comm is managed by a board of directors, which consists of five people, three of which are appointed by the Company and two of which are appointed by Seawise. Two of the Company's executive officers, Messrs. Frederick A. Mayer and Alan Pritzker, the Company's Chief Executive officer and Chief Financial Officer, respectively, act as directors of Sea-Comm. Mr. Mayer and Mr. Pritzker also act as Sea-Comm's President and Secretary, respectively. Sea-Comm's Treasurer was appointed by Seawise. Pursuant to the Agreement, the Company granted Seawise warrants to purchase 250,000 shares of the Company's Common Stock. The warrants are presently exercisable at $6.00 per share and expire on January 7, 2001. THE SEMESTER AT SEA PROGRAM The Semester at Sea, which is administered by the ISE and academically sponsored by the University of Pittsburgh, is a program that takes approximately 500 students from colleges and universities across the United States and abroad around the world each fall and spring semester. Since 1963, over 28,000 students have studied and traveled to 60 countries around the world through this program. Seawise is operating the Semester at Sea program for the first time beginning in the Spring of 1996 aboard the Universe Explorer. The first Semester at Sea voyage operated by Seawise sailed on February 3, 1996 on a 100-day around the world voyage with approximately 580 students. Semester at Sea gives students an opportunity to broaden their horizons through educated travel. Students will travel around the world aboard the Universe Explorer and participate in a unique and dynamic learning environment. A limited number of "non-student passengers" will also participate in each Semester at Sea voyage. Students can choose from approximately 50 lower and upper division courses in a variety of disciplines, including such offerings as anthropology, biology, English, geology, history, fine arts, music, political science, religious studies and theater arts. A number of one-credit courses are also available. Non-student passengers may also attend courses. Courses are accredited by the University of Pittsburgh and are fully transferable to most institutions. Students are required to enroll in a minimum of 12 semester credits during the fall and spring semesters and two courses, or 6 credits, during the summer semester. Each program includes a mandatory three-credit core course which provides an overview of the culture, environment, geography, history and politics of the regions visited. The fall and spring Semester at Sea programs last approximately 100 days. The spring semesters begin in late January or early February and end in early May, and fall voyages depart in mid-September and return in mid-December. A new summer session will be offered in 1996 and will last approximately 56 days. The Universe Explorer will stop at approximately nine ports during the regular semesters and seven ports during the summer session. The summer 1996 itinerary includes the ports of Ensenada, Mexico; Papeete, Tahiti; Auckland, New Zealand; Sydney, Australia; Suva, Fiji; Hilo, Hawaii; and San Diego, California. Ports change with each voyage. While in port, students take advantage of field trips which provide both structured and informal activities enabling them to observe, interact and participate in the local culture. Students may also choose to travel independently. Excursions typically include university visits, cultural performances, visits to archeological sites, museums, orphanages and rural areas. Students are also 44 frequently given opportunities to interact with students and faculty at local universities. Stays in port typically range from two to six days. THE ALASKA PROGRAM Sea-Comm plans to operate one 7-day and three 14-day Alaska cruises in the summer of 1996 onboard the Universe Explorer. All Alaska cruises will begin and end in Vancouver, British Columbia. Ports of call for the 7-day cruise are Ketchikan, Juneau, Wrangell, and Glacier Bay. The 14-day cruises will call at the same ports as well as Sitka, Yakutat Bay/Hubbard Glacier, Seward, Skagway, and Victoria. WEC has been operating Alaska cruises for 19 years. The Company believes that Sea-Comm's operation of WEC's established program will offer a unique opportunity to cruise to Alaska due to its unmatched educational seminars and over 40 optional shore excursions. Although the Alaska program is not part of the Semester at Sea program, the 15,000 volume library will remain on board the Universe Explorer in place of a casino. The passengers are free to use the library to enhance the presentations by guest lecturers or simply to relax and enjoy a quiet place to read. Passengers are also offered unique presentations and educational lectures by guest professors and nature experts from around the world. These presentations provide information about the art, culture, geology and history of the ports-of-call and the region in general. The Company believes that Sea-Comm will be the only operator of Alaska cruises that offers educational seminars in conjunction with a cruise experience. MARKETING AND PROMOTION The ISE promotes the Semester at Sea program through its own network. The ISE recruits campus volunteers on over 200 campuses in the United States and abroad and such volunteers distribute brochures and respond to questions from interested students. In addition, the ISE maintains a list of Semester at Sea alumni and encourages such persons to recruit students for the program. Because of the way Sea-Comm earns revenue from the Semester at Sea program (through a charter), its revenue will not vary materially based on the number of students aboard the vessel. As a result, marketing to student passengers is not of material importance to Sea-Comm. Seawise, on behalf of Sea-Comm, markets Semester at Sea voyages, primarily through the ISE, to non-student passengers through college alumni associations and other education-related groups. Of the 176 berths available for non-student passengers, Seawise has guaranteed that it will procure at least 60 non-student passengers for each voyage during 1996 at pre-set rates. This number will increase in subsequent years. With respect to the Alaska program, Sea-Comm anticipates that WEC will market its cruises through travel agents, and, in general, through the same avenues that the Company markets its Caribbean cruises. WEC's cruise experience can be differentiated from that of its competitors both based on the length of the cruise and on its focus. Although WEC's Alaska cruises will feature all of the cuisine, entertainment and services that cruise passenger have come to expect, they will offer a unique educational undercurrent, which WEC promotes as a unique adventure for the body and soul. The 45 Universe Explorer will feature an extensive library in place of the casino and allow passengers to study the ports the ship visits in depth if they so desire. FACILITIES, ON-BOARD SERVICES AND PROGRAMS The Universe Explorer is a 23,900 gross ton registered vessel, which has nine passenger decks and a capacity for approximately 860 passengers in 363 cabins (based on double occupancy). During the Semester at Sea program, the shipboard campus consists of classrooms with closed circuit television capabilities, a student union, a theater, a 15,000 volume core library, study lounges, and a cafeteria, in addition to standard facilities of any oceangoing vessel. Living areas are supervised by a support team which includes a complete student life staff. The physical set-up on the Universe Explorer has been specifically designed for academic ventures and includes classrooms with blackboards, not substantially different from land-based campuses. A closed- circuit video system further supports classroom instruction. At the students' disposal are also a computer lab, exercise room, swimming pool, campus store, snack bar, and a sports deck for volleyball, basketball and aerobics. Laundry facilities and satellite phone calls and faxes are also available on board. Cabins are available in double, triple and quadruple occupancy for students and single and double occupancy for non-students. The amenities on the Universe Explorer during the Semester at Sea program; however, are not necessarily the same as those aboard the Enchanted Isle. There are no formal dinners (except on a few special occasions), no ballroom and no professional entertainers. However, the program staff includes an adult coordinator who organizes a program of activities specifically geared for the student/adult community. Cabin stewards provide daily limited cleaning and linen services and all meals are served cafeteria-style for students, faculty and staff. Attire is generally casual. The Universe Explorer houses 4 lounges and 2 bars available for students, with alcoholic beverage service limited to beer and wine, and an additional 2 lounges for faculty, staff and adult passengers, which serve a full range of alcoholic beverages. During the months when the Universe Explorer sails on its Alaska itinerary, it is easily transformed back into a luxury cruise chip. Classrooms are restored to lounges and dining areas, and the crew resumes formal meals, maid service and room service. In addition, the ship features all of the amenities and entertainment offered by the Company's other Cruise Ship, the Enchanted Isle, except for casino gambling. Even during the Alaska program, the Universe Explorer retains its substantial library offering passengers the opportunity to learn all about the ports they will visit during their voyage. TICKET REVENUES The cost of Semester at Sea tuition ranges from $12,580 to $14,880 for standard accommodations during the full semesters, and ranges from $6,775 to $8,275 for standard accommodations during the summer semester. Such rates are per person and include tuition, passage fare, room, board, and student fees. Travel to and from ports of embarkation and debarkation, text books, in-country travel, personal expenses and incidental fees are additional. Financial aid is available to some students. Because the Semester at Sea is operated by Seawise, neither the Company nor Sea-Comm earn revenue from student ticket sales. Sea- Comm does, however, earn revenue from ticket sales to non-student passengers. 46 WEC's Alaska cruises are list-priced per person (based on double occupancy) from $1,145 to $1,995 for the 7-day cruise and $2,295 to $3,995 for the 14 day cruises, excluding commissions to travel agents, which will be paid by Sea-Comm. Prices vary depending on size and location of cabin. The cruise price includes shipboard accommodations, use of all the shipboard amenities and all meals. ON-BOARD AND OTHER REVENUES Sea-Comm earns revenues from the Universe Explorer during the Semester at Sea program from beverage and snack bar sales and miscellaneous services. While the vessel is used in the Alaska program, Sea-Comm earns on-board revenue from certain on-board activities and services including beverage sales in a variety of bars, restaurants and lounges, and shore excursions. Additional concession revenue is earned from gift ship sales and the sale of photographs to passengers. COMPETITION Seawise is the exclusive operator of the Semester at Sea program. To the Company's knowledge, there is no other entity which operates a similar shipboard educational program. Seawise competes for student passengers with operators of land-based international educational programs, such as semesters abroad. With respect to adult passengers, Sea-Comm competes with long cruise providers, such as freighters with passenger accommodations and world cruises, and to a lesser degree with traditional world cruises and land-based vacation alternatives. With respect to the Alaska program, Sea-Comm competes with other cruise operators who operate cruises to this region. Some of these operators carry passengers from Canadian ports to Alaska and then return them by air, while other operators carry passengers on a round trip voyage. Sea-Comm also competes for consumer disposable leisure time dollars with other vacation alternatives. SHIP MAINTENANCE AND OPERATION In addition to routine maintenance and repairs performed on an ongoing basis, a vessel is generally taken out of service once every two or three years for a period ranging from one to two weeks, during which time more substantial maintenance work, repairs and improvements are performed in drydock. The Universe Explorer was last taken out of service for maintenance in April 1995 and the Enchanted Isle was last taken out of service for maintenance in February 1996. This work typically is performed during non-peak periods to minimize disruption of the Company's operations and any adverse effect on revenues. To the extent practicable, the ship's crew, catering and hotel staff remain with the ship during such period and assist in performing maintenance and repair work. The Company placed the Universe Explorer in drydock for the purpose of carrying out the repairs detailed in the Settlement Agreement at the Commodore Closing. All such repairs were performed at EffJohn's expense. While the Universe Explorer was in drydock, the Enchanted Isle operated on the itinerary previously served by the Universe Explorer. Following the completion of the repairs, the Universe Explorer commenced operations for Sea-Comm. 47 Due to the age of the Cruise Ships, they are expected to require more maintenance than new vessels. In addition, they are more likely to break down and be removed from service at unscheduled times, which could result in loss of revenue for the Company. During 1994, however, the Universe Explorer was not out of service for unscheduled maintenance. Because the Enchanted Isle was used as a floating hotel during most of 1994, comparable statistics for this vessel are unavailable. SUPPLIERS The Company purchases air transportation, bunker and diesel fuel, food and related products and hotel supplies from independent suppliers and does not expect difficulties in obtaining adequate supplies of these items. The Company is not dependent upon any one supplier for its needs. EMPLOYEES The Company employs approximately 562 people, of whom 505 serve as officers and crew on the Cruise Ships and approximately 57 are employed shoreside in various sales and marketing, as well as administrative and management positions. Pursuant to the terms of the Commodore Acquisition, the Company renewed Old Commodore's contract with the employees who work aboard the Enchanted Isle and Universe Explorer for three month renewable terms. INSURANCE The Company has procured protection and indemnity coverage and oil pollution coverage, as well as other coverage through its insurers for the Cruise Ships. The Company maintains insurance on the hull and machinery of the Cruise Ships in an amount equal to the greater of 100% of the market value of the ship, as such value is agreed upon with the insurer and the mortgage holder of the vessel, or 120% of the outstanding amount of the Loan on the vessel. Coverage for hull and passenger interests (which includes earnings and increased value) is maintained in amounts related to the value of the ship and its anticipated revenues. In addition, the Company maintains war risk insurance on the ship in amounts in excess of the market value of the ship as agreed upon with the insurer. War risk insurance includes protection against liability claims by passengers and crew, as well as other indemnity risks for which coverage would be excluded under the Company's protection and indemnity coverage by reason of war exclusion clauses. The Company also maintains coverage on the Cruise Ships in various amounts for the loss of revenue in the event that either such vessel is unable to operate during scheduled cruise periods as a result of an accident, mechanical failure, or certain additional covered perils. In such event, the Company's insurance would pay up to $53,000 and $60,000 per day of lost service for the Enchanted Isle and Universe Explorer, respectively, up to a maximum of 90 days, subject to a 14-day waiting period. The Company, as required by the FMC, has established insurance coverage in connection with liability for death or injury to passengers with respect to the Enchanted Isle. Such coverage has no limitation, but is subject to a deductible equal to $50,000 per occurrence. The Company also provides a guaranty in respect of liability for non-performance of transportation as required by the FMC with respect to the Enchanted Isle. The Universe Explorer does not sail from U.S. ports, and as such, the Company is not required to maintain such coverages for this vessel. 48 GOVERNMENT REGULATION The Company's vessels are registered in Panama, and are subject to regulations issued by Panama, including regulations issued pursuant to international treaties governing the safety of the ships and its passengers. The country of registry conducts periodic inspections to verify compliance with these regulations. Every five years, the Cruise Ships are subject to an inspection of the hull structure and plating. In addition, ships operating out of U.S. ports are subject to control verification by the U.S. Coast Guard for compliance with international treaties, and by the U.S. Public Health Service for sanitary conditions. The Universe Explorer and The Enchanted Isle will be inspected at least annually by the Panamanian authorities and quarterly by the U.S. Coast Guard, and on a regular basis by the U.S. Public Health Service. The Company believes that the Cruise Ships are in substantial compliance with all applicable regulations and that they have the licenses necessary to conduct their business. The Company has obtained certificates from the FMC relating to its ability to meet obligations to passengers for non-performance of cruises. The Company received certain passenger deposits as part of the Commodore Assets necessary to obtain this certificate. In the future, the Americans with Disabilities Act ("ADA") may be applied to the Cruise Ships to make the Cruise Ships more accessible to disabled persons. The Company cannot project how the ADA will be applied to the Cruise Ships or the costs of compliance. The Company is also subject to various U.S. laws and regulations relating to environmental protection. Under such laws and regulations, the Company will be prohibited from, among other things, discharging materials, such as petrochemicals and plastics, into the waterways. The Company has obtained insurance against the costs of oil pollution occasioned at, or in transit to, sea. The financial costs relating to U.S. environmental laws and regulations are not expected to have a material adverse impact on the Company's results of operations, financial condition or liquidity. The Company believes that it is in compliance with all regulations applicable to the Cruise Ships and has the licenses necessary to conduct its business, however, there can be no assurance thereof. From time to time, legislation and proposed regulations have been introduced which could have an impact upon the Company's operations. During recent years, SOLAS has been amended and will, among other things, require most passenger vessels not fitted with sprinkler systems to install such systems and other safety arrangements, including the addition of smoke detector systems, low-location lighting and enclosed escape stairwells by October 1997. In the event a vessel meets the SOLAS 1974 requirements (without reference to any subsequent amendments thereto), it will not be required to be fitted with a sprinkler system and other safety equipment until on or before October 1, 2005. The Cruise Ships are not currently fitted with any sprinkler systems. The Company believes that the Cruise Ships comply with the SOLAS 1974 requirements, and thus that it will not have to fit them with sprinkler systems and other safety equipment until 2005. Neither the U.S. Coast Guard nor either of the Cruise Ships' classification societies has definitely confirmed that the Cruise Ships meet the SOLAS 1974 requirements. Thus, there is a risk that the Company will have to install such systems aboard the vessels in 1997. The cost of such installation is presently estimated to be approximately $3,000,000 per vessel. The Company has not set aside or otherwise anticipated where it will obtain such funds if it must meet the 1997 deadline. In addition, the 49 installation of the sprinkler systems could require that the Cruise Ships be out of service for as long as three months. There have been efforts in prior Congresses to adopt bills that would apply United States labor laws to non-resident alien crew of foreign registered ships sailing from U.S. ports and to exclude certain foreign-built ships from U.S. ports if they received construction subsidies of a particular type. With respect to the ship construction subsidies, the Cruise Ships are U.S. built and thus would be at risk to such legislation only if it were to apply to conversion and maintenance work performed on the vessels in foreign countries. The application of U.S. labor laws to foreign-registered passenger ships would have a very substantial impact on the cruise industry as a whole and the Company cannot predict the implications on its operations. Such proposed legislation is not presently under consideration by the 104th Congress. The Cruise Ships have been built and they maintain the standards of design, construction and maintenance appropriate to their trades and they are operated and maintained under the continuous maintenance survey system of the American Bureau of Shipping and Lloyds Register of Shipping, respectively. In order for the Company to insure the Cruise Ships, it must comply with the survey and maintenance requirements of each ship's respective classification society. The cost of such required maintenance for older vessels, such as the Cruise Ships, could be high. LEGAL PROCEEDINGS Except as described herein, neither of the Cruise Ships nor the Company is a party to any material legal proceedings, whether pending or known to be contemplated, and the Company knows of no material legal proceedings, pending or threatened, or judgments entered against any director or officer of the Company in his capacity as such. In October 1995, Kristian Stensby filed an action in the Circuit Court in Dade County, Florida against EffJohn, the Lender, the Company, Mr. Mayer and others, alleging that due to the tortious acts or breaches of agreements by various defendants, he did not receive certain fees and/or commissions to which he was allegedly entitled upon the consummation of the sale of the Commodore Assets or use of such assets in a joint venture. Mr. Stensby has not alleged the amount of damages to which he believes he is entitled as a result of the alleged behavior of the various defendants. Recently, the court denied the motion of the Company and its subsidiaries to dismiss this action; however, the Company does not believe that the ultimate resolution of this action will have a material adverse effect on its financial condition. The Company anticipates that it will be subject to claims and suits in the ordinary course of its business in the future, including those arising from personal injury to its passengers. The Company believes that it has obtained insurance in the proper types and amounts to cover such anticipated claims. See "Risk Factors - Certain Business Risks." DESCRIPTION OF PROPERTY New Commodore subleases from EffJohn, on a pass thru basis, approximately 16,000 square feet of office space in Hollywood, Florida. The sublease terminates in June 2000. The Company uses such space for its administrative and management operations. The annual lease payment of 50 approximately $13.50 per square foot does not include taxes, utilities, or certain other operating costs. The base rent will increase by 4% each year during the term of the lease. Taxes, utilities and operating costs amount to approximately an additional $8.22 per square foot. The Company also utilizes a pier at the Port of New Orleans, pursuant to a written agree ment, from which one of its Cruise Ships will depart, and port facilities at various Caribbean locations, pursuant to oral agreements with the respective authorities, as is the custom in the Caribbean. The agreement with the Port of New Orleans, which was assigned to the Company, permits the Company to operate a vessel from New Orleans for six years. The Company has priority use of the terminal on weekends. In the event the Company does not complete 300 sailings during such period (or 50 sailings per year), the Company may extend the agreement for one year, pay a predetermined cancellation fee, or place another vessel in service in New Orleans. No assurance can be given that the Company will be able to continue to use the Caribbean ports under oral agreements, or that if such oral agreements are terminated, the Company will be able to locate acceptable substitute ports. TRADEMARK PROTECTION At the Commodore Closing, the Company acquired domestic and foreign trademark registrations relating to the name "Commodore" and the distinctive Commodore logo. Pursuant to the Acquisition Agreement, the Company has agreed to allow EffJohn to use the name Commodore in connection with a class of ferry service it provides. The Company does not believe that such use will materially interfere with its proposed use of the Trademarks. The Company believes such trademarks are widely recognized throughout North America, although it has not independently verified this belief. The Company has not yet recorded the assignment of certain of the foreign Trademarks due to the costs involved and the potentially limited benefit of certain of such Trademarks, and has not yet determined whether it will do so. As a result, there can be no assurance that the Trademarks do not or will not violate the proprietary rights of others, that the Trademarks would be upheld if challenged or that the Company would not be prevented from using the Trademarks, any of which could have an adverse effect on the Company. In addition, there can be no assurance that the Company will have the financial resources necessary to enforce or defend the Trademarks. The Company is not aware of any actions against the Trademarks and has not received any notice or claims of infringement in respect of the Trademarks. CERTAIN TAX CONSIDERATIONS The following discussion summarizes certain U.S. Federal income tax consequences to the Company and to U.S. persons holding the Company's Common Stock. This discussion is a summary for general information only, and is not a complete analysis of the tax considerations that may be applicable to the Company or to a prospective investor. This discussion also does not address the tax consequences that may be relevant to income of the Company other than from the international operation of ships, as defined in the Code, nor to particular categories of Company stockholders subject to special treatment under certain Federal income tax laws, such as dealers in securities, tax-exempt entities, banks, insurance companies and foreign individuals and entities. In addition, it does not describe any tax consequences arising out of the tax laws of any state, locality or foreign jurisdiction. The discussion is based upon currently existing provisions of the Code, existing and proposed regulations thereunder and current administrative rulings and court decisions. All of the 51 foregoing are subject to change and any such change could affect the continuing validity of this discussion. In connection with the foregoing, investors should be aware that the Tax Reform Act of 1986, as amended (hereinafter, the "1986 Tax Act") changed significantly the U.S. Federal income tax rules applicable to the Company and, in certain cases, to certain holders of its Common Stock (including the Principal Stockholders). Although the relevant provisions of the 1986 Tax Act are discussed herein, those provisions have not yet been the subject of extensive administrative or judicial interpretation. Accordingly, there can be no assurance that such interpretation will not have an adverse impact on an investment in the Company's Common Stock. PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF ANY INVESTMENT IN THE COMPANY'S COMMON STOCK, INCLUDING THE APPLICATION OF FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS. TAXATION OF THE COMPANY - POSSIBLE U.S. TAX EXEMPTION UNDER SECTION 883(A) OF THE CODE. Code section 883(a) generally exempts from U.S. corporate tax the shipping income derived by a foreign corporation whose country of incorporation reciprocally exempts from foreign tax the income of U.S. corporate shipping companies. The Company anticipates that substantially all its income will be from its subsidiaries', that is from New Commodore's, Almira's and Azure's, international operation of ships, as described in Code section 883(a). The Company and New Commodore are incorporated in Bermuda, and New Commodore's subsidiaries, Almira and Azure, are incorporated in Panama. With respect to New Commodore's separate income, Bermuda counsel has advised that there is no corporate income tax in Bermuda. U.S. Treasury regulations indicate that countries that do not impose a corporate income tax such as Bermuda, are viewed as providing a reciprocal exemption. With respect to the bareboat charter income of Almira and Azure from their leases of the vessels to New Commodore, Panama counsel has advised the Company that Panama's exemption from corporate income tax for income earned by a U.S. corporation from maritime activities is broad enough to cover both charter income and operating income. Based upon this advice from Bermuda and Panamanian counsel, the Company believes that Bermuda and Panama will be viewed as providing a reciprocal exemption. Because substantially all the Company's income is anticipated to be derived from foreign corporations whose countries of incorporation, Bermuda and Panama, reciprocally exempt from U.S. tax the income of U.S. corporate shipping companies, the Company would qualify under Section 883(a) for an exemption from U.S. corporate tax on substantially all its income. Section 883(c), however, generally provides that the corporate tax exemption provided by Section 883(a) does not apply unless the stock of the foreign corporate parent or grandparent of the foreign corporation earning the shipping income is "primarily and regularly traded on an established securities market...in the United States" or the corporation is a "Controlled Foreign Corporation" ("CFC") as described below in the section "Taxation of the Company's Stockholders," or certain other criteria are met. Prior to the completion of this Offering, the Company Common Stock has not been "primarily and regularly traded on an established securities market...in the United States"; nor has any of the alternative methods of avoiding the restrictions of Section 883(c) been met. Therefore, since its formation, the Company has been subject to U.S. taxation, although it believes its U.S. tax liability to date has not been material. 52 The Company anticipates, however, that upon completion of this Offering, its Common Stock will be viewed as "primarily and regularly traded on an established securities market...in the United States." In that case, the restrictions of Code section 883(c) would be avoided, and Code section 883(a), which generally exempts from U.S. corporate tax the shipping income derived by a foreign corporation whose country of incorporation reciprocally exempts from its foreign tax the income of U.S. corporate shipping companies, should apply to exempt the shipping income of the Company's subsidiaries. Although no Treasury regulations have been promulgated that explain when a foreign corporation's stock will be considered "primarily and regularly traded on an established securities market" for purposes of Code section 883(c), Treasury regulations have been promulgated interpreting a similar phrase under Section 884 of the Code which, like the phrase in Code section 883, was enacted in the Tax Reform Act of 1986. Under these regulations, the stock exchange must be a U.S. over-the-counter market, such as Nasdaq, or meet certain other criteria. In addition, the stock listed on the exchange must represent 80 percent or more of the total combined voting power and value of the corporation's stock. Thus, for example, if the Series A Preference Shares were to represent more than 20% of the Company's total stock value (due to a decline in value of the listed Common Stock relative to the Series A Preference Shares) during a year, the Company would not be viewed as meeting the "primarily and regularly traded on an established securities market" test. The regulation further generally requires that the stock is regularly quoted by brokers or dealers holding themselves out to buy or sell the stock at the quoted prices, or that trades in the shares take place on at least 60 days during the year and that the annual trading volume is at least 10 percent of the average number of shares outstanding. The regulations further require that 50% or more of the outstanding shares of the listed stock are not owned, directly or indirectly, for more than 30 days during the relevant year by persons who each own 5% or more of the value of the outstanding shares of stock and (a) are not "qualifying stockholders" for purposes of Code section 884 or (b) fail to provide to the Company the required proof of their qualifying status. The Company believes that upon completion of this Offering and the trading of its Common Stock on Nasdaq NMS, its Company Stock will meet the requirements set forth in Code section 883(c) that it be "primarily and regularly traded on an established securities market...in the United States." This will qualify the Company for the tax exemption provided by Code section 883(a), if the quoted phrase in Code section 883(c) is interpreted similarly to the way it is interpreted in the regulations under Code section 884. However, because there are no regulations to date interpreting Code section 883(c), and because satisfying the Regulations under Code section 884 depends upon meeting certain factual tests (e.g., that the Company's Common Stock represents at least 80 percent of the combined value of the Company's Common Stock and Series A Preference Shares) there is no assurance that the Company will qualify for the tax exemption provided by Code section 883(a). Also, other factors could lead to a loss of the reciprocal exemption, such as a de-listing of the Common Stock from Nasdaq (NMS and the Small Cap Market), a change in foreign corporate tax law on shipping income, or a change in Code section 883. In the event that the Company were not eligible for the Code section 883(a) exemption, its international shipping income would be subject to a complex set of tax rules concerning the taxation of foreign corporations engaged in business in the United States. Under these rules, such a foreign corporation may be subject to various U.S. taxes, including the regular U.S. corporation income tax (or alternative minimum tax); an additional branch profits tax; a gross basis tax on certain gross 53 rentals derived from bareboat charters of ships to affiliated or unaffiliated companies; and branch taxes on certain interest paid or accrued. The Company expects that, unless and except to the extent that the Company qualifies for the tax exemption provided by Code section 883(a), it will be subject to these U.S. income taxes. Sea-Comm, the Company's majority owned subsidiary, is incorporated in Liberia. Counsel familiar with Liberian law has advised that Liberia provides a corporate income tax exemption for income earned by a U.S. corporation from the international operating and chartering of ships, including passenger operations, and chartering on a bareboat, time or voyage basis. Based on this advice from counsel familiar with Liberian law, the Company believes that Liberia will be viewed as providing a reciprocal exemption. The Company therefore believes that under Section 883(a) it will be eligible for the exemption from U.S. corporate income tax based on its income from international shipping income. The Section 883(a) exemption should extend to the payments received from Seawise, in the nature of time-charter payments, and also to the passenger revenue derived by Sea-Comm with respect to non-student passengers, during the approximately 258 days per year that the Universe Explorer is used in connection with the Semester at Sea Program. The Section 883(a) exemption should also extend to the passenger revenues from the Universe Explorer's Vancouver to Alaska route. Under Section 883(c), however, the U.S. corporate tax reciprocal exemption otherwise provided to Sea-Comm for its international shipping income under Section 883(a), will not be available unless either the Common Stock of the Company, which is the indirect majority shareholder of Sea-Comm, is "primarily and regularly traded on an established securities market in the United States," or certain alternative tests, which may not be met here, are satisfied. The Company believes that, to date, Sea-Comm's potential U.S. corporate tax liability is not material. Moreover, as discussed above, the Company believes that, upon completion of this Offering and the trading of its Common Stock on Nasdaq NMS, its stock will be viewed as being "primarily and regularly traded on an established securities market in the United States," thereby permitting Sea- Comm to qualify for the U.S. corporate tax exemption under Section 883(a). Nevertheless, as discussed above, there are certain risk factors concerning the ability of the Company's stock to be qualified as "primarily and regularly traded on an established securities market in the United States." If the Company's stock is unable to qualify as being "primarily and regularly traded on an established securities market in the United States," then the Company expects that Sea-Comm, like the Company itself, could be liable for significant U.S. taxes on its international shipping income. Moreover, the Internal Revenue Service has ruled that, in any case, the tax exemption provided under Section 883(a) does not include income from voyages that begin and end in the U.S. and do not stop at any foreign ports. Therefore, the income of Sea-Comm from the approximately 49 days that it is on the Alaska route, which route involves stops only at U.S. ports, will be subject to full U.S. corporate tax as well as U.S. branch tax, even if the Company's stock does qualify as being "primarily and regularly traded on an established securities market in the United States. As a consequence, Sea-Comm's effective U.S. corporate tax rate on such income may be very high. 54 FOREIGN INCOME TAXATION The Company and New Commodore are incorporated in Bermuda. Bermuda counsel has advised the Company that Bermuda does not impose a corporate income tax. Almira and Azure are incorporated in Panama. Panama counsel has advised the Company that Panama does not impose a corporate income tax on the non-Panamanian source income of a Panamanian corporation. The Company does not expect that itself or any of its subsidiaries will have an office in Panama, or that its ships will visit ports in Panama. In that case, Panama counsel has advised that the Company and its subsidiaries will have no Panama source income, and therefore not be subject to Panamanian corporate income tax. Panama counsel has also advised that dividends and interest paid by a Panamanian corporation with no Panamanian source income are not subject to Panamanian withholding tax. Accordingly, New Commodore should not be subject to Panama withholding tax on dividends and interest received from Almira or Azure. Counsel familiar with Liberian law has advised that the Company will not be subject to Liberian tax on its charter payments from Sea-Comm, if, as the Company expects, the Universe Explorer does not make any trips between two Liberian ports. Liberian counsel has also advised that Sea-Comm will not be subject to Liberian tax on its either its direct passenger revenue, or on the receipt of its charter payments from WEC, Hemisphere, or Seawise, if, as the Company expects, the Universe Explorer does not make any trips between two Liberian ports. Counsel familiar with Liberian law has also advised that the Company will not be subject to Liberian tax on any preferred or common dividends received from Sea-Comm, if, as the Company expects, the Universe Explorer does not make any trips between two Liberian ports. The vessels leased by Almira and Azure, and operated or chartered by New Commodore, may visit ports in different foreign countries. In addition, New Commodore may have some incidental business contacts in those or other foreign countries. When the Company is finalizing its routes and related business plan, it will then review the corporate tax laws of those foreign countries to determine how much, if any, corporate income tax liability may be imposed on the Company and its subsidiaries by reason of activities in the those foreign countries. At present, such corporate tax liability cannot be estimated. TAXATION OF THE COMPANY'S STOCKHOLDERS Dividends; Undistributed Income of the Company. A United States person ---------------------------------------------- whose holdings of the Company's Common Stock (including shares such person is considered to own under applicable constructive ownership rules) are less than ten percent of the Company's outstanding Common Stock generally is not required to recognize income by reason of the Company's earnings until such earnings are distributed. Dividends paid by the Company to such a stockholder will be taxable to such stockholder as dividend income to the extent of the Company's current or accumulated earnings and profits. Such dividends generally will not be eligible for any dividends-received deduction. The Company's ability to pay dividends to the holders of its Common Stock is restricted by the terms of the Series A Preference Shares and the Loan. See "Description of Securities Series A Preference Shares" and "Business - the Commodore Acquisition." Regardless 55 of such restrictions, the Company does not anticipate that it will pay dividends on the Common Stock in the foreseeable future. The Company also does not anticipate that it will be a CFC. This is because the Company does not believe that, at any time, United States Ten Percent Stockholders will own a majority in vote or value of its stock. However, due to inter-stockholder purchases and sales, it is conceivable that at some future time the Company will become a CFC. If, contrary to its expectation, the Company is a CFC for an uninterrupted period of 30 days during any taxable year of the Company, a United States Ten Percent Stockholder who owns (or is considered to own) 10% or more of the Company's voting power on the last day of such taxable year on which the Company is a CFC, will generally be required to include in ordinary income his pro rata share of the Company's "subpart F income" for that taxable year and, in addition, certain other items, including, under certain circumstances, the Company's increase in earnings invested in United States property, and amounts of previously excluded subpart F income withdrawn by the Company from investment in certain shipping and related assets, whether or not any amounts are actually distributed to stockholders. Even if, contrary to the Company's expectations, the Company is a CFC, Company stockholders who are not United States Ten Percent Stockholders will not be affected by the CFC and subpart F income provisions. "Subpart F income" includes, among other things, "foreign base company shipping income," which is defined to include income derived from using or chartering a vessel in foreign commerce or from the sale, exchange or other disposition of a vessel. Accordingly, if the Company is a CFC, all but an insubstantial part of the Company's earnings is expected by the Company to be "subpart F income," which will be taxable currently to the Company's United States Ten Percent Stockholders to the extent of their pro rata share. Earnings and profits of the Company already included in income by a United States Ten Percent Stockholder by reason of the CFC provisions discussed above are not again included in income by such United States Ten Percent Stockholder or his assignee when an actual distribution is made. Other distributions by the Company by way of dividends with respect to the Common Stock out of current or accumulated earnings and profits will be taxed to United States Ten Percent Stockholders as ordinary income. In the event that a United States Ten Percent Stockholder is required to include his pro rata share of the Company's "subpart F income" in his ordinary income, the Company will declare a dividend on its Common Stock, if permitted to do so, equal to the highest U.S. income tax rate multiplied by the Company's "subpart F income" for such year. The dividend will be paid pro rata to all Common Stock holders, whether they are United States Ten Percent Stockholders or not. The ability of the Company to pay any such dividend could be limited by the Company's obligations to pay dividends to the holders of the Series A Preference Shares. See "Description of Securities - Series A Preference Shares." Dispositions of Company Common Stock. In general, any gain or loss on the ------------------------------------ sale or exchange of Common Stock of the Company by a stockholder will be capital gain or loss, provided such stock is held as a capital asset. However, if, contrary to the Company's expectations, the Company has been a CFC, any person who was a United States Ten Percent Stockholder of the Company at any time during the five-year period ending on the date of sale or exchange (or a distribution liquidation) when the Company was a CFC may be required to treat all or a portion of the gain from a sale or exchange of Common Stock as ordinary income (to the extent of his proportionate share of certain earnings and profits of the Company) rather than as capital gain. Any 56 capital gain or loss recognized on a sale or exchange of Common Stock will be long-term capital gain or loss if the stockholder has held the Common Stock for more than one year. Other Anti-Deferral Rules. The U.S. also imposes various anti-tax-deferral ------------------------- rules to passive foreign investment companies, personal holding companies, foreign personal holding companies, foreign investment companies, and foreign corporations unreasonably accumulating taxable U.S. earnings. These rules can apply to the foreign corporation, and to U.S. stockholders of a foreign corporation, even if the foreign corporation is not a CFC, and even if the foreign corporation is publicly traded. Where applicable, these rules can directly cause the stockholder to be taxed on the undistributed income of the foreign corporation, or they can impose an interest charge on a U.S. stockholder's deferred tax liability when dividends are actually received or the foreign corporation's stock is sold; or they can impose an additional tax on the foreign corporation on its undistributed income, thereby practically forcing current dividend distributions. However, these rules generally do not apply where substantially all the foreign corporation's activities consist of conducting an active business rather than earning passive income. The Company therefore does not believe that any of these rules will apply to the Company. However, these rules are quite technical and depend heavily on factual determinations, and thus conceivably could apply at some time in the future. ABSENCE OF BERMUDA TAXATION Bermuda counsel has advised that Bermuda does not impose a dividend withholding tax, a capital gains tax, or other type of income tax. Therefore dividends received on the Company's Common Stock will not be subject to any Bermuda dividend withholding tax, and gains on sales of the Company's Common Stock will not be subject to Bermuda capital gains tax. Bermuda counsel has also advised that Bermuda does not impose a gift tax, inheritance tax, or estate tax. 57 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The directors and executive officers of the Company are as follows:
Term as Name Age Position Director Expires - ---- --- -------- ---------------- Jeffrey I. Binder 49 Chairman of the Board 1998 Frederick A. Mayer 62 Vice Chairman of the Board 1998 James R. Sullivan 59 President N/A Alan Pritzker 41 Chief Financial Officer N/A Arnold Adolphus Francis, Q.C./(1)/ 74 Director 1996 A. Robert Miller/(1)/ 55 Director 1996 Hon. Wayne L. Furbert, C.P.A., J.P., M.P./(1)/ 40 Alternate Director 1996 Robin L. Todd/(1)/ 29 Alternate Director 1996
__________________ /(1)/ Under Bermuda law, the Company must have two directors who reside in Bermuda. Accordingly, Messrs. Francis and Miller are Bermuda residents who were appointed to satisfy the requirements of the Companies Act 1981 of Bermuda, and Hon. Furbert and Ms. Todd are their respective alternates. Neither of them nor their alternates has expertise in U.S. law or in the cruise line industry. Jeffrey I. Binder has been Chairman of the Board of the Company since its inception. Since 1991, he has also been Chairman of the Board and a director of TelMed, Inc., a publicly traded company which develops medical products and provides medical related services. From 1989 to the present, he has been the Chairman of the Board and a director of JeMJ Financial Services, Inc., a private holding company. Mr. Binder also served as a director of NAL Financial Group, Inc., a publicly traded company that acquires and services auto leases and loans, from November 1994 until July 1995. Between March 1989 and October 1993, he was the President and a director of Sector Associates, Ltd., a public company engaged, at the time, in the furniture retail business. Due to Mr. Binder's involvement with TelMed, Inc., he will not devote his full time to the Company. Frederick A. Mayer has been Vice-Chairman of the Board and Chief Executive Officer of the Company since its inception. Mr. Mayer has 40 years of experience in the travel and cruise industry. He was a co-founder and Vice Chairman of Regency Cruises, Inc. ("Regency"), which 58 was a publicly traded cruise line company between 1985 and 1993, until March 1995 when he joined the Company. Beginning in 1955, and concurrently with his association with Regency, Mr. Mayer was also President of Exprinter International USA, a travel organization affiliated with Exprinter Panama. He has developed and marketed over 200 theme cruises. Mr. Mayer is also Chairman of the Board and President of Marmara Marine, Inc., which owns the S/S United States. In November 1995, Regency filed for Chapter 11 bankruptcy protection. James R. Sullivan was appointed President of the Company in May 1995. Prior to such time he was President of the Sullivan Group, a marketing consulting company located in Weston, Connecticut, which he formed in 1993. Prior to 1993, Mr. Sullivan was a senior executive with Cunard Line Ltd. ("Cunard") for 20 years in the company's cruise and hotel/resort sectors. He joined Cunard as Vice President of Marketing and Sales of Cunard's hotels and resorts in 1973, and became Vice President of Sales for Ships and Hotels in 1977. In 1981, he became Senior Vice President of Marketing and Sales and was named to Cunard's Board of Directors in London. During this period, Cunard acquired Norwegian American Cruises and Sea Goddess Cruises. He also served two different terms as Vice Chairman of CLIA, the national cruise industry trade group, during the 1980's, and was Chairman of CLIA's marketing committee during this period. From 1989 to 1993, Mr. Sullivan was Senior Vice President, Director of Cunard's Eastern Hemisphere, headquartered in London. Alan Pritzker was appointed Chief Financial Officer of the Company in May 1995. Prior to such time, Mr. Pritzker was employed by Regency. Mr. Pritzker acted as Regency's Controller between 1985 and 1989, and then as its Senior Vice President Finance, until joining the Company. While at Regency, he was responsible for all accounting and financing functions, information filings as well as the quarterly filings with the Securities and Exchange Commission. In November 1995, as described previously, Regency filed for Chapter 11 bankruptcy protection. Prior to joining Regency, Mr. Pritzker was employed by Holland America Line and Vacation Travel Concepts, a travel wholesaler, in various positions. Arnold Adolphus Francis, CBE, Q.C., J.P. has been a Director of the Company since its formation. Mr. Francis has been a partner in Richards, Francis & Francis, a law firm based in Bermuda since 1980. Richards, Francis & Francis acts as Bermuda counsel to the Company. A. Robert Miller has been a Director of the Company since its formation. Mr. Miller has been an associate in Richards, Francis & Francis. Prior to 1992, Mr. Miller was self-employed as an attorney. Robin L. Todd was appointed as an Alternate Director for Mr. Miller upon the Company's formation. Ms. Todd has been an associate in Richards, Francis & Francis. From 1993 until 1994, she was an attorney with Jacques & Lewis in London. Prior to 1993, Ms. Todd was a student. Honorable Wayne L. Furbert, C.P.A., J.P., M.P. was appointed as an Alternate Director for Mr. Francis upon the Company's formation. Mr. Furbert has been the financial controller of Richards, Francis & Francis, since 1983. He has also been Chairman of the Finance Committee of the Bermuda Hospitals Board since 1982 and is Minister of Community and Cultural Affairs in Bermuda. 59 For as long as it holds at least 125,000 Series A Preference Shares, EffJohn has the right to designate one member of the Company's Board of Directors. To date, EffJohn has not exercised that right. The Company has also agreed to appoint a representative of the Underwriter as an advisor to, or in lieu thereof, as a member of, the Company's Board of Directors for three years after the date of this Prospectus. In addition to the foregoing, the Company plans to appoint up to three additional directors, including two non-employee directors, to its Board. The identities of such persons are unknown as of the date of this Prospectus. CLASSIFIED BOARD OF DIRECTORS The Board of Directors is divided into three classes. One class holds office initially for a term expiring at the annual meeting of stockholders to be held in 1996, a second class will hold office initially for a term expiring at the annual meeting of stockholders to be held in 1997 and a third class holds office initially for a term expiring at the annual meeting of stockholders to be held in 1998. Each Director will hold office for the term to which he is elected and until his successor is duly elected and qualified. Messrs. Francis and Miller have terms expiring in 1996, the directors to be appointed will have terms expiring in 1997, and Messrs. Binder and Mayer have terms expiring in 1998. At each annual meeting of the stockholders of the Company, the successors to the class of Directors whose terms expire at such meeting will be elected to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election. The Board of Directors elects officers annually and such officers serve at the discretion of the Board of Directors. At present the Board of Directors has not established any committees. After the completion of this Offering, the Board of Directors plans to establish both an audit committee and a compensation committee. The majority of the members of each such committee will be outside directors. COMPENSATION OF DIRECTORS Members of the Company's Board of Directors currently do no receive any compensation for service as members of the Board. Directors, however, are entitled to reimbursement for reasonable expenses incurred in connection with attending any Board meeting. COMPENSATION OF EXECUTIVE OFFICERS Summary Compensation Table The following table sets forth information with respect to total compensation earned or paid by the Company to the Chief Executive Officer of the Company during the fiscal year ended 60 September 30, 1995. Because the Company was only formed in April 1995, none of the Company's other executive officers earned cash compensation in excess of $100,000 during such fiscal year.
Long Term Compensation Annual Compensation(1) Awards -------------------------- ----------- Number of Name and Principal Position Year Salary Bonus Warrants - --------------------------- ---- ------ ----- -------- Frederick A. Mayer, Vice- 1995 $37,019(2) $ -- 200,000 Chairman of the Board and Chief Executive Officer
____________________ (1) The Company was formed in April 1995. As a result, the compensation shown in this table reflects amounts paid to the Company's executive officers for only a portion of a fiscal year. If the Company's current executive officers had been employed for a full fiscal year as of September 30, 1995, the following additional officers would have been included in this table at the following annualized salaries: Jeffrey I. Binder, Chairman of the Board, $150,000; and James A. Sullivan, President, $150,000. See "Employment Agreements" below. (2) Reflects amounts earned by Mr. Mayer since he began his employment with the Company in May 1995. Mr. Mayer's annualized salary is $175,000. See "Employment Agreements" below. WARRANT GRANTS IN LAST FISCAL YEAR The following table provides information regarding the grant of stock warrants to the Chief Executive Officer in fiscal 1995. In addition, hypothetical gains of 5% and 10% are shown for these stock warrants. These hypothetical gains are based on assumed rates of annual compound stock price appreciation of 5% and 10% from the date the stock warrants were granted over the full warrant term. No stock warrants were exercised in fiscal year 1995.
POTENTIAL REALIZABLE VALUE AT ASSUMED % OF TOTAL ANNUAL RATES OF STOCK NUMBER OF WARRANTS GRANTED EXERCISE APPRECIATION FOR WARRANTS TO EMPLOYEES IN PRICE PER EXPIRATION WARRANTS TERM(3) --------------------- NAME(1) GRANTED(2) FISCAL YEAR 1995 SHARE(3) DATE 5% 10% - ------- ---------- ---------------- -------- ---- -- --- Frederick A. Mayer 200,000 24% $1.00 May 4, 2002 $81,420 $189,743
_________________________ (1) If the Company's current executive officers had been employed for a full fiscal year as of September 30, 1995, the following additional officers would have been included in this table: Jeffrey I. Binder and James A. Sullivan. See "Compensation of Executive Officers." The terms of the stock warrants granted to such officers are summarized elsewhere herein. See "Employment Agreements." 61 (2) All warrants are fully vested. (3) If the 5% or 10% annual compound stock price appreciation shown in the table were to occur, the per share price of the Common Stock would be $1.40, and $1.95, on May 4, 2002, respectively. FISCAL YEAR-END WARRANT VALUES The following table provides information regarding the warrants held by the named executive officer as of September 30, 1995. The named executive officer did not exercise any warrants in fiscal 1995.
Number of Securities Value of Underlying Unexercised Unexercised in-the-Money Warrants at Fiscal Warrants at Fiscal Name(1) Year-End(2) Year-End - ---- -------- -------- Frederick A. Mayer 200,000 $600,000
____________________ (1) If the Company's current executive officers had been employed for a full fiscal year as of September 30, 1995, the following additional executive officers would have been included in this table: Jeffrey I. Binder and James A. Sullivan. Mr. Binder and his affiliates own warrants to purchase 500,000 shares of Common Stock. All of such warrants are presently exerciseable, but none of such warrants is in-the-money. Mr. Sullivan owns warrants to purchase 100,000 shares of Common Stock. None of Mr. Sullivan's warrants is exercisable but their value at 1995 fiscal year-end was $300,000. (2) All warrants are presently exercisable. EMPLOYMENT AGREEMENTS As of May 3, 1995, the Company entered into a five year employment agreement with its Chairman of the Board, Mr. Jeffrey I. Binder. Pursuant to such employment agreement, Mr. Binder receives an annual salary of $150,000, to be increased 4% annually, and certain perquisites. Mr. Binder's employment agreement is renewable, at the option of the Company, for two additional years. Upon termination of Mr. Binder's employment, he has agreed not to compete with the Company for one year under certain circumstances described therein. In the event a change of control of the Board of Directors of the Company occurs, he shall receive compensation for the greater of one year or the remainder of his employment term. As of May 3, 1995, the Company entered into a two year employment agreement with Mr. Frederick A. Mayer, its Chairman of the Board of Directors, and Chief Executive Officer. Pursuant to the employment agreement, Mr. Mayer receives an annual salary of $175,000, to be increased 4% annually, and certain perquisites. Mr. Mayer also received a seven year warrant to purchase 200,000 shares of Common Stock at an exercise price of $1.00 per share. Mr. Mayer has certain rights to demand registration of the shares of Common Stock underlying his warrant; 62 however, the sale of such shares is subject to a 12 month lock-up period. The Company has the option to renew Mr. Mayer's employment agreement for two additional years. Upon termination of Mr. Mayer's employment, he has agreed not to compete with the Company for one year under certain circumstances described therein. In the event a change of control of the Board of Directors of the Company occurs, he shall receive compensation for the greater of one year or the remainder of his employment term. As of May 3, 1995, the Company entered into a two year employment agreement with Mr. James A. Sullivan, its President. Pursuant to the employment agreement, Mr. Sullivan receives an annual salary of $150,000 and certain perquisites. Mr. Sullivan also received a seven year warrant to purchase 100,000 shares of Common Stock at an exercise price of $1.00 per share. The Company has the option to renew Mr. Sullivan's employment agreement for two additional years. Upon termination of Mr. Sullivan's employment, he has agreed not to compete with the Company for one year under certain circumstances described therein. In the event a change of control of the Board of Directors of the Company occurs, he shall receive compensation for the greater of one year or the remainder of his employment term. As of May 3, 1995, the Company entered into a two year employment agreement with Mr. Alan Pritzker, its Vice President, Finance and Chief Financial Officer. Pursuant to the employment agreement, Mr. Pritzker receives an annual salary of $99,000. Mr. Pritzker also received a seven year warrant to purchase 25,000 shares of Common Stock at an exercise price of $1.00 per share. The Company has the option to renew Mr. Pritzker's employment agreement for two additional years. Upon termination of Mr. Pritzker's employment, he has agreed not to compete with the Company for one year under certain circumstances described therein. STOCK OPTION PLAN In April 1995, the Company adopted the Plan pursuant to which 500,000 shares of Common Stock have been reserved for issuance upon exercise of options designated as "incentive stock options" or "non-qualified options" within the meaning of Section 422A of the Internal Revenue Code of 1986, as amended (the "Code"). The purpose of the Plan is to encourage stock ownership by certain officers and employees of the Company, and give them a greater personal interest in the success of the Company. The Plan is administered by the Board of Directors of the Company, or a committee appointed by the Board of Directors, which determines among other things, the persons to be granted options under the Plan, the number of shares subject to each option and the option price. The exercise price of any stock option granted under the Plan may not be less than the fair market value of the shares subject to the option on the date of grant, provided, however, that the exercise price of any incentive option granted to an eligible employee owning more than 10% of the outstanding Common Stock may not be less than 110% of the fair market value of the shares underlying such option on the date of grant. The term of each option and the manner in which it may be exercised is determined by the Board of Directors, or a committee appointed by the Board of Directors, provided that no option may be exercisable more than 10 years after the date of grant and, in the case of an incentive option granted to an eligible employee owning more than 10% of the Common Stock, such option shall be 63 exercisable no more than five years after the date of grant. Options may be granted to officers and employees. In the event of death or disability, options may be exercised during a twelve month period following such event. In the event of retirement of an option holder who is an officer or employee of the Company, an option must be exercised within three months of the date of termination. In the event that an option holder is terminated other than pursuant to death, disability or retirement, all options must be exercised by the date of termination. Options will not be transferable, except upon death of the optionee. As of the date of this Prospectus, there were no outstanding options under the Plan. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Company's Board of Directors sets the compensation for the Company's executive officers. At present, the Board has not appointed a separate committee to perform this function. Two executive officers of the Company, Messrs. Binder and Mayer, are members of the Company's Board of Directors. Each of Mr. Binder and Mr. Mayer, respectively, abstains from voting on issues concerning his own proposed compensation. SECURITIES OWNERSHIP OF PRINCIPAL AND INITIAL SELLING STOCKHOLDERS The following table sets forth certain information with respect to the beneficial ownership of the Company's Common Stock, as of the date of this Prospectus, and as adjusted to reflect the sale of all the Common Stock offered by the Initial Selling Stockholders as part of the Units offered hereunder, by: (i) each of the Company's directors and named executive officers, (ii) each person who is known by the Company to own beneficially more than 5% of the outstanding Common Stock, (iii) all of the Company's directors and executive officers as a group, and (iv) each Initial Selling Stockholder. Except as indicated below, the address for each 5% stockholder is c/o Commodore Holdings Limited, 4000 Hollywood Boulevard, Suite 385, South Tower, Hollywood, Florida 33021. 64
SHARES BENEFICIAL OWNERSHIP BEING BENEFICIAL OWNERSHIP PRIOR TO OFFERING(2) OFFERED AFTER THE OFFERING(2) --------------------- ------- -------------------- NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT - ---------------- ------ ------- ------ ------- Eff-Shipping, Ltd./(1)/ 1,006,979 17.0% 0 1,006,979 15.6% c/o EffJohn North America Suite 108, The Atrium Center 1515 N. Federal Highway Boca Raton, Florida 33432 Jeffrey I. Binder, 1,000,000 20.2% 0 1,000,000 18.4% Rosalie Binder and JeMJ Financial Services, Inc./(3)/ Frederick A. Mayer/(4)/ 500,000 9.7% 0 500,000 8.8% Arnold Adolphus Francis, Q.C. 0 0% 0 0 0% Hon. Wayne L. Ferbert, 0 0% 0 0 0% C.P.A., J.P., M.P. A. Robert Miller 0 0% 0 0 0% Robin L. Todd 0 0% 0 0 0% [ADD INITIAL SELLING STOCKHOLDERS] Directors and Officers as a 1,500,000 29.2% 0 1,500,000 26.6% Group/(5)/ (6 persons)
____________________ /(1)/ Represents Series A Preference Shares, which Eff-Shipping may convert into 1,006,979 shares of Common Stock. In the event the Company's earnings per share increase, this number may decrease accordingly. See "Description of Securities - Series A Preference Shares." /(2)/ Unless otherwise noted, the Company believes that all persons named in the table have sole voting and investment power with respect to all shares of Common Stock beneficially owned by them. The percentages beneficially owned assume that none of the Series A Preference Shares has been converted into Common Stock and that the Over-Allotment Option is not exercised. /(3)/ Mr. Binder owns 500,000 shares of Common Stock together with his wife, as tenants-by-the-entireties. JeMJ Financial Services, Inc., a company controlled by Mr. Binder, owns 500,000 shares of Common Stock. This amount excludes 500,000 shares of Common Stock which Mr. Binder, his wife and JeMJ have a right to purchase at $6.00 per share pursuant to warrants, which warrants are presently exercisable. /(4)/ Includes a warrant to purchase 200,000 shares of Common Stock, which is presently exercisable. /(5)/ Excludes 500,000 shares of Common Stock which such persons may acquire pursuant to warrants which are presently exercisable at $6.00 per share. 65 CERTAIN TRANSACTIONS In April 1995, the Company issued 12,000 shares of its Common Stock to Jeffrey I. Binder, the Company's Chairman, for $12,000 in conjunction with the organization of the Company. On April 26, 1995, the Company authorized the split of its Common Stock, and each share of its outstanding Common Stock was exchanged for 100 shares of Common Stock. Subsequent to such date, Mr. Binder contributed approximately an additional $988,000 for such Common Stock and transferred half of such Common Stock to an affiliate. On May 12, 1995, the Company repurchased 200,000 shares of Common Stock from Mr. Binder for par value. On May 4, 1995, the Company issued warrants at what it considered present market value to purchase a total of 325,000 shares of Common Stock to Messrs. Mayer, Sullivan and Pritzker, who are executive officers of the Company and/or its subsidiaries. Such warrants were issued pursuant to each such officer's respective employment agreement and are exercisable at $1.00 per share, at varying vesting periods. The Company also issued 300,000 shares of Common Stock to Mr. Mayer on May 12, 1995 for $200,000. On July 14, 1995, the Company issued warrants to its Chairman, Mr. Jeffrey I. Binder and his wife, Rosalie Binder, as well as to JeMJ Financial Services, Inc., a company controlled by Mr. Binder (the "Binder Warrants"). The Binder Warrants entitle the holders to purchase collectively up to 500,000 shares of Common Stock at an exercise price of $6.00 per share. The Binder Warrants expire seven years after the date of their issuance. The Binder Warrants became exercisable upon issuance, and contain certain anti-dilution and registration rights provisions and other terms as were determined by the Board of Directors of the Company. The sale of the Common Stock underlying the Binder Warrants is subject to a 12 month lock-up period. As part of the Purchase Price for the Commodore Assets, the Company paid $5,000,000 to EffJohn and issued it 1,000,000 Series A Preference Shares. In addition, the Lender loaned the Company $24,500,000 pursuant to the Loan. The Loan is secured by substantially all of the assets of the Company, including first preferred ship's mortgages on the Cruise Ships. See "Business -The Commodore Acquisition." Several of the Company's stockholders are principals in International Marine Carriers ("IMC"), a vessel manager employed by the Company. The Company has entered into an agreement with IMC to act as manager for the Cruise Ships for two years, subject to successive one year renewals at the written request of the Company. The Company paid IMC $130,235 for services rendered during the partial fiscal year ended September 30, 1995 and has agreed to pay IMC $585,000 during the 1996 fiscal year for the management of the Enchanted Isle and $219,000 for the management of the Universe Explorer. During fiscal 1995, the Company used several bank facilities, primarily for credit card processing and deliveries of cash to and from the Company's vessels, that belonged to affiliates of EffJohn. The Company has since arranged for its own processing services. On July 14, 1995, the Company and EffJohn entered into the Settlement Agreement related to the Commodore Acquisition. In this agreement, EffJohn agreed to fix certain technical deficiencies in both the Universe Explorer and the Enchanted Isle and to pay the Company charter 66 fees if EffJohn did not charter the Universe Explorer. EffJohn paid the Company $425,000 pursuant to this agreement in fiscal 1995 and paid the Company an additional $425,000 in fiscal 1996. As part of the Commodore Acquisition, the Company entered into a sublease agreement with Old Commodore to lease an IBM AS/400 computer system. The lease is treated as a capital lease for financial statement purposes, and the Company owed $223,960 at September 30, 1995. DESCRIPTION OF SECURITIES GENERAL The Company is a Bermuda "exempted company," which means that it is exempt from the requirement of the Companies Act 1981, as amended (the "Companies Act"), that "local" companies be at least 60% owned and controlled by Bermudans. The following summary is a description of certain provisions of the Company's Memorandum of Association ("Memorandum") and Bye-laws. Such summary does not purport to be complete and is subject to, and is qualified in its entirety by, all of the provisions of the Memorandum and Bye-laws, including the definitions therein of certain terms. UNITS Each Unit consists of one share of Common Stock and one redeemable Warrant to purchase one-half share of Common Stock for $6.00 per share. The Warrants are exercisable only in pairs, with each two Warrants entitling the registered holder to purchase one share of Common Stock. The Common Stock and Warrants, which constitute a Unit, will be detachable and separately tradeable at such time as the Underwriter determines, in its sole discretion. The Units will not be quoted on any stock exchange or automated quotation system. COMMON STOCK The Company is authorized to issue 100 million shares of Common Stock. Holders of Common Stock are entitled to one vote for each share held on all matters submitted to a vote of stockholders. There is no cumulative voting with respect to the election of directors, with the result that the holders of more than 50 percent of the shares who vote in the election of directors can elect all of the directors except the director that may be elected by EffJohn during the time it owns at least 125,000 Series A Preference Shares. Holders of Common Stock are entitled to receive ratably such dividends, if any, as may be declared by the Board of Directors of the Company out of funds legally available therefor and after payments to holders of the Series A Preference Shares and any other series of preferred stock outstanding. Upon the liquidation, dissolution or winding up of the Company, the holders of Common Stock are entitled to receive ratably the net assets of the Company after payment of all debts and liabilities and payments to holders of the Company's Series A Preference Shares and any other series of preferred stock outstanding. Holders of Common Stock have no preemptive, subscription, redemption or conversion rights. The Company's Bye-laws provide that the quorum required for a meeting of stockholders is stockholders representing more than 50% of the total votes able to be cast. An amalgamation of the 67 Company, which includes a merger or consolidation, requires the approval of stockholders representing more than 50% of the total votes cast at a meeting at which a quorum is established. The Company's Bye-laws further provide that the approval of stockholders representing more than 50% of the total votes able to be cast is required to amend the Memorandum and Bye-laws with respect to certain matters, including, without limitation, the voting provisions and other matters set forth above. The outstanding shares of Common Stock are, and the Shares of Common Stock offered by the Company in this Offering, when issued and paid for, will be, fully paid and non-assessable. Prior to the Offering, there were 4,931,933 shares of Common Stock outstanding held by 130 stock holders of record. WARRANTS The Company proposes to issue an aggregate of 1,000,000 Warrants to purchase up to an aggregate of 500,000 shares of Common Stock in this Offering. The Warrants are exercisable only in pairs, with each two Warrants entitling the registered holder to purchase one share of Common Stock. The Warrants will be issued pursuant to an agreement (the "Warrant Agreement") between the Company and Stock Trans, Inc., as warrant agent (the "Warrant Agent"). None of the Warrants have been issued prior to the Offering. The following discussion of certain terms and provisions of the Warrants is qualified in its entirety by reference to the detailed provisions of the Warrant Agreement and the Warrant certificates, the forms of which have been filed as an exhibit to the Registration Statement of which this Prospectus forms a part. Each two Warrants entitle the holder to purchase one share of Common Stock at an exercise price of $6.00 per share. The Warrants may be exercised at any time commencing one year after the date of this Prospectus until they expire five years after the date of this Prospectus. The Warrants may be redeemed by the Company at any time, commencing one year after the date of this Prospectus, at a redemption price of $.05 per Warrant upon 25 days prior written notice, provided the average closing bid price of the Common Stock for 20 consecutive trading days ending not more than 15 days prior to the date of any redemption notice is in excess of $9.00 per share. Warrant holders shall have exercise rights until the close of the business day preceding the date fixed for redemption. In order for a holder to exercise a Warrant, and as required in the Warrant Agreement, there must be a current registration statement on file with the Securities and Exchange Commission pertaining to the shares of Common Stock underlying the Warrants, and such shares must be registered or qualified for sale under the securities laws of the state in which such Warrant holder resides or such exercise must be exempt from registration in such state. The Company will be required to file post-effective amendments to the Registration Statement, of which this Prospectus forms a part, during the nine-month period from the date hereof, when events require such amendments. In addition, the Company has agreed with the Underwriter to use its best efforts to keep the Registration Statement covering the shares underlying the Warrants current and effective. There can be no assurance however, that such Registration Statement (or any other Registration Statement filed by the Company to cover shares of Common Stock underlying the Warrants) can be kept current. If a Registration Statement covering such shares of Common Stock is not kept current 68 for any reason, of if the shares underlying the Warrants are not registered in the state in which a holder resides, the Warrants will not be exercisable and will be deprived of any value. Holders of the Warrants will be protected against dilution upon the occurrence of certain events, including, but not limited to the issuance of any Common Stock or other securities convertible or exercisable for Common Stock at a price per share less than the exercise price or the market price of the Common Stock, or in the event of any stock dividend, stock split, reclassification, recapitalization, stock combination or similar transaction. However, holders of the Warrants will have no voting rights and will not be entitled to dividends. In the event of liquidation, dissolution or winding up of the Company, holders of Warrants will not be entitled to participate in any distribution of the Company's assets. The purchase price payable upon exercise of the Warrants is to be paid in lawful money of the United States. The Company is not required to issue certificates representing fractions of shares of Common Stock upon the exercise of Warrants, but with respect to any fraction of a share, it will make payment in cash based upon the market price of the Common Stock as determined by the Warrant Agent. TRANSFER AGENT AND WARRANT AGENT The transfer agent and registrar for the Common Stock and the Warrants is Stock Trans, Inc., 7 East Lancaster Avenue, Ardmore, Pennsylvania 19003. PREFERRED STOCK The Company is authorized to issue 10 million shares of preferred stock. The Bye-laws authorize the Board of Directors (without stockholder approval), among other things, to issue such preferred stock, with such rights and limitations as the Board of Directors may subsequently determine. Among other designations, the Board of Directors may determine (i) the dividend rate and conditions and the dividend preferences, if any; (ii) whether dividends would be cumulative and, if so, the date from which dividends on such series would accumulate; (iii) whether, and to what extent, the holders of such series would enjoy voting rights, if any, in addition to those prescribed by law; (iv) whether, and upon what terms, such series would be convertible into or exchangeable for shares of any other class of capital stock or other series of preferred shares; (v) whether, and upon what terms, such series would be redeemable; (vi) whether or not a sinking fund would be provided for the redemption of such series and if so, the terms and conditions thereof; and (vii) the preference, if any, to which such series would be entitled in the event of voluntary or involuntary liquidation, dissolution or winding up of the Company. Any particular series of preferred shares may rank junior to, on a parity with or senior to any other class of the Company's capital stock, including any other series of preferred shares, except that no such series of preferred stock may rank senior to or on a parity with the Series A Preference Shares, without the approval of the holders of the Series A Preference Shares. Thus, the Board of Directors, without the approval of the holders of Common Stock, could authorize the issuance of a series of preferred shares with voting, conversion and other rights that could affect the voting power and other rights of the holders of Common Shares or that could have the effect of delaying, deferring or preventing a change in control of the Company. 69 SERIES A PREFERENCE SHARES In July 1995, the Company issued 1,000,000 Series A Preference Shares to EffJohn at the Commodore Closing in partial payment for the Commodore Assets. On April 1, 1996, the Company issued an additional 6,979 Series A Preference Shares to EffJohn in satisfaction of a dividend obligation. The following is a summary of the principal features of the Series A Preference Shares. This summary does not address all of the rights and preferences of the Series A Preference Shares. The Series A Preference Shares are entitled to a preference with respect to dividends, liquidation or a distribution of assets of the Company over any other shares of capital stock of the Company. In the event of any such liquidation or distribution of assets, the holders of the Series A Preference Shares will receive any accrued but unpaid dividends and USD$4.00 per Series A Preference Share before the holders of other series of preferred stock or the Common Stock receive any distribution of the Company's assets. The holders of the Series A Preference Shares are entitled to receive a dividend equal to seven (7) percent of the issuance price of the Series A Preference Shares prior to the payment of dividends on the Common Stock. Unpaid dividends will accumulate from year to year, and the maximum amount which may be paid to the holders of the Series A Preference Shares in any year is 10 percent of the net profits of the Company for such year. Dividends in excess of this amount may be paid in additional Series A Preference Shares or Common Stock. The Series A Preference Shares are not entitled to vote except on the following matters: (i) matters relating to the winding up of the Company, (ii) matters relating to the alteration of the terms of the Series A Preference Shares, or (iii) in the event that the Company has not paid any part of the dividend on the Series A Preference Shares for two consecutive years, on all matters on which holders of Common Stock would be entitled to vote. When voting, each Series A Preference Share receives one vote. The holders of the Series A Preference Shares shall have the option, at any time, to convert any or all of their Series A Preference Shares into Common Stock of the Company at a conversion rate equal to the greater of USD$4.00 per share or a price per share equal to 8 times the Company's earnings per share for its prior fiscal year. In addition, the holders of the Series A Preference Shares may sell up to approximately 45,000 such shares in any 90-day period to third parties at any time after the Commodore Closing and prior to the date upon which the Common Stock becomes listed on Nasdaq, subject to compliance with applicable securities laws. The Company has the option to redeem all or any part of the Series A Preference Shares at USD$4.00 per share at any time commencing three years after their issuance subject to the right of EffJohn to convert its Series A Preference Shares upon receipt of the notice. As long as EffJohn holds at least 125,000 Series A Preference Shares, it has the nontransferable right to appoint one person to the Company's Board of Directors. 70 DIFFERENCES IN CORPORATE LAW The Companies Act of Bermuda differs in certain respects from laws generally applicable to U.S. corporations and their stockholders. Set forth below is a summary of certain significant provisions of the Companies Act (including any modifications adopted pursuant to the Company's Bye-laws) applicable to the Company, which differ in certain respects from provisions of Delaware corporate law. The comparison of the Companies Act to Delaware law provides only a basis of comparison and in no way means that the corporate law of Delaware is the same as that of other U.S. states. The following statements are summaries of some of the provisions of the Companies Act, and do not purport to deal with all aspects of Bermuda law that may be relevant to the Company, its officers, directors and its stockholders. See "Risk Factors - Rights of Security Holders Under Bermuda Law May Be Less Than Under U.S. Jurisdictions." Interested Directors. The Bye-laws provide that any transaction entered into by the Company in which a director has an interest is not voidable by the Company nor can such director be liable to the Company for any profit realized pursuant to such transaction provided the nature of the interest is disclosed at the first opportunity: (i) at a meeting of directors or in writing to the directors, and (ii) to the Company's auditors, upon their request. Under Delaware law no such transaction would be voidable if (i) the material facts as to such interested director's relationship or interests are disclosed or are known to the board of directors and the board in good faith authorizes the transaction by the affirmative vote of a majority of the disinterested directors, (ii) such material facts are disclosed or are known to the stockholders entitled to vote on such transaction and the transaction is specifically approved in good faith by vote of the stockholders or (iii) the transaction is fair as to the corporation as of the time it is authorized, approved or ratified. Loans to Directors. The Companies Act generally forbids loans to directors without the prior approval of stockholders who hold 90% of the Common Stock of the Company at a general meeting of stockholders. Delaware law does not contain a similar provision. Mergers and Similar Arrangements. The Company may acquire the business of another Bermuda company similarly exempt from Bermuda taxes or a company incorporated outside Bermuda and carrying on such business when it is within the objects of its Memorandum. The Company may "amalgamate" (merge or consolidate) with another Bermuda company or a foreign corporation if such amalgamation is approved by the board of directors and the holders of a majority of the Common Stock at a meeting at which a quorum is established. While a dissenting stockholder may have the right to express to a Bermuda court his view that the transaction sought to be approved would not provide the stockholders with the fair value of their shares, the court ordinarily would not disapprove the transaction on such ground absent evidence of fraud or bad faith. The Bermuda court would, however, assess the fair value of such dissenting stockholder's Common Stock, and the dissenting stockholder would be entitled to receive this amount, in cash, in lieu of the consideration such dissenting stockholder would otherwise receive in the transaction. Under Delaware law, with certain exceptions, any merger, consolidation or sale of all or substantially all the assets of a corporation must be approved by the board of directors and a majority of the outstanding shares entitled to vote. Under Delaware law, a stockholder of a corporation participating in certain major corporate transactions may, under varying circumstances, be entitled to appraisal rights pursuant to which such stockholder may receive cash in the amount of the fair market value of the shares held by such stockholder (as determined by a court or by agreement of the corporation and the stockholder) in lieu 71 of the consideration such stockholder would otherwise receive in the transaction. Delaware law does not provide stockholders of a corporation with voting or appraisal rights when the corporation acquires another business through the issuance of its stock or other consideration (i) in exchange for the assets of the business to be acquired, (ii) in exchange for the outstanding stock of the corporation to be acquired or (iii) in a merger of the corporation to be acquired with a subsidiary of the acquiring corporation. Takeovers. Bermuda law provides that where an offer is made for shares of another company and, within four months of the offer the holders of not less than 90% of the shares which are the subject of the offer accept, the offeror may by notice require the nontendering stockholders to transfer their shares on the terms of the offer. Dissenting stockholders may apply to the court within one month of the notice objecting to the transfer. The burden is on the dissenting stockholders to show that the court should exercise its discretion to enjoin the required transfer, which the court will be unlikely to do unless there is evidence of fraud or bad faith or collusion as between the offeror and the holders of the shares who have accepted the offer as a means of unfairly forcing out a minority stockholder. Delaware law provides that a parent corporation, by resolution of its board of directors and without any stockholder vote, may merge with any 90% or more owned subsidiary. Upon any such merger, dissenting stockholders of the subsidiary would have appraisal rights. Acquisition of Minority Shares. The holders of at least 95% of the Common Stock (the "Majority Stockholders") may force the holders of 5% or less of the Common Stock (the "Remaining Stockholders") to sell their Common Stock to the Majority Stockholders under Bermuda law. If the Remaining Stockholders are dissatisfied with the price offered by the Majority Stockholders, they may apply to a Bermuda court for an appraisal of their shares. The appraisal is binding on the Remaining Stockholders. Stockholder's Suit. Class action and derivative actions are generally not available to stockholders under the laws of Bermuda. However, the Bermuda courts ordinarily would be expected to follow English case law precedent, which would permit a stockholder to commence an action in the name of the Company to remedy a wrong done to the Company where the act complained of is alleged to be beyond the corporate power of the Company or is illegal or would result in the violation of the Memorandum and Bye-laws. Furthermore, consideration would be given by the court to acts that are alleged to constitute a fraud against the minority stockholders or where an act requires the approval of a greater percentage of the Company's stockholders than actually approved it. The winning party in such an action generally would be able to recover a portion of its attorney fees incurred in connection with such action. Class actions and derivative actions generally are available to stockholders under Delaware law for, among other things, breach of fiduciary duty, corporate waste and actions not taken in accordance with applicable law. In such actions, the court has discretion to permit the winning party to recover attorney fees incurred in connection with such action. Indemnification of Directors. The Company has agreed to indemnify its directors or officers in their capacity as such in respect of any loss arising or liability attaching to them by virtue of any rule of law in respect of any negligence, default, breach of duty or breach of trust of which a director or officer may be guilty in relation to the Company other than in respect of his own wilful default, wilful neglect, fraud or dishonesty. Under Delaware law, a corporation may adopt a provision eliminating or limiting the personal liability of a director to the corporation or its 72 stockholders for monetary damages for breach of fiduciary duty as a director, except for breaches of the director's duty of loyalty, for acts or omissions not in good faith or which involve intentional misconduct or knowing violations of law, for improper payment of dividends or for any transaction from which the director derived an improper personal benefit. Delaware law has provisions and limitations similar to Bermuda regarding indemnification by a corporation of its directors or officers, except that under Delaware law the statutory rights to indemnification may not be as limited. Both Bermuda and Delaware law allow a company to obtain directors and officers liability insurance. The Company has not yet decided whether it will purchase such insurance. Inspection of Corporate Records. Members of the general public have the right to inspect the public documents of the Company available at the office of the Registrar of Companies in Bermuda, which will include the Memorandum (including its objects and powers) and any alteration to the Memorandum, and documents relating to an increase or reduction of authorized capital. The stockholders have the additional right to inspect the Bye-laws, minutes of general meetings and audited financial statements of the Company, which must be presented to the annual meeting of stockholders. The register of stockholders of the Company is also open to inspection by stockholders without charge, and to members of the public for a fee. The Company is required to maintain its share register in Bermuda but may establish a branch register outside of Bermuda. The Company is required to keep at its registered office a register of its directors and officers which is open for inspection by members of the public without charge. Local Directors. The Companies Act requires that a quorum of a company's directors be residents of Bermuda unless a company's common shares are listed on an appointed stock exchange (including Nasdaq), in which case a company may have a resident representative in Bermuda instead of resident directors. Accordingly, at this time, two of the Company's directors, Messrs. Francis and Miller, are Bermuda residents and the Company's Bye-Laws establish a quorum for meetings of directors at two members. Warrants. Under the provisions of the Companies Act, it is unlawful for any company to issue "bearer" shares of stock, which are defined as shares that may be transferred by delivery of the warrant or certificate relating thereto. The term "warrant" is used in Bermuda law only in this bearer stock context. Accordingly, under Bermuda law, any reference to "warrant" must be construed as an option, which is an instrument entitling the holder to subscribe to the Common Stock in accordance with the terms of the instrument. References herein to either the Binder Warrant or the Warrants should not be construed as enabling the underlying Common Stock to be transferred upon delivery of such certificate alone. ANTI-TAKEOVER PROVISIONS Although the Board of Directors is not presently aware of any takeover attempts, the Bye-laws of the Company contain certain provisions which may be deemed to be "anti-takeover" in nature in that such provisions may deter, discourage or make more difficult the assumption of control of the Company by another corporation or person through a tender offer, merger, proxy contest or similar transaction or series of transactions. These provisions were adopted unanimously by the Board of Directors and approved by the stockholders of the Company. 73 Authorized but Unissued Shares. The Company has authorized 100 million shares of Common Stock and ten million shares of preferred stock. These shares of Common Stock were authorized for the purpose of providing the Board of Directors of the Company with as much flexibility as possible to issue additional shares for proper corporate purposes including equity financing, acquisitions (including the Commodore Acquisition), stock dividends, stock splits, the Plan, stock options (including the Binder Warrants and the Warrants), and other purposes. The Company has no agreements, commitments or plans at this time for the sale or use of the additional shares of Common Stock or preferred stock except for potential conversion of the Series A Preference Shares into Common Stock. The issuance of shares of preferred stock may have an adverse effect on the Company's stockholders. See "Preferred Stock." Stockholders of the Company do not have preemptive rights with respect to the purchase of these shares. Therefore such issuance could result in a dilution of voting rights and book value per share as to Common Stock of the Company. See "Business - Commodore Acquisition" and "Description of Securities - Series A Preference Shares." No Cumulative Voting. The Company's Bye-laws do not contain any provisions for cumulative voting. Cumulative voting entitles stockholders to as many votes as equal the number of shares owned by such holder multiplied by the number of directors to be elected. A stockholder may cast all these votes for one candidate or distribute them among any two or more candidates. Thus, cumulative voting for the election of directors allows a stockholder or group of stockholders who hold less than 50 percent of the outstanding shares voting to elect one or more members of a Board of Directors. Without cumulative voting for the election of directors, the vote of holders of a plurality of the shares voting is required to elect any member of a Board of Directors and would be sufficient to elect all the members of the board being elected. Classified Board of Directors. The Board of Directors is divided into three classes. One class holds office initially for a term expiring at the annual meeting of stockholders to be held in 1996, a second class will hold office initially for a term expiring at the annual meeting of stockholders to be held in 1997 and a third class holds office initially for a term expiring at the annual meeting of stockholders to be held in 1998. Approximately one-third of the total number of directors will serve as members of each such class. As a result, it would take a person who wanted to gain control of the Company a minimum of two annual meetings of stockholders before he could gain control of the Company's Board of Directors. General Effect of Anti-Takeover Provisions. The overall effect of these provisions may be to deter a future tender offer or other takeover attempt that some stockholders might view to be in their best interest as the offer might include a premium over the market price of the Company's Common Stock at that time. In addition, these provisions may have the effect of assisting the Company's current management in retaining its position and place it in a better position to resist changes which some stockholders may want to make if dissatisfied with the conduct of the Company's business. 74 SHARES ELIGIBLE FOR FUTURE SALE All of the 4,931,933 shares of Common Stock of the Company outstanding as of the date of this Prospectus are restricted securities, as that term is defined in Rule 144 promulgated under the Securities Act and 4,831,933 shares have been registered for sale concurrently herewith. Except for the 500,000 shares being sold by the Initial Selling Shareholders herein, such shares may not be sold, transferred or otherwise disposed of for a period of one year without the prior consent of the Underwriter. Of the 4,931,933 shares, 1,300,000 shares are owned by affiliates of the Company, as that term is defined under the Securities Act. Absent registration under the Securities Act, the sale of such shares is subject to Rule 144, as promulgated under the Securities Act. In general, under Rule 144, subject to the satisfaction of certain other conditions, a person, including an affiliate of the Company, who has beneficially owned restricted shares of Common Stock for at least two years is entitled to sell, within any three-month period, a number of shares that does not exceed the greater of 1% of the total number of outstanding shares of the same class, or if the Common Stock is quoted on Nasdaq, the average weekly trading volume during the four calendar weeks preceding the sale. A person who has not been an affiliate of the Company for at least three months immediately preceding the sale and who has beneficially owned the shares of Common Stock for at least three years is entitled to sell such shares under Rule 144 without regard to any of the volume limitations described above. No prediction can be made as to the effect, if any, that sales of shares of Common Stock or the availability of such shares for sale will have on the market prices prevailing from time to time. Nevertheless, the possibility that substantial amounts of Common Stock may be sold in the public market may adversely affect prevailing prices for the Common Stock and could impair the Company's ability to raise capital in the future through the sale of equity securities. CERTAIN FOREIGN ISSUER CONSIDERATIONS The Company has been designated as a non-resident for exchange control purposes by the Bermuda Monetary Authority, Foreign Exchange Control. THE BERMUDA MONETARY AUTHORITY AND THE REGISTRAR OF COMPANIES IN BERMUDA WILL ACCEPT NO RESPONSIBILITY FOR THE FINANCIAL SOUNDNESS OF ANY SCHEMES OR FOR THE CORRECTNESS OF ANY OF THE STATEMENTS MADE OR OPINIONS EXPRESSED WITH REGARD TO THEM. There are no limitations on the rights of non-Bermuda owners of the Company's Common Stock to hold or vote their voting shares. Because the Company has been designated as a non-resident for Bermuda exchange control purposes, there are no restrictions on its ability to transfer funds into and out of Bermuda or to pay dividends to United States residents who are holders of the Company's Series A Preference Shares or Common Stock, other than in respect of local Bermuda currency. In accordance with Bermuda law, share certificates are only issued in the names of corporations or individuals. In the case of an applicant acting in a special capacity (for example, as an executor or trustee), certificates may, at the request of the applicant, record the capacity in which the applicant is acting. Notwithstanding the recording of any such special capacity, the Company is not bound to investigate or incur any responsibility in respect of the proper administration of any 75 such estate or trust. The Company will take no notice of any trust applicable to any of its securities whether or not it had notice of such trust. As an "exempted company," the Company is exempt from Bermuda laws which restrict the percentage of share capital that may be held by non-Bermudians, but as an exempted company, the Company may not participate in certain business transactions, including: (1) the acquisition or holding of land in Bermuda (except that required for its business and held by way of lease or tenancy for terms of not more than 21 years) without the express authorization of the Bermuda legislature; (2) the taking of mortgages on land in Bermuda to secure an amount in excess of $50,000 without the consent of the Minister of Finance of Bermuda; (3) the acquisition of securities created or issued by, or any interest in, any local company or business, other than certain types of Bermuda government securities or securities of another "exempted company," partnership or other corporation resident in Bermuda but incorporated abroad; or (4) the carrying on of business of any kind in Bermuda, except in furtherance of the business of the Company carried on outside Bermuda or under a license granted by the Minister of Finance of Bermuda. The Bermuda government actively encourages foreign investment in "exempted" entities like the Company that are based in Bermuda, but do not operate in competition with local business. In addition to having no restrictions on the degree of foreign ownership, the Company is subject neither to taxes on its income or dividends nor to any foreign exchange controls in Bermuda. In addition, there is no capital gains tax in Bermuda, and profits can be accumulated by the Company, as required, without limitation under Bermuda law. The Company is required to pay certain annual government fees based upon its assessable capital (i.e., its authorized share capital and share premium). The fees are based upon a sliding scale. The maximum fee payable by an exempt company is USD$25,000 based upon an assumed capital of USD$500,000,000 or more. UNDERWRITING Subject to the terms and conditions set forth in the Underwriting Agreement, which is filed as an exhibit to the Registration Statement of which this Prospectus forms a part, the Underwriter has agreed to purchase 500,000 Units and 1,000,000 Warrants from the Company and 500m000 shares of Common Stock from the Selling Stockholders, less the underwriting discounts set forth on the cover page of this Prospectus. The Underwriting Agreement provides that the Underwriter will be obligated to purchase all of the Units offered on a "firm commitment" basis, if any are purchased. The Underwriter has advised the Company that it proposes initially to offer the Units to the public at the initial public offering price set forth on the cover page of this Prospectus and to certain dealers at such prices less concessions not in excess of $__________ per Unit. After the Offering, the offering price and the concessions may be changed at the discretion of the Underwriter. The Company has granted to the Underwriter an option exercisable during the 30-day period after the Closing, to purchase from the Company at the initial public offering price less underwriting discounts and the non-accountable expense allowance, up to an aggregate of 150,000 additional Units, for the sole purpose of covering over-allotments, if any. 76 The Company has agreed to pay to the Underwriter a non-accountable expense allowance of 3% of the gross proceeds of the Offering. Further, the Company has agreed to reimburse the Underwriter and its counsel for certain accountable expenses relating to the Offering. All of the Company's current stockholders, except for the Initial Selling Stockholders, have agreed not to sell or otherwise dispose of any of their shares of Common Stock, or shares of Common Stock issuable upon conversion or exercise of securities convertible into Common Stock, for a period of 12 months from the date of this Prospectus without the prior written consent of the Underwriter. Notwithstanding these lock-up agreements, such persons may make intra-family transfers. An appropriate legend will be marked on the face of stock certificates representing all such shares of Common Stock. In connection with the Offering, the Company has agreed to sell to the Underwriter, for nominal consideration, non-redeemable warrants to purchase from the Company 100,000 Units (the "Underwriter's Warrants"). The Underwriter's Warrants are exercisable at a price of $6.90 per Unit (150% of the initial public offering price per Unit) for a period of four years commencing one year from the date of this Prospectus. The Units contained in the Underwriter's Warrants will be identical to the Units being offered hereby. The Underwriter's Warrants contain anti-dilution provisions providing for adjustment of the exercise price upon the occurrence of certain events, including the issuance of any Common Stock or other securities convertible into or exercisable for Common Stock at a price per share less than the exercise price or the market price of the Common Stock, or in the event of any recapitalization, reclassification, stock dividend, stock split, stock combination or similar transaction. The Underwriter's Warrants provide that for a period of four years commencing one year from the date of this Prospectus, at the request of the holders of a majority of the total Underwriter's Warrants, the Company will register, in whole or in part, at the Company's sole cost and expense, the Underwriter's Warrants and/or the underlying Common Stock and Warrants. In addition, the holders of the Underwriter's Warrants have the right to "piggyback" all or any part of the Underwriter's Warrants, or the underlying Common Stock or Warrants, on any registration statement filed by the Company or its principal stockholders at any time during the stated term of the Underwriter's Warrants. During the term of the Underwriter's Warrants, the holders of the Underwriter's Warrants are given the opportunity to profit from a rise in the market price of the Units, the Common Stock or the Warrants. To the extent that the Underwriter's Warrants are exercised, dilution of the interest of the Company's stockholders will occur. Furthermore, the terms upon which the Company will be able to obtain additional equity capital may be adversely affected since the holders of the Underwriter's Warrants can be expected to exercise them at a time when the Company would, in all likelihood, be able to obtain any needed capital on the terms more favorable to the Company than those provided in the Underwriter's Warrants. See "Risk Factors - Stock Options and Warrants." The Company has agreed to retain the Underwriter for two years as a management and financial consultant for a fee of $48,000, which is payable at the Closing of the Offering. The Company has also agreed to appoint a representative of the Underwriter as an advisor to, or in lieu thereof, as a member of, the Company's Board of Directors for three years. The Company has granted the Underwriter a right of first refusal for two years to underwrite any public or private securities offering of the Company which does not exceed $5,000,000. The 77 Company has also agreed to pay the Underwriter a commission of five percent (5%) of the exercise price of any Warrants offered herein which are exercised more than one year after the date of this Prospectus. The Underwriting Agreement provides for reciprocal indemnification among the Company, the Underwriter and the Initial Selling Stockholders against certain liabilities in connection with the Registration Statement of which this Prospectus forms a part, including liabilities under the Securities Act. To the extent this section may purport to provide exculpation from possible liabilities arising under the federal securities laws, it is the opinion of the Securities and Exchange Commission that such indemnification is against public policy and is therefore unenforceable. The foregoing is a summary of the principal terms of the Underwriting Agreement and the Underwriter's Warrants, and does not purport to be complete. Reference is made to the copies of the Underwriting Agreement and the Underwriter's Warrant Agreement, which are filed as exhibits to the Registration Statement of which this Prospectus forms a part. Prior to the Offering, there has been no public market for the Company's securities offered hereby. Consequently, the initial public offering price of the Units has been determined by the Company and the Underwriter and is not related to the Company's asset value, earnings, book value or other such criteria of value. Factors considered in determining the initial public offering price of the Units include principally, the prospects for the industry in which the Company operates, the Company's management, the general condition of the securities markets and the demand for securities in similar industries. The exercise price of the Warrants also has been determined by the Company and the Underwriter and does not relate to any recognized criteria of value. Although certain of the officers of the Underwriter have significant experience in corporate finance and the underwriting of securities, the Underwriter has previously acted as the principal underwriter in only one "firm commitment" offering. Such limited experience could adversely affect the Offering as well as the future development of a trading market for the Common Stock and Warrants. See "Risk Factors - Underwriter's Limited Underwriting Experience." CONCURRENT REGISTRATION OF COMMON STOCK Concurrently with this Offering, 4,331,933 shares of Common Stock have been registered under the Securities Act. Such shares may not be sold, transferred or otherwise disposed of for a period of one year without the prior written consent of the Underwriter. LEGAL MATTERS Certain legal matters with respect to the issuance of the securities offered hereby will be passed upon for the Company by Broad and Cassel, a partnership including professional associations, Miami Center, 201 South Biscayne Boulevard, Suite 3000, Miami, Florida 33131 and, with respect to Bermudan law, by Richards, Francis & Francis. Gersten, Savage, Kaplowitz & Curtin, LLP has acted as counsel for the Underwriter in connection with the Offering. 78 EXPERTS The financial statements of the Company from April 13, 1995 (date of inception) through September 30, 1995 are included herein and in the registration statement in reliance upon the report of Grant Thornton LLP, independent certified public accountants, appearing elsewhere herein, and upon the authority of said firm as experts in auditing and accounting. The combined financial statements of the S/S Enchanted Seas and the S/S Enchanted Isle (operating units of EffJohn International B.V.) for each of the two years in the two-year period ended December 31, 1994, and for the period from January 1, 1995 through July 14, 1995, are included herein and in the registration statement in reliance upon the report of KPMG Peat Marwick LLP, independent certified public accountants, appearing elsewhere herein, and upon the authority of said firm as experts in auditing and accounting. ADDITIONAL INFORMATION The Company has filed with the Commission, a Registration Statement on Form S-1 with respect to the securities being offered hereby. This Prospectus does not contain all the information set forth in such Registration Statement, as permitted by the Rules and Regulations of the Commission. For further information with respect to the Company and such securities, reference is made to the Registration Statement and to the exhibits and schedules filed herewith. Each statement made in this Prospectus referring to a document filed as an exhibit to the Registration Statement is qualified by reference to the exhibit for a complete statement of its terms and conditions. The Registration Statement, including exhibits thereto, may be inspected, without charge, by anyone at the principal office of the Commission in Washington, D.C. and copies of all or any part thereof may be obtained from the Commission's principal office in Washington, D.C. upon payment of the Commission's charge for copying. 79 INDEX TO FINANCIAL STATEMENTS Commodore Holdings Limited and Subsidiaries Report of Independent Certified Public Accountants F-2 Consolidated Balance Sheets - September 30, 1995 and March 31, 1996 (Unaudited) F-3 Consolidated Statements of Earnings - April 13, 1995 through September 30, 1995, Six Months Ended March 31, 1995 (Predecessor Company, Unaudited), Six Months Ended March 31, 1996 (Unaudited) F-4 Consolidated Statements of Stockholders' Equity - April 13, 1995 through September 30, 1995, Six Months Ended March 31, 1996 (Unaudited) F-5 Consolidated Statements of Cash Flows - April 13, 1995 through September 30, 1995, Six Months Ended March 31, 1995 (Predecessor Company, Unaudited), Six Months Ended March 31, 1996 (Unaudited) F-6 Notes to consolidated financial statements F-8 S/S Enchanted Seas and S/S Enchanted Isle (Predecessor Company) Report of Independent Certified Public Accountants F-19 Combined Balance Sheet December 31, 1994 F-20 Combined Statements of Operations Years Ended December 31, 1993, 1994, Period from January 1 through July 14, 1995 F-21 Combined Statements of Operating Units Equity Year Ended December 31, 1994 F-22 Combined Statements of Cash Flows Years Ended December 31, 1993, 1994, Period from January 1 through July 14, 1995 F-23 Notes to Combined Financial Statements F-25 Pro forma Condensed Financial Statement Pro forma Condensed Statement of Earnings F-30 Notes to Pro forma Condensed Statement of Earnings F-31
F-1 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors Commodore Holdings Limited and Subsidiaries We have audited the accompanying consolidated balance sheet of Commodore Holdings Limited and Subsidiaries as of September 30, 1995 and the related consolidated statements of earnings, stockholders' equity, and cash flows from April 13, 1995, (date of inception), through September 30, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above, present fairly, in all material respects, the consolidated financial position of Commodore Holdings Limited and Subsidiaries as of September 30, 1995 and the consolidated results of their operations and their consolidated cash flows from April 13, 1995 through September 30, 1995 in conformity with generally accepted accounting principles. Miami, Florida November 28, 1995 F-2 COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
ASSETS September 30, March 31, 1995 1996 ------------- ------------ (Unaudited) Current assets Cash and cash equivalents $ 3,274,993 $ 1,937,805 Restricted cash 363,462 252,076 Trade and other receivables, net 79,069 264,941 Due from Affiliate 456,878 166,541 Inventories 691,001 935,101 Prepaid expenses 592,664 1,690,549 Other current assets 700,000 - ----------- ----------- Total current assets 6,158,067 5,247,013 Property and equipment, net 33,085,209 37,450,152 Investments restricted 4,629,000 4,629,000 Other assets 225,000 425,000 ----------- ----------- $44,097,276 $47,751,165 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Current portion of long-term debt $ - $ 201,301 Accounts payable 1,868,415 4,026,674 Accrued liabilities 219,683 892,149 Customer and other deposits 4,344,657 5,035,652 Accrued interest 412,672 72,603 Income taxes payable 4,841 4,841 Capital lease obligations 223,960 91,863 ----------- ----------- Total current liabilities 7,074,228 10,325,083 Long-term debt 24,500,000 24,165,684 Deferred income taxes 3,618 3,618 Minority interest in subsidiary - 461,642 Preferred stock 4,000,000 4,000,000 Stockholders' equity Preferred stock - authorized 10,000,000 shares of $.01 par value; issued 1,000,000 - - Common stock - authorized 100,000,000 shares of $.01 par value; issued 4,931,933 49,319 49,319 Paid-in capital 8,158,576 8,158,576 Retained earnings 311,535 587,243 ----------- ----------- Total stockholders' equity 8,519,430 8,795,138 ----------- ----------- $44,097,276 $47,751,165 =========== ===========
The accompanying notes are an integral part of these statements. F-3 COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS
(Predecessor Company) April 13, Six Months Six Months 1995 through Ended Ended September 30, March 31, March 31, 1995 1995 1996 -------------- ------------- ------------ (Unaudited) (Unaudited) Revenues $ 7,255,830 $ 17,605,955 $19,174,089 Expenses Operating 4,940,637 18,243,713 13,955,294 Marketing, selling and administrative 1,664,478 5,608,586 3,766,577 Depreciation and amortization 197,926 1,780,141 620,099 Loss on Vessel Pire - 1,367,347 - ------------- ------------ ----------- 6,803,041 26,999,787 18,341,970 ------------- ------------ ----------- Operating income (loss) 452,789 (9,393,832) 832,119 Other income (expense) Other income - - 340,641 Interest income 79,054 40,836 194,130 Interest expense (211,849) (1,408,105) (679,535) Minority interest in earnings of consolidated joint venture - - (411,647) ------------- ------------ ----------- (132,795) (1,367,269) (556,411) ------------- ------------ ----------- Earnings (loss) before provision for income taxes and provision for preferred stock dividend 319,994 (10,761,101) 275,708 Provision for income taxes 8,459 - - ------------- ------------ ----------- Net earnings (loss) before provision for preferred stock dividend 311,535 (10,761,101) 275,708 Provision for preferred stock dividend 60,000 - 140,000 ------------- ------------ ----------- Net earnings (loss) available for common stockholders $ 251,535 $(10,761,101) $ 135,708 ============= ============ =========== Earnings per share $ 0.06 $ 0.03 ============= =========== Weighted average number of common stock outstanding 4,377,593 5,184,711 ========== ===========
The accompanying notes are an integral part of these statements. F-4 COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY APRIL 13, 1995 THROUGH SEPTEMBER 30, 1995, SIX MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
Common Stock Additional -------------------- Number Paid-In Retained of Shares Par Value Capital Earnings Total --------- --------- ---------- -------- ---------- Balance at April 13, 1995 - $ - $ - $ - $ - Issuance of common stock (Note G) 4,931,933 49,319 8,158,576 - 8,207,895 Net income - - - 311,535 311,535 --------- --------- ---------- -------- ---------- Balance at September 30, 1995 4,931,933 49,319 8,158,576 311,535 8,519,430 Net income - - - 275,708 275,708 --------- --------- ---------- -------- ---------- Balance at March 31, 1996 (Unaudited) 4,931,933 $ 49,319 $8,158,576 $587,243 $8,795,138 ========== ========== ========== ======== ==========
The accompanying notes are an integral part of these statements. F-5 COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
(Predecessor Company) April 13, Six Months Six Months 1995 through Ended Ended September 30, March 31, March 31, 1995 1995 1996 -------------- ------------- ------------ (Unaudited) (Unaudited) Cash flows from operating activities: Net income (loss) $ 311,535 $(10,761,101) $ 275,708 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation of property and equipment 197,926 1,652,612 620,099 Amortization of deferred drydock - 841,212 - Changes in operating assets and liabilities (Increase) decrease in restricted cash (363,462) (512,109) 111,386 (Increase) in investments - restricted (4,629,000) - - (Increase) in trade and other receivables (79,069) (122,149) (185,872) (Increase) decrease in due from affiliate (375,950) - 290,337 Decrease (increase) in inventory 69,271 (327,928) (244,100) (Increase) in prepaid expenses and other current assets (892,663) (236,217) (397,885) (Increase) in other assets (225,000) - (200,000) Increase in accounts payable 1,868,415 - 2,158,259 Increase in accrued liabilities 219,683 - 672,466 Increase in due to affiliate - 13,758,326 - Increase in income taxes payable - current 4,841 - - Increase in income taxes payable - deferred 3,617 - - Increase in advance deposits 4,344,657 (413,571) 690,995 Increase in accrued interest 206,336 - (340,069) ----------- ------------ ----------- Net cash provided by operating activities 661,137 3,879,075 3,451,324 Cash flows from investing activities: Capital expenditures (672,960) (3,789,278) (4,985,042) (Decrease) in capital leases obligation (53,079) - (132,097) Cost of acquisition, net of cash acquired (4,868,000) - 461,642 ----------- ------------ ----------- Net cash used in investing activities (5,594,039) (3,789,278) (4,655,497) Cash flows from financing activities: Proceeds from debt - 369,327 - Proceeds from initial issuance of common stock 8,207,895 - (133,015) ----------- ------------ ----------- Net cash provided by financing activities 8,207,895 369,327 (133,015) ----------- ------------ -----------
(continued) F-6 COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS - CONTINUED
(Predecessor Company) April 13, Six Months Six Months 1995 through Ended Ended September 30, March 31, March 31, 1995 1995 1996 ------------- ------------- ------------ (Unaudited) (Unaudited) Net increase in cash and cash equivalents $ 3,274,993 $ 459,124 $ (1,337,188) Cash and cash equivalents at beginning of period - 522,319 3,274,993 ------------- ------------ ------------ Cash and cash equivalents at end of period $ 3,274,993 $ 981,443 $ 1,937,805 ============= ============ ============ Supplemental disclosure of cash flow information: Cash paid during the period for interest $ - $ - $ 1,320,834 ============= ============ ============ Cash paid during the period for taxes $ - $ - $ - ============= ============ ============
Supplemental schedule of noncash investing and financing activities: As part of the purchase price of acquisition (see Note A), the Company issued notes payable totalling $24,500,000 and 1,000,000 shares of redeemable preferred convertible stock totalling $4,000,000. QIn 1995 and the six months ended March 31, 1996, the Company capitalized $206,336 and $294,766 of interest to property and equipment, respectively. Interest was not paid as of September 30, 1995 and is recorded in accrued interest. In 1995, the Chairman of the Board and a company he controls, paid approximately $1,000,000 of the Company's costs in exchange for 1,000,000 shares of the Company's common stock. Simultaneously to the acquisition, the Company assumed a capital lease obligation of $277,039 from a related party (see Note F). The Company recorded $277,039 in equipment and $277,039 in capital lease obligations. The accompanying notes are an integral part of these statements. F-7 COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1995 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization ------------ Commodore Holdings Limited ("CHL") and its wholly-owned subsidiary New Commodore Cruise Lines Limited ("NCCL") were organized under the laws of Bermuda on April 13, 1995. Almira Enterprises Inc. ("Almira") and Azure Investments Inc. ("Azure"), owners of the cruise vessels Enchanted Isle and Enchanted Seas (the "Vessels"), respectively, were organized under the laws of the Republic of Panama on January 18, 1995 and are the wholly-owned subsidiaries of NCCL. CHL, NCCL, Almira and Azure are collectively referred to as the ("Company") or ("New Commodore"). Acquisition of Commodore Cruise Line ------------------------------------ On July 14, 1995, the Company completed an acquisition, through the purchase of the assets, of Commodore Cruise Lines Limited, a business consisting of two ships, certain shoreside assets, trademarks, passenger lists and advance ticket sales, from EffJohn International B.V. ("EffJohn"). The Company completed the transaction, for a total consideration of $33,500,000 by paying $5,000,000 in cash, entering into a loan agreement with EffJohn for $24,500,000 and granting EffJohn 1,000,000 7% Cumulative Convertible Redeemable Series A Preferred Stock at an agreed value of $4.00 per share. Of the $33,500,000 purchase price, $31,600,000 was allocated to the vessels and the remaining $1,900,000 was allocated to cash, inventory, prepaids and shoreside assets. At the closing, EffJohn transferred to the Company approximately $5,300,000 of cash representing the balance of customer deposits outstanding for future sailings. Additionally, the Company reimbursed EffJohn for certain advances made prior to the closing and paid EffJohn fees and expenses totaling $150,000. The operations of the Enchanted Isle from July 15, 1995 through September 30, 1995, are included in the accompanying financial statements. The Enchanted Seas was undergoing significant renovations and had no operations for that period, and began operations in January 1996. Basis of Consolidation ---------------------- The consolidated financial statements include the accounts of CHL and its subsidiaries. All material intercompany balances and transactions have been eliminated. (continued) F-8 COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED SEPTEMBER 30, 1995 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued Revenue and Expense Recognition ------------------------------- Deposits received on sales of passenger cruises are recorded as customer deposits and are recognized, together with revenues from shipboard activities and all associated direct costs of a voyage upon completion of voyages with durations of 10 days or less and on a pro rata basis for voyages in excess of 10 days. In addition, the Company received non-recurring charter cancellation fees of $425,000 in September 1995, and $425,000 in October 1995. Revenues in the accompanying statement of earnings include the first $425,000. (Note F). Cash and Cash Equivalents ------------------------- The Company considers all highly liquid investments with original maturities of three months or less when purchased to be cash equivalents. Restricted Cash --------------- As part of the loan agreement with EffJohn, the Company is required to place approximately $181,731 each month in a retention account to be applied to the first principal and interest payment due in January 1997. At September 30, 1995, this amounted to $363,462. In November 1995, the loan agreement was amended to pay the monthly retention amount directly to the lender. The balance of the retention account was paid to the lender in November 1995. Inventories ----------- Inventories are stated at the lower of cost or market. Cost is determined by the first-in, first out method. Dry-Docking ----------- Costs associated with the dry-docking of the vessels will be charged to prepaid expenses when incurred and expensed over the estimated period until the next scheduled dry-dock (not to exceed two years). (continued) F-9 COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED SEPTEMBER 30, 1995 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued Other Current Assets ------------------- Other current assets represents a deposit securing the Company's FMC Bond for the Enchanted Seas (See Note E). Property and Equipment ---------------------- Ship, property and equipment are stated at cost. Significant vessel refurbishing costs are capitalized as additions to the vessel, while costs of repairs and maintenance are charged to expense as incurred. Depreciation has been provided using the straight-line method over useful lives of 18 years after a reduction for estimated salvage value for vessels and five years for furniture and fixtures, and other property and equipment. Investments - Restricted ------------------------ The Company placed $4,629,000 on deposit with a bank, securing its Federal Maritime Commission ("FMC) Bond for the Enchanted Isle (See Note E). Advertising Costs ----------------- Advertising costs are expensed as incurred and are included in marketing, selling and administrative expenses. Income Taxes ------------ Deferred tax assets and liabilities are recorded based on the difference between the tax basis of assets and liabilities and their carrying amounts for financial reporting purposes. In addition, the current or deferred tax consequences of a transaction are measured by applying the provisions of enacted tax laws to determine the amount of taxes payable currently or in future years. The former operating entity was not subject to U.S. income taxes. No provision had been recorded in prior years due to an international shipping exemption and no income taxes its country of incorporation. Earnings Per Share ------------------ Net earnings (loss) per common equivalent share is based upon the weighted average number of shares and equivalentsF-4 outstanding during each period after giving effect for dividends on the Class A Preference Stock. (continued) F-10 COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED SEPTEMBER 30, 1995 NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued Earnings Per Share - Continued ------------------ The weighted average number of common and common equivalent shares outstanding for the period year ended September 30, 1995 is 4,377,593. Weighted average shares includes the effect of the warrants issued with exercise prices below the IPO price, as calculated under the treasury stock method. The calculation also gives retroactive effect (as if to the beginning of the period) to those shares issued to founders at par value. Interim Financial Statements ---------------------------- The interim financial statements included herein have been prepared by Commodore Holdings Limited (the "Company") and S/S Enchanted Seas and S/S Enchanted Isle (Operating Units of EffJohn International B.V. (the predecessor company see Note 1a on page F-25)) and are unaudited, 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 six months have been 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 interim financial statements should be read in conjunction with the financial statements for the year ended September 30, 1995 and the predecessor company's financial statements on F-19 through F-29. The interim financial statements are not comparable to the predecessor company's interim financial statements for the six months ended March 31, 1995 due to the changes in the entity as a result of the acquisition of the vessels by the Company in July 1995. The historical operating results of the six months ending March 31, 1995 were prepared from the books and records of the predecessor company which included certain commingled expenses which were allocated to these vessels on an estimated basis. Also, the Company's cost basis in the vessels and its debt structure is significantly different than that in the previous period. NOTE B - PROPERTY AND EQUIPMENT Vessels $ 32,272,960 Equipment and other 803,839 Capitalized interest 206,336 -------------- 33,283,135 Accumulated depreciation (197,926) -------------- $ 33,085,209 ==============
F-11 COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED SEPTEMBER 30, 1995 NOTE C - INVENTORIES Food, beverage and supplies $ 482,273 Fuel 208,728 ------------ $ 691,001 ============
NOTE D - LONG-TERM DEBT AND PREFERRED STOCK Long-Term Debt -------------- In July, 1995 the Company entered into a loan agreement with an affiliate of EffJohn (the "Lender") in the amount of $24,500,000. The loan is secured by first preferred ship mortgages on both the Enchanted Isle and the Enchanted Seas. In addition the loan is guaranteed by CHL and NCCL. The loan bears interest at LIBOR plus 2% and will be repaid in 12 semi-annual installments beginning in January, 1997. However, the interest is fixed at 7.875% for the first 18 months. In the event that the Company is required to pay tax on any interest due to the Lender, the Company has agreed to pay the required amount to be withheld and pay the Lender the full amount of interest due. The loan agreement includes covenants as defined, including a requirement that the Company maintain a minimum amount of $1,000,000 in the operating bank account. Preferred Stock --------------- As part of the consideration for the sale of the cruise line, EffJohn received 1,000,000 7% Cumulative Convertible Redeemable Series A Preferred Stock at a value of $4.00 per share totalling $4,000,000. This payment of the dividend is limited to 10% of the Company's net profits for such year. At September 30, 1995, dividends in arrears amounted to approximately $60,000. Preferred Stock is convertible at any time at the option of the holder into common stock at the higher rate of $4.00 or eight times the annual earnings per common share of the Company for the previous fiscal year. (continued) F-12 COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED SEPTEMBER 30, 1995 NOTE D - LONG-TERM DEBT AND PREFERRED STOCK - Continued Preferred Stock - Continued --------------- In the event the Company is not listed on a major exchange, as defined, before January 1997, the holders of the Preferred Stock may submit the shares to the Company for redemption limited to 10 percent of the Company's net profits for each previous fiscal year. During the period between January 7, 1997 and the date the Company is listed on a major exchange as defined the preferred shareholders may submit the Preferred Stock for redemption at the rate of $45,454 per fiscal quarter. Upon the receipt of a redemption notice the Company may arrange for a third party to purchase these shares at a price equal to the redemption price. In addition, for such time as the preferred shareholders have at least 125,000 shares of Preferred Stock the listing shall not be cancelled by the Company without prior approval of the preference shareholder. All redemption rights are terminated when the Company is first listed on said exchange. The minimum required principal payments as of September 30, 1995 on long-term debt and Preferred Stock are as follows:
September 30, 1995 ------------ 1997 $ 4,446,964 1998 4,810,590 1999 4,810,590 2000 4,810,596 Thereafter 9,621,260 ------------ $ 28,500,000 ============
NOTE E - COMMITMENTS AND CONTINGENCIES Employment Agreements --------------------- In May 1995, the Company signed employment agreements with four of its executive employees with terms ranging from 2 - 5 years. These agreements contain provisions for compensation, benefits, and covenants not-to-compete for the longer of one year from termination, or the unexpired term of the agreement. (continued) F-13 COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED SEPTEMBER 30, 1995 NOTE E - COMMITMENTS AND CONTINGENCIES - Continued Litigation ---------- In September 1995 the Company, along with its vice-chairman and EffJohn were named in a lawsuit brought by an individual who had made an offer to buy the cruise line from EffJohn in 1993. The Company believes that it has no liability in this case and that the lawsuit is frivolous. The Company is vigorously defending itself in this lawsuit and management believes that this case will not have a material impact on the Company's results of operations or financial position. The Company is subject to other legal proceedings and claims which arise in the ordinary course of its business. In the opinion of management, the amount of ultimate liability, if any, with respect to these actions will either be covered by insurance or will not materially affect the financial position of the Company. Federal Maritime Commission Bond -------------------------------- In order to operate a passenger cruise vessel from U.S. ports, the Company is required to post a bond with the FMC. The amount of the bonds is $5,329,000. To guarantee its FMC Bonds, the Company has deposited funds in favor of the Company's Protection and Indemnity Club, the Steamship Mutual Underwriting Association (Bermuda) Limited, which has in turn issued its guaranty to the FMC. These deposits are included, on the Company's Balance Sheet under Investments - Restricted and Other Current Assets (See Note A). Premises -------- As part of its acquisition, the Company agreed to the assignment, by EffJohn, of its rights to a lease for approximately 16,000 square feet of office space in Hollywood, Florida where the Company maintains its corporate headquarters. Additionally, the Company's computerized reservations system hardware was subleased to the company by EffJohn (see Note F). (continued) F-14 COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED SEPTEMBER 30, 1995 NOTE E - COMMITMENTS AND CONTINGENCIES - Continued Premises - Continued -------- Future minimum annual lease commitments at September 30, 1995 are as follows: 1996 $ 164,166 1997 169,760 1998 236,120 1999 244,268 2000 187,920 ------------ $ 1,002,234 ============
Rental and lease expense for the period ending September 30, 1995 amounted to approximately $75,000. Port of New Orleans ------------------- As part of the acquisition, the Company had EffJohn assign it the rights to an agreement with the Port of New Orleans. The agreement committed Commodore Cruise Lines Limited to operate a vessel from New Orleans for six years for which the Company received priority use of the cruise terminal on Saturdays and Sundays. In the event the Company does not complete a total of 300 required sailings, it may at its option: a) extend the term of the agreement up to one additional year before expiration of the agreement; b) pay a cancellation fee equivalent to the Port's principal balance remaining on the capital expenditures of $895,000 incurred to construct the terminal at the Port; or c) place another vessel in service in New Orleans. The Company had its commitment reduced for each call of other cruise vessels at the terminal. At September 30, 1995, the Company's commitment was approximately $313,000. The Company expects that its commitment will be completed within the next year and a half. (continued) F-15 COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED SEPTEMBER 30, 1995 NOTE E - COMMITMENTS AND CONTINGENCIES - Continued Stock Option Plan ----------------- In 1995, the Company adopted a Stock Option Plan (the "Plan") pursuant to which 500,000 shares of Common Stock have been reserved for issuance upon exercise of options designated as "incentive stock options" or "qualified options" within the meaning of Section 422A of the Internal Revenue Code of 1986, as amended (the "Code"). The purpose of the Plan is to encourage stock ownership by certain officers and employees of the Company, and give them a greater personal interest in the success of the Company. The Plan is administered by the Board of Directors of the Company, or a committee appointed by the Board of Directors, which determines among other things, the persons to be granted options under the Plan, the number of shares subject to each option and the option price. Warrants -------- In July 1995, the Company issued 250,000 warrants to a company controlled by the Chairman of the Board and 250,000 warrants to the Chairman of the Board. These warrants were issued at $6.00 per share and are exercisable through July 14, 2002. In May 1995, certain employees were issued warrants to acquire a total of 325,000 shares of the Company's common stock. These warrants were issued with an exercise price of $1.00 per share and become exercisable at various future dates and expire in the year 2002. NOTE F - RELATED PARTIES The Chairman of the Board personally and through a company he controls, invested approximately $1,000,000 in the Company by funding its cash needs prior to and during its formation in exchange for 1,000,000 shares of the Company's common stock. Several of the Company's shareholders are principals in International Marine Carriers (IMC), a vessel manager employed by the Company to manage the Enchanted Isle and the Enchanted Seas at a rate of $585,000 and $219,000 per annum, respectively. During the period ended September 30, 1995, this amounted to $130,235. The Company used several bank facilities, primarily for credit card processing and deliveries of cash to and from the Company's vessels, that belong to affiliates of EffJohn. Accordingly, the Company has reflected a net receivable from EffJohn under the heading due from affiliate. The Company has since arranged for its own processing services. This receivable has been paid subsequent to year end. (continued) F-16 COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED SEPTEMBER 30, 1995 NOTE F - RELATED PARTIES - Continued The Company and EffJohn entered into an agreement that amended certain of the conditions of the original sale of the cruise line from EffJohn. Originally EffJohn was to charter the Enchanted Seas for up to six months at which time the Company would put the Enchanted Seas back into service. EffJohn, in this agreement, agreed to fix certain technical deficiencies in both the Enchanted Seas and the Enchanted Isle and agreed to pay the Company charter fees if EffJohn did not charter the vessel in July or in October. The amount of the charter fee received is included on the Company's statement of operations under Revenues (see Note A). As part of the original acquisition agreement, it was agreed that EffJohn would sub-charter the Enchanted Seas to an unrelated third party, and the Company would receive 50% of the charter income. In July 1995, the Company and EffJohn were informed that the sub-chartered had reneged on their offer for the Enchanted Seas. Accordingly, the Company and EffJohn entered into a settlement agreement whereas, EffJohn agreed that if it did not re-charter the vessel by September 1, 1995, it would pay the Company a $425,000 cancellation fee, and if it did not charter the vessel by October 15, 1995, it would pay the Company an additional $425,000 cancellation fee. As EffJohn did not charter the vessel, the Company received $425,000 in September 1995 from EffJohn, and recorded these damages as part of operating income in the 1995 statement of earnings. In October 1995, the Company received the remaining $425,000 and it will be recorded as operating income in fiscal 1996. Simultaneously to the acquisition, the Company entered into a sublease agreement with Commodore Cruise Line Limited to lease an IBM AS/400 computer system. The lease is treated as a capital lease for financial statement purposes, and the obligation is $223,960 at September 30, 1995. The related cost of $277,039 and accumulated amortization of $13,852 of computer equipment is recorded in property and equipment at September 30, 1995. The lease expires in 1996. NOTE G - COMMON STOCK The Company issued 3,431,933 shares of Common Stock for a total consideration of approximately $3,012,000 which was used to finance the start-up of the Company. On July 15, 1995, the company closed on its private placement of equity having sold 1,500,000 shares of its common stock for net proceeds of approximately $5,196,000. F-17 COMMODORE HOLDINGS LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED SEPTEMBER 30, 1995 NOTE H - INCOME TAXES Income tax expense consists of the following:
Current Deferred Total ----------- ----------- ---------- 1995 Federal $ 4,841 $ 3,618 $ 8,459 ========== =========== ==========
The temporary differences that gives rise to a significant portion of the deferred tax liability is the excess of tax over book depreciation. The provision for federal income taxes for the year ended September 30, 1995 differs from that computed at the statutory federal corporate tax rate as follows:
Amount ---------- Provision at statutory rate $ 108,800 Statutory tax exempted due to foreign source income (89,625) Effect of graduated tax rates (10,716) ---------- Total tax provision $ 8,459 ==========
As of September 30, 1995, the Company has net operating loss carryforwards for federal income tax purposes of $5,244 and alternative minimum tax credits of $1,786 which are available to offset taxable income and income taxes, if any, through the year 2010. NOTE I - SUBSEQUENT EVENTS In October 1995, the Company entered into a joint venture (Sea-Comm) agreement with a Liberian Corporation. The Company has chartered the Universe Explorer (formerly the Enchanted Seas) to the joint venture for a fee equivalent to all operating costs plus principal and interest on its first mortgage. The joint venture (Sea-Comm) has chartered the ship to Seawise. The terms of the charter provide that Seawise Foundation has the use of 76% of the cabins in exchange for payment of 76% of the operating costs, including 76% of the labor, 100% of food costs and 76% of the principal and interest due on its first mortgage. Sea-Comm will earn additional revenue from the sale of the 24% of the cabins on the vessel and other onboard revenues. Seawise has guaranteed the sale of 60 adults on each voyage in addition to the 76% of the cabins they will purchase. F-18 [LETTERHEAD OF KPMG PEAT MARWICK LLP] INDEPENDENT AUDITORS' REPORT The Board of Directors EffJohn International B.V.: We have audited the accompanying combined balance sheet of the S/S Enchanted Seas and S/S Enchanted Isle, (operating units of EffJohn International B.V.), as of December 31, 1994, and the related statements of operations, operating units' equity and cash flows for the period from January 1, 1995 through July 14, 1995 and for each of the years in the two-year period ending December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the combined financial position of the S/S Enchanted Seas and S/S Enchanted Isle, (operating units of EffJohn International B.V.), as of December 31, 1994, and results of its operations and its cash flows for the period from January 1, 1995 through July 14, 1995 and for each of the years in the two-year period ended December 31, 1994 in conformity with generally accepted accounting principles. As discussed in note 3, the Company and EffJohn International B.V. have incurred significant accumulated losses and a working capital deficit. The company and Effjohn will remain economically dependent on its parent for additional advances until they achieve profitable operations. Fort Lauderdale, Florida /s/ KPMG Peat Marwick LLP May 7, 1996 F-19 S/S ENCHANTED SEAS AND S/S ENCHANTED ISLE (Operating Units of EffJohn International B.V.) COMBINED BALANCE SHEET December 31, 1994
Assets ------ Current assets: Cash and cash equivalents 824,870 Restricted cash 234,966 Accounts receivable: Trade 138,351 Other 525,699 ----------- 664,050 ----------- Inventories 728,363 Prepaid expenses and other current assets 215,431 ----------- Total current assets 2,667,680 --------- Property and equipment 60,324,248 Less accumulated depreciation and amortization (22,759,478) ---------- 37,564,770 ---------- 40,232,450 ========== Liabilities and Operating Units' Equity --------------------------------------- Current liabilities: Due to affiliates 10,564,903 Passenger deposits 5,231,861 Current maturities of affiliate long-term debt 7,713,546 ---------- Total current liabilities 23,510,310 Affiliate long-term debt 22,306,802 ---------- Total liabilities 45,817,112 ---------- Operating units' equity (5,584,662) ---------- Commitments and contingencies - ------ Total liabilities and operating units' equity 40,232,450 ==========
See accompanying notes to combined financial statements. F-20 S/S ENCHANTED SEAS AND S/S ENCHANTED ISLE (Operating Units of EffJohn International B.V.) STATEMENTS OF OPERATIONS For the years ended December 31, 1993 and 1994 and for the period from January 1, 1995 to July 14, 1995
For the period January 1 Year ended December 31, through July 14, ---------------------------- 1993 1994 1995 ---- ---- ---- Revenues: Passenger fares $ 31,660,394 26,493,185 13,241,158 Port charges 3,450,607 3,313,599 1,926,605 On board revenues 8,015,525 7,531,592 3,972,362 Charter revenue 2,420,000 4,511,224 - Miscellaneous revenues 103,530 10,813 - ---------- ---------- ------ Total revenues 45,650,056 41,860,413 19,140,125 ---------- ---------- ----------- Operating expenses: Technical and running costs 16,951,387 14,201,427 11,188,132 Ships operating expenses 14,258,345 12,368,986 6,771,538 Repairs and maintenance 3,055,405 1,956,683 2,168,105 ---------- ---------- ----------- Total operating expenses 34,265,137 28,527,096 20,127,775 ---------- ---------- ----------- Gross profit (loss) 11,384,919 13,333,317 (987,650) Other operating expenses: Administrative expenses 4,664,866 3,798,194 3,175,947 Marketing expenses 2,168,286 2,685,976 2,704,143 Depreciation and amortization 4,902,487 3,599,234 1,910,413 Loss on vessel fire - 1,367,347 - ------ ---------- ------ Operating income (loss) (350,720) 1,882,566 (8,778,153) Other income (expense): Interest income 33,984 68,921 41,317 Interest expense (1,716,329) (1,362,336) (2,232,347) Write-off of goodwill (6,023,118) - - Loss on sale of assets - - (6,123,866) ------ ------ ---------- (7,705,463) (1,293,415) (8,314,896) ---------- ---------- ---------- Net income (loss) $ (8,056,183) 589,151 (17,093,049) ========== ========== ===========
See accompanying notes to combined financial statements. F-21 S/S ENCHANTED SEAS AND S/S ENCHANTED ISLE (Operating Units of EffJohn International B.V.) STATEMENTS OF OPERATING UNITS' EQUITY Year ended December 31, 1994
Balance at December 31, 1992 (8,714,121) Net loss (8,056,183) Capital contributions - forgiveness of affiliate debt 10,596,491 ----------- Balance at December 31, 1993 (6,173,813) Net income 589,151 ----------- Balance at December 31, 1994 (5,584,662) Net loss (17,093,050) ----------- Balance at July 14, 1995 (22,677,712) ===========
See accompanying notes to combined financial statements. F-22 S/S ENCHANTED SEAS AND S/S ENCHANTED ISLE (Operating Units of EffJohn International B.V.) CASH FLOW STATEMENTS For the years ended December 31, 1993 and 1994 and for the period from January 1, 1995 to July 14, 1995
For The Period January 1 Year ended December 31, through July 14, ---------------------------- 1993 1994 1995 ---- ---- ---- Net income (loss) $ (8,056,183) 589,151 (17,093,049) Depreciation and amortization 4,902,487 3,599,234 1,910,413 Loss on sale of assets - - 6,123,866 Amortization of deferred drydock 1,778,407 1,116,367 1,254,921 Write-off of goodwill 6,023,118 - - Changes in: Restricted cash (1,158) (10,404) 234,965 Accounts receivable (293,573) 15,621 (625,476) Inventories 398,952 (231,094) (371,637) Prepaids and other assets (128,267) (10,145) 215,431 Passenger deposits 1,794,478 (676,606) (5,231,861) Due to/from affiliates 836,339 4,076,254 2,299,934 ---------- ---------- ----------- Net cash (used in) provided by operations 7,254,600 8,468,378 (11,282,493) --------- ---------- ----------- Proceeds from sale of assets 149,415 42,000 5,000,000 Capital expenditures (1,177,642) (2,508,024) (1,448,017) ---------- ---------- ----------- Net cash provided by (used in) investing activities (1,028,227) (2,466,024) 3,551,983 ---------- ---------- ----------- Proceeds from debt 1,021,272 184,126 8,985,735 Repayments of debt (7,943,713) (5,800,202) (1,127,551) ---------- ---------- ----------- Net cash provided by (used in) financing activities (6,922,441) (5,616,076) 7,858,184 ---------- ---------- ----------- Net change in cash and cash equivalents (696,068) 386,278 127,674 Beginning cash and cash equivalents 1,134,660 438,592 824,870 ---------- ---------- ----------- Ending cash and cash equivalents $ 438,592 824,870 952,544 ========== ========== ===========
See accompanying notes to combined financial statements. F-23 S/S ENCHANTED SEAS AND S/S ENCHANTED ISLE (Operating Units of EffJohn International B.V.) Cash Flow Statements (Continued) For the years ended December 31, 1993 and 1994 and for the period from January 1, 1995 to July 14, 1995 Supplemental cash flow disclosure: The following summarizes non-cash activities related to the sale of the Company's assets: Vessels $ (36,500,000) Inventories (1,100,000) Liabilities incurred (2,023,866) Promissory note received 24,500,000 Preferred stock received 4,000,000 Cash received 5,000,000 ---------- Loss on sale of assets $ 6,123,866 ==========
F-24 S/S ENCHANTED SEAS AND S/S ENCHANTED ISLE (Operating Units of EffJohn International B.V.) NOTES TO COMBINED FINANCIAL STATEMENTS December 31, 1993 and 1994, July 14, 1995 (1) BUSINESS ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (A) BUSINESS ORGANIZATION Brasil Caribean Shipping, Inc. ("Brasil") and Argentina Caribean Shipping Inc. ("Argentina") (both Panamanian corporations) are wholly- owned subsidiaries of EffJohn International B.V. ("EffJohn") (a Dutch corporation). EffJohn is ultimately owned by Silja OY AB, a Scandinavian publicly held entity. Brasil owned the cruise vessel S/S Enchanted Seas ("Seas"), which operated primarily in the Caribbean markets out of New Orleans, Louisiana. Argentina owned the cruise vessel S/S Enchanted Isle ("Isle"), which operated out of San Diego to Mexico through April 1993, in the Caribbean market out of Barbados and out of New Orleans in 1995 and also operated as a hotel in St. Petersburg, Russia from May 1993 through August 1994. Both vessels were operated and managed by Commodore Cruise Line Limited ("Commodore"), a wholly-owned subsidiary of EffJohn. Commodore also operates or operated the vessels Caribe I, Crown Monarch, Crown Jewel and Crown Dynasty. These financial statements have been prepared on a combined basis representing the activities of Brasil and Argentina and the revenues and direct and allocated expenses of Commodore from operations of the Seas and Isle. The combined operations are herein referred to as the "Company." All material intercompany balances and transactions have been eliminated in combination. (B) REVENUE AND EXPENSE RECOGNITION Passenger ticket revenue, onboard revenues and related expenses are recognized as earned when voyages are completed. Fares received from customers for future voyages are recorded as liabilities. Onboard revenues consist of income from concession agreements (note 9), casino, bar operation and shore tour activities. Travel agent commissions, air transportation and land excursions costs, and onboard cost of sales and expenses are included in ships operating expenses in the accompanying combined financial statements. Certain expenses common to vessels operated by Commodore have been allocated to the Seas and Isle, primarily based on a pro rata share of the number of traffic days of each vessel. Allocated expenses consist principally of marketing and advertising, shore payroll, benefits, and other administrative costs. See note 6 as to allocation of interest expense. Management believes that the methodology used in allocating expenses is reasonable. As all expenses of EffJohn have been subject to allocation, management believes that the expenses of the Company would not be materially different on a stand alone basis. (Continued) F-25 -2- S/S ENCHANTED SEAS AND S/S ENCHANTED ISLE (Operating Units of EffJohn International B.V.) NOTES TO COMBINED FINANCIAL STATEMENTS (C) INVENTORIES Inventories are stated at the lower of cost or market. Cost is determined by the first-in, first-out method. (D) PROPERTY AND EQUIPMENT Vessels, property and equipment are recorded at cost. Major renewals and improvements which extend the useful lives of the assets are capitalized. Drydocking costs are deferred and amortized over 24 months. (E) INCOME TAXES The operations of the Isle and Seas are not subject to U.S. income taxes due to an international shipping exemption and no income taxes in the country of incorporation. Accordingly, no provision for income taxes has been recorded. (F) CASH AND CASH EQUIVALENTS Cash includes purser funds, casino cash and bank account used solely for the Seas and Isle. The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. (G) DUE TO AFFILIATES Due to affiliates consists principally of amounts owed to Commodore and EffJohn for various operating and administrative activities. Commodore manages certain cash disbursements, including payments to vendors. Cash balances and transactions recorded through operating cash accounts used by Commodore for the operations of vessels are reflected in due to affiliates. (H) RESTRICTED CASH The Company placed $234,966 on deposit with a bank to secure a letter of credit with a United States government agency. (I) USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. (Continued) F-26 -3- S/S ENCHANTED SEAS AND S/S ENCHANTED ISLE (Operating Units of EffJohn International B.V.) NOTES TO COMBINED FINANCIAL STATEMENTS (2) SALE OF THE SEAS AND THE ISLE AND RELATED ASSETS On July 14, 1995, the Company sold the S/S Enchanted Seas and the S/S Enchanted Isle, certain shoreside assets, trademarks, passenger lists and advanced ticket sales to Commodore Holdings Limited and Subsidiaries, an unrelated entity. Total proceeds received for the transaction were $33,500,000, which consisted of $5,000,000 in cash, a loan made to the purchasers of $24,500,000 and 1,000,000 shares of seven percent cumulative convertible redeemable Series A Preferred Stock at value of $4.00 per share. The loss associated with this sale was $6,123,866. (3) LIQUIDITY The Company's current liabilities exceed current assets and total liabilities exceed total assets. Although the Company recognized a profit in 1994, it incurred losses in 1995 and 1993 and has received capital contributions and loans from EffJohn to cover its operating cash needs. The parent company of EffJohn has agreed to provide additional cash advances or obtain external financing, if required, in 1996. The Company and EffJohn will remain economically dependent on its parent for additional advances until it achieves sustained profitable operations. (4) INVENTORIES At December 31, 1994, inventories consist of:
1994 ---- Food, beverage and supplies 633,952 Fuel 94,411 ------- 728,363 =======
(5) PROPERTY AND EQUIPMENT At December 31, 1994, property and equipment consist of:
Estimated 1994 Useful Lives ---- ------------ Vessels 53,839,340 15 years Equipment 2,957,367 3 to 5 years Dry/Wet docking 3,527,541 2 years ---------- 60,324,248 ==========
Depreciation expense for the years ended December 31, 1993 and 1994 and for the period January 1 through July 14, 1995 amounted to $3,586,654, $3,567,550 and $1,771,035, respectively. (Continued) F-27 -4- S/S ENCHANTED SEAS AND S/S ENCHANTED ISLE (Operating Units of EffJohn International B.V.) NOTES TO COMBINED FINANCIAL STATEMENTS (6) AFFILIATE LONG-TERM DEBT EffJohn provides financing to the vessels operated by Commodore through external loans obtained from third parties. Debt amounts have been allocated to the Seas and Isle based on acquisition debt, funding of capital improvements and working capital needs. Debt repayments and interest expense have been allocated based on a pro rata share of outstanding debt and capital contributions made by EffJohn. Certain debt incurred by EffJohn to fund the Company is secured by the Seas and the Isle. Interest rates on the external debt range from 4.18 percent to 7.82 percent. The allocated minimum annual repayment requirements as of December 31, 1994, are as follows:
Long-term Year ending December 31, debt, affiliate ------------------------ --------------- 1995 7,713,546 1996 7,215,243 1997 6,436,345 1998 4,841,173 Thereafter 3,814,041 ---------- 30,020,348 ==========
(7) WRITE-OFF OF GOODWILL The Company recorded goodwill in 1989 resulting from the excess of the purchase cost of the Company over fair market value of net assets acquired, which was amortized over ten years on a straight-line basis. The Company continually evaluated the existence of goodwill impairment on the basis of whether goodwill was fully recoverable from projected, undiscounted net cash flows. In 1993, in connection with the anticipated sale of the vessels, the Company determined that goodwill no longer had continuing value based on the expected future cash flows from the sale of the vessel and from operations. Accordingly, the Company recorded a charge to income in the accompanying statement of operations sufficient to fully write-off all goodwill. (8) COMMITMENTS AND CONTINGENCIES The Company is a defendant in various lawsuits incidental to its operation. Such claims are generally covered by insurance, less a deductible payable by the Company. In the opinion of management, the ultimate resolution of these matters will not have a material effect on the Company's financial position, results of operations or liquidity. (Continued) F-28 -5- S/S ENCHANTED SEAS AND S/S ENCHANTED ISLE (Operating Units of EffJohn International B.V.) NOTES TO COMBINED FINANCIAL STATEMENTS (9) CONCESSION AGREEMENTS The Company had entered into concession agreements with independent third parties for the operations of the gift shop, beauty shop and photography services. Fringe revenues from concessions were computed based upon information contained in each specific agreement. Generally, such agreements call for payments to the Company based upon number of passengers or a percentage of sales. (10) FIRE LOSS ON THE ISLE On December 28, 1994, a fire occurred on the S/S Enchanted Isle. The Company incurred expenses for damages arising out of the incident of approximately $1.4 million. The loss is included in other operating expenses in the accompanying statement of operations for the year ended December 31, 1994. (11) CHARTER REVENUE From May 1993 through August 1994, the Isle was chartered to an affiliated company and operated as a hotel in St. Petersburg, Russia. Charter revenue received amounted to $2,420,000 and $4,036,224 and in 1993 and 1994, respectively. Charter revenue from a third-party amounted to $475,000 in 1994. F-29 COMMODORE HOLDINGS, LIMITED AND SUBSIDIARIES PRO FORMA CONDENSED STATEMENT OF EARNINGS YEAR ENDED SEPTEMBER 30, 1995 (UNAUDITED)
New Old Commodore Commodore Pro Forma Pro Forma Total revenues ----------- ----------- ------------ ------------- Operating expenses Marketing, selling and administrative Depreciation and amortization $ 7,255,830 $ 27,818,934 $ - $ 35,074,764 Interest expense, net 4,940,637 29,763,306 - 34,703,943 Other 1,664,478 8,234,108 - 9,898,586 197,926 2,832,666(1) (1,337,333)(1) 1,693,259 132,795 2,700,855 (904,275)(2) 1,929,375 Net earnings (loss) - 4,000 - 4,000 ---------- ------------ ------------ ----------- Discontinued operations 319,994 (15,716,001) 2,241,608 (13,154,399) Provision for taxes - 6,123,866 (6,123,866)(5) - Net earnings (loss) before provision for 8,459 - (8,459)(4) - preferred stock dividend ---------- ------------ ----------- ------------ Provision for preferred stock dividend 311,535 (21,839,867) 8,373,933 (13,154,399) Net earnings 60,000 - 220,000(3) 280,000 ---------- ------------ ----------- ------------ Net income (loss) per share $ 251,535 $(21,839,867) $ 8,153,933 $(13,434,399) ========== ============ =========== ============ Weighted average number of common 0.06 (2.59) stock outstanding ========== ============ 4,377,593 5,184,711 ========== ============
F-30 COMMODORE HOLDINGS, LIMITED AND SUBSIDIARIES PRO FORMA CONDENSED STATEMENTS OF EARNINGS YEAR ENDED SEPTEMBER 30, 1995 (UNAUDITED) NOTE A - PROFORMA CONDENSED FINANCIAL STATEMENTS The accompanying unaudited pro forma condensed statements of earnings have been derived from the audited statement of earnings of the company for the period from April 13, 1995 (date of inception) through September 30, 1995 and the revenues and expenses of Old Commodore from October 1, 1994 through July 14, 1995 (date of acquisition of Old Commodore by New Commodore). Although the date of inception of New Commodore was April 13, 1995 actual operations of New Commodore began on July 15, 1995. The unaudited pro forma condensed financial statements are presented for informational purposes only and do not purport to be indicative of the operating results that actually would have occurred if the acquisition had been consummated as of October 1, 1994, nor which may result from future operations. The pro forma adjustments are based upon available information and certain assumptions that the Company believes are reasonable. The 1994 acquisition has been accounted for using the purchase method of accounting. These pro forma financial statements should be read in conjunction with the historical financial statements in related notes of the Company, the acquisition information included elsewhere in this document. NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Earnings Per Share ------------------ Net earnings (loss) per common equivalent share is based upon the weighted average number of shares and common stock equivalents outstanding during each period after giving effect for dividends on the Class A preferred stock. The weighted average number of common and common equivalent shares outstanding for the pro forma year ended September 30, 1995 is 5,184,611. Weighted average shares includes the effect of the warrants issued with exercise prices below the IPO price, as calculated under the treasury stock method. The calculation also gives retroactive effect (as if to the beginning of the period) to those shares issued to founders at par value. F-31 COMMODORE HOLDINGS, LIMITED AND SUBSIDIARIES PRO FORMA CONDENSED STATEMENTS OF EARNINGS - CONTINUED YEAR ENDED SEPTEMBER 30, 1995 (UNAUDITED) NOTE C - PRO FORMA ADJUSTMENTS (1) Adjustment to depreciation expense resulting from the difference in cost basis of the assets acquired by the Company as compared to Old Commodore . (2) Adjustment to interest expense for lower borrowings of approximately $4,617,000 of the Company as compared to Old Commodore. The actual interest rate at the time of acquisition was used to determine these amounts. (3) Adjustment to reflect the cumulative preferred stock dividend on $4,000,000 of 7% Series A cumulative preferred stock. (4) No provision for income taxes is reflected due to the pro forma net operating loss. The Company expects that once it becomes primarily and regularly traded on an established securities market in the U.S. such as NASDAQ, it will be able to claim the shipping exemption under Section 883(a) of the Internal Revenue Code. Accordingly, the Company's effective tax rate will then be zero. (5) This amount represent the loss on sale of the vessels and has been adjusted to reflect the Company as a going concern. F-32 Until ____________, 1996 (25 days after the date of this Prospectus), all dealers effecting transactions in the registered securities, whether or not participating in this distribution, may be required to deliver a Prospectus. This is in addition to the obligation of dealers to deliver a Prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. TABLE OF CONTENTS
PAGE ---- ENFORCEABILITY OF CIVIL LIABILITIES UNDER UNITED STATES FEDERAL SECURITIES LAWS..................................... 2 PROSPECTUS SUMMARY.......................................................... 3 SUMMARY FINANCIAL INFORMATION............................................... 8 RISK FACTORS................................................................ 9 USE OF PROCEEDS............................................................. 21 DIVIDEND POLICY............................................................. 21 DILUTION.................................................................... 22 CAPITALIZATION.............................................................. 24 SELECTED FINANCIAL DATA..................................................... 25 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................. 27 BUSINESS.................................................................... 33 CERTAIN TAX CONSIDERATIONS.................................................. 52 MANAGEMENT.................................................................. 58 SECURITIES OWNERSHIP OF PRINCIPAL AND INITIAL SELLING STOCKHOLDERS.................................. 64 CERTAIN TRANSACTIONS........................................................ 65 DESCRIPTION OF SECURITIES................................................... 67 SHARES ELIGIBLE FOR FUTURE SALE............................................. 74 CERTAIN FOREIGN ISSUER CONSIDERATIONS....................................... 75 UNDERWRITING................................................................ 76 CONCURRENT REGISTRATION OF COMMON STOCK..................................... 78 LEGAL MATTERS............................................................... 78 EXPERTS..................................................................... 79 ADDITIONAL INFORMATION...................................................... 79 INDEX TO FINANCIAL STATEMENTS.............................................. F-1
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED ON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY, BY ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER, SOLICITATION OR SALE MADE HEREUNDER, SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THE PROSPECTUS. 1,000,000 UNITS COMMODORE HOLDINGS LIMITED ______________________ PROSPECTUS ______________________ ________________________ ____________, 1996 80 Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any state in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state. PROSPECTUS Subject to Completion, dated May 28, 1996 -- COMMODORE HOLDINGS LIMITED 5,338,912 SHARES OF COMMON STOCK This Prospectus relates to the sale by certain selling shareholders (the "Selling Stockholders") of 5,338,912 shares of common stock, $.01 par value per share (the "Common Stock") of Commodore Holdings Limited (the "Company"). This amount includes 1,006,979 shares of Common Stock, which presently may be issued upon conversion of the Series A Preference Shares into Common Stock. All the Selling Stockholders have agreed not to sell or otherwise dispose of or exercise any of their shares of Common Stock or shares of Common Stock issuable upon conversion or exercise of securities convertible into Common Stock for a period of one year from the date of this Prospectus without the prior written consent of the Underwriter. None of the proceeds from the sale of the Common Stock by the Selling Stockholders will be received by the Company. The Company will bear all expenses (other than selling commissions and fees and expenses of counsel or other advisors to the Selling Stockholders) in connection with the registration and sale of the Common Stock being offered by the Selling Stockholders. See "Selling Stockholders." Prior to this offering (the "Selling Stockholders Offering"), there has been no public market for the Common Stock, and there can be no assurance that any such market will develop. The Common Stock will be offered by the Selling Stockholders in transactions in the over-the-counter market, in negotiated transactions or a combination of such methods of sale, at fixed prices which may be changed, at market prices prevailing at the time of sale, at prices related to such prevailing market prices, or at negotiated prices. The Selling Stockholders may effect such transactions by selling the Common Stock to or through broker-dealers, and such broker-dealers may receive compensation in the form of discounts, concessions or commissions from the Selling Stockholders and/or the purchasers of the Common Stock for whom such broker-dealers may act as agent or to whom they sell as principal, or both. The Selling Stockholders may be deemed to be "underwriters" as defined in the Securities Act of 1933 (the "Securities Act"). If any broker-dealers are used by the Selling Stockholders, any commissions paid to broker-dealers and, if broker-dealers purchase any shares of Common Stock as principals, any profits received by such broker- dealers on the resales of the shares of Common Stock, may be deemed to be underwriting discounts or commissions under the Securities Act. In addition, any profits realized by the Selling Stockholders may be deemed to be underwriting commissions. All costs, expenses and fees in connection with the registration of the shares offered by Selling Stockholders will be borne by the Company. Brokerage commissions, if any, attributable to the sale of the shares will be borne by the Selling Stockholders. The Selling Stockholders may not sell, transfer, or otherwise dispose of any of their of Common Stock for a period of one year without the prior written consent of the underwriter. See "Selling Stockholders" and "Plan of Distribution." The Company has applied to the Nasdaq National Market System ("Nasdaq NMS") for inclusion and listing for trading, respectively, of the Common Stock. The proposed trading symbol for the Common Stock is CCLH. Concurrently with the commencement of this offering, the Company and the Initial Selling Stockholders offered by separate Prospectus, 1,000,000 units (the "Units") of the Company. Each Unit consists of one share of Common Stock and one redeemable warrant to purchase one-half share of Common Stock (the "Warrants"). The Warrants are exercisable only in pairs, with each two Warrants entitling the registered holder to purchase one share of Common Stock for $6.00 per share. The Company's offering (the "Offering") is being offered through First Hanover Securities, Inc. (the "Underwriter"). SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK. THE SECURITIES OFFERED HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this Prospectus is ____________, 1996 (ALTERNATE PAGE FOR SELLING STOCKHOLDERS PROSPECTUS) THE OFFERING Securities offered........................... 4,331,933 shares of Common Stock, $.01 par value. See "Description of Securities." Common Stock Outstanding/(1)/................ 4,931,933 shares. Risk Factors................................. The securities offered hereby involve a high degree of risk. See "Risk Factors." Proposed Nasdaq NMS Symbol(2)................ Common Stock - CCLH ____________________ /(1)/ Does not include up to 500,000 shares of Common Stock reserved for issuance upon the exercise of options; 500,000 shares of Common Stock underlying the Units being concurrently issued by the Company; 500,000 shares of Common Stock reserved for issuance upon exercise of the Warrants underlying the Units being offered by the Company; 225,000 shares of Common Stock reserved for issuance upon the exercise of the Over-Allotment Option (and the shares of Common Stock underlying the Warrants contained therein); and 150,000 shares of Common Stock reserved for issuance upon the exercise of the Underwriter's Warrants (and the shares of Common Stock underlying the Warrants contained therein). /(2)/ The proposed symbols do not imply that a liquid and active market will develop or be sustained for the securities upon completion of the offering. SELLING STOCKHOLDERS The following table sets forth certain information with respect to the beneficial ownership of the Company's Common Stock by each Selling Stockholder as of May 1, 1996, without giving effect to the Offering, and as adjusted to reflect the sale of all the Common Stock offered by the Selling Stockholders hereunder. Unless otherwise stated, all shares are held with sole investment and voting power.
SHARES BENEFICIAL OWNERSHIP BEING BENEFICIAL OWNERSHIP PRIOR TO OFFERING OFFERED AFTER THE OFFERING ----------------- ------- ------------------ SELLING STOCKHOLDER NUMBER PERCENT/(1)/ NUMBER PERCENT - ------------------- ------ ------- ------ ------- Allen, Alvin B. 25,000 .5% 25,000 0 0% Alperin, David 6,250 .1% 6,250 0 0% Alu, James M. 15,000 .3% 15,000 0 0% American Maple Leaf 125,000 2.5% 125,000 0 0% Amoyelle, Biniamine as Trustee 37,500 .7% 37,500 0 0% Amoyelle, Biniamine as Trustee 125,000 2.5% 125,000 0 0% of the Wolfson Family Trust Ancic, Stipe 6,250 .1% 6,250 0 0% Barat, Douglas 6,250 .1% 6,250 0 0% Bartolini, Robert R. 162,500 3.3% 162,500 0 0%
2 (ALTERNATE PAGE FOR SELLING STOCKHOLDERS PROSPECTUS)
SHARES BENEFICIAL OWNERSHIP BEING BENEFICIAL OWNERSHIP PRIOR TO OFFERING OFFERED AFTER THE OFFERING ----------------- ------- ------------------ SELLING STOCKHOLDER NUMBER PERCENT/(1)/ NUMBER PERCENT - ------------------- ------ ------- ------ ------- Bear Stearns 12,500 .25% 12,500 0 0% Account #7959587812 FBO Robert J. Heighley IRA Bear Stearns 12,500 .25% 12,500 0 0% Account #7959585915 FBO Ron H. Rust IRA Block, Charles 6,250 .1% 6,250 0 0% Bloom, Jonathan and Rachel Nel 6,250 .1% 6,250 0 0% Brarrison Incorporated 12,500 .25% 12,500 0 0% Braun, Elliot 6,250 .1% 6,250 0 0% Brooks, John 6,250 .1% 6,250 0 0% Buck, Timothy Paul 12,500 .25% 12,500 0 0% Button, Richard T. 10,000 .2% 10,000 0 0% Campagnuolo, Benjamin 6,250 .1% 6,250 0 0% Capital Growth Trust 155,000 3.1% 155,000 0 0% Centaur Financial Corp. 100,000 2.0% 100,000 0 0% Cliff Associates 41,250 .8% 41,250 0 0% Cohen, Susan I. 5,000 .1% 5,000 0 0% Colella, John A. 6,250 .1% 6,250 0 0% Costa, Neil and Ahren, Lynn 25,000 .5% 25,000 0 0% Costa, Jose A. and Maria E. 5,000 .1% 5,000 0 0% Cramer, Gerald B. 25,000 .5% 25,000 0 0% Cranbourne Investments 36,918 .75% 36,918 0 0% Cruise Finance, Inc. 150,000 3.0% 150,000 0 0% CT Partnership 12,500 .25% 12,500 0 0% Dumanic, Ivo 6,250 .1% 6,250 0 0% Dunn, Arthur L. 12,500 .25% 12,500 0 0% Edo, Roje 6,250 .1% 6,250 0 0% Eff-Shipping Ltd./(2)/ 1,006,979 17.0% 1,006,979 0 0% Eugene M. Eisner Pension Trust 12,500 .25% 12,500 0 0% Etablissement Asamar, Ltd. 100,000 2.0% 100,000 0 0% Fabrikant, Martin 6,250 .1% 6,250 0 0% FAC Enterprises, Inc. 120,000 2.5% 120,000 0 0% Farrauto, Charles 25,000 .5% 25,000 0 0% Federman, Carole Ann 3,125 0 3,125 0 0% Flam, Robert 100 0 100 0 0% Forman, Michael 5,000 .1% 5,000 0 0% Frankel, Richard G. 12,500 .25% 12,500 0 0% Funkey, John P. as Trustee of the 6,250 .1% 6,250 0 0% John P. Funkey Revocable Trust Garnick, Michael & Denise 62,500 1.2% 62,500 0 0% Geller, Paul 6,250 .1% 6,250 0 0% Glicker, Harvey and Harolyn 6,250 .1% 6,250 0 0%
3 (ALTERNATE PAGE FOR SELLING STOCKHOLDERS PROSPECTUS)
SHARES BENEFICIAL OWNERSHIP BEING BENEFICIAL OWNERSHIP PRIOR TO OFFERING OFFERED AFTER THE OFFERING ----------------- ------- ------------------ SELLING STOCKHOLDER NUMBER PERCENT/(1)/ NUMBER PERCENT - ------------------- ------ ------- ------ ------- Goldberg, Phyllis E. 19,000 .38% 19,000 0 0% Goldberg, Paul K. 11,000 .22% 11,000 0 0% Gooze, Daniel 12,500 .25% 12,500 0 0% Greater Atlantic Casinos, Ltd. 25,000 .5% 25,000 0 0% Gutfleish, Louis 6,250 .1% 6,250 0 0% Haas, David S. 3,125 .05% 3,125 0 0% Hickman, Lamoyne W. 12,500 .25% 12,500 0 0% I.P. Corp. 50,000 1.0% 50,000 0 0% JeMJ Financial Services, Inc./(3)/ 500,000 10.2% 500,000 0 0% Kaplan, Susan 6,250 .1% 6,250 0 0% Karp, Florence, Custodian 86,415 1.7% 86,415 0 0% Kaufman, Adrienne 3,125 .05% 3,125 0 0% Kaufman, Elliot 3,125 .05% 3,125 0 0% Keenan, Thomas 75,000 1.5% 75,000 0 0% Kenlee, Inc. 42,875 .87% 42,875 0 0% Klass, Milton 6,250 .1% 6,250 0 0% Koutcher, Martin on behalf of the 6,250 .1% 6,250 0 0% Koutcher-Ginsberg Pension Plan Lansker, Rita 12,500 .25% 12,500 0 0% Levitin, Eli 6,250 .1% 6,250 0 0% Love, Douglas A. 10,000 .2% 10,000 0 0% Lozic, Arsen 6,250 .1% 6,250 0 0% Manocherian, Fraydun 25,000 .5% 25,000 0 0% Marcus, Howard 12,500 .25% 12,500 0 0% Masucci, Robert N. 12,500 .25% 12,500 0 0% Miller, Alan I. 75,000 1.5% 75,000 0 0% Miller, Marc 12,500 .25% 12,500 0 0% Miller, Robert A. 3,125 (1) 3,125 0 0% Moderski, Joseph C. 6,250 .1% 6,250 0 0% Muhlgeier, Jeffrey 6,250 .1% 6,250 0 0% Nestico, Pasquale F. 15,000 .3% 15,000 0 0% Novak, Sharon 5,000 .1% 5,000 0 0% Orvieto, Brad, as Trustee 150,000 3.0% 150,000 0 0% for the Merriman Trust Oswald, Frederick J. 6,250 .1% 6,250 0 0% Pavic, Boris 25,000 .5% 25,000 0 0% Pavlovic, Ante 6,250 .1% 6,250 0 0% Pavlovic, Giorgio Conte 12,500 .25% 12,500 0 0% Pearlstein, Alan 12,500 .25% 12,500 0 0% Piscitelli, Gene 12,500 .25% 12,500 0 0% Prevor Marketing International 12,500 .25% 12,500 0 0% Inc.
4 (ALTERNATE PAGE FOR SELLING STOCKHOLDERS PROSPECTUS)
SHARES BENEFICIAL OWNERSHIP BEING BENEFICIAL OWNERSHIP PRIOR TO OFFERING OFFERED AFTER THE OFFERING ----------------- ------- ------------------ SELLING STOCKHOLDER NUMBER PERCENT/(1)/ NUMBER PERCENT - ------------------- ------ ------- ------ ------- Prudential Securities as Custodian 2,500 (1) 2,500 0 0% Steven P. Margolis HCG 816744 Rabin, Jeffrey B. 130,000 2.7% 130,000 0 0% Radway Investments Limited 145,000 2.95% 145,000 0 0% Rambler, Louis E. 6,250 .1% 6,250 0 0% Reisman, Theodore 5,000 .1% 5,000 0 0% Repvic Partners 52,500 1.0% 52,500 0 0% Resnick, Michael 6,250 .1% 6,250 0 0% Romotski, Emil 10,000 .2% 10,000 0 0% Rosen, Kenneth A. 20,000 .4% 20,000 0 0% Rosen, Kenneth as Trustee of the 20,000 .4% 20,000 0 0% Money Purchase Pension Plan Rosner, Steven B. 136,000 2.78% 136,000 0 0% Rozel International Holdings 155,000 3.1% 155,000 0 0% Limited Saker, Wayne 6,250 .1% 6,250 0 0% Salomon, Edward 6,250 .1% 6,250 0 0% Sato, Ken 12,500 .25% 12,500 0 0% Schimmel, Lawrence 125,000 2.5% 125,000 0 0% Sector Associates Ltd. 10,000 .2% 10,000 0 0% Shapiro, Allan 12,500 .25% 12,500 0 0% Smolen, Eric E. 6,500 .1% 6,500 0 0% Some, Aaron 3,125 (1) 3,125 0 0% Sorrentino, Andrew 3,125 (1) 3,125 0 0% Speziale, Peter J. and Adam 6,250 .1% 6,250 0 0% Brostovski, Joint Tenants with Rights of Survivorship Staller, Jerome M. 12,500 .25% 12,500 0 0% Stanley, Michael C. 10,000 .2% 10,000 0 0% Strassberg, David 6,250 .1% 6,250 0 0% Strauss, Elaine J. 6,250 .1% 6,250 0 0% Teitelbaum, Naftali and Gale B., 6,250 .1% 6,250 0 0% Joint Tenants with Rights of Survivorship Tidwell, Gerald 6,250 .1% 6,250 0 0% Visio, Mirko 12,500 .25% 12,500 0 0% Walton, David M. 75,000 1.5% 75,000 0 0% Ward, Dean T. 6,250 .1% 6,250 0 0% Weisman, Lawrence S., 25,000 .25% 25,000 0 0% Individual Retirement Account Funds Wellner, Robert G. 75,000 1.5% 75,000 0 0% Wolfson, Aaron 25,000 .25% 25,000 0 0%
5 (ALTERNATE PAGE FOR SELLING STOCKHOLDERS PROSPECTUS)
SHARES BENEFICIAL OWNERSHIP BEING BENEFICIAL OWNERSHIP PRIOR TO OFFERING OFFERED AFTER THE OFFERING ----------------- ------- ------------------ SELLING STOCKHOLDER NUMBER PERCENT/(1)/ NUMBER PERCENT - ------------------- ------ ------- ------ ------- Wray, Paul E. and Herron, Diane 6,250 .1% 6,250 0 0% Wyllie, Kevin J. 6,250 .1% 6,250 0 0% Yanni, Louis 6,250 .1% 6,250 0 0% Yoga Trading Company 3,125 (1) 3,125 0 0% Young, Robert 75,000 1.5% 75,000 0 0% Zimmerman, Oscar 18,750 .38% 18,750 0 0% Zobian, Edward Joseph 3,125 (1) 3,125 0 0%
SHARES BENEFICIAL BENEFICIAL OWNERSHIP BEING OWNERSHIP PRIOR TO OFFERING OFFERED AFTER THE OFFERING/(4)/ ----------------- ------- ------------------ SELLING STOCKHOLDER (SHARES OF COMMON STOCK UNDERLYING WARRANTS NUMBER PERCENT/(1)/ NUMBER PERCENT - ------------------- ------ ------------ ------ ------- Binder, Jeffrey I., 1,500,000 27.6% 500,000/(5)/ 500,000/(7)/ 9.2% Rosalie G. and JeMJ Financial Services, Inc./(6)/ Mayer, Frederick/(8)/ 500,000 9.7% 200,000 300,000 3.7%
____________________ /(1)/ Owns less than .1% of the Common Stock. /(2)/ Eff-Shipping Ltd is an affiliate of EffJohn, the parent company of Old Commodore. The Company acquired certain assets of Old Commodore and its subsidiaries, including the Cruise Ships, in July 1995. See "Business -The Commodore Acquisition" and "Certain Transactions." Eff-Shipping received Series A Preference Shares in connection with the Commodore Acquisition. These Series A Preference Shares may currently be converted into shares of Common Stock at the conversion rate of the higher of US $4.00 or eight times the annual primary earnings per share of Common Stock for the previous fiscal year. See "Description of Securities - Series A Preference Shares." At present, the Series A Preference Shares may be converted into 1,006,979 shares of Common Stock. /(3)/ JeMJ Financial Services, Inc. is controlled by Jeffrey I. Binder, the Chairman of the Board of the Company. This amount excludes warrants to purchase 250,000 shares of Common Stock owned by JeMJ Financial Services, Inc. /(4)/ Assumes that the 1,000,000 Units in the concurrent offering by the Company are sold, and that neither the Over-Allotment Option nor the Underwriter's Warrant are exercised. /(5)/ Excludes shares of Common Stock being offered and listed elsewhere herein. 6 (ALTERNATE PAGE FOR SELLING STOCKHOLDERS PROSPECTUS) /(6)/ Jeffrey I. Binder is the Chairman of the Board of the Company. This amount includes 500,000 shares of Common Stock and warrants to purchase 250,000 shares of Common Stock owned by JeMJ Financial Services, Inc. an affiliate of Mr. Binder. This amount also includes warrants to purchase 250,000 shares of Common Stock owned by Mr. and Mrs. Binder. /(7)/ This amount takes into account shares of Common Stock being offered and listed elsewhere herein. /(8)/ Frederick Mayer is the Vice-Chairman of the Board of the Company and the Chairman of the Board of New Commodore. 7 (ALTERNATE PAGE FOR SELLING STOCKHOLDERS PROSPECTUS) PLAN OF DISTRIBUTION All the Selling Stockholders have agreed not to sell or otherwise dispose of or exercise any of their shares of Common Stock or shares of Common Stock issuable upon conversion or exercise of securities convertible into Common Stock for a period of one year from the date of this Prospectus without the prior written consent of the Underwriter. An appropriate legend will be marked on the face of stock certificates representing all such shares of Common Stock. See "Securities Ownership of Principal and Initial Selling Stockholders" and "Certain Transactions." After a period of one year from the date of this Prospectus has elapsed, each Selling Stockholder is free to offer and sell his or her shares of Common Stock at such times, in such manner and at such prices as he or she shall determine. Such shares may be offered by the Selling Stockholders in one or more types of transactions, which may or may not involve brokers, dealers or cash transactions. The Selling Stockholders may also use Rule 144 under the Securities Act of 1933 (the "Securities Act"), to sell such securities, if they meet the criteria and conform to the requirements of such rule. There is no underwriter or coordinating broker acting in connection with the proposed sale of shares by the Selling Stockholders. The Selling Stockholders have advised the Company that sales of shares may be effected from time to time in transactions (which may include block transactions) in the over-the-counter market, in negotiated transactions, through the writing of options on the Common Stock, or a combination of such methods of sale, at fixed price which may be changed, at market prices prevailing at the time of sale, or at negotiated prices. After a period of one year from the date of this Prospectus has elapsed, the Selling Stockholders may effect such transactions by selling Common Stock directly to purchasers or to or through broker-dealers which may act as agents or principals. Such broker- dealers may receive compensation in the form of discounts, concessions, or commissions from the Selling Stockholders and/or the purchasers of Common Stock for whom such broker-dealers may act as agents or to whom they sell as principal, or both (which compensation as to a particular broker-dealer might be in excess of customary commissions). The Selling Stockholders and any broker- dealers that act in connection with the sale of the Common Stock might be deemed to be "underwriters" within the meaning of Section 2(11) of the Securities Act, and any commissions received by them and any profit on the resale of the shares of Common Stock as principal might be deemed to be underwriting discounts and commissions under the Securities Act. The Selling Stockholders may agree to indemnity any agent, dealer or broker-dealer that participates in transactions involving sales of the shares against certain liabilities, including liabilities arising under the Securities Act. Because Selling Stockholders may be deemed to be "underwriters" within the meaning of Section 2(11) of the Securities Act, the Selling Stockholders will be subject to prospectus delivery requirements under the Securities Act. Furthermore, in the event of a "distribution" of shares, any Selling Stockholders, any selling broker-dealer and any "affiliated purchasers" may be subject to Rule 10b-7 under the Securities Exchange Act of 1934 which prohibits any "stabilizing bid" or "stabilizing purchase" for the purpose of pegging, fixing or stabilizing the price of Common Stock in connection with this offering. In addition, the State of New Jersey requires that the Selling Stockholders who sell their Common Stock in New Jersey use a registered broker- dealer or conduct their sale in reliance upon an exemption from registration. (ALTERNATE PAGE FOR SELLING STOCKHOLDERS PROSPECTUS) Until ____________, 1996 (25 days after the date of this Prospectus), all dealers effecting transactions in the registered securities, whether or not participating in this distribution, may be required to deliver a Prospectus. This is in addition to the obligation of dealers to deliver a Prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. TABLE OF CONTENTS
PAGE ---- ENFORCEABILITY OF CIVIL LIABILITIES UNDER UNITED STATES FEDERAL SECURITIES LAWS...................................... 2 PROSPECTUS SUMMARY........................................................... 3 SUMMARY FINANCIAL INFORMATION................................................ 8 RISK FACTORS................................................................. 9 USE OF PROCEEDS............................................................. 21 DIVIDEND POLICY............................................................. 21 DILUTION.................................................................... 22 CAPITALIZATION.............................................................. 24 SELECTED FINANCIAL DATA..................................................... 25 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS............................. 27 BUSINESS.................................................................... 33 CERTAIN TAX CONSIDERATIONS.................................................. 52 MANAGEMENT.................................................................. 58 SECURITIES OWNERSHIP OF PRINCIPAL AND INITIAL SELLING STOCKHOLDERS.................................. 64 CERTAIN TRANSACTIONS........................................................ 65 DESCRIPTION OF SECURITIES................................................... 67 SHARES ELIGIBLE FOR FUTURE SALE............................................. 74 CERTAIN FOREIGN ISSUER CONSIDERATIONS....................................... 75 UNDERWRITING................................................................ 76 CONCURRENT REGISTRATION OF COMMON STOCK..................................... 78 LEGAL MATTERS............................................................... 78 EXPERTS..................................................................... 79 ADDITIONAL INFORMATION...................................................... 79 INDEX TO FINANCIAL STATEMENTS............................................... F-1
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED ON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY, BY ANY PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER, SOLICITATION OR SALE MADE HEREUNDER, SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THE PROSPECTUS. 5,338,912 SHARES COMMODORE HOLDINGS LIMITED _____________________ PROSPECTUS _____________________ _____________________ ____________, 1996 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION SEC Registration Fee...................... $ 11,469 NASD Filing Fee........................... $ 3,200 Listing Fees*............................. $ 31,080 Transfer and Warrant Agent Fees*.......... $ 2,000 Printing Costs*........................... $ 30,000 Legal Fees and Expenses*.................. $ 100,000 Accounting Fees and Expenses*............. $ 75,000 Blue Sky Fees and Expenses*............... $ 55,000 Additional Underwriting Compensation...... $ 138,000 Miscellaneous*............................ $ 3,967 Total...................................... $ 449,716 =======
____________________ *Indicates expenses that have been estimated for the purpose of filing. ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 98 of The Companies Act provides generally that a Bermuda company may indemnify its directors, officers and auditors against any liability, which by virtue of Bermuda law otherwise would be imposed on them, except in cases where such liability arises from the willful negligence, willful default, fraud or dishonesty of which such officer, director, or auditor may be guilty in relation to the company. Section 98 further provides that a Bermuda company may indemnify its directors, officers and auditors against any liability incurred by them in defending any proceedings, whether civil or criminal, which judgment is awarded in their favor or they are acquitted or in which they are acquitted or granted relief by the Supreme Court of Bermuda in certain proceedings arising under Section 281 of the Act. The Company has adopted provisions in its Bye-laws that provide that the Company shall indemnify its officers and directors to the maximum extent permitted under the Act. The Company has also entered into indemnification agreements with certain of its officers and directors. Such agreements provide that each director shall be indemnified to the maximum extent permitted by law. ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES In April 1995, the Company issued 12,000 shares of its Common Stock to its initial founder, Mr. Jeffrey I. Binder, for $12,000 in conjunction with the organization of the Company. On April 26, 1995, the Company authorized the split of its Common Stock, and each share of its outstanding Common Stock was exchanged for 100 shares of Common Stock. Subsequent to such date, Mr. Binder contributed approximately an additional $988,000 for such Common Stock and transferred half of such Common Stock to an affiliate. On May 12, 1995, the Company repurchased 200,000 shares from Mr. Binder for II-1 par value. The sale of such Common Stock was exempt from registration pursuant to Section 4(2) of the Securities Act. In May 1995, the Company issued a total of 2,406,833 shares of its Common Stock to 23 of its initial founders, for the aggregate amount of $2,115,000. These sales of Common Stock were exempt from registration pursuant to Rules 505 and 506 of Regulation D promulgated under the Securities Act. In May 1995, the Company granted warrants to purchase a total of 325,000 shares of Common Stock to Messrs. Mayer, Sullivan and Pritzker, who are executive officers of the Company and/or its subsidiaries. Such warrants were issued pursuant to each such officer's respective employment agreement and are exercisable for $1.00 per share, at varying vesting periods. The grant of such warrants was exempt from registration pursuant to Section 4(2) of the Securities Act. In connection with a private placement of the Company's securities, the Company issued an additional 1,500,000 shares of Common Stock, for $4.00 per share, to 104 persons. The private placement closed in July 1995. These sales of Common Stock were exempt from registration pursuant to Rules 505 and 506 of Regulation D promulgated under the Securities Act. In July 1995, the Company issued 1,000,000 shares of its Series A Preference Shares to Eff-Shipping, at an agreed upon value of $4.00 per share, as partial consideration for the Company's acquisition of the Commodore Assets. The sale of such Common Stock was exempt from registration pursuant to Section 4(2) of the Securities Act. On July 14, 1995, the Company issued warrants to purchase 250,000 shares of Common Stock to each of Jeffrey I. Binder and Rosalie Binder jointly, and to JeMJ Financial Services, Inc., a company controlled by Jeffrey I. Binder, in exchange for services provided by each of them in connection with the Commodore Acquisition. The warrants are exercisable at $6.00 per share until July 14, 2002. The grant of such warrants was exempt from registration pursuant to Section 4(2) of the Securities Act. On October 30, 1995, the Company issued warrants to purchase 250,000 shares of Common Stock to Seawise, the Company's partner in Sea-Comm, pursuant to the terms of the Agreement. The warrants are exercisable at $6.00 per share until October 30, 2000. The grant of such warrants was exempt from registration pursuant to Section 4(2) of the Securities Act. ITEM 16. LIST OF EXHIBITS
EXHIBIT DESCRIPTION OF EXHIBIT PAGE NO. ------- ---------------------- -------- 1a Form of Underwriting Agreement. ................... ___ 3a Memorandum of Association of the Company, as amended*........................................ ___ 3b Bye-Laws*.......................................... ___ 4a Form of Common Stock Certificate*.................. ___ 4b Series A Preference Share Terms*................... ___ 4c Form of Warrant Certificate*....................... ___ 4d Form of Warrant Agent Agreement.................... ___ 4e Form of Underwriter's Warrant Agreement............ ___ 5a Opinion of Broad and Cassel**...................... ___
II-2
EXHIBIT DESCRIPTION OF EXHIBIT PAGE NO. ------- ---------------------- -------- 10a Employment Agreement dated May 3, 1995 between the Company and Jeffrey I. Binder*......... ___ 10b Employment Agreement dated May 3, 1995 between New Commodore and Frederick A. Mayer, as amended*........................................ ___ 10c Employment Agreement dated May 3, 1995 between New Commodore and James R. Sullivan, as amended*........................................ ___ 10d Employment Agreement dated May 3, 1995 between New Commodore and Alan Pritzker, as amended*........................................ ___ 10e USD$ 24,000,000 Loan Facility Agreement, dated July 14, 1995 among the Lender, Almira, Azure, New Commodore and the Company*........................................... ___ 10f Agreement for the Sale and Purchase of the Business and Assets of Old Commodore dated April 29, 1995 between Old Commodore, EffJohn and New Commodore*.............. ___ 10g Master Agreement dated May 28, 1995 between EffJohn, BCS, ACS, Old Commodore, New Commodore and the Company*........................................... ___ 10h 1995 Stock Option Plan*............................ ___ 10i Joint Venture Agreement dated October 30, 1995 between the Company, Seawise and Sea-Comm*...................................... ___ 10j Management Services Agreement dated July 5, 1995 between New Commodore and IMC.............. ___ 10k Sublease for Office Space at 4000 Hollywood Boulevard dated June 30, 1995 between EffJohn and New Commodore.................. ___ 10l Software Agreement between Reservations Technology, Inc. and New Commodore................. ___ 10m Sublease of computer equipment and software between Old Commodore and New Commodore (IBM Sublease)........................... ___ 10n Assignment of Financing and Berthing Agreement dated June 29, 1995 between New Commodore and Old Commodore as consented to by the Board of Commissioners of the Port of New Orleans........... ___ 10o Warrant Certificate for 250,000 Shares of Common Stock of the Company dated July 14, 1995 in favor of JeMJ Financial Services, Inc...................................... ___ 10p Warrant Certificate for 250,000 Shares of Common Stock of the Company dated July 14, 1995 in favor of Jeffrey and Rosalie Binder..................................... ___ 10q Warrant Certificate for 250,000 shares of Common Stock of the Company dated October 30, 1995 in favor of Seawise............... ___ 10r First Priority Panamanian Mortgage on the Enchanted Seas dated July 14, 1995 between Azure and the Lender....................... ___
II-3
EXHIBIT DESCRIPTION OF EXHIBIT PAGE NO. ------- ---------------------- -------- 10s First Priority Panamanian Mortgage on the Enchanted Isle dated July 14, 1995 between Almira and the Lender...................... ___ 10t First Priority Charge over the shares of Azure dated July 14, 1995 between the Lender and New Commodore........................... ___ 10u First Priority Charge over the shares of Almira dated July 14, 1995 between the Lender and New Commodore........................... ___ 10v First Priority Tripartite Deed in respect of the Enchanted Seas dated July 14, 1995 between the Azure, New Commodore and the Lender........................... ___ 10w First Priority Tripartite Deed in respect of the Enchanted Isle dated July 14, 1995 between the Almira, New Commodore and the Lender........................... ___ 11 Computation of Earnings per share of Common Stock, as amended........................... ___ 21 Subsidiaries of the Company*....................... ___ 23a Consent of Grant Thornton, LLP..................... ___ 23b Consent of KPMG Peat Marwick, LLP.................. ___ 23c Consent of Broad and Cassel**...................... ___ 23d Consent of Richards, Francis and Francis**......... ___ 24 Power of Attorney (included on signature page)*............................................. ___
____________________ *Previously filed ** To be filed by amendment ITEM 17. UNDERTAKINGS The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement; (i) to include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) to reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; (iii) to II-4 include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. (2) That for the purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (4) If the registrant is a foreign private issuer, to file a post- effective amendment to the registration statement to include any financial statements required by Rule 3-19 of Regulation S-X at the start of any delay offering or throughout a continuous offering. Financial statements and information otherwise required by Section 10(a)(3) of the Act need not be furnished, provided, that the registrant includes in the prospectus, by means of a post-effective amendment, financial statements required pursuant to this paragraph (a)(4) and other information necessary to ensure that all other information in the prospectus is at least as current as the date of those financial statements. Notwithstanding the foregoing, with respect to registration statements on Form F-3, a post-effective amendment need not be filed to include financial statements and information required by Section 10(a)(3) of the Act or Rule 3-19 of this chapter if such financial statements and information are contained in periodic reports filed with or furnished to the Commission by the registrant pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the Form F-3. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue. II-5 SIGNATURES In accordance with the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements of filing on Form S-1 and authorizes this Registration Statement to be signed on its behalf by the undersigned, in the City of Hollywood in the State of Florida on the 23 day of May, 1996. COMMODORE HOLDINGS LIMITED By:/s/ Jeffrey I. Binder, Chairman ---------------------------------- Jeffrey I. Binder, Chairman POWER OF ATTORNEY Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated below.
SIGNATURE TITLE DATE --------- ----- ---- /s/ Jeffrey I. Binder Chairman of the Board May 23, 1996 - ---------------------------------- Jeffrey I. Binder /s/ Frederick A. Mayer* Vice-Chairman of the Board May 23, 1996 - ---------------------------------- Frederick A. Mayer (Principal Executive Officer) /s/ James R. Sullivan* President May 23, 1996 - ---------------------------------- James R. Sullivan /s/ Alan Pritzker* Vice President, Finance and May 23, 1996 - ---------------------------------- Alan Pritzker Chief Financial Officer (Principal Financial and Accounting Officer) /s/ Arnold Adolphus Francis, Q.C.* Director May 23, 1996 - ---------------------------------- Arnold Adolphus Francis, Q.C. /s/ A. Robert Miller* Director May 23, 1996 - ---------------------------------- A. Robert Miller *By:/s/ Jeffrey I. Binder ------------------------------ Attorney-in-Fact
II-6 COMMODORE HOLDINGS LIMITED AMENDMENT NO. 1 TO FORM S-1 INDEX TO EXHIBITS
Sequentially Numbered Exhibit No. Page - ----------- ---- 1a Form of Underwriting Agreement................................................................. ___ 4d Form of Warrant Agent Agreement................................................................ ___ 4e Form of Underwriter's Warrant Agreement....................................................... ___ 10j Management Services Agreement dated July 5, 1995 between New Commodore and IMC 10k Sublease for Office Space at 4000 Hollywood Boulevard dated June 30, 1995 between EffJohn and New Commodore......................................................... ___ 10l Software Agreement between Reservations Technology, Inc. and New Commodore..................... ___ 10m Sublease of computer equipment and software between Old Commodore and New Commodore (IBM Sublease)....................................................................... ___ 10n Assignment of Financing and Berthing Agreement dated June 29, 1995 between New Commodore and Old Commodore as consented to by the Board of Commissioners of the Port of New Orleans.............................................. ___ 10o Warrant Certificate for 250,000 Shares of Common Stock of the Company dated July 14, 1995 in favor of JeMJ Financial Services, Inc.................................. ___ 10p Warrant Certificate for 250,000 Shares of Common Stock of the Company dated July 14, 1995 in favor of Jeffrey and Rosalie Binder............................. ___ 10q Warrant Certificate for 250,000 shares of Common Stock of the Company dated October 30, 1995 in favor of Seawise..................................................... ___ 10r First Priority Panamanian Mortgage on the Enchanted Seas dated July 14, 1995 between Azure and the Lender .................................................... ___ 10s First Priority Panamanian Mortgage on the Enchanted Isle dated July 14, 1995 between Almira and the Lender ............................................................ ___ 10t First Priority Charge over the shares of Azure dated July 14, 1995 between the Lender and New Commodore........................................................... ___ 10u First Priority Charge over the shares of Almira dated July 14, 1995 between the Lender and New Commodore........................................................... ___ 10v First Priority Tripartite Deed in respect of the Enchanted Seas dates July 14, 1995 between the Azure, New Commodore and the Lender.................................. ___ 10w First Priority Tripartite Deed in respect of the Enchanted Isle dated July 14, 1995 between the Almira, New Commodore and the Lender................................. ___ 11 Computation of Earnings per share of Common Stock.............................................. 23a Consent of Grant Thornton, LLP................................................................. ___ 23b Consent of KPMG Peat Marwick, LLP.............................................................. ___ 27 Selected Financial Data Schedule............................................................... ___
EX-1.A 2 EXHIBIT 1A: U/W AGREEMENT EXHIBIT 1A COMMODORE HOLDING LIMITED UNDERWRITING AGREEMENT ---------------------- New York, New York ___________, 1995 First Hanover Securities, Inc. 100 Wall Street New York, N.Y. 10005 Dear Sirs: The undersigned, Commodore Holdings Limited, a Bermuda corporation (the "Company"), hereby confirms its agreement with First Hanover Securities, Inc. (being referred to herein alternatively as "you" or the "Underwriter"), as follows: 1. INTRODUCTION. Pursuant to this Underwriting Agreement ------------ ("Agreement"), (i) the Company proposes to issue and sell to you an aggregate to 500,000 shares (the "Company Firm share") of the common stock, par value $.01 per share, of the Company (the "Common Stock") and 1,000,000 shares Redeemable Common Stock Purchase Warrants (the "Redeemable Warrants"), each exercisable to purchase one half share of Common Stock, but only exercisable in pairs, at any time commencing one year after the date on which the Registration Statement (as defined in Section 2(a) hereof) shall have become, or declared, effective (the "Effective Date"), and ending five years thereafter (the Company Firm Shares and Redeemable Warrants are called the "Company Firm Securities"); and each of the stockholders of the Company named in Schedule A hereto (the "Selling Stockholders"), acting severally and not jointly, proposes to sell to you the respective number of shares of Common Stock set forth opposite the Selling Stockholders' names on Schedule A for an aggregate of 500,000 shares of Common Stock (the "Selling Stockholder Shares; and together with the Company Firm Shares, the "Firm Securities"). The Redeemable Warrant exercise price, subject to adjustment as described in the agreement providing for the Redeemable Warrants (the "Public Agreement"), shall be $6.00 per share. The Common Stock and Redeemable Warrants will be sold in units each consisting of one share of Common Stock Share and one Redeemable Warrant (the "Unit"). The Units will be detachable and separately tradable at such time as the Underwriter determines in its sole discretion. Commencing one year from the date of issuance, the Redeemable Warrants are subject to redemption by the Company at $.05 per Redeemable Warrant, if the closing bid price of the Common Stock exceeds $9.00 per share for twenty consecutive trading days ending not more than 15 days prior to the date of the redemption notice. Upon your request, as provided in Section 3 of this Agreement, the Company shall also issue and sell to you up to an additional 75,000 Units for the purpose of covering over-allotments in the sale of the Firm Securities (the "Over-allotment Option"). Such additional securities are hereinafter referred to as the "Option Securities." The Firm Securities and the Option Securities are hereinafter sometimes referred to as the "Securities." The Company also proposes to issue and sell to you, pursuant to the terms of the warrant agreement, dated ______________, 1996 between you and the Company (the "Underwriter's Warrant Agreement") warrants (the "Underwriter's Warrants") to purchase up to 50,000 Units. The Underwriter's Warrants shall be exercisable during the 4-year period commencing one (1) year from the date of the Prospectus (as defined in Section 2(a) hereof) at a price of $6.90 per Unit, subject to adjustment in certain events to protect against dilution. The Securities issuable upon exercise of the Underwriter's Warrants are hereinafter sometimes referred to as the "Underwriter's Securities." The Securities, the Underwriter's Warrants and the Underwriter's Securities are more fully described in the Registration Statement and the Prospectus referred to below. 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND SELLING ---------------------------------------------------------- SHAREHOLDERS. - ------------ I. The Company represents and warrants to the Underwriter as of the date hereof that: a. The Company has filed with the Securities and Exchange Commission (the "Commission") a registration statement (the "Registration Statement"), and an amendment or amendments thereto, on Form S-1 (No. 33-01270), including any related preliminary prospectus (the "Preliminary Prospectus"), for the registration of the Securities and the Underwriter's Securities, under the Securities Act of 1933, as amended (the "Act"), which registration statement and amendment or amendments have been prepared by the Company in conformity with the requirements of the Act, and the rules and regulations (the "Regulations") of the Commission promulgated under the Act. Before the Registration Statement becomes effective, the Company will not file any amendment to such Registration Statement to which you shall have reasonably objected after having been furnished with a copy thereof. Except as the context may otherwise require, such Registration Statement, as amended, on file with the Commission at the time the Registration Statement becomes effective (including the prospectus, financial statements, schedules, exhibits and all other documents filed as a part thereof or incorporated therein and all information deemed to be a part thereof as of such time pursuant to paragraph (b) of Rule 430(A) of the Regulations), is hereinafter called the "Registration Statement," and the form of prospectus, in the form first filed with the Commission pursuant to Rule 424(b) of the Regulations (or included in the Registration Statement, if no filing under Rule 424 is required), is hereinafter called the "Prospectus." 2 b. On the Effective Date and at all times subsequent thereto up to Closing Date I and Closing Date II, if any (as such terms are defined in Section 3(d) hereof), the Registration Statement and the Prospectus will comply in all material respects with the applicable provisions of the Act and the Regulations; neither the Registration Statement nor the Prospectus, nor any amendment or supplement thereto, will contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The representation and warranty made in this Section 2(b) does not apply to statements made or statements omitted in reliance upon and in conformity with written information furnished to the Company by the Underwriter expressly for use in the Registration Statement or Prospectus or any amendment thereof or supplement thereto. c. This Agreement, the Underwriter's Warrant Agreement and the Financial Advisory and Investment Banking Agreement (as defined in Section 5(s) hereof), have been duly and validly authorized by the Company, and this Agreement constitutes, and the Public Warrant Agreement, the Underwriter's Warrant Agreement and the Financial Advisory and Investment Banking Agreement, when executed and delivered pursuant to this Agreement, will (assuming due execution by the Underwriter) each constitute a valid and binding agreement of the Company, enforceable against the Company in accordance with its respective terms, except (i) as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or similar laws affecting creditors' rights generally, (ii) as enforceability of any indemnification, contribution or exculpation provision may be limited under applicable Federal and state securities laws, and (iii) that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to the equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. The Securities and the Underwriter's Warrants to be issued and sold by the Company pursuant to this Agreement, the Underwriter's Securities issuable upon exercise of the Underwriter's Warrants and payment therefor, have been duly authorized and, when issued and paid for, will be validly issued, fully paid and non-assessable; the holders thereof are not and will not be subject to personal liability by reason of being such holders; the Securities, the Underwriter's Warrants and the Underwriter's Securities are not and will not be subject to the preemptive rights of any holders of any security of the Company or similar contractual rights granted by the Company; and all corporate action required to be taken for the authorization, issuance and sale of the Securities, the Underwriter's Warrants and the Underwriter's Securities has been duly and validly taken. The Underwriter's Warrants constitute a valid and binding obligation of the Company, enforceable in accordance with its terms, to issue and sell, upon exercise in accordance with the terms thereof, the number and type of the Company's securities called for thereby; except (i) as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or similar laws affecting creditors' rights generally, (ii) as enforceability of any indemnification, contribution or exculpation provision may be limited under applicable Federal and state securities laws, and (iii) that the remedy of specific performance and injunctive and other forms of equitable relief may be subject to the equitable defenses and to the discretion of the court before which any proceeding therefor may be brought. 3 d. All issued and outstanding securities of the Company have been duly authorized and validly issued and are fully paid and non-assessable; the issuances and sales of all such securities complied in all material respects with applicable Federal and state securities laws; the holders thereof have no rights of rescission with respect thereto, and are not subject to personal liability by reason of being such holders; and none of such securities were issued in violation of the preemptive rights of any holders of any security of the Company or similar contractual rights granted by the Company. e. Except as set forth in the Registration Statement and the Prospectus, the Company has good and marketable title to, or valid and enforceable leasehold estates in, all items of real and personal property stated in the Prospectus to be owned or leased by it, respectively, free and clear of all liens, encumbrances, claims, security interests, defects and restrictions of any material nature whatsoever, other than those referred to in the Prospectus and liens for taxes not yet due and payable. f. There is no action, suit, proceeding, inquiry, investigation, litigation or governmental proceeding pending or to the knowledge of the Company or the Company's subsidiaries (the "Subsidiaries") threatened against, or involving the properties or business of the Company which if adversely determined could reasonably be expected to materially and adversely affect the financial position, or prospects, or business of the Company or its Subsidiaries, except as referred to in the Prospectus. g. All contracts and other documents required to be described in the Registration Statement or the Prospectus or to be filed as exhibits to the Registration Statement have been described in the Registration Statement or the Prospectus or filed with the Commission as Exhibits to the Registration Statement, as required. h. The financial statements of the Company and the Subsidiaries, together with the related notes, included in the Registration Statement and Prospectus fairly present the financial position and the results of operations of the Company, at the dates and for the periods to which they apply; and such financial statements have been prepared in conformity with generally accepted accounting principles, consistently applied throughout the periods involved. There has been no material adverse change in financial condition or results of operations of the Company, or to the knowledge of the Company, any development involving a prospective change in the condition or prospects of the Company, financial or otherwise, since the date of the financial statements included in the Prospectus, except as disclosed therein. i. Grant Thornton LLP and KPMG Peat Marwick LLP, whose reports are filed with the Commission as a part of the Registration Statement, are independent accountants as required by the Act and the Regulations. j. Except as otherwise set forth in the Prospectus, the Company does not own, directly or indirectly, an interest in any corporation, partnership, joint venture, trust or other business entity. The Company and each Subsidiary is duly qualified and licensed and in 4 good standing as a foreign corporation in each jurisdiction in which its operations require such qualification or licensing, except where the failure to be so qualified or licensed would not have a material adverse affect on the Company. The Company and each Subsidiary has all requisite corporate power and authority, and all necessary material authorizations, approvals, orders, licenses, certificates and permits of and from all governmental regulatory officials and bodies, to own or lease its properties and conduct its business as described in the Prospectus. The Company and each Subsidiary is and has been doing business in compliance with all such authorizations, approvals, orders, licenses, certificates and permits and with all applicable Federal, state and local laws, rules and regulations, including but not limited to laws and regulations relating to environmental matters and employee health and safety matters, except where non-compliance would not have a material adverse effect on the Company or any Subsidiary, and none of the aforementioned authorizations, approvals, orders, licenses, certificates or permits have been suspended or revoked, nor to the knowledge of the Company are there any proceedings pending or threatened which could result in a suspension or revocation thereof. The Company has all requisite corporate power and authority to enter into this Agreement, the Underwriter's Warrant Agreement and the Financial Advisory and Investment Banking Agreement and to carry out the provisions and conditions hereof and thereof, and all consents, authorizations, approvals and orders required in connection therewith have been obtained. No consent, authorization or order of, and no filing with, any court, government agency or other body is required for the issuance of the Securities and the Underwriter's Securities, pursuant to this Agreement and the Underwriter's Warrant Agreement, and as contemplated by the Prospectus, except with respect to applicable Federal and state securities laws. k. The outstanding debt, the property and the business of the Company conforms in all material respects to the descriptions thereof contained in the Registration Statement and Prospectus. l. The Securities, the Underwriter's Warrants, the Underwriter's Securities and any other securities issued or to be issued by the Company on or before the Closing Dates (as defined in Section 3(d) hereof) described herein conform, or will conform when issued, in all material respects to all statements with respect thereto contained in the Registration Statement and the Prospectus. m. Except as set forth in the Prospectus, no material default exists in the due performance and observance of any term, covenant or condition of any license, contract, indenture, mortgage, deed of trust, note, loan or credit agreement, or any other agreement or instrument evidencing an obligation for borrowed money, or any other agreement or instrument to which the Company is a party or by which the Company may be bound or to which any of the property or assets of the Company are subject which default would reasonably be expected to have a materially adverse effect on the financial condition or business of the Company. n. The Company and the Subsidiaries are not in violation of any term or provision of their respective Certificates of Incorporation or By-Laws. Neither the execution 5 and delivery of this Agreement, nor the issuance and sale of the shares of Common Stock, the Redeemable Warrants, the Underwriter's Warrants and the Underwriter's Securities, nor the consummation of any of the transactions contemplated herein, nor the compliance by the Company with the terms and provisions hereof has materially conflicted with or will materially conflict with, or has resulted in or will result in a material breach of, any of the terms and provisions of, or has constituted or will constitute a material default under, or has resulted in or will result in the creation or imposition of any lien, charge or encumbrance upon the property or assets of the Company or its Subsidiaries pursuant to the terms of any indenture, mortgage, deed of trust, note, loan or credit agreement or any other agreement or instrument evidencing an obligation for borrowed money, or any other agreement or instrument to which the Company or Subsidiary is a party, or by which the Company is or may be bound, or to which any of the property or assets of the Company or any Subsidiary is subject; nor will such action result in any material violation of the provisions of the Certificates of Incorporation or the By-Laws of the Company or the Subsidiaries or any contract or agreement, or any statute or any order, rule or regulation applicable to the Company or the Subsidiaries or any other regulatory authority or other governmental body having jurisdiction over the Company or the Subsidiaries. o. Except as disclosed in the Prospectus, all taxes which are due and payable from the Company or any Subsidiary have been paid in full, unless being contested in good faith by the Company or any Subsidiary, and the Company or any Subsidiary does not have any tax deficiency or claim outstanding, proposed or assessed against it. p. Subsequent to the respective dates as of which information is given in the most recently circulated Preliminary Prospectus included as a part of the Registration Statement, and except as may otherwise be indicated or contemplated herein or therein, (i) the Company has not issued any securities, (ii) declared or paid any dividend or made any other distribution on or in respect to its capital stock; (iii) incurred any material liability or obligation, direct or contingent, for borrowed money; or (iv) entered into any transaction other than in the ordinary course of business. q. To the Company's knowledge, the Commission has not issued any order preventing or suspending the use of any Preliminary Prospectus or part thereof. r. On the Effective Date, (i) the authorization of capital stock of the Company is as set forth in the Registration Statement; (ii) not more than 1,006,979 shares of the Company's Series A Preference Shares, par value $.01 per share, will be issued and outstanding, and (iii) not more than an aggregate of 4,931,933 shares of Common Stock shall be issued and outstanding excluding: (A) the 500,000 shares of Common Stock issuable upon the exercise of the Redeemable Warrants; (B) up to an additional 75,000 shares of Common Stock issuable upon the exercise of the Over-allotment Option or the 37,500 shares issuable upon the exercise of the Redeemable Warrants issuable upon the exercise of the Over- allotment Option; (C) the 50,000 shares of Common Stock issuable upon exercise of the Underwriter's Warrants or the 6 25,000 shares of Common Stock issuable upon exercise of the Redeemable Warrants issuable upon the exercise of the Underwriters Warrant (which warrants are identical to the Redeemable Warrants); (D) 825,000 shares of Common Stock issuable upon exercise of warrants issued and outstanding as of February 12, 1996; and (E) up to 500,000 shares of Common Stock reserved for issuance pursuant to the Company's 1995 Stock Option Plan (the "Stock Option Plan"). Other than the shares of Common Stock already issued (within the meaning of the immediately preceding sentence), the Securities, the Underwriter's Warrant and the Underwriter's Securities to be offered in or in connection with the public offering, no other shares of capital stock or securities convertible into capital stock shall be outstanding or reserved for issuance at the completion of the proposed public offering without the consent of the Underwriter. s. Except for the registration rights granted under the Underwriter's Warrant Agreement, to the Selling Stockholders named in the Registration Statement or as disclosed in the Prospectus, no holders of any securities of the Company or of any options, warrants or convertible or exchangeable securities of the Company exercisable for or convertible or exchangeable for securities of the Company have the right to include any securities issued by the Company in the Registration Statement or any registration statement to be filed by the Company. t. Assuming that there will be two "market makers" for the Common Stock, at least 300 beneficial owners of the Common Stock and a sufficient "public float" of the Shares, and that the Company's registration of the Common Stock pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act") becomes effective (all as contemplated by the requirements of the National Association of Securities Dealers, Inc.), the Common Stock is eligible for quotation on the Nasdaq Stock Market ("Nasdaq"). The Company has filed a registration statement with the Commission pursuant to Section 12(g) of the Exchange Act, and has used its best efforts to have the same declared effective by the Commission on an accelerated basis on the Effective Date. u. Except as described in the Prospectus, to the Company's knowledge, there are no claims, payments, issuances, arrangements or understandings for services in the nature of a finder's or origination fee with respect to the sale of the Securities hereunder or any other arrangements, agreements, understandings, commitments, payments or issuances of securities with respect to the Company that may affect the Underwriter's compensation, as determined by the National Association of Securities Dealers, Inc. ("NASD"). v. Neither the Company, nor, to the knowledge of the Company, any of its employees or officers or directors, agents or any other person acting on behalf of the Company has, directly or indirectly, given or agreed to give any money, gift or similar benefit (other than legal price concessions to customers in the ordinary course of business) to any customer, supplier, employee or agent of a customer, supplier, or official or governmental agency or instrumentality of any government (domestic or foreign) or any political party or candidate for office (domestic or foreign) or other person who was, is, or may be in a position to help or hinder the business of the Company (or assist it in connection with any actual or proposed 7 transaction) which (i) could reasonably be expected to subject the Company to any material damage or penalty in any civil, criminal or governmental litigation or proceeding, (ii) if not given in the past, could reasonably be expected to have had a materially adverse effect on the assets, business or operations of the Company as reflected in any of the financial statements contained in the Prospectus, or (iii) if not continued in the future, could reasonably be expected to materially adversely affect the assets, business, operations or prospects of the Company. w. The Company owns or possesses the requisite licenses or rights to use all trademarks, service marks, service names, trade names, patents and patent applications, copyrights, methods, protocols, techniques, technologies, procedures and other rights (collec tively the "Intangibles") described as owned or used by the Company in the Registration Statement. To the Company's knowledge, there is no claim, action or proceeding by any person, pending or threatened, which pertains to or challenges the rights of the Company with respect to any Intangibles used in the conduct of the business of the Company, except as described in the Prospectus. To the Company's knowledge, current products, services and processes of the Company and the Subsidiaries do not infringe on any Intangibles held by any third party. x. Except as set forth in the Registration Statement, the Company is not under any obligation to pay royalties or fees of any kind whatsoever to any third party with respect to Intangibles it has developed, uses, employs or intends to use or employ. y. The Company has generally enjoyed satisfactory employer/employee relationships with its employees and is in material compliance in all material respects with all Federal, state and local laws and regulations respecting the employment of their respective employees and employment practices, terms and conditions of employment and wages and hours relating thereto. To the Company's knowledge, there are no material pending or threatened investigations involving the Company by the U.S. Department of Labor or corresponding foreign agency, or any other governmental agency responsible for the enforcement of such Federal, state or local laws and regulations. To the Company's knowledge, there is no unfair labor practice charge or complaint against the Company pending before the National Labor Relations Board or corresponding foreign agency or any strike, picketing, boycott, dispute, slowdown or stoppage pending or threatened against or involving the Company, or any predecessor entity, and none has occurred. No representation question exists respecting the employees of the Company. No collective bargaining agreement or modification thereof is currently in effect or being negotiated by the Company and its employees. No grievance or arbitration proceeding is pending under any expired or existing collective bargaining agreements of the Company. aa. Neither the Company, nor, to the Company's knowledge, any of its officers or directors or any of its employees or stockholders, have taken, directly or indirectly, any action designed to or which has constituted or which could reasonably be expected to cause or result in, under the Exchange Act or otherwise, stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Securities. 8 ab. The Company does not maintain nor has it maintained, sponsored or contributed to any program or arrangement that is an "employee pension benefit plan," an "employee welfare benefit plan" or a "multiemployer plan" as such terms are defined in Sections 3(2), 3(1) and 3(37), respectively of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") ("ERISA Plans"), except for the Stock Option Plan described in the Prospectus. The Company neither presently maintains or contributes or at any time in the past, maintained or contributed to a defined benefit plan, as defined in Section 3(35) of ERISA. The Company has never completely or partially withdrawn from a "multiemployer plan." ac. Except as set forth in the Prospectus under "MANAGEMENT" or "CERTAIN TRANSACTIONS," the Company is not a party to any agreement with any officer, director or stockholder of the Company or any subsidiary or any affiliate or associate of any such person or entity which is required to be disclosed in the Prospectus pursuant to Regulation SK. Except as set forth in the Prospectus, to the Company's knowledge, no officer, director or stockholder of the Company or any "affiliate" or "associate" (as these terms are defined in Rule 405 promulgated under the Regulations) of any such person or entity or the Company or the Subsidiaries, has or has had, either directly or indirectly, (i) an interest in any person or entity which (A) furnishes or sells services or products which are furnished or sold or are proposed to be furnished or sold by the Company, or (B) purchases from or sells or furnishes to the Company any goods or services, or (ii) a beneficial interest in any contract or agreement to which the Company is a party or by which it may be bound or affected. ad. The minute books of the Company have been made available to counsel to the Underwriter and contain all available minutes of meetings and actions by unanimous consent of directors and stockholders since the time of incorporation and reflect all transactions referred to in such minutes accurately in all material respects. ae. The statements in the Prospectus under "RISK FACTORS," "BUSINESS," "CERTAIN TRANSACTIONS," "MANAGEMENT" and "DESCRIPTION OF SECURITIES," insofar as they refer to statements of law, descriptions of statutes, licenses, rules or regulations or legal conclusions are correct in all material aspects. II. Each of the Selling Stockholders, severally and not jointly, represents and warrants to, the Underwriters as of the date hereof, as follows: (a) The execution and delivery of this Agreement and the consummation of the transactions herein contemplated will not result in a breach by such Selling Stockholder of, or constitute a default by such Selling Stockholder under, any material indenture, deed or trust, contract or other agreement or instrument or any decree, judgment or order to which such Selling Stockholder is a party or by which such Selling Stockholder may be bound. (b) Such Selling Stockholder has and will have, at Closing Date I, good and marketable title to the Selling Stockholder Shares to be sold by such Selling Stockholder hereunder, free and clear of any pledge, lien, security interest, encumbrance, claim or equity, 9 created by or arising through the Selling Stockholder other then pursuant to this Agreement; such Selling Stockholder has full right, power and authority to sell, transfer and deliver the Selling Stockholder Shares to be sold by such Selling Stockholder hereunder; and upon delivery of the Selling Stockholders Shares to be sold by such Selling Stockholder hereunder and payment of the purchase price thereof as herein contemplated, the Underwriter will receive good and marketable title to the Selling Stockholder Shares purchased by it from such Selling Stockholder, free and clear of any pledge, lien, security interest, encumbrance, claim or equity. (c) Such Selling Stockholder has duly executed and delivered in the form heretofore furnished to the Underwriters, a power of attorney and custody agreement (the "Power of Attorney and Custody Agreement") with _____, as the attorney-in-fact and the custodian (the "Attorney-in-Fact" and the "Custodian", respectively); the Attorney-in-Fact is authorized to execute and deliver this Agreement and the certificates referred to in Section 4(k) or that may be required pursuant to Section 4(h) on behalf of such Selling Stockholder, to authorize the delivery of the Selling Stockholder Shares to be sold by such Selling Stockholder hereunder, to duly endorse (in blank or otherwise) the certificate or certificates representing such Selling Stockholder Shares, to accept payment therefor, and otherwise to act on behalf of such payment therefor, and otherwise to act on behalf of such Seller in connection with this Agreement. (d) All authorizations, approvals and consents necessary for the execution and delivery by such Selling Stockholder of the Power of Attorney and Custody Agreement, the execution and delivery by or on behalf of such Selling Stockholder of this Agreement, and the sale and delivery of the Selling Stockholder Shares to be sold by such Selling Stockholder hereunder and thereunder (other than, at the time of the execution hereof, the issuance of the order of the Commission declaring the Registration Statement effective and such authorizations, approvals or consents as may be necessary under the state securities laws), have been obtained and are in full force and effect; and such Selling Stockholder has the full right, power and authority to enter into this Agreement and the Power of Attorney and Custody Agreement to sell, transfer and deliver the Selling Stockholder Shares to be sold by such Selling Stockholder hereunder. (e) For a period of ___ days from the date hereof, such Selling Stockholder will not, without the prior written consent of the Underwriter, directly or indirectly, offer to sell, grant any option for the sale of, or otherwise dispose of, any Common Stock of the Company or any securities convertible into Common stock owned by such Selling Stockholder or with respect to which such Selling Stockholder has the power of disposition, other than to the Underwriter pursuant to this Agreement. (f) Such Selling Stockholder has not taken, and will not take, directly or indirectly any action which is designed to or which has constituted or which might reasonably be expected to cause or result in stabilization or manipulation of the price of any security or the Company to facilitate the sale or exercise of the Shares. 10 (g) Certificates in negotiable form for all Selling Stockholder Shares to be sold by such Selling Stockholder hereunder have been placed in custody with the Custodian by or for the benefit of such Selling Stockholder for the purposes or effecting delivery by such Selling Stockholder hereunder. 3. PURCHASE, SALE AND DELIVERY OF THE SECURITIES AND UNDERWRITER'S --------------------------------------------------------------- WARRANTS. - -------- a. On the basis of the representations and warranties herein contained, but subject to the terms and conditions herein set forth, the Company agrees to sell to the Under writer 500,000 shares of Common Stock and 1,000,000 Redeemable Warrants, the Selling Stockholders, severally and not jointly, agree to sell to the Underwriter an aggregate of 500,000 shares of Common Stock and the Underwriter agrees to purchase from the Company and the Selling Stockholders severally, such Securities on a firm commitment basis at a purchase price of $4.05 per share of Common Stock and $.09 per Redeemable Warrant, to be sold by the Underwriter at an initial public offering price of $4.60 per Unit. b. In addition, upon not less than two (2) days' notice from the Underwriter to the Company, for a period of forty-five (45) days from the date of the Prospectus, the Company agrees to sell to the Underwriter at a purchase price of $4.14 all or any part of the Option Securities, to be sold by the Underwriter hereunder at an initial public offering price of $4.60 per Unit. Delivery of the Option Securities shall be made concurrently with tender of payment therefor. Option Securities may be purchased by the Underwriter only for the purpose of covering over-allotments in the sale of the Firm Securities, and the Underwriter shall have no obligation to make any over-allotments. No Option Securities shall be delivered unless the Firm Securities shall be simultaneously delivered or shall theretofore have been delivered as herein provided. c. On Closing Date I (defined below in Section 3(d)), the Company shall issue and sell to the Underwriter the Underwriter's Warrants, which warrants shall entitle the holder thereof to purchase up to 50,000 Units. The total purchase price of the Underwriter's Warrants shall be $10. The Underwriter's Warrants shall be exercisable in whole or in part for up to an additional 50,000 Units for a period of four (4) years commencing one (1) year from the date of the Prospectus at a price of $6.40 per share (150% of the initial public offering price of the Units). The Underwriter's Warrant Agreement and form of Underwriter's Warrant Certificate shall be substantially in the form filed as Exhibit __ to the Registration Statement. d. Payment for the Underwriter's Warrant shall be made on Closing Date I. Payment for the Firm Securities and the Option Securities shall be made on each of Closing Date I and Closing Date II, respectively, at the Underwriter's election by certified or bank cashier's checks in New York Clearing House funds, payable to the order of the Company and the Selling Stockholders in appropriate amounts at the offices of the Underwriter, or at such other place as agreed upon by the Underwriter and the Company or by wire or transfer, upon delivery of certificates (in form and substance reasonably satisfactory to the Underwriter) 11 representing the Securities or by confirmation of electronic transfer of the Securities to the Underwriter for the account of the Underwriter. Delivery and payment for the Firm Securities shall be made at 10:00 A.M. New York time, on or before the fifth business day following the public offering or at such earlier time as the Underwriter shall determine, or at such other time as shall be agreed upon by the Underwriter and the Company. The hour and date of delivery and payment for the Firm Securities are called "Closing Date I." The Firm Securities shall be registered in such name or names and in such authorized denominations as the Underwriter may request in writing at least two (2) full business days prior to Closing Date I. The Company will permit the Underwriter to examine and package any certificates representing the Firm Securities for delivery, at least one (1) full business day prior to Closing Date I. Delivery for each of the Option Securities as provided above shall be made within the two (2) business day period after notice of exercise to the Company, and against payment therefor, as provided above. The hour and date of such delivery and payment made subsequent to Closing Date I for Option Securities is referred to as "Closing Date II." The Option Securities shall be registered in such name or names and in such denominations as the Underwriter may request in writing at the time of exercise of the Over-allotment Option. e. The Company shall not be obligated to sell or deliver any Firm Securities except upon tender of payment by the Underwriter for all the Firm Securities. 4. PUBLIC OFFERING. The Underwriter is to make a public offering --------------- of the Firm Securities and such of the Option Securities as it may determine. The Securities are to be initially offered to the public at the offering price set forth on the cover page of the Prospectus (such price being hereinafter called the "Public Offering Price"). The Underwriter may, at its own expense, enter into one or more agreements as the Underwriter, in its sole discretion, deems advisable, with one or more broker-dealers who shall act as dealers or co- underwriters in connection with such public offering. 5. COVENANTS OF THE COMPANY. The Company covenants and agrees that ------------------------ it will: a. Use its best efforts to cause the Registration Statement to become effective and will notify the Underwriter immediately, and confirm the notice in writing, (i) when the Registration Statement and any post-effective amendment thereto becomes effective, (ii) of the issuance by the Commission of any stop order or of the initiation, or the threatening, of any proceeding for that purpose, (iii) of the issuance by any state securities commission of any proceedings for the suspension of the qualification of the Securities and the Underwriter's Securities for offering or sale in any jurisdiction or of the initiation, or the threatening, of any proceeding for that purpose, and (iv) of the receipt of any comments from the Commission. If the Commission or any state securities commission shall enter a stop order or suspend such qualification at any time, the Company will make every reasonable effort to obtain promptly the lifting of such order. b. File the Prospectus (in form and substance reasonably satisfactory 12 to the Underwriter) or transmit the Prospectus by a means reasonably calculated to result in filing with the Commission in accordance with Rule 424, if the Prospectus is required to be so filed. c. During the time when a prospectus is required to be delivered under the Act, use all its reasonable best efforts to comply with all requirements imposed upon it by the Act and the Exchange Act, as now and hereafter amended, and by the Regulations, as from time to time in force, so far as necessary to permit the continuance of sales of or dealings in the Securities and the Underwriter's Securities in accordance with the provisions hereof and the Prospectus. If at any time when a prospectus relating to the Securities or the Underwriter's Securities is required to be delivered under the Act, any event shall have occurred as a result of which, in the opinion of counsel for the Company or counsel for the Underwriter, the Prospectus, as then amended or supplemented, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, or if it is necessary at any time to amend the Prospectus to comply with the Act, the Company will notify the Underwriter promptly and prepare and file with the Commission an appropriate amendment or supplement in accordance with Section 10 of the Act. d. Deliver to the Underwriter, without charge, such number of copies of each Preliminary Prospectus and the Prospectus as the Underwriter may reasonably request and, as soon as the Registration Statement or any amendment or supplement thereto becomes effective, deliver to the Underwriter two (2) signed copies of the Registration Statement, including exhibits, and all post- effective amendments thereto and copies of all exhibits filed therewith or incorporated therein by reference and signed copies of all consents of certified experts. e. Endeavor in good faith, in cooperation with the Underwriter, and Gersten, Savage, Kaplowitz & Curtin at or prior to the time the Registration Statement becomes effective, to qualify the Securities and the Underwriter's Securities for offering and sale under the securities laws of such jurisdictions as the Underwriter may reasonably designate, provided that no such qualification shall be required in any jurisdiction where, as a result thereof, the Company would be subject to service of general process or to taxation as a foreign corporation doing business in such jurisdiction. In each jurisdiction where such qualification shall be effected, the Company will, unless the Underwriter agrees that such action is not at the time necessary or advisable, use its reasonable best efforts to file and make such statements or reports at such times as are or may reasonably be required by the laws of such jurisdiction. f. Make generally available to its security holders as soon as practicable, but not later than the first day of the fifteenth full calendar month following the Effective Date, an earnings statement (which need not be certified by independent public or independent certified public accountants unless required by the Act or the Regulations, but which shall satisfy the provisions of Section 11(a) of the Act) covering a period of at least twelve (12) consecutive months beginning after the Effective Date. 13 g. For a period of five (5) years from the Effective Date, furnish to the Underwriter copies of such financial statements and other periodic and special reports as the Company from time to time furnishes generally to holders of any class of its securities, and promptly furnish to the Underwriter (i) a copy of each periodic report the Company shall file with the Commission, (ii) a copy of every press release and every news item and article with respect to the Company, any Subsidiary or their respective affairs which was released by the Company or any Subsidiary, (iii) a copy of each Form 8-K prepared by the Company, and (iv) such additional documents and information with respect to the Company, the Subsidiaries and their respective affairs or any future subsidiaries or affiliates of the Company or the Subsidiaries as the Underwriter may from time to time reasonably request. h. Apply the net proceeds from the offering received by it in a manner consistent in all material respects with the caption "USE OF PROCEEDS" in the Prospectus. i. Deliver to the Underwriter, prior to filing, any amendment or supplement to the Registration Statement or Prospectus proposed to be filed after the Effective Date and not file any such amendment or supplement to which the Underwriter shall reasonably object, after being furnished such copy, in writing with reasonable specificity as to the nature and extent of any objection. j. For a period of three (3) years from Closing Date I, provide the Underwriter, upon its request, at the Company's sole expense, (i) with access to daily consolidated financial transfer sheets relating to the Common Stock and designate American Securities Transfer, Inc. as transfer agent for the Company's securities or such other transfer agent mutually agreeable by the Company and the Underwriter and (ii) to cause the Company's depository to fax a "special security position report" to the Underwriter on a daily basis. k. For a period of three (3) years after Closing Date I, nominate and use its best efforts to engage a designee of the Underwriter, as a nonvoting advisor to the Company's Board of Directors (the "Advisor") or in lieu thereof to designate an individual for election as a director, in which case the Company shall use its best efforts to have such individual elected as a director. The designee may be a director, officer, partner, employee or affiliate of the Underwriter and the Underwriter shall designate such person in writing to the Board. In the event the Underwriter shall not have designated such individual at the time of any meeting of the Board or such person is unavailable to serve, the Company shall notify the Underwriter of each meeting of the Board. An individual, if any, designated by the Underwriter shall receive all notices and other correspondence and communications sent by the Company to members of the Board. Such Advisor or director, as the case may be, shall be entitled to receive reimbursement for all reasonable costs incurred in attending such meetings including, but not limited to, food, lodging, and transportation. In addition, such Advisor or Director shall be entitled to the same compensation as the Company gives to other non-employee directors for acting in such capacity. The Company further agrees that, during said three (3) year period, it shall give the Advisor or Directors, as the case may be, the same notice of any meeting of the Company's Board of Directors as it affords its other directors. Further, during such three (3) 14 year period, the Company shall give notice to the Underwriter with respect to any proposed acquisitions, mergers, reorganizations or other similar transactions. The Company agrees to indemnify and hold the Underwriter and such Advisor harmless against any and all claims, actions, damages, costs and expenses, and judgments arising solely out of the attendance and participation of the Advisor at any such meeting described herein. In the event the Company maintains a liability insurance policy affording coverage for the acts of its officers and directors, it agrees, if possible to include the Advisor as an insured under such policy. l. Until the sooner of (i) seven (7) years from the date hereof, or (ii) the sale to the public of the Underwriter's Securities, not take any action or actions which are in the Company's direct control which may prevent or disqualify the Company's use of Form SB-2 (or another appropriate form) for the registration under the Act of the Underwriter's Securities and the shares of Common Stock underlying the Redeemable Warrants. m. For a period of five (5) years from the Effective Date, use its best efforts to maintain the quotation by Nasdaq of the Securities. n. Supply the Underwriter with two (2), and Gersten, Savage, Kaplowitz & Curtin, counsel to the Underwriter, with three (3) bound volumes of the underwriting materials within a reasonable time after the latest Closing Date. o. For a period of two (2) years from the Effective Date, not issue any other shares of Common Stock or Preferred Stock or securities convertible into or exercisable for Common Stock or Preferred Stock without the prior written consent of the Underwriter, which consent shall not be unreasonably withheld. Notwithstanding the foregoing, the Company may issue securities (A) upon (i) the exercise of any warrants or options outstanding on the date hereof pursuant to the terms thereof, and (ii) the exercise of the Underwriter's Warrant, and (B) pursuant to the Stock Option Plan described in the Prospectus or subsequently adopted. p. So long as the Securities or the Underwriter's Securities are registered under the Exchange Act, hold an annual meeting of stockholders for the election of directors within 180 days after the end of each of the Company's fiscal years and, within 150 days after the end of each of the Company's fiscal years, provide the Company's stockholders with the audited financial statements of the Company as of the end of the fiscal year just completed prior thereto. Such financial statements shall be those required by Rule 14a-3 under the Exchange Act and shall be included in an annual report pursuant to the requirements of such Rule. q. Engage a financial public relations firm reasonably satisfactory to the Underwriter as soon as possible after Closing Date I, and continuously engage such firm, or an acceptable substitute firm for at least the period ending twelve (12) months after Closing Date I. 15 r. Enter into the Underwriter's Warrant Agreement and the Financial Advisory and Investment Banking Agreement (the "Consulting Agreement") in substantially the form filed as Exhibits 4d and 10y, respectively, to the Registration Statement. s. As soon as possible after Closing Date I, take all necessary and appropriate actions to be included in Standard and Poor's Corporation Descriptions or other equivalent securities manual and to maintain its listing therein for a period of five (5) years from the Effective Date. t. Cause all of the Company's stockholders, to enter into written agreements (the "Lock-up Agreements") that, for a period of two years from the Effective Date, they will not, without the consent of the Underwriter, (i) publicly sell any securities of the Company owned directly or beneficially by them (as defined in the Exchange Act); or (ii) otherwise sell, or transfer such securities unless the transferee agrees in writing to be bound by an identical lock-up. u. Use its best efforts to qualify, by the Effective Date, the Units, Common Stock and Redeemable Warrants for listing on the NASDAQ Small Cap System and Boston Stock Exchange (the "BSE") or another regional exchange acceptable to you, or in the alternative the NASDAQ National Market System. v. For a period of two years from the Effective Date, the Company shall not issue any of its securities in any offering pursuant to Regulation S under the 1933 Act, without the prior written consent of the Underwriter, which consent shall not be unreasonably withheld. w. (i) Grant to the Underwriter a preferential right on the terms and subject to the conditions set forth in Sections 5(u) and 5(p), for a period of two (2) years from the Effective Date, to purchase for its account, or to sell for the account of the Company or its present affiliates or subsidiaries or any of its stockholders listed in the Prospectus under the caption "PRINCIPAL STOCKHOLDERS" (the "Principal Stockholders"), any securities of the Company, on terms not more favorable to the Company or such present or future subsidiary or affiliate or the Principal Stockholders than they can secure elsewhere, to purchase or sell any such securities. The right of first refusal shall not be applicable to any offering of more than $5,000,000. If the Underwriter fails to notify the Company in writing of their intention to act as underwriter or placement agent or otherwise participate or introduces a third party to participate in such offering within fifteen (15) days after receipt of a notice containing such proposal, then the Underwriter shall have no further claim or right with respect to the proposal contained in such notice. If, thereafter, such proposal is materially modified, the Company, and each present or future affiliate or subsidiary or its Principal Stockholders shall in all respects have the same obligations and adopt the same procedures with respect to such proposal as are provided hereinabove with respect to the original proposal; (ii) If the Underwriter acts as underwriters or placement agents with respect to such offering or introduce a third party (other than an underwriter) which participates in such offering, then the Underwriter shall receive, as 16 compensation for services rendered, ten (10%) percent of the aggregate consideration received by the Company through the Underwriter or the party introduced by the Underwriter and warrant to purchase an amount of securities equal to ten (10%) percent of the aggregate consideration received by the Company through the Underwriter or the party introduced by the Underwriter and warrant to purchase an amount of securities equal to ten (10%) percent of the securities sold by the Company in such offering through the Underwriter or the party introduced by the Underwriter at an exercise price per security equal to the offering price of such securities. If the Underwriter introduce another underwriter who acts as underwriter with respect to such offering, then the Underwriter shall be entitled to receive two and one-half (2 1/2%) percent of the aggregate consideration received by the Company through such underwriter and warrant to purchase an amount of securities equal to two and one-half (2 1/2%) percent of the securities sold by the Company in such offering through such underwriter; (iii) If the Underwriter is offered the right of first refusal and agree to perform such functions, but fail to perform, the Underwriter will not be entitled to any such compensation, and waive their right of first refusal with respect to future offerings unless such failure to perform is caused by the Company; (iv) If the Underwriter does not perform any of the functions set forth in (ii) above and (iii) does not apply to such transaction, the Underwriter shall be entitled to receive an aggregate of two and one-half (2 1/2%) percent of the aggregate consideration received by the Company and warrants to purchase an amount of securities equal to two and one-half (2 1/2%) percent of the securities sold by the Company in such offering at an exercise price per security equal to the offering price of such securities. x. Designate the Underwriter as the Company's exclusive Warrant Solicitation Agents in the event of any solicitation of the exercise of the Redeemable Warrants, in connection with a redemption of the Redeemable Warrants or otherwise, and shall pay to the Underwriter a Warrant Solicitation fee of five (5%) percent of the exercise price of all solicited Redeemable Warrants, subject to the rules and regulations of the NASD with regard to such fees. y. Neither the Company nor any representative of the Company has made or shall make any written or oral representation in connection with the Offering and sale of the Securities or the Underwriters' Warrant which is not contained in the Prospectus, which is otherwise inconsistent with or in contravention of anything contained in the Prospectus, or which shall constitute a violation of the Act, the Rules and Regulations, the Exchange Act or the rules and regulations promulgated under the Exchange Act. z. For so long as any Redeemable Warrant is outstanding, the Company shall, at its own expense: (i) use its reasonable best efforts to cause post-effective amendments to the Registration Statement, or new registration statements relating to the Redeemable Warrants and the Common Stock underlying the Redeemable Warrants to become effective in compliance with the Act and without any lapse of time between the effectiveness of the Registration Statement and of any such post-effective amendment or new registration statement; provided, however, that the Company shall have no obligation to maintain the effectiveness of such Registration Statement or file a new Registration Statement, or to keep 17 available a prospectus at any time at which such registration or prospectus is not then required; (ii) cause a copy of each Prospectus, as then amended, to be delivered to each holder of record of a Redeemable Warrant; (iii) furnish to the Underwriters and dealers as many copies of each such Prospectus as the Underwriters or dealers may reasonably request; and (iv) maintain the "blue sky" qualification or registration of the Redeemable Warrants and the Common Stock underlying the Redeemable Warrants, or have a currently available exemption therefrom, in each jurisdiction in which the Securities were so qualified or registered for purposes of the Offering. aa. The Company shall engage Gersten, Savage, Kaplowitz & Curtin to provide the Underwriter, at the Closing and quarterly thereafter, until such time as the Common Stock is listed on the New York Stock Exchange or the American Stock Exchange or quoted on the Nasdaq National Market, with an opinion setting forth those states in which the Common Stock may be traded in non-issuer transactions under the blue sky laws of the 50 states. The Company shall pay such counsel a one-time fee of $5,000 at the Closing for such opinions. 6. PAYMENT OF EXPENSES. ------------------- a. The Company hereby agrees to pay all expenses (other than fees of counsel to the Underwriter) in connection with the offering, including but not limited to, (i) the preparation, printing, filing and mailing (including the payment of postage and overnight delivery with respect to such mailing) of the Registration Statement and the Prospectus and related documents, including the cost of all copies thereof and of the Preliminary Prospectus and of the Prospectus and any amendments thereof or supplements thereto supplied to the Under writer in quantities as hereinabove stated, (ii) the printing, engraving, issuance and delivery of the shares of Common Stock, the Redeemable Warrants, and the Underwriter's Warrants, (iii) the qualification of the Securities, the Underwriter's Warrants and the Underwriter's Securities under state or foreign securities or "Blue Sky" laws and determination of the status of such securities under legal investment laws, including the costs of printing and mailing the "Preliminary Blue Sky Memorandum," and "Supplemental Blue Sky Memorandum" and "Legal Investments Survey," if any, and the fees and disbursements of counsel for the Underwriter relating to Blue Sky matters (all of which fees under this item (iii) shall be payable by the Company in the sum of $35,000 of which $10,000 has previously been paid), (iv) advertising costs and expenses including but not limited to the reasonable costs and expenses in connection with the "road show," information meetings and presentations, bound volumes and "tombstones" in the Wall Street Journal, New York Times, and Washington Post and prospectus memorabilia, altogether in an amount not to exceed $15,000, (v) costs and expenses in connection with due diligence investigations, including but not limited to the reasonable fees of any independent counsel or consultant retained, phone calls relating to due diligence investigations, and all reasonable travel and lodging expenses incurred by you and/or counsel to the Underwriter in connection with visits to, and examination of, the Company's premises, (vi) fees and expenses of the transfer agent and warrant agent, (vii) application and listing fees for inclusion in Moody's OTC Manual or Standard and Poor's Corporation Descriptions or other equivalent securities manuals, and (viii) the fees payable to the NASD and Nasdaq. The $35,000 payment to counsel 18 for the Underwriter shall not include fees of special counsel if same is required to be incurred in a merit review state which may require local counsel. In this connection, Blue Sky applications shall be made in such states and jurisdictions as shall be requested by the Underwriter. Payments due shall be made on each Closing Date I. b. The Company shall pay to the Underwriter an aggregate non- accountable expense allowance, in addition to the expenses payable pursuant to Section 6(a), equal to three (3%) percent of the gross proceeds received by the Company from the sale of the Securities. In the event that the Underwriter terminates the Offering or is unable to consummate the Offering within nine (9) months of the date hereof, the advances toward the non-accountable expense allowance shall become accountable and shall be returnable to the Company to the extent the Underwriter's out-of-pocket expenses are less than the amount advanced to the Underwriter, so that the Underwriter is reimbursed only for its actual accountable out-of-pocket expenses. 7. CONDITIONS OF UNDERWRITER'S OBLIGATIONS. The obligations of the --------------------------------------- Underwriter to purchase and pay for the Securities, as provided herein, shall be subject to the continuing accuracy in all material aspects of the representations and warranties of the Company as of the date hereof and as of each of the Closing Dates, to the accuracy in all material respects of the statements of officers of the Company made pursuant to the provisions hereof and to the performance by the Company of its obligations hereunder in all material respects and to the following conditions: a. The Registration Statement shall have become effective not later than 5:00 p.m., New York time, on the date of this Agreement or such later date and time as shall be consented to in writing by you, and, at each of the Closing Dates, no stop order suspending the effectiveness of the Registration Statement shall have been issued and no proceedings for that purpose shall have been instituted or shall be pending or contemplated by the Commission and any request on the part of the Commission for additional information shall have been complied with to the reasonable satisfaction of Gersten, Savage, Kaplowitz & Curtin, counsel to the Underwriter. b. At Closing Date I, the Underwriter shall have received the favorable opinion of Broad and Cassel, counsel to the Company, dated Closing Date I, addressed to the Underwriter and in form and substance reasonably satisfactory to Gersten, Savage, Kaplowitz & Curtin, counsel to the Underwriter, in substantially the form attached as Exhibit A hereto. c. On or prior to each of Closing Date I and Closing Date II, counsel for the Underwriter shall have been furnished such documents, certificates and opinions as it may reasonably require for the purpose of enabling it to review or pass upon the matters referred to in Section 7(b), or in order to evidence the accuracy, completeness or satisfaction of any of the representations, warranties or conditions herein contained. 19 d. Prior to each of Closing Date I and Closing Date II, (i) there shall have been no material adverse change, or development involving a material adverse prospective change, in the condition or prospects of the business activities, financial or otherwise, of the Company and its Subsidiaries taken as a whole from the latest dates as of which such condition is set forth in the Registration Statement and Prospectus; (ii) there shall have been no transac tion, not in the ordinary course of business, entered into by the Company or the Subsidiaries from the latest date as of which their respective financial conditions are set forth in the Registration Statement and Prospectus which is materially adverse to the Company; (iii) the Company or the Subsidiaries shall not be in default under any provision of any instrument relating to any outstanding indebtedness which default would have a material adverse effect on the Company; (iv) no amount of the assets of the Company or the Subsidiaries shall have been pledged or mortgaged, except as set forth in the Registration Statement and Prospectus; (v) no action, suit or proceeding, at law or in equity, shall be pending or threatened against the Company or the Subsidiaries before or by any court or Federal or state commission, board or other administrative agency wherein an unfavorable result, decision, ruling or finding would adversely affect the business, prospects, operations, or financial condition or income of the Company, except as set forth in the Registration Statement and Prospectus and except where such a result is deemed remote by counsel to the Company with respect to such action or proceeding; (vi) no stop order shall have been issued under the Act and no proceedings with respect thereto shall have been initiated or threatened by the Commission; (vii) the market for securities in general or political, financial or economic conditions shall not have materially adversely changed from those reasonably foreseeable as of the date hereof as to render it impracticable in the Underwriter's reasonable judgment to make a public offering of the Securities, and there has not been a material adverse change in market levels for securities in general or financial or economic conditions which render it inadvisable in the Underwriter's judgment to proceed; and (viii) there shall not have commenced or occurred any war or Act of God or other calamity which would have a material adverse effect on, or result in a material loss to, the Company. The Company agrees and acknowledges that the Underwriter shall be the sole determining party as to the presence of any such conditions, events, occurrences and provisions set forth in this Section 7(d). e. At each of Closing Date I and Closing Date II, the Underwriter shall have received a certificate of the Company signed by the President and the Secretary of the Company, dated Closing Date I and Closing Date II, respectively, to the effect that the conditions set forth in section 7(d)(i) through (vi) above have been satisfied and that, as of Closing Date I and Closing Date II, respectively, the representations and warranties of the Company set forth in Section 2 hereof are true and correct. f. By the Effective Date, the Underwriter shall have received clearance from the NASD as to the amount of compensation allowable or payable to the Underwriter, as described in the Registration Statement. 20 g. At the time this Agreement is executed, and at each of Closing Date I and Closing Date II, the Underwriter shall have received a letter, addressed to the Underwriter and in form and substance reasonably satisfactory in all respects (including the non-material nature of the changes or decreases, if any, referred to in clause (3) below) to the Underwriter and to Gersten, Savage, Kaplowitz & Curtin, counsel for the Underwriter, from Grant Thornton LLP, dated, as of the date of this Agreement and as of each of Closing Date I and Closing Date II: (1) confirming that they are independent accountants with respect to the Company within the meaning of the Act and the applicable Regulations; (2) stating that in their opinion the financial statements of the Company included in the Registration Statement and Prospectus comply as to form in all material respects with the applicable accounting requirements of the Act and the published Regulations thereunder; (3) stating that, on the basis of a reading of the latest available minutes of the stockholders and boards of directors and the various committees of the boards of directors of the Company and any current or former subsidiaries of the Company, consultations with officers and other employees of the Company and the Subsidiaries responsible for financial and accounting matters, a reading of the latest interim financial statements of the Company and the Subsidiaries (which, with respect to the Company, shall be as of a date not later than thirty (30) days prior to the Effective Date) and other specified procedures and inquiries, nothing has come to their attention which would lead them to believe that (A) the audited financial state ments for the years ended September 30,1995 of the Company in the Registration Statement does not comply as to form in all material respects with the applicable accounting requirements of the Act, and the Regulations or are not fairly presented in conformity with generally accepted accounting principles applied on a basis substantially consistent with that of the audited financial statements of the Company included in the Registration Statement, (B) at a date not more than five (5) days prior to the Effective Date, there was any change in the capital stock or long-term debt of the Company, or any decrease in the stockholders' equity of the Company as compared with amounts shown in the September 30, 1995 balance sheet included in the Registration Statement, other than as set forth in or contemplated by the Registration Statement, or, if there was any decrease, setting forth the amount of such decrease, and (C) during the period from September 30, 1995 to a specified date not more than five (5) days prior to the Effective Date there was any decrease in net revenues, increase in net losses or increases in net losses per common share of the Company, in each case as compared with the corresponding period ending August 31,1995 other than as set forth in or contemplated by the Registration Statement, or, if there was any such increase or decrease, setting forth the amount of such increase or decrease; (4) stating that they have compared specific dollar amounts, numbers of shares, percentages of revenues and earnings, statements and other financial information pertaining to the Company and the Subsidiaries set forth in the Prospectus in each case to the extent that such amounts, numbers, percentages, statements and information may be 21 derived from the general accounting records, including worksheets, of the Company and the Subsidiaries and excluding any questions requiring an interpretation by legal counsel, with the results obtained from the application of specified readings, inquiries and other appropriate procedures (which procedures do not constitute an examination in accordance with generally accepted auditing standards) set forth in the letter and found them to be in agreement; and statements as to such other matters incident to the transaction contemplated hereby as the Underwriter may reasonably request. (5) all proceedings taken in connection with the authorization, issuance or sale of the Securities, the Underwriter's Warrants and the Underwriter's Securities as herein contemplated shall be reasonably satisfactory in form and substance to the Underwriter and to Gersten, Savage, Kaplowitz & Curtin, counsel to the Underwriter. h. On each of Closing Date I and Closing Date II, there shall have been duly tendered to you for your account the appropriate number of Securities and individually for your own account the Underwriter's Warrants. i. No order suspending the sale of the Securities in any jurisdiction designated by you pursuant to Section 5(e) hereof shall have been issued on either Closing Date I or Closing Date II, and no proceedings for that purpose shall have been instituted or, to the knowledge of the Underwriter or the Company, shall be contemplated. j. Prior to each of the Closing Date I and Closing Date II there shall not have been received or provided by the Company's independent public accountants or attorneys, qualifications to the effect of either difficulties in furnishing certifications as to material items including, without limitation, information contained within the footnotes to the financial statements, or as affecting matters incident to the issuance and sale of the Securities or as to corporate proceedings or other matters. k. On or prior to Closing Date I, the Underwriter's Warrant Agreement and the Financial Advisory and Investment Banking Agreement shall have been executed and delivered by the Company, and the Lock-Up Agreements shall have been executed and delivered by all of the Company's existing stockholders. l. Any certificate signed by any officer of the Company and delivered to the Underwriter or to counsel to the Underwriter shall be deemed a representation and warranty by the Company to the Underwriter as to the statements made therein. If any condition to the Underwriter's obligations hereunder to be fulfilled prior to or at any Closing Date is not so fulfilled, the Underwriter may terminate this Agreement or, if the Underwriter so elects, may waive any such conditions which have not been fulfilled or extend the time for their fulfillment. 8. INDEMNIFICATION. --------------- a. The Company and the Selling Stockholders, severally and 22 not jointly, shall indemnify and hold the Underwriter, and each controlling person, if any, who controls the Underwriter within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act), harmless against any and all liabilities, claims, lawsuits, including any and all awards and/or judgments to which it may become subject under the Act, the Exchange Act or any other Federal or state statute, at common law or otherwise, insofar as said liabilities, claims and lawsuits (including awards and/or judgments) arise out of or are in connection with the Registration Statement, Prospectus and related Exhibits filed under the Act, except for any liabilities, claims and lawsuits (including awards and/or judgments), arising out of acts or omissions of the Underwriter. In addition, the Company shall also indemnify and hold the Underwriter harmless against any and all costs and expenses, including reasonable counsel fees, incurred or relating to the foregoing liabilities, claims and lawsuits to which the indemnity applies. The Underwriter shall give the Company, and the Selling Stockholders within two (2) business days of the time that the Underwriter first becomes aware thereof notice of any such liability, claim or lawsuit which the Underwriter contends is the subject matter of the Company's indemnification, and the Company thereupon shall be granted the right to take any and all necessary and proper action, at its sole cost and expense, with respect to such liability, claim and lawsuit, including the right to settle, compromise and dispose of such liability, claim or lawsuit. The Underwriter shall indemnify and hold the Company, and each controlling person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act and the Selling Stockholders , harmless against any and all liabilities, claims, lawsuits, including any and all awards and/or judgments to which it may become subject under the Act, the Exchange Act or any other Federal or state statute, at common law or otherwise, insofar as said liabilities, claims and lawsuits (including awards and/or judgments) arise out of or are based upon any untrue statement or alleged untrue statement of a material fact required to be stated or necessary to make the statement therein, not misleading, which statement or omission was made in reliance upon information furnished in writing to the Company by or on behalf of the Underwriter for inclusion in the Registration Statement or Prospectus or any amendment or supplement thereto. In addition, the Underwriter shall also indemnify and hold the Company harmless against any and all costs and expenses, including reasonable counsel fees, incurred or relating to the foregoing. The Company and the Selling Stockholders shall give to the Underwriter prompt notice of any such liability, claim or lawsuit which the Company contends is the subject matter of the Underwriter's indemnification and the Underwriter thereupon shall be granted the right to take any and all necessary and proper action, at its sole cost and expense, with respect to such liability, claim and lawsuit, including the right to settle, compromise or dispose of such liability, claim or lawsuit, excepting therefrom any and all proceedings or hearings before any regulatory bodies and/or authorities. b. In order to provide for just and equitable contribution under the Act 23 in any case in which (i) any person entitled to indemnification under this Section 8 makes claim for indemnification pursuant hereto but it is judicially determined (by the entry of a final judgment or decree by a court of competent jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that such indemnification may not be enforced in such case notwithstanding the fact that this Section 8 provides for indemnification in such case, or (ii) con tribution under the Act may be required on the part of any such person in circumstances for which indemnification is provided under this Section 8, then, and in each such case, the Company, the Selling Stockholders and the Underwriter shall contribute to the aggregate losses, claims, damages or liabilities to which they may be subject (after any contribution from others) in such proportion taking into consideration the relative benefits received by each party from the offering covered by the Prospectus (taking into account the portion of the proceeds of the offering realized by each), the parties' relative knowledge and access to information concerning the matter with respect to which the claim was assessed, the opportunity to correct and prevent any statement or omission and other equitable considerations appropriate under the circum stances; provided, however, that notwithstanding the above in no event shall the Underwriter be required to contribute any amount in excess of 10% of the initial public offering price of the Securities; and provided, that, in any such case, no person guilty of a fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. Within fifteen (15) days after receipt by any party to this Agreement (or its representative) of notice of the commencement of any action, suit or proceeding, such party will, if a claim for contribution in respect thereof is to be made against another party (the "contributing party"), notify the contributing party of the commencement thereof, but the omission so to notify the contributing party will not relieve it from any liability which it may have to any other party other than for contribution hereunder. In case any such action, suit or proceeding is brought against any party, and such party notifies a contributing party or his or its representative of the commencement thereof within the aforesaid fifteen (15) days, the contributing party will be entitled to participate therein with the notifying party and any other contributing party similarly notified. Any such contributing party shall not be liable to any party seeking contribution on account of any settlement of any claim, action or proceeding effected by such party seeking contribution without the written consent of such contributing party. The indemnification provisions contained in this Section 8 are in addition to any other rights or remedies which either party hereto may have with respect to the other or hereunder. 9. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. Except as the -------------------------------------------------- context otherwise requires, all representations, warranties and agreements contained in this Agreement shall be deemed to be representations, warranties and agreements at the Closing Dates, and such representations, warranties and agreements of the Underwriter, the Company and the Selling Stockholders, including the indemnity agreements contained in Section 8 hereof, shall remain operative and in full force and effect regardless of any investigation made by or on behalf of any of the Underwriter, the Company or any controlling person, and shall survive termination of this Agreement or the issuance and delivery of the Securities to the Underwriter until the earlier of the expiration of any applicable statute of limitations or the seventh 24 anniversary of Closing Date II, at which time the representations, warranties and agreements shall terminate and be of no further force and effect. 10. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION HEREOF. ------------------------------------------------------- a. This Agreement shall become effective at 9:30 a.m., New York time, on the first full business day following the day on which the Registration Statement becomes effective or at the time of the initial public offering by the Underwriter of the Securities, whichever is earlier. The time of the initial public offering, for the purpose of this Section 10, shall mean the time, after the Registration Statement becomes effective, of the release by the Underwriter for publication of the first newspaper advertisement which is subsequently published relating to the Securities or the time, after the Registration Statement becomes effective, when the Securities are first released by the Underwriter for offering by the Underwriter or dealers by letter or telegram, whichever shall first occur. The Underwriter may prevent this Agreement from becoming effective without liability to any other party, except as noted below, by giving the notice indicated below in this Section 10 before the time this Agreement becomes effective. The Underwriter agrees to give the undersigned notice of the commencement of the offering described herein. b. The Underwriter shall have the right, in its sole discretion, to terminate this Agreement, including without limitation, the obligation to purchase the Firm Securities and the obligation to purchase the Option Securities after the exercise of the Over-Allotment Option, by notice given to the Company prior to delivery and payment for all the Firm Securities or the Option Securities, as the case may be, only if any of the conditions enumerated in Section 7 are not either fulfilled or waived by the Underwriter on or before any Closing Date. c. If the Underwriter elects to prevent this Agreement from becoming effective or to terminate this Agreement as provided in this Section 10, the Company shall be notified on the same day as such election is made by the Underwriter by telephone or telegram, confirmed by letter. d. Anything herein to the contrary notwithstanding, if this Agreement shall not be carried out within the time specified herein, or any extensions thereof granted by the Underwriter, by reason of any failure on the part of the Company to perform any undertaking or satisfy any condition of this Agreement by it to be performed or satisfied then, in addition to the obligations assumed by the Company pursuant to Section 6(a) hereof, the Underwriter shall provide the company with a statement of the Underwriter's accountable expenses. e. Notwithstanding any contrary provision contained in this Agreement, any election hereunder or termination of this Agreement, and whether or not this Agreement is otherwise carried out, the provisions of Section 8 shall not be in any way affected by such election or termination or failure to carry out the terms of this Agreement or any part 25 hereof. 11. NOTICES. All communications hereunder, except as herein ------- otherwise specifically provided, shall be in writing and, if sent to the Underwriter, shall be mailed, delivered or telegraphed and confirmed to First Hanover Securities, Inc. One Wall Street, New York, New York 10005 Attention: President, with a copy to Gersten, Savage, Kaplowitz & Curtin, 575 Lexington Avenue, New York, New York 10022, Attention: Jay Kaplowitz, Esq.; if to the Company, shall be mailed, delivered or telegraphed and confirmed to Commodore Holdings Limited, 4000 Hollywood Boulevard, Suite 385, South Tower, Hollywood, Florida 33021, Attention: Chairman of the Board, with a copy to Broad & Cassell, (address), Attention: James Cassell, Esq.. 12. PARTIES. This Agreement shall inure solely to the benefit of and ------- shall be binding upon, the Underwriter, the Company and the controlling persons, directors and officers referred to in Section 8 hereof, and their respective successors, legal representatives and assigns, and no other person shall have or be construed to have any legal or equitable right, remedy or claim under or in respect of or by virtue of this Agreement or any provisions herein contained. 13. CONSTRUCTION. This Agreement shall be governed by and ------------ construed and enforced in accordance with the laws of the State of New York, without giving effect to conflict of laws. The parties agree to submit themselves to the jurisdiction of the courts of the State of New York or of the United States of America for the Southern District of New York, which shall be the sole tribunals in which any parties may institute and maintain a legal proceeding against the other party arising from any dispute in this Agreement. In the event either party initiates a legal proceeding in a jurisdiction other than in the courts of the State of New York or of the United States of America for the Southern District of New York, the other party may assert as a complete defense and as a basis for dismissal of such legal proceeding that the legal proceeding was not initiated and maintained in the courts of the State of New York or of the United States of America for the Southern District of New York, in accordance with the provisions of this Section 13. 14. ENTIRE AGREEMENT. This Agreement, the Underwriter's Warrant ---------------- Agreement and the Financial Advisory and Investment Banking Agreement contain the entire agreement between the parties hereto in connection with the subject matter hereof and thereof. 26 If the foregoing correctly sets forth the understanding between the Underwriter and the Company, please so indicate in the space provided below for that purpose, whereupon this letter shall constitute a binding agreement between us. Very truly yours, COMMODORE HOLDINGS LIMITED By:________________________________ Name: Jeffrey Binder Title: Chairman of the Board Accepted as of the date first above written. New York, New York FIRST HANOVER SECURITIES, INC. By: _____________________________ Name: Title: 27 PRIVATE OPPORTUNITY PARTNERS II, LTD. LIMITED PARTNER SIGNATURE PAGE FOR CORPORATIONS, PARTNERSHIPS AND TRUSTS EXECUTED this ___ day of _________, 1996. NUMBER OF UNITS HELD BY LIMITED PARTNER: ______________($100,000 per Unit) ___________________________________________________ (Printed Name of Limited Partner) By:___________________________________________ (Signature of Authorized Representative) Print Name:___________________________________ Title:________________________________________ ___________________________________________________ ___________________________________________________ ___________________________________________________ (Address) STATE OF ___________) ) SS: COUNTY OF __________) The foregoing instrument was acknowledged before me this ______ day of _____________, 1996, by __________________________ as ___________________ of ___________________________, a _____________, on behalf of the _______________. He/she is personally known to me or has produced ____________ as identification. ___________________________________ (Signature of notary public) ___________________________________ (Typed name of notary public) Notary Public, State of Florida Commission No._____________________ My commission expires: ADMISSION DATE: ________ (please leave blank for completion by General Partner) Partnership Agreement Signature Page EX-4.D 3 EXHIBIT 4-D: AGREEMENT EXHIBIT 4D AGREEMENT, dated this _____ day of ___________, 1996 by and between COMMODORE HOLDINGS LIMITED, a Bermuda corporation (the "Company"), and STOCK TRANS, INC., as Warrant Agent (the "Warrant Agent"). W I T N E S S E T H: ------------------- WHEREAS, in connection with (i) the offering to the public of up to 1,000,000 units ("Units") each Unit comprised of one shares of the Company's common stock, $.01 par value ("Common Stock"), and one redeemable warrant, entitling the holder to purchase one half share of Common Stock ("Redeemable Warrants") (the Units are sometimes alternatively referred to as the "Securities"), (ii) the over-allotment option to purchase up to an 75,000 Units (the "Over-allotment Option"), and (iii) the sale to First Hanover Securities, Inc. its successors and assigns ("First Hanover") of warrants (the "Underwriter's Warrants") to purchase up 50,000 Units, such Securities being identical to the Securities being sold to the public (the Redeemable Warrants issuable upon the exercise of the Underwriter's Warrants are referred to as the "Common Stock Warrants"), the Company will issue up to 1,075,000 Redeemable Warrants and 50,000 Common Stock Warrants (subject to increase as provided in the Underwriter's Warrant Agreement); and WHEREAS, the Company desires to provide for the issuance of certificates representing the Redeemable Warrants and the Common Stock Warrants (collectively, the "Warrants"); and WHEREAS, the Company desires the Warrant Agent to act on behalf of the Company, and the Warrant Agent is willing to so act, in connection with the issuance, registration, transfer and exchange of certificates representing the Warrants and the exercise of the Warrants. NOW, THEREFORE, in consideration of the premises and the mutual agreements hereinafter set forth and for the purpose of defining the terms and provisions of the Warrants and the certificates representing the Warrants and the respective rights and obligations thereunder of the Company, the Underwriter, the holders of certificates representing the Warrants and the Warrant Agent, the parties hereto agree as follows: Definitions. As used herein, the following terms shall have the ----------- following meanings, unless the context shall otherwise require: (a) "Common Stock" shall mean stock of the Company of any class, whether now or hereafter authorized, which has the right to participate in the voting and in the distribution of earnings and assets of the Company without limit as to amount or percentage. (b) "Corporate Office" shall mean the office of the Warrant Agent (or its successor) at which at any particular time its principal business shall be administered, which office is located on the date hereof at __________. (c) "Exercise Date" shall mean, subject to the provisions of Section 5(b) hereof, as to any Warrant, the date on which the Warrant Agent shall have received both (i) the Warrant 2 Certificate representing such Warrant, with the exercise form thereon duly executed by the Registered Holder hereof or his attorney duly authorized in writing, and (ii) payment in cash or by check made payable to the Warrant Agent for the account of the Company, of the amount in lawful money of the United States of America equal to the applicable Purchase Price. (d) "Initial Warrant Exercise Date" shall mean ___________, 1997 for the Redeemable Warrants and _____________, 1997 for the Common Stock Warrants. (e) "Initial Warrant Redemption Date" shall mean ____________, 1997. (f) "Purchase Price" shall mean, subject to modification and adjustment as provided in Section 8, $6.00 per share of Common Stock and further subject to the Company's right, in its sole discretion, to decrease the Purchase Price for a period of not less than 30 days on not less than 30 days' prior written notice to the Registered Holders. (g) "Registered Holder" shall mean the person in whose name any certificate representing the Warrants shall be registered on the books maintained by the Warrant Agent pursuant to Section 6. (h) "Subsidiary" or "Subsidiaries" shall mean any corporation or corporations, as the case may be, of which stock having ordinary power to elect a majority of the Board of Directors of such corporation (regardless of whether or not at the time stock of any other class or classes of such corporation shall have or may 3 have voting power by reason of the happening of any contingency) is at the time directly or indirectly owned by the Company or by one or more Subsidiaries, or by the Company and one or more Subsidiaries. (i) "Transfer Agent" shall mean Stock Trans, Inc., or its authorized successor. (j) "Underwriting Agreement" shall mean the underwriting agreement dated ____________, 1996 between the Company and First Hanover, relating to the purchase for resale to the public of the Securities. (k) "Underwriter's Warrant Agreement" shall mean the agreement dated as of ____________, 1996 between the Company and First Hanover relating to and governing the terms and provisions of the Underwriter's Warrants. (l) "Warrant Certificate" shall mean a certificate representing each of the Warrants substantially in the form annexed hereto as Exhibit A. (m) "Warrant Expiration Date" shall mean, unless the Warrants are redeemed as provided in Section 9 hereof prior to such date, 5:00 p.m. (Eastern time) on ________________, 2001 for the Redeemable Warrants and on ____________, 2001 for the Common Stock Warrants or, if either such date shall in the State of Colorado be a holiday or a day on which banks are authorized to close, than 5:00 p.m. (Eastern time) on the next following day which in the State of __________ is not a holiday or a day on which banks are authorized to close, subject to the Company's right, 4 prior to the Warrant Expiration Date, in its sole discretion, to extend such Warrant Expiration Date on five business days prior written notice to the Registered Holders. SECTION 2. Warrants and Issuance of Warrant Certificates. --------------------------------------------- (a) One Warrant shall initially entitle the Registered Holder of the Warrant Certificate representing such Warrant to purchase at the Purchase Price therefor from the Initial Warrant Exercise Date until the Warrant Expiration Date one half share of Common Stock upon the exercise thereof, subject to modification and adjustment as provided in Section 8. The Warrants must be exercised in pairs so as to purchase one full share of Common Stock at the Purchase Price therefor. (b) Upon execution of this Agreement, Warrant Certificates representing 1,000,000 Redeemable Warrants to purchase up to an aggregate of 500,000 shares of Common Stock (subject to modification and adjustment as provided in Section 8) shall be executed by the Company and delivered to the Warrant Agent. (c) Upon exercise of the Over-allotment Option, in whole or in part, Warrant Certificates representing up to 75,000 Redeemable Warrants to purchase up to an aggregate of 75,000 shares of Common Stock (subject to modification and adjustment as provided in Section 8) shall be executed by the Company and delivered to the Warrant Agent. (d) Upon exercise of the Underwriter's Warrants as provided therein, together with certificates for the appropriate 5 number of shares of Common Stock, Warrant Certificates representing 50,000 Common Stock Warrants to purchase up to an aggregate of 25,000 shares of Common Stock (subject to modification and adjustment as provided in Section 8 hereof and in the Underwriter's Warrant Agreement), shall be countersigned, issued and delivered by the Warrant Agent upon written order of the Company signed by its Chairman of the Board, President or a Vice President and by its Treasurer or an Assistant Treasurer or its Secretary or an Assistant Secretary. (e) From time to time, up to the Warrant Expiration Date, as the case may be, the Warrant Agent shall countersign and deliver Warrant Certificates in required denominations of one or whole number multiplies thereof to the person entitled thereto in connection with any transfer or exchange permitted under this Agreement. Except as provided in Section 7 hereof, no Warrant Certificates shall be issued except (i) Warrant Certificates initially issued hereunder, (ii) Warrant Certificates issued upon any transfer or exchange of Warrants, (iii) Warrant Certificates issued in replacement of lost, stolen, destroyed or mutilated Warrant Certificates pursuant to Section 7, (iv) Warrant Certificates issued pursuant to the Underwriter's Warrant Agreement (including Common Stock Warrants in excess of 50,000 Underwriter's Warrants issued as a result of the antidilution provisions contained in the Underwriter's Warrant Agreement), and (v) at the option of the Company, Warrant Certificates in such form as may be approved by its Board of Directors, to reflect any adjustment or 6 change in the Purchase Price, the number of shares of Common Stock purchasable upon exercise of the Warrants or the Redemption Price therefor made pursuant to Section 8 hereof. SECTION 3. Form and Execution of Warrant Certificates. ------------------------------------------ (a) The Warrant Certificates shall be substantially in the form annexed hereto as Exhibit A (the provisions of which are hereby incorporated herein) and may have such letters, numbers or other marks of identification or designation and such legends, summaries or endorsements printed, lithographed or engraved thereon as the Company may deem appropriate and as are not inconsistent with the provisions of this Agreement, or as may be required to comply with any law or with any rule or regulation made pursuant thereto or with any rule or regulation of any stock exchange on which the Warrants may be listed, or to conform to usage. The Warrant Certificates shall be dated the date of issuance thereof (whether upon initial issuance, transfer, exchange or in lieu of mutilated, lost, stolen or destroyed Warrant Certificates). (b) Warrant Certificates shall be executed on behalf of the Company by its Chairman of the Board, President or any Vice President and by its Treasurer or an Assistant Treasurer or its Secretary or an Assistant Secretary, by manual signatures or by facsimile signatures printed thereon, and shall have imprinted thereon a facsimile of the Company's seal. Warrant Certificates shall be manually countersigned by the Warrant Agent and shall not be valid for any purpose unless so countersigned. In case any officer of the Company who shall have signed any of the Warrant 7 Certificates shall cease to be such officer of the Company before the date of issuance of the Warrant Certificates or before countersignature by the Warrant Agent and issue and delivery thereof, such Warrant Certificates, nevertheless, may be countersigned by the Warrant Agent, issued and delivered with the same force and effect as though the person who signed such Warrant Certificates had not ceased to be such officer of the Company. SECTION 4. Exercise. -------- (a) Warrants in denominations of two or whole number multiples thereof may be exercised commencing at any time on or after the Initial Warrant Exercise Date, but not after the Warrant Expiration Date, upon the terms and subject to the conditions set forth herein (including the provisions set forth in Sections 5 and 9 hereof) and in the applicable Warrant Certificate. A Warrant shall be deemed to have been exercised immediately prior to the close of business on the Exercise Date, provided that the Warrant Certificate representing such Warrant, with the exercise form thereon duly executed by the Registered Holder thereof or his attorney duly authorized in writing, together with payment in cash or by check made payable to the Warrant Agent for the account of the Company, of an amount in lawful money of the United States of America equal to the applicable Purchase Price has been received in good funds by the Warrant Agent. The person entitled to receive the securities deliverable upon such exercise shall be treated for all purposes as the holder of such securities as of the close of business on the Exercise Date. If Warrants in denominations other 8 than one or whole number multiples thereof shall be exercised at one time by the same Registered Holder, the number of full shares of Common Stock which shall be issuable upon exercise thereof shall be computed on the basis of the aggregate number of full shares of Common Stock issuable upon such exercise. As soon as practicable on or after the Exercise Date and in any event within five business days after such date, if one or more Warrants have been exercised, the Warrant Agent on behalf of the Company shall cause to be issued to the person or persons entitled to receive the same a Common Stock certificate or certificates for the shares of Common Stock deliverable upon such exercise, and the Warrant Agent shall deliver the same to the person or persons entitled thereto. Upon the exercise of any one or more Warrants, the Warrant Agent shall promptly notify the Company in writing of such fact and of the number of securities delivered upon such exercise and, subject to subsection (b) below, shall cause all payments of an amount in cash or by check made payable to the order of the Company, equal to the Purchase Price, to be deposited promptly in the Company's bank account. (b) At any time upon the exercise of Warrants after one year and one day from the date hereof, the Warrant Agent shall, on a daily basis, within two business days after such exercise, notify First Hanover, their successors or assigns of the exercise of any such Warrants and shall, on a weekly basis (subject to collection of funds constituting the tendered Purchase Price, but in no event later than five business days after the last day of the 9 calendar week in which such funds were tendered), remit to First Hanover an amount equal to five percent of the Purchase Price of such Warrants being then exercised unless First Hanover shall have notified the Warrant Agent that the payment of such amount with respect to such Warrant is violative of the General Rules and Regulations promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or the rules and regulations of the National Association of Securities Dealers, Inc. ("NASD") or applicable state securities or "blue sky" laws, or the Warrants are Common Stock Warrants underlying the Underwriter's Warrants, in which event the Warrant Agent shall have to pay such amount to the Company; provided, however, that, the Warrant Agent shall not be obligated to pay any amounts pursuant to this Section 4(b) during any week that such amounts payable are less than $1,000 and the Warrant Agent's obligation to make such payments shall be suspended until the amount payable aggregates $1,000, and provided further, that, in any event, any such payment (regardless of amount) shall be made not less frequently than monthly. (c) The Company shall not be obligated to issue any fractional share interests or fractional warrant interests upon the exercise of any Warrant or Warrants, nor shall it be obligated to issue scrip or pay cash in lieu of fractional interests. Any fraction equal to or greater than one-half shall be rounded up to the next full share or Warrant, as the case may be, any fraction less than one-half shall be eliminated. SECTION 5. Reservation of Shares; Listing; Payment of ------------------------------------------ 10 Taxes; etc. - ----------- (a) The Company covenants that it will at all times reserve and keep available out of its authorized Common Stock, solely for the purpose of issuance upon exercise of Warrants, such number of shares of Common Stock as shall then be issuable upon the exercise of all outstanding Warrants. The Company covenants that all shares of Common Stock which shall be issuable upon exercise of the Warrants shall, at the time of delivery thereof, be duly and validly issued and fully paid and nonassessable and free from all preemptive or similar rights, taxes, liens and charges with respect to the issuance thereof, and that upon issuance such shares shall be listed on each securities exchange, if any, on which the other shares of outstanding Common Stock of the Company are then listed. (b) The Company covenants that if any securities to be reserved for the purpose of exercise of Warrants hereunder require registration with, or approval of, any governmental authority under any federal securities law before such securities may be validly issued or delivered upon such exercise, then the Company will file a registration statement under the federal securities laws or a post effective amendment, use its best efforts to cause the same to become effective, keep such registration statement current while any of the Warrants are outstanding and deliver a prospectus which complies with Section 1O(a)(3) of the Securities Act of 1933, as amended, to the Registered Holder exercising the Warrant (except, if in the opinion of counsel to the Company, such registration is not required under the federal 11 securities law or if the Company receives a letter from the staff of the Securities and Exchange Commission stating that it would not take any enforcement action if such registration is not effected). The Company will use best efforts to obtain appropriate approvals or registrations under state "blue sky" securities laws. With respect to any such securities, however, Warrants may not be exercised by, or shares of Common Stock or issued to, any Registered Holder in any state in which such exercise would be unlawful. (c) The Company shall pay all documentary, stamp or similar taxes and other governmental charges that may be imposed with respect to the issuance of Warrants, or the issuance or delivery of any shares of Common Stock upon exercise of the Warrants; provided, however, that if shares of Common Stock are to be delivered in a name other than the name of the Registered Holder of the Warrant Certificate representing any Warrant being exercised, then no such delivery shall be made unless the person requesting the same has paid to the Warrant Agent the amount of transfer taxes or charges incident thereto, if any. (d) The Warrant Agent is hereby irrevocably authorized as the Transfer Agent to requisition from time to time certificates representing shares of Common Stock or other securities required upon exercise of the Warrants, and the Company will comply with all such requisitions. 12 SECTION 6. Exchange and Registration of Transfer. ------------------------------------- (a) Warrant Certificates may be exchanged for other Warrant Certificates representing an equal aggregate number of Warrants or may be transferred in whole or in part. Warrant Certificates to be so exchanged shall be surrendered to the Warrant Agent at its Corporate Office, and the Company shall execute and the Warrant's Agent shall countersign, issue and deliver in exchange therefor the Warrant Certificate or Certificates which the Registered Holder making the exchange shall be entitled to receive. (b) The Warrant Agent shall keep, at such office, books in which, subject to such reasonable regulations as it may prescribe, it shall register Warrant Certificates and the transfer thereof. Upon due presentment for registration of transfer of any Warrant Certificate at such office, the Company shall execute and the Warrant Agent shall issue and deliver to the transferee or transferees a new Warrant Certificate or Certificates representing an equal aggregate number of Warrants. (c) With respect to any Warrant Certificates presented for registration of transfer, or for exchange or exercise, the subscription or exercise form, as the case may be, on the reverse thereof shall be duly endorsed or be accompanied by a written instrument or instruments of transfer and subscription, in form satisfactory to the Company and the Warrant Agent, duly executed by the Registered Holder thereof or his attorney duly authorized in writing. 13 (d) A $10 service charge shall be made for any exchange, registration or transfer of Warrant Certificates. However, the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith. (e) All Warrant Certificates surrendered for exercise or for exchange shall be promptly canceled by the Warrant Agent. (f) Prior to due presentment for registration or transfer thereof, the Company and the Warrant Agent may deem and treat the Registered Holder of any Warrant Certificate as the absolute owner thereof of each Warrant represented thereby (notwithstanding any notations of ownership or writing thereon made by anyone other than the Company or the Warrant Agent) for all purposes and shall not be affected by any notice to the contrary. SECTION 7. Loss or Mutilation. Upon receipt by the Company and the ------------------ Warrant Agent of evidence satisfactory to them of the ownership of and the loss, theft, destruction or mutilation of any Warrant Certificate and (in the case of loss, theft or destruction) of indemnity satisfactory to them, and (in case of mutilation) upon surrender and cancellation thereof, the Company shall execute and the Warrant Agent shall countersign and deliver in lieu thereof a new Warrant Certificate representing an equal aggregate number of Warrants. Applicants for a substitute Warrant Certificate shall also comply with such other reasonable regulations and pay such other reasonable charges as the Warrant 14 Agent may prescribe. SECTION 8. Adjustment of Purchase Price and Number of Shares of ---------------------------------------------------- Common Stock Deliverable. - ------------------------ (a) (i) Except as hereinafter provided, in the event the Company shall, at any time or from time to time after the date hereof, sell any shares of Common Stock for a consideration per share less than the greater of (i) the closing bid price of the Common Stock as reported on NASDAQ on the trading date next preceding such sale (the "Market Price"), and (ii) the Purchase Price then in effect, or issue any shares of Common Stock as a stock dividend to the holders of Common Stock, or subdivide or combine the outstanding shares of Common Stock into a greater or lesser number of shares (any such sale, issuance, subdivision or combination being herein called a "Change of Shares"), then, and thereafter immediately before the date of such sale or the record date for each Change of Shares, the Purchase Price for the Warrants (whether or not the same shall be issued and outstanding) in effect immediately prior to such Change of Shares shall be changed to a price (including any applicable fraction of a cent to the nearest cent) determined by dividing (1) the product of (a) the Purchase Price in effect immediately before such Change of Shares and (b) the sum (i) the total number of shares of Common Stock outstanding immediately prior to such Change of Shares, and (ii) the number of shares determined by dividing (A) the aggregate consideration, if any, received by the Company upon such sale, issuance, subdivision or combination, by (B) the greater of (x) the 15 Market Price, and (y) the Purchase Price, in effect immediately prior to such Change of Shares; by (2) the total number of shares of Common Stock outstanding immediately after such Change of Shares. For the purposes of any adjustment to be made in accordance with this Section 8(a) the following provisions shall be applicable: (A) In case of the issuance or sale of shares of Common Stock (or of other securities deemed hereunder to involve the issuance or sale of shares of Common Stock) for a consideration part or all of which shall be cash, the amount of the cash portion of the consideration therefor deemed to have been received by the Company shall be (i) the subscription price (before deducting any commissions or any expenses incurred in connection therewith), if shares of Common Stock are offered by the Company for subscription, or (ii) the public offering price (before deducting therefrom any compensation paid or discount allowed in the sale, underwriting or purchase thereof by underwriters or dealers or others performing similar services, or any expenses incurred in connection therewith), if such securities are sold to underwriters or dealers for public offering without a subscription offering, or (iii) the gross amount of cash actually received by the Company for such securities, in any other case. 16 (B) In case of the issuance or sale (otherwise than as a dividend or other distribution on any stock of the Company, and otherwise than on the exercise of options, rights or warrants or the conversion or exchange of convertible or exchangeable securities) of shares of Common Stock (or of other securities deemed hereunder to involve the issuance or sale of shares of Common Stock) for a consideration part or all of which shall be other than cash, the amount of the consideration therefor other than cash deemed to have been received by the Company shall be the value of such consideration as determined in good faith by the Board of Directors of the Company on the basis of a record of values of similar property or services. (C) Shares of Common Stock issuable by way of dividend or other distribution on any stock of the Company shall be deemed to have been issued immediately after the opening of business on the day following the record date for the determination of shareholders entitled to receive such dividend or other distribution and shall be deemed to have been issued without consideration. (D) The reclassification of securities of the Company other than shares of Common Stock into securities including shares of Common Stock shall be deemed to involve the issuance of such shares of Common Stock for a consideration other than cash immediately prior to the close of business on the date fixed for the determination of 17 security holders entitled to receive such shares, and the value of the consideration allocable to such shares of Common Stock shall be determined as provided in subsection (B) of this Section 8(a). (E) The number of shares of Common Stock at any one time outstanding shall be deemed to include the aggregate maximum number of shares issuable (subject to readjustment upon the actual issuance thereof) upon the exercise of options, rights or warrants and upon the conversion or exchange of convertible or exchangeable securities. (ii) Upon each adjustment of the Purchase Price pursuant to this Section 8, the number of shares of Common Stock purchasable upon the exercise of each Warrant shall be the number derived by multiplying the number of shares of Common Stock purchasable immediately prior to such adjustment by the Purchase Price in effect prior to such adjustment and dividing the product so obtained by the applicable adjusted Purchase Price. (b) In case the Company shall at any time after the date hereof issue options, rights or warrants to subscribe for shares of Common Stock, or issue any securities convertible into or exchangeable for shares of Common Stock, for a consideration per share (determined as provided in Section 8(a) and as provided below) less than the greater of (i) the Market Price, and (ii) the Purchase Price in effect immediately prior to the issuance of such options, rights or warrants, or such convertible or exchangeable 18 securities, or without consideration (including the issuance of any such securities by way of dividend or other distribution), the Purchase Price for the Warrants (whether or not the same shall be issued and outstanding) in effect immediately prior to the issuance of such options, rights or warrants, or such convertible or exchangeable securities, as the case may be, shall be reduced to a price determined by making the computation in accordance with the provisions of Section 8(a) hereof, provided that: (A) The aggregate maximum number of shares of Common Stock, as the case may be, issuable or that may become issuable under such options, rights or warrants (assuming exercise in full even if not then currently exercisable or currently exercisable in full) shall be deemed to be issued and outstanding at the time such options, rights or warrants were issued, for a consideration equal to the minimum purchase price per share provided for in such options, rights or warrants at the time of issuance, plus the consideration, if any, received by the Company for such options, rights or warrants; provided, however, that upon the expiration or other termination of such options, rights or warrants, if any thereof shall not have been exercised, the number of shares of Common Stock deemed to be issued and outstanding pursuant to this subsection (A) (and for the purposes of subsection (E) of Section 8(a) hereof) shall be reduced by the number of shares as to which options, warrants and/or rights shall have expired, and such number of shares 19 shall no longer be deemed to be issued and outstanding, and the Purchase Price then in effect shall forthwith be readjusted and thereafter be the price that it would have been had adjustment been made on the basis of the issuance only of the shares actually issued plus the shares remaining issuable upon the exercise of those options, rights or warrants as to which the exercise rights shall not have expired or terminated unexercised. (B) The aggregate maximum number of shares of Common Stock issuable or that may become issuable upon conversion or exchange of any convertible or exchangeable securities (assuming conversion or exchange in full even if not then currently convertible or exchangeable in full) shall be deemed to be issued and outstanding at the time of issuance of such securities, for a consideration equal to the consideration received by the Company for such securities, plus the minimum consideration, if any, receivable by the Company upon the conversion or exchange thereof; provided, however, that upon the expiration or other termination of the right to convert or exchange such convertible or exchangeable securities (whether by reason of redemption or otherwise), the number of shares of Common Stock deemed to be issued and outstanding pursuant to this subsection (B) (and for the purposes of subsection (E) of Section 8(a) hereof) shall be reduced by the number of shares as to which the conversion or exchange rights shall have expired or terminated unexercised, 20 and such number of shares shall no longer be deemed to be issued and outstanding, and the Purchase Price then in effect shall forthwith be readjusted and thereafter be the price that it would have been had adjustment been made on the basis of the issuance only of the shares actually issued plus the shares remaining issuable upon conversion or exchange of those convertible or exchangeable securities as to which the conversion or exchange rights shall not have expired or terminated unexercised. (C) If any change shall occur in the exercise price per share provided for in any of the options, rights or warrants referred to in subsection (A) of this Section 8(b), or in the price per share or ratio at which the securities referred to in subsection (B) of this Section 8(b) are convertible or exchangeable, such options, rights or warrants or conversion or exchange rights, as the case may be, to the extent not theretofore exercised, shall be deemed to have expired or terminated on the date when such price change became effective in respect of shares not theretofore issued pursuant to the exercise or conversion or exchange thereof, and the Company shall be deemed to have issued upon such date new options, rights or warrants or convertible or exchangeable securities. (c) In case of any reclassification or change of outstanding shares of Common Stock issuable upon exercise of the Warrants (other than a change in par value, or from par value to no 21 par value, or from no par value to par value or as a result of subdivision or combination), or in case of any consolidation or merger of the Company with or into another corporation (other than a merger with a subsidiary in which merger the Company is the continuing corporation and which does not result in any reclassification or change of the then outstanding shares of Common Stock or other capital stock issuable upon exercise of the Warrants) or in case of any sale or conveyance to another corporation of the property of the Company as an entirety or substantially as an entirety, then, as a condition of such reclassification, change, consolidation, merger, sale or conveyance, the Company, or such successor or purchasing corporation, as the case may be, shall make lawful and adequate provision whereby the Registered Holder of each Warrant then outstanding shall have the right thereafter to receive on exercise of such Warrant the kind and amount of securities and property receivable upon such reclassification, change, consolidation, merger, sale or conveyance by a holder of the number of securities issuable upon exercise of such Warrant immediately prior to such reclassification, change, consolidation, merger, sale or conveyance and shall forthwith file at the Corporate Office of the Warrant Agent a statement signed by its President or a Vice President and by its Treasurer or an Assistant Treasurer or its Secretary or an Assistant Secretary evidencing such provision. Such provisions shall include provision for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in 22 Section 8(a) and (b). The above provisions of this Section 8(c) shall similarly apply to successive reclassifications and changes of shares of Common Stock and to successive consolidations, mergers, sales or conveyances. (d) Irrespective of any adjustments or changes in the Purchase Price or the number of shares of Common Stock purchasable upon exercise of the Warrants, the Warrant Certificates theretofore and thereafter issued shall, unless the Company shall exercise its option to issue new Warrant Certificates pursuant to Section 2(e) hereof, continue to express the Purchase Price per share and the number of shares purchasable thereunder as the Purchase Price per share and the number of shares purchasable thereunder were expressed in the Warrant Certificates when the same were originally issued. (e) After each adjustment of the Purchase Price pursuant to this Section 8, the Company will promptly prepare a certificate signed by the Chairman or President, and by the Treasurer or an Assistant Treasurer or the Secretary or an Assistant Secretary, of the Company setting forth: (i) the Purchase Price as so adjusted, (ii) the number of shares of Common Stock purchasable upon exercise of each Warrant, after such adjustment, and (iii) a brief statement of the facts accounting for such adjustment. The Company will promptly file such certificate with the Warrant Agent and cause a brief summary thereof to be sent by ordinary first class mail to each Registered Holder at his last address as it shall appear on the registry books of the Warrant 23 Agent. No failure to mail such notice nor any defect therein or in the mailing thereof shall affect the validity thereof except as to the holder to whom the Company failed to mail such notice, or except as to the holder whose notice was defective. The affidavit of an officer of the Warrant Agent or the Secretary or an Assistant Secretary of the Company that such notice has been mailed shall, in the absence of fraud, be prima facie evidence of the facts stated therein. (f) No adjustment of the Purchase Price shall be made as a result of or in connection with (A) the issuance or sale of the Underwriter's Warrants or the Securities underlying the Underwriter's Warrants, (B) the issuance or sale of the Securities pursuant to the Initial Public Offering, (C) the issuance or sale of shares of Common Stock pursuant to options, warrants, stock purchase agreements and convertible or exchangeable securities outstanding or in effect on the date hereof, (D) the issuance or sale of shares of Common Stock upon the exercise of any "incentive stock options" (as such term is defined in the Internal Revenue Code of 1986, as amended), whether or not such options were outstanding on the date hereof, or (E) the issuance or sale of shares of Common Stock if the amount of said adjustment shall be less than $.02 for one share of Common Stock, provided, however, that in such case, any adjustment that would otherwise be required then to be made shall be carried forward and shall be made at the time of and together with the next subsequent adjustment that shall amount, together with any adjustment so carried forward, to at 24 least $.02 for one share of Common Stock. In addition, Registered Holders shall not be entitled to cash dividends paid by the Company prior to the exercise of any Warrant or Warrants held by them. SECTION 9. Redemption. ---------- (a) Commencing on the Initial Warrant Redemption Date, the Company may, on 25 days prior written notice redeem all the Redeemable Warrants at $.05 per Redeemable Warrant, provided, however, that before any such call for redemption of Warrants can take place, the (A) average closing bid price for the Common Stock in the over-the-counter market as reported by the NASD Automated Quotation System or (B) the average closing sale price on the primary exchange on which the Common Stock is traded, if the Common Stock is traded on a national securities exchange, shall have for twenty (20) consecutive trading days ending not more than 15 days of the notice of redemption exceeded 150% of the Purchase Price (initially $6.00 per share of Common Stock) (subject to adjustment in the event of any stock splits or other similar events as provided in Section 8 hereof). All Redeemable Warrants must be redeemed if any are redeemed. (b) In the event the Company exercises its right to redeem all of the Redeemable Warrants, it shall give or cause to be given notice to the Registered Holders of the Redeemable Warrants, by mailing to such Registered Holders a notice of redemption, first class, postage prepaid, within ten (10) calendar days of the aforementioned twenty (20) consecutive trading days and not later than the thirtieth (30th) day before the date fixed for redemption, 25 at their last address as shall appear on the records of the Warrant Agent. Any notice mailed in the manner provided herein shall be conclusively presumed to have been duly given whether or not the Registered Holder receives such notice. At the time of the mailing to the Registered Holders of the Warrants of the notice of redemption, the Company shall deliver or cause to be delivered to First Hanover a similar notice telephonically and confirmed in writing together with a list of the Registered Holders (including their respective addresses and number of Warrants beneficially owned) to whom such notice of redemption has been or will be given. (c) The notice of redemption shall specify (i) the redemption price, (ii) the date fixed for redemption, (iii) the place where the Warrant Certificate shall be delivered and the redemption price shall be paid, (iv) that First Hanover is the Company's exclusive warrant solicitation agents and shall receive the commission contemplated by Section 4(b) hereof, and (v) that the right to exercise the Warrant shall terminate at 5:00 p.m. (New York time) on the business day immediately preceding the date fixed for redemption. The date fixed for the redemption of the Warrants shall be the Redemption Date. No failure to mail such notice nor any defect therein or in the mailing thereof shall affect the validity of the proceedings for such redemption except as to a Registered Holder (a) to whom notice was not mailed or (b) whose notice was defective. An affidavit of the Warrant Agent or the Secretary or Assistant Secretary of the Company that notice of redemption has been mailed shall, in the absence of fraud, be prima 26 facie evidence of the facts stated therein. (d) Any right to exercise a Warrant shall terminate at 5:00 p.m. (New York time) on the business day immediately preceding the Redemption Date. The redemption price payable to the Registered Holders shall be mailed to such persons at their addresses of record. (e) The Company shall indemnify First Hanover and each person, if any, who controls First Hanover within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act against all loss, claim, damage, expense or liability (including all expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which any of them may become subject under the Act, the Exchange Act or otherwise, arising from the registration statement or prospectus referred to in Section 5(b) hereof to the same extent and with the same effect (including the provisions regarding contribution) as the provisions pursuant to which the Company has agreed to indemnify First Hanover contained in Section 8 of the Underwriting Agreement. (f) Five business days prior to the Redemption Date, the Company shall furnish to First Hanover (i) an opinion of counsel to the Company, dated such date and addressed to First Hanover, and (ii) a "cold comfort" letter dated such date addressed to First Hanover, signed by the independent public accountants who have issued reports on the Company's financial statements included in such registration statement, in each case covering substantially the same matters with respect to such registration statement (and 27 the prospectus included therein) and, in the case of such accountants' letters, with respect to events subsequent to the date of such financial statements, as are customarily covered in opinions of issuer's counsel and in accountants' letters delivered to underwriters in underwritten public offerings of securities, including, without limitation, those matters covered in Sections 7(b) and (i) of the Underwriting Agreement. (g) The Company shall as soon as practicable after the Redemption Date, and in any event within 15 months thereafter, make "generally available to its security holders" (within the meaning of Rule 158 under the Act) an earnings statement (which need not be audited) complying with Section 11(a) of the Act and covering a period of at least 12 consecutive months beginning after the Redemption Date. (h) The Company shall deliver within five business days prior to the Redemption Date copies of all correspondence between the Securities and Exchange Commission ("Commission") and the Company, its counsel or auditors and all memoranda relating to discussions with the Commission or its staff with respect to such registration statement and permit First Hanover to do such investigation, upon reasonable advance notice, with respect to information contained in or omitted from the registration statement as it deems reasonably necessary to comply with applicable securities laws or rules of the NASD. Such investigation shall include access to books, records and properties and opportunities to discuss the business of the Company with its officers and 28 independent auditors, all to such reasonable extent and at such reasonable times and as often as First Hanover shall reasonably request. SECTION 10. Concerning the Warrant Agent. ---------------------------- (a) The Warrant Agent acts hereunder as agent and in a ministerial capacity for the Company and First Hanover, and its duties shall be determined solely by the provisions hereof. The Warrant Agent shall not, by issuing and delivering Warrant Certificates or by any other act hereunder, be deemed to make any representations as to the validity or value or authorization of the Warrant Certificates or the Warrants represented thereby or of any securities or other property delivered upon exercise of any Warrant or whether any stock issued upon exercise of any Warrant is fully paid and nonassessable. (b) The Warrant Agent shall not at any time be under any duty or responsibility to any holder of Warrant Certificates to make or cause to be made any adjustment of the Purchase Price provided in this Agreement, or to determine whether any fact exists which may require any such adjustment, or with respect to the nature or extent of any such adjustment, when made, or with respect to the method employed in making the same. It shall not (i) be liable for any recital or statement of fact contained herein or for any action taken, suffered or omitted by it in reliance on any Warrant Certificate or other document or instrument believed by it in good faith to be genuine and to have been signed or presented by the proper party or parties, (ii) be 29 responsible for any failure on the part of the Company to comply with any of its covenants and obligations contained in this Agreement or in any Warrant Certificate, or (iii) be liable for any act or omission in connection with this Agreement except for its own gross negligence or willful misconduct. (c) The Warrant Agent may at any time consult with counsel satisfactory to it (who may be counsel for the Company) and shall incur no liability or responsibility for any action taken, suffered or omitted by it in good faith in accordance with the opinion or advice of such counsel. (d) Any notice, statement, instruction, request, direction, order or demand of the Company shall be sufficiently evidenced by an instrument signed by the Chairman of the Board of Directors, President or any Vice President (unless other evidence in respect thereof is herein specifically prescribed). The Warrant Agent shall not be liable for any action taken, suffered or omitted by it in accordance with such notice, statement, instruction, request, direction, order or demand. (e) The Company agrees to pay the Warrant Agent reasonable compensation for its services hereunder and to reimburse it for its reasonable expenses hereunder; the Company further agrees to indemnify the Warrant Agent and save it harmless against any and all losses, expenses and liabilities, including judgments, costs and counsel fees, for anything done or omitted by the Warrant Agent in the execution of its duties and powers hereunder except losses, expenses and liabilities arising as a result of the Warrant 30 Agent's gross negligence or willful misconduct. (f) The Warrant Agent may resign its duties and be discharged from all further duties and liabilities hereunder (except liabilities arising as a result of the Warrant Agent's own gross negligence or willful misconduct), after giving 30 days prior written notice to the Company. At least 15 days prior to the date such resignation is to become effective, the Warrant Agent shall cause a copy of such notice of resignation to be mailed to the Registered Holder of each Warrant Certificate at the Company's expense. Upon such resignation the Company shall appoint in writing a new warrant agent. If the Company shall fail to make such appointment within a period of 30 days after it has been notified in writing of such resignation by the resigning Warrant Agent, then the Registered Holder of any Warrant Certificate may apply to any court of competent jurisdiction for the appointment of a new warrant agent. Any new warrant agent, whether appointed by the Company or by such a court, shall be a bank or trust company having a capital and surplus, as shown by its last published report to its stockholders, of not less than $10,000,000 or a stock transfer company doing business in New York, New York. After acceptance in writing of such appointment by the new warrant agent is received by the Company, such new warrant agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named herein as the warrant agent, without any further assurance, conveyance, act or deed; but if for any reason it shall be necessary or expedient to execute and deliver any 31 further assurance, conveyance, act or deed, the same shall be done at the expense of the Company and shall be legally and validly executed and delivered by the resigning Warrant Agent. Not later than the effective date of any such appointment the Company shall file notice thereof with the resigning Warrant Agent and shall forthwith cause a copy of such notice to be mailed to the Registered Holder of each Warrant Certificate. (g) Any corporation into which the Warrant Agent or any new warrant agent may be converted or merged, any corporation resulting from any consolidation to which the Warrant Agent or any new warrant agent shall be a party, or any corporation succeeding to the corporate trust business of the Warrant Agent or any new warrant agent shall be a successor warrant agent under this Agreement without any further act, provided that such corporation is eligible for appointment as successor to the Warrant Agent under the provisions of the preceding paragraph. Any such successor warrant agent shall promptly cause notice of its succession as warrant agent to be mailed to the Company and to the Registered Holders of each Warrant Certificate. (h) The Warrant Agent, its Subsidiaries and affiliates, and any of its or their officers or directors, may buy and hold or sell Warrants or other securities of the Company and otherwise deal with the Company in the same manner and to the same extent and with like effect as though it were not Warrant Agent. Nothing herein shall preclude the Warrant Agent from acting in any other capacity for the Company or for any other legal entity. 32 (i) The Warrant Agent shall retain for a period of two years from the date of exercise any Warrant Certificate received by it upon such exercise, marked to indicate its cancellation thereof in accordance with Section 6(e) hereof. SECTION 11. Modification of Agreement. ------------------------- The Warrant Agent and the Company may by supplemental agreement make any changes or corrections in this Agreement without the approval of any holders of Warrants (i) that they shall deem appropriate to cure any ambiguity or to correct any defective or inconsistent provision or manifest mistake or error herein contained; (ii) that they may deem necessary or desirable and which shall not adversely affect the interests of the holders of Warrant Certificates; (iii) that they deem necessary or desirable to decrease the Purchase Price as provided for in Section 1(f) hereof; or (iv) which may be required by law; provided, however, that this Agreement shall not otherwise be modified, supplemented or altered in any respect except with the consent in writing of the Registered Holders representing not less than 50% of the Warrants then outstanding; provided, further, that no change in the number or nature of the securities purchasable upon the exercise of any Warrant, or the Purchase Price (other than a decrease in the Purchase Price as provided in Section 1(f) hereof) therefor, shall be made without the consent in writing of the Registered Holder of the Warrant Certificate, other than such changes as are specifically permitted or prescribed by this Agreement as originally executed. In addition, this Agreement may not be 33 modified, amended or supplemented without the prior written consent of First Hanover, other than (i) to cure any ambiguity or to correct any provision which is inconsistent or which is a manifest mistake or error; (ii) to make any such change that is necessary or desirable and which shall not adversely affect the interests of First Hanover; (iii) to decrease the Purchase Price as provided for in Section 1 (f) hereof; or (iv) except as may be required by law. SECTION 12. Notices. ------- All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed to have been made when delivered or mailed first-class postage prepaid, or delivered to a telegraph office for transmission if to the Registered Holder of a Warrant Certificate, at the address of such holder as shown on the registry books maintained by the Warrant Agent; if to the Company at 4000 Hollywood Boulevard, Suite 385, South Tower, Hollywood, Florida 33021 Attention: Chairman, or at such other address as may have been furnished to the Warrant Agent in writing by the Company; and if to the Warrant Agent, at its Corporate Office. Copies of any notice delivered pursuant to this Agreement shall be delivered to First Hanover at 100 Wall Street, New York, New York 10005, Attention: President, or at such other addresses as may have been furnished to the Company and the Warrant Agent in writing. SECTION 13. Governing Law. ------------- This Agreement shall be governed by and construed in accordance with the laws of the State of New York without giving 34 effect to conflicts of laws. SECTION 14. Binding Effect. -------------- This Agreement shall be binding upon and inure to the benefit of the Company, the Warrant Agent and their respective successors and assigns and the holders from time to time of Warrant Certificates or any of them. Except as hereinafter stated, nothing in this Agreement is intended or shall be construed to confer upon any other person any right, remedy or claim or to impose upon any other person any duty, liability or obligation. First Hanover is, and shall at all times irrevocably be deemed to be, a third-party beneficiary of this Agreement, with full power, authority and standing to enforce the rights granted to it hereunder. In the event of any conflict relating to the Underwriter's Warrant between the terms hereof and the terms of the Underwriter's Warrant Agreement, the terms of the Underwriter's Warrant Agreement shall prevail. SECTION 15. Counterparts. ------------ This Agreement may be executed in several counterparts, which taken together shall constitute a single document. 35 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the first date first above written. [SEAL] COMMODORE HOLDINGS LIMITED STOCK TRANS, INC. By:________________________ By:_______________________ Jeffrey Binder, Name: Chairman of the Board Title: 36 Exhibit A --------- No. W__________ VOID AFTER ________, 2001 WARRANTS REDEEMABLE WARRANT CERTIFICATE TO PURCHASE ONE HALF SHARE OF COMMON STOCK COMMODORE HOLDINGS LIMITED NO. _______ CUSIP THIS CERTIFIES THAT, FOR VALUE RECEIVED or registered assigns (the "Registered Holder") is the owner of the number of Redeemable Warrants (the "Warrants") specified above. Each Warrant initially entitles the Registered Holder to purchase, subject to the terms and conditions set forth in this Certificate and the Warrant Agreement (as hereinafter defined), one half fully paid and non-assessable share of Common Stock, $.01 par value, of Commodore Holdings Limited, a Delaware corporation (the "Company"), at any time from _______, 1997 and prior to the Expiration Date (as hereinafter defined) upon the presentation and surrender of this Warrant Certificate with the Subscription Form on the reverse hereof duly executed, at the corporate office of Stock Trans, Inc., _____________, as Warrant Agent, or its successor (the "Warrant Agent"), accompanied by payment of $6.00 per full share, subject to adjustment (the "Purchase Price"), in lawful money of the United States of America in cash or by check made payable to the Warrant Agent for the account of the Company. This Warrant Certificate and each Warrant represented hereby are issued pursuant to and are subject in all respects to the terms and conditions set forth in the Warrant Agreement (the "Warrant Agreement"), dated __________, 1996, by and between the Company and the Warrant Agent. In the event of certain contingencies provided for in the Warrant Agreement, the Purchase Price and the number of shares of Common Stock subject to purchase upon the exercise of each Warrant represented hereby are subject to modification or adjustment. Each Warrant represented hereby is exercisable at the option of the Registered Holder, but no fractional interests will be issued. In the case of the exercise of less than all the warrants represented hereby, the Company shall cancel this Warrant Certificate upon the surrender hereof and shall execute and deliver a new Warrant Certificate or Warrant Certificates of like tenor, which the Warrant Agent shall countersign, for the balance of such Warrants. The term "Expiration Date" shall mean 5:00 P.M. (New York time) on ________, 2001. If each such date shall in the State of New York be a holiday or a day on which the banks are authorized to close, then the Expiration Date shall mean 5:00 P.M. (New York time) the next following day which in the State of New York is not a holiday or a day on which banks are authorized to close. The Company shall not be obligated to deliver any securities pursuant to the exercise of this Warrant unless a registration statement under the Securities Act of 1933, as amended (the "Act"), with respect to such securities is effective or an exemption thereunder is available. The Company has covenanted and agreed that, if required by the Act, it will file a registration statement under the Act, use its best efforts to cause the same to become effective, to keep such registration statement current, if required under the Act, while any of the Warrants are outstanding, and deliver a prospectus which complies with Section 10(a)(3) of the Act to the Registered Holder exercising this Warrant. This Warrant shall not be exercisable by a Registered Holder in any state where such exercise would be unlawful. This Warrant Certificate is exchangeable, upon the surrender hereof by the Registered Holder at the corporate office of the Warrant Agent, for a new Warrant Certificate or Warrant Certificates of like tenor representing an equal aggregate number of Warrants, each of such new Warrant Certificates to represent such number of Warrants as shall be designated by such Registered Holder at the time of such surrender. Upon due presentment and payment of any tax or other charge imposed in connection therewith or incident thereto, for registration of transfer of this Warrant Certificate at such office, a new Warrant Certificate of Warrant Certificates representing an equal aggregate number of Warrants will be issued to the transferee in exchange therefor, subject to the limitations provided in the Warrant Agreement. Prior to the exercise of any Warrant represented hereby, the Registered Holder shall not be entitled to any rights of a shareholder of the Company, including, without limitation, the right to vote or to receive dividends or other distributions, and shall not be entitled to receive any notice of any proceedings of the Company, except as provided in the Warrant Agreement. Subject to the provisions of the Warrant Agreement, this Warrant may be redeemed at the option of the Company, at a redemption price of $.05 per Warrant, at any time commencing after ________, 1997, provided that (i) the high closing bid price for the Common Stock in the over-the-counter market as reported by the National Association of Securities Dealers Automated Quotation System, or (ii) the closing sale price on the primary exchange on which the Common Stock is traded, if the Common Stock is traded on a national securities exchange, or (iii) the closing sale price on NASDAQ, if the Common Stock is quoted on NASDAQ, shall have for twenty (20) consecutive trading days and ending no more than fifteen (15) days prior to the Notice of Redemption, as defined below, exceeded 150% of the exercise price (initially $6.00 per share) of the Redeemable Warrants (subject to adjustment in the event of any stock splits or other similar events). Notice of redemption (the "Notice of Redemption") shall be given not later than the twentieth day before the date fixed for redemption, all as provided in the Warrant Agreement. On and after the date fixed for redemption, the Registered Holder shall have no rights with respect to this Warrant except to receive the $.05 per Warrant upon surrender of this Certificate. Under certain circumstances, First Hanover, their successors and assigns shall be entitled to receive an aggregate of five percent (5%) of the Purchase Price of the Warrants represented hereby. Prior to due presentment for registration of transfer hereof, the Company and the Warrant Agent may deem and treat the Registered Holder as the absolute owner hereof and of each Warrant represented hereby (notwithstanding any notations of ownership or writing hereon made by anyone other than a duly authorized officer of the Company or the Warrant Agent) for all purposes and shall not be affected by any notice to the contrary, except as provided in the Warrant Agreement. This Warrant Certificate shall be governed by and construed in accordance with the laws of the State of New York without giving effect to conflicts of laws. This Warrant Certificate is not valid unless countersigned by the Warrant Agent. IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly executed, manually or in facsimile by two of its officers thereunto duly authorized and a facsimile of its corporate seal to be imprinted hereon. Dated: ____________, 1996 SEAL COMMODORE HOLDINGS LIMITED By:___________________________ Name: Jeffrey Binder Title: Chairman By:___________________________ Name: Title: Secretary COUNTERSIGNED: STOCK TRANS, INC., as Warrant Agent By:______________________________ Authorized Officer SUBSCRIPTION FORM ----------------- To Be Executed by the Registered Holder in Order to Exercise Warrant The undersigned Registered Holder hereby irrevocably elects to exercise ___________________ Warrants represented by this Warrant Certificate, and to purchase the securities issuable upon the exercise of such Warrants, and requests that certificates for such securities shall be issued in name of PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER ______________________________________________ ______________________________________________ ______________________________________________ (please print or type name and address) and be delivered to ______________________________________________ ______________________________________________ ______________________________________________ (please print or type name and address) and if such number of Warrants shall not be all the Warrants evidenced by this Warrant Certificate, that a new Warrant Certificate for the balance of such Warrants be registered in the name of, and delivered to, the Registered Holder at the address stated below. IMPORTANT: PLEASE COMPLETE THE FOLLOWING: 1. The exercise of this Warrant was solicited by First Hanover Securities, Inc. [_] 2. The exercise of this Warrant was solicited by __________________________________. [_] 3. If the exercise of this Warrant was not solicited, please check the following box. [_] Dated:_________________199____ X_____________________________ ______________________________ ______________________________ Address ______________________________ Social Security or Taxpayer Identification Number ______________________________ Signature Guaranteed ______________________________ ASSIGNMENT ---------- To Be Executed by the Registered Holder in Order to Assign Warrants FOR VALUE RECEIVED, _____________________________, hereby sells, assigns and transfers unto PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER ______________________________________________ ______________________________________________ ______________________________________________ (please print or type name and address) ___________________________________________________ of the Warrants represented by this Warrant Certificate, and hereby irrevocably constitutes and appoints _____________________________________ Attorney to transfer this Warrant Certificate on the books of the Company, with full power of substitution in the premises. Dated:_________________199____ X_____________________________ Signature Guaranteed ______________________________ THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER AND MUST BE GUARANTEED BY A COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF THE AMERICAN STOCK EXCHANGE, NEW YORK STOCK EXCHANGE, PACIFIC STOCK EXCHANGE, MIDWEST STOCK EXCHANGE OR BOSTON STOCK EXCHANGE. EX-4.E 4 EXHIBIT 4E: U/W WARRANT AGREEMENT COMMODORE HOLDINGS LIMITED AND FIRST HANOVER SECURITIES, INC. UNDERWRITER'S WARRANT AGREEMENT UNDERWRITER'S WARRANT AGREEMENT dated as of ___________, 1996 by and between COMMODORE HOLDINGS LIMITED (the "Company") and FIRST HANOVER SECURITIES, INC. ("First Hanover" or the "Underwriter"). W I T N E S S E T H: ------------------- WHEREAS, the Company proposes to issue to the Underwriter warrants (the "Underwriter's Warrants") to purchase up to 50,000 units (the "Units") each unit being comprised of one share of the Company's common stock, par value $.01 per share (the "Common Stock") and one warrant (the "Redeemable Warrants") each exercisable to purchase one half share of Common Stock. WHEREAS, the Underwriter has agreed, pursuant to the underwriting agreement (the "Underwriting Agreement") dated _____________, 1996, by and between the Underwriter and the Company, to act as the underwriter in connection with the Company's proposed initial public offering (the "Initial Public Offering") of 1,000,000 Units (the "Offering Securities"), such Offering Securities being identical to the Units issuable upon exercise of the Underwriter's Warrants; and WHEREAS, the Underwriter's Warrants to be issued pursuant to this Agreement will be issued on Closing Date I (as such term is defined in the Underwriting Agreement) by the Company to the Underwriter in consideration for, and as part of, the Underwriter's compensation in connection with the Underwriter acting as the underwriter pursuant to the Underwriting Agreement; NOW, THEREFORE, in consideration of the premises, the payment by the Underwriter to the Company of Ten Dollars ($10.00), the agreements herein set forth and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Grant. The Holder (as defined in Section 3 below) is hereby ----- granted the right to purchase, at any time from _______, 1996 until 5:00 p.m., New York time, on ___________, 2001, an aggregate of up 50,000 Units, at an initial purchase price (subject to adjustment as provided in Section 8 hereof) of $6.90 per Unit (150% of the Initial Public Offering price per Unit), subject to the terms and conditions of this Agreement. The securities issuable upon exercise of the Underwriter's Warrants are sometimes referred to herein as the "Underwriter's Securities." 2. Warrant Certificates. The warrant certificate (the -------------------- "Underwriter's Warrant Certificate") to be delivered pursuant to this Agreement shall be in the form set forth in Exhibit A attached hereto and made a part hereof, with such appropriate insertions, omissions, substitutions, and other variations as required or permitted by this Agreement. 3. Exercise of Underwriter's Warrants. The Underwriter's Warrants ---------------------------------- are exercisable during the term set forth in Section 1 hereof payable (i) by certified or cashier's check or money order in lawful money of the United States. Upon surrender of an Underwriter's Warrant Certificate with the annexed Form of Election to Purchase duly executed, together with payment of the 3 Purchase Price (as hereinafter defined) for the Underwriter's Securities (and such other amounts, if any, arising pursuant to Section 4 hereof) at the Company's principal office located an Miami, Florida, the registered holder of an Underwriter's Warrant Certificate ("Holder" or "Holders") shall be entitled to receive a certificate or certificates for the Underwriter's Securities so purchased. The purchase rights represented by each Underwriter's Warrant Certificate are exercisable at the option of the Holder or Holders thereof, in whole or in part as to Underwriter's Securities. The Underwriter's Warrants may be exercised to purchase all or any part of the Underwriter's Securities represented thereby. In the case of the purchase of less than all the Underwriter's Securities purchasable on the exercise of the Underwriter's Warrants represented by an Underwriter's Warrant Certificate, the Company shall cancel the Underwriter's Warrant Certificate represented thereby upon the surrender thereof and shall execute and deliver a new Underwriter's Warrant Certificate of like tenor for the balance of the Underwriter's Securities purchasable thereunder. 4. Issuance of Certificates. Upon the exercise of the Underwriter's ------------------------ Warrants and payment of the Purchase Price therefor, the issuance of certificates representing the Underwriter's Securities or other securities, properties or rights underlying such Underwriter's Warrants, shall be made forthwith (and in any event within five (5) business days thereafter) without further charge to the Holder thereof, and such certificates shall (subject 4 to the provisions of Sections 5 and 7 hereof) be issued in the name of, or in such names as may be directed by, the Holder thereof; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any such certificates in a name other than that of the Holder, and the Company shall not be required to issue or deliver such certificates unless or until the person or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. The Underwriter's Warrant Certificates and the certificates representing the Underwriter's Securities or other securities, property or rights (if such property or rights are represented by certificates) shall be executed on behalf of the Company by the manual or facsimile signature of the then present Chairman or Vice Chairman of the Board of Directors or President or Vice President of the Company, attested to by the manual or facsimile signature of the then present Secretary or Assistant Secretary or Treasurer or Assistant Treasurer of the Company. Underwriter's Warrant Cer tificates shall be dated the date of issuance thereof by the Company upon initial issuance, transfer or exchange. 5. Restriction On Transfer of Underwriter's Warrants. The Holder of ------------------------------------------------- an Underwriter's Warrant Certificate (and its Permitted Transferee, as defined below), by its acceptance thereof, covenants and agrees that the Underwriter's Warrants are being acquired as an investment and not with a view to the distribution 5 thereof; that the Underwriter's Warrants may be sold, transferred, assigned, hypothecated or otherwise disposed of, in whole or in part, to any person (a "Permitted Transferee"), provided such transfer, assignment, hypothecation or other disposition is made in accordance with the provisions of the Securities Act of 1933 (the "Act"); and provided, further, that until __________, 1997 (one year following the effective date of the Initial Public Offering), only officers and partners of the Underwriter, or any Initial Public Offering selling group member and their respective officers and partners, shall be Permitted Transferees. 6. Purchase Price. -------------- (a) Initial and Adjusted Purchase Price. Except as otherwise ----------------------------------- provided in Section 8 hereof, the initial purchase price of the Underwriter's Securities shall be $6.90 per Unit which for purposes hereof shall be allocated between the Common Stock at $6.75 and the Redeemable Warrant at $.15. The adjusted purchase price shall be the price which shall result from time to time from any and all adjustments of the initial purchase price in accordance with the provisions of Section 8 hereof. (b) Purchase Price. The term "Purchase Price" herein shall mean -------------- the initial purchase price or the adjusted purchase price, depending upon the context. 7. Registration Rights. ------------------- (a) Registration Under the Securities Act of 1933. The --------------------------------------------- Underwriter's Warrants have not been registered under the Act. The Underwriter's Warrant Certificates shall bear the following 6 legend: The securities represented by this certificate have not been registered under the Securities Act of 1933 (the "Act"), and may not be offered for sale or sold except pursuant to (i) an effective registration statement under the Act, or (ii) an opinion of counsel, if such opinion and counsel shall be reasonably satis factory to counsel to the issuer, that an exemption from registration under the Act is available. (b) Demand Registration. (1) At any time commencing on the ------------------- first anniversary of and expiring on the fifth anniversary of the effective date of the Company's Registration Statement relating to the Initial Public Offering (the "Effective Date"), the Holders of a Majority (as hereinafter defined) in interest of the Underwriter's Warrants, or the Majority in interest of the Underwriter's Securities (assuming the exercise of all of the Underwriter's Warrants) shall have the right, exercisable by written notice to the Company, to have the Company prepare and file with the U.S. Securities and Exchange Commission (the "Commission"), on one (1) occasion, a registration statement on Form S-1 (or other appropriate form), and such other documents, including a prospectus, as may be necessary in the opinion of both counsel for the Company and counsel for the Holders, in order to comply with the provisions of the Act, so as to permit a public offering and sale, for a period of nine (9) months, of the Underwriter's Securities by such Holders and any other Holders of the Underwriter's Warrants and/or the Underwriter's Securities who notify the Company within fifteen (15) business days after receipt of the notice described in Section 7(b)(2). The Holders of the 7 Underwriter's Warrants may demand registration without exercising the Underwriter's Warrants, and are never required to exercise same. (1) The Company covenants and agrees to give written notice of any registration request under this Section 7(b) by any Holders to all other registered Holders of the Underwriter's Warrants and the Underwriter's Securities within ten (10) calendar days from the date of the receipt of any such registration request. (2) For purposes of this Agreement, the term "Majority" in reference to the Holders of the Underwriter's Warrants or Underwriter's Securities, shall mean in excess of fifty percent (50%) of the then outstanding Underwriter's Warrants or Underwriter's Securities that (i) are not held by the Company, an affiliate, officer, creditor, employee or agent thereof or any of their respective affiliates, members of their family, persons acting as nominees or in conjunction therewith, or (ii) have not been resold to the public pursuant to a registration statement filed with the Commission under the Act. (c) Piggyback Registration. (1) If, at any time within the period ---------------------- commencing on the first anniversary and expiring on the sixth anniversary of the Effective Date, the Company should file a registration statement with the Commission under the Act (other than in connection with a merger or other business 8 combination transaction or pursuant to Form S-8) it will give written notice at least thirty (30) calendar days prior to the filing of each such registration statement to the Underwriter and to all other Holders of the Underwriter's Warrants and/or the Underwriter's Securities of its intention to do so. If the Underwriter or other Holders of the Underwriter's Warrants and/or the Underwriter's Securities notify the Company within twenty (20) calendar days after receipt of any such notice of its or their desire to include any Underwriter's Securities in such proposed registration statement, the Company shall afford the Underwriter and such Holders of the Underwriter's Warrants and/or Underwriter's Securities the opportunity to have any such Underwriter's Securities registered under such registration statement. Notwithstanding the provisions of this Section 7(c)(1) and the provisions of Section 7(d), the Company shall have the right at any time after it shall have given written notice pursuant to this Section 7(c)(1) (irrespective of whether a written request for inclusion of any such securities shall have been made) to elect not to file any such proposed registration statement, or to withdraw the same after the filing but prior to the effective date thereof. (2) If the underwriter of an offering to which the above piggyback rights apply objects to such rights, such objection shall preclude such inclusion. However, in such event, the Company will, within six (6) months of completion of such subsequent underwriting, file at the expense of the Company, a 9 registration statement so as to permit a public offering and sale, for a period of nine (9) months, of such excluded Underwriter's Securities, which shall be in addition to any registration statement required to be filed pursuant to Section 7(b). (d) Covenants of the Company With Respect to Registration. In ----------------------------------------------------- connection with any registrations under Sections 7(b) and 7(c) hereof, the Company covenants and agrees as follows: (1) The Company shall use its best efforts to file a registration statement within thirty (30) calendar days of receipt of any demand therefor pursuant to Section 7(b); provided, however, that the Company shall not be required to produce audited or unaudited financial statements for any period prior to the date such financial statements are required to be filed in a report on Form 10-K or Form 10-Q, as the case may be. The Company shall use its best efforts to have any registration statement declared effective at the earliest possible time, and shall furnish each Holder desiring to sell Underwriter's Securities such number of prospectuses as shall reasonably be requested. (2) The Company shall pay all costs (excluding fees and expenses of Holders' counsel and any underwriting discounts or selling fees, expenses or commissions), fees and expenses in connection with any registration statement filed pursuant to Sections 7(b) and 7(c) hereof including, without 10 limitation, the Company's legal and accounting fees, printing expenses, blue sky fees and expenses. (3) The Company will use its best efforts to qualify or register the Underwriter's Securities included in a registration statement for offering and sale under the securities or blue sky laws of such states as reasonably are requested by the Holders, provided that the Company shall not be obligated to execute or file any general consent to service of process or to qualify as a foreign corporation to do business under the laws of any such jurisdiction. (4) The Company shall indemnify the Holders of the Underwriter's Securities to be sold pursuant to any registration statement and each person, if any, who controls such Holders within the meaning of Section 15 of the Act or Section 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act"), against all loss, claim, damage, expense or liability (including all expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which any of them may become subject under the Act, the Exchange Act or otherwise, arising from such registration statement, but only to the same extent and with the same effect as the provisions pursuant to which the Company has agreed to indemnify the Underwriter contained in Section 8 of the Underwriting Agreement. 11 (5) The Holders of the Underwriter's Securities to be sold pursuant to a registration statement, and their successors and assigns, shall indemnify the Company, its officers and directors and each person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, against all loss, claim, damage or expense or liability to which they may become subject under the Act, the Exchange Act or otherwise, arising from information furnished by or on behalf of such Holders, or their successors or assigns, for specific inclusion in such registration statement to the same extent and with the same effect as the provisions contained in Section 8 of the Underwriting Agreement pursuant to which the Underwriter has agreed to indemnify the Company. (6) Nothing contained in this Agreement shall be construed as requiring the Holders to exercise their Underwriter's Warrants prior to the initial filing of any registration statement or the effectiveness thereof. (7) The Company shall not be entitled to include any securities other than the Underwriter's Securities in any registration statement filed pursuant to Section 7(b) hereof without the prior written consent of the Holders of the Underwriter's Warrants and Underwriter's Securities representing a Majority of such securities (assuming exercise of all of the Underwriter's Warrants). 12 (8) The Company shall furnish to each Holder participating in the offering and to each underwriter, if any, a signed counterpart, addressed to such Holder or underwriter of (i) an opinion of counsel to the Company, dated the effective date of such registration statement (and if such registration includes an underwritten public offering, an opinion dated the date of the closing under the underwriting agreement), and (ii) a "cold comfort" letter dated the effective date of such registration statement (and, if such registration includes an underwritten public offering, a letter dated the date of the closing under the underwriting agreement) signed by each independent public accountant who has issued a report on the Company's financial statements included in such registration statement, in each case covering substantially the same matters with respect to such registration statement (and the prospectus included therein) and, in the case of such accountants' letters, with respect to events subsequent to the date of such financial statements, as are customarily covered in opinions of issuer's counsel and in accountants' letters, with respect to events subsequent to the date of such financial statements, as are customarily covered in opinions of issuer's counsel and in accountants' letters delivered to underwriters in underwritten public offerings of securities. (9) The Company shall as soon as practicable after the effective date of the registration statement, and in any event within 15 months thereafter, make "generally available to its 13 security holders" (within the meaning of Rule 158 under the Act) an earnings statement (which need not be audited) complying with Section 11(a) of the Act and covering a period of at least 12 consecutive months beginning after the effective date of the registration statement. (10) The Company shall deliver promptly to each Holder participating in the offering requesting the correspondence described below and any managing underwriter copies of all correspondence between the Commission and the Company, its counsel or auditors with respect to the registration statement and permit each Holder and underwriter to do such investigation, upon reasonable advance notice, with respect to information contained in or omitted from the registration statement as it deems reasonably necessary to comply with applicable securities laws or rules of the National Association of Securities Dealers, Inc. ("NASD"). Such investigation shall include access to books, records and properties and opportunities to discuss the business of the Company with its officers and independent auditors, all to such reasonable extent and at such reasonable times and as often as any such Holder shall reasonably request. (11) The Company shall enter into an underwriting agreement with the managing underwriter selected for such underwriting by Holders holding a Majority of the Underwriter's Securities requested to be included in such 14 underwriting, provided, however that such managing underwriter shall be reasonably acceptable to the Company, except that in connection with an offering for which the Holders have piggyback rights, the Company shall have the sole right to select the managing underwriter or underwriters. Such underwriting agreement shall be satisfactory in form and substance to the Company, a Majority of such Holders (in respect of a registration under Section 7(b) only) and such managing underwriter, and shall contain such representations, warranties and covenants by the Company and such other terms as are customarily contained in agreements of that type used by the managing underwriter. The Holders shall be parties to any underwriting agreement relating to an underwritten sale of their Underwriter's Securities and may, at their option, require that any or all the representations, warranties and covenants of the Company to or for the benefit of such underwriters shall also be made to and for the benefit of such Holders. Such Holders shall not be required to make any representations or warranties to or agreements with the Company or the underwriters except as they may relate to such Holders and their intended methods of distribution. e. Further Registrations. The Company will cooperate with the --------------------- Holders of the Underwriter's Warrants and Underwriter's Securities in preparing and signing any registration statement, in addition to the registration statements discussed above, required in order to sell or transfer the Underwriter's 15 Securities and will supply all information required therefor, but such additional registration statement expenses will be prorated between the Company and the Holders of the Underwriter's Warrants and Underwriter's Securities according to the aggregate sales price of the securities being issued. The provisions of Section 7(d) other than subsection (2) shall apply to any such registration statement. 8. Adjustments to Purchase Price and Number of Securities. ------------------------------------------------------ (a) Computation of Adjusted Purchase Price. Except as -------------------------------------- hereinafter provided, in case the Company shall at any time after the date hereof issue or sell any shares of Common Stock (other than the issuances referred to in Section 8(g) hereof), including shares held in the Company's treasury, for a consideration per share less than the greater of the Purchase Price in effect immediately prior to the issuance or sale of such shares or the "Market Price" (as defined in Section 8(a)(6) hereof) per share of Common Stock on the date immediately prior to the issuance or sale of such shares, or without consideration, then forthwith upon any such issuance or sale, the Purchase Price shall (until another such issuance or sale) be reduced to the price (calculated to the nearest full cent) determined by dividing (1) the product of (a) the Purchase Price in effect immediately before such issuance or sale and (b) the sum of (i) the total number of shares of Common 16 Stock outstanding immediately prior to such issuance or sale, and (ii) the number of shares determined by dividing (A) the aggregate consideration, if any, received by the Company upon such sale or issuance, by (B) the greater of (x) the Market Price, and (y) the Purchase Price, in effect immediately prior to such issuance or sale; by (2) the total number of shares of Common Stock outstanding immediately after such issuance or sale provided, however, that in no event shall the Purchase Price be adjusted pursuant to this computation to an amount in excess of the Purchase Price in effect immediately prior to such computation, except in the case of a combination of outstanding shares of Common Stock, as provided by Section 8(c) hereof. For the purposes of this Section 8, the term "Purchase Price" shall mean the allocated Purchase Price of the Common Stock forming a part of the Underwriter's Securities set forth in Section 6 hereof, as adjusted from time to time pursuant to the provisions of this Section 8. For the purposes of any computation to be made in accordance with this Section 8(a), the following provisions shall be applicable: (1) In case of the issuance or sale of shares of Common Stock for a consideration part or all of which shall be cash, the amount of the cash consideration therefor shall be deemed to be the amount of cash received by the Company for such shares (or, if shares of Common Stock are offered by the Company for 17 subscription, the subscription price, or, if such securities shall be sold to underwriters or dealers for public offering without a subscription offering, the initial public offering price) before deducting therefrom any compensation paid or discount allowed in the sale, underwriting or purchase thereof by underwriters or dealers or others performing similar services, or any expenses incurred in connection therewith. (2) In case of the issuance or sale (otherwise than as a dividend or other distribution on any stock of the Company) of shares of Common Stock for a consideration part or all of which shall be other than cash, the amount of the consideration therefor other than cash shall be deemed to be the value of such consideration as determined in good faith by the Board of Directors of the Company. (3) Shares of Common Stock issuable by way of dividend or other distribution on any stock of the Company shall be deemed to have been issued immediately after the opening of business on the day following the record date for the determination of stockholders entitled to receive such dividend or other distribution and shall be deemed to have been issued without consideration. (4) The reclassification of securities of the Company other than shares of Common Stock into securities including 18 shares of Common Stock shall be deemed to involve the issuance of such shares of Common Stock for a consideration other than cash immediately prior to the close of business on the date fixed for the determination of security holders entitled to receive such shares, and the value of the consideration allocable to such shares of Common Stock shall be determined as provided in Section 8(a)(2). (5) The number of shares of Common Stock at any one time outstanding shall include the aggregate number of shares of Common Stock issued or issuable (subject to readjustment upon the actual issuance thereof) upon the exercise of options, rights, warrants and upon the conversion or exchange of convertible or exchangeable securities. (6) As used herein in the phrase "Market Price" at any date shall be deemed to be the last reported sale price, or, in the case no such reported sale takes place on such day, the average of the last reported sales prices for the last three (3) trading days, in either case as officially reported by the principal securities exchange on which the Common Stock is listed or admitted to trading, or, if the Common Stock is not listed or admitted to trading on any national securities exchange, the average closing bid price as furnished by the NASD through the NASD Automated Quotation System ("NASDAQ") or similar organization if NASDAQ is no longer reporting such information, or if the Common 19 Stock is not quoted on NASDAQ, as determined in good faith by resolution of the Board of Directors of the Company, based on the best information available to it. (b) Options, Rights, Warrants and Convertible and Exchangeable ---------------------------------------------------------- Securities. Except in the case of the Company issuing rights to subscribe for - ---------- shares of Common Stock distributed to all the stockholders of the Company and Holders of Underwriter's Warrants pursuant to Section 8(i) hereof, if the Company shall at any time after the date hereof issue options, rights or warrants to purchase shares of Common Stock, or issue any securities convertible into or exchangeable for shares of Common Stock (other than the issuances referred to in Section 8(g) hereof), (i) for a consideration per share less than (a) the Purchase Price in effect immediately prior to the issuance of such options, rights or warrants, or such convertible or exchangeable securities or (b) the Market Price, or (ii) without consideration, the Purchase Price in effect immediately prior to the issuance of such options, rights or warrants, or such convertible or exchangeable securities, as the case may be, shall be reduced to a price determined by making a computation in accordance with the provisions of Section 8(a) hereof, provided that: (1) The aggregate maximum number of shares of Common Stock issuable under such options, rights or warrants shall be deemed to be issued and outstanding at the time such options, 20 rights or warrants were issued, and for a consideration equal to the minimum purchase price per share provided for in such options, rights or warrants at the time of issuance, plus the consideration (determined in the same manner as consideration received on the issue or sale of shares in accordance with the terms of the Underwriter's Warrants), if any, received by the Company for such options, rights or warrants; provided, however, that upon the expiration or other termination of such options, rights or warrants, if any thereof shall not have been exercised, the number of shares of Common Stock deemed to be issued and outstanding pursuant to this Section 8(b)(1) (and for the purposes of Section 8(a)(5) hereof) shall be reduced by such number of shares as to which options, warrants and/or rights shall have expired or terminated unexercised, and such number of shares shall no longer be deemed to be issued and outstanding, and the Purchase Price then in effect shall forthwith be readjusted and thereafter be the price which it would have been had adjustment been made on the basis of the issuance only of shares actually issued or issuable upon the exercise of those options, rights or warrants as to which the exercise rights shall not be expired or terminated unexercised. (2) The aggregate maximum number of shares of Common Stock issuable upon conversion or exchange of any convertible or exchangeable securities shall be deemed to be issued and outstanding at the time of issuance of such securities, and for a consideration equal to the consideration (determined in the same 21 manner as consideration received on the issue or sale of shares of Common Stock in accordance with the terms of the Underwriter's Warrants) received by the Company for such securities, plus the minimum consideration, if any, receivable by the Company upon the conversion or exchange thereof; provided, however, that upon the termination of the right to convert or exchange such convertible or exchangeable securities (whether by reason or redemption or otherwise), the number of shares deemed to be issued and outstanding pursuant to this Section 8(b)(2) (and for the purpose of Section 8(a)(5) hereof) shall be reduced by such number of shares as to which the conversion or exchange rights shall have expired or terminated unexercised, and such number of shares shall no longer be deemed to be issued and outstanding and the Purchase Price then in effect shall forthwith be readjusted and thereafter be the price which it would have been had adjustment been made on the basis of the issuance only of the shares actually issued or issuable upon the conversion or exchange of those convertible or exchangeable securities as to which the conversion or exchange rights shall not have expired or terminated unexercised. (3) If any change shall occur in the price per share provided for in any of the options, rights or warrants referred to in Section 8(b)(1), or in the price per share at which the securities referred to in Section 8(b)(2) are convertible or exchangeable, such options, rights or warrants or conversion or exchange rights, as the case may be, shall be deemed to have 22 expired or terminated on the date when such price change became effective in respect of shares not theretofore issued pursuant to the exercise or conversion or exchange thereof, and the Company shall be deemed to have issued upon such date new options, rights or warrants or convertible or exchangeable securities at the new price in respect of the number of shares issuable upon the exercise of such options, rights or warrants or the conversion or exchange of such convertible or exchangeable securities. (c) Subdivision and Combination. In case the Company shall at --------------------------- any time issue any shares of Common Stock in connection with a stock dividend in shares of Common Stock or subdivide or combine the outstanding shares of Common Stock, the Purchase Price shall forthwith be proportionately decreased in the case of a stock dividend or a subdivision or increased in the case of combination. (d) Adjustment in Number of Securities. Upon each adjustment of ---------------------------------- the Purchase Price pursuant to the provisions of this Section 8, the number of Underwriter's Securities issuable upon the exercise of the Underwriter's Warrant shall be adjusted to the nearest whole share by multiplying a number equal to the Purchase Price in effect immediately prior to such adjustment by the number of Underwriter's Securities issuable upon exercise of the Underwriter's Warrants immediately prior to such adjustment and dividing the product so obtained by the adjusted Purchase Price. 23 (e) Definition of Common Stock. For the purpose of this -------------------------- Agreement, the term "Common Stock" shall mean the class of stock designated as Common Stock in the Articles of Incorporation, of the Company as it may be amended as of the date hereof. (f) Reclassification, Merger or Consolidation. The Company will ----------------------------------------- not merge, reorganize or take any other action which would terminate the Underwriter's Warrants without first making adequate provision for the Underwriter's Warrants. In case of any reclassification or change of the outstanding shares of Common Stock (other than a change in par value to no par value, or from nor par value to par value, or as a result of a subdivision or combination), or in case of any consolidation of the Company with, or merger of the Company with, or merger of the Company into, another corporation (other than a consolidation or merger in which the Company is the continuing corporation and which does not result in any reclassification or change of the outstanding Common Stock except a change as a result of a subdivision or combination of such shares or a change in par value, as aforesaid), or in the case of a sale or conveyance to another corporation or other entity of the property of the Company as an entirety, the Holders of each Underwriter's Warrant then outstanding or to be outstanding shall have the right thereafter (until the expiration of such Underwriter's Warrant) to purchase, upon exercise of such Underwriter's Warrant, the kind and number of shares of stock and other securities and property receivable upon such 24 reclassification, change, consolidation, merger, sale or conveyance as if the Holders were the owner of the shares of Common Stock underlying the Underwriter's Warrants immediately prior to any such events at a price equal to the product of (x) the number of shares issuable upon exercise of the Underwriter's Warrants and (y) the Purchase Price in effect immediately prior to the record date for such reclassification, change, consolidation, merger, sale or conveyance, as if such Holders had exercised the Underwriter's Warrants. In the event of a consolidation, merger, sale or conveyance of property, the corporation formed by such consolidation or merger, or acquiring such property, shall execute and deliver to the Holders a supplemental underwriter's warrant agreement to such effect. Such supplemental underwriter's warrant agreement shall provide for adjustments which shall be identical to the adjustment provided for in this Section 8. The provisions of this Section 8(f) shall similarly apply to successive consolida tions or mergers. (g) No Adjustment of Purchase Price in Certain Cases. No ------------------------------------------------ adjustment of the Purchase Price shall be made: (1) Upon the issuance or sale of (i) the Underwriter's Warrants or the securities underlying the Underwriter's Warrants, (ii) the securities sold pursuant to the Initial Public Offering, (iii) the shares issuable pursuant to the 25 options, warrants, rights, stock purchase agreements or convertible or exchangeable securities outstanding or in effect on the date hereof as described in the prospectus relating to the Initial Public Offering, (iv) up to an aggregate of 500,000 shares of Common Stock issuable pursuant to the Company's stock plans, described in such prospectus or subsequently adopted by the Company. (2) If the amount of said adjustments shall aggregate less than two ($.02) cents for one (1) share of Common Stock; provided, however, that in such case any adjustment that would otherwise be required then to be made shall be carried forward and shall be made at the time of and together with the next subsequent adjustment which, together with any adjustment so carried forward, shall aggregate at least two ($.02) cents for one (1) share of Common Stock. 9. Exchange and Replacement of Warrant Certificates. Each ------------------------------------------------ Underwriter's Warrant Certificate is exchangeable without expense, upon the surrender thereof by the registered Holders at the principal executive office of the Company, for a new Underwriter's Warrant Certificate of like tenor and date representing in the aggregate the right to purchase the same number of Underwriter's Securities in such denominations as shall be designated by the Holders thereof at the time of such surrender. 26 10. Loss, Theft etc. of Certificates Upon receipt by the Company of --------------------------------- evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of any Underwriter's Warrant Certificate, and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it, and reimbursement to the Company of all reasonable expenses incidental thereto, and upon surrender and cancellation of the Underwriter's Warrant Certificates, if mutilated, the Company will make and deliver a new Underwriter's Warrant Certificate of like tenor, in lieu thereof 11. Elimination of Fractional Interests. The Company shall not be ----------------------------------- required to issue certificates representing fractions of shares of Common Stock and/or Redeemable Warrants upon the exercise of the Underwriter's Warrants, nor shall it be required to issue scrip or pay cash in lieu of fractional interests; provided, however, that if a Holder exercises all Underwriter's Warrants held of record by such Holder the fractional interests shall be eliminated by rounding any fraction up to the nearest whole number of shares of Common Stock or other securities, properties or rights. 12. Reservation and Listing of Securities. The Company shall at all ------------------------------------- times reserve and keep available out of its authorized shares of Common Stock, solely for the purpose of issuance upon the exercise of the Underwriter's Warrants, such number of shares of 27 Common Stock or other securities, properties or rights as shall be issuable upon the exercise thereof and the exercise of the Redeemable Warrants. The Company covenants and agrees that, upon exercise of Underwriter's Warrants and payment of the Purchase Price therefor, all the shares of Common Stock and other securities issuable upon such exercise shall be duly and validly issued, fully paid, non-assessable and not subject to the preemptive rights of any stockholder. As long as the Underwriter's Warrants shall be outstanding, the Company shall use its best efforts to cause the Common Stock to be listed (subject to official notice of issuance) on all securities exchanges on which the Common Stock issued to the public in connection herewith may then be listed or quoted. 13. Notices to Underwriter's Warrant Holders. Nothing contained in ---------------------------------------- this Agreement shall be construed as conferring upon the Holders the right to vote or to consent or to receive notice as a stockholder in respect of any meetings of stockholders for the election of directors or any other matter, or as having any rights whatsoever as a stockholder of the Company. If, however, at any time prior to the expiration of the Underwriter's Warrants and their exercise, any of the following events shall occur: (a) the Company shall take a record of the holders of its shares of Common Stock for the purpose of entitling them to receive a dividend or distribution payable otherwise than in cash, or a cash dividend or distribution payable otherwise than out of 28 current or retained earnings, as indicated by the accounting treatment of such dividend or distribution on the books of the Company; or (b) the Company shall offer to all the holders of its Common Stock any additional shares of capital stock of the Company or securities convertible into or exchangeable for shares of capital stock of the Company, or any option, right or warrant to subscribe therefor; or (c) a dissolution, liquidation or winding up of the Company (other than in connection with a consolidation or merger) or a sale of all or substantially all of its property, assets and business as an entirety shall be proposed; then, in any one or more of said events, the Company shall give written notice of such event at least fifteen (15) calendar days prior to the date fixed as a record date or the date of closing the transfer books for the determination of the stockholders entitled to such dividend, distribution, convertible or exchangeable securities or subscription rights, or entitled to vote on such proposed dissolution, liquidation, winding up or sale. Such notice shall specify such record date or the date of closing the transfer books, as the case may be. Failure to give such notice or any defect therein shall not affect the validity of any action taken in connection with the declaration or payment of any such dividend, or the issuance of any convertible or exchangeable securities, or 29 subscription rights, options or warrants, or any proposed dissolution, liquidation, winding up or sale. 14. Notices. All notices, requests, consents and other ------- communications hereunder shall be in writing and shall be deemed to have been duly made when delivered, or mailed by registered or certified mail, return receipt requested: If to the registered Holders of the Underwriter's Warrants, to the address of such Holders as shown on the books of the Company; or (b) If to the Company to the address set forth in Section 3 hereof or to such other address as the Company may designate by notice to the Holders. 15. Supplements and Amendments. The Company and the Underwriter may -------------------------- from time to time supplement or amend this Agree ment without the approval of any Holders of Underwriter's Warrant Certificates (other than the Underwriter) in order to cure any ambiguity, to correct or supplement any provision contained herein which may be defective or inconsistent with any provisions herein, or to make any other provisions in regard to matters or questions arising hereunder which the Company and the Underwriter may deem necessary or desirable and which the Company and the Underwriter deem shall not adversely affect the interests of the Holders of 30 Underwriter's Warrant Certificates. 16. Successors. All the covenants and provisions of this Agreement ---------- shall be binding upon and inure to the benefit of the Company, the Underwriter, the Holders and their respective successors and assigns hereunder. 17. Termination. This Agreement shall terminate at the close of ----------- business on _____________, 2001. Notwithstanding the foregoing, the indemnification provisions of Section 7 shall survive such termination until the close of business on the expiration of any applicable statue of limitations. 18. Governing Law; Submission to Jurisdiction. This Agreement and ----------------------------------------- each Underwriter's Warrant Certificate issued hereunder shall be deemed to be a contract made under the laws of the State of New York and for all purposes shall be construed in accordance with the laws of said state without giving effect to the rules of said state governing the conflicts of laws. The Company, the Underwriter and the Holders hereby agree that any action, proceeding or claim against it arising out of, or relating in any way to, this Agreement shall be brought and enforced in the courts of the State of New York or of the United States of America for the Southern District of New York, and irrevocably submits to such jurisdiction, which jurisdiction shall be exclusive. The Company, the Underwriter and the Holders hereby irrevocably waive any 31 objection to such exclusive jurisdiction or inconvenient forum. Any such process or summons to be served upon any of the Company, the Underwriter and the Holders (at the option of the party bringing such action, proceeding or claim) may be served by transmitting a copy thereof, by registered or certified mail, return receipt requested, postage prepaid, addressed to it at the address set forth in Section 13 hereof. Such mailing shall be deemed personal service and shall be legal and binding upon the party so served in any action, proceeding or claim. 19. Entire Agreement; Modification. This Agreement (including the ------------------------------ Underwriting Agreement, to the extent portions thereof are referred to herein) contains the entire understanding between the parties hereto with respect to the subject matter hereof and thereof. Subject to Section 14, this Agreement may not be modified or amended except by a writing duly signed by the Company and the Holders of a Majority in Interest of the Underwriter's Securities (for this purpose, treating all then outstanding Underwriter's Warrants as if they had been exercised). 20. Severability. If any provision of this Agreement shall be held to ------------ be invalid or unenforceable, such invalidity or unenforceability shall not affect any other provision of this Agreement. 32 21. Captions. The caption headings of the Sections of this Agreement -------- are for convenience of reference only and are not intended, nor should they be construed as, a part of this Agreement and shall be given no substantive effect. 22. Benefits of this Agreement. Nothing in this Agreement shall be -------------------------- construed to give to any person or corporation other than the Company and the Underwriter and any other registered Holders of the Underwriter's Warrant Certificates or Underwriter's Securities any legal or equitable right, remedy or claim under this Agreement; and this Agreement shall be for the sole and exclusive benefit of the Company and the Underwriter and any other Holders of the Underwriter's Warrant Certificates or Underwriter's Securities. 23. Counterparts. This Agreement may be executed in any number of ------------ counterparts and each of such counterparts shall for all purposes be deemed to be an original, and such counterparts shall together constitute but one and the same instrument. 24. Binding Effect. This Agreement shall be binding upon and inure -------------- to the benefit of the Company, the Underwriter and their respective successors and assigns and the Holders from time to time of the Underwriter's Warrant Certificates or any of them. 33 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, as of the day and year first above written. COMMODORE HOLDINGS LIMITED By:__________________________________________ Jeffrey Binder, Chairman of the Board FIRST HANOVER SECURITIES, INC. By:__________________________________________ Name: Title: 34 EXHIBIT A --------- COMMODORE HOLDINGS LIMITED -------------------------- WARRANT CERTIFICATE THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT"), AND MAY NOT BE OFFERED FOR SALE OR SOLD EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, OR (ii) AN OPINION OF COUNSEL, IF SUCH OPINION AND COUNSEL SHALL BE REASONABLY SATISFACTORY TO COUNSEL TO THE ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER THE ACT IS AVAILABLE. THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN. EXERCISABLE COMMENCING _______________, 1997 THROUGH 5:00 P.M., NEW YORK TIME ON ______________, 2001 No. UW-1 50,000 Warrants This Warrant Certificate certifies that First Hanover Securities, Inc., or registered assigns, is the registered holder of 50,000 Warrants to purchase initially, at any time from ______________, 1996, until 5:00 p.m., New York time on ___________, 2001 (the "Expiration Date"), up to 50,000 units ("Units") each Unit comprised of one share of Commodore Holdings Limited's (the "Company") Common Stock, $.01 par value (the "Common Stock") and one Redeemable Warrant exercisable to purchase one half share of Common Stock at $6.00 per share(the "Common Stock Warrants"), at a purchase price of $6.90 per Unit (the "Purchase Price"), upon the surrender of this Warrant Certificate and payment of the applicable Purchase Price at an office or agency of the Company, but subject to the conditions set forth herein and in the underwriter's warrant agreement, dated as of ______________, 1996, by and between the Company and First Hanover Securities, Inc. (the "Underwriter") (the "Warrant Agreement"). Payment of the Purchase Price shall be made by certified or cashier's check or money order payable to the order of the Company or the surrender of that portion of the Underwriter's Warrants having equivalent value (as determined in accordance with the provisions of paragraph 3(ii) of the Underwriter's Warrant Agreement). No Warrant may be exercised after 5:00 p.m., New York time, on the Expiration Date, at which time all Warrants evidenced hereby, unless exercised prior thereto, shall thereafter be void. The Warrants evidenced by this Warrant Certificate are part of a duly authorized issue of Warrants issued pursuant to the Warrant Agreement between the Company and the Underwriter, which Warrant Agreement is hereby incorporated by reference in and made a part of this instrument and is hereby referred to for a description of the rights, limitation of rights, obligations, duties and immunities thereunder of the Company and the holders (the words "holders" or "holder" meaning the registered holders or registered holder) of the Warrants. The Warrant Agreement provides that upon the occurrence of certain events the Purchase Price and the type and/or number of the Company's securities issuable upon the exercise of this Warrant, may, subject to certain conditions, be adjusted. In such event, the Company will, at the request of the holder, issue a new Warrant Certificate evidencing the adjustment in the Purchase Price and the number and/or type of securities issuable upon the exercise of the Warrants; provided, however, that the failure of the Company to issue such new Warrant Certificates shall not in any way change, alter, or otherwise impair, the rights of the holder as set forth in the Warrant Agreement. Upon due presentment for registration of transfer of this Warrant Certificate at an office or agency of the Company, a new Warrant Certificate or Warrant Certificates of like tenor and evidencing in the aggregate a like number of Warrants shall be issued to the transferee(s) in exchange as provided herein, without any charge except for any tax or other governmental charge imposed in connection with such transfer. 36 Upon the exercise of less than all of the Warrants evidenced by this Certificate, the Company shall forthwith issue to the holder hereof a new Warrant Certificate representing such number of unexercised Warrants. The Company may deem and treat the registered holder(s) hereof as the absolute owner(s) of this Warrant Certificate (notwithstanding any notation of ownership or other writing hereon made by anyone), for the purpose of any exercise hereof, and of any distribution to the holder(s) hereof, and for all other purposes, and the Company shall not be affected by any notice to the contrary. All terms used in this Warrant Certificate which are defined in the Warrant Agreement shall have the meanings assigned to them in the Warrant Agreement. IN WITNESS WHEREOF, the undersigned has executed this certificate this _____ day of _____________, 1996. COMMODORE HOLDINGS LIMITED By:________________________________ Jeffrey Binder, Chairman of the Board ATTEST: By:_________________________ Name: Title: FORM OF ASSIGNMENT (To be executed by the registered holder if such holder desires to transfer the Warrant Certificate.) FOR VALUE RECEIVED___________________________ hereby sells, assigns and transfers unto __________________________ (Please print name and address of transferee) this Warrant Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint _____________________ Attorney, to transfer the within Warrant Certificate on the books of Commodore Holdings Limited, with full power of substitution. Dated:____________________ Signature_____________________ (Signature must conform in all respects to the name of holder as specified on the face of the Warrant Certificate.) ________________________________ (Insert Social Security or Other Identifying Number of Holders) FORM OF ELECTION TO PURCHASE The undersigned hereby irrevocably elects to exercise the right, represented by this Warrant Certificate, to purchase Units and herewith tenders in payment for such securities a certified or cashier's check or money order payable to the order of Commodore Holdings Limited in the amount of $______, all in accordance with the terms hereof. The undersigned requests that certificates for such securities be registered in the name of ___________________________ whose address is _________________________ and that such certificates be delivered to _____________________________________ whose address is _________________________________________________________________________. Dated:___________________ Signature_______________________ (Signature must conform in all respects to the name of holder as specified on the face of the Warrant Certificate.) __________________________________ (Insert Social Security or Other Identifying Number of Holders) EX-10.J 5 EXHIBIT 10J: MANAGEMENT SVCS AGREEMENT Exhibit 10j CRUISE SHIP MANAGEMENT SERVICES AGREEMENT ----------------------------- PART I THIS AGREEMENT made as of the ____ day of July, 1995, and effective as of the "Effective Date", by and between New Commodore Cruise Line Limited, Owner by Demise, ("Owner") and INTERNATIONAL MARINE CARRIERS, INC. ("Manager"); W I T N E S S E T H : WHEREAS, Owner has bareboat chartered the oceangoing vessel described in Attachment (I), (the "Vessel"); and WHEREAS, Owner proposes to operate the Vessel in international commerce; and WHEREAS, Manager is engaged in the business of providing vessel management services; and WHEREAS, Owner is desirous of utilizing the services of Manager in connection with the operation of the Vessel, and Manager desires to render such services, all upon the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, Owner and Manager agree as follows: ________________________________________________________________________________ Cruise Ship Management Services Agreement July, 1995 - Page 1 ARTICLE I --------- DEFINITIONS ----------- 1.01 Definitions. As used herein, the following terms shall have the ------------ respective meanings indicated below: Agreement. The term "Agreement" shall mean this Agreement and all ---------- amendments and modifications thereof made from time to time in writing and subscribed to by Owner and Manager. Budget. The term "Budget" shall mean, collectively or separately, ------- the Pre-Operating Budget, the Initial Operating Budget and the Operating Budgets. Class. The term "Class" or "In Class" shall mean all standards, ------ requirements and recommendations established or which may be promulgated from time to time by the Vessel's Classification Society to maintain the vessel in the highest Classification for vessels of the Vessel's age or service. Core Maritime Staff. The term "Core Maritime Staff" shall have the -------------------- meaning set forth in Section 3.04.2. Gross Maritime Payroll. The term "Gross Maritime Payroll" shall ----------------------- mean the direct salaries and wages paid to, or accrued for the benefit of, any Management Staff, Crew or Service Employees together with all fringe benefits payable to, or accrued for the benefit of such Management Staff, Crew or Service Employee, including employer's contributions required pursuant to any Legal Requirements, or other employment taxes, pension fund contributions, group life and accident and health insurance premiums, and profit sharing, retirement, disability and other similar benefits. Effective Date. The term "Effective Date" shall mean the dates that --------------- the Owner notifies the Manager that the Vessel shall be delivered by the Seller to Owner or redelivered to Owner by any bareboat charterer or that Owner shall have requested Manager to render pre-delivery assistance and as set forth in Attachment "I". Executive Staff. The term "Management Staff" shall mean the Vessel ---------------- Master, Mate, Chief Engineer, First Assistant, Hotel Manager and Cruise Director and any other executives of the Vessel as designated by the Owner/Manager. ________________________________________________________________________________ Cruise Ship Management Services Agreement July, 1995 - Page 2 Impositions. The term "Impositions" shall mean all taxes, ------------ assessments, water, sewer or other similar rents, rates and charges, levies, fines, license fees, permit fees, inspection fees and other authorization fees and charges, which at any time may be assessed, levied, confirmed or imposed on the Vessel or the operation thereof by any flag or port state, or any other competent authority. Initial Operating Budget. The term "Initial Operating Budget" shall ------------------------- mean the Operating Budget established for the initial Operating Year, which begins with the Operating Date and ends on December 31 of the same year. Initial Operating Year. The term "Initial Operating Year" shall be ----------------------- the period beginning on the Operating Date and ending on December 31 of the same year. Initial Term. The term "Initial Term" shall have the meaning set ------------- forth in Section 2.0.1. Legal Requirements. The term "Legal Requirements" shall mean all ------------------- applicable flag state, port state and international public laws, statues, ordinances, orders, rules, regulations, permits, licenses, authorizations, directions and requirements of all governments and government authorities, including any Classification Society acting pursuant to the authority of such government, which now or hereafter may be applicable to the Cruise and the operation thereof, including without limitation, those relating to safety, environmental and health. Management Fee. The term "Management Fee" shall have the meaning set --------------- forth in Section 6.01. Manager. The term "Manager" shall mean INTERNATIONAL MARINE -------- CARRIERS, INC. Manager Denial. The term "Manager Denial" shall have the meaning --------------- set forth in Section 11.01. Major Capital Improvements. The term "Major Capital Improvements" --------------------------- shall mean any program of capital improvements, renovation or refurbishing involving an addition to the Vessel, or renovation or refurbishing designed to substantially upgrade or change the nature or image of the Vessel or to comply with Legal Requirements (as opposed to a renovation or refurbishing which takes place as part of the normal or cyclical upkeep of the Vessel). Major Capital ________________________________________________________________________________ Cruise Ship Management Services Agreement July, 1995 - Page 3 Improvements will be undertaken only at the request of Owner, or as required by law. Maritime Staff. The term "Maritime Staff" shall include the --------------- Management Staff, Crew and the Service Employees employed by INTERNATIONAL MARINE CARRIERS, INC. on behalf of the Owner. Operating Date. The term "Operating Date" shall mean the date upon --------------- which the Vessel is put into service or upon Closing of Sale, whichever occurs first. Operating Budget. The term "Operating Budget" shall mean the budget ----------------- established by the parties for the services to be managed by the Manager. Such budget shall be established annually as set forth herein and become effective on January 1 of each Operating Year during the term of this Agreement, except if the Effective Date shall not fall on January 1, it shall become effective as of the Effective Date. Operating Equipment. The term "Operating Equipment" shall mean all -------------------- related equipment used in, or held in storage for use in (or if the context so dictates, required in connection with), the maritime operation of the Vessel. Operating Period. The term "Operating Period" shall mean the period ----------------- beginning with the Operating Date and ending upon the expiration or termination of this Agreement. Operating Supplies. The term "Operating Supplies" shall mean spare ------------------- parts, stores, supplies and other such consumable items used in, or held in storage for use in (or if the context so dictates, required in connection with), the maritime operation of the Vessel, including fuel and lube oils, tools, cleaning material and other items with respect to the Vessel. Operating Year. The term "Operating Year" shall mean the calendar --------------- year. Owner. The term "Owner" shall mean the New Commodore Cruise Line ------ Limited (NCCL), or the successor to Owner's interest pursuant to this Agreement. Pre-Operating Budget. The term "Pre-Operating Budget" shall mean the --------------------- budget established for the Manager's services and operations occurring during the Pre-Operating Period. ________________________________________________________________________________ Cruise Ship Management Services Agreement July, 1995 - Page 4 Pre-Operating Period. The term "Pre-Operating Period" shall mean the --------------------- period beginning with the Effective Date and ending with the Operating Date. Registry. The term "Registry" shall mean the flag state under the -------- laws of which the Vessel shall be registered by Owner. Renewal Term. The term "Renewal Term" shall have the meaning set ------------- forth in Section 2.02. Service Employees. The term "Service Employees" shall mean maritime ------------------ and hotel service employees including deckhands, engine room attendants, and assistants to the Executive staff, hotel, casino, food and beverage, cruise staff and gift shop personnel. Vessel. The term "Vessel" shall mean the Vessel described in ------- Attachment I which as of the Operating Date shall be owned or under bareboat charter to Owner. 1.02 References. Except as otherwise specifically indicated, all ----------- references to Article, Section and Subsection numbers refer to Articles, Sections and Subsections of this Agreement, and all references to Exhibits refer to the Exhibits attached hereto. The words "herein", "hereof", "hereunder", "hereinafter" and words of similar import refer to this Agreement as a whole and not to any particular Section or Subsection hereof. The terms "include" and "including" shall each be construed as if followed by the phrase "without being limited to". Unless expressly stated to the contrary, reference to any Section includes the following Subsections thereof. ________________________________________________________________________________ Cruise Ship Management Services Agreement July, 1995 - Page 5 ARTICLE II ---------- TERM - RENEWAL TERMS -------------------- 2.0 The Term. The Initial Term of this Agreement shall begin --------- upon the Operating Date and shall remain in force for two (2) years from the Operating Date, subject to Owner's renewal options under Section 2.01, or earlier termination as provided hereafter. 2.01 Renewal Terms. Owner shall have the right to extend the term -------------- of this Agreement for successive periods of one (1) year each commencing on each anniversary of the Initial Term (the "Renewal Term"), upon the same terms and conditions as are herein contained. Owner may exercise its rights of renewal by written notice to Manager, not later than ninety (90) days prior to the end of the Initial Term or each Renewal Term. The phrase "term of this Agreement", as used herein, shall mean the Initial Term and any Renewal Term then in effect under this Section 2.01. ________________________________________________________________________________ Cruise Ship Management Services Agreement July, 1995 - Page 6 ARTICLE III ----------- VESSEL OPERATIONS ----------------- 3.01 Manager's Authority and Responsibility. Manager shall --------------------------------------- manage and operate the Vessel, including the hotel department and the functions set out in Clause 3.03 hereof, pursuant to the terms of this Agreement, as a cruise vessel offering the highest standards for comparable vessels in the standard rate market, in full compliance with all Class and Legal Requirements. In connection therewith, Manager shall (i) implement operating policy, standards of operation, quality of service and maintenance requirements of the Vessel; and (ii) hire, train and supervise all marine and hotel-related employees. Owner agrees that it will cooperate reasonably with Manager to permit and assist Manager in carrying out its duties hereunder. 3.02 General Operations. Manager will establish internal ------------------- controls and administrative procedures, with approval of Owner, sufficient to manage and operate the Vessel within budget and in accordance with this Agreement and standards appropriate to the size and service of the Vessel. Provided, however, that the Manager in the performance of its management responsibilities under this Agreement shall be entitled to have regard to their overall responsibility in relation to the Vessel and all vessels as may from time to time be entrusted to their management and in particular, but without prejudice to the generality of the foregoing, the Manager shall be entitled in the event of emergent circumstances to allocate available supplies, manpower and services in such manner as in the prevailing circumstances the Manager in its absolute discretion considers to be fair and reasonable. 3.03 Functions. Subject to the terms and conditions herein --------- provided, during the period of this Agreement, the Manager shall carry out, as "Agents" for and on behalf of the Owner and the Vessel, such of the following ----------- functions in respect of the Vessel: p Crewing (see clause 3.04) p Technical Management (see clause 3.05.1) p Operation (see clause 3.05.2) p Insurance (see Article V) p Hotel Management (see clause 3.05.3) p Food and Beverage (see clause 3.05.4) p Purchasing Provisions, Stores, Supplies and Spares (see clause 3.05.5) p Bunkering (see clause 3.05.6) p Accounting (see clause 3.05.7) p Entertainment (see clause 3.05.8) p Onboard Concessions (see clause 3.05.9) ________________________________________________________________________________ Cruise Ship Management Services Agreement July, 1995 - Page 7 p Casino (see clause 3.05.10) p Shore Excursions (see clause 3.05.11) p Chartering (see clause 3.05.12) p Sale or Purchase of Vessel (see clause 3.05.13) 3.03.1 Compliance. Throughout the Operating Period, Manager ----------- shall maintain the Vessel in class and operate the Vessel in accordance with --------------------------------------------------- applicable Legal Requirements. 3.03.2. Operating Procedures and Manuals. In order to --------------------------------- implement this Article III of the Agreement, Manager and Owner shall endeavor from time to time to formulate written operating procedures which shall be incorporated in an operating manual or manuals for the Vessel, but nothing contained in the Clause 3.03.2 shall be deemed to affect the respective rights and obligations of the Manager and Owner under this Agreement. 3.03.3. Reporting Procedures. Unless otherwise agreed by the -------------------- Owner and Manager, the Manager shall maintain three (3) shoreside functions for reporting responsibility: Marine Department Management: ----------------------------- Crewing (Marine) Technical Management Operations Purchasing (Marine Stores and Supplies) Bunkering Maintenance & Repairs Hotel Department Management: ---------------------------- Hotel Management Food and Beverage Purchasing (Provisions and Hotel Dept. Supplies) On Board Concessions On Board Coordination of Shore Excursions & Entertainment Business Department Accounting & Controls: ------------------------------------------ Accounting for On Board Activities Payroll Insurance Labor relations Casino Claims Chartering Sales & Purchase The Marine Department function and Hotel Department function, who shall not be employed by the Owner, shall report to Owner's Vice President of Operations, who if presently an employee of the Manager shall be seconded to and be an employee of the Owner. The Business Department function shall report to Owner's Chief ________________________________________________________________________________ Cruise Ship Management Services Agreement July, 1995 - Page 8 Financial Officer, who shall not be an employee of the Manager. The Vice President of Operations and the Chief Financial Officer shall report to Owner's Chief Executive Officer. 3.04 Crewing. -------- 3.04.1 General. Manager shall on behalf of the Owner, hire, -------- discharge, promote and supervise the Management Staff of the Vessel, and shall supervise, through said Management Staff, the hiring, discharging, promotion and work of all Officers, Managers, Crew and Service Employees. All members of the Maritime and Hotel Staff shall be properly qualified for their positions, and the compensation payable to the Maritime and Hotel Staff shall be comparable to the compensation paid to the Maritime and Hotel employees of other comparable vessels, taking into account the location, cruise itinerary, size of the Vessel, and character of services offered, it being understood that the Vessel will at no time be placed at a competitive disadvantage with respect to the hiring and maintaining of its Maritime and Hotel Staff. In this regard, Manager will: (i) establish screening, hiring, training and supervisory procedures with respect to the Maritime and Hotel Staff so that the Vessel is operated in accordance with the highest standards; (ii) arrange that the Vessel is adequately staffed and that all Maritime and Hotel staff are properly trained and licensed or certified, prior to their employment as Maritime and Hotel Staff and at all times during their employment as such. (iii) arrangement of transportation of the Crew, including reparation; 3.04.2 Core Staffing of Vessel. The entire Management Staff ------------------------ and a contingent of the Service Employees will be assigned to the Vessel and shall be known as the "Core Maritime Staff". 3.04.3 Maritime and Hotel Staff Uniforms and Apparel. Owner ---------------------------------------------- will design and Manager will procure, on behalf of Owner, all Maritime and Hotel Staff uniforms and other apparel, the cost of which shall be included in the Pre-Operating, Initial Operating and Operating Budgets. ________________________________________________________________________________ Cruise Ship Management Services Agreement July, 1995 - Page 9 3.04.4 Owner as Employer. All Maritime and Hotel Staff of the ------------------ Vessel shall be employees of the Owner. Manager shall be responsible, however, for payment of wages on board the Vessel. Owner shall be responsible for payment of the remainder of the Gross Maritime Payroll and accounting for all Gross Maritime Payroll to such employees. 3.04.5 Labor Relations. Manager shall negotiate with any ---------------- Agencies or labor unions representing Maritime and Hotel Staff, and any collective bargaining agreement or labor contract resulting therefrom will be executed by Manager on behalf of the employer. To the extent that any Maritime and Hotel Staff are included in, or covered by, any pension and/or retirement, disability, health, welfare or other benefit plans pursuant to a collective bargaining agreement or labor contract, Owner, as the employer of such employees, shall be solely responsible for the administration of any plan contributions and/or other obligations or liabilities arising thereunder. 3.04.6 Safety Program. Manager will institute, subject to --------------- Owner's approval, a comprehensive safety program covering all aspects of Vessel operations. The safety program will require that the Manager: (a) implement a comprehensive safety manual containing policies and procedures addressing all aspects of Vessel operations. The safety manual and any material changes thereto will be reviewed and approved by Owner prior to implementation; (b) provide Owner with a Ship's Station Bill; (c) conduct at a minimum monthly safety meetings and drills involving all Maritime Staff and provide monthly reports to Owner concerning same; (d) properly train all Maritime and Hotel Staff in fire-fighting and rescue techniques, and conduct fire and rescue drills as required by the United States Coast Guard; (e) arrange for all Maritime and Hotel Staff to be adequately trained in first aid treatment, including CPR; ________________________________________________________________________________ Cruise Ship Management Services Agreement July, 1995 - Page 10 (f) implement a comprehensive Drug and Alcohol Policy, including random and post-accident testing to conform with Department of Transportation guidelines; and (g) maintain complete written records of all employee safety training; and (h) in addition to normal procedures, conduct at least quarterly, safety, health and sanitary audit of the Vessel and provide the results in writing to Owner within five (5) business days of same audit. 3.04.7 Owner's Right to Hire or Discharge Employees. Owner -------------------------------------------- reserves the right, in its sole discretion, to hire or discharge any employees as set forth in Section 3.04. 3.05 Additional Responsibilities of Manager. Manager shall, --------------------------------------- as agent of Owner, perform the following additional services, for the marine aspects of the Vessel during the Operating Period: (a) Advise Owner relative to, administer and supervise contracts for the furnishing of porter, service and maintenance and other service to the Vessel as shall be reasonably necessary for the proper marine and hotel operation and maintenance thereof; (b) Advise Owner relative to, administer and supervise maritime and hotel repairs, decorations, revisions, alterations and improvements to the Vessel as shall be reasonably necessary for the proper maintenance thereof in good order, condition and repair; (c) Advise Owner as to and implement the purchase of such Operating Equipment and Operating Supplies as shall be reasonably necessary for the proper operation of the Vessel and Hotel Services and coordinate and supervise all necessary installations; (d) Apply for, and use its best efforts to obtain and maintain, all licenses and permits required of the Owner or Manager in connection with the operation and management of the Vessel; Owner agrees to provide all requisite information not within the knowledge of the Manager and execute and deliver any ________________________________________________________________________________ Cruise Ship Management Services Agreement July, 1995 - Page 11 and all applications and other documents as shall be reasonably required and to otherwise cooperate, in all reasonable respects, with Manager in applying for, obtaining and maintaining such licenses and permits; (e) Use its best efforts to do all such acts and things in and about the Vessel as shall be reasonably necessary to comply with all Legal Requirements, class requirements, and the terms of all insurance policies, and to take legal and/or other action to discharge any lien, encumbrance or charge on or with respect to the Vessel and the operation thereof; and Owner to reimburse Manager for such expenses incurred and to provide Manager with any collateral necessary to bond any claim except to the extent such is promptly obtainable from Owner's Protection & Indemnity or other interested insurer. 3.05.1 Technical Management -------------------- The Manager shall provide technical management which includes, but is not limited to, the following functions: (i) Provision of competent personnel to supervise the maintenance and general efficiency of the Vessel; (ii) Arrangement and supervision of drydockings, repairs, alterations and the upkeep of the Vessel to the standards required by the Owner provided that the Manager shall be entitled to incur the necessary expenditure to provide for the Vessel to comply with all requirements and recommendations of the Classification Society, and with the laws and regulations of the flag state and of the places where she trades; (iii) Arrangement of the supply of necessary stores, spares and lubricating oil; (iv) Appointment of surveyors and technical consultants as the Manager may consider from time to time to be necessary. 3.05.2 Operations ---------- The Manager shall provide Operational Services including handling of Vessel while in ports by agents, port entrance and clearance, pilots, ________________________________________________________________________________ Cruise Ship Management Services Agreement July, 1995 - Page 12 planning, arranging for and implementation of launch services, consular approvals and other such services. 3.05.3 Hotel Manager ------------- The Manager shall provide services normally associated with Hotel Management, including, purser, stewarding and housekeeping services and supplies. 3.05.4 Food and Beverage ----------------- The Manager shall provide Food and Beverage Services and Supplies including all dining rooms, restaurants, galleys, bars, guest and crew food. 3.05.5 Purchasing ---------- The Manager shall procure as necessary, all materials, stores, supplies, consumables, provisions, spare parts, fuel, lubes, water, etc., as might be required to provide and support Vessel and hotel operation (including associated delivery and handling of same). 3.05.6 Bunkering --------- The Manager shall arrange all fuels required for vessel propulsion, auxiliaries and hotel services. 3.05.7 Environmental ------------- The Manager shall establish procedures for and to implement policies for the disposal of garbage, sanitary waste and any hazardous material in accordance with applicable law and regulations; to maintain an oil record book, and to comply with all prevention and reporting requirements relating to oil and air pollution. 3.05.8 Entertainment ------------- At the request and under direction of Owner, the Manager shall carry out onboard management, coordination and support of entertainment services and personnel and staff. 3.05.9 On Board Concessions and Subcontractors --------------------------------------- a) At the request and under the direction of the Owner, the Manager shall invite proposals for employment of onboard concessionaires and subcontractors, e.g. caterers, photo, spa, beautician, retail shops, duty free, amusements, etc. All concessionaires and subcontractors offerings shall be ________________________________________________________________________________ Cruise Ship Management Services Agreement July, 1995 - Page 13 jointly negotiated and approved by Owner and Manager. Owner reserves the right to select concessionaires and subcontractors. b) At the request and under the direction of the Owner to conduct on board management coordination and support of concessionaires and subcontractors, their operators and staff. 3.05.10 Casino ------ a) At the request and under the direction of the Owner, the Manager shall invite proposals for casino operations and carry out arrangements for casino personnel, equipment, machines, supplies, etc. b) At the request and under the direction of the Owner, to carry out onboard management, coordination and support of casino operations, personnel and staff, including on board supervision of any casino concessionaires or subcontractors. 3.05.11 Shore Excursion --------------- At the request and under the direction of the Owner, the Manager shall carry out onboard management, coordination and support of shore excursions. 3.05.12 Chartering and Sales and Purchase Brokerage ------------------------------------------- The Manager shall, if requested by Owner, provide chartering, sales and purchasing services which include, but are not limited to, seeking and negotiating employment and/or sale or purchase of a Vessel and the conclusion (including the execution thereof) of charter parties or other sale or purchase contracts relating to the employment or sale or purchase of the Vessel. The Manager will be entitled to an additional "fee" or "commission" for this service, but only to the extent that the total fees and commissions payable by Owner to Manager and any brokers in respect of such transactions do not exceed customary brokerage fees for similar transactions. To the extent, the Manager engages any brokers in connection with any charter and/or sale or purchase of a Vessel, such engagement shall require the prior approval of Owner. ________________________________________________________________________________ Cruise Ship Management Services Agreement July, 1995 - Page 14 3.05.13 Sale or Purchase of Vessel -------------------------- The Manager shall, in accordance with the Owner's instructions, supervise the sale or purchase of the Vessel, including the performance of any sale or purchase agreement, but not negotiation of the same. The Manager will be entitled to a reasonable hourly rate for this service, according to industry standards. 3.06 Reimbursements to Manager. -------------------------- In addition to the Management Fee provided for in Article VI, Manager shall be entitled to be reimbursed for the following costs and expenses incurred in rendering services to the Vessel: (a) All Maritime and Hotel Payroll and related expenses paid by Manager and in furtherance of Manager's responsibilities and duties hereunder; (b) Pre-approved expenses paid by Manager to all independent marine and hotel service entities rendering marine and hotel services and furnishing supplies to the Vessel. (c) Reasonable pre-approved expenses of all officers and employees of the Manager incurred in performing its duties hereunder in connection with any phase of the operation of the Vessel to the extent such are not budgeted. 3.06.1 Manager as Agent Only. ---------------------- The Manager shall make all purchases, and enter into all Agreements and Service Contracts with regard to the Vessel "as Agent only" for the Owner. --------------- 3.07 Compliance with the Flag/Port State. ------------------------------------ Manager and Owner agree that they will cooperate with each other in order to comply with Flag/port State and with any and all directives of the Flag State and International Regulatory Agencies. In the event that Manager or Owner become aware of any grounds for non-compliance or receive notice regarding same, ________________________________________________________________________________ Cruise Ship Management Services Agreement July, 1995 - Page 15 such party agrees to promptly notify the other party hereto, and Manager and Owner agree to cooperate fully in order to rectify such non-compliance. ________________________________________________________________________________ Cruise Ship Management Services Agreement July, 1995 - Page 16 ARTICLE IV ---------- BUDGET ------ 4.01 Pre-Operating and Initial Operating Budgets. -------------------------------------------- The Pre- Operating Budget and the Initial Operating Budget (covering the initial Operating Year) are attached hereto as Attachments "_____" and "_____", respectively. By execution of this Agreement, the Pre-Operating Budget and Initial Operating Budget are hereby approved by Owner and accepted by Manager. 4.02 Operating Budget. ----------------- Beginning with the first full Operating Year and continuing throughout the term of this Agreement, Manager shall submit a proposed Operating Budget to Owner for Owner's approval. The Operating Budget for a given Operating Year shall be submitted to Owner no later than September 1st of the preceding Operating Year. At least thirty (30) days prior to each calendar quarter, the Manager shall submit to the Owner any proposed revisions or adjustments for such quarter. 4.03 Approval of Budgets. -------------------- Owner shall not unreasonably withhold approval of any proposed Budget submitted to it by Manager. Subject to the foregoing, Owner's decision regarding the approval or disapproval of all Budgets, in total or by line item, is final and binding upon Manager. 4.04 Budget Deviations. ------------------ Manager shall at all times comply with the Budget. Expenditures made by Manager shall not exceed approved Budget amounts on a total basis without the prior express, written consent of Owner, except in the event of a casualty, machinery breakdown or other emergent situation requiring Manager's immediate decision. Manager may, at any time, recommend a revision of any ________________________________________________________________________________ Cruise Ship Management Services Agreement July, 1995 - Page 17 Budget item to Owner and Owner will not unreasonably withhold approval for such revision. However, if possible, any Budget revision sought by Manager must be recommended to Owner at least thirty (30) days prior to the date Manager desires the revision to be effective, with the exception of repairs necessary for the safe and efficient operation of the Vessel. Owner may revise any Budget as and when it deems such revision necessary. 4.05 Components of Operating Budgets. -------------------------------- The Operating Budget shall include Manager's estimate of all expenses necessary to maintain and operate the Vessel, including Gross Maritime Payroll, Operating Equipment, Regulatory Survey Requirements, Operating Supplies, Marine Insurance and Deductible Amounts, Fuel and Lube Oil and Major Capital Replacements. ________________________________________________________________________________ Cruise Ship Management Services Agreement July, 1995 - Page 18 ARTICLE V --------- INSURANCE --------- 5.01.1 Manager shall procure for the account of Owner, Hull & Machinery and Protection & Indemnity insurance against injuries to persons or loss or damage to the Vessel or other property caused in whole or in part by the Maritime and Hotel Staff and/or Manager, its agents or employees and/or by the acts or omissions of third parties, and other causes. In addition, Manager shall procure workers compensation coverage to the extent required by law and any additional coverages as requested by Owner. In addition, Manager will maintain any and all other insurances as required and directed by the Owner and listed in Attachment "II". Manager represents that it has special expertise in ship management and matters of marine insurance. In connection with the Pre-Operating Budget, Manager shall propose to Owner any additional forms of insurance cover that Manager recommends that it procure. In connection with review of the Operating Budget pursuant to Clause 4.02, Manager shall review the insurances and applicable deductibles and franchises and recommend any changes the Manager deems advisable for such insurances. 5.01.2 Changes in Coverage. -------------------- Owner, by notice to Manager, shall have the right to raise the minimum amount of insurance to be procured by Manager with respect to the coverages expressed in the hereinabove Subsection 5.01.1 at the sole discretion of the Owner. 5.01.3 Requirements. ------------- All policies of insurance shall be written on an "occurrence" basis, if possible. 5.02 Policies and Endorsements. -------------------------- ________________________________________________________________________________ Cruise Ship Management Services Agreement July, 1995 - Page 19 5.02.1 Policies. --------- All insurance provided for under the above Section 5.01 shall be effected by policies issued by insurers of good reputation and of sound and adequate financial responsibility. The Manager shall deliver to the Owner certificates of insurance with respect to all of the polices of insurance so procured, including existing, additional and renewal policies, and in the case of insurance about to expire, shall deliver certificates of insurance with respect to the renewal policies to the other party not less than 30 days after the respective dates of expiration. 5.02.2 Endorsements. ------------- All polices of insurance provided for under this Article V shall, in addition to the requirements of Clause 5.03 hereof, have attached thereto endorsements to the effect that such policy shall not be canceled or materially changed without at least 30 days prior written notice to Owner, and shall contain an "Associated Companies" or similar clause extending the benefit of any liability policy to Owner's related companies and to the Manager. 5.02.3 Named Insured. -------------- All policies of insurance required under Subsection 5.01.1 shall be carried in the name of the Vessel and Owner, and the Manager shall be named as an additional insured thereunder. 5.03 Waiver of Liability. -------------------- Neither Manager nor Owner shall assert against the other, and do hereby waive with respect to each other, or against any other entity or person named as an additional insured on any policies carried under this Article V, any claims for any losses, damages, liability or expenses (including attorneys' fees) incurred or sustained by either of them on account of injury to persons or damage to property arising out of the ownership, development, construction, completion, operation or maintenance of the Vessel, to the extent that the same are covered by the insurance required under this Article V. Each policy of ________________________________________________________________________________ Cruise Ship Management Services Agreement July, 1995 - Page 20 insurance shall contain a specific waiver of subrogation reflecting the provisions of this Section 5.03, or a provision to the effect that the existence of the preceding waiver shall not affect the validity of any such policy or the obligation of the insurer to pay the full amount of any loss sustained. 5.04 Claims. ------- The Manager, at Owner's direction, shall process and handle all claims, by maritime staff and as all other non-passenger third party liability claims arising from the operation of the Vessel and shall appoint attorneys with the approval of Owner. All passenger claims relative to passage and passage money to be handled by the Owner. All other passenger claims, including all liability claims covered by insurance, shall be processed and handled by the Manager. ________________________________________________________________________________ Cruise Ship Management Services Agreement July, 1995 - Page 21 ARTICLE VI ---------- MANAGEMENT FEE -------------- 6.01 Management Fee. --------------- In consideration of Manager's services during the Operating Period, Owner shall pay to Manager an approved management fee (the "Management Fee") as set out in Attachment III hereof. Owner agrees to pay monthly fifty percent (50%) of the Management Fee, in advance, by the 5th day of each month and the balance by the 20th day of each month. 6.02 The Manager shall, at no extra cost to the Owner, provide its own office accommodations, office staff and stationery at the locations set out in Attachment IV. Without limiting the generality of Clause 3.06, in addition to the Operating Budget, the Owner shall reimburse the Manager for vessel-direct postage and communication expenses incurred by the Manager in pursuance of the Management Services. The Manager shall be responsible for all domestic travel expenses, which shall include places and ports along the intended itinerary of the Vessel listed in Attachment Ia. Whenever necessary, practical and in the Owner's best interests, the Owner may provide some office space and general office expenses. 6.03 In the event of the appointment of the Manager being terminated by the Owner or the Manager in accordance with the provisions of Clause 6.01 other than by reason of default by the Manager, or for other cause for which the Manager is responsible, or if the Vessel is lost, sold, or otherwise disposed of, the Management Fee payable to the Manager according to the provisions of sub-clause 6.01 shall continue to be payable for a further period of three calendar months. In addition, provided that the Manager provide Crew for the Vessel in accordance with Clause 3.04. ________________________________________________________________________________ Cruise Ship Management Services Agreement July, 1995 - Page 22 a) the Owner shall continue to pay Crew Related Support Costs up to a further period of three months and additionally any other crew-related obligations and liabilities. b) the Owner shall pay an equitable proportion of any crew redundancy costs which may materialize not exceeding the three months wages. c) the Owner shall pay all remaining liabilities incurred but not yet paid relating to agreed-to services. d) the Owner shall pay any retroactive insurance premiums due, Supplemental Calls, and cancellation penalties that may be required for insurance and/or other contracts entered into, on behalf of Owner, by the Manager. 6.04 While the Vessel remains under management by the Manager, pursuant to this Agreement, if the Owner decides to lay-up the Vessel and such lay-up lasts for more than one month, an appropriate reduction of the Management Fee for any period exceeding one month until one month before the Vessel is again put into service, shall be mutually agreed between the parties. Such lay up reduction shall not be less than fifty percent (50%) of the Management Fee for such period. 6.05 Except as provided in Clauses 3.05.12 and 3.05.13, all discounts, commissions and address payments and benefits obtained by the Manager in the course of the management of the Vessel shall be disclosed to and credited to the Owner. ________________________________________________________________________________ Cruise Ship Management Services Agreement July, 1995 - Page 23 ARTICLE VII ----------- ACCOUNTS; WORKING FUNDS; RECORDS AND REPORTS -------------------------------------------- 7.01 Expenditures. Owner shall pay such amounts and at such times ------------- as are required in connection with the operation of the Vessel, including, without limitation, the following: (a) the Gross Maritime Payroll of the Maritime Staff; (b) all costs and expenditures incurred or made in connection with the authorized items under Section 3.06 and all expenditures required to be made under any other provision of this Agreement; (c) reimbursements and other amounts due to Manager under Section 3.06, or under any other provisions of this Agreement; and 7.02 Owner Advance. The Owner shall advance all funds as ------------- specified in the Operating Budget. At no time shall the Manager be required to utilize its own funds. 7.02.1 Income Collected and Expenses Paid on Behalf of Owner. ------------------------------------------------------ Owner shall collect all normal passenger, concession and casino revenues. Any other monies received in respect of the operation of the Vessel by the Owner or the Manager shall be held to the credit of the Owner in a separate bank account maintained by Owner. 7.03 Owner's Rights to Inspection and Review. Manager shall keep ---------------------------------------- full and adequate books of account and such other records as are necessary to evidence Manager's performance of services hereunder. Manager shall accord to Owner, its accountants, attorneys and agents, the right to enter its offices at all reasonable times during the term of this Agreement for the purpose of examining or inspecting Manager's offices or examining and making extracts of the financial books and records relating to the Vessel or for any other purpose ________________________________________________________________________________ Cruise Ship Management Services Agreement July, 1995 - Page 24 which the Owner, in its reasonable discretion, shall deem necessary or advisable, but same shall be done without disruption to the operation and business of Manager's offices. ________________________________________________________________________________ Cruise Ship Management Services Agreement July, 1995 - Page 25 ARTICLE VIII ------------ TERMINATION RIGHTS ------------------ 8.01 Termination by Owner. If any one of the following events --------------------- shall occur: (a) if Manager shall fail to keep, observe or perform any material covenant, agreement, term or provision of this Agreement to be kept, observed or performed by Manager, and such default shall continue for a period of forty five (45) days after notice thereof by Owner to Manager; (b) if Manager declares bankruptcy or is deemed insolvent; (c) if Owner fails to obtain, for any reason, within thirty (30) days all approvals and certificates necessary for trading; (d) if a right of termination on the part of Owner shall have arisen under Section 10.01; then Owner shall have the right to terminate this Agreement upon written notice to Manager given at any time following the occurrence of such event, or if a period of grace is provided in such notice, then following the expiration of the applicable period, and while such event shall be continuing, and this Agreement shall terminate upon the date specified therein, which date shall be not less than sixty (60) days nor more than one hundred and twenty (120) days after the date of giving of such notice. 8.02 Termination by Manager. If any of the following events ----------------------- shall occur: (a) For Cause. The Owner shall fail to keep, observe or ---------- perform any other material covenant, agreement, term or provision of this Agreement to be kept, observed or performed by Owner, and such default shall continue for a period of thirty (30) days after notice thereof by Manager to the Owner, then Manager shall have the right to terminate this Agreement upon written notice to ________________________________________________________________________________ Cruise Ship Management Services Agreement July, 1995 - Page 26 Owner given at any time following the occurrence of any such event, or if a period of grace is provided in such notice, then following the expiration of the applicable period, and while such event shall be continuing, and this Agreement shall terminate upon the date specified therein, which date shall be not less than 60 (sixty) days nor more than ninety (90) days after the date of the giving of such notice. 8.03 Curing Defaults. Any default by Manager under clause (a) of ---------------- Section 8.01, or by Owner under clause (a) of Section 8.02, as the case may be, which is susceptible of being cured shall not constitute a basis of termination if the nature of such default shall not permit it to be cured within the grace period allotted, provided that within such grace period either Manager or Owner shall have commenced to cure such default and shall proceed to complete the same with reasonable diligence. Wilful acts or gross negligence shall not be deemed susceptible of being cured for purposes of this Section. 8.04 Effect of Termination. The termination of this Agreement ---------------------- under the provisions of this Article VIII shall not affect the rights of the terminating party with respect to any damages it has suffered as a result of any breach of this Agreement, nor shall it affect the rights of either party with respect to liability or claims accrued, or arising out of events occurring, prior to the date of termination. 8.05 Remedies Cumulative. Neither the right of termination, -------------------- nor the right to sue for damages, nor any other remedy available to either party hereunder shall be exclusive of any other remedy given hereunder or now or hereafter existing at law or in equity. ________________________________________________________________________________ Cruise Ship Management Services Agreement July, 1995 - Page 27 ARTICLE IX ---------- ASSIGNMENTS ----------- 9.01 Assignments. Neither Manager nor Owner shall assign this ------------ Agreement without the prior written consent of the other. It is understood and agreed that any consent granted by the Owner to any assignment under this Subsection 9.01 shall not be deemed a waiver of the covenant herein contained against assignment in any subsequent case. Such consent by the Owner shall not be unreasonably withheld. 9.02 Change of Management. Owner shall have the right, without --------------------- other cause, to terminate this Agreement, if neither Robert G. Wellner nor Thomas F. Keenan shall remain in the management of the Manager. 9.03 Successors and Assigns. Subject to the foregoing, this ----------------------- Agreement shall inure to the benefit of and be binding upon the parties hereto, their respective heirs, legal representatives, successors and assigns. 9.04 Remedies. Any assignment by either party of this Agreement --------- in violation of the provisions of this Article IX shall be null and void. In addition to any other remedies available to the parties, the provisions of this Article IX shall be enforceable by injunctive proceeding or by suit for specific performance. ________________________________________________________________________________ Cruise Ship Management Services Agreement July, 1995 - Page 28 ARTICLE X --------- DAMAGE OR DESTRUCTION --------------------- 10.01 Damage or Destruction. If the Vessel shall be damaged by ---------------------- fire or other casualty, then Owner, by written notice to Manager given within ninety (90) days after the occurrence of such event, shall have the right to terminate this Agreement on the basis that Owner does not elect to rebuild or restore the Vessel, and neither party shall have any further obligation to the other party hereunder, except with respect to liability accruing, or based upon events occurring, prior to the effective date of such termination. 10.02 Reinstatement. If following a termination under Section -------------- 10.01 above, Owner shall decide, notwithstanding its previous determination, to restore the Vessel, then upon completion of such restoration, this Agreement, at the option of Manager, shall be reinstated for the remainder of the term hereof, which term shall automatically be extended by the number of full years, plus on full year for any partial year, elapsing between the date of termination and the date of such reinstatement. ________________________________________________________________________________ Cruise Ship Management Services Agreement July, 1995 - Page 29 ARTICLE XI ---------- GENERAL PROVISIONS ------------------ 11.01 Purchases by Manager. All purchases made by Manager for --------------------- Owner or special prices as a result of Manager's involvement in the management of other vessels, Manager shall cooperate with Owner, to allow Owner to make purchases through Manager, availing Owner of Manager's access to advantageous pricing. In addition, all trade discounts, rebates and refunds, other than cash and volume discounts, and all returns from the sale of supplies, materials and equipment shall accrue to the benefit of Owner. 11.02 Responsibilities. ----------------- 11.02.1 Liability to Owner - Without prejudice to sub-clause 11.12, the Manager shall be under no liability whatsoever to the Owner for any loss, damage, delay or expense of whatsoever nature, whether direct or indirect, (including, but not limited to, loss of profit arising out of or in connection with detention of or delay to the Vessel) and howsoever arising in the course of performance of the Management Services, except arising from Manager's wilful act or gross negligence. 11.02.2 Indemnity - Except to the extent and solely for the --------- amount therein set out that the Manager would be liable under sub-clause 11.02.1 the Owner hereby undertakes to keep the Manager and its employees, agents and sub-contractors indemnified and to defend and hold them harmless against all actions, proceedings, claims, demands or liabilities whatsoever or howsoever arising which may be brought against them or incurred or suffered by them arising out of or in connection with the performance of the Agreement, and against and in respect of all costs, loss, damages, and expenses (including legal costs and expenses on a full indemnity basis) which the Manager may suffer ________________________________________________________________________________ Cruise Ship Management Services Agreement July, 1995 - Page 30 or incur (either directly or indirectly) in the course of the performance of this Agreement. 11.02.3 Himalaya - It is hereby expressly agreed that, except -------- in the event of wilful default, or gross negligence or deliberate act or omission by such party, no employee or agent of the Manager (including every sub-contractor from time to time utilized by the Manager) shall in any circumstances whatsoever be under any liability whatsoever to the Owner for any loss, damage or delay of whatsoever kind arising or resulting directly or indirectly from any act, neglect or default on his part while acting in the course of or in connection with his employment and, without prejudice to the generality of the foregoing provisions in this Clause, every exemption, limitation, condition and liberty herein contained and every right, exemption from liability, defenses and immunity of whatsoever nature applicable to the Manager or to which the Manager is entitled hereunder shall also be available and shall extend to protect every such employee or agent of the Manager acting as aforesaid and for the purpose of all the foregoing provisions of this Clause 11 the Manager is or shall be deemed to be acting as agent or trustee on behalf of and for the benefit of all persons who are or might be his servants or agents from time to time (including sub-contractors as aforesaid) and all such persons shall to this extent be or be deemed to be parties to this Agreement. 11.03 Notices. Except as otherwise provided in this Agreement, all -------- notices, demands, consents, reports and other communications (herein collectively, the "Notices") required or permitted to be given hereunder, or which are to be given with respect to this Agreement, shall be in writing, addressed to the party to be so notified as follows: If to Owner : NEW COMMODORE CRUISE LINE LIMITED 4000 Hollywood Boulevard South Tower, Suite 385 Hollywood, FL 33021 Phone No: Fax No: Attention: With Copies to: ________________________________________________________________________________ Cruise Ship Management Services Agreement July, 1995 - Page 31 If to Manager : INTERNATIONAL MARINE CARRIERS, INC. 22 Jericho Turnpike, Suite 200 Mineola, NY 11501 Fax: (516) 741-2847 Phone: (516) 741-2700 Attn: Thomas F. Keenan, Vice President Notices may be mailed by United States registered or certified mail, return receipt request, postage prepaid, deposited in a United State post office or a depository for the receipt of mail regularly maintained by the post office. If so mailed, then such Notice shall be deemed to have been received by the addressee on the third day following the date of such mailing. Such Notices may also be delivered by hand, or by special courier, if receipted for. 11.04 No Partnership or Joint Venture. Nothing contained in this -------------------------------- Agreement shall be construed to be or create a partnership or joint venture between the Owner, its successors or assigns, on the other part and the Manager. 11.05 Modification and Changes. This Agreement cannot be changed ------------------------- or modified except by another agreement in writing signed by the parties to this Agreement, or their duly authorized agents. 11.05 Understandings and Agreements. This Agreement constitutes ------------------------------ all of the understandings and agreements of whatsoever nature or kind existing between the parties with respect to Manager's management of the Vessel. 11.07 Headings. The Article and Section headings contained herein --------- are for convenience and reference only and are not intended to define, limit or describe the scope or intent of any provision of this Agreement. 11.08 Survival of Covenants. Any covenant, term or provision of ---------------------- this Agreement which, in order to be effective, must survive the termination of this Agreement, shall survive any such termination. ________________________________________________________________________________ Cruise Ship Management Services Agreement July, 1995 - Page 32 11.09 Third Parties. None of the obligations hereunder of either -------------- party shall run to the benefit of or be enforceable by any party other than the parties to this Agreement or by a party deriving rights hereunder as a result of an assignment permitted pursuant to the terms hereof. 11.10 Waivers. No failure by Manager or Owner to insist upon the -------- strict performances of any covenant, agreement, term or condition of this Agreement, or to exercise any right or remedy consequent upon the breach thereof, shall constitute a waiver of any such breach or any subsequent breach of such covenant, agreement, or condition. No covenant, agreement, term or condition of this Agreement and no breach thereof shall be waived, altered or modified except by written instrument. No waiver of any breach shall affect or alter this Agreement, but each and every covenant, agreement, term and condition of this Agreement shall continue in full force and effect with respect to any other then existing or subsequent breach thereof. 11.12 Force Majeure. If by reason of war, riots, civil commotion, -------------- labor disputes, strikes, lockouts, inability to obtain labor or materials, fire or other acts or elements, accidents, government restrictions or appropriation or other causes, whether like or unlike the foregoing, beyond the control of a party hereto, such party is unable to perform in whole or in part is obligations under this Agreement, then in such event such party shall be relieved of those obligations to the extent it is so unable to perform, and such inability to perform, so caused, shall not make such party liable to the other. The provisions of this Section 11.12 shall not be applicable to Section 7 or to Article X. 11.13 Applicable Law. This Agreement shall be construed and --------------- interpreted, and be governed by, the laws of the State of New York. 11.14 Arbitration. Any and all differences and disputes of ------------ whatsoever nature arising out of this Agreement shall be put to arbitration in ________________________________________________________________________________ Cruise Ship Management Services Agreement July, 1995 - Page 33 the City of New York before a board of three (3) persons, consisting of one arbitrator to be appointed by the Owner, one by the Manager, and one by the two so chosen. The decision of any two of the three on any such point or points shall be final. Any party hereto may call for such arbitration by service upon any officer of the other, wherever he may be found, of a written notice, as provided herein, specifying the name and address of the arbitrator chosen by the first moving party and a brief description of the disputes or differences which such party desires to put to arbitration. If the other party shall not, by notice served upon an officer of the first moving party within thirty (30) days of the service of such first notice, appoint its arbitrator to arbitrate the dispute or differences further notice to appoint a second arbitrator, who shall be a disinterested person, with precisely the same force and effect as if said second arbitrator had been appointed by the other party. In the event that the two arbitrators fail to appoint a third arbitrator within twenty (20) days of the appointment of the second arbitrator, either arbitrator may apply to a Judge of any Federal court in the City of New York for the appointment of a third arbitrator, and the appointment of such arbitrator by such Judge on such application shall have precisely the same force and effect as if such arbitrator had been appointed by the two arbitrators. Until such time as the arbitrators finally close the hearings, either party shall have the right by written notice to serve on the arbitrators and on an officers of the other party to specify further disputes or differences under this Agreement for hearing and determination. Awards made in pursuance of this clause may include costs, including a reasonable allowance for attorneys' fees, and judgment may be entered upon any award hereunder in any Court having jurisdiction in the premises. 11.15. Confidentiality. Information of any nature, including any ---------------- technical data or knowledge exchanged by the parties in connection with any matter arising under this Agreement shall remain confidential and among the parties to this Agreement. ________________________________________________________________________________ Cruise Ship Management Services Agreement July, 1995 - Page 34 IN WITNESS WHEREOF, the parties hereto have executed or caused this Agreement to be executed as of the day and year first above written. NEW COMMODORE CRUISE LINE LIMITED [SIGNATURE ILLEGIBLE] ------------------------------------------------ ________________________________________________ INTERNATIONAL MARINE CARRIERS, INC. [SIGNATURE ILLEGIBLE] ------------------------------------------------ [SIGNATURE ILLEGIBLE] ------------------------------------------------ PRESIDENT ________________________________________________________________________________ Cruise Ship Management Services Agreement July, 1995 - Page 35 ATTACHMENT 1 DATE OF AGREEMENT: June 23, 1995 NAME OF VESSEL: Enchanted Isle LLOYDS ID #: 5023162 PARTICULARS OF VESSEL: LENGTH 617 Feet WIDTH 84 Feet DRAFT 28 Feet TONNAGE 23,395 REGISTRY/FLAG Panama CAPACITY 729 Passengers 350 Crew STATEROOMS 367 Total (290 Outside/77 Inside) CREW NATIONALITY Officers: European & Scandinavian Crew: International YEAR BUILT 1959 - -------------------------------------------------------------------------------- New Commodore Cruise Lines Management Services Agreement July, 1995 - -------------------------------------------------------------------------------- ATTACHMENT 1a
================================================================================ ITINERARIES ================================================================================ SHIP 1 SHIP II - -------------------------------------------------------------------------------- DAY PORT DAY PORT - -------------------------------------------------------------------------------- 1 New Orleans 1 New Orleans - -------------------------------------------------------------------------------- 2 At Sea 2 At Sea - -------------------------------------------------------------------------------- 3 Playa del Carman/ 3 Playa del Carman/ Cozumel Cozumel - -------------------------------------------------------------------------------- 4 Puerto Cortez 4 Grand Cayman - -------------------------------------------------------------------------------- 5 Roatan 5 Montego Bay - -------------------------------------------------------------------------------- 6 At Sea 6 At Sea - -------------------------------------------------------------------------------- 7 At Sea 7 At Sea - -------------------------------------------------------------------------------- 8 New Orleans 8 New Orleans ================================================================================ - -------------------------------------------------------------------------------- New Commodore Cruise Lines Management Services Agreement July, 1995 - --------------------------------------------------------------------------------
ATTACHMENT II LIST OF INSURANCE Hull and Machinery $16,000,000 (includes War Risk) Increased Value $ 4,000,000 Protection & Indemnity $500,000,000 War Risk Included in H & M Loss of Hire $ 63,000 per diem (Subject to Modification) Passenger Evacuation $ 500,000/1,000,000 Mortgage Interest $ 16,000,000 Passenger Liability $ 2,500,000
- -------------------------------------------------------------------------------- New Commodore Cruise Lines Management Services Agreement July, 1995 - -------------------------------------------------------------------------------- ATTACHMENT III Enchanted Isle Management Fee: Five Hundred Eighty Five Thousand US Dollars per annum (US $585,000) Payable in 24 installments in advance no later than the fifth (5th) and twentieth (20th) day of each month. - -------------------------------------------------------------------------------- New Commodore Cruise Lines Management Services Agreement July, 1995 - -------------------------------------------------------------------------------- CRUISE SHIP MANAGEMENT SERVICES AGREEMENT Dated July 6, 1995 (the "Management Agreement") ADDENDUM NO. 1 AGREEMENT made as of the __ day of July 1995, by and between NEW COMMODORE CRUISE LINE LIMITED (the "Owner") and INTERNATIONAL MARINE CARRIERS, INC. (the "Manager") WHEREAS the Owner has contracted for the purchase of or has bareboat chartered the oceangoing cruise vessel described in Attachment 1 to this Addendum No. 1 to the Management Agreement (the "Second Vessel"); and WHEREAS the Owner wishes to utilize the vessel management services of the Manager in connection with the operation of the Second Vessel and the Manager desires to render such services, all upon the terms and conditions set forth in the Management Agreement, NOW THEREFORE, in consideration of the premises and the mutual covenants herein contained, Owner and Manager agree as follows: 1. The Second Vessel will be managed by the Manager according to the terms and conditions stipulated in the Management Agreement except as hereinafter set forth. 2. The amount of the Management Fee for the Second Vessel as provided in Clause 6.01 of the Management Agreement shall be negotiated and agreed upon. 3. Owner agrees to pay the Management Fee for the Second Vessel commencing thirty (30) days prior to the starting date of the first cruise of the Second Vessel under the Owner's operation which starting date is currently anticipated to be December 16, 1995. 4. Routine Lay-Up. Upon closing of the Second Vessel (on or about 6 July -------------- 1995), the Second Vessel will be inactive and in a lay-up status in New Orleans, L.A. The parties agree that during this lay-up period, the Manager will provide management and oversight services relative to the following: Routine Lay-Up 1. Operations (Port; Regulatory, Class and Requirements) 2. Crewing 3. Purchasing 4. Maintenance & Repair 5. Insurance 6. Labor Relations During any routine lay-up, the Owner will pay to the Manager a fee of $250.00 per day which fee shall be paid in advance twice monthly but no later than the fifth (5th) and twentieth (20th) day of each month and which shall be effective, due and payable commencing upon closing. 5. Expanded Lay-Up In addition, the Owner may wish to perform extensive --------------- repairs, drydocking, upgrades, modifications or improvements to the Second Vessel during this lay-up period and in such case, will utilize the management services and oversight of the Manger in connection therewith. In addition to the services provided during routine lay-up as set forth in paragraph 4 above, during any expanded lay-up for extensive repairs, drydocking, upgrades, modifications, or improvements, the Manager will provide specific "on-sight" supervision and management and during this expanded lay-up the Owner will pay the manager a total fee of $500 per day for all its services, including routine lay-up, which fee will be paid in advance twice monthly but no later than the fifth (5th) and twentieth (20th) day of each month. 6. The fees payable under paragraphs 4 and 5 above will cease when payment of the Management Fee commences under clause 3 above. However, the Manager will continue to provide all management services required for the Second Vessel including routine lay-up and expanded lay-up services. 7. In event that the Second Vessel is chartered, selection of vessel management will be at Charterers' Option and according to "agreed to" terms and conditions. NEW COMMODORE CRUISE LINE INTERNATIONAL MARINE CARRIERS, INC. LIMITED /s/ Fred Mayer /s/ Robert G. Wellner - ------------------------- --------------------------- By: Fred Mayer, Chairman By: Robert G. Wellner, President Dated: July 5 , 1995 -- 2 ATTACHMENT 1 DATE OF AGREEMENT: June 23, 1995 NAME OF VESSEL: Enchanted Seas ABS ID #: 5800588 PARTICULARS OF VESSEL: LENGTH 617 Feet WIDTH 84 Feet DRAFT 28 Feet TONNAGE 23,395 REGISTRY/FLAG Panama CAPACITY 726 Passengers 330 Crew STATEROOMS 369 Total (293 Outside/76 Inside) CREW NATIONALITY Officers: European & Scandinavian Crew: International YEAR BUILT 1958 - -------------------------------------------------------------------------------- New Commodore Cruise Lines Management Services Agreement July, 1995 - -------------------------------------------------------------------------------- AGREEMENT --------- INCENTIVE PAYMENTS ------------------ This Agreement is made and entered into by and between NEW COMMODORE CRUISE LINE, its successors and assigns (hereinafter referred to as "NCCL") and INTERNATIONAL MARINE CARRIERS, INC., (hereinafter referred to as "IMC"). In conjunction with and in addition to; the CRUISE SHIP MANAGEMENT SERVICES AGREEMENTS(S), dated 5 July, 1995, with Amendments; the parties hereby agree as follows: THAT in addition to the Management Fee agreed to, NCCL will provide Incentive Compensation to IMC. THAT the incentive amounts will be mutually agreed between the parties. THAT payment of incentive amounts will be payable to IMC, at any time, when the vessels and NCCL become profitable and may be retroactive to the initial contract period. THAT the incentive payments will be made to IMC, as managers, for satisfactorily accomplishing performance parameters jointly established by NCCL and IMC--which could include: A. Budgeted Operating Coats B. Budgeted On Board Revenues C. Vessel Operating Performances This Agreement shall become effective as of July 1, 1995, or at closing, whichever occurs first: FOR NCCL FOR IMC /s/ Fred Mayer /s/ Robert G. Wellner - ------------------------------------ ----------------------------------- By: Fred Mayer, Chairman by: Robert G. Wellner, President Dated: 5 July, 1995 AGREEMENT --------- INTERIM VP OPERATIONS --------------------- This Agreement is made and entered into by and between NEW COMMODORE CRUISE LINE, its successors and assigns (hereinafter referred to as "NCCL") and INTERNATIONAL MARINE CARRIERS, INC., (hereinafter referred to as "IMC"). In conjunction with and in addition to; the CRUISE SHIP MANAGEMENT SERVICES AGREEMENT, dated 5 July, 1995, with Amendments; the parties hereby agree as follows: THAT Mr. Robert Young, Vice President of Operations and Engineering for IMC, will serve as interim Vice President of Operations for NCCL until such time ------- as a permanent VP of Operations is employed by NCCL. This period shall commence on June 19, 1995, and shall terminate on Thirty (30) days notice, such notice will not be given in July, 1995. --- THAT, as part of its monthly fee, NCCL will compensate IMC for Mr. Young's services at the rate of Six Thousand Seven Hundred US Dollars (US$6,700.00) per month. This Agreement shall become effective as of July 6, 1995, or at closing. FOR NCCL FOR IMC /s/ Fred Mayer /s/ Robert G. Wellner - ------------------------------------ --------------------------------- By: Fred Mayer, Chairman by: Robert G. Wellner, President Dated: 5 July, 1995 ATTACHMENT I DATE OF AGREEMENT: June 23, 1995 NAME OF VESSEL: Enchanted Isle LLOYDS ID #: 5023162 PARTICULARS OF VESSEL: LENGTH 617 Feet WIDTH 84 Feet DRAFT 28 Feet TONNAGE 23,395 REGISTRY/FLAG Panama CAPACITY 729 Passengers 350 Crew STATEROOMS 367 Total (290 Outside/77 Inside) CREW NATIONALITY Officers: European & Scandinavian Crew: International YEAR BUILT 1959 - -------------------------------------------------------------------------------- New Commodore Cruise Lines Management Services Agreement July, 1995 - -------------------------------------------------------------------------------- ATTACHMENT I DATE OF AGREEMENT: June 23, 1995 NAME OF VESSEL: Enchanted Seas ABS ID #: 5800588 PARTICULARS OF VESSEL: LENGTH 617 Feet WIDTH 84 Feet DRAFT 28 Feet TONNAGE 23,395 REGISTRY/FLAG Panama CAPACITY 726 Passengers 330 Crew STATEROOMS 369 Total (293 Outside/76 Inside) CREW NATIONALITY Officers: European & Scandinavian Crew: International YEAR BUILT 1958 - -------------------------------------------------------------------------------- New Commodore Cruise Lines Management Services Agreement July, 1995 - -------------------------------------------------------------------------------- ATTACHMENT IA
================================================================================ ITINERARIES - -------------------------------------------------------------------------------- SHIP I SHIP II - -------------------------------------------------------------------------------- DAY PORT DAY PORT - -------------------------------------------------------------------------------- 1 New Orleans 1 New Orleans - -------------------------------------------------------------------------------- 2 At Sea 2 At Sea - -------------------------------------------------------------------------------- 3 Playa del Carman/Cozumel 3 Playa del Carman/Cozumel - -------------------------------------------------------------------------------- 4 Puerto Cortez 4 Grand Cayman - -------------------------------------------------------------------------------- 5 Roatan 5 Montego Bay - -------------------------------------------------------------------------------- 6 At Sea 6 At Sea - -------------------------------------------------------------------------------- 7 At Sea 7 At Sea - -------------------------------------------------------------------------------- 8 New Orleans 8 New Orleans ================================================================================
- -------------------------------------------------------------------------------- New Commodore Cruise Lines Management Services Agreement July, 1995 - -------------------------------------------------------------------------------- ATTACHMENT II LIST OF INSURANCE Hull and Machinery $16,000,000 (includes War Risk) Increased Value $ 4,000,000 Protection & Indemnity $500,000,000 War Risk Included in H & M Loss of Hire $ 63,000 per diem (Subject to Modification) Passenger Evacuation $500,000/1,000,000 Mortgagee Interest $ 16,000,000 Passenger Liability $ 2,500,000
- -------------------------------------------------------------------------------- New Commodore Cruise Lines Management Services Agreement July, 1995 - -------------------------------------------------------------------------------- CRUISE SHIP MANAGEMENT SERVICES AGREEMENT Dated July 6, 1995 (the "Management Agreement") ADDENDUM NO. 1 AGREEMENT made as of the 6th day of July, 1995, by and between NEW COMMODORE CRUISE LINE LIMITED (the "Owner") and INTERNATIONAL MARINE CARRIERS, INC. (the "Manager") WHEREAS the Owner has contracted for the purchase of or has bareboat chartered the oceangoing cruise vessel described in Attachment I to this Addendum No. 1 to the Management Agreement (the "Second Vessel"); and WHEREAS the Owner wishes to utilize the vessel management services of the Manager in connection with the operation of the Second Vessel and the Manager desires to render such services, all upon the terms and conditions set forth in the Management Agreement. NOW THEREFORE, in consideration of the premises and the mutual covenants herein contained, Owner and Manager agree as follows: 1. The Second Vessel will be managed by the Manager according to the terms and conditions stipulated in the Management Agreement except as hereinafter set forth. 2. The amount of the Management Fee for the Second vessel as provided in Clause 6.01 of the Management Agreement shall be negotiated and agreed upon. 3. Owner agrees to pay the Management Fee for the Second Vessel commencing thirty (30) days prior to the starting date of the first cruise of the Second Vessel under the Owner's operation which starting date is currently anticipated to be December 16, 1995. 4. Routine Lay-Up. Upon closing of the Second Vessel (on or about 6 July -------------- 1995), the Second Vessel will be inactive and in a lay-up status in New Orleans, LA. The parties agree that during this lay-up period, the Manager will provide management and overnight services relative to the following: Routine Lay-Up A. Operations (Port; Regulatory, Class and Requirements) B. Crewing C. Purchasing D. Maintenance & Repair E. Insurance F. Labor Relations During any routine lay-up, the Owner will pay to the Manager a fee of $250.00 per day which fee shall be paid in advance twice monthly but no later than the fifth (5th) and twentieth (20th) day of each month and which shall be effective, due and payable commencing upon closing. 5. Expanded Lay-Up. In addition, the Owner may wish to perform extensive --------------- repairs, drydocking, upgrades, modifications or improvements to the Second Vessel during this lay-up period and in such case, will utilize the management services and oversight of the Manager in connection therewith. In addition to the services provided during routine lay-up as set forth in paragraph 4 above, during any expanded lay-up for extensive repairs, drydocking, upgrades, modifications, or improvements, the Manager will provide specific "on-sight" supervision and management and during this expanded lay-up the Owner will pay the manager a total fee of $500 per day for all its services, including routine lay-up, which fee will be paid in advance twice monthly but no later than the fifth (5th) and twentieth (20th) day of each month. 6. The fees payable under paragraph 4 and 5 above will cease when payment of the Management Fee commence under clause 3 above. However, the Manager will continue to provide all management services required for the Second Vessel including routine lay-up and expanded lay-up services. 7. In the event that the Second Vessel is chartered, selection of vessel management will be at Charterers' Option and according to "agreed to" terms and conditions. NEW COMMODORE CRUISE INTERNATIONAL MARINE LINE LIMITED CARRIERS, INC. /s/ Fred Mayer /s/ Robert Wellner - ------------------------------ -------------------------------------- By: Fred Mayer, Chairman By: Robert G. Wellner, President Dated July __, 1995 - -------------------------------------------------------------------------------- New Commodore Cruise Lines Management Services Agreement July, 1995 - -------------------------------------------------------------------------------- -2- EX-10.K 6 EXHIBIT 10K: SUBLEASE SUBLEASE FOR OFFICE SPACE ------------------------- THIS SUBLEASE is entered into this ____ day of ____________, 1995, by and between Effjohn International B.V., a Dutch corporation with an office at 4000 Hollywood Boulevard, Hollywood, Florida 33021 ("Sublessor") and New Commodore Cruise Lines Limited, a Bermuda corporation, ("Sublessee") with reference to the following facts: A. Pursuant to an December 23, 1994 Lease Agreement (the "Main Lease") between Hollywood Corporate Circle Associates ("Landlord") and Sublessor, Sublessor has leased office space on second (2nd) and third (3rd) floors of the building located at 4000 Hollywood Boulevard, Hollywood, Florida 33021 (the "Building") and desires to sublease that space to Sublessee, and B. Sublessee desires to sublease the office space. NOW, THEREFORE, the parties agree as follows: 1. DEMISE AND DESCRIPTION OF PROPERTY Sublessor hereby leases to Sublessee, and Sublessee hereby leases from Sublessor, for the term, and subject to the conditions and covenants hereinafter set forth, the property, hereinafter referred to as the "subleased premises," located in Broward County, Florida, described as follows: a portion of the second (2nd) floor, shown on Exhibit "A" attached hereto and made a part hereof and a portion of the third (3rd) floor, shown on Exhibit "B" attached hereto and made a part hereof containing a total of approximately 16,214 rentable square feet. 2. TERM The term of this Sublease shall commence on June 30, 1995 for the Exhibit A space and Exhibit B space, provided Landlord's consent to this fully-executed Sublease has been obtained, and shall end on June 30, 2000. 3. RENT Base Rent and Additional Rent shall be paid as defined in the Main Lease and shall commence on June 30, 1995. Sublessee will pay the rent to Sublessor, at the address set forth above, or at such address as Sublessor may from time to time designate. Sublessee agrees to pay all such sums monthly, in advance, and without demand. If the term of this Sublease commences on a day other than the first day of the month or terminates on a day other than the last day of a month, then the installments of rent and any adjustments thereto for such month or months shall be prorated, based on the number of days in such month. 4. USE OF PREMISES The subleased premises shall be used by Sublessee for office purposes as defined in the Main Lease. 5. ASSUMPTION AGREEMENT AND COVENANTS Except as modified herein, the Sublessee shall comply with all provisions of the Main Lease during the term hereof by the Sublessor as Tenant thereunder and Sublessor shall have all rights and remedies of the Landlord thereunder. Notwithstanding the foregoing, the payment of rent shall be governed by the provisions of Paragraph 3, above. 6. ASSIGNMENT AND SUBLETTING Sublessee may sublease or assign the subleased premises or any part thereof subject to the terms of the Main Lease. Sublessee shall not be released from its obligation under the terms of this Sublease. 7. QUIET POSSESSION Sublessee, upon full performance of all provisions herein, shall peaceably and quietly have, hold and enjoy the subleased premises throughout the term hereof without any disturbance from Sublessor or any person claiming through Sublessor. 8. INSURANCE Sublessee agrees that, at all times during the Sublease Term, it will keep in force and effect all insurance as is required under the Main Lease and shall name Landlord and Sublessor as additional insured. 9. GENERAL a) This Sublease embodies the entire agreement between the parties hereto relative to the subject matter hereof and shall not be modified, changed, or altered in any respect except in writing. b) The covenants, agreements, and obligations herein contained shall extend to, bind, and insure to the benefit not only of the parties hereto but their successors and assigns; and where more than one party shall be Sublessor under this lease, the word "Sublessor" whenever used in this lease shall be deemed to include all such parties jointly and severally. c) Whenever under this Sublease, a provision is made for notice of any kind, such notice shall be in writing and signed by or on behalf of the party giving or making the same, and it shall be deemed sufficient notice and service thereof if such notice is sent by -2- registered or certified mail, postage prepaid, to the address furnished for such purpose. Copies of any notices to Sublessee shall also be sent to 4000 Hollywood Boulevard Suite 385S Hollywood Florida 33021. All notices to be given to the parties shall be given at the addresses stated above unless and until some other place is designated in writing by the respective party and in accordance with the Main Lease. d) Nothing in this Sublease Agreement is intended to conflict with the terms of the Main Lease or with any of the rights accorded the Landlord in the Main Lease which shall remain in full force and effect throughout the term of the Sublease. e) The subleased premises shall be designated as a non-smoking area and no smoking shall be permitted upon the subleased premises. f) The sublessee confirms that they have not utilized a broker in connection with this transaction. g) Any improvements constructed by sublessee shall be in accordance with the main lease and subject to Landlord's and Sublessor's approval. Executed on the day and year first above written. SUBLESSOR SUBLESSEE EFFJOHN INTERNATIONAL B.V. NEW COMMODORE CRUISE LINES LIMITED By:/s/Thomas Forss By:/s/Alan Pritzker ---------------------------- ------------------------------- Name: Thomas Forss Name: Alan Pritzker -------------------------- ----------------------------- Title: procura holder Title: V.P. Finance ------------------------- ---------------------------- -3- CONSENT ------- Hollywood Corporate Circle Associates ("Hollywood") hereby consents to the terms and conditions of the above June 30, 1995 Sublease for Office Space by and between EffJohn International B.V. ("Sublessee") and New Commodore Cruise Lines Limited ("Sublessee"). Hollywood has executed this consent to indicate approval of Sublessee, but in no way shall this consent be construed as a modification, amendment or supplement to the December 23, 1994 lease agreement between Sublessor and Hollywood, nor shall the execution of this consent by Hollywood be deemed to make Hollywood a party to the Sublease. HOLLYWOOD CORPORATE CIRCLE ASSOCIATES /s/ Gerald E. Lou, Senior Vice President ----------------- By: Gerald E. Lou ------------------------------------------- Exhibit A Exhibit A consists of a diagram of a portion of the second floor located at 4000 Hollywood Boulevard. Exhibit B Exhibit B consists of a diagram of a portion of the third floor located at 4000 Hollywood Boulevard. LEASE ----- THIS AGREEMENT, made this 23rd day of December 1994, by and between HOLLYWOOD CORPORATE CIRCLE ASSOCIATES, (hereinafter called "Landlord"), and EFFJOHN INTERNATIONAL B.V. (hereinafter called "Tenant"). WITNESSETH: That the Landlord for and in consideration of the covenants and agreements hereinafter set forth and the rent hereinafter specifically reserved, does hereby lease, unto said Tenant the space described as follows: PREMISES 1.01. Landlord hereby leases to Tenant and Tenant hereby leases from Landlord those certain offices in the building located at 4000 Hollywood Blvd., Hollywood, FL. 33021 (the "Building") which consist of about 16,214 rentable ------ square feet (per the modified BOMA Standard of Measurement of usable space plus 15%) of office space (the "Premises" or "Demised Premises"), Suites 285S & 385S, ----------- situated on the 2nd & 3rd floor of the building, as shown in Exhibit A --------- incorporated herein by reference. Rentable square feet includes Tenant's pro- rata share of common areas. 1.02. Provided Tenant Is not in default under this Lease, if there shall be any vacant contiguous space, or an immediate prospect of any vacant contiguous space, Landlord shall give Tenant written notice thereof. If within five (5) days thereafter, Tenant shall give Landlord written notice that Tenant elects to lease such space, Landlord and Tenant shall immediately execute a Lease for the space under the same terms and conditions as are then current, except that any improvement allowance shall be pro-rated in accordance with the time remaining on the lease Term. If Tenant does not give Landlord notice that is elects to lease such space within the time specified, Landlord may lease such space to any third party. TERM 2.01. The term shall be for sixty months (or until such term shall sooner ------------ cease, expire, or terminate as hereinafter provided) commencing on July 1, 1995 ------------ and terminating on June 30, 2000, both dates inclusive. ------------- 2.02. Provided Tenant is not and has not been in default under this Lease, Tenant shall have one (1) option to renew this Lease for an additional five (5) years with an adjustment of the base rent at the commencement of the option period to ninety percent (90%) of the then current market rent. BASE RENTAL 3.01. As Base rental for the use and occupancy of the Premises, Tenant shall pay to the Landlord during the initial year of the term set forth herein the sum of One hundred eighty six thousand four hundred sixty dollars ---------------------------------------------------------- plus the amount of the Improvement Allowance used divided by five, without - ----------------------------------------------------------------- deduction, demand, or notice payable in advance, in equal monthly installments of Fifteen thousand five hundred thirty-eight and 42/100 dollars plus the amount ----------------------------------------------------------------------------- of the Improvement Allowance used divided by sixty. The first installment shall - -------------------------------------------------- be payable on commencement, per 29.01, of this agreement and the remaining installments shall be payable, in advance, on the first day of each and every month, without demand, at the office of the building manager, or such other place as the Landlord may hereafter designate in writing. Rent checks are to be made payable to HOLLYWOOD CORPORATE CIRCLE ASSOCIATES or such other person, firm or corporation as the Landlord may designate in writing. If the Term commences on a day other than the first day of the month, the first payment shall be prorated on a thirty-day per calendar month basis for the period from the Lease Commencement Date to the first day of the first full month during the Term. In addition to the Base Rent, Tenant shall and hereby agrees to pay to Landlord each month a sum equal to any sales tax, tax on rentals, and any other charges, taxes and/or impositions now in existence or hereafter imposed based upon the privilege of renting the space leased hereunder or upon the amount of rentals collected therefor. Nothing herein shall, however, be construed to require Tenant to pay any part of any Federal and State Taxes on Income imposed upon Landlord. ADDITIONAL RENT 4.01. Tenant shall, for each calendar year, pay to Landlord as Additional Rent 5.69% of the Real Estate Tax and Electricity Costs of the Building. Real ----- estate taxes for the Base Year and subsequent calendar years shall include general real estate taxes, special assessments and any other taxes that may be imposed upon the premises. Electricity Costs for the Base Year and subsequent calendar years shall include all charges incurred by Landlord to provide power to the building and shall exclude any charges billed directly to Tenant by a public utility company. 4.02. Sixty (60) days before the start of each calendar year, Landlord Shall make a determination of the anticipated Real Estate Tax and Electricity Costs of the Building for such calendar year. Landlord shall submit to Tenant a statement of the determination, including Tenant's aforesaid proportionate share. Tenant shall pay his proportionate share to Landlord, as additional rent, in equal monthly payments commencing January 1st of such calendar year. Not later than ninety (90) days following the conclusion of each calendar year, Landlord shall give to Tenant an accounting of the actual Real Estate Tax and Electricity Costs for the previous calendar year and should said expenses vary from expenses actually assessed, the appropriate party shall pay to the other party the over payment he (Landlord) collected or the under payment he (Tenant) failed to pay within fifteen (15) days after receipt of written request therefor. All amounts shall be equitably adjusted so that Tenant's share of the Real Estate Tax and Electricity Costs shall not be payable with respect to that portion of a calendar year, if any, during which -2- the Lease is not in effect. Landlord agrees to maintain copies of Real Estate Tax and Electricity bills reflecting those expenses of the Building. The Landlord's estimate of Real Estate Tax and Electricity Costs for 1995 is $1,077,000. 4.03. The amount provided, as related to the Demised Premises, for Other Operating Costs is Sixty Thousand Eight Hundred Two and 50/100 ($60,802.50) -------------------------------------------------------- Dollars per year. In addition to the Real Estate Tax and Electricity Costs discussed above, Tenant shall pay this amount to the Landlord as further Additional Rent, in equal monthly payments. This amount shall be increased by five per cent (5%) on January 1st of each calendar year to allow for anticipated increases in Other Operating Costs. 4.04. Commencing on the first anniversary of this Lease and on each anniversary thereafter, during the term of this Lease, the annual Base Rent reserved herein shall be increased four (4%) per cent over the preceding year. In no event shall the Base and Additional Rent payable by Tenant during any calendar year be less than the Base and Additional Rent payable during the previous calendar year. SECURITY DEPOSIT 5.01. Tenant shall pay the Landlord upon execution of this Lease, the sum of ______________________________ ($-0-) Dollars to be held as collateral security for the payment of any rentals and any other sums of money for which Tenant shall become liable to Landlord under this Lease and for the faithful performance by Tenant of all other covenants and agreements made herein. In the event Tenant fails to perform or observe any of the provisions of this Lease to be performed or observed by it, then, at the option of Landlord, Landlord may (but shall not be obligated to do so) apply the deposit, or so much thereof as may be necessary to remedy such default or to repair damages to the Premises caused by the Tenant, Tenant shall pay to Landlord, within fifteen (15) days after written demand for such payment by Landlord, all monies necessary to restore the deposit up to the original amount. In the event the deposit shall not be utilized for any such purposes, then such deposit shall be returned by Landlord to Tenant within forty-five (45) days after the expiration or termination of this Lease. The deposit may be commingled with other funds of Landlord and Landlord shall not be required to pay Tenant any interest on such security deposit. EXAMINATION OF PREMISES 6.01. Tenant, having examined the Demised Premises, is familiar with the condition thereof and, relying solely upon such examination, will take then in their present condition. The above notwithstanding, Landlord has allocated One hundred sixty two thousand one hundred forty dollars ($162,140.00), (the "Improvement Allowance"), for changes or improvements in the Demised Premises and for Tenant's relocation, phone system costs, and modular workstations to be used subsequent to delivering possession in making the Premises suitable for Tenant's occupancy. -3- USE OF PREMISES 7.01. The Tenant shall use and occupy the Demised Premises for office ------ space and other purposes associated with cruise line operations and for other - --------------------------------------------------------------- reasonable purposes not in conflict with any exclusive use of other tenants in the Building. UPKEEP OF PREMISES 8.01. The Tenant agrees that it will keep the Demised Premises and the fixtures thereon in good order and condition and will, at the expiration or other termination of the term hereof, surrender and deliver up the same in like good order and condition as the same now is or shall be at the commencement of the term hereof, ordinary wear and tear, and damage by the elements, fire, and other unavoidable casualty excepted, unless caused by negligence of Tenant or their agents or employees. ASSIGNMENT AND SUBLETTING 9.01. The Tenant covenants and agrees not to encumber or assign this Lease or sublet all or any part of the Demised Premises without the prior written consent of Landlord. Any sale or transfer, whether to one or more persons or entities and whether at one or different times, of a total of more than fifty percent (50%) of the share of voting or capital stock of any corporation which is then the legal Tenant under this Lease, shall be deemed an assignment or subletting within the meaning of this paragraph. If Landlord consents to an assignment or subletting, the Assignee or Sub-Lessee shall first be obligated to assume, in writing, all of the obligations of Tenant under this Lease and Tenant shall, for the full term of this Lease, continue to be jointly and severally liable with such Assignee or Sub-Lessee for the payment of the rent and the performance of all obligations required by Tenant under this Lease. In no event shall Tenant assign or sublet the Demised Premises for any terms, conditions and covenants other than those contained herein. In no event shall this Lease be assigned or be assignable by operation of law or by voluntary or involuntary bankruptcy proceedings or otherwise, and in no event shall this Lease or any rights or privileges hereunder be an asset of Tenant under any bankruptcy, insolvency or reorganization proceedings. Should Landlord consent to any assignment or sublease, any economic benefit, less Tenant's costs associated with subleasing the Premises, thus derived shall be for the account of Landlord. Landlord's consent, as required herein, shall not unreasonably be withheld. FIRE INSURANCE 10.01. Landlord shall, at its expense, keep the building of which the Demised Premises form a part, insured against loss by fire or casualty with extended coverage in an amount determined by the Landlord, and said policy shall include a standard waiver of subrogation clause against Tenant. Landlord agrees to provide Tenant with a copy of the policy declarations page. -4- The Tenant will not do or permit anything to be done in the Demised Premises or the Building of which they form a part or bring or keep anything therein which shall in any way increase the rate of fire or other insurance in said Building, or on the property kept therein, or obstruct, or interfere with the rights of other tenants, or in any way injure or annoy them, or those having business with them, or conflict with them, or conflict with the fire laws or regulations, or with any insurance policy upon said Building or any part thereof, or with any statutes, rules or regulations enacted or established by the appropriate governmental authority. In the event the cost of premiums on said fire and extended insurance increases due to the hazardous nature of the use and occupancy by Tenant of the Premises, then the entire increase in insurance cost shall be paid by Tenant as additional rent in a lump sum upon receipt of invoice from the Landlord. ALTERATIONS 11.01. Tenant will not make any alterations, installations, changes, replacements, additions, or improvements (structural or otherwise) in or to the Demised Premises or any part thereof, without the prior written consent of the Landlord. All alterations or improvements shall be and remain a part of the Demised Premises at the expiration of this Lease; or at the option of the Landlord, he may require Tenant to remove all or any portion of said improvements and restore that portion to its original condition. The cost of said removal and restoration shall be paid by Tenant. Landlord's consent, as required herein, shall not be unreasonably be withheld. TENANT'S AGREEMENT 12.01. Tenant further agrees that no sign, advertisement or notice shall be inscribed, painted or affixed on any part of the outside or inside of the Demised Premises or Building, except on the directories and doors of offices, and then only in such size, color and style as the Landlord shall approve. Landlord shall have the right to prescribe the weight, and method of installation and position of safes or other heavy fixtures or equipment and Tenant will not install in the premises any fixtures, equipment or machinery that will place a load upon any floor exceeding the floor load per square foot area which such floor was designed to carry. All damage done to the Building by taking in or removing a safe or any other article of Tenant's office equipment, or due to its being in the premises, shall be repaired at the expense of the Tenant. No freight, furniture or other bulky matter of any description will be received into the Building or carried in the elevators, except as approved by the Landlord. All moving of furniture, material and equipment shall be under the direct control and supervision of the Landlord, who shall, however, not be responsible for any damage to or charges for moving same. Tenant agrees promptly to remove from the public area adjacent to said Building any of Tenant's merchandise there delivered or deposited. Landlord's consent, as required herein, shall not unreasonably be withheld. -5- ELECTRICAL EQUIPMENT 13.01. Tenant will not install or operate in the premises any electrically operated equipment or other machinery, other than personal computers, typewriters, adding machines and such other electrically operated office machinery and equipment normally used in modern offices, without first obtaining the prior written consent of the Landlord. Landlord may condition such consent upon the payment by the Tenant of additional rent as compensation for such excess consumption of water and/or electricity as may be occasioned by the operation of said equipment or machinery. Tenant shall not install any other equipment of any kind or nature whatsoever which will or may necessitate any changes, replacements or additions to or require the use of the water system, plumbing system, heating system, air conditioning system or the electrical system of the Demised Premises without the prior written consent of the Landlord. Landlord's consent, as required herein, shall not unreasonably be withheld. TENANT EQUIPMENT 14.01. Maintenance and repair of equipment such as kitchen fixtures, separate air-conditioning equipment, or any other type of special equipment, whether installed by Tenant or by Landlord on behalf of Tenant, shall be the sole responsibility of Tenant and Landlord shall have no obligation in connection therewith. ACCESS 15.01. Tenant further agrees that it will allow the Landlord, its agents or employees, to enter the Demised Premises during normal business hours to examine, inspect or to protect the same or prevent damage or injury to the same, or to make such alterations and repairs to the Demised Premises as the Landlord may deem necessary; or to exhibit the same to prospective tenants during the last six (6) months of the term of this Lease. ILLEGAL USE 16.01. The Tenant will not use or permit the Demised Premises or any part thereof to be used for any disorderly, unlawful or extra hazardous purpose nor for any other purpose than hereinbefore specified; and will not manufacture any commodity therein, without the prior written consent of the Landlord. RULES AND REGULATIONS 17.01. The Tenant covenants that the Rules and Regulations attached hereto as Exhibit B, and such other and further rules and regulations as the landlord may make and which in the Landlord's judgment are needful for the general well being, safety, care and cleanliness of the Demised Premises and the Building of which they are a part together with their appurtenances, shall be faithfully kept, observed and performed by the Tenant, and by its agents, servants, employees and guests. -6- DAMAGE 18.01 All injury to the Demised Premises or the Building of which they are a part, caused by moving the property of Tenant into or out of, the said Building and all breakage done by Tenant, or the agents, servants, employees and visitors of Tenant, shall be repaired by the Tenant, at the expense of the Tenant. In the event that the Tenant shall fail to do so, then the Landlord shall have the right to make such necessary repairs, alterations and replacements (structural, non-structural or otherwise) and any charge or cost so incurred by the landlord shall be paid by the Tenant with the right on the part of the Landlord to elect in its discretion, to regard the same as additional Rent, in which event such cost or charge shall become additional Rent payable with the installment of Rent next becoming due or thereafter falling due under the terms of this Lease. This provision shall be construed as an additional remedy granted to the Landlord and not a limitation of any other rights and remedies which the Landlord has or may have in said circumstances. PERSONAL PROPERTY 19.01. All personal property of the Tenant in the Demised Premises or in the Building of which the Demised Premises is a part shall be at the sole risk of the Tenant. The Landlord shall not be liable for any accident to or damage to property of Tenant resulting from the use or operation of elevators or of the heating, cooling, electrical or plumbing apparatus. Landlord shall not, in any event, be liable for damages to property resulting from water, steam or other causes. Tenant hereby expressly releases and agrees to hold Landlord harmless from any liability incurred or claimed by reason of damage to Tenant's property. Landlord shall not be liable in damages, nor shall this Lease be affected, for conditions arising or resulting, and which may affect the Building of which the Demised Premises is a part, due to construction on contiguous premises. Notwithstanding the foregoing, Landlord shall not be relieved of liability as a result of willfully negligent acts caused by Landlord, its agents or employees. LIABILITY 20.01 The Landlord assumes no liability or responsibility whatsoever with respect to the conduct and operation of the business to be conducted in the Demised Premises. The Landlord shall not be liable for any accident to or injury to any person or persons or property in or about the Demised Premises which are caused by the conduct and operation of said business or by virtue of equipment or property of the Tenant in said premises. The Tenant agrees to hold the Landlord harmless against all such claims. 20.02 Tenant shall carry comprehensive general liability insurance, including coverage for bodily injury and death, property damage and personal injury, and contractual liability with the Landlord named as an additional insured on the policy. Such insurance to include a minimum limit of Five Million Dollars ($5,000,000) and to be with companies satisfactory to Landlord and shall include a standard waiver of subrogation clause against Landlord. During the term of the Lease Tenant agrees to furnish to Landlord policies or certificates of insurance evidencing uninterrupted coverage. -7- 20.03 The Demised Premises shall be constructed in Accordance with the requirements of the Americans with Disabilities Act ("ADA") and, thereafter, Tenant shall be responsible for compliance within the Demised Premises and with all requirements of the ADA. SERVICES 21.01 The Landlord shall furnish reasonably adequate electric current (excluding any electrical service metered directly to Tenant), water, lavatory supplies, fluorescent tube replacements, and automatically operated elevator service during normal business hours, and normal and usual cleaning and janitorial service after business hours, without additional cost to the Tenant. Landlord further agrees to furnish heat and air conditioning by means of a central air conditioning system during the appropriate seasons of the year, between the hours of 8 AM and 7 PM on Monday through Friday and from 9 AM to 1 PM on Saturday (exclusive of holidays), provided, however, that the Landlord shall not be liable for failure to furnish, or for suspension or delays in furnishing, any of such services caused by breakdown, maintenance or repair work or strike, riot, civil commotion, or any cause or reason whatever beyond the control of the Landlord. Landlord shall also supply all such services referenced above upon reasonable request of Tenant during those times which are not covered hereunder and Tenant agrees to pay all reasonable costs associated with the same. 21.02 The overall parking ratio for the Building is 4 spaces per 1,000 rentable square feet. Included in the overall ratio is one (1) garage space per 1,200 rentable square feet. Parking is on a non-exclusive, unreserved basis. There will be no charge during the term of this Lease for the referenced parking. 21.03 Landlord, at its cost, will provide one directory strip in each of the north and south tower elevator lobby directories, one building standard entrance door sign for the second and third floor suites, and one building standard strip on one of the four driveway entrance monument strips surrounding the Building. BANKRUPTCY 22.01 If the Tenant shall make an assignment of its assets for the benefit of creditors, or if the Tenant shall become insolvent (either because total liabilities exceed assets or because insufficient cash is available to meet current liabilities) during the term of this Lease, then and in any of said events this Lease shall immediately cease and terminate at the option of the Landlord with the same force and effect as though the date of said event was the day herein fixed for expiration of the term of this Lease. DEFAULT 23.01 If Tenant defaults in the prompt payment of Rent or Additional Rent or in the performance or observance of any other provision of this Lease and such other default shall continue for ten (10) days after notice thereof shall have been given to Tenant; or if the leasehold interest of Tenant be levied upon under execution or attached by process of law; or -8- if Tenant abandons the Demised Premises; then and in any such event Landlord, if it so elects forthwith, or at any time thereafter while such default continues, either may terminate Tenant's right to possession without terminating this Lease, or may terminate this Lease. 23.02 Upon termination of this Lease, whether by lapse of time or otherwise, or upon any termination of the Tenant's right to possession without termination of the Lease, the Tenant shall surrender possession and vacate the Demised Premises immediately and deliver possession thereof to the Landlord. 23.03 Tenant shall be deemed to have abandoned the Demised Premises if rent is not currently paid and Tenant is absent from the Premises for a period of fifteen (15) days. If the Tenant abandons the Demised Premises and if the Landlord elects to terminate the Tenant's right to possession only, without terminating the Lease, the Landlord may, at the Landlord's option, enter into the Demised Premises, remove the Tenant's signs and other evidences of tenancy, and take and hold possession thereof without such entry and possession terminating the Lease or releasing the Tenant, in whole or in part, from the Tenant's obligation to pay the Rent hereunder for the full term. Upon and after entry into possession without termination of the Lease, the Landlord may relet the Demised Premises or any part thereof for the account of the Tenant to any person, firm or corporation other than the Tenant for such rent, for such time, and upon such terms as the Landlord in the Landlord's sole discretion shall determine. In any such case, the Landlord may make repairs in or to the Demised Premises, and redecorate the same to the extent deemed by the Landlord necessary or desirable, and the Tenant shall, upon demand, pay the cost hereof together with the Landlord's expenses of the reletting. If the consideration collected by the Landlord upon any such reletting for the Tenant's account is not sufficient to pay the full amount of unpaid rent reserved in this Lease, together with the costs of repairs, alterations, additions, redecorating, and the Landlord's expenses, the Tenant shall pay to the Landlord the amount of each deficiency upon demand. 23.04 If any voluntary or involuntary petition or similar pleading under any section or sections of any bankruptcy act shall be filed by or against Tenant, or any voluntary or involuntary proceedings in any court shall be instituted to declare Tenant insolvent or unable to pay Tenant's debts, or if Tenant makes an assignment for the benefit of its creditors, or a trustee or receiver is appointed for Tenant or for the major part of Tenant's property, then and in such event Landlord may, if Landlord so elects, with or without notice of such election and with or without entry or other action by Landlord, forthwith terminate this Lease, and notwithstanding any other provisions of this Lease, Landlord shall forthwith upon such termination be entitled to recover damages in an amount equal to the then present value of the Rent specified in this Lease for the residue of the stated term hereof, less the fair rental income of the Premises received by Landlord for the residue of the stated term. 23.05 Tenant shall pay all reasonable Landlord's costs, charges and expenses, including the reasonable fees of counsel, agents and others retained by Landlord, incurred in enforcing Tenant's obligations hereunder or incurred by Landlord in any litigation, negotiation, bankruptcy or insolvency proceeding, transaction or appeal, including those in which Tenant causes Landlord, without Landlord's fault, to become involved or concerned. -9- 23.06 If Tenant violates any of the terms and provisions of this Lease, or defaults in any of its obligations hereunder, other than the payment of rent or other sums payable hereunder, such violation may be restrained or such obligation enforced by injunction. 23.07 Tenant agrees that it will promptly pay said Rent at the times above stated without notice or demand; that, if any part of the Rent remains due and unpaid for ten (10) days next after the same shall become due and payable, Landlord shall have the option of declaring the balance of the entire rental term of this Lease to be immediately due and payable, and Landlord may then proceed to collect all of the unpaid Rent called for by this Lease by distress or otherwise. 23.08 Time is of the essence with respect to Rent, Additional Rent and/or any other payment due under this Lease. All payments required to be paid by Tenant shall be paid on the first day of the month (but not later than five days after stated due date) and shall be subject to a 5% late charge if not received within said maximum five day period. In addition, any payment not paid when due will bear interest from the due date until paid at the highest rate allowed by law. If Tenant is late with three (3) consecutive payments, then all payments automatically become payable quarterly in advance instead of monthly. 23.09 All rights and remedies of Landlord herein enumerated shall be cumulative and none shall exclude any other right or remedy allowed by law. 23.10 In case of default hereunder by any Landlord or by any of its agents or representatives, Tenant shall look solely to the interest of such Landlord in the Building and the land on which it is located for the collection of any judgment or other relief and no other property or estate of Landlord shall be subject to levy, execution or other enforcement procedures for the satisfaction of Tenant's rights and remedies under this Lease. DAMAGE BY FIRE OR CASUALTY 24.01 In the event of damage or destruction of the Demised Premises by fire or any other casualty, this Lease shall not be terminated, but the premises may be promptly and fully repaired and restored as the case may be by the Landlord at its own cost and expense. Due allowance, however, shall be given for reasonable time required for adjustment and settlement of insurance claims, and for such other delays as may result from government restrictions, and availability of materials or controls on construction, if any, and for strikes, national emergencies and other conditions beyond the control of the Landlord. It is agreed that in any of the aforesaid events, this Lease shall continue in full force and effect, but if the condition is such so as to make the entire premises untenantable, then the rental which the Tenant is obligated to pay hereunder shall abate as of the date of the occurrence until the premises have been fully and completely restored by the Landlord. Any unpaid or prepaid rent for the month in which said condition occurs shall be pro-rated. If the premises are partially damaged or destroyed, then during the period that Tenant is deprived of the use of the damaged portion of said premises, Tenant shall be required to pay rental covering only that part of the premises that it is able to occupy, based on that portion of the total rent which the amount of square foot area remaining -10- that can be occupied bears to the total square foot area of all the premises covered by this Lease. In the event the Building is substantially or totally destroyed by fire or other casualty so as to be entirely untenantable and it shall require more than one hundred twenty (120) days for the Landlord to commence restoration of same, then either party hereto, upon written notice to the other party, may terminate this Lease, in which case the rent shall be appointed and paid to the date of said fire or other casualty. SUBORDINATION 25.01 This Lease is subject and subordinate to all ground or underlying leases and to all mortgages which may now or hereafter affect such leases or the real property of which the Demised Premises form a part, and to all renewals, modifications, consolidations, replacements and extensions thereof. This clause shall be self-operative and no further instrument of subordination shall be required by any mortgagee. In confirmation of such subordination, Tenant shall execute promptly any certificate that the Landlord may request. Tenant hereby constitutes and appoints Landlord the Tenant's attorney-in-fact to execute any such certificate or certificates for and on behalf of the Tenant. CONDEMNATION 26.01 Tenant agrees that if the said premises, or any part thereof, shall be taken or condemned for public or quasi-public use or purpose by any competent authority, Tenant shall have no claim against the Landlord and shall not have any claim or right to any portion of the amount that may be awarded as damages or paid as a result of any such condemnation; and all right of the Tenant to damages therefor, if any, are hereby assigned by the Tenant to the Landlord. If all or a substantial part of the premises shall be so condemned or taken, the term of this Lease shall cease and terminate from the date of such governmental taking or condemnation, and the Tenant shall have no claim against the Landlord for the value of any unexpired term of this Lease. If any part of the Building other than the Demised Premises shall be so condemned or taken, Landlord may, at its sole option, terminate this Lease upon sixty (60) days written notice to Tenant of such termination. In no event shall the Landlord be liable to the Tenant for any business interruption, diminution in use or for the value of any unexpired term of this Lease. TENANT HOLDOVER 27.01 Tenant agrees that if Tenant does not surrender to Landlord said Demised Premises at the end of the term of this Lease, or upon any cancellation of the term of this Lease, without prior written consent of Landlord, which consent shall not be unreasonably withheld, such holdover tenancy shall be a tenancy at sufferance, and Tenant shall pay to Landlord all damages that Landlord may suffer on account of Tenant's failure to surrender possession of said Demised Premises, and will indemnify Landlord on account of delay of Landlord in delivering possession of said Premises to another Tenant. Unless Tenant's failure to surrender the Premises is consented to in writing by landlord, the rent during any holdover period shall be double the adjusted rental specified in this Lease, without necessity of additional demand -11- therefor. The acceptance of such rent shall not be deemed to be consent to such continued occupancy nor shall it be deemed a waiver of any rights of the Landlord as set forth herein, at law or in equity. POSSESSION 28.01 Landlord shall construct a demising wall and finish the inside of the corridor wall and ceiling before delivering possession of the Demised Premises, in otherwise the existing condition, on or before February 1, 1995, clean and ready for occupancy. If permission is given to Tenant to enter into the possession of the Demised Premises or to occupy premises other than the Demised Premises prior to the date specified as the commencement of the term of this Lease, then Tenant covenants and agrees that such occupancy shall be deemed to be under all the terms, covenants, conditions and provisions of this Lease. TENANT PLANS 29.01 It is agreed that the Tenant will furnish to the Landlord plans for its partition, electric, telephone and all other requirements not later than fifteen (15) days after executing the Lease. Landlord and Tenant agree that Tenant shall be allowed to occupy the Premises for five (5) months at no cost after renovations or improvements are substantially complete, but no later than April 1, 1995; therefore, excluding any delays caused by Tenant or Tenant's contractors, the commencement and expiration dates of the Lease shall be adjusted accordingly on Exhibit "D". OFFSET STATEMENT "ESTOPPEL CERTIFICATE" 30.01 Within ten (10) days after Landlord's request, Tenant shall execute in recordable form and deliver a declaration to any person designated by Landlord (a) ratifying this Lease; (b) stating the commencement and termination dates of this Lease; and (c) certifying (i) that this Lease is in full force and effect and has not been assigned, modified, supplemented or amended except by such writing as shall be stated), (ii) that all conditions under this Lease to be performed by Landlord have been satisfied (stating exceptions, if any), (iii) no defenses or offsets against the enforcement of this Lease by Landlord exist (or, if any stating those claimed), (iv) advance rent, if any, paid by Tenant, (v) the date to which rent has been paid, (vi) the amount of security deposited with Landlord, and such other information as Landlord reasonably requires. Persons receiving such statements shall be entitled to rely upon them. ATTORNMENT 31.01 Tenant shall, in the event of a sale or assignment of Landlord's interest in the Demised Premises or the Building, or if the Demised Premises or the Building comes into the hands of a mortgagee, ground lessor or any other person, attorn to the purchaser or such mortgagee or other person and recognize the same as Landlord hereunder. At Landlord's request, Tenant shall execute, within fifteen (15) days, any attornment agreement required to be executed, containing such provision as are required. -12- FAILURE TO EXECUTE INSTRUMENTS 32.02 Tenant's failure to execute instruments or certificates provided for in this Lease within fifteen (15) days after the mailing by Landlord of a written request for their execution shall be a default under this Lease. COUNTERCLAIM 33.01 If Landlord commences any proceedings for nonpayment of rent, minimum rent, percentage rent or additional rent, Tenant will not interpose any counterclaim of any nature or description in such proceedings, except for compulsory counterclaims. This shall not, however, be construed as a waiver of Tenant's right to assert such claims in a separate action brought by Tenant. The covenants to pay rent and other amounts hereunder are independent covenants, and Tenant shall have no right to hold back, offset, or fail to pay any such amounts for default by landlord or any other reason whatsoever. WAIVER OF JURY TRIAL 34.01 The parties hereto shall and they hereby do waive trial by jury in any action, proceeding or counterclaim brought by either of the parties hereto against the other on any matters whatsoever arising out of or in any way connected with this Lease, the relationship of Landlord and Tenant, Tenant's use or occupancy of the Leased Premises, and/or any claim of injury or damage. WAIVER OF RIGHTS OF REDEMPTION 35.01 To the extent permitted by law, Tenant waives any and all rights of redemption granted by or under any present or future laws if Tenant is evicted or dispossessed for any cause, or if Landlord obtains possession of the premises due to Tenant's default hereunder or otherwise. TAXES OF LEASEHOLD 36.01 Tenant shall be responsible for and shall pay before delinquent all municipal, county, federal, or state taxes coming due during or after the term of this Lease against any leasehold interest or personal property of any kind owned or placed in, upon, or about the premises by Tenant. NO LIENS ON LANDLORD'S INTEREST 37.01 Tenant will not knowingly permit or suffer any lien attributable to Tenant or its agents or employees to attach to the Demised Premises or the Building and nothing contained herein shall be deemed to imply any agreement of Landlord to subject Landlord's interest or estate to any mechanics' lien or any other lien. If any mechanics' lien is filed against the Demised Premises or the Building as a result of additions, alterations, repairs, installations or -13- improvements made or claimed to have been made by Tenant or anyone holding any part of the Demised Premises through or under Tenant, or any other work or act of any of the foregoing, Tenant shall discharge the same within twenty (20) days from the filing thereof. If Tenant fails to so discharge for payment, bond or court order any such mechanics' lien, Landlord, at its option, in addition to all other rights or remedies herein provided, may bond said lien or claim (or pay off said lien or claim if it cannot be bonded) for the account of Tenant without inquiring into the validity thereof, and all sums so advanced by Landlord shall be paid by Tenant to Landlord as additional rent on demand. Pursuant to Florida Statutes, Section 713.10, all potential lien claimants are hereby placed upon notice that the interest of the Landlord may not be subject to any lien whatsoever. PRONOUNS 38.01 Feminine or neuter pronouns shall be substituted for those of the masculine form, and the plural shall be substituted for the singular number, in any place or places herein in which the context may require such substitution or substitutions. The Landlord herein for convenience has been referred to in neuter form. NOTICES 39.01 All notices required or desired to be given hereunder by either party to the other shall be given by certified or registered mail postage prepaid, return receipt requested. Notice to the respective parties shall be mailed as follows, if to the Landlord, 4000 Hollywood Blvd., Hollywood, FL, 33021, and if to the Tenant, the address for the Demised Premises. Either party may, by written notice, designate a new address to which such notices shall be directed. RELOCATION 40.01 Landlord expressly reserves the right at Landlord's sole cost and expense to remove Tenant from the Leased Premises and to relocate Tenant in some other space which must be acceptable to Tenant, in its sole discretion, of approximately the same dimensions and size within the Building, which other space shall be decorated by Landlord at Landlord's expense. Landlord shall have the right to use such decorations and materials from the existing Premises, or other materials so that the space in which Tenant is relocated shall be furnished using materials comparable to the building standard finishes. Nothing herein contained shall be construed to relieve Tenant or imply that Tenant is relieved of the liability for or obligation to pay the Base Rent and any Additional Rent due under this Lease, the provisions of which paragraphs shall be applied to the space in which Tenant is relocated on the same basis as said provisions were applied to the Premises from which Tenant is removed. Tenant agrees that Landlord's exercise of its election to remove and relocate Tenant shall not terminate this Lease or release Tenant in whole or in part, from Tenant's obligation to pay the rents and perform the covenants and agreements hereunder for the full Term of this Lease. 40.02 In the event Tenant deems it desirable to relocate the third floor, south tower operations to the second floor, south tower in order to have contiguous offices, Tenant shall have -14- the right to do so, at its sole cost, as space becomes available on the second floor, south tower. If there shall be any vacant space, or the immediate prospect for any vacant space, on the second floor, south tower, Landlord shall give Tenant written notice thereof. If within five (5) days thereafter, Tenant shall give Landlord written notice that Tenant desires to relocate, Landlord and Tenant shall immediately execute an Amendment to Lease Agreement providing for such relocation within a reasonable period of time. If Tenant does not give Landlord notice that it elects to lease such space within the time specified, Landlord may lease such space to any third party. BROKER'S COMMISSION 41.01 Landlord and Tenant acknowledge by their execution hereof that CB -- Commercial Real Estate Group, Inc. is the only procuring broker of this Lease - ---------------------------------- and Landlord agrees to pay a leasing commission in accordance with a Commission Agreement between the Landlord and the broker. ACCORD AND SATISFACTION 42.01 Landlord is entitled to accept, receive and cash or deposit any payment made by Tenant for any reason or purpose or in any amount whatsoever, and apply the same at Landlord's option to any obligation of Tenant and the same shall not constitute payment of any amount owed except that to which Landlord has applied the same. No endorsement or statement on any check or letter of Tenant shall be deemed an accord and satisfaction or otherwise recognized for any purpose whatsoever. The acceptance of any such check or payment shall be without prejudice to Landlord's right to recover any and all amounts owed by Tenant hereunder and Landlord's right to pursue any other available remedy. QUIET ENJOYMENT 43.01 As long as Tenant fully complies with the terms, conditions, and covenants of this lease, Landlord agrees that Tenant shall and may peaceably have, hold and enjoy the Demised Premises without hinderance or molestation by Landlord. GOVERNING LAW 44.01 This Lease shall be construed under the laws of the State of Florida and the venue of any action to enforce rights hereunder shall be the county in which the building is located. BENEFIT AND BURDEN 45.01 Except as otherwise expressly set forth in this Lease, the covenants, conditions, agreements, terms and provisions herein contained shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective personal representatives, successors and assigns. No rights, however, shall inure to the benefit of any assignee or sublessee of Tenant -15- unless the assignment or sublease to such assignee or sublessee has been approved by Landlord in writing as provided in Paragraph 9.01 hereof. CAPTIONS AND SECTION NUMBERS 46.01 This Lease shall be construed without reference to titles of paragraphs which are inserted only for convenience of reference. PARTIAL INVALIDITY 47.01 If any provision of this Lease or the application thereof to any person or circumstance shall to any extent be invalid or unenforceable, the remainder of this Lease, or the application of such provision to persons or circumstances other than those as to which it is invalid or unenforceable, shall not be affected thereby and each provision of this Lease shall be valid and enforceable to the fullest extent permitted by law. ENTIRE AGREEMENT 48.01 There are no representations, covenants, warranties, promises, agreements, conditions or undertakings, oral or written, between Landlord and Tenant other than herein set forth. Except as herein otherwise provided, no subsequent alteration, amendment, change or addition to this Lease shall be binding upon Landlord or Tenant unless in writing and signed by them. Landlord and Tenant acknowledge that they were each represented by counsel in reviewing this Lease and that any rule of construction, to the effect that ambiguities are to be resolved against the drafting party or Landlord, shall not be employed in the interpretation of this Lease. EXHIBITS 49.01 Exhibits made a part of this Lease are incorporated herein by reference include the following marked X. X A - Floor Plan --- X B - Rules and Regulations --- ___ C - Work Letter X D - Declaration by Tenant --- -16- TIME OF ESSENCE 50.01 It is understood and agreed between the parties hereto that time is of the essence of all the terms, provisions, covenants and conditions of this Lease. EFFECTIVE DATE 51.01 Submission of this instrument for examination does not constitute an offer, right of first refusal, reservation of or option for the Leased Premises or any other space or premises in, on or about the Building. This instrument becomes effective as a Lease upon execution and delivery by both Landlord and Tenant. STATUTORY DISCLOSURES 52.01 Radon Gas is a naturally occurring radioactive gas that, when accumulated in a building in sufficient quantities, may present health risks to persons who are exposed to it over time. Levels of radon that exceed federal and state guidelines have been found in buildings in Florida. Additional information regarding radon and radon testing may be obtained from your county public health unit. IN WITNESS WHEREOF, this Lease is executed as of the date first written above. WITNESS: LANDLORD: HOLLYWOOD CORPORATE CIRCLE /s/illegible ASSOCIATES - -------------------------- /s/Judy Bill By:/s/Gerald E. Lou - -------------------------- --------------------------------------- Gerald E. Lou (print name) -------------------------- Senior Vice President WITNESS: TENANT: /s/illegible - -------------------------- /s/illegible By:/s/Patrick Doyle - -------------------------- ---------------------------------------- Patrick Doyle (print name) -------------------------- Chief Financial Officer -------------------------------------- -17- EXHIBIT A Exhibit A consists of two pages. The first page contains a diagram of a portion of the second floor located at 4000 Hollywood Boulevard. The second page contains a diagram of a portion of the third floor located at 4000 Hollywood Boulevard. EXHIBIT "B" RULES AND REGULATIONS 1. The sidewalks, entrances, passages, courts, elevators, vestibules, stairways, corridors or halls shall not be obstructed or encumbered by any Tenant or used for any purpose other than ingress and egress to and from the Demised Premises. 2. No awnings or other projections shall be attached to the outside walls of the Building without the prior written consent of the Landlord. No curtains, blinds, shades, or screens shall be attached to or hung in, or used in connection with, any window or door of the Demised Premises, without the prior written consent of the Landlord. Such awnings, projections, curtains, blinds, shades, screens or other fixtures must be of a quality, type, design and color, and attached in the manner approved by the Landlord. 3. No sign, advertisement, notice of other lettering shall be exhibited, inscribed, painted or affixed by any Tenant on any part of the outside of the Demised Premises or Building or on the inside of the Demised Premises if the same can be seen from the outside of the Demised Premises without the prior written consent of Landlord except that the name of Tenant may appear on the entrance door of the Demised Premises in conformance with Landlord's standard Tenant signage. In the event of a violation of the foregoing by Tenant, Landlord may remove same without any liability and may charge the expense incurred by such removal to the Tenant violating this rule. Interior signs on doors and directory tablet shall be inscribed, painted or affixed for each Tenant by Landlord at the expense of such Tenant and shall be of a sight and style acceptable to Landlord. 4. A directory will be placed by Landlord, at his own expense, in a conspicuous place in the building. No other directories shall be permitted, unless previously consented to by Landlord in writing. 5. The sashes, sash doors, skylights, windows and doors that reflect or admit light and air into the halls, passageways or other public places in the Building shall not be covered or obstructed by any Tenant nor shall any bottles, parcels or other articles be placed on the window sills. 6. The water and wash closets and other plumbing fixtures shall not be used for any purpose other than those for which they were constructed and no sweepings, rubbish, rags or other substances shall be thrown therein. All damages resulting from any misuse of the fixtures shall be borne by the Tenant, when its servants, employees, agents, visitors or licenses shall have caused same, and Landlord shall not in any case be responsible therefor. 7. No Tenant shall mark, paint, drill into, or in any way deface any part of the Demised Premises or the Building of which they for a part. No boring, cutting or stringing of wires shall be permitted, except with the prior written consent of Landlord, and as it may direct. Should a Tenant require telegraphic, telephonic, annunciator or other communication service, Landlord will direct the electricians where and how wires are to be introduced and placed, and none shall be introduced or placed except as Landlord shall direct. Electric current shall not be used for power or heating without Landlord's prior written permission. No antenna shall be permitted. 8. No bicycles, vehicles or animals of any kind shall be brought into or kept in or about the Demised Premises, and, except as expressly provided in the Lease, no cooking shall be done or permitted by any Tenant on said Demised Premises. No Tenant shall cause or permit any unusual or objectionable odors to be produced upon or permeate from the Demised Premises. 9. Landlord shall have the right to enter the Demised Premises leased to Tenant to examine the same in accordance with the Lease Agreement and make such alterations as may be deemed reasonably necessary by the Landlord and so long as the same does not materially interfere with Tenant's intended use of the Demised Premises. 10. No Tenant shall make, or permit to be made, any unseemly or disturbing noises or disturb or interfere with occupants of this or neighboring Buildings or Demised Premises or those having business with them, whether by use of any musical instrument, radio, talking machine unmusical noise, whistling, singing or in any other way. No Tenant shall throw anything out the doors, windows or skylights or down the passageways. 11. No additional locks or bolts of any kind shall be placed upon any of the doors or windows by any Tenant, nor shall any changes be made in existing locks or the mechanism thereof. Each Tenant must, upon the termination of his tenancy restore to the Landlord all keys of offices and toilet rooms, either furnished to, or otherwise procured by, such Tenant. Tenant shall pay to the Landlord the cost of any lost keys. 12. Tenant will refer all contractors, contractors' representatives and installation technicians, rendering any service to Tenant, to Landlord for Landlord's supervision, approval, and control before performance of any contractual service. This provision shall apply to all work performed in the Building including installations of telephones, telegraph equipment, electrical devices and attachments, and installations of any nature affecting floors, walls, woodwork, trim, windows, ceilings, equipment or any other physical portion of the Building. 13. All removals, or the carrying in or out of any safes, freight, furniture or bulky matter of any description must take place during the hours which the Landlord or its agent may determine from time to time. All such movement shall be under supervision of Landlord and in the manner agreed between Tenant and Landlord by pre-arrangement before performance. Such pre-arrangements initiated by Tenant will include determination by Landlord, subject to his decision and control, of the time, method and routing of movement and limitations imposed by safety or other concerns which may prohibit any article, equipment or other item from being brought into the Building. The Landlord reserves the right to prescribe the weight and positions of all safes and mass filing systems, which must be placed upon 2-inch thick plank strips to distribute the weight. Any damage done to the Building or to the Tenants or to other persons in bringing in or removing safes, furniture or other bulky or heavy articles shall be paid for by the Tenant. -2- 14. Tenant agrees that all machines or machinery placed in the Demised Premises by Tenant will be erected and placed so as to prevent any vibration or annoyance to any other of the Tenants in the Building of which the Demised Premises are a part, and it is agreed that upon written request of Landlord, Tenant will, within ten (10) days after the mailing of such notice, provide approved settings for the absorbing, preventing, or decreasing of noise from any or all machines or machinery placed in the Demised Premises. 15. The requirements of Tenant will be attended to only upon written application at the office of the Building. Employees of Landlord shall not receive or carry messages for or to any Tenant or other person nor contract with or render free or paid services to any Tenant or Tenant's agent, employees or invitees. 16. Canvassing, soliciting, and peddling in the Building is prohibited and each Tenant shall cooperate to prevent the same. 17. Tenant shall have the free use of the mail chutes, if any, installed in the Building, but the Landlord in no way guarantees efficiency of the said mail chutes and shall be in no way responsible for any damage or delay which may arise from use thereof. 18. Landlord will not be responsible for lost, stolen or damaged property, equipment, money or jewelry from Tenant's area regardless of whether such loss occurs when areas is locked against entry or not. 19. The Landlord specifically reserves the right to refuse admittance to the Building from 7 p.m. to 7 a.m. daily or on Saturdays, Sundays or legal holidays, to any person or persons who cannot furnish satisfactory identification, or to any person or persons who, for any other reason in the Landlord's judgment, should be denied access to the Demised Premises. The Landlord, for the protection of the Tenant and Tenant's effects, may prescribe hours and intervals during the night and on Saturdays, Sundays and holidays, when all persons entering and departing the Building shall be required to enter their names, the offices to which they are going or from which they are leaving, and the time of entrance and departure in a register provided for that purpose by the Landlord. 20. The Landlord may retain a passkey to the leased Demised Premises, and be allowed admittance thereto at all times to enable a representative to examine the said Demised Premises. 21. The Landlord reserves the right to make such other and further reasonable rules and regulations as in its judgment may from time to time be needful for the safety, care and cleanliness of the Demised Premises, and for the preservation of good order therein and any such other or further rules and regulations shall be binding upon the parties hereto with the same force and effect as if they had been inserted herein at the time of the execution hereof. Furthermore, Landlord reserves the right to amend these Rules and Regulations for the benefit of any particular tenant without the need for approval by any Tenant. -3- 22. No Tenant, nor any of the Tenant's servants, employees, agents, visitors, or licensees, shall at any time bring or keep upon the Demised Premises any inflammable, combustible, or explosive fluid, chemical, or substance. -4- EXHIBIT "D" DECLARATION BY LANDLORD AND TENANT AS TO DATE OF DELIVERY AND ACCEPTANCE OF POSSESSION OF LEASED PREMISES This Declaration is hereby attached to and made a part of the Lease dated 12/23, 1994, entered into by and between HOLLYWOOD CORPORATE CIRCLE ASSOCIATES, as Landlord, and Effjohn International B.V., as Tenant. -------------------------- Landlord and Tenant do hereby declare that possession of the Demised Premises was accepted by Tenant on the 2nd day of February, 1995. The Demised Premises required to be constructed and finished by Landlord have been satisfactorily completed (subject to agreed punch-list) and accepted by Tenant. The Lease is now in full force and effect and Landlord has fulfilled its obligations under the Lease. The Lease Commencement Date is hereby established as 7/1/95 and the term of this Lease shall expire on 6/30/2000. LANDLORD: HOLLYWOOD CORPORATE CIRCLE ASSOCIATES ATTEST: /s/Judy Bill By:/s/Gerald E. Lou - ----------------------------- ------------------------------------- Gerald E. Lou (print name) -------------------------- Senior Vice President ATTEST: TENANT: EFFJOHN INTERNATIONAL B.V. ---------------------------------------- /s/illegible - ----------------------------- By:/s/Patrick Doyle ------------------------------------- Patrick Doyle (print name) -------------------------- EX-10.L 7 EXHIBIT 10L: SOFTWARE AGREEMENT Software Agreement ------------------ THIS AGREEMENT, made as of this ____________________ by and between Reservations Technology, Inc., a corporation incorporated under the laws of the State of Florida with its principal offices at 2139 NW 191 Avenue, Pembroke Pines, Florida 33029 ("Licensor") and New Commodore Cruise Lines, Limited, a corporation incorporated under the laws of Bermuda and authorized to do business in the State of Florida, with its principal offices at 4000 Hollywood Blvd., #385-S, Hollywood, Florida 33021 ("Licensee"). BACKGROUND - ---------- New Commodore Cruise Lines, Limited, is the marketing subsidiary of an international cruise line company. It desires to license, customize, operate and, from time to time, enhance an electronic information data processing reservation system for use in cruise operations. Licensor is a software company that has experience and expertise in the computer systems required by the travel and reservation operations of cruise companies. NOW, THEREFORE, in consideration of the promises and mutual covenants below, Licensee and Licensor agree as follows: 1. Definitions ----------- 1.1 "Licensed Software" shall mean (i) those computer programs and routines consisting of a series of instructions or statements in source and object code form and identified in Schedule "A"; (ii) all Modifications as defined herein; and (iii) all documentation, installation guides, user manuals, educational, and all other materials in machine readable, printed, or other form to facilitate the use of the computer programs and routines identified in Schedule "A". 1.2 "Use" shall mean copying the Licensed Software from storage units or media into a stand-alone mini-computer utilizing the Licensed Software, stand- alone or in a computer network linking the mini-computer to work stations for the purposes of processing data for internal use or for the purpose of creating and developing Modifications and Enhancements as defined herein. 1.3 "Enhancement(s)" shall mean any software which is developed by Licensor for Licensee, as defined herein, or by Licensee independently or with Licensor's assistance that constitutes a separate and independent module not part of mainstream Licensed Software code. 1.4 "Modification(s)" shall mean any upgrade, modification or revision of the Licensed Software which is developed for Licensee by Licensor or by Licensee independently or with Licensor's assistance. 1.5 "Licensee" shall mean New Commodore Cruise Lines, Limited, and its current and future subsidiaries and affiliates. 1.6 "Designated Site" shall mean the processing facility first above written at which the Licensed Software will be used and/or a disaster recovery site used in lieu of such facility. The processing facility may be changed by Licensee provided the Licensor is so notified. 1.7 "Designated Hardware" shall mean the mini-computer specified in Schedule "A" of this Agreement or a substitute minicomputer. Such substitution may be made by the Licensee provided the Licensor is so notified. 1.8 "Confidential Information" shall mean all matters regarding the Licensed Software, and such business or other matters as are disclosed by either party to the other and identified in writing as confidential. 1.9 "Agreement" shall mean this document and the annexed schedules and exhibits which are incorporated herein, together with any subsequent written and executed amendments. -2- 2. Grant of License ---------------- 2.1 Subject to the terms and conditions set forth in this Agreement, Licensor grants to Licensee, and the Licensee hereby accepts a non-exclusive, non-transferable perpetual license to use the Licensed Software on the Designated Hardware at the Designated Site, for the marketing of Commodore Cruise Line and s.s. United States products and services, and as specified in Section 2.2 herein, provided that the use and disclosure of the Licensed Software is restricted solely to the employees of the Licensee and to consultants selected by the Licensee who have executed non-disclosure agreements. The Licensee shall have the right to make an unlimited number of copies of the Licensed Software as in its sole judgment shall be reasonably required for internal use under this Agreement. 2.2 The Licensed Software may also be used by Licensee for cruise line products and services marketed by Licensee for its current and future subsidiaries and affiliates, provided that Licensee pays to Licensor a fee for each license to a subsidiary or affiliate in an amount which is fifty percent (50%) less than the amount of the last license fee paid. 2.3 Except as expressly provided under this Agreement, the Licensee shall not have the right: (i) to assign, sell, relicense, or otherwise transfer the Licensed Software; or (ii) to use the Licensed Software in whole or in part for any use or purpose, other than as provided herein. 2.4 Subject to the rights granted to the Licensee in this Agreement, all rights, title, and interest to the Licensed Software shall be the property of Licensor, who may use, sell, assign, or transfer rights to the Licensed Software during the term of this Agreement subject to Licensee's rights hereunder. 3. Confidentiality --------------- 3.1 The parties shall hold all Confidential Information in secrecy to the same extent as each holds its own comparable information and shall not disclose or make any use thereof except as related to the performance of this Agreement. Notwithstanding, Confidential -3- Information shall not include any information which (i) is or becomes part of the public domain through no act or omission on the part of the receiving party, (ii) is disclosed to third parties by the disclosing party without restriction on such third parties, (iii) is in the receiving party's possession, without actual or constructive knowledge of an obligation of confidentiality with respect thereof, at or prior to the time of disclosure under this Agreement, (iv) is disclosed to the receiving party by a third party having no obligation of confidentiality with respect thereto, (v) is required to be disclosed pursuant to a legal proceeding. 3.2 The Licensee shall exercise its best efforts with regard to its employees', and consultants' confidentiality obligations but shall not be liable for its employees or its consultants except in instances of gross negligence. 3.3 The Licensee shall not alter or remove any copyright, trade secret, patent, proprietary and/or other legal notices contained on or in copies of the Licensed Software. The existence of any such copyright notice on the Licensed Software shall not be construed as an admission, or be deemed to create a presumption, that publication of such materials has occurred. 4. Ownership, and Intellectual Property Rights ------------------------------------------- 4.1 For purposes of Section 117 of the Copyright Act of 1976, as amended, and for all other purposes, Licensor shall be considered the owner of the Licensed Software and all copies thereof, and of all copyright, trade secret, patent and other intellectual or industrial property rights therein. Physical copies of the Licensed Software (in diskette, tape, or other form provided by Licensor) shall remain its property. 4.2 For purposes of Section 117 of the Copyright Act of 1976, as amended, and for all other purposes, the Licensee shall be considered the sole and exclusive owner of all Enhancements, and all right, title and interest therein, free and clear of any liens and encumbrances, including (a) the United States copyright to the Enhancements; (b) all literary and other rights of every kind in the Enhancements; (c) the right to license, sell, assign, or otherwise -4- transfer the Enhancements in whatsoever form desired by Licensee or its assigns or corporate successors; and (d) all rights to secure copyrights on the Enhancements anywhere in the world. 4.3 If Licensor desires to sublicense an Enhancement in order to market the same, it shall so notify Licensee who may withhold its consent if it views use of the Enhancement by its competitors as detrimental. If Licensee consents, the parties shall negotiate such licensing terms and conditions as are satisfactory to both parties. 5. Delivery of Licensed Software ----------------------------- Licensee has inspected and reviewed the Licensed Software and accepts it as is. 6. Revisions and Updates --------------------- Revisions and updates to the Licensed Software, if any, made available by Licensor to it other licensees shall be promptly provided to the Licensee without further charges for eighteen (18) months from date of this Agreement. Thereafter, such revisions and updates shall be so provided at not more than the price paid by Licensor's other licensees, but in no event shall Licensee be under any obligation to license such revisions or updates. 7. Fees ---- 7.1 Licensee shall pay to Licensor upon execution of the Agreement for the licensing rights to the Licensed Software, and for the ownership of the Enhancements created hereunder a license fee of fifty thousand ($50,000.00) dollars. 7.2 All fees and charges hereunder are exclusive of all state or federal sales, use, excise and other similar taxes and charges, all of which shall be paid by Licensee. 8. Term/Termination ---------------- 8.1 This Agreement shall take effect as of the day, month and year first above written ("Commencement Date") and shall continue in perpetuity unless sooner terminated as provided hereunder. -5- 8.2 Upon any material breach of or default under this Agreement by Licensor, the Licensee may give notice of such breach or default and, unless the same shall be cured within thirty (30) days after delivery of such notice, then, without limitation of any other remedy available hereunder, Licensee may terminate this Agreement. 8.3 If Licensor files a petition for bankruptcy or if an involuntary petition in bankruptcy is filed against Licensor and is not discharged within thirty (30) days, or if Licensor becomes insolvent or makes a general assignment for the benefit of its creditors, then in any case, Licensee may in its sole discretion and at its sole option terminate this Agreement. 8.4 Termination under this provision shall not relieve Licensor or Licensee of the continuing obligations that it has under this Agreement, including without limitation, its obligations regarding the confidentiality of each other's Confidential Information. 8.5 The rights and remedies of Licensor provided hereunder shall be exclusive and are not in addition to any other rights and remedies provided by law or equity or in this Agreement. 9. Responsibilities of Licensee ---------------------------- 9.1 Licensee shall keep the Licensed Software free and clear of all liens, claims, and encumbrances. 9.2 Licensee shall be responsible for the management and control of its use of the Licensed Software, including without limitation: (i) establishing adequate back-up plans, based on alternative procedures and access to qualified programming personnel; and (ii) implementing sufficient recovery procedures and checkpoints to satisfy its requirements for security and accuracy of input and output. -6- 10. Warranties by Licensor ---------------------- 10.1 Licensor hereby warrants and represents that the Licensed Software was conceived and independently developed solely by Licensor. 10.2 Licensor hereby warrants and represents that the employees and consultants, if any, who contributed to the development of the Licensed Software, all executed non-disclosure agreements containing an assignment of copyright and other intellectual property rights relating to the Licensed Software to Licensor and further reciting that such development work constituted a work-for-hire under the Copyright Act. Licensor further warrants and represents that it has a copy of all such agreements which it can furnish upon request. 10.3 Licensor hereby warrants and represents that as of the date of contract execution the Licensed Software is free and clear of all liens, claims, liabilities, and encumbrance, except for the licensing rights of other cruise companies who may use the Licensed Software solely for processing data relating to the internal operations of each of the other companies. 10.4 Licensor hereby represents and warrants that it has sufficient right, title and interest in the Licensed Software to make this Agreement, and to grant the rights herein specified. 11. Indemnification --------------- 11.1 Licensor agrees to defend at its expense any claim or suit against Licensee based upon an assertion that Licensor does not have the rights, title and interest in the Licensed Software as represented and warranted by Licensor under Section 9 of this Agreement or that the Licensed Software as furnished by or modified by Licensor under this Agreement infringe on a patent, trade secret or copyright, and to pay the amount of Licensee's reasonable costs and settlement or damages awarded provided that Licensor has been notified promptly of any notice of claim or of threatened or actual suit. -7- 11.2 Following notice of this claim or of a threatened or actual suit and solely at the written request of Licensee, Licensor shall procure for Licensee the right to continue to use the Licensed Software as furnished or, may replace or modify the Licensed Software to make it non-infringing. 12. Warranty of Performance ----------------------- Licensor represents and warrants that the Licensed Software with the Modifications and Enhancements (together "Software Plus") will operate substantially error free in Licensee's hardware/software configuration and operating environment for a period of ninety (90) business days following execution of this Agreement ("Warranty Period"). During the Warranty Period, and thereafter as required, Licensor will expeditiously correct without charge all errors of which it is notified by Licensee during the Warranty Period. 13. Limitations of Liability ------------------------ LICENSOR SHALL NOT BE LIABLE FOR ANY SPECIAL, INCIDENTAL, CONSEQUENTIAL OR EXEMPLARY DAMAGES, INCLUDING WITHOUT LIMITATION, FOR THE LOSS OF USE, LOSS OF PROFITS OR FOR THE LOSS OF DATA INFORMATION OF ANY KIND, ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT. 14. Relationship of the Parties --------------------------- The relationship between Licensor and Licensee is that of licensor/licensee. Neither party shall represent that it has any authority to assume or create any obligation, express or implied, on behalf of the other party, nor to represent the other party as agent, employee or in any other capacity. 15. Notices ------- All notices or other communications given by either party to the other under this Agreement shall be in writing and shall be personally delivered or sent by registered or certified mail, return-receipt requested, to the other party at its address set forth above or such other -8- addresses as a party may subsequently designate in writing. The date of personal delivery or the date of mailing, as the case may be, shall be deemed to be the date on which such notice is given. 16. General Provisions ------------------ 16.1 Assignment ---------- Neither this Agreement nor any rights or licenses granted hereunder may be assigned or delegated without the written consent of Licensee. This Agreement shall inure to the benefit of and be binding upon any permitted successor or assign of the parties. 16.2 Governing Law ------------- This Agreement shall be governed by and construed as a sealed instrument in accordance with the laws of the State of Florida. 16.3 Delay ----- The parties shall not be liable for delays in the performance of their obligation hereunder due to causes beyond their reasonable control including, but not limited to, Acts of God. 16.4 Successors ---------- Except as otherwise provided herein, this Agreement together with all schedules or modifications now and hereafter made a part hereof shall be binding on the respective parties and respective heirs, executors, administrators, legal representatives and assigns. 16.5 Waiver and Invalidity --------------------- No waiver of any breach of this Agreement shall constitute a waiver of any other breach of the same or other provisions of this Agreement and no waiver shall be effective unless made in writing. In the event that any provisions herein shall be illegal or unenforceable, such provision shall be severed and the entire Agreement shall not fail, but the balance of the Agreement shall continue in full force and effect. -9- 16.6 Headings -------- The titles of the Sections and subsections of this Agreement are for the convenience of references only and are not to be considered in construing this Agreement. 16.7 Agreement --------- This Agreement, including the attached Schedules, constitutes the exclusive statement of the agreement between the parties concerning the subject matter thereof. All other prior agreements, arrangements or undertakings, oral or written, are merged into and are superseded by the terms of this Agreement. No addition to or modification of any provisions of this Agreement shall be binding unless made in writing and signed by duly authorized representatives of the parties. IN WITNESS WHEREOF, the parties hereto have executed this Agreement under deal as of the day and year indicated above. RESERVATIONS TECHNOLOGY, INC. NEW COMMODORE CRUISE LINES, LIMITED /s/Ben Tipps /s/Alan Pritzker - ----------------------------- ------------------------------------ By By Ben Tipps Alan Pritzker - ----------------------------- ------------------------------------ Print Name Print Name Pres. V.P. Finance - ----------------------------- ------------------------------------ Title Title -10- SCHEDULE A ---------- Schedule A consists of approximately 72 pages entitled "Programming Development Manager - Member List", which lists computer files, libraries, member numbers, creation dates, last changed dates, time, records, records deleted and text. Software Agreement ------------------ THIS AGREEMENT, made as of this ____________________ by and between Reservations Technology, Inc., a corporation incorporated under the laws of the State of Florida with its principal offices at 2139 NW 191 Avenue, Pembroke Pines, Florida 33029 ("Licensor") and New Commodore Cruise Lines, Limited, a corporation incorporated under the laws of Bermuda and authorized to do business in the State of Florida, with its principal offices at 4000 Hollywood Blvd., #385-S, Hollywood, Florida 33021 ("Licensee"). BACKGROUND - ---------- New Commodore Cruise Lines, Limited, is the marketing subsidiary of an international cruise line company. It desires to license, customize, operate and, from time to time, enhance an electronic information data processing reservation system for use in cruise operations. Licensor is a software company that has experience and expertise in the computer systems required by the travel and reservation operations of cruise companies. NOW, THEREFORE, in consideration of the promises and mutual covenants below, Licensee and Licensor agree as follows: 1. Definitions ----------- 1.1 "Licensed Software" shall mean (i) those computer programs and routines consisting of a series of instructions or statements in source and object code form and identified in Schedule "A"; (ii) all Modifications as defined herein; and (iii) all documentation, installation guides, user manuals, educational, and all other materials in machine readable, printed, or other form to facilitate the use of the computer programs and routines identified in Schedule "A". 1.2 "Use" shall mean copying the Licensed Software from storage units or media into a stand-alone mini-computer utilizing the Licensed Software, stand- alone or in a computer network linking the mini-computer to work stations for the purposes of processing data for internal use or for the purpose of creating and developing Modifications and Enhancements as defined herein. 1.3 "Enhancement(s)" shall mean any software which is developed by Licensor for Licensee, as defined herein, or by Licensee independently or with Licensor's assistance that constitutes a separate and independent module not part of mainstream Licensed Software code. 1.4 "Modification(s)" shall mean any upgrade, modification or revision of the Licensed Software which is developed for Licensee by Licensor or by Licensee independently or with Licensor's assistance. 1.5 "Licensee" shall mean New Commodore Cruise Lines, Limited, and its current and future subsidiaries and affiliates. 1.6 "Designated Site" shall mean the processing facility first above written at which the Licensed Software will be used and/or a disaster recovery site used in lieu of such facility. The processing facility may be changed by Licensee provided the Licensor is so notified. 1.7 "Designated Hardware" shall mean the mini-computer specified in Schedule "A" of this Agreement or a substitute minicomputer. Such substitution may be made by the Licensee provided the Licensor is so notified. 1.8 "Confidential Information" shall mean all matters regarding the Licensed Software, and such business or other matters as are disclosed by either party to the other and identified in writing as confidential. 1.9 "Agreement" shall mean this document and the annexed schedules and exhibits which are incorporated herein, together with any subsequent written and executed amendments. -2- 2. Grant of License ---------------- 2.1 Subject to the terms and conditions set forth in this Agreement, Licensor grants to Licensee, and the Licensee hereby accepts a non-exclusive, non-transferable perpetual license to use the Licensed Software on the Designated Hardware at the Designated Site, for the marketing of Commodore Cruise Line and s.s. United States products and services, and as specified in Section 2.2 herein, provided that the use and disclosure of the Licensed Software is restricted solely to the employees of the Licensee and to consultants selected by the Licensee who have executed non-disclosure agreements. The Licensee shall have the right to make an unlimited number of copies of the Licensed Software as in its sole judgment shall be reasonably required for internal use under this Agreement. 2.2 The Licensed Software may also be used by Licensee for cruise line products and services marketed by Licensee for its current and future subsidiaries and affiliates, provided that Licensee pays to Licensor a fee for each license to a subsidiary or affiliate in an amount which is fifty percent (50%) less than the amount of the last license fee paid. 2.3 Except as expressly provided under this Agreement, the Licensee shall not have the right: (i) to assign, sell, relicense, or otherwise transfer the Licensed Software; or (ii) to use the Licensed Software in whole or in part for any use or purpose, other than as provided herein. 2.4 Subject to the rights granted to the Licensee in this Agreement, all rights, title, and interest to the Licensed Software shall be the property of Licensor, who may use, sell, assign, or transfer rights to the Licensed Software during the term of this Agreement subject to Licensee's rights hereunder. 3. Confidentiality --------------- 3.1 The parties shall hold all Confidential Information in secrecy to the same extent as each holds its own comparable information and shall not disclose or make any use thereof except as related to the performance of this Agreement. Notwithstanding, Confidential -3- Information shall not include any information which (i) is or becomes part of the public domain through no act or omission on the part of the receiving party, (ii) is disclosed to third parties by the disclosing party without restriction on such third parties, (iii) is in the receiving party's possession, without actual or constructive knowledge of an obligation of confidentiality with respect thereof, at or prior to the time of disclosure under this Agreement, (iv) is disclosed to the receiving party by a third party having no obligation of confidentiality with respect thereto, (v) is required to be disclosed pursuant to a legal proceeding. 3.2 The Licensee shall exercise its best efforts with regard to its employees', and consultants' confidentiality obligations but shall not be liable for its employees or its consultants except in instances of gross negligence. 3.3 The Licensee shall not alter or remove any copyright, trade secret, patent, proprietary and/or other legal notices contained on or in copies of the Licensed Software. The existence of any such copyright notice on the Licensed Software shall not be construed as an admission, or be deemed to create a presumption, that publication of such materials has occurred. 4. Ownership, and Intellectual Property Rights ------------------------------------------- 4.1 For purposes of Section 117 of the Copyright Act of 1976, as amended, and for all other purposes, Licensor shall be considered the owner of the Licensed Software and all copies thereof, and of all copyright, trade secret, patent and other intellectual or industrial property rights therein. Physical copies of the Licensed Software (in diskette, tape, or other form provided by Licensor) shall remain its property. 4.2 For purposes of Section 117 of the Copyright Act of 1976, as amended, and for all other purposes, the Licensee shall be considered the sole and exclusive owner of all Enhancements, and all right, title and interest therein, free and clear of any liens and encumbrances, including (a) the United States copyright to the Enhancements; (b) all literary and other rights of every kind in the Enhancements; (c) the right to license, sell, assign, or otherwise -4- transfer the Enhancements in whatsoever form desired by Licensee or its assigns or corporate successors; and (d) all rights to secure copyrights on the Enhancements anywhere in the world. 4.3 If Licensor desires to sublicense an Enhancement in order to market the same, it shall so notify Licensee who may withhold its consent if it views use of the Enhancement by its competitors as detrimental. If Licensee consents, the parties shall negotiate such licensing terms and conditions as are satisfactory to both parties. 5. Delivery of Licensed Software ----------------------------- Licensee has inspected and reviewed the Licensed Software and accepts it as is. 6. Revisions and Updates --------------------- Revisions and updates to the Licensed Software, if any, made available by Licensor to it other licensees shall be promptly provided to the Licensee without further charges for eighteen (18) months from date of this Agreement. Thereafter, such revisions and updates shall be so provided at not more than the price paid by Licensor's other licensees, but in no event shall Licensee be under any obligation to license such revisions or updates. 7. Fees ---- 7.1 Licensee shall pay to Licensor upon execution of the Agreement for the licensing rights to the Licensed Software, and for the ownership of the Enhancements created hereunder a license fee of fifty thousand ($50,000.00) dollars. 7.2 All fees and charges hereunder are exclusive of all state or federal sales, use, excise and other similar taxes and charges, all of which shall be paid by Licensee. 8. Term/Termination ---------------- 8.1 This Agreement shall take effect as of the day, month and year first above written ("Commencement Date") and shall continue in perpetuity unless sooner terminated as provided hereunder. -5- 8.2 Upon any material breach of or default under this Agreement by Licensor, the Licensee may give notice of such breach or default and, unless the same shall be cured within thirty (30) days after delivery of such notice, then, without limitation of any other remedy available hereunder, Licensee may terminate this Agreement. 8.3 If Licensor files a petition for bankruptcy or if an involuntary petition in bankruptcy is filed against Licensor and is not discharged within thirty (30) days, or if Licensor becomes insolvent or makes a general assignment for the benefit of its creditors, then in any case, Licensee may in its sole discretion and at its sole option terminate this Agreement. 8.4 Termination under this provision shall not relieve Licensor or Licensee of the continuing obligations that it has under this Agreement, including without limitation, its obligations regarding the confidentiality of each other's Confidential Information. 8.5 The rights and remedies of Licensor provided hereunder shall be exclusive and are not in addition to any other rights and remedies provided by law or equity or in this Agreement. 9. Responsibilities of Licensee ---------------------------- 9.1 Licensee shall keep the Licensed Software free and clear of all liens, claims, and encumbrances. 9.2 Licensee shall be responsible for the management and control of its use of the Licensed Software, including without limitation: (i) establishing adequate back-up plans, based on alternative procedures and access to qualified programming personnel; and (ii) implementing sufficient recovery procedures and checkpoints to satisfy its requirements for security and accuracy of input and output. -6- 10. Warranties by Licensor ---------------------- 10.1 Licensor hereby warrants and represents that the Licensed Software was conceived and independently developed solely by Licensor. 10.2 Licensor hereby warrants and represents that the employees and consultants, if any, who contributed to the development of the Licensed Software, all executed non-disclosure agreements containing an assignment of copyright and other intellectual property rights relating to the Licensed Software to Licensor and further reciting that such development work constituted a work-for-hire under the Copyright Act. Licensor further warrants and represents that it has a copy of all such agreements which it can furnish upon request. 10.3 Licensor hereby warrants and represents that as of the date of contract execution the Licensed Software is free and clear of all liens, claims, liabilities, and encumbrance, except for the licensing rights of other cruise companies who may use the Licensed Software solely for processing data relating to the internal operations of each of the other companies. 10.4 Licensor hereby represents and warrants that it has sufficient right, title and interest in the Licensed Software to make this Agreement, and to grant the rights herein specified. 11. Indemnification --------------- 11.1 Licensor agrees to defend at its expense any claim or suit against Licensee based upon an assertion that Licensor does not have the rights, title and interest in the Licensed Software as represented and warranted by Licensor under Section 9 of this Agreement or that the Licensed Software as furnished by or modified by Licensor under this Agreement infringe on a patent, trade secret or copyright, and to pay the amount of Licensee's reasonable costs and settlement or damages awarded provided that Licensor has been notified promptly of any notice of claim or of threatened or actual suit. -7- 11.2 Following notice of this claim or of a threatened or actual suit and solely at the written request of Licensee, Licensor shall procure for Licensee the right to continue to use the Licensed Software as furnished or, may replace or modify the Licensed Software to make it non-infringing. 12. Warranty of Performance ----------------------- Licensor represents and warrants that the Licensed Software with the Modifications and Enhancements (together "Software Plus") will operate substantially error free in Licensee's hardware/software configuration and operating environment for a period of ninety (90) business days following execution of this Agreement ("Warranty Period"). During the Warranty Period, and thereafter as required, Licensor will expeditiously correct without charge all errors of which it is notified by Licensee during the Warranty Period. 13. Limitations of Liability ------------------------ LICENSOR SHALL NOT BE LIABLE FOR ANY SPECIAL, INCIDENTAL, CONSEQUENTIAL OR EXEMPLARY DAMAGES, INCLUDING WITHOUT LIMITATION, FOR THE LOSS OF USE, LOSS OF PROFITS OR FOR THE LOSS OF DATA INFORMATION OF ANY KIND, ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT. 14. Relationship of the Parties --------------------------- The relationship between Licensor and Licensee is that of licensor/licensee. Neither party shall represent that it has any authority to assume or create any obligation, express or implied, on behalf of the other party, nor to represent the other party as agent, employee or in any other capacity. 15. Notices ------- All notices or other communications given by either party to the other under this Agreement shall be in writing and shall be personally delivered or sent by registered or certified mail, return-receipt requested, to the other party at its address set forth above or such other -8- addresses as a party may subsequently designate in writing. The date of personal delivery or the date of mailing, as the case may be, shall be deemed to be the date on which such notice is given. 16. General Provisions ------------------ 16.1 Assignment ---------- Neither this Agreement nor any rights or licenses granted hereunder may be assigned or delegated without the written consent of Licensee. This Agreement shall inure to the benefit of and be binding upon any permitted successor or assign of the parties. 16.2 Governing Law ------------- This Agreement shall be governed by and construed as a sealed instrument in accordance with the laws of the State of Florida. 16.3 Delay ----- The parties shall not be liable for delays in the performance of their obligation hereunder due to causes beyond their reasonable control including, but not limited to, Acts of God. 16.4 Successors ---------- Except as otherwise provided herein, this Agreement together with all schedules or modifications now and hereafter made a part hereof shall be binding on the respective parties and respective heirs, executors, administrators, legal representatives and assigns. 16.5 Waiver and Invalidity --------------------- No waiver of any breach of this Agreement shall constitute a waiver of any other breach of the same or other provisions of this Agreement and no waiver shall be effective unless made in writing. In the event that any provisions herein shall be illegal or unenforceable, such provision shall be severed and the entire Agreement shall not fail, but the balance of the Agreement shall continue in full force and effect. -9- 16.6 Headings -------- The titles of the Sections and subsections of this Agreement are for the convenience of references only and are not to be considered in construing this Agreement. 16.7 Agreement --------- This Agreement, including the attached Schedules, constitutes the exclusive statement of the agreement between the parties concerning the subject matter thereof. All other prior agreements, arrangements or undertakings, oral or written, are merged into and are superseded by the terms of this Agreement. No addition to or modification of any provisions of this Agreement shall be binding unless made in writing and signed by duly authorized representatives of the parties. IN WITNESS WHEREOF, the parties hereto have executed this Agreement under deal as of the day and year indicated above. RESERVATIONS TECHNOLOGY, INC. NEW COMMODORE CRUISE LINES, LIMITED /s/Ben Tipps /s/Alan Pritzker - ----------------------------- ------------------------------------ By By Ben Tipps Alan Pritzker - ----------------------------- ------------------------------------ Print Name Print Name Pres. V.P. Finance - ----------------------------- ------------------------------------ Title Title -10- SCHEDULE A ---------- Schedule A consists of approximately 72 pages entitled "Programming Development Manager - Member List", which lists computer files, libraries, member numbers, creation dates, last changed dates, time, records, records deleted and text. EX-10.M 8 EXHIBIT 10:M SUBLEASE EXHIBIT 10 M SUBLEASE This Sublease is entered into this ________ day of _______, 1995, by and between Commodore Cruise Line, Limited, a Cayman Island corporation with an office at 4000 Hollywood Boulevard, Hollywood, Florida 33021 ("Sublessor") and New Commodore Cruise Lines Limited, a Bermuda corporation, ("Sublessee") with reference to the following facts: A. Pursuant to an July 22, 1991 Lease Agreement number 0T00021 and amendments 000191 and 000192 (the "Main Lease") between IBM Credit Corporation ("Lessor") and Sublessor, Sublessor has leased computer equipment and software (the "Equipment") and desires to sublease the Equipment to Sublessee, and B. Sublessee desires to sublease the Equipment. NOW, THEREFORE, the parties agree as follows: 1. DESCRIPTION OF EQUIPMENT Sublessor hereby leases to Sublessee, and sublessee hereby leases from Sublessor, for the term, and subject to the conditions and covenants hereinafter set forth, the Equipment as listed on Attachment A. 2. TERM The term of this Sublease shall commence on June 30, 1995 and shall end in accordance with the terms specified in the Main Lease. Sublessee shall have the purchase rights for the Equipment as set forth in the Main Lease provided they are not in default of this Sublease. 3. RENT Rent shall be paid as defined in the Main Lease and shall commence on June 30, 1995. Rent shall include all applicable sales taxes and property taxes. Sublessee will pay the rent to Sublessor, at the address set forth above, or at such address as Sublessor may from time to time designate. Sublessee agrees to pay all such sums monthly, in arrears, and without demand. If the term of this Sublease commences on a day other than the first day of the month or terminates on a day other than the last day of a month, then the installments and any adjustments thereto for such month or months shall be prorated, based on the number of days in such month. 4. LIMITATIONS OF LIABILITY Sublessee has inspected the Equipment and accepts it "as is, where is". Sublessor shall not be liable for any special, incidental, consequential or exemplary damages, including without limitation, for the loss of use, loss of profits or for the loss of data information of any kind, arising out of or in connection with this Agreement. 5. ASSIGNMENT AND SUBLETTING Sublessee may sublease or assign the subleased Equipment or any part thereof subject to the terms of the Main Lease. Sublessee shall not be released from its obligations under the terms of this Sublease. 6. INSURANCE Sublessee agrees that, at all times during the Sublease term, it will keep in force and effect all insurance as is required under the Main Lease and shall name Lessor and Sublessor as additional insured. 7. GENERAL a) This Sublease embodies the entire agreement between the parties hereto relative to the subject matter hereof and shall not be modified, changed, or altered in any respect except in writing. b) The covenants, agreements, and obligation herein contained shall extend to, bind, and insure the benefit not only of the parties hereto but their successors and assigns; and where more than one party shall be Sublessor under this lease, the word "Sublessor" whenever used in this lease shall be deemed to include all such parties jointly and severally. c) Whenever under this Sublease, a provision is made for notice of any kind, such notice shall be in writing and signed by or on behalf of the party giving or making the same, and it shall be deemed sufficient notice and service thereof if such notice is sent by registered or certified mail, postage prepaid, to the address furnished for such purpose. Copies of any notices to Sublessee shall also be sent to 4000 Hollywood Boulevard, Suite 3858, Hollywood, Florida 33021. All notices to be given to the parties shall be given at the addresses stated above unless and until some other place is designed in writing by the respective party and in accordance with the Main Lease. d) Nothing in this Sublease Agreement is intended to conflict with the terms of the Main Lease or with any of the rights accorded the Lessor in the Main Lease. Executed on the day and year first above written. SUBLESSOR SUBLESSEE COMMODORE CRUISE LINE, LIMITED NEW COMMODORE CRUISE LINES LIMITED By:/s/ Thomas Forss By:/s/Alan Pritzker ------------------------ -------------------------- Name: Thomas Forss Name: Alan Pritzker ---------------------- ------------------------ Title: procure holder Title: V.P. Finance --------------------- ----------------------- Attachment A Attachment A consists of 6 pages describing each piece of equipment being leased including: quantities and types, descriptions, plant order numbers, serial numbers, price, lease rate, payment terms, lease option code, purchase option code, estimated shipment date, total rent and payment period. EX-10.N 9 EXHIBIT 10N: ASSIGNMENT ASSIGNMENT OF FINANCING AND ) UNITED STATES OF AMERICA ) BERTHING AGREEMENT ) ) BY ) ) COMMODORE CRUISE LINE LIMITED ) STATE OF LOUISIANA ) TO ) PARISH OF ORLEANS ) NEW COMMODORE CRUISE LINE LIMITED ) CITY OF NEW ORLEANS ___________________________________/ This Assignment of Financing and Berthing Agreement (the "Assignment"), entered into and effective June 29, 1995, between: COMMODORE CRUISE LINE LIMITED, ("CCL" or the "Assignor") a company incorporated under the laws of the Cayman Islands whose principal place of business is c/o Caledonian Bank & Trust Limited, Caledonian House, George Town, Grand Cayman, Cayman Islands; and NEW COMMODORE CRUISE LINE LIMITED, (the "Assignee"), a company incorporated under the laws of Bermuda whose principal place of business is at 4000 Hollywood Boulevard, Suite 385, South Tower, Hollywood, Florida 33021, USA. WITNESSES WHEREAS, on April 29, 1992, CCL and the Board of Commissioners of the Port of New Orleans (the "Board") entered into a Financing and Berthing Agreement (the "Agreement") providing for the construction of a modern cruise ship terminal at the Board's Julia Street Wharf; and WHEREAS, on September 25, 1992, the Agreement was amended to provide for the cost of construction; and WHEREAS, Section 22 of the Agreement as amended provides CCL may assign the Agreement, provided it secures the prior written consent of the Board acting through its President and Chief Executive Officer in his discretion; and WHEREAS, Assignor desires to assign its rights in the Agreement to Assignee and the Board agrees to consent to the Assignment under the terms and conditions contained herein; -1- NOW THEREFORE, in return for the consideration and conditions contained herein, the parties agree as follows: Assignee hereby assumes all of Assignor's rights, title and interest under the Agreement and hereby binds itself to perform all conditions of the Agreement and obligations owed by Assignor under the Agreement arising after the effective date of the assignment. Assignee agrees that all insurance requirements of the Agreement shall be satisfied by Assignee, and all required policies shall be issued in the name of Assignee prior to the effective date of this Assignment. Assignor also declares that all obligations of Assignor under Agreement have been satisfied to the date of the execution of this Agreement. THUS DONE AND SIGNED in three originals on the dates written below in the presence of the undersigned competent witnesses who have hereunto signed their names with the appearers and effective on June 29, 1995. WITNESSES: COMMODORE CRUISE LINE, LTD. (Assignor) /s/illegible - ---------------------------- /s/Alina Mole By:/s/Patrick Doyle - ---------------------------- ----------------------------------- WITNESSES: NEW COMMODORE CRUISE LINE, LTD. (Assignee) /s/Gail Santee - ---------------------------- By:/s/Frederick A. Mayer ____________________________ ----------------------------------- WITNESSES: ASSIGNMENT CONSENTED TO UNDER THE TERMS AND CONDITIONS SET OUT HEREIN BY THE ____________________________ BOARD OF COMMISSIONERS OF THE PORT OF NEW ORLEANS ____________________________ APPROVED: /s/illegible By:/s/J. Ron Brinson - ---------------------------- ----------------------------------- Attorney for Board M. Ron Brinson President & Chief Executive Officer -2- FINANCING AND BERTHING AGREEMENT ) UNITED STATES OF AMERICA ) BETWEEN ) STATE OF LOUISIANA ) THE BOARD OF COMMISSIONERS ) PARISH OF ORLEANS OF THE PORT OF NEW ORLEANS ) ) CITY OF NEW ORLEANS AND ) ) COMMODORE CRUISE LINE, LTD. ) __________________________________/ THIS FINANCING AND BERTHING AGREEMENT (hereafter Agreement), made and entered into on the dates written below and effective as provided hereafter, between the Board of Commissioners of the Port of New Orleans (hereafter Board), a political subdivision of the State of Louisiana, represented herein by J. Ron Brinson, its President and Chief Executive Officer, by virtue of a resolution of said Board, a certified copy of which is annexed hereto as Exhibit A, and Commodore Cruise Line, Ltd. (hereafter CCL), a Cayman corporation organized and existing under the laws of The Cayman Islands, represented herein by Ove Nordqvist, its President and Chief Executive Officer, by virtue of a resolution of the Board of Directors of said corporation, a certified copy of which is annexed hereto as Exhibit B, WITNESSES WHEREAS, the Board owns the Julia Street wharf on the east bank of the Mississippi River at mile 92.2 AHP; and WHEREAS, the Board is vitally interested in promoting the cruise ship industry by attracting expanded cruise ship service to the Port of New Orleans; and WHEREAS, CCL operates the cruise ship S.S. Enchanted Seas (hereafter -------------- Vessel) from the Port of New Orleans to the Caribbean Sea and Gulf of Mexico; and WHEREAS, to enhance community relations and to insure ongoing and expanded operations by CCL in the Port of New Orleans, the Board proposes to construct a modern cruise ship terminal at the upper Julia Street wharf, WHEREAS, discussions have been conducted between this Board's staff and officers of CCL concerning mutually satisfactory terms and conditions for construction of a terminal, and the proposed agreement has been determined by this Board to be in the best interests of all concerned and to have significant benefits to the Port of New Orleans and business activities in the New Orleans area, and the Board has agreed thereto. -1- NOW, THEREFORE, these premises considered, the Board and CCL hereto agree that for the consideration and on the terms and conditions hereafter set forth: 1. IMPROVEMENTS TO BE MADE BY BOARD -------------------------------- (A) Board agrees that, within thirty (30) days after execution of this Agreement, Board shall commence performance of the work necessary to effect construction of a modern cruise passenger terminal and approaches at the upper end of the Julia Street Wharf. Adjacent to this terminal, the Board shall also design and construct parking facilities sufficient to accommodate a maximum of 123 vehicles for the passengers embarking on the Vessel. Storage space of approximately 2,000 square feet shall be made available within the shed directly adjacent to and downstream of the terminal and will be accessible via a double door. The assignment of this storage space to CCL will be in accordance with Item 308 of the Board's Dock Department Tariff. CCL may, at its option, erect the necessary fencing for security, subject to Board approval. Board shall be under no obligation to provide any security fencing. However, the cost of fencing may be included in total cost of the Terminal, if mutually agreed upon by the Board and CCL. Generic terminal signage will be included in the construction. CCL shall have the right to include specific CCL signage in the construction, but all cost for such shall be for the account of CCL. All construction and improvements shall be as generally set forth or described on Drawing No. PR-30698, dated December 6, 1991, annexed hereto and made part hereof as Exhibit "C", all of which is sometimes herein referred to as the Terminal, provided that the total cost of the work, as indicated by the total of the acceptable bid or bids received by Board pursuant to Louisiana law for performance of such work and other costs incurred or which would be incurred, including refurbishment of the "water" stairs, shall not exceed the sum of Six Hundred Seventy-One Thousand (671,000.00) Dollars. The Terminal, including all constructions or improvements made thereto pursuant to this Agreement, shall at all times be and remain the property of Board without any right or claim thereto or against same by CCL. For purposes of this section, commencement of the work by Board shall be the initiation of engineering studies of the work. (B) Board shall have sole and exclusive responsibility for the design of the work and for preparation of the plans and specifications for the work and determination of the contents thereof, without any right or claim on the part of CCL, provided that the design of the work, the plans and specifications therefor, and the work to be set forth or depicted therein and to be performed pursuant thereto shall be generally as set forth on Exhibit "C". However, Board agrees to submit to CCL for design review the plans and specifications for the construction of the Terminal no later than 90 days after the execution of this Agreement. CCL shall have 14 days within which to review the plans and specifications and respond with comments, suggestions, and requested corrections before the project is advertised for bids. If CCL does not respond within that time, CCL's concurrence with the plans shall be presumed. (C) Should the total amount of the acceptable bid or bids received by Board for performance of the work and other allocable costs, including, without limitation, contingencies, in-house engineering and inspections, indicate that the total cost of the work will exceed the -2- aforesaid sum of Six Hundred Seventy-One Thousand (671,000.00) Dollars, then this Agreement shall be null, void and of no effect unless Board and CCL shall, within sixty (60) days of the receipt of such bids, agree to amendment of the Agreement and the plans and specifications so as to reduce the total cost of the work to within said sum, as shall be indicated by the acceptable bid or bids received on the revised plans or specifications, or Board and CCL shall agree to the expenditure of additional funds required to perform the work according to the original plans and specifications. 2. RELOCATION ---------- Board shall have the right to relocate the Terminal at any time upon giving to CCL at least ninety (90) days written notice in advance. In the event that Board exercises its right to relocate the Terminal, CCL shall have (1) the right to terminate this Agreement; or (2) the right to renegotiate the terms of this Agreement with Board, provided CCL exercises either right in writing within thirty (30) days of its receipt of written notice from Board that Board has elected to exercise its option to relocate the Terminal. Board agrees that it shall elect to relocate the Terminal only if relocation is necessary and appropriate in the development of the riverfront area of which the Terminal will form a part. If CCL elects to renegotiate, Board agrees to use its best efforts to relocate the Terminal to an area suitable to CCL's operation and provide accommodations reasonably similar to those CCL will enjoy at the Terminal. If CCL elects to terminate the agreement, all of CCL's obligations to Board shall become extinguished on the Board's receipt of CCL's notice in writing of CCL's intentions. 3. COMMITMENT BY CCL ----------------- (A) CCL commits to homeport and operate the Vessel (or equal replacement, in CCL's sole judgment) for five years from the Port of New Orleans year round (minimum 50 weeks per year) commencing with the first voyage from this Terminal, to occur within seven (7) days of the date on which the Board notifies CCL it has accepted completion of the Terminal. (B) If CCL cannot complete 50 sailings in any one year for reasons beyond the control of CCL (including, but not limited to, strikes, labor stoppages, weather, or extended maintenance and repair), then this Agreement will be modified as provided in Section 7 (A) below. CCL shall notify Board immediately in writing of any situation which will limit CCL's sailings. For purposes of this Section, year as defined in this Section shall mean the one- year period commencing on the date of the first cruise by the Vessel (or equal replacement) from the Terminal and, subsequently, the one-year period following the anniversary of the date in each year of the agreement of the first cruise by the Vessel (or equal replacement). 4. OPERATION OF TERMINAL --------------------- (A) CCL agrees to be and shall remain throughout the term of this Agreement responsible for the daily operation and maintenance of the Terminal when vessels owned or -3- operated by CCL are at the Terminal in the Port of New Orleans. As used in this Agreement, the term "operation" includes, but is not necessarily limited to, janitorial services (before, during, and after usage), furnishing all personnel and equipment required, baggage handling, security, gangway, and any other requirements necessary to load passengers and their personal effects, equipment, stores and supplies. (B) The Board shall arrange at its expense for necessary installation of all utility connections (water, sewage, and electricity necessary to operate air-conditioning, heating, lighting, and restroom facilities), and will provide at its expense maintenance support in case of mechanical failure of Board- supplied equipment. (C) CCL may subcontract its obligations under this section with prior approval of the Board, which approval will not be unreasonably withheld, provided CCL shall at all times remain liable for its obligations under this Agreement. 5. TERM ---- The term of this Agreement shall begin on the date of its execution. CCL shall have five years from the date of the first cruise by the Vessel (or equal replacement) from the Terminal to complete CCL's financial obligation to the Board for the improvements to be constructed hereunder. 6. FEES AND CHARGES ---------------- (A) CCL agrees to pay to Board dockage and other charges as published in the Board's Dock Department Tariff, FMC T-No. 2 (hereafter the Tariff) and as these rates shall be subsequently amended or otherwise revised. CCL hereby acknowledges receipt of a copy of the Tariff. In addition to these charges, CCL shall pay a passenger charge equal initially to the rate for such charges posted in the Tariff, which rate shall soon increase to $5.50 per passenger. Board shall have the option to increase this rate at such time in the future that the Tariff is amended for passenger wharfage charges, provided, however, that any Tariff rate increase notwithstanding, the rate of the passenger charge in effect for this Agreement shall not increase by more than ten (10) percent per year over the rate that was previously in effect before any Tariff amendment for passenger wharfage is passed, or no more than the Tariff rate increases for passenger wharfage charge if said increase should be less than ten (10) percent. For purposes of this section of this Agreement, year shall mean the year following the anniversary of the date in each year of the agreement of the first cruise by the Vessel (or equal replacement). (B) The initial parking fee per vehicle shall be $6.00 per 24-hour day or any fraction thereof for cruise vessel passengers. Each year of this Agreement on the anniversary of the date of the first cruise by the Vessel (or equal replacement), Board shall have the option to increase -4- the parking fee, provided this increase shall be no greater than fifteen (15) percent of the parking fee previously in effect. (C) CCL shall be invoiced and shall pay for its pro rata share of utility consumption during its usage of the Terminal, which will be measured on a separate meter to be installed at Board's expense. 7. CCL'S FINANCIAL OBLIGATION -------------------------- (A) The Board shall divide the full amount of the capital expenditure for constructing the Terminal into 250 equal installments to be credited over a five-year period. For each sailing of the Vessel (or equal replacement) from the port, the Board shall reduce CCL's financial obligation by one installment. The installment reduction shall commence on the date of the first cruise by the Vessel (or equal replacement) from the new Terminal. (B) If CCL cannot complete 50 sailings per year as provided in Section 3 (B), CCL may at its option: (i) extend the term of this Agreement in order to complete 250 sailings before the expiration of this Agreement; or (ii) pay an amount each year equal to the number of installments not deducted because of insufficient sailings. In no event shall this Agreement be extended more than one (1) year. (C) If CCL places another vessel in service with New Orleans as homeport, in addition to the Vessel (or equal replacement), each vessel call shall also result in a one installment reduction of CCL's financial commitment to the Board. (D) In the event passenger vessels with overnight accommodations not owned or operated by CCL or by any affiliate of CCL utilize the Terminal for passenger embarkation/debarkation during the term of this Agreement, an additional installment reduction will be subtracted from CCL's financial commitment for each such use. (E) If CCL or any affiliate of CCL does not remain in New Orleans as a homeport year-round with at least one vessel for the full five-year term of CCL's obligation, CCL shall pay to the Board in one lump sum an amount equal to the remaining principal due at the date of CCL's departure from the Port. However, CCL shall at all times endeavor to remain homeported with at least one vessel year-round in New Orleans for a minimum of five years. (F) If multiple vessels utilize the Terminal over the five-year period and the full capital expenditure obligation of CCL is completed prior to the five-year period, CCL's -5- commitment to sail year-round from the Port of New Orleans for the term of this Agreement shall not be diminished. 8. OPTION TO EXTEND ---------------- At the end of the five-year term (or any extension as contemplated in Section 7 (B) above), CCL shall have the option to utilize the Terminal for an additional three-year period under the same terms and conditions as set forth herein, except for the provisions of Section 7 above. 9. PRIORITY USE OF TERMINAL ------------------------ (A) The Vessel shall have priority use of the Terminal on Saturdays and Sundays, provided a schedule of sailings (berth applications) at least six months in advance is filed with the Board's terminal assignment department. (B) If CCL places another vessel in service in New Orleans in addition to the Vessel, that vessel shall also have priority use of the Terminal on Saturdays and Sundays. (C) If CCL is not utilizing the Terminal on either one of its priority days, and another cruise line requests the use of the Terminal as a homeport during one of those priority days, the Board shall notify CCL of the request, and CCL shall have sixty (60) days in which to advise the Board that CCL will commit another vessel to homeport in New Orleans on that day. If CCL declines to commit a vessel, the Board shall be free to assign the Terminal to the other cruise line. (D) If another cruise line requests simultaneous use of the Terminal, and that use does not adversely affect CCL's use of the Terminal, then CCL shall not unreasonably withhold its permission to allow the Board to assign the Terminal simultaneously to another cruise line. (E) If another cruise line requests the use of the Terminal as a port call on days the Terminal is not utilized by CCL, the Board shall have the right to assign the Terminal without prior approval from or notice to CCL. Each such use shall result in a reduction of one-half (1/2) of CCL's weekly installment rate. 10. INSURANCE --------- (A) CCL shall procure and maintain at CCL's sole cost and expense comprehensive general liability insurance with limit of liability of not less than 10 million dollars ($10,000,000) for all injuries or deaths resulting to any one person or from any one occurrence arising out of use or occupancy of the Terminal. The limit of liability for property damage shall be not less than five million dollars ($5,000,000) for each occurrence and aggregate. -6- (B) CCL shall procure and maintain at CCL's sole cost and expense comprehensive motor vehicle liability insurance which shall include hired car and non-ownership coverage with limit of liability of not less than one million dollars ($1,000,000) for all injuries or deaths resulting to any one person or from any one occurrence. The limit of liability for property damage shall be not less than one million dollars ($1,000,000) for each occurrence and aggregate. (C) CCL shall procure and maintain at CCL's sole cost and expense workers' compensation insurance as will protect it from claims under the Louisiana Workers' Compensation Act as well as under the federal Longshoremen's and Harbor Workers' Compensation Act, if applicable. The limit of liability under the employer's liability section of the workers' compensation insurance policy shall be not less than five hundred thousand dollars ($500,000). Whenever applicable, protection shall also be provided for liability under the Jones Act and under general maritime law in an amount of not less than five hundred thousand dollars ($500,000). (D) CCL shall procure and maintain at its sole cost and expense, for vessels used in its operation, hull and machinery insurance including collision liability and salvage removal, for the full value of the vessels. CCL shall also provide protection and indemnity insurance with limits of liability of no less than $25 million subject to a deductible of no more than $25,000. CCL shall be responsible for all deductibles. (E) Except for the workers' compensation policy, Board shall be named as an insured on all insurance policies carried by CCL and its subcontractors in compliance with this Agreement. All insurance policies required under subsections (a), (b) and (d) above as well as any insurance carried by CCL or those holding under or through CCL for the protection of its or their property at the Terminal shall provide that the insurers waive their rights of subrogation against Board and CCL and their respective officers, servants, agents, representatives, employees or invitees. CCL further agrees to waive and agrees to have its insurance waive any rights of subrogation (whether by loan receipts, equitable assignment or otherwise) with respect to deductibles under such policies and with respect to damage to equipment, including the loss of it, whether insured or not. All such policies shall also provide for thirty (30) days' written notice of cancellation of material change to be sent to Board's risk manager at P.O. Box 60046, New Orleans, Louisiana 70160. All such policies shall be underwritten by companies authorized to do and doing business in the State of Louisiana and acceptable to Board (Best's rating IV or better), acting through its risk manager. CCL shall furnish to Board's risk manager, on forms acceptable to him, certificates evidencing that it has procured the insurance required herein prior to CCL's occupancy of the Terminal. Nothing contained here shall prevent CCL or Board from placing and maintaining, at its respective cost and expense, additional or other insurance as may be desired. (F) All insurances required for landside operation of terminal may be provided by CCL's subcontractors, provided CCL remains liable for performance of all of its obligations under this Agreement. -7- 11. DREDGING -------- Board agrees to be responsible at Board's expense for any required dredging of the approach to and at the face of the Julia Street wharf, so as to always guarantee water depth of thirty-two (32) feet for the Vessel and other CCL vessels. CCL guarantees that none of CCL's or its affiliates' vessels shall require more than thirty-two (32) feet of water depth. Board agrees to furnish CCL, on request, copies of its sounding charts of the water berth which may be taken by Board from time to time, provided, however, that Board shall not be responsible for the accuracy or correctness of such sounding charts. 12. MAINTENANCE AND REPAIR OF DAMAGE -------------------------------- (A) CCL shall be responsible at its sole cost, risk and expense for repairing any damage to the Terminal which is caused by CCL, its employees, contractors, agents, representatives, invitees or permittees. CCL agrees that it shall take all necessary action to protect the interests of Board as well as of CCL. CCL shall not be responsible for damage to the Terminal not caused by CCL, its employees, contractors, agents, representatives, invitees, or permittees. (B) Should CCL fail to (i) commence repair, replacement, maintenance or restoration of all such property which may become the subject of loss, damage or destruction within fifteen (15) days after having been notified in writing by Board to perform such obligations as stated above, and (ii) continuously without interruption pursue the completion of such repair, replacement, maintenance or restoration, in addition to such remedies as may be afforded to Board by law, Board is hereby authorized by CCL to perform the work at CCL's cost, risk, and expense, and CCL shall on demand pay to Board the actual expenses incurred by Board plus liquidated damages. Liquidated damages are hereby agreed to be the Board's actual expense plus 25 percent. 13. LAWS, RULES AND REGULATIONS --------------------------- (A) CCL shall not at any time during the term of this Agreement use or allow the use of the Terminal for any purpose in violation of the laws, regulations or ordinances of the United States of America, the State of Louisiana, the City of New Orleans, or of Board, whether such laws, regulations or ordinances now exist or shall be enacted or issued during the term of this Agreement. (B) CCL shall observe all laws and ordinances applicable to the installation, maintenance and removal of any improvements, machinery or other equipment on, in, or near the Terminal (including access or utility connections) and to take appropriate safeguards to prevent loss, damage or injury to the Terminal or to any adjacent property as a result of such installation, maintenance or removal of such improvements, machinery or equipment. -8- (C) CCL, when using the terminal, shall keep the Terminal, including the utility reservation and access area fronting or serving it and other areas as may be indicated in a safe, clean and wholesome condition and in full compliance with local ordinances and all other laws and governmental regulations affecting the Terminal and shall remove promptly at CCL's cost any rubbish or waste material of any character whatsoever which may accumulate thereon from CCL's operation. Any oil, sludge, residue or other materials to be disposed of in connection with CCL's operation of the Terminal shall not be discharged into the Mississippi River, connecting waterways or drains, nor shall any material, debris, or objects of any kind be thrown or otherwise allowed to be discharged into those waterways. CCL shall not use the Terminal for any purposes which might cause a nuisance to adjacent property owners, lessees or occupants. (D) CCL shall report to Board in writing every occasion when hazardous materials are to be stored or used on or passed through the Terminal. Whenever possible, CCL shall make this report before such occasion and in any event as soon as CCL becomes aware of any such occasion. CCL shall report to Board all environmental compliance orders issued to CCL as a result of CCL's operations at the Terminal by the U.S. Environmental Protection Agency or the Louisiana State Department of Environmental Quality immediately after receiving notice of any such orders. (E) Board shall at all times be free to make and enforce any reasonable and uniform rules, regulations or ordinances which it deems necessary or appropriate with regard to the property under its administration of which the Terminal forms a part, provided that such rules, regulations or ordinances shall not be arbitrary or discriminatory against CCL. (F) CCL shall demand adherence to all of the above-mentioned laws, ordinances, rules and regulations both from its employees and all other persons entering the Terminal who derive their right to be there from CCL. 14. WATCHMAN SERVICE ---------------- CCL shall furnish all watchman service which it may desire at CCL's own cost, risk and expense. Board shall have no obligation to provide watchman service. 15. COST, RISK AND EXPENSE ---------------------- (A) CCL shall pay all costs and assume all risks in doing work or carrying on operations, now or hereafter permitted or required under the terms and conditions of this Agreement, except as may be otherwise specifically designated in this Agreement or in written instructions given r other agreements made by proper authority under the terms and conditions of this Agreement. (B) The application for and installation of any water, gas, sewerage and drainage lines and electric power cables to the Terminal shall be made by Board at Board's expense. -9- (C) Payment of the cost of all ship's service water, electricity, and other services or utilities shall be in accordance with the Tariff and the sole responsibility of CCL. 16. DEFAULT ------- (A) The following shall constitute events of default (hereafter Events of Default) under this lease: (i) If CCL shall fail duly and punctually to make any payment required when due to Board, and if such failure shall continue for a period of thirty (30) days after written notice of it has been given to CCL by Board; or (ii) If CCL shall be adjudged bankrupt or insolvent by any court of competent jurisdiction, or if a voluntary petition in bankruptcy or a petition for reorganization or arrangement shall be filed by CCL, or if a receiver of the property of CCL shall be appointed; or (iii) If the interest of CCL under this Agreement shall transfer or pass to or devolve on any other person, firm or corporation by operation of law or otherwise without the prior written consent and approval of Board except to an affiliate, a wholly owned subsidiary, or successor company; or (iv) If CCL becomes a corporation or other entity in dissolution or liquidation, whether voluntary or as the result of any act or omission, or by operation of law or the order or decree of any court having jurisdiction or for any other reason whatsoever and the exceptions of (iii) above have not become operative; or (v) If, by or pursuant to or under authority of any legislative act, resolution or rule or any order or decree of any court or governmental board, agency or office, a receiver, trustee or liquidator shall take possession or control of all or substantially all of CCL's property; or (vi) If CCL shall voluntarily abandon, desert or vacate New Orleans or discontinue its operations at the Terminal for a period greater than thirty (30) days, excluding drydocking or maintenance repair time, provided such time does not exceed 90 days and CCL gives written notification to Board in advance of the 30-day period provided herein if the maintenance period is forecast to be greater than 30 days; or -10- (vii) If CCL breaches or defaults in respect to any other covenants, conditions or agreements contained herein and fails for a period of thirty (30) days after receipt of written notice to remedy such default, or, if remedying such default would reasonably require longer than thirty (30) days, fails to commence to remedy and to proceed thereafter with all reasonable diligence to the remedying of such default. (B) At the occurrence of any such Event of Default, the unamortized portion of the principle capital expense shall at once become due and exigible without putting CCL in default. At that time, Board in its sole discretion may exercise either of the following options without further notice to CCL and without putting CCL into default: (i) to demand the unamortized portion of the principal capital expense, (ii) to cancel this Agreement immediately. (C) CCL expressly waives any statutory right it may have under La. C.C.P. Art. 4701 et seq. of notice to vacate the Terminal. ------- (D) In all cases, CCL shall remain responsible for all damages or losses suffered by Board as a consequence of CCL's breach in the performance of its obligations under this Agreement. In addition to exercising the rights or remedies hereinabove provided in this Section, at the occurrence of Event of Default designated in (vi) above (i.e. abandonment or discontinuance of operations), whether alone or in conjunction with other Events of Default, Board may take possession of the Terminal without terminating this Agreement and at the Board's option either operate the facility or relet it at the best price obtainable by reasonable effort, consistent with the public purposes of Board, and for any term Board deems proper, and CCL shall remain liable to Board for the deficiency, if any, between CCL's charges and other obligations hereunder and the price contained by Board on operation or re-letting. Failure strictly and promptly to enforce these conditions shall not operate as a waiver of Board's rights. 17. TERMINATION OF AGREEMENT ------------------------ (A) At termination of this Agreement by cancellation or expiration or for any other reason whatsoever, CCL shall immediately yield up possession of the Terminal to Board. In case of failure or refusal of CCL to yield up the Terminal, CCL shall pay as liquidated damages for the whole time such possession is withheld double the proportionate amount of charges herein specified to be due. This provision shall not constitute a waiver by Board of any remedies now or hereafter given to Board by the laws of Louisiana. (B) At such termination, CCL shall have the right, and CCL may be required by Board, to remove any and all facilities, buildings or structures placed by CCL or CCL's agents -11- on the Terminal, and CCL shall restore the Terminal to as good condition as at the commence ment of this Agreement, ordinary wear and tear expected. In any event, CCL shall immediately remove all trash, stocks or materials, supplies, tools, etc. from the Terminal and from the adjacent areas of responsibility of CCL. (C) If the facilities, buildings or structures which are required by Board to be removed from the Terminal and all trash, stocks of materials, supplies, tools, etc. shall not have been removed by CCL prior to the date of termination of this Agreement, and the Terminal not restored as aforesaid, Board shall have the option either to collect double the proportionate amount of charges due as liquidated damages until the facilities, buildings, structures, trash, stocks of materials, supplies, tools etc. have been removed and the Terminal restored by CCL; or to remove the same and restore the Terminal at CCL's cost, risk and expense, the double charge to continue until ultimate removal thereof and completion of restoration; or to retain such property of CCL or any part thereof which remains on the Terminal without payment or reimbursement to CCL unless other arrangements have been made in writing between Board and CCL with regard to the removal thereof. 18. RIGHTS OF WAY ------------- Board may at its option grant to CCL, or to appropriate public utility companies if requested by CCL, rights of way to be so located as to give the utility companies as convenient access to the Terminal as practicable without unreasonable interference with the use by Board or Board's other tenants of the property, provided that the location of such utilities, insofar as they cross or otherwise affect any of Board's property within or outside of the Terminal, shall be approved in writing in advance by Board. Such rights of way for utilities, granted by Board, shall be only for the duration of the term of this Agreement or any extensions thereof. CCL shall assume all risks, costs or other obligations imposed by the utility companies as a condition of such installations made at CCL's request. 19. LOSS, DAMAGE AND DESTRUCTION ---------------------------- (A) Except as provided herein, the occurrence of any loss, damage or destruction of the Terminal, however caused and whether covered by insurance or not, shall not be grounds for cancellation or termination of this Agreement or for reduction or abatement of charges or amortization. Board shall be under no responsibility to repair, replace or restore any of the Terminal which may be the subject of such loss, damage or destruction, and its failure to do so shall not be grounds for cancellation of this Agreement. (B) Except as provided herein, CCL agrees that it shall at its own cost, risk and expense promptly and with due diligence repair, replace or restore (or cause repair, replacement or restoration) any and all of the Terminal which may become the subject of such loss, damage or destruction, if caused by CCL. CCL shall obtain the written consent of Board to the plans for any repairs, replacements or restoration. The proceeds derived from insurance policies and amounts recovered from third parties shall be applied toward such repairs, replacement or -12- restoration. Board agrees to make such insurance proceeds and amounts recovered from third parties available to CCL for the payment of progress payments to CCL's suppliers and contractors working on such repair, replacement or restoration. (C) CCL shall have the option to terminate this Agreement and its obligations under this Agreement in the event of any loss, damage or destruction of the Terminal which renders it unusable for the handling of passengers to and from vessels as contemplated by this Agreement, if such loss, damage or destruction of the Terminal is not caused by CCL, its employees, contractors, agents, representatives, invitees, or permittees. CCL shall give Board prompt notice of such election no later than thirty (30) days from the date of occurrence of such loss, damage or destruction, and failure to give such notice shall be deemed an election to continue this Agreement. Such termination shall be effective (for the purposes of the payment of charges) as of the date of such loss, damage or destruction, and Board shall have no obligation to CCL for any payment as a consequence of such termination. In the event said loss, damage or destruction shall have been covered by insurance, before CCL may exercise its option to cancel this Agreement as set out in this Subsection, CCL shall pay over to Board all such insurance proceeds which CCL has been paid or for which CCL has or may have a claim. (D) The right is reserved to CCL and to Board (at Board's option) to claim reimbursement from the party or parties responsible for any such loss, damage or destruction, provided, however, that the pendency of any claim for payment of insurance or the pendency of any claim against persons believed to be responsible for such loss, damage or destruction shall in no manner be cause for delay by CCL in effecting the repair, replacement or restoration of such property. 20. TAXES ----- If by reason of this Agreement or of the use of the Terminal by CCL as provided under this Agreement, ad valorem or other taxes should accrue against ---------- any improvements on the Terminal constructed and owned by CCL, then CCL shall pay any and all such taxes prior to their becoming delinquent. Failure to do so shall constitute a breach of this Agreement. 21. LIENS ----- CCL shall not permit any lien or privilege to remain of record when filed by any person or company for claims arising in connection with any work or undertaking by CCL or CCL's agents on the Terminal, and CCL shall promptly discharge or cause to be discharged any such lien. If in default therein for thirty (30) days after written notice thereof from Board, CCL shall pay to Board as additional rent any amount or amounts paid by Board in causing the removal of such lien, including reasonable attorney's fees and expenses. Nothing contained herein, however, shall require Board to discharge such lien except in its own discretion. -13- 22. ASSIGNMENT AND SUBLETTING ------------------------- (A) CCL shall not assign this Agreement in whole or in part, nor sublet the Terminal or any portion of it, to anyone without in each case the prior written consent of Board acting through its president and chief executive officer in his discretion. CCL shall not permit any transfer by operation of law of any of CCL's interest in the Terminal. Nothing contained herein shall be construed as requiring the consent of Board to any assignment of this Agreement to a wholly owned subsidiary or affiliate of CCL or to any corporate successor of CCL, provided, however, that in the event of such assignment, CCL shall continue to remain primarily liable for all its obligations under this Agreement unless Board shall give its written consent to the release of CCL after the receipt of due consideration. CCL, in case of assignment or sublease with permission of Board, shall remain at all times primarily liable for the prompt payment of all amounts due from CCL under the terms hereof and for the prompt performance of all covenants on CCL's part herein agreed to be performed. (B) In the event of any proposed assignment of the Agreement to an affiliate or a wholly owned subsidiary, CCL shall give prior notice to Board of the assignment and proof of CCL's ownership or affiliation of the subsidiary. In the event of any proposed assignment or transfer of this Agreement to a corporate successor, CCL shall give prior notice to Board of the assignment and proof that the proposed assignee is a corporate successor of CCL. (C) For purposes of this section, a change in ownership of CCL in which over 50 percent of the ownership is transferred to another person or entity shall constitute as assignment which must be approved in advance by the Board. 23. INDEMNITY --------- (A) CCL shall protect, defend, indemnify, and forever hold harmless Board against all loss, cost, claims, charges, expenses, penalties, damages, fines, suits, demands, attorney's fees, interest, and actions of any kind and nature whatsoever growing out of, in connection with, or by reason of any of CCL's operations and the operations of those holding under or through CCL at the Terminal, including such as may be imposed for the violation of any law of the United States, the State of Louisiana, any ordinance of the City of New Orleans, Board or of any regulation of any governmental agency (federal, state or local), and including all liability under employers' liability or workers' compensation acts (federal or state). (B) CCL shall further protect, defend, indemnify, and forever hold harmless Board against all loss, cost, claims, charges, expenses, penalties, damages, fines, suits, demands, attorney's fees, interest, and actions of any kind and nature whatsoever growing out of or in connection with any accident or other occurrence, including strict liability, whether directly or indirectly caused, occasioned or contributed to in whole or in part through any act, omission, fault or negligence of CCL, its officers, directors, employees, representatives, agents or invitees, or those occupying the Terminal through CCL causing injury to any person (fatal or otherwise) or damage to property caused by the use or occupancy of the Terminal by CCL, its officers, -14- directors, employees, representatives, agents or invitees, or those occupying the Terminal through CCL during the term of this Agreement or in CCL's performance of its obligations hereunder. (C) When in the course of fulfilling its obligations under this Section, CCL must engage attorneys to defend Board, CCL shall obtain the prior written consent of Board to the attorneys to be engaged, and such consent shall not be unreasonably withheld. (D) If Board must retain an attorney to enforce this indemnity provision, CCL shall be liable to Board for all attorney's fees and costs reasonably associated with enforcing this indemnity. 24. HEADINGS -------- The headings in this Agreement are for quick reference and convenience only and do not alter, amend, explain or otherwise affect the terms and conditions appearing in this agreement. 25. NOTICE ------ Wherever, in the provisions of this Agreement, notice is required to be given by either party, it shall not be construed to mean personal service, but it shall mean notice in writing, addressed to the party to receive such notice at the addresses designated below or as may be designated by the parties from time to time by notice given pursuant to this Section and sent by registered or certified U.S. mail: To Board: The Board of Commissioners of the Port of New Orleans P.O. Box 60046 New Orleans, Louisiana 70160 Attention: President and Chief Executive Officer To CCL: Commodore Cruise Line, Ltd. 800 Douglas Road Suite 700 Coral Gables, Florida 33134 Attention: President and Chief Executive Officer -15- 26. FEDERAL MARITIME COMMISSION APPROVAL ------------------------------------ Board and CCL agree that this Agreement is subject to the approval of the Federal Maritime Commission (hereafter FMC). Upon execution of this Agreement, Board shall submit it to the FMC for consideration and review pursuant to Section 15 of the Shipping Act of 1916, 46 U.S.C. app. 814, and Section 5 of the Shipping Act of 1984, 46 U.S.C. app. 1704(a). The parties further agree that the terms and conditions of this Agreement shall not be effective until this Agreement receives the approval of the FMC or the FMC indicates that this Agreement has become effective, either expressly or through the passage without objection of time afforded by the Shipping Act and/or the regulations adopted in furtherance thereof, for review thereof or of such shortened period of time as may be authorized by the FMC for effecting review. 27. LOUISIANA CONTRACT ------------------ This Agreement is a Louisiana contract and shall be governed, interpreted and enforced in the courts of Louisiana in accordance with the laws of the State of Louisiana and where applicable of the United States of America. THUS DONE AND SIGNED in multiple originals in this City of New Orleans, State of Louisiana, this 29th day of April, 1996, in the presence of the subscribing witnesses. WITNESSES: COMMODORE CRUISE LINE, LTD. /s/illegible - ----------------------------- /s/illegible By:/s/Ove Nordqvist - ----------------------------- ------------------------------------ OVE NORDQVIST, President and Chief Executive Officer signed in the city of Coral Gables, State of Florida WITNESSES: THE BOARD OF COMMISSIONERS OF THE PORT OF NEW ORLEANS /s/illegible - ----------------------------- /s/illegible By:/s/J. Ron Robinson - ----------------------------- ------------------------------------ J. RON BRINSON, President and Chief Executive Officer -16- APPROVED: /s/illegible - ----------------------------- Attorney of Board I hereby certify that this copy presented to me on the 29th day of April, 1996 is a copy of a true original /s/Alexandra H. Anagnostis ---------------------------------------- Notary Public ACKNOWLEDGMENT -------------- STATE OF LOUISIANA PARISH OF ORLEANS BEFORE ME, the undersigned authority, personally appeared OVE NORDQVIST, who after being duly sworn deposed that he is the President and Chief Executive Officer of Commodore Cruise Line, Ltd. and that he signed the foregoing Agreement for and on behalf of that corporation as he was duly authorized to do this 29th day of April, 1996. WITNESSES: /s/illegible - ----------------------------- /s/Alexandra H. Anagnostis /s/illegible - ----------------------------- ----------------------------- /s/Alexandra H. Anagnostis ----------------------------- Notary Public -17- ACKNOWLEDGMENT -------------- STATE OF LOUISIANA PARISH OF ORLEANS BEFORE ME, the undersigned authority, personally appeared J. RON BRINSON, who after being duly sworn deposed that he is the President and Chief Executive Officer of the Board of Commissioners of the Port of New Orleans, and that he signed the foregoing Agreement for and on behalf of said Board as he was duly authorized to do this 4th day of May, 1996. WITNESSES: /s/illegible - ---------------------------- /s/Kayle L. Hentze /s/J. Ron Brinson - ---------------------------- --------------------------------- J. RON BRINSON /s/illegible --------------------------------- Notary Public -18- RESOLUTION April 29, 1992 The Board of Directors of Commodore Cruise Line, Ltd. at their meeting today in Coral Gables, Florida, hereby with full quorum resolves that the Financing and Berthing Agreement between the Board of Commissioners of the Port of New Orleans and Commodore Cruise Line, Ltd. is approved and that Mr. Ove Nordqvist, President and Chief Executive Officer, is authorized to sign the contract on behalf of Commodore Cruse Line, Ltd. /s/Hans Christner /s/Henrik Osterberg - ----------------------------- ---------------------------------- Hans Christner Henrik Osterberg Chairman Vice Chairman /s/Soren Pettersson /s/Olov Johannesson - ----------------------------- ---------------------------------- Soren Pettersson Olov Johannesson Director Director /s/Ove Nordqvist - ----------------------------- Ove Nordqvist Director I hereby certify that this copy presented to me on the 29th day of April, 1992 is a copy of the true original. /s/Alexandra H. Anagnostis ---------------------------------- Notary Public FIRST AMENDMENT TO ) FINANCING AND BERTHING AGREEMENT ) UNITED STATES OF AMERICA ) BETWEEN ) STATE OF LOUISIANA ) THE BOARD OF COMMISSIONERS ) PARISH OF ORLEANS OF THE PORT OF NEW ORLEANS ) ) CITY OF NEW ORLEANS AND ) ) COMMODORE CRUISE LINE, LTD. ) ___________________________________/ THIS FIRST AMENDMENT TO THE FINANCING AND BERTHING AGREEMENT (hereafter Agreement), made and entered into on the dates written below and effective as provided hereafter between the Board of Commissioners of the Port of New Orleans (hereafter Board), a political subdivision of the State of Louisiana, represented herein by J. Ron Brinson, its President and Chief Executive Officer, by virtue of a resolution of said Board, a certified copy of which is annexed to and made a part of this Agreement, and Commodore Cruise Line, Ltd. (hereafter CCL), a Cayman Islands corporation, organized and existing under the laws of the Cayman Islands, represented herein by Ove Nordqvist, its President and Chief Executive Officer, by virtue of a resolution of the Board of Directors of said corporation, a certified copy of which is annexed hereto and made a part of this Agreement, W I T N E S S E S: WHEREAS, on April 29, 1992, Commodore and the Board entered into an Agreement providing for the Board's construction of a modern cruise ship terminal at the upper Julia Street wharf at a cost not to exceed $671,000; and WHEREAS, preliminary estimates from the design consultants indicate that the cost of construction will exceed the authorized expenditure; and WHEREAS, the Agreement provides that if the cost exceeds the authorized amount, both parties may agree to the increased cost and amend the Agreement; and WHEREAS, both Commodore and the Board deem that it is in their best interests to increase the authorized expenditure and to increase the term of the contract from five to six years, NOW, THEREFORE, in consideration of the above, Commodore and the Board hereby amend the original Agreement in the following respects: I. To revise Section 1 of the Agreement in the following manner: 1. IMPROVEMENTS TO BE MADE BY THE BOARD Under Section 1 (C) ("Improvements to be made by Board") of the Agreement, in the fifth and sixth lines of the section, delete "Six Hundred Seventy One Thousand ($671,000.00) Dollars and replace it by "Eight Hundred Ninety Five Thousand ($895,000.00) Dollars." II. To replace Section 3 (A) of the Agreement with the following revised section: 3. COMMITMENT BY CCL (A) CCL commits to homeport and operate the Vessel (or equal replacement in CCL's sole judgment) for six years from the Port of New Orleans year round (minimum 50 weeks per year) commencing with the first voyage from this Terminal, to occur within seven (7) days of the date on which the Board notifies CCL it has accepted completion of the Terminal. III. To replace Section 5 of the Agreement with the following revised section: 5. TERM The term of this Agreement shall begin on the date of its execution. CCL shall have six years from the date of the first cruise by the Vessel (or equal replacement) from the Terminal to complete CCL's financial obligation to the Board for the improvements to be constructed hereunder. IV. To replace Section 7 (A), (B), and (F) of the Agreement with the following revised sub-sections: 7. CCL'S FINANCIAL OBLIGATION (A) The Board shall divide the full amount of the capital expenditure for constructing the terminal into 300 equal installments to be credited over a six-year period. For each sailing of the Vessel (or equal replacement) from the port, the Board shall reuse CCL's financial obligation by one installment. The installment reduction shall commence on the date of the first cruise by the Vessel (or equal replacement) from the Terminal. -2- (B) If CCL cannot complete 50 sailings per year as provided in Section 3 (B), CCL may at its option: (i) extend the term of this Agreement in order to complete 300 sailings before the expiration of the term of this Agreement; or (ii) pay an amount to the Board each year equal to the number of installments not deducted because of insufficient sailings. In no event shall this Agreement be extended more than one (1) year. (F) If multiple vessels utilize the Terminal over its six-year term and the full capital expenditure obligation of CCL is completed prior to the end of the six-year term, CCL's commitment to sail year-round for six years from the Port of New Orleans shall not be diminished. V. To replace current Section 8 of the Agreement with the following revised section: 8. OPTION TO EXTEND At the end of the six-year term (or any extension as contemplated in Section 7 (B) above), CCL shall have the option to utilize the Terminal for an additional three-year period under the same terms and conditions as set forth herein, except for the provisions of Section 7 above. VI. 6. FEDERAL MARITIME COMMISSION APPROVAL Board and CCL agree that this First Amendment Agreement is subject to the approval of the Federal Maritime Commission (hereafter FMC). Upon execution of this First Amendment Agreement, Board shall submit it to the FMC for consideration and review pursuant to Section 15 of the Shipping Act of 1916, 46 U.S.C. app. 814, and Section 5 of the Shipping Act of 1984, 46 U.S.C. app. 1704(a). The First Amendment Agreement parties further agree that the terms and conditions of this First Amendment Agreement shall not be effective until they are approved by the FMC or the FMC indicates that this First Amendment Agreement has become effective, either expressly or through the passage without objection of time afforded by the Shipping Act and/or the regulations adopted in furtherance thereof, for review thereof or of such shortened period of time as may be authorized by the FMC for effecting review. -3- VII. All other terms and conditions of the Financing and Berthing Agreement shall remain in full force and effect. THUS DONE AND SIGNED in multiple originals in the presence of the subscribing witnesses in the places set out below on the dates indicated and effective as provided above. WITNESSES: COMMODORE CRUISE LINE, LTD. /s/Alexandra Anagnostis - ----------------------------- /s/Michele Mole By:/s/OVE NORDQVIST - ----------------------------- ------------------------------------ OVE NORDQVIST, President and Chief Executive Officer at Coral Gables, Florida date: 9/25/92 ------------------------------- WITNESSES: THE BOARD OF COMMISSIONERS OF THE PORT OF NEW ORLEANS /s/Kyle L. Goode - ----------------------------- /s/illegible By:/s/J. RON BRINSON - ----------------------------- ------------------------------------ J. RON BRINSON, President and Chief Executive Officer at New Orleans, Louisiana date: 5 Oct 92 ------------------------------- APPROVED: /s/illegible - ----------------------------- Attorney of Board -4- ACKNOWLEDGMENT -------------- STATE OF FLORIDA COUNTY OF DADE ---- BEFORE ME, the undersigned authority, personally appeared OVE NORDQVIST, who after being duly sworn deposed that he is the President and Chief Executive Officer of Commodore Cruise Line, Ltd. and that he signed the foregoing First Amendment for and on behalf of that corporation as he was duly authorized to do this 25th day of September, 1996. WITNESSES: /s/Alexandra H. Anagnostis - ----------------------------- /s/OVE NORDQVIST _____________________________ ----------------------------------- OVE NORDQVIST /s/Alexandra H. Anagnostis ----------------------------------- Notary Public ACKNOWLEDGMENT -------------- STATE OF LOUISIANA PARISH OF ORLEANS BEFORE ME, the undersigned authority, personally appeared J. RON BRINSON, who after being duly sworn deposed that he is the President and Chief Executive Officer of the Board of Commissioners of the Port of New Orleans, and that he signed the foregoing First Amendment for and on behalf of said Board as he was duly authorized to do this 5th day of October, 1996. WITNESSES: /s/Kyle L. Goode - ----------------------------- /s/Elida Ibarra /s/J. RON BRINSON - ----------------------------- --------------------------------------- J. RON BRINSON /s/illegible --------------------------------------- Notary Public -5- EX-10.O 10 EXHIBIT 10O: WARRANT CERTIFICATE THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE OR SECURITIES LAWS AND NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT OR SUCH LAWS OR AN EXEMPTION FROM REGISTRATION UNDER SUCH SECURITIES ACT AND SUCH LAWS WHICH, IN THE OPINION OF COUNSEL FOR THE HOLDER, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO COUNSEL FOR THIS CORPORATION, IS AVAILABLE. THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH EXHIBIT I REFERRED TO HEREIN. EXERCISABLE ON OR BEFORE 5:30 P.M., MIAMI TIME, July 14, 2002 No. W-2 250,000 Warrants WARRANT TO PURCHASE 250,000 SHARES OF COMMODORE HOLDINGS LIMITED COMMON STOCK WARRANT CERTIFICATE ------------------- THIS WARRANT CERTIFICATE certifies that JeMJ Financial Services, Inc., or its registered assigns, is the registered holder of 250,000 Warrants (the "Warrants") to purchase initially, at any time from the date hereof until 5:30 p.m., Miami time, on July 14, 2002 ("Expiration Date"), up to 250,000 fully paid and nonassessable shares of common stock, $.01 par value ("Common Stock") of COMMODORE HOLDINGS LIMITED, a Bermuda corporation (the "Company"), at the initial exercise price, subject to adjustment in certain events (the "Exercise Price"), of $6.00 per share of Common Stock upon surrender of this Warrant Certificate and payment of the Exercise Price at the office of the Company located at 4000 Hollywood Boulevard, Suite 385, South Tower, Hollywood, Florida 33021, or any successor office, but subject to the conditions set forth herein and in Exhibit I hereto. Payment of the Exercise Price shall be made by certified or official bank check payable to the order of the Company or may be made by tendering an amount of Warrants for cancellation with a value as determined by the difference between the then current market price of the underlying shares of Common Stock as of the date of exercise less the Exercise Price of each Warrant. No Warrant may be exercised after 5:30 p.m., Miami time, on the Expiration Date, at which time all Warrants evidenced hereby, unless exercised prior thereto, shall thereafter be void. If the Expiration Date shall in the State of Florida be a holiday or a day on which banks are authorized to close, then the Expiration Date shall mean 5:30 P.M., Miami Time, the next following day which, in the State of Florida, is not a holiday or a day on which banks are authorized to close. The Warrants evidenced by this Warrant Certificate are subject to the provisions of Exhibit I hereto, which Exhibit I is hereby incorporated by reference in and made a part of this instrument and is hereby referred to for a description of the rights, limitation of rights, obligations, duties and immunities thereunder of the Company and the holders (the words "holders" or "holder" meaning the registered holders or registered holder) of the Warrants. Exhibit I hereto provides that upon the occurrence of certain events the Exercise Price and the type and/or number of the Company's securities issuable thereupon may, subject to certain conditions, be adjusted. In such event, the Company will, at the request of the holder, issue a new Warrant Certificate evidencing the adjustment in the Exercise Price and the number and/or type of securities issuable upon the exercise of the Warrants; provided, however, that -------- ------- the failure of the Company to issue such new Warrant Certificates shall not in any way change, alter, or otherwise impair the rights of the holder as set forth in Exhibit I. Upon due presentment for registration of transfer of this Warrant Certificate at the office of the Company located at 4000 Hollywood Boulevard, Suite 385, South Tower, Hollywood, Florida 33021, or any successor office, a new Warrant Certificate or Warrant Certificates of like tenor and evidencing in the aggregate a like number of Warrants shall be issued to the transferee(s) in exchange for this Warrant Certificate, subject to the limitations provided herein and in Exhibit I, without any charge except for any tax or other governmental charge imposed in connection with such transfer. Upon the exercise of less than all of the Warrants evidenced by this Certificate, the Company shall forthwith issue to the holder hereof a new Warrant Certificate representing such number of unexercised Warrants. The Company may deem and treat the registered holder(s) hereof as the absolute owner(s) of this Warrant Certificate (notwithstanding any notation of ownership or other writing hereon made by anyone), for the purpose of any exercise hereof, and of any distribution to the holder(s) hereof, and for all other purposes, and the Company shall not be affected by any notice to the contrary. All terms used in this Warrant Certificate which are defined in Exhibit I hereto shall have the meanings assigned to them in Exhibit I hereto. -2- IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly executed under its corporate seal. Dated as of April 26, 1995 COMMODORE HOLDINGS LIMITED By:/s/Frederick Mayer --------------------------- Frederick Mayer, Vice-Chairman of the Board Attest: /s/Blanca Santos - -------------------------------------- Blanca Santos, Secretary -3- FORM OF ELECTION TO PURCHASE ---------------------------- THE UNDERSIGNED hereby irrevocably elects to exercise the right, represented by this Warrant Certificate, to purchase ________ shares of Common Stock and herewith tenders in payment for such securities a certified or official bank check payable to the order of Commodore Holdings Limited in the amount of $________, all in accordance with the terms hereof. The undersigned requests that a certificate for such securities be registered in the name of ___________________________________________________________ whose address is _______________________________________________ and that such Certificate be delivered to ____________________________ whose address is ___________________________________. Dated: Signature_________________________________ (Signature must conform in all respects to name of holder as specified on the face of the Warrant Certificate.) ____________________________________________ (Insert Social Security or Other Identifying Number of Holder) ____________________________________________ Signature Guarantee -4- FORM OF ASSIGNMENT ------------------ (To be executed by the registered holder if such holder desires to transfer the Warrant Certificate) FOR VALUE RECEIVED ____________________ hereby sells, assigns and transfers unto ________________________________________________________________________________ (Please print name and address of transferee) this Warrant Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint ____________________________ Attorney, to transfer the within Warrant Certificate on the books of the within named Company, with full power of substitution. Dated: ___________________ Signature___________________________________ (Signature must conform in all respects to name of holder as specified on the face of the Warrant Certificate.) ____________________________________________ (Insert Social Security or Other Identifying Number of Assignee) ____________________________________________ Signature Guarantee -5- EXHIBIT I Section 1. Exercise of Warrant. The Warrants initially are exercisable at ------------------- an aggregate initial exercise price per share of common stock, $.01 par value per share (the "Common Stock") of Commodore Holdings Limited (the "Company") set forth in Section 3 hereof (subject to adjustment as provided in Section 5 hereof) payable by certified or official bank check. Upon surrender of a Warrant Certificate with the annexed Form of Election to Purchase duly executed, together with payment of the Exercise Price (as hereinafter defined) for the shares of Common Stock purchased at the Company's principal offices in Florida (presently located at 4000 Hollywood Boulevard, Suite 385, South Tower, Hollywood, Florida 33021), the registered holder of a Warrant Certificate ("Holder" or "Holders") shall be entitled to receive a certificate or certificates for the shares of Common Stock so purchased. The purchase rights represented by each Warrant Certificate are exercisable at the option of the Holder thereof, in whole or in part (but not as to fractional shares of the Common Stock underlying the Warrants). In the case of the purchase of less than all the shares (the "Warrant Shares") of Common Stock purchasable under any Warrant Certificate, the Company shall cancel said Warrant Certificate upon the surrender thereof and shall execute and deliver a new Warrant Certificate of like tenor for the balance of the shares of Common Stock purchasable thereunder. Section 2. Issuance of Certificates. Upon the exercise of the Warrants, ------------------------ the issuance of certificates for shares of Common Stock shall be made forthwith (and in any event within ten (10) business days thereafter) without charge to the Holder thereof including, without limitation, any tax which may be payable in respect of the issuance thereof, and such certificates shall be issued in the name of, or in such names as may be directed by, the Holder thereof; provided, -------- however, that the Company shall not be required to pay any tax which may be - ------- payable in respect of any transfer involved in the issuance and delivery of any such certificates in a name other than that of the Holder and the Company shall not be required to issue or deliver such certificates unless or until the persons or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. The Warrant Certificates and the certificates representing the Warrant Shares shall be executed on behalf of the Company by the manual or facsimile signature of the then present Chairman or Vice Chairman of the Board of Directors and also by the Secretary or by any two Directors or by any one Director and the Secretary of the Company under its corporate seal reproduced thereon. Section 3. Exercise Price. -------------- 3.1 Initial and Adjusted Exercise Price. Except as otherwise provided ----------------------------------- in Section 5 hereof, the exercise price of each Warrant shall be $6.00 per share of Common Stock. The adjusted exercise price shall be the price which shall result from time to time from any and all adjustments of the initial exercise price in accordance with the provisions of Section 5 hereof. 3.2 Exercise Price. The term "Exercise Price" as used herein shall mean -------------- the initial exercise price or the adjusted exercise price, depending upon the context. Section 4. Restrictions on Transfer; Registration Rights. --------------------------------------------- 4.1 Representations. The Holders of the Warrants agree to the following: --------------- (a) Each Holder understands that the Warrants, or the Warrant Shares, have not been registered under applicable state and federal securities laws, and that such Warrants or Warrant Shares cannot be resold or transferred unless they are so registered, or unless such transfer qualifies for an exemption from such registration; (b) Each Holder is acquiring the Warrants for investment purposes only, and not with a view towards resale or distribution; (c) Each Holder understands that all certificates which represent the Warrants issued to him or her will bear a legend which incorporates these restrictions; and (d) Each Holder 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 and has been afforded an opportunity to question the executive officers of the Company with respect to the foregoing. 4.2 Restrictions on Transfer. Notwithstanding any provisions contained ------------------------ in the Warrant Certificate to the contrary, these Warrants shall not be transferable and the related Warrant Shares shall not be transferable except upon the conditions specified in this Section 4, which conditions are intended, --------- among other things, to ensure compliance with the provisions of the 1933 Act in respect of the transfer of the Warrants or the Warrant Shares. The Holders of the Warrants further agree that they will not (a) transfer the Warrants prior to delivery to the Company of an opinion of the Holder's counsel (as provided for in Section 4.3), which opinion shall be acceptable to counsel for the Company, ----------- or (b) transfer the Warrant Shares prior to delivery to the Company of the opinion of the Holder's counsel (as provided for in Section 4.3), which opinion ----------- shall be acceptable to counsel for the Company, or until registration of the Warrant Shares under the Securities Act has become effective. 4.3 Opinion of Counsel. In connection with any transfer of the Warrants ------------------ or of the related Warrant Shares, the following provisions shall apply: (a) If in the opinion of counsel, which counsel and opinion shall be acceptable to the Company, the proposed transfer of the Warrants or the Warrant Shares may be effected without registration of the Warrants of the Warrant Shares under the 1933 Act, the Holders shall be entitled to transfer the Warrants or the Warrant Shares in accordance with the proposed method of disposition. (b) If in the opinion of counsel, which counsel and opinion shall be acceptable to the Company, the proposed transfer of the Warrants or the Warrant Shares may not be effected without registration of the Warrants or such Warrant Shares under the Securities Act, -2- the holder of the Warrants shall not be entitled to transfer the Warrants or the Warrant Shares until registration is effective. 4.4 Subsequent Holders. Anything contained herein to the contrary ------------------ notwithstanding, the provisions of this Section 4 shall be binding upon all --------- subsequent holders of the Warrants and the Warrant Shares, and the Company shall not be required to issue all of any portion of the Warrants or the Warrant Shares to such Holder unless such Holder agrees in writing in advance of such issuance to be so bound. The provisions of this Section 4 shall survive the --------- Expiration Date. 4.5 Securities Act of 1933 Legend. The Warrant and the Warrant Shares ----------------------------- have not been registered under the Securities Act. Upon exercise of the Warrants, in part or in whole, the certificates representing the Warrant Shares shall bear the following legend: THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT OR SUCH LAWS OR AN EXEMPTION FROM REGISTRATION UNDER SUCH SECURITIES ACT AND SUCH LAWS WHICH, IN THE OPINION OF COUNSEL FOR THE HOLDER, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO COUNSEL FOR THIS CORPORATION, IS AVAILABLE. 4.6 Required Registration. --------------------- (a) Demand Registration. If the Company shall receive from the Holders ------------------- of a majority of the Warrant Shares at any time not than the Expiration Date, a written request that the Company effect any registration with respect to all or a part of the Warrant Shares, the Company will, as soon as practicable, use its best efforts to effect such registration (including, without limitation, filing post-effective amendments, appropriate qualifications under applicable blue sky or other state securities laws, and appropriate compliance with the Securities Act); and as would permit or facilitate the sale and distribution of all or such portion of such Warrant Shares as are specified in such request and cause such registration to remain effective until the earlier of six months have elapsed or all of the Warrant Shares included therein have been sold. The Company shall not be obligated to effect, or to take any action to effect, any such registration pursuant to this Section: (i) In any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, qualification, or compliance, unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act; -3- (ii) After the Company has initiated one such registration pursuant to this Section (counting for these purposes only registrations which have been declared or ordered effective and pursuant to which all securities have been sold); or (iii) During the period starting with the date sixty (60) days prior to the Company's good faith estimate of the date of filing of, and ending on a date one hundred eighty (180) days after the effective date of, a Company-initiated registration; provided that the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become effective. Subject to the foregoing clauses (i) through (iii), the Company shall file a registration statement covering the Warrant Shares so requested to be registered as soon as practicable after receipt of the request or requests of the Holders; provided, however, that if in the good faith judgment of the Board of Directors of the Company, such registration would be seriously detrimental to the Company and the Board of Directors of the Company concludes, as a result, that it is essential to defer the filing of such registration statement at such time, and the Company shall furnish to such Holders a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company for such registration statement to be filed in the near future and that it is, therefore, essential to defer the filing of such registration statement, then the Company shall have the right to defer such filing for the period during which such disclosure would be seriously detrimental, provided that (except as provided in clause (iii) above) the Company may not defer the filing for a period of more than one hundred eighty (180) days after receipt of the request of the Holders, and, provided further, that the Company shall not defer its obligation in this manner more than once in any twelve (12) month period. If the Company or other persons shall request inclusion in any registration pursuant to this Section of securities being sold for its or their own accounts, the Holders shall offer to include such securities in the underwriting and may condition such offer on their acceptance of the further applicable provisions of this Section. The Company shall (together with all Holders and other persons proposing to distribute their securities through such underwriting) enter into an underwriting agreement in customary form with the representative of the underwriter or underwriters selected for such underwriting by a majority in interest of the Holders, which underwriters are reasonably acceptable to the Company. (b) Piggyback Registration. If the Company shall determine to register ---------------------- any of its securities either for its own account or the account of a security holder or holders exercising their respective demand registration rights (other than pursuant to this Section), other than a registration relating solely to employee benefit plans, or a registration relating solely to a Rule 145 transaction, or a registration on any registration form that does not permit secondary sales, the Company will: -4- (i) promptly give to each Holder written notice thereof; and (ii) use its best efforts to include in such registration (and any related qualification under blue sky laws or other compliance), and in any underwriting involved therein, all the Warrant Shares specified in a written request or requests, made by any Holder and received by the Company within twenty (20) days after the written notice from the Company described in clause (i) above is mailed or delivered by the Company. Such written request may specify all or a part of a Holder's Warrant Shares. The Holders agree to sell their Warrant Shares on the same terms as the sale of other shares of Common Stock in the offering and agree to execute such documents as shall be reasonably requested by the Company or its counsel in connection with such offering. If the registration of which the Company gives notice is for a registered public offering involving an underwriting, the Company shall so advise the Holders as a part of the written notice given pursuant to this Section. In such event, the right of any Holder to registration pursuant to this Section shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Warrant Shares in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company and the other holders of securities of the Company with registration rights to participate therein distributing their securities through such underwriting) enter into an underwriting agreement in customary form with the representative of the underwriter or underwriters selected by the Company. (c) Expenses of Registration. All registration expenses incurred in ------------------------ connection with any registration, qualification or compliance pursuant to this Section (including filing fees, printing expenses, blue sky fees, and fees and expenses of the Company's counsel and accountants) shall be borne by the Company. All expenses incurred by the Holders for their own counsel or accountants and all selling expenses relating to securities so registered (including underwriter discounts and commissions) shall be borne by the holders of securities so registered on the basis of the number of shares of securities so registered on their behalf. (d) Indemnification --------------- (i) The Company will indemnify each Holder, each of its officers, directors and partners, legal counsel, and accountants and each person controlling such Holder within the meaning of Section 15 of the Securities Act, with respect to which registration, qualification, or compliance has been effected pursuant to this Section, and each underwriter, if any,and each person who controls within the meaning of Section 15 of the Securities Act any underwriter, against all expenses, claims, losses, damages, and liabilities (or actions, proceedings, or settlements in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any prospectus, offering circular, or other document -5- (including any related registration statement, notification, or the like), incident to any such registration, qualification, or compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by the Company of the Securities Act or any rule or regulation thereunder applicable to the Company and relating to action or inaction required of the Company in connection with any such registration, qualification, or compliance, and will reimburse each such Holder, each of its officers, directors, partners, legal counsel, and accountants and each person controlling such Holder, each such underwriter, and each person who controls any such underwriter, for any legal and any other expenses reasonably incurred in connection with investigating and defending or settling any such claim, loss, damage, liability, or action, provided that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability, or expense arises out of or is based on any untrue statement or omission based upon written information furnished to the Company by such Holder or underwriter and stated to be specifically for use therein. It is agreed that the indemnity agreement contained in this Section shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, or action if such settlement is effected without the consent of the Company (which consent has not been unreasonably withheld). (ii) Each Holder will, if Warrant Shares held by him are included in the securities as to which such registration, qualification, or compliance is being effected, indemnify the Company, each of its directors, officers, partners, legal counsel, and accountants and each of its directors, officers, partners, legal counsel, and accountants and each underwriter, if any, of the Company's securities covered by such a registration statement, each person who controls the Company or such underwriter within the meaning of Section 15 of the Securities Act, each other such Holder and other Shareholder, and each of their officers, directors, and partners, and each person controlling such Holder or other Shareholder, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular, or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Company and such Holders, other Shareholders, directors, officers, partners, legal counsel, and accountants, persons, underwriters, or control persons for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability, or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular, or other document in reliance upon and in conformity with written information furnished to the Company by such Holder and stated to be specifically for use therein provided, however, that the obligations of such Holder hereunder shall not apply to amounts paid in settlement of any such claims, losses, damages, or liabilities (or actions in respect thereof) if such settlement is effected without the consent of such Holder (which consent shall not be unreasonably withheld), and provided that in no event shall any indemnity under this Section exceed the gross proceeds from the offering received by such Holder. -6- Section 5. Adjustments to Exercise Price and Number of Shares. -------------------------------------------------- 5.1 Subdivision and Combination. In case the Company shall at any time: --------------------------- (i) subdivide the outstanding shares of Common Stock into a larger number of shares, (ii) declare a dividend on the outstanding shares of Common Stock payable in shares of Common Stock, or (iii) issue by reclassification of its Common Stock any shares of its capital stock, the Exercise Price in effect immediately after the record date for such dividend or distribution on the effective date of such subdivision, combination or reclassification shall be adjusted so that it shall equal the price determined by multiplying the Exercise Price in effect immediately prior thereto by a fraction, of which the numerator shall be the number of shares of Common Stock outstanding immediately before such dividend, distribution, subdivision, combination or reclassification, and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such dividend, distribution, subdivision, combination or reclassification. Such adjustment shall be made successively whenever any event specified above shall occur. Notwithstanding the foregoing, in the event the Company shall combine its outstanding shares of Common Stock into a smaller number of shares, there shall be no adjustment in the Exercise Price. 5.2 Adjustment in Number of Warrant Shares. Upon each adjustment of the -------------------------------------- Exercise Price pursuant to the provisions of this Section 5, the number of Warrant Shares issuable upon the exercise of each Warrant shall be adjusted to the nearest full share by multiplying a number equal to the Exercise Price in effect immediately prior to such adjustment by the number of Warrant Shares issuable upon exercise of the Warrants immediately prior to such adjustment and dividing the product so obtained by the adjusted Exercise Price. 5.3 Definition of Common Stock. For the purpose of this Agreement, the -------------------------- term "Common Stock" shall mean: (i) the class of stock designated as Common Stock in the Memorandum of Association of the Company as may be amended as of the date hereof, or (ii) any other class of stock resulting from successive changes or reclassifications of such Common Stock consisting solely of changes in par value, or from par value to no par value, or from no par value to par value. 5.4 Merger or Consolidation. (a) In case the Company after the date ----------------------- hereof: (i) shall consolidate with or merge into any other person and shall not be the continuing or surviving corporation of such consolidation or merger, or (ii) shall permit any other person to consolidate with or merge into the Company and the Company shall be the continuing or surviving person but, in connection with such consolidation or merger, the Common Stock shall be changed into or exchanged for stock or other securities of any other person or cash or any other property, or (iii) shall transfer all or substantially all of its properties or assets to any other person, or (iv) shall effect a capital reorganization or reclassification of the Common Stock (other than a capital reorganization or reclassification resulting in the issue of additional shares of Common Stock for which adjustment in the Exercise Price is provided in this Section 5), then, and in the case of each such transaction, proper provision shall be made so that, upon the basis and the terms and in the manner provided in this Agreement and the Warrants, the Holders of the Warrants, upon the exercise thereof at any time after the consummation of such trans- -7- action, shall be entitled to receive (at the aggregate Exercise Price in effect at the time of such consummation for all Common Stock issuable upon such exercise immediately prior to such consummation), in lieu of the Common Stock, the highest amount of securities, cash or other property to which such Holders would actually have been entitled as shareholders upon such consummation if such Holders had exercised the rights represented by the Warrants immediately prior thereto, subject to adjustments (subsequent to such consummation) as nearly equivalent as possible to the adjustments provided for in this Section 5. 5.5 Assumption of Obligations. Notwithstanding anything contained in the ------------------------- Warrants to the contrary, the Company will not effect any of the transactions described in clauses (i) through (iv) of Section 5.4 unless, prior to the consummation thereof, each person (other than the Company) which may be required to deliver any stock, securities, cash or property upon the exercise of the Warrants as provided herein shall assume, by written instrument delivered to the Holders of the Warrants, (a) the obligations of the Company under the Warrants (including this Exhibit I) (and if the Company shall survive the consummation of such transaction, such assumption shall be in addition to, and shall not release the Company from, any continuing obligations of the Company under this Exhibit I and the Warrants) and (b) the obligation to deliver to such Holders such shares of stock, securities, cash or property as, in accordance with the foregoing provisions of this Section 5, such Holders may be entitled to receive, and such person shall have similarly delivered to such Holders an opinion of counsel for such person stating that the Warrants (including this Exhibit I) shall thereafter continue in full force and effect and the terms hereof (including, without limitation, all of the provisions of this Section 5) shall be applicable to the stock, securities, cash or property which such person may be required to deliver upon any exercise of the Warrants or the exercise of any rights pursuant hereto. 5.6 Dividends and Other Distributions. If, at any time or from time to --------------------------------- time after the date of this Warrant, the Company shall issue or distribute to the holders of shares of Common Stock, evidences of its indebtedness, any other securities of the Company or any cash, property or other assets (excluding a subdivision, combination or reclassification, or dividend or distribution payable in shares of Common Stock, referred to in Section 5.1, and also excluding cash dividends or cash distributions paid out of net profits legally available therefor if the full amount thereof, together with the value of other dividends and distributions made substantially concurrently therewith or pursuant to a plan which includes payment thereof, is equivalent to not more than 5% of the Company's net worth) (any such non-excluded event being herein called a "Special Dividend"), the Exercise Price shall be adjusted by multiplying the Exercise Price then in effect by a fraction, the numerator of which shall be the then current market price of the Common Stock (defined as the average for the thirty consecutive business days immediately prior to the record date of the daily closing price of the Common Stock as reported by the national securities exchange upon which the Common Stock is then listed or if not listed on any such exchange, the average of the closing prices as reported by the National Association of Securities Dealers, Inc. Automated Quotations System ("NASDAQ") Stock Market's National Market, or if not then listed on the NASDAQ National Market, the average of the highest reported bid and lowest reported asked prices as reported by the NASDAQ, or if not then publicly traded, as the fair market price as determined by the Company's Board of Directors) less the fair market value (as determined by the Company's Board of Directors) of the evidences -8- of indebtedness, cash, securities or property, or other assets issued or distributed in such Special Dividend applicable to one share of Common Stock and the denominator of which shall be such then current market price per share of Common Stock. An adjustment made pursuant to this Section 5.6 shall become effective immediately after the record date of any such Special Dividend. 5.7 Other Dilutive Events. In case any event shall occur as to which the --------------------- other provisions of this Section 5 are similar to, but not strictly applicable but as to which the failure to make any adjustment would not fairly protect the purchase rights represented by the Warrants (including this Exhibit I) in accordance with the essential intent and principles hereof then, in each such case, the Holders collectively may appoint a firm of independent public accountants of recognized national standing reasonably acceptable to the Company, which shall give their opinion as to the adjustment, if any, on a basis consistent with the essential intent and principles established herein, necessary to preserve the purchase rights represented by the Warrants (including this Exhibit I). Upon receipt of such opinion the Company will promptly mail a copy thereof to the Holders and shall make the adjustments described therein. The fees and expenses of such independent public accountants shall be borne by the Company. The issuance by the Company of shares of capital stock, including, without limitation, shares of Common Stock, for consideration less than the Exercise Price, or the issuance of convertible securities or derivative securities, convertible into shares of capital stock at a conversion price or exercise price less than the Exercise Price shall not be deemed an event that requires an adjustment under this Section 5.7. 5.8 Notice of Adjustment Events. Whenever the Company contemplates the --------------------------- occurrence of an event which would give rise to adjustments under this Section 5, the Company shall mail to each Holder, at least thirty (30) days prior to the record date with resect to such event or, if no record date shall be established, at least thirty (30) days prior to such event, a notice specifying: (i) the nature of the contemplated event, (ii) the date of which any such record is to be taken for the purpose of such event, (iii) the date on which such event is expected to become effective and (iv) the time, if any is to be fixed, when the holders of record of Common Stock shall be entitled to exchange their shares of Common Stock for securities or other property deliverable in connection with such event. 5.9 Notice of Adjustments. Whenever the Exercise Price or the kind of --------------------- securities or property issuable upon exercise of the Warrants, or both, shall be adjusted pursuant to this Section 5, the Company shall make a certificate signed by its President or a Vice President and by its Chief Financial Officer, Secretary or Assistant Secretary, setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method of which such adjustment was calculated (including a description of the basis on which the Company made any determination hereunder), and the Exercise Price and the kind of securities or property issuable upon exercise of the Warrants after giving effect to such adjustment, and shall cause copies of such certificate to be mailed (by first class mail postage prepaid) to each Holder promptly after each adjustment. -9- 5.10 Preservation of Rights. The Company will not, by amendment of its ---------------------- Memorandum of Association or through any consolidation, merger, reorganization, transfer of assets, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of the Warrants (including this Exhibit I) or the rights represented thereby, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Holders of the Warrants against dilution or other impairment. 5.11 When No Adjustment Required. No adjustment in the Exercise Price --------------------------- shall be required unless such adjustment would require an increase or decrease of at least $0.05 per share of Common Stock; provided, however, that any -------- ------- adjustments which by reason of this Section 5.11 are not required to be made shall be carried forward and taken into account in any subsequent adjustment; provided further, however, that adjustments shall be required and made in - -------- ------- accordance with the provisions of this Section 5 (other than this Section 5.11) not later than such time as may be required in order to preserve the tax-free nature of a distribution to the Holders of the Warrants. All calculations under this Section 5 shall be made to the nearest cent or to the nearest 1/100th of a share, as the case may be. Anything in this Section 5 to the contrary notwithstanding, the Company shall be entitled to make such reductions in the Exercise Price, in addition to those required by this Section 5, as it in its discretion shall deem to be advisable in order that any stock dividend, subdivision of shares or distribution of rights to purchase stock or securities convertible or exchangeable for stock hereafter made by the Company to its shareholders shall not be taxable. Section 6. Exchange and Replacement of Warrant Certificates. Each Warrant ------------------------------------------------ Certificate is exchangeable without expense, upon the surrender thereof by the registered Holder at the principal executive office of the Company, for a new Warrant Certificate of like tenor and date representing in the aggregate the right to purchase the same number of Warrant Shares in such denominations as shall be designated by the Holder thereof at the time of such surrender. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of any Warrant Certificate, and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it, and reimbursement to the Company of all reasonable expenses incidental thereto, and upon surrender and cancellation of the Warrants, if mutilated, the Company will make and deliver a new Warrant Certificate of like tenor, in lieu thereof. Section 7. Elimination of Fractional Interests. The Company shall not be ----------------------------------- required to issue certificates representing fractions of shares of Common Stock upon the exercise of the Warrants, nor shall it be required to issue scrip or pay cash in lieu of fractional interests, it being the intent of the parties that all fractional interests shall be eliminated by rounding any fraction up to the nearest whole number of shares of Common Stock. Section 8. Reservation of Securities. The Company shall at all times ------------------------- reserve and keep available out of its authorized shares of Common Stock, solely for the purpose of issuance upon the exercise of the Warrants, such number of shares of Common Stock as shall be issuable upon -10- the exercise thereof. The Company covenants and agrees that, upon exercise of the Warrants and payment of the Exercise Price therefor, all shares of Common Stock shall be duly and validly issued, fully paid, nonassessable and not subject to the preemptive rights of any shareholder. Section 9. Notices to Warrant Holders. Nothing contained in this Exhibit -------------------------- I shall be construed as conferring upon the Holders the right to vote or to consent or to receive notice as a shareholder in respect of any meetings of shareholders for the election of directors or any other matter, or as having any rights whatsoever as a shareholder of the Company. If, however, at any time prior to the expiration of the Warrants and their exercise, any of the following events shall occur: (a) the Company shall take a record of the holders of its shares of Common Stock for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution payable; or (b) the Company shall offer to all the holders of its Common Stock any additional shares of capital stock of the Company or securities convertible into or exchangeable for shares of capital stock of the Company, or any option, right or warrant to subscribe therefor; or (c) a voluntary or involuntary dissolution, liquidation or winding-up of the Company (other than in connection with a consolidation or merger) or any capital reorganization, recapitalization or reclassification or a sale of all or substantially all of its property, assets and business as an entirety shall be proposed; then, in any one or more of said events, the Company will mail to each Holder of a Warrant a notice specifying (i) the date or expected date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right, and (ii) the date or expected date on which any such reorganization, reclassification, recapitalization, consolidation, merger, sale, dissolution, liquidation or winding-up is to take place and the time, if any such time is to be fixed, as of which the holders of record of Common Stock shall be entitled to exchange their shares of Common Stock for the securities or other property deliverable upon such reorganization, reclassification, recapitalization, consolidation, merger, sale, dissolution, liquidation or winding-up. Such notice shall be mailed at least thirty (30) days prior to the date therein specified. Section 10. Notices. ------- All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed to have been duly given or made at the time delivered by hand if personally -11- delivered; five calendar days after mailing if sent by registered or certified mail; when receipt is confirmed, if telecopied; and the next business day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery (except that a notice of change of address shall not be deemed to have been given until actually received by the addressee): (a) If to the registered Holder of the Warrants, to the address of such Holder as shown on the books of the Company; or (b) If to the Company, to the address set forth in Section 1 hereof or to such other address as the Company may designate by notice to the Holders. Section 11. Successors. All the covenants and provisions of this Exhibit ---------- I shall be binding upon and inure to the benefit of the Company, the Holders and their respective successors and assigns hereunder. Section 12. Governing Law. This Exhibit I and each Warrant shall be ------------- governed and construed in accordance with the laws of the State of Florida applicable to contracts made and performed in the State of Florida without giving effect to the principles of conflicts of law thereof. Section 13. Entire Agreement; Modification. This Exhibit I (including the ------------------------------ Warrant Certificate and the Subscription Agreements with respect to registration rights) contains the entire understanding between the parties hereto with respect to the subject matter hereof and may not be modified or amended except by a writing duly signed by the party against whom enforcement of the modification or amendment is sought. Section 14. Severability. If any provision of this Exhibit I shall be ------------ held to be invalid or unenforceable, such invalidity or unenforceability shall not affect any other provision of this Exhibit I. Section 15. Captions. The caption headings of the Sections of this -------- Exhibit I are for convenience of reference only and are not intended to be, nor should they be construed as, part of this Exhibit I and shall be given no substantive effect. Section 16. Benefits of This Exhibit I. Nothing in this Exhibit I shall -------------------------- be construed to give any person or corporation other than the Company and the registered Holder(s) of the Warrant Certificates or Warrant Shares any legal or equitable right, remedy or claim under this Exhibit I; and this Exhibit I shall be for the sole and exclusive benefit of the Company and any registered Holder(s) of the Warrant Certificates or Warrant Shares. -12- EX-10.P 11 EXHIBIT 10P: WARRANT CERTIFICATE THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE OR SECURITIES LAWS AND NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT OR SUCH LAWS OR AN EXEMPTION FROM REGISTRATION UNDER SUCH SECURITIES ACT AND SUCH LAWS WHICH, IN THE OPINION OF COUNSEL FOR THE HOLDER, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO COUNSEL FOR THIS CORPORATION, IS AVAILABLE. THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH EXHIBIT I REFERRED TO HEREIN. EXERCISABLE ON OR BEFORE 5:30 P.M., MIAMI TIME, July 14, 2002 No. W-1 250,000 Warrants WARRANT TO PURCHASE 250,000 SHARES OF COMMODORE HOLDINGS LIMITED COMMON STOCK WARRANT CERTIFICATE ------------------- THIS WARRANT CERTIFICATE certifies that Jeffrey I. Binder and Rosalie Binder, as tenants by the entireties, or their registered assigns, are the registered holders of 250,000 Warrants (the "Warrants") to purchase initially, at any time from the date hereof until 5:30 p.m., Miami time, on July 14, 2002 ("Expiration Date"), up to 250,000 fully paid and nonassessable shares of common stock, $.01 par value ("Common Stock") of COMMODORE HOLDINGS LIMITED, a Bermuda corporation (the "Company"), at the initial exercise price, subject to adjustment in certain events (the "Exercise Price"), of $6.00 per share of Common Stock upon surrender of this Warrant Certificate and payment of the Exercise Price at the office of the Company located at 4000 Hollywood Boulevard, Suite 385, South Tower, Hollywood, Florida 33021, or any successor office, but subject to the conditions set forth herein and in Exhibit I hereto. Payment of the Exercise Price shall be made by certified or official bank check payable to the order of the Company or may be made by tendering an amount of Warrants for cancellation with a value as determined by the difference between the then current market price of the underlying shares of Common Stock as of the date of exercise less the Exercise Price of each Warrant. No Warrant may be exercised after 5:30 p.m., Miami time, on the Expiration Date, at which time all Warrants evidenced hereby, unless exercised prior thereto, shall thereafter be void. If the Expiration Date shall in the State of Florida be a holiday or a day on which banks are authorized to close, then the Expiration Date shall mean 5:30 P.M., Miami Time, the next following day which, in the State of Florida, is not a holiday or a day on which banks are authorized to close. The Warrants evidenced by this Warrant Certificate are subject to the provisions of Exhibit I hereto, which Exhibit I is hereby incorporated by reference in and made a part of this instrument and is hereby referred to for a description of the rights, limitation of rights, obligations, duties and immunities thereunder of the Company and the holders (the words "holders" or "holder" meaning the registered holders or registered holder) of the Warrants. Exhibit I hereto provides that upon the occurrence of certain events the Exercise Price and the type and/or number of the Company's securities issuable thereupon may, subject to certain conditions, be adjusted. In such event, the Company will, at the request of the holder, issue a new Warrant Certificate evidencing the adjustment in the Exercise Price and the number and/or type of securities issuable upon the exercise of the Warrants; provided, -------- however, that the failure of the Company to issue such new Warrant Certificates - ------- shall not in any way change, alter, or otherwise impair the rights of the holder as set forth in Exhibit I. Upon due presentment for registration of transfer of this Warrant Certificate at the office of the Company located at 4000 Hollywood Boulevard, Suite 385, South Tower, Hollywood, Florida 33021, or any successor office, a new Warrant Certificate or Warrant Certificates of like tenor and evidencing in the aggregate a like number of Warrants shall be issued to the transferee(s) in exchange for this Warrant Certificate, subject to the limitations provided herein and in Exhibit I, without any charge except for any tax or other governmental charge imposed in connection with such transfer. Upon the exercise of less than all of the Warrants evidenced by this Certificate, the Company shall forthwith issue to the holder hereof a new Warrant Certificate representing such number of unexercised Warrants. The Company may deem and treat the registered holder(s) hereof as the absolute owner(s) of this Warrant Certificate (notwithstanding any notation of ownership or other writing hereon made by anyone), for the purpose of any exercise hereof, and of any distribution to the holder(s) hereof, and for all other purposes, and the Company shall not be affected by any notice to the contrary. All terms used in this Warrant Certificate which are defined in Exhibit I hereto shall have the meanings assigned to them in Exhibit I hereto. -2- IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly executed under its corporate seal. Dated as of April 26, 1995 COMMODORE HOLDINGS LIMITED By:/s/Frederick Mayer ----------------------------------- Frederick Mayer, Vice-Chairman the of Board Attest: /s/Blanca Santos - ----------------------------------- Blanca Santos, Secretary -3- FORM OF ELECTION TO PURCHASE ---------------------------- THE UNDERSIGNED hereby irrevocably elects to exercise the right, represented by this Warrant Certificate, to purchase ________ shares of Common Stock and herewith tenders in payment for such securities a certified or official bank check payable to the order of Commodore Holdings Limited in the amount of $________, all in accordance with the terms hereof. The undersigned requests that a certificate for such securities be registered in the name of ___________________________________________________________ whose address is _______________________________________________ and that such Certificate be delivered to ____________________________ whose address is ____________________ ________________________________. Dated : Signature____________________________________ (Signature must conform in all respects to name of holder as specified on the face of the Warrant Certificate.) _____________________________________________ (Insert Social Security or Other Identifying Number of Holder) _____________________________________________ Signature Guarantee -4- FORM OF ASSIGNMENT ------------------ (To be executed by the registered holder if such holder desires to transfer the Warrant Certificate) FOR VALUE RECEIVED ______________________ hereby sells, assigns and transfers unto ______________________________________________________________________________ (Please print name and address of transferee) this Warrant Certificate, together with all right, title and interest therein, and does hereby irrevocably constitute and appoint ___________________________ Attorney, to transfer the within Warrant Certificate on the books of the within named Company, with full power of substitution. Dated: __________________ Signature __________________________________ (Signature must conform in all respects to name of holder as specified on the face of the Warrant Certificate.) ____________________________________________ (Insert Social Security or Other Identifying Number of Assignee) ____________________________________________ Signature Guarantee -5- EXHIBIT I Section 1. Exercise of Warrant. The Warrants initially are exercisable at ------------------- an aggregate initial exercise price per share of common stock, $.01 par value per share (the "Common Stock") of Commodore Holdings Limited (the "Company") set forth in Section 3 hereof (subject to adjustment as provided in Section 5 hereof) payable by certified or official bank check. Upon surrender of a Warrant Certificate with the annexed Form of Election to Purchase duly executed, together with payment of the Exercise Price (as hereinafter defined) for the shares of Common Stock purchased at the Company's principal offices in Florida (presently located at 4000 Hollywood Boulevard, Suite 385, South Tower, Hollywood, Florida 33021), the registered holder of a Warrant Certificate ("Holder" or "Holders") shall be entitled to receive a certificate or certificates for the shares of Common Stock so purchased. The purchase rights represented by each Warrant Certificate are exercisable at the option of the Holder thereof, in whole or in part (but not as to fractional shares of the Common Stock underlying the Warrants). In the case of the purchase of less than all the shares (the "Warrant Shares") of Common Stock purchasable under any Warrant Certificate, the Company shall cancel said Warrant Certificate upon the surrender thereof and shall execute and deliver a new Warrant Certificate of like tenor for the balance of the shares of Common Stock purchasable thereunder. Section 2. Issuance of Certificates. Upon the exercise of the Warrants, the ------------------------ issuance of certificates for shares of Common Stock shall be made forthwith (and in any event within ten (10) business days thereafter) without charge to the Holder thereof including, without limitation, any tax which may be payable in respect of the issuance thereof, and such certificates shall be issued in the name of, or in such names as may be directed by, the Holder thereof; provided, -------- however that the Company shall not be required to pay any tax which may be - ------- payable in respect of any transfer involved in the issuance and delivery of any such certificates in a name other than that of the Holder and the Company shall not be required to issue or deliver such certifi cates unless or until the persons or persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. The Warrant Certificates and the certificates representing the Warrant Shares shall be executed on behalf of the Company by the manual or facsimile signature of the then present Chairman or Vice Chairman of the Board of Directors and also by the Secretary or by any two Directors or by any one Director and the Secretary of the Company under its corporate seal reproduced thereon. Section 3. Exercise Price. -------------- 3.1 Initial and Adjusted Exercise Price. Except as otherwise provided in ----------------------------------- Section 5 hereof, the exercise price of each Warrant shall be $6.00 per share of Common Stock. The adjusted exercise price shall be the price which shall result from time to time from any and all adjustments of the initial exercise price in accordance with the provisions of Section 5 hereof. 3.2 Exercise Price. The term "Exercise Price" as used herein shall mean -------------- the initial exercise price or the adjusted exercise price, depending upon the context. Section 4. Restrictions on Transfer; Registration Rights. --------------------------------------------- 4.1 Representations. The Holders of the Warrants agree to the following: --------------- (a) Each Holder understands that the Warrants, or the Warrant Shares, have not been registered under applicable state and federal securities laws, and that such Warrants or Warrant Shares cannot be resold or transferred unless they are so registered, or unless such transfer qualifies for an exemption from such registration; (b) Each Holder is acquiring the Warrants for investment purposes only, and not with a view towards resale or distribution; (c) Each Holder understands that all certificates which represent the Warrants issued to him or her will bear a legend which incorporates these restrictions; and (d) Each Holder 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 and has been afforded an opportunity to question the executive officers of the Company with respect to the foregoing. 4.2 Restrictions on Transfer. Notwithstanding any provisions contained in ------------------------ the Warrant Certificate to the contrary, these Warrants shall not be transferable and the related Warrant Shares shall not be transferable except upon the conditions specified in this Section 4, which conditions are intended, --------- among other things, to ensure compliance with the provisions of the 1933 Act in respect of the transfer of the Warrants or the Warrant Shares. The Holders of the Warrants further agree that they will not (a) transfer the Warrants prior to delivery to the Company of an opinion of the Holder's counsel (as provided for in Section 4.3), which opinion shall be acceptable to counsel for the Company, ----------- or (b) transfer the Warrant Shares prior to delivery to the Company of the opinion of the Holder's counsel (as provided for in Section 4.3), which opinion ----------- shall be acceptable to counsel for the Company, or until registration of the Warrant Shares under the Securities Act has become effective. 4.3 Opinion of Counsel. In connection with any transfer of the Warrants or ------------------ of the related Warrant Shares, the following provisions shall apply: (a) If in the opinion of counsel, which counsel and opinion shall be acceptable to the Company, the proposed transfer of the Warrants or the Warrant Shares may be effected without registration of the Warrants of the Warrant Shares under the 1933 Act, the Holders shall be entitled to transfer the Warrants or the Warrant Shares in accordance with the proposed method of disposition. (b) If in the opinion of counsel, which counsel and opinion shall be acceptable to the Company, the proposed transfer of the Warrants or the Warrant Shares may not be effected without registration of the Warrants or such Warrant Shares under the Securities Act, -2- the holder of the Warrants shall not be entitled to transfer the Warrants or the Warrant Shares until registration is effective. 4.4 Subsequent Holders. Anything contained herein to the contrary ------------------ notwithstanding, the provisions of this Section 4 shall be binding upon all --------- subsequent holders of the Warrants and the Warrant Shares, and the Company shall not be required to issue all of any portion of the Warrants or the Warrant Shares to such Holder unless such Holder agrees in writing in advance of such issuance to be so bound. The provisions of this Section 4 shall survive the --------- Expiration Date. 4.5 Securities Act of 1933 Legend. The Warrant and the Warrant Shares have ----------------------------- not been registered under the Securities Act. Upon exercise of the Warrants, in part or in whole, the certificates representing the Warrant Shares shall bear the following legend : THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND NEITHER THE SECURITIES NOR ANY INTEREST THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH SECURITIES ACT OR SUCH LAWS OR AN EXEMPTION FROM REGISTRATION UNDER SUCH SECURITIES ACT AND SUCH LAWS WHICH, IN THE OPINION OF COUNSEL FOR THE HOLDER, WHICH COUNSEL AND OPINION ARE REASONABLY SATISFACTORY TO COUNSEL FOR THIS CORPORATION, IS AVAILABLE. 4.6 Required Registration. --------------------- (a) Demand Registration. If the Company shall receive from the Holders of ------------------- a majority of the Warrant Shares at any time not than the Expiration Date, a written request that the Company effect any registration with respect to all or a part of the Warrant Shares, the Company will, as soon as practicable, use its best efforts to effect such registration (including, without limitation, filing post-effective amendments, appropriate qualifications under applicable blue sky or other state securities laws, and appropriate compliance with the Securities Act); and as would permit or facilitate the sale and distribution of all or such portion of such Warrant Shares as are specified in such request and cause such registration to remain effective until the earlier of six months have elapsed or all of the Warrant Shares included therein have been sold. The Company shall not be obligated to effect, or to take any action to effect, any such registration pursuant to this Section: (i) In any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, qualification, or compliance, unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act; -3- (ii) After the Company has initiated one such registration pursuant to this Section (counting for these purposes only registrations which have been declared or ordered effective and pursuant to which all securities have been sold); or (iii) During the period starting with the date sixty (60) days prior to the Company's good faith estimate of the date of filing of, and ending on a date one hundred eighty (180) days after the effective date of, a Company-initiated registration; provided that the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become effective. Subject to the foregoing clauses (i) through (iii), the Company shall file a registration statement covering the Warrant Shares so requested to be registered as soon as practicable after receipt of the request or requests of the Holders; provided, however, that if in the good faith judgment of the Board of Directors of the Company, such registration would be seriously detrimental to the Company and the Board of Directors of the Company concludes, as a result, that it is essential to defer the filing of such registration statement at such time, and the Company shall furnish to such Holders a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company for such registration statement to be filed in the near future and that it is, therefore, essential to defer the filing of such registration statement, then the Company shall have the right to defer such filing for the period during which such disclosure would be seriously detrimental, provided that (except as provided in clause (iii) above) the Company may not defer the filing for a period of more than one hundred eighty (180) days after receipt of the request of the Holders, and, provided further, that the Company shall not defer its obligation in this manner more than once in any twelve (12) month period. If the Company or other persons shall request inclusion in any registration pursuant to this Section of securities being sold for its or their own accounts, the Holders shall offer to include such securities in the underwriting and may condition such offer on their acceptance of the further applicable provisions of this Section. The Company shall (together with all Holders and other persons proposing to distribute their securities through such underwriting) enter into an underwriting agreement in customary form with the representative of the underwriter or underwriters selected for such underwriting by a majority in interest of the Holders, which underwriters are reasonably acceptable to the Company. (b) Piggyback Registration. If the Company shall determine to ---------------------- register any of its securities either for its own account or the account of a security holder or holders exercising their respective demand registration rights (other than pursuant to this Section), other than a registration relating solely to employee benefit plans, or a registration relating solely to a Rule 145 transaction, or a registration on any registration form that does not permit secondary sales, the Company will: -4- (i) promptly give to each Holder written notice thereof; and (ii) use its best efforts to include in such registration (and any related qualification under blue sky laws or other compliance), and in any underwriting involved therein, all the Warrant Shares specified in a written request or requests, made by any Holder and received by the Company within twenty (20) days after the written notice from the Company described in clause (i) above is mailed or delivered by the Company. Such written request may specify all or a part of a Holder's Warrant Shares. The Holders agree to sell their Warrant Shares on the same terms as the sale of other shares of Common Stock in the offering and agree to execute such documents as shall be reasonably requested by the Company or its counsel in connection with such offering. If the registration of which the Company gives notice is for a registered public offering involving an underwriting, the Company shall so advise the Holders as a part of the written notice given pursuant to this Section. In such event, the right of any Holder to registration pursuant to this Section shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Warrant Shares in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company and the other holders of securities of the Company with registration rights to participate therein distributing their securities through such underwriting) enter into an underwriting agreement in customary form with the representative of the underwriter or underwriters selected by the Company. (c) Expenses of Registration. All registration expenses incurred in ------------------------ connection with any registration, qualification or compliance pursuant to this Section (including filing fees, printing expenses, blue sky fees, and fees and expenses of the Company's counsel and accountants) shall be borne by the Company. All expenses incurred by the Holders for their own counsel or accountants and all selling expenses relating to securities so registered (including underwriter discounts and commissions) shall be borne by the holders of securities so registered on the basis of the number of shares of securities so registered on their behalf. (d) Indemnification --------------- (i) The Company will indemnify each Holder, each of its officers, directors and partners, legal counsel, and accountants and each person controlling such Holder within the meaning of Section 15 of the Securities Act, with respect to which registration, qualification, or compliance has been effected pursuant to this Section, and each underwriter, if any,and each person who controls within the meaning of Section 15 of the Securities Act any underwriter, against all expenses, claims, losses, damages, and liabilities (or actions, proceedings, or settlements in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any prospectus, offering circular, or other document -5- (including any related registration statement, notification, or the like), incident to any such registration, qualification, or compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by the Company of the Securities Act or any rule or regulation thereunder applicable to the Company and relating to action or inaction required of the Company in connection with any such registration, qualification, or compliance, and will reimburse each such Holder, each of its officers, directors, partners, legal counsel, and accountants and each person controlling such Holder, each such underwriter, and each person who controls any such underwriter, for any legal and any other expenses reasonably incurred in connection with investigating and defending or settling any such claim, loss, damage, liability, or action, provided that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability, or expense arises out of or is based on any untrue statement or omission based upon written information furnished to the Company by such Holder or underwriter and stated to be specifically for use therein. It is agreed that the indemnity agreement contained in this Section shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, or action if such settlement is effected without the consent of the Company (which consent has not been unreasonably withheld). (ii) Each Holder will, if Warrant Shares held by him are included in the securities as to which such registration, qualification, or compliance is being effected, indemnify the Company, each of its directors, officers, partners, legal counsel, and accountants and each of its directors, officers, partners, legal counsel, and accountants and each underwriter, if any, of the Company's securities covered by such a registration statement, each person who controls the Company or such underwriter within the meaning of Section 15 of the Securities Act, each other such Holder and other Shareholder, and each of their officers, directors, and partners, and each person controlling such Holder or other Shareholder, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular, or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Company and such Holders, other Shareholders, directors, officers, partners, legal counsel, and accountants, persons, underwriters, or control persons for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability, or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular, or other document in reliance upon and in conformity with written information furnished to the Company by such Holder and stated to be specifically for use therein provided, however, that the obligations of such Holder hereunder shall not apply to amounts paid in settlement of any such claims, losses, damages, or liabilities (or actions in respect thereof) if such settlement is effected without the consent of such Holder (which consent shall not be unreasonably withheld), and provided that in no event shall any indemnity under this Section exceed the gross proceeds from the offering received by such Holder. -6- Section 5. Adjustments to Exercise Price and Number of Shares. -------------------------------------------------- 5.1 Subdivision and Combination. In case the Company shall at any time: --------------------------- (i) subdivide the outstanding shares of Common Stock into a larger number of shares, (ii) declare a dividend on the outstanding shares of Common Stock payable in shares of Common Stock, or (iii) issue by reclassification of its Common Stock any shares of its capital stock, the Exercise Price in effect immediately after the record date for such dividend or distribution on the effective date of such subdivision, combination or reclassification shall be adjusted so that it shall equal the price determined by multiplying the Exercise Price in effect immediately prior thereto by a fraction, of which the numerator shall be the number of shares of Common Stock outstanding immediately before such dividend, distribution, subdivision, combination or reclassification, and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such dividend, distribution, subdivision, combination or reclassification. Such adjustment shall be made successively whenever any event specified above shall occur. Notwithstanding the foregoing, in the event the Company shall combine its outstanding shares of Common Stock into a smaller number of shares, there shall be no adjustment in the Exercise Price. 5.2 Adjustment in Number of Warrant Shares. Upon each adjustment of the -------------------------------------- Exercise Price pursuant to the provisions of this Section 5, the number of Warrant Shares issuable upon the exercise of each Warrant shall be adjusted to the nearest full share by multiplying a number equal to the Exercise Price in effect immediately prior to such adjustment by the number of Warrant Shares issuable upon exercise of the Warrants immediately prior to such adjustment and dividing the product so obtained by the adjusted Exercise Price. 5.3 Definition of Common Stock. For the purpose of this Agreement, the -------------------------- term "Common Stock" shall mean: (i) the class of stock designated as Common Stock in the Memorandum of Association of the Company as may be amended as of the date hereof, or (ii) any other class of stock resulting from successive changes or reclassifications of such Common Stock consisting solely of changes in par value, or from par value to no par value, or from no par value to par value. 5.4 Merger or Consolidation. (a) In case the Company after the date ----------------------- hereof: (i) shall consolidate with or merge into any other person and shall not be the continuing or surviving corporation of such consolidation or merger, or (ii) shall permit any other person to consolidate with or merge into the Company and the Company shall be the continuing or surviving person but, in connection with such consolidation or merger, the Common Stock shall be changed into or exchanged for stock or other securities of any other person or cash or any other property, or (iii) shall transfer all or substantially all of its properties or assets to any other person, or (iv) shall effect a capital reorganization or reclassification of the Common Stock (other than a capital reorganization or reclassification resulting in the issue of additional shares of Common Stock for which adjustment in the Exercise Price is provided in this Section 5), then, and in the case of each such transaction, proper provision shall be made so that, upon the basis and the terms and in the manner provided in this Agreement and the Warrants, the Holders of the Warrants, upon the exercise thereof at any time after the consummation of such trans- -7- action, shall be entitled to receive (at the aggregate Exercise Price in effect at the time of such consummation for all Common Stock issuable upon such exercise immediately prior to such consummation), in lieu of the Common Stock, the highest amount of securities, cash or other property to which such Holders would actually have been entitled as shareholders upon such consummation if such Holders had exercised the rights represented by the Warrants immediately prior thereto, subject to adjustments (subsequent to such consummation) as nearly equivalent as possible to the adjustments provided for in this Section 5. 5.5 Assumption of Obligations. Notwithstanding anything contained in the ------------------------- Warrants to the contrary, the Company will not effect any of the transactions described in clauses (i) through (iv) of Section 5.4 unless, prior to the consummation thereof, each person (other than the Company) which may be required to deliver any stock, securities, cash or property upon the exercise of the Warrants as provided herein shall assume, by written instrument delivered to the Holders of the Warrants, (a) the obligations of the Company under the Warrants (including this Exhibit I) (and if the Company shall survive the consummation of such transaction, such assumption shall be in addition to, and shall not release the Company from, any continuing obligations of the Company under this Exhibit I and the Warrants) and (b) the obligation to deliver to such Holders such shares of stock, securities, cash or property as, in accordance with the foregoing provisions of this Section 5, such Holders may be entitled to receive, and such person shall have similarly delivered to such Holders an opinion of counsel for such person stating that the Warrants (including this Exhibit I) shall thereafter continue in full force and effect and the terms hereof (including, without limitation, all of the provisions of this Section 5) shall be applicable to the stock, securities, cash or property which such person may be required to deliver upon any exercise of the Warrants or the exercise of any rights pursuant hereto. 5.6 Dividends and Other Distributions. If, at any time or from time to --------------------------------- time after the date of this Warrant, the Company shall issue or distribute to the holders of shares of Common Stock, evidences of its indebtedness, any other securities of the Company or any cash, property or other assets (excluding a subdivision, combination or reclassification, or dividend or distribution payable in shares of Common Stock, referred to in Section 5.1, and also excluding cash dividends or cash distributions paid out of net profits legally available therefor if the full amount thereof, together with the value of other dividends and distributions made substantially concurrently therewith or pursuant to a plan which includes payment thereof, is equivalent to not more than 5% of the Company's net worth) (any such non-excluded event being herein called a "Special Dividend"), the Exercise Price shall be adjusted by multiplying the Exercise Price then in effect by a fraction, the numerator of which shall be the then current market price of the Common Stock (defined as the average for the thirty consecutive business days immediately prior to the record date of the daily closing price of the Common Stock as reported by the national securities exchange upon which the Common Stock is then listed or if not listed on any such exchange, the average of the closing prices as reported by the National Association of Securities Dealers, Inc. Automated Quotations System ("NASDAQ") Stock Market's National Market, or if not then listed on the NASDAQ National Market, the average of the highest reported bid and lowest reported asked prices as reported by the NASDAQ, or if not then publicly traded, as the fair market price as determined by the Company's Board of Directors) less the fair market value (as determined by the Company's Board of Directors) of the evidences -8- of indebtedness, cash, securities or property, or other assets issued or distributed in such Special Dividend applicable to one share of Common Stock and the denominator of which shall be such then current market price per share of Common Stock. An adjustment made pursuant to this Section 5.6 shall become effective immediately after the record date of any such Special Dividend. 5.7 Other Dilutive Events. In case any event shall occur as to which the --------------------- other provisions of this Section 5 are similar to, but not strictly applicable but as to which the failure to make any adjustment would not fairly protect the purchase rights represented by the Warrants (including this Exhibit I) in accordance with the essential intent and principles hereof then, in each such case, the Holders collectively may appoint a firm of independent public accountants of recognized national standing reasonably acceptable to the Company, which shall give their opinion as to the adjustment, if any, on a basis consistent with the essential intent and principles established herein, necessary to preserve the purchase rights represented by the Warrants (including this Exhibit I). Upon receipt of such opinion the Company will promptly mail a copy thereof to the Holders and shall make the adjustments described therein. The fees and expenses of such independent public accountants shall be borne by the Company. The issuance by the Company of shares of capital stock, including, without limitation, shares of Common Stock, for consideration less than the Exercise Price, or the issuance of convertible securities or derivative securities, convertible into shares of capital stock at a conversion price or exercise price less than the Exercise Price shall be deemed an event that requires an adjustment under this Section 5.7. 5.8 Notice of Adjustment Events. Whenever the Company contemplates the --------------------------- occurrence of an event which would give rise to adjustments under this Section 5, the Company shall mail to each Holder, at least thirty (30) days prior to the record date with resect to such event or, if no record date shall be established, at least thirty (30) days prior to such event, a notice specifying: (i) the nature of the contemplated event, (ii) the date of which any such record is to be taken for the purpose of such event, (iii) the date on which such event is expected to become effective and (iv) the time, if any is to be fixed, when the holders of record of Common Stock shall be entitled to exchange their shares of Common Stock for securities or other property deliverable in connection with such event. 5.9 Notice of Adjustments. Whenever the Exercise Price or the kind of --------------------- securities or property issuable upon exercise of the Warrants, or both, shall be adjusted pursuant to this Section 5, the Company shall make a certificate signed by its President or a Vice President and by its Chief Financial Officer, Secretary or Assistant Secretary, setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method of which such adjustment was calculated (including a description of the basis on which the Company made any determination hereunder), and the Exercise Price and the kind of securities or property issuable upon exercise of the Warrants after giving effect to such adjustment, and shall cause copies of such certificate to be mailed (by first class mail postage prepaid) to each Holder promptly after each adjustment. -9- 5.10 Preservation of Rights. The Company will not, by amendment of its ---------------------- Memorandum of Association or through any consolidation, merger, reorganization, transfer of assets, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of the Warrants (including this Exhibit I) or the rights represented thereby, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Holders of the Warrants against dilution or other impairment. 5.11 When No Adjustment Required. No adjustment in the Exercise Price shall --------------------------- be required unless such adjustment would require an increase or decrease of at least $0.05 per share of Common Stock; provided, however, that any adjustments -------- ------- which by reason of this Section 5.11 are not required to be made shall be carried forward and taken into account in any subsequent adjustment; provided -------- further, however, that adjustments shall be required and made in accordance with - ------- the provisions of this Section 5 (other than this Section 5.11) not later than such time as may be required in order to preserve the tax-free nature of a distribution to the Holders of the Warrants. All calculations under this Section 5 shall be made to the nearest cent or to the nearest 1/100th of a share, as the case may be. Anything in this Section 5 to the contrary notwithstanding, the Company shall be entitled to make such reductions in the Exercise Price, in addition to those required by this Section 5, as it in its discretion shall deem to be advisable in order that any stock dividend, subdivision of shares or distribution of rights to purchase stock or securities convertible or exchangeable for stock hereafter made by the Company to its shareholders shall not be taxable. Section 6. Exchange and Replacement of Warrant Certificates. Each Warrant ------------------------------------------------ Certificate is exchangeable without expense, upon the surrender thereof by the registered Holder at the principal executive office of the Company, for a new Warrant Certificate of like tenor and date representing in the aggregate the right to purchase the same number of Warrant Shares in such denominations as shall be designated by the Holder thereof at the time of such surrender. Upon receipt by the Company of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of any Warrant Certificate, and, in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it, and reimbursement to the Company of all reasonable expenses incidental thereto, and upon surrender and cancellation of the Warrants, if mutilated, the Company will make and deliver a new Warrant Certificate of like tenor, in lieu thereof. Section 7. Elimination of Fractional Interests. The Company shall not be ----------------------------------- required to issue certificates representing fractions of shares of Common Stock upon the exercise of the Warrants, nor shall it be required to issue scrip or pay cash in lieu of fractional interests, it being the intent of the parties that all fractional interests shall be eliminated by rounding any fraction up to the nearest whole number of shares of Common Stock. Section 8. Reservation of Securities. The Company shall at all times ------------------------- reserve and keep available out of its authorized shares of Common Stock, solely for the purpose of issuance upon the exercise of the Warrants, such number of shares of Common Stock as shall be issuable upon -10- the exercise thereof. The Company covenants and agrees that, upon exercise of the Warrants and payment of the Exercise Price therefor, all shares of Common Stock shall be duly and validly issued, fully paid, nonassessable and not subject to the preemptive rights of any shareholder. Section 9. Notices to Warrant Holders. Nothing contained in this Exhibit -------------------------- I shall be construed as conferring upon the Holders the right to vote or to consent or to receive notice as a shareholder in respect of any meetings of shareholders for the election of directors or any other matter, or as having any rights whatsoever as a shareholder of the Company. If, however, at any time prior to the expiration of the Warrants and their exercise, any of the following events shall occur: (a) the Company shall take a record of the holders of its shares of Common Stock for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution payable; or (b) the Company shall offer to all the holders of its Common Stock any additional shares of capital stock of the Company or securities convertible into or exchangeable for shares of capital stock of the Company, or any option, right or warrant to subscribe therefor; or (c) a voluntary or involuntary dissolution, liquidation or winding-up of the Company (other than in connection with a consolidation or merger) or any capital reorganization, recapitalization or reclassification or a sale of all or substantially all of its property, assets and business as an entirety shall be proposed; then, in any one or more of said events, the Company will mail to each Holder of a Warrant a notice specifying (i) the date or expected date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right, and (ii) the date or expected date on which any such reorganization, reclassification, recapitalization, consolidation, merger, sale, dissolution, liquidation or winding-up is to take place and the time, if any such time is to be fixed, as of which the holders of record of Common Stock shall be entitled to exchange their shares of Common Stock for the securities or other property deliverable upon such reorganization, reclassification, recapitalization, consolidation, merger, sale, dissolution, liquidation or winding-up. Such notice shall be mailed at least thirty (30) days prior to the date therein specified. Section 10. Notices. ------- All notices, requests, consents and other communications hereunder shall be in writing and shall be deemed to have been duly given or made at the time delivered by hand if personally -11- delivered; five calendar days after mailing if sent by registered or certified mail; when receipt is confirmed, if telecopied; and the next business day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery (except that a notice of change of address shall not be deemed to have been given until actually received by the addressee): (a) If to the registered Holder of the Warrants, to the address of such Holder as shown on the books of the Company; or (b) If to the Company, to the address set forth in Section 1 hereof or to such other address as the Company may designate by notice to the Holders. Section 11. Successors. All the covenants and provisions of this Exhibit ---------- I shall be binding upon and inure to the benefit of the Company, the Holders and their respective successors and assigns hereunder. Section 12. Governing Law. This Exhibit I and each Warrant shall be ------------- governed and construed in accordance with the laws of the State of Florida applicable to contracts made and performed in the State of Florida without giving effect to the principles of conflicts of law thereof. Section 13. Entire Agreement; Modification. This Exhibit I (including the ------------------------------ Warrant Certificate and the Subscription Agreements with respect to registration rights) contains the entire understanding between the parties hereto with respect to the subject matter hereof and may not be modified or amended except by a writing duly signed by the party against whom enforcement of the modification or amendment is sought. Section 14. Severability. If any provision of this Exhibit I shall be ------------ held to be invalid or unenforceable, such invalidity or unenforceability shall not affect any other provision of this Exhibit I. Section 15. Captions. The caption headings of the Sections of this -------- Exhibit I are for convenience of reference only and are not intended to be, nor should they be construed as, part of this Exhibit I and shall be given no substantive effect. Section 16. Benefits of This Exhibit I. Nothing in this Exhibit I shall -------------------------- be construed to give any person or corporation other than the Company and the registered Holder(s) of the Warrant Certificates or Warrant Shares any legal or equitable right, remedy or claim under this Exhibit I; and this Exhibit I shall be for the sole and exclusive benefit of the Company and any registered Holder(s) of the Warrant Certificates or Warrant Shares. -12- EX-10.Q 12 EXHIBIT 10Q: WARRANT OF COMMODORE HOLDINGS WARRANT OF COMMODORE HOLDINGS, LIMITED INCORPORATED UNDER THE LAWS OF BERMUDA 1. BASIC TERMS. This certifies that, for value received, SEAWISE ----------- FOUNDATION, INC. ("Seawise"), a Liberian corporation, is entitled to purchase and receive from COMMODORE HOLDINGS, LIMITED (the "Corporation"), a Bermuda corporation, during the period hereinafter provided, 250,000 fully paid and non- assessable shares of common voting stock of the Corporation with a par value of US$.01 per share ("Capital Stock"), upon delivery of this Warrant to the Corporation with an exercise form, a copy of which is attached hereto as Annex ----- A, duly executed, and payment of the purchase price of six US dollars (US$6.00) - - for each share of the Capital Stock so purchased (by certified or bank cashier's check payable to the order of the Corporation or by wire transfer to the bank account of the Corporation), and such purchase price per share being subject, however, to adjustment as hereinafter provided. The purchase price per share, as adjusted from time to time, is hereinafter referred to as the "Purchase Price". This Warrant shall be exercisable for a period of five (5) years commencing on the Commencement Date, as defined in that certain agreement, dated October 30, 1995, among Sea-Comm, Ltd., a Liberian corporation (the "Sea-Comm, Ltd."), the Corporation and Seawise (the "Agreement"), pursuant to which they will effect certain business transactions; provided, however, that this Warrant shall terminate upon the effective date of the exercise by Seawise of its option to terminate the Agreement early pursuant to Clause 16.2 of the Agreement. 2. CORPORATION'S COVENANTS AS TO COMMON STOCK. Shares deliverable ------------------------------------------ on the exercise of this Warrant shall, at delivery, be fully paid and non- assessable, free from taxes, liens, and charges with respect to their purchase. The Corporation shall take any necessary steps to assure that the par value per share of the Capital Stock is at all times equal to or less than the then current Purchase Price per share of the Capital Stock issuable pursuant to this Warrant. The Corporation shall at all time reserve and hold available sufficient shares of the Capital Stock to satisfy all conversion and purchase rights of outstanding convertible securities, options and warrant including the shares covered by this Warrant. Upon surrender of this Warrant at the office of the Corporation accompanied by payment of the appropriate Purchase Price in cash, the Corporation shall forthwith cause to be executed, issued and delivered to the holder of the Warrant (the "Registered Owner") a certificate or certificates for the proper number of shares of capital stock or other securities of the Corporation; and the Corporation covenants that the issuance of this Warrant shall constitute full authority to those of its officers who are charged with the duty of issuing stock certificates to promptly execute, issue and deliver to the holder of the Warrant the necessary certificate for shares of Capital Stock or other securities of the Corporation required by such exercise. Certificates for shares of Capital Stock or other securities of the Corporation issuable by reason of the exercise of this Warrant shall be dated and shall be effective as of the date of the surrender of this Warrant for exercise or acceptance of the offering of shares or other securities, as the case may be, and the payment of the appropriate Purchase Price, notwithstanding any delay in the actual execution, issuance or delivery of the certificates or securities to be purchased. 3. METHOD OF EXERCISE; FRACTIONAL SHARES. The purchase rights ------------------------------------- represented by this Warrant are exercisable at the option of the Registered Owner in whole at any time, or in part, from time to time, within the period above specified, provided, however, that purchase rights are not exercisable with respect to a fraction of a share of the Capital Stock. In lieu of issuing a fraction of a share remaining after exercise of this Warrant as to all full shares covered hereby, the Corporation shall make a cash payment therefor on the basis of the Purchase Price then in effect. In case of the exercise of this Warrant for less than all the shares available for purchase, the Corporation shall cancel the Warrant and execute and deliver a new Warrant of like tenor and date for the balance of the shares purchasable. 4. ADJUSTMENT OF SHARES AVAILABLE FOR PURCHASE. The number of ------------------------------------------- shares available for purchase hereunder and the Purchase Price per share are subject to adjustment from time to time as specified in this Warrant. 5. LIMITED RIGHTS OF OWNER. This Warrant does not entitle the ----------------------- Registered Owner or the holder of this Warrant to any voting rights or other rights as a stockholder of the Corporation, or to any other rights whatsoever except the rights herein expressed. No dividends are payable or will accrue on this Warrant or the shares available for purchase hereunder until, and except to the extent that, this Warrant is exercised. 6. EXCHANGE FOR OTHER DENOMINATIONS. This Warrant is exchangeable, -------------------------------- on its surrender by the Registered Owner to the Corporation, for new Warrant of like tenor and date representing in the aggregate the right to purchase the number of shares available for purchase hereunder in denominations designated by the Registered Owner at the time of surrender. 7. TRANSFER AND ASSIGNMENT. Except as otherwise above provided, ----------------------- this Warrant is transferable only on the books of the Corporation by the Registered Owner in person or by attorney, on surrender of this Warrant, properly endorsed and a duly completed Assignment Form, a copy of which is attached hereto as Annex B. Seawise shall not sell, assign or transfer this ------- Warrant or any shares of the Capital Stock purchased pursuant hereto for a period of two (2) years commencing on the Commencement Date. After such initial two (2) year period, Seawise may sell, assign or transfer the Warrant or Shares; provided, however, that Seawise shall not sell, assign or transfer in excess of twenty-five percent (25%) of the Warrant or Shares in any one (1) calendar quarter. 8. RECOGNITION OF REGISTERED OWNER. Prior to due presentment for ------------------------------- registration of transfer of this Warrant, the Corporation may treat the Registered Owner as 2 the person exclusively entitled to receive notices and otherwise to exercise rights hereunder. 9. EFFECT OF STOCK SPLIT, ETC. If the Corporation, by stock --------------------------- dividend, split, reverse split, re-classification of shares, or otherwise, changes as a whole the outstanding common stock of the Corporation into a different number or class of shares, then: A. The number and class of shares so changed shall, for the purposes of this Warrant, replace the shares outstanding immediately prior to the change; and B. The Purchase Price in effect, and the number of shares available for purchase under this Warrant, immediately prior to the date upon which the change becomes effective, shall be proportionately adjusted (the price to the nearest cent). 10. REGISTRATION. The Corporation shall have no obligation to ------------ register the Warrant or the shares of Capital Stock issuable upon exercise of the Warrant under the Securities Act of 1933 in connection with any initial public offering of the Corporation's shares or any other offering following a transaction by which the shares shall become publicly traded ("Initial Offering") contemplated to occur sometime in 1996. In the event that any time after the Initial Offering, the Corporation or its controlling shareholder(s) contemplate a further public offering or a secondary pubic offering of the Capital Stock (collectively, the "Secondary Offering"), the Corporation shall cause any then remaining unexercised Warrant, any of the shares which have already been issued on previous exercise of the Warrant, and the shares issuable upon exercise of the remaining unexercised Warrant, to be included in the securities then being registered in connection with the Secondary Offering so that, after the effective date of any such Secondary Offering, the Registered Owner will have freely transferable Warrant or shares, as the case may be, subject, however, to the restrictions set forth in Clause 7 hereof. 11. ADDITIONAL SALES OR ISSUANCE OF CAPITAL STOCK. --------------------------------------------- A. Other than in connection with the contemplated Initial Offering or any other public offering of shares of the Corporation's Capital Stock, if the Corporation shall at any time or from time to time hereafter: (a) Sell or issue any additional shares of its Capital Stock (other than upon exercise of this Warrant) and any other warrant issued upon exchange of this Warrant, for a consideration per share less than the Purchase Price in effect immediately prior to such sale or issuance, or without consideration; or (b) Sell or issue any rights or options to purchase Capital Stock of the Corporation or sell or issue any securities of any kind convertible into shares of Capital Stock of the Corporation in which the 3 option, purchase, exercise or conversion price (or consideration) per share, as the case may be, is less than the Purchase Price in effect immediately prior to such sale or issuance; then and in each such case the Purchase Price in effect immediately prior to such sale or issuance shall immediately and automatically be reduced to the consideration per share received by the Corporation upon such sale or issuance as specified in subparagraph (a), above, or to the option, purchase, exercise or conversion price (or consideration) per share upon such sale or issuance as specified in this subparagraph (b), as the case may be. Upon each such adjustment of the Purchase Price, the Registered Owner shall thereafter (until a subsequent adjustment of the Purchase Price) be entitled to purchase at the adjusted Purchase Price the number of shares of Capital Stock of the Corporation obtained by multiplying the number of shares specified in this Warrant by the initial Purchase Price (i.e. US $6.00) and dividing the product so obtained by the adjusted Purchase Price. B. For purposes of the foregoing adjustments, the following provisions shall also apply: (a) In case the consideration for such issuance or sale of additional shares of Capital Stock, or the option, purchase, exercise or conversion price (or consideration) per share provided for in any such right, option or convertible security, shall be wholly or partially other than cash, such other consideration shall be deemed to be the value, expressed in monetary terms, of such consideration as fairly determined by the Board of Directors of the Corporation whose determination shall be final and binding on the parties hereto. (b) In case the Corporation shall sell or issue any rights or options to purchase Capital Stock of the Corporation, or any securities of any kind convertible into shares of Capital Stock of the Corporation, such sale or issue shall be deemed to be an issue or sale (as of the date of the issue or sale of such rights, options or convertible securities) of the maximum number of shares of Capital Stock necessary to effect the exercise, conversion or exchange of all such rights, options or convertible securities, and the amount received by the Corporation for the issue or sale of such rights options or convertible securities plus the total amount of additional consideration, if any, payable to the Corporation on such exercise, conversion or exchange shall be deemed to be consideration actually received for the issue or sale of such shares of Capital Stock, and such shares of Capital Stock shall be deemed to constitute issued shares of Capital Stock as of said date; provided, however, that no further adjustment of the Purchase Price shall be 4 made upon the actual issuance of any shares of Capital Stock to effect such exercise, conversion or exchange. (c) No adjustment in the Purchase Price shall be made as a result of the sale or issuance by the Corporation of any additional shares of Capital Stock issued as a stock dividend upon outstanding Capital Stock, and no further adjustment in the number of shares of Capital Stock issuable upon exercise of this Warrant shall be made except to the extent: (i) in case the Corporation shall declare any dividend upon outstanding Capital Stock payable in cash or in shares of Capital Stock (or fractions thereof), or in case the Corporation shall make any other distribution upon outstanding Capital Stock, then and in each such case the Registered Owner, upon any exercise of all or any part hereof thereafter, will be entitled to receive the number of shares of Capital Stock as to which the right of purchase is being exercised and, in addition but without any further payment, the securities, cash or other property which the holder of this Warrant would have received by way of such dividends or distributions if such holder (i) had continuously since the date hereof been the record holder of the Capital Stock as to which the right of purchase is then being exercised, and (ii) had retained all securities which he or she would have received as dividends and/or other distributions upon such Capital Stock; (ii) if the Corporation shall, by subdivision, combination or reclassification of shares or otherwise, change the outstanding shares of its Capital Stock into a different number or class of shares, the number and class of shares issuable upon exercise of this Warrant and the Purchase Price payable upon such exercise shall be adjusted as provided in paragraph (i) above. (d) No adjustment in the Purchase Price shall be made as the result of any shares of Capital Stock being issued for purposes of any stock option plan for the employees of the Corporation or for purpose of any other stock options or risks granted to purchase capital stock of the Corporation to any existing or new employees provided always that the aggregate of such options or warrants issued or granted in any one (a) calendar year shall not exclude ten percent (10%) of the average number of shares of outstanding Capital Stock during the preceding calendar year or if such calendar year was not a full year, the average number of shares outstanding during such short year. 5 12. EFFECT OF MERGER, ETC. If the Corporation consolidates with or ---------------------- merges into another corporation, the Registered Owner shall thereafter be entitled on exercise to purchase, with respect to each share of Capital Stock purchasable hereunder immediately before the consolidation or merger becomes effective, the securities or other consideration to which a holder of one share of common stock is entitled in the consolidation or merger without any change in or payment in addition to the Purchase Price in effect immediately prior to the merger or consolidation. The Corporation shall take any necessary steps in connection with a consolidation or merger to assure that all the provisions of this Warrant shall thereafter be applicable, as nearly as reasonably may be, to any securities or other consideration so deliverable on exercise of this Warrant. The Corporation shall not consolidate or merge unless, prior to consummation, the successor Corporation (if other than the Corporation) assumes the obligations of this paragraph by written instrument executed and mailed to the Registered Owner at the address of the Registered Owner on the books of the Corporation. A sale or lease of all or substantially all the assets of the Corporation for a consideration (apart from the assumption of obligations) consisting primarily of securities is a consolidation or merger for the foregoing purposes. 13. NOTICE OF ADJUSTMENT. On the happening of an event requiring an --------------------- adjustment of the Purchase Price or the shares available for purchase hereunder, the Corporation shall forthwith give written notice to the Registered Owner stating the adjusted Purchase Price and the adjusted number and kind of securities or other property available for purchase hereunder resulting from the event and setting forth in reasonable detail the method of calculation and the facts upon which the calculation is based. The Board of Directors of the Corporation, acting in good faith, shall determine the calculation. 14. NOTICE AND EFFECT OF DISSOLUTION, ETC. In case a voluntary or -------------------------------------- involuntary dissolution, liquidation, or winding up of the Corporation (other than in connection with a consolidation or merger covered by paragraph 11 above) is at any time proposed, the Corporation shall give at least thirty (30) days written notice to the Registered Owner. Such notice shall contain: (i) the date on which the transaction is to take place; (ii) the record date (which shall be at least thirty (30) days after the giving of the notice) as of which holders of Common Shares will be entitled to receive distributions as a result of the transaction; (iii) a brief description of the transaction; (iv) a brief description of the distributions to be made to holders of stock of the Corporation as a result of the transaction; and (v) an estimate of the fair value of the distributions. On the date of the transaction, if it actually occurs, this Warrant and all rights hereunder shall terminate. 15. METHOD OF GIVING NOTICE; EXTENT REQUIRED. Notices hereunder ----------------------------------------- shall be given in the manner as provided for in the Joint Venture Agreement addressed to the Registered Owner at the address of the Registered Owner appearing in the records of the Corporation and to the Corporation at the address set forth in the Joint Venture Agreement. WITNESS the seal of the Corporation and the signatures of its authorized Officers. Dated: October 30, 1995 COMMODORE HOLDINGS, LIMITED BY: /s/ FREDERICK A. MAYER ---------------------------------- NAME: FREDERICK A. MAYER TITLE: VICE-CHAIRMAN EX-10.R 13 EXHIBIT 10R: MORTGAGE Execution Copy -------------- Dated 14th, July 1995 --------------------- Azure Investments, Inc. as owner to Effjohn International Cruise Holdings Inc. as lender --------------------------------------- First Priority Panamanian Mortgage - on - "ENCHANTED SEAS" -------------------------------------- Sinclair Roche & Temperley Broadwalk House 5 Appold Street London EC2A 2NN Tel: 0171-638 9044 Ref: JPM/180210 INDEX -----
Clause Subject Page - ------ ------- ---- 1. Definitions and Construction........................... 1 2. Performance of Obligations under Security Documents.... 4 3. Security............................................... 4 4. Insurance.............................................. 5 5. Operation and Maintenance.............................. 11 6. Protection and Maintenance of Security................. 16 7. Enforcement of Rights.................................. 17 8. Application of Moneys.................................. 19 9. Waiver of Preferred Status............................. 19 10. Miscellaneous.......................................... 20 11. Notices................................................ 21 12. Jurisdiction........................................... 22 13. Governing Law.......................................... 23 14. Assignment............................................. 23 15. Counterparts........................................... 23 16. Appointment of Agent in Panama......................... 23 Schedule "A"............................................... 26
THIS FIRST PREFERRED NAVAL MORTGAGE is made the 14th day of July 1995 by:- (1) Azure Investments, Inc., a company incorporated under the laws of the Republic of Panama whose registered office is at c/o Galindo Arias & Lopez, 200 Via Espana, Panama 5, Panama City, Republic of Panama (the "Owner") in favour of:- (2) Effjohn International Cruise Holdings Inc., a company incorporated under the laws of the Cayman Islands whose registered office is at c/o Caledonian Bank & Trust Limited, P O Box 1043, Grand Cayman, Cayman Islands (the "Mortgagee"); WHEREAS:- (A) The Owner is the sole registered and beneficial owner of the whole of the M.V. "Enchanted Seas" duly documented in the name of the Owner under the laws and flag of Panama under Provisional Patente Number 18355-Rext-8 having radio call letters in the International Code of Signals 3FMF2 with a registered gross capacity in tons of 22,162.00 registered net capacity in tons of 6,648.00 length of 173.74 metres breadth of 25.60 metres and depth of 13.94 metres. (B) By a loan agreement dated 14 July 1995 (the "Loan Agreement") (a copy of which is annexed hereto as "Schedule A" and hereby made part hereof) and made between (i) the Owner and Almira Enterprises, Inc as borrowers (together the "Borrowers") (ii) the Mortgagee and (iii) New Commodore Cruise Lines Limited and Commodore Holdings Limited (together the "Guarantors") the Mortgagee agreed to advance to the Borrowers a loan (the "Loan") of USD24,500,000 on the terms and conditions set out therein. (C) To secure the repayment of the Loan interest thereon and the due performance and observance of all the agreements, covenants and provisions contained in this Mortgage and in the other Security Documents the Owner has duly authorised the execution and delivery of this First Preferred Naval Mortgage. 1. DEFINITIONS AND CONSTRUCTION ---------------------------- 1.1 Definitions ----------- In this Mortgage (unless the context otherwise requires):- (A) "Default Rate" means the rate of interest determined in accordance with Clause 6.5 of the Loan Agreement; (B) "Environmental Approvals" means all approvals, licences, permits, exemptions or authorisations required under applicable Environmental Laws; (C) "Environmental Claim" means:- (a) any claim by, or directive from, any applicable governmental, judicial or other regulatory authority alleging breach of, or non-compliance with, any Environmental Laws or Environmental Approvals or - 2 - otherwise howsoever relating to or arising out of an Environmental Incident; or (b) any claim by any other third party howsoever relating to or arising out of an Environmental Incident, and in each case "claim" shall mean a claim for damages, clean-up costs, compliance, remedial action or otherwise; (D) "Environmental Incident" means:- (a) any release of Environmentally Sensitive Material from the Vessel; or (b) any incident in which Environmentally Sensitive Material is released from a ship other than the Vessel and which involves collision between the Vessel and such other ship or some other incident of navigation or operation, in either case, where the Vessel, the Owner, the Bareboat Charterer or the Lay-Up Charterer is actually or allegedly at fault or otherwise liable (in whole or in part); or (c) any incident in which Environmentally Sensitive Material is released from a ship other than the Vessel and where the Vessel is actually or potentially liable to be arrested as a result and/or where the Owner, the Bareboat Charterer or the Lay-Up Charterer is actually or allegedly at fault or otherwise liable; (E) "Environmental Laws" means all laws, regulations, conventions and agreements whatsoever relating to pollution or protection of the environment (including, but not limited to, the United States Oil Pollution Act of 1990 and any comparable laws of the individual States of the United States of America); (F) "Environmentally Sensitive Material" means oil, oil products, any other substance which is polluting, toxic or hazardous or any substance the release of which into the environment is regulated, prohibited or penalised by or pursuant to any Environmental Law; (G) "Outstanding Indebtedness" means all sums of any kind arising at any time for any reason payable actually or contingently by the Borrowers under or pursuant to this Mortgage and each of the other Security Documents (whether by way of payment of principal, payment of interest or default interest, payment upon any indemnity or counter-indemnity, reimbursements for costs or otherwise howsoever); (H) "Vessel" means the ship described in Recital (A) and includes her machinery, outfit, spare gear, fuel and consumable or other stores, belongings and appurtenances, whether on board or ashore and whether now owned or hereafter acquired; - 3 - (I) words and expressions defined in the Loan Agreement shall have the same meanings when used in this Mortgage except where the same words and expressions are defined differently herein. 1.2 Construction ------------ In this Mortgage unless the context otherwise requires:- (A) Clause headings are inserted for convenience of reference only and shall be ignored in the interpretation of this Mortgage; (B) references to Clauses and Schedules are to be construed as references to clauses of and schedules to this Mortgage unless otherwise stated and references to this Mortgage are to be construed as references to this Mortgage including its Schedules; (C) references to (or to any specified provision thereof) of this Mortgage or any other Subject Document shall be construed as reference to this Mortgage, that provision or that Subject Document as from time to time amended, supplemented and/or novated; (D) without prejudice to the provisions of Clause 14 references to any party to this Mortgage or any such other Subject Document shall include reference to such party's successors and permitted assigns; (E) words importing the plural shall include the singular and vice versa; (F) references to a person shall be construed as references to an individual, firm, company, corporation, unincorporated body of persons or any state or any agency thereof; (G) where any matter under any Security Document requires the approval or consent of the Mortgagee such approval or consent shall not be deemed to have been given unless the approval or consent is given in writing; where any matter under any Security Document is required to be acceptable to the Mortgagee, the Mortgagee shall not be deemed to have accepted such matter unless its acceptance is communicated in writing; the Mortgagee may give or withhold its consent, approval or acceptance under any Security Document subject to it not being unreasonably withheld or delayed and such consent, approval or acceptance may be given by the Mortgagee subject to such conditions as it may reasonably impose; (H) a certificate by the Mortgagee as to any amount due or calculation made hereunder shall be conclusive except for manifest error; and (I) references to any statutory or other legislative provision are to be construed as references to any such statute or other legislative provision as the same may - 4 - be re-enacted or modified or substituted by any subsequent statute or legislative provision. 2. PERFORMANCE OF OBLIGATIONS UNDER SECURITY DOCUMENTS --------------------------------------------------- The Owner hereby undertakes to the Mortgagee that:- 2.1 it will repay the Loan and pay interest in accordance with the Loan Agreement and will pay all other amounts due or to become due to the Mortgagee in accordance with the Security Documents to which it is a party and that it will duly perform its other obligations under the Security Documents; and 2.2 it will pay interest at the Default Rate on any moneys which are due in accordance with the Security Documents but unpaid from the date on which such moneys were due until the date of receipt by the Mortgagee (whether before or after judgment). 3. SECURITY -------- 3.1 Mortgage -------- In consideration of the agreement of the Mortgagee to make the Loan available to the Borrowers and in order to secure the payment of the Outstanding Indebtedness in accordance with the provisions of the Security Documents and to secure the due performance and observance of all of the agreements, covenants, undertakings and provisions contained in this Mortgage and in the other Security Documents to which the Owner is a party, the Owner hereby executes and constitutes a first preferred naval mortgage on the whole of the Vessel to the Mortgagee. 3.2 Panamanian Legislation ---------------------- This Mortgage is granted in accordance with the provisions of Chapter V Title IV of Book Second of the Code of Commerce of the Republic of Panama and of the pertinent provisions of the Civil Code and other legislation of the Republic of Panama. 3.3 Extent of security ------------------ By virtue of this Mortgage, the Owner shall have and hold the Vessel unto the Mortgagee for its own use and benefit for use upon the terms set out herein for the enforcement of payment of the Loan and interest thereon in accordance with the provisions of the Security Documents and to secure the performance and observance of and the compliance with the covenants terms and conditions contained expressed or implied in this Mortgage and the other Security Documents 3.4 Discharge --------- If the Owner repays the Loan and pays interest thereon in accordance with the terms of this Mortgage and any other sums owing under this Mortgage and performs and - 5 - complies with all the covenants terms and conditions herein contained the rights hereunder shall cease, terminate and be void but shall otherwise remain in full force and effect. 4. INSURANCE --------- 4.1 Duration -------- The Owner undertakes to the Mortgagee that throughout the Security Period it will at its own expense effect and maintain insurance in accordance with the following provisions of this Clause. 4.2 Risks insured ------------- The Owner will insure the Vessel and keep her insured in the name of the Owner and, if required, the Mortgagee against loss or damage from any cause whatsoever including fire and usual marine risks, excess risks, war risks and additional perils (and such other perils as the Mortgagee may reasonably require). 4.3 Amount insured -------------- For the purposes of all hull and machinery and war and political risks insurance the Vessel and the Isle shall be insured on an agreed value basis for the greater of:- (A) an amount which is equal to 120% of the Loan; and (B) the aggregate market value of the Vessel and the Isle for the time being as agreed between the Owner and the Mortgagee or, failing agreement, as determined by the Mortgagee in its sole discretion. 4.4 Hull and Machinery Insurances ----------------------------- The Owner will effect and maintain hull and machinery insurance on the usual Institute hull clauses (or as otherwise agreed by the Mortgagee) with policy limits agreed by the Mortgagee from time to time and including an endorsement that a breach of warranty by one assured shall not invalidate the insurance as to all other named insureds. 4.5 War risks --------- The Owner will effect and maintain war risks insurance with policy limits agreed by the Mortgagee from time to time and including an endorsement that a breach of warranty by one assured shall not invalidate the insurance as to all other named insureds. - 6 - 4.6 Port risk cover --------------- While the Vessel is laid up and if the Mortgagee approves, port risk insurance may be taken out on the Vessel by the Owner instead of hull insurance, on terms and for amounts approved by the Mortgagee. 4.7 Protection and Indemnity coverage --------------------------------- The Owner will effect and maintain insurance or an entry or entries in a protection and indemnity association in the name of the Owner on such terms and in such amounts as the Mortgagee may require in respect of protection and indemnity risks (other than in respect of crew) for which cover is available from a first class protection and indemnity association. Without limitation, the risks to be insured shall include:- (A) claims of employees, agents or sub-contractors of the Owner, the Bareboat Charterer, the Lay-Up Charterer, any other charterer of the Vessel, passengers, third parties (including governments or other authorities) and their dependants who may suffer damage to property, financial loss or personal injury or arising from the death of any such persons; (B) such other risks as may be required by statute, order or regulations of the Republic of Panama and of all other countries to whose jurisdiction the Vessel may from time to time become subject and/or which the Mortgagee may direct; and (C) Protection and indemnity insurance (as well as required insurance against liability for pollution or the spillage or leakage of cargo) which shall: (i) be in the highest amount from time to time available for ships of the same type, size, age and flag as the Vessel. Without limitation of the foregoing, coverage against liability for pollution or the spillage or leakage of cargo shall in no event be less than USD500,000,000 for any one incident or such other amount which may be the highest available cover from time to time from a first class protection and indemnity association; (ii) if applicable include as areas of its cover the United States of America and the Exclusive Economic Zone of the United States of America ("EEZ") as such term is defined in the US Oil Pollution Act of 1990. The Owner shall procure that the protection and indemnity cover in respect of the Vessel shall at no time contain a clause excluding the Vessel from trading in United States' or EEZ waters (a "US Trading Exclusion Clause") and for this purpose the Owner shall deliver to the relevant protection and indemnity association such quarterly or other declarations of the Vessel's voyages as may from time to time be required in accordance with the association's rules to obtain deletion - 7 - of the US Trading Exclusion Clause. The Owner agrees to deliver to the Mortgagee a copy of each such voyage declaration simultaneously with its being delivered to the protection and indemnity association. The Owner further agrees to provide the Mortgagee with such evidence as it shall reasonably request that the US Trading Exclusion Clause has been and remains deleted and undertakes to use its best endeavours, if requested by the Mortgagee, to procure that the protection and indemnity association confirms such deletion in writing direct to the Mortgagee; and (iii) include as areas of cover all other jurisdictions which may require specific inclusion following the promulgation of legislation imposing liability for oil pollution which requires specific cover under current protection and indemnity association rules. 4.8 Terms of cover -------------- The Owner shall ensure that the Insurances shall:- (A) be effected through brokers and with insurance companies, underwriters, war risks and protection and indemnity associations each internationally recognised and approved by the Mortgagee; (B) be in a form and on terms and in amounts approved by the Mortgagee; (C) provide that all amounts payable thereunder shall be payable in Dollars or another currency approved by the Mortgagee; (D) if the Mortgagee shall not have effected and maintained a mortgagee's interest policy pursuant to Clause 4.21, include a provision on terms approved by the Mortgagee whereby no breach of warranty or condition or lack of due diligence on the part of the Owner shall prevent or prejudice the Mortgagee collecting the full amount which it would have been entitled to receive as assignee of the Insurances but for such breach or lack of due diligence; (E) provide that they may not lapse, be terminated, cancelled or materially modified without thirty days' prior notice to the Mortgagee and to such other persons as the Mortgagee may nominate; (F) be endorsed with a note of the Mortgagee's interest, and shall further ensure that such interest is endorsed upon all slips, cover notes and other instruments of insurance, in a form satisfactory to the Mortgagee and a notice of assignment and a loss payable and notice of cancellation clause in such terms as the Mortgagee may require. - 8 - 4.9 Production of insurance documents --------------------------------- When requested the Owner shall produce certified copies of the policies, certificates of insurance or entry and cover notes in respect of the Insurances (or evidence of their existence) to the Mortgagee. In the case of the Insurances the Owner shall produce to the Mortgagee evidence of each such renewal at least fourteen (14) days before expiry. 4.10 Payment of premiums and calls ----------------------------- The Owner shall promptly pay all premiums and calls and shall produce to the Mortgagee the receipts (or other evidence of payment) for such premiums and calls within fourteen (14) days of such payment together with a letter from the broker, insurance company, war risks or protection and indemnity association to which the premium or call is paid, confirming that no credit has been extended or is outstanding in respect of premiums or calls or, if credit has been extended, the terms of such credit and amount of premiums and calls then outstanding. The Owner shall not take credit in respect of the payment of premiums or calls without the approval of the Mortgagee. The Owner shall procure that its brokers and the insurance companies with which the Vessel is insured and the protection and indemnity association and/or war risk association in which the Vessel is entered shall waive any lien for premiums or calls except in relation to premiums or calls attributable to the Vessel. 4.11 Information from brokers ------------------------ The Owner shall procure that its insurance brokers give to the Mortgagee and its insurance advisers such information as to the Insurances as the Mortgagee or its insurance advisers may request. 4.12 Notice of amendments to cover ----------------------------- If any variation is made to the Insurances or if any other insurance in relation to the Vessel or to third party risks in relation thereto is taken out, the Owner shall forthwith give written notice to the Mortgagee. The Owner shall not be entitled to make any alteration to any of the Insurances without the consent of the Mortgagee and shall not take any action or omit to take any action which would render any instrument of insurance invalid, void, voidable or unenforceable or render any sum payable thereunder repayable in whole or in part. 4.13 Letters of undertaking ---------------------- The Owner shall cause its insurers, brokers and/or the managers of any protection and indemnity or war risks association in which the Vessel may be entered to deliver to the Mortgagee letters of undertaking in such terms as the Mortgagee may reasonably require. - 9 - 4.14 Cover in case of default by Owner --------------------------------- If the Owner shall fail to comply with any of the provisions of this Clause, the Mortgagee shall be entitled to procure that insurance is effected in accordance with the provisions of this Clause (at the Owner's expense). Alternatively or in addition (without prejudice to the rights of the Mortgagee under Clause 7) whilst such failure is continuing the Mortgagee may require the Vessel to remain in port (or proceed to and remain in a reasonably convenient port designated by the Mortgagee) until such provisions are fully complied with. 4.15 Total loss ---------- In the event of a Total Loss the proceeds of all insurance claims shall be payable to the Mortgagee without deduction or withholding except for customary brokers' collection commissions and save as provided in Clause 7.3 of the Loan Agreement the Mortgagee shall apply the proceeds in accordance with the provisions of Clause 8. 4.16 Average damage -------------- In the event of the occurrence of any loss or damage other than a Total Loss, insurance moneys in respect of such loss or damage shall be paid to the Mortgagee (subject to the provisions of any loss payable and notice of cancellation clause approved by the Mortgagee) and:- (A) if no Event of Default has occurred, the Mortgagee shall, either ------ consent that such moneys on receipt by the Mortgagee shall be applied for repairs, salvage or other charges or, if the Owner has first fully -- repaired the damage or secured complete discharge of the liability insured against the Mortgagee shall reimburse the Owner therefor up to the amount received by the Mortgagee PROVIDED THAT the insurers through whom the fire and usual marine risks insurances are effected may in the case of a major casualty (being a claim in excess of USD1,500,000 or its equivalent in another currency) and with the previous consent in writing of the Mortgagee make payment on account of repairs in the course of being effected; or (B) if an Event of Default has occurred, the Mortgagee shall be entitled to receive such insurance moneys from the underwriters or insurers and may apply them in prepayment of the Loan and/or other amounts due or to become due under the Loan Agreement or under this Mortgage or under any other Security Document. 4.17 Receipt of proceeds by Owner ---------------------------- If, despite the provisions of Clauses 4.15 and 4.16 the Owner receives any insurance moneys before having made good the loss or restoring the damage or discharging the liability in respect of which the moneys are paid, the Owner shall (unless the Mortgagee agrees otherwise) immediately pay the moneys to the Mortgagee (and until - 10 - payment the Owner shall hold the moneys on trust for the Mortgagee). The provisions of Clause 4.15 shall apply if the moneys are received in respect of a Total Loss and the provisions of Clause 4.16 if the moneys are received in respect of any other insurance claim. 4.18 Independent report ------------------ At the request of the Mortgagee, the Owner will at its expense promptly either once a year if there is no change to the then current Insurances or from time to time if there are changes to the then current Insurances provide the Mortgagee with a detailed report signed by an independent firm of marine insurance brokers appointed by the Mortgagee to examine the adequacy of the Insurances and shall procure that there is delivered to such brokers any and all information in relation to the Insurances as the brokers may require for the purposes of such report. Each such report shall affirm compliance of the Insurances with the requirements of this Clause 4.18 and state such brokers' opinion as to the adequacy thereof for the protection of the interests of the Mortgagee. 4.19 Assistance by Owner ------------------- The Owner undertakes to do all things necessary and to provide all documents, evidence and information to enable the Mortgagee to collect or recover any moneys which at any time become due in respect of the Insurances and for such purpose the Owner shall permit the Mortgagee if necessary to sue in the name of the Owner. The Owner will not settle, compromise or abandon claims under the Insurances for a Total Loss or major casualty (being a claim in excess of USD1,500,000 or its equivalent in another currency) without the consent of the Mortgagee. 4.20 Employment in conformity with insurance cover --------------------------------------------- The Owner will not at any time employ the Vessel or permit her to be employed except in accordance with the terms of the Insurances (including any express or implied warranties) without first obtaining the consent of the underwriters or insurers or protection and indemnity or war risk association to such employment and complying with requirements as to extra premium and other requirements prescribed by them. 4.21 Mortgagee's interest insurance ------------------------------ The Mortgagee shall effect a mortgagee's interest policy (to include, if required, cover in respect of Additional Perils) in respect of its interest in the Vessel as mortgagee on such terms as the Mortgagee considers appropriate. It is agreed that the mortgagee's interest insurance in respect of the Vessel shall not exceed 120% of the Loan. The Owner will pay to the Mortgagee on demand the cost of effecting and maintaining this insurance. - 11 - 4.22 Certificates of Financial Responsibility ---------------------------------------- The Owner will ensure that the Vessel holds certificates of Financial Responsibility as required by the Oil Pollution Act. 5. OPERATION AND MAINTENANCE ------------------------- 5.1 Duration -------- The Owner undertakes to the Mortgagee that it will comply with the obligations set out in this Clause at its own expense throughout the Security Period. 5.2 Standard of maintenance ----------------------- The Owner will keep the Vessel in a good and efficient state of repair so as to entitle the Vessel to maintain its current classification free of all recommendations and qualifications with American Bureau of Shipping or such other classification society approved by the Mortgagee. On the date hereof and annually thereafter, the Owner will furnish to the Mortgagee a statement by such classification society that such classification is maintained. The Owner will comply with all recommendations, regulations and requirements (statutory or otherwise) from time to time applicable to the Vessel and shall have on board as and when required thereby valid certificates showing compliance therewith and shall procure that all repairs to or replacements of any damaged, worn or lost parts or equipment are carried out (both as regards workmanship and quality of materials) so as not to diminish the value or class of the Vessel. No part or item of equipment shall be removed unless it is replaced forthwith by a suitable part or item and the replacement part is (i) in the same or better condition than that removed; (ii) free from any Encumbrance in favour of any person other than the Mortgagee and (iii) is subject to the security constituted by this Mortgage. The Owner will not make any substantial modifications or alterations to the Vessel or any part thereof without the prior consent of the Mortgagee, save that the Owner is entitled to modify or alter the Vessel if such modification or alteration can reasonably be said to have enhanced the value of the Vessel. 5.3 Survey ------ The Owner will submit the Vessel to continuous survey and such other surveys as may be required for classification purposes and, if so required by the Mortgagee, the Owner will supply to the Mortgagee copies in English of the survey reports. 5.4 Inspection ---------- The Owner will permit surveyors or agents appointed by the Mortgagee to board the Vessel at all reasonable times to inspect her condition or satisfy themselves as to repairs proposed or already carried out. The Owner will afford all proper facilities for such inspections. - 12 - 5.5 Employment to comply with law ----------------------------- The Owner will not employ the Vessel or permit her employment in any trade or business which is forbidden by any applicable law or is otherwise illicit or in carrying illicit or prohibited goods or in any manner whatsoever which may render her liable to condemnation in a prize court or to destruction, seizure or confiscation or that may expose the Vessel to penalties. In the event of hostilities in any part of the world (whether war be declared or not) the Owner will not employ the Vessel or permit her employment in carrying any contraband goods. 5.6 Information ----------- The Owner will promptly provide the Mortgagee with all information which the Mortgagee may periodically require regarding the Vessel, her employment, position and engagements, particulars of all towages and salvages and copies of all charters and other contracts for her employment and otherwise concerning the Vessel. 5.7 Notification of accidents, etc. ------------------------------- The Owner will give notice to the Mortgagee forthwith and in reasonable detail of:- (A) accidents to the Vessel involving repairs the cost of which will or is likely to exceed USD1,500,000 (or its equivalent in another currency); (B) the Vessel becoming or being likely to become a Total Loss; (C) any recommendation or requirement made by any insurer or classification society or by any competent authority which is not complied with within any time limit relating thereto; (D) any writ served against or any arrest of the Vessel or the exercise of any lien or purported lien on the Vessel her Earnings or Insurances; (E) the occurrence of any Event of Default or Possible Event of Default; (F) the Vessel ceasing to be registered as a Panamanian ship or anything which is done or not done whereby such registration may be imperilled; (G) it becoming impossible or unlawful for the Owner to fulfil any of its obligations under the Security Documents; (H) anything done or permitted or not done in respect of the Vessel by any person which is likely to imperil the security created by this Mortgage; (I) the intended drydocking of the Vessel; and (J) any Environmental Claim being made against the Owner, the Bareboat Charterer, the Lay-Up Charterer or otherwise in connection with the Vessel - 13 - or any Environmental Incident occurring, and to keep the Mortgagee advised in writing on such regular basis and in such detail as the Mortgagee shall require of the Owner's response to each Environmental Claim or Environmental Incident. 5.8 Payment of trading expenses and wages ------------------------------------- The Owner will promptly pay and discharge all debts, damages and liabilities, taxes, assessments, governmental charges, fines, penalties, tolls, dues and other outgoings in respect of the Vessel and keep proper books of account in respect thereof. As and when the Mortgagee may so require and upon giving reasonable notice the Owner will make such books available for inspection on behalf of the Mortgagee and provide evidence satisfactory to the Mortgagee that the wages and allotments and the insurance and pension contributions of the master and crew are being regularly paid, that all deductions from crew's wages in respect of any tax liability are being properly accounted for and that the master has no claim for disbursements other than those incurred in the ordinary course of trading on the voyage then in progress or completed prior to such inspection. 5.9 Negative pledge --------------- Save as contemplated by the other Security Documents, the Owner will not without the prior consent of the Mortgagee agree to or actually mortgage, charge, assign or in any other way encumber the Vessel or any share or interest therein. Neither the Owner, nor the master, nor any charterer of the Vessel, nor any other person has the right or authority to create, incur or permit the creation or continuance of any such mortgage, charge or assignment or encumbrance to or in favour of any person other than the Mortgagee or liens in respect of crew's wages or salvage. 5.10 Avoidance of repairer's liens ----------------------------- The Owner will not put the Vessel into the possession of any person without the prior consent of the Mortgagee (such consent not to be unreasonably withheld by reason only that such person shall not provide a written undertaking to the Mortgagee whereby it agrees not to exercise its lien on the Vessel or her Earnings for the cost of such work or any other reason) for the purpose of work being done on her in an amount exceeding or likely to exceed USD1,500,000 or its equivalent in another currency. 5.11 Management ---------- The Owner will not without the prior written consent of the Mortgagee appoint a commercial manager of the Vessel other than the Bareboat Charterer or a technical manager of the Vessel other than the Technical Manager nor cause or allow the Seas Charter, the Lay-Up Charter or the Technical Management Agreement to be amended. - 14 - 5.12 Avoidance and discharge of other liens -------------------------------------- The Owner will promptly pay and discharge all liabilities which have given rise, or may give rise, to liens or claims enforceable against the Vessel under the laws of all countries to whose jurisdiction the Vessel may from time to time be subject. If the Vessel is arrested or detained for any reason the Owner will, upon receiving notice thereof, procure the prompt release of the Vessel by providing bail or taking such other steps as the circumstances may require. 5.13 Notice as to outstanding debts ------------------------------ The Owner will give to the Mortgagee at such times as it may from time to time require (which will normally be no more than twice per annum) a certificate, duly signed on behalf of the Owner as to the amount of any debts, damages and liabilities relating to the Vessel only and, if so required by the Mortgagee, forthwith discharge such debts, damages and liabilities to the Mortgagee's satisfaction. 5.14 Restriction on sale or transfer ------------------------------- Except as specifically permitted by the provisions of Clause 15.2(j) of the Loan Agreement, the Owner will not without the Mortgagee's prior consent agree to or actually sell, assign or otherwise transfer or dispose of the Vessel or any share or interest therein. 5.15 Restrictions on employment -------------------------- The Owner will not without the Mortgagee's prior consent let or employ the Vessel below the market rate prevailing at the time the Vessel is fixed:- (A) (other than the Lay-Up Charter or the Seas Charter) on demise charter for any period; or (B) by any time or consecutive voyage charter for a period which exceeds or by virtue of any optional extensions might exceed thirteen (13) months duration; or (C) on terms whereby more than two (2) months hire (or the equivalent) is payable in advance; Provided always that in respect of the matters referred to above in this clause 5.15 the Mortgagee's consent shall be deemed to have been given thereto if the Owner shall not have been informed by the Mortgagee either in writing or by word of mouth that such consent is refused within five (5) Banking Days of the time at which the application for such consent was acknowledged as received by the Mortgagee (who shall promptly give such acknowledgement). - 15 - 5.16 Registration of Vessel ---------------------- The Owner will maintain the registration of the Vessel (in its present name) as a Panamanian vessel at such port as the Mortgagee may approve. The Owner will not do or permit anything to be done whereby such registration may be forfeited or imperilled. 5.17 US Anti Drug Abuse Act ---------------------- The Owner will take all reasonable precautions to prevent any infringements of the Anti-Drug Abuse Act of 1986 of the United States of America (as the same may be amended and/or re-enacted from time to time hereafter) or any similar legislation applicable to the Vessel in any other jurisdiction in which the Vessel shall trade. 5.18 Notice of mortgage ------------------ The Owner will do everything necessary under the laws of Panama for the purpose of perfecting and maintaining this Mortgage as a valid and enforceable first preferred mortgage and, in particular (but without limitation), it will:- (A) keep on board the Vessel each such document or record as may be required by law and cause such particulars relating to the Mortgage to be recorded as may be required by law:- (B) carry on board the Vessel with the ship's papers a properly certified copy of this Mortgage; and (C) keep prominently displayed in the chart room and in the master's cabin of the Vessel a framed printed notice (the print on which shall measure at least six inches by nine inches) reading as follows:- "NOTICE OF MORTGAGE This Vessel is owned by Azure Investments, Inc., and is subject to a first preferred mortgage in favour of Effjohn International Cruise Holdings Inc. Under the terms of the said Mortgage neither the Owner, nor the master, nor any charterer of the Vessel nor any other person has the right or authority to create, incur or permit any lien, charge or encumbrance to be placed on the Vessel other than sums for crews' wages and salvage". 5.19 Requisition of title, etc. -------------------------- In the event that the title or ownership of the Vessel shall be requisitioned, purchased or taken by any Government of any country or any department, agency or representative thereof, or any authority acting or purporting to act under colour of government, pursuant to any present or future law, proclamation, decree, order or otherwise, the lien of this Mortgage shall be deemed to attach to the claim for - 16 - compensation of the Owner for its interest in the Vessel from such Government or department, agency or representative thereof, or from any other source, and the compensation, purchase price, reimbursement or award for such requisition, purchase or other taking of such title or ownership due to the Owner from such Government, department, agency or representative thereof, or any authority acting under colour of government or other source, is hereby declared payable to the Mortgagee, who shall be entitled to receive the same, and shall apply the same as provided in Clause 8.1 hereof; and in the event of any requisition, purchase or taking, the Owner shall promptly execute and deliver to the Mortgagee such documents, if any, as in the opinion of the Mortgagee may be necessary or useful to facilitate or expedite the collection by the Mortgagee of such compensation, purchase price, reimbursement or award. 5.20 Environmental Matters: Representations and Warranties ------------------------------------------------------ The Owner hereby represents and warrants to the Mortgagee that:- (A) having made reasonable enquiries, it is satisfied that all applicable Environmental Laws and Environmental Approvals relating to the Vessel, its operation and management and the business of the Owner (as now conducted and as reasonably anticipated to be conducted in the future) have been complied with; (B) no Environmental Claim has been made or threatened against the Owner, the Bareboat Charterer or otherwise in connection with the Vessel; and (C) no Environmental Incident has occurred. 6. PROTECTION AND MAINTENANCE OF SECURITY -------------------------------------- 6.1 Action to secure compliance --------------------------- The Mortgagee may at any time and as often as may be necessary take any such action as it may in its discretion think fit to protect and maintain the security created by the Security Documents (including, without limitation) the exercise of any of the rights set out in this Clause 6 and its rights as the Mortgagee of the Vessel and, if the Owner does not comply with the provisions of Clause 4 or Clause 5, the Mortgagee may take such action as it may in its entire discretion think fit to procure compliance with the terms thereof. 6.2 Reimbursement of cost --------------------- Each and every cost, expense or liability incurred by the Mortgagee referred to in this Clause shall be repayable to the Mortgagee by the Owner on demand together with interest thereon at the Default Rate from the date when the same was incurred until the date of actual receipt (as well after as before any judgment). - 17 - 6.3 Remedies cumulative ------------------- The provisions of this Clause shall be without prejudice to the Mortgagee's other rights under the Security Documents. The Mortgagee shall not be under any obligation to exercise any of its rights under this Clause. 7. ENFORCEMENT OF RIGHTS --------------------- On the happening of any Event of Default the security created by this Mortgage shall become immediately enforceable and the Mortgagee shall become entitled as and when it may see fit to exercise immediately all the powers possessed by it as mortgagee of the Vessel by law and as set out in this Mortgage and in particular, but without limitation:- (A) to exercise all of the rights and remedies in foreclosure and otherwise given to a mortgagee by the provisions of applicable law; (B) to take possession of the Vessel whether actually or constructively and/or otherwise to take control of the Vessel wherever the Vessel may be and cause the Owner or any other person in possession of the Vessel forthwith upon demand to surrender the same to the Mortgagee without legal process and without liability of the Mortgagee for any losses or damages incurred thereby and without having to render accounts to the Owner in association therewith; (C) to require that all policies, contracts and other records relating to the Insurances (including details of and correspondence concerning outstanding claims) be immediately delivered to such persons as the Mortgagee may nominate; (D) to collect, recover, compromise and give a good discharge for all claims then outstanding or thereafter arising under the Insurances and to take over or institute all such proceedings in connection therewith as the Mortgagee in its absolute discretion thinks fit and to permit any brokers to charge the usual brokerage therefor; (E) to sell the Vessel or any share therein (but subject to the Mortgagee giving at least twenty (20) calendar days prior notice that he intends to sell the Vessel and such notice to be given to the Owner in accordance with Article 1527 of the Code of Commerce of the Republic of Panama) in any part of the world with or without notice to the Owner (without the benefit of the Seas Charter but with the benefit of any other charterparty or contract of employment and free of any claim of or by the Owner of any nature whatsoever) by public auction or private contract and upon such terms in the absence of wilful misconduct and gross negligence as the Mortgagee in its absolute discretion may determine with power to postpone any such sale and without being answerable for any loss resulting from such sale or the postponement thereof and to purchase the Vessel itself and set off the purchase price against all or any part of the Outstanding Indebtedness. On any such sale of the Vessel or - 18 - any share therein, the purchaser shall not be bound to see or enquire whether the power of sale herein has arisen, the sale shall be deemed to be within the power of the Mortgagee and the receipt of the Mortgagee for the purchase money shall effectively discharge the purchaser who shall not be concerned with the application of the proceeds of sale or be in any way answerable therefor. The Owner agrees that any sale of the Vessel made in accordance with the foregoing provisions is made in a commercially reasonable manner insofar as the Owner is concerned; (F) to remove the Vessel or to require the Vessel to be removed from any place where she may be to any other place for the purposes of docking, laying up, repair, management, employment, maintenance, or sale or to preserve or maintain the security of the Mortgagee in the Vessel in such manner as the Mortgagee may in its complete discretion deem necessary; (G) to manage, insure, maintain and repair the Vessel and to employ or lay up the Vessel in the absence of wilful misconduct and gross negligence in such manner and for such period as the Mortgagee in its absolute discretion deems expedient; to do all acts and things incidental or conducive thereto and in particular to enter into such arrangements respecting the Vessel, her insurance, management, maintenance, repair, classification and employment in all respects as if the Mortgagee were the owner of the Vessel and without being responsible for any loss thereby incurred; (H) by notice to the Owner to appoint a receiver of the whole or part of the Vessel. The receiver so appointed shall be the agent of the Owner (who shall be solely responsible for his acts and defaults and remuneration) and shall have power to exercise all or any of the powers conferred on the Mortgagee by law and by each Security Document and shall be entitled to the same protection as is granted to the Mortgagee under this Mortgage; (I) to take over or institute (if necessary using the name of the Owner) all such proceedings in connection with the Vessel as the Mortgagee in its absolute discretion thinks fit and to discharge, compound, release or compromise claims against the Owner in respect of the Vessel which have given or may give rise to any charge or lien on the Vessel or which are or may be enforceable by proceedings against the Vessel; (J) the Mortgagee shall not be obliged (nor shall any receiver of the Vessel be obliged) to make any enquiry as to the nature or sufficiency of any payment received by it or on its behalf under this Mortgage or to make any claim or to take any action to collect any monies or enforce any rights to which the Mortgagee, or any such receiver, may at any time be entitled hereunder; (K) generally, in the absence of wilful misconduct and gross negligence to recover from the Owner on demand each and every expense, liability or loss incurred by the Mortgagee in or about or incidental to the exercise of any of the powers aforesaid. - 19 - 8. APPLICATION OF MONEYS --------------------- 8.1 Amounts paid to the Mortgagee ----------------------------- All proceeds of sale of the Vessel and other moneys received by the Mortgagee under this Mortgage (subject, in the case of the Insurances payable in the event of a Total Loss, to the provisions of Clause 7.3 of the Loan Agreement and in the case of sale proceeds receivable in the event of a sale of a Vessel, to the provisions of Clause 7.4 of the Loan Agreement) be applied by the Mortgagee:- (A) Firstly to pay all legal fees, court costs and all other costs, expenses or advances whatsoever incurred or made in connection with the recovery of moneys under this Mortgage and/or the other Security Documents or the sale of the Vessel, the taking possession of the Vessel, the protection of the Mortgagee's security and/or in exercise of its rights hereunder under the other Security Documents and at law; (B) Secondly in payment of amounts due to the Mortgagee under the Security Documents in accordance with Clause 10.5 of the Loan Agreement. 8.2 Amounts paid to receiver ------------------------ All proceeds of sale of the Vessel and all other moneys received by a receiver appointed pursuant to Clause 7(H) of this Mortgage and the other Security Documents shall be applied by the receiver firstly in payment of the remuneration of the receiver at the rate specified in the instrument appointing the receiver or otherwise reasonably agreed between the receiver and the Mortgagee and the balance shall be paid to the Mortgagee to be applied in accordance with Clause 8.1. 9. WAIVER OF PREFERRED STATUS -------------------------- 9.1 If any provision of this Mortgage should be deemed invalid or shall be deemed adversely to affect the first preferred status of this Mortgage under any applicable law, such provision shall cease to be a part of this Mortgage without affecting the remaining provisions, which shall remain in full force and effect. 9.2 In the event that the Loan Agreement or this Mortgage or any of the documents or instruments which may from time to time be delivered hereunder or thereunder or any provision hereof or thereof shall be deemed invalidated by present or future law of any nation or by decision or any court, this shall not affect the validity and/or enforceability of all or any other parts of the Loan Agreement or the Mortgage or such documents or instruments and, in any such case, the Owner covenants and agrees that, on demand, it will execute and deliver such other and further agreements and/or documents and/or instruments and do such things as the Mortgagee in its sole discretion may deem to be necessary to carry out the true intent of this Mortgage and of all amounts secured hereby. - 20 - 9.3 Notwithstanding anything herein to the contrary it is intended that nothing herein shall waive the first preferred status of this Mortgage and that, if any provision or portion thereof herein shall be construed to waive the first preferred status of this Mortgage, then such provision to such extent shall be void and of no effect. 10. MISCELLANEOUS ------------- 10.1 Power of attorney ----------------- The Owner hereby irrevocably appoints the Mortgagee and each receiver appointed pursuant to Clause 7(H) as its attorney-in-fact for the duration of the Security Period for the purpose of doing in its name all acts which the Owner itself could do in relation to the Vessel, including but not limited to the execution and delivery of a bill of sale transferring title to the Vessel and (if required) the execution and recording of a mortgage on the Vessel similar in form and content to this Mortgage. The power of attorney granted herein shall be exercisable only upon the occurrence of an Event of Default. 10.2 Delegation ---------- The Mortgagee shall be entitled at any time and as often as it may consider to be expedient to delegate all or any of the powers and discretions vested in it by this Mortgage (including the power vested in it by virtue of Clause 10.1) in such manner, upon such terms and to such persons as it may in its absolute discretion think fit. 10.3 Further assurance ----------------- The Owner hereby further undertakes at its own expense to execute, sign, perfect, do and (if required) register every such further assurance, document, act or thing as in the opinion of the Mortgagee may be necessary or desirable for the purpose of more effectively mortgaging the Vessel or perfecting the security constituted by this Mortgage. The Owner hereby irrevocably appoints the Mortgagee as its attorney-in-fact for the purpose of executing, signing, perfecting, doing and registering every such further assurance, document, act or thing as aforesaid. 10.4 Taking of action by Mortgagee ----------------------------- The Mortgagee need not before exercising any of the rights, powers or remedies conferred upon it by this Mortgage, or by law (i) take action or obtain judgment against any Obligor or any other person in any court, (ii) make or file claim or proof in a winding-up or liquidation of any Obligor or of any other person or (iii) enforce or seek to enforce the recovery of the moneys and liabilities hereby and thereby secured or any other security for the performance in full of the obligations of the Obligor under the Security Documents. - 21 - 10.5 Indulgence and variations ------------------------- The Mortgagee may in its discretion (i) grant time or other indulgence or make any other arrangement in respect of any of the moneys and liabilities secured by this Mortgage or of any other security therefor or of any other company or companies, person or persons not parties hereto or (ii) vary any provision of the Security Documents or any of them or any document related thereto or any security therefor without prejudice to this security and the security created by this Mortgage shall not be in any way discharged or impaired by reason of any other circumstance which might (but for this provision) constitute a legal or equitable discharge of such security. 10.6 Exclusion of subrogation ------------------------ The Owner shall not unless and until its obligations and each other Obligor's obligations under the Security Documents shall have been unconditionally and irrevocably paid and discharged in full be entitled to share in or succeed to or benefit from (whether by subrogation or otherwise) any rights which the Mortgagee may have or any security, indemnity or guarantee which the Mortgagee may hold in respect of indebtedness or liabilities of any Obligor or any proceeds thereof. 10.7 Exclusion of rights ------------------- The Owner shall not without the prior written consent of the Mortgagee at any time prior to the unconditional and irrevocable payment and discharge in full of the obligations of the Obligors under the Security Documents have the benefit of, exercise, claim or enforce or attempt to have the benefit of, exercise, claim or enforce any rights (including any right of set-off) which the Owner may have against any Obligor or any other person arising by reason of or in connection with this Mortgage or any provision hereof or by reason of the Mortgagee having received a part only of the monies and liabilities outstanding under any of the Security Documents. Any monies or other property (including the benefit of any right of set-off) received by the Owner (with or without such consent) by virtue of any such exercise, enforcement or claim shall be held by the Owner in trust to be paid to the Mortgagee as if they were monies recovered under this Deed. 11. NOTICES ------- 11.1 Mode of communication --------------------- Except as otherwise provided herein each notice, request, demand or other communication or document to be given or made hereunder shall be given in writing but, unless otherwise stated, may be made by telex or telefax. 11.2 Address ------- Any notice, demand or other communication to be made or delivered pursuant to this Mortgage shall be made or delivered as follows:- - 22 - (i) if to the Owner to it at its registered address as aforesaid, telefax number (507) 2635335 marked for the attention of Alfonso Arias with copy to the Bareboat Charterer at 4000 Hollywood Boulevard, Hollywood, Florida 33021, telefax number (305) 9672147 marked for the attention of Alan Pritzker and Fred Mayer and a further copy to the Parent at c/o Ardon Management Services, Ltd., c/o Richards Francis & Francis, Cedarpark Centre, 48 Cedar Avenue, Hamilton, HM 11, Bermuda, telefax number (809) 2920567 with a further copy to Broad & Cassel, Miami Centre, 201 South Biscayne Boulevard, Suite 3000, Miami, Florida 33131 telefax number 305 373 9493 marked for the attention of James Cassel with a further copy to JeMJ Financial Services Inc, TelMed, Inc., 9350 S. Dixie Highway, Suite 1220, Miami, Florida 33156 telefax number (305) 238 6248 marked for the attention of Jeffrey I. Binder; (ii) if to the Mortgagee to it c/o Effjohn OY AB at Bulevardi 1A, PO Box 659, 00101 Helsinki, Finland telefax number 3580 627736 marked for the attention of finance department or such other address telex number or telefax number as each such addressee may specify to the other relevant party or parties by not less then fifteen (15) days' written notice. 11.3 Receipt ------- Each such notice, demand, request or other communication shall be deemed to have been made or delivered when:- (A) (in the case of telex) the addressee's answerback shall have been received at the end of the transmission or (in the case of telefax) when a materially complete and legible copy of the communication has been received by the addressee (unless the date of despatch is not a Banking Day in the country of the addressee or the time of despatch is outside normal business hours in the country of the addressee, in which case such telex or telefax shall be deemed to have been received at the opening of business on the next such Banking Day); or (B) (in the case of any letter) when delivered to the addressee's address as specified in or notified pursuant to Clause 11.2 or, if sent by first class postage prepaid in an envelope addressed to the addressee at that address five (5) days after being deposited in the post. 11.4 Language -------- Each notice, demand or other communication made or delivered by one party to another pursuant to this Mortgage shall be in the English language or accompanied by a certified English translation. - 23 - 12. JURISDICTION ------------ 12.1 Submission to jurisdiction -------------------------- For the exclusive benefit of the Mortgagee, the Owner hereby irrevocably submits to the non-exclusive jurisdiction of the courts of any country or state to the jurisdiction of which the Vessel may be subject without limiting the right of the Mortgagee to commence proceedings against the Owner in any jurisdiction it shall think fit or in any two or more jurisdictions. 12.2 Service of legal process ------------------------ The Owner agrees that any legal process in connection with this Mortgage may be duly served if served on the master of the Vessel (or other officer for the time being in command) and/or in such other manner as the courts of the country in which such process is issued may permit or require. 13. GOVERNING LAW ------------- This Mortgage shall be governed by and construed in accordance with the laws of the Republic of Panama. 14. ASSIGNMENT ---------- This Mortgage shall enure to the benefit of each party hereto and its successors and assigns and the terms "Owner" and "Mortgagee" shall be construed accordingly. The Owner may not assign or transfer its rights or obligations hereunder including its right of redemption. The Mortgagee may at any time assign all or any part of its rights and benefits hereunder or transfer in accordance with Clause 19.2 of the Loan Agreement and the Owner hereby consents to the assignment on the date hereof by the Mortgagee to the Bank of its rights and benefits hereunder. 15. COUNTERPARTS ------------ This Mortgage may be executed in any number of counterparts each of which shall be an original but such counterparts shall together constitute but one and the same instrument. 16. APPOINTMENT OF AGENT IN PANAMA ------------------------------ The parties hereby confer a special power of attorney on Tapia Linares Y Alfaro of the City of Panama in the Republic of Panama empowering such firm of lawyers to take all necessary steps to record this instrument of mortgage and the prohibition contained in Clause 5.9 in the appropriate registries in the City of Panama in accordance with the laws of the Republic of Panama with full power of substitution in respect of the special power of attorney herein granted. - 24 - IN WITNESS WHEREOF, the Owner has caused this First Preferred Mortgage to be duly executed the day and year first above written. Azure Investments, Inc. By: [SIGNATURE ILLEGIBLE] ------------------------ Attorney-in-fact - 25 - ACCEPTANCE OF MORTGAGE ---------------------- The Mortgagee hereby declares that it accepts this Mortgage upon the Vessel as a security for the moneys stated herein to be secured hereby and for the obligations of the Owner referred to herein Effjohn International Cruise Holdings Inc. By: /s/ Thomas Forss ----------------------- Name: Thomas Forss Title: Attorney - 26 - Schedule "A" ------------ Loan Agreement -------------- EX-10.S 14 EXHIBIT 10S: MORTGAGE Execution Copy -------------- Dated 14th July 1995 -------------------- Almira Enterprises, Inc. as owner to Effjohn International Cruise Holdings Inc. as lender --------------------------------------- First Priority Panamanian Mortgage - on - "ENCHANTED ISLE" -------------------------------------- Sinclair Roche & Temperley Broadwalk House 5 Appold Street London EC2A 2NN Tel: 0171-638 9044 Ref: JPM/180210 INDEX -----
Clause Subject Page - ------ ------- ---- 1. Definitions And Construction........................................ 1 2. Performance Of Obligations Under Security Documents................. 4 3. Security............................................................ 4 4. Insurance........................................................... 5 5. Operation And Maintenance........................................... 11 6. Protection And Maintenance Of Security.............................. 16 7. Enforcement Of Rights............................................... 17 8. Application Of Moneys............................................... 19 9. Waiver Of Preferred Status.......................................... 19 10. Miscellaneous....................................................... 20 11. Notices............................................................. 21 12. Jurisdiction........................................................ 22 13. Governing Law....................................................... 23 14. Assignment.......................................................... 23 15. Counterparts........................................................ 23 16. Appointment Of Agent In Panama...................................... 23 Schedule "A"............................................................... 26
THIS FIRST PREFERRED NAVAL MORTGAGE is made the 14th day of July 1995 by:- (1) ALMIRA ENTERPRISES, INC., a company incorporated under the laws of the Republic of Panama whose registered office is at c/o Galindo Arias & Lopez, 200 Via Espana, Panama 5, Panama City, Republic of Panama (the "Owner") in favour of:- (2) EFFJOHN INTERNATIONAL CRUISE HOLDINGS INC., a company incorporated under the laws of the Cayman Islands whose registered office is at c/o Caledonian Bank & Trust Limited, P O Box 1043, Grand Cayman, Cayman Islands (the "Mortgagee"); WHEREAS:- (A) The Owner is the sole registered and beneficial owner of the whole of the M.V. "ENCHANTED ISLE" duly documented in the name of the Owner under the laws and flag of Panama under Provisional Patente Number 12525-PEXT-6 having radio call letters in the International Code of Signals 3FMG2 with a registered gross capacity in tons of 14,208.12 registered net capacity in tons of 5,472.95 length of 175.14 metres breadth of 26.84 metres and depth of 12.09 metres. (B) By a loan agreement dated 14 July 1995 (the "Loan Agreement") (a copy of which is annexed hereto as "Schedule A" and hereby made part hereof) and made between (i) the Owner and Azure Investments, Inc. as borrowers (together the "Borrowers") (ii) the Mortgagee and (iii) New Commodore Cruise Lines Limited and Commodore Holdings Limited (together the "Guarantors") the Mortgagee agreed to advance to the Borrowers a loan (the "Loan") of USD24,500,000 on the terms and conditions set out therein. (C) To secure the repayment of the Loan interest thereon and the due performance and observance of all the agreements, covenants and provisions contained in this Mortgage and in the other Security Documents the Owner has duly authorised the execution and delivery of this First Preferred Naval Mortgage. 1. DEFINITIONS AND CONSTRUCTION ---------------------------- 1.1 Definitions ----------- In this Mortgage (unless the context otherwise requires):- (A) "Default Rate" means the rate of interest determined in accordance with Clause 6.5 of the Loan Agreement; (B) "Environmental Approvals" means all approvals, licences, permits, exemptions or authorisations required under applicable Environmental Laws; (C) "Environmental Claim" means:- (a) any claim by, or directive from, any applicable governmental, judicial or other regulatory authority alleging breach of, or non-compliance with, any Environmental Laws or Environmental Approvals or - 2 - otherwise howsoever relating to or arising out of an Environmental Incident; or (b) any claim by any other third party howsoever relating to or arising out of an Environmental Incident, and in each case "claim" shall mean a claim for damages, clean-up costs, compliance, remedial action or otherwise; (D) "Environmental Incident" means:- (a) any release of Environmentally Sensitive Material from the Vessel; or (b) any incident in which Environmentally Sensitive Material is released from a ship other than the Vessel and which involves collision between the Vessel and such other ship or some other incident of navigation or operation, in either case, where the Vessel, the Owner or the Bareboat Charterer is actually or allegedly at fault or otherwise liable (in whole or in part); or (c) any incident in which Environmentally Sensitive Material is released from a ship other than the Vessel and where the Vessel is actually or potentially liable to be arrested as a result and/or where the Owner or the Bareboat Charterer is actually or allegedly at fault or otherwise liable; (E) "Environmental Laws" means all laws, regulations, conventions and agreements whatsoever relating to pollution or protection of the environment (including, but not limited to, the United States Oil Pollution Act of 1990 and any comparable laws of the individual States of the United States of America); (F) "Environmentally Sensitive Material" means oil, oil products, any other substance which is polluting, toxic or hazardous or any substance the release of which into the environment is regulated, prohibited or penalised by or pursuant to any Environmental Law; (G) "Outstanding Indebtedness" means all sums of any kind arising at any time for any reason payable actually or contingently by the Borrowers under or pursuant to this Mortgage and each of the other Security Documents (whether by way of payment of principal, payment of interest or default interest, payment upon any indemnity or counter-indemnity, reimbursements for costs or otherwise howsoever); (H) "Vessel" means the ship described in Recital (A) and includes her machinery, outfit, spare gear, fuel and consumable or other stores, belongings and appurtenances, whether on board or ashore and whether now owned or hereafter acquired; - 3 - (I) words and expressions defined in the Loan Agreement shall have the same meanings when used in this Mortgage except where the same words and expressions are defined differently herein. 1.2 Construction ------------ In this Mortgage unless the context otherwise requires:- (A) Clause headings are inserted for convenience of reference only and shall be ignored in the interpretation of this Mortgage; (B) references to Clauses and Schedules are to be construed as references to clauses of and schedules to this Mortgage unless otherwise stated and references to this Mortgage are to be construed as references to this Mortgage including its Schedules; (C) references to (or to any specified provision thereof) of this Mortgage or any other Subject Document shall be construed as reference to this Mortgage, that provision or that Subject Document as from time to time amended, supplemented and/or novated; (D) without prejudice to the provisions of Clause 14 references to any party to this Mortgage or any such other Subject Document shall include reference to such party's successors and permitted assigns; (E) words importing the plural shall include the singular and vice versa; (F) references to a person shall be construed as references to an individual, firm, company, corporation, unincorporated body of persons or any state or any agency thereof; (G) where any matter under any Security Document requires the approval or consent of the Mortgagee such approval or consent shall not be deemed to have been given unless the approval or consent is given in writing; where any matter under any Security Document is required to be acceptable to the Mortgagee, the Mortgagee shall not be deemed to have accepted such matter unless its acceptance is communicated in writing; the Mortgagee may give or withhold its consent, approval or acceptance under any Security Document subject to it not being unreasonably withheld or delayed and such consent, approval or acceptance may be given by the Mortgagee subject to such conditions as it may reasonably impose; (H) a certificate by the Mortgagee as to any amount due or calculation made hereunder shall be conclusive except for manifest error; and (I) references to any statutory or other legislative provision are to be construed as references to any such statute or other legislative provision as the same may - 4 - be re-enacted or modified or substituted by any subsequent statute or legislative provision. 2. PERFORMANCE OF OBLIGATIONS UNDER SECURITY DOCUMENTS --------------------------------------------------- The Owner hereby undertakes to the Mortgagee that:- 2.1 it will repay the Loan and pay interest in accordance with the Loan Agreement and will pay all other amounts due or to become due to the Mortgagee in accordance with the Security Documents to which it is a party and that it will duly perform its other obligations under the Security Documents; and 2.2 it will pay interest at the Default Rate on any moneys which are due in accordance with the Security Documents but unpaid from the date on which such moneys were due until the date of receipt by the Mortgagee (whether before or after judgment). 3. SECURITY -------- 3.1 Mortgage -------- In consideration of the agreement of the Mortgagee to make the Loan available to the Borrowers and in order to secure the Outstanding Indebtedness in accordance with the provisions of the Security Documents and to secure the due performance and observance of all of the agreements, covenants, undertakings and provisions contained in this Mortgage and in the other Security Documents to which the Owner is a party, the Owner hereby executes and constitutes a first preferred naval mortgage on the whole of the Vessel to the Mortgagee. 3.2 Panamanian Legislation ---------------------- This Mortgage is granted in accordance with the provisions of Chapter V Title IV of Book Second of the Code of Commerce of the Republic of Panama and of the pertinent provisions of the Civil Code and other legislation of the Republic of Panama . 3.3 Extent of security ------------------ By virtue of this Mortgage, the Owner shall have and hold the Vessel unto the Mortgagee for its own use and benefit for use upon the terms set out herein for the enforcement of payment of the Loan and interest thereon in accordance with the provisions of the Security Documents and to secure the performance and observance of and the compliance with the covenants terms and conditions contained expressed or implied in this Mortgage and the other Security Documents 3.4 Discharge --------- If the Owner repays the Loan and pays interest thereon in accordance with the terms of this Mortgage and any other sums owing under this Mortgage and performs and - 5 - complies with all the covenants terms and conditions herein contained the rights hereunder shall cease, terminate and be void but shall otherwise remain in full force and effect. 4. INSURANCE --------- 4.1 Duration -------- The Owner undertakes to the Mortgagee that throughout the Security Period it will at its own expense effect and maintain insurance in accordance with the following provisions of this Clause. 4.2 Risks insured ------------- The Owner will insure the Vessel and keep her insured in the name of the Owner and, if required, the Mortgagee against loss or damage from any cause whatsoever including fire and usual marine risks, excess risks, war risks and additional perils (and such other perils as the Mortgagee may reasonably require). 4.3 Amount insured -------------- For the purposes of all hull and machinery and war and political risks insurance the Vessel and the Seas shall be insured on an agreed value basis for the greater of:- (A) an amount which is equal to 120% of the Loan; and (B) the aggregate market value of the Vessel and the Seas for the time being as agreed between the Owner and the Mortgagee or, failing agreement, as determined by the Mortgagee in its sole discretion. 4.4 Hull and Machinery Insurances ----------------------------- The Owner will effect and maintain hull and machinery insurance on the usual Institute hull clauses (or as otherwise agreed by the Mortgagee) with policy limits agreed by the Mortgagee from time to time and including an endorsement that a breach of warranty by one assured shall not invalidate the insurance as to all other named insureds. 4.5 War risks --------- The Owner will effect and maintain war risks insurance with policy limits agreed by the Mortgagee from time to time and including an endorsement that a breach of warranty by one assured shall not invalidate the insurance as to all other named insureds. - 6 - 4.6 Port risk cover --------------- While the Vessel is laid up and if the Mortgagee approves, port risk insurance may be taken out on the Vessel by the Owner instead of hull insurance, on terms and for amounts approved by the Mortgagee. 4.7 Protection and Indemnity coverage --------------------------------- The Owner will effect and maintain insurance or an entry or entries in a protection and indemnity association in the name of the Owner on such terms and in such amounts as the Mortgagee may require in respect of protection and indemnity risks (other than in respect of crew) for which cover is available from a first class protection and indemnity association. Without limitation, the risks to be insured shall include:- (A) claims of employees, agents or sub-contractors of the Owner, the Bareboat Charterer, any other charterer of the Vessel, passengers, third parties (including governments or other authorities) and their dependants who may suffer damage to property, financial loss or personal injury or arising from the death of any such persons; (B) such other risks as may be required by statute, order or regulations of the Republic of Panama and of all other countries to whose jurisdiction the Vessel may from time to time become subject and/or which the Mortgagee may direct; and (C) Protection and indemnity insurance (as well as required insurance against liability for pollution or the spillage or leakage of cargo) which shall: (i) be in the highest amount from time to time available for ships of the same type, size, age and flag as the Vessel. Without limitation of the foregoing, coverage against liability for pollution or the spillage or leakage of cargo shall in no event be less than USD500,000,000 for any one incident or such other amount which may be the highest available cover from time to time from a first class protection and indemnity association; (ii) if applicable include as areas of its cover the United States of America and the Exclusive Economic Zone of the United States of America ("EEZ") as such term is defined in the US Oil Pollution Act of 1990. The Owner shall procure that the protection and indemnity cover in respect of the Vessel shall at no time contain a clause excluding the Vessel from trading in United States' or EEZ waters (a "US Trading Exclusion Clause") and for this purpose the Owner shall deliver to the relevant protection and indemnity association such quarterly or other declarations of the Vessel's voyages as may from time to time be required in accordance with the association's rules to obtain deletion - 7 - of the US Trading Exclusion Clause. The Owner agrees to deliver to the Mortgagee a copy of each such voyage declaration simultaneously with its being delivered to the protection and indemnity association. The Owner further agrees to provide the Mortgagee with such evidence as it shall reasonably request that the US Trading Exclusion Clause has been and remains deleted and undertakes to use its best endeavours, if requested by the Mortgagee, to procure that the protection and indemnity association confirms such deletion in writing direct to the Mortgagee; and (iii) include as areas of cover all other jurisdictions which may require specific inclusion following the promulgation of legislation imposing liability for oil pollution which requires specific cover under current protection and indemnity association rules. 4.8 Terms of cover -------------- The Owner shall ensure that the Insurances shall:- (A) be effected through brokers and with insurance companies, underwriters, war risks and protection and indemnity associations each internationally recognised and approved by the Mortgagee; (B) be in a form and on terms and in amounts approved by the Mortgagee; (C) provide that all amounts payable thereunder shall be payable in Dollars or another currency approved by the Mortgagee; (D) if the Mortgagee shall not have effected and maintained a mortgagee's interest policy pursuant to Clause 4.21, include a provision on terms approved by the Mortgagee whereby no breach of warranty or condition or lack of due diligence on the part of the Owner shall prevent or prejudice the Mortgagee collecting the full amount which it would have been entitled to receive as assignee of the Insurances but for such breach or lack of due diligence; (E) provide that they may not lapse, be terminated, cancelled or materially modified without thirty days' prior notice to the Mortgagee and to such other persons as the Mortgagee may nominate; (F) be endorsed with a note of the Mortgagee's interest, and shall further ensure that such interest is endorsed upon all slips, cover notes and other instruments of insurance, in a form satisfactory to the Mortgagee and a notice of assignment and a loss payable and notice of cancellation clause in such terms as the Mortgagee may require. - 8 - 4.9 Production of insurance documents --------------------------------- When requested the Owner shall produce certified copies of the policies, certificates of insurance or entry and cover notes in respect of the Insurances (or evidence of their existence) to the Mortgagee. In the case of the Insurances the Owner shall produce to the Mortgagee evidence of each such renewal at least fourteen (14) days before expiry. 4.10 Payment of premiums and calls ----------------------------- The Owner shall promptly pay all premiums and calls and shall produce to the Mortgagee the receipts (or other evidence of payment) for such premiums and calls within fourteen (14) days of such payment together with a letter from the broker, insurance company, war risks or protection and indemnity association to which the premium or call is paid, confirming that no credit has been extended or is outstanding in respect of premiums or calls or, if credit has been extended, the terms of such credit and amount of premiums and calls then outstanding. The Owner shall not take credit in respect of the payment of premiums or calls without the approval of the Mortgagee. The Owner shall procure that its brokers and the insurance companies with which the Vessel is insured and the protection and indemnity association and/or war risk association in which the Vessel is entered shall waive any lien for premiums or calls except in relation to premiums or calls attributable to the Vessel. 4.11 Information from brokers ------------------------ The Owner shall procure that its insurance brokers give to the Mortgagee and its insurance advisers such information as to the Insurances as the Mortgagee or its insurance advisers may request. 4.12 Notice of amendments to cover ----------------------------- If any variation is made to the Insurances or if any other insurance in relation to the Vessel or to third party risks in relation thereto is taken out, the Owner shall forthwith give written notice to the Mortgagee. The Owner shall not be entitled to make any alteration to any of the Insurances without the consent of the Mortgagee and shall not take any action or omit to take any action which would render any instrument of insurance invalid, void, voidable or unenforceable or render any sum payable thereunder repayable in whole or in part. 4.13 Letters of undertaking ---------------------- The Owner shall cause its insurers, brokers and/or the managers of any protection and indemnity or war risks association in which the Vessel may be entered to deliver to the Mortgagee letters of undertaking in such terms as the Mortgagee may reasonably require. - 9 - 4.14 Cover in case of default by Owner --------------------------------- If the Owner shall fail to comply with any of the provisions of this Clause, the Mortgagee shall be entitled to procure that insurance is effected in accordance with the provisions of this Clause (at the Owner's expense). Alternatively or in addition (without prejudice to the rights of the Mortgagee under Clause 7) whilst such failure is continuing the Mortgagee may require the Vessel to remain in port (or proceed to and remain in a reasonably convenient port designated by the Mortgagee) until such provisions are fully complied with. 4.15 Total loss ---------- In the event of a Total Loss the proceeds of all insurance claims shall be payable to the Mortgagee without deduction or withholding except for customary brokers' collection commissions and save as provided in Clause 7.3 of the Loan Agreement the Mortgagee shall apply the proceeds in accordance with the provisions of Clause 8. 4.16 Average damage -------------- In the event of the occurrence of any loss or damage other than a Total Loss, insurance moneys in respect of such loss or damage shall be paid to the Mortgagee (subject to the provisions of any loss payable and notice of cancellation clause approved by the Mortgagee) and:- (A) if no Event of Default has occurred, the Mortgagee shall, either ------ consent that such moneys on receipt by the Mortgagee shall be applied for repairs, salvage or other charges or, if the Owner has -- first fully repaired the damage or secured complete discharge of the liability insured against the Mortgagee shall reimburse the Owner therefor up to the amount received by the Mortgagee PROVIDED THAT the insurers through whom the fire and usual marine risks insurances are effected may in the case of a major casualty (being a claim in excess of USD1,500,000 or its equivalent in another currency) and with the previous consent in writing of the Mortgagee make payment on account of repairs in the course of being effected; or (B) if an Event of Default has occurred, the Mortgagee shall be entitled to receive such insurance moneys from the underwriters or insurers and may apply them in prepayment of the Loan and/or other amounts due or to become due under the Loan Agreement or under this Mortgage or under any other Security Document. 4.17 Receipt of proceeds by Owner ---------------------------- If, despite the provisions of Clauses 4.15 and 4.16 the Owner receives any insurance moneys before having made good the loss or restoring the damage or discharging the liability in respect of which the moneys are paid, the Owner shall (unless the Mortgagee agrees otherwise) immediately pay the moneys to the Mortgagee (and until - 10 - payment the Owner shall hold the moneys on trust for the Mortgagee). The provisions of Clause 4.15 shall apply if the moneys are received in respect of a Total Loss and the provisions of Clause 4.16 if the moneys are received in respect of any other insurance claim. 4.18 Independent report ------------------ At the request of the Mortgagee, the Owner will at its expense promptly either once a year if there is no change to the then current Insurances or from time to time if there are changes to the then current Insurances provide the Mortgagee with a detailed report signed by an independent firm of marine insurance brokers appointed by the Mortgagee to examine the adequacy of the Insurances and shall procure that there is delivered to such brokers any and all information in relation to the Insurances as the brokers may require for the purposes of such report. Each such report shall affirm compliance of the Insurances with the requirements of this Clause 4.18 and state such brokers' opinion as to the adequacy thereof for the protection of the interests of the Mortgagee. 4.19 Assistance by Owner ------------------- The Owner undertakes to do all things necessary and to provide all documents, evidence and information to enable the Mortgagee to collect or recover any moneys which at any time become due in respect of the Insurances and for such purpose the Owner shall permit the Mortgagee if necessary to sue in the name of the Owner. The Owner will not settle, compromise or abandon claims under the Insurances for a Total Loss or major casualty (being a claim in excess of USD1,500,000 or its equivalent in another currency) without the consent of the Mortgagee. 4.20 Employment in conformity with insurance cover --------------------------------------------- The Owner will not at any time employ the Vessel or permit her to be employed except in accordance with the terms of the Insurances (including any express or implied warranties) without first obtaining the consent of the underwriters or insurers or protection and indemnity or war risk association to such employment and complying with requirements as to extra premium and other requirements prescribed by them. 4.21 Mortgagee's interest insurance ------------------------------ The Mortgagee shall effect a mortgagee's interest policy (to include, if required, cover in respect of Additional Perils) in respect of its interest in the Vessel as mortgagee on such terms as the Mortgagee considers appropriate. It is agreed that the mortgagee's interest insurance in respect of the Vessel shall not exceed 120% of the Loan. The Owner will pay to the Mortgagee on demand the cost of effecting and maintaining this insurance. - 11 - 4.22 Certificates of Financial Responsibility ---------------------------------------- The Owner will ensure that the Vessel holds certificates of Financial Responsibility as required by the Oil Pollution Act. 5. OPERATION AND MAINTENANCE ------------------------- 5.1 Duration -------- The Owner undertakes to the Mortgagee that it will comply with the obligations set out in this Clause at its own expense throughout the Security Period. 5.2 Standard of maintenance ----------------------- The Owner will keep the Vessel in a good and efficient state of repair so as to entitle the Vessel to maintain its current classification free of all recommendations and qualifications with Lloyds Register of Shipping or such other classification society approved by the Mortgagee. On the date hereof and annually thereafter, the Owner will furnish to the Mortgagee a statement by such classification society that such classification is maintained. The Owner will comply with all recommendations, regulations and requirements (statutory or otherwise) from time to time applicable to the Vessel and shall have on board as and when required thereby valid certificates showing compliance therewith and shall procure that all repairs to or replacements of any damaged, worn or lost parts or equipment are carried out (both as regards workmanship and quality of materials) so as not to diminish the value or class of the Vessel. No part or item of equipment shall be removed unless it is replaced forthwith by a suitable part or item and the replacement part is (i) in the same or better condition than that removed; (ii) free from any Encumbrance in favour of any person other than the Mortgagee and (iii) is subject to the security constituted by this Mortgage. The Owner will not make any substantial modifications or alterations to the Vessel or any part thereof without the prior consent of the Mortgagee, save that the Owner is entitled to modify or alter the Vessel if such modification or alteration can reasonably be said to have enhanced the value of the Vessel. 5.3 Survey ------ The Owner will submit the Vessel to continuous survey and such other surveys as may be required for classification purposes and, if so required by the Mortgagee, the Owner will supply to the Mortgagee copies in English of the survey reports. 5.4 Inspection ---------- The Owner will permit surveyors or agents appointed by the Mortgagee to board the Vessel at all reasonable times to inspect her condition or satisfy themselves as to repairs proposed or already carried out. The Owner will afford all proper facilities for such inspections. - 12 - 5.5 Employment to comply with law ----------------------------- The Owner will not employ the Vessel or permit her employment in any trade or business which is forbidden by any applicable law or is otherwise illicit or in carrying illicit or prohibited goods or in any manner whatsoever which may render her liable to condemnation in a prize court or to destruction, seizure or confiscation or that may expose the Vessel to penalties. In the event of hostilities in any part of the world (whether war be declared or not) the Owner will not employ the Vessel or permit her employment in carrying any contraband goods. 5.6 Information ----------- The Owner will promptly provide the Mortgagee with all information which the Mortgagee may periodically require regarding the Vessel, her employment, position and engagements, particulars of all towages and salvages and copies of all charters and other contracts for her employment and otherwise concerning the Vessel. 5.7 Notification of accidents, etc. ------------------------------- The Owner will give notice to the Mortgagee forthwith and in reasonable detail of:- (A) accidents to the Vessel involving repairs the cost of which will or is likely to exceed USD1,500,000 (or its equivalent in another currency); (B) the Vessel becoming or being likely to become a Total Loss; (C) any recommendation or requirement made by any insurer or classification society or by any competent authority which is not complied with within any time limit relating thereto; (D) any writ served against or any arrest of the Vessel or the exercise of any lien or purported lien on the Vessel her Earnings or Insurances; (E) the occurrence of any Event of Default or Possible Event of Default; (F) the Vessel ceasing to be registered as a Panamanian ship or anything which is done or not done whereby such registration may be imperilled; (G) it becoming impossible or unlawful for the Owner to fulfil any of its obligations under the Security Documents; (H) anything done or permitted or not done in respect of the Vessel by any person which is likely to imperil the security created by this Mortgage; (I) the intended drydocking of the Vessel; and (J) any Environmental Claim being made against the Owner, the Bareboat Charterer or otherwise in connection with the Vessel or any Environmental - 13 - Incident occurring, and to keep the Mortgagee advised in writing on such regular basis and in such detail as the Mortgagee shall require of the Owner's response to each Environmental Claim or Environmental Incident. 5.8 Payment of trading expenses and wages ------------------------------------- The Owner will promptly pay and discharge all debts, damages and liabilities, taxes, assessments, governmental charges, fines, penalties, tolls, dues and other outgoings in respect of the Vessel and keep proper books of account in respect thereof. As and when the Mortgagee may so require and upon giving reasonable notice the Owner will make such books available for inspection on behalf of the Mortgagee and provide evidence satisfactory to the Mortgagee that the wages and allotments and the insurance and pension contributions of the master and crew are being regularly paid, that all deductions from crew's wages in respect of any tax liability are being properly accounted for and that the master has no claim for disbursements other than those incurred in the ordinary course of trading on the voyage then in progress or completed prior to such inspection. 5.9 Negative pledge --------------- Save as contemplated by the other Security Documents, the Owner will not without the prior consent of the Mortgagee agree to or actually mortgage, charge, assign or in any other way encumber the Vessel or any share or interest therein. Neither the Owner, nor the master, nor any charterer of the Vessel, nor any other person has the right or authority to create, incur or permit the creation or continuance of any such mortgage, charge or assignment or encumbrance to or in favour of any person other than the Mortgagee or liens in respect of crew's wages or salvage. 5.10 Avoidance of repairer's liens ----------------------------- The Owner will not put the Vessel into the possession of any person without the prior consent of the Mortgagee (such consent not to be unreasonably withheld by reason only that such person shall not provide a written undertaking to the Mortgagee whereby it agrees not to exercise its lien on the Vessel or her Earnings for the cost of such work or any other reason) for the purpose of work being done on her in an amount exceeding or likely to exceed USD1,500,000 or its equivalent in another currency. 5.11 Management ---------- The Owner will not without the prior written consent of the Mortgagee appoint a commercial manager of the Vessel other than the Bareboat Charterer or a technical manager of the Vessel other than the Technical Manager nor cause or allow the Isle Charter or the Technical Management Agreement to be amended. - 14 - 5.12 Avoidance and discharge of other liens -------------------------------------- The Owner will promptly pay and discharge all liabilities which have given rise, or may give rise, to liens or claims enforceable against the Vessel under the laws of all countries to whose jurisdiction the Vessel may from time to time be subject. If the Vessel is arrested or detained for any reason the Owner will, upon receiving notice thereof, procure the prompt release of the Vessel by providing bail or taking such other steps as the circumstances may require. 5.13 Notice as to outstanding debts ------------------------------ The Owner will give to the Mortgagee at such times as it may from time to time require (which will normally be no more than twice per annum) a certificate, duly signed on behalf of the Owner as to the amount of any debts, damages and liabilities relating to the Vessel only and, if so required by the Mortgagee, forthwith discharge such debts, damages and liabilities to the Mortgagee's satisfaction. 5.14 Restriction on sale or transfer ------------------------------- Except as specifically permitted by the provisions of Clause 15.2(j) of the Loan Agreement, the Owner will not without the Mortgagee's prior consent agree to or actually sell, assign or otherwise transfer or dispose of the Vessel or any share or interest therein. 5.15 Restrictions on employment -------------------------- The Owner will not without the Mortgagee's prior consent let or employ the Vessel below the market rate prevailing at the time the Vessel is fixed:- (A) (other than the Isle Charter) on demise charter for any period; or (B) by any time or consecutive voyage charter for a period which exceeds or by virtue of any optional extensions might exceed thirteen (13) months duration; or (C) on terms whereby more than two (2) months hire (or the equivalent) is payable in advance; Provided always that in respect of the matters referred to above in this clause 5.15 the Mortgagee's consent shall be deemed to have been given thereto if the Owner shall not have been informed by the Mortgagee either in writing or by word of mouth that such consent is refused within five (5) Banking Days of the time at which the application for such consent was acknowledged as received by the Mortgagee (who shall promptly give such acknowledgement). - 15 - 5.16 Registration of Vessel ---------------------- The Owner will maintain the registration of the Vessel (in its present name) as a Panamanian vessel at such port as the Mortgagee may approve. The Owner will not do or permit anything to be done whereby such registration may be forfeited or imperilled. 5.17 US Anti Drug Abuse Act ---------------------- The Owner will take all reasonable precautions to prevent any infringements of the Anti-Drug Abuse Act of 1986 of the United States of America (as the same may be amended and/or re-enacted from time to time hereafter) or any similar legislation applicable to the Vessel in any other jurisdiction in which the Vessel shall trade. 5.18 Notice of mortgage ------------------ The Owner will do everything necessary under the laws of Panama for the purpose of perfecting and maintaining this Mortgage as a valid and enforceable first preferred mortgage and, in particular (but without limitation), it will:- (A) keep on board the Vessel each such document or record as may be required by law and cause such particulars relating to the Mortgage to be recorded as may be required by law:- (B) carry on board the Vessel with the ship's papers a properly certified copy of this Mortgage; and (C) keep prominently displayed in the chart room and in the master's cabin of the Vessel a framed printed notice (the print on which shall measure at least six inches by nine inches) reading as follows:- "NOTICE OF MORTGAGE This Vessel is owned by Almira Enterprises, Inc., and is subject to a first preferred mortgage in favour of Effjohn International Cruise Holdings Inc. Under the terms of the said Mortgage neither the Owner, nor the master, nor any charterer of the Vessel nor any other person has the right or authority to create, incur or permit any lien, charge or encumbrance to be placed on the Vessel other than sums for crews' wages and salvage". 5.19 Requisition of title, etc. -------------------------- In the event that the title or ownership of the Vessel shall be requisitioned, purchased or taken by any Government of any country or any department, agency or representative thereof, or any authority acting or purporting to act under colour of government, pursuant to any present or future law, proclamation, decree, order or otherwise, the lien of this Mortgage shall be deemed to attach to the claim for - 16 - compensation of the Owner for its interest in the Vessel from such Government or department, agency or representative thereof, or from any other source, and the compensation, purchase price, reimbursement or award for such requisition, purchase or other taking of such title or ownership due to the Owner from such Government, department, agency or representative thereof, or any authority acting under colour of government or other source, is hereby declared payable to the Mortgagee, who shall be entitled to receive the same, and shall apply the same as provided in Clause 8.1 hereof; and in the event of any requisition, purchase or taking, the Owner shall promptly execute and deliver to the Mortgagee such documents, if any, as in the opinion of the Mortgagee may be necessary or useful to facilitate or expedite the collection by the Mortgagee of such compensation, purchase price, reimbursement or award. 5.20 Environmental Matters: Representations and Warranties ------------------------------------------------------ The Owner hereby represents and warrants to the Mortgagee that:- (A) having made reasonable enquiries, it is satisfied that all applicable Environmental Laws and Environmental Approvals relating to the Vessel, its operation and management and the business of the Owner (as now conducted and as reasonably anticipated to be conducted in the future) have been complied with; (B) no Environmental Claim has been made or threatened against the Owner or the Bareboat Charterer or otherwise in connection with the Vessel; and (C) no Environmental Incident has occurred. 6. PROTECTION AND MAINTENANCE OF SECURITY -------------------------------------- 6.1 Action to secure compliance --------------------------- The Mortgagee may at any time and as often as may be necessary take any such action as it may in its discretion think fit to protect and maintain the security created by the Security Documents (including, without limitation) the exercise of any of the rights set out in this Clause 6 and its rights as the Mortgagee of the Vessel and, if the Owner does not comply with the provisions of Clause 4 or Clause 5, the Mortgagee may take such action as it may in its entire discretion think fit to procure compliance with the terms thereof. 6.2 Reimbursement of cost --------------------- Each and every cost, expense or liability incurred by the Mortgagee referred to in this Clause shall be repayable to the Mortgagee by the Owner on demand together with interest thereon at the Default Rate from the date when the same was incurred until the date of actual receipt (as well after as before any judgment). - 17 - 6.3 Remedies cumulative ------------------- The provisions of this Clause shall be without prejudice to the Mortgagee's other rights under the Security Documents. The Mortgagee shall not be under any obligation to exercise any of its rights under this Clause. 7. ENFORCEMENT OF RIGHTS --------------------- On the happening of any Event of Default the security created by this Mortgage shall become immediately enforceable and the Mortgagee shall become entitled as and when it may see fit to exercise immediately all the powers possessed by it as mortgagee of the Vessel by law and as set out in this Mortgage and in particular, but without limitation:- (A) to exercise all of the rights and remedies in foreclosure and otherwise given to a mortgagee by the provisions of applicable law; (B) to take possession of the Vessel whether actually or constructively and/or otherwise to take control of the Vessel wherever the Vessel may be and cause the Owner or any other person in possession of the Vessel forthwith upon demand to surrender the same to the Mortgagee without legal process and without liability of the Mortgagee for any losses or damages incurred thereby and without having to render accounts to the Owner in association therewith; (C) to require that all policies, contracts and other records relating to the Insurances (including details of and correspondence concerning outstanding claims) be immediately delivered to such persons as the Mortgagee may nominate; (D) to collect, recover, compromise and give a good discharge for all claims then outstanding or thereafter arising under the Insurances and to take over or institute all such proceedings in connection therewith as the Mortgagee in its absolute discretion thinks fit and to permit any brokers to charge the usual brokerage therefor; (E) to sell the Vessel or any share therein (but subject to the Mortgagee giving at least twenty (20) calendar days prior notice that he intends to sell the Vessel and such notice to be given to the Owner in accordance with Article 1527 of the Code of Commerce of the Republic of Panama) in any part of the world with or without notice to the Owner (without the benefit of the Isle Charter but with the benefit of any other charterparty or contract of employment and free of any claim of or by the Owner of any nature whatsoever) by public auction or private contract and upon such terms in the absence of wilful misconduct and gross negligence as the Mortgagee in its absolute discretion may determine with power to postpone any such sale and without being answerable for any loss resulting from such sale or the postponement thereof and to purchase the Vessel itself and set off the purchase price against all or any part of the Outstanding Indebtedness. On any such sale of the Vessel or - 18 - any share therein, the purchaser shall not be bound to see or enquire whether the power of sale herein has arisen, the sale shall be deemed to be within the power of the Mortgagee and the receipt of the Mortgagee for the purchase money shall effectively discharge the purchaser who shall not be concerned with the application of the proceeds of sale or be in any way answerable therefor. The Owner agrees that any sale of the Vessel made in accordance with the foregoing provisions is made in a commercially reasonable manner insofar as the Owner is concerned; (F) to remove the Vessel or to require the Vessel to be removed from any place where she may be to any other place for the purposes of docking, laying up, repair, management, employment, maintenance, or sale or to preserve or maintain the security of the Mortgagee in the Vessel in such manner as the Mortgagee may in its complete discretion deem necessary; (G) to manage, insure, maintain and repair the Vessel and to employ or lay up the Vessel in the absence of wilful misconduct and gross negligence in such manner and for such period as the Mortgagee in its absolute discretion deems expedient; to do all acts and things incidental or conducive thereto and in particular to enter into such arrangements respecting the Vessel, her insurance, management, maintenance, repair, classification and employment in all respects as if the Mortgagee were the owner of the Vessel and without being responsible for any loss thereby incurred; (H) by notice to the Owner to appoint a receiver of the whole or part of the Vessel. The receiver so appointed shall be the agent of the Owner (who shall be solely responsible for his acts and defaults and remuneration) and shall have power to exercise all or any of the powers conferred on the Mortgagee by law and by each Security Document and shall be entitled to the same protection as is granted to the Mortgagee under this Mortgage; (I) to take over or institute (if necessary using the name of the Owner) all such proceedings in connection with the Vessel as the Mortgagee in its absolute discretion thinks fit and to discharge, compound, release or compromise claims against the Owner in respect of the Vessel which have given or may give rise to any charge or lien on the Vessel or which are or may be enforceable by proceedings against the Vessel; (J) the Mortgagee shall not be obliged (nor shall any receiver of the Vessel be obliged) to make any enquiry as to the nature or sufficiency of any payment received by it or on its behalf under this Mortgage or to make any claim or to take any action to collect any monies or enforce any rights to which the Mortgagee, or any such receiver, may at any time be entitled hereunder; (K) generally, in the absence of wilful misconduct and gross negligence to recover from the Owner on demand each and every expense, liability or loss incurred by the Mortgagee in or about or incidental to the exercise of any of the powers aforesaid. - 19 - 8. APPLICATION OF MONEYS --------------------- 8.1 Amounts paid to the Mortgagee ----------------------------- All proceeds of sale of the Vessel and other moneys received by the Mortgagee under this Mortgage (subject, in the case of the Insurances payable in the event of a Total Loss, to the provisions of Clause 7.3 of the Loan Agreement and in the case of sale proceeds receivable in the event of a sale of a Vessel, to the provisions of Clause 7.4 of the Loan Agreement) be applied by the Mortgagee:- (A) Firstly to pay all legal fees, court costs and all other costs, expenses or advances whatsoever incurred or made in connection with the recovery of moneys under this Mortgage and/or the other Security Documents or the sale of the Vessel, the taking possession of the Vessel, the protection of the Mortgagee's security and/or in exercise of its rights hereunder under the other Security Documents and at law; (B) Secondly in payment of amounts due to the Mortgagee under the Security Documents in accordance with Clause 10.5 of the Loan Agreement. 8.2 Amounts paid to receiver ------------------------ All proceeds of sale of the Vessel and all other moneys received by a receiver appointed pursuant to Clause 7(H) of this Mortgage and the other Security Documents shall be applied by the receiver firstly in payment of the remuneration of the receiver at the rate specified in the instrument appointing the receiver or otherwise reasonably agreed between the receiver and the Mortgagee and the balance shall be paid to the Mortgagee to be applied in accordance with Clause 8.1. 9. WAIVER OF PREFERRED STATUS -------------------------- 9.1 If any provision of this Mortgage should be deemed invalid or shall be deemed adversely to affect the first preferred status of this Mortgage under any applicable law, such provision shall cease to be a part of this Mortgage without affecting the remaining provisions, which shall remain in full force and effect. 9.2 In the event that the Loan Agreement or this Mortgage or any of the documents or instruments which may from time to time be delivered hereunder or thereunder or any provision hereof or thereof shall be deemed invalidated by present or future law of any nation or by decision or any court, this shall not affect the validity and/or enforceability of all or any other parts of the Loan Agreement or the Mortgage or such documents or instruments and, in any such case, the Owner covenants and agrees that, on demand, it will execute and deliver such other and further agreements and/or documents and/or instruments and do such things as the Mortgagee in its sole discretion may deem to be necessary to carry out the true intent of this Mortgage and of all amounts secured hereby. - 20 - 9.3 Notwithstanding anything herein to the contrary it is intended that nothing herein shall waive the first preferred status of this Mortgage and that, if any provision or portion thereof herein shall be construed to waive the first preferred status of this Mortgage, then such provision to such extent shall be void and of no effect. 10. MISCELLANEOUS ------------- 10.1 Power of attorney ----------------- The Owner hereby irrevocably appoints the Mortgagee and each receiver appointed pursuant to Clause 7(H) as its attorney-in-fact for the duration of the Security Period for the purpose of doing in its name all acts which the Owner itself could do in relation to the Vessel, including but not limited to the execution and delivery of a bill of sale transferring title to the Vessel and (if required) the execution and recording of a mortgage on the Vessel similar in form and content to this Mortgage. The power of attorney granted herein shall be exercisable only upon the occurrence of an Event of Default. 10.2 Delegation ---------- The Mortgagee shall be entitled at any time and as often as it may consider to be expedient to delegate all or any of the powers and discretions vested in it by this Mortgage (including the power vested in it by virtue of Clause 10.1) in such manner, upon such terms and to such persons as it may in its absolute discretion think fit. 10.3 Further assurance ----------------- The Owner hereby further undertakes at its own expense to execute, sign, perfect, do and (if required) register every such further assurance, document, act or thing as in the opinion of the Mortgagee may be necessary or desirable for the purpose of more effectively mortgaging the Vessel or perfecting the security constituted by this Mortgage. The Owner hereby irrevocably appoints the Mortgagee as its attorney-in-fact for the purpose of executing, signing, perfecting, doing and registering every such further assurance, document, act or thing as aforesaid. 10.4 Taking of action by Mortgagee ----------------------------- The Mortgagee need not before exercising any of the rights, powers or remedies conferred upon it by this Mortgage, or by law (i) take action or obtain judgment against any Obligor or any other person in any court, (ii) make or file claim or proof in a winding-up or liquidation of any Obligor or of any other person or (iii) enforce or seek to enforce the recovery of the moneys and liabilities hereby and thereby secured or any other security for the performance in full of the obligations of the Obligor under the Security Documents. - 21 - 10.5 Indulgence and variations ------------------------- The Mortgagee may in its discretion (i) grant time or other indulgence or make any other arrangement in respect of any of the moneys and liabilities secured by this Mortgage or of any other security therefor or of any other company or companies, person or persons not parties hereto or (ii) vary any provision of the Security Documents or any of them or any document related thereto or any security therefor without prejudice to this security and the security created by this Mortgage shall not be in any way discharged or impaired by reason of any other circumstance which might (but for this provision) constitute a legal or equitable discharge of such security. 10.6 Exclusion of subrogation ------------------------ The Owner shall not unless and until its obligations and each other Obligor's obligations under the Security Documents shall have been unconditionally and irrevocably paid and discharged in full be entitled to share in or succeed to or benefit from (whether by subrogation or otherwise) any rights which the Mortgagee may have or any security, indemnity or guarantee which the Mortgagee may hold in respect of indebtedness or liabilities of any Obligor or any proceeds thereof. 10.7 Exclusion of rights ------------------- The Owner shall not without the prior written consent of the Mortgagee at any time prior to the unconditional and irrevocable payment and discharge in full of the obligations of the Obligors under the Security Documents have the benefit of, exercise, claim or enforce or attempt to have the benefit of, exercise, claim or enforce any rights (including any right of set-off) which the Owner may have against any Obligor or any other person arising by reason of or in connection with this Mortgage or any provision hereof or by reason of the Mortgagee having received a part only of the monies and liabilities outstanding under any of the Security Documents. Any monies or other property (including the benefit of any right of set-off) received by the Owner (with or without such consent) by virtue of any such exercise, enforcement or claim shall be held by the Owner in trust to be paid to the Mortgagee as if they were monies recovered under this Deed. 11. NOTICES ------- 11.1 Mode of communication --------------------- Except as otherwise provided herein each notice, request, demand or other communication or document to be given or made hereunder shall be given in writing but, unless otherwise stated, may be made by telex or telefax. 11.2 Address ------- Any notice, demand or other communication to be made or delivered pursuant to this Mortgage shall be made or delivered as follows:- - 22 - (i) if to the Owner to it at its registered address as aforesaid, telefax number (507) 2635335 marked for the attention of Alfonso Arias with copy to the Bareboat Charterer at 4000 Hollywood Boulevard, Hollywood, Florida 33021, telefax number (305) 9672147 marked for the attention of Alan Pritzker and Fred Mayer and a further copy to the Parent at c/o Ardon Management Services Ltd., c/o Richards Francis & Francis, Cedarpark Centre, 48 Cedar Avenue, Hamilton HM11, Bermuda, telefax number (809) 2920567 with a further copy to Broad & Cassel, Miami Centre, 201 South Biscayne Boulevard, Suite 3000, Miami, Florida 33131 telefax number (305) 373 9493 marked for the attention of James Cassel with a further copy to JeMJ Financial Services Inc, TelMed, Inc., 9350 S. Dixie Highway, Suite 1220, Miami, Florida 33156 telefax number (305) 238 6248 marked for the attention of Jeffrey I. Binder; (ii) if to the Mortgagee to it c/o Effjohn OY AB at Bulevardi 1A, PO Box 659, 00101 Helsinki, Finland telefax number 3580 627736 marked for the attention of finance department or such other address telex number or telefax number as each such addressee may specify to the other relevant party or parties by not less then fifteen (15) days' written notice. 11.3 Receipt ------- Each such notice, demand, request or other communication shall be deemed to have been made or delivered when:- (A) (in the case of telex) the addressee's answerback shall have been received at the end of the transmission or (in the case of telefax) when a materially complete and legible copy of the communication has been received by the addressee (unless the date of despatch is not a Banking Day in the country of the addressee or the time of despatch is outside normal business hours in the country of the addressee, in which case such telex or telefax shall be deemed to have been received at the opening of business on the next such Banking Day); or (B) (in the case of any letter) when delivered to the addressee's address as specified in or notified pursuant to Clause 11.2 or, if sent by first class postage prepaid in an envelope addressed to the addressee at that address five (5) days after being deposited in the post. 11.4 Language -------- Each notice, demand or other communication made or delivered by one party to another pursuant to this Mortgage shall be in the English language or accompanied by a certified English translation. - 23 - 12. JURISDICTION ------------ 12.1 Submission to jurisdiction -------------------------- For the exclusive benefit of the Mortgagee, the Owner hereby irrevocably submits to the non-exclusive jurisdiction of the courts of any country or state to the jurisdiction of which the Vessel may be subject without limiting the right of the Mortgagee to commence proceedings against the Owner in any jurisdiction it shall think fit or in any two or more jurisdictions. 12.2 Service of legal process ------------------------ The Owner agrees that any legal process in connection with this Mortgage may be duly served if served on the master of the Vessel (or other officer for the time being in command) and/or in such other manner as the courts of the country in which such process is issued may permit or require. 13. GOVERNING LAW ------------- This Mortgage shall be governed by and construed in accordance with the laws of the Republic of Panama. 14. ASSIGNMENT ---------- This Mortgage shall enure to the benefit of each party hereto and its successors and assigns and the terms "Owner" and "Mortgagee" shall be construed accordingly. The Owner may not assign or transfer its rights or obligations hereunder including its right of redemption. The Mortgagee may at any time assign all or any part of its rights and benefits hereunder or transfer in accordance with Clause 19.2 of the Loan Agreement and the Owner hereby consents to the assignment on the date hereof by the Mortgagee to the Bank of its rights and benefits hereunder. 15. COUNTERPARTS ------------ This Mortgage may be executed in any number of counterparts each of which shall be an original but such counterparts shall together constitute but one and the same instrument. 16. APPOINTMENT OF AGENT IN PANAMA ------------------------------ The parties hereby confer a special power of attorney on Tapia Linares Y Alfaro of the City of Panama in the Republic of Panama empowering such firm of lawyers to take all necessary steps to record this instrument of mortgage and the prohibition contained in Clause 5.9 in the appropriate registries in the City of Panama in accordance with the laws of the Republic of Panama with full power of substitution in respect of the special power of attorney herein granted. - 24 - IN WITNESS WHEREOF, the Owner has caused this First Preferred Mortgage to be duly executed the day and year first above written. Almira Enterprises, Inc. By: [SIGNATURE ILLEGIBLE] ----------------------- Attorney-in-fact - 25 - ACCEPTANCE OF MORTGAGE ---------------------- The Mortgagee hereby declares that it accepts this Mortgage upon the Vessel as a security for the moneys stated herein to be secured hereby and for the obligations of the Owner referred to herein Effjohn International Cruise Holdings Inc. By:/s/ Thomas Forss ----------------------------- Name: Thomas Forss Title: Attorney EX-10.T 15 EXHIBIT 10T: DEED OF CHARGE Execution Copy -------------- DATED 14 July 1995 ------------------ NEW COMMODORE CRUISE LINES LIMITED as Shareholder to EFFJOHN INTERNATIONAL CRUISE HOLDINGS INC. as lender --------------------------------- FIRST PRIORITY CHARGE OVER SHARES of AZURE INVESTMENTS, --------------------------------- Sinclair Roche & Temperley Broadwalk House 5 Appold Street London EC2A 2NN Tel: 0171-638 9044 Ref: JPM/180210 INDEX -----
Clause Subject Page - ------ ------- ---- 1. Definitions and Construction....................................... 1 2. Charge............................................................. 3 3. Survival of Shareholder's Liability................................ 3 4. Continuing Charge.................................................. 4 5. Exclusion of the Shareholder's Rights.............................. 5 6. Obligation to prove in Liquidation................................. 6 7. Suspense Account................................................... 6 8. Enforcement........................................................ 6 9. Representations and Warranties..................................... 8 10. Undertakings....................................................... 9 11. Miscellaneous...................................................... 11 12. Assignment......................................................... 11 13. Notices............................................................ 12 14. Governing Law...................................................... 13 15. Waiver of Immunity................................................. 13 16. Jurisdiction....................................................... 13 SCHEDULE 1.............................................................. 16 SCHEDULE 2.............................................................. 17
THIS DEED OF CHARGE is made the 14 day of July 1995 BY:- (1) NEW COMMODORE CRUISE LINES LIMITED, a company incorporated under the laws of Bermuda with its registered office at c/o Ardon Management Services Ltd., c/o Richards Francis & Francis, Cedarpark Centre, 48 Cedar Avenue, Hamilton HM11, Bermuda as shareholder (the "Shareholder") IN FAVOUR OF:- (2) EFFJOHN INTERNATIONAL CRUISE HOLDINGS INC., a company incorporated under the laws of the Cayman Islands with its registered office at Caledonian Bank & Trust Limited, P O Box 1043, Grand Cayman, Cayman Islands (the "Lender"). WHEREAS:- (A) By a loan facility agreement dated 14 July 1995 made between (1) Azure Investments, Inc. (the "Company") and Almira Enterprises, Inc. (the "Borrowers"), (2) the Lender and (3) the Shareholder and Commodore Holdings Limited as guarantors, the Lender has agreed, on the terms and conditions therein set out, to make available to the Borrowers a loan of twenty four million five hundred thousand Dollars (USD24,500,000) and the Shareholder has agreed to guarantee to the Lender the payment by the Borrowers of the Outstanding Indebtedness and the performance and observance by the Borrowers of all the agreements, covenants undertakings and provisions contained in the Loan Agreement and other Security Documents. (B) The Shareholder is the sole beneficial owner of all the shares in the Company and is the registered owner of all the said shares. (C) It is a condition precedent to the utilisation by the Borrowers of the said facility that the Shareholder enters into this Deed. NOW THEREFORE THIS DEED WITNESSES as follows:- 1. DEFINITIONS AND CONSTRUCTION ---------------------------- 1.1 Definitions ----------- In this Deed including the preamble and recitals hereto (unless the context otherwise requires) any term or expression defined in the preamble or the recitals shall have the meaning ascribed to it therein and the following terms and expressions shall have the meanings set out below. In addition, terms and expressions not defined herein but whose meanings are defined in the Loan Agreement shall have the meanings set out therein. -2- "Charged Property" means all and singular those 500 issued shares in respect of the Company (being the entire issued share capital of the Company) as are registered in the name of the Shareholder and all dividends or other distributions and interest paid or payable in connection therewith after the date hereof and all stocks, shares, warranties, rights, moneys and property (and dividends or other distributions and interest paid or payable thereon) accruing or acquired at any time and from time to time by way of bonus, redemption, preference option rights or otherwise to or in respect of or derived from or in substitution for any of the said shares or any derivatives thereof and including all moneys for the time being forming part of the net proceeds of sale of any of the said shares pursuant to Clause 8 and any investments for the time being representing the same; "Loan Agreement" means the loan facility agreement referred to in recital (A) hereto; "Loan" means the loan facility referred to in recital (A) hereto; "Outstanding Indebtedness" means all sums of any kind arising at any time owing, actually or contingently by the Borrowers or any other Obligor to the Lender under or pursuant to the Security Documents or any of them (whether by way of repayment of principal, payment of interest or default interest, payment upon any indemnity or counter-indemnity, reimbursement for costs or otherwise howsoever). 1.2 Construction ------------ (A) Clause headings are inserted for convenience of reference only and shall be ignored in the construction of this Deed; (B) references to Clauses and Schedules are to be construed as references to Clauses of and Schedules to this Deed unless otherwise stated and references to this Deed are to be construed as references to this Deed including its Schedules; (C) references to (or to any specified provision of) this Deed or any other Subject Document shall be construed as reference to this Deed, that provision or that Subject Document as from time to time amended, supplemented and/or novated; -3- (D) without prejudice to the provisions of Clause 12 references to any party to this Deed or any other Subject Document shall include reference to such party's successors and permitted assigns; (E) words importing the plural shall include the singular and vice versa; (F) references to a person shall be construed as references to an individual, firm, company, corporation, unincorporated body of persons or any state or any agency thereof; (G) where any matter under any Security Document requires the approval or consent of the Lender, such approval or consent shall not be deemed to have been given unless given in writing; where any matter under any Security Document is required to be acceptable to the Lender, the Lender shall not be deemed to have accepted such matter unless its acceptance is communicated in writing; the Lender may give or withhold its consent, approval or acceptance under any Security Document subject to it not being unreasonably withheld or delayed and such consent, approval or acceptance may be given by the Lender subject to such conditions as it may reasonably impose; (H) a certificate by the Lender as to any amount due or calculation made hereunder shall be conclusive except for manifest error; and (I) references to any statute or other legislative provision are to be construed as references to any such statute or other legislative provision as the same may be re-enacted or modified or substituted by any subsequent statute or legislative provision. 2. CHARGE ------ In consideration of the sum of USD10 and other good and valuable consideration and the Lender agreeing at the request of the Shareholder to make the Loan available to the Borrowers in accordance with the terms of the Loan Agreement and in order to secure the payment of the Outstanding Indebtedness in accordance with the provisions of the Security Documents and to secure the performance and observance of all of the agreements, covenants, undertakings and provisions contained in the Security Documents, the Shareholder hereby charges the Charged Property to the Lender by way of first priority fixed charge. 3. SURVIVAL OF SHAREHOLDER'S LIABILITY ----------------------------------- The Shareholder's liability to the Lender under this Deed shall not be discharged, impaired or otherwise affected by reason of any of the following events or circumstances (regardless of whether any such events or circumstances occur with or without the Shareholder's knowledge or consent):- (A) any time, forbearance or other indulgence given or agreed by the Lender to or with any Obligor in respect of any of its obligations under any of the Security Documents; or -4- (B) any legal limitation, disability or incapacity relating to any Obligor; or (C) any invalidity, irregularity, unenforceability, imperfection or avoidance of or any defect in any security granted by, or the obligations of any Obligor under the Security Documents or any of them or any amendment to or variation thereof or of any other document or security comprised therein (whether or not known to the Lender); or (D) any change in the name, constitution or otherwise of any Obligor or the merger of any Obligor by or with any other person; or (E) the liquidation, bankruptcy or dissolution (or proceedings analogous thereto) of any Obligor or the appointment of a receiver or administrative receiver or administrator or trustee or similar officer of any of the assets of any Obligor or the occurrence of any circumstances whatsoever affecting any Obligor's liability to discharge its respective obligations under any of the Security Documents; or (F) any challenge, dispute or avoidance by any liquidator of any Obligor in respect of any claim by the Shareholder by right of subrogation in any such liquidation; or (G) any release, renewal, exchange or realisation of any security or obligation provided under or by virtue of any of the Security Documents or the provision by the Lender at any time of any further security for the obligations of the Obligors under any of the Security Documents; or (H) any release of any guarantor or any release of any third party Obligor in respect of the obligations of any of the Obligors' under any of the Security Documents; or (I) any failure on the part of the Lender (whether intentional or not) to take or perfect any security agreed to be taken under or in relation to any of the Security Documents; or (J) any other act, matter or thing which might otherwise constitute a legal or equitable discharge of the obligations of the Shareholder hereunder. 4. CONTINUING CHARGE ----------------- 4.1 Duration of charge ------------------ The charge herein shall be:- (A) a continuing security remaining in full force and effect until payment in full has been received by the Lender of each and every part and the ultimate balance of the Outstanding Indebtedness in whatever currency or currencies the same may from time to time be denominated in accordance with the Loan Agreement; -5- (B) in addition to and not in substitution for or in derogation of any other security held by the Lender from time to time in respect of the Outstanding Indebtedness or any part thereof. 4.2 Restriction on discharge of this Deed ------------------------------------- Any satisfaction of obligations by the Shareholder to the Lender or any discharge given by the Lender to the Shareholder or any other agreement reached between the Lender and the Shareholder in relation to this Deed shall be, and be deemed always to have been, void ab initio if any act satisfying any of the said obligations or on the faith of which any such discharge was given or any such agreement was entered into is subsequently avoided in whole or in part by or pursuant to any provision of any applicable law whatsoever. 5. EXCLUSION OF THE SHAREHOLDER'S RIGHTS ------------------------------------- Until the actual and contingent obligations of each Obligor under the Security Documents have been performed in full the Shareholder shall not:- (A) be entitled to share in or succeed to or benefit from (by subrogation or otherwise) any rights which the Lender may have in respect of the Outstanding Indebtedness or any security therefor or all or any of the proceeds of such rights or security; or (B) without the prior consent of the Lender:- (i) exercise in respect of any amount paid by it hereunder any right of subrogation, contribution or any other right or remedy which it may have in respect thereof; or (ii) claim payment of any other moneys for the time being due to it by any other Obligor or exercise any other right or remedy in respect thereof; or (iii) prove in a liquidation of any Obligor in competition with the Lender for any moneys owing to the Shareholder by any other Obligor on any account whatsoever; (iv) take from any Obligor any undertaking or security in respect of the liability of the Shareholder hereunder or in respect of any other liability of any Obligor to the Shareholder; or (v) exercise any right of set-off or counterclaim to which the Shareholder may be entitled against any Obligor; provided always that if the Shareholder, in breach of this Clause, receives or recovers any moneys pursuant to any such exercise, claim or proof, such moneys shall be held by the Shareholder upon trust for the Lender to apply the same as if they were moneys received or recovered by the Lender under this Deed. -6- 6. OBLIGATION TO PROVE IN LIQUIDATION ---------------------------------- The Shareholder shall, if the Lender so instructs, prove in a liquidation of an Obligor for any amounts owed to the Shareholder by such Obligor in connection with this Deed provided that any moneys received or recovered by the Shareholder in such liquidation shall be paid to the Lender on its request and, pending such payment, be held by the Shareholder upon trust for the Lender to apply the same as if they were moneys received or recovered by the Lender under this Deed. 7. SUSPENSE ACCOUNT ---------------- Any moneys received or recovered by the Lender under or in connection with this Deed may, at the Lender's discretion, be credited to any suspense or impersonal account with the Lender and may be held in such account for so long as the Lender thinks fit pending application at the Lender's discretion from time to time in or towards the discharge of the obligations of any Obligor under the Security Documents. Provided that the Lender is satisfied that payment received from the Shareholder is not liable to be set aside and that the Lender may not be placed under an obligation to repay such amount to the Shareholder or any liquidator or similar official appointed in respect of the Shareholder or its assets, the Lender shall, when the amount accumulated in the suspense account is sufficient to meet in full all the Outstanding Indebtedness, apply the balance standing to the credit of the suspense account to discharge the Outstanding Indebtedness. 8. ENFORCEMENT ----------- 8.1 Enforceability -------------- The security constituted by this Deed shall become immediately enforceable upon the happening of any Event of Default. 8.2 Taking of action ---------------- At any time after the happening of any Event of Default the Lender shall be entitled without further notice to the Shareholder:- (A) to apply any cash for the time being comprised in the Charged Property in or towards payment of the Outstanding Indebtedness in accordance with the provisions of Clause 10.5 of the Loan Agreement; (B) to sell or convert into money all or any part of the Charged Property (not consisting of cash) in such manner and upon such terms and for such consideration, whether in cash, securities or other assets and whether deferred or not, as the Lender may in its unfettered discretion think fit; (C) to exercise all other powers or rights incidental to the Charged Property or any part thereof (including, without limitation, to complete the letters of resignation referred to in Clause 10.2 by dating the same and to appoint -7- directors and managers of the Company) in such manner as the Lender may in its unfettered discretion think fit; and (D) to complete by dating the same the share transfer forms made out in blank delivered to the Lender pursuant to Clause 10.2 in respect of the shares comprised in the Charged Property and to transfer all or any of such shares into the name of the Lender or its nominee as registered owner and to exercise the voting rights attached to the shares in such manner as the Lender may in its unfettered discretion think fit. 8.3 Notice of taking of action -------------------------- The Lender confirms that as a matter of practice it is its intention to give notice to the Shareholder of any proposal by it to exercise its rights and powers specified above but failure by the Lender to give any such notice shall not prejudice its right to exercise such rights and powers or give rise to any liability to the Shareholder. 8.4 Sale of Charged Property ------------------------ On any sale of the Charged Property or part thereof, the purchaser shall not be bound to see or enquire whether the Lender's power of sale has arisen in the manner provided herein and the sale shall be deemed to be within the power of the Lender and the receipt of the Lender for the purchase money shall effectively discharge the purchaser who shall not be concerned with the manner of application of the proceeds of sale or be in any way answerable therefor. 8.5 Law of Property Act 1925 ------------------------ Sections 93 and 103 of the Law of Property Act 1925 shall not apply hereto. 8.6 Rights prior to commencement of charge -------------------------------------- Until the security hereby constituted becomes enforceable, the Shareholder shall be entitled to exercise all the voting rights attaching to the shares comprised in the Charged Property at any annual or extraordinary meeting of the shareholders of the Company. The Lender shall be provided with a certified copy of resolutions passed at any such meeting. 8.7 Steps to enforce security ------------------------- The Lender shall not be obliged before taking steps to enforce its rights under this Deed:- (A) to obtain judgment against any Obligor in any court or other tribunal; or (B) to make or file any claim in a bankruptcy or liquidation of any Obligor; or (C) to take any action whatsoever against any Obligor under any of the Security Documents; -8- and the Shareholder hereby waives all such formalities or rights to which it would otherwise be entitled or which the Lender would otherwise first be required to satisfy or fulfil before proceeding or making demand against the Shareholder hereunder. 8.8 Cost and expenses ----------------- All legal and other costs and expenses (including stamp duty, if any) reasonably incurred by the parties hereto in connection with the negotiation, preparation, completion and any registration and/or recording of this Deed and the other Security Documents and the action to be taken to give effect to them including all costs and expenses incurred by the Lender in enforcing this Deed and in protecting and enforcing its interests hereunder in any court of law or otherwise shall be paid in accordance with clause 20 of the Loan Agreement. 9. REPRESENTATIONS AND WARRANTIES ------------------------------ 9.1 The Shareholder represents and warrants to the Lender at the date hereof and/or as otherwise specified herein that:- (A) Status ------ It is a limited liability company, duly constituted and validly existing under the laws of the Bermuda possessing the capacity to sue and be sued in its own name and the power to own its assets and carry on its business as it is now being conducted. (B) Power and authority ------------------- It has the power to enter into and perform its obligations under this Deed and the charge created hereby and has taken all necessary corporate and shareholder action to authorise the entry into and performance of this Deed. (C) Legal validity -------------- This Deed constitutes legal, valid and binding obligations of the Shareholder enforceable in accordance with its terms except as such enforcement may be limited by any relevant bankruptcy, insolvency, administration or similar laws affecting creditors' rights generally and by principles of equity. (D) Non-conflict with laws ---------------------- The entry into and performance of this Deed and the transactions contemplated hereby do not and will not be a breach of or conflict with:- (i) any law or regulation or any official or judicial order existing at the date hereof; or (ii) the constitutional documents of the Shareholder; or -9- (iii) any agreement or document to which the Shareholder is a party or which is binding upon it or any of its assets; nor result in the creation or imposition of any Encumbrance on any of its assets pursuant to the provisions of any such agreement or document. (E) Consents -------- All authorisations, approvals, consents, licences, exemptions, filings, registrations, notarisations and other matters, official or otherwise, required in connection with the entry into, performance, validity and enforceability of this Deed and the transactions contemplated hereby have been obtained or effected and are in full force and effect. (F) Registration of Deed -------------------- The Shareholder does not have a place of business in any jurisdiction other than in Bermuda which would require this Deed to be filed or registered if the Shareholder had a place of business in that jurisdiction to ensure the validity of this Deed. (G) Ownership of shares ------------------- All the issued shares of the Company are legally and beneficially owned by the Shareholder, each of the said shares is fully paid and non-assessable and none of the said shares in the Company is subject to any option or Encumbrance except as created by this Deed. 9.2 Survival of representations and warranties ------------------------------------------ The representations and warranties set out in Clause 9.1 (A), (B), (C), (D)(ii), (D)(iii), (F) and (G) shall survive the execution of this Deed and shall be deemed to be repeated with reference mutatis mutandis to the facts and circumstances then subsisting, as if made on each day until the actual and contingent obligations of each Obligor under the Security Documents have been performed in full. 10. UNDERTAKINGS ------------ 10.1 Duration -------- The undertakings in this Clause 10 shall remain in force from and after the date hereof until all the actual and contingent obligations of each Obligor under the Security Documents have been performed in full. 10.2 Deposit of documents -------------------- The Shareholder shall procure that until the Outstanding Indebtedness has been discharged there shall be deposited by way of security with the Lender:- -10- (A) the Articles of Incorporation and By-Laws, minute books, all blank stock or other certificates and all corporate seals of the Company; (B) the stock or share certificates representing the shares comprised in the Charged Property together with executed and undated share transfer forms in respect of such shares made out in blank and any other documents of title to any part of the Charged Property; (C) the share register (if any) of the Company; (D) executed undated resignations from each director and officer of the Company from time to time in the form of Schedule 1; (E) an irrevocable proxy from the Shareholder in respect of the shares comprised in the Charged Property in the form of Schedule 2. 10.3 Negative pledge --------------- The Shareholder shall not, save as herein provided, without the prior consent of the Lender, sell, assign, transfer, charge, pledge or encumber in any manner any part of the Charged Property or agree to do any of the aforesaid or suffer to exist any Encumbrance or option on, over or in respect of all or any part of the Charged Property except by way of Permitted Encumbrances. 10.4 Restriction on issue of further shares -------------------------------------- The Shareholder shall not, without the prior consent of the Lender, procure or authorise or permit the issue of any further shares in the Company unless such further shares are charged to the Lender in terms similar to the terms hereof as if they were included in the Charged Property. If, despite the provisions of this sub-clause, any further such shares are issued without the prior consent of the Lender, the Shareholder shall procure that such further shares are held on the terms hereof as if they were included in the Charged Property. 10.5 Appointment of directors and officers ------------------------------------- The Shareholder shall notify the Lender immediately upon the appointment of any further director or officer of the Company and shall procure that, unless the Lender agrees otherwise, there is promptly delivered to the Lender an executed undated resignation from such director or officer in the form of Schedule 1. 10.6 Notice of this Deed ------------------- The Shareholder shall deliver a certified copy of this Deed to the Company for the purpose of giving the Company notice of the charge herein contained and shall procure that the Company will deliver to the Lender an acknowledgement of such notice. -11- 10.7 Further assurance ----------------- The Shareholder shall, from time to time on being required to do so by the Lender, do or procure the doing of all such acts and/or execute or procure the execution of all such documents in a form satisfactory to the Lender as the Lender may reasonably consider necessary for giving full effect to any of the Security Documents including this Deed or securing to the Lender the full benefit of the rights, powers and remedies conferred upon it in any such Security Document including this Deed. 11. MISCELLANEOUS ------------- 11.1 No waiver --------- No failure to exercise and no delay in exercising on the part of the Lender any right or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right or remedy preclude any other or further exercise thereof or the exercise of any other right or remedy. No waiver by the Lender shall be effective unless it is in writing. 11.2 Remedies cumulative ------------------- The rights and remedies of the Lender provided herein are cumulative and not exclusive of any rights or remedies provided by law. 11.3 Severability ------------ If any provision of this Deed or any of the other Security Documents is prohibited or unenforceable in any jurisdiction, such prohibition or unenforceability shall not invalidate the remaining provisions hereof or affect the validity or enforceability of such provision in any other jurisdiction. 11.4 Time of essence --------------- Time is of the essence in respect of all of the obligations of the Shareholder under this Deed. 12. ASSIGNMENT ---------- 12.1 Benefit of assignment --------------------- This Deed shall be binding upon the Shareholder and its successors and shall inure to the benefit of the Lender and its successors and assigns. 12.2 Transfers of rights and obligations ----------------------------------- The Shareholder may shall not be entitled to assign or transfer all or any of its rights, benefits and obligations hereunder. The Lender may at any time assign all or any part of its rights and benefits hereunder or transfer in accordance with Clause 19. 2 -12- of the Loan Agreement and the Shareholder hereby consents to the assignment on the date hereof by the Lender to the Bank of its rights and benefits hereunder. 12.3 Disclosure of information ------------------------- The Lender may disclose to any actual or potential assignee, transferee or to any person who may otherwise propose to enter into contractual relations with any of them in relation to this Deed or the other Security Documents or any of them such information about the Shareholder and any Obligors as the Lender shall consider appropriate. 12.4 Effectiveness ------------- The Shareholder will, at the request of the Lender execute or procure the execution of such documents and do (or procure the doing of) all such acts and things as may be necessary or desirable to give effect to any transfer or assignment pursuant to this Clause 12. 13. NOTICES ------- 13.1 Mode of Communication --------------------- Except as otherwise provided herein, each notice, request, demand or other communication or document to be given or made hereunder shall be given in writing but unless otherwise stated, may be made by telex or telefax. 13.2 Address ------- Any notice, demand or other communication to be made or delivered pursuant to this Deed shall be made or delivered as follows:- (i) if to the Shareholder to it at 4000 Hollywood Boulevard, Hollywood, Florida 33021, telefax number (305) 9672147 marked for the attention of Alan Pritzker and Fred Mayer with a further copy to Broad & Cassel, Miami Centre, 201 South Biscayne Boulevard, Suite 3000, Miami, Florida 33131 telefax number 305 373 9493 marked for the attention of James Cassel with a further copy to JeMJ Financial Services Inc, TelMed, Inc., 9350 S. Dixie Highway, Suite 1220, Miami, Florida 33156 telefax number (305) 238 6248 marked for the attention of Jeffrey I. Binder; (ii) if to the Lender to it c/o Effjohn OY AB at Bulevardi 1A, PO Box 659, 00101 Helsinki, Finland telefax number 3580 627736 marked for the attention of finance department or such other address telex number or telefax number as each such addressee may specify to the other relevant party or parties by not less than fifteen (15) days' written notice. 13.3 Receipt ------- -13- Each such notice, demand, request or other communication shall be deemed to have been made or delivered when:- (A) (in the case of telex) the addressee's answerback shall have been received at the end of the transmission or (in the case of telefax) when a materially complete and legible copy of the communication has been received by the addressee (unless the date of despatch is not a Banking Day in the country of the addressee or the time of despatch is outside normal business hours in the country of the addressee, in which case such telex or telefax shall be deemed to have been received at the opening of business on the next such Banking Day; or (B) (in the case of any letter) when delivered to the addressee's address as specified in or notified pursuant to Clause 13.2 or, if sent by post first class postage prepaid in an envelope addressed to the addressee at that address five (5) days after being deposited in the post. 13.4 Language -------- Each notice, demand, request or other communication made or delivered by one party to another pursuant to this Deed or any other Security Document shall be in the English language or accompanied by a certified English translation. 14. GOVERNING LAW ------------- This Deed shall be governed by and construed in accordance with English law. 15. WAIVER OF IMMUNITY ------------------ The Shareholder irrevocably and unconditionally:- (A) waives any right of immunity which it or its assets now has or may hereafter acquire in relation to any legal proceedings (including but without limitation actions in rem and/or in personam) brought against it or its assets in relation to this Deed by the Lender; and (B) consents generally in respect of any such proceedings to the giving of any relief or the issue of any process in connection with such proceedings, including, without limitation, the making, enforcement or execution against any property whatsoever (irrespective of its use or intended use) of any order or judgment which may be made or given in such proceedings. 16. JURISDICTION ------------ 16.1 Submission to jurisdiction -------------------------- For the exclusive benefit of the Lender, the parties hereto hereby irrevocably submit to the non-exclusive jurisdiction of the High Courts of Justice in England provided that the Lender (but not the Shareholder) shall be at liberty in addition or alternatively -14 to take proceedings in the courts of any other country which may have jurisdiction or in which the Shareholder may reasonably be thought to have assets. The Shareholder hereby irrevocably authorises and appoints the Process Agent for the acceptance of service of legal proceedings under this Deed, service upon whom shall be deemed to constitute good service of legal process without prejudice to any other lawful means and undertakes to maintain a process agent in England. IN WITNESS whereof this Deed has been executed by the Shareholder on the day first written above. -15- THE SHAREHOLDER - --------------- SIGNED SEALED AND DELIVERED AS A DEED ) by James Scott Cassel ) the duly authorised Attorney-in-Fact ) /s/ James Scott Cassel for and on behalf of ) NEW COMMODORE CRUISE LINES LIMITED ) in the presence of:- LARA DOBSON of 5, APPOLD STREET, LONDON, EC2 SOLICITOR. /s/ Lara Dodson THE LENDER - ---------- SIGNED SEALED AND DELIVERED AS A DEED ) by Thomas Forss ) /s/ Thomas Forss the duly authorised Attorney-in-Fact ) for and on behalf of ) EFFJOHN INTERNATIONAL CRUISE HOLDINGS INC. ) in the presence of:- LARA DOBSON of 5, APPOLD STREET, LONDON EC2 SOLICITOR. /s/ Lara Dodson -16- SCHEDULE 1 ---------- Letter of Resignation --------------------- To: The Secretary Azure Investments, Inc. (the "Company") Dear Sirs, Loan Agreement dated 1995 (the "Loan Agreement") ---------------------- 1. I hereby resign as a [director/secretary/or other officer] of the Company and confirm that I have no claims against the Company for loss of office, arrears of pay or otherwise howsoever. 2. This resignation is to be effective as at the date hereof. Yours faithfully, -17- SCHEDULE 2 ---------- Irrevocable Proxy ----------------- The undersigned, being the owner of 500 shares (the "Shares") of Azure Investments, Inc., (the "Company"), a Panamanian corporation hereby makes, constitutes and appoints Effjohn International Cruise Holdings Inc. as the true and lawful attorney and proxy of the undersigned with full power to appoint a nominee or nominees to act hereunder from time to time to vote all or any of the shares represented by the share certificates of the Company numbered 1 at all annual and special general meetings of the shareholders of the Company with the same force and effect as the undersigned might or could do and to requisition and convene a meeting or meetings of the shareholders of the Company for the purposes of appointing or confirming the appointment of new directors of the Company and/or such other matters as may in the opinion of Effjohn International Cruise Holdings Inc. be necessary or desirable for the purpose of implementing the Deed of Charge referred to below and the undersigned hereby ratifies and confirms all that the said attorney or its nominee or nominees shall do or cause to be done by virtue hereof. The said shares have been charged to Effjohn International Cruise Holdings Inc. pursuant to a deed (the "Deed of Charge") dated 1995. This power and proxy is coupled with an interest and is irrevocable and shall remain irrevocable as long as the Deed of Charge is outstanding. IN WITNESS whereof this instrument has been duly executed as a deed this day of 1995. SIGNED SEALED AND DELIVERED AS A DEED ) by ) the duly authorised Attorney-in-Fact ) for and on behalf of ) NEW COMMODORE CRUISE LINES LIMITED ) in the presence of:- ) Letter of Resignation Messrs. Azure Investments, Inc. (the "Company") Dear Sirs: I hereby resign as Secretary of the Company and confirm that I have no claims against the Company for loss of office, arrears of pay or otherwise howsoever. This resignation is to be effective as at the date hereof, Yours faithfully, /s/ Lil Webster ---------------------- Lil de Webster Letter of Resignation Messrs. Azure Investments, Inc. (the "Company") Dear Sirs: I hereby resign as director of the Company and confirm that I have no claims against the Company for loss of office, arrears of pay or otherwise howsoever. This resignation is to be effective as at the date hereof, Yours faithfully, /s/ Lil Webster --------------------- Lil de Webster Letter of Resignation Messrs. Azure Investments, Inc. (the "Company") Dear Sirs: I hereby resign as President of the Company and confirm that I have no claims against the Company for loss of office, arrears of pay or otherwise howsoever. This resignation is to be effective as at the date hereof, Yours faithfully, /s/ Luia E. Cespedes ------------------------ Luia Eduardo Cespedes Letter of Resignation Messrs. Azure Investments, Inc. (the "Company") Dear Sirs: I hereby resign as Treasurer of the Company and confirm that I have no claims against the Company for loss of office, arrears of pay or otherwise howsoever. This resignation is to be effective as at the date hereof, Yours faithfully, /s/ Miguel Urriola --------------------------- Miguel Urriola Letter of Resignation Messrs. Azure Investments, Inc. (the "Company") Dear Sirs: I hereby resign as director of the Company and confirm that I have no claims against the Company for loss of office, arrears of pay or otherwise howsoever. This resignation is to be effective as at the date hereof, Yours faithfully, /s/ Luis Eduardo Cespedes --------------------------- Luis Eduardo Cespedes Letter of Resignation Messrs. Azure Investments, Inc. (the "Company") Dear Sirs: I hereby resign as director of the Company and confirm that I have no claims against the Company for loss of office, arrears of pay or otherwise howsoever. This resignation is to be effective as at the date hereof, Yours faithfully, /s/ Leopoldo Lopez ----------------------- Leopoldo Lopez STOCK POWER FOR VALUE RECEIVED, New Commodore Cruise Lines Limited ------------------------------------------------------------ PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE ---------------------------------- hereby sell, assign and transfer unto __________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ( 500 ) Shares of the __________________ Capital Stock of ______________ - --------------- Azure Investments Inc. Standing in my (our) - ------------------------------------------------------- name(s) on the books of said Corporation represented by Certificate(s) No(s) 1 ---- herewith, and do hereby irrevocably constitute and appoint _____________________ _____________________________________________ attorney to transfer the said stock on the books of said Corporation with full power of substitution in the premises. Dated ______________________________ /s/ James Scott Cassel ---------------------- Attorney-in-Fact In presence of /s/ Lara Dobson - --------------------- Solicitor [STOCK CERTIFICATE APPEARS HERE] Irrevocable Proxy ----------------- The undersigned, being the owner of 500 shares (the "Shares") of Azure Investments, Inc., (the "Company"), a Paramanian corporation hereby makes, constitutes and appoints Effjohn International Cruise Holdings Inc. as the true and lawful attorney and proxy of the undersigned with full power to appoint a nominee or nominees to act hereunder from time to time to vote all or any of the shares represented by the share certificates of the Company numbered 1 at all annual and special general meetings of the shareholders of the Company with the same force and effect as the undersigned might or could do and to requisition and convene a meeting or meetings of the shareholders of the Company for the purposes of appointing or confirming the appointment of new directors of the Company and/or such other matters as may in the opinion of Effjohn International Cruise Holdings Inc. be necessary or desirable for the purpose of implementing the Deed of Charge referred to below and the undersigned hereby ratifies and confirms all that the said attorney or its nominee or nominees shall do or cause to be done by virtue hereof. The said shares have been charged to Effjohn International Cruise Holdings Inc. pursuant to a deed (the "Deed of Charge") dated 14 July 1995. This power and proxy is coupled with an interest and is irrevocable and shall remain irrevocable as long as the Deed of Charge is outstanding. IN WITNESS whereof this instrument has been duly executed as a deed this 14 day of July 1995. SIGNED SEALED AND DELIVERED AS A DEED ) by JAMES SCOTT CASTEL ) the duly authorized Attorney-in-Fact ) /s/ James Scott Cassel for and on behalf of ) NEW COMMODORE CRUISE LINES LIMITED ) in the presence of:- LARA DODSON OF 5 APPOLD ) STREET, LONDON, EC2. SOLICITOR. /s/ L. Dodson EX-10.U 16 EXHIBIT 10U: DEED OF CHARGE Execution Copy -------------- Dated 14 July, 1995 ------------------- NEW COMMODORE CRUISE LINES LIMITED as Shareholder to EFFJOHN INTERNATIONAL CRUISE HOLDINGS INC. as lender --------------------------------- FIRST PRIORITY CHARGE OVER SHARES of ALMIRA ENTERPRISES, INC. --------------------------------- Sinclair Roche & Temperley Broadwalk House 5 Appold Street London EC2A 2NN Tel: 0171-638 9044 Ref: JPM/180210 INDEX -----
Clause Subject Page - ------ ------- ---- 1. Definitions and Construction.................. 1 2. Charge........................................ 3 3. Survival of Shareholder's Liability........... 3 4. Continuing Charge............................. 4 5. Exclusion of the Shareholder's Rights......... 5 6. Obligation to prove in Liquidation............ 6 7. Suspense Account.............................. 6 8. Enforcement................................... 6 9. Representations and Warranties................ 8 10. Undertakings.................................. 9 11. Miscellaneous................................. 11 12. Assignment.................................... 12 13. Notices....................................... 12 14. Governing Law................................. 13 15. Waiver of Immunity............................ 13 16. Jurisdiction.................................. 14 SCHEDULE 1......................................... 16 SCHEDULE 2......................................... 17
THIS DEED OF CHARGE is made the 14 day of July 1995 BY:- (1) NEW COMMODORE CRUISE LINES LIMITED, a company incorporated under the laws of Bermuda with its registered office at c/o Ardon Management Services, Ltd., c/o Richards Francis & Francis, Cederpark Centre, 48 Cedar Avenue, Hamilton HM11, Bermuda as shareholder (the "Shareholder") IN FAVOUR OF:- (2) EFFJOHN INTERNATIONAL CRUISE HOLDINGS INC., a company incorporated under the laws of the Cayman Islands with its registered office at Caledonian Bank & Trust Limited, P O Box 1043, Grand Cayman, Cayman Islands (the "Lender"). WHEREAS:- (A) By a loan facility agreement dated 14 July 1995 made between (1) Almira Enterprises, Inc. (the "Company") and Azure Investments, Inc. (the "Borrowers"), (2) the Lender and (3) the Shareholder and Commodore Holdings Limited as guarantors, the Lender has agreed, on the terms and conditions therein set out, to make available to the Borrowers a loan of twenty four million five hundred thousand Dollars (USD24,500,000) and the Shareholder has agreed to guarantee to the Lender the payment by the Borrowers of the Outstanding Indebtedness and the performance and observance by the Borrowers of all the agreements, covenants undertakings and provisions contained in the Loan Agreement and other Security Documents. (B) The Shareholder is the sole beneficial owner of all the shares in the Company and is the registered owner of all the said shares. (C) It is a condition precedent to the utilisation by the Borrowers of the said facility that the Shareholder enters into this Deed. NOW THEREFORE THIS DEED WITNESSES as follows:- 1. DEFINITIONS AND CONSTRUCTION ---------------------------- 1.1 Definitions ----------- In this Deed including the preamble and recitals hereto (unless the context otherwise requires) any term or expression defined in the preamble or the recitals shall have the meaning ascribed to it therein and the following terms and expressions shall have the meanings set out below. In addition, terms and expressions not defined herein but whose meanings are defined in the Loan Agreement shall have the meanings set out therein. - 2 - "Charged Property" means all and singular those 500 issued shares in respect of the Company (being the entire issued share capital of the Company) as are registered in the name of the Shareholder and all dividends or other distributions and interest paid or payable in connection therewith after the date hereof and all stocks, shares, warranties, rights, moneys and property (and dividends or other distributions and interest paid or payable thereon) accruing or acquired at any time and from time to time by way of bonus, redemption, preference option rights or otherwise to or in respect of or derived from or in substitution for any of the said shares or any derivatives thereof and including all moneys for the time being forming part of the net proceeds of sale of any of the said shares pursuant to Clause 8 and any investments for the time being representing the same; "Loan Agreement" means the loan facility agreement referred to in recital (A) hereto; "Loan" means the loan facility referred to in recital (A) hereto; "Outstanding Indebtedness" means all sums of any kind arising at any time owing, actually or contingently by the Borrowers or any other Obligor to the Lender under or pursuant to the Security Documents or any of them (whether by way of repayment of principal, payment of interest or default interest, payment upon any indemnity or counter-indemnity, reimbursement for costs or otherwise howsoever). 1.2 Construction ------------ (A) Clause headings are inserted for convenience of reference only and shall be ignored in the construction of this Deed; (B) references to Clauses and Schedules are to be construed as references to Clauses of and Schedules to this Deed unless otherwise stated and references to this Deed are to be construed as references to this Deed including its Schedules; (C) references to (or to any specified provision of) this Deed or any other Subject Document shall be construed as reference to this Deed, that provision or that Subject Document as from time to time amended, supplemented and/or novated; - 3 - (D) without prejudice to the provisions of Clause 12 references to any party to this Deed or any other Subject Document shall include reference to such party's successors and permitted assigns; (E) words importing the plural shall include the singular and vice versa; (F) references to a person shall be construed as references to an individual, firm, company, corporation, unincorporated body of persons or any state or any agency thereof; (G) where any matter under any Security Document requires the approval or consent of the Lender, such approval or consent shall not be deemed to have been given unless given in writing; where any matter under any Security Document is required to be acceptable to the Lender, the Lender shall not be deemed to have accepted such matter unless its acceptance is communicated in writing; the Lender may give or withhold its consent, approval or acceptance under any Security Document subject to it not being unreasonably withheld or delayed and such consent, approval or acceptance may be given by the Lender subject to such conditions as it may reasonably impose; (H) a certificate by the Lender as to any amount due or calculation made hereunder shall be conclusive except for manifest error; and (I) references to any statute or other legislative provision are to be construed as references to any such statute or other legislative provision as the same may be re-enacted or modified or substituted by any subsequent statute or legislative provision. 2. CHARGE ------ In consideration of the sum of USD10 and other good and valuable consideration and the Lender agreeing at the request of the Shareholder to make the Loan available to the Borrowers in accordance with the terms of the Loan Agreement and in order to secure the payment of the Outstanding Indebtedness in accordance with the provisions of the Security Documents and to secure the performance and observance of all of the agreements, covenants, undertakings and provisions contained in the Security Documents, the Shareholder hereby charges the Charged Property to the Lender by way of first priority fixed charge. 3. SURVIVAL OF SHAREHOLDER'S LIABILITY ----------------------------------- The Shareholder's liability to the Lender under this Deed shall not be discharged, impaired or otherwise affected by reason of any of the following events or circumstances (regardless of whether any such events or circumstances occur with or without the Shareholder's knowledge or consent):- (A) any time, forbearance or other indulgence given or agreed by the Lender to or with any Obligor in respect of any of its obligations under any of the Security Documents; or - 4 - (B) any legal limitation, disability or incapacity relating to any Obligor; or (C) any invalidity, irregularity, unenforceability, imperfection or avoidance of or any defect in any security granted by, or the obligations of any Obligor under the Security Documents or any of them or any amendment to or variation thereof or of any other document or security comprised therein (whether or not known to the Lender); or (D) any change in the name, constitution or otherwise of any Obligor or the merger of any Obligor by or with any other person; or (E) the liquidation, bankruptcy or dissolution (or proceedings analogous thereto) of any Obligor or the appointment of a receiver or administrative receiver or administrator or trustee or similar officer of any of the assets of any Obligor or the occurrence of any circumstances whatsoever affecting any Obligor's liability to discharge its respective obligations under any of the Security Documents; or (F) any challenge, dispute or avoidance by any liquidator of any Obligor in respect of any claim by the Shareholder by right of subrogation in any such liquidation; or (G) any release, renewal, exchange or realisation of any security or obligation provided under or by virtue of any of the Security Documents or the provision by the Lender at any time of any further security for the obligations of the Obligors under any of the Security Documents; or (H) any release of any guarantor or any release of any third party Obligor in respect of the obligations of any of the Obligors' under any of the Security Documents; or (I) any failure on the part of the Lender (whether intentional or not) to take or perfect any security agreed to be taken under or in relation to any of the Security Documents; or (J) any other act, matter or thing which might otherwise constitute a legal or equitable discharge of the obligations of the Shareholder hereunder. 4. CONTINUING CHARGE ----------------- 4.1 Duration of charge ------------------ The charge herein shall be:- (A) a continuing security remaining in full force and effect until payment in full has been received by the Lender of each and every part and the ultimate balance of the Outstanding Indebtedness in whatever currency or currencies the same may from time to time be denominated in accordance with the Loan Agreement; - 5 - (B) in addition to and not in substitution for or in derogation of any other security held by the Lender from time to time in respect of the Outstanding Indebtedness or any part thereof. Restriction on discharge of this Deed ------------------------------------- 4.2 Any satisfaction of obligations by the Shareholder to the Lender or any discharge given by the Lender to the Shareholder or any other agreement reached between the Lender and the Shareholder in relation to this Deed shall be, and be deemed always to have been, void ab initio if any act satisfying any of the said obligations or on the faith of which any such discharge was given or any such agreement was entered into is subsequently avoided in whole or in part by or pursuant to any provision of any applicable law whatsoever. 5. EXCLUSION OF THE SHAREHOLDER'S RIGHTS ------------------------------------- Until the actual and contingent obligations of each Obligor under the Security Documents have been performed in full the Shareholder shall not:- (A) be entitled to share in or succeed to or benefit from (by subrogation or otherwise) any rights which the Lender may have in respect of the Outstanding Indebtedness or any security therefor or all or any of the proceeds of such rights or security; or (B) without the prior consent of the Lender:- (i) exercise in respect of any amount paid by it hereunder any right of subrogation, contribution or any other right or remedy which it may have in respect thereof; or (ii) claim payment of any other moneys for the time being due to it by any other Obligor or exercise any other right or remedy in respect thereof; or (iii) prove in a liquidation of any Obligor in competition with the Lender for any moneys owing to the Shareholder by any other Obligor on any account whatsoever; (iv) take from any Obligor any undertaking or security in respect of the liability of the Shareholder hereunder or in respect of any other liability of any Obligor to the Shareholder; or (v) exercise any right of set-off or counterclaim to which the Shareholder may be entitled against any Obligor; provided always that if the Shareholder, in breach of this Clause, receives or recovers any moneys pursuant to any such exercise, claim or proof, such moneys shall be held - 6 - by the Shareholder upon trust for the Lender to apply the same as if they were moneys received or recovered by the Lender under this Deed. 6. OBLIGATION TO PROVE IN LIQUIDATION ---------------------------------- The Shareholder shall, if the Lender so instructs, prove in a liquidation of an Obligor for any amounts owed to the Shareholder by such Obligor in connection with this Deed provided that any moneys received or recovered by the Shareholder in such liquidation shall be paid to the Lender on its request and, pending such payment, be held by the Shareholder upon trust for the Lender to apply the same as if they were moneys received or recovered by the Lender under this Deed. 7. SUSPENSE ACCOUNT ---------------- Any moneys received or recovered by the Lender under or in connection with this Deed may, at the Lender's discretion, be credited to any suspense or impersonal account with the Lender and may be held in such account for so long as the Lender thinks fit pending application at the Lender's discretion from time to time in or towards the discharge of the obligations of any Obligor under the Security Documents. Provided that the Lender is satisfied that payment received from the Shareholder is not liable to be set aside and that the Lender may not be placed under an obligation to repay such amount to the Shareholder or any liquidator or similar official appointed in respect of the Shareholder or its assets, the Lender shall, when the amount accumulated in the suspense account is sufficient to meet in full all the Outstanding Indebtedness, apply the balance standing to the credit of the suspense account to discharge the Outstanding Indebtedness. 8. ENFORCEMENT ----------- 8.1 Enforceability -------------- The security constituted by this Deed shall become immediately enforceable upon the happening of any Event of Default. 8.2 Taking of action ---------------- At any time after the happening of any Event of Default the Lender shall be entitled without further notice to the Shareholder :- (A) to apply any cash for the time being comprised in the Charged Property in or towards payment of the Outstanding Indebtedness in accordance with the provisions of Clause 10.5 of the Loan Agreement; (B) to sell or convert into money all or any part of the Charged Property (not consisting of cash) in such manner and upon such terms and for such consideration, whether in cash, securities or other assets and whether deferred or not, as the Lender may in its unfettered discretion think fit; - 7 - (C) to exercise all other powers or rights incidental to the Charged Property or any part thereof (including, without limitation, to complete the letters of resignation referred to in Clause 10.2 by dating the same and to appoint directors and managers of the Company) in such manner as the Lender may in its unfettered discretion think fit; and (D) to complete by dating the same the share transfer forms made out in blank delivered to the Lender pursuant to Clause 10.2 in respect of the shares comprised in the Charged Property and to transfer all or any of such shares into the name of the Lender or its nominee as registered owner and to exercise the voting rights attached to the shares in such manner as the Lender may in its unfettered discretion think fit. 8.3 Notice of taking of action -------------------------- The Lender confirms that as a matter of practice it is its intention to give notice to the Shareholder of any proposal by it to exercise its rights and powers specified above but failure by the Lender to give any such notice shall not prejudice its right to exercise such rights and powers or give rise to any liability to the Shareholder. 8.4 Sale of Charged Property ------------------------ On any sale of the Charged Property or part thereof, the purchaser shall not be bound to see or enquire whether the Lender's power of sale has arisen in the manner provided herein and the sale shall be deemed to be within the power of the Lender and the receipt of the Lender for the purchase money shall effectively discharge the purchaser who shall not be concerned with the manner of application of the proceeds of sale or be in any way answerable therefor. 8.5 Law of Property Act 1925 ------------------------ Sections 93 and 103 of the Law of Property Act 1925 shall not apply hereto. 8.6 Rights prior to commencement of charge -------------------------------------- Until the security hereby constituted becomes enforceable, the Shareholder shall be entitled to exercise all the voting rights attaching to the shares comprised in the Charged Property at any annual or extraordinary meeting of the shareholders of the Company. The Lender shall be provided with a certified copy of resolutions passed at any such meeting. 8.7 Steps to enforce security ------------------------- The Lender shall not be obliged before taking steps to enforce its rights under this Deed:- (A) to obtain judgment against any Obligor in any court or other tribunal; or (B) to make or file any claim in a bankruptcy or liquidation of any Obligor; or - 8 - (C) to take any action whatsoever against any Obligor under any of the Security Documents; and the Shareholder hereby waives all such formalities or rights to which it would otherwise be entitled or which the Lender would otherwise first be required to satisfy or fulfil before proceeding or making demand against the Shareholder hereunder. 8.8 Cost and expenses ----------------- All legal and other costs and expenses (including stamp duty, if any) reasonably incurred by the parties hereto in connection with the negotiation, preparation, completion and any registration and/or recording of this Deed and the other Security Documents and the action to be taken to give effect to them including all costs and expenses incurred by the Lender in enforcing this Deed and in protecting and enforcing its interests hereunder in any court of law or otherwise shall be paid in accordance with clause 20 of the Loan Agreement. 9. REPRESENTATIONS AND WARRANTIES ------------------------------ 9.1 The Shareholder represents and warrants to the Lender at the date hereof and/or as otherwise specified herein that:- (A) Status ------ It is a limited liability company, duly constituted and validly existing under the laws of the Bermuda possessing the capacity to sue and be sued in its own name and the power to own its assets and carry on its business as it is now being conducted. (B) Power and authority ------------------- It has the power to enter into and perform its obligations under this Deed and the charge created hereby and has taken all necessary corporate and shareholder action to authorise the entry into and performance of this Deed. (C) Legal validity -------------- This Deed constitutes legal, valid and binding obligations of the Shareholder enforceable in accordance with its terms except as such enforcement may be limited by any relevant bankruptcy, insolvency, administration or similar laws affecting creditors' rights generally and by principles of equity. (D) Non-conflict with laws ---------------------- The entry into and performance of this Deed and the transactions contemplated hereby do not and will not be a breach of or conflict with:- (i) any law or regulation or any official or judicial order existing at the date hereof; or - 9 - (ii) the constitutional documents of the Shareholder; or (iii) any agreement or document to which the Shareholder is a party or which is binding upon it or any of its assets; nor result in the creation or imposition of any Encumbrance on any of its assets pursuant to the provisions of any such agreement or document. (E) Consents -------- All authorisations, approvals, consents, licences, exemptions, filings, registrations, notarisations and other matters, official or otherwise, required in connection with the entry into, performance, validity and enforceability of this Deed and the transactions contemplated hereby have been obtained or effected and are in full force and effect. (F) Registration of Deed -------------------- The Shareholder does not have a place of business in any jurisdiction other than in Bermuda which would require this Deed to be filed or registered if the Shareholder had a place of business in that jurisdiction to ensure the validity of this Deed. (G) Ownership of shares ------------------- All the issued shares of the Company are legally and beneficially owned by the Shareholder, each of the said shares is fully paid and non-assessable and none of the said shares in the Company is subject to any option or Encumbrance except as created by this Deed. 9.2 Survival of representations and warranties ------------------------------------------ The representations and warranties set out in Clause 9.1 (A), (B), (C), (D)(ii), (D)(iii), (F) and (G) shall survive the execution of this Deed and shall be deemed to be repeated with reference mutatis mutandis to the facts and circumstances then subsisting, as if made on each day until the actual and contingent obligations of each Obligor under the Security Documents have been performed in full. 10. UNDERTAKINGS ------------ 10.1 Duration -------- The undertakings in this Clause 10 shall remain in force from and after the date hereof until all the actual and contingent obligations of each Obligor under the Security Documents have been performed in full. - 10 - 10.2 Deposit of documents -------------------- The Shareholder shall procure that until the Outstanding Indebtedness has been discharged there shall be deposited by way of security with the Lender:- (A) the Articles of Incorporation and By-Laws, minute books, all blank stock or other certificates and all corporate seals of the Company; (B) the stock or share certificates representing the shares comprised in the Charged Property together with executed and undated share transfer forms in respect of such shares made out in blank and any other documents of title to any part of the Charged Property; (C) the share register (if any) of the Company; (D) executed undated resignations from each director and officer of the Company from time to time in the form of Schedule 1; (E) an irrevocable proxy from the Shareholder in respect of the shares comprised in the Charged Property in the form of Schedule 2. 10.3 Negative pledge --------------- The Shareholder shall not, save as herein provided, without the prior consent of the Lender, sell, assign, transfer, charge, pledge or encumber in any manner any part of the Charged Property or agree to do any of the aforesaid or suffer to exist any Encumbrance or option on, over or in respect of all or any part of the Charged Property except by way of Permitted Encumbrances. 10.4 Restriction on issue of further shares -------------------------------------- The Shareholder shall not, without the prior consent of the Lender, procure or authorise or permit the issue of any further shares in the Company unless such further shares are charged to the Lender in terms similar to the terms hereof as if they were included in the Charged Property. If, despite the provisions of this sub-clause, any further such shares are issued without the prior consent of the Lender, the Shareholder shall procure that such further shares are held on the terms hereof as if they were included in the Charged Property. 10.5 Appointment of directors and officers ------------------------------------- The Shareholder shall notify the Lender immediately upon the appointment of any further director or officer of the Company and shall procure that, unless the Lender agrees otherwise, there is promptly delivered to the Lender an executed undated resignation from such director or officer in the form of Schedule 1. - 11 - 10.6 Notice of this Deed ------------------- The Shareholder shall deliver a certified copy of this Deed to the Company for the purpose of giving the Company notice of the charge herein contained and shall procure that the Company will deliver to the Lender an acknowledgement of such notice. 10.7 Further assurance ----------------- The Shareholder shall, from time to time on being required to do so by the Lender, do or procure the doing of all such acts and/or execute or procure the execution of all such documents in a form satisfactory to the Lender as the Lender may reasonably consider necessary for giving full effect to any of the Security Documents including this Deed or securing to the Lender the full benefit of the rights, powers and remedies conferred upon it in any such Security Document including this Deed. 11. MISCELLANEOUS ------------- 11.1 No waiver --------- No failure to exercise and no delay in exercising on the part of the Lender any right or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right or remedy preclude any other or further exercise thereof or the exercise of any other right or remedy. No waiver by the Lender shall be effective unless it is in writing. 11.2 Remedies cumulative ------------------- The rights and remedies of the Lender provided herein are cumulative and not exclusive of any rights or remedies provided by law. 11.3 Severability ------------ If any provision of this Deed or any of the other Security Documents is prohibited or unenforceable in any jurisdiction, such prohibition or unenforceability shall not invalidate the remaining provisions hereof or affect the validity or enforceability of such provision in any other jurisdiction. 11.4 Time of essence --------------- Time is of the essence in respect of all of the obligations of the Shareholder under this Deed. - 12 - 12. ASSIGNMENT ---------- 12.1 Benefit of assignment --------------------- This Deed shall be binding upon the Shareholder and its successors and shall inure to the benefit of the Lender and its successors and assigns. 12.2 Transfers of rights and obligations ----------------------------------- The Shareholder may shall not be entitled to assign or transfer all or any of its rights, benefits and obligations hereunder. The Lender may at any time assign all or any part of its rights and benefits hereunder or transfer in accordance with Clause 19.2 of the Loan Agreement and the Shareholder hereby consents to the assignment on the date hereof by the Lender to the Bank of its rights and benefits hereunder. 12.3 Disclosure of information ------------------------- The Lender may disclose to any actual or potential assignee, transferee or to any person who may otherwise propose to enter into contractual relations with any of them in relation to this Deed or the other Security Documents or any of them such information about the Shareholder and any Obligors as the Lender shall consider appropriate. 12.4 Effectiveness ------------- The Shareholder will, at the request of the Lender execute or procure the execution of such documents and do (or procure the doing of) all such acts and things as may be necessary or desirable to give effect to any transfer or assignment pursuant to this Clause 12. 13. NOTICES ------- 13.1 Mode of Communication --------------------- Except as otherwise provided herein, each notice, request, demand or other communication or document to be given or made hereunder shall be given in writing but unless otherwise stated, may be made by telex or telefax. 13.2 Address ------- Any notice, demand or other communication to be made or delivered pursuant to this Deed shall be made or delivered as follows:- (i) if to the Shareholder to it at 4000 Hollywood Boulevard, Hollywood, Florida 33021 telefax number (305) 9672147 marked for the attention of Alan Pritzker and Fred Mayer with a further copy to Broad & Cassel, Miami Centre, 201 South Biscayne Boulevard, Suite 3000, Miami, Florida 33131 telefax number 305 373 9493 marked for the attention of James Cassel with a further copy to JeMJ Financial Services Inc, TelMed, Inc., 9350 S. Dixie Highway, Suite - 13 - 1220 Miami, Florida 33156 telefax number (305) 238 6248 marked for the attention of Jeffrey I. Binder; (ii) if to the Lender to it c/o Effjohn OY AB at Bulevardi 1A, PO Box 659, 00101 Helsinki, Finland telefax number 3580 627736 marked for the attention of finance department or such other address telex number or telefax number as each such addressee may specify to the other relevant party or parties by not less than fifteen (15) days' written notice. 13.3 Receipt ------- Each such notice, demand, request or other communication shall be deemed to have been made or delivered when:- (A) (in the case of telex) the addressee's answerback shall have been received at the end of the transmission or (in the case of telefax) when a materially complete and legible copy of the communication has been received by the addressee (unless the date of despatch is not a Banking Day in the country of the addressee or the time of despatch is outside normal business hours in the country of the addressee, in which case such telex or telefax shall be deemed to have been received at the opening of business on the next such Banking Day; or (B) (in the case of any letter) when delivered to the addressee's address as specified in or notified pursuant to Clause 13.2 or, if sent by post first class postage prepaid in an envelope addressed to the addressee at that address five (5) days after being deposited in the post. 13.4 Language -------- Each notice, demand, request or other communication made or delivered by one party to another pursuant to this Deed or any other Security Document shall be in the English language or accompanied by a certified English translation. 14. GOVERNING LAW ------------- This Deed shall be governed by and construed in accordance with English law. 15. WAIVER OF IMMUNITY ------------------ The Shareholder irrevocably and unconditionally:- (A) waives any right of immunity which it or its assets now has or may hereafter acquire in relation to any legal proceedings (including but without limitation actions in rem and/or in personam) brought against it or its assets in relation to this Deed by the Lender; and - 14 - (B) consents generally in respect of any such proceedings to the giving of any relief or the issue of any process in connection with such proceedings, including, without limitation, the making, enforcement or execution against any property whatsoever (irrespective of its use or intended use) of any order or judgment which may be made or given in such proceedings. 16. JURISDICTION ------------ 16.1 Submission to jurisdiction -------------------------- For the exclusive benefit of the Lender, the parties hereto hereby irrevocably submit to the non-exclusive jurisdiction of the High Courts of Justice in England provided that the Lender (but not the Shareholder) shall be at liberty in addition or alternatively to take proceedings in the courts of any other country which may have jurisdiction or in which the Shareholder may reasonably be thought to have assets. The Shareholder hereby irrevocably authorises and appoints the Process Agent for the acceptance of service of legal proceedings under this Deed, service upon whom shall be deemed to constitute good service of legal process without prejudice to any other lawful means and undertakes to maintain a process agent in England. IN WITNESS whereof this Deed has been executed by the Shareholder on the day first written above. - 15 - THE SHAREHOLDER - --------------- SIGNED SEALED AND DELIVERED AS A DEED ) by /s/ James Scott Cassel ) /s/ James Scott Cassel the duly authorised Attorney-in-Fact ) for and on behalf of ) NEW COMMODORE CRUISE LINES LIMITED ) in the presence of:- [TEXT ILLEGIBLE] ) /s/ L. Dodson THE LENDER - ---------- SIGNED SEALED AND DELIVERED AS A DEED ) by [SIGNATURE ILLEGIBLE] ) /s/ Thomas Forss the duly authorized Attorney-in-Fact ) for and on behalf of ) EFFJOHN INTERNATIONAL CRUISE HOLDINGS INC. ) in the presence of:- [SIGNATURE ILLEGIBLE] ) /s/ L. Dodson - 16 - SCHEDULE 1 ---------- Letter of Resignation --------------------- To: The Secretary Almira Enterprises, Inc. (the "Company") Dear Sirs, Loan Agreement dated 1995 (the "Loan Agreement") ---------------------- 1. I hereby resign as a [director/secretary/or other officer] of the Company and confirm that I have no claims against the Company for loss of office, arrears of pay or otherwise howsoever. 2. This resignation is to be effective as at the date hereof. Yours faithfully, - 17 - SCHEDULE 2 ---------- Irrevocable Proxy ----------------- The undersigned, being the owner of 500 shares (the "Shares") of Almira Enterprises, Inc., (the "Company"), a Panamanian corporation hereby makes, constitutes and appoints Effjohn International Cruise Holdings Inc. as the true and lawful attorney and proxy of the undersigned with full power to appoint a nominee or nominees to act hereunder from time to time to vote all or any of the shares represented by the share certificates of the Company numbered 1 at all annual and special general meetings of the shareholders of the Company with the same force and effect as the undersigned might or could do and to requisition and convene a meeting or meetings of the shareholders of the Company for the purposes of appointing or confirming the appointment of new directors of the Company and/or such other matters as may in the opinion of Effjohn International Cruise Holdings Inc. be necessary or desirable for the purpose of implementing the Deed of Charge referred to below and the undersigned hereby ratifies and confirms all that the said attorney or its nominee or nominees shall do or cause to be done by virtue hereof. The said shares have been charged to Effjohn International Cruise Holdings Inc. pursuant to a deed (the "Deed of Charge") dated 1995. This power and proxy is coupled with an interest and is irrevocable and shall remain irrevocable as long as the Deed of Charge is outstanding. IN WITNESS whereof this instrument has been duly executed as a deed this day of 1995. SIGNED SEALED AND DELIVERED AS A DEED ) by ) the duly authorised Attorney-in-Fact ) for and on behalf of ) NEW COMMODORE CRUISE LINES LIMITED ) in the presence of:- ) Letter of Resignation Messrs. Almira Enterprises, Inc. (the "Company") Dear Sirs: I hereby resign as President of the Company and confirm that I have no claims against the Company for loss of office, arrears of pay or otherwise howsoever. This resignation is to be effective as at the date hereof. Yours faithfully, /s/ Leopoldo Lopez ------------------ Leopoldo Lopez Letter of Resignation Messrs. Almira Enterprises, Inc. (the "Company") Dear Sirs: I hereby resign as Secretary of the Company and confirm that I have no claims against the Company for loss of office, arrears of pay or otherwise howsoever. This resignation is to be effective as at the date hereof. Yours faithfully, /s/ Maxilia Cedeno de Morales ----------------------------- Maxilia Cedeno de Morales Letter of Resignation Messrs. Almira Enterprises, Inc. (the "Company") Dear Sirs: I hereby resign as Treasurer of the Company and confirm that I have no claims against the Company for loss of office, arrears of pay or otherwise howsoever. This resignation is to be effective as at the date hereof. Yours faithfully, /s/ Roberto Chevalier Valencia ------------------------------ Roberto Chevalier Valencia Letter of Resignation Messrs. Almira Enterprises, Inc. (the "Company") Dear Sirs: I hereby resign as director of the Company and confirm that I have no claims against the Company for loss of office, arrears of pay or otherwise howsoever. This resignation is to be effective as at the date hereof. Yours faithfully, /s/ Roberto Chevalier Valencia ------------------------------ Roberto Chevalier Valencia Letter of Resignation Messrs. Almira Enterprises, Inc. (the "Company") Dear Sirs: I hereby resign as director of the Company and confirm that I have no claims against the Company for loss of office, arrears of pay or otherwise howsoever. This resignation is to be effective as at the date hereof. Yours faithfully, /s/ Maxilia Cadeno de Morales ----------------------------- Maxilia Cadeno de Morales Letter of Resignation Messrs. Almira Enterprises, Inc. (the "Company") Dear Sirs: I hereby resign as director of the Company and confirm that I have no claims against the Company for loss of office, arrears of pay or otherwise howsoever. This resignation is to be effective as at the date hereof. Yours faithfully, /s/ Leopolda Lopez ------------------ Leopolda Lopez STOCK POWER FOR VALUE RECEIVED, New Commodore Cruise Lines Limited ------------------------------------------------------------ PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE ---------------------------------- hereby sell, assign and transfer unto __________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ( 500 ) Shares of the __________________ Capital Stock of ______________ - --------------- Almira Enterprises, Inc. Standing in my (our) - ------------------------------------------------------- name(s) on the books of said Corporation represented by Certificate(s) No(s) 1 ---- herewith, and do hereby irrevocably constitute and appoint _____________________ _____________________________________________ attorney to transfer the said stock on the books of said Corporation with full power of substitution in the premises. Dated ______________________________ /s/ James Scott Cassel ---------------------- Attorney-in-Fact In presence of /s/ Lara Dobson - --------------------- Solicitor [STOCK CERTIFICATE APPEARS HERE] Irrevocable Proxy ----------------- The undersigned, being the owner of 500 shares (the "Shares") of Almira Enterprises, Inc., (the "Company"), a Panamanian corporation hereby makes, constitutes and appoints Effjohn International Cruise Holdings Inc. as the true and lawful attorney and proxy of the undersigned with full power to appoint a nominee or nominees to act hereunder from time to time to vote all or any of the shares represented by the share certificates of the Company numbered 1 at all annual and special general meetings of the shareholders of the Company with the same force and effect as the undersigned might or could do and to requistion and convene a meeting or meetings of the shareholders of the Company for the purposes of appointing or confirming the appointment of new directors of the Company and/or such other matters as may in the opinion of Effjohn International Cruise Holdings inc. be necessary or desirable for the purpose of implementing the Deed of Charge referred to below and the undersigned hereby ratifies and confirms all that the said attorney or its nominee or nominees shall do or cause to be done by virtue hereof. The said shares have been charged to Effjohn International Cruise Holdings Inc. pursuant to a deed (the "Deed of Charge") dated 14 July 1995. This power and proxy is coupled with an interest and is irrevocable and shall remain irrevocable as long as the Deed of Charge is outstanding. IN WITNESS whereof this instructor has been duly executed as a deed this 14 day of July 1995. SIGNED SEALED AND DELIVERED AS A DEED ) by JAMES SCOTT CASSEL ) the duly authorized Attorney-in-Fact ) for and on behalf of ) /s/ James Scott Cassel NEW COMMODORE CRUISE LINES LIMITED ) in the presence of :- LARA DOBSON, ) LONDON SOLICITOR ) /s/ L. Dobson EX-10.V 17 EXHIBIT 10V: TRIPARTITE DEED EXECUTION COPY -------------- Dated 14 July ,1995 --------------------- Azure Investments, Inc. as owner New Commodore Cruise Lines Limited as bareboat charterer - and - Effjohn International Cruise Holdings, Inc. as lender ------------------------------------------ FIRST PRIORITY TRIPARTITE DEED IN RESPECT OF M.V. "Enchanted Seas" ------------------------------------------ Sinclair Roche & Temperley Broadwalk House 5 Appold Street London EC2A 2NN Tel: 0171 638 9044 Ref: JPM/180210 INDEX -----
Clause Subject Matter Page - ------ -------------- ---- 1. Definitions 2 2. Representations and Warranties 4 3. Assignment and Charge 7 4. Owner's Undertakings 9 5. Bareboat Charterer's Undertakings 11 6. General Undertakings 13 7. Owner's and Bareboat Charterer's Liability Not Affected 15 8. Performance 16 9. Appointment of Attorney 17 10. Consent 17 11. Taxes 17 12. Further Assurance 17 13. Continuing Security 17 14. Obligation to Prove in Liquidation 18 15. Suspense Account 18 16. Protection of Security 18 17. Lender's Powers 19 18. Application of Moneys 20 19. Successors and Assigns 20 20. Notices 20 21. Expenses 21 22. Law and Jurisdiction 21 23. Currency Losses 22 24. Miscellaneous 22 SCHEDULE A 25 SCHEDULE B 27 SCHEDULE C 28 SCHEDULE D 32
THIS DEED is made the 14 day of July , 1995 BETWEEN:- (1) AZURE INVESTMENTS, INC., a company incorporated under the laws of the Republic of Panama, with its registered office at c/o Galindo Arias & Lopez, 200 Via Espana, Panama 5, Panama City, Republic of Panama as owner (the "Owner"); (2) NEW COMMODORE CRUISE LINES LIMITED, a company incorporated under the laws of the Bermuda with its registered office at c/o Ardon Management Services, Ltd., c/o Richards Francis & Francis, Cedarpark Centre, 48 Cedar Avenue, Hamilton HM11, Bermuda as bareboat charterer (the "Bareboat Charterer"); (3) EFFJOHN INTERNATIONAL CRUISE HOLDINGS INC., a company incorporated under the laws of the Cayman Islands with its registered office at Caledonian Bank & Trust Limited, P O Box 1043, Grand Cayman, Cayman Islands as lender (the "Lender"). WHEREAS:- (A) The Owner is the registered owner of m.v. "Enchanted Seas", registered in the name and ownership of the Owner under the laws and flag of the Republic of the Panama under Provisional Patente 12355-text-g(the "Vessel"); (B) By a loan agreement dated 14 July , 1995 (as the same may from time to time be amended and supplemented called the "Loan Agreement") and made between (1) Almira Enterprises, Inc and the Owner (the "Borrowers") (2) the Lender (3) the Bareboat Charterer and Commodore Holdings Limited as guarantors the Lender has agreed at the request of the Borrowers to make available to the Borrowers jointly and severally a loan facility of twenty four million five hundred thousand Dollars (USD24,500,000) (the "Loan") for the purposes and on the terms and conditions therein contained; (C) By a bareboat charter dated 14 July 199 (as the same may be amended and supplemented called the "Bareboat Charter") made between (1) the Owner and (2) the Bareboat Charterer, the Owner has agreed to let and the Bareboat Charterer has agreed to take the Vessel for the period and upon the terms and conditions therein mentioned with effect from the date hereof on bareboat charter; (D) As security for the Owner's obligations to the Lender under the Loan Agreement, the Owner has agreed to execute in favour of the Lender a first preferred mortgage over the Vessel of even date hereof (as the same may be amended and supplemented called the "Mortgage"); (F) As further security for the Owner's obligations under the Loan Agreement and as a condition precedent to the drawdown of the Loan the Owner and the Bareboat Charterer have agreed to execute this Deed in favour of the Lender. (G) The Bareboat Charterer has received a copy of the Mortgage and the Loan Agreement and is fully conversant with the terms thereof. - 2 - NOW THIS DEED WITNESSETH as follows:- 1. DEFINITIONS - -- ----------- 1.1 In this Deed including the recitals, the following terms and expressions shall have the meanings set out below; in addition, terms and expressions not defined herein but whose meanings are defined in the Loan Agreement shall have the meanings set out therein:- "Assigned Property" means the Owner's Assigned Property and/or the Bareboat Charterer's Assigned Property (as hereinafter defined) as the context may require; "Bareboat Charter" means the Bareboat Charter referred to in recital (C); "Bareboat Charterer" means the Bareboat Charterer referred to in the recitals; "Bareboat Charterer's Assigned Property" means all of the Bareboat Charterer's rights, title and interest in, to and under the Bareboat Charterer's Earnings, the Insurances (including claims of whatsoever nature and return of premiums in respect of the Insurances), Requisition Compensation, and any sub-charter; "Bareboat Charterer's Earnings" means that part of the Earnings constituted by all moneys whatsoever due or to become due for the account of the Bareboat Charterer arising howsoever in connection with any sub-charter; "this Deed" means this first priority general assignment; "Default Rate" means the rate of interest specified in Clause 6.5 of the Loan Agreement; "Drawdown Date" means the date of drawdown of the Loan; "excess risks" means the proportion of claims for general average and salvage charges and under the ordinary running-down clause not recoverable in consequence of the value at which a vessel is assessed for the purpose of such claim exceeding her insured value; "Insurer" means any underwriter, insurer, club and/or association providing and/or effecting any of the Insurances and/or any broker or agent through whom any of the Insurances are provided and/or effected; "Owner's Assigned Property" means all of the Owner's rights, title and interest in, to and under the Earnings, the Insurances (including claims of whatsoever nature and return of premiums in respect of the Insurances), Requisition Compensation, the Bareboat Charter and the Owner's Earnings; "Owner's Earnings" means that part of the Earnings constituted by all moneys whatsoever due or to become due to or for the account of the Owner arising howsoever in connection with the Bareboat Charter; - 3 - "protection and indemnity risks" means all risks covered by a major protection and indemnity association including the proportion not recoverable in case of collision under the ordinary running-down clause; "war risks" means the risk of mines and all risks excluded from the standard form of English marine policy by the free of capture and seizure clause. 1.2 In this Deed unless the context otherwise requires:- 1.3 clause headings are inserted for convenience of reference only and shall be ignored in the interpretation of this Deed; 1.4 references to Clauses and Schedules are to be construed as references to Clauses of and Schedules to this Deed unless otherwise stated and references to this Deed are to be construed as references to this Deed including its Schedules; 1.5 reference to (or to any specified provision thereof) of this Deed or any other Subject Document shall be construed as reference to this Deed, that provision or that Subject Document, as from time to time amended, supplemented and/or novated; 1.6 without prejudice to the provisions of Clause 19 references to any party to this Deed or any other Subject Document shall, include reference to such party's successors and permitted assigns; 1.7 words importing the plural shall include the singular and vice versa; 1.8 reference to a person shall be construed as references to an individual, firm, company, corporation, unincorporated body of persons or any state or any agency thereof; 1.9 where any matter under any Security Document requires the approval or consent of the Lender such approval or consent shall not be deemed to have been given unless given in writing; where any matter under any Security Document is required to be acceptable to the Lender, the Lender shall not be deemed to have accepted such matter unless its acceptance is communicated in writing; the Lender may give or withhold its consent, approval or acceptance under any Security Document subject to it not being unreasonably withheld or delayed and such consent, approval or 1.10 acceptance may be given by the Lender subject to such conditions as it may reasonably impose; 1.11 a certificate by the Lender as to any amount due or calculation made hereunder shall be conclusive except for manifest error; and references to any statute or other legislative provision are to be construed as references to any such statute or other legislative provision as the same may be re-enacted or modified or substituted by any subsequent statute or legislative provision. - 4 - 2. REPRESENTATIONS AND WARRANTIES - -- ------------------------------ 2.1 The Bareboat Charterer hereby represents and warrants to the Lender that:- (a) it is and will remain duly incorporated and validly existing under its country of incorporation as a limited liability company, has full power and capacity to carry on its business as it is now being conducted and to own its property and other assets and has complied with all statutory and other requirements relative to its business; (b) upon the expiry of the Lay-Up Period the Vessel will not be subject to any contract commitment or other arrangement for its employment except for the Bareboat Charter or any permitted sub-charter or as otherwise as disclosed to and agreed by the Lender; (c) to the extent of its obligations thereunder, it has and will continue to have full power and authority to enter into and perform such of the Subject Documents to which it is or is to become a party, has taken all necessary corporate or other action (as the case may be) required to enable it to do so and will duly perform and observe the terms thereof; (d) each of the Subject Documents to which it is or is to become a party constitutes or will, upon execution and delivery, constitute valid and legally binding obligations of the parties thereto enforceable by the Obligors thereto in accordance with its terms save for laws restricting creditor's rights generally; (e) except for the registration of the Mortgage with the appropriate authorities of the Flag State and the charges created by the Security Documents recorded in the appropriate companies' registry, or filed in the relevant jurisdictions in the United States of America all consents, licences, approvals, registrations or authorisations of governmental authorities and agencies or declarations to creditors required (i) to make each of the Subject Documents valid, enforceable and admissible in evidence and (ii) to authorise or otherwise permit the execution and delivery of the Subject Documents and the performance by the parties thereto (except the Lender) of each of them have been obtained or made and are in full force and effect and there has been no material default in the observance of any of the terms or conditions of any of them; (f) except for registration of the Mortgage with the appropriate authorities of the Flag State and the lodging for registration of certain of the Subject Documents at any appropriate companies' registry or filed in the relevant jurisdictions in the United States of America none of the Subject Documents is required to be - 5 - filed, recorded, enrolled or in any way whatsoever registered with any governmental authority or agency of or in England, Panama, Bermuda, the United States of America, or, to the best of its belief in any other country, or to be stamped with any stamp duty or similar tax, levy or impost in any such country in order to ensure the legal validity, enforceability or admissibility in evidence thereof; (g) it is not in default under any agreement to which it is a party or by which it may be bound (actually or contingently) which default would be likely to have a material adverse effect on its business, assets or condition or its ability to perform its obligations under such of the Subject Documents to which it is a party and, as at the date hereof, except as disclosed in writing to the Lender, no litigation or administrative proceedings involving it of or before any board of arbitration, court or governmental authority or agency is proceeding pending or (to its knowledge) threatened anywhere in the world the result of which would (if adversely determined) have or is likely to have a material adverse effect on the business, assets or financial condition of it and, in the event that any such litigation or proceedings shall hereafter arise, it hereby undertakes to give notice thereof to the Lender as soon as it becomes aware of any such litigation or proceedings; (h) it is not required by the laws of any country from which it may make any payment hereunder or under any of the Subject Documents to which it is a party to make any deduction or withholding from any such payment; (i) the execution, delivery and performance of such of the Subject Documents to which it is or will be a party will not violate or exceed the powers conferred upon it under its articles of incorporation and by-laws or other constituting or corporate documents or any provision of any applicable law existing at the date hereof or of any regulation, order or decree to which it is subject as at the date hereof or result howsoever in the creation or imposition of any Encumbrance (other than a Permitted Encumbrance) on all or part of its undertaking or assets; (j) such written financial and other information in respect of it as has been given to the Lender prior to the date hereof presented fairly and accurately the financial position of it as at the date such information was given and it does not have any material liabilities (contingent or otherwise) which were not disclosed; (k) the obligations of it under this Deed are its direct, general and unconditional obligations and rank at least pari passu with all its present and future unsecured and unsubordinated obligations (including contingent obligations) with the exception of such obligations as are mandatorily preferred by law and not by contract; (l) other than its office in Miami it does not have an office in the United States of America or in the United Kingdom or does business outside Florida or in the United Kingdom which gives rise to any liability to taxation or the registration of any Subject Documents; -6- (m) to the best of its knowledge and belief no event or circumstance constituting an Event of Default or Possible Event of Default has occurred and is continuing; (n) the technical management of the Vessel will be undertaken by the Technical Manager; (o) the commercial management of the Vessel will be undertaken by the Bareboat Charterer; (p) all information furnished by it or on its behalf in writing in connection with the negotiation and preparation of this Deed and the rest of the Subject Documents is to the best of its knowledge true and accurate in all respects and not misleading and does not omit any facts and there are no other facts the omission of which would make any such information misleading. 2.2 Each of the Owner and the Bareboat Charterer hereby represents and warrants to the Lender that:- (a) the Bareboat Charter has been duly entered into, is in full force and effect, and is enforceable in accordance with the terms thereof and no amendments thereto or variations thereof have been (or will be otherwise than within the terms of this Deed) agreed and there are no commissions, rebates, premiums or other payments in connection with the Bareboat Charter other than as disclosed to the Lender in writing on or prior to the date of this Deed; (b) save as disclosed to the Lender in writing, neither the Owner nor the Bareboat Charterer are in default under the Bareboat Charter and there are no actions suits or proceedings threatened by or against either the Owner or the Bareboat Charterer in connection with or arising out of the Bareboat Charter which would entitle any party to repudiate otherwise terminate or otherwise withdraw from (including in respect of the Owner, the right to withdraw the Vessel and in respect of the Bareboat Charterer to suspend payment of hire) or frustrate or in any way render the Bareboat Charter inoperative or unenforceable; (c) the Vessel has been delivered to and accepted by the Bareboat Charterer for service under the Bareboat Charter and is in every way fit for service under the Bareboat Charter; 2.3 Each of the Owner and the Bareboat Charterer hereby further represents and warrants to the Lender that on the Execution Date, the Drawdown Date and at the end of each Interest Period (other than in respect of (b), (g), (h), (n) and (o)) the representations and warranties contained in this Clause 2 (updated mutatis mutandis to each such date) shall be true and correct as if made at that time. - 7 - 3. ASSIGNMENT AND CHARGE --------------------- 3.1 In consideration of the Lender agreeing to make the Loan available to the Borrowers, the Owner as registered owner of the Vessel and for the purpose of securing the payment to the Lender of the Outstanding Indebtedness HEREBY ASSIGNS AND AGREES TO ASSIGN absolutely to the Lender by way of a first priority assignment all of the Owner's Assigned Property. 3.2 In consideration of the Lender agreeing to make the Loan available to the Borrowers and further in consideration of the Lender approving the terms and provisions of the Bareboat Charter, the Bareboat Charterer as disponent owner of the Vessel and for the purpose of securing the payment to the Lender of the Outstanding Indebtedness HEREBY ASSIGNS and AGREES TO ASSIGN absolutely to the Lender by way of a first priority assignment all of the Bareboat Charterer's Assigned Property. 3.3 The Owner further undertakes that in the event that the Bareboat Charter is terminated for whatever reason before the expiry of the Security Period the Owner shall forthwith upon being requested to do so by the Lender execute and deliver in favour of the Lender a specific assignment in writing of all its right, title and interest in, to and under any replacement charter or other contract or employment in respect of the Vessel. 3.4 (a) Throughout the Security Period the Owner and the Bareboat Charterer shall procure that:- (i) in the event that the FMC Guarantor has issued a letter of credit or other surety that is secured by the deposit in the FMC Collateral Account all moneys received in respect of advance bookings in respect of the Vessel are paid into the Operating Account at all times during such relevant part of the Security Period; (ii) in the event that the provisions of (i) do not apply all moneys received in respect of advance bookings in respect of the Vessel are paid into the Seas FMC Account in respect of the Vessel at all times throughout such relevant part of the Security Period; (iii) upon the release of any moneys from the Seas FMC Account pursuant to (ii) above such monies shall be paid into the Operating Account; (iv) all other Earnings of the Vessel shall be paid into the Operating Account at all times throughout the Security Period; and applied in accordance with clause 10 of the Loan Agreement. (b) Upon the occurrence of an Event of Default to the extent permitted by applicable law:- (i) the Owner and the Bareboat Charterer shall forthwith and the Lender may at any time thereafter instruct the persons from whom the - 8 - Earnings or Owner's Earnings or Bareboat Charterer's Earnings are or shall be due to pay the same to the Lender or as it may direct; and (ii) any sum in respect of Earnings or Owner's Earnings or Bareboat Charterer's Earnings then in the hands of the Owner's and/or the Bareboat Charterer's brokers, bankers or other agents or representatives shall be deemed to have been received by them for the use and on behalf of the Lender; (c) Each of the Owner and the Bareboat Charterer agree to comply with any instruction given to it under this Clause. (d) The Owner and the Bareboat Charterer each covenant with the Lender that the Earnings are free from any Encumbrance and shall be paid in the manner and currency or currencies as set out in accordance with Clause 11. 3.5 By virtue of being party to this Deed, the Bareboat Charterer hereby acknowledges the assignment by the Owner in favour of the Lender of the Owner's rights, title and interest in and to the Owner's Assigned Property and agrees to the assignment hereto. 3.6 The Bareboat Charterer undertakes that it will immediately (upon being requested to do so by the Lender) give notice of any assignment of sub- charter executed in favour of the Lender to any relevant sub-charterer or other person in the form of Schedule D hereto and will procure such person's acknowledgement thereto in the form of Schedule D hereto. 3.7 Each of the Owner and the Bareboat Charterer undertakes immediately to give notice of the assignment of Insurances contained in this Clause 3 to all Insurers in the form of Schedule B hereto and to obtain from such Insurers duly completed letters of undertaking substantially in the form of Schedule C or in such other form or forms as the Lender may agree. 3.8 Prior to the occurrence of an Event of Default any sums recoverable in respect of the Insurances shall be payable as follows:- (a) any and every sum recoverable in respect of a Total Loss under the Insurances against fire and all marine risks and war risks shall be paid to the Lender, and (b) any and every sum recoverable in respect of any claim exceeding one Million five Hundred Thousand Dollars (USD1,500,000) or its equivalent in any other currency ("Major Casualty") under the Insurances against fire and usual marine risks and war risks shall be paid to the Lender but so that such insurance monies should be applied by the Lender in or towards payment on behalf of the Bareboat Charterer to the relevant repairer, salvor or other relevant creditor in respect of the cost of repairs, salvage or other charges unless the Bareboat Charterer has first fully repaired the damage or secured complete discharge of the liability insured against or otherwise made good the loss in which case the Lender shall reimburse the Bareboat Charterer therefore up to the amount received by the Lender; and - 9 - (c) any and every other sum recoverable under the Insurances against fire and usual marine risks and war risks shall be paid to the Bareboat Charterer and shall be applied by the Bareboat Charterer for the purpose of making good the loss and fully repairing all damage in respect whereof the insurance moneys shall have been received; and (d) all sums recoverable under the Insurances against protection and indemnity risks shall be paid direct to the person to whom was incurred the liability to which such sum relates (or to the Bareboat Charterer or the Owner in reimbursement to either of them of moneys expended in satisfaction of such liability); and on or after the occurrence of an Event of Default any sums recoverable under the Insurances shall be payable to the Lender; (e) any Requisition Compensation shall at all times be payable to the Lender. 3.9 (a) To the extent that any Bareboat Charterer's Earnings are received and applied by the Lender or otherwise in accordance with Clause 3.4, such application shall be treated as being in pro tanto satisfaction of:- (i) the obligations of the Bareboat Charterer to make payments of those amounts to the Owner under the Bareboat Charter; and (ii) the obligations of the Owner to make payments of those amounts to the Lender under this Deed or any of the other Security Documents. (b) To the extent that any Owner's Earnings are received and applied by the Lender or otherwise in accordance with Clause 3.4, such application shall be treated as being in pro tanto satisfaction of:- (i) the obligations of the Bareboat Charterer to make payments of those amounts to the Owner under the Bareboat Charter; and (ii) the obligations of the Owner to make payments of those amounts to the Lender under this Deed or any of the other Security Documents. 4. OWNER'S UNDERTAKINGS - -- -------------------- 4.1 The Owner undertakes with the Lender throughout the Security Period:- (a) to do and permit to be done each and every act or thing which the Lender may from time to time require to be done for the purpose of better securing, protecting or enforcing the Lender's rights under the assignment contained in Clause 3 and to permit the Owner's name to be used as and when required by the Lender for that purpose; (b) if any Event of Default shall occur, to the extent permitted by applicable law, to take all steps and do all things necessary to enable the Lender to enforce all other rights and benefits accruing to the Owner under or in respect of the - 10 - Owner's Assigned Property and for this purpose to take over or institute proceedings in respect thereof; (c) to perform its obligations under the Bareboat Charter or under the Insurances or the Earnings and to use its best endeavours to procure the due performance by the Bareboat Charterer of its obligations in respect of the Vessel, the Insurances or the Earnings and shall, notwithstanding the assignment herein contained, take such action to collect any monies or enforce any rights and benefits hereby assigned until notified in writing by the Lender; (d) it is the sole legal and beneficial owner of the whole of the Owner's Assigned Property; (e) the Bareboat Charter shall not in any circumstances be terminated by the Owner (or the Vessel withdrawn by the Owner from hire under the Bareboat Charter) for any reason whatsoever (including, without limitation, by reason of any breach or alleged breach of the Bareboat Charter by the Bareboat Charterer) unless the Lender shall first have given its consent in writing to such termination or withdrawal PROVIDED that any such termination or withdrawal after such consent is given shall be without responsibility on the part of the Lender who shall be under no liability whatsoever in the event that such termination or withdrawal be thereafter adjudged to have constituted a wrongful repudiation of the Bareboat Charter by the Owner; (f) in the event of any payment of hire not being made by the Bareboat Charterer within five (5) days of the due date or if any other circumstance shall occur entitling the Owner to withdraw the Vessel from hire under the Bareboat Charter the Owner will advise the Lender in accordance with Clause 6.2(a) and, if so directed by the Lender in writing, exercise its right to withdraw the Vessel from hire under the Bareboat Charter at such time and in such manner as the Lender shall so direct; (g) it will supply to the Lender upon the Lender's request all information, documents and records that may be necessary or of assistance to enable the Lender to verify the amount of all payments of hire payable under the Bareboat Charter; (h) it will pay all such expenses, claims, liabilities, losses, costs, duties, fees, charges or other moneys as are stated in this Deed to be payable by the Owner to or recoverable from the Owner by the Lender (or in respect of which the Owner agrees in this Deed to indemnify the Lender) at the times in the manner specified in this Deed; (i) it will pay interest on any such expenses, claims, liabilities, losses, costs, duties, fees, charges or other moneys referred to in Clause 4.1(h) from the day following the date on which the relevant expense, liability, loss, cost, duty, fee charge or other money is paid or incurred by the Lender until the date of reimbursement thereof to the Lender (both before and after any relevant judgment) at the Default Rate, such interest to be compounded in accordance with clause 6.5 of the Loan Agreement and payable on demand. - 11 - 4.2 The Owner hereby further undertakes with the Lender that the Owner will not (without the prior written consent of the Lender):- (a) further assign, charge, pledge or otherwise encumber the Owner's Assigned Property, or any of its rights or benefits thereunder or in respect thereof, to anyone other than the Lender; (b) take or omit to take any action the taking or omission of which might result in any alteration or impairment of any of the rights or benefits thereby created or created by this Deed; (c) (i) agree to any material variation of the Bareboat Charter; or (ii) release the Bareboat Charterer from any of the Bareboat Charterer's obligations under the Bareboat Charter or waive any breach of the Bareboat Charterer's obligations thereunder or consent to any such act or omission of the Bareboat Charterer as would otherwise constitute such breach; (d) enter into any charter in respect of the Vessel other than the Bareboat Charter. 5. BAREBOAT CHARTERER'S UNDERTAKINGS - --- --------------------------------- 5.1 The Bareboat Charterer hereby covenants with the Lender throughout the Security Period that:- (a) it will perform each and every obligation on its part to be performed under the Bareboat Charter; (b) it will observe perform and comply with all the covenants and undertakings in respect of Insurances, operation and maintenance to be observed performed and complied with by or on behalf of the Owner under the Mortgage (including, but without limitation, all warranties and conditions relating to the Insurances, and/or the operation of the Vessel) and if and to the extent that any of such covenants and undertakings may conflict with any of the provisions of the Bareboat Charter, such covenants and undertakings shall (as between the Owner and the Bareboat Charterer on the one hand and the Lender on the other hand but not otherwise) prevail; (c) it will, in the event that upon a Total Loss or requisition of the Vessel the Lender is disabled from recovering under any Insurances relating to the Vessel or the amount of the recovery thereunder is diminished and such disablement or diminution results from any breach of the covenants undertaken by the Bareboat Charterer under this Clause 5, pay to the Lender upon the Lender's first written demand a sum equal to the amount which would but for such disablement have been recoverable under such Insurances or a sum equal to the amount whereby the insurance recovery has been diminished; (d) it will, in the event of the Vessel at any time being arrested, seized, detained or subjected to distress by reason of any process, claim, lien or encumbrance - 12 - of whatsoever nature arising out of the use or operation of the Vessel by the Bareboat Charterer or the operation by the Bareboat Charterer of any other vessel owned by or chartered to the Bareboat Charterer, at its own cost and expense take prompt action to secure the release of the Vessel and be responsible for discharging each and every liability in connection with any such process claim lien or encumbrance; (e) it will indemnify the Lender and hold it harmless against all liabilities of whatsoever nature (including penalties claims demands orders or judgments) which the Owner or the Lender may suffer which arise out of the use or operation of the Vessel by the Bareboat Charterer or the operation by the Bareboat Charterer of any other vessel owned by or chartered to the Bareboat Charterer; (f) it will do and permit to be done each and every act or thing which the Lender may from time to time require to be done for the purpose of better securing, protecting or enforcing the Lender's rights under the assignment contained in Clause 3 and to permit the Bareboat Charterer's name to be used as and when required by the Lender for the purpose; (g) it will, upon the happening of an Event of Default to the extent permitted by applicable law, permit the Lender to enforce all other rights and benefits accruing to the Bareboat Charterer under or in respect of the Bareboat Charterer's Assigned Property and for this purpose to take over or institute proceedings in respect thereof; (h) it is the sole legal and beneficial owner of the whole of the Bareboat Charterer's Assigned Property. 5.2 The Bareboat Charterer hereby further undertakes with the Lender that the Bareboat Charterer will not (without the prior written consent of the Lender) throughout the Security Period:- (a) further assign, charge, pledge or otherwise encumber the Bareboat Charterer's Assigned Property or any of its rights or benefits thereunder or in respect thereof, to anyone other than the Lender; (b) assign, charge, pledge or otherwise encumber the Bareboat Charter to which it is a party or any of its rights or benefits thereunder or in respect thereof to anyone whatsoever; (c) take or omit to take any action the taking or omission of which might result in any alteration or impairment of any of the rights or benefits thereby created or created by this Deed; (d) claim or exercise any lien upon hire or sub-freights which might otherwise be available to it under any other sub-charter in respect of the Vessel or its Earnings in competition with the Lender; - 13 - (e) enter into any charter in respect of the Vessel below the market rate prevailing at the time the Vessel is fixed without the Lender's prior consent: (i) (other than the Bareboat Charter) on demise charter for any period; or (ii) by any time or consecutive voyage charter for a period which exceeds or by virtue of any optional extensions might exceed thirteen (13) months duration; or (iii) on terms whereby more than two (2) months' hire (or the equivalent) is payable in advance; Provided always that in respect of the matters referred to above in this clause 5.2(e) the Lender's consent shall be deemed to have been given thereto if the Bareboat Charterer shall not have been informed by the Lender either in writing or by word of mouth that such consent is refused within five (5) Banking Days of the time at which the application for such consent was acknowledged as received by the Lender (who shall promptly give such acknowledgement); (f) amend, vary, terminate, repudiate or cancel the Bareboat Charter to which it is a party for whatever reason or take any action which would in any way render the Bareboat Charter inoperative or unenforceable; (g) grant any consent relating to any term or condition of the Bareboat Charter which may be required from the Bareboat Charterer pursuant to the provisions of the Bareboat Charter; (h) determine the Bareboat Charter (notwithstanding anything contained therein) for any reason whatsoever provided always that any determination of the Bareboat Charter by the Bareboat Charterer after such consent is given shall be without responsibility on the part of the Lender who shall be under no liability whatsoever in the event that such determination be thereafter adjudged to constitute a repudiation of the Bareboat Charter by the Bareboat Charterer. 6. GENERAL UNDERTAKINGS - --- -------------------- 6.1 Each of the Owner and the Bareboat Charterer hereby jointly and severally undertakes with the Lender throughout the Security Period:- (a) to insure the Vessel with Insurers acceptable to the Lender and keep the Vessel insured in accordance with the provisions of clause 4 of the Mortgage as if the same were set forth in full herein; (b) to perform its respective obligations under the Bareboat Charter and under the Insurances or the Earnings and to use its best endeavours to procure the due performance of the respective obligations of any other party to any contract in respect of the Vessel or its Earnings and shall notwithstanding the assignment herein contained take such action to collect any monies or enforce any rights and benefits hereby assigned until notified in writing by the Lender; - 14 - (c) promptly to notify the Lender of any default by any party under the Bareboat Charter or under any sub-charter or any other contract in respect of the Vessel or its Insurances or its Earnings; (d) not without the prior written consent of the Lender register the Vessel in any other jurisdiction other than in the Flag State; (e) to apply any proceeds in respect of the sale or Total Loss of the Vessel in accordance with the terms of the Loan Agreement and the rest of the Security Documents; (f) to subordinate all rights it may have (in the case of the Bareboat Charterer this shall include all its rights as commercial manager of the Vessel) against each other, the Vessel, the Insurances or the Earnings to the rights of the Lender under the Mortgage and the other Security Documents and that it will not exercise any of its rights aforesaid in competition with the Lender; (g) not without the approval of the Lender share the Earnings with any other person; (h) to ensure that the Operating Account and any other accounts opened during the Security Period for the receipt of Earnings in respect of the Vessel are maintained separately for that purpose alone and that no monies in respect of any other vessel owned by the Owner and operated by the Bareboat Charterer are credited to such accounts. 6.2 It is agreed by and between the parties hereto:- (a) that, notwithstanding anything contained in the Bareboat Charter upon the occurrence of an Event of Default under the Loan Agreement and/or the Mortgage and if the Lender becomes entitled to put into force and exercise all the powers possessed by it as mortgagee of the Vessel the Lender shall be entitled (but not bound) to terminate the Bareboat Charter at any time by notice in writing to the Owner and the Bareboat Charterer; (b) that upon termination of the Bareboat Charter pursuant to Clause 6.2 (a) all liabilities whatsoever of the Owner and the Bareboat Charterer thereunder shall be absolutely discharged and extinguished; (c) that in the event that the circumstances wherein the Lender becomes entitled under Clause 6.2(a) to terminate the Bareboat Charter shall constitute or include grounds whereon the Owner was entitled to terminate the same, any termination by the Lender shall, as between the Owner and the Bareboat Charterer, operate as an acceptance by the Owner of the Bareboat Charterer's repudiation of the Bareboat Charter and the Owner's right to recover damages in respect of such repudiation shall be fully preserved; (d) that notwithstanding anything herein contained the Owner, the Bareboat Charterer shall remain liable to perform all the obligations assumed by it under the Bareboat Charter and the Lender shall have no obligations - 15 - whatsoever thereunder or be under any liability whatsoever to the Owner, the Bareboat Charterer in the event of any failure by the Owner or the Bareboat Charterer to perform its obligations thereunder or hereunder (e) that notwithstanding anything herein contained, in the event of a sale of the Vessel during the Security Period pursuant to the power in that behalf vested in the Lender by virtue of the Security Documents, such sale shall be free of the Bareboat Charter and the Owner and the Bareboat Charterer shall enter into such form of agreement or agreements as the Lender may require for termination of the Bareboat Charter by mutual consent. 7. OWNER'S AND BAREBOAT CHARTERER'S LIABILITY NOT AFFECTED - --- ------------------------------------------------------- 7.1 The liability of the Owner and the Bareboat Charterer to the Lender under this Deed shall not be discharged, impaired or otherwise affected by reason of any of the following events or circumstances (regardless of whether any such events or circumstances occur with or without its knowledge or consent):- (a) any time, forbearance or other indulgence given or agreed by the Lender to or with any of the other Obligors in respect of any of their respective obligations under any of the Security Documents; or (b) any legal limitation, disability or incapacity relating to any other Obligor; or (c) any invalidity, irregularity, unenforceability, imperfection or avoidance of or any defect in security granted by, or the obligations of any other Obligor under the Security Documents or any of them or any amendment to or variation thereof or any other document or security comprised therein (whether or not known to the Lender); or (d) any change in the name, constitution or otherwise of any other Obligor or the merger of any other Obligor by or with any other person; or (e) the liquidation, bankruptcy or dissolution (or proceedings analogous thereto) of any other Obligor or the appointment of a receiver or administrative receiver or administrator or trustee or similar officer of any of the assets of any other Obligor or the occurrence of any circumstances whatsoever affecting such Obligor's liability to discharge its respective obligations under any of the Security Documents; or (f) any challenge, dispute or avoidance by any liquidator of any other Obligor in respect of any claim by any other Obligor by right of subrogation in any such liquidation; or (g) any release, renewal, exchange or realisation of any security or obligation provided under or by virtue of any of the Security Documents or the provision by the Lender at any time if any further security is given for the obligations of the Obligors under any of the Security Documents; or - 16 - (h) any release of any guarantor or any release of any third party Obligor in respect of any of the Obligors' obligations under any of the Security Documents; or (i) any failure on the part of the Lender (whether intentional or not) to take or perfect any security agreed to be taken under or in relation to any of the Security Documents; or (j) any other act, matter or thing which might otherwise constitute a legal or equitable discharge of the obligations of any other Obligor hereunder. 8. PERFORMANCE - --- ----------- 8.1 It is further agreed between the parties hereto that to the extent that the Bareboat Charterer duly performs and discharges (or procures the performance and discharge of) the duties and liabilities referred to in Clause 5.1 (b) hereof and to the further extent that the Bareboat Charterer, pursuant to the Bareboat Charter performs and discharges further duties and liabilities undertaken by the Owner in the Mortgage, then such performance and discharge of the said duties and liabilities by the Bareboat Charterer shall to that extent be deemed to be proper and due performance and discharge of the Owner's duties and liabilities under the Mortgage. 8.2 Notwithstanding anything herein contained to the contrary, the Lender shall not be under any obligation or liability with respect to the Bareboat Charter or to any contract or obligation giving rise to any of the Earnings or the Insurances by reason of this Deed or anything arising thereout, nor shall the Lender be required to assume or be under any obligation in any manner to perform or fulfil any obligation with respect to any contract or obligation giving rise to any of the Earnings or the Insurances, or to make any payment thereunder, or to enforce against any party any term or condition or any other contract with respect to the Earnings or the Insurances or to make any enquiries as to the nature or sufficiency of any payment received under or by virtue of this Deed. 8.3 The Owner and the Bareboat Charterer hereby waive the entitlement conferred by Section 93 of the Law of Property Act 1925 and agree that Section 103 of that Act shall not apply to the security created by this Deed. For the avoidance of doubt, the powers of the Lender and any receiver by virtue of this Deed shall not be limited to those specified in Section 101 of the Law of Property Act 1925. 8.4 In the event of any circumstances whereby further performance of the Bareboat Charter becomes impossible or unlawful or is otherwise frustrated no moneys then paid to the Lender shall be recoverable from it. 8.5 After the Outstanding Indebtedness has been fully and unconditionally discharged to the satisfaction of the Lender this Deed shall be returned to the Owner and the Bareboat Charterer and the Assigned Property re-assigned as appropriate at their cost. - 17 - 9. APPOINTMENT OF ATTORNEY - --- ----------------------- 9.1 Each of the Owner and the Bareboat Charterer irrevocably appoints and constitutes the Lender as its true and lawful attorney with full power of substitution, (in the name of the Owner, the Bareboat Charterer or otherwise) in the event that an Event of Default has occurred, to the extent permitted by applicable law, to ask, require, demand, receive, compound and give acquittance for any and all moneys and claims for moneys due and to become due, to endorse any cheque or other instrument or orders in connection therewith and to file any claims or take any action or institute any proceedings which the Lender may deem necessary or advisable and otherwise to do any and all things which the Owner or the Bareboat Charterer itself could do in relation to the property hereby assigned provided always that the power shall not be exercised by the Lender until an Event of Default has occurred. 9.2 The exercise of such power as is referred to in Clause 9.1 and 6.2 by or on behalf of the Lender shall not put any person dealing with the Lender upon any enquiry as to whether the Mortgage and this Deed shall have become enforceable nor shall such notice that the Mortgage and this Deed shall have not become enforceable and, in relation to Clause 9.1 and 6.2, the exercise by the Lender or any receiver of such power shall be conclusive evidence of its right to exercise the same. 10. CONSENT - ---- ------- 10.1 In consideration of the covenants on the part of the Owner and the Bareboat Charterer herein contained, the Lender hereby grants its consent to the Vessel being let to the Bareboat Charterer under the Bareboat Charter. 11. TAXES - ---- ----- 11.1 The Owner and the Bareboat Charterer agree to pay or to cause to be paid directly to the appropriate governmental authority or to the Lender the cost of any and all present and future Taxes in accordance with Clause 18 of the Loan Agreement. 12. FURTHER ASSURANCE - ---- ----------------- 12.1 Each of the Owner and the Bareboat Charterer agrees that at any time and from time to time upon written request of the Lender each will promptly and duly execute and deliver to the Lender any and all such further instruments and documents as the Lender may deem necessary and/or desirable in obtaining the full benefits of the rights and powers herein granted. 13. CONTINUING SECURITY - ---- ------------------- 13.1 The security created by this Deed shall be held by the Lender as a continuing security for the payment of the Outstanding Indebtedness and the performance and observance of and the compliance with all of the covenants, terms and conditions contained in the Security Documents and the security so created shall not be set aside by any intermediate payment or satisfaction of any part of the amount hereby and thereby secured and the security so created shall be in addition to and shall not in any way be prejudiced or affected by any collateral or other security now or hereafter held by - 18 - the Lender for all or any part of the moneys hereby and thereby secured and every power and remedy given to the Lender hereunder shall be in addition to and not a limitation of any and every power or remedy vested in the Lender under the Security Documents or at law and all the powers so vested in the Lender may be exercised from time to time and as often as the Lender may deem expedient and no delay or omission of the Lender to exercise any right or power shall be construed as a waiver of or an acquiescence in any default by the Owner and/or the Bareboat Charterer. 13.2 Any settlement or discharge under this Deed between the Lender, the Owner and the Bareboat Charterer shall be conditional upon no security or payment to the Lender by the Owner or the Bareboat Charterer or any other person being avoided or set aside or ordered to be refunded or reduced by any provision or enactment relating to bankruptcy, insolvency, administration or liquidation for the time being in force and, if such condition is not satisfied, the Lender shall be entitled to recover from the Owner and/or the Bareboat Charterer on demand the value of such security or the amount of any such payment as if such settlement or discharge had not occurred. 14. OBLIGATION TO PROVE IN LIQUIDATION - ---- ---------------------------------- 14.1 The Owner and/or the Bareboat Charterer shall, if the Lender so instructs, prove in a liquidation of any Obligor for any amounts owed to the Owner and/or the Bareboat Charterer by such Obligor in connection with this Deed provided that any monies received or recovered by the Owner and/or the Bareboat Charterer in such liquidation shall be paid to the Lender on its request and, pending such payments, be held by the Owner and/or the Bareboat Charterer as trustee upon trust for the Lender to apply the same as if they were monies received or recovered by the Lender under this Deed. 15. SUSPENSE ACCOUNT - ---- ---------------- 15.1 Any monies received or recovered by the Lender under or in connection with this Deed may, at its discretion, be credited to any suspense or impersonal account and may be held in such account for so long as the Lender thinks fit pending application at the Lender's discretion from time to time in or towards the discharge of the Outstanding Indebtedness or any part thereof in accordance with the terms of the Loan Agreement. 16. PROTECTION OF SECURITY - ---- ---------------------- 16.1 The Lender shall without prejudice to its other rights and powers under this Deed and the other Security Documents be entitled (but not bound) at any time and as often as may be necessary to take any such action as it may in its discretion think fit for the purpose of protecting or maintaining the security created by this Deed and each and every reasonable expense, liability and loss (including, without limitation, legal fees) reasonably incurred by the Lender in or about the protection or maintenance of the said security together with interest payable thereon under Clause 4.1 (i) shall be repayable to it by the Owner on demand. - 19 - 17. LENDER'S POWERS - ---- --------------- 17.1 After the occurrence of an Event of Default to the extent permitted by applicable law the Lender (irrespective of whether or not it shall have taken steps to enforce any of the powers specified or referred to in clause 7.1 of the Mortgage and Clause 6.2 of this Deed) shall become forthwith entitled, as and when it may see fit, to put into force and exercise all or any of the powers possessed by it as assignee of the Assigned Property and in particular:- (a) to collect, recover, compromise and give a good discharge for any and all moneys or claims for moneys then outstanding or thereafter arising under the Insurances or in respect of the Earnings and to permit any brokers through whom collection or recovery is effected to charge the usual brokerage therefor; (b) to take over or institute (if necessary using the name of the Owner and the Bareboat Charterer) all such proceedings in connection with the Assigned Property as the Lender in its absolute discretion thinks fit; (c) generally, to recover from the Owner on demand each and every expense, liability or loss incurred by the Lender in or about or incidental to the exercise by it of any of the powers aforesaid. 17.2 Neither the Lender, nor any receiver, nor any agents, managers, officers, employees, delegates and advisers shall be liable for any expense, claim, liability, loss, cost, damages or expense incurred or arising in connection with the exercise or purported exercise of any rights, powers and discretions under this Deed in the absence of negligence or wilful misconduct. 17.3 Neither the Lender, nor any receiver, shall by reason of the Lender or such receiver taking possession of the whole or any part of the Assigned Property be liable to account as mortgagee-in-possession or for anything except actual receipts or be liable for any loss upon realisation or for any default or omission for which a mortgagee-in-possession might be liable in the absence of negligence or wilful misconduct. 17.4 Upon the security constituted by the Mortgage becoming immediately enforceable pursuant to clause 7.1 of the Mortgage and Clause 6.2 of this Deed, the Lender shall (in addition to the powers described in Clause 17.1) become forthwith entitled (but not bound) to appoint, by an instrument in writing under its Common Seal or under the hand of any director or officer of the Lender, a receiver and/or manager of the Assigned Property upon such terms as to reasonable remuneration and otherwise as the Lender shall deem fit with power from time to time to remove any receiver and appoint another in his stead and any receiver shall be the agent of the Owner and/or the Bareboat Charterer (who shall be solely responsible for his acts and defaults and remuneration) and shall have all the powers conferred by the Law of Property Act 1925 (save that Section 103 of that Act shall not apply) and the Insolvency Act 1986 and by way of addition to, but without limiting, those powers any receiver shall have all the powers specified or otherwise referred to in Clauses 16 and 17.1 (including but not limited to the right to recover from the Owner every such expense, liability - 20 - or loss as is therein described) and generally shall be entitled to the same projections and to exercise the same powers and discretions as are granted to the Lender under this Deed and the Bareboat Charterer hereby undertakes to comply with all instructions received from such a receiver and/or manager. 18. APPLICATION OF MONEYS - ---- --------------------- 18.1 All moneys received by the Lender after an Event of Default in respect of the Assigned Property shall be applied in the manner specified in clause 10.5 of the Loan Agreement. 19. SUCCESSORS AND ASSIGNS - ---- ---------------------- 19.1 This Deed shall be binding upon and enure to the benefit of the Owner and the Bareboat Charterer and the Lender and their respective successors and assigns, except that neither the Owner nor the Bareboat Charterer may assign any of their respective rights or obligations hereunder. 19.2 The Lender shall be entitled at any time to transfer or assign the whole or any part of its rights and benefits under this Deed in accordance with clause 19 of the Loan Agreement and the Owner hereby consents to the assignment on the date hereof by the Lender to the Bank of its rights and benefits hereunder. 20. NOTICES - ---- ------- 20.1 Except as otherwise provided herein, each notice, request, demand or other communication or document to be given or made hereunder shall be given in writing but unless otherwise stated, may be made by telex or telefax. 20.2 Any notice, demand or other communication to be made or delivered pursuant to this Deed shall be made or delivered as follows:- (i) if to the Owner to it at its registered address as aforesaid telefax number (507) 263 5335 marked for the attention of Alfonso Arias; (ii) if to the Bareboat Charterer to it at 4000 Hollywood Boulevard, Hollywood, Florida 33021 telefax number (305) 967 2147 marked for the attention of Alan Pritzker and Fred Mayer; (iii) if to the Lender to it c/o Effjohn OY AB at Bulevardi 1A, PO Box 659, 00101 Helsinki, Finland telefax number 3580 627736 marked for the attention of finance department; and (iv) in the case of the Owner and the Bareboat Charterer with copy to Broad & Cassel, Miami Centre, 201 South Biscayne Boulevard, Suite 3000, Miami, Florida 33131 telefax number (305) 373 9493 marked for the attention of James Cassel and with a further copy to JeMJ Financial Services Inc, TelMed, Inc., 9350 S. Dixie Highway, Suite 1220, Miami, Florida 33156 telefax number (305) 238 6248 marked for the attention of Jeffrey I. Binder - 21 - or such other address, telex number or telefax number as each such addressee may specify to the other relevant party or parties by not less then fifteen (15) days' written notice. 20.3 Each such notice, demand, request or other communication shall be deemed to have been made or delivered when:- (a) (in the case of telex) the addressee's answerback shall have been received at the end of the transmission or (in the case of telefax) when a materially complete and legible copy of the communication has been received by the addressee (unless the date of despatch is not a Banking Day in the country of the addressee or the time of despatch is outside normal business hours in the country of the addressee, in which case such telex or telefax shall be deemed to have been received at the opening of business on the next such Banking Day); or (b) (in the case of any letter) when delivered to the addressee's address as specified in or notified pursuant to Clause 20.2 or, if sent by post first class postage prepaid in an envelope addressed to the addressee at that address five (5) days after being deposited in the post. 20.4 Each notice, demand, request or other communication made or delivered by one party to another pursuant to this Deed shall be in the English language or accompanied by a certified English translation. 21. EXPENSES - ---- -------- 21.1 All legal and other costs and expenses (including stamp duty, if any) reasonably incurred by the parties hereto in connection with the negotiation, preparation, completion and any registration and/or recording of this Deed and the other Security Documents and the action to be taken to give effect to them including all costs and expenses incurred by the Lender in enforcing this Deed and in protecting and enforcing its interests hereunder in any court of law or otherwise shall be paid in accordance with clause 20 of the Loan Agreement. 22. LAW AND JURISDICTION - ---- -------------------- 22.1 This Deed shall be governed by and construed in accordance with the laws of England and for the exclusive benefit of the Lender, the parties hereto hereby irrevocably submit to the non-exclusive jurisdiction of the High Courts of Justice in England provided that the Lender (but not the Owner nor the Bareboat Charterer) shall be at liberty in addition or alternatively to take proceedings in the courts of any other country which may have jurisdiction or in which the Owner and/or the Bareboat Charterer may reasonably be thought to have assets. Each of the Owner and the Bareboat Charterer hereby irrevocably authorises and appoints the Process Agent for the acceptance of service of legal proceedings hereunder and under the other Security Documents to which it is a party, service upon whom shall be deemed to constitute good service of legal process without prejudice to any other lawful means and undertakes to maintain a process agent in England. - 22 - 23. CURRENCY LOSSES - ---- --------------- 23.1 The Owner and the Bareboat Charterer shall indemnify the Lender against any loss or damage which, consequent upon any judgment being obtained or enforced in respect of the non-payment by the Owner or the Bareboat Charterer of any amounts due under or pursuant to one or more of the Security Documents, arises from any variation in rates of exchange between the currency in which such amount was due and the currency in which judgment is obtained or enforced between the date of the said amounts becoming due (or the date of the said judgment being obtained, as the case may be) and the date of actual payment thereof. 23.2 The indemnities contained in this Clause 23 shall apply irrespective of any indulgence granted to the Owner and/or the Bareboat Charterer from time to time and shall continue in full force and effect notwithstanding any payment in favour of the Lender and any amount due from the Owner and the Bareboat Charterer under this Clause 23 will be due as a separate debt and shall not be affected by judgment being obtained for any other sums due or in respect of one or more of the Security Documents. 24. MISCELLANEOUS - ---- ------------- 24.1 All documents, notices or other communications submitted, served or made under this Deed shall, unless the Lender shall otherwise require, be in the English language or, if in another language shall be accompanied by a certified translation into English by a translator acceptable to the Lender which translation (otherwise than in the case of official consents) shall be the governing version. 24.2 Any provisions contained in this Deed prohibited by or unlawful or unenforceable under any applicable law shall, to the extent required by such law, be ineffective without modifying the remaining provisions of this Deed. Where however the provisions of any such applicable law may be waived, they are hereby waived by the parties hereto to the full extent permitted by such law to the end that this Deed shall be valid and binding agreements enforceable in accordance with their respective terms. 24.3 Time is the essence of this Deed but no failure or delay on the part of the Lender in exercising any right, power or privilege hereunder and no course of dealing between the Owner, the Bareboat Charterer and/or any other person and the Lender shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege under this Deed preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies in this Deed expressly provided are cumulative and not exclusive of any rights or remedies which any or all of the parties hereto would otherwise have. No notice to or demand on the Owner and/or the Bareboat Charterer in any case shall entitle such persons to any other or further notice or demand to similar or other circumstances or constitute a waiver of the rights of the Lender to any other or further action in any circumstances without notice or demand. 24.4 This Deed may be executed in counterparts, each of which shall be deemed an original and all of which, taken together, shall constitute but one and the same instrument which may be sufficiently evidenced by one counterpart. - 23 - EXECUTION PAGE -------------- IN WITNESS whereof this Deed has been duly executed the day and year first above written. THE OWNER - --------- SIGNED, SEALED and DELIVERED ) as a DEED ) by JAMES SCOTT CASSEL ) /s/ James Scott Cassel the duly appointed attorney in fact of ) AZURE INVESTMENTS, INC. ) in the presence of:- ) Name: LARA DODSON Address: 5, APPOLD STREET, LONDON ECZ /s/ L. Dodson Occupation: SOLICITOR THE BAREBOAT CHARTERER - ----------------------- SIGNED SEALED and DELIVERED ) as a DEED ) by JAMES SCOTT CASSEL ) /s/ James Scott Cassel the duly appointed attorney-in-fact of ) NEW COMMODORE CRUISE ) LINES LIMITED ) in the presence of:- ) Name: LARA DODSON /s/ L. Dodson Address 5, APPOLD STREET, LONDON ECZ Occupation: - 24 - THE LENDER - ---------- SIGNED SEALED and DELIVERED ) as a DEED by ) THOMAS FORSS ) /s/ Thomas Fross for and on behalf of ) EFFJOHN INTERNATIONAL CRUISE ) HOLDINGS INC. ) in the presence of:- ) Name: LARA DODSON Address 5, APPOLD STREET, LONDON ECZ /s/ L. Dodson Occupation: - 25 - SCHEDULE A ---------- HULL & MACHINERY & WAR RISKS ---------------------------- LOSS PAYABLE CLAUSE ------------------- m.v. "Enchanted Seas" (the "Vessel") "It is noted that by a first assignment in writing dated , 1995 Azure Investments, Inc., (the "Owner") being the registered owner of the Vessel and New Commodore Cruise Lines Limited (the "Bareboat Charterer") being the demise charterer of the Vessel have assigned absolutely to Effjohn International Cruise Holdings Inc of c/o Caledonian Bank & Trust Limited, P O Box 1043 Grand Cayman, Cayman Islands (the "Lender") all of the interests of the Owner and the Bareboat Charterer in this policy and all benefits thereof including all claims of whatsoever nature hereunder. Claims payable in respect of a actual or constructive total or an arranged or agreed or compromised total loss or requisition for title or other compulsory acquisition of the Vessel shall be payable to the Lender. Subject thereto all other claims, unless and until the underwriters have received notice from the Lender in which event all claims under such policy of Insurance shall be payable direct to the Lender, shall be payable as follows:- (i) a claim not exceeding USD1,500,000 or its equivalent in any other currency shall be released directly to the Bareboat Charterer or to its order for the repair salvage or other charges involved or as reimbursement if it has fully repaired the damage and paid all of the salvage or other charges; (ii) a claim exceeding USD1,500,000 or the equivalent in any other currency shall, subject to the prior written consent of the Lender be paid to the Bareboat Charterer or to its order as and when the Vessel is restored to her former state and condition and the liability in respect of which the insurance loss is payable is discharged provided that the insurers may with such consent as aforesaid make payment on account of repairs in the course of being effected;" - 26 - PROTECTION & INDEMNITY ---------------------- LOSS PAYABLE CLAUSE ------------------- m.v. "Enchanted Seas" (the "Vessel") "It is noted that by a first assignment in writing dated , 1995 Azure Investments, Inc., (the "Owner") being the registered owner of the Vessel and New Commodore Cruise Lines Limited (the "Bareboat Charterer") being the demise charterer of the Vessel has assigned absolutely to Effjohn International Cruise Holdings Inc of Caledonian Bank & Trust Limited, P O Box 1043, Grand Cayman, Cayman Islands (the "Lender") all the interests of the Owner and the Bareboat Charterer in this policy and all benefits thereof including all claims of whatever nature hereunder. Claims hereunder for all losses shall be paid direct to the Owner or the Bareboat Charterer unless and until the Lender shall have given notice in writing that the Owner or the Bareboat Charterer or any of them is in default whereafter such claims shall be payable to the Lender up to the amount of the mortgagees' mortgage interest". - 27 - SCHEDULE B ---------- NOTICE OF FIRST ASSIGNMENT -------------------------- We, Azure Investments, Inc., of Panama, being the registered owner and New Commodore Cruise Lines Limited of Bermuda, being the demise charterer of m.v. "Enchanted Seas" (the "Vessel") HEREBY GIVE NOTICE that all our rights, title and interest in the insurances in respect of the Vessel, including the insurances constituted by the Policy whereon this Notice is endorsed, have by virtue of a deed dated , 1995 been assigned to Effjohn International Cruise Holdings Inc of Caledonian Bank & Trust Limited, P O Box 1043, Grand Cayman, Cayman Islands as first assignee of the Vessel's Insurances. Dated this day , 1995. Azure Investments, Inc. by: ______________________________ (attorney-in-fact) New Commodore Cruise Lines Limited by: ______________________________ (attorney-in-fact) - 28 - SCHEDULE C ---------- (HULL AND MACHINERY/WAR RISKS) To: Effjohn International Cruise Holdings Inc., Caledonian Bank & Trust Limited, P O Box 1043, Grand Cayman, Cayman Islands Dated: 1995 Dear Sirs, m.v. "Enchanted Seas" Owners Azure Investments, Inc. ------------------------------ Bareboat Charterer: New Commodore Cruise Lines Limited ------------------------------------------------------ We confirm that we have effected insurances for the account of the above Owners and Bareboat Charterer as set out in Appendix A attached. Pursuant to instructions received and in consideration of your approving our appointment as Brokers in connection with the insurances covered by this letter, we hereby undertake:- 1. to hold the Insurance Slips or Contracts, the Policies when issued and any renewals of such Policies or new Policies or any Policies substituted (with your consent) therefor and the benefit of the insurances thereunder to your order in accordance with the terms of the Loss Payable Clause set out in Appendix B attached; and 2. to arrange for the said Loss Payable Clause to be included on the Policies when issued; and 3. to have endorsed on each and every Policy as and when the same is issued a Notice of Assignment in the form of Appendix C hereto dated and signed by the Owners and acknowledged by Underwriters in accordance with market practice; and 4. to advise you immediately we cease to be the Broker for the Assured or in the event of any material changes which may be made to the terms of the insurances and following an application received from you not later than one month before expiry of these insurances to notify you within fourteen days of the receipt of such application in the event of our not having received notice of renewal instructions from the Owners, the Bareboat Charterer and/or their agents, and in the event of our receiving instructions to renew to advise you promptly of the details thereof. Our above undertakings are given subject to our lien on the Policies for premiums due specifically in respect of the Ship named above and subject to our right of cancellation on default in payment of such premiums but we undertake to advise you immediately if any - 29 - premiums are not paid to us by due date and not to exercise such rights of cancellation without giving you fourteen days' notice in writing, either by letter, telex or cable, and a reasonable opportunity of paying any premiums outstanding. (In the case of War Risks the terms of the Automatic Termination of Cover Clause contained in the War Risk Policies shall override any undertakings given by us as Brokers). It is understood and agreed that the operation of any Automatic Termination of Cover, Cancellation or Amendment Provisions contained in the policy conditions shall override any Undertaking given by us as Brokers. There shall be no recourse against you as Mortgagee for payment of premium on any insurance carried on these ships. Notwithstanding the terms of the said Loss Payable Clause and the said Notice of Assignment, unless and until we receive notice from you to the contrary, we shall be empowered to arrange for a collision and/or salvage guarantee where the aggregate liability under any guarantees given in respect of any one casualty shall not exceed USD1,500,000 or the equivalent in any other currency to be given in the event of bail being required in order to prevent the arrest of the ship or to secure the release of a ship from arrest following a casualty. Where a guarantee has been given as aforesaid and the guarantor has paid any sum under the guarantee in respect of such claim, there shall be payable directly to the guarantor out of proceeds of the said Policies a sum equal to the sum so paid. Finally, it is understood that all claims and returns of premiums shall be collected through us, as Brokers. Yours faithfully, - 30 - (PROTECTION AND INDEMNITY) -------------------------- To: Effjohn International Cruise Holdings Inc., Caledonian Bank & Trust Limited, P O Box 1043, Grand Cayman, Cayman Islands Dated: 1995 Dear Sirs, m.v. "Enchanted Seas" Owners: Azure Investments, Inc. Bareboat Charterer: New Commodore Cruise Lines Limited We acknowledge receipt of a letter from Messrs, Sinclair Roche & Temperley giving notice of a first priority assignment to you of the insurances on the above ship. So far as this Association is concerned, the managers to not consent to such assignment for the purposes of Rule , other than to give efficacy to the Loss Payable Clause set out below and subject always to the Association's right under Rule . We do confirm however that such ship is entered in this Association for Protections and Indemnity risks on the terms and conditions set out or to be set out in the Certificate of Entry. Furthermore, in consideration of your agreeing to the entry or continuing entry of the ship in this Association, the managers agree:- (a) that the Owner shall not cease to be insured by the Association in respect of that ship by reason of such assignment (see Rule ), and (b) that, notwithstanding that the ship is mortgaged to you and that no undertaking or guarantee has been given to the Association to pay all contributions due in respect of such ship, the Owner does so not cease to be insured by reason of the operation of Rule . It is further agreed that the following Loss Payable Clause will be included in the Certificate of Entry. "Payment of any recovery the Owner is entitled to make out of the funds of the Association in respect of any liability, costs of expenses incurred by it shall be made to the Owner or to its order unless and until the Association received notice from Effjohn International Cruise Holdings Inc that the Owner is in default under a First Mortgage dated 1995 in which event all recoveries shall thereafter be paid to Effjohn International Cruise Holdings Inc or its order, provided always that - 31 - no liability whatsoever shall attach to the Association, its managers or their agents for failure to comply with the obligations herein until after the expiry of two clear days from the receipt of such notice." Notwithstanding anything contained herein, the association shall (unless and until the mortgagees shall have given notice in writing to the contrary) be at liberty at the request of the owner to provide bail or other security to prevent the arrest or obtain of the release of the vessel. The Association undertakes:- (a) to inform you if the Directors give the Owner of the above ship notice under Rule that its insurance in the Association in respect of such ship is to cease at the end of the then current Policy year; (b) to give you fourteen days' notice of the Association's intention to cancel the insurance of the Owner by reason of its failure to pay when due and demanded any sum due from it to the Association. Yours faithfully - 32 - SCHEDULE D ---------- NOTICE OF FIRST ASSIGNMENT OF CHARTER AND EARNINGS -------------------------------------------------- TO: [Charterer] Date 19 m.v. "Enchanted Seas" the ("Vessel") ------------------------------------ We refer to the charterparty (the "Charter") dated 19 made between us and you whereby you have agreed to take the Vessel on charter for the period and upon the terms and conditions therein. NOW WE HEREBY GIVE YOU NOTICE:- - ----------------------------- 1. That by a first assignment in writing dated , 199 made between (inter alia) us and Effjohn International Cruise Holdings Inc., (the "Lender") we have assigned to the Lender all our rights title and interest to and in the Charter and any moneys whatsoever payable to us under the Charter and all other rights and benefit whatsoever accruing to us thereunder by way of a first assignment. 2. That you are hereby irrevocably authorised and instructed to pay such moneys as aforesaid to [ ] for the account no. [ ] Reference "Enchanted Seas" (or at such other place as the Lender may from time to time direct). 3. That notwithstanding the said assignment we shall remain liable to perform all our obligations under the Charter and the Lender shall be under no obligation of any kind thereunder. The authority and instructions herein contained cannot be revoked or varied by us without the consent of the Lender. ___________________________________________ for and on behalf of Azure Investments, Inc. - 33 - To: Effjohn International Cruise Holdings Inc., Caledonian Bank & Trust Limited, P O Box 1043, Grand Cayman, Cayman Islands Dated: 199 We acknowledge receipt of the Notice set out above and agree to make payments in accordance with the payment instructions contained therein. ___________________________________________ for and on behalf of EX-10.W 18 EXHIBIT 10W: TRIPARTITE DEED EXECUTION COPY -------------- Dated 14 July,1995 ------------------ Almira Enterprises, Inc. as owner New Commodore Cruise Lines Limited as bareboat charterer - and - Effjohn International Cruise Holdings, Inc. as lender ----------------------------------- FIRST PRIORITY TRIPARTITE DEED IN RESPECT OF M.V. "ENCHANTED ISLE" ----------------------------------- Sinclair Roche & Temperley Broadwalk House 5 Appold Street London EC2A 2NN Tel: 0171 638 9044 Ref: JPM/180210
INDEX ----- Clause Subject Matter Page - ------ -------------- ---- 1. DEFINITIONS 2 2. REPRESENTATIONS AND WARRANTIES 4 3. ASSIGNMENT AND CHARGE 7 4. OWNER'S UNDERTAKINGS 9 5. BAREBOAT CHARTERER'S UNDERTAKINGS 11 6. GENERAL UNDERTAKINGS 13 7. OWNER'S AND BAREBOAT CHARTERER'S LIABILITY NOT AFFECTED 15 8. PERFORMANCE 16 9. APPOINTMENT OF ATTORNEY 17 10. CONSENT 17 11. TAXES 17 12. FURTHER ASSURANCE 17 13. CONTINUING SECURITY 17 14. OBLIGATION TO PROVE IN LIQUIDATION 18 15. SUSPENSE ACCOUNT 18 16. PROTECTION OF SECURITY 18 17. LENDER'S POWERS 19 18. APPLICATION OF MONEYS 20 19. SUCCESSORS AND ASSIGNS 20 20. NOTICES 20 21. EXPENSES 21 22. LAW AND JURISDICTION 21 23. CURRENCY LOSSES 22 24. MISCELLANEOUS 22
SCHEDULE A 25 SCHEDULE B 27 SCHEDULE C 28 SCHEDULE D 32
THIS DEED is made the 14 day of July, 1995 BETWEEN:- (1) ALMIRA ENTERPRISES, INC., a company incorporated under the laws of the Republic of Panama, with its registered office at c/o Galindo Arias & Lopez, 200 Via Espana, Panama 5, Panama City, Republic of Panama as owner (the "Owner"); (2) NEW COMMODORE CRUISE LINES LIMITED, a company incorporated under the laws of the Bermuda with its registered office at c/o Ardon Management Services Ltd., c/o Richards Francis & Francis, Cedarpark Centre, 48 Cedar Avenue, Hamilton HM 11, Bermuda as bareboat charterer (the "Bareboat Charterer"); (3) EFFJOHN INTERNATIONAL CRUISE HOLDINGS INC., a company incorporated under the laws of the Cayman Islands with its registered office at Caledonian Bank & Trust Limited, P O Box 1043, Grand Cayman, Cayman Islands as lender (the "Lender"). WHEREAS:- (A) The Owner is the registered owner of m.v. "Enchanted Isle", registered in the name and ownership of the Owner under the laws and flag of the Republic of the Panama under Provisional Patente 12535-PEXT-6 (the "Vessel"); (B) By a loan agreement dated 14 July, 1995 (as the same may from time to time be amended and supplemented called the "Loan Agreement") and made between (1) Azure Investments, Inc. and the Owner (the "Borrowers") (2) the Lender (3) the Bareboat Charterer and Commodore Holdings Limited as guarantors the Lender has agreed at the request of the Borrowers to make available to the Borrowers jointly and severally a loan facility of twenty four million five hundred thousand Dollars (USD24,500,000) (the "Loan") for the purposes and on the terms and conditions therein contained; (C) By a bareboat charter dated 14 July, 1995 (as the same may be amended and supplemented called the "Bareboat Charter") made between (1) the Owner and (2) the Bareboat Charterer, the Owner has agreed to let and the Bareboat Charterer has agreed to take the Vessel for the period and upon the terms and conditions therein mentioned with effect from the date hereof on bareboat charter; (D) As security for the Owner's obligations to the Lender under the Loan Agreement, the Owner has agreed to execute in favour of the Lender a first preferred mortgage over the Vessel of even date hereof (as the same may be amended and supplemented called the "Mortgage"); (F) As further security for the Owner's obligations under the Loan Agreement and as a condition precedent to the drawdown of the Loan the Owner and the Bareboat Charterer have agreed to execute this Deed in favour of the Lender. (G) The Bareboat Charterer has received a copy of the Mortgage and the Loan Agreement and is fully conversant with the terms thereof. - 2 - NOW THIS DEED WITNESSETH as follows:- 1. DEFINITIONS - --- ----------- 1.1 In this Deed including the recitals, the following terms and expressions shall have the meanings set out below; in addition, terms and expressions not defined herein but whose meanings are defined in the Loan Agreement shall have the meanings set out therein:- "Assigned Property" means the Owner's Assigned Property and/or the Bareboat Charterer's Assigned Property (as hereinafter defined) as the context may require; "Bareboat Charter" means the Bareboat Charter referred to in recital (C); "Bareboat Charterer" means the Bareboat Charterer referred to in the recitals; "Bareboat Charterer's Assigned Property" means all of the Bareboat Charterer's rights, title and interest in, to and under the Bareboat Charterer's Earnings, the Insurances (including claims of whatsoever nature and return of premiums in respect of the Insurances), Requisition Compensation, and any sub-charter; "Bareboat Charterer's Earnings" means that part of the Earnings constituted by all moneys whatsoever due or to become due for the account of the Bareboat Charterer arising howsoever in connection with any sub-charter; "this Deed" means this first priority general assignment; "Default Rate" means the rate of interest specified in Clause 6.5 of the Loan Agreement; "Drawdown Date" means the date of drawdown of the Loan; "excess risks" means the proportion of claims for general average and salvage charges and under the ordinary running-down clause not recoverable in consequence of the value at which a vessel is assessed for the purpose of such claim exceeding her insured value; "Insurer" means any underwriter, insurer, club and/or association providing and/or effecting any of the Insurances and/or any broker or agent through whom any of the Insurances are provided and/or effected; "Owner's Assigned Property" means all of the Owner's rights, title and interest in, to and under the Earnings, the Insurances (including claims of whatsoever nature and return of premiums in respect of the Insurances), Requisition Compensation, the Bareboat Charter and the Owner's Earnings; "Owner's Earnings" means that part of the Earnings constituted by all moneys whatsoever due or to become due to or for the account of the Owner arising howsoever in connection with the Bareboat Charter; - 3 - "protection and indemnity risks" means all risks covered by a major protection and indemnity association including the proportion not recoverable in case of collision under the ordinary running-down clause; "war risks" means the risk of mines and all risks excluded from the standard form of English marine policy by the free of capture and seizure clause. 1.2 In this Deed unless the context otherwise requires:- 1.3 clause headings are inserted for convenience of reference only and shall be ignored in the interpretation of this Deed; 1.4 references to Clauses and Schedules are to be construed as references to Clauses of and Schedules to this Deed unless otherwise stated and references to this Deed are to be construed as references to this Deed including its Schedules; 1.5 reference to (or to any specified provision thereof) of this Deed or any other Subject Document shall be construed as reference to this Deed, that provision or that Subject Document, as from time to time amended, supplemented and/or novated; 1.6 without prejudice to the provisions of Clause 19 references to any party to this Deed or any other Subject Document shall, include reference to such party's successors and permitted assigns; 1.7 words importing the plural shall include the singular and vice versa; 1.8 reference to a person shall be construed as references to an individual, firm, company, corporation, unincorporated body of persons or any state or any agency thereof; 1.9 where any matter under any Security Document requires the approval or consent of the Lender such approval or consent shall not be deemed to have been given unless given in writing; where any matter under any Security Document is required to be acceptable to the Lender, the Lender shall not be deemed to have accepted such matter unless its acceptance is communicated in writing; the Lender may give or withhold its consent, approval or acceptance under any Security Document subject to it not being unreasonably withheld or delayed and such consent, approval or acceptance may be given by the Lender subject to such conditions as it may reasonably impose; 1.10 a certificate by the Lender as to any amount due or calculation made hereunder shall be conclusive except for manifest error; and 1.11 references to any statute or other legislative provision are to be construed as references to any such statute or other legislative provision as the same may be re-enacted or modified or substituted by any subsequent statute or legislative provision. - 4 - 2. REPRESENTATIONS AND WARRANTIES - --- ------------------------------ 2.1 The Bareboat Charterer hereby represents and warrants to the Lender that:- (a) it is and will remain duly incorporated and validly existing under its country of incorporation as a limited liability company, has full power and capacity to carry on its business as it is now being conducted and to own its property and other assets and has complied with all statutory and other requirements relative to its business; (b) on the Drawdown Date the Vessel will not be subject to any contract commitment or other arrangement for its employment except for the Bareboat Charter or any permitted sub-charter or as otherwise as disclosed to and agreed by the Lender; (c) to the extent of its obligations thereunder, it has and will continue to have full power and authority to enter into and perform such of the Subject Documents to which it is or is to become a party, has taken all necessary corporate or other action (as the case may be) required to enable it to do so and will duly perform and observe the terms thereof; (d) each of the Subject Documents to which it is or is to become a party constitutes or will, upon execution and delivery, constitute valid and legally binding obligations of the parties thereto enforceable by the Obligors thereto in accordance with its terms save for laws restricting creditor's rights generally; (e) except for the registration of the Mortgage with the appropriate authorities of the Flag State and the charges created by the Security Documents recorded in the appropriate companies' registry, or filed in the relevant jurisdictions in the United States of America all consents, licences, approvals, registrations or authorisations of governmental authorities and agencies or declarations to creditors required (i) to make each of the Subject Documents valid, enforceable and admissible in evidence and (ii) to authorise or otherwise permit the execution and delivery of the Subject Documents and the performance by the parties thereto (except the Lender) of each of them have been obtained or made and are in full force and effect and there has been no material default in the observance of any of the terms or conditions of any of them; (f) except for registration of the Mortgage with the appropriate authorities of the Flag State and the lodging for registration of certain of the Subject Documents at any appropriate companies' registry or filed in the relevant jurisdictions in the United States of America none of the Subject Documents is required to be - 5 - filed, recorded, enrolled or in any way whatsoever registered with any governmental authority or agency of or in England, Panama, Bermuda, the United States of America, or, to the best of its belief in any other country, or to be stamped with any stamp duty or similar tax, levy or impost in any such country in order to ensure the legal validity, enforceability or admissibility in evidence thereof; (g) it is not in default under any agreement to which it is a party or by which it may be bound (actually or contingently) which default would be likely to have a material adverse effect on its business, assets or condition or its ability to perform its obligations under such of the Subject Documents to which it is a party and, as at the date hereof, except as disclosed in writing to the Lender, no litigation or administrative proceedings involving it of or before any board of arbitration, court or governmental authority or agency is proceeding pending or (to its knowledge) threatened anywhere in the world the result of which would (if adversely determined) have or is likely to have a material adverse effect on the business, assets or financial condition of it and, in the event that any such litigation or proceedings shall hereafter arise, it hereby undertakes to give notice thereof to the Lender as soon as it becomes aware of any such litigation or proceedings; (h) it is not required by the laws of any country from which it may make any payment hereunder or under any of the Subject Documents to which it is a party to make any deduction or withholding from any such payment; (i) the execution, delivery and performance of such of the Subject Documents to which it is or will be a party will not violate or exceed the powers conferred upon it under its articles of incorporation and by-laws or other constituting or corporate documents or any provision of any applicable law existing at the date hereof or of any regulation, order or decree to which it is subject as at the date hereof or result howsoever in the creation or imposition of any Encumbrance (other than a Permitted Encumbrance) on all or part of its undertaking or assets; (j) such written financial and other information in respect of it as has been given to the Lender prior to the date hereof presented fairly and accurately the financial position of it as at the date such information was given and it does not have any material liabilities (contingent or otherwise) which were not disclosed; (k) the obligations of it under this Deed are its direct, general and unconditional obligations and rank at least pari passu with all its present and future unsecured and unsubordinated obligations (including contingent obligations) with the exception of such obligations as are mandatorily preferred by law and not by contract; (l) other than its office in Miami it does not have an office in the United States of America or in the United Kingdom or does business outside Florida or in the United Kingdom which gives rise to any liability to taxation or the registration of any Subject Documents; - 6 - (m) to the best of its knowledge and belief no event or circumstance constituting an Event of Default or Possible Event of Default has occurred and is continuing; (n) the technical management of the Vessel will be undertaken by the Technical Manager; (o) the commercial management of the Vessel will be undertaken by the Bareboat Charterer; (p) all information furnished by it or on its behalf in writing in connection with the negotiation and preparation of this Deed and the rest of the Subject Documents is to the best of its knowledge true and accurate in all respects and not misleading and does not omit any facts and there are no other facts the omission of which would make any such information misleading. 2.2 Each of the Owner and the Bareboat Charterer hereby represents and warrants to the Lender that:- (a) the Bareboat Charter has been duly entered into, is in full force and effect, and is enforceable in accordance with the terms thereof and no amendments thereto or variations thereof have been (or will be otherwise than within the terms of this Deed) agreed and there are no commissions, rebates, premiums or other payments in connection with the Bareboat Charter other than as disclosed to the Lender in writing on or prior to the date of this Deed; (b) save as disclosed to the Lender in writing, neither the Owner nor the Bareboat Charterer are in default under the Bareboat Charter and there are no actions suits or proceedings threatened by or against either the Owner or the Bareboat Charterer in connection with or arising out of the Bareboat Charter which would entitle any party to repudiate otherwise terminate or otherwise withdraw from (including in respect of the Owner, the right to withdraw the Vessel and in respect of the Bareboat Charterer to suspend payment of hire) or frustrate or in any way render the Bareboat Charter inoperative or unenforceable; (c) the Vessel has been delivered to and accepted by the Bareboat Charterer for service under the Bareboat Charter and is in every way fit for service under the Bareboat Charter; 2.3 Each of the Owner and the Bareboat Charterer hereby further represents and warrants to the Lender that on the Execution Date, the Drawdown Date and at the end of each Interest Period (other than in respect of (b), (g), (h), (n) and (o)) the representations and warranties contained in this Clause 2 (updated mutatis mutandis to each such date) shall be true and correct as if made at that time. - 7 - 3. ASSIGNMENT AND CHARGE --------------------- 3.1 In consideration of the Lender agreeing to make the Loan available to the Borrowers, the Owner as registered owner of the Vessel and for the purpose of securing the payment to the Lender of the Outstanding Indebtedness HEREBY ASSIGNS AND AGREES TO ASSIGN absolutely to the Lender by way of a first priority assignment all of the Owner's Assigned Property. 3.2 In consideration of the Lender agreeing to make the Loan available to the Borrowers and further in consideration of the Lender approving the terms and provisions of the Bareboat Charter, the Bareboat Charterer as disponent owner of the Vessel and for the purpose of securing the payment to the Lender of the Outstanding Indebtedness HEREBY ASSIGNS and AGREES TO ASSIGN absolutely to the Lender by way of a first priority assignment all of the Bareboat Charterer's Assigned Property. 3.3 The Owner further undertakes that in the event that the Bareboat Charter is terminated for whatever reason before the expiry of the Security Period the Owner shall forthwith upon being requested to do so by the Lender execute and deliver in favour of the Lender a specific assignment in writing of all its right, title and interest in, to and under any replacement charter or other contract or employment in respect of the Vessel. 3.4 (a) Throughout the Security Period the Owner and the Bareboat Charterer shall procure that:- (i) in the event that the FMC Guarantor has issued a letter of credit or other surety that is secured by the deposit in the FMC Collateral Account all moneys received in respect of advance bookings in respect of the Vessel are paid into the Operating Account at all times during such relevant part of the Security Period; (ii) in the event that the provisions of (i) do not apply all moneys received in respect of advance bookings in respect of the Vessel are paid into the Isle FMC Account in respect of the Vessel at all times throughout such relevant part of the Security Period; (iii) upon the release of any moneys from the Isle FMC Account pursuant to (ii) above such monies shall be paid into the Operating Account; (iv) all other Earnings of the Vessel shall be paid into the Operating Account at all times throughout the Security Period; and applied in accordance with clause 10 of the Loan Agreement. (b) Upon the occurrence of an Event of Default to the extent permitted by applicable law:- (i) the Owner and the Bareboat Charterer shall forthwith and the Lender may at any time thereafter instruct the persons from whom the - 8 - Earnings or Owner's Earnings or Bareboat Charterer's Earnings are or shall be due to pay the same to the Lender or as it may direct; and (ii) any sum in respect of Earnings or Owner's Earnings or Bareboat Charterer's Earnings then in the hands of the Owner's and/or the Bareboat Charterer's brokers, bankers or other agents or representatives shall be deemed to have been received by them for the use and on behalf of the Lender; (c) Each of the Owner and the Bareboat Charterer agree to comply with any instruction given to it under this Clause. (d) The Owner and the Bareboat Charterer each covenant with the Lender that the Earnings are free from any Encumbrance and shall be paid in the manner and currency or currencies as set out in accordance with Clause 11. 3.5 By virtue of being party to this Deed, the Bareboat Charterer hereby acknowledges the assignment by the Owner in favour of the Lender of the Owner's rights, title and interest in and to the Owner's Assigned Property and agrees to the assignment hereto. 3.6 The Bareboat Charterer undertakes that it will immediately (upon being requested to do so by the Lender) give notice of any assignment of sub- charter executed in favour of the Lender to any relevant sub-charterer or other person in the form of Schedule D hereto and will procure such person's acknowledgement thereto in the form of Schedule D hereto. 3.7 Each of the Owner and the Bareboat Charterer undertakes immediately to give notice of the assignment of Insurances contained in this Clause 3 to all Insurers in the form of Schedule B hereto and to obtain from such Insurers duly completed letters of undertaking substantially in the form of Schedule C or in such other form or forms as the Lender may agree. 3.8 Prior to the occurrence of an Event of Default any sums recoverable in respect of the Insurances shall be payable as follows:- (a) any and every sum recoverable in respect of a Total Loss under the Insurances against fire and all marine risks and war risks shall be paid to the Lender, and (b) any and every sum recoverable in respect of any claim exceeding one Million five hundred thousand Dollars (USD1,500,000) or its equivalent in any other currency ("Major Casualty") under the Insurances against fire and usual marine risks and war risks shall be paid to the Lender but so that such insurance monies should be applied by the Lender in or towards payment on behalf of the Bareboat Charterer to the relevant repairer, salvor or other relevant creditor in respect of the cost of repairs, salvage or other charges unless the Bareboat Charterer has first fully repaired the damage or secured complete discharge of the liability insured against or otherwise made good the loss in which case the Lender shall reimburse the Bareboat Charterer therefor up to the amount received by the Lender; and - 9 - (c) any and every other sum recoverable under the Insurances against fire and usual marine risks and war risks shall be paid to the Bareboat Charterer and shall be applied by the Bareboat Charterer for the purpose of making good the loss and fully repairing all damage in respect whereof the insurance moneys shall have been received; and (d) all sums recoverable under the Insurances against protection and indemnity risks shall be paid direct to the person to whom was incurred the liability to which such sum relates (or to the Bareboat Charterer or the Owner in reimbursement to either of them of moneys expended in satisfaction of such liability); and on or after the occurrence of an Event of Default any sums recoverable under the Insurances shall be payable to the Lender; (e) any Requisition Compensation shall at all times be payable to the Lender. 3.9 (a) To the extent that any Bareboat Charterer's Earnings are received and applied by the Lender or otherwise in accordance with Clause 3.4, such application shall be treated as being in pro tanto satisfaction of:- (i) the obligations of the Bareboat Charterer to make payments of those amounts to the Owner under the Bareboat Charter; and (ii) the obligations of the Owner to make payments of those amounts to the Lender under this Deed or any of the other Security Documents. (b) To the extent that any Owner's Earnings are received and applied by the Lender or otherwise in accordance with Clause 3.4, such application shall be treated as being in pro tanto satisfaction of:- (i) the obligations of the Bareboat Charterer to make payments of those amounts to the Owner under the Bareboat Charter; and (ii) the obligations of the Owner to make payments of those amounts to the Lender under this Deed or any of the other Security Documents. 4. OWNER'S UNDERTAKINGS - --- -------------------- 4.1 The Owner undertakes with the Lender throughout the Security Period:- (a) to do and permit to be done each and every act or thing which the Lender may from time to time require to be done for the purpose of better securing, protecting or enforcing the Lender's rights under the assignment contained in Clause 3 and to permit the Owner's name to be used as and when required by the Lender for that purpose; (b) if any Event of Default shall occur, to the extent permitted by applicable law, to take all steps and do all things necessary to enable the Lender to enforce all other rights and benefits accruing to the Owner under or in respect of the - 10 - Owner's Assigned Property and for this purpose to take over or institute proceedings in respect thereof; (c) to perform its obligations under the Bareboat Charter or under the Insurances or the Earnings and to use its best endeavours to procure the due performance by the Bareboat Charterer of its obligations in respect of the Vessel, the Insurances or the Earnings and shall, notwithstanding the assignment herein contained, take such action to collect any monies or enforce any rights and benefits hereby assigned until notified in writing by the Lender; (d) it is the sole legal and beneficial owner of the whole of the Owner's Assigned Property; (e) the Bareboat Charter shall not in any circumstances be terminated by the Owner (or the Vessel withdrawn by the Owner from hire under the Bareboat Charter) for any reason whatsoever (including, without limitation, by reason of any breach or alleged breach of the Bareboat Charter by the Bareboat Charterer) unless the Lender shall first have given its consent in writing to such termination or withdrawal PROVIDED that any such termination or withdrawal after such consent is given shall be without responsibility on the part of the Lender who shall be under no liability whatsoever in the event that such termination or withdrawal be thereafter adjudged to have constituted a wrongful repudiation of the Bareboat Charter by the Owner; (f) in the event of any payment of hire not being made by the Bareboat Charterer within five (5) days of the due date or if any other circumstance shall occur entitling the Owner to withdraw the Vessel from hire under the Bareboat Charter the Owner will advise the Lender in accordance with Clause 6.2(a) and, if so directed by the Lender in writing, exercise its right to withdraw the Vessel from hire under the Bareboat Charter at such time and in such manner as the Lender shall so direct; (g) it will supply to the Lender upon the Lender's request all information, documents and records that may be necessary or of assistance to enable the Lender to verify the amount of all payments of hire payable under the Bareboat Charter; (h) it will pay all such expenses, claims, liabilities, losses, costs, duties, fees, charges or other moneys as are stated in this Deed to be payable by the Owner to or recoverable from the Owner by the Lender (or in respect of which the Owner agrees in this Deed to indemnify the Lender) at the times in the manner specified in this Deed; (i) it will pay interest on any such expenses, claims, liabilities, losses, costs, duties, fees, charges or other moneys referred to in Clause 4.1(h) from the day following the date on which the relevant expense, liability, loss, cost, duty, fee charge or other money is paid or incurred by the Lender until the date of reimbursement thereof to the Lender (both before and after any relevant judgment) at the Default Rate, such interest to be compounded in accordance with clause 6.5 of the Loan Agreement and payable on demand. - 11 - 4.2 The Owner hereby further undertakes with the Lender that the Owner will not (without the prior written consent of the Lender):- (a) further assign, charge, pledge or otherwise encumber the Owner's Assigned Property, or any of its rights or benefits thereunder or in respect thereof, to anyone other than the Lender; (b) take or omit to take any action the taking or omission of which might result in any alteration or impairment of any of the rights or benefits thereby created or created by this Deed; (c) (i) agree to any material variation of the Bareboat Charter; or (ii) release the Bareboat Charterer from any of the Bareboat Charterer's obligations under the Bareboat Charter or waive any breach of the Bareboat Charterer's obligations thereunder or consent to any such act or omission of the Bareboat Charterer as would otherwise constitute such breach; (d) enter into any charter in respect of the Vessel other than the Bareboat Charter. 5. BAREBOAT CHARTERER'S UNDERTAKINGS - --- --------------------------------- 5.1 The Bareboat Charterer hereby covenants with the Lender throughout the Security Period that:- (a) it will perform each and every obligation on its part to be performed under the Bareboat Charter; (b) it will observe perform and comply with all the covenants and undertakings in respect of Insurances, operation and maintenance to be observed performed and complied with by or on behalf of the Owner under the Mortgage (including, but without limitation, all warranties and conditions relating to the Insurances, and/or the operation of the Vessel) and if and to the extent that any of such covenants and undertakings may conflict with any of the provisions of the Bareboat Charter, such covenants and undertakings shall (as between the Owner and the Bareboat Charterer on the one hand and the Lender on the other hand but not otherwise) prevail; (c) it will, in the event that upon a Total Loss or requisition of the Vessel the Lender is disabled from recovering under any Insurances relating to the Vessel or the amount of the recovery thereunder is diminished and such disablement or diminution results from any breach of the covenants undertaken by the Bareboat Charterer under this Clause 5, pay to the Lender upon the Lender's first written demand a sum equal to the amount which would but for such disablement have been recoverable under such Insurances or a sum equal to the amount whereby the insurance recovery has been diminished; (d) it will, in the event of the Vessel at any time being arrested, seized, detained or subjected to distress by reason of any process, claim, lien or encumbrance - 12 - of whatsoever nature arising out of the use or operation of the Vessel by the Bareboat Charterer or the operation by the Bareboat Charterer of any other vessel owned by or chartered to the Bareboat Charterer, at its own cost and expense take prompt action to secure the release of the Vessel and be responsible for discharging each and every liability in connection with any such process claim lien or encumbrance; (e) it will indemnify the Lender and hold it harmless against all liabilities of whatsoever nature (including penalties claims demands orders or judgments) which the Owner or the Lender may suffer which arise out of the use or operation of the Vessel by the Bareboat Charterer or the operation by the Bareboat Charterer of any other vessel owned by or chartered to the Bareboat Charterer; (f) it will do and permit to be done each and every act or thing which the Lender may from time to time require to be done for the purpose of better securing, protecting or enforcing the Lender's rights under the assignment contained in Clause 3 and to permit the Bareboat Charterer's name to be used as and when required by the Lender for the purpose; (g) it will, upon the happening of an Event of Default to the extent permitted by applicable law, permit the Lender to enforce all other rights and benefits accruing to the Bareboat Charterer under or in respect of the Bareboat Charterer's Assigned Property and for this purpose to take over or institute proceedings in respect thereof; (h) it is the sole legal and beneficial owner of the whole of the Bareboat Charterer's Assigned Property. 5.2 The Bareboat Charterer hereby further undertakes with the Lender that the Bareboat Charterer will not (without the prior written consent of the Lender) throughout the Security Period:- (a) further assign, charge, pledge or otherwise encumber the Bareboat Charterer's Assigned Property or any of its rights or benefits thereunder or in respect thereof, to anyone other than the Lender; (b) assign, charge, pledge or otherwise encumber the Bareboat Charter to which it is a party or any of its rights or benefits thereunder or in respect thereof to anyone whatsoever; (c) take or omit to take any action the taking or omission of which might result in any alteration or impairment of any of the rights or benefits thereby created or created by this Deed; (d) claim or exercise any lien upon hire or sub-freights which might otherwise be available to it under any other sub-charter in respect of the Vessel or its Earnings in competition with the Lender; - 13 - (e) enter into any charter in respect of the Vessel below the market rate prevailing at the time the Vessel is fixed without the Lender's prior consent: (i) (other than the Bareboat Charter), on demise charter for any period; or (ii) by any time or consecutive voyage charter for a period which exceeds or by virtue of any optional extensions might exceed thirteen (13) months duration; or (iii) on terms whereby more than two (2) months' hire (or the equivalent) is payable in advance; Provided always that in respect of the matters referred to above in this clause 5.2(e) the Lender's consent shall be deemed to have been given thereto if the Bareboat Charterer shall not have been informed by the Lender either in writing or by word of mouth that such consent is refused within five (5) Banking Days of the time at which the application for such consent was acknowledged as received by the Lender (who shall promptly give such acknowledgement); (f) amend, vary, terminate, repudiate or cancel the Bareboat Charter to which it is a party for whatever reason or take any action which would in any way render the Bareboat Charter inoperative or unenforceable; (g) grant any consent relating to any term or condition of the Bareboat Charter which may be required from the Bareboat Charterer pursuant to the provisions of the Bareboat Charter; (h) determine the Bareboat Charter (notwithstanding anything contained therein) for any reason whatsoever provided always that any determination of the Bareboat Charter by the Bareboat Charterer after such consent is given shall be without responsibility on the part of the Lender who shall be under no liability whatsoever in the event that such determination be thereafter adjudged to constitute a repudiation of the Bareboat Charter by the Bareboat Charterer. 6. GENERAL UNDERTAKINGS - --- -------------------- 6.1 Each of the Owner and the Bareboat Charterer hereby jointly and severally undertakes with the Lender throughout the Security Period:- (a) to insure the Vessel with Insurers acceptable to the Lender and keep the Vessel insured in accordance with the provisions of clause 4 of the Mortgage as if the same were set forth in full herein; (b) to perform its respective obligations under the Bareboat Charter and under the Insurances or the Earnings and to use its best endeavours to procure the due performance of the respective obligations of any other party to any contract in respect of the Vessel or its Earnings and shall notwithstanding the - 14 - assignment herein contained take such action to collect any monies or enforce any rights and benefits hereby assigned until notified in writing by the Lender; (c) promptly to notify the Lender of any default by any party under the Bareboat Charter or under any sub-charter or any other contract in respect of the Vessel or its Insurances or its Earnings; (d) not without the prior written consent of the Lender register the Vessel in any other jurisdiction other than in the Flag State; (e) to apply any proceeds in respect of the sale or Total Loss of the Vessel in accordance with the terms of the Loan Agreement and the rest of the Security Documents; (f) to subordinate all rights it may have (in the case of the Bareboat Charterer this shall include all its rights as commercial manager of the Vessel) against each other, the Vessel, the Insurances or the Earnings to the rights of the Lender under the Mortgage and the other Security Documents and that it will not exercise any of its rights aforesaid in competition with the Lender; (g) not without the approval of the Lender share the Earnings with any other person; (h) to ensure that the Operating Account and any other accounts opened during the Security Period for the receipt of Earnings in respect of the Vessel are maintained separately for that purpose alone and that no monies in respect of any other vessel owned by the Owner and operated by the Bareboat Charterer are credited to such accounts. 6.2 It is agreed by and between the parties hereto:- (a) that, notwithstanding anything contained in the Bareboat Charter upon the occurrence of an Event of Default under the Loan Agreement and/or the Mortgage and/or if the Lender becomes entitled to put into force and exercise all the powers possessed by it as mortgagee of the Vessel the Lender shall be entitled (but not bound) to terminate the Bareboat Charter at any time by notice in writing to the Owner and the Bareboat Charterer; (b) that upon termination of the Bareboat Charter pursuant to Clause 6.2 (a) all liabilities whatsoever of the Owner and the Bareboat Charterer thereunder shall be absolutely discharged and extinguished; (c) that in the event that the circumstances wherein the Lender becomes entitled under Clause 6.2(a) to terminate the Bareboat Charter shall constitute or include grounds whereon the Owner was entitled to terminate the same, any termination by the Lender shall, as between the Owner and the Bareboat Charterer, operate as an acceptance by the Owner of the Bareboat Charterer's repudiation of the Bareboat Charter and the Owner's right to recover damages in respect of such repudiation shall be fully preserved; - 15 - (d) that notwithstanding anything herein contained the Owner, the Bareboat Charterer shall remain liable to perform all the obligations assumed by it under the Bareboat Charter and the Lender shall have no obligations whatsoever thereunder or be under any liability whatsoever to the Owner, the Bareboat Charterer in the event of any failure by the Owner or the Bareboat Charterer to perform its obligations thereunder or hereunder (e) that notwithstanding anything herein contained, in the event of a sale of the Vessel during the Security Period pursuant to the power in that behalf vested in the Lender by virtue of the Security Documents, such sale shall be free of the Bareboat Charter and the Owner and the Bareboat Charterer shall enter into such form of agreement or agreements as the Lender may require for termination of the Bareboat Charter by mutual consent. 7. OWNER'S AND BAREBOAT CHARTERER'S LIABILITY NOT AFFECTED - --- ------------------------------------------------------- 7.1 The liability of the Owner and the Bareboat Charterer to the Lender under this Deed shall not be discharged, impaired or otherwise affected by reason of any of the following events or circumstances (regardless of whether any such events or circumstances occur with or without its knowledge or consent):- (a) any time, forbearance or other indulgence given or agreed by the Lender to or with any of the other Obligors in respect of any of their respective obligations under any of the Security Documents; or (b) any legal limitation, disability or incapacity relating to any other Obligor; or (c) any invalidity, irregularity, unenforceability, imperfection or avoidance of or any defect in security granted by, or the obligations of any other Obligor under the Security Documents or any of them or any amendment to or variation thereof or any other document or security comprised therein (whether or not known to the Lender); or (d) any change in the name, constitution or otherwise of any other Obligor or the merger of any other Obligor by or with any other person; or (e) the liquidation, bankruptcy or dissolution (or proceedings analogous thereto) of any other Obligor or the appointment of a receiver or administrative receiver or administrator or trustee or similar officer of any of the assets of any other Obligor or the occurrence of any circumstances whatsoever affecting such Obligor's liability to discharge its respective obligations under any of the Security Documents; or (f) any challenge, dispute or avoidance by any liquidator of any other Obligor in respect of any claim by any other Obligor by right of subrogation in any such liquidation; or (g) any release, renewal, exchange or realisation of any security or obligation provided under or by virtue of any of the Security Documents or the provision - 16 - by the Lender at any time if any further security is given for the obligations of the Obligors under any of the Security Documents; or (h) any release of any guarantor or any release of any third party Obligor in respect of any of the Obligors' obligations under any of the Security Documents; or (i) any failure on the part of the Lender (whether intentional or not) to take or perfect any security agreed to be taken under or in relation to any of the Security Documents; or (j) any other act, matter or thing which might otherwise constitute a legal or equitable discharge of the obligations of any other Obligor hereunder. 8. PERFORMANCE - --- ----------- 8.1 It is further agreed between the parties hereto that to the extent that the Bareboat Charterer duly performs and discharges (or procures the performance and discharge of) the duties and liabilities referred to in Clause 5.1 (b) hereof and to the further extent that the Bareboat Charterer, pursuant to the Bareboat Charter performs and discharges further duties and liabilities undertaken by the Owner in the Mortgage, then such performance and discharge of the said duties and liabilities by the Bareboat Charterer shall to that extent be deemed to be proper and due performance and discharge of the Owner's duties and liabilities under the Mortgage. 8.2 Notwithstanding anything herein contained to the contrary, the Lender shall not be under any obligation or liability with respect to the Bareboat Charter or to any contract or obligation giving rise to any of the Earnings or the Insurances by reason of this Deed or anything arising thereout, nor shall the Lender be required to assume or be under any obligation in any manner to perform or fulfil any obligation with respect to any contract or obligation giving rise to any of the Earnings or the Insurances, or to make any payment thereunder, or to enforce against any party any term or condition or any other contract with respect to the Earnings or the Insurances or to make any enquiries as to the nature or sufficiency of any payment received under or by virtue of this Deed. 8.3 The Owner and the Bareboat Charterer hereby waive the entitlement conferred by Section 93 of the Law of Property Act 1925 and agree that Section 103 of that Act shall not apply to the security created by this Deed. For the avoidance of doubt, the powers of the Lender and any receiver by virtue of this Deed shall not be limited to those specified in Section 101 of the Law of Property Act 1925. 8.4 In the event of any circumstances whereby further performance of the Bareboat Charter becomes impossible or unlawful or is otherwise frustrated no moneys then paid to the Lender shall be recoverable from it. 8.5 After the Outstanding Indebtedness has been fully and unconditionally discharged to the satisfaction of the Lender this Deed shall be returned to the Owner and the Bareboat Charterer and the Assigned Property re- assigned as appropriate at their cost. 9. APPOINTMENT OF ATTORNEY - --- ----------------------- 9.1 Each of the Owner and the Bareboat Charterer irrevocably appoints and constitutes the Lender as its true and lawful attorney with full power of substitution, (in the name of the Owner, the Bareboat Charterer or otherwise) in the event that an Event of Default has occurred, to the extent permitted by applicable law, to ask, require, demand, receive, compound and give acquittance for any and all moneys and claims for moneys due and to become due, to endorse any cheque or other instrument or orders in connection therewith and to file any claims or take any action or institute any proceedings which the Lender may deem necessary or advisable and otherwise to do any and all things which the Owner or the Bareboat Charterer itself could do in relation to the property hereby assigned provided always that the power shall not be exercised by the Lender until an Event of Default has occurred. 9.2 The exercise of such power as is referred to in Clause 9.1 and 6.2 by or on behalf of the Lender shall not put any person dealing with the Lender upon any enquiry as to whether the Mortgage and this Deed shall have become enforceable nor shall such notice that the Mortgage and this Deed shall have not become enforceable and, in relation to Clause 9.1 and 6.2, the exercise by the Lender or any receiver of such power shall be conclusive evidence of its right to exercise the same. 10. CONSENT - --- ------- 10.1 In consideration of the covenants on the part of the Owner and the Bareboat Charterer herein contained, the Lender hereby grants its consent to the Vessel being let to the Bareboat Charterer under the Bareboat Charter. 11. TAXES - --- ----- 11.1 The Owner and the Bareboat Charterer agree to pay or to cause to be paid directly to the appropriate governmental authority or to the Lender the cost of any and all present and future Taxes in accordance with Clause 18 of the Loan Agreement. 12. FURTHER ASSURANCE - --- ----------------- 12.1 Each of the Owner and the Bareboat Charterer agrees that at any time and from time to time upon written request of the Lender each will promptly and duly execute and deliver to the Lender any and all such further instruments and documents as the Lender may deem necessary and/or desirable in obtaining the full benefits of the rights and powers herein granted. 13. CONTINUING SECURITY - --- ------------------- 13.1 The security created by this Deed shall be held by the Lender as a continuing security for the payment of the Outstanding Indebtedness and the performance and observance of and the compliance with all of the covenants, terms and conditions contained in the Security Documents and the security so created shall not be set aside by any intermediate payment or satisfaction of any part of the amount hereby and thereby secured and the security so created shall be in addition to and shall not in any way be prejudiced or affected by any collateral or other security now or hereafter held by - 18 - the Lender for all or any part of the moneys hereby and thereby secured and every power and remedy given to the Lender hereunder shall be in addition to and not a limitation of any and every power or remedy vested in the Lender under the Security Documents or at law and all the powers so vested in the Lender may be exercised from time to time and as often as the Lender may deem expedient and no delay or omission of the Lender to exercise any right or power shall be construed as a waiver of or an acquiescence in any default by the Owner and/or the Bareboat Charterer. 13.2 Any settlement or discharge under this Deed between the Lender, the Owner and the Bareboat Charterer shall be conditional upon no security or payment to the Lender by the Owner or the Bareboat Charterer or any other person being avoided or set aside or ordered to be refunded or reduced by any provision or enactment relating to bankruptcy, insolvency, administration or liquidation for the time being in force and, if such condition is not satisfied, the Lender shall be entitled to recover from the Owner and/or the Bareboat Charterer on demand the value of such security or the amount of any such payment as if such settlement or discharge had not occurred. 14. OBLIGATION TO PROVE IN LIQUIDATION - --- ---------------------------------- 14.1 The Owner and/or the Bareboat Charterer shall, if the Lender so instructs, prove in a liquidation of any Obligor for any amounts owed to the Owner and/or the Bareboat Charterer by such Obligor in connection with this Deed provided that any monies received or recovered by the Owner and/or the Bareboat Charterer in such liquidation shall be paid to the Lender on its request and, pending such payments, be held by the Owner and/or the Bareboat Charterer as trustee upon trust for the Lender to apply the same as if they were monies received or recovered by the Lender under this Deed. 15. SUSPENSE ACCOUNT - --- ---------------- 15.1 Any monies received or recovered by the Lender under or in connection with this Deed may, at its discretion, be credited to any suspense or impersonal account and may be held in such account for so long as the Lender thinks fit pending application at the Lender's discretion from time to time in or towards the discharge of the Outstanding Indebtedness or any part thereof in accordance with the terms of the Loan Agreement. 16. PROTECTION OF SECURITY - --- ---------------------- 16.1 The Lender shall without prejudice to its other rights and powers under this Deed and the other Security Documents be entitled (but not bound) at any time and as often as may be necessary to take any such action as it may in its discretion think fit for the purpose of protecting or maintaining the security created by this Deed and each and every reasonable expense, liability and loss (including, without limitation, legal fees) reasonably incurred by the Lender in or about the protection or maintenance of the said security together with interest payable thereon under Clause 4.1 (i) shall be repayable to it by the Owner on demand. - 19 - 17. LENDER'S POWERS - --- --------------- 17.1 After the occurrence of an Event of Default to the extent permitted by applicable law the Lender (irrespective of whether or not it shall have taken steps to enforce any of the powers specified or referred to in clause 7.1 of the Mortgage and Clause 6.2 of this Deed) shall become forthwith entitled, as and when it may see fit, to put into force and exercise all or any of the powers possessed by it as assignee of the Assigned Property and in particular:- (a) to collect, recover, compromise and give a good discharge for any and all moneys or claims for moneys then outstanding or thereafter arising under the Insurances or in respect of the Earnings and to permit any brokers through whom collection or recovery is effected to charge the usual brokerage therefor; (b) to take over or institute (if necessary using the name of the Owner and the Bareboat Charterer) all such proceedings in connection with the Assigned Property as the Lender in its absolute discretion thinks fit; (c) generally, to recover from the Owner on demand each and every expense, liability or loss incurred by the Lender in or about or incidental to the exercise by it of any of the powers aforesaid. 17.2 Neither the Lender, nor any receiver, nor any agents, managers, officers, employees, delegates and advisers shall be liable for any expense, claim, liability, loss, cost, damages or expense incurred or arising in connection with the exercise or purported exercise of any rights, powers and discretions under this Deed in the absence of negligence or wilful misconduct. 17.3 Neither the Lender, nor any receiver, shall by reason of the Lender or such receiver taking possession of the whole or any part of the Assigned Property be liable to account as mortgagee-in-possession or for anything except actual receipts or be liable for any loss upon realisation or for any default or omission for which a mortgagee-in-possession might be liable in the absence of negligence or wilful misconduct. 17.4 Upon the security constituted by the Mortgage becoming immediately enforceable pursuant to clause 7.1 of the Mortgage and Clause 6.2 of this Deed, the Lender shall (in addition to the powers described in Clause 17.1) become forthwith entitled (but not bound) to appoint, by an instrument in writing under its Common Seal or under the hand of any director or officer of the Lender, a receiver and/or manager of the Assigned Property upon such terms as to reasonable remuneration and otherwise as the Lender shall deem fit with power from time to time to remove any receiver and appoint another in his stead and any receiver shall be the agent of the Owner and/or the Bareboat Charterer (who shall be solely responsible for his acts and defaults and remuneration) and shall have all the powers conferred by the Law of Property Act 1925 (save that Section 103 of that Act shall not apply) and the Insolvency Act 1986 and by way of addition to, but without limiting, those powers any receiver shall have all the powers specified or otherwise referred to in Clauses 16 and 17.1 (including but not limited to the right to recover from the Owner every such expense, liability - 20 - or loss as is therein described) and generally shall be entitled to the same projections and to exercise the same powers and discretions as are granted to the Lender under this Deed and the Bareboat Charterer hereby undertakes to comply with all instructions received from such a receiver and/or manager. 18. APPLICATION OF MONEYS - --- --------------------- 18.1 All moneys received by the Lender after an Event of Default in respect of the Assigned Property shall be applied in the manner specified in clause 10.5 of the Loan Agreement. 19. SUCCESSORS AND ASSIGNS - --- ---------------------- 19.1 This Deed shall be binding upon and enure to the benefit of the Owner and the Bareboat Charterer and the Lender and their respective successors and assigns, except that neither the Owner nor the Bareboat Charterer may assign any of their respective rights or obligations hereunder. 19.2 The Lender shall be entitled at any time to transfer or assign the whole or any part of its rights and benefits under this Deed in accordance with clause 19 of the Loan Agreement and the Owner hereby consents to the assignment on the date hereof by the Lender to the Bank of its rights and benefits hereunder. 20. NOTICES - --- ------- 20.1 Except as otherwise provided herein, each notice, request, demand or other communication or document to be given or made hereunder shall be given in writing but unless otherwise stated, may be made by telex or telefax. 20.2 Any notice, demand or other communication to be made or delivered pursuant to this Deed shall be made or delivered as follows:- (i) if to the Owner to it at its registered address as aforesaid telefax number (507) 2635335 marked for the attention of Alfonso Arias; (ii) if to the Bareboat Charterer to it at 4000 Hollywood Boulevard, Hollywood, Florida 33021, telefax number (305) 9672147 marked for the attention of Alan Pritzker and Fred Mayer; (iii) if to the Lender to it c/o Effjohn OY AB at Bulevardi 1A, PO Box 659, 00101 Helsinki, Finland telefax number 3580 627736 marked for the attention of finance department; and (iv) in the case of the Owner and the Bareboat Charterer with copy to Broad & Cassel, Miami Centre, 201 South Biscayne Boulevard, Suite 3000, Miami, Florida 33131 telefax number (305) 373 9493 marked for the attention of James Cassel and with a further copy to JeMJ Financial Services Inc, TelMed, Inc., 9350 S. Dixie Highway, Suite 1220, Miami, Florida 33156 telefax number (305) 238 6248 marked for the attention of Jeffrey I. Binder - 21 - or such other address, telex number or telefax number as each such addressee may specify to the other relevant party or parties by not less then fifteen (15) days' written notice. 20.3 Each such notice, demand, request or other communication shall be deemed to have been made or delivered when:- (a) (in the case of telex) the addressee's answerback shall have been received at the end of the transmission or (in the case of telefax) when a materially complete and legible copy of the communication has been received by the addressee (unless the date of despatch is not a Banking Day in the country of the addressee or the time of despatch is outside normal business hours in the country of the addressee, in which case such telex or telefax shall be deemed to have been received at the opening of business on the next such Banking Day); or (b) (in the case of any letter) when delivered to the addressee's address as specified in or notified pursuant to Clause 20.2 or, if sent by post first class postage prepaid in an envelope addressed to the addressee at that address five (5) days after being deposited in the post. 20.4 Each notice, demand, request or other communication made or delivered by one party to another pursuant to this Deed shall be in the English language or accompanied by a certified English translation. 21. EXPENSES - --- -------- 21.1 All legal and other costs and expenses (including stamp duty, if any) reasonably incurred by the parties hereto in connection with the negotiation, preparation, completion and any registration and/or recording of this Deed and the other Security Documents and the action to be taken to give effect to them including all costs and expenses incurred by the Lender in enforcing this Deed and in protecting and enforcing its interests hereunder in any court of law or otherwise shall be paid in accordance with clause 20 of the Loan Agreement. 22. LAW AND JURISDICTION - --- -------------------- 22.1 This Deed shall be governed by and construed in accordance with the laws of England and for the exclusive benefit of the Lender, the parties hereto hereby irrevocably submit to the non-exclusive jurisdiction of the High Courts of Justice in England provided that the Lender (but not the Owner nor the Bareboat Charterer) shall be at liberty in addition or alternatively to take proceedings in the courts of any other country which may have jurisdiction or in which the Owner and/or the Bareboat Charterer may reasonably be thought to have assets. Each of the Owner and the Bareboat Charterer hereby irrevocably authorises and appoints the Process Agent for the acceptance of service of legal proceedings hereunder and under the other Security Documents to which it is a party, service upon whom shall be deemed to constitute good service of legal process without prejudice to any other lawful means and undertakes to maintain a process agent in England. - 22 - 23. CURRENCY LOSSES - --- --------------- 23.1 The Owner and the Bareboat Charterer shall indemnify the Lender against any loss or damage which, consequent upon any judgment being obtained or enforced in respect of the non-payment by the Owner or the Bareboat Charterer of any amounts due under or pursuant to one or more of the Security Documents, arises from any variation in rates of exchange between the currency in which such amount was due and the currency in which judgment is obtained or enforced between the date of the said amounts becoming due (or the date of the said judgment being obtained, as the case may be) and the date of actual payment thereof. 23.2 The indemnities contained in this Clause 23 shall apply irrespective of any indulgence granted to the Owner and/or the Bareboat Charterer from time to time and shall continue in full force and effect notwithstanding any payment in favour of the Lender and any amount due from the Owner and the Bareboat Charterer under this Clause 23 will be due as a separate debt and shall not be affected by judgment being obtained for any other sums due or in respect of one or more of the Security Documents. 24. MISCELLANEOUS - --- ------------- 24.1 All documents, notices or other communications submitted, served or made under this Deed shall, unless the Lender shall otherwise require, be in the English language or, if in another language shall be accompanied by a certified translation into English by a translator acceptable to the Lender which translation (otherwise than in the case of official consents) shall be the governing version. 24.2 Any provisions contained in this Deed prohibited by or unlawful or unenforceable under any applicable law shall, to the extent required by such law, be ineffective without modifying the remaining provisions of this Deed. Where however the provisions of any such applicable law may be waived, they are hereby waived by the parties hereto to the full extent permitted by such law to the end that this Deed shall be valid and binding agreements enforceable in accordance with their respective terms. 24.3 Time is the essence of this Deed but no failure or delay on the part of the Lender in exercising any right, power or privilege hereunder and no course of dealing between the Owner, the Bareboat Charterer and/or any other person and the Lender shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power or privilege under this Deed preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies in this Deed expressly provided are cumulative and not exclusive of any rights or remedies which any or all of the parties hereto would otherwise have. No notice to or demand on the Owner and/or the Bareboat Charterer in any case shall entitle such persons to any other or further notice or demand to similar or other circumstances or constitute a waiver of the rights of the Lender to any other or further action in any circumstances without notice or demand. 24.4 This Deed may be executed in counterparts, each of which shall be deemed an original and all of which, taken together, shall constitute but one and the same instrument which may be sufficiently evidenced by one counterpart. - 23 - EXECUTION PAGE -------------- IN WITNESS whereof this Deed has been duly executed the day and year first above written. THE OWNER - --------- SIGNED, SEALED and DELIVERED ) as a DEED ) by JAMES SCOTT CASSEL ) /s/ James Scott Cassel the duly appointed attorney in fact of ) ALMIRA ENTERPRISES, INC. ) in the presence of:- ) Name: LARA DODSON Address: 5 APPOLD STREET, LONDON EC2 Occupation: SOLICITOR /s/ L. Dodson THE BAREBOAT CHARTERER - ----------------------- SIGNED SEALED and DELIVERED ) as a DEED ) by JAMES SCOTT CASSEL ) /s/ James Scott Cassel the duly appointed attorney-in-fact of ) NEW COMMODORE CRUISE ) LINES LIMITED ) in the presence of:- ) Name: LARA DODSON Address 5 APPOLD STREET, LONDON EC2 Occupation: /s/ L. Dodson - 24 - THE LENDER - ---------- SIGNED SEALED and DELIVERED ) as a DEED by ) THOMAS FORSS ) for and on behalf of ) /s/ Thomas Forss EFFJOHN INTERNATIONAL CRUISE ) HOLDINGS INC. ) in the presence of:- ) Name: LARA DODSON Address 5 APPOLD STREET, LONDON EC2 Occupation: /s/ L. Dodson - 25 - SCHEDULE A ---------- HULL & MACHINERY & WAR RISKS ---------------------------- LOSS PAYABLE CLAUSE ------------------- m.v. "Enchanted Isle" (the "Vessel") "It is noted that by a first assignment in writing dated , 1995 Almira Enterprises, Inc., (the "Owner") being the registered owner of the Vessel and New Commodore Cruise Lines Limited (the "Bareboat Charterer") being the demise charterer of the Vessel have assigned absolutely to Effjohn International Cruise Holdings Inc. of c/o Caledonian Bank & Trust Limited, P O Box 1043 Grand Cayman, Cayman Islands (the "Lender") all of the interests of the Owner and the Bareboat Charterer in this policy and all benefits thereof including all claims of whatsoever nature hereunder. Claims payable in respect of a actual or constructive total or an arranged or agreed or compromised total loss or requisition for title or other compulsory acquisition of the Vessel shall be payable to the Lender. Subject thereto all other claims, unless and until the underwriters have received notice from the Lender in which event all claims under such policy of Insurance shall be payable direct to the Lender, shall be payable as follows:- (i) a claim not exceeding USD1,500,000 or its equivalent in any other currency shall be released directly to the Bareboat Charterer or to its order for the repair salvage or other charges involved or as reimbursement if it has fully repaired the damage and paid all of the salvage or other charges; (ii) a claim exceeding USD1,500,000 or the equivalent in any other currency shall, subject to the prior written consent of the Lender be paid to the Bareboat Charterer or to its order as and when the Vessel is restored to her former state and condition and the liability in respect of which the insurance loss is payable is discharged provided that the insurers may with such consent as aforesaid make payment on account of repairs in the course of being effected;" - 26 - PROTECTION & INDEMNITY ---------------------- LOSS PAYABLE CLAUSE ------------------- m.v. "Enchanted Isle" (the "Vessel") "It is noted that by a first assignment in writing dated , 1995 Almira Enterprises, Inc., (the "Owner") being the registered owner of the Vessel and New Commodore Cruise Lines Limited (the "Bareboat Charterer") being the demise charterer of the Vessel has assigned absolutely to Effjohn International Cruise Holdings Inc. of Caledonian Bank & Trust Limited, P O Box 1043, Grand Cayman, Cayman Islands (the "Lender") all the interests of the Owner and the Bareboat Charterer in this policy and all benefits thereof including all claims of whatever nature hereunder. Claims hereunder for all losses shall be paid direct to the Owner or the Bareboat Charterer unless and until the Lender shall have given notice in writing that the Owner or the Bareboat Charterer or any of them is in default whereafter such claims shall be payable to the Lender up to the amount of the mortgagees' mortgage interest". - 27 - SCHEDULE B ---------- NOTICE OF FIRST ASSIGNMENT -------------------------- We, Almira Enterprises, Inc., of Panama, being the registered owner and New Commodore Cruise Lines Limited of Bermuda, being the demise charterer of m.v. "Enchanted Isle" (the "Vessel") HEREBY GIVE NOTICE that all our rights, title and interest in the insurances in respect of the Vessel, including the insurances constituted by the Policy whereon this Notice is endorsed, have by virtue of a deed dated , 1995 been assigned to Effjohn International Cruise Holdings Inc. of Caledonian Bank & Trust Limited, P O Box 1043, Grand Cayman, Cayman Islands as first assignee of the Vessel's Insurances. Dated this day , 1995. Almira Enterprises, Inc. by: _____________________________________ (attorney-in-fact) New Commodore Cruise Lines Limited by: ____________________________________ (attorney-in-fact) - 28 - SCHEDULE C ---------- (HULL AND MACHINERY/WAR RISKS) To: Effjohn International Cruise Holdings Inc. Caledonian Bank & Trust Limited, P O Box 1043, Grand Cayman, Cayman Islands Dated: 1995 Dear Sirs, m.v. "Enchanted Isle" Owners Almira Enterprises, Inc. ------------------------------- Bareboat Charterer: New Commodore Cruise Lines Limited ------------------------------------------------------ We confirm that we have effected insurances for the account of the above Owners and Bareboat Charterer as set out in Appendix A attached. Pursuant to instructions received and in consideration of your approving our appointment as Brokers in connection with the insurances covered by this letter, we hereby undertake:- 1. to hold the Insurance Slips or Contracts, the Policies when issued and any renewals of such Policies or new Policies or any Policies substituted (with your consent) therefor and the benefit of the insurances thereunder to your order in accordance with the terms of the Loss Payable Clause set out in Appendix B attached; and 2. to arrange for the said Loss Payable Clause to be included on the Policies when issued; and 3. to have endorsed on each and every Policy as and when the same is issued a Notice of Assignment in the form of Appendix C hereto dated and signed by the Owners and acknowledged by Underwriters in accordance with market practice; and 4. to advise you immediately we cease to be the Broker for the Assured or in the event of any material changes which may be made to the terms of the insurances and following an application received from you not later than one month before expiry of these insurances to notify you within fourteen days of the receipt of such application in the event of our not having received notice of renewal instructions from the Owners, the Bareboat Charterer and/or their agents, and in the event of our receiving instructions to renew to advise you promptly of the details thereof. Our above undertakings are given subject to our lien on the Policies for premiums due specifically in respect of the Ship named above and subject to our right of cancellation on default in payment of such premiums but we undertake to advise you immediately if any - 29 - premiums are not paid to us by due date and not to exercise such rights of cancellation without giving you fourteen days' notice in writing, either by letter, telex or cable, and a reasonable opportunity of paying any premiums outstanding. (In the case of War Risks the terms of the Automatic Termination of Cover Clause contained in the War Risk Policies shall override any undertakings given by us as Brokers). It is understood and agreed that the operation of any Automatic Termination of Cover, Cancellation or Amendment Provisions contained in the policy conditions shall override any Undertaking given by us as Brokers. There shall be no recourse against you as Mortgagee for payment of premium on any insurance carried on these ships. Notwithstanding the terms of the said Loss Payable Clause and the said Notice of Assignment, unless and until we receive notice from you to the contrary, we shall be empowered to arrange for a collision and/or salvage guarantee where the aggregate liability under any guarantees given in respect of any one casualty shall not exceed USD1,500,000 or the equivalent in any other currency to be given in the event of bail being required in order to prevent the arrest of the ship or to secure the release of a ship from arrest following a casualty. Where a guarantee has been given as aforesaid and the guarantor has paid any sum under the guarantee in respect of such claim, there shall be payable directly to the guarantor out of proceeds of the said Policies a sum equal to the sum so paid. Finally, it is understood that all claims and returns of premiums shall be collected through us, as Brokers. Yours faithfully, - 30 - (PROTECTION AND INDEMNITY) -------------------------- To: Effjohn International Cruise Holdings Inc. Caledonian Bank & Trust Limited, P O Box 1043, Grand Cayman, Cayman Islands Dated: 1995 Dear Sirs, m.v. "Enchanted Isle" Owners: Almira Enterprises, Inc. Bareboat Charterer: New Commodore Cruise Lines Limited We acknowledge receipt of a letter from Messrs, Sinclair Roche & Temperley giving notice of a first priority assignment to you of the insurances on the above ship. So far as this Association is concerned, the managers to not consent to such assignment for the purposes of Rule , other than to give efficacy to the Loss Payable Clause set out below and subject always to the Association's right under Rule . We do confirm however that such ship is entered in this Association for Protections and Indemnity risks on the terms and conditions set out or to be set out in the Certificate of Entry. Furthermore, in consideration of your agreeing to the entry or continuing entry of the ship in this Association, the managers agree:- (a) that the Owner shall not cease to be insured by the Association in respect of that ship by reason of such assignment (see Rule ), and (b) that, notwithstanding that the ship is mortgaged to you and that no undertaking or guarantee has been given to the Association to pay all contributions due in respect of such ship, the Owner does so not cease to be insured by reason of the operation of Rule . It is further agreed that the following Loss Payable Clause will be included in the Certificate of Entry. "Payment of any recovery the Owner is entitled to make out of the funds of the Association in respect of any liability, costs of expenses incurred by it shall be made to the Owner or to its order unless and until the Association received notice from Effjohn International Cruise Holdings Inc. that the Owner is in default under a First Mortgage dated 1995 in which event all recoveries shall thereafter be paid to Effjohn International Cruise Holdings Inc. or its order, provided always - 31 - that no liability whatsoever shall attach to the Association, its managers or their agents for failure to comply with the obligations herein until after the expiry of two clear days from the receipt of such notice." Notwithstanding anything contained herein, the association shall (unless and until the mortgagees shall have given notice in writing to the contrary) be at liberty at the request of the owner to provide bail or other security to prevent the arrest or obtain of the release of the vessel. The Association undertakes:- (a) to inform you if the Directors give the Owner of the above ship notice under Rule that its insurance in the Association in respect of such ship is to cease at the end of the then current Policy year; (b) to give you fourteen days' notice of the Association's intention to cancel the insurance of the Owner by reason of its failure to pay when due and demanded any sum due from it to the Association. Yours faithfully - 32 - SCHEDULE D ---------- NOTICE OF FIRST ASSIGNMENT OF CHARTER AND EARNINGS -------------------------------------------------------- TO: [Charterer] Date 19 m.v. "Enchanted Isle" the ("Vessel") ------------------------------------ We refer to the charterparty (the "Charter") dated 19 made between us and you whereby you have agreed to take the Vessel on charter for the period and upon the terms and conditions therein. NOW WE HEREBY GIVE YOU NOTICE:- - ---------------------------------- 1. That by a first assignment in writing dated , 199 made between (inter alia) us and Effjohn International Cruise Holdings Inc., (the "Lender") we have assigned to the Lender all our rights title and interest to and in the Charter and any moneys whatsoever payable to us under the Charter and all other rights and benefit whatsoever accruing to us thereunder by way of a first assignment. 2. That you are hereby irrevocably authorised and instructed to pay such moneys as aforesaid to [ ] for the account no. [ ] Reference "Enchanted Isle" (or at such other place as the Lender may from time to time direct). 3. That notwithstanding the said assignment we shall remain liable to perform all our obligations under the Charter and the Lender shall be under no obligation of any kind thereunder. The authority and instructions herein contained cannot be revoked or varied by us without the consent of the Lender. _________________________________________ for and on behalf of Almira Enterprises, Inc. - 33 - To: Effjohn International Cruise Holdings Inc., Caledonian Bank & Trust Limited, P O Box 1043, Grand Cayman, Cayman Islands Dated: 199 We acknowledge receipt of the Notice set out above and agree to make payments in accordance with the payment instructions contained therein. _________________________________________ for and on behalf of EX-11 19 EXHIBIT 11: COMPUTATION OF EARNINGS EXHIBIT 11 ---------- COMMODORE HOLDINGS LIMITED COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK
Pro forma Six Months Period Ended Year Ended Ended September 30, September 30, March 31, Computation for Statement of Operations 1995 1995 1996 - --------------------------------------- ------------- ------------- ----------- Primary Earnings (Loss) Per share: Net earnings (loss)........................... $ 251,535 $ (13,434,399) $ 135,708 ========== ========== ========== Shares Weighted average number of common shares outstanding.......................... 4,124,815 4,931,833 4,931,833 Add: dilutive effect of warrants (as determined by the application of the treasury stock method)......... 252,778 252,778 252,778 ---------- ---------- ---------- Weighted average common and common equivalent shares......................... 4,377,593 5,184,611 5,184,611 ========== ========== ========== Earnings (loss) per common and common equivalent shares........................... $ 0.06 $ (2.59) .03 ========== ========== ========= Fully Diluted Earnings (Loss) Per Share: Net earnings (loss) as per primary calculation above........................... $ 0.06 $ (2.59) .03 ========== ========== =========
EX-23.A 20 EXHIBIT 23A, CONSENT OF GRANT EXHIBIT 23A We have issued our report dated November 28, 1995, accompanying the consolidated financial statements of Commodore Holdings Limited and Subsidiaries contained in Amendment No. 1 to the Form S-1 Registration Statement and Prospectus. We consent to the use of the aforementioned report in the Registration Statement and Prospectus, and to the use of our name as it appears under the caption "Experts." /s/ GRANT THORTON, L.L.P. Miami, Florida May 23, 1996 EX-23.B 21 EXHIBIT 23.B, CONSENT OF KPMG EXHIBIT 23B The Board of Directors S/S Enchanted Seas and S/S Enchanted Isle: We consent to the use of our report dated May 7, 1996 of S/S Enchanted Seas and S/S Enchanted Isle (operating units of Effjohn International B.V.) included herein in this registration statement on Form S-1 of Commodore Holdings Limited and to the reference to our firm under the heading "Experts" in the propectus. /s/ KPMG Peat Marwick LLP Ft. Lauderdale, Florida May 17, 1996 EX-27 22 EXHIBIT 27: FINANCIAL DATA SCHEDULE
5 YEAR 6-MOS SEP-30-1995 SEP-30-1996 SEP-30-1995 OCT-01-1995 SEP-30-1995 MAR-31-1996 3,274,993 1,937,805 0 0 79,069 264,941 0 0 691,001 935,101 6,158,067 5,247,013 33,283,135 38,268,177 197,926 818,025 44,097,276 47,751,165 7,074,228 10,325,083 24,500,000 24,166,684 0 0 4,000,000 4,000,000 49,319 49,319 8,470,111 8,745,819 44,097,276 47,751,165 0 0 7,255,830 19,174,088 0 0 6,803,041 18,341,969 (132,795) (556,411) 0 0 0 0 319,994 275,708 8,459 0 311,535 275,708 0 0 0 0 0 0 311,535 275,708 0.06 0.03 0.06 0.03
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