<PAGE> 1
NY--204796.11
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended: December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from: ______________ to _______________
Commission file number: 0-24464
THE CRONOS GROUP
(Exact name of Registrant as specified in its charter)
LUXEMBOURG NOT APPLICABLE
(State or other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
16, ALLEE MARCONI, BOITE POSTALE 260, L-2120 LUXEMBOURG
(Address of principal executive offices)(zip code)
Registrant's telephone number, including area codes:
(352) 453145
-------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT.
Title of each class Name of each exchange
on which registered
None Not applicable
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT.
Common Shares, $2 par value per share
(Title of Class)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO
ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED,
TO BE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION
STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY
AMENDMENT TO THIS FORM 10-K. YES NO X
THE AGGREGATE MARKET VALUE OF VOTING STOCK OF THE REGISTRANT HELD BY
NON-AFFILIATES AS OF MARCH 26, 1999 (COMMON SHARES) WAS APPROXIMATELY
$33,283,497.
THE NUMBER OF COMMON SHARES OUTSTANDING AS OF MARCH 29, 1999:
CLASS NUMBER OF SHARES OUTSTANDING
----- ----------------------------
Common 8,858,378
PORTIONS OF THE FOLLOWING DOCUMENTS HAVE BEEN INCORPORATED BY REFERENCE
INTO THIS REPORT.
DOCUMENT PARTS IN WHICH INCORPORATED
REGISTRANT'S PROXY STATEMENT FOR THE PART III
1999 ANNUAL MEETING OF SHAREHOLDERS
<PAGE> 2
TABLE OF CONTENTS
THE CRONOS GROUP
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Introductory Note.......................................................................ii
PART I
Item 1 -- Description of Business..................................................................1
Item 2 -- Properties..............................................................................11
Item 3 -- Legal Proceedings.......................................................................11
Item 4 -- Submission of Matters to a Vote of Security Holders.....................................12
PART II
Item 5 -- Market for the Company's Common Equity and Related Stockholder Matters..................14
Item 6 -- Selected Financial Data.................................................................15
Item 7 -- Management's Discussion and Analysis of Financial Condition and Results of Operations...16
Item 8 -- Financial Statements and Supplementary Data.............................................26
Item 9 -- Changes In and Disagreements With Accountants on Accounting and Financial Disclosure....26
PART III
Item 10 -- Directors and Officers of Registrant...................................................27
Item 11 -- Executive Compensation.................................................................27
Item 12 -- Security Ownership of Certain Beneficial Owners and Management.........................27
Item 13 -- Certain Relationships and Related Transactions.........................................27
PART IV
Item 14 -- Exhibits, Finance Statement Schedules, and Reports of Form 8K..........................28
</TABLE>
i
<PAGE> 3
INTRODUCTORY NOTE
Unless the context indicates otherwise, the "Company" means The Cronos
Group and, where appropriate, includes its subsidiaries and predecessors, while
"Cronos" means The Cronos Group together with its subsidiaries and predecessors.
"TEU" means twenty-foot equivalent units, the standard unit of physical
measurement in the container industry. All references herein to "$" or "Dollars"
are to United States dollars.
This report discusses certain forward looking matters that involve risks
and uncertainties that could cause actual results to vary materially from
estimates. Risks and uncertainties include, amongst other things, changes in
international operations, including exchange rate risks, the Company's success
in refinancing its outstanding debt, changes in market conditions for the
Company's container lease operations and the Company's ability to provide
innovative and cost-effective solutions.
ii
<PAGE> 4
PART I
ITEM 1 -- DESCRIPTION OF BUSINESS
INTRODUCTION
The Company is a limited liability company (societe anonyme)
incorporated in Luxembourg with its registered office at 16, Allee Marconi,
Boite Postale 260, L-2120 Luxembourg (telephone (352) 453145). The Company is
registered with the Luxembourg Registrar of Companies under registration number
R.C.S. Lux. B. 27489. Cronos Containers Limited, the Company's principal
container leasing subsidiary, is a U.K. corporation located at Orchard Lea,
Winkfield Lane, Winkfield, Windsor, Berkshire, SL4 4RU, England.
Cronos is the successor to Intermodal Equipment Associates ("IEA") and
Leasing Partners International ("LPI"). IEA began managing and leasing dry cargo
containers in 1978, primarily under master leases. LPI was established in 1983
to manage and lease refrigerated containers. In 1990, LPI acquired IEA and the
companies combined their operations under the new name Cronos. In December 1995
and January 1996, the Company and Barton Holding Ltd., a selling shareholder,
sold in a public offering (the "Public Offering") 3,643,000 Common Shares of the
Company.
Cronos is one of the world's leading lessors (by aggregate TEU capacity)
of intermodal marine containers in owning and managing a fleet of dry cargo,
refrigerated, tank and other specialized containers. Through an extensive global
network of offices and agents, Cronos leases both its own and other owners'
containers to over 400 ocean carriers and transport operators, including all of
the 20 largest ocean carriers. The Company is currently seeking to refinance
approximately $47.7 million due under the Bank Facility and the Company's other
credit facilities by securing new term debt financing and investment by managed
container owners. Until the refinancing is completed, there is substantial doubt
that the Company will be able to continue as a going concern. See Item 7 --
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources".
INDUSTRY BACKGROUND
A marine cargo container is a reusable metal container designed for the
efficient carriage of cargo with a minimum of exposure to loss through damage or
theft. Containers are manufactured to conform to worldwide standards of
container dimensions and container ship fittings adopted by the International
Standards Organization ("ISO") in 1968. The standard container is either 20'
long x 8' wide x 8'6" high (one TEU) or 40' long x 8' wide x 8'6" high (two
TEU). Standardization of the construction, maintenance and handling of
containers allows containers to be picked up, dropped off, stored and repaired
effectively throughout the world. This standardization is the foundation on
which the container industry has developed.
Standard dry cargo containers are rectangular boxes with no moving
parts, other than doors and are typically made of steel or aluminum. They are
constructed to carry a wide variety of cargoes ranging from heavy industrial raw
materials to light-weight finished goods. Specialized containers include, among
others, refrigerated containers for the transport of temperature-sensitive
goods, tank containers for the carriage of liquid cargo and cellular palletwide
containers ("CPCs") with extra width. Dry cargo containers currently constitute
approximately 83% (in teu) of the worldwide container fleet. Refrigerated
containers and tank containers currently constitute approximately 7% (in teu) of
the worldwide container fleet, with open-tops and other specialized containers
constituting the remaining 10%.
One of the primary benefits of containerization has been the ability of
the shipping industry to effectively lower freight rates due to the efficiencies
created by standardized intermodal containers. Containers can be handled much
more efficiently than loose cargo and are typically shipped via several modes of
transportation, including truck, rail and ship. Containers require loading and
unloading only once and remain sealed until arrival at the final destination,
significantly reducing transport time, labor and handling costs and losses due
to damage
The Cronos Group 1
<PAGE> 5
and theft. Efficient movement of containerized cargo between ship and shore
reduces the amount of time that a ship must spend in port and reduces the
transit time of freight moves.
The logistical advantages and reduced freight rates brought about by
containerization have been major catalysts for world trade growth during the
last 25 years, resulting in increased demand for containerization. The world's
container fleet has grown from an estimated 270,000 TEU in 1969 to approximately
12.2 million TEU by mid-1998.
BENEFITS OF LEASING
Leasing companies own approximately 47% of the world's container fleet
with the balance owned predominantly by shipping lines. Shipping lines, which
traditionally operate on tight profit margins, often supplement their owned
fleet of containers by leasing a portion of their equipment from container
leasing companies and in doing so, achieve financial and operational benefits.
Leasing allows the shipping lines to utilize the equipment they need
without having to make large capital expenditures;
Leasing offers a shipping line an alternative source of financing in a
traditionally capital-intensive industry;
Leasing enables shipping lines to expand their routes and market shares
at a relatively inexpensive cost without making a permanent commitment
to support their new structure;
Leasing allows shipping lines to respond to changing seasonal and trade
route demands, thereby optimizing their capital investment and storage
costs.
TYPES OF LEASES
FINANCE LEASES are usually long term in nature and require relatively
low levels of customer service. They ordinarily require fixed payments over a
defined period and provide customers with an option to purchase the subject
containers at the end of the lease term. Per diem rates typically include an
element of repayment of capital and therefore are higher than rates charged
under either long-term or short-term leases.
MASTER LEASES are usually short-term leases under which a customer
reserves the right to lease a certain number of containers as needed under a
general agreement between the lessor and the lessee. Such leases provide
customers with greater flexibility by allowing customers to pick up and drop off
containers where and when needed, subject to restrictions and availability, on
pre-agreed terms. The commercial terms of master leases are negotiated annually.
Master leases also define the number of containers that may be returned within
each calendar month and the return locations and applicable drop-off charges.
Due to the increased flexibility they offer, master leases usually command
higher per diem rates and generate more ancillary fees (including pick-up,
drop-off, handling and off-hire fees) than term leases.
TERM LEASES are for a fixed period of time and include both long and
short term commitments, with most extending from three to five years. Term lease
agreements may contain early termination penalties that apply in the event of
early redelivery. In most cases, however, equipment is not returned prior to the
expiration of the lease. Term leases provide greater revenue stability to the
lessor, but at lower lease rates than master leases. Ocean carriers use
long-term leases when they have a need for identified containers for a specified
term. Short-term lease agreements have a duration of less than one year and
include one-way, repositioning and round-trip leases. They differ from master
leases in that they define the number and the term of the containers to be
leased. Ocean carriers generally use one-way leases to manage trade imbalances
(where more containerized cargo moves in one direction than another) by picking
up a container in one port and dropping it off at another location after one or
more legs of a voyage.
The Cronos Group 2
<PAGE> 6
The terms and conditions of the Company's leases provide that customers
are responsible for paying all taxes and service charges arising from container
use, maintaining the containers in good and safe operating condition while on
lease and paying for repairs, excluding ordinary wear and tear, upon redelivery.
Some leases provide for a "damage protection plan" whereby lessees, for an
additional payment (which may be in the form of a higher per diem rate), are
relieved of the responsibility of paying some of the repair costs upon
redelivery of the containers. The Company has historically provided this service
on a limited basis to selected customers. Repairs provided under such plans are
carried out by the same depots, under the same procedures, as are repairs to
containers not covered by such plans. Customers are also required to insure
leased containers against physical damage, loss and against third party
liability for loss, damage, bodily injury or death.
The percentage of equipment on term leases as compared to master leases
varies widely among leasing companies, depending upon each company's strategy on
margins, operating costs and cash flows.
Lease rates depend on several factors including the type of lease,
length of term, maintenance provided, type and age of the equipment and market
conditions.
COMPANY STRATEGY
Cronos targets operating leases, with an emphasis on master leases for
its dry cargo containers and term leases for refrigerated and tank containers.
LEASE PROFILE
Cronos offers flexible leasing arrangements primarily through master
leases on dry cargo containers. Cronos' specialized containers are generally
leased on longer-term leases because the higher cost, value and complexity of
this equipment make it more expensive to redeliver and on-hire frequently.
<TABLE>
<CAPTION>
Percentage of Fleet On-Hire
---------------------------------
Type of Lease Dry cargo Refrigerated Tank
- ------------- --------- ------------ ----
<S> <C> <C> <C>
Master............ 76% 39% 9%
Term.............. 16 56 91
Finance........... 8 5 --
--- --- ---
Total......... 100% 100% 100%
=== === ===
</TABLE>
CUSTOMERS
Cronos currently serves over 400 customers, consisting primarily of
ocean carriers. Cronos supplies containers to all of the 20 largest ocean
carriers worldwide. Cronos is not dependent upon any particular customer or
group of customers. None of the Company's customers accounts for more than 10%
of its revenue and the ten largest customers accounted for approximately 37.6%
of the total TEU fleet-on-hire. Substantially all of Cronos' customers are
billed and pay in United States dollars.
Cronos sets maximum credit limits for all customers, limiting the number
of containers leased to each customer according to established credit criteria.
Cronos continually tracks its credit exposure to each customer. Cronos' credit
committee meets quarterly to analyze the performance of existing customers and
to recommend actions to be taken in order to minimize credit risks. Cronos uses
specialist third party credit information services and reports prepared by local
staff to assess credit applications.
The Cronos Group 3
<PAGE> 7
FLEET PROFILE
Cronos focuses on supplying to its customers high-quality containers,
manufactured to specifications that exceed International Standards Organization
(ISO) standards and designed to minimize repair and operating costs. Cronos
operates primarily dry cargo and refrigerated containers but, since 1993, it has
diversified into tanks and other specialized containers. Cronos believes that
this fleet diversification enables it to increase business with its customers by
supplying a wide range of their equipment requirements.
<TABLE>
<CAPTION>
Cronos Container Fleet (in TEU thousands)
at December 31,
---------------------------------------------
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Dry Cargo 211.5 250.2 322.0 345.9 337.8
Refrigerated 14.6 14.3 16.2 16.0 14.7
Tank 0.4 1.0 1.7 2.0 2.0
Roll-Trailer -- -- 1.7 2.0 2.2
CPCs -- -- -- 2.4 2.4
Other Dry Freight Specials 0.1 0.1 1.2 1.5 2.3
----- ----- ----- ----- -----
Total Fleet 226.6 265.6 342.8 369.8 361.4
===== ===== ===== ===== =====
</TABLE>
Dry cargo containers are the most commonly used type of container in the
shipping industry. Over 95% of Cronos' dry cargo fleet is constructed of all
Corten(R) steel (i.e., Corten(R) roofs, walls, doors and undercarriage), which
is a high-tensile steel yielding greater damage and corrosion resistance than
mild steel. The Company believes that, among its major competitors, it has the
highest percentage of dry cargo containers constructed of all Corten(R) steel.
Refrigerated containers are used to transport temperature-sensitive
products, such as meat, fruit, vegetables and photographic film. All of Cronos'
refrigerated containers have high-grade stainless steel interiors. The majority
of Cronos' 20' refrigerated containers have high-grade stainless steel walls,
while most of the Company's 40' refrigerated containers are steel framed with
aluminum outer walls to reduce weight. As with the dry cargo containers, all
refrigerated containers are designed to minimize repair and maintenance and
maximize damage resistance. Cronos' refrigerated containers are designed and
manufactured to include the latest generation refrigeration equipment, with the
most recently built units controlled by modular microprocessors. Cronos has not
purchased new refrigerated containers since early 1997 due to the weak
refrigerated container leasing market resulting from oversupply.
Cronos' tank containers are constructed in compliance with International
Maritime Organization ("IMO") standards and recommendations. The tanks purchased
by Cronos to date have all been IMO-1 type tanks constructed to comply with IMO
recommendations that require specific pressure ratings and shell thicknesses.
These containers are designed to carry highly-flammable materials, corrosives,
toxics and oxidizing substances. They are also capable of carrying non-hazardous
materials and foodstuffs. They have a capacity of 21,000-24,000 litres and are
generally insulated and equipped with steam or electrical heating.
Dry freight special containers, a small but growing segment of the
world container fleet, include rolltrailers, CPCs, open-top and flatrack
containers. Cronos diversified into dry freight specials in 1996, when it
acquired Intermodal Leasing AB, a Swedish company with a fleet of approximately
800 rolltrailers, a type of heavy-duty chassis used for moving cargo onto and
off ships. Cronos markets this product on a worldwide basis through its network
of offices and agents, and has increased its rolltrailer fleet to 2,200 TEU at
the end of 1998. Cronos owns the patents of the CPC, a specialized container
designed specifically for the carriage of European short sea cargo on
"Europallets". Since 1996, Cronos has added 2,400 TEU of CPCs into its container
fleet.
The Cronos Group 4
<PAGE> 8
PURCHASING POLICY
Cronos' purchasing policy is driven by market requirements and
anticipated future demand, including demand generated by trade growth and the
replacement of containers retired from fleets around the world. The Company
believes that the worldwide manufacturing capacity for all container types is
adequate to meet its current and near-term requirements.
Cronos purchases dry cargo containers from manufacturers in China,
Korea, Taiwan, Indonesia, Thailand, India, Malaysia, Turkey and South Africa as
part of its policy to source container production in locations where it can meet
customer demands most effectively. No single manufacturer supplies more than 30%
of Cronos' annual dry cargo container purchases.
Cronos' refrigerated containers were purchased mainly from Korean
manufacturers. The majority of its refrigeration units were purchased from
Carrier Transicold, the primary supplier of container refrigeration units in the
United States. To date, all of the Company's tank containers have been purchased
from United Kingdom and South African manufacturers.
REPAIR AND MAINTENANCE
All containers are inspected and repaired when redelivered by a
customer, and customers are obligated to pay for all damage repairs, excluding
wear and tear, according to standardized industry guidelines. Depots in major
port areas perform repair and maintenance that is verified by independent
surveyors or the Cronos technical and operations staff.
Before any repair or refurbishment is authorized on older containers in
the Cronos fleet, the Cronos technical and operations staff reviews the age,
condition and type of container and its suitability for continued leasing.
Cronos compares the cost of such repair or refurbishment with the prevailing
market resale price that might be obtained for that container and makes the
appropriate decision whether to repair or sell the container. Cronos is
authorized to make this decision for most of the owners for whom it manages
equipment and makes these decisions by applying the same standards to the
managed containers as to its own containers.
MARKET FOR USED CONTAINERS
Cronos estimates that the period for which a dry cargo or refrigerated
container may be used as a leased marine cargo container ranges from 10 to 15
years. Tank containers generally may be used for 12 to 18 years.
Cronos disposes of used containers in a worldwide market in which buyers
include wholesalers, mini-storage operators, construction companies and others.
The market for used refrigerated and tank containers is not as stable as the
market for used dry cargo containers. Although a used refrigerated container
will command a higher price than a dry cargo container, a dry cargo container
will achieve a higher percentage of its original price. Historically, the
Company has not derived a material proportion of its revenues from selling used
containers due to the age profile of its fleet.
OPERATIONS
Cronos' sales and marketing operations are conducted through Cronos
Containers Limited, a wholly-owned subsidiary based in the United Kingdom, with
support provided by area offices and dedicated agents located in San Francisco,
California; Iselin, New Jersey; Windsor, England; Hamburg; Antwerp; Genoa;
Gothenburg, Sweden; Singapore; Hong Kong; Sydney; Tokyo; Taipei; Seoul; Rio de
Janeiro; Shanghai and Auckland.
Cronos also maintains agency relationships with over 20 independent
agents around the world, who are generally paid a commission based upon revenues
generated in the region or the number of containers that are leased from their
area. These agents are located in jurisdictions where the volume of Cronos
business necessitates
The Cronos Group 5
<PAGE> 9
a presence in the area but is not sufficient to justify a fully-functioning
Cronos office or dedicated agent. Agents provide marketing support to the area
offices covering the region, together with limited operational support.
In addition, Cronos relies on the services of over 300 independently
owned and operated depots around the world to inspect, repair, maintain and
store containers while off-hire. The Company's area offices authorize all
container movements into and out of the depot and supervise all repairs and
maintenance performed by the depot. The Company's technical staff sets the
standards for repair of the Cronos fleet throughout the world and monitors the
quality of depot repair work. The depots provide a link to the Company's
operations, as the redelivery of a container into a depot is the point at which
the container is off-hired from one customer and repaired in preparation for
re-leasing to the next.
Cronos' global network is integrated with its computer system and
provides 24-hour communication between offices and agents. The system allows
Cronos to manage and control its fleet on a global basis, providing Cronos with
the responsiveness and flexibility necessary to service the master lease market
effectively. This system is an integral part of Cronos' service, as it processes
information received from the various offices, generates billings to lessees and
generates a wide range of reports on all aspects of the Company's leasing
activities. The system records the life history of each container, including the
length of time on-hire, repair costs, as well as port activity trends, leasing
activity and equipment data per customer. The operations and marketing data is
fully interfaced with Cronos' finance and accounting system to provide revenue,
cost and asset information to management and staff around the world. Cronos
intends to continue to enhance its computer system as needs arise in the future.
COMPETITION
Competition among container leasing companies is based upon several
factors, including the location and availability of inventory, lease rates, the
type, quality and condition of the containers, the quality and flexibility of
the service offered and the confidence in and professional relationship with the
lessor. Other factors include the speed with which a leasing company can prepare
its containers for lease and the ease with which a lessee believes it can do
business with a lessor or its local area office. Not all container leasing
companies compete in the same market as some supply only dry cargo containers
and not specialized containers, while others offer only long-term leases. Cronos
has historically targeted three particular markets: the master lease dry cargo
container market, the refrigerated container market and the tank container
market. In recent years, however, the Company has expanded into other
specialized container products and other types of leases.
Cronos competes with various container leasing companies in the markets
in which it conducts business, including Transamerica Leasing, Genstar Container
Corp. (now GE Seaco), Triton Container International Ltd., Textainer Corp. and
others. In a series of recent consolidations, several major leasing companies,
as well as numerous smaller ones, have been acquired by competitors. Cronos
believes that the current trend toward consolidation in the container leasing
industry will continue, making economies of scale, worldwide operations,
diversity, size of fleet and financial strength increasingly important to the
successful operation of a container leasing business. Additionally, as
containerization grows, customers may demand more flexibility from leasing
companies regarding per diem rates, pick-up and drop-off locations, availability
of containers and other terms.
Some of Cronos' competitors may have greater financial resources than
Cronos and may be more capable of offering lower per diem rates on a larger
fleet. In Cronos' experience, however, ocean carriers will generally lease
containers from more than one leasing company in order to minimize dependence on
a single supplier.
The Cronos Group 6
<PAGE> 10
OPERATING SEGMENTS
Cronos has three operating segments which are determined based on source
of container funding:
1. U.S. Public Limited Partnerships
2. Other Container Owners
3. Owned Containers
Cronos uses various financing programs within its three segments. These
financing programs enable Cronos to expand its fleet without being dependent
upon any single source of financing. Cronos believes it is important to
diversify its financing sources both by market and type of instrument. This
diversification reduces its reliance on individual financial markets and
provides for a more balanced financing structure.
The following chart summarizes the composition of the Cronos
fleet (based on original equipment cost) at December 31 of each of the years
indicated:
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
U.S. Public Limited Partnerships.... 48% 45% 38% 35% 34%
Other Container Owners ............. 28% 34% 29% 40% 41%
Owned Containers ................... 24% 21% 33% 25% 25%
--- --- --- --- ---
Total .................... 100% 100% 100% 100% 100%
=== === === === ===
</TABLE>
As of December 31, 1998, no single owner (other than as specified above)
held more than 13% of the Cronos fleet (based upon original equipment cost).
All containers, whether owned or managed, are leased as part of a single
global fleet, without regard to ownership. No customer generates 10% or more of
a segment's revenues. The Company evaluates the performance of its operating
segments based on operating profit or loss. Substantially, all of the Group's
lease revenue is earned on containers used in global trade routes. This revenue
is deemed to be earned based on the physical location of the containers while on
lease. Accordingly, the Group believes that it does not possess discernible
geographic reporting segments as defined in Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information". See Note 2 to the 1998 Consolidated Financial Statements.
Segment revenues from external customers, operating profit or loss and
total assets are disclosed in the Company's Financial Statements and are
incorporated herein by reference.
U.S. PUBLIC LIMITED PARTNERSHIPS
Cronos has been raising capital through its investment syndication
activities since 1979 through the organization and sponsorship of public limited
partnership offerings. To date Cronos has sponsored 16 of these public limited
partnerships. Cronos has raised over $478 million from over 37,000 investors,
providing the means to purchase 181,000 TEU of dry cargo containers, 3,500 TEU
of refrigerated containers and 300 TEU of tank containers. A majority of the
limited partners in a partnership can remove the general partner, thereby
terminating the agreement with Cronos.
As an operating company, Cronos believes that its substantial experience
in the container leasing industry has been integral to the successful
syndication of public limited partnerships. However, no public offerings have
been made in the U.S. since early 1997. The Company is currently seeking to
refinance approximately $47.7
The Cronos Group 7
<PAGE> 11
million of indebtedness. See Item 7 -- "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources". In addition, since early 1997 the Company has been the subject of an
investigation by the U.S. Securities and Exchange Commission. See Item 3 --
"Legal Proceedings". The Company's ability to offer additional investor programs
will likely require a satisfactory resolution of these matters.
The U.S. Public Limited Partnerships provide compensation to Cronos
consisting of the following fees and commissions:
- Syndication commissions: equal to 10% of the gross proceeds from the
offering, of which approximately 8% is paid to independent
broker-dealers;
- Acquisition fees: equal to 5.0% of the original cost of equipment
purchased by the partnerships, recognized over a 12-year period;
- Base management fees: equal to 7% of gross lease revenue for
operating leases and 2% of gross lease revenue for direct financing
leases;
- General partner share: equal to 5% of distributable cash generated by
the partnerships' operating activities;
- Incentive fees: equal to 15% of distributable cash after the limited
partners have received a return of their adjusted capital
contributions and distributions in an amount equal to a cumulative
compounded rate between 8 to 10% per annum (depending on the
program);
- Sales proceeds fees: equal to a 25% share of container sales proceeds
after limited partners have received a return equal to their adjusted
capital contribution plus 8% per annum for the leveraged programs;
and
- Reimbursed administrative expenses: for certain overhead and
operating expenses.
Management and acquisition fees, as well as syndication commissions
(representing amounts earned on the sale of Limited Partnership interests)
earned by the Company, were $15.0 million, $12.0 million, and $11.3 million for
the years ended December 31, 1996, 1997 and 1998, respectively.
The Cronos Group 8
<PAGE> 12
OTHER CONTAINER OWNERS
In addition to U.S. Public Limited Partnerships, Cronos manages
containers pursuant to agreements negotiated directly with corporations,
partnerships and private individuals located in Europe, Asia, the United States
and South Africa. Cronos' obligations to investors in the partnerships and the
investor programs are substantially similar. The terms of the agreements vary
from 1 to 15 years. The agreements generally contain provisions which permit
earlier termination under certain conditions upon 60-90 days' notice. Under the
agreements with Other Container Owners, the container owner can generally
terminate the agreement if average payments by Cronos are less than a certain
percentage (specified in each agreement) of total capital invested. Cronos
believes that early termination is unlikely in normal circumstances.
These management agreements generally provide compensation to Cronos
consisting of management fees between 5% and 20% of the net lease revenue
generated by the containers. Cronos also earns an acquisition fee of
approximately 2.5% to 5.0% of the aggregate original equipment cost of the
equipment managed for the owners where Cronos has negotiated the purchase of the
equipment. In certain cases, an incentive fee may also be earned. Acquisition
fees under the investor programs are generally recognized in Cronos' income
statements over periods ranging from 7 to 15 years.
Total fees earned by the Company were $7.4 million, $7.3 million and
$7.4 million for the years ended December 31, 1996, 1997 and 1998, respectively.
All of the containers managed for these owners are combined into pools
with containers of similar age and type and are managed pursuant to generally
similar management agreements. Occasionally an owner will have its own pool, due
to the size of its fleet or to differences in the structure or terms of the
management agreement. The owners of the containers in each pool share revenues
and expenses, which are allocated pro rata in order to minimize the effect of
possible over-utilization or under-utilization of any particular containers.
Pooling was designed to minimize conflicts of interest and promote
administrative convenience.
Revenues and expenses are allocated among owners based upon the
aggregate original equipment cost of the containers owned by each owner and the
number of days that such containers were in the pool, compared to the total
aggregate original equipment cost of all containers in the pool and the total
number of days in the period.
OWNED CONTAINERS
Cronos uses various forms of debt funding to finance its owned fleet
including bank loans, private placements, and capital leases. Container
ownership provides the Company with the ability to generate lease revenues over
the life of the container, matched with relatively fixed costs of interest and
depreciation expenses. Most of the Company's long term debt facilities have
principal maturities of less than seven years, after which containers financed
under such facilities provide increased cash flows. In general, the Company
believes that container ownership is more profitable over the life of the
container when compared to the corresponding profits generated from container
management. However, unlike container management, container ownership can often
require an initial cash investment in order to secure cost effective debt
financing. Until the Company completes its short term debt refinancing,
additional investment in container ownership will be restricted. See Item 7 -
"Management's Discussion and Analysis of Financial Condition and Results of
Operations".
Cronos also owns containers on a temporary basis until such time that
the containers are sold to its U.S. Limited Partnerships and Other Container
Owner Programs. Most containers targeted for transfer to managed programs are
purchased new by Cronos, and sold to a managed container owner within six
months. This strategy allows Cronos more flexibility to negotiate and buy
containers strategically, based on market conditions and later sell these
containers to third party owners after the initial lease profile is established
for a particular group of containers. Cronos also intends to use managed
container programs to help it refinance containers held under short-term debt
agreements, some of which it has completed in the first quarter of 1999.
The Cronos Group 9
<PAGE> 13
ENVIRONMENTAL
Countries that are signatories to the Montreal Protocol on the
environment agreed in November 1992 to restrict the use of environmentally
destructive refrigerants, banning production (but not use) of chlorofluorocarbon
compounds ("CFCs") beginning in January 1996. CFCs are used in the operation,
insulation and manufacture of refrigerated containers. All of Cronos'
refrigerated containers purchased since June 1993 use non-CFC refrigerant gas in
the operation and insulation of the containers, although a reduced quantity of
CFCs is still used in the container manufacturing process. The replacement
refrigerant used in the Company's new refrigerated containers may also become
subject to similar governmental regulations. Depending on market pressures and
future governmental regulations, many of the Company's refrigerated containers
may require retrofitting with non-CFC refrigerants. Cronos' technical staff has
cooperated with refrigeration manufacturers in conducting investigations into
the most effective and economical retrofit plan. In the future, the Company may
bear the costs related to retrofitting its Owned Containers, which constitute
approximately 25% of its total refrigerated container fleet. Cronos believes
that any such further expenses, should they be required, would not be material
to its financial position or results of operations. In addition, refrigerated
containers that are not retrofitted may command lower prices in the used
container market.
EMPLOYEES
As of December 31, 1998, Cronos had 139 employees worldwide, 32 were
located in the United States, 80 in Europe and 27 in Asia. None of Cronos'
employees are covered by a collective bargaining agreement.
<TABLE>
<CAPTION>
Executive Officers of the Company
---------------------------------
Name Position Age
---- -------- ---
<S> <C> <C>
Dennis J. Tietz Chief Executive Officer 46
Peter J. Younger Chief Financial Officer 42
Stephen J. Brocato President of Leasing Division 46
</TABLE>
A brief summary of the recent business and professional
experience of each executive officer is set forth below:
DENNIS J. TIETZ. Mr. Tietz, 46, was elected Chief Executive Officer of
The Cronos Group in December 1998 and Chairman of the Board of Directors in
March 1999. Since 1986, Mr. Tietz has been responsible for the organization and
marketing and after-market support of investment programs managed by Cronos
Capital Corp. ("CCC"), a subsidiary of the Company. Mr. Tietz was a regional
manager for CCC, responsible for various container leasing activities in the
U.S. and Europe from 1981 to 1986. Prior to joining CCC in December 1981, Mr.
Tietz was employed by Trans Ocean Leasing Corporation as Regional Manager based
in Houston, with responsibility for all leasing and operational activities in
the U.S. Gulf. Mr. Tietz holds a B.S. degree in Business Administration from San
Jose State University and is a Registered Securities Principal with the National
Association of Securities Dealers ("NASD").
PETER J. YOUNGER. Mr. Younger, 42, was elected Chief Financial Officer
of The Cronos Group in March, 1997, and is based in the United Kingdom. Mr.
Younger was appointed Vice President and Controller of Cronos in 1991. He joined
IEA in 1987 and served as Director of Accounting and Vice President and
Controller, based in San Francisco. Prior to 1987, Mr. Younger was a certified
public accountant and a principal with the accounting firm of Johnson, Glaze and
Co. in Salem, Oregon. Mr. Younger holds a B.S. degree in Business Administration
from Western Baptist College.
The Cronos Group 10
<PAGE> 14
STEPHEN J. BROCATO. Mr. Brocato, 46, was elected President of the
Leasing Company's container division in June 1997, and is based in the United
Kingdom. Mr. Brocato has held various positions since joining Cronos including,
Vice President - Corporate Affairs and Director of Marketing - Refrigerated
Containers for Cronos in North and South America. Prior to joining Cronos, Mr.
Brocato was a Vice President for ICCU Containers from 1983 to 1985 and was
responsible for dry cargo container marketing and operations for the Americas.
From 1981 to 1983, he was Regional Manager for Trans Ocean Leasing Ltd. On March
31, 1999 Mr. Brocato resigned from his position as President of the Leasing
Company's container division and has left the Company to pursue other interests.
INSURANCE
Cronos' lease agreements typically require lessees to obtain insurance
to cover all risks of physical damage and loss of the equipment under lease, as
well as public liability and property damage insurance. However, the precise
nature and amount of the insurance carried by each ocean carrier varies from
lessee to lessee.
In addition, Cronos has purchased secondary insurance effective in the
event that a lessee fails to have adequate primary coverage. This insurance
covers liability arising out of bodily injury and/or property damage as a result
of the ownership and operation of the containers, as well as insurance against
loss or damage to the containers, loss of lease revenues in certain cases and
costs of container recovery and repair in the event that a customer goes into
bankruptcy. Cronos believes that the nature and amounts of its insurance are
customary in the container leasing industry and subject to standard industry
deductions and exclusions.
ITEM 2 -- PROPERTIES
Cronos owns the real property known as Orchard Lea, located west of
London, England. Orchard Lea consists of a 22,000 square foot office building on
four acres of land. Orchard Lea is the head office of Cronos' container leasing
operations. It is subject to a mortgage and other liens and encumbrances. Cronos
leases approximately 12,160 square feet of office space in San Francisco,
California, where its U.S. Limited Partnership activities are based. Cronos also
conducts container leasing operations from offices in Iselin, New Jersey;
Hamburg; Antwerp; Genoa; Gothenburg, Sweden; Hong Kong; Singapore; Sydney;
Tokyo; Rio de Janeiro; Shanghai and Auckland, generally under shorter term
leases of varying durations. The containers owned and managed by Cronos are
described under Item 1--"Description of Business - Company Strategy - Fleet
Profile, Operating Segments - U.S. Public Limited Partnerships, Other Container
Owners and Owned Containers", above. As of December 31, 1998, Cronos owned
50,487 TEU dry cargo containers, 7,537 TEU refrigerated containers, 671 TEU tank
containers, 2,419 TEU CPC containers and 2,309 TEU of other specialized
equipment. As of December 31, 1998, Cronos managed a total of 287,339 TEU dry
cargo containers, 7,165 TEU refrigerated containers, 1,341 TEU tank containers
and 2,171 TEU of other specialized equipment.
ITEM 3 -- LEGAL PROCEEDINGS
In February 1997, as reported in the Company's Form 6-K, Arthur Andersen
resigned as auditors to The Cronos Group and its subsidiaries and related
partnerships. In connection with its resignation, Arthur Andersen also prepared
a report pursuant to Section 10A of the Securities Exchange Act of 1934 citing
its inability to obtain what it considered to be adequate responses to its
inquiries primarily regarding the payment of $1.5 million purportedly in respect
of professional fees relating to the proposed strategic alliance referred to in
Note 17 to the 1998 Consolidated Financial Statements.
The Securities and Exchange Commission ("SEC"), a United States
regulatory agency, subsequently commenced an investigation of the Company. The
SEC's investigation can result in several types of civil or administrative
sanctions against the Company and individuals associated with the Company,
including the
The Cronos Group 11
<PAGE> 15
assessment of monetary penalties against the Company. Actions taken by the SEC
do not preclude additional actions by any other federal, civil or criminal
authorities or by other regulatory organizations or by third parties.
The SEC's investigation is continuing, and some of the Company's present
and former officers and directors and others associated with the Company have
given testimony. However, no conclusion of any alleged wrongdoing by the Company
or any individual has been communicated to the Company by the SEC. Accordingly,
management has not reached a conclusion regarding any possible liability of the
Company.
Since 1983, the Company has managed equipment for Austrian entities
sponsored by various Contrin companies. Contrin was formed in 1976 by Mr Rudolf
J. Weissenberger, a former Chief Executive Officer, Chairman and Director of the
Company. Subsequently, Mr Palatin, a former Chief Executive Officer, Chairman
and Director of the Company, joined Mr Weissenberger in the ownership and
management of Contrin. Mr Axel Friedberg, a former non-executive Director of the
Company from 1997 to March 1999, served as legal counsel to Mr Weissenberger and
some of the Contrin entities. Mr Weissenberger and Mr Palatin terminated their
respective positions with Contrin in 1991. Since then, Cronos has continued to
manage equipment for Contrin under Management Agreements.
Certain of the Contrin entities were liquidated in 1996 with alleged
losses to the investors in some of the Austrian entities that had provided
financing. Investigations that involved allegations of fraudulent dealings in
respect of Contrin were initiated against various persons and entities in the
Provincial Court of Vienna, Austria (Criminal Division) upon the complaint of
certain of the Contrin companies. In September 1997 the Provincial Court of
Vienna entered a temporary injunction that froze a payment being made by Cronos
Containers NV of 4,617,835 Austrian schillings (approximately $0.36 million)
pending the outcome of further legal proceedings. In December 1997 the Vienna
Court of Appeal (Criminal Division) sustained the temporary injunction. In its
opinion, the Court of Appeal noted that, upon motion of the Public Prosecutor,
investigations were then pending against, among others, Mr Palatin. The Court
also said that investigations were being initiated against additional persons,
including Mr Weissenberger and Mr Friedberg. Mr Palatin and Mr Friedberg have
since been formally charged. Such investigations, which are still pending, have
not resulted in any actions being taken against Mr Weissenberger, who has
informed the Company that he does not believe that there is any valid basis for
any such actions to be taken against him.
In May 1998, Mr Palatin was taken into custody by Austrian governmental
authorities pending further hearings on the allegations of fraud in connection
with various Contrin transactions. See Notes 17 and 21 to the 1998 Consolidated
Financial Statements. In June 1998, the Company's Board of Directors removed Mr
Palatin from his position as Chief Executive Officer. Mr Palatin resigned from
the Board of Directors on July 3, 1998.
In response to actions taken by Contrin, the Company terminated certain
of its Management Agreements with the various Contrin entities in 1998.
Discussions are taking place between Contrin and the Company and it is possible
these agreements may be reinstated.
Based on the information available to it, the Company considers that
prudent provision has been made in the 1997 and 1998 Financial Statements for
all matters concerning Contrin. See Note 17 to the Company's 1998 Consolidated
Financial Statements for additional information.
ITEM 4 -- SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders was held on October 29, 1998. The
following is a summary of the matters voted on at the meeting:
Resolution 1: to receive and approve the reports of the independent
auditor and of the Board of Directors; votes for 2,502,708; votes against
1,340,140; abstentions 1,075,200. Consequently, the resolution was passed.
The Cronos Group 12
<PAGE> 16
Resolution 2: to ratify the appointment by the Board of Directors of Mr
Maurice Taylor on July 9, 1998 to fill a vacancy on the Board; votes for
2,502,508; votes against 1,339,140; abstentions 1,076,400. Consequently, Mr
Taylor's appointment by the Board of Directors was ratified.
Resolution 3: to approve the Consolidated and Unconsolidated Financial
Statements of the Company for the year ended December 31, 1997; votes for
2,173,108; votes against 1,340,940; abstentions 1,404,000. Consequently, the
Consolidated and Unconsolidated Financial Statements of the Company for the year
ended December 31, 1997 were approved.
Resolution 4: to discharge the Board of Directors (other than Mr
Palatin) pursuant to Article 74 of the Company Law (August 10, 1915) for the
execution of their mandate for the year ended December 31, 1997; votes for
2,496,098; votes against 1,343,000; abstentions 1,078,950. Consequently, the
discharge as proposed was granted.
Resolution 5: election of Directors
<TABLE>
<CAPTION>
Votes
--------------------------------------
Nominee Term For Against Abstentions
- ------- ---- --- ------- -----------
<S> <C> <C> <C> <C>
E. A. Eriksen 2001 487,371 3,352,277 1,078,400
R. J. Weissenberger 2001 2,160,208 1,586,440 1,171,400
M. Taylor 2001 2,500,608 913,890 1,503,550
N. Walker 2001 708,010 1,337,840 2,872,198
</TABLE>
Mr Friedberg and Mr Ernst Otto Nedelmann continued to serve as Directors
following the meeting.
Resolution 6: to rescind the authorization granted at the 1997 annual
meeting of shareholders of the Company to pay out dividends of up to 35% of
consolidated net earnings for the year ended December, 31 1996; votes for
3,732,958; votes against 106,040; abstentions 1,079,050. Consequently, the
authorization was rescinded.
Resolution 7: to approve the appointment of Moore Stephens S.a.r.l. as
the Company's independent auditor for the fiscal year 1998 and to authorize the
Directors to fix the independent auditors remuneration; votes for 3,499,348;
votes against 343,000; abstentions 1,075,700. Consequently, Moore Stephens
S.a.r.l was reappointed.
Resolution 8: to approve any dividends and allocate the results for the
year ended December 31, 1997; votes for 2,169,008; votes against 1,673,840;
abstentions 1,075,200.
Consequently, it was decided not to pay dividends.
The Cronos Group 13
<PAGE> 17
PART II
ITEM 5 -- MARKET FOR THE COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
As at March 29, 1999, there were outstanding 8,858,378 Common Shares.
They were held of record by 16 holders, including five non-U.S. persons holding
an aggregate of 2,857,017 shares.
Prior to December 1995, there was no trading market for the Company's
Common Shares. Since the Company's Public Offering, the Common Shares have been
quoted and traded over-the-counter on the NASDAQ National Market System under
the symbol "CRNSF". In March 1999 the Company announced that it would comply
with the reporting requirements applicable generally to U.S. public companies
and would therefore trade under the symbol "CRNS". There is no trading market
for the Common Shares outside the United States. The table below shows the high
and low reported bid prices for the Common Shares on the NASDAQ National Market
System for the last two years for the quarterly periods ending on the dates
indicated. Bid prices are market quotations and reflect inter dealer prices,
without retail mark up, mark down or commission and may not necessarily
represent actual transactions.
<TABLE>
<CAPTION>
Price Range Trading Volume
(Dollars) (# of Common Shares)
High Low
---- ---
<S> <C> <C> <C>
March 31, 1997 7.375 2.750 2,704,887
June 30, 1997 6.875 4.000 1,833,200
September 30, 1997 8.125 6.250 1,671,623
December 31, 1997 7.375 4.500 1,092,334
March 31, 1998 7.250 5.125 1,397,942
June 30, 1998 7.125 5.000 552,233
September 30, 1998 5.969 4.875 1,101,394
December 31, 1998 6.625 3.375 297,081
February 28, 1999 5.938 3.500 137,290
</TABLE>
There are currently no Luxembourg foreign exchange control restrictions
on the payment of dividends on the Common Shares or on the conduct of Cronos'
operations. In addition, there are no limitations on holding or voting
applicable to foreign holders of Common Shares, imposed by law, by the Company's
Articles of Incorporation or otherwise, other than those restrictions which
apply equally to Luxembourg holders of Common Shares. The company is, under a
credit agreement, restricted in declaring or making dividend distributions
except in the case where such declarations or distributions are made solely and
limited to an amount equal to 35% of Consolidated Net Earnings of any year. No
dividend declarations have been made by the Company since its Initial Public
Offering in December 1995.
The following summary of the material Luxembourg tax consequences is not
a comprehensive description of all of the tax considerations that are applicable
to the holders of Common Shares, and does not deal with the tax consequences
applicable to all categories of holders, some of which may be subject to special
rules.
Under present Luxembourg law, as long as the Company maintains its
status as a holding company, no income tax, withholding tax (including with
respect to dividends), capital gains tax or estate inheritance tax is payable in
Luxembourg by shareholders in respect of the Common Shares, except for
shareholders domiciled, resident (or, in certain circumstances, formerly
resident) or having a permanent establishment in Luxembourg. The reciprocal tax
treaty between the United States and Luxembourg limiting the rate of any
withholding tax is therefore inapplicable.
The Cronos Group 14
<PAGE> 18
ITEM 6 -- SELECTED FINANCIAL DATA
The following table sets forth consolidated financial information for
the Company as of and for the periods noted. The balance sheet and income
statement data for the five years ended December 31, 1998, have been derived
from the consolidated financial statements of the Company. The table should be
read in conjunction with Item 7--"Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the 1998 Consolidated
Financial Statements and related notes thereto included elsewhere in this Annual
Report. The Company is facing material financial uncertainties in connection
with its refinancing that may cause this data not to be indicative of future
financial condition or results of operations.
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1995 1996 1997 1998
-------- -------- -------- --------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Gross lease revenue ............................... $124,658 $150,429 $154,011 $ 160,848 $ 157,546
Commissions, fees and other operating income....... 5,667 6,942 7,460 5,545 4,955
Interest income ................................... 255 1,329 1,333 1,685 1,154
Equity in earnings of affiliates .................. 1,445 1,895 1,397 -- --
Gain on conversion of investment in affiliate...... -- -- 5,260 321 --
-------- -------- -------- --------- ---------
TOTAL REVENUES AND NON-OPERATING INCOME ........... 132,025 160,595 169,461 168,399 163,655
-------- -------- -------- --------- ---------
Direct operating expenses ......................... 23,783 26,938 34,535 34,217 35,318
Payments to container owners ...................... 62,288 77,073 72,894 73,945 75,527
Depreciation and amortization ..................... 8,711 10,676 14,258 19,033 18,714
Selling, general and administrative expenses....... 20,148 24,133 23,834 22,683 21,164
Financing and recomposition expenses(1)(2) ........ 1,900 -- 2,149 7,384 5,375
Interest expense .................................. 8,229 11,238 11,368 17,758 15,718
Provision against amounts receivable from
related parties(3) ................................ -- -- -- 4,733 --
Provision against available for sale
securities(4) ..................................... -- -- -- -- 1,500
Impairment losses(5) .............................. -- -- -- 11,668 6,500
-------- -------- -------- --------- ---------
TOTAL EXPENSES .................................... 125,059 150,058 159,038 191,421 179,816
-------- -------- -------- --------- ---------
EARNINGS (LOSS) BEFORE INCOME TAXES ............... 6,966 10,537 10,423 (23,022) (16,161)
Income taxes ...................................... 3,031 3,175 2,441 -- 306
-------- -------- -------- --------- ---------
NET INCOME (LOSS) ................................. 3,935 7,362 7,982 (23,022) (16,467)
-------- -------- -------- --------- ---------
Preferred dividends ............................... 900 856 -- -- --
-------- -------- -------- --------- ---------
Earnings available for common shares .............. $ 3,035 $ 6,506 $ 7,982 $ (23,022) $ (16,467)
-------- -------- -------- --------- ---------
Earnings (loss) per common share .................. $ 0.58 $ 1.21 $ 0.90 $ (2.60) $ (1.86)
-------- -------- -------- --------- ---------
Dividends per common share ........................ $ .19 $ -- $ -- $ -- $ --
-------- -------- -------- --------- ---------
Shares used in per share calculations(6) .......... 5,215 5,383 8,853 8,858 8,858
BALANCE SHEET DATA (AT END OF PERIOD):
Cash and cash equivalents ......................... $ 7,493 $ 24,243 $ 17,278 $ 14,455 $ 9,281
Total assets ...................................... 222,337 266,485 399,301 327,145 279,979
Long-term debt and capital lease obligations....... 93,578 89,600 141,435 88,682 61,195
Total debt and capital lease obligations .......... 109,696 106,620 198,989 171,399 148,466
Shareholders' equity .............................. 53,186 85,349 95,576 73,713 56,087
</TABLE>
(1) In 1994, $1.9 million ($.37 per share) of costs incurred in preparation for
the Company's Public Offering were written off because the offering,
originally planned for the summer of 1994, was postponed for more than 90
days. These costs were non-deductible for tax purposes.
The Cronos Group 15
<PAGE> 19
(2) In 1996, 1997 and 1998 the Company incurred costs in connection with
certain financing and other transactions and the restructuring of the Board
of Directors and other employee positions. Costs incurred and accrued were
charged to the income statement where the Company determined that no future
benefit would be derived from such costs.
(3) As of December 31, 1997 the Company provided $4.7 million against a loan
and associated interest to the then Chairman due to concern over its
collectability and the Company's ability to exercize the pledge over shares
put up as collateral for the loan.
(4) As of December 31, 1998 the Company provided $1.5 million against the
escrow holding certain Transamerica shares pending final determination of
post-closing reports and adjustments.
(5) As of December 31, 1997 and 1998 the Company recorded accounting charges
relating to the impairment of certain long-lived assets as required by the
Statement of Financial Accounting Standards 121.
(6) Weighted average number of shares outstanding during the year.
ITEM 7 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of the Company's financial condition and
results of operations should be read in conjunction with the 1998 Consolidated
Financial Statements and the notes thereto and the other financial and
statistical information appearing elsewhere in this Annual Report. The 1998
Consolidated Financial Statements have been prepared in accordance with US
Generally Accepted Accounting Principles.
GENERAL
The Company generates revenues by leasing to ocean carriers marine
containers that are owned either by third-party container owners or by the
Company itself. These leases, which generate most of the Company's revenues, are
generally operating leases.
The segment information presented in Note 2 of the Notes to the
Company's 1998 Consolidated Financial Statements relates to the portions of the
Company's fleet owned by the Company itself ("Owned Containers") or by the
Company's managed container programs, U.S. Public Limited Partnerships ("U.S.
Limited Partnerships") and Other Container Owners ("Other Container Owners") and
together with U.S. Limited Partnerships, "Managed Container Owners". Owned
Containers include containers held for resale, the financing costs of which are
borne by the Company prior to the sale of such containers to Managed Container
Owners, and are accounted for in the Owned Container segment. The Company bears
the risk of ownership with respect to containers in Owned Containers but not
with respect to the majority of containers in the Managed Container Owners
segments, although the Company bears the risk that the management agreements
could be terminated, resulting in the removal of the corresponding managed
containers from the fleet. At December 31, 1998, approximately 34%, 41% and 25%
of the Company's fleet (by original equipment cost) was related to U.S. Limited
Partnerships, Other Container Owners and Owned Containers, respectively.
All containers, whether owned or managed, are operated as part of a
single fleet. The Company has discretion over which ocean carriers, container
manufacturers and suppliers of goods and services it deals with. Since the
Company's management agreements with the Managed Container Owners meet the
definition of leases in Statement of Financial Accounting Standards No. 13, they
are accounted for in the Company's financial statements as leases under which
the container owners are lessors and the Company is lessee. The agreements with
container owners generally provide that the Company will make payments to the
container owners based upon the rentals collected from ocean carriers after
deducting direct operating expenses and a management fee. Substantially all
payments to container owners are therefore contingent upon the leasing of the
containers by the Company to ocean carriers and the collection of lease rentals.
Minimum lease payments on the minority of
The Cronos Group 16
<PAGE> 20
agreements which have fixed payment terms are presented in note 14(c) of the
notes to the Company's 1998 Consolidated Financial Statements. Substantially all
payments to container owners represent a percentage of the rentals collected
from the ocean carriers to whom containers are leased by the Company.
Gross lease revenue represents revenue from operating leases, excluding
billings in advance. These amounts are billed in U.S. dollars on a monthly
basis. Amounts due under master leases are calculated by the Company at the end
of each month and billed approximately 6 to 8 days thereafter. Amounts due under
short-term and long-term leases are set forth in the respective lease agreements
and are generally payable monthly. Changes in gross lease revenue depend
primarily upon fleet growth, utilization rates and average per diem rates.
The Company has expanded its fleet since December 31, 1994 from 226,600
TEU to 361,400 TEU at December 31, 1998. Between 1994 and 1998 the owned and
managed fleets have grown from 36,700 TEU to 63,400 TEU and from 189,900 TEU to
298,000 TEU, respectively. During this period, the Company added containers
having an original equipment cost of $233 million and $135 million,
respectively, net of disposals, to its owned and managed fleet, increasing the
total original equipment cost of the fleet to $991 million. During 1997 and 1998
the ability of the Company to purchase new equipment for both the owned and
managed fleets was constrained by the levels of finance available to the
company.
Utilization of the Company's containers declined in 1996 as a result of
the increasing fleet size, an oversupply of containers in the industry,
relatively slow growth in world trade and increased competition. During 1997,
utilization experienced steady growth due to marketing efforts and improved
inventory management. In 1998, utilization declined reflecting the deteriorating
economic position in Asian, South American and other markets.
The Company's average per diem rates have fallen consistently throughout
1996, 1997 and 1998. This reflects the rationalization in the global shipping
industry and the resultant lowering of freight rates.
Commissions, fees and other operating income includes acquisition fees
relating to the Company's managed container programs, syndication fees relating
to the Company's limited partnership offerings, income from direct financing
leases (principally containers leased under lease-purchase arrangements), fees
from the disposal of used containers and miscellaneous other fees and income.
This item is affected by the size of new managed programs, the purchase price of
containers purchased for new managed programs, the number and value of direct
financing leases and income from disposals of used containers. Although
acquisition fees are generally received in cash at the inception of a managed
container program and are non-refundable, they are amortized in the income
statement on a straight-line basis over the period of the managed container
agreement to which they relate.
Direct operating expenses are direct costs associated with leasing
containers, both owned and managed. These expenses include depot costs such as
repairs, maintenance, handling and storage, non-depot expenses such as
insurance, agent fees and repositioning costs, and other expenses such as
provisions for doubtful accounts and legal costs. Direct operating expenses are
affected primarily by fleet size and utilization. The majority of direct
operating expenses relate to off-hire containers, and therefore these costs are
sensitive to the quantity of off-hire containers as well as the frequency at
which containers are re-delivered.
Payments to container owners reflect the amounts due to Managed
Container Owners, computed in accordance with the terms of the individual
agreements.
Selling, general and administrative expenses include all employee and
office costs, professional fees and computer systems costs.
Operating profit or loss includes items directly attributable to
specific containers in each of the Company's operating segments, as well as
items not attributable to any specific container but instead are allocated
across operating segments. Items directly attributable to operating segments
include gross lease revenues, direct
The Cronos Group 17
<PAGE> 21
operating costs, payments to container owners, container interest and
depreciation expense. Indirect items allocated across segments include selling,
general and administrative expenses, interest, depreciation and impairment
charges on the Company's non-container assets.
RESULTS OF OPERATIONS
The following chart represents certain key performance measurements,
expressed as a percentage of gross lease revenue:
<TABLE>
Year Ended December 31,
----------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
% % %
Direct operating expenses 22.4 21.3 22.4
Selling, general and administrative expenses 15.5 14.1 13.4
Depreciation and amortization(1) 9.3 11.8 11.9
Interest expense 7.4 11.0 10.0
</TABLE>
(1) Depreciation and amortization in 1996 includes the amortization of goodwill
on the acquisition of capital stock of an affiliate. In the income
statement data, this amortization is netted in calculating equity in
earnings of affiliates.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
During 1998, the size of the total fleet decreased by 8,400 TEU
representing disposals of 11,200 TEU net of new container production of 2,800
TEU. Total new container production in 1998 represented an investment of $9.8
million compared with $92.0 million in 1997. Approximately $3.8 million, or 39%,
of the new container investment before disposals related to dry cargo
containers, compared to $68.0 million, or 74%, in 1997. Of the remaining new
container purchases, $2.7 million was invested in flatracks, $2.0 million was
invested in roll-trailers and $1.3 million in tank containers.
Approximately 85% of new container investment in 1998 was financed
within the Managed Container Owners segments, compared to 69% in 1997. The
remaining balance of 15% in 1998 and 31% in 1997 was financed within the Owned
Container segment by operating cash flow and borrowings.
Based on current market conditions and expected new container prices in
1999, the Company intends to allocate the majority of its 1999 production
funding to new dry cargo containers, and the balance to dry freight specials and
tank containers. The majority of new funding in 1999 is expected to come from
the Other Container Owner segment, most of which is expected to be used for new
production, with the balance targeted to purchase used containers currently
owned by the Company.
Operating profit, see Note 2 to the 1998 Consolidated Financial
Statements, from U.S. Limited Partnerships declined by approximately $0.3
million, or 11%, from $2.2 million in 1997 to $1.9 million in 1998 due to lower
net lease revenues generated from a smaller fleet size, offset partially by
lower allocations of selling, general and administrative expenses.
Other Container Owners generated an operating loss of $0.7 million in
1998, compared to an operating profit of $0.9 million in 1997. Increased net
lease revenues resulting from an increased fleet size, were offset by higher
allocations of selling, general and administrative expenses and an allocation of
impairment losses in 1998 of $0.8 million related to the Company's real property
in England. Operating profit before allocations of indirect items increased
slightly due to a larger fleet under management. The Company expects this trend
to continue in
The Cronos Group 18
<PAGE> 22
1999, both from the funding for new containers purchases, as well as for used
containers currently owned by the Company. In the first quarter of 1999, third
party container owners purchased approximately $14.4 million in container assets
from the Company. The Company anticipates additional transactions of this kind
throughout the first half of 1999. In all cases, the assets will continue to be
managed by the Company as part of its Other Container Owner programs.
Owned Containers generated a loss from operations in 1998 of $8.1
million compared to a loss of $6.3 million in 1997. Lower net lease revenues
resulting from a softer leasing market as well as a smaller owned fleet and
higher interest rates on container debt contributed to the decline in this
segment's performance. Additionally, the Company took an impairment charge of
$4.5 million in 1998 on selected refrigerated and dry containers, in
anticipation of a sale of these assets to various third party investor programs
in the first half of 1999. These sales reflect the Company's strategy of
refinancing its short term debt and reducing the Company's cost of debt
financing. In 1997 the Company booked a $7.4 million impairment charge to write
down the carrying value of refrigerated containers.
Total allocations of selling, general and administrative expenses
between all segments in 1999 are expected to decline as a result of the
Company's announced restructuring program.
Gross lease revenue decreased by approximately 2% in 1998, primarily due
to lower average utilization rates on dry containers, a smaller average
refrigerated container fleet and lower average per diem rates on most product
types. Gross lease revenue from dry cargo containers decreased by 2% in 1998 and
represented approximately 73% of the overall total, unchanged from 1997.
Refrigerated container gross lease revenue declined by $2.8 million, or 9%, to
$29.9 million in 1998 due to a reduction in average fleet size following a
program of targeting uneconomic equipment for disposal during the year.
Refrigerated container gross lease revenue represented 19% of the overall total
compared to 20% in 1997. Gross lease revenue from tank containers increased by
$1.2 million to $8.3 million, an increase of 17% over 1997, due to improved
utilization and a higher average fleet size. The roll-trailer fleet contributed
$2.9 million, or 2%, to total gross lease revenue in 1998 compared to $2.8
million, or 2%, in 1997.
Commissions, fees and other operating income decreased to $5.0 million
in 1998, a decrease of $0.6 million, or 11%, over 1997. This was primarily due
to reduced income from direct financing leases which was partly offset by
increased fees from the disposal of containers and increased property rental
income.
Direct operating expenses increased to $35.3 million in 1998, an
increase of $1.1 million, or 3%, over 1997. Reductions in storage,
repositioning, handling and agent costs were more than offset by increases in
repair costs and in charges in respect of dry cargo and refrigerated container
legal expenses and doubtful accounts. Dry container storage costs decreased by
$1.0 million, or 10%, to $8.9 million reflecting stronger exchange rates and the
negotiation of lower storage rates in several locations. As a percentage of
gross lease revenue, direct operating expenses increased to 22% in 1998 from 21%
in 1997.
Payments to container owners increased to $75.5 million in 1998, an
increase of $1.6 million, or 2%, over the prior year. Payments to Other
Container Owners were $43.6 million in 1998, an increase of $6.1 million, or
16%, over 1997 due to a higher average fleet size which more than offset lower
average dry utilization and per diem rates. The increase in the average fleet
size was mainly due to transactions involving the sale of equipment from the
Owned to the Other Container Owner segment in the second half of 1997 together
with new container production. Payment to US Limited Partnerships decreased by
$4.6 million to $31.9 million, a 12% decrease compared to 1997. The $6.6 million
reduction in gross lease revenue for the segment was caused by lower average
utilization and per diem rates and a smaller dry container fleet which more than
offset a $1.3 million reduction in direct operating expenses. The US Limited
Partnership fleet declined from 138,600 TEU at December 1997 to 128,700 TEU at
December 1998 as a result of the disposal of older container equipment including
sales of equipment to the Other Container Owner segment. At December 1998, the
managed container fleet comprised 75% of the total fleet by original equipment
cost which was almost unchanged from 1997.
The Cronos Group 19
<PAGE> 23
Depreciation and amortization decreased slightly to $18.7 million in
1998, a reduction of $0.3 million, or 2%, compared to 1997, due to a lower
average Owned Container fleet which was partly offset by an increase in the
depreciation charge for refrigerated containers following a change in the
depreciation policy at the beginning of 1998.
Selling, general and administrative expenses were $21.2 million in 1998,
compared to $22.7 million in 1997, a decrease of $1.5 million, or 7%, due to
lower manpower, professional service and communication costs.
Financing and recomposition expenses decreased to $5.4 million in 1998,
a reduction of $2.0 million, or 27%. During 1998, $3.4 million of charges were
incurred in respect of professional and financing fees together with a $2.0
million provision in connection with a restructuring plan. Charges incurred
during 1997 comprised a $3.4 million provision against a contingent liability
(see Notes 3 and 17 to the 1998 Consolidated Financial Statements) and $4.0
million of costs in respect of professional and financing fees.
Interest expense decreased to $15.7 million in 1998, a decrease of $2.0
million, or 12%, over 1997 due to a lower average debt balance which was partly
offset by a higher average interest rate. The average debt balance was $160.9
million in 1998 compared to $185.1 million in 1997, a decrease of $24.2 million.
The reduction in the average debt balance was due to debt repayments of $22.1
million from operating cash during 1998 together with container sales from the
Owned Container fleet to the managed container fleet in the second half of 1997.
Provision against available for sale securities represented a $1.5
million charge to reduce the anticipated proceeds from investment securities
presently held in escrow accounts.
Impairment losses of $6.5 million in 1998 comprised a $4.5 million
charge in respect of container equipment and a $2.0 million adjustment to record
a property at estimated market value.
Income taxes of $0.3 million in 1998 represented charges against profits
arising in European and Asian marketing offices. There was no income tax charge
in 1997.
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
During 1997, the Company added 27,000 TEU of dry and special purpose
containers to the fleet, compared with 77,200 TEU in 1996, net of disposals.
This represented an investment of $92.0 million in new containers in 1997
compared with $253.0 million in 1996. Approximately 74% of the new container
investment before disposals related to dry cargo containers, compared to 81% in
1996. Refrigerated container investment was $10.0 million in 1997 compared to
$50.0 million in 1996. Of the remaining new container purchases, $6.0 million
was invested in tank containers, $4.0 million was invested in palletwide
containers, $2.0 million was invested in roll-trailers and $1.0 million in
flatracks.
Approximately 69% of new container investment in 1997 was financed
within the Managed Container Owners segments, compared to 50% in 1996. The
remaining balance of 31% in 1997 and 50% in 1996 was financed within the Owned
Container segment by operating cash flow and borrowings.
Operating profit, see Note 2 to the 1998 Consolidated Financial
Statements, for US Limited Partnerships decreased by $0.1 million, or 3%,
compared to 1996. Net lease revenue net of payments to US Limited Partnerships
was $2.4 million, or 19%, lower than prior year due to a reduced fleet size and
lower per diem rates which were partly offset by improved utilization. The
allocation of indirect items decreased by $2.9 million, or 23%, reflecting lower
commissions on the sale of limited partnership units and a decrease in selling,
general and administrative expense allocations. Operating profit for Other
Container Owners increased by $0.3 million, or 55%. Net lease revenue net of
payments to container owners increased by $0.3 million, or 5%, due to a higher
average fleet size under management and improved utilization which was partly
offset by lower per diem rates. The average fleet size increased as a result of
investment in new containers during 1997 and purchases of containers from the
Owned Container segment in the second half of 1997. The Owned Container segment
The Cronos Group 20
<PAGE> 24
experienced an operating loss of $6.3 million compared to an operating profit of
$6.3 million in 1996 as a result of increased interest and depreciation charges
and a charge in respect of a reduction in the carrying value of refrigerated
containers of $7.4 million.
Gross lease revenue increased to $160.8 million in 1997, an increase of
$6.8 million, or 4%, due to the expanded fleet size under management and higher
average utilization on dry containers which were partly offset by lower average
per diem rates. Dry cargo containers comprised 71% of the total fleet by
original equipment cost compared to 70% in 1997. Gross lease revenue from this
product type in 1997 remained unchanged from 1996, comprising 73% of the overall
total. Gross lease revenue from tank containers increased by $1.8 million to
$7.1 million, an increase of 34% over 1996. The roll-trailer fleet contributed
$2.8 million, or 1.7%, to total gross lease revenue in 1996.
Commissions, fees and other operating income decreased to $5.5 million
in 1997, a decrease of $1.9 million, or 26%, over 1996. This was due to lower
fees from the disposal of containers and lower syndication commissions resulting
from a reduction in the sale of U.S. Limited Partnership units.
Gain on conversion of investment in affiliate was $0.3 million in 1997
compared to $5.3 million in 1996. The gain resulted from the conversion of the
investment in Trans Ocean Limited in 1996. See Note 9 to the 1998 Consolidated
Financial Statements.
Direct operating expenses decreased to $34.2 million in 1997, a
reduction of $.3 million, or 1%, over 1996. Lower repositioning expenses
reflecting the continuing improvement in the dry container market were partly
offset by higher storage and handling costs and an increased provision for
doubtful accounts. Although storage and handling costs decreased in each quarter
in 1997 as dry utilization improved, the total cost for 1998 was $1.0 million
higher than in 1996. As a percentage of gross lease revenue, direct operating
expenses decreased to 21.3% in 1997 from 22.4% in 1996.
Payments to container owners increased to $73.9 million in 1997, an
increase of $1 million, or 1%, over the prior year. Payments to Other Container
Owners was $37.5 million in 1997, an increase of $4.9 million over 1996 due to a
higher average fleet size and higher dry utilization which more than offset
reduced per diem rates. Payment to US Limited Partnerships decreased by $3.9
million to $36.5 million, a 10% decrease compared to the prior year. The
decrease in average fleet size and reduction in per diem rates more than offset
the improvement in dry utilizations. The size of the total managed container
fleet increased from 242,700 TEU at December 31, 1996 to 303,100 TEU at December
31, 1997, an increase of 60,400 TEU, or 25%.
Depreciation and amortization increased to $19.0 million in 1997, an
increase of $4.8 million, or 33%, over 1996, due to a higher average Owned
Container fleet.
Selling, general and administrative expenses were $22.7 million in 1997,
compared to $23.8 million in 1996, a decrease of $1.1 million, or 5%, due to
lower employee costs and lower commissions paid on the sale of limited
partnership units, partly offset by higher professional fees.
Financing and recomposition expenses increased to $7.4 million in 1997,
an increase of $5.2 million over the prior year due to a $3.4 million provision
against a contingent liability (see Notes 3 and 17 to the 1998 Consolidated
Financial Statements) and higher levels of professional fees incurred in
connection with certain financing and other transactions.
Interest expense increased to $17.8 million in 1997, an increase of $6.4
million, or 56%, over 1996 due to higher average debt balances, a higher average
interest rate and increased loan fees. The average debt balance was $185.1
million in 1997 compared to $129.0 million in 1996, an increase of $56.1
million, reflecting a higher 1997 beginning debt position as a result of
significant additions to the Owned Container fleet in the second half of 1996.
The total debt balance decreased by $32.1 million between June 30, 1997 and
September 30, 1997 as a result of container sales from the Owned Container fleet
to the managed container fleet. The conversion of the Group's primary revolving
credit facility to a term loan resulted in a higher interest rate and increased
loan fees.
The Cronos Group 21
<PAGE> 25
Provision against amounts receivable from related parties of $4.7
million in 1997 represents an adjustment in respect of outstanding loans and
unpaid interest. See Note 21 to the 1998 Consolidated Financial Statements.
Impairment losses of $11.7 million were recorded in 1997 in respect of
certain long-lived assets in accordance with Statement of Financial Account
Standards No. 121. A $7.4 million impairment loss was recognized in respect of
refrigerated container equipment to record the assets at fair value. A $4.3
million adjustment in respect of goodwill reflects the impairment of the Group's
ability to organize future public limited partnerships in the U.S. See Note 3 to
the 1998 Consolidated Financial Statements.
Income taxes: there was no income tax charge in 1997 reflecting the loss
before income taxes. In 1996 the charge was $2.4 million representing an
effective tax rate as a percentage of earnings before income taxes of 23.4%.
LIQUIDITY AND CAPITAL RESOURCES
The funding sources available to the Company and its consolidated
subsidiaries include operating cash flow and borrowings. The Company's operating
cash flow is derived from lease revenues generated by the Company's fleet and
fee revenues from its managed container programs. The Company's working capital
requirements generally relate to day-to-day fleet support and servicing the
current portion of long-term debt outstanding. The parent company derives all of
its operating income and cash flow from its subsidiaries. Dividends of $4.4
million and $3.2 million were paid to the parent company by its subsidiaries
during 1996 and 1998, respectively.
The Company purchases new containers for its own account and for resale
to its managed container programs. In recent years the Company has purchased
containers to take advantage of strategic purchasing and leasing opportunities.
These containers are held for periods of up to six months by the Company until
sold to one of the programs. If they are not sold, the Company retains them for
its own account. The Company believes that this activity allows the Company to
take advantage of opportunistic buying and increases the likelihood that the
containers will already be generating revenues at the time they are acquired by
the managed container programs, thereby providing managed container programs
with more attractive container prices and operating performance. The Company is
not obligated to continue this activity in the future. During 1997 and 1998 its
ability to purchase new containers was limited by the reduced levels of
financing available to the Company.
Cash from Operating Activities. Net cash provided by operating
activities was $19.1 million and $15.2 million in 1996 and 1998, respectively.
Net cash used by operating activities was $20.6 million in 1997. The net cash
generated in 1996 reflected earnings from operations together with a decrease in
new container equipment for resale of $6.4 million. The net cash used in 1997
reflected a payment to container manufacturers of $26.4 million together with
the addition of new container equipment for resale of $6.7 million. The net cash
generated in 1998 reflected cash generated from operations and $7.9 million of
proceeds from new container equipment for sale.
Cash for Investing Activities. The Company uses cash for investing
activities to acquire containers for its owned fleet, to purchase property and
other assets related to the operation of its worldwide office network and on
occasion to acquire subsidiaries and other investments. Net cash used for
investing activities was $121.2 million and $1.4 million in 1996 and 1998,
respectively. Net cash provided by investing activities was $44.6 million in
1997. Included in cash paid in 1996 was $3.4 million relating to the acquisition
of Intermodal Management AB and Intermodal Leasing AB, operators of a fleet of
roll-trailers and other roll-on roll-off terminal handling equipment. Also
included in cash paid in 1996 was $142.6 million relating to the purchase of
owned container equipment, $26.4 million relating to the purchase of container
equipment leased out under a lease purchase agreement, recorded in the Company's
balance sheet as Investment in direct financing leases, and $1.5 million in
respect of professional fees relating to a proposed strategic alliance. See Note
21 to the 1998 Consolidated Financial Statements. Cash received in 1996 related
to proceeds from the sale of container equipment of $36.4
The Cronos Group 22
<PAGE> 26
million, and proceeds from the conversion and subsequent sale of the investment
in Trans Ocean Limited of $19.3 million. Included in cash paid in 1997 was $38.7
million relating to the purchase of owned container equipment and $3.7 million
relating to loans made to the then Chairman. See Note 21 to the 1998
Consolidated Financial Statements. Cash received in 1997 related to proceeds
from the sale of container equipment of $61.5 million and proceeds from the sale
of an investment in finance lease equipment of $25.1 million made in 1996. Also
included in cash received in 1997 was the return of $1.5 million paid by the
Company purportedly in respect of professional fees relating to a proposed
strategic alliance. Cash payments in 1998 included acquisitions of roll-trailer
and computer equipment of $1.6 million and $1.1 million respectively. Cash
receipts in 1998 included $1.1 million in respect of container equipment to a
third party container owner.
Cash from Financing Activities. The Company uses cash from financing
activities to fund capital acquisition requirements and short-term purchasing
requirements of new containers held for resale. Net cash provided by financing
activities was $95.1 million in 1996. Net cash used by financing activities was
$26.7 and $19.0 million in 1997 and 1998, respectively. Included in the net cash
provided in 1996 was $2.1 million in net proceeds from the exercizing of options
on 243,000 shares by the underwriters following the Company's Public Offering.
In 1998, net cash used by financing activities included $22.1 million of debt
and capital lease repayments from operating cash.
Capital Resources
In 1993, the Company entered into a Credit Agreement with a group of
banks for which Fleet Bank, N.A. acts as Agent. This Credit Agreement, as
subsequently amended, is herein called the "Bank Facility". All borrowings under
the Bank Facility are secured by container equipment purchased with funds drawn
under it. The Bank Facility imposes certain financial covenants on the Company,
including requirements not to exceed a specific leverage ratio and to maintain a
minimum consolidated tangible net worth, a minimum debt service coverage ratio,
a fixed charge coverage ratio and other earnings related covenants.
An Amended and Restated Credit Agreement was executed in June 1997,
subject to various actions being taken by the Company including the provision of
additional collateral. This Agreement was further amended in July 1997 and
converted the facility to a term loan, payable in instalments, with a final
maturity date of May 31, 1998. This Agreement was again amended in December 1997
to amend the covenants relating to maintenance of various financial ratios.
The Company did not repay the Bank Facility at the amended maturity date
of May 31, 1998. On June 30, 1998, the Company entered into a Third Amendment to
the Bank Facility (the "Third Amendment"). Under the Third Amendment, the
remaining principal amount of approximately $36.8 million was to be amortized in
varying monthly instalments, beginning July 31, 1998 and ending January 8, 1999,
including a payment of approximately $27.2 million on September 30, 1998. These
instalments were subject to acceleration upon the occurrence of an event of
default. Interest was payable monthly at a rate per annum equal to 2.5% over the
higher of (i) Fleet Bank's prime rate or (ii) the Federal Funds Rate plus 50
basis points. Also, under the Third Amendment, the Company agreed to provide the
Banks with a security interest in certain shares of Transamerica Corporation
when they are released to the Company under a 1996 escrow agreement. See Note 9
to the 1998 Consolidated Financial Statements.
The principal payments due under the Third Amendment on September 30,
1998 and January 8, 1999 were not made. The balance outstanding on the facility
at December 31, 1998 was $33.1 million. In the first three months of 1999, the
Group repaid $7.3 million of the Bank Facility leaving an outstanding balance of
$25.8 million. In March 1999, the Company and the Banks entered into a
Forbearance Agreement and Fourth Amendment to the Bank Facility with a final
maturity date of September 1999 and with varying principal payments due between
April and September. The Fourth Amendment became effective as of March 31, 1999
subject to the satisfaction thereafter of various conditions.
In connection with the July 1997 amendment, the Company assigned to the
Banks as additional collateral certain promissory notes of Mr Palatin, together
with certain shares of the Company's stock that had been pledged
The Cronos Group 23
<PAGE> 27
by Mr Palatin as collateral for the promissory notes. See Note 14 to the
Company's 1998 Consolidated Financial Statements. Mr Palatin has defaulted on
these notes and the Banks have notified the Company of their intention,
depending on market conditions, to exercize their rights to sell all or part of
1,463,636 shares under the collateral assignment in order to satisfy, to the
extent of the net proceeds, Mr Palatin's obligations under these notes. Any
resulting payments on these notes will reduce the Company's obligations under
the Bank Facility.
In December 1994 the Company borrowed $20.0 million under a Note
Purchase Agreement with Sun Life Insurance Company of America ("Sun").
Initially, the loan became due and payable in equal quarterly instalments ending
January 2003. However, during 1997 the Company was not in compliance with a
financial ratio covenant, and on November 1, 1997, the Agreement was amended, in
exchange for a waiver, to provide that the loan would become due and payable on
May 31, 1998. The Company did not repay the $13.9 million balance of the loan on
that date. In July 1998, the Company agreed and executed an Amendment to the
Note Purchase Agreement with the current holders of the Notes (as assignees of
Sun). Under the Amendment, 70% of the principal amount became due and payable on
September 30, 1998 and the balance on January 31, 1999. Prepayments were
required in the event of certain issuances of stock, sales of assets or
refinancings by the Company. Interest was payable monthly at the Citibank, N.A.
prime rate plus 2%.
The Company did not make the principal payments due on September 30,
1998 and January 31, 1999 and the balance outstanding under the facility at
December 31, 1998 was $13.9 million. A second Amendment to the Note Purchase
Agreement has been executed in January 1999 which extends the final maturity
date to September 1999 and also provides for interim principal payments to be
made in April and July. $1.2 million was repaid in February 1999 in lieu of the
April payment.
In March 1999, the Company agreed an amendment to a $20.0 million short
term revolving credit facility which had a maturity date of March 31, 1999,
under which $10.3 million was outstanding at December 31, 1998. The amendment
converted the facility to a short term loan with a final maturity date of
November 1999 and with varying principal payments due between April and
November.
The directors believe they are taking the necessary action to secure
alternative sources of finance and believe that refinancing will be arranged to
meet the Company's amended payment obligations.
Excluding the Bank Facility and the Sun Life Notes, as of December 31,
1998, the Company had total debt outstanding of $101.5 million secured by
specific containers and the headquarters of the Company's container leasing
operations. During the year ended December 31, 1998, interest rates on this debt
ranged from 6.6% to 9.8% and as of December 31, 1998, the debt bore an average
interest rate of 8.3% per annum. To the extent these facilities include
financial covenants, they are generally less restrictive than those imposed
under the Bank Facility. At December 31, 1998 the Company was not in compliance
with various financial covenants with various lenders. Waivers of the covenant
breaches have been received.
The Company manages equipment for third-party container owners and also
owns containers. Managed container programs have allowed the Company to expand
its fleet significantly without the capital expenditures required for container
ownership. Although container ownership may be more profitable for the Company
than the managed container programs over the life of the container, the managed
programs provide the company with revenue that is less sensitive to declines in
utilization and per diem rates.
Capital Expenditures and Commitments
Capital expenditures for containers in 1996, 1997 and 1998 were $142.6
million, $38.7 million and $1.8 million, respectively. Other capital
expenditures in 1996, 1997 and 1998 were $0.7 million, $0.6 million and $1.1
million, respectively. During the year ended December 31, 1996, the Company
advanced $5.5 million to the then Chairman of the Group, of which $5.5 million
was outstanding as of December 31, 1996. In January 1997, the Company advanced a
further $3.7 million. As at December 31, 1997, no payments had been received
against these loans. See Item 13 -- "Certain Relationships and Related
Transactions" and Note 21 of the Notes to the 1998 Consolidated Financial
Statements. In October 1996, $1.5 million was placed into an escrow account,
The Cronos Group 24
<PAGE> 28
purportedly in respect of professional fees relating to a proposed strategic
alliance. This alliance did not take place and the escrow funds were released to
the Company in January 1997. See Item 13 -- "Certain Relationships and Related
Transactions " below and Note 21 to the 1998 Consolidated Financial Statements.
The Company intends to refinance $47.7 million of amounts due under the
Bank Facility and the Company's other credit facilities by securing new term
debt financing and new investments by managed container owners. See "Liquidity
and Capital Resources - Capital Resources" above and Note 14 to the 1998
Consolidated Financial Statements. Until the refinancing has been completed,
there is substantial doubt that the Company will be able to continue as a going
concern.
YEAR 2000
The Company's computer systems are currently undergoing modifications in
order to render the systems ready for the year 2000. The Company has completed a
detailed inventory of all software and hardware systems and has identified all
components which need to be modified. The Company has completed all the
necessary changes and is now performing the required tests in a dedicated year
2000 environment. The Company anticipates that all testing will be completed by
mid 1999. The company has contacted all of its critical business suppliers and
has been advised that their systems are year 2000 compliant. Expenses associated
with addressing the year 2000 issues are being recognized as incurred.
Management has not yet assessed the year 2000 compliance expense but does not
anticipate the costs incurred to date or to be incurred in the future to be in
excess of $0.5 million. The Company believes it will be able to resolve any
major year 2000 issues.
The company is aware of the implications of a year 2000 computer system
failure and is currently in the process of developing its contingency plans.
Whilst management believe the possibility of a year 2000 system failure to be
remote, if the Company's internal systems, or those of its critical business
suppliers fail, the Company's consolidated financial position, liquidity or
results of operations may be adversely affected.
The company has assessed the introduction of a single European Currency,
the Euro, and believes that it will not be materially affected. In the past, the
effects of inflation on administrative and operating expenses have been largely
offset by the Company's ability to increase the operational economies of scale
through expansion of the fleet.
INFLATION
Management believes that inflation has not had a material adverse effect
on the Company's results of operations.
ITEM 7A -- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This item should be read in conjunction with and by reference to Note 15
of the notes to the 1998 Consolidated Financial statements.
Interest rate risk: outstanding borrowings are subject to interest rate
risk. At December 31, 1998 65% of total borrowings had floating interest rates.
The Company performed an analysis of borrowings with variable interest rates to
determine their sensitivity to interest rate changes. In this analysis, the same
change was applied to the current balance outstanding leaving all other factors
constant. It was found that if a 10% increase was applied to market rates, the
expected effect would be to reduce annual cash flows by $0.8 million.
Exchange rate risk: substantially all of the Company's revenues are
billed and paid in U.S. dollars and approximately 79% of costs in 1998 were
incurred and paid in U.S. dollars. Of the remaining costs, approximately 81% are
individually small, unpredictable and incurred in various denominations and thus
are not suitable for cost effective hedging. From time to time, Cronos hedges a
portion of the expenses that are predictable and are principally in U.K. pounds
sterling. In addition, almost all of the Company's container purchases are paid
for in U.S. dollars.
The Cronos Group 25
<PAGE> 29
As exchange rates are outside of the control of the Company, there can
be no assurance that such fluctuations will not adversely effect its results of
operations and financial condition. By reference to 1998, it is estimated that
for every 10% fall in value of the US dollar, the effect would be to reduce cash
flows by $1.9 million in any similar year.
ITEM 8 -- FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements listed in this Item 8 are set forth herein beginning on
page F1.
Report of Independent Public accountants
Consolidated Balance Sheets - At December 31, 1997 and 1998
Consolidated Statements of Income for the Years Ended December 31, 1996, 1997
and 1998
Consolidated Statements of Shareholders' Equity for the Years Ended December 31,
1996, 1997 and 1998
Consolidated Statements of Cash Flows for the Years Ended December 31, 1996,
1997 and 1998
Notes to Consolidated Financial Statements
ITEM 9 -- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
In February 1997, as reported in the Company's Form 6-K, Arthur Andersen
resigned as auditors to The Cronos Group and its subsidiaries and related
partnerships. See Item 3 -"Legal Proceedings".
Arthur Andersen did not permit the inclusion of their audit report to
the 1995 Consolidated Financial Statements for The Cronos Group in the form 20-F
for the year ended December 31, 1997.
In April 1997, Moore Stephens were appointed as auditors to The Cronos
Group and its primary subsidiaries and related partnerships.
In the Audit Report to the 1997 Consolidated Financial Statements, Moore
Stephens drew attention to the fact that The Cronos Group was negotiating the
refinancing of certain loans and was not in compliance with the terms of an
escrow agreement. Moore Stephens advised that this and other factors raised
substantial doubt that the Group would be able to continue as a going concern.
In the Audit Report to the 1998 Consolidated Financial Statements, Moore
Stephens drew attention to the fact that The Cronos Group was negotiating the
refinancing of certain loans. Moore Stephens advised that these conditions raise
substantial doubt that the Group will be able to continue as a going concern.
In addition, Moore Stephens drew attention to certain notes to the 1997
and 1998 Consolidated Financial Statements relating to Financing and
recomposition expenses, Items affecting fourth quarter results of operations,
Commitments and contingencies and Related party transactions. Moore Stephens
advised that allegations had been made which could result in the Group becoming
defendants in lawsuits alleging various financial improprieties in the operation
of certain third party Austrian investment entities and their sponsoring
companies.
The Cronos Group 26
<PAGE> 30
PART III
ITEM 10 -- DIRECTORS AND OFFICERS OF REGISTRANT
Information required by this Item 10 is to be included in and is hereby
incorporated by reference from the registrant's definitive proxy statement which
is to be used in connection with the registrant's 1999 annual meeting of
shareholders and which is to be filed pursuant to Regulation 14A promulgated by
the Securities and Exchange commission under the Securities Exchange Act of
1934. Information relating to the registrant's executive officers is set forth
on page 10 herein.
ITEM 11 -- EXECUTIVE COMPENSATION
Information required by this Item 11 is to be included in and is hereby
incorporated by reference from the registrant's definitive proxy statement which
is to be used in connection with the registrant's 1999 annual meeting of
shareholders and which is to be filed pursuant to Regulation 14A promulgated by
the Securities and Exchange commission under the Securities Exchange Act of
1934.
ITEM 12 -- SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this Item 12 is to be included in and is hereby
incorporated by reference from the registrant's definitive proxy statement which
is to be used in connection with the registrant's 1999 annual meeting of
shareholders and which is to be filed pursuant to Regulation 14A promulgated by
the Securities and Exchange commission under the Securities Exchange Act of
1934.
ITEM 13 -- CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this Item 13 is to be included in and is hereby
incorporated by reference from the registrant's definitive proxy statement which
is to be used in connection with the registrant's 1999 annual meeting of
shareholders and which is to be filed pursuant to Regulation 14A promulgated by
the Securities and Exchange commission under the Securities Exchange Act of
1934.
The Cronos Group 27
<PAGE> 31
PART IV
ITEM 14 -- EXHIBITS, FINANCE STATEMENT SCHEDULES, AND REPORTS OF FORM 8K
<TABLE>
<CAPTION>
Number Exhibit Page
- ------ ------- ----
<S> <C> <C>
3.1 Coordinated Articles of Incorporation (designated in the Company's
Annual Report on Form 20-F for the year ended December 31, 1997 (File
No. 0-24464) as exhibit 1.1)
10.1 Amended and Restated Credit Agreement, dated as of June 24, 1997, by and
among Cronos Containers N.V., Cronos Containers Ltd., Cronos Equipment
Ltd., Cronos Containers Inc., Cronos Capital Corp., and Cronos Equipment
(Bermuda) Limited, as joint and several borrowers, each of the banks
that is or may become a party thereto, Fleet Bank, N.A., as agent for
the banks, and The Cronos Group, as guarantor (the "Credit Agreement")
(designated in the Company's Annual Report on Form 20-F for the year
ended December 31, 1997 (File No. 0-24464) as exhibit 1.2)
10.2 First Amendment to the Credit Agreement, dated as of July 14, 1997
(designated in the Company's Annual Report on Form 20-F for the year
ended December 31, 1997 (File No. 0-24464) as exhibit 1.3)
10.3 Second Amendment to the Credit Agreement, dated as of December 3, 1997
(designated in the Company's Annual Report on Form 20-F for the year
ended December 31, 1997 (File No. 0-24464) as exhibit 1.4)
10.4 Third Amendment to the Credit Agreement, dated as of June 30, 1998
(designated in the Company's Annual Report on Form 20-F for the year
ended December 31, 1997 (File No. 0-24464) as exhibit 1.5)
10.5 Confirmation of Guaranties, Agreement and Power of Attorney by the
Cronos Group, dated June 30, 1998, pertaining to the Credit Agreement.
(designated in the Company's Annual Report on Form 20-F for the year
ended December 31, 1997 (File No. 0-24464) as exhibit 1.6)
10.6 Deed in lieu of foreclosure relating to shares given as collateral to the
Palatin loans. E1
10.7 Forbearance Agreement and Fourth Amendment to Amended and Restated
Credit Agreement dated March 31, 1999. E6
10.8 Note Purchase Agreement among Cronos Equipment (Bermuda) Limited, The
Cronos Group and Sun Life Insurance Company of America, dated as of
December 29, 1994 (the "Sun Agreement") (designated in the Company's
Annual Report on Form 20-F for the year ended December 31, 1997 (File
No. 0-24464) as exhibit 1.7)
10.9 Amendment to the Sun Agreement, dated as of November 1, 1997 (designated
in the Company's Annual Report on Form 20-F for the year ended December
31, 1997 (File No. 0-24464) as exhibit 1.8)
10.10 Second Amendment to the Sun Agreement dated as of January 26, 1999. E14
10.11 The Cronos Group Management Equity Investment Plan, dated as of
July 25, 1994. E22
10.12 Lambert Confirmation, Acknowledgement and Consent of Collateral Assignment E39
10.13 Amendment to the Revolving Credit Facility between Cronos Containers
Limited and China International Marine Containers (Group) Company
Limited, dated March 24, 1999 E43
10.14 Employment Agreement dated August 14, 1998, between Cronos and
Eivind A Eriksen. E44
10.15 Employment Agreement dated January 24, 1996, between Cronos and
Stephan M Palatin. E60
10.16 Employment Agreement dated May 20, 1998, between Cronos and Admico SA. E69
10.17 Employment Agreement dated July 1, 1998, between Cronos and Peter J Younger. E73
10.18 Employment Agreement dated August 25, 1998, between Cronos and
Stephen J Brocato. E80
10.19 Employment Agreement dated December 11, 1998, between Cronos and
Dennis J Tietz E119
21.1 List of principal wholly-owned subsidiaries at December 31, 1998 E159
27. Financial Data Schedule
</TABLE>
The Cronos Group 28
<PAGE> 32
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
THE CRONOS GROUP
Date: April 8, 1999 By: /s/ D J Tietz
Dennis J. Tietz
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
By /s/ D J Tietz Chairman of the Board and April 8, 1999
Dennis J. Tietz Chief Executive Officer
(Principal Executive Officer)
By /s/ P J Younger Chief Financial Officer and April 8, 1999
Peter J. Younger Chief Accounting Officer
(Principal Financial and
Accounting Officer)
By /s/ C Tharp Director April 8, 1999
Charles Tharp
By /s/ M Taylor Director April 8, 1999
Maurice Taylor
By /s/ E O Nedelmann Director April 9, 1999
Ernst-Otto Nedelmann
</TABLE>
The Cronos Group 29
<PAGE> 33
THE CRONOS GROUP
Consolidated financial statements December 31, 1998
together with report of independent public accountants
F-1
<PAGE> 34
Report of independent public accountants
To the Shareholders and Board of Directors of The Cronos Group:
We have audited the accompanying consolidated balance sheets of The Cronos Group
(a Luxembourg holding company) as of December 31, 1997 and 1998, and the related
consolidated statements of income, cash flows and shareholders' equity for the
three years ended December 31, 1996, 1997 and 1998. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with United States generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of The
Cronos Group as of December 31, 1997 and 1998 and the consolidated results of
their operations and their cash flows for the years ended December 31, 1996,
1997 and 1998 in conformity with generally accepted accounting principles in the
United States.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in note 14 to
the consolidated financial statements, The Cronos Group is currently negotiating
the refinancing of a loan of approximately $25.8 million, which had a final
maturity date of January 8, 1999 and loans of $12.7 million and $9.2 million
which have final maturity dates of September 30 and November 30, 1999,
respectively, to permit the realization of assets and the liquidation of
liabilities in the ordinary course of business. The Company cannot predict what
the outcome of the negotiations will be. These conditions raise substantial
doubt that the group will be able to continue as a going concern. Management
plans in respect of this matter are also described in note 14. The accompanying
consolidated financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
We draw attention also to notes 1r, 3, 17 and 21 in the financial statements.
Allegations have been made which may result in the Group becoming defendants in
lawsuits alleging various financial improprieties in the operation of certain
third party Austrian investment entities and their sponsoring companies.
/s/ Moore Stephens
Moore Stephens
St. Pauls House
Warwick Lane
London EC4P 4BN
April 8, 1999
F-2
<PAGE> 35
THE CRONOS GROUP
Consolidated income statements
For the years ended December 31, 1996, 1997 and 1998 (US dollar amounts in
thousands, except per share amounts)
<TABLE>
<CAPTION>
Notes 1996 1997 1998
<S> <C> <C> <C> <C>
GROSS LEASE REVENUE $154,011 $ 160,848 $ 157,546
Commissions, fees and other operating income:
- - US Limited Partnerships 1,941 1,384 1,347
- - other related parties 21 132 20 --
- - unrelated parties 5,387 4,141 3,608
Interest income:
- - other related parties 21 460 824 --
- - unrelated parties 873 861 1,154
Equity in earnings of affiliates 1,397 -- --
Gain on conversion of investment in affiliate:
- - realized 9 1,621 321 --
- - unrealized 9 3,639 -- --
-------- --------- ---------
TOTAL REVENUES AND NON-OPERATING INCOME 169,461 168,399 163,655
-------- --------- ---------
Direct operating expenses 34,535 34,217 35,318
Payments to container owners:
- - US Limited Partnerships 40,338 36,478 31,922
- - other related parties 21 3,985 -- --
- - unrelated parties 28,571 37,467 43,605
Amortization of intangible assets 11 489 742 683
Depreciation 13,769 18,291 18,031
Selling, general and administrative expenses 23,834 22,683 21,164
Financing and recomposition expenses 1r 2,149 7,384 5,375
Interest expense 11,368 17,758 15,718
Provision against amounts receivable from 21 -- 4,733 --
related parties
Provision against available for sale securities 3, 9 -- -- 1,500
Impairment losses 1u, 3 -- 11,668 6,500
-------- --------- ---------
TOTAL EXPENSES 159,038 191,421 179,816
-------- --------- ---------
EARNINGS (LOSS) BEFORE INCOME TAXES 10,423 (23,022) (16,161)
Income taxes 4 2,441 -- 306
-------- --------- ---------
NET INCOME (LOSS) 7,982 (23,022) (16,467)
Other comprehensive income, net of tax:
Unrealized holding gain (loss) on available for
sale security 9 -- 1,159 (1,159)
-------- --------- ---------
COMPREHENSIVE INCOME (LOSS) $ 7,982 $ (21,863) $ (17,626)
======== ========= =========
EARNINGS (LOSS) PER COMMON SHARE (BASIC
AND DILUTED) $ 0.90 $ (2.60) $ (1.86)
======== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 36
THE CRONOS GROUP
Consolidated balance sheets
December 31, 1997 and 1998
(US dollar amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Notes 1997 1998
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 14,455 $ 9,281
Amounts due from lessees (net) 1j, 5 40,383 33,215
Amounts receivable from container owners, including
amounts due from related parties of $7,311 and $7,738
at December 31, 1997 and 1998, respectively 6 8,402 10,265
New container equipment for resale 7 8,202 315
Net investment in direct financing leases, including
amounts due within twelve months of $1,726 and $1,365 at
December 31, 1997 and 1998, respectively 8 4,991 3,504
Investments, including investments in related parties of
$220 and $55 at December 31, 1997 and 1998, respectively 3, 9 4,282 1,458
Container equipment, net of accumulated depreciation of
$44,980 and $59,640 at December 31, 1997 and 1998,
respectively 3, 10 192,766 168,243
Property and other equipment, net of accumulated
depreciation of $9,040 and $10,139 at December 31, 1997
and 1998, respectively 16,141 13,273
Intangible assets 3, 11 14,771 14,088
Other amounts receivable from related parties (net) 21 5,500 5,500
Other assets including prepayments 12 17,252 20,837
-------- --------
TOTAL ASSETS $327,145 $279,979
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 37
THE CRONOS GROUP
Consolidated balance sheets (continued)
December 31, 1997 and 1998
(US dollar amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Notes 1997 1998
<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Amounts payable to container owners, including amounts
payable to related parties of $15,484 and $13,287 at
December 31, 1997 and 1998, respectively 13 $ 31,020 $ 31,314
Amounts payable to container manufacturers 7,594 101
Other amounts payable and accrued expenses 20,066 23,159
Debt and capital lease obligations, including amounts
due within twelve months of $82,717 and $87,271
at December 31, 1997 and 1998, respectively 14 171,399 148,466
Income taxes 3,487 3,110
Deferred income taxes 4 4,832 4,975
Deferred income and unamortized acquisition fees 16 15,034 12,767
-------- --------
TOTAL LIABILITIES 253,432 223,892
-------- --------
Commitments and contingencies 17 -- --
SHAREHOLDERS' EQUITY
Common shares, par value $2 per share (25,000,000 shares
authorized; shares issued and outstanding, 8,858,378) 18 17,717 17,717
Additional paid-in capital 18,20 49,154 49,108
Share subscriptions receivable 19 (169) (123)
Accumulated other comprehensive income 9 1,159 --
Retained earnings
- - restricted 20 1,772 1,772
- - unrestricted 4,080 (12,387)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 73,713 56,087
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $327,145 $279,979
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 38
THE CRONOS GROUP
Consolidated statements of cash flows
For the years ended December 31, 1996, 1997 and 1998
(US dollar amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Notes 1996 1997 1998
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 7,982 $(23,022) $(16,467)
Adjustments to reconcile net income to net cash
provided by operating activities:
- - impairment losses 3 -- 11,668 6,500
- - provision against available for sale securities 3 -- -- 1,500
- - depreciation and amortization of intangible assets 14,258 19,033 18,714
- - increase (decrease) in unamortized acquisition fees 305 (1,322) (1,907)
- - provision for losses on accounts receivable 1,080 2,245 4,062
- - (gain) loss on disposal of fixed assets (582) 129 (1)
- - gain on conversion of investment in affiliate (5,260) (321) --
- - share of undistributed income of affiliates (774) -- --
- - increase (decrease) in current and deferred
income taxes 482 837 (234)
- - (increase) decrease in new container equipment 6,425 (6,717) 7,887
for resale
- - (increase) decrease in amounts receivable:
- US Limited Partnerships 2,096 458 (427)
- other related parties 21 -- 3,909 --
- unrelated parties (7,240) (5,327) 75
- - increase (decrease) in amounts payable and
accrued expenses:
- US Limited Partnerships (3,578) 1,902 (2,197)
- other related parties 21 (1,512) (747) --
- unrelated parties 5,456 (23,369) (2,266)
--------- -------- --------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 19,138 (20,644) 15,239
--------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of container equipment (142,609) (38,724) (1,822)]
Purchase of property and other equipment (692) (598) (1,052)
Purchase of investment in related parties 9 (310) (39) --
Purchase of intangible asset 11 (2,086) (11) --
Purchase of subsidiary undertaking (net of cash
acquired) 11 (3,386) -- --
Investment in finance lease equipment 8 (26,419) (2,443) --
Issue of notes to related parties 21 (2,000) (3,700) --
Proceeds from sales of container equipment 36,419 61,495 1,155
Proceeds from sales of property and other equipment 50 -- 325
Proceeds from sale of investment 9 19,288 1,953 --
Proceeds from sale of investment in finance lease
equipment -- 25,121 --
Repayment of note by related parties 21 511 1,500 --
--------- -------- --------
NET CASH (USED) PROVIDED FOR INVESTING ACTIVITIES (121,234) 44,554 (1,394)
--------- -------- --------
</TABLE>
F-6
<PAGE> 39
THE CRONOS GROUP
Consolidated statements of cash flows (continued)
For the years ended December 31, 1996, 1997 and 1998
(U.S. dollar amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Notes 1996 1997 1998
<S> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Issue of common shares 18 2,111 -- --
Share subscriptions received 134 -- --
Proceeds from issuance of term debt 227,475 62,141 3,109
Repayments of term debt and capital lease
obligations (139,589) (93,874) (22,128)
Cash deposits (restricted) 5,000 5,000 --
--------- -------- --------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 95,131 (26,733) (19,019)
--------- -------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS (6,965) (2,823) (5,174)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 24,243 17,278 14,455
--------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 17,278 $ 14,455 $ 9,281
========= ========= ========
Supplementary disclosure of cash flow information:
Cash paid during the year for:
- - interest $ 11,099 $ 17,605 $ 16,402
- - income taxes 1,829 492 786
Cash received during the year for:
- - interest 1,129 1,272 1,092
- - income taxes 806 1,329 229
Non-cash investing and financing activities:
- - container equipment acquired under capital lease 4,999 4,143 --
- - container equipment acquired but unpaid at December 31 27,426 -- --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 40
THE CRONOS GROUP
Consolidated statements of shareholders' equity
For the years ended December 31, 1996, 1997 and 1998
(US dollar amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
Accumulated
Additional Share other Retained
Common paid-in subscriptions comprehensive earnings Retained Total
shares capital receivable income restricted earnings shareholders'
(note 18) (note 20) (note 19) (note 9) (note 20) unrestricted equity
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 $17,231 $47,679 $(404) $ -- $1,723 $ 19,120 $85,349
Net income 7,982 7,982
MEIP receipts 134 134
MEIP lapses (27) 27 --
Issue of common shares 486 1,625 2,111
Transfer to legal reserve (49) 49 --
------- ------- ----- ------ ------ -------- -------
BALANCE, DECEMBER 31, 1996 17,717 49,228 (243) -- 1,772 27,102 95,576
Net loss (23,022) (23,022)
MEIP lapses (74) 74 --
Unrealized holding
gain on available
for sale security 1,159 1,159
------- ------- ----- ------ ------ -------- -------
BALANCE, DECEMBER 31, 1997 17,717 49,154 (169) 1,159 1,772 4,080 73,713
Net loss (16,467) (16,467)
MEIP lapses (46) 46 --
Change in unrealized
holding gain on available
for sale security (1,159) (1,159)
------- ------- ----- ------ ------ -------- -------
BALANCE, DECEMBER 31, 1998 $17,717 $49,108 $(123) $ -- $1,772 $(12,387) $56,087
------- ------- ----- ------ ------ -------- -------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE> 41
THE CRONOS GROUP
Notes to consolidated financial statements
(US dollar amounts in thousands, except per share amounts)
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Nature of operations
The principal activity of The Cronos Group (the "Company") and its subsidiaries
(together, the "Group") is the leasing to ocean carriers of marine containers
which are owned either by third party container owners or by the Group.
The Group provides a worldwide service and, accordingly, has significant foreign
operations and assets in key shipping locations, particularly in the United
States, Europe and Asia.
The Group enters into agreements with third party container owners to manage the
leasing of their containers to ocean carriers. These agreements have taken two
principal forms. Under the first form, the Group organizes public limited
partnerships in the United States and purchases and manages containers on their
behalf. Under the second form, the Group enters into agreements with third
parties that provide for the Group to purchase and manage containers for such
third parties. Although the provisions of the agreements vary, they all permit
the Group to use the containers together with containers owned by the Group as
part of a single fleet, which the Group endeavours to operate without regard to
ownership. The Group has discretion over which ocean carriers, container
manufacturers and suppliers of goods and services it may deal with. Since the
agreements with container owners meet the definition of leases in Statement of
Financial Accounting Standards ("SFAS") No. 13, they are accounted for as leases
under which the container owners are lessors and the Group is lessee.
The terms of the agreements vary from 1 to 15 years. Containers generally have
an expected useful economic life of 12 to 15 years. The agreements generally
contain provisions which permit earlier termination under certain conditions
upon 60-90 days' notice. For the US Limited Partnerships, a majority of the
limited partners in a partnership can remove the general partner, thereby
terminating the agreement with the Group. Under the agreements with third
parties, the container owner can generally terminate the agreement if average
payments by the Group are less than a certain percentage (specified in each
agreement) of total capital invested. The Group believes that early termination
is unlikely in normal circumstances.
The agreements generally provide that the Group will make payments to the
container owners based upon the rentals collected from ocean carriers after
deducting direct operating expenses and the Group's management fee.
Substantially all payments to container owners are therefore contingent upon the
leasing of the containers by the Group to ocean carriers and the collection of
lease rentals. Minimum lease payments on the minority of agreements which have
fixed payment terms are disclosed in note 14(c). Substantially all payments to
container owners represent a percentage of the rentals collected from the ocean
carriers to whom containers are leased by the Group.
The Group also leases containers from lessors under capital leases. The cost and
book value of assets acquired under capital leases together with the minimum
lease payments representing interest and principal are shown in note 14.
<PAGE> 42
THE CRONOS GROUP
Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
a) Nature of operations (continued)
The Group leases containers to ocean carriers generally under master leases for
dry cargo containers and term leases (mostly 2 to 5 years) for refrigerated and
other specialized containers. Master leases do not specify the exact number of
containers to be leased or the term that each container will remain on hire but
allow the ocean carrier to pick up and drop off containers at various locations
specified in the lease agreement. Lease rentals, which are generally based upon
the number of containers used by the ocean carrier and the applicable per diem
rate, are therefore all contingent rentals. Receivables in respect of containers
on lease up to the end of an accounting period are included in the balance
sheet.
Since all future rentals are contingent on the number of containers used, there
are no minimum lease rentals applicable to master leases, and accordingly no
analysis of minimum lease rentals is provided in these financial statements.
Term leases provide the ocean carriers with specified container equipment
throughout the term of the lease. The rentals are based upon the number of
containers leased, the applicable per diem rate and the length of the lease,
irrespective of the number of days during which the ocean carrier actually uses
the containers. The minimum lease rentals for term leases are shown in note 5.
b) Basis of accounting
The Group's accounting records are maintained in United States dollars and the
consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States.
The financial statements for the year ended December 31, 1998 reflect compliance
with Statement of Financial Accounting Standards No. 130 ("SFAS 130") "Reporting
Comprehensive Income" and SFAS 131 "Disclosures about Segments of an Enterprise
and Related Information".
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Generally accepted accounting principles also contemplate the continuation of
the Company as a going concern and realization of assets and settlement of
liabilities and commitments in the normal course of business. The company is
presently involved in negotiations with regard to refinancing certain financial
obligations. Details of the anticipated arrangements are given in note 14.
In addition to the satisfactory renegotiation of certain financial obligations,
management is undertaking a restructuring program in order to reduce selling,
general and administrative expenses and increase operational efficiency. In this
regard a $2,000 financing and recomposition charge has been incurred in December
1998 (note 3(b) ii).
<PAGE> 43
THE CRONOS GROUP
Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
b) Basis of accounting (continued)
There can be no assurances that management's plans to secure adequate
refinancing will be successful. Should the group be unable to refinance its
loans, then the Directors will have to consider discontinuing the operation of
or selling the business. The financial statements do not include any adjustments
relating to the recoverability and classification of recorded assets, or the
amounts and classification of liabilities that might be necessary in the event
that the Company cannot continue in existence.
c) Principles of consolidation
The Company is incorporated in Luxembourg.
The consolidated financial statements include the accounts of the Company and
its subsidiaries all of which are wholly owned. All significant intercompany
accounts and transactions have been eliminated on consolidation.
d) Gross lease revenue
Gross lease revenue represents invoices to customers for operating leases of
marine containers excluding advance billings.
e) Commissions, fees and other operating income
This comprises acquisition fees, syndication commissions, income on direct
financing leases, income from the Group's limited partner interest in US Limited
Partnerships and other income.
Acquisition fees represent amounts received and receivable from third party
container owners when the Group enters into an agreement and begins to manage
new container equipment on their behalf. They are generally non-refundable and
are amortized in the income statement on a straight-line basis over the period
of the agreements to which they relate.
Syndication commissions represent amounts earned on the sale of US Limited
Partnership interests and are recognized at the time of sale.
f) Advertising costs
Advertising costs, included in selling, general and administrative expenses, are
expensed as incurred, and amounted to $290, $225 and $34 for the years ended
December 31, 1996, 1997 and 1998, respectively.
g) Income taxes
Income taxes are accounted for using the asset and liability method. Under this
method, deferred income taxes are recognized for the tax consequences of
"temporary differences" by applying the statutory tax rate to the difference
between the financial statement carrying amounts and the tax basis of existing
assets and liabilities. The effect on deferred income taxes of a change in tax
rates is recognized in income in the period of enactment.
<PAGE> 44
THE CRONOS GROUP
Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
h) Earnings per common share
Earnings per share data have been calculated in accordance with SFAS No. 128.
Basic earnings per share represent the amount of earnings for the period
available to each share of common stock outstanding during the reporting period
and have been calculated by dividing net income available to common shareholders
by the weighted average number of common shares outstanding during each of the
periods.
Earnings per share have been computed based on a weighted average of 8,853,067,
8,858,378 and 8,858,378 common shares outstanding during the years ended
December 31, 1996, 1997 and 1998, respectively.
The fair value of the Group's common shares has been determined to be below the
average exercize price of options outstanding under the Management Equity
Investment Plan ("MEIP"). Accordingly there is no dilution caused by the MEIP.
However, the MEIP could potentially dilute basic earnings per share in the
future.
i) Cash equivalents
Cash equivalents are highly liquid debt instruments purchased with original
maturities of three months or less. The carrying value approximates fair value.
Cash and cash equivalents are maintained in accounts which, at times, may exceed
federally insured limits. No losses have been experienced in such accounts and
management believes it is not exposed to any significant credit risk. The group
places its cash equivalents in investment grade, short term debt instruments and
limits the amount of credit exposure to any one commercial issuer.
j) Amounts due from lessees
Amounts due from lessees represent gross lease revenue due from customers, less
allowance for doubtful accounts of $3,106 and $4,446 at December 31, 1997 and
1998, respectively. Allowance for doubtful accounts comprises specific amounts
provided against known potentially doubtful accounts plus a general allowance.
The general allowance was $639 and $600 at December 31, 1997 and 1998,
respectively. Invoices representing advance billings are included in both
Amounts due from lessees and Deferred income.
k) New container equipment for resale
New container equipment for resale represents new containers purchased by the
Group with an intent to resell to third party container owners. Such sales are
usually made at original cost to the Group, and accordingly no gain or loss
arises. Where gains or losses on such sales occur, they are recognized at the
date of sale, because under the agreements with container owners the Group
retains less than substantially all of the remaining use of the containers. Such
gains are included within Commissions, fees and other operating income.
Containers not sold to container owners within six months of purchase are
transferred to the Group's long term ownership of container equipment.
Depreciation is then calculated from the original date of acquisition. The
amount of depreciation which would have been provided on container equipment for
resale, had it been transferred to long term ownership at the balance sheet
date, is immaterial to the Net income/(loss) in all periods presented.
Rentals received on new container equipment for resale are included within Gross
lease revenue. Container orders are placed with manufacturers based on the
identified level of internal and external financing and the projected capacity
in the leasing market.
<PAGE> 45
THE CRONOS GROUP
Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
k) New container equipment for resale (continued)
New container equipment for resale is stated at the lower of original unit cost
or net realizable value.
l) Leases
i. Group as lessor
Operating leases with customers. The Group enters into leases with customers,
principally as lessor in operating leases. Operating lease rentals are
recognized as gross lease revenue on the basis of invoices issued to customers
in accordance with the lease agreement.
Direct financing leases with customers. The Group has entered into direct
financing leases as lessor for container equipment owned by the Group. The net
investment in direct financing leases represents the receivables due from
lessees net of unearned income. Unearned income is amortized to give a constant
return on capital over the lease term.
ii. Group as lessee
Capital leases. Assets held under capital leases are initially reported at the
fair value of the asset categorized within container equipment, with an
equivalent liability categorized as capital lease obligations. The asset is
depreciated over its expected useful life. Finance charges are allocated to
accounting periods over the lease term in accordance with the actuarial method.
Operating leases. Payments by the Group to container owners are charged to the
income statement in each period based upon the amounts paid and payable under
the agreements with container owners, which generally are contingent upon the
lease rentals collected from ocean carriers, direct operating expenses and
management fees due to the Group in respect of the containers specified in each
agreement.
Other operating lease rentals are charged to the income statement on a
straight-line basis over the lease term.
m) Investments, including investments in related parties
i. Investment securities
Investment securities are classified as either available for sale or trading
securities. Available for sale securities are reported at fair market value with
unrealized gains and losses included in Stockholders' Equity as Accumulated
other comprehensive income. Trading securities are reported at fair market value
with unrealized gains and losses reported in earnings.
ii. Investment in US Limited Partnerships
Investment in US Limited Partnerships represents the Group's general and limited
partner interests in partnerships in which a subsidiary company, Cronos Capital
Corp., acts as a general partner. These are accounted for on the equity basis.
<PAGE> 46
THE CRONOS GROUP
Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
m) Investments, including investments in related parties (continued)
iii. Investments in affiliated companies
The investments in affiliated companies are stated at cost plus the Group's
equity in the undistributed earnings of the affiliates since the date of
acquisition or investment, less the amortization, where applicable, of the
excess of the purchase price over the fair value of net assets acquired
("goodwill"). Goodwill is amortized over an original period of 40 years.
n) Container equipment
Container equipment is carried at cost less accumulated depreciation.
Depreciation is provided to write off the cost, less estimated residual value,
of containers, both owned by the Group and acquired under capital leases, on a
straight-line basis over their expected useful life.
Refrigerated container equipment is depreciated over a useful life of 12 years
to a residual value of 15%, with effect from January 1, 1998, following an
impairment review undertaken at December 31, 1997. Previously, refrigerated
container equipment was depreciated over a useful life of 15 years to a residual
value of 10%. The impact of the change in depreciation policy has been to
increase the depreciation charge for the year ended December 31, 1998 by $1,300
($0.15) per share.
Dry cargo and other specialized container equipment is depreciated over a useful
life of 15 years to a residual value of 10%.
o) Property and other equipment
Property and other equipment are carried at cost less accumulated depreciation.
Depreciation is provided to write off the cost, less estimated residual value,
of each asset on a straight-line basis over its expected useful life.
Depreciation periods are as follows:
<TABLE>
<S> <C>
Properties 50 years
Property improvements 25 years
Other equipment 3-7 years
Land is not depreciated.
</TABLE>
p) Intangible assets
i. Intermodal Equipment Associates
The intangible asset comprises the excess of the purchase price over the fair
value of the net assets ("goodwill") of Intermodal Equipment Associates, a
wholly owned subsidiary, acquired in 1990. Goodwill is amortized on a straight
line basis over an original period of 40 years. At December 31, 1997, an
impairment charge was recorded to write off part of the value of the intangible
asset (note 3) in accordance with SFAS 121.
ii. Intermodal Management AB & Intermodal Leasing AB (together "Interlease")
The intangible asset includes the goodwill acquired with the purchase of the
wholly owned subsidiary Intermodal Management AB and its subsidiary Intermodal
Leasing AB in August 1996. The acquired goodwill is amortized on a straight line
basis over a period of 40 years.
<PAGE> 47
THE CRONOS GROUP
Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
p) Intangible assets (continued)
iii. Cellular Palletwide Container (CPC) & Slimwall CPC patents
The Group acquired the patent rights relating to the Cellular Palletwide
Container ("CPC"), the Slimwall CPC and the intellectual property of Cargo Unit
Containers Limited ("CUC") in August 1996. The Group also acquired the business
of CUC which markets CPCs and controls the manufacturing licences for CPCs. The
goodwill acquired is amortized on a straight line basis over a period of 40
years. The cost of the patents is amortized on a straight line basis over a
period of between 4 - 40 years depending on the patent type as follows:
<TABLE>
<S> <C>
CPC patents 4 - 12 years
Cargo Unit Containers Limited - patents 11 - 17 years
Cargo Unit Containers Limited - trademark 40 years
</TABLE>
q) Translation of foreign currencies
Substantially all the Group's revenue is denominated in US dollars as are a
significant proportion of total costs, including container purchases.
Accordingly, the functional currency of the Group is the US dollar, the currency
in which the financial statements are prepared.
Transactions denominated in other currencies are translated into US dollars and
recorded at the rate of exchange at the date of the transaction. Balances
denominated in other currencies are translated into US dollars at the rate of
exchange on the balance sheet date. Exchange differences arising are charged or
credited to the income statement.
r) Financing and recomposition expenses
In 1996, costs, which were incurred and accrued by the Group in connection with
its initial public offering ("IPO") of common shares, were charged to Additional
paid-in capital and set off against the proceeds of the IPO, as shown in note
20.
In 1997, the Group made an adjustment of $3,400 in respect of a contingent
liability (note 17). This amount was included in Other amounts payable and
accrued expenses at December 31, 1997 and 1998, respectively.
In 1996, 1997 and 1998 the Group incurred and accrued costs in connection with
certain financing and other transactions, the restructuring of the Board of
Directors, senior management and other employee positions. Costs incurred and
accrued were charged to the income statement, where the Group determined that no
future benefit would be derived from such costs.
<PAGE> 48
THE CRONOS GROUP
Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
s) Management Equity Investment Plan ("MEIP")
Amounts received and receivable for the purchase of options under the
contractual arrangements of the MEIP are included within Additional paid-in
capital when the commitment is made by the key employee. Amounts receivable for
the purchase of options are offset against Share subscriptions receivable within
Shareholders' equity.
During 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation", effective for fiscal years beginning after December 15, 1995. The
Group continues to account for the MEIP under APB (Accounting Practices Board)
Opinion No. 25, "Accounting for Stock Issued to Employees" under which no
compensation cost has been recognized. As required by SFAS 123, the Group has
made the required disclosures in relation to proforma Net income/(loss) and
Earnings/(loss) per share, as shown in note 19.
t) Financial instruments-derivatives
The Group enters into interest rate swap transactions from time to time to hedge
a portion of its exposure to floating interest rates. These transactions involve
the conversion of floating rates over the life of the transactions without an
exchange of underlying principal. The differential is accrued as interest rates
change and recognized as an adjustment to interest expense. The related amount
receivable from or payable to counterparties is included in accrued interest
expense. The fair values of the interest rate swaps are recognized in the
financial statements.
The Group enters into forward exchange contracts from time to time, typically
covering an average period of approximately 5 months, to hedge a portion of its
expenses, which are paid in U.K. Sterling. Realized and unrealized gains and
losses on foreign currency hedging transactions that are designated and
effective as hedges of firm identifiable foreign currency commitments are
deferred and recognized in income over the period of the hedged transaction. No
such transactions were undertaken during 1998.
The group has not entered into any speculative derivative contracts.
u) Asset impairment
Certain long-term assets of the Group are reviewed when changes in circumstances
require as to whether their carrying value has become impaired, pursuant to
guidance established in Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of". Management considers assets to be impaired if the carrying
value of the asset exceeds the future projected cash flows from related
operations (undiscounted and without interest charges). When impairment is
deemed to exist, the assets are written down to fair value or projected
discounted cash flows from related operations. Management also re-evaluates the
period of amortization to determine whether subsequent events and circumstances
warrant revised estimates of useful lives. In accordance with SFAS 121, the
Group recorded impairment losses of $0, $11,668 and $6,500 for the years ended
December 31, 1996, 1997 and 1998, respectively (note 3).
<PAGE> 49
THE CRONOS GROUP
Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
v) New pronouncements
In June, 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. SFAS No. 133 requires
that an entity recognize all derivatives as either assets or liabilities in the
balance sheet and measure those instruments at fair value. The accounting for
changes in the fair value of a derivative depends on the intended use of the
derivative and how it is designated. A variable cash flow hedge of a forecasted
transaction is initially recorded as comprehensive income and subsequently
reclassified into earnings when the forecasted transaction affects earnings.
Gains and losses from foreign currency exposure hedges are reported in other
comprehensive income as part of the cumulative translation adjustment. Gains and
losses from fair value hedges are recognized in earnings in the period of any
changes in the fair value of the related recognized asset or liability or firm
commitment. Gains and losses on derivative instruments that are not designated
as a hedging instrument are recognized in earnings in the period of change. SFAS
No. 133 is effective for all fiscal quarters of fiscal years beginning after
June 15, 1999, and should not be applied retroactively to financial statements
for prior periods.
While the Company does enter into interest rate swaps to hedge a portion of its
exposure to floating interest rates and enters into forward exchange contracts
to hedge a portion of its expenses which are paid in U.K. Sterling, it does not
currently record its derivative instruments as assets or liabilities and does
not measure such instruments at fair value. The Company is assessing the impact
that SFAS No. 133 will have in accounting for its derivative transactions and
hedging activities.
<PAGE> 50
THE CRONOS GROUP
Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)
2 OPERATING SEGMENT DATA
Segment information is provided in the tables below:
<TABLE>
<CAPTION>
Other
US Limited container Owned
Partnerships owners containers Total
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996
Items directly attributable to operating segments:
- gross lease revenue $ 69,088 $ 48,218 $ 36,705 $ 154,011
- direct operating expenses (15,703) (10,602) (8,230) (34,535)
-------- -------- --------- ---------
Net lease revenue 53,385 37,616 28,475 119,476
- payments to container owners (40,338) (32,556) -- (72,894)
- commissions, fees and other operating income 1,941 2,326 3,193 7,460
- depreciation -- -- (12,277) (12,277)
- interest expense -- -- (8,978) (8,978)
-------- -------- --------- ---------
Operating profit before indirect items 14,988 7,386 10,413 32,787
Indirect allocations:
- interest income -- 225 1,108 1,333
- depreciation (669) (467) (356) (1,492)
- interest expense (278) (193) (147) (618)
- selling, general and administrative expenses (11,786) (6,379) (4,700) (22,865)
-------- -------- --------- ---------
Operating profit $ 2,255 $ 572 $ 6,318 $ 9,145
======== ======== ========= =========
Segment assets $ 33,141 $ 17,754 $ 285,551 $ 336,446
Expenditure for segment assets $ 439 $ 307 $ 173,820 $ 174,566
YEAR ENDED DECEMBER 31, 1997
Items directly attributable to operating segments:
- gross lease revenue $ 61,235 $ 54,179 $ 45,434 $ 160,848
- direct operating expenses (14,153) (11,377) (8,687) (34,217)
-------- -------- --------- ---------
Net lease revenue 47,082 42,802 36,747 126,631
- payments to container owners (36,478) (37,467) -- (73,945)
- commissions, fees and other operating income 1,384 1,919 2,242 5,545
- depreciation -- -- (16,686) (16,686)
- interest expense -- -- (16,628) (16,628)
- impairment losses -- -- (7,368) (7,368)
-------- -------- --------- ---------
Operating profit before indirect items 11,988 7,254 (1,693) 17,549
Indirect allocations:
- interest income -- 480 1,205 1,685
- depreciation (611) (541) (453) (1,605)
- interest expense (315) (279) (234) (828)
- selling, general and administrative expenses (8,878) (6,028) (5,109) (20,015)
-------- -------- --------- ---------
Operating profit $ 2,184 $ 886 $ (6,284) $ (3,214)
======== ======== ========= =========
Segment assets $ 29,429 $ 19,531 $ 221,925 $ 270,885
Expenditure for segment assets $ 228 $ 201 $ 43,036 $ 43,465
</TABLE>
<PAGE> 51
THE CRONOS GROUP
Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)
2 OPERATING SEGMENT DATA (CONTINUED)
<TABLE>
<CAPTION>
Other
US Limited container Owned
Partnerships owners containers Total
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998
Items directly attributable to operating segments:
- gross lease revenue $ 54,677 $ 63,013 $ 39,856 $ 157,546
- direct operating expenses (12,820) (14,325) (8,173) (35,318)
-------- -------- --------- ---------
Net lease revenue 41,857 48,688 31,683 122,228
- payments to container owners (31,922) (43,605) -- (75,527)
- commissions, fees and other operating income 1,347 2,349 1,259 4,955
- depreciation -- -- (16,403) (16,403)
- interest expense -- -- (15,124) (15,124)
- impairment losses -- -- (4,500) (4,500)
-------- -------- --------- ---------
Operating profit before indirect items 11,282 7,432 (3,085) 15,629
Indirect allocations:
- interest income -- 584 570 1,154
- depreciation (565) (651) (412) (1,628)
- interest expense (206) (238) (150) (594)
- selling, general and administrative income (7,884) (7,023) (4,516) (19,423)
- impairment losses (694) (800) (506) (2,000)
-------- -------- --------- ---------
Operating profit $ 1,933 $ (696) $ (8,099) $ (6,862)
======== ======== ========= =========
Segment assets $ 23,872 $ 21,121 $ 183,822 $ 228,815
Expenditure for segment assets $ 365 $ 421 $ 2,088 $ 2,874
</TABLE>
Reconciliation of operating profit for reportable segments to earnings before
taxes:
<TABLE>
1996 1997 1998
<S> <C> <C> <C>
Operating profit $ 9,145 $ (3,214) $ (6,862)
Equity in earnings of affiliate 1,397 -- --
Gain on conversion of investment in affiliate 5,260 321 --
Unallocated amounts:
- interest expense (1,772) (302) --
- selling, general and administrative expenses (969) (2,668) (1,741)
Amortization of intangibles (489) (742) (683)
Financing and recomposition expenses (2,149) (7,384) (5,375)
Provisions against amounts receivable from related parties -- (4,733) --
Provision against available for sale securities -- -- (1,500)
Impairment losses -- (4,300) --
-------- -------- --------
Earnings (loss) before income taxes $ 10,423 $(23,022) $(16,161)
======== ======== ========
</TABLE>
<PAGE> 52
THE CRONOS GROUP
Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)
2 OPERATING SEGMENT DATA (CONTINUED)
Reconciliation of assets for reportable segments to total assets:
<TABLE>
<CAPTION>
1996 1997 1998
<S> <C> <C> <C>
Total assets for reportable segments $336,446 $270,885 $228,815
General corporate assets 62,855 56,260 51,164
-------- -------- --------
Total assets $399,301 $327,145 $279,979
======== ======== ========
</TABLE>
The segments shown above depict the different forms of agreements entered into
by the Group with third party container owners and represent different levels of
profitability and risk to the Group. Although there are a number of different
forms of agreements, they fall into two principal categories - those with US
Limited Partnerships and those with Other Container Owners. Owned containers are
those in which the Group has the risk of ownership and which are financed by the
Group's own capital resources, debt facilities and capital leases, and include
new container equipment for resale.
All revenues and expenses that are specifically identifiable to the containers
within each segment are allocated to that segment. The Group manages a number of
different container products, revenue details on which are given below.
Individual product revenues have been aggregated within the operating segments
reported. A significant portion of the selling, general and administrative
expenses relating to the operation of the entire container fleet is not
identified to segments. Since the Group operates the container fleet as a
homogenous unit, these expenses have been allocated on the basis of the gross
lease revenue in each segment.
Revenues from external customers by product comprised:
Gross lease revenue
<TABLE>
<CAPTION>
1996 1997 1998
<S> <C> <C> <C>
Dry cargo containers $112,015 $117,094 $114,373
Refrigerated containers 34,808 32,675 29,901
Tanks 5,245 7,054 8,269
Other container products 1,943 4,025 5,003
-------- -------- --------
Total $154,011 $160,848 $157,546
======== ======== ========
</TABLE>
No single lessee accounted for 10% or more of total revenues in the years ended
December 31, 1996, 1997 and 1998, respectively.
Almost all of the Group's lease revenue is earned on containers used by its
customers in global trade routes. Accordingly, the Group believes that it does
not possess discernible geographic reporting segments as defined in Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information".
<PAGE> 53
THE CRONOS GROUP
Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)
3 ITEMS AFFECTING FOURTH QUARTER RESULTS OF OPERATIONS
In the fourth quarters of 1997 and 1998 the Group recorded asset impairment and
other charges, the aggregate of which was to reduce 1997 and 1998 net income by
$19,801 ($2.24 per share) and $11,500 ($1.30 per share), respectively. There
were no such charges in the fourth quarter of 1996.
a) Impairment losses
In December 1997 and 1998, the Group recorded charges relating to the impairment
of certain long-lived assets as required by SFAS 121.
Impairment losses comprised:
<TABLE>
<CAPTION>
1996 1997 1998
<S> <C> <C> <C>
Container equipment $-- $ 7,368 $4,500
Goodwill -- 4,300 --
Property -- -- 2,000
--- ------- ------
Total $-- $11,668 $6,500
=== ======= ======
</TABLE>
i. Container equipment
In December 1997, in response to market information, management conducted a
review of the carrying value of refrigerated containers. The review concluded
that the carrying value of the equipment was greater than the undiscounted
future cash flows. In accordance with SFAS 121, an impairment loss of $7,368 was
recognized to record the assets at fair value. A study of refrigerated container
disposals was undertaken in order to determine fair value.
In December 1998, in response to proposed asset sales to third party container
owners, management concluded that the carrying value of certain refrigerated and
dry cargo containers was not recoverable. An impairment charge of $4,500 was
recognized to record the assets at fair value.
ii. Goodwill
At December 31, 1997 management concluded that the ability of the Group to
organize future public limited partnerships was impaired by the continuing SEC
investigation (note 17). Accordingly, a $4,300 impairment charge was recorded to
write off the element of the carrying value of the unamortized portion of
goodwill, relating to the acquisition of Intermodal Equipment Associates in
1990, attributed by the directors to the public limited partnership fund raising
capacity of the business.
iii. Property
In December 1998, management concluded that the carrying value of a property
exceeded fair value. An impairment charge of $2,000 was recorded to state the
asset at fair value in accordance with SFAS 121. Independent valuations were
used to determine fair value.
<PAGE> 54
THE CRONOS GROUP
Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)
3 ITEMS AFFECTING FOURTH QUARTER RESULTS OF OPERATIONS (CONTINUED)
b) Other adjustments
i. Related party loans and contingent liabilities
In December 1997, charges of $4,733 and $3,400 were made in respect of related
party loans (note 21) and contingent liabilities (note 17) respectively.
ii. Restructuring program
During 1998, the Group announced a restructuring program, which will reorganize
the Group's key activities into three divisions:
- Leasing
- Capital Markets and Investor Services
- Finance and Administration
This program, which commenced in December 1998 will be substantially completed
by June 1999 and anticipates the termination of 15 employees. In December 1998,
the Group recorded a $2,000 Financing and recomposition charge in respect of
termination and related costs. The first phase of this program was implemented
in December 1998, with the internal replacement of the Chief Executive Officer
and with the redundancy of the Chief Operating Officer. In January and February
1999, the Group made termination payments totalling $220.
iii. Financing transactions
In December 1998, the Group made provision for $1,500 of fees in connection with
the extension of certain loan facilities. The fees, which are payable between
February and September 1999, were included in Other amounts payable and accrued
expenses at December 31, 1998.
iv. Available for sale securities
In February 1999, management was advised that there were claims outstanding
against certain of the Transamerica shares held in escrow (note 9ii and 9iii). A
provision of $1,500 has been made in this regard.
<PAGE> 55
THE CRONOS GROUP
Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)
4 INCOME TAXES
The provision for income taxes comprises:
<TABLE>
<CAPTION>
1996 1997 1998
<S> <C> <C> <C>
Current taxes:
Federal $(1,707) $ 585 $-
State (149) 3 --
Withholding 23 -- --
Foreign (1,386) 928 309
------- ------- -----
(3,219) 1,516 309
------- ------- -----
Share of affiliate tax 623 -- --
------- ------- -----
Deferred taxes:
Federal 1,942 (1,316) (3)
State 157 (20) --
Withholding (562) 37 --
Foreign 3,500 (217) --
------- ------- -----
5,037 (1,516) (3)
------- ------- -----
Total provision for income taxes $ 2,441 $ -- $ 306
======= ======= =====
</TABLE>
Differences between the provision for taxes that would be computed at the US
statutory rate and the actual tax provision were:
<TABLE>
<CAPTION>
1996 1997 1998
<S> <C> <C> <C>
Expected US federal provision $ 3,418 $(7,827) $(5,495)
Foreign income not subject to US corporate taxes (2,630) 7,135 5,341
Tax impact of net loss carried forward -- -- 516
State taxes (net of Federal tax benefit) 19 (56) --
Share of state and foreign taxes of affiliate 69 -- --
Foreign corporate taxes 2,099 711 309
Other foreign taxes 39 -- --
Tax on unremitted retained earnings of (562) 37 --
subsidiaries
Other (11) -- (365)
------- ------- -------
Actual tax provision $ 2,441 $ -- $ 306
======= ======= =======
</TABLE>
<PAGE> 56
THE CRONOS GROUP
Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)
4 INCOME TAXES (CONTINUED)
Temporary differences giving rise to the net deferred income tax liability as of
the balance sheet date were:
<TABLE>
<CAPTION>
1997 1998
<S> <C> <C>
Assets
Acquisition fees $ 3,098 $ 3,098
Other 165 197
------- -------
Total deferred income tax assets 3,263 3,295
------- -------
Liabilities
Depreciation 7,932 8,327
Partnership income taxable in different periods for book 2,219 2,171
and tax purposes
Unremitted retained earnings of subsidiaries 133 265
Losses carried forward (2,189) (3,723)
Adjustment for deferred tax allowances not recognized -- 1,230
------- -------
Total deferred income tax liabilities 8,095 8,270
------- -------
Net deferred income tax liabilities $ 4,832 $ 4,975
======= =======
</TABLE>
Tax losses have arisen in US entities. As of December 31, 1998 the deferred tax
asset associated with these losses carried forward will expire as follows:
<TABLE>
<S> <C>
1999 $ --
2000 --
2001 50
2002 75
2003 49
2004 and thereafter 3,549
------
Total $3,723
======
</TABLE>
The Group has a potential deferred income tax liability for tax arising on
unremitted retained earnings of certain subsidiaries. Upon remittance of such
earnings to the parent company, tax may be withheld by certain jurisdictions in
which the Group operates. The directors have considered the Group's remittance
intentions in arriving at the related provision for deferred income taxes. The
total potential amount of such deferred income taxes not provided at December
31, 1997 and 1998 was $422 and $303, respectively, based on unremitted earnings
for which provision has been made of $8,435 and $6,061 respectively.
<PAGE> 57
THE CRONOS GROUP
Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)
5 AMOUNTS DUE FROM LESSEES
Amounts due from lessees represent gross lease revenue due but not paid by ocean
carriers.
As of December 31, 1998 the minimum lease rentals collectable in future years
under term operating leases were:
<TABLE>
<S> <C>
1999 $24,838
2000 15,975
2001 8,661
2002 3,959
2003 2,716
2004 and thereafter 1,988
-------
Total $58,137
=======
</TABLE>
6 AMOUNTS RECEIVABLE FROM CONTAINER OWNERS
Amounts receivable from container owners comprise:
<TABLE>
<CAPTION>
1997 1998
<S> <C> <C>
Amounts due from unrelated parties $1,091 $ 2,527
Amounts due from related parties
- - US Limited Partnerships 7,311 7,738
------ -------
$8,402 $10,265
====== =======
</TABLE>
7 NEW CONTAINER EQUIPMENT FOR RESALE
Activity during the year in new container equipment for resale was:
<TABLE>
<CAPTION>
1996 1997 1998
<S> <C> <C> <C>
Beginning of year $ 7,910 $ 1,485 $ 8,202
Container purchases 137,755 34,959 671
Container disposals
- - sold to container owners (58,328) (28,242) (8,558)
- - transferred to long term ownership of container
equipment (85,852) -- --
--------- -------- -------
End of year $ 1,485 $ 8,202 $ 315
========= ======== =======
</TABLE>
<PAGE> 58
THE CRONOS GROUP
Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)
8 NET INVESTMENT IN DIRECT FINANCING LEASES
The Group, as lessor, has entered into various leases of equipment that qualify
as direct financing leases.
The minimum lease receivables under these direct financing leases, net of
unearned income, are collectable as follows:
<TABLE>
<CAPTION>
Net lease Unearned Total lease
receivables lease income rentals
<S> <C> <C> <C> <C> <C>
December 31, 1997 $4,991 $1,074 $6,065
====== ====== ======
December 31, 1998:
- - 1999 $1,365 $ 430 $1,795
- - 2000 1,216 208 1,424
- - 2001 322 78 400
- - 2002 261 49 310
- - 2003 290 20 310
- - 2004 and thereafter 50 -- 50
------ ------ ------
Total $3,504 $ 785 $4,289
====== ====== ======
</TABLE>
9 INVESTMENTS, INCLUDING INVESTMENTS IN RELATED PARTIES
Investments comprise:
<TABLE>
<CAPTION>
1997 1998
<S> <C> <C>
Investment in US Limited Partnerships $ 220 $ 55
Investment securities available for sale:
- - cost 2,903 1,403
- - unrealized holding gain 1,159 -
------ ------
$4,282 $1,458
====== ======
</TABLE>
i. Investment in US Limited Partnerships
The Group has a general partnership investment and a further limited partnership
investment in ten sponsored funds. These general and limited partner investments
are accounted for on the equity basis. The subsidiary of the Company which acts
as a general partner maintains insurance against liability for bodily injury,
death and property damage for which a partnership may be liable, and may be
contingently liable for uninsured obligations of the partnerships.
<PAGE> 59
THE CRONOS GROUP
Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)
9 INVESTMENTS, INCLUDING INVESTMENTS IN RELATED PARTIES (CONTINUED)
ii. Investments in affiliated companies
The activity in the investments in affiliated companies was:
<TABLE>
<CAPTION>
1996 1997 1998
<S> <C> <C> <C>
Beginning of year $ 17,691 $ 2 $--
Share of undistributed income for the year 1,002 -- --
Amortization of goodwill (228) -- --
Disposal of investment (18,562) -- --
Other 99 (2) $--
-------- --- ---
End of year $ 2 $-- $--
======== === ===
</TABLE>
As of December 31, 1995, the investments in affiliated companies comprised an
interest of approximately 24% in Trans Ocean Limited ("TOL"), a container
leasing company incorporated in Delaware, United States and an interest,
purchased in 1994 for $2, of approximately 49% in Hinderton Limited
("Hinderton"), a container investment company incorporated in the Isle of Man.
In 1996, following an Agreement and Plan of Merger between Transamerica
Corporation ("Transamerica") and TOL, the Group was entitled to receive 19.23
Transamerica shares for each TOL common share it held. Of these Transamerica
shares, the Group sold 251,882 in October 1996 for a consideration of $19,288.
The total gain on conversion of the TOL shares recognized in 1996 was $5,260, of
which $1,621 was realized.
Following the final determination of the initial escrow fund, 21,989 shares were
released to the Group and sold for a consideration of $1,953 in May 1997
resulting in a realized gain of $321. As of December 31, 1998, a further 47,196
shares remain held in escrow pending final determination of post-closing reports
and adjustments in 1999 (note 9iii).
In December 1996 the equity interest in Hinderton was exchanged for subordinated
debt, that was to earn interest equivalent to 50% of the net profit of
Hinderton. No interest has been earned in any of the periods presented. In 1998
the subordinated debt was assigned to Hinderton for a nominal consideration.
The Group has a management agreement covering the operation of containers owned
by Hinderton, under which management and acquisition fees are receivable. The
revenue earned with respect to this agreement was not material in any of the
periods presented.
<PAGE> 60
THE CRONOS GROUP
Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)
9 INVESTMENTS, INCLUDING INVESTMENTS IN RELATED PARTIES (CONTINUED)
iii. Investment securities
Investment securities: the available for sale balance of $1,403 represents
12,326 shares in Transamerica, which are on deposit in escrow accounts pending
resolution of withholding tax issues, following the conversion of the TOL shares
disclosed above, together with the estimated fair value of the additional 47,196
Transamerica shares held in escrow at December 31, 1998 (note 9ii). The Group
has agreed to provide a bank group with a security interest in respect of the
Transamerica shares when they are released to the Group (note 14(a)). The
estimated fair value of the shares is based on the number of shares anticipated
to be released from the escrow funds, valued at the closing rate at the balance
sheet date. In February 1999, the Group was advised that claims, which are being
challenged, have been made against the escrow funds, which hold the 47,196
shares, for amounts in excess of the value of the shares held. In this regard,
the Group recorded a charge to reduce the carrying value of the investment
securities by $1,500, in addition to which a charge of $1,159 has been incurred
in respect of an unrealized holding gain. There is a reasonable possibility that
the estimated realizable value of these shares could change within one year of
the date of these financial statements.
10 CONTAINER EQUIPMENT
The activity in container equipment for the years ended December 31, 1997 and
1998 was:
<TABLE>
<S> <C>
COST
Balance, December 31, 1996 $ 276,174
Additions 42,867
Disposals (73,927)
Impairment loss (note 3) (7,368)
---------
Balance, December 31, 1997 237,746
Additions 1,822
Disposals (7,185)
Impairment loss (note 3) (4,500)
---------
Balance, December 31, 1998 $ 227,883
=========
ACCUMULATED DEPRECIATION
Balance, December 31, 1996 33,831
Expense 16,686
Disposals (5,537)
---------
Balance, December 31, 1997 44,980
Expense 16,403
Disposals (1,743)
---------
Balance, December 31, 1998 $ 59,640
=========
BOOK VALUE
December 31, 1997 $ 192,766
=========
December 31, 1998 $ 168,243
=========
</TABLE>
The depreciation expense in 1996 was $12,601
<PAGE> 61
THE CRONOS GROUP
Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)
11 INTANGIBLE ASSETS
The activity in the intangible assets was:
<TABLE>
<CAPTION>
Patents Goodwill Total
<S> <C> <C> <C>
COST
Balance, December 31, 1996 $ 2,085 $ 20,119 $ 22,204
Additions 11 412 423
Impairment loss (see note 3) -- (4,300) (4,300)
------- -------- --------
Balance, December 31, 1997 2,096 16,231 18,327
Additions -- -- --
------- -------- --------
Balance, December 31, 1998 $ 2,096 $ 16,231 $ 18,327
======= ======== ========
ACCUMULATED AMORTIZATION
Balance, December 31, 1996 $ 62 $ 2,752 $ 2,814
Expense 188 554 742
------- -------- --------
Balance, December 31, 1997 250 3,306 3,556
Expense 188 495 683
------- -------- --------
Balance, December 31, 1998 $ 438 $ 3,801 $ 4,239
======= ======== ========
BOOK VALUE
December 31, 1997 $ 1,846 $ 12,925 $ 14,771
======= ======== ========
December 31, 1998 $ 1,658 $ 12,430 $ 14,088
======= ======== ========
</TABLE>
The amortization expense in 1996 was $489.
i. Goodwill
Goodwill arose on the acquisition in 1990 of Intermodal Equipment Associates and
the acquisition in 1996 of Intermodal Management AB. At December 31, 1997, the
Group recorded an impairment loss of $4,300 against the unamortized portion of
goodwill relating to the acquisition of Intermodal Equipment Associates.
The Group acquired Intermodal Management AB and its subsidiary Intermodal
Leasing AB in August 1996. Goodwill arose on the acquisition of $4,644 (1997 -
$412, 1996 - $4,232).
ii. Patents
The Group acquired the patent rights relating to the Cellular Palletwide
Container ("CPC") and the Slimwall CPC and the business of Cargo Unit Containers
Limited in August 1996. The total consideration paid for the patents and
business assets was $2,096.
<PAGE> 62
THE CRONOS GROUP
Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)
12 OTHER ASSETS
At December 31, 1998 other assets includes the following items:
i. In 1997 and 1998 non interest bearing loan notes of $6,766 and $539,
respectively, were received in part consideration for respective asset sales to
a third party container owner of $25,800 and $3,914. The loan notes fall due for
repayment after certain other loan notes due to third parties have been repaid
from funds generated from containers managed by the Group. It is anticipated
that the loan notes will not be repaid until 2006 at the earliest. The Group
owns one share of $1 in the third party container owner, which has a share
capital of $12,000 and has the option to acquire 75% of the container owning
company for $1 in August 2006.
ii. At December 31, 1997 and 1998 an amount of $1,598 was held in escrow in
connection with a container sale to a third party container owner during 1997
(note 17).
iii. Amounts of $3,613 and $3,704 were held as retention deposits by financial
institutions in connection with long term funding transactions at December 31,
1997 and 1998 respectively. These amounts will be released on dates between 2000
and 2005 in accordance with the terms of the funding transactions (note 14(a)).
iv. At December 31, 1997 and 1998 deposits of $743 and $4,450, respectively,
were held in escrow accounts in respect of amounts due to third party container
owners (note 17).
v. At December 31, 1997 and 1998 an amount of $793 was held in escrow in respect
of the sale in December 1996 of Cronos Investments B.V. (note 17).
13 AMOUNTS PAYABLE TO CONTAINER OWNERS
Amounts payable to container owners comprise:
<TABLE>
<CAPTION>
1997 1998
<S> <C> <C>
Amounts due to unrelated parties $15,536 $18,027
Amounts due to related parties:
- - US Limited Partnerships 15,484 13,287
------- -------
$31,020 $31,314
======= =======
</TABLE>
<PAGE> 63
THE CRONOS GROUP
Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)
14 DEBT AND LEASE OBLIGATIONS
Debt and capital lease obligations comprise:
<TABLE>
<CAPTION>
1997 1998
<S> <C> <C>
Debt
- - long term $ 66,038 $49,687
- - current 77,648 74,820
Obligations under capital leases
- - long term 22,644 11,508
- - current 5,069 12,451
-------- --------
$171,399 $148,466
======== ========
</TABLE>
a) Debt
Debt comprises:
<TABLE>
<CAPTION>
1997 1998
<S> <C> <C>
Long term debt:
Revolving credit $ 16,189 $ 15,134
Term loans
- - fixed rate 45,356 39,980
- - variable rate 82,141 69,393
-------- --------
143,686 124,507
Less: current maturities of long term debt 77,648 74,820
-------- --------
$ 66,038 $ 49,687
======== ========
</TABLE>
Bank loans are secured by the Group's container equipment and property, with
instalments payable through 2004 and with interest rates fixed or floating
dependent upon the facilities. The weighted average interest rates for the years
ended December 31, 1996, 1997 and 1998 were 8.1%, 8.5% and 9.0%, respectively.
The Group has entered into interest rate swap agreements to effectively fix the
rates on $20,625 of floating rate long term debt until 1999 (note 15).
As of December 31, 1998 the estimated fair value of fixed rate long term debt
was $37,625 (1997 - $46,946) for which the carrying value was $39,980 (1997 -
$45,356). The fair value of fixed rate long term debt has been calculated using
the market rates prevailing at December 31, 1998.
<PAGE> 64
THE CRONOS GROUP
Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)
14 DEBT AND LEASE OBLIGATIONS (CONTINUED)
a) Debt (continued)
As of December 31, 1998 the Group had $133,332 of term facilities (including
capital lease financing) under which $133,332 was outstanding. In addition, as
of such date, the Group had available lines of credit of $27,500 under short
term revolving credit facilities, under which $15,134 was outstanding. Interest
rates under these facilities ranged from 6.6% to 10.2%. The terms of these
facilities extend to various dates up to 2005. In March 1999, the Group agreed
an amendment to a $20,000 short term revolving credit facility which had a
maturity date of March 31, 1999, under which $10,334 was outstanding at December
31, 1998. The amendment converted the facility to a short term loan with a final
maturity date of November 1999 and with varying principal payments due between
April and November. In the first three months of 1999, the Group made repayments
of $1,100.
The Group is subject to quarterly loan covenants which include financial
covenants relating to minimum tangible net worth, leverage, interest and fixed
charge coverage, earnings and debt service, and other covenants relating to the
filing of quarterly unaudited financial statements and annual audited financial
statements together with a limitation on dividend distributions to 35% of
retained earnings after tax.
At December 31, 1998 the Group was in breach of loan covenants relating to
interest coverage, fixed charge coverage, minimum tangible net worth, earnings
and debt service with five institutions representing 31% of debt and lease
obligations. Waivers have been received in respect of the breaches at December
31, 1998.
Following negotiations in 1997 with the banks providing the Group's primary
revolving credit facility, under which $73,500 was outstanding as of December
31, 1996, an Amended and Restated Credit Agreement was executed in June 1997,
subject to various actions being taken by the Group, primarily relating to the
provision of additional collateral. This Agreement was further amended in July
1997 and the provisions of the Agreement and its Amendment converted the
facility (the "Bank Facility") to a term loan, payable in instalments with a
final maturity date of May 31, 1998. The terms of the Agreement and its
Amendment also provided for additional security over shares in the subsidiary of
the Group that owns the head office of the Group's container leasing operations.
They also provided for the loans to Mr S M Palatin (a former Chairman and
director) of $5,900 and $3,700 to be restructured as obligations of Mr S M
Palatin to another subsidiary of the Group, together with the pledge to this
subsidiary company of 2,030,303 Common Shares beneficially owned by him in The
Cronos Group, as security for these loans (note 21). They further provided for
the assignment of these loans to the lending banks, together with the pledge of
1,000,000 shares and the assignment of the rights of the Group in respect of the
other 1,030,303 shares. The Group did not repay the Bank Facility at the amended
maturity date of May 31, 1998.
On June 30, 1998 the Group entered into a third amendment (the "Third
Amendment") to the Bank Facility. Under the Third Amendment, the remaining
principal amount of $36,800 was due to be amortized in varying monthly amounts
commencing on July 31, 1998 with $26,950 due on September 30, 1998 and a final
maturity date of January 8, 1999.
Under the Third Amendment, the Group agreed to provide the banks with a security
interest in certain shares of Transamerica Corporation when they are released to
the Group under a 1996 Escrow Agreement (note 9).
<PAGE> 65
THE CRONOS GROUP
Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)
14 DEBT AND LEASE OBLIGATIONS (CONTINUED)
a) Debt (continued)
The principal payments due under the Third Amendment on September 30, 1998 and
January 8, 1999 were not made. The balance outstanding on the facility at
December 31, 1998 was $33,110. In the first three months of 1999, the Group
repaid $7,279 of the Bank Facility leaving an outstanding balance of $25,831.
In March 1999, the Group agreed a fourth amendment (the "Fourth Amendment") to
the Bank Facility under which, the final maturity date will be September 1999.
The Fourth Amendment became effective as of March 31, 1999 subject to the
satisfaction thereafter of various conditions, including the delivery of the
Group's audited financial statements for 1998, together with various legal
opinions and other loan documentation by April 15, 1999.
Prior to the agreement of the Fourth Amendment, the principal bank, under the
Bank Facility, secured title to 463,636 shares previously held by Lambert
Business Inc ("Lambert"). This is discussed more fully in note 21vii.
As at May 31, 1998, the Group owed $13,900 principal amount under a Note
Purchase Agreement which became due and payable on May 31, 1998. In July 1998,
the Group agreed and executed an Amendment to the Note Purchase Agreement with
the holders of the Notes under which 70% of the principal amount was due and
payable on September 30, 1998 and the balance on January 31, 1999. Neither of
these principal payments were made and the balance outstanding under the
facility at December 31, 1998 was $13,900. An amendment to the Note Purchase
Agreement has been executed in 1999 which extends the final maturity date to
September 1999 and also provides for interim principal payments to be made in
April and July. In February 1999, the Group made a $1,200 repayment, in lieu of
the April payment, leaving an outstanding balance of $12,700.
The directors are taking the necessary action to secure alternative sources of
finance and are confident that refinancing will be arranged to meet these
amended repayment obligations. Failure to meet revised lending terms would allow
the lenders to declare a default. The declaration of default would result in
further defaults with other lenders under loan agreement cross-default
provisions. Should a default of the term loans be declared, the Group may be
unable to continue as a going concern.
As of December 31, 1998, based, as management anticipates, on the satisfactory
implementation of the revised loan terms as outlined above, the annual
maturities of debt were:
<TABLE>
<S> <C>
1999 $ 74,820
2000 7,217
2001 7,179
2002 12,496
2003 7,345
2004 and thereafter 15,450
--------
Total $124,507
========
</TABLE>
<PAGE> 66
THE CRONOS GROUP
Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)
14 DEBT AND LEASE OBLIGATIONS (CONTINUED)
b) Capital lease obligations
The cost and net book value of assets acquired through capital leases was
$43,158 and $29,878, respectively, at December 31, 1998 ($43,341 and $31,303,
respectively, at December 31, 1997). Amortization in respect of these leases is
included in depreciation expense. The aggregate capital lease obligations are
secured by container equipment.
As of December 31, 1998, based, as management anticipates, on the satisfactory
implementation of the revised loan terms as outlined in 14(a) above, the minimum
lease payments under capital leases representing interest and principal were:
<TABLE>
<CAPTION>
Capital lease
Principal Interest obligations
<S> <C> <C> <C>
1999 $12,451 $1,147 $13,598
2000 2,050 803 2,853
2001 1,495 661 2,156
2002 1,776 545 2,321
2003 1,733 414 2,147
2004 and thereafter 4,454 359 4,813
------- ------ -------
Total $23,959 $3,929 $27,888
======= ====== =======
</TABLE>
c) Operating leases
i. Group as lessee
The Group leases container equipment, computer equipment and office space under
operating leases.
Rental expense for containers, substantially all of which is contingent as
described in note 1(a), is shown in the income statement as Payments to
container owners. Rental expense for those leases which carry fixed payment
terms was $3,829, $4,023, and $4,023 for the years ended December 31, 1996, 1997
and 1998, respectively.
Rental expense for computer equipment and office space was $1,595, $1,548 and
$1,593 for the years ended December 31, 1996, 1997 and 1998, respectively.
As of December 31, 1998, based, as management anticipates, on the satisfactory
implementation of the revised loan terms as outlined in 14(a) above, future
minimum lease payments under these non-cancellable operating leases were:
<TABLE>
<S> <C>
1999 $ 5,771
2000 5,293
2001 4,982
2002 4,833
2003 4,704
2004 and thereafter 6,717
-------
Total $32,300
=======
</TABLE>
<PAGE> 67
THE CRONOS GROUP
Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)
14 DEBT AND LEASE OBLIGATIONS (CONTINUED)
c) Operating leases (continued)
ii. Group as lessor
The Group sub-leases containers to ocean carriers under operating leases, as
described in note 1(a). The Group also sub-leases office space and earned
revenue of $278, $88 and $211 for the years ended December 31, 1996, 1997 and
1998, respectively.
Rental income from sub-leasing containers owned by third party container owners
to ocean carriers was $117,306, $115,414 and $117,690 for the years ended
December 31, 1996, 1997 and 1998, respectively. These amounts are included in
Gross lease revenue in the income statement.
Future sub-lease rentals for containers leased under operating leases to ocean
carriers under non-cancellable term leases are included in the amounts shown in
note 5.
d) Going concern
As indicated in note 1(b), these financial statements have been prepared on a
going concern basis which contemplates the realization of assets and settlement
of liabilities in the normal course of business. Negotiations for refinancing
are continuing and are detailed in this note. There can be no assurances that
management's plans to secure adequate refinancing will be successful. The
financial statements do not include any adjustments relating to the
recoverability and classification of recorded assets, or the amounts and
classification of liabilities that might be necessary in the event the Company
cannot continue in existence.
15 FINANCIAL INSTRUMENTS-DERIVATIVES
The Group has entered into a limited number of interest rate swap agreements to
reduce the impact of changes in interest rates on its floating rate long term
debt. As of December 31, 1998 the notional principal amount outstanding under
these agreements was $20,625. The agreements were with major commercial banks
and expire in 1999.
The Group is exposed to credit risk in the event of non-performance by the other
parties to the interest rate swap agreements. The Group does not anticipate
non-performance by these counterparties.
As of December 31, 1998 the fair value of the agreements was a net payable of
$91 (1997 - $206), which is included in Other amounts payable and accrued
expenses, for which the carrying value was $20,625 (1997 - $24,269). The fair
value has been calculated using the market rate prevailing at December 31, 1998.
Interest expense includes charges in respect of interest rate swap agreements of
$223, $149 and $243 for the years ended December 31, 1996, 1997 and 1998
respectively.
<PAGE> 68
THE CRONOS GROUP
Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)
16 DEFERRED INCOME AND UNAMORTIZED ACQUISITION FEES
Deferred income and unamortized acquisition fees comprise:
<TABLE>
<CAPTION>
1997 1998
<S> <C> <C>
Advance billings $ 3,041 $ 2,681
Unamortized acquisition fees 11,993 10,086
------- -------
$15,034 $12,767
======= =======
</TABLE>
The recognition of unamortized acquisition fees is not contingent upon the
performance or continuation of any of the agreements to which they relate. On
the termination of an agreement, any unamortized fees are recognized
immediately. As of December 31, 1998 unamortized acquisition fees are scheduled
to be recognized as follows:
<TABLE>
<S> <C>
1999 $ 2,065
2000 1,933
2001 1,672
2002 1,273
2003 1,085
2004 and thereafter 2,058
-------
Total $10,086
=======
</TABLE>
17 COMMITMENTS AND CONTINGENCIES (TO BE READ IN CONJUNCTION WITH NOTE 21)
i. Commitments
At December 31, 1998 the Group had commitments under operating leases for office
space and equipment which were not material.
The group had no outstanding orders in respect of container equipment at
December 31, 1998.
ii. Contingencies - general
At December 1998, the Group had $1,598 held in escrow following the sale in
August 1997 of $15,974 of containers to an existing container owner. In March
1999, this amount was repaid to the Group in return for a corporate guarantee
under the terms of which the Group may be liable to pay $1,598 to the container
owner if a qualified audit opinion is issued for either of the years ended
December 31, 1998 and 1999, respectively.
The Group has deposited $360 in a bank account under the control of Austrian
Courts. This deposit is intended to fulfil liabilities regarding the operation
of certain containers once the proper recipients have been determined and is
discussed further in iv below.
<PAGE> 69
THE CRONOS GROUP
Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)
17 COMMITMENTS AND CONTINGENCIES (CONTINUED)
ii. Contingencies - general (continued)
The Group has deposited a further $4,090 in escrow bank accounts in order to
fulfil liabilities in respect of specified containers once certain issues have
been resolved. In February, 1999 the Group released $2,703 of the escrow
deposits. This matter is discussed further in iv below.
At December 31, 1998, Other assets included an amount of $793 which was held in
escrow, in respect of the sale in December 1996 of Cronos Investments B.V., the
release of which was dependant on the agreement of the 1992 to 1996 tax filings.
In February 1999 the Dutch tax authorities issued final assessments in respect
of these years. The Group received an initial payment of $619 and expects to
receive a further payment of $42 in final settlement of the escrow fund.
The Group does not believe it has any other contingent liabilities, other than
as disclosed in note 14 and as set forth below.
iii. Contingency - SEC investigation
In February 1997, as reported in the Company's Form 6-K, Arthur Andersen
resigned as auditors to The Cronos Group and its subsidiaries and related
partnerships. In connection with its resignation, Arthur Andersen also prepared
a report pursuant to Section 10A of the Securities Exchange Act 1934 ("the Act")
citing its inability to obtain what it considered to be adequate responses to
its enquiries primarily regarding the payment of $1,500 purportedly in
connection with an obligation to pay professional fees relating to a proposed
strategic alliance. This sum was returned to the Group in January 1997. See also
note 21 in this regard. To date current management has been unable to obtain an
adequate explanation of the facts and circumstances with respect to this payment
and its return.
The Securities and Exchange Commission ("SEC"), a United States regulatory
agency, subsequently commenced an investigation of the Company in or about
February 1997. The SEC's investigation could result in one or more of civil,
judicial and administrative proceedings against both the Company and certain
individuals, including the assessment of monetary penalties by the SEC against
the Company. Actions taken by the SEC do not preclude additional actions by any
other federal, civil, criminal authorities, by other regulatory organisations or
by other parties.
Based on the limited information available to it, the Company believes that the
investigation by the SEC may relate to possible violations of the federal
securities laws that could include but are not limited to the following
sections: S10b and Rule 10b-5 thereunder, of the Act, (pertaining to the
anti-fraud provisions); S10A of the Act, (pertaining to audit notification
requirements in the event the independent public accountant detects or otherwise
becomes aware of information indicating that an illegal act has or may have
occurred); S13(a) and 13(b) (2) (A) of the Act, (pertaining to the filing of
periodical and other reports with the SEC and pertaining to the implementation
of a system of internal accounting controls, respectively).
The SEC's investigation is still ongoing and some of the present and former
officers and directors and others associated with the Company have given
testimony. However, no conclusion of any alleged wrong doing by the Company or
any individual has been communicated to the Company by the SEC. Accordingly,
management has not reached a conclusion regarding any possible liability of the
Company.
<PAGE> 70
THE CRONOS GROUP
Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)
17 COMMITMENTS AND CONTINGENCIES (CONTINUED)
iv. Contingencies - Austrian allegations (see also note 21)
Since 1983, as described in the prospectus dated December 7, 1995, a subsidiary
company has managed containers for Austrian investment entities, including
limited and unlimited partnerships and companies, sponsored by companies owned
by Contrin Holding S.A., a Luxembourg holding company ("Contrin"), and for that
company itself. Mr S M Palatin has been a director of Contrin. During 1994,
ownership of the companies sponsoring these entities was transferred by Contrin
to Barton Holding Ltd, a Bahamian company, which has owned preferred shares in
the Company ("the former preferred shareholder"). Further details regarding
Barton Holding Ltd ("Barton") and transactions involving that company are given
in note 21.
Some participants in a number of the aforementioned Austrian investment entities
have made allegations to the Company and Austrian government authorities
regarding the conduct of the investment entities, the sponsoring companies and
companies alleged to be connected to Mr S M Palatin and regarding Mr S M Palatin
himself.
Firstly it is alleged, broadly, that not all container management income due to
participants in these investment entities ("third parties") has been received by
them.
In this connection, a bank account to which $360 was transferred by the Group,
following instructions which may have been falsified, regarding a purported cash
distribution to Austrian investment entities, is under the control of the
Austrian courts which will determine the recipients of the funds. Management
consider that no liability arises as a consequence of making this transfer as
the funds are under the control of the Austrian courts which will determine the
correct recipients of the funds. In March 1999, the Group together with the
Austrian investment entities have applied to the Austrian courts for the release
of the funds to the Austrian investment entities.
Moreover, Austrian courts have initiated investigations against Mr S M Palatin
and additional persons, including Mr R J Weissenberger, a former Chairman and
director, and Mr A Friedberg, a former director. Mr S M Palatin and Mr A
Friedberg have since been formally charged. Such investigations have not
resulted in any actions being taken against Mr R J Weissenberger and he has
informed the Company that he does not believe that there is any valid basis for
any such actions to be taken against him.
Management have been unable to obtain definitive information regarding the
relationships suggested in the allegations by the third parties.
Secondly, it is alleged that funds may have been remitted to the Group which
were not deposited in a Group bank account and are not reflected in the Group's
accounting records. Specifically, it is alleged that Mr S M Palatin acknowledged
receipt of funds in the amount of $2,600 during the year ended December 31,
1995, yet it appears that these funds were received into a non-Group bank during
the year ended December 31, 1994. Previous to these allegations, the Company's
current management was not aware of the receipt of the $2,600, nor was it aware
of Mr S M Palatin's acknowledgement. The Group has determined that a $400
distribution, to third party investors, was paid by the Group in December 1994,
into the same bank account into which the $2,600 was apparently deposited.
Management is investigating these allegations and is continuing to seek
definitive information regarding the non-Group bank account and the receipt and
disbursement of the $2,600.
<PAGE> 71
THE CRONOS GROUP
Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)
17 COMMITMENTS AND CONTINGENCIES (CONTINUED)
iv. Contingencies - Austrian allegations (continued)
Thirdly, claims relate to alleged transactions between third parties and
companies alleged to be connected to Mr S M Palatin, involving the purchase and
sale of containers in a manner designed to secure a tax mitigation advantage to
those third parties. It is alleged that sums remain owing to the third parties
by one or more of these companies in connection with the pre-arranged trading in
containers. It is the view of management that the Group was not involved in
these transactions, that the Group has no access to the records of the alleged
transactions and, so far as the Group has managed the containers, the Group has
acted in accordance with instructions from authorised representatives of the
third parties. Management has been unable to quantify the extent, if any, that
the Group might be held to be liable should the claims prove to be
substantiable. The mechanisms, if any, and jurisdictions for initiation of any
claims are also unclear.
Certain of the companies which have sponsored Austrian investment entities have,
under the terms of the relevant management agreement, arranged for examination
of Group records appertaining to the management of containers owned by those
investment entities. Some enquiries were made by representatives of the third
parties. Management is not aware of any unresolved issues in this respect.
In response to the actions taken by Contrin, the Group terminated certain of its
management agreements with Contrin entities in 1998. Discussions are taking
place between Contrin and the Group and it is anticipated that these agreements
will be reinstated.
Management consider that prudent provision has been made in these financial
statements for the matters in this connection. Details of the provision are
given in notes 1r and 3.
v. Contingencies - Arbitration
Under the terms of the relevant management agreement an arbitration process was
commenced on or around February 1997 by one of the companies which had sponsored
Austrian entities in respect of distributions made, by the Group, through its
Austrian attorney. In December 1998, the arbitration panel found that the
management agreements with the Austrian investment entities were valid. The
Group has made provision for anticipated legal expenses arising from the
arbitration.
vi. Contingencies and commitments - overall
There is a reasonable possibility that a material change could occur in respect
of commitments and contingencies within one year of the date of these financial
statements.
<PAGE> 72
THE CRONOS GROUP
Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)
18 COMMON SHARES AND INITIAL PUBLIC OFFERING
The common shares of the Company are publicly traded on the National Association
of Securities Dealers Automated Quotation System (NASDAQ), following the
Company's initial public offering in December 1995.
As part of the initial public offering the underwriters were granted options at
$10 per share, exercizable by January 7, 1996, to purchase up to an additional
510,000 shares for the purposes of covering over-allotments. On January 7, 1996,
the underwriters exercized 243,000 of these options. The remaining 267,000
options lapsed.
During 1997 and 1998 there were no changes to the number of issued common
shares.
<TABLE>
<CAPTION>
1996 1997 1998
<S> <C> <C> <C>
Common shares outstanding:
At beginning of year 8,615,378 8,858,378 8,858,378
New common shares issued 243,000 -- --
----------- --------- ---------
At end of year 8,858,378 8,858,378 8,858,378
=========== ========= =========
Proceeds of the offering:
Sale price of shares issued $ 2,430 $ -- $ --
Underwriting discounts and commissions (170) -- --
Expenses of issuance and distribution (149) -- --
----------- --------- ---------
Net proceeds $ 2,111 $ -- $ --
=========== ========= =========
</TABLE>
All common shares rank equally in respect of shareholder rights.
19 MANAGEMENT EQUITY INVESTMENT PLAN ("MEIP")
In November 1994, the Group introduced the MEIP for key employees of the Group.
A total of 440,000 common shares have been reserved for issuance under the MEIP.
As of December 31, 1998 outstanding options to acquire 156,600 common shares
were held by 20 employees. The main terms of the plan are as follows:
i. The MEIP consists of option units comprising four separate options, each
option granting the right to the key employee to acquire an equal number of
common shares at four different exercize prices. The key employee must pay an
option price to acquire each option. The exercize price for each option was
determined at the date of grant.
ii. Each option vested 25% in the years ended December 31, 1995 and 1996,
respectively. Options may only be exercized in units of each of the four
options. At December 31, 1998 options were exercizable over 81,000 shares.
<PAGE> 73
THE CRONOS GROUP
Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)
19 MANAGEMENT EQUITY INVESTMENT PLAN ("MEIP") (CONTINUED)
iii. Members of the MEIP may only exercize vested options within seven years of
November 25, 1994, the date of grant. No options were granted in 1996 and 1997.
Unexercized options will expire thereafter. As of December 31, 1998 unexercized
options have a remaining contractual life of 2 years, 11 months.
The granting of the options did not result in additional compensation for the
key employees who joined the plan for the year ended 31 December, 1998. As of
December 31, 1998, the options are estimated to have a nil value based on the
share price at that date and the exercize prices. Total compensation cost
recognized in the income statement for stock-based employee compensation was
nil.
As of December 31, 1998, outstanding unpaid options amounts to $123, included as
Share Subscriptions Receivable within Shareholders' Equity. The cost of each
option and the associated exercize price at the beginning and end of the current
period are as follows:
<TABLE>
<CAPTION>
Number Number
of shares of shares Option price Exercize price
at January 1 at December 31 Per share per share
<S> <C> <C> <C> <C>
Option 1 53,250 39,150 $1.43 $14.30
Option 2 53,250 39,150 $1.56 $15.60
Option 3 53,250 39,150 $1.69 $16.90
Option 4 53,250 39,150 $1.82 $18.20
------- -------
Total 213,000 156,600
======= =======
</TABLE>
The options purchased by key employees represent a potential ownership interest,
on a fully diluted basis, of 2.4% of common shares. Options over 56,400 shares
lapsed during the year as a result of eligible employees leaving the group.
20 RETAINED EARNINGS - RESTRICTED
On an annual basis, Luxembourg law requires appropriation of an amount equal to
at least 5% of Net income to a legal reserve until such reserve equals 10% of
the stated capital in respect of the outstanding common and preferred shares.
This reserve is not available for dividends. In 1995, following the sale of the
common shares in the initial public offering, an amount of $1,062 was
transferred from Additional paid-in capital to increase the legal reserve to the
required 10% of stated capital. A further amount of $49 was transferred from
Additional paid-in capital following the exercize of the underwriters options
and the issuance of 243,000 additional shares in January 1996 (note 18). At
December 31, 1997 and 1998, the legal reserve represented 10% of the stated
capital in respect of outstanding common shares. Accordingly, no appropriation
to the legal reserve was required for either year.
<PAGE> 74
THE CRONOS GROUP
Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)
21. RELATED PARTY TRANSACTIONS (TO BE READ IN CONJUNCTION WITH NOTE 17)
The Group had the following transactions with related parties during the three
years ending December 31, 1998:
i. In 1996 the Group had management agreements with a limited number of
companies in which Mr S M Palatin, or the former preferred shareholder, Barton
Holding Ltd ("Barton") held an interest. These agreements were entered into on
terms similar to other management agreements. The net revenue retained by the
Group with respect to these agreements approximated 1% of Total revenues.
ii. In December 1994, payments amounting to $500 were reported as a distribution
to third parties in Austria (see note 17). Subsequent investigations by
management indicate that, of this, a remittance of $400 was made to the bank
account that received the $2,600 referred to in note 17; management has
requested necessary information which may be subject to confidentiality
considerations of the jurisdiction. Current management have seen both
instructions and a receipt for this amount from an authorised representative of
the third parties and is continuing to seek definitive information regarding
title and conduct of this non-Group bank account.
iii. At December 31, 1995, other assets included a loan to a director of $511.
The loan carried interest at a rate of 10% and was repaid in the amount of $279
in January 1996 and the balance of $232 in September 1996.
iv. As part of organising the US public limited partnerships the Group purchases
containers for resale to these partnerships. For the years ended December 31,
1996, 1997 and 1998 containers amounting to $48,107, $2,623 and $0 respectively,
were purchased and resold. These transactions were entered into on normal
commercial terms.
v. During 1998, an ocean carrier in which a director of the Company was a non
executive director ceased trading. At December 31, 1998, a specific provision of
$553, representing the total amount due from the lessee of $1,153 less expected
insurance proceeds, was included in the allowance for doubtful accounts.
vi. During the years ended December 31, 1997 and 1998, payments of $97 and $150,
respectively, were made to a non executive director of the Company in respect of
legal fees.
vii. As of January 1, 1996, $4,723 was outstanding under a unsecured loan
agreement with Barton, the former preferred shareholder. This amount bore
interest at 9% and was repayable in instalments on March 31, 1996 and June 30,
1996.
In February 1996 the Group entered into an agreement with Mr S M Palatin, under
which Mr S M Palatin purportedly guaranteed the performance by Barton of its
obligations under the loan agreement, including repayment of interest and
principal according to the terms prescribed in the agreement. Mr S M Palatin's
guarantee purports to pledge 1,030,303 Common Shares owned by him in The Cronos
Group; the owner of record of these shares was Lambert Business Inc incorporated
under the laws of Panama.
The prospectus dated December 7, 1995 specifies that Barton is an unaffiliated
company; the Group has received no notification of a change in this regard.
<PAGE> 75
THE CRONOS GROUP
Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)
21. RELATED PARTY TRANSACTIONS (CONTINUED)
In April 1996, the Group advanced $500 to Mr S M Palatin. This advance bore
interest at 9% per annum and was repayable by June 30, 1996. On June 30, 1996,
principal and interest on the Group's loan to Barton in the amount of $4,950
came due, but no repayment thereon was received.
In August 1996, the Company and Mr S M Palatin entered into a new Loan Agreement
and related Pledge Agreement, each dated as of July 1, 1996, pursuant to which
Mr S M Palatin borrowed $5,461 from the Company which was used to repay the
principal and interest due on June 30, 1996, on the loan to Barton and the $500
advance.
This loan bore interest at 9% per annum and matured on December 30, 1996. The
1,030,303 Common Shares remained pledged as security for this loan and all other
obligations of Mr S M Palatin to the Group existing at that date. No repayments
have been made since the inception of this loan. In July 1997, in connection
with the execution of the Amended and Restated Credit Agreement and the
Amendment thereto, relating to the Group's primary revolving credit facility,
this loan was revised in the amount of $5,900, representing principal and
interest due on the original loan, and was assigned to a subsidiary of the
Group, together with all the Company's rights in respect of this loan, including
the collateral rights concerning the purported pledge of 1,030,303 Common Shares
(note 14(a)). As of December 31, 1996, the fair value of this loan was $5,461.
December 31, 1997 was agreed as the revised repayment date for the loan, but no
principal or interest payments have been received. Management did not seek to
enforce the pledge following conflicting advice as to the feasibility of this
action and in particular, the powers of the Board of Lambert to prevent the
enforcement of the pledge, the sale of the shares without defect in title, or
the realisation of proceeds of sale for the benefit of the Group. As previously
disclosed, Mr R J Weissenberger had an interest in the shares of Lambert. In
March 1999, in connection with the negotiation of the Fourth Amendment (note
14(a)), title to 463,636 shares in the Company held by Lambert has been granted
as security to the Bank Facility. Title to the remaining 566,667 shares has been
taken by Mr R J Weissenberger to discharge his interest.
As indicated below, a provision of $4,733 was made in December 1997 against Mr S
M Palatin's outstanding loans and unpaid interest in view of these
circumstances.
The Company has engaged legal counsel to provide advice and commence legal
action, if appropriate, against former officers or directors if it is determined
that they engaged in any misfeasance or improper self-dealing. A special
committee has been appointed to work with counsel in this regard and also in the
recovery of balances due by Mr S M Palatin including interest.
In October 1996, $1,500 was paid by the Group purportedly in respect of an
obligation regarding professional fees relating to a proposed strategic
alliance. This alliance did not take place and the funds were repaid to the
Group in January 1997, as described in note 17iii above. To date no adequate
explanation of the facts and circumstances with respect to this payment and its
return has been forthcoming. At December 31, 1996 this amount was included
within amounts advanced to Mr S M Palatin.
<PAGE> 76
THE CRONOS GROUP
Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)
21 RELATED PARTY TRANSACTIONS (CONTINUED)
In January 1997, the Group advanced an amount of $3,700 to Mr S M Palatin under
the same terms as the Loan Agreement dated July 1, 1996. This loan bore interest
at 9% per annum and was secured by a further pledge of 1,000,000 Common Shares
beneficially owned by him in The Cronos Group. This loan was replaced in July
1997 by a new loan in like amount from a subsidiary of the Group to Mr S M
Palatin, pursuant to the Amended and Restated Credit Agreement and the Amendment
thereto (see note 14). This new loan bore interest at 9% per annum and was
secured, together with all other obligations of Mr S M Palatin to this
subsidiary company, by the pledge of 1,000,000 shares. The loan was due to be
repaid on October 31, 1997, but no interest or principal payments were received.
Consequently title to the 1,000,000 shares was established by the banks
providing certain of the Group's term loans which totalled $33,110 at December
31, 1998 (note 14(a)). As of December 31, 1998 no interest or principal payments
have been received.
Interest of $460 and $824 was credited on these loans during the years ended
December 31, 1996 and 1997, respectively. During 1998, additional interest of
$864 became due under Mr S M Palatin's outstanding loans. This amount has not
been recognized in income.
viii. In May 1998, the then Chairman, Mr S M Palatin, was taken into custody in
Austria in connection with continuing investigations into alleged offences. In
July 1998, he resigned as Chief Executive Officer, Chairman and from all other
positions within the Group. The Group has retained $240 in respect of
outstanding payroll for Mr S M Palatin which will be held as possible settlement
against any claims.
In view of these circumstances and the doubt concerning the Board's ability to
exercize the pledge over the remaining 1,030,303 shares, a provision of $4,733,
including unpaid interest, was made on December 31, 1997 against Mr S M
Palatin's outstanding loans and unpaid interest. At December 31, 1997 and 1998,
respectively, the fair value of Mr S M Palatin's loans was $5,500. In March
1999, title to 463,636 of the 1,030,303 shares was granted as security to the
Bank facility.
ix. In 1998, the Group identified amounts totalling $232 which were paid in
respect of professional services during 1997 and 1998 and have since been
attributed to Mr S M Palatin. Such costs were included in Financing and
recomposition expenses in the years in which they were incurred. The Group
intends to seek recovery of these costs.
x. Amounts of $283, $618 and $436 were paid for services provided under the
terms of an information technology agreement with a company, to which Mr S M
Palatin has indicated he is related, for the years ended December 31, 1996, 1997
and 1998, respectively.
<PAGE> 77
THE CRONOS GROUP
Notes to consolidated financial statements (continued)
(US dollar amounts in thousands, except per share amounts)
21 RELATED PARTY TRANSACTIONS (CONTINUED)
xi. As indicated in note 17, it has been asserted by a representative of Contrin
that Mr S M Palatin has financial and other interests in companies that were
involved in the trading of containers with participants in certain Austrian
investment entities. The relationship or otherwise between these companies and
the Group cannot be substantiated by management at present. The public records
regarding these companies do not disclose their beneficial ownership. One of the
companies in question, Transocean Equipment Manufacturing and Trading Limited,
has been separately registered in the same name in both the United Kingdom and
the Isle of Man and has been regarded by management as a subsidiary of Contrin
and is so characterised in certain commercial correspondence. Contrin, through
three management companies, administered the Austrian investment entities.
Transocean Equipment Manufacturing and Trading Limited is in liquidation in the
United Kingdom and the Group has received a request for information from the
liquidator in respect of its trading transactions with that company.
<PAGE> 78
<TABLE>
<CAPTION>
Number Exhibit Index Page
- ------ ------------- ----
<S> <C> <C>
3.1 Coordinated Articles of Incorporation (designated in the Company's
Annual Report on Form 20-F for the year ended December 31, 1997 (File
No. 0-24464) as exhibit 1.1)
10.1 Amended and Restated Credit Agreement, dated as of June 24, 1997, by and
among Cronos Containers N.V., Cronos Containers Ltd., Cronos Equipment
Ltd., Cronos Containers Inc., Cronos Capital Corp., and Cronos Equipment
(Bermuda) Limited, as joint and several borrowers, each of the banks
that is or may become a party thereto, Fleet Bank, N.A., as agent for
the banks, and The Cronos Group, as guarantor (the "Credit Agreement")
(designated in the Company's Annual Report on Form 20-F for the year
ended December 31, 1997 (File No. 0-24464) as exhibit 1.2)
10.2 First Amendment to the Credit Agreement, dated as of July 14, 1997
(designated in the Company's Annual Report on Form 20-F for the year
ended December 31, 1997 (File No. 0-24464) as exhibit 1.3)
10.3 Second Amendment to the Credit Agreement, dated as of December 3, 1997
(designated in the Company's Annual Report on Form 20-F for the year
ended December 31, 1997 (File No. 0-24464) as exhibit 1.4)
10.4 Third Amendment to the Credit Agreement, dated as of June 30, 1998
(designated in the Company's Annual Report on Form 20-F for the year
ended December 31, 1997 (File No. 0-24464) as exhibit 1.5)
10.5 Confirmation of Guaranties, Agreement and Power of Attorney by the
Cronos Group, dated June 30, 1998, pertaining to the Credit Agreement.
(designated in the Company's Annual Report on Form 20-F for the year
ended December 31, 1997 (File No. 0-24464) as exhibit 1.6)
10.6 Deed in lieu of foreclosure relating to shares given as collateral to the
Palatin loans. E1
10.7 Forbearance Agreement and Fourth Amendment to Amended and Restated
Credit Agreement dated March 31, 1999. E6
10.8 Note Purchase Agreement among Cronos Equipment (Bermuda) Limited, The
Cronos Group and Sun Life Insurance Company of America, dated as of
December 29, 1994 (the "Sun Agreement") (designated in the Company's
Annual Report on Form 20-F for the year ended December 31, 1997 (File
No. 0-24464) as exhibit 1.7)
10.9 Amendment to the Sun Agreement, dated as of November 1, 1997 (designated
in the Company's Annual Report on Form 20-F for the year ended December
31, 1997 (File No. 0-24464) as exhibit 1.8)
10.10 Second Amendment to the Sun Agreement dated as of January 26, 1999. E14
10.11 The Cronos Group Management Equity Investment Plan, dated as of
July 25, 1994. E22
10.12 Lambert Confirmation, Acknowledgement and Consent of Collateral Assignment E39
10.13 Amendment to the Revolving Credit Facility between Cronos Containers
Limited and China International Marine Containers (Group) Company
Limited, dated March 24, 1999 E43
10.14 Employment Agreement dated August 14, 1998, between Cronos and
Eivind A Eriksen. E44
10.15 Employment Agreement dated January 24, 1996, between Cronos and
Stephan M Palatin. E60
10.16 Employment Agreement dated May 20, 1998, between Cronos and Admico SA. E69
10.17 Employment Agreement dated July 1, 1998, between Cronos and Peter J Younger. E73
10.18 Employment Agreement dated August 25, 1998, between Cronos and
Stephen J Brocato. E80
10.19 Employment Agreement dated December 11, 1998, between Cronos and
Dennis J Tietz E119
21.1 List of principal wholly-owned subsidiaries at December 31, 1998 E159
27. Financial Data Schedule
</TABLE>
The Cronos Group
<PAGE> 1
EXHIBIT 10.6
December 30th, 1998
<TABLE>
<S> <C>
Cronos Capital Corp. Cronos Equipment (Bermuda) Limited
Cronos Containers Inc. Clarendon House
444 Market Street Church Street
15th Floor Hamilton, Bermuda
San Francisco, CA Attention: Chief Financial Officer
Attention: Chief Financial Officer
Cronos Equipment Ltd. Cronos Containers N.V.
Cronos Containers Ltd. ITC Building
Orchard Lea Piscadera Bay
Winkfield Lane P.O. Box 6067
Winkfield, Windsor Curacao, Netherlands Antilles
Berkshire SL4 4RU Attention: Chief Financial Officer
England
Attention: Chief Financial Officer.
</TABLE>
The Cronos Group Treasurer 16 Allee Marconi
L-2021 Luxembourg
Attn: Chief Financial Officer
Re: The Cronos Group
Ladies and Gentlemen:
Reference is made to the Amended and Restated Credit Agreement dated as
of June 24, 1997 among Cronos Containers N.V., Cronos Containers Ltd, Cronos
Equipment Ltd, Cronos Capital Corp., Cronos Containers, Inc. and Cronos
Equipment (Bermuda) Limited ("Cronos Bermuda"), Fleet Bank, N.A., as Agent (the
"Agent"), and the financial institutions party thereto as lenders (the "Banks"),
as further amended by the First Amendment dated as of July 14th, 1997, the
Second Amendment dated as of December 3, 1997 and the Third Amendment dated as
of June 30th, 1998 (hereinafter, together with all further amendments and
modifications, referred to as the "Credit Agreement"). Terms used herein which
are not defined herein shall have the definitions given thereto in the Credit
Agreement.
Pursuant to a Collateral Assignment dated as of July 14, 1997 (the
"Collateral Assignment"), the Agent is the collateral assignee of the rights of
Cronos Bermuda under the Secured Promissory Note of Stefan Palatin ("Palatin")
dated July 14, 1997 in the principal amount of U.S. $3,700,00 (the "$3.7MM
Note") and the Amended and Restated Secured Promissory Note of Palatin dated
July 14, 1997 in the principal amount of U.S. $5,900,000 (the "$5.9 MM Note";
collectively with the $3.7MM Note, the "Notes"), and of the rights of Cronos
Bermuda with respect to the collateral for the Notes (the "Palatin Collateral"),
including, without limitation, shares of stock of The Cronos Group owned by
Klamath Enterprises S.A. and Lambert Business Inc. (collectively, the "Shares")
The $3.7 MM Note was due and payable in full on October 31, 1997. On
October 20, 1997, the Agent sent Palatin payment instructions for the $3.7 MM
Note. No payment was made by Palatin on the $3.7 MM Note on such due date and,
as a result, an event of default existed under the $3.7 MM Note. Since a failure
to pay the $3.7 MM Note on October 31, 1997 was also under an event of default
under the $5.9 MM Note, payment of the principal amount of the $5.9 MMNote
(which would otherwise have been due on December 31, 1997) was accelerated. On
November 4, 1997, Klamath Enterprises S.A. ("Klamath"), Palatin and certain
other parties were sent formal notice of both such defaults. As a result of such
defaults, Cronos Bermuda and the Agent, as collateral assignee of Cronos
Bermuda, have the right to foreclose on the Palatin Collateral. On March 25,
1998, a further notice was sent to Klamath and certain other parties regarding
the proposed foreclosure sale of the Palatin Collateral.
E-1
<PAGE> 2
Pursuant to the terms of the Credit Agreement, the Borrowers were
required to make certain payments to the Banks on September 30, 1998, which
payments have not been made and, as a result, an Event of Default exists under
the Credit Agreement. Although the Banks have had discussions with the Borrowers
regarding a possible restructuring, no agreement regarding a restructuring has
been reached and the Banks have not waived such Event of Default. The
outstanding unpaid amount of principal currently owed by the Borrowers under the
Credit Agreement is $33,109,767.21.
Pursuant to a letter dated November 24, 1998 from counsel to the Agent
to counsel for the Borrowers and the Guarantor, it was proposed, and the
Borrowers have agreed, that Cronos Bermuda would transfer title to the Notes and
all rights of Cronos Bermuda in the collateral for the Notes to the Agent in
lieu of a foreclosure by the Agent in exchange for which the indebtedness of the
Borrowers to the Banks would be reduced by an amount equal to the net proceeds
received by the Banks on the sale of the Shares. Accordingly, this letter is
intended to confirm the following agreement of the Borrowers, the Guarantor, the
Agent and the Banks as to certain matters relating to the foregoing:
1. (a) Simultaneously with and subject to the sale by the Agent on
behalf of the Banks of any or all of the Shares, Cronos Bermuda hereby
transfers, assigns and conveys to the Agent, on behalf of the Banks, of all
of its right, title and interest in and to the Notes and all right of Cronos
Bermuda in the collateral for the Notes, free and clear of all liens and
encumbrances. In consideration of such transfer, assignment and conveyance,
the Banks agree to reduce the outstanding indebtedness and other obligations
of the Borrowers under the Credit Agreement (the "Indebtedness") by an amount
equal to the Disposition Proceeds. The term "Disposition Proceeds" shall mean
the net cash proceeds (or, if non-cash property shall be accepted by the
Agent in payment in lieu of cash proceeds, the fair market value of such
property, as reasonably determined by the Agent), actually received by the
Agent from the foreclosure sale of the Shares or the Notes or from any
payments on the Notes received from, or from other assets of, Palatin, in
each case after deduction of any and all costs and expenses (including,
without limitation, attorneys' fees and brokerage commissions) incurred in
connection with such sale and disposition. In the event that the Notes are
transferred to the Agent as provided above but not all of the Shares are sold
by the Agent concurrently with such transfer, and that additional Shares are
sold on a later date or dates, the Banks shall reduce the Indebtedness by an
amount equal to the Disposition Proceeds as and when received by the Agent,
provided, however, that (x) is all of the remaining unsold Shares have not
been sold or otherwise transferred by the date (such date) or if the same
shall not be a Business Day, the first Business Day thereafter) being
referred to as the "settlement Date") which is two years after the first date
of sale of any of the Shares and (y) the Banks and the Agent have not been
and are then not prohibited by law, regulation or other restriction from
foreclosing on and disposing of the Shares, then the Indebtedness shall be
reduced on the Settlement Date by an amount (the "Settlement Price") equal to
(x) the average of the mean between the bid and asked price per share of the
Cronos Group stock as reported on the NASDAQ system or, is such stock shall
not be listed on the NASDAQ system, on such other stock quotation system as
shall then constitute the principal market for the trading of such stock, on
each of the sixty trading days preceding the Settlement Date, less a discount
off such trading Shares by the Agent on the date of the most recent sale of
any of the Shares preceding the Settlement Date or (y) is the stock shall not
be then trading on any organized quotation system or market, then such price
per share as shall be reasonably determined by the Agent based on the advice
of an independent professional advisor retained by the Agent at the expense
of the Borrowers and the Guarantor, multiplied by the number of unsold Shares
with respect to which the Agent shall then hold a fully perfected lien and
security interest.
(b) In the event the Borrowers and the Guarantor shall propose to
pay, discharge and satisfy in full all of the Indebtedness and other
obligations under the Credit Agreement and the other Loan Documents, then
they shall, immediately prior to but as a condition to such payment,
discharge and satisfaction, have the option, solely if and to the extent that
the Agent shall then be the owner of the Notes and shall not have entered
into a binding commitment, understanding or other agreement to sell or
otherwise dispose of the Notes, to purchase from the Agent the Notes
(including the Shares which are collateral therefor other than Shares which
the Agent shall have a binding commitment, understanding or other agreement
to sell or otherwise dispose of), for a purchase price in cash equal to the
Settlement Price (computed as if the Settlement Date is the date of such
purchase by the Borrowers and the Guarantor) for such unsold Shares.
E-2
<PAGE> 3
2. The Agent, as owner of the Notes, shall have the sole right to
hold or sell or dispose of the Shares in its discretion at any time and in
any manner, in one or more transaction, in whole or in part, subject to
preceding paragraph 1 (a),but shall have no obligation to collect or
otherwise seek to obtain payment on the Notes provided that the Agent agrees
to use reasonable efforts to give Cronos Bermuda prior notice of any proposed
disposition of the Notes. Nothing in this letter agreement, including,
without limitation, the transfer of the Notes to the Agent, the receipt by
the Agent on behalf of the Banks of any Disposition Proceeds, and the
reduction of the Indebtedness in the amount of any Disposition Proceeds, as
provided above, shall constitute a general discharge or release of the
Borrowers or the Guarantors from their obligations under the Credit Agreement
to repay the unpaid amount of the Indebtedness.
3. The Borrowers and the Guarantor shall at their expense cooperate
with, execute and deliver any document and take any and all other actions as
required by the Agent to effect the transactions contemplated or referred to
above, and in connection therewith, hereby ratify and confirm the power of
attorney granted by each of them under the Loan Documents.
The Borrowers and the Guarantor acknowledge and agree that this letter
does not constitute a waiver of any of the rights or remedies of the Banks
and the Agent in connection with the failure by the Borrowers to comply with
any of the terms of the Credit Agreement or any of the other Loan Documents
including without limitation, a waiver of any other provision of the Credit
Agreement or any of the other Loan Documents, nor shall it affect or diminish
the Agent's or Banks' rights to require strict performance of any provision
of the Credit Agreement or any of the other Loan Documents, and the Agent and
the Banks hereby expressly reserve all of their rights and remedies in
connection therewith. This letter shall constitute a Loan Document within the
definition thereof in the Credit Agreement.
This letter shall be governed by and construed in accordance with the
laws of the State of New York without giving effect to the conflicts of laws
principles thereof. This letter may be executed in one or more counterparts,
each of which, when executed and delivered, shall be deemed to be an original
and all of which counterparts, taken together, shall constitute but one and
the same document with the same force and effect as if the signatures of all
the parties were on a single counterpart.
Execution and delivery of this letter by facsimile transmission shall
constitute execution and delivery of this letter for all purposes, with the
same force and effect as execution and delivery of an originally manually
signed copy hereof.
Very truly yours,
FLEET BANK N.A., as Agent
By: /s/ DONALD R NICHOLSON
--------------------------------------
Name: Donald R Nicholson
Title: Senior Vice President
FLEET BANK, N.A.
By: /s/ DONALD R NICHOLSON
--------------------------------------
Name: Donald R Nicholson
Title: Senior Vice President
BANKBOSTON, N.A.
By: /s/ W DOUGLAS VANNAH
--------------------------------------
Name: W Douglas Vannah
Title: Vice President
E-3
<PAGE> 4
FIRST UNION NATIONAL BANK
(formally Known as CORESTATES BANK, N.A.)
By: /s/ ANNE D BREHONY
--------------------------------------
Name: Anne D Brehony
Title: Vice President
UNION BANK OF CALIFORNIA, N.A.
By: /s/ RICHARD D MORRIS
--------------------------------------
Name: Richard D Morris
Title: Vice President
ACKNOWLEDGED AND AGREED:
CRONOS CONTAINERS, N.V.
By: /s/ D J TIETZ
--------------------------------------
Name: Dennis J Tietz
Title: Chief Executive Officer
CRONOS CONTAINERS LTD.
By: /s/ C P LANGLEY
--------------------------------------
Name: C P Langley
Title: Director
CRONOS EQUIPMENT LTD.
By: /s/ C P LANGLEY
--------------------------------------
Name: C P Langley
Title: Director
CRONOS CONTAINERS INC.
By: /s/ D J TIETZ
--------------------------------------
Name: Dennis J Tietz
Title: Chief Executive Officer
CRONOS CAPITAL CORP.
By: /s/ D J TIETZ
--------------------------------------
Name: Dennis J Tietz
Title: Chief Executive Officer
E-4
<PAGE> 5
CRONOS EQUIPMENT
(BERMUDA) LIMITED
By: /S/ P J YOUNGER
--------------------------------------
Name: Peter J Younger
Title: Director
THE CRONOS GROUP
By: /s/ D J TIETZ
--------------------------------------
Name: Dennis J Tietz
Title: Chief Executive Officer
E-5
<PAGE> 1
Exhibit 10.7
FORBEARANCE AGREEMENT AND FOURTH AMENDMENT TO AMENDED AND
RESTATED CREDIT AGREEMENT
THIS FORBEARANCE AGREEMENT AND FOURTH AMENDMENT TO AMENDED AND RESTATED
CREDIT AGREEMENT (this "Agreement") is entered into as of March 31, 1999 and
amends in certain respects the Amended and Restated Credit Agreement entered
into as of June 24, 1997 as amended by the FIRST AMENDMENT TO AMENDED AND
RESTATED CREDIT AGREEMENT entered into as of July 14.1997, the SECOND AMENDMENT
TO AMENDED AND RESTATED CREDIT AGREEMENT entered into as of December 3, 1997,
and the THIRD AMENDMENT TO AMENDED and RESTATED CREDIT AGREEMENT entered into as
of June 30, 1998 (such Amended and Restated Credit Agreement, as so further
amended, being referred to as the "Credit Agreement") by and among CRONOS
CONTAINERS N.V., a Netherlands Antilles corporation, CRONOS CONTAINERS LTD, an
English corporation, CRONOS EQUIPMENT LTD, an English corporation, CRONOS
CONTAINERS INC., a California corporation, CRONOS CAPITAL CORP., a California
corporation, and CRONOS EQUIPMENT (BERMUDA) LIMITED, a Bermuda. corporation, as
joint and several borrowers (the "Borrowers"); each of the banks that is or,
pursuant to the terms of the Credit Agreement, may become a party thereto
(individually, a "Bank" and collectively, the "Banks"), and FLEET BANK N.A., as
agent for the Banks (in such capacity, together with its successors in such
capacity, the "Agent").
WITNESSETH:
WHEREAS the Borrowers, the Banks and the Agent are parties to the Credit
Agreement, and whereas certain Events of Default exist thereunder; and
WHEREAS the Borrowers are pursuing various options to enable the
Borrowers to repay the Borrowers' indebtedness to the Banks and to obtain
alternative sources of cash for their working capital needs, and, to permit the
same to continue, the Borrowers have requested the Banks and the Agent to
forbear from exercising rights and remedies with respect to certain Events of
Default, to waive certain Events of Default and to amend the Credit Agreement in
certain respects, as hereinafter provided; and
WHEREAS, the Banks and the Agent are willing to agree to such
forbearance, waiver and amendments subject to the terms and conditions
hereinafter set forth;
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Borrowers, the Banks and the
Agent hereby agree as follows:
SECTION 1. Defined Terms. Capitalized terms used herein and not
otherwise defined herein shall have the respective meanings ascribed to them in
the Credit Agreement.
SECTION 2. Acknowledgement. The Borrowers acknowledge that they
have failed to pay the Loans on January 8, 1999, as required pursuant to the
Credit Agreement (hereinafter the "Maturity Default"), that all indebtedness
incurred under the Loan Documents, including the Loans and all other
indebtedness, obligations and liabilities of the Borrowers to the Banks and the
Agent of every kind and description (all of the foregoing, whether now existing
or hereafter arising being collectively called the "Obligations"), is now due
and payable in full, and that Banks and the Agent are now entitled under the
Credit Agreement, the Notes and the Security Agreement and the other Loan
Documents to exercise their remedies thereunder. The Borrowers acknowledge that
(i) the Banks have no obligation to extend or renew Loans or any other
Obligation and that all demand notices required to be given or made by the Banks
and the Agent have been timely and effectively given or made, and the same have
been timely and effectively received by the Borrowers and (ii) the aggregate
outstanding principal amount of the Loans as of the date hereof is
[$25,830,684.00]. Each of the Borrowers further represents and warrants that it
has no defenses or setoffs to the payment of the Obligations.
SECTION 3. Forbearance. The Banks agree to forbear in the exercise of
their rights and remedies under the Security Agreement and the other Loan
Documents and under applicable law which would otherwise be exercisable by the
Banks by reason of the Maturity Default., provided, that this forbearance (i)
shall not apply to
E6
<PAGE> 2
exercise of rights and remedies with respect to the Collateral
Assignment-Palatin Loans and (ii) is expressly conditioned upon the Company's
compliance with and satisfaction of each and every one of the covenants, terms
and conditions of this Agreement, including, without limitation, the covenants
and agreements set forth in Section 7 thereof and the covenants, terms and
conditions of the other Loan Documents, as modified by this Agreement.
SECTION 4. Credit Agreement Amendments (a) Effective as of the date
hereof (the "Effective Date"), but subject to satisfaction of all of the
conditions act forth in Section 5 hereof, the Credit Agreement is hereby amended
as follows:
(i) The definition of "Amortization Schedule" set forth in Section 1.01
is amended and restated to read in its entirety as follows:
"Amortization Schedule" - the following schedule for amortization of the
Loans:
<TABLE>
<CAPTION>
Principal Payment Date Principal Amount
---------------------- ----------------
<S> <C>
April 15, 1999 $1,500,000.00 (which amount shall not be reduced by
the proceeds from the disposition of any collateral
(other than containers) which secure the Loans or
prepayments pursuant to Section 2.03.)
September 30 1999 The outstanding principal balance of the Loans
</TABLE>
(ii) The definition of "Borrowing Base" set forth in Section 1.01 is
hereby amended to add the following additional proviso at the end of the first
sentence thereof:
"and provided further, that the percentages above in this
sentence of eighty percent (80%) shall automatically and without any further
amendment or confirmation reduce to seventy percent (70%) effective upon
receipt by the Agent for the benefit of the Banks. In reduction of the. Loans
of at least $2,600,000 in the aggregate of proceeds from the sale of any of the
Transamerica Shares or any sale of shares of capital stock of the Guarantor
pledged to secure the Palatin Loans and the Borrowers shall immediately
thereupon make (and shall continue to make) any prepayments required as a
result thereof in accordance with Section 2.03 of the Credit Agreement"
(iii) The definition of "Maturity Date" set forth in Section 1.01 is
hereby amended to read in its entirety as follows:
"Maturity Date" - September 30, 1999.
(iv) The definition of "Principal Office" set forth in Section 1.01 is
hereby amended and restated to read in its entirety as follows:
"Principal Office" - the principal office of the Agent, currently
located at 777 Main Street, Hartford, CT. 06115, Attn: Managed Assets Division.
(v) Section 2.01 is hereby amended and restated in its entirety to read
as follows "The [$25,830,684.00] in outstanding principal mount of the Loans
shall he payable by the Borrowers in accordance with the Amortization Schedule"
subject to earlier prepayment as otherwise provided in this Agreement.
(vi) Section 2.02(b) is hereby amended and restated to read in
its entirety as follows:
"(b) The Borrowers shall pay to the Borrower's Administrative Agent.
and the Borrowers' Administrative Agent shall pay to the Agent for the
respective accounts of each of the Banks which are parties to this Agreement
further extension fees (the "Further Extension Fees") on the following dates and
in the following amounts, all of which Further Extension Fees are deemed fully
earned and non-refundable;
<TABLE>
<CAPTION>
DATE AMOUNT
---- ------
<S> <C>
April 3 0, 1999 $83,334
May 31, 1999 $83,333
</TABLE>
E7
<PAGE> 3
<TABLE>
<S> <C>
June 30, 1999 $83,333,
September 30, 1999 $1,000,000; provided that if the Obligations
are paid in full by April 30, 1999, then such
$1,000,000 fee shall be reduced to $200,000; if
the Obligations are paid in full by May 31.
1999, such fee shall be $300,000; if the
Obligations are paid in full by June 30, 1999,
such. fee shall be $400,000 or if the
Obligations are paid in full by July 31, 1999,
such fee shall be $500,000
</TABLE>
(vi) Section 2.12(a)(v) is hereby amended and restated to read in its
entirety as follows:
"(v) by no later than April 15, 1999, in furtherance and
confirmation of the terms and provisions of the Collateral
Assignment, Palatin Loans and the pledge of the Palatin Loans and the
collateral therefor, including shares of capital stock of the
Guarantor, Cronos Bermuda shall deliver to the. Agent certificates
representing 463,636 shares of capital stock of the Guarantor registered
in the name of Lambert Business Inc., registered or duly endorsed for
registration into the name of the Agent. The Borrowers' acknowledgement
that the Palatin Loans are in default, hereby agree to cooperate fully
with the Agent and the Banks in the collection and foreclosure of the
Palatin Loans and the collateral therefor,
(b) Except as specifically. amended or modified above, all of the terms
of the Credit Agreement shall remain unchanged and, as so amended the
Credit Agreement shall continue in full force and effect.
SECTION 5. Effectiveness. The effectiveness of this Agreement shall be
conditioned upon (a) the execution of this Agreement: by the Agent and
the Banks and receipt by the Agent of counterparts of this Agreement
executed by each of the Borrowers and (b) fulfillment to the
satisfaction of the Agent of each of the following conditions:
(i) The Agent and the Banks shall have received the draft audited
consolidated financial statements of the Borrowers and the Guarantor for
the fiscal year ended December 31, 1998 (the "1998 Draft Financial
Statements") and the same shall be satisfactory to the Agent and the
Banks.
(ii) The Guarantor shall have executed and delivered to the Agent with
sufficient original counterparts, for each Bank, a Confirmation of Loan
Documents in form and substance satisfactory to the Agent.
(iii) The Agent and cach Bank shall have received a Compliance
Certificate dated as of the Effective Date certifying inter alia, that,
subject to the Maturity Default and the waivers referred to in Section 8
below, (x) each of the Borrowers shall have complied and shall then be
in compliance with all of the terms, covenants and conditions of this
Agreement and the Credit Agreement, (y) the representations and
warranties contained in, Article 3 of this Agreement and the Credit
Agreement shall be true and correct on the due hereof. and (z) other
than the Maturity Default no Default or Event of Default exists
immediately prior to and after giving effect to the execution and
delivery of this Agreement.
SECTION 6. Representations and Warranties. In order to induce the Banks
to execute this Agreement, the Borrowers hereby represent and warrant to
the Agent and the Banks as follows, which representations and warranties
shall survive the execution and delivery of this Agreement.
(a) Each of the Borrowers and the Guarantor (collectively, the "Loan
Parties") is; a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation and has all
requisite power and authority corporate and otherwise to conduct its
business, to own its property, and to execute, deliver and perform all
of its obligations under this Agreement. The Credit Agreement, as
amended hereby and each of the other instruments or documents being
executed and delivered in connection herewith (collectively the
"Agreement Documents"). Each of the Loan Parties is qualified to do
business and is in good standing in every jurisdiction where the nature
of its business and ownership of its properties requires it to be to
qualified and where failure so to qualify might materially and adversely
affect its financial condition and business.
E8
<PAGE> 4
(b)(i) Each of the Loan Parties has taken. or within thirty (15) days
following the Effective Date will have taken, all necessary action
(corporate and otherwise to authorize and ratify the execution, delivery
and performance of this Agreement, the Credit Agreement as amended
hereby, and the other Agreement Documents to be executed by it: and
(ii) the execution, delivery and performance by each of the Loan Parties
of this Agreement the Credit Agreement, as amended hereby and the other
Agreement Documents are not in contravention of any provision of law or
of any agreement or indenture by which the applicable Loan Party is
bound or of the respective Articles of Incorporation or By-Laws of the
Loan Parties and do not require the consent or approval of any
governmental body, agency, authority, or other Person which has not been
obtained and a copy thereof furnished to the Agent and will not result
in the creation or imposition of any Lien upon any of the property or
assets of the Borrowers, except for the Liens in favor of the Agent and
the Banks created under the Security Agreement and the other Security
Documents.
(c) As of the Effective Date, this Agreement and, as of the date of
execution and delivery thereof, each of the other Agreement Documents
will have been duly and validly executed and delivered by each of the
Loan Parties party thereto and each Agreement Document and the Credit
Agreement, as amended hereby, will be the legal, valid and binding
obligation of such Loan Party, enforceable against it in accordance with
its respective terms, except to the extent that the validity or
enforceability thereof may be limited by bankruptcy, insolvency.
reorganization and other similar laws affecting creditors rights
generally
(d) The 1998 Draft Financial Statements and the certificates, opinions
or any other statement made or furnished in writing to the Agent or any
Bank by or on behalf of "any Loan Party" in connection with this
Agreement or the transactions contemplated hereby, do not contain any
untrue statement of a material fact or to state a material fact
necessary in order to make the statements contained therein or herein
not misleading
(e) As of the Effective Date, after giving effect to the waivers in
Section 7 below, no Defaults or Events of Default exist under the Credit
Agreement other than the Maturity Default
(f) After giving effect to the waivers referred in Section 8 below,
the representations and warranties contained in the Loan Documents are
true and correct in all material respects on the Effective Date with the
same effect as though such representations and warranties had been
restated at and as of the Effective Date and such representations and
warranties are incorporated by reference herein
SECTION 7. Other Covenants. (a) The Borrowers hereby confirm their
continuing obligations to pay all amounts due and payable under Section
11.01 of the Credit Agreement, including, without limitation, under
subsection (iii) thereof, and that such obligations include, and will
continue to include. without limitation, reimbursement of all expenses
of the Agent and each Bank to attend meetings with representatives of
the Borrowers. The Borrowers shall reimburse all such expenses incurred
in connection with the meeting of the Lenders in New York in October
1998 by no later than April 15, 1999.
(b) The Guarantor, by its execution of its consent to this
Agreement below, hereby (i) agrees that it shall not subject or covenant
to subject the Transamerica Shares (as defined in the Credit Agreement)
to any lien in favor of any party other than the Agent on behalf of the
Banks, (ii) confirms its continuing obligation to execute and deliver
the Pledge Agreement (the "Pledge Agreement") referred to in paragraph 2
of the Confirmation of Guaranties, Agreement and Power of Attorney dated
as of June 30, 1998 (the "Confirmation") and (iii) agrees to execute and
deliver the Pledge Agreement and all agreements and documents
contemplated thereby, in accordance with the Confirmation, by no later
than April 15,1999
SECTION 8. Waivers of Defaults. (a) Subject to the
representations and warranties herein contained the Agent and the Banks
hereby waive the Event of Default arising from the Borrowers' failure to
pay the principal amount of the Loans due and payable on September 30,
1998.
E9
<PAGE> 5
(b) Based upon the 1998 Draft Financial Statements, the Banks and the
Agent hereby waive the defaults in the Borrowers' observance of the
covenants set in Section 6.08 of the Credit Agreement as at and for the
fourth quarter ended December 31, 1998, provided that such waiver shall
only be effective to the extent the Borrowers' and the Guarantor's
audited financial statements as at such date and for such period are
consistent with the draft 1998 Financial Statements.
SECTION 9. Releases. Each of the Borrowers and the Gurantor by
its execution and delivery below hereby unconditionally releases, waives
and forever discharges the Agent and each of the Banks and their
respective parent other affiliates, directors, officers, shareholders,
employees and agents (collectively, the "Release Parties") from any and
all claims, offsets, actions, causes of action, suits, debts, dues, sums
of money, accounts, reckonings, bonds, bills, Specialties, covenants,
contracts, controversies, agreements, promises, variances, trespasses,
damages, judgements, extents, executions, claims and demands whatsoever,
whether known or unknown, in law, admiralty or equity, which against the
Release Parties, the Borrowers, the Guarantor and their respective
successors and assigns ever had, now have or hereafter can, shall or may
have, for, upon, or by reason of any matter, cause or thing whatsoever
from the beginning of the world to the day of the date of this
Agreement.
SECTION 10. Reference to and Effect on Loan Documents
(a) On and after the Effective Date, each reference in the Credit
Agreement to "this Agreement "hereunder" "hereof", "herein" or words
of like import, and each reference in the other Loan Documents to the
Credit Agreement, shall mean and be a reference to the Credit Agreement
as amended hereby. This Agreement shall constitute a Loan Document under
the Credit Agreement.
(b) Except as otherwise expressly set forth herein, the
execution, delivery and effectiveness of this Agreement shall not
operate as a waiver of any right, power or remedy of any Bank. or the
Agent under the Credit Agreement or any of the other Loan Documents,
shall not constitute a waiver of any provision of the Credit Agreement
or any of the other Loan Documents, nor shall it affect or diminish any
Bank's or the Agent's rights to hereafter require strict performance of
any provision of the Credit Agreement or any of the other Loan
Documents.
SECTION 11. Reaffirmation of Security Interest. Each of the Borrowers
hereby reaffirms as of the date hereof each and every security interest
and lien granted in favor of the Agent and the Banks under the Loan
Documents, and agrees and acknowledges that such security interests and
liens shall continue from and after the date hereof and shall remain in
full force and effect from and after the date hereof, in each case after
giving effect to the Credit Agreement as amended by this Agreement, and
the obligations secured thereby and thereunder shall include the
Borrowers' obligations under the Credit Agreement as amended by this
Agreement. Each such reaffirmed security interest and lien remains and
shall continue to remain in full force and effect and is hereby in all
respects ratified and confirmed and all references in the Security
Documents to the Credit Agreement shall refer to the Credit Agreement as
amended or modified by this Agreement.
SECTION 12. Further Assurances. Each of the Borrowers hereby agrees to
do such further acts and things and to execute, deliver and acknowledge
such additional agreements, powers and instruments as the Agent or any
Bank may reasonably require to carry into effect the purposes of this
Agreement or any agreement, direct or indirect executed and delivered or
to be executed and delivered pursuant hereto or in connection herewith.
SECTION 13. Conditions Subsequent.
(a) On or prior to April 15, 1999, the Borrowers shall cause each of the
following conditions to be met:
(i) Receipt by the Agent of opinions of counsel to the Borrowers in form
and substance satisfactory to the Agent and the Banks;
(ii) Receipt by the Agent and the Banks of the audited financial
statements of the Borrowers and the Guarantor required pursuant to
Section 5.01 of the Credit Agreement for the fiscal year ended December
31, 1998.
E10
<PAGE> 6
(iii) Receipt by the Agent of the Pledge Agreement, duly executed by the
Guarantor, and such other documents, including evidence of due
authorization, execution and delivery and appropriate opinions of
counsel, as the Agent shall require in connection therewith, all in form
and substance satisfactory to the Agent:
(iv) Receipt by the Agent of evidence of insurance on the Financed
Containers included in the Borrowing Base and of the Borrowers'
liability insurance policies, naming the Agent, as loss payee, and the
Banks and the Agents as additional insured in form and substance
satisfactory to Agent; and
(v) Receipt by the Agent, with sufficient original counterparts for each
Bank, from the Borrowers and the Guarantor, of (x) Certificates, each of
which shall be in form and substance satisfactory to the Agent,
certifying that there have been no changes to its articles of
incorporation as amended and its by-laws, as amended, subsequent to the
date of the most recent certificates with respect thereto delivered to
the Agent, (y) an incumbency certificate containing specimen
signature(s) of the person(s) authorized to execute this Agreement and
any and all agreements, documents and instruments to be executed and
delivered pursuant hereto, (z) resolutions of its Board of Directors
authorizing (1) the execution, delivery and performance of the Agreement
Documents to which it is a party (2) the consummation of the
transactions contemplated thereby and (3) all other actions to be taken
by it in connection herewith or therewith.
(vi) Receipt by the Agent of good standing certificates for each of the
Borrowers and Guarantor from their respective jurisdictions of
incorporation.
(vii) Receipt by the Agent of copies of all consents, approvals and
waivers required in connection with the execution, delivery and
performance of the Agreement Documents.
(viii) All proceedings in connection with the transactions contemplated
by this Agreement and all documents incident thereto shall be reasonably
satisfactory in form and substance to the Agent and the Agent, and each
Bank, upon request by such Bank, shall have received all information and
such counterpart originals or certified or other copies of such
documents as the Agent may reasonably request prior to the date hereof.
(ix) All legal matters incident to the effectiveness of this Agreement
shall be satisfactory to counsel the Agent. The Agent will advise the
Borrowers of any such matters prior to the date hereof.
(x) The Agent shall have received such other instruments agreements and
documents as it shall reasonably require in connection with this
Agreement and the matters referred to above.
(b) The failure by the Borrowers to fulfill any of the conditions
subsequent set forth in paragraph (a) above shall constitute an Event of
Default.
SECTION 14. Costs and Expenses. Promptly upon the submission of
requests therefor the Borrowers shall pay all costs and expenses of the
Agent (including attorneys' fees and expense) incurred in connection
with the negotiation, preparation execution end delivery of this
Agreement and the Agreement Documents
SECTION 15. Governing Law THE VALIDITY. INTERPRETATION AND ENFORCEMENT
OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK
WITHOUT EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF.
SECTION 16. Counterparts. This Agreement may be executed in any number
of counterparts and by the different parties hereto in seperate
counterparts, each of which when so executed and delivered shall be an
original, but all of which shall together constitute one and the same
instrument. Execution and delivery of this Agreement by facsimile
transmission shall constitute execution and delivery of this Agreement
for all purposes, with the same force and effect as and delivery of an
originally manually signed copy hereof.
E11
<PAGE> 7
SECTION 17. Headings. The headings of the several sections of this
Agreement are inserted for convenience only and shall not in any way
affect the meaning or construction of any provision of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their proper and duly authorized officer as of
the date set forth above.
BORROWERS:
CRONOS CONTAINERS N.V.
By: /s/ S J Brocato
---------------------------
Name: S J Brocato
Title: Director
CRONOS CONTAINERS LTD
By: /s/ C P Langley
---------------------------
Name: C P Langley
Title: Director
CRONOS EQUIPMENT LTD
By: /s/ C P Langley
---------------------------
Name: C P Langley
Title: Director
CRONOS CONTAINERS INC.
By: /s/ D J Tietz
---------------------------
Name: Dennis J Tietz
Title: Director
CRONOS CAPITAL CORP.
By: /s/ D J Tietz
---------------------------
Name: Dennis J Tietz
Title: Director
CRONOS EQUIPMENT (BERMUDA) LTD
By: /s/ P J Younger
---------------------------
Name: P J Younger
Title: Director
CONSENTED AND AGREED TO, INCLUDING, WITHOUT LIMITATION, WITH RESPECT
TO SECTIONS 7 and 9 ABOVE:
THE CRONOS GROUP
By: /s/ D J Tietz
---------------------------
Name: Dennis J Tietz
Title: Director
E12
<PAGE> 8
AGENT:
FLEET BANK, N.A.
As Agent
By: /s/ E J Walsh
---------------------------
Name: Edward J Walsh
Title: Senior Vice President
BANKS:
FLEET BANK, N.A.
By: /s/ E J Walsh
---------------------------
Name: Edward J Walsh
Title: Senior Vice President
BANKBOSTON N.A.
By: /s/ W D Vannah
---------------------------
Name: W. Douglas Vannah
Title: Vice President
FIRST NATIONAL UNION BANK
By: /s/ A D Brehony
---------------------------
Name: Anne D Brehony
Title: Vice President
UNION BANK OF CALIFORNIA
By: /s/ R D Morris
---------------------------
Name: Richard D Morris
Title: Vice President
E13
<PAGE> 1
Exhibit 10.10
SECOND AMENDMENT TO NOTE PURCHASE AGREEMENT
SECOND AMENDMENT to Note Purchase Agreement, dated as of January 26,
1999, among CRONOS EQUIPMENT (BERMUDA) LIMITED (the "Company"), THE CRONOS GROUP
(the "Guarantor"), DK ACQUISITION PARTNERS, L.P. ("DK") and GOLDMAN SACHS CREDIT
PARTNERS L.P. ("GSW' and together with DK, the "Purchasers").
RECITALS
A. The Company, the Guarantor and the Purchasers (as assignees of Sun
Life Insurance Company of America) are parties to that certain Note Purchase
Agreement, dated as of December 29, 1994 (as amended through the date hereof,
the "Note Agreement"). Capitalized terms used but not defined herein have the
meanings given to them in the Note Agreement.
B. The Company, the Guarantor and the Purchasers wish to amend the Note
Agreement as provided herein.
AGREEMENT
Now, therefore, in consideration of the mutual covenants and agreements
set forth herein and other good and valuable consideration, the Company, the
Guarantor and the Purchasers agree as follows:
Section 1. Amendments to Note Agreement. Effective as of the time on
which all of the conditions set forth in Section 6 are satisfied (such time
being the "Effective Time"):
(a) Section 4. 1. Paragraphs (a) and (b) of Section 4. 1 of the Note
Agreement shall be amended in their entirety to read as follows:
(a) The principal amount of the Notes shall be due and payable
as follows (payable as to each Note based upon outstanding principal
balance):
<TABLE>
<CAPTION>
Date Principal Amount To be Repaid
---- -----------------------------
<S> <C>
April 30, 1999 $695,000
July 31, 1999 $695,000
September 30, 1999 All of the remaining outstanding
principal balance
</TABLE>
To the extent during the period commencing January 1, 1999 and ending
April 29, 1999, the Company prepays a portion of the outstanding principal
amount of the Notes, the Company may reduce (dollar for dollar up to a maximum
amount of $695,000) the amount of the payment required to be made on April 30,
1999.
(b) The Company shall pay interest on the unpaid principal amount of
each Note, at a rate per annum equal to the Interest Rate (as defined
below), on the last day of each month, commencing on January 1, 1999, until
repayment in full of all amounts due under the Notes. For purposes of this
Agreement, the term "Interest Rate" shall mean, for the period from and
after January 1, 1999, a rate of interest equal to the greater of (A) the
sum of (i) the Prime Rate (as defined below), plus (ii) 2.5 %, and (B) the
rate of interest per annum that the Company is required to pay under that
certain Amended and Restated Credit Agreement, dated as of June 24, 1997, by
and among Cronos Containers N.V., Containers LTD, Cronos Equipment Ltd,
Cronos Containers Inc., Cronos Capital Corp., Cronos Equipment (Bermuda)
Limited, as joint and several borrowers, each of the Banks that is or may
become a party thereto, Fleet Bank, N. A., as agent for the
E-14
<PAGE> 2
Banks, and The Cronos Group, as Guarantor (each of Fleet Bank, N.A. and the
other Banks are referred to herein as "Banks"); provided, HOWEVER, that if
an Event of Default shall occur and be continuing, the Interest Rate shall
be the sum of (i) the Interest Rate in effect at such time, plus (ii) 2%
(the " Default Rate"). For purposes of this Agreement, the "Prime Rate"
shall mean the rate of interest per annum publicly announced from time to
time by Citibank, N.A. as its prime lending rate in effect at its principal
office in New York, each change in the Prime Rate to be effective on the
date such change is publicly announced."
(b) Article-IV. Article IV of the Note Agreement shall be amended by
adding a new Section 4.6 immediately following Section 4.5 thereof, which
new Section 4.6 shall read as follows:
"SECTION 4.6. ADDITIONAL AGREEMENT. Notwithstanding any provision of
this Agreement, in the event that the Company shall modify any existing
arrangements, or enter into any new arrangements, with the Banks or any
other lender to the Company whose loan proceeds are used to pay, in full or
in part, the Banks (a "New Arrangement ") which arrangements shall contain
any terms or conditions (a "More Favorable Term") that are more favorable or
beneficial to the Banks or such lender than the terms set forth in this Note
Agreement, including without limitation, with respect to interest rate,
payment terms, fees, reimbursement of costs and expenses, maturity,
prepayments, additional security or collateral, or information, the Company
and the Guarantor agree that this Note Agreement shall be deemed to be
automatically amended (without any further action by any of the parties
hereto) effective as of the date of the effectiveness of the New
Arrangements (or retroactively, if such New Arrangements apply
retroactively) to provide the Purchasers with the same More Favorable Term;
provided, however, that with respect to new or additional security or
collateral, the Purchasers shall be entitled to a security interest in such
collateral or security that is pari passu with the Banks' or such other
lender's security interest; provided further, however, that with respect to
payments to the Banks or such other lender, the Purchasers shall be entitled
to a pro rata portion (calculated based on outstanding principal amounts of
the obligations owed to the Banks or such other lender and to the
Purchasers) of such amounts; provided further, however, that this Section
4.6 shall not apply to (i) specific arrangements agreed to prior to
September 30, 1998 (i.e. Transamerica shares to be pledged to the Banks) or
(ii) a prepayment to the Banks resulting from the sale of collateral granted
to the Banks on or prior to January 1, 1999. It shall be a condition to the
effectiveness of any such More Favorable Term to the Banks or such other
lender, that the Purchasers receive the benefit of such More Favorable Term
at the same time as the Banks or such other lender. The Company agrees to
promptly (but in no event later than five business days prior to the
effectiveness of such New Arrangements) notify each of the Purchasers in
writing of any New Arrangements and the specific provisions of the More
Favorable Terms."
(c) Section- 11.1 (iii). Section 11.1 (iii) of the Note Agreement is
hereby amended by inserting the phrase "or any indebtedness or obligation
owed to the Banks" immediately following the phrase " $5,000,000 or more" in
such Section 11.1 (iii).
Section 2. Amendment to Schedules to the Notes. At the Effective
Time, the Company, the Guarantor and the Purchasers agree that Schedule I to
each of the promissory notes shall be replaced with Schedule I attached to
this Agreement. The Company represents and warrants to the Purchasers that
the loans represented by the promissory notes are unaffected by the
amendment of such Schedule I, that the transactions contemplated by this
Agreement did not and do not constitute a discharge or payment of the
original loans represented by the promissory notes and that the Liens and
Collateral securing the original loans pursuant to the Security Agreement
continue to secure the loans represented by the promissory notes.
Section 3. Amendment Fee. In consideration of the Purchasers
agreeing to the amendments to the Note Agreement referred to above the
Guarantor shall pay an amount in cash equal to (a) to DK, $200,000.00, and
(b) to GSCP, $78,125.00, for an aggregate amendment fee of $278,125.00.
Section 4. Confirmation of Agreements.
E-15
<PAGE> 3
(a) Confirmation of Note Agreement. Notwithstanding any other
provisions of this Agreement, each of the Company and the Guarantor
acknowledges and agrees that the Note Agreement, as amended hereby,
remains in full force and effect.
(b) Confirmation of Security Agreement. The Company has
heretofore executed and delivered for the benefit of the Purchasers the
Security Agreement and the Company hereby acknowledges and agrees that,
notwithstanding the execution and delivery of this Agreement, the
Security Agreement remains in full force and effect and the rights and
remedies of the Purchasers thereunder, the obligations of the Company
thereunder and the liens and security interests created and provided for
thereunder remain in full force and effect and shall not be affected,
impaired or discharged hereby. Nothing herein contained shall in any
manner affect or impair the priority of the liens and security interests
created and provided for by the Security Agreement as to the
indebtedness which would be secured thereby prior to giving effect to
this Agreement. Without limiting the foregoing, the Company acknowledges
and agrees that all of its indebtedness, obligations and liabilities to
the Purchasers pursuant to the Note Agreement as amended hereby and the
Notes, including without limitation, all principal of and interest on
the loans represented by the Notes, shall constitute indebtedness
secured by the Security Agreement and shall be secured by, and entitled
to all the benefits of, the liens and security interest created and
provided for under the Security Agreement.
(c) Confirmation of Guarantee
(i) The Guarantor hereby consents to the Amendment to the
Note Agreement and the Notes as set forth herein and confirms all of
its obligations as guarantor under the Note Agreement remain in full
force and effect, and that all of the Company's indebtedness,
obligations and liabilities to the Purchasers pursuant to the Note
Agreement as amended hereby and the Notes, including, without
limitation, all principal of and interest on the loans represented
by the Notes, shall constitute indebtedness guaranteed by the
Guarantor pursuant to the Note Agreement.
(ii) Without limiting the foregoing, the Guarantor
acknowledges and agrees that all of the Company's and the
Guarantor's indebtedness, obligations and liabilities to the
Purchasers pursuant to the Note Agreement as amended hereby
including without limitation, all principal of and interest on loans
represented by the Notes shall constitute indebtedness secured by
the Security Agreement and shall be secured by, and entitled to all
of the benefits of, the liens and the security interest created and
provided for under the Security Agreement.
Section 5. Representations and Warranties of the Company and the
Guarantor. The Guarantor and the Company, jointly and severally, represent
and warrant to the Purchasers as of the date of this Agreement and as of the
Effective Time as follows:
(a) Power. Each of the Guarantor and the Company is a
corporation duly incorporated, validly existing and in good standing
under the laws of the jurisdiction of its incorporation. Each of the
Guarantor and the Company has the necessary corporate power and
authority, to execute and deliver this Agreement, the Amended and
Restated Notes and the other agreements executed in connection herewith
(together, the "Amendment Documents"), to perform its obligations
hereunder and thereunder and to consummate the transactions contemplated
hereby and thereby.
(b) Binding Effect. Each of the Amendment Documents has been
duly executed and delivered by the Guarantor and the Company, and each
of the Amendment Documents to which the Guarantor or the Company is or
may become a party is, or when executed and delivered in accordance with
this Agreement will be, legal, valid and binding obligations of the
Guarantor or the Company, as the case may be, enforceable against it in
accordance with its terms.
(c) Contravention. Neither the execution, delivery and
performance of this Agreement or the other Amendment Documents nor the
consummation of the transactions contemplated hereby or thereby will
(with or without notice or lapse of time or both) (i) violate any law,
rule or regulation by which the Guarantor, the Company or any of their
properties may be bound or affected, or (ii) conflict with or result in
a default under any material contract or other material agreement to
which the Guarantor or the Company is a party or by which they or any of
their properties may be bound or affected.
E-16
<PAGE> 4
(d) Approvals. No authorization, consent, order or approval of,
notice to or registration or filing with, or any other action by any
governmental authority or other person or entity is required or
advisable in connection with (i) the due execution and delivery by the
Guarantor or the Company of any of the Amendment Documents to which
either of them is or may become a party, or (ii) the performance by
either the Guarantor or the Company of its obligations under the
Amendment Documents to which they are or may become parties to.
(e) Misstatements. No information, certificate, schedule or
report furnished or to be furnished by the Guarantor or the Company (or
by their affiliates, shareholders, employees, partners, representatives
or professionals) to the Purchasers (whether in connection with the
transactions contemplated by this Agreement or the satisfaction of any
conditions contained in this Agreement or otherwise) and no
representation or warranty contained in this Agreement or any of the
Amendment Documents, contained or will contain, as the case may be, any
material misstatement of fact or omitted or will omit, as the case may
be, to state a material fact or any fact necessary to make the statement
contained therein not materially misleading.
(f) Representations and Warranties Contained in Article V1 of
Note Agreement. The representations and warranties contained in Sections
6.1, 6.2, 6.3, 6.4, 6.6, 6.9, 6.10, 6.11, 6.13 and 6.14 of the Note
Agreement are true and correct on the date hereof and on the Amendment
Closing Date with the same force and effect as though such
representations and warranties were made on and as of the date hereof
and on and as of the Effective Time.
(g) Free Will. Each of the Company and the Guarantor
acknowledges that it has executed this Agreement and the other Amendment
Documents of its own free will and after consultation with such legal,
financial and other advisors as it considers appropriate under the
circumstances.
(h) Reaffirmation-of-Indebtedness. The Company reaffirms and
reiterates that the loans and other indebtedness owing to the Purchasers
under the Notes is absolutely and unconditionally owing without defense,
offset or counterclaim.
(i) No Election of Remedies. Nothing contained herein nor any
negotiations or other actions undertaken pursuant to or in connection
with this Agreement or the other Amendment Documents shall (i) be deemed
to constitute an election of remedies with respect to any defaults
presently existing or which may hereafter exist with respect to the Note
Agreement, the Security Agreement or the Notes or (ii) constitute a
waiver of the Purchasers' rights or remedies under the Note Agreement
the Security Agreement or the Notes
(j) No Defaults. Except as set forth on Schedule II hereto, no
Event of Default or event (with or without notice or lapse of time or
both) that might constitute an Event of Default, currently exists, and
all Events of Default that may have existed have been waived by the
appropriate third parties or been cured by the Company.
Section 6. Conditions Precedent to the Obligations of the
Purchasers. The obligations of the Purchasers under this Agreement are
subject to the fulfilment of each of the following conditions, unless waived
by the Purchasers in writing, at or before the Effective Time:
(a) Representations and Warranties. The representations and
warranties of the Guarantor and the Company contained in this Agreement
and in each other Amendment Document shall be true on and as of the
Effective Time with the same force and affect as though made on and as
of the Effective Time.
(b) Performance of Agreements. The Guarantor and the Company
shall have performed and complied with all of its covenants and other
obligations contained in this Agreement and in each other Amendment
Document required to be performed or complied with at or before the
Effective Time.
(c) Amendment Fee, Interest and Fees. The Purchasers shall have
received the Amendment Fee, all accrued and unpaid interest on the Notes
as of Effective Time and reimbursement of their legal fees and expenses
incurred in connection with this Agreement.
E-17
<PAGE> 5
(d) Legal Matters. All legal matters incident to the execution,
delivery and enforceability of this Agreement and the other Amendment
Documents shall be satisfactory to the Purchasers and their respective
counsel.
(e) Legal Opinions. The Purchasers shall have received the
opinions of counsel to the Guarantor and the Company, in the form of
Exhibit B.
Section 7. Other Agreements.
(a) No Waiver. Except as set forth in Section 7(b), the Company,
the Guarantor and the Purchasers hereby agree that this Agreement, the
other Amendment Documents and the agreements contained herein and
therein do not in any manner constitute a waiver, limitation or
alteration by the Purchasers of any rights, interests or Events of
Default now existing or hereafter occurring or events (with or without
notice or lapse of time or both) that might constitute an Event of
Default nor shall they be deemed to be a waiver by the Purchasers of any
claims or causes of action they may have against the Company, the
Guarantor or any other person or entity.
(b) Default Interest. The Purchasers agree that the Company
shall not be required to pay interest on the Amended and Restated Notes
at the Default Rate due to Events of Default that may have occurred
through the date of this Agreement, provided, however, that the
Purchasers expressly reserve the right to require the Company to pay
interest on the Amended and Restated Notes at the Default Rate from and
after the date of this Agreement due to Events of Default now existing
or hereafter occurring or events (with or without notice or lapse of
time or both) that might constitute an Event of Default.
Section 8. Miscellaneous.
(a) Note Agreement. Sections 12.5, 12.7, 12.8, 12.9, 12.10,
12.11, 12.12, and 12.13 of the Note Agreement are hereby incorporated
into this Agreement as if such Sections were herein specifically set
forth.
(b) Expenses. The Company agrees to pay or reimburse the
Purchasers for all of their respective out-of-pocket costs and expenses
incurred in connection with the development, preparation and execution
of, and any amendment, supplement or modification to, the Amendment
Documents and any other documents prepared in connection herewith or
therewith, and the consummation of the transactions contemplated hereby
and thereby, including, without limitation, the fees and disbursements
of counsel and other professional advisors to the Purchasers.
E-18
<PAGE> 6
IN WITNESS WHEREOF the Parties hereto have executed this Agreement as of the
date first written above.
CRONOS EQUIPMENT (BERMUDA) LIMITED
By: /s/ P J YOUNGER
--------------------------------------
Name. Peter J Younger
Title. Director
THE CRONOS GROUP
By: /s/ D J TIETZ
--------------------------------------
Name. Dennis J Tietz
Title. Chief Executive Officer
GOLDMAN SACHS CREDIT PARTNERS LP.
By: /s/ JOHN URBAN
--------------------------------------
Name. John Urban
Title. Authorised Signatory
DK ACQUISITION PARTNERS L.P.
By:/s/ MICHAEL J LEFFELL
--------------------------------------
Name. Michael J Leffell
Title. General Partner
E-19
<PAGE> 7
SCHEDULE I
to
AMENDMENT TO NOTE PURCHASE AGREEMENT
SCHEDULE I
to
NOTE
Amortisation-Schedule
---------------------
<TABLE>
<CAPTION>
Date Principal Amount To be Repaid
---- -----------------------------
<S> <C>
April 30, 1999 $695,000*
July 31, 1999 $695,000
September 30, 1999 All of the remaining outstanding
principal balance
</TABLE>
*Subject to reduction as set forth in Section 4. 1 (a) of the Note Agreement.
E-20
<PAGE> 8
EXHIBIT B
to
AMENDMENT AGREEMENT
Form of legal Opinion
---------------------
E-21
<PAGE> 1
Exhibit 10.11
THE RULES OF THE CRONOS GROUP
MANAGEMENT EQUITY INVESTMENT PLAN
CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. INTERPRETATION AND CONSTRUCTION 1
1.1 Definitions 1
1.2 Construction 2
1.3 Governing law 3
1.4 The sub-plans 3
2. PLAN LIMIT
3. GRANT OF OPTIONS 3
3.1 Offer 3
3.2 Acceptances 4
3.3 Late acceptances 4
3.4 Timing of grant 4
3.5 Additional conditions 4
3.6 Option certificate 5
4. EXERCISE PRICE 5
5. RESTRICTIONS UPON EXERCISE 5
5.1 Expiry of Exercise Period 5
5.2 Lapsing of Options 6
5.3 Additional conditions 6
5.4 Repayment of Option Unit Price 6
6. EXERCISE AND LAPSE OF AN OPTION 7
6.1 General 7
6.2 Cessation of employment - general 7
6.3 Cessation of employment - special circumstances 7
6.4 Board's discretion 7
6.5 Death of a Participant 8
7. CHANGE IN CONTROL AND LIQUIDATION 8
7.1 Change in Control 8
7.2 Liquidation 8
7.3 Overriding provision 9
8. SUBSTITUTE OPTIONS FOLLOWING CHANGE IN CONTROL 9
8.1 Application 9
8.2 Release of Options 9
8.3 The conditions 10
</TABLE>
E22
<PAGE> 2
<TABLE>
<CAPTION>
<S> <C> <C>
8.4 Period for release 10
8.4 Consequences for release (PAGE)
9. PROCEDURE ON EXERCISE 10
9.1 Exercise 10
9.2 Time of exercise 11
9.3 Allotment of Shares 11
9.4 Rights of new Shares allotted 11
9.5 Listing 11
10. AVAILABILITY OF AUTHORISED CAPITAL 11
11. NON-TRANSFERABILITY 11
12. LOSS OF OFFICE 11
13. VARIATION OF CAPITAL 12
13.1 General 12
13.2 Restrictions on adjustment 12
13.3 Notification of adjustment 12
14. OVERSEAS EMPLOYEES 12
14.1 General 12
14.2 U.S. Employees 12
15. GENERAL 13
15.1 Administration 13
15.2 Notices and circulars to shareholders 13
15.3 Costs and expenses 14
16. AMENDMENT AND TERMINATION 14
16.1 Power of amendment - general 14
16.2 Notification of amendments 14
16.3 Termination 14
17. NOTICES
17.1 To Employees and Participants 15
17.2 To the Company 15
THE SCHEDULE 16
</TABLE>
E23
<PAGE> 3
INTERPRETATION AND CONSTRUCTION
1.1 DEFINITIONS
In this Plan -
"ACT" means the Income and Corporation Taxes Act 1988;
"AUDITORS" means the auditors for the time being of the Company or, in the event
of there being joint auditors, such one of them as the Board may decide;
"BOARD" means the board of directors of the Company or a duly appointed
committee of the board;
"COMPANY" means The Cronos Group, a societe anonyme holding registered in
Luxembourg;
"CONTROL" has the meaning given to it by section 840 of the Act;
"DATE OF GRANT" means the date on which an Option is granted;
"EMPLOYEE" means any individual who is either a Full-time employee of a
Participating Company or a Full-time director of a Participating Company or who
is engaged by a Participating Company to provide his services to the Group on a
Full-time basis;
"EXERCISE PRICE" means the price at which a Participant may acquire a Share on
the exercise of his Option;
"FULL-TIME" means being required to devote not less than 25 hours per week
(exclusive of meal breaks) to his duties to the Group;
"GROUP" means the Company, its Subsidiaries and other Participating Companies
and "member of the Group" shall be. construed accordingly;
"HOLDING COMPANY" has the meaning given to it by section 736 of the Companies
Act 1985;
"MARKET VALUE" means, in relation to a Share on any date, such value as the
Board determines to be the open market value of a Share on that date;
"OPTION" means a subsisting right granted pursuant to this Plan to acquire
Shares and, where the context admits or requires, such a right which has been or
is to be granted;
"OFFER DATE" means, in relation to any Option Unit, the date on which the Board
offers the Option Unit to the Employee;
"OPTION UNIT" means four separate Options, each of which is in respect of an
equal number of Shares but with a different Exercise Price;
"OPTION UNIT PRICE" means the consideration payable by an Employee for each
Option comprised in an Option Unit, the amount of such consideration to be
determined by the Board;
E24
<PAGE> 4
"PARTICIPANT" means the holder of an Option or, where the context admits or
requires, his personal representatives;
"PARTICIPATING COMPANY" means the Company and any company which has been
nominated by the Board for the purposes of the Plan;
"PLAN" means this plan in its present form (including the Schedule to these
Rules) or with and subject to any amendment to it for the time being in force;
"RULES" means the rules of this Plan;
"SHARES" means fully-paid Ordinary Shares of U.S$2 each;
"SUBSIDIARY" has the meaning given to it by section 736 of the Companies Act
1985;
"UNVESTED OPTION" means, in relation to an Option and at any time, that part of
the Option (if any) as is not a Vested Option at that time;
"VESTED OPTION" means, in relation to an Option and at any time, that part of
the Option (if any) as is exercisable at that time in accordance with the
Vesting Schedule; and
"VESTING SCHEDULE" means the schedule set out or referred to in the offer made
under Rule 3.1 (Offer) and the Option certificate under Rule 3.6 (Option
certificate) specifying the dates on which, and the proportion in which, each
Option may be exercised.
1.2 CONSTRUCTION
1.2.1 Where the context so admits, any reference in these Rules (including the
Schedule to these Rules)
(i) to the singular number shall be construed as if it referred also
to the plural number and vice versa,
(ii) to the masculine gender shall be construed as though it referred
also to the feminine gender,
(iii) to a statute or statutory provision shall be construed as if it
referred also to that statute or statutory provision as for the
time being amended or re-enacted, and
(iv) to the Act or any provision of the Act shall be construed as if
it referred also to the act or provision repealed by and
corresponding to the Act.
1.2.2 Except where otherwise stated, any reference in these Rules to a statute
is a reference to a statute of the United Kingdom.
1.2.3 The headings to the Rules are for reference purposes only and shall not
affect the meaning or construction of the Rules.
1.3 GOVERNING LAW
This Plan and any Option granted under it shall be governed by, and
construed in accordance with, English law.
E25
<PAGE> 5
1.4 THE SUB-PLAN'S
The Plan is divided into two sub-plans as to which -
(i) the first shall be known for these purposes as the "MAIN PART"
and the Main Part and any Option granted under it shall be
governed by Rules 1 - 17 (inclusive), and
(ii) the second shall be known as the "UK PART" and the UK Part and any
Option granted under it shall be governed by Rules 1 - 17
(inclusive) of the Plan as varied by the provisions set out in the
Schedule to these Rules.
2. PLAN LIMIT
Subject to Rule 13 (Variation of Capital), the maximum number of Shares
which may be issued in respect of Options shall be 440,000.
3. GRANT OF OPTIONS
3.1. OFFER
3.1.1 The Board may offer any Employee an Option Unit. Offers of Option Units
shall be in such form as the Board may decide but shall specify -
(i) the number of Shares comprised in each Option making up that
Option Unit,
(ii) the Option Unit Price for each Option,
(iii) the Vesting Schedule,
(iv) the Exercise Price of each Option;
(v) any additional conditions to be imposed under Rule 3.4, and
(vi) the date by which the offer must be accepted which must not be
less than 14 days after the Offer Date.
3.1.2 The Board may decide in relation to any particular Employee that that
Employee is not required to pay the Option Unit Price. In such a case, the
aggregate Exercise Price of the Options comprised in the Option Unit shall be
increased by an equivalent amount. The Board may require the Employee to pay
part of the Exercise Price in advance and the amount paid, and so payable, shall
for the purposes of the Rules be treated as if it were an Option Unit Price.
3.2 ACCEPTANCES
3.2.1 An Employee who wishes to accept the Board's offer of an Option Unit may
do so in full or in part. But any partial acceptance of an Option Unit must take
the form of a partial acceptance of each of the Options making up that Option
Unit and of an equal number of Shares comprised in each Option.
3.2.2 Acceptances must be received by the Company by no later than the date
specified in the offer.
E26
<PAGE> 6
3.2.3 Each acceptance must be accompanied by payment of the Option Unit Price
in full or by the Employee's agreement to pay the Option Unit Price in such
other manner as may be acceptable to the Board.
3.2.4 Acceptances shall be in such form as the Board may decide.
3.3 LATE ACCEPTANCES
Notwithstanding Rule 3.2, the Board may treat late acceptances as valid
unless they are received after the date on which Options are granted to the
other Employees who received an offer at the same time.
3.4 TIMING OF GRANT
3.4.1 If an Employee has validly accepted an Option Unit in accordance with
Rule 3.2, the Board must grant him the Options comprised in that Option Unit.
3.4.2 Each Option must be granted on the same date which may be no later than
the thirtieth day after the date of the offer.
3.5 ADDITIONAL CONDITIONS
3.5.1 The Board may grant an Option on terms that it shall be subject to
additional objective conditions; if so, the additional conditions shall be set
out, or incorporated by reference, in the Option Certificate.
3.5.2 In the circumstances specified in Rule 3.5.3, the Board may make such
adjustments, including the imposition of entirely different objective
conditions, to the additional conditions.
3.5.3 The circumstances are: -
(i) The occurrence of any of the events mentioned in Rule 6 (Exercise
and lapse of an Option) or 13 (Variation of capital).
(ii) such other circumstances as may have been specified at the time
when the Option was granted, and
(iii) if the condition is the attainment of a performance target, the
occurrence of such event or events as a result of which the Board
considers it fair and reasonable to adjust the performance target
or to impose a different performance target.
3.5.4 No such adjustment as is mentioned in Rule 3.5.2 -
(i) shall have the effect of making the additional conditions more
onerous than they were immediately before the circumstance in
question, or
(ii) shall be made unless the Auditors shall have confirmed in writing
to the Board that, in their opinion, it is fair and reasonable.
E27
<PAGE> 7
3.6 OPTION CERTIFICATE
The Board shall, on or as soon as practicable after the Date of Grant,
issue to each Employee to whom it has granted an Option an Option certificate
which shall be in such form as the Board may decide. If an Option certificate
becomes worn out, defaced, destroyed or lost, the Board shall replace it on such
evidence being provided, and on such terms, as it may decide.
4. EXERCISE PRICE
The Exercise Price shall be determined by the Board but shall not be less
than
(i) for each Share under the first Option comprised in the Option
Unit, 110% of the Market Value on the Offer Date,
(ii) for each Share under the second Option, 120% of the Market Value
on the Offer Date,
(iii) for each Share under the third Option, 130% of the Market Value on
the Offer Date, and
(iv) for each Share under the fourth Option, 140% of the Market Value
on the Offer Date.
5. RESTRICTIONS UPON EXERCISE
5.1 EXPIRY OF EXERCISE PERIOD
Except where Rule 6.5 (Death of Participant) applies but notwithstanding
any other Rule, a Participant's Option, to the extent unexercised, shall lapse
on the seventh anniversary of the Date of Grant.
5.2 LAPSING OF OPTIONS
5.2.1 Where under any of the provisions of this Rule 5 and Rules 6 (Exercise
and lapse of an Option), 7 (Change in Control and liquidation) and 11
(Non-transferability) a Participant's Option lapses, that Option shall cease to
be exercisable thereafter notwithstanding any other provision of those Rules
other than as referred to in Rule 5.2.2.
5.2.2 A Participant may surrender his Option in consideration of the grant of a
new option in accordance with Rule 8 (Substitute Options following change in
Control) within the time allowed by that Rule notwithstanding the provisions of
Rule 7 (Change in Control and liquidation).
5.3 ADDITIONAL CONDITIONS
Notwithstanding any other Rule, where the Board has specified additional
conditions upon the grant of an Option, that Option may not be exercised except
in accordance with those conditions as varied from time to time in accordance
with Rule 3.5.
E28
<PAGE> 8
5.4 REPAYMENT OF OPTION UNIT PRICE
5.4.1 In the circumstances mentioned in Rule 5.4.3, the Board shall repay to a
Participant (or his personal representatives) the Option Unit Price attributable
to his Unvested Option, but only to the extent that the Unvested Option is not
exercised.
5.4.2 The repayment shall be made at such time as the Board may decide but not
later than 12 months after the date on which the Participant ceases to be
employed within the Group or the occurrence of the relevant event mentioned in
Rule 7 (Change in Control and liquidation). The Board may deduct from any
repayment any tax or other amounts which it is required by law to withhold.
5.4.3 The circumstances are-
(i) the termination of the Participant's employment in circumstances
where his Option is exercisable under Rule 6.3 (Cessation of
employment - special circumstance ), and
(ii) the occurrence of any event which entitles the Participant to
exercise his Option under Rule 7 (Change in Control and
liquidation).
EXERCISE AND LAPSE OF AN OPTION
6.1 GENERAL
A Participant may exercise his Option at any time or from time to time in
accordance with the Vesting Schedule.
6.2 CESSATION OF EMPLOYMENT - GENERAL
Subject to Rule 6.3, if a Participant gives or is given notice
terminating his employment with the Group or his employment within the Group
otherwise terminates for any reason whatsoever, he may not thereafter exercise
his Option without the consent of the Board; his Option shall lapse three months
after the termination of his employment unless and to the extent that the Board
decides otherwise in accordance with Rule 6.3.2.
6.3 CESSATION OF EMPLOYMENT - SPECIAL CIRCUMSTANCES
6.3.1 If a Participant ceases to be employed within the Group -
(i) by reason of ill-health or injury or disability or death,
(ii) by reason of retirement at or after the age at which he is bound
to retire in accordance with the terms of his contract of
employment,
(iii) by reason of the company by which the Participant is employed
ceasing to be a member of the Group, or
(iv) by reason of the undertaking, or part of the undertaking, in which
the Participant works being transferred to a transferee which is
not a member of the Group,
E29
<PAGE> 9
he may exercise his Vested Option and, if and to the extent that the Board so
decides, his Unvested Option at any time or from time to time within the period
of 12 months after ceasing to be so employed; subject to Rule 6.5, at the expiry
of that period his Option shall lapse.
6.3.2 If a Participant ceases to be employed within the Group for any reason
other than one of those mentioned in Rule 6.3.1, the Board may, within three
months after his employment ends, permit him to exercise all or part of his
Option at any time or from time to time within the period of 12 months after
ceasing to be so employed and subject to Rule 6.5, at the expiry of that period
his Option shall lapse.
6.3 BOARD'S DISCRETION
In any case falling within Rule 6.3, the Board may extend the period
within which the Participant may exercise his Options.
DEATH OF A PARTICIPANT
If a Participant dies before the expiry of the period allowed or
permitted by Rules 6.3 or 6.4, his personal representatives may exercise his
Option (to the extent to which it was exercisable at the date of the
Participant's death) at any time or from time to time during the period of 12
months commencing with the date of death and at the expiry of that period that
Option shall lapse.
7. CHANGE IN CONTROL AND LIQUIDATION
7.1 CHANGE IN CONTROL
If any person (either alone or together with any person acting in concert
with him)
(i) obtains Control of the Company or,
(ii) having such Control, makes a general offer to acquire all the
Shares of the Company (other than those which are already owned by
him and/or any person acting in concert with him),
each Participant may exercise his Vested Option and, if and to the extent that
the Board so decides, his Unvested Option at any time and from time to time
within the period of six months following the change of Control or, as the case
may be, the making of the offer.
7.2 LIQUIDATION
7.2.1 If an effective resolution is passed for the voluntary winding-up of the
Company, each Participant may forthwith and until the expiry of the period of 60
days after the passing of the resolution exercise his Vested Option and, if and
to the extent that the Board so decides, his Unvested Option and at the end of
that period all Options shall, subject to Rule 8 (Substitute Options following
change in Control) lapse.
7.2.2 Where a Participant exercises his Option in accordance with Rule 7.2.1 he
shall be entitled to share in the assets of the Company with existing holders of
Shares in the same manner as he would have been entitled had the Shares been
registered in his name before the resolution was passed.
7.2.3 Subject to Rules 7.2.1 and 8 (Substitute Options following change in
Control), all Options, insofar as not already exercised, shall automatically
lapse in the event of an effective resolution being passed or an order being
made for the winding-up of the Company.
E30
<PAGE> 10
7.3 OVERRIDING PROVISION
If -
(i) the events referred to in this Rule 8 form part of a scheme or
arrangement as a result of which the Company will be under the
Control of another company,
(ii) the persons who will own shares in the acquiring company immediately
after the scheme or arrangement will be substantially the same as
the persons who own shares in the Company immediately before the
scheme or arrangement, and
(iii) Participants are to be offered substitute options in accordance
with Rule 8 (Substitute Options following change in Control),
then notwithstanding the previous provisions of this Rule 7, Participants who
hold Options which are not otherwise exercisable apart from the provisions of
this Rule 7 shall not be entitled to exercise those Options as provided for in
this Rule 7.
8. SUBSTITUTE OPTIONS FOLLOWING CHANGE IN CONTROL
8.1 APPLICATION
This Rule 8 applies where a company (the "ACQUIRING COMPANY") obtains
Control of the Company as a result of making
(i) a general offer to acquire the whole of the issued share capital
of the Company (other than that which is already owned by it
and/or by its Holding Company and/or by the Subsidiaries of it or
of its Holding Company) made on a condition such that if it is
satisfied the Acquiring Company will have Control of the Company,
or
(ii) a general offer to acquire all the Shares (or such of the Shares
as are not already owned by it and/or by its Holding Company
and/or by the Subsidiaries of it or of its Holding Company).
8.2 RELEASE OF OPTIONS
Subject to the conditions referred to in Rule 8.3, where this Rule 8
applies, a Participant may within the period referred to in Rule 8.4 release his
Option (the "Old Option") in consideration of the grant to him of an option (the
"NEW OPTION") over shares in the Acquiring Company or some other company falling
within paragraph 10(b) or paragraph 10(c) of Schedule 9 to the Act.
8.3 THE CONDITIONS
The conditions referred to in Rule 8.2 are as follows: -
(1) The total market value (determined in accordance with Part VIII of
the Taxation of Chargeable Gains Act 1992) of the Shares subject
to the Old Option immediately before its release must be equal to
the total market value (as so determined) immediately after the
grant of the New Option of the shares in respect of which the New
Option is granted.
E31
<PAGE> 11
(2) The aggregate exercise price payable by the Participant upon the
exercise in full of his New Option must be equal to the aggregate
Exercise Price which would have been payable by him had he
exercised in full his Old Option in respect of the total number of
Shares subject to the Old Option at the time of its release.
8.4 PERIOD FOR RELEASE
The period referred to in Rule 8.2 is six months beginning with the time
when the Acquiring Company obtains Control of the Company and any condition
subject to which the offer is made is satisfied or waived.
8.5 CONSEQUENCES OF RELEASE
Where a Participant is granted a New Option in consideration of the
release of his Old Option in accordance with this Rule 8, then
(i) the New Option shall be exercisable in the same manner as the Old
Option,
(ii) the New Option shall be subject to the provisions of the Plan as
it had effect in relation to the Old Option immediately before the
release,
(ii) with effect from the release, the Rules (with the exception of
Rule 3 (Grant of Options) shall in relation to the New Option be
construed as if references to Shares were references to the shares
in respect of which the New Option is granted, and
(iv) with effect from the release, Rules 5.1, 5.2, 5.3, 6-13
(inclusive), 15 and 17 shall in relation to the New Option be
construed as if references to the Company (including any such
references as occur in expressions which are defined in Rule 1 and
used in those Rules) were references to the company in respect of
whose shares the New Option is granted.
9. PROCEDURE ON EXERCISE
9.1 EXERCISE
Where a Participant is entitled under any of the Rules to exercise his
Option, he may do so in whole or in part by notice in writing in such form as
may be determined by the Board accompanied by payment in full at the Exercise
Price together with such other documents as it may decide.
9.2 TIME OF EXERCISE
An Option shall be deemed to have been exercised on the date on which the
notice, payment and the documents are received at the principal office of the
Company or such other office as may be specified by the Board.
9.3 ALLOTMENT OF SHARES
Subject to such consents or other required action of any competent
authority under regulations or enactments for the time being in force as may be
necessary and subject to compliance with the terms of the Option, the Board
shall within 30 days of the date of exercise issue and allot to the Participant
or his nominee the number of Shares specified in the notice of exercise.
E32
<PAGE> 12
9.4 RIGHTS OF NEW SHARES ALLOTTED
Shares issued and allotted pursuant to this Plan shall rank pari passu in
all respects with Shares then in issue, save as regards any rights attaching to
Shares by reference to a record date prior to the date on which the Shares are
issued and allotted.
9.5 LISTING
If at the time of issue Shares are listed on any stock exchange, the
Company shall at its expense apply to have all Shares issued and allotted
pursuant to the exercise of any Option similarly listed.
10. AVAILABILITY OF AUTHORISED CAPITAL
The Company shall keep available sufficient unissued share capital to
meet in full the exercise of all Options.
11. NON-TRANSFERABILITY
An Option is personal to the Participant and his personal representatives
and, accordingly, where a Participant transfers, assigns, charges, encumbers or
otherwise alienates his Option or creates in favour of any third party any
interest therein or, in any case, attempts so to do, or a bankruptcy order is
made in respect of him (or any similar event occurs under the laws of any other
country), his Option shall lapse.
12. LOSS OF OFFICE
Participation in the Plan by a Participant is a matter entirely separate
from, and shall not affect, his pension rights and terms of employment and, in
particular (but without prejudice to the generality of the foregoing), if a
Participant shall for any reason cease to be employed by a member of the Group
or to be entitled to exercise his option, he shall not be entitled to any
compensation by reference to the rights granted to, or the benefits capable of
being received by, him under this Plan or for any loss or diminution in value in
such rights or benefits.
13. VARIATION OF CAPITAL
13.1 GENERAL
In the event of any capitalisation issue by the Company, or any offer or
invitation made by way of rights, or any consolidation, subdivision or reduction
of its share capital, or any other variation in its share capital the Board may
adjust in such manner as it may decide to be appropriate the nominal amount and
the number of Shares which may be issued under this Plan and the nominal amount
and the number of Shares subject to any Option (including, for the avoidance of
doubt, any Option which has been exercised but in respect of which Shares have
not been issued and allotted), the rights attached thereto and the Exercise
Price and, subject to Rule 13.2, the Board's decision shall be final and binding
on the Participant.
1.3.2 RESTRICTION ON ADJUSTMENT
No adjustment shall be made pursuant to this Rule 13 unless and until the
Auditors (acting as experts and not as arbitrators) shall have confirmed in
writing to the Board that the adjustment is, in their opinion, fair and
reasonable.
E33
<PAGE> 13
13.3 NOTIFICATION OF ADJUSTMENT
If any adjustment falls to be made pursuant to this Rule 13, the Board
shall notify each Participant of the adjustment as soon as practicable after its
decision.
14. OVERSEAS EMPLOYEES
14.1 GENERAL
Notwithstanding any other provision of this Plan, the Board may amend or
add to the provisions of this Plan and the terms of Options as it considers
necessary or desirable to take account of or to mitigate or to comply with any
relevant overseas taxation, securities or exchange control laws.
14.2 U.S. EMPLOYEES
14.2.1 The following provisions of this Rule 14.2 shall, if the Board so
determines, apply to any Employee who is, or may become, subject to taxation on
his remuneration in the U.S. and whom the Board regards as a key Employee. The
maximum number of Shares over which Options may be granted to U.S. employees is
200,000.
14.2.2 In this Rule 14.2 -
(i) "CODE" means the United States of America Internal Revenue Code of
1986 (as amended);
(ii) "ISO" means an incentive stock option within the meaning of
section 422 of the Code except that an Option shall not be an
incentive stock option if the Option states that it is intended
not to be an incentive stock option;
(iii) "NQSO" means an Option which is not an ISO;
(iv) "U.S." means the United States of America.
14.2.3 The Board may grant Options which qualify as ISOs or as NQS0s; the Board
shall state whether the Option is to be an ISO or an NQSO. The Board may,
however, grant ISOs only if the Plan is approved by shareholders within 12
months of its establishment by the Board.
14.2.4 Where the Board grants an Employee an Option which is to be an ISO,
then -
(i) such an Option may only be granted within 10 years after the date
on which the Plan is approved by shareholders or established by
the Board, whichever is the earlier,
(ii) the Exercise Price for each Share comprised in that ISO shall not
be less than an amount equal to the fair market value of a Share
on the Date of Grant, and
(iii) no adjustment may be made under Rule 13 (Variation of capital) in
the event of an offer or invitation being made by way of rights.
E34
<PAGE> 14
15. GENERAL
15.1 ADMINISTRATION
Subject as otherwise provided in the Rules, the Plan shall be
administered by the Board and, in the event of any dispute as to whether a
person is or is not an Employee or as to any rights or obligations of any person
under the Plan or as to any question concerning the construction or effect of
the Plan (other than a matter to be certified by the Auditors in accordance with
these Rules), the Board shall decide the same and its decision shall be final
and binding on all persons.
15.2 NOTICES AND CIRCULARS TO SHAREHOLDERS
The Board shall not be obliged to provide Participants with copies of any
notices, circulars and other documents sent by the Company to its shareholders
except those which relate to any events which, under Rule 7 (Change in Control
and liquidation), entitle Participants to exercise their Options.
15.3 COSTS AND EXPENSES
The cost of the preparation and operation of this Plan shall be borne by
the Company.
16. AMENDMENT AND TERMINATION
16.1 POWER OF AMENDMENT
The Board may at any time and from time to time amend or add to the Plan
in any respect provided that no materially adverse amendment or addition shall
be made to the terms of an Option held by a Participant except either with his
consent in writing or with the consent of the majority of Participants affected
by the amendment or addition.
16.2 NOTIFICATION OF AMENDMENTS
The Company shall give written notice to all Participants of any
amendment or addition made, in accordance with Rule 16.1 which affects their
rights.
16.3 TERMINATION
16.3.1 The Board may at any time suspend or terminate the operation of the Plan
and in such event no further Options will be granted for the time being or, as
the case may be, permanently but in all other respects the provisions of the
Plan shall remain in force.
16.3.2 Subject to Rule 16.3.4., the Board may at any time redeem all outstanding
Options by giving written notice to each of the Participants concerned together
with in respect of each Option an amount calculated as follows:-
E35
<PAGE> 15
A x MV-EP
where A is the number of Shares which may still be
acquired on the exercise of that Option,
MV is an amount which is equal to 140% of the
Market Value of a Share on the day before
that on which the written notice is given,
and
EP is the Exercise Price.
16.3.3 The Board may deduct from the payment calculated in accordance with
Rule 16.3.2 any tax or other amounts which it is required by law to withhold.
16.3.4 If an Option has been granted on terms that it is linked to an Option
granted tinder the UK Part (so that the exercise of one results in a pro rata
reduction in the extent to which the other may be exercised and vice versa), the
Board may not redeem the Option under Rule 16.3.2.
17. NOTICES
17.1 TO EMPLOYEES AND PARTICIPANTS
Any notice or document to be given by the Board and/or the Board or the
Company to any Employee or Participant may be given by personal delivery or by
sending it by ordinary post to his last known address. Where a notice or
document is sent by post it shall be deemed to have been received 72 hours after
it was put into the post properly addressed and stamped. All notices and
documents sent by post will be sent at the risk of the Employee or Participant
concerned. Neither the Company nor any of its Subsidiaries shall have any
liability whatsoever to any Employee or Participant in respect of any notice or
document so given, sent or made and nor shall the Company or any of its
Subsidiaries be concerned to see that any Employee or Participant actually
receives it.
17.2 TO THE COMPANY
Any notice or document given by an Employee or a Participant to the
Company or the Board shall be delivered or sent to the Company at its registered
office (or at such other place or places as the Board may from time to time
determine and notify to Employees and Participants) and be effective upon
receipt.
E36
<PAGE> 16
THE SCHEDULE
HEREINBEFORE REFERRED TO
THE UK PART
1. This Schedule sets out the provisions of the UK Part of the Plan.
2. The provisions of the UK Part of the Plan shall be identical to the
provisions of the Main Part subject to the modifications set out in this
Schedule and subject to the substitution of the words "UK Part" for the "Main
Part" whenever they appear.
3. For the purposes of this Schedule, "Employee" means any Full-time
Employee or Full-time director of a Participating Company; and Participating
Company means the Company and any other company of which the Company has
Control.
4. The Board may grant an Option to an Employee under the UK Part in any
case where the Board so determines. The Option Certificate must take effect as a
deed of the Company.
5. The Board may not grant an Option under the UK Part over shares which do
not satisfy the conditions in paragraphs 10 to 14 (inclusive) of Schedule 9 to
the Act.
6. The Board may not grant an Option under the UK Part to any individual who
is not an Employee at the Date of Grant or who is otherwise required by
paragraph 8 of Schedule 9 to the Act to be precluded from having an Option
granted to him on that date.
7. If the Board is unable to grant an individual an Option under the UK Part
by reason of paragraph 5 or 6 and the individual is not instead granted an
Option under the Main Part, the Board shall repay him the Option Unit Price.
8. The Board may grant an Option to an Employee under the U.K. Part on terms
that that Option is linked to another Option granted to the Employee tinder the
Main Part so that the exercise of one will automatically result in a reduction
in the extent to which the other may be exercised and vice versa. In such a
case, the Employee shall not be required to pay the Option Unit Price for the
Option granted under the U.K. Part.
9. Rule 3.1.2 shall not apply to the UK Part.
10. For the purposes of determining the Exercise Price of an Option under the
UK Part, the market value of a Share on the Offer Date must be determined in
accordance with the provisions of Part VIII of the Taxation of Chargeable Gains
Act 1992 and agreed on or before that date by the Inland Revenue Shares
Valuation Division.
11. The number of Shares over which the Board may grant an Option to an
Employee under the UK Part on any date shall be limited and take effect so that
the aggregate market value of those Shares and any other shares which he may
acquire in respect of options granted to him under the UK Part and any other
share option plan (not being a savings related share option plan) approved under
Schedule 9 to the Act and established by the Company or any associated company
of the Company does not exceed or further exceed the higher of -
(i) pound sterling 100,000, and
(ii) four times his relevant emoluments for the current or preceding
year of assessment (whichever of those years gives the greater
amount) or, where there were no relevant emoluments for the
preceding year of assessment, four times his relevant emoluments
for the period of 12 months beginning with the first day in the
current year of assessment in respect of which there are relevant
emoluments.
12. For the purposes of this paragraph -
E37
<PAGE> 17
(i) the expression "ASSOCIATED COMPANY" has the meaning given to it by
section 187(2) of the Act,
(ii) the expression "MARKET VALUE" has the same meaning as in Part VIII
of the Taxation of Chargeable Gains Act 1992,
(iii) the expression "YEAR OF ASSESSMENT" has the meaning given to it by
section 832(1) of the Act,
(iv) the market value of shares over which an option has been or is to
be granted shall be calculated at the time or times as may have
been agreed by the Board of Inland Revenue pursuant to paragraph
29 of Schedule 9 to the Act and, where relevant, shall be
converted into sterling at the rate of exchange ruling in London
at or about 11.00 a.m. at such time or times, and
(v) the expression "RELEVANT EMOLUMENTS" means such of the Employee's
emoluments in respect of his offices or employments with the Group
as are liable to be paid tinder deduction of tax pursuant to
section 203 of the Act after deducting from them amounts included
by virtue of Chapter II of Part V of the Act.
13. A Participant may not exercise an Option granted under the UK Participant
a time when lie must be precluded from so doing in order to satisfy the
requirements of paragraph 8 of Schedule 9 to the Act; nor may the personal
representatives of a Participant exercise such an Option if, in order to satisfy
those requirements, the Participant was so precluded at the date of his death.
14. A Participant may not exercise an Option granted under the UK Part if, as
a result, the shares to be delivered under the UK Part would not satisfy the
conditions of paragraphs 10 to 14 (inclusive) of Schedule 9 to the Act.
15. The Board shall not permit a Participant to exercise his Unvested Option
as mentioned in Rules 6.3.1, 7.1 and 7.2.1.
16. If a Participant ceases to be employed within the Group by reason of
death, the Board may not extend the period allowed for the exercise of his
Option beyond that mentioned in Rule 6.3.1.
17. If a Participant wishes to release an Option granted to him under the UK
Part in consideration of a New Option in the circumstances mentioned in Rule 8,
then he may only do so if the shares over which the New Option is to be granted
comply with the conditions of paragraphs 10 - 14 (inclusive) of Schedule 9 to
the Act.
18. The Board shall not make any adjustment in accordance with Rule 13 to the
terms of an Option granted under the UK Part without the prior approval of the
Inland Revenue.
19. No amendment may be made to the provisions of this Schedule or to any of
the provisions of the Main Plan which affect the UK Part unless such amendment
has been approved by the Inland Revenue pursuant to the Act.
20. Rule 16.3.2 shall not apply to the UK Part.
E38
<PAGE> 1
Exhibit 10.12
CONFIRMATION, ACKNOWLEDGEMENT AND CONSENT
CONFIRMATION, ACKNOWLEDGEMENT AND CONSENT (this "Consent") dated as of March 5,
1999 of LAMBERT BUSINESS INC., a Panamanian corporation ("Lambert"), in favor of
Fleet Bank, N.A., as Agent (the "Agent") under that certain Amended and Restated
Credit Agreement dated as of June 24, 1997, as amended (the "Credit Agreement ")
by and among CRONOS CONTAINERS, N.V., CRONOS CONTAINERS LTD., CRONOS EQUIPMENT
LTD., CRONOS CONTAINERS INC., CRONOS CAPITAL CORP., and CRONOS EQUIPMENT
(BERMUDA) LIMITED (collectively, the "Borrowers") and FLEET BANK, N.A.,
BANKBOSTON, N.A., FIRST UNION NATIONAL BANK (formerly known as CORESTATES BANK,
N.A.) and UNION BANK OF CALIFORNIA, N.A. (collectively, the "Banks") and the
Agent.
WITNESSETH:
WHEREAS, Stefan M Palatin ("Palatin") beneficial owner of 45 outstanding shares
of stock of Lambert, issued that certain Promissory Note in the original
principal amount of $5,461,067 dated July 1, 1996 payable to the order of The
Cronos Group, (the "1996 Note"); and
WHEREAS, Palatin executed and delivered that certain Pledge Agreement between
Palatin and The Cronos Group dated July 1, 1996 (the "Pledge Agreement")
pursuant to which Palatin purported to pledge 1,030,303 shares of common stock
of The Cronos Group owned by Lambert (the "Lambert Cronos Shares") to secure his
obligations under the 1996 Note; and
WHEREAS, pursuant to that certain Transfer Supplement between The Cronos Group
and Cronos Equipment (Bermuda) Limited "Cronos Bermuda") dated as of July 14,
1997 (the "Transfer Supplement"), The Cronos Group transferred all of its rights
and benefits under the 1996 Note and Pledge Agreement to Cronos Bermuda; and
WHEREAS, pursuant that certain Confirmation of Security Documents of Palatin
(the "Confirmation"), Palatin consented to such transfer of his 1996 Note and
Pledge Agreement; and
WHEREAS, Palatin issued that certain Secured Amended and Restated Promissory
Note in the original principal amount of $5,900,000 US. dated July 14, 1997 to
the order of Cronos Bermuda in amendment and restatement of the 1996 Note (the
"Amended Note"); and
WHEREAS, Palatin issued that certain Secured Promissory Note in the original
principal amount of $3,7000,000 U.S. dated July 14, 1997 to the order of Cronos
Bermuda (the "New Note"); and
WHEREAS, pursuant to that certain Collateral Assignment dated as of July 14,
1997 by Cronos Bermuda in favor of the Agent (the "Collateral Assignment"),
Cronos Bermuda assigned to the Agent as collateral, among other things, all of
its rights, privileges and benefits under the Amended Note, New Note, Pledge
Agreement, Transfer Supplement and Confirmation (the "Assigned Collateral"); and
WHEREAS, the Board of Directors and Shareholders (other than Palatin) did not
consent to the transactions contemplated by the Pledge Agreement, the Transfer
Supplement and the Confirmation (collectively, the "Pledge Documents") at the
date of execution and delivery thereof; and
WHEREAS, the Board of Directors and shareholders of Lambert have ratified and
approved in all respects the transactions contemplated by the Pledge Documents
and the Collateral Assignment, effective as of the date thereof, subject to the
redemption by Lambert of all the 55 shares of its capital stock (the
"Redemption") belonging to Rudolf J Weissenberger ("Weissenberger") in exchange
for 566.667 of the Lambert Cronos shares (the "Redeemed Shares"); and
WHEREAS, the consent of Cronos Bermuda and the Agent are required to permit
release and delivery of the Redeemed Shares to Weissenberger; and
E39
<PAGE> 2
WHEREAS, Cronos Bermuda and the Agent are willing to consent to release of the
Redeemed Shares in order to permit the Redemption to occur provided that Lambert
execute and deliver this Consent, and Lambert desires to so execute and deliver
this Consent subject to the release and delivery of the 566.667 Redeemed Shares
to Weissenberger; and
WHEREAS, defaults have occurred under the amended Note and the New Note and
payment thereof has been accelerated.
NOW THEREFORE, the undersigned hereby agrees as follows:
(a) Lambert hereby, effective as of the date thereof, CONFIRMS, RATIFIES AND
CONSENTS to execution and delivery of the Pledge Documents and the
Collateral Assignment and the transactions contemplated therein,
including without limitation, the granting of a lien and security
interest in the Assigned Collateral and assignment by Cronos Bermuda to
the Agent of its right, title and interest in, to the Assigned
Collateral, and agrees to the terms and conditions thereof and that, in
accordance with such assignment, all right, title and interest in, to and
under the Assigned Collateral, including, without limitation, the right
of Cronos Bermuda to require performance each of the Palatin Loan
Documents, and rights of indemnification, shall inure to the benefit of
the Agent.
(b) Lambert hereby CONFIRMS, ADOPTS AND AGREES that it shall he bound by, the
terms and provisions of the Pledge Agreement, Transfer Supplement and
Confirmation as if it were in the place and stead of Stefan Palatin
thereunder and certifies that it is not in breach of any provision of any
such documents.
(c) Lambert hereby ACKNOWLEDGES, CONFIRMS AND AGREES to the assignment
effected by the Collateral Assignment and agrees that physical possession
of the Lambert Shares (as hereinafter defined) shall be delivered to the
Agent, authorizes and instructs Cronos Bermuda to so deliver the Lambert
Shares, and agrees that the Agent may take all actions with respect
thereto as it is permitted to take with respect to the Klarnath Shams,
notwithstanding any restrictions to the contrary set forth in the
Collateral Assignment.
(d) Lambert hereby ACKNOWLEDGES and AGREES that, notwithstanding any
provision of any Palatin Document to the contrary, no agreement or
activity with respect to the Palatin Loans, the Palatin Documents or the
Palatin Collateral (including, without limitation, any amendment,
modification, supplement, surrender, waiver, release, satisfaction,
termination or cancellation of the Palatin Loans, the Palatin Collateral,
the Palatin Documents or any of the Bermuda or any obligations of Lambert
thereunder) shall be effective without the prior written consent of the
Agent.
(e) Lambert hereby represents and warrants as follows:
(i) it is a corporation duly organized, validly existing and in good
standing under the laws of the Commonwealth of Panama and has
corporate power and authority to own its properties and to
transact the business in which it is engaged and to execute,
deliver and perform this Consent;
(ii) it is the sole record and beneficial owner of 463,636 shares of
common stock of The Cronos Group (the "Lambert Shares") and such
Shares are free and clear of all liens and encumbrances of any
kind whatsoever;
(iii) it has no assets other than the Lambert Shares and no liabilities;
(iv) this Consent has been duly executed and delivered and constitutes
the valid and binding obligation of Lambert, enforceable in
accordance with its terms;
E40
<PAGE> 3
(v) after giving effect to this Consent, the Agent has a duly
perfected first priority Lien on the Lambert Shares;
(vi) it has the right, power and authority to assign its right, title
and interest in and to the Assigned Collateral to the Agent, it
shall not sell, assign, mortgage, pledge, grant a security
interest in, charge or otherwise transfer or encumber, the
Assigned Collateral to any person other than the Agent and any
such sale, assignment, mortgage, pledge, security interest,
charge, or other transfer or encumbrance without Agent's prior
written consent shall be void ab initio and of no force and
effect;
(vii) the execution, delivery and performance of this Consent by Lambert
does not violate any law or regulation, or any order or decree of
any court or governmental instrumentality, or any provision of the
charter or by-laws of, or any securities issued by Lambert, and
will not conflict with, or result in the breach of, or constitute
a default under, any indenture, mortgage, deed of trust, agreement
or other instrument to which the Lambert is a party or by which it
is bound, and will not result in the creation or imposition of any
lien, charge or encumbrance upon any of the property of Lambert
pursuant to the provisions of any of the foregoing other than a
lien in favour of Cronos Bermuda and the Agent.
(f) Lambert acknowledges that a Palatin Note Default has occurred and is
continuing and that the Agent is entitled to and has stated its intention
to foreclose on he Notes and the Klamath Shares and the Lambert Shares
and acknowledges that such statement by the Agent constitutes adequate
notice of foreclosure for purposes of the Uniform Commercial Code.
(g) Lambert hereby consents to the performance of any term of the Palatin
Loans, the Palatin Documents and the Palatin Collateral by the Agent (or
any nominee or assignee of the Agent) and the assignment thereof by the
Agent, upon exercise by the Agent of its rights under the Loan Documents,
including under the Assignment, and agrees to continue to abide by and
perform its obligations under the Palatin Loans, the Palatin Documents
and the Palatin Collateral in the event of such exercise of rights, but
confirms and agrees that the Agent (or its nominee or assignee) shall not
assume, nor be liable for, any of the obligations or liabilities of any
party under the Palatin Loan, the Palatin Documents and the Palatin
Collateral unless the same shall have been expressly assumed by it in
writing.
(h) Lambert hereby agrees at all times to pay any and all amounts payable to
Cronos Bermuda under the Assigned Collateral directly to the Agent (or
its nominee), to the following account of the Agent:
New York, New York
ABA: (0213000191
G/L Number; 15 1035 1 -CIC 03102
Attention. Sandra Garcia
Loan Department (806) 986-6332
Reference: Cronos
or to such other account or at such address as the Agent (or such
nominee) shall direct, any and all payments due to Cronos Bermuda under
the Assigned Collateral, and to send to the Agent at the address for the
Agent set forth in section 11.09 of the Credit Agreement above,
concurrently with delivery thereof to Cronos Bermuda, copies of all
notices and other communications (other than routine communications)
given by Lambert to Cronos, Bermuda pursuant to the Assigned Collateral.
(i) Lambert hereby consents that any legal action or proceeding against it
under, arising out of or in any manner relating to this Consent or the
Assignment or to the Palatin Documents or Palatin Loans, or for
recognition and enforcement of any judgement in respect thereof, is
subject to the exclusive general jurisdiction of the any court of the
State of New York, sitting in the County of New York or in
E41
<PAGE> 4
the United States District Court for the Southern District of New York
and appellate courts from any Court. Lambert by the execution and
delivery of this Consent, expressly and irrevocably assents and submits
to the personal jurisdiction of any of such courts in any such action or
proceeding. Lambert further irrevocably consents to the service of any
complaint, summons notice or other process relating to any such action or
proceeding by delivery of the same to Palatin. Lambert hereby expressly
and irrevocably waives any claim or defense in any such action or
proceeding to assert any defense given or allowed under the laws of any
state other than the State of New York. Nothing in this paragraph 6 shall
affect, or impair in any manner or to any extent the right of the Agent
or the Banks to commence legal proceedings or otherwise proceed against
Lambert or Cronos Bermuda or any other party in any jurisdiction or to
serve process in any manner permitted by law.
Capitalized terms used in this Consent are not defined herein shall have
the meaning given thereto in the Collateral Assignment.
IN WITNESS WHEREOF, the undersigned has executed this Consent as of the
date first above written.
Dated: March 5, 1999
LAMBERT BUSINESS INC.
BY: /s/ R Weissenberger
Name: R J Weissenberger
Title: Proxy
The undersigned acknowledges, consents and agrees to the above Consent,
including, without limitation, the provisions of Sections (c) and (e)
thereof, and that the Agent shall have physical possession of the share
of common stock of The Cronos Group which are registered in the name of
Lambert Business Inc., together with a stock power duly executed in blank
by Lambert. The undersigned hereby consents to the release and delivery
of the Redeemed Cronos Shares to Weissenberger, subject to receipt by the
Agent of certificates representing the remaining 463,636 shares of stock
of The Cronos Group owned by Lambert, together with a stock power duly
executed in blank by Lambert.
Cronos Equipment (Bermuda) Limited
By: /s/ P J Younger
Name: Peter Younger
Title: Director
Based upon the representations and warranties and covenants hereinabove
set forth, the undersigned hereby consents to the release and the
delivery of the Redeemed Cronos Shares to Weissenberger, subject to
receipt by the undersigned of certificates (and related stock powers duly
executed in blank by Lambert) representing the remaining 463,636 shares
of stock of The Cronos Group owned by Lambert.
Fleet Bank, N.A., as secured party
Under the Collateral Assignment
By: /s/ Edward J Walsh
Name: Edward J Walsh
Title: Senior Vice President
E42
<PAGE> 5
Exhibit 10.13
AMENDMENT
From: China International Marine Containers (Group) Company Limited (the
"Lender")
To: Cronos Containers Limited (the "Borrower")
Dear Sirs
Ref: Our $million Revolving Credit Facility with yourselves dated August 1997
1. We hereby confirm that the "Final Repayment Date" as defined in Section
1.1 of the Facility Letter is hereby amended to be 30th November 1999.
2. Cronos will make the following repayments of the facility, in accordance
with Section 6 of the Revolving Credit Facility-
i. on or before 5th April, 1999, a repayment of not less than
$1,000,000, and
ii. on or before 5th May, 1999, a repayment of not less than
$1,000,000, and
iii. on or before 5th July, 1999, a repayment of not less than
$3,000,000, and
iv. on or before 5th October, 1999, a repayment of not less than
$3,000,000, and
v. the remaining balance on the facility by no later than 30th
November 1999
All other terms and conditions under the facility Letter remain unchanged.
For and on behalf of China International Marine Containers (Group) Company
Limited
/s/ Mai Bo Liang March 24,1999
- ----------------------------------- --------------------------------------
Accepted Date
Name: MAI BO LIANG
Title: PRESIDENT
For and on behalf of Cronos Containers Limited
/s/ P J Younger March 23, 1999
- ----------------------------------- --------------------------------------
Accepted Date
Name: Peter J Younger
Title: Director
E43
<PAGE> 1
Exhibit 10.13
AMENDMENT
From: China International Marine Containers (Group) Company Limited (the
"Lender")
To: Cronos Containers Limited (the "Borrower")
Dear Sirs
Ref: Our $million Revolving Credit Facility with yourselves dated August 1997
1. We hereby confirm that the "Final Repayment Date" as defined in Section
1.1 of the Facility Letter is hereby amended to be 30th November 1999.
2. Cronos will make the following repayments of the facility, in accordance
with Section 6 of the Revolving Credit Facility-
i. on or before 5th April, 1999, a repayment of not less than
$1,000,000, and
ii. on or before 5th May, 1999, a repayment of not less than
$1,000,000, and
iii. on or before 5th July, 1999, a repayment of not less than
$3,000,000, and
iv. on or before 5th October, 1999, a repayment of not less than
$3,000,000, and
v. the remaining balance on the facility by no later than 30th
November 1999
All other terms and conditions under the facility Letter remain unchanged.
For and on behalf of China International Marine Containers (Group) Company
Limited
/s/ Mai Bo Liang March 24,1999
- ----------------------------------- --------------------------------------
Accepted Date
Name: MAI BO LIANG
Title: PRESIDENT
For and on behalf of Cronos Containers Limited
/s/ P J Younger March 23, 1999
- ----------------------------------- --------------------------------------
Accepted Date
Name: Peter J Younger
Title: Director
E43
<PAGE> 1
Exhibit 10.14
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT made as of the 14th day of August, 1995, by and between
Cronos Containers Limited, a U.K. corporation (the "Employer") and Eivind A.
Eriksen (the "Employee").
WITNESSETH:
WHEREAS, the Employer desires to employ the Employee in the United Kingdom and
the Employee desires to be employed by the Employer in the United Kingdom under
the terms and conditions hereinafter set forth in this Agreement. *
NOW, THEREFORE, in consideration of the mutual covenants herein contained and
other good and valuable consideration, the parties hereto agree as follows:
FIRST:
The Employer agrees to employ the Employee and the Employee agrees to serve in
the employ of the Employer, as Chief Operating Officer and a Director of the
Employer, subject to the supervision and direction of its Board of Directors,
for a period of one (1) year from the day and year first above written, unless
such period is sooner terminated pursuant to the provisions of Paragraphs
"FIFTH", "SIXTH", or "SIXTEENTH" below. The term of this Agreement shall
automatically be extended for subsequent one year periods until terminated as
provided in Paragraphs Fifth, Sixth or Sixteenth below.
SECOND:
The Employee hereby warrants and represents that he has the full right and
authority to enter into this Agreement and to perform all of his obligations
hereunder and that he is not party to any other agreement or understanding which
might conflict with the provisions hereof or affect or interfere with the full
performance by him of all of his obligations hereunder. This agreement
supersedes all prior contracts between the Employer and the Employee, and shall
take precedence over any other agreement between the Employee and The Cronos
Group or any of its subsidiaries. For the entire term hereof or any extensions,
the Employee's duties shall always consist of those of an executive capacity and
shall never be relegated below the status that is normally assigned someone in a
similar capacity with similar sized companies. The Employee's office and the
principal place for the performance of his duties hereunder, except for travel
reasonably required, shall be at the place of
1
E44
<PAGE> 2
business of the Employer or at another location mutually agreed upon between
Employer and Employee.
THIRD:
(a) For all services to be rendered by him in an executive capacity only
(including, but not limited to, services as an officer, director, member of any
committee or otherwise) the Employer agrees to pay the Employee as long as he
shall be employed hereunder a salary of per annum (such salary is referred to
herein as "basic compensation"), payable in twelve equal monthly instalments in
arrears not later than the last day of each month. The basic compensation is to
be increased annually by an amount as agreed between Employer and Employee.
(b) In addition to the basic compensation, Employee shall be given an annual
bonus generally related to the financial performance of The Cronos Group and the
performance of the Employee during each calendar year. It is understood that
such bonus will be paid under the terms and conditions of a bonus plan
established for all employees of The Cronos Group and its subsidiaries. In
addition, any expenses incurred by the Employee in the performance of duties
under this Employment Agreement will be reimbursed by the Employee. The Employee
shall also be entitled to all benefits provided by the Employer to its employees
generally.
(c) Employee is entitled to an aggregate of 25 days of holiday per annum from
the Employer and The Cronos Group and its subsidiaries. No more than five days
of accrued holiday per annum may be carried forward and taken in a subsequent
year without the prior approval of the Board of Directors of the Employer.
FOURTH:
The Employee agrees that during the period of his employment he will not without
the approval of the Board of Directors of the Employer be an officer or employee
of any other company (other than a subsidiary or affiliate of Employer).
FIFTH:
(a) Any provision of this Agreement to the contrary notwithstanding, in the
event the Employee shall, during the term of his employment hereunder, fail to
perform his duties hereunder owing to illness or other incapacity which
continues for a period of more than six (6) consecutive months, the Employer
shall have the right, by notice sent to the Employee by hand delivery, telefax
(if electronically confirmed), or mail, postage prepaid, to terminate the
Employee's employment hereunder as of a
2
E45
<PAGE> 3
date (not less than thirty (30) days after the date of the sending of such
notice) to be specified in such notice, and the Employee shall be entitled to
receive all compensation provided in Paragraph "THIRD" hereof computed to or on
the basis of the date specified in said notice. However, if prior to the date
specified in such notice, the Employee shall resume the performance of his
duties hereunder, said notice shall be deemed to be cancelled and rendered null
and void.
(b) In the event this Agreement is terminated pursuant to the provisions of
Paragraph "FIFTH (a)" above, the Employee shall receive, for a period of six (6)
months following the effective date of said termination, one-half (1/2) of the
basic compensation that he would have received pursuant to paragraph "THIRD (a)"
above had this Agreement continued in full force and effect without
interruption.
(c) In the event of the Employee's death during the term of his employment
hereunder, Employee's Beneficiary (as defined in Paragraph "EIGHTH") shall be
entitled to receive (i) the basic compensation as provided in Paragraph "THIRD
(a)" hereof to the last day of the twelfth month following the month in which
the Employee's death shall have occurred, and (ii) accrued incentive
compensation as provided for in Paragraph "THIRD (b)" hereof, for the period
beginning on the first day of the current fiscal year and ending on the last day
of the month prior to the month in which his death occurred, provided such
period includes at least (6) months.
SIXTH:
(a) Except as provided in Paragraph "FIFTH" above, this Agreement may not be
cancelled by the Employer except for the Employee's wilful non-performance of,
or wilful misconduct in the performance of, his duties hereunder, or upon two
years prior written notice.
(b) If the Employer intends to terminate this Agreement pursuant to Paragraph
"SIXTH (a)" above (except for the Employee's wilful misconduct amounting to
moral turpitude so as to affect his ability to adequately perform services on
behalf of the Employer), it shall give the Employee detailed written notice by
hand delivery, telefax (if electronically confirmed) or mail, postage prepaid,
to that effect at least two years prior to the effective date of any such
termination. If the cause of such proposed termination is cured during the
period between the time notice of intention to terminate is sent to the Employee
and the effective date thereof, the notice of intention to terminate shall be
deemed to be withdrawn and of no effect. The Employer may terminate this
Agreement effective immediately upon giving the
3
E46
<PAGE> 4
Employee *written notice thereof for wilful misconduct of the Employee amounting
to moral turpitude so as to affect his ability to perform services in behalf of
the Employer.
(c) Employee shall give to Employer a minimum of six months prior written
notice of his intention to terminate his employment hereunder.
SEVENTH:
The Employer shall provide sufficient services, facilities and personnel for the
Employee to perform his services hereunder and shall reimburse him for all
ordinary and necessary business expenses incurred in performing such services.
EIGHTH:
The Employee by written notice (hand delivery, telefax (if electronically
confirmed) or mail, postage prepaid) sent to the Employer during his lifetime,
and signed by him, may designate one or more persons or entities (including a
trust or trusts or his estate) to receive any balance of compensation payable to
him under this Agreement in the event of his death prior to full payment
thereof, and if he shall designate more than one person, the proportion in which
each is to receive such payment. He may also designate the person or persons who
shall succeed to the rights of the person or persons originally designated, in
case the latter should die. He may from time to time change any designation so
made, and the last written notice (hand delivery, telefax (if electronically
confirmed) or mail, postage prepaid) given by him before his death shall be
controlling. In the absence of a designation made by the Employee pursuant to
this Paragraph "EIGHTH" or in the event of the death of a person to whom
payments were being made pursuant to this Paragraph "EIGHTH" before such
payments are completed, and, failing any other designation by the Employee, such
payments or any balance thereof shall be paid to his legal representatives. The
person or persons entitled to payments pursuant to the provisions of this
Paragraph "EIGHTH" are referred to in this Agreement as the Employee's
"Beneficiary".
NINTH:
The Employee agrees that he will not, without the written consent of the
Employer, disclose to anyone any confidential information relative to the
business, sales, financial condition, production or other activities of the
Employer or any subsidiary or affiliate thereof or of The Cronos Group, except
to persons to whom such information is furnished in the normal course of
business under established procedures of the Employer and such other persons as
are legally entitled to such information.
4
E47
<PAGE> 5
TENTH:
Nothing in this Agreement shall be construed as limiting or restricting any
benefit to the Employee, his legal representatives or Beneficiary, under any
pension, profit-sharing or similar retirement plan, or under any group life or
group health or accident or other plan of the Employer for the benefit of its
employees generally or a group of them, or under any other agreement between
Employer and Employee, now or hereafter in existence, nor shall any payment
under this Agreement be deemed to constitute payment to the Employee, his legal
representatives or Beneficiary in lieu of or in reduction of any benefit or
payment under any such plan or agreement. It is understood and agreed that the
Employer shall offer to and provide the Employee with all other benefits,
employee programs, facilities and emoluments which are offered to any other
employee of the Employer or of The Cronos Group now or at any time hereafter,
unless the terms of such plans specifically exclude him or he is ineligible to
participate in such plans under the terms thereof or applicable law.
ELEVENTH:
The Employee agrees that he will not, during the term of his employment
hereunder or thereafter, make use of or divulge to any other person, firm or
corporation, or himself use, any trade or business secret, process, method or
means, customer list or any other confidential information concerning the
business or policies of the Employer or any of its subsidiaries which he may
have learned as a result of his employment hereunder which if divulged would
result in appreciable harm to the Employer. The provisions of this Paragraph
"ELEVENTH" shall survive the expiration or termination, for any reason, of this
Agreement or the Employee's employment hereunder.
TWELFTH:
(a) This Agreement shall inure to the benefit of the Employee's Beneficiary,
but except as authorised by Paragraph "EIGHTH" above, neither this Agreement nor
any rights or interest under this Agreement shall be assignable by the Employee
or by the Employee's Beneficiary without the Employer's prior written consent.
(b) This Agreement and the rights and obligations hereunder, shall not be
assignable or delegable by either party or by the Employee's Beneficiary or
spouse except as expressly provided in this Agreement or required by applicable
law.
5
E48
<PAGE> 6
THIRTEENTH:
(a) Any notice to the Employer under this Agreement shall be deemed to have
been given if and when sent by hand delivery, telefax (if electronically
confirmed) or mail, postage prepaid, to Employer at its principal office, or
such other address as the Employer may from time to time designate in writing by
notice to the Employee given pursuant to Paragraph "THIRTEENTH (b)" hereof.
(b) Any notice to the Employee under this Agreement shall be deemed to have
been given if and when sent by hand delivery, telefax (if electronically
confirmed) or firstclass mail, postage prepaid, to the Employee at this address
herein below given or such other address as the Employee may from time to time
designate in writing by notice to the Employer given pursuant to Paragraph
"THIRTEENTH (a)" above.
(c) Any notice to the Employee's Beneficiary under this Agreement shall be
deemed to have been given if and when sent by hand delivery, telefax (if
electronically confirmed) or mail, postage prepaid, to such Beneficiary in care
of the Employee's Estate or at such other address or respective addresses as
Employee or such beneficiary may from time to time respectively designate in
writing to the Employer by notice or notices given pursuant to Paragraph
"THIRTEENTH (a)" hereof
FOURTEENTH:
(a) No amendment or i-modification of this Agreement shall be deemed
effective unless and until executed in writing by the parties hereto with the
same formality attending execution of this Agreement.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there by any estoppel to enforce any provision of this
Agreement, except by written instrument of the party charged with such waiver or
estoppel executed with the same formality attending execution of this Agreement.
FIFTEENTH:
Any dispute between the Employer and Employee concerning the terms and
provisions of this Agreement, or the interpretation, application, enforceability
or validity thereof, shall be resolved by arbitration in the United Kingdom. The
party submitting the dispute to arbitration shall, within fifteen (15) business
days after filing a demand for arbitration, select an arbitrator and give notice
to the other party specifying the name, address and brief biography of such
arbitrator. Within fifteen (15) business days after the delivery of such notice,
the other party shall select an arbitrator and give notice to the first party
specifying
6
E49
<PAGE> 7
the name, address and a brief biography of such arbitrator. The two arbitrators
so selected shall select a third arbitrator within twenty (20) business days
after delivery by the second party of its notice of selection of the second
arbitrator and shall give notice to each party of their selection. If the two
arbitrators cannot agree on the selection of a third arbitrator within such
twenty (20) business day period, then either party may petition the President of
the Law Society in England for the selection of the third arbitrator. If either
party does not select an arbitrator within its prescribed fifteen (15) business
day time period, the arbitration shall be performed by the one arbitrator timely
selected by the other party. The decision of the majority of the arbitrators
shall be final and conclusive upon the parties. Judgement upon any amount
rendered by the arbitrators may be entered in any court having jurisdiction
thereof. Until awarded as provided below, each party shall pay its own expenses
of the arbitration, including the fees of the arbitrator it selects, provided,
however, that each party shall pay one-half the fees of the third arbitrator
appointed and any administrative fee. The prevailing party in any arbitration
(whether or not such arbitration is prosecuted to final decision or is settled
or satisfied prior to final decision), as determined by the arbitrators, shall
be entitled to recover, in addition to any award, all fees and costs it incurs
in the arbitration, including, without limitation, reasonable attorneys' fees
and costs and costs and fees of the arbitrators.
This Agreement shall be governed by and construed in accordance with the laws of
England with respect to the validity, interpretation, performance and
enforcement of this Agreement. In the event that any provision in or obligation
under this Agreement shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions or obligations shall not
in any way be affected or impaired thereby.
SIXTEENTH:
This Agreement and all rights and obligations set forth herein shall terminate
upon the filing by Employer, or by any third party against Employer which is not
dismissed within 60 days of filing, of a petition to wind up and dissolve or
liquidate, or for protection in bankruptcy pursuant to the provisions of any
applicable bankruptcy or insolvency laws. In such event, Employee shall be
entitled to receive all compensation provided in Paragraph "THIRD" hereof
computed to the date of filing of said petition.
7
E50
<PAGE> 8
IN WITNESS WHEREOF, the Employer has caused this Agreement to be executed by its
officer thereunto duly authorised, and the Employee has signed this Agreement on
the dates indicated, effective as of August 14, 1995.
"EMPLOYER"
CRONOS CONTAINERS LIMITED
BY
TITLE
(DATE)
"EMPLOYEE"
EIVIND ERIKSEN
28 Wildernesse Mount
Sevenoaks
Kent TN13 3Q17
(DATE)
E51
<PAGE> 9
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT made as of the 14th day of August, 1995, by and between
Cronos Management N.V., a Netherlands Antilles corporation (the "Employer") and
Eivind A. Eriksen (the "Employee").
WITNESSETH:
WHEREAS, the Employer, having a branch in Hong Kong, desires to employ the
Employee and the Employee desires to be employed by the Employer under the terms
and conditions hereinafter set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants herein contained and
other good and valuable consideration, the parties hereto agree as follows:
FIRST:
The Employer agrees to employ the Employee and the Employee agrees to serve in
the employ of the Employer, as Chief Operating Officer of the Employer, subject
to the supervision and direction of its Board of Directors, for a period of one
(1) year from the day and year first above written, unless such period is sooner
terminated pursuant to the provisions of Paragraphs "FIFTH", "SIXTH", or
"SIXTEENTH" below. The term of this Agreement shall automatically be extended
for subsequent one year periods until terminated as provided in Paragraphs
Fifth, Sixth or Sixteenth below.
SECOND:
The Employee hereby warrants and represents that he has the full right and
authority to enter into this Agreement and to perform all of his obligations
hereunder and that he is not party to any other agreement or understanding which
might conflict with the provisions hereof or affect or interfere with the full
performance by him of all of his obligations hereunder. This agreement
supersedes all prior contracts between the Employer and the Employee, and shall
take precedence over any other agreement between the Employee and The Cronos
Group or any of its subsidiaries. For the entire term hereof or any extensions,
the Employee's duties shall always consist of those of an executive capacity and
shall never be relegated below the status that is normally assigned someone in a
similar capacity with similar sized companies. The Employee's office and the
principal place for the performance of his duties hereunder, except for travel
reasonably required, shall be at the place of
1
E52
<PAGE> 10
business of the Employer or at another location mutually agreed upon between
Employer and Employee excluding the United Kingdom.
THIRD:
(a) For all services to be rendered by him in an executive capacity only
(including, but not limited to, services as an officer, director, member of any
committee or otherwise) the Employer agrees to pay the Employee as long as he
shall be employed hereunder a salary of, _____ per annum (such salary is
referred to herein as "basic compensation"), payable in twelve equal monthly
instalments in arrears not later than the last day of each month. The basic
compensation is to be increased annually by an amount as agreed between Employer
and Employee.
(b) In addition to the basic compensation, Employee shall be given an annual
bonus generally related to the financial performance of The Cronos Group and the
performance of the Employee during each calendar year. It is understood that
such bonus will be paid under tile terms and conditions of a bonus plan
established for all employees of The Cronos Group and its subsidiaries. In
addition, any expenses incurred by the Employee in the performance of duties
under this Employment Agreement will be reimbursed by the Employee. The Employee
shall also be entitled to all benefits provided by the Employer to its employees
generally.
(c) Employee is entitled to an aggregate of 25 days of holiday per annum from
the Employer and The Cronos Group and its subsidiaries. No more than five days
of accrued holiday per annum may be carried forward and taken in a subsequent
year without the prior approval of the Board of Directors of the Employer.
FOURTH:
The Employee agrees that during the period of his employment he will not without
the approval of the Board of Directors of the Employer be an officer or employee
of any other company (other than a subsidiary or affiliate of Employer).
FIFTH:
(a) Any provision of this Agreement to the contrary notwithstanding, in the
event the Employee shall, during the term of his employment hereunder, fail to
perform his duties hereunder owing to illness or other incapacity which
continues for a period of more than six (6) consecutive months, the Employer
shall have the right, by notice sent to the Employee by hand delivery, telefax
(if electronically confirmed), or mall, postage prepaid, to terminate the
Employee's employment hereunder as of a
2
E53
<PAGE> 11
date (not less than thirty (30) days after the date of the sending of such
notice) to be specified in such notice, and the Employee shall be entitled to
receive all compensation provided in Paragraph "THIRD" hereof computed to or on
the basis of the date specified in said notice. However, if prior to the date
specified in such notice, the Employee shall resume the performance of his
duties hereunder, said notice shall be deemed to be cancelled and rendered null
and void.
(b) In the event this Agreement is terminated pursuant to the provisions of
Paragraph "FIFTH (a)" above, the Employee shall receive, for a period of six
(6) months following the effective date of said termination, one-half (1/2) of
the basic compensation that he would have received pursuant to paragraph "THIRD
(a)" above had this Agreement continued in full force and effect without
interruption.
(c) In the event of the Employee's death during the term of his employment
hereunder, Employee's Beneficiary (as defined in Paragraph "EIGHTH") shall be
entitled to receive (i) the basic compensation as provided in Paragraph "THIRD
(a)" hereof to the last day of the twelfth month following the month in which
the Employee's death shall have occurred, and (ii) accrued incentive
compensation as provided for in Paragraph "THIRD (b)" hereof, for the period
beginning on the first day of the current fiscal year and ending on the last day
of the month prior to the month in which his death occurred, provided such
period includes at least (6) months.
SIXTH:
(a) Except as provided in Paragraph "FIFTH" above, this Agreement may not be
cancelled by the Employer except for the Employee's wilful non-performance of,
or wilful misconduct in the performance of, his duties hereunder, or upon two
years prior written notice.
(b) If the Employer intends to terminate this Agreement pursuant to Paragraph
"SIXTH (a)" above (except for the Employee's wilful misconduct amounting to
moral turpitude so as to affect his ability to adequately perform services on
behalf of the Employer), it shall give the Employee detailed written notice by
hand delivery, telefax (if electronically confirmed) or mail, postage prepaid,
to that effect at least two years prior to the effective date of any such
termination. If the cause of such proposed termination is cured during the
period between the time notice of intention to terminate is sent to the Employee
and the effective date thereof, the notice of intention to terminate shall be
deemed to be withdrawn and of no effect. The Employer may terminate this
Agreement effective immediately upon giving the
3
E54
<PAGE> 12
Employee written notice thereof for wilful misconduct of the Employee amounting
to moral turpitude so as to affect his ability to perform services in behalf of
the Employer.
(c) Employee shall give to Employer a minimum of six months prior written
notice of his intention to terminate his employment hereunder.
SEVENTH:
The Employer shall provide sufficient services, facilities and personnel for the
Employee to perform his services hereunder and shall reimburse him for all
ordinary and necessary business expenses incurred in performing such services.
EIGHTH:
The Employee by written notice (hand delivery, telefax (if electronically
confirmed) or mail, postage prepaid) sent to the Employer during his lifetime,
and signed by him, may designate one or more persons or entitles (Including a
trust or trusts or his estate) to receive any balance of compensation payable to
him under this Agreement in the event of his death prior to full payment
thereof, and if he shall designate more than one person, the proportion in which
each is to receive such payment. He may also designate the person or persons
who' shall succeed to the rights of the person or persons originally designated,
in case the latter should die. He may from time to time change any designation
so made, and the last written notice (hand delivery, telefax (if electronically
confirmed) or mail, postage prepaid) given by him before his death shall be
controlling. In the absence of a designation made by the Employee pursuant to
this Paragraph "EIGHTH" or in the event of the death of a person to whom
payments were being made pursuant to this Paragraph "EIGHTH" before such
payments are completed, and, failing any other designation by the Employee, such
payments or any balance thereof shall be paid to his legal representatives. The
person or persons entitled to payments pursuant to the provisions of this
Paragraph "EIGHTH" are referred to in this Agreement as the Employee's
"Beneficiary".
NINTH:
The Employee agrees that he will not, without the written consent of the
Employer, disclose to anyone any confidential information relative to the
business, sales, financial condition, production or other activities of the
Employer or any subsidiary or affiliate thereof or of The Cronos Group, except
to persons to whom such information is furnished in the normal course of
business under established procedures of the Employer and such other persons as
are legally entitled to such information.
4
E55
<PAGE> 13
TENTH:
Nothing in this Agreement shall be construed as limiting or restricting any
benefit to the Employee, his legal representatives or Beneficiary, under any
pension, profit-sharing or similar retirement plan, or under any group life or
group health or accident or other plan of the Employer for the benefit of its
employees generally or a group of them, or under any other agreement between
Employer and Employee, now or hereafter in existence, nor shall any payment
under this Agreement be deemed to constitute payment to the Employee, his legal
representatives or Beneficiary in lieu of or in reduction of any benefit or
payment under any such plan or agreement. It is understood and agreed that the
Employer shall offer to and provide the Employee with all other benefits,
employee programs, facilities and emoluments which are offered to any other
employee of the Employer or of The CRONOS Group now or at any time hereafter,
unless the terms of such plans specifically exclude him or he is ineligible to
participate in such plans under the terms thereof or applicable law.
ELEVENTH:
The Employee agrees that he will not, during the term of his employment
hereunder or thereafter, make use of or divulge to any other person, firm or
corporation, or himself use, any trade or business secret, process, method or
means, customer list or any other confidential information concerning the
business or policies of the Employer or any of its subsidiaries which he may
have learned as a result of his employment hereunder which if divulged would
result in appreciable harm to the Employer. The provisions of this Paragraph
"ELEVENTH" shall survive the expiration or termination, for any reason, of this
Agreement or the Employee's employment hereunder.
TWELFTH:
(a) This Agreement shall inure to the benefit of the Employee's Beneficiary,
but except as authorised by Paragraph "EIGHTH" above, neither this Agreement nor
any rights or interest under this Agreement shall be assignable by the Employee
or by tile Employee's Beneficiary without the Employer's prior written consent.
(b) This Agreement and the rights and obligations hereunder, shall not be
assignable or delegable by either party or by the Employee's Beneficiary or
spouse except as expressly provided in this Agreement or required by applicable
law.
THIRTEENTH:
(a) Any notice to the Employer under this Agreement shall be deemed to have
been given if and when sent by hand delivery, telefax (if electronically
confirmed) or mail, postage prepaid, to Employer at its principal office, or
such other address as the
5
E56
<PAGE> 14
Employer may from time to time designate in writing by notice to the Employee
given pursuant to Paragraph "THIRTEENTH (b)" hereof
(b) Any notice to the Employee under this Agreement shall be deemed to have
been given if and when sent by hand delivery, telefax (if electronically
confirmed) or firstclass mail, postage prepaid, to the Employee at this address
herein below given or such other address as the Employee may from time to time
designate in writing by notice to the Employer given pursuant to Paragraph
"THIRTEENTH (a)" above.
(c) Any notice to the Employee's Beneficiary under this Agreement shall be
deemed to have been given if and when sent by hand delivery, telefax (if
electronically confirmed) or mail, postage prepaid, to such Beneficiary in care
of the Employee's Estate or at such other address or respective addresses as
Employee or such beneficiary may from time to time respectively designate in
writing to the Employer by notice or notices given pursuant to Paragraph
"THIRTEENTH (a)" hereof
FOURTEENTH:
(a) No amendment or modification of this Agreement shall be deemed effective
unless and until executed in writing by the parties hereto with the same
formality attending execution of this Agreement.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there by any estoppel to enforce any provision of this
Agreement, except by written instrument of the party charged with such waiver or
estoppel executed with the same formality attending execution of this Agreement.
FIFTEENTH:
Any dispute between the Employer and Employee concerning the terms and
provisions of this Agreement, or the interpretation, application, enforceability
or validity thereof, shall be resolved by arbitration in Hong Kong. The party
submitting the dispute to arbitration shall, within fifteen (15) business days
after filing a demand for arbitration, select an arbitrator and give notice to
the other party specifying the name, address and brief biography of such
arbitrator. Within fifteen (15) business days after the delivery of such notice,
the other party shall select an arbitrator and give notice to the first party
specifying the name, address and a brief biography of such arbitrator. The two
arbitrators so selected shall select a third arbitrator within twenty (20)
business days after delivery by the second party of its notice of selection of
the second arbitrator and shall give notice to each party of their selection. If
the two arbitrators cannot agree on the selection of a third arbitrator within
such twenty
6
E57
<PAGE> 15
(20) business day period, then either party may petition the President of the
Law Society in England for the selection of the third arbitrator. If either
party does not select an arbitrator within its prescribed fifteen (15) business
day time period, the arbitration shall be performed by the one arbitrator timely
selected by the other party. The decision of the majority of the arbitrators
shall be final and conclusive upon the parties. Judgement upon any amount
rendered by the arbitrators may be entered in any court having jurisdiction
thereof. Until awarded as provided below, each party shall pay its own expenses
of the arbitration, including the fees of the arbitrator it selects, provided,
however, that each party shall pay one-half the fees of the third arbitrator
appointed and any administrative fee. The prevailing party in any arbitration
(whether or not such arbitration is prosecuted to final decision or is settled
or satisfied prior to final decision), as determined by the arbitrators, shall
be entitled to recover, in addition to any award, all fees and costs it incurs
in the arbitration, including, without limitation, reasonable attorneys' fees
and costs and costs and fees of the arbitrators.
This Agreement shall be governed by and construed in accordance with the laws of
the Hong Kong with respect to the validity, interpretation, performance and
enforcement of this Agreement. In the event that any provision in or obligation
under this Agreement shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions or obligations shall not
in any way be affected or impaired thereby.
SIXTEENTH:
This Agreement and all rights and obligations set forth herein shall terminate
upon the filing by Employer, or by any third party against Employer which is not
dismissed within 60 days of filing, of a petition to wind up and dissolve or
liquidate, or for protection in bankruptcy pursuant to the provisions of any
applicable bankruptcy or insolvency laws. In such event, Employee shall be
entitled to receive all compensation provided in Paragraph "THIRD" hereof
computed to the date of filing of said petition.
7
E58
<PAGE> 16
IN WITNESS WHEREOF, the Employer has caused this Agreement to be executed by its
officer thereunto duly authorised, and the Employee has signed this Agreement on
the dates indicated, effective as of August 14, 1995.
"EMPLOYER"
CRONOS MANAGEMENT N.V.
BY TITLE:
(DATE)
"EMPLOYEE"
EIVIND A. ERIKSEN
28 Wildernesse Mount
Sevenoaks
Kent TN13 3Q17
(DATE)
8
E59
<PAGE> 17
Exhibit 10.15
CRONOS
Crow.* N.V.
ITC Building
Piscadera Bay
P0 DQX 6061
Curacao
Netherlands Antilles
Tel. (599)(9) 636169 box
Fax (599)(9) 6.16469
Mr Stefan M Palatin
Strohgasse 2411,17
A-! 030 Vienna
Austria 24 January 1996
Dear Mr. Palatin,
We hereby change your employment Contract 6(b) to read as follows:
"SIXTH:
(b) If the Employer intends terminate this Agreement pursuant to Paragraph
"SIXTH (ii)" above (except for the Employee's wilful misconduct amounting to
moral turpitude so as to affect his ability to adequately perform services on
behalf of the Employer), it shall give the Employee detailed written notice by
hand delivery, telefax (if electronically confirmed) or mail, postage prepaid,
to that effect at least two years prior to the effective date of any such
termination. If the cause of such proposed termination is cured during the
period between the time notice of intention to terminate is sent to the Employee
and the effective date thereof, notice of intention to terminate shall be deemed
to be withdrawn and of no effect. The Employer may terminate this Agreement
effective immediately upon giving the Employee written notice thereof for wilful
misconduct of the Employee amounting to moral turpitude so as to affect his
ability to perform services on behalf of the Employer."
All other terms and conditions of the contract remain as per the contract dated
the 6th day of April 1995.
Yours sincerely
Hans J. Jongkind
Director
Agreed and accepted
Stefan M. Palatin
E60
<PAGE> 1
Exhibit 10.15
CRONOS
Crow.* N.V.
ITC Building
Piscadera Bay
P0 DQX 6061
Curacao
Netherlands Antilles
Tel. (599)(9) 636169 box
Fax (599)(9) 6.16469
Mr Stefan M Palatin
Strohgasse 2411,17
A-! 030 Vienna
Austria 24 January 1996
Dear Mr. Palatin,
We hereby change your employment Contract 6(b) to read as follows:
"SIXTH:
(b) If the Employer intends terminate this Agreement pursuant to Paragraph
"SIXTH (ii)" above (except for the Employee's wilful misconduct amounting to
moral turpitude so as to affect his ability to adequately perform services on
behalf of the Employer), it shall give the Employee detailed written notice by
hand delivery, telefax (if electronically confirmed) or mail, postage prepaid,
to that effect at least two years prior to the effective date of any such
termination. If the cause of such proposed termination is cured during the
period between the time notice of intention to terminate is sent to the Employee
and the effective date thereof, notice of intention to terminate shall be deemed
to be withdrawn and of no effect. The Employer may terminate this Agreement
effective immediately upon giving the Employee written notice thereof for wilful
misconduct of the Employee amounting to moral turpitude so as to affect his
ability to perform services on behalf of the Employer."
All other terms and conditions of the contract remain as per the contract dated
the 6th day of April 1995.
Yours sincerely
Hans J. Jongkind
Director
Agreed and accepted
Stefan M. Palatin
E60
<PAGE> 2
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT made as of the 6th day of April, 1995, by and between
Cronos Management N.V., a Netherlands Antilles corporation (the "Employer") and
Stefan M. Palatin (the "Employee").
WITNESSETH:
WHEREAS, the Employer, having a branch in Hong Kong, desires to employ the
Employee and the Employee desires to be employed by the Employer under the terms
and conditions hereinafter set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants herein contained and
other good and valuable consideration, the parties hereto agree as follows:
FIRST:
The Employer agrees to employ the Employee and the Employee agrees to serve in
the employ of the Employer, as Chairman and Chief Executive Officer of the
Employer, subject to the supervision and direction of its Board of Directors,
for a period of one (1) year from the day and year first above written, unless
such period is sooner terminated pursuant to the provisions of Paragraphs
"FIFTH", "SIXTH", or "SIXTEENTH" below. The term of this Agreement shall
automatically be extended for subsequent one year periods until terminated as
provided in Paragraphs Fifth, Sixth or Sixteenth below.
SECOND:
The Employee hereby warrants and represents that he has the full right and
authority to enter into this Agreement and to perform all of his obligations
hereunder and that he is not party to any other agreement or understanding which
might conflict with the provisions hereof or affect or interfere with tile full
performance by him of all of his obligations hereunder. This agreement
supersedes all prior contracts between the Employer and the Employee, and shall
take precedence over any other agreement between the Employee and The Cronos
Group or any of its subsidiaries. For the entire term hereof or any extensions,
the Employee's duties shall always consist of those of an executive capacity and
shall never be relegated below the status that is normally assigned someone in a
similar capacity with similar sized companies The Employee's office and the
Principal place for the performance of his duties hereunder, except for travel
reasonably required, shall be at the place of
E61
<PAGE> 3
business of the Employer or at another location mutually agreed upon between
Employer and Employee excluding the United Kingdom.
THIRD:
(a) For all services to be rendered by him in an executive capacity only
(Including, but not limited to, services as an officer, director, member of any
committee or otherwise) the Employer agrees to pay the Employee as long as he
shall be employed hereunder a salary of 47-5 3~5t:rs] per annum (such salary is
referred to herein as "basic compensation"), payable in twelve equal monthly
installments in arrears not later than the last day of each month. The basic
compensation is to be increased annually by an amount as agreed between Employer
and Employee.
(b) In addition to the basic compensation, Employee shall be given an annual
bonus generally related to the financial performance of The Cronos Group and the
performance of the Employee during each calendar year. It is understood that
such bonus will be paid under the terms and conditions of a bonus plan
established for all employees of The Cronos Group and its subsidiaries. In
addition, any expenses incurred by the Employee in the performance of duties
under this Employment Agreement will be reimbursed by the Employee. The Employee
shall also be entitled to all benefits provided by the Employer to Its employees
generally.
(c) Employee is entitled to an aggregate of 25 days of holiday per annum from
the Employer and The Cronos Group and its subsidiaries. No more than five days
of accrued holiday per annum may be carried forward and taken in a subsequent
year without the prior approval of the Board of Directors of the Employer.
FOURTH:
The Employee agrees that during the period of his employment he will NOT WITHOUT
the approval of the Board of Directors of the Employer be an officer or employee
of any other company (other than a subsidiary or affiliate of Employer).
FIFTH:
(a) Any provision of this Agreement to the contrary notwithstanding, in the
event the Employee shall, during the term of his employment hereunder, fail to
perform his duties hereunder owing to illness or other incapacity which
continues for a period of more than six (6) consecutive months, the Employer
shall have the right, by notice sent to the Employee by hand delivery, telefax
(electronically confirmed), or mail, postage prepaid, to terminate the
Employee's employment hereunder as of a
2
E62
<PAGE> 4
date (not less than thirty (30) days after the date of the sending of such
notice) to be specified in such notice, and the Employee shall be entitled to
receive all compensation provided in Paragraph "THIRD" hereof computed to or on
the basis of the date specified in said notice. However, if prior to the date
specified in such notice, the Employee shall resume the performance of his
duties hereunder, said notice shall be deemed to be cancelled and rendered null
and void.
(b) In the event this Agreement is terminated pursuant to the provisions of
Paragraph "FIFTH (a)" above, the Employee shall receive, for a period of six (6)
months following the effective date of said termination, one-half (1/2) of the
basic compensation that he would have received pursuant to paragraph "THIRD (a)"
above had this Agreement continued in full force and effect without
interruption.
(c) In the event of the Employee's death during the term of his employment
hereunder, Employee's Beneficiary (as defined in Paragraph "EIGHTH") shall be
entitled to receive (1) the basic compensation as provided in Paragraph "THIRD
(a)" hereof to the last day of the twelfth month following the month in which
the Employee's death shall have occurred, and (11) accrued incentive
compensation as provided for in Paragraph "THIRD (b)" hereof, for the period
beginning on the first day of the current fiscal year and ending on the last day
of the month prior to the month in which his death occurred, provided such
period includes at least (6) months.
SIXTH:
(a) Except as provided in Paragraph "FIFTH" above, this Agreement may not be
cancelled by the Employer except for the Employee's wilful non-performance of,
or wilful misconduct in the performance of, his duties hereunder, or upon one
years prior written notice.
(b) If the Employer intends to terminate this Agreement pursuant to Paragraph
"SIXTH (a)" above (except for the Employee's wilful misconduct amounting to
moral turpitude so as to affect his ability to adequately perform services on
behalf of the Employer), it shall give the Employee detailed written notice by
hand delivery, telefax (if electronically confirmed) or mail, postage prepaid,
to that effect at least one year prior to the effective date of any such
termination. If the cause of such proposed termination is cured during the
period between the time notice of intention to terminate is sent to the Employee
and the effective date thereof, the notice of intention to terminate shall be
deemed to be withdrawn and of no effect. The Employer may terminate this
Agreement effective immediately upon giving the
3
E63
<PAGE> 5
Employee written notice thereof for wilful misconduct of the Employee amounting
to moral turpitude so as to affect his ability to perform services in behalf of
the Employer.
(c) Employee shall give to Employer a minimum of six months prior written
notice of his intention to terminate his employment hereunder.
SEVENTH:
The Employer shall provide sufficient services, facilities and personnel for the
Employee to perform his services hereunder and shall reimburse him for all
ordinary and necessary business expenses incurred in performing such services.
EIGHTH:
The Employee by written notice (hand delivery, telefax (if electronically
confirmed) or mail, postage prepaid) sent to the Employer during his lifetime,
and signed by him, may designate one or more persons or entities (Including a
trust or trusts or his estate) to receive any balance of compensation payable to
him under this Agreement in the event of his death prior to full payment
thereof, and if he shall designate more than one person, the proportion in which
each is to receive such payment. He may also designate the person or persons who
shall succeed to the rights of the person or persons originally designated, in
case the latter should die. He may from time to time change any designation so
made, and the last written notice (hand delivery, telefax (if electronically
confirmed) or mall, postage prepaid) given by him before his death shall be
controlling. In the absence of a designation made by the Employee pursuant to
this Paragraph "EIGHTH" or in tile event of the death of a person to whom
payments were being made pursuant to this Paragraph "EIGHTH" before such
payments are completed, and, failing any other designation by the Employee, such
payments or any balance thereof shall be paid to his legal representatives. The
person or persons entitled to payments pursuant to the provisions of this
Paragraph "EIGHTH" are referred to in this Agreement as the Employee's
"Beneficiary".
NINTH:
The Employee agrees that he will not, without the written consent of the
Employer, disclose to anyone any confidential information relative to the
business, sales, financial condition, production or other activities of the
Employer or any subsidiary or affiliate thereof or of The Cronos Group, except
to persons to whom such information is furnished in the normal course of
business under established procedures of the Employer and such other persons as
are legally entitled to such information.
4
E64
<PAGE> 6
TENTH:
Nothing in this Agreement shall be construed as limiting or restricting any
benefit to the Employee, his legal representatives or Beneficiary, under any
pension, profit-sharing or similar retirement plan, or under any group life or
group health or accident or other plan of the Employer for the benefit of its
employees generally or a group of them, or under any other agreement between
Employer and Employee, now or hereafter in existence, nor shall any payment
under this Agreement be deemed to constitute payment to the Employee, his legal
representatives or Beneficiary in lieu of or in reduction of any benefit or
payment under any such plan or agreement. It is understood and agreed that the
Employer shall offer to and provide the Employee with all other benefits,
employee programs, facilities and emoluments which are offered to any other
employee of the Employer or of The Cronos Group now or at any time hereafter,
unless the terms of such plans specifically exclude him or he is ineligible to
participate in such plans under tile terms thereof or applicable law.
ELEVENTH:
The Employee agrees that he will not, during the term of his employment
hereunder or thereafter, make use of or divulge to any other person, firm or
corporation, or himself use, any trade or business secret, process, method or
means, customer list or any other confidential information concerning the
business or policies of the Employer or any of its subsidiaries which he may
have learned as a result of his employment hereunder which if divulged would
result in appreciable harm to the Employer. The provisions of this Paragraph
"ELEVENTH" shall survive the expiration or termination, for any reason, of this
Agreement or the Employee's employment hereunder.
TWELFTH:
(a) This Agreement shall inure to the benefit of the Employee's Beneficiary,
BUT EXCEPT as authorised by Paragraph "EIGHTH" above, neither this Agreement nor
any rights or interest under this Agreement shall be assignable by the Employee
or by the Employee's Beneficiary without the Employer's prior written consent.
(b) This Agreement and the rights and obligations hereunder, shall not be
assignable or delegable by either party or by the Employee's Beneficiary or
spouse except as expressly provided in this Agreement or required by applicable
law.
THIRTEENTH:
(a) Any notice to the Employer under this Agreement shall be deemed to have
been given if and when sent by hand delivery, telefax, (if electronically
confirmed) or mail, postage prepaid, to Employer at its principal office, or
such other address as the
5
E65
<PAGE> 7
Employer may from time to time designate in writing by notice to the Employee
given pursuant to Paragraph "THIRTEENTH (b)" hereof
(b) Any notice to the Employee under this Agreement shall be deemed to have
been given if and when sent by hand delivery, telefax (if electronically
confirmed) or first class mail, postage prepaid, to the Employee at this address
herein below given or such other address as the Employee may from time to time
designate in writing by notice to the Employer given pursuant to Paragraph
"THIRTEENTH (a)" above.
(c) Any notice to the Employee's Beneficiary under this Agreement shall be
deemed to have been given if and when sent by hand delivery, telefax (if
electronically confirmed) or mail, postage prepaid, to such Beneficiary in care
of the Employee's Estate or at such other address or respective addresses as
Employee or such beneficiary may from time to time respectively designate in
writing to the Employer by notice or notices given pursuant to Paragraph
"THIRTEENTH (a)" hereof
FOURTEENTH:
(a) No amendment or modification of this Agreement shall be deemed effective
unless and until executed in writing by the parties hereto with the same
formality attending execution of this Agreement.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there by any estoppel to enforce any provision of this
Agreement, except by written instrument of the party charged with such waiver or
estoppel executed with the same formality attending execution of this Agreement.
FIFTEENTH:
Any dispute between the Employer and Employee concerning the terms and
provisions of this Agreement, or the interpretation, application, enforceability
or validity thereof, shall be resolved by arbitration in Hong Kong. The party
submitting the dispute to arbitration shall, within fifteen (15) business days
after filing a demand for arbitration, select an arbitrator and give notice to
the other party specifying the name, address and brief biography of such
arbitrator. Within fifteen ( 15) business days after the delivery of such
notice, the other party shall select an arbitrator and give notice to the first
party specifying the name, address' and a brief biography of such arbitrator.
The two arbitrators so selected shall select a third arbitrator within twenty
(20) business days after delivery by the second party of its notice of selection
of the second arbitrator and shall give notice to each party of their
selection. If the two arbitrators cannot agree on the selection of a third
arbitrator within such twenty
6
E66
<PAGE> 8
(20) business day period, then either party may petition the President of the
Law Society in England for the selection of the third arbitrator. If either
party does not select an arbitrator within its prescribed fifteen (15) business
day time period, the arbitration shall be performed by the one arbitrator timely
selected by the other party. The decision of the majority of the arbitrators
shall be final and conclusive upon the parties. Judgement upon any amount
rendered by the arbitrators may be entered in any court having jurisdiction
thereof Until awarded as provided below, each party shall pay its own expenses
of the arbitration, including the fees of the arbitrator it selects, provided,
however, that each party shall pay one-half the fees of the third arbitrator
appointed and any administrative fee. The prevailing party in any arbitration
(whether or not such arbitration is prosecuted to final decision or is settled
or satisfied prior to final decision), as determined by the arbitrators, shall
be entitled to recover, in addition to any award, all fees and costs it incurs
in the arbitration, including, without limitation, reasonable attorneys' fees
and costs and costs and fees of the arbitrators.
This Agreement shall be governed by and construed in accordance with the laws of
the Hong Kong with respect to the validity, interpretation, performance and
enforcement of this Agreement. In the event that any provision In or obligation
under this Agreement shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions or obligations shall not
in any way be affected or impaired thereby.
SIXTEENTH:
This Agreement and all rights and obligations set forth herein shall terminate
upon the filing by Employer, or by any third party against Employer which is not
dismissed within 60 days of filing, of a petition to wind up and dissolve or
liquidate, or for protection in bankruptcy pursuant to the provisions of any
applicable bankruptcy or insolvency laws. In such event, Employee shall be
entitled to receive all compensation provided in Paragraph "THIRD" hereof
computed to the date of filing of said petition.
E67
<PAGE> 9
IN WITNESS WHEREOF, the Employer has caused this Agreement to be executed by its
officer thereunto duly authorised, and the Employee has signed this Agreement on
the dates indicated, effective as of April 6, 1995.
"EMPLOYER"
CRONOS MANAGEMENT N.V.
BY
TITLE:
(DATE)
"EMPLOYEE"
STEFAN PALATIN
Strohgasse 24/1
A- 1030 Vienna
Austria
(DATE)
E68
<PAGE> 1
Exhibit 10.16
[ADMICO LOGO]
Admico SA. Avenue Alfred-Cortot 7A. CH- 1260 Nyon, T41. + 41 - 22 - 361 61 05,
Fax + 41 - 22 - 362 12 49
Agreement
Regarding the appointment of N1r. Rudolf J. Weissenberger
As ad interim CEO and Chairman of The Cronos Group
Mr. Rudolf J. Weissenberger (RJW) is prepared to accept his appointment as full
time ad interim CEO on the following terms and conditions:
1. The appointment started on May 20, 1998.
2. Cronos (the Company) shall be entitled to terminate that appointment at
any moment, with immediate effect, provided that RM shall be entitled to his
service fee until the end of the following month in course of which such
termination is notified.
3. RJW shall be entitled to resign from his appointment with at least one
month notice for the end of one calender month.
4. RJW shall discharge his duties as ad interim CEO at the head office of
the company and, to the extent this will be possible, from his offices in
Switzerland or France.
5. The services of R-TW will be put at the disposal of Cronos by Admico SA.
Admico SA will receive a monthly service fee of US$ 48.700 (fourty eight
thousand seven hundred Dollars) payable at the end of each month.
6. As an incentive RJW will receive Warrants, voting or non voting stock
subject to board approval.
7. The Company will fully reimburse RSW all expenses made necessary by the
discharge of his duties as the ad interim CEO of the Company (such as travel and
Hotel expenses), on the basis of duly documented statements.
8. The company shall notify its third party liability insurance company of
the appointment of RJW as its interim CEO.
Dated:
----------------------------
Cronos Containers
- ---------
Admico SA
E69
<PAGE> 2
[THIS PAGE INTENTIONALLY LEFT BLANK]
E70
<PAGE> 3
CRONOS
CRONOS CONTAINERS
ORCHARD LEA
WINKFIELD LANE
WINKFIELD WINDSOR
BERKSHIRE SL4 4RU
ENGLAND
TELEPHONE (44) (0) 1344 891111
FAX (44) (0) 1344 894104
Indemnification Agreement
As of May 20, 1998 Mr. Rudolf J. Weissenberger was appointed Chairman and CEO of
the Cronos Group by its Board of directors.
This is to confirm that:
1. The Cronos Group will hold RJW personally harmless for any adverse
consequences or damages - unless fraudulent - which may arise out of his
functions and actions as Chairman and CEO in the normal course of business, or
based on board approval or board resolutions.
2. The company warrants that it disclosed to RJW all material documentation
and issues in the widest sense of importance.
3. The Group will rigorously defend RM against all claims and law suits
involving liabilities, agreements, actions (oral, written or else) concerning
customers, banks, financial institutions, authorities and the like, that
originate on facts prior to RJW assuming his job.
4. The company will be responsible for any legal fees, judgments, opinions
charged to RJW.
Winkfield, 29 June 98
Cronos Containers
-----------
E71
<PAGE> 4
CRONOS
Cronos; containers
Orchard Lea
Winkfield Lane
Winkfield Windsor
Berkshire SL4 4RU
England
Telephone (44) (0) 1344 891111
Fax (44) (0) 1344 894104
Telex SM770 CRONOS G
Memorandum
Regarding Cronos shares which are the property
of Lambert Business Inc., Panama
Cronos Containers acknowledges that Mr. Rudolf J. Weissenberger, residing at
Chemin de la Dole, 1274 Signy, Switzerland, claims, on the basis of an agreement
between himself and Mr. Stefan Mirkovich-Palatin dated July 15th 199 1, the
ownership of 1.030.303 shares of the Company registered in the name of Lambert
Business Inc., Panama, on account of Mr. Palatin's default under the agreement
referred to above. The Company and RJW agree that the said shares, which are
presently deposited in New York, shall be returned in the custody of the
Company, which irrevocably undertakes not to make any claim thereon on account
of its possible claims against Mr. Palatin, but to hold these shares in escrow
until such time when the ownership of the said shares has been adjudicated or
recognized by Mr. Palatin. Mr. Axel Friedberg, in his capacity as the
representative of Lambert Business Inc. undertakes to issue such instructions as
may be necessary to give effect to this clause.
Cronos Containers
- ------------- ------------------------------
E72
<PAGE> 1
Exhibit 10.17
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT made as of the first day of July 1998 by and among Cronos
Containers Limited, a company incorporated in England and Wales (the
"Employer"), Cronos Capital Corporation, a USA corporation, and Peter J. Younger
("Younger").
WITNESSETH:
WHEREAS, the Employer desires to employ Younger and Younger desires to be
employed by the Employer under the terms and conditions hereinafter set forth in
this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants herein contained and
other good and valuable consideration, the parties agree as follows:
1. The Employer agrees to employ Younger and Younger agrees to serve in the
employ of the Employer, as Chief Financial Officer, subject to the supervision
and direction of its Board of Directors, and as a Director of Employer and its
American affiliates until terminated as provided herein.
2. Younger hereby warrants and represents that he has the full right and
authority to enter into this Agreement and to perform all of his obligations
hereunder and that he is not party to any other agreement or understanding which
might conflict with the provisions hereof or affect or interfere with the full
performance by him of all of his obligations hereunder. This agreement
supersedes all prior contracts between the Employer and Younger, and shall take
precedence over any other agreement between Younger and The Cronos Group or any
of its subsidiaries. Younger's office and the principal place for the
performance of his duties hereunder, except for travel reasonably required,
shall be at the place of business of the Employer or at another location
mutually agreed upon between Employer and Younger.
3. (a) For all services to be rendered by him in an executive capacity only
(including, but not limited to, services as an officer, director, member of any
committee or otherwise) of Employer or any affiliate, Employer shall pay Younger
as long as he shall be employed hereunder a salary of one hundred twenty-three
thousand eight hundred seventy-five pounds (pound sterling 123,875) per annum
(such salary is referred to herein as "basic compensation"), payable in twelve
equal monthly installments in arrears not later than the last day of each month.
(b) In addition to the basic compensation, Younger shall be given an
annual bonus generally related to the financial performance of Employer and its
affiliates and the performance of Younger during each calendar year. Such bonus
will be paid under the terms and conditions of a bonus plan established for all
employees of Employer and its subsidiaries. In addition, reasonable and
necessary expenses incurred by Younger in the performance of duties under this
Employment Agreement will be reimbursed to Younger upon receipt of documentation
in customary form adequate to establish the deductibility of each item of
expense to Employer. Younger shall also be entitled to all benefits provided by
the Employer to its employees generally.
E73
<PAGE> 2
(c) For each year or part of a year that Younger performs duties for
any entity within the Cronos Group which subject any of his earnings from that
employment to income tax in the United Kingdom, Cronos Containers Limited shall
pay Younger a tax equalization payment equal to:
(TAX-UST)*1.50
where
TAX equals the actual amount of income taxes in all jurisdictions,
including but not limited to, federal, national, state, municipal and local
(collectively, "Income Taxes") payable for a year by Younger; and
UST equals the amount of Income Taxes that would have been payable by
Younger for the year in question if all his income from employment by the Cronos
Group had been earned and paid in the State of California, U.S.A. and all other
income had been received where it was.
The resulting amount shall not in any case be less than zero.
The tax equalization payment called for by this paragraph shall be paid
retroactively for the year 1997 and for each subsequent year. Younger shall
invoice Cronos Containers Limited for the amount of the payment reasonably
promptly after becoming able to determine the amount and shall supply Cronos
Containers Limited with such information and tax documentation as it shall
require in reviewing the invoice.
(d) Cronos Containers Limited shall reimburse Younger for 1) his
reasonable and necessary expenses in preparing income tax returns for himself
and/or his wife for each year or partial year that he is employed by any entity
within the Cronos Group beginning with 1997 in any jurisdiction in which any of
his earnings from the Cronos Group are subject to income taxation; and 2) the
cost of determining the amount of any tax equalization payment due.
(e) Younger, his wife and his children are entitled to seek, at Cronos
Containers Limited's expense, medical care which is, in their sole discretion,
of the same quality and convenience that they would have received, and at the
same total expense to Younger that Younger would have incurred for such care, if
each of them had been treated while Younger was covered by Cronos Capital
Corporation's medical, dental and other health-related benefits. To the extent
that Younger has unreimbursed medical expenses resulting from medical treatment
for himself or his wife or children, he may submit them to the Cronos Capital
Corporation executive in charge of medical benefits, together with any other
information required by Cronos Capital Corporation, for reimbursement pursuant
to the standards set forth in this paragraph. The decision of the executive in
charge of medical benefits concerning the amount of reimbursement due Younger
shall be final unless not made in good faith. Neither Cronos Containers Limited
nor Cronos Capital Corporation nor any other entity of the Cronos Group shall
ever be responsible for any consequences or damages flowing from any act or
omission in providing medical care to Younger or any family member. The maximum
amount of reimbursement to which Younger is entitled for all medical expenses
for his entire family for any calendar year is pound sterling 15,000.
(f) In the event of a change of ownership or control of The Cronos
Group (Luxembourg), Younger shall be entitled to 1) an immediate payment of
twice the amount of his total salary and bonuses earned from all entities within
the Cronos Group during the full calendar year ending last prior to the
effective date of the change of control, and 2) continuation of medical
E74
<PAGE> 3
benefits at the level provided in this Agreement until he first obtains medical
benefits from employment thereafter, or for two years, whichever shall first
occur. As used in this paragraph, "change of ownership or control" means a
change in ownership or control that would constitute a change of ownership of a
corporation's real property in California under the standards of California
Revenue and Taxation Code Section 64(c)(1) as it was on December 31, 1998.
(g) Employer shall provide Younger a car in accordance with the
company car policy.
(h) Notwithstanding any other provision in Employer's Policy Manual,
Younger is entitled to an aggregate of 20 days of vacation per annum for 1998
and each subsequent full year of employment under this agreement. No more than
five days of accrued vacation per annum may be carried forward and taken in a
subsequent year without the prior approval of the Board of Directors of the
Employer.
(i) On the termination of his appointment for whatever reason, Younger
shall either be entitled to pay in lieu of outstanding vacation entitlement or
be required to repay to the Employer any salary received for vacation taken in
excess of his actual entitlement. The basis for payment and repayment shall be
1/260 x of Younger's annual basic salary for each day.
4. During the period of his employment Younger will not without the
approval of the Board of Directors of the Employer be an officer, director or
employee of any other company (other than a subsidiary or affiliate of
Employer). Younger shall devote his entire business time, energy and ability
exclusively to the business of Employer and its affiliates and shall not without
Employer's written consent render to others services of any kind for
compensation.
5. (a) Any provision of this Agreement to the contrary notwithstanding,
in the event Younger shall, during the term of his employment hereunder, fail to
perform his duties hereunder owing to illness or other incapacity which
continues for a period of more than six (6) consecutive months, the Employer
shall have the right, by notice sent to Younger by hand delivery, telefax (if
electronically confirmed), or mail, postage prepaid, to terminate Younger's
employment hereunder as of a date (not less than thirty (30) days after the date
of the sending of such notice) to be specified in such notice, and Younger shall
be entitled to receive all compensation provided in Paragraph 3 hereof computed
to or on the basis of the date specified in said notice. However, if prior to
the date specified in such notice, Younger shall resume the performance of his
duties hereunder, said notice shall be deemed to be canceled and rendered null
and void.
(b) If Younger is absent because of sickness (including mental
disorder) or injury he shall report this fact forthwith to the Human Resources
Department and if Younger is so prevented for seven or more consecutive days he
shall provide a medical practitioner's statement on the eighth day and weekly
thereafter so that the whole period of absence is certified by such statements.
Immediately following his return to work after a period of absence Younger shall
complete a Self-Certification form available from the Human Resources Department
detailing the reason for his absence.
(c) If Younger shall be absent due to sickness (including mental
disorder) or injury, duly certified in accordance with the provisions of
sub-clause 5(b) hereof, he shall be entitled to receive his full basic salary
for a period of six months of continuous absence or for 25 days absence in
aggregate in any period of 12 consecutive months and thereafter if he remains
incapacitated by illness or accident and not able to carry out his normal
duties, Younger will be entitled, subject to the terms of the policy, to take
the benefit of the Employer's Disability Insurance Plan.
E75
<PAGE> 4
(d) At any time during the period of his appointment, (but not
normally more often than once every second year) Younger shall at the request
and expense of the Employer permit himself to be examined by a registered
medical practitioner to be selected by the Employer and shall authorize such
medical practitioner to disclose to and discuss with the Employer's medical
adviser the results of such examination and any matters which arise from it in
order that the Employer's medical adviser can notify the Employer of any matters
which, in his opinion, might hinder or prevent the executive (if during a period
of incapacity) from returning to work for any period or (in other circumstances)
from properly performing any duties of his appointment at any time.
6. (a) Except as provided in Paragraph 5 above, this Agreement may not be
terminated or canceled by the Employer except for Younger's willful
non-performance of, or willful misconduct in the performance of, his duties
hereunder, or upon 2 years' prior written notice.
(b) If the Employer intends to terminate this Agreement pursuant to
Paragraph 6(a) above (except for Younger's willful misconduct amounting to moral
turpitude so as to affect his ability to adequately perform services on behalf
of the Employer, in which event the employment may be terminated immediately
upon notice), it shall give Younger detailed written notice by hand delivery,
telefax (if electronically confirmed) or mail, postage prepaid, to that effect
at least 2 years prior to the effective date of any such termination.
(c) Younger shall give to Employer a minimum of six months prior
written notice of his intention to terminate his employment under this
agreement.
(d) Upon termination or cancellation of this agreement for any reason,
Employer shall pay Younger's reasonable moving expenses for his household to any
single location to which Younger actually moves within the continental United
States upon receipt of documentation sufficient to establish the deductibility
of the expenses to Employer.
7. The Employer shall provide sufficient services, facilities and personnel
for Younger to perform his services hereunder.
8. (a) Younger acknowledges that during his employment with the Employer
he will have access to and will be entrusted with confidential information and
trade secrets relating to the business of the Employer or its affiliates and
their customers and suppliers, including, but not limited to, the contract rates
and expiration dates set forth in Employer's and its affiliates' contracts with
customers ("Confidential Information").
(b) Younger will not during the term of the appointment (otherwise
than in the proper performance of his duties and then only to those who need to
know Confidential Information) or thereafter (except with the written consent of
the Board or as required by law):
i) divulge or communicate to any person (including any
representative of the press or broadcasting or other media);
ii) cause or facilitate any unauthorized disclosure through any
failure by him to exercise all due care and diligence; or
iii) make use of (other than for the benefit of Employer or its
affiliates)
E76
<PAGE> 5
any Confidential Information which may have come to his knowledge during his
past or current employment with Employer or its affiliates or in respect of
which Employer or any affiliate may be bound by an obligation of confidence to
any third party, provided Younger is or has been made aware of such obligation
of confidence. Younger will also use all reasonable endeavors to prevent the
publication or disclosure of any Confidential Information. These restrictions
will not apply to Confidential Information which, after the appointment has been
terminated, has become available to the public generally otherwise than through
unauthorized disclosure.
(c) All notes, memoranda and other records (whether in documentary
form or stored on computer disk or tape) made by Younger during his employment
with the Employer and which relate to the business of any affiliate of Employer
("Group Company") shall belong to such Group Company and Younger shall, from
time to time, promptly hand over such notes, memoranda and other records to the
Employer (or as the Employer may direct).
(d) Younger agrees that he will not at any time after the termination
of this Agreement, either personally or by his agent, directly or indirectly:
i) represent himself as being in any way connected with or
interested in the business of any Group Company;
ii) use or disclose to any person, firm or company any
confidential information directly or indirectly relating to the affairs of any
Employer or its affiliates or to a customer of any Employer or its affiliates
which may have been acquired by him in the course of or incidental to his
employment by the Employer for his own benefit or for the benefit of others or
to the detriment of any Employer or its affiliates or such customer. This
restriction shall continue to apply after the termination of this Agreement for
a period of one year but shall cease to apply to information or knowledge which
may come into the public domain or otherwise than through unauthorized
disclosure by Younger or any other person.
9. To the fullest extent permitted by law, Cronos Capital Corporation and
Cronos Containers Limited hereby jointly and severally agree to indemnify and
hold Younger harmless from any and all claims, demands, liabilities and damages,
including, but not limited to, attorneys' fees and other costs of defense,
arising from any actual or alleged service as an employee, agent, officer or
director of any entity within the Cronos Group, even if Younger's conduct in the
event is negligent or reckless or even amounts to willful injury, as that phrase
is used in California Civil Code Section 1668. Any entity indemnifying or
defending Younger in connection with a claim pursuant to this paragraph shall
have the power to settle such claim without Younger's consent.
10. Nothing in this Agreement shall be construed as limiting or restricting
any benefit to Younger, his legal representatives or Beneficiary, under any
pension, profit-sharing or similar retirement plan, or under any group life or
group health or accident or other plan of the Employer for the benefit of its
employees generally or a group of them, or under any other agreement between
Employer and Younger, now or hereafter in existence, nor shall any payment under
this Agreement be deemed to constitute payment to Younger, his legal
representatives or Beneficiary in lieu of or in reduction of any benefit or
payment under any such plan or agreement. It is understood and agreed that the
Employer shall offer to and provide Younger with all other benefits, employee
programs, facilities and emoluments which are offered to any other employee of
the Employer or of its affiliates now or at any time hereafter, unless the terms
of such plans
E77
<PAGE> 6
specifically exclude him or he is ineligible to participate in such plans under
the terms thereof or applicable law.
11. This Agreement shall inure to the benefit of Younger's heirs, but neither
this Agreement nor any rights or interest under this Agreement shall be
assignable by Younger or by Younger's heirs without the Employer's prior written
consent.
12. (a) Any notice to the Employer under this Agreement shall be deemed to
have been given if and when sent by hand delivery, telefax (if electronically
confirmed) or mail, postage prepaid, to Employer at its principal office, or
such other address as the Employer may from time to time designate in writing by
notice to Younger given pursuant to Paragraph 12(b) hereof.
(b) Any notice to Younger under this Agreement shall be deemed to have
been given if and when sent by hand delivery, telefax (if electronically
confirmed) or first- class mail, postage prepaid, to Younger at this address
herein below given or such other address as Younger may from time to time
designate in writing by notice to the Employer given pursuant to Paragraph 12(a)
above. Younger's address is 1103 Cayuse Circle, SE, Salem, OR 97306.
13. (a) No amendment or modification of this Agreement shall be deemed
effective unless and until executed in writing by the parties hereto with the
same formality attending execution of this Agreement.
(b) No term or condition of this Agreement shall be deemed to have
been waived, nor shall there by any estoppel to enforce any provision of this
Agreement, except by written instrument of the party charged with such waiver or
estoppel executed with the same formality attending execution of this Agreement.
14. (a) Any dispute between the Employer and Younger concerning the terms
and provisions of this Agreement, or the interpretation, application,
enforceability or validity thereof, shall be resolved by arbitration in
California, United States of America before the American Arbitration Association
pursuant to its rules for commercial arbitration. Judgment upon any amount
rendered by the arbitrators may be entered in any court having jurisdiction
thereof. The prevailing party in any arbitration as determined by the
arbitrators shall be entitled to recover, in addition to any award, all fees and
costs he or it incurs in the arbitration, including, without limitation,
reasonable attorneys' fees and costs and costs and fees of the arbitrators.
(b) This Agreement shall be governed by and construed in accordance
with the laws of California with respect to the validity, interpretation,
performance and enforcement of this Agreement. In the event that any provision
in or obligation under this Agreement shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions or obligations shall not in any way be affected or impaired thereby.
(c) The Agreement is the complete and exclusive statement of the
parties' agreement concerning Younger's employment. No additional terms exist.
No representation not set forth herein has been made to or relied on by any
party.
E78
<PAGE> 7
WITNESS WHEREOF, the Employer and Cronos Capital Corporation have caused
this Agreement to be executed by their duly authorized officer, and Younger has
signed this Agreement effective as of July 1, 1998.
EMPLOYER
CRONOS CONTAINERS LIMITED
By
------------------------
Dennis J. Tietz
Its Attorney-In-Fact
Peter J. Younger
- ---------------------------
Peter J. Younger
CRONOS CAPITAL CORPORATION
By
------------------------
Title
---------------------
E79
<PAGE> 1
Exhibit 10.18
CRONOS CONTAINERS LIMITED
AND
STEPHEN BROCATO
SERVICE AGREEMENT
Fox & Gibbons
2 Old Burlington Street
London W1X 2QA
Tel: 0171 439 8271
Fax: 0171 468 1296
E80
<PAGE> 2
THIS AGREEMENT is made this 25th day of August 1998
BETWEEN:
(1) CRONOS CONTAINERS LIMITED a company incorporated in England and Wales
with company number 1543912 and whose registered office is at Orchard Lea,
Winkfield Lane, Winkfield, WindsorSI-44RU ("the Company"); and
(2) STEPHEN BROCATO of The Den, The Fisheries, Glebe Road, Bray, Berkshire,
SL6 'I UH The Executive.
WHEREAS
(A) The Executive has been continuously employed by the Company or a Group
Company from 1st September 1985;
(B) The Company as from 1st June 1997 have employed the Executive in the
capacity as President of the Company.
NOW THEREFORE in consideration of the mutual obligations and covenants contained
herein, the adequacy and sufficiency of which are hereby acknowledged, the
parties HAVE AGREED AS FOLLOWS
1 Interpretation
1.1 The headings and marginal headings to the clauses are for convenience
only and have no legal effect.
1.2 Any reference in this Agreement to any Act or delegated legislation
includes any statutory modification or re-enactment of it or the provision
E81
<PAGE> 3
-2
1.3 In this Agreement:
"THE BOARD" means the Board of Directors of the Company and includes any
committee of the Board duly appointed by it.
"GROUP COMPANY" means any company which for the time being is a company having
an ordinary share capital (as defined in S.832 of the Income and Corporation
Taxes Act 1988) of which not less than 25 per cent is owned directly or
indirectly by the Company or its holding company applying the provisions of
S.838 of the Income and Corporation Taxes Act 1988 in the determination of
ownership.
"CHAIRMAN" means the Chairman of the Board of any person or persons jointly
holding such office of the Company from time to time and includes any persons
exercising substantially the functions of a managing director or chief executive
officer of the Company.
2 Appointment and duration
2.1 The Company appoints the Executive and the Executive agrees to serve as
President of the Company or in such other appointment as may from time to time
be agreed. The Executive accepts that the Company may at its discretion direct
him to perform other duties or tasks commensurate with his role as a senior
Executive of the Company and the Executive agrees to perform such duties or
undertake such tasks as if they were specifically required under this Agreement.
No performance of any such duties or tasks by the Executive shall affect the
Executive's right to the remuneration provided for under this Agreement.
2.2 The appointment commenced on 1st June 1997 and shall continue (subject to
earlier termination as provided in this Agreement) until terminated by
E82
<PAGE> 4
-3
either party giving to the other no less than ~~Calendar months notice.)
2.3 The Executive warrants that by virtue of entering into this Agreement or
any other agreement between a Group Company and the Executive, he will not be in
breach of any express or implied terms of any contract with or of any other
obligation to any third party binding upon him.
3 Duties of the Executive
3.1 The Executive shall at all times during the period of this Agreement:
3.1.1 devote the whole of his time, attention and ability to the duties
of his appointment;
3.1.2 faithfully and diligently perform those duties and exercise such powers
consistent with them which are from time to time assigned to or vested in him;
3.1.3 obey all lawful and reasonable directions of Chairman and/or the Board;
3.1.4 use his best endeavours to promote the interests of the Company and its
Group Companies;
3.1.5 keep the Chairman and/or the Board promptly and fully informed (in
writing if so requested) of his conduct of the business or affairs of the
Company and its Group Companies and provide such explanations as the Chairman
and/or the Board may require;
E83
<PAGE> 5
-4
3.1.6 not at any time make any untrue or misleading statement relating to the
Company or any Group Company.
3.2 The Executive shall (without further remuneration) if and for so long as
the Company require during the period of this Agreement;
3.2.1 carry out the duties of his appointment on behalf of any Group Company;
3.2.2 act as an officer of any Group Company or hold any other appointment or
office as nominee or representative of the Company or any Group Company;
3.2.3 carry out such duties and the duties attendant on any such appointment as
if they were duties to be performed by him on behalf of the Company.
4 Place of work and residence
The Executive shall perform his duties at the Company's offices at Orchard Lea,
Winkfield Lane, Winkfield, Windsor, Berkshire, England and/or such other place
of business of the Company to which the Company may relocate its Head Office
within the United Kingdom or such other place of business of the Company or of
any Group Company as the parties shall reasonably agree.
5 Pay
5.1 During his appointment
5.1.1 the Company shall pay to the Executive a salary at the rate of
E84
<PAGE> 6
-5
pound sterling104,000.00 per year which shall accrue day-to-day and be payable
by equal monthly instalments in arrears on or about the 25th day of each month.
The salary shall be deemed to include any fees receivable by the Executive as a
Director of the Company or any Group Company, or of any other company or
unincorporated body in which he holds office as nominee or representative of the
Company or any Group Company; and
5.1.2 the Executive shall be entitled to participate in the Company's
discretionary bonus programme in accordance with its terms and conditions and
which pays a discretionary bonus based on Company and personal performance. The
entitlement to participate in the Company's discretionary bonus programme will
cease on termination of employment or if the Executive is placed on Garden
Leave;
5.2 The Executive's salary shall be reviewed by the Board annually on 1st
January and the rate of salary may be increased by the Company with effect from
that date and by such amount if any as it shall in its absolute discretion think
fit.
5.3 On termination of his employment by reason of redundancy the Executive
will be entitled to reasonable removal costs to enable him to return to
California and the cost of 2 one way tourist class airplane tickets to
California.
6 Pension
6.1 The Company does not operate a contracted-out pension scheme, so there is
no contracting-out certificate in force.
E85
<PAGE> 7
-6
6.2 At the Company's discretion, the Executive may be entitled to participate
in the Company's Group Personal Pension Plan subject to the terms of the rules
from time to time which are available for inspection from the Human Resources
Department. The Company shall be entitled at any time to terminate the scheme or
the Executive's membership of it.
7 Insurance benefits
7.1 The Executive shall be entitled to participate at the Company's expense
in the Company's Life Assurance Scheme and Permanent Health Insurance Scheme for
himself and in the Company's private medical expenses insurance scheme for
himself, his spouse and dependent children, subject always to the rules of such
schemes, details of which are available from the Human Resources Department.
8 Car
8.1 The Company shall provide the Executive, for his sole business use and
private use by him and his spouse, with a car of a make, model and specification
selected by the Company (which in the reasonable opinion of the Board is
commensurate with the status of the Executive and the image of the Company).
8.2 The Company shall bear all standing and running expenses of the car
except for use of the car by the Executive for holiday purposes and any
additional insurance costs incurred to permit the Executive to use the car
outside the United Kingdom for private purposes and shall replace such car as
provided in the Company's car scheme in effect from time to time.
8.3 The Executive shall always comply with all regulations laid down by the
Company from time to time with respect to company cars; shall forthwith
E86
<PAGE> 8
-7
notify the Company of any accidents involving his company car and of any charges
of moving driving offenses which are brought against him and, on the termination
of his appointment whether lawfully or unlawfully, shall forthwith return his
company car to the Company at its head office.
8.4 The Executive has a duty to produce and the Company has the right to
examine the Executive's current driving licence at the Company's request at any
time during normal working hours on reasonable notice throughout the terms of
the Executive's employment or his retention of the company car when at the
Company's risk or in the Company's ownership.
9 Expenses
9.1 The Company shall reimburse to the Executive on a monthly basis all
travelling, hotel, entertainment and other expenses reasonably incurred by him
in the proper performance of his duties subject to the production to the Company
of such vouchers or other evidence of actual payment of the expenses as the
Company may reasonably require.
9.2 Where the Company issues a company sponsored credit or charge card to the
Executive he shall use such card only for expenses reimbursable under clause 9.1
above, and shall return it to the Company forthwith on the termination of his
employment.
10 Holiday
10.1 In addition to English public holidays the Executive is entitled to 25
working days paid holiday in each holiday year (which runs from 1st January to
31st December each year) to be taken at such time or times as are agreed with
the Board. The Executive shall not without the consent of the Board carry
forward (save for a maximum of 5 days) any unused part of his holiday
E87
<PAGE> 9
-8
entitlement to a subsequent holiday year.
10.2 For the holiday year during which his appointment commences or
terminates, the Executive is entitled to 2 working days holiday for each
complete calendar month of his employment by the Company during that holiday
year. On the termination of his appointment for whatever reason, the Executive
shall either be entitled to pay in lieu of outstanding holiday entitlement or be
required to repay to the Company any salary received for holiday taken in excess
of his actual entitlement. The basis for payment and repayment shall be 1/260 x
of the Executive's annual basic salary for each day.
11 Sickness
11.1 If the Executive is absent because of sickness (including mental
disorder) or injury he shall report this fact forthwith to the Human Resources
Department and if the Executive is so prevented for seven or more consecutive
days he shall provide a medical practitioner's statement on the eighth day and
weekly thereafter so that the whole period of absence is certified by such
statements. Immediately following his return to work after a period of absence
the Executive shall complete a Self-Certification form available from the Human
Resources Department detailing the reason for his absence.
11.2 If the Executive shall be absent due to sickness (including mental
disorder) or injury, duly certified in accordance with the provisions of
sub-clause 11.1 hereof, he shall be entitled to receive his full basic salary
for a period of 25 days absence in aggregate in any period of 12 consecutive
months or, in circumstances where the Executive is prevented from attending work
due to sickness for a continuous period in excess of six months, to receive his
full basic salary for a period of six months and thereafter such remuneration,
if any, as the Board shall from time to time determine provided that such
E88
<PAGE> 10
-9
remuneration shall be inclusive of any statutory sick pay to which the Executive
is entitled under the provisions of the Social Security Contributions BENEFITS
ACT 1992 AND any Social Security Sickness Benefit or other benefits recoverable
by the Executive (whether or not recovered) may be deducted therefrom.
At any time during the period of his appointment, (but not normally more often
than once every second year) the Executive shall at the request and expense of
the Company permit himself to be examined by a registered medical practitioner
to be selected by the Company and shall authorise such medical practitioner to
disclose to and discuss with the Company's medical adviser the results of such
examination and any matters which arise from it in order that the Company's
medical adviser can notify the Company of any matters which, in his opinion,
might hinder or prevent the Executive (if during a period of incapacity) from
returning to work for any period or (in other circumstances) from properly
performing any duties of his appointment at any time.
12 Health and Safety at Work
The Company's current policy in respect of Health and Safety at Work which may
be varied or amended by the Company from time to time is set out in the
Company's employee manual. The Executive is required to acquaint himself with
the policy and to adhere to the same.
13 No Smoking Policy
The Company operates, for the benefit of the health and safety of employees and
visitors, a non-smoking policy on all Company premises except designated smoking
areas. The Executive shall always comply with such non-smoking policy as are
from time to time in force.
E89
<PAGE> 11
-10
14 Confidentiality
14.1 The Executive acknowledges that during his employment with the Company he
will have access to and will be entrusted with confidential information and
trade secrets relating to the business of the Company, other Group Companies and
their customers and suppliers ("Confidential Information").
14.2 The Executive will not during the term of the appointment (otherwise than
in the proper performance of his duties and then only to those who need to know
Confidential Information) or thereafter (except with the written consent of the
Board or as required by law) knowingly or recklessly:
(a) divulge or communicate Confidential Information to any person
(including any representative of the press or broadcasting or other media);
(b) cause or facilitate any unauthorised disclosure of Confidential
Information through any failure by him to exercise all due care and diligence;
or
(c) make use of (other than for the benefit of any Group Company) any
Confidential Information which may have come to his knowledge during his
employment with the Company or in respect of which a Group. Company may be bound
by an obligation of confidence to any third party provided the Executive is or
has been made aware of such obligation of confidence. The Executive will also
use all reasonable endeavours to prevent the publication or disclosure of any
Confidential Information. These restrictions will not apply to Confidential
Information which, after the appointment has been terminated, has become
available to the public generally otherwise
E90
<PAGE> 12
-11
than through unauthorised disclosure, or is disclosed in any legal proceedings.
14.3 All notes, memoranda and other records (whether in documentary form or
stored on computer disk or tape) made by the Executive during his employment
with the Company and which relate to the business of any Group Company shall
belong to such Group Company and the Executive shall, from time to time,
promptly hand over such notes, memoranda and other records to the Company (or as
the Company may direct).
15 Termination of agreement
15.1 Automatic termination
This Agreement shall automatically terminate:
15.1.1 on the Executive reaching his 65th birthday; or
15.1.2 if the Executive becomes prohibited by law from being a director; or
15.1.3 if he resigns his office.
15.2 Suspension
In order to investigate a complaint against the Executive of misconduct this
Company is entitled to suspend the Executive on full pay for so long as may be
reasonably necessary to carry out a proper investigation and hold a disciplinary
hearing.
E91
<PAGE> 13
12
15.3 Immediate dismissal
The Company may by notice terminate this Agreement with immediate effect if the
Executive:
15.3.1 commits any act of gross misconduct or repeats or continues (after
written warning) any other material breach of his obligations under this
Agreement; or
15.3.2 is responsible for any conduct which in the reasonable and fair opinion
of the Board brings him, the Company or any Group Company into disrepute; or
15.3.3 is convicted of any criminal offence (excluding an offence under road
traffic legislation in the United Kingdom or elsewhere for which he is not
sentenced to any term of imprisonment whether immediate or suspended); or
15.3.4 commits any act of dishonesty whether relating to the Company, any Group
Company, any of its or their employees or otherwise; or
15.3.5 becomes bankrupt or makes any arrangement or composition with his
creditors generally; or
15.3.6 is in the reasonable and fair opinion of the Board incompetent in the
performance of his duties.
E92
<PAGE> 14
13
15.5 Garden Leave
The Company shall have the right at its discretion during the period of notice
and any part thereof to place the Executive on leave, in which case he shall be
paid his basic salary and contractual benefits.
15.6 Miscellaneous
On termination of this Agreement for whatever reason, the Executive shall at the
request of the Company; resign (without prejudice to any claims which the
Executive may have against any company arising out of this Agreement or the
termination thereof) from all and any offices which he may hold as a Director of
the Company or of any Group Company and from all other appointments or offices
which he holds as nominee or representative of the Company or any
E93
<PAGE> 15
14
Group Company; and
15. .2/ transfer without payment to the Company or as the Company
may direct any qualifying shares provided by it to him;
and if he should fail to do so within seven days the Company is hereby
irrevocably authorised to appoint some person in his name and on his behalf to
sign any documents or do any things necessary or requisite to effect such
resignation(s) and/or transfer(s).
16 Provisions after Termination
16.1 The Executive agrees that he will not at any time after the termination
of this Agreement, either personally or by his agent, directly or indirectly:
16.1.1 represent himself as being in any way connected with or interested in the
business of the Company or any Group Company;
16.1.2 use or disclose to any person, firm or company any Confidential
Information directly or indirectly relating to the affairs of the Company or any
Group Company or to a customer of the Company or any Group Company which may
have been acquired by him in the course of or incidental to his employment by
the Company for his own benefit or for the benefit of others or to the detriment
of the Company or any Group Company or such customer. This restriction shall
continue to apply after the termination of this Agreement for a period of one
year but shall cease to apply to information or knowledge which may come into
the public domain otherwise than through unauthorised disclosure by the
Executive or any
E94
<PAGE> 16
15
other person.
16.2 The Executive shall not for a period of 6 months after the termination of
this Agreement directly or indirectly and whether on his own behalf or on behalf
of any other business, concern, person, partnership, firm, company or other body
which is wholly or partly in competition with the business carried on by the
Company or any Group Company:
16.2.1 canvass, solicit or approach or cause to be canvassed or solicited or
approached for orders in respect of any services provided or goods dealt in by
the Company or any Group Company in respect of the provision or sale of which
the Executive was engaged during the last 12 months of his employment with the
Company, any person who at the date of termination of this Agreement was
negotiating with the Company or any Group Company for the supply of services or
goods or within 12 months prior to such date is or was a client or customer of
the Company or any Group Company or was in the habit of dealing with the Company
or any Group Company and with whom the Executive shall have dealt;
16.2.2 interfere or seek to interfere or take such steps as may interfere with
the continuance of supplies to the Company or any Group Company (or the terms
relating to such supplies) from any suppliers who have been supplying
components, materials or services to the Company or any Group Company at any
time during the last 12 months of this Agreement;
16.2.3 solicit or entice or endeavour to solicit or entice away from the Company
or any Group Company or offer or cause to be offered any employment to any
person employed by the
E95
<PAGE> 17
16
Company or any Group Company in an executive capacity at the date of such
termination for whom the executive is responsible;
16.2.4 deal with any person or persons who or which at any time during the
period of 12 months prior to termination of this Agreement have been in the
habit of dealing under contract with the Company or any Group Company.
16.3 The restrictions contained in this clause are separate and severable and
enforceable accordingly and considered reasonable by the parties (the Executive
acknowledging the legitimate need for the Company and the Group Companies to
protect their business interests) but in the event that any such restriction
shall be found or held to be void in circumstances where it would be valid if
some part thereof where deleted or distance of application reduced, then the
parties agree that such restriction shall apply with such modification as may be
necessary to make it valid and effective.
17 General
17.1 Statutory particulars
The further particulars of terms of employment not contained in the body of this
Agreement which must be given to the Executive in compliance with the Employment
Rights Act 1996 are given in Schedule 1.
17.2 Prior agreements
Except for the Board of Directors Minutes of the Cronos Group SA dated 26th July
1997 (which indemnifies the Executive on the terms set out therein), the terms
of which shall continue to apply, this Agreement sets out
E96
<PAGE> 18
17
the entire agreement and understanding of the parties and is in substitution for
any previous contracts or employment or for services between the Company or any
of its Group Companies and the Executive (which shall be deemed to have been
terminated by mutual consent).
17.3 Accrued rights
The expiration or termination of this Agreement however arising shall not
operate to affect such of the provisions of this Agreement as are expressed to
operate or have effect after then and shall be without prejudice to any accrued
rights or remedies of the parties.
17.4 Proper law
The validity construction and performance of this Agreement shall be governed by
English law.
17.5 Acceptance of jurisdiction
All disputes claims or proceedings between the parties relating to the validity
construction or performance of this Agreement shall be subject to the
nonexclusive jurisdiction of the High Court of Justice in England and Wales
("the High court") to which the parties irrevocably submit.
17.6 Notices
Any notice to be given by a party under this Agreement must be in writing and
must be given by delivery at or by sending by first class post or other faster
postal service, or telex, facsimile transmission or other means of
telecommunication in permanent written form (provided the addressee has his or
its own facilities for receiving such transmissions) to the last known
E97
<PAGE> 19
18
postal address or relevant telecommunications number of the other party. Where
notice is given by sending in a prescribed manner it shall be deemed to have
been received when in the ordinary course of the means of transmission it would
be received by the addressee. To prove the giving of a notice it shall be
sufficient to show it was despatched. A notice shall have effect from the sooner
of its actual or deemed receipt by the addressee.
IN WITNESS WHEREOF THE EXECUTIVE AND THE COMPANY HAVE EXECUTED THIS DOCUMENT AS
A DEED THE DAY AND YEAR FIRST BEFORE WRITTEN
Signed and delivered as a Deed by the Executive
in the presence of
Name
Address
Occupation
Signed and delivered as a Deed by -See~/Director and
E98
<PAGE> 20
19
Director for and on behalf of the Company
/s/ [SIGNATURE ILLEGIBLE]
-----------------------
E99
<PAGE> 21
-20
SCHEDULE 1
EMPLOYMENT RIGHTS ACT 1996
The following is given to supplement the information given in the body of the
Agreement in order to comply with the requirements of the Act.
1 The Executive's employment by the Company commenced on
2 The Executive's period of continuous employment with the Company
commenced on
3 The Executive's hour of work are the normal hours of the Company from
9.00 am to 5.30 pm Monday to Friday each week together with such additional
hours as may be necessary so as properly to fulfil his duties.
4 No contracting out certificate pursuant to the provisions of the Pensions
Schemes Act 1993 is held by the Company in respect of the Executive's
employment.
5 There is no formal disciplinary procedure applicable to this employment.
The Executive is expected to exhibit a high standard of propriety, integrity and
efficiency in all his dealing with and in the name of the Company and any Group
Company and may be suspended on basic pay together with contractual benefits or
required to take leave during any investigations which it may be necessary for
the Company to undertake.
6 If the Executive has any grievance relating to his employment (other than
one relating to a disciplinary decision) he should refer such grievance to the
Chairman of the Board and if the grievance is not resolved by discussion with
him it will be referred to the Board for resolution.
E100
<PAGE> 22
-21
7 There are no collective agreements which directly affect the Executive's
terms and conditions of employment.
E101
<PAGE> 23
CRONOS MANAGEMENT NV
AND
STEPHEN BROCATO
SERVICE AGREEMENT
Fox & Gibbons
2 Old Burlington Street
London W1 X 2QA
Tel: 0171 439 8271
Fax: 0171 439 1296
E102
<PAGE> 24
INDEX TO CLAUSES
1 Interpretation
2 Appointment and duration
3 Duties of the Executive
4 Place of work
5 Pay
6 Pension
7 Expenses
8 Holiday
9 Sickness
10 Disciplinary Procedures
11 Grievance Procedures
12 Confidentiality
13 Termination of agreement
14 Provisions after Termination
15 General
E103
<PAGE> 25
SERVICE AGREEMENT
THIS AGREEMENT is made this 25th day of August 1998
BETWEEN:
(1) CRONOS MANAGEMENT NV a company incorporated in Netherlands Antilles and
whose branch office is at Room 2302-4, 23rd Floor, Goldmark, 502 Hennessy Road,
Causeway Bay, Hong Kong ("the Company"); and
(2) STEPHEN BROCATO of The Den, The Fisheries, Glebe Road, Bray, Berkshire
SL6 l UH Pthe Executive.
WHEREAS
(A) The Executive has been continuously employed by the Company or a Group
Company from 1 September 1985;
(B) The Company as from 1 June 1997 have employed the Executive in the
capacity as President of the Company;
(C) This Service Agreement is ancillary to a Service Agreement of even date
between Cronos Containers Limited (a Group Company incorporated in England and
Wales) and the Executive ("the English Agreement").
E104
<PAGE> 26
-2
NOW THEREFORE in consideration of the mutual obligations and covenants contained
herein, the adequacy and sufficiency of which are hereby acknowledged, the
parties HAVE AGREED AS FOLLOWS:
1 INTERPRETATION
1.1 The headings and marginal headings to the clauses are for convenience
only and have no legal effect.
1.2 Any reference in this Agreement to any Act or delegated legislation
includes any statutory modification or re-enactment of it or the provision
referred to.
1.3 In this Agreement:
"THE BOARD" means the Board of Directors of the Company and includes any
committee of the Board duly appointed by it.
"GROUP COMPANY" means any company which for the time being is a company having
an ordinary share capital (as defined in S.832 of the Income and Corporation
Taxes Act 1988) of which not less than 25% is owned directly or indirectly by
the Company or its holding company applying the provisions of S.838 of the
Income and Corporation Taxes Act 1988 in determination of ownership.
"CHAIRMAN" means the Chairman of the Board or any person or persons jointly
holding such office of the Company from time to time and includes any persons
exercising substantially the functions of a managing director or chief executive
officer of the Company.
E105
<PAGE> 27
-3
2 APPOINTMENT AND DURATION
2.1 The Company appoints the Executive and the Executive agrees to serve as
President of the Company or in such other appointment as may from time to time
be agreed. The Executive accepts that the Company may at its discretion direct
him to perform other duties or tasks commensurate with his role as President of
the Company and the Executive agrees to perform such duties or undertake such
tasks as if they were specifically required under this Agreement. No performance
of any such duties or tasks by the Executive shall affect the Executive's right
to the remuneration provided for under this Agreement.
2.2 The appointment commenced on 1st June 1997 and shall continue (subject
to earlier termination as provided in this Agreement) until terminated by either
party giving to the other not less than calendar months prior notice.
2.3 The Executive warrants that by virtue of entering into this Agreement or
any other agreement between a Group Company and the Executive, he will not be in
breach of any express or implied terms of any contract with or of any other
obligation to any third party binding upon him.
3 DUTIES OF THE EXECUTIVE
3.1 The Executive shall at all times during the period of this Agreement:
3.1.1 faithfully and diligently perform those duties and exercise such powers
consistent with them which are from time to time assigned to or vested in him;
E106
<PAGE> 28
-4
3.1.2 obey all lawful and reasonable directions of Chairman and/or the Board;
3.1.3 use his best endeavours to promote the interests of the Company and its
Group Companies;
3.1.4 keep the Chairman and/or the Board promptly and fully informed (in
writing if so requested) of his conduct of the business or affairs of the
Company and its Group Companies and provide such explanations as the Chairman
and/or the Board may require;
3.1.5 not at any time make any untrue or misleading statement relating to the
Company or any Group Company.
3.2 The Executive shall (without further remuneration) if and for so long as
the Company require during the period of this Agreement:
3.2.1 carry out the duties of his appointment on behalf of any Group Company;
3.2.2 act as an officer of any Group Company or hold any other appointment or
office as nominee or representative of the Company or any Group Company;
3.2.3 carry out such duties and the duties attendant on any such appointment as
if they were duties to be performed by him on behalf of the Company.
4 PLACE OF WORK
The Executive shall perform his duties at such of its business premises
E107
<PAGE> 29
-5
outside the United Kingdom as the Company shall require from time to time.
5 Pay
5.1 During his appointment the Company shall pay to the Executive a salary at
the rate of pound sterling56,000 per year which shall accrue day-to-day and be
payable by equal monthly instalments in arrears on or about the 25th day of each
month. The salary shall be deemed to include any fees receivable by the
Executive as a Director of the Company or any Group Company, or of any other
company or unincorporated body in which he holds office as nominee or
representative of the Company or any Group Company.
5.2 The Executive's salary shall be reviewed by the Board annually on 1st
January and the rate of salary may be increased by the Company with effect from
that date and by such amount if any as it shall in its absolute discretion think
fit.
6 Pension
The Company does not operate a contracted-out pension scheme, so there is no
contracting-out certificate in force.
7 EXPENSES
7.1 The Company shall reimburse to the Executive on a monthly basis all
travelling, hotel, entertainment and other expenses reasonably incurred by
E108
<PAGE> 30
-6
him in the proper performance of his duties subject to the production to the
Company of such vouchers or other evidence of actual payment of the expenses as
the Company may reasonably require.
7.2 Where the Company issues a company sponsored credit or charge card to the
Executive he shall use such card only for expenses reimbursable under clause 9.1
above, and shall return it to the Company forthwith on the termination of his
employment.
8 HOLIDAY
The Executive shall not be entitled to paid holiday leave save for that provided
in the English Agreement.
9 SICKNESS
9.1 If the Executive is absent because of sickness (including mental
disorder) or injury he shall report this fact forthwith to the Human Resources
Department of Cronos Containers Limited. The Company's policy in respect of
sickness is set out in the English Agreement and the Executive is bound by the
same.
10 DISCIPLINARY PROCEDURE
There is no formal disciplinary procedure applicable to this employment. The
Executive is expected to exhibit a high standard of propriety, integrity and
efficiency in all his dealings with and in the name of the Company and any Group
Company and may be suspended on basic pay or required to take leave during any
investigation which it may be necessary to undertake.
E109
<PAGE> 31
-7
11 GRIEVANCE PROCEDURE
If the Executive has any grievance relating to his employment (other than
relating to a disciplinary decision) he should refer such grievance to the
Chairman of the Board and if the grievance is not resolved by discussion with
him, it will be referred to the Board for resolution.
12 CONFIDENTIALITY
12.1 The Executive acknowledges that during his employment with the Company he
will have access to and will be entrusted with confidential information and
trade secrets relating to the business of the Company, other Group Companies and
their customers and suppliers ("Confidential Information").
12.2 The Executive will not during the term of the appointment (otherwise than
in the proper performance of his duties and then only to those who need to know
Confidential Information) or thereafter (except with the written consent of the
Board or as required by law) knowingly or recklessly:
a) divulge or communicate Confidential Information to any person
(including any representative of the press or broadcasting or other
media);
b) cause or facilitate any unauthorised disclosure of Confidential
Information through any failure by him to exercise all due care and
diligence; or
c) make use of (other than for the benefit of any Group Company) any
Confidential Information which may have come to his knowledge during his
employment with the Company or in respect of which a Group Company may be
bound by an obligation of confidence to any
E110
<PAGE> 32
-8
third party provided the Executive is or has been made aware of such obligation
of confidence. The Executive will also use all reasonable endeavours to prevent
the publication or disclosure of any Confidential Information. These
restrictions will not apply to Confidential Information which, after the
appointment has been terminated, has become available to the public generally
otherwise than through unauthorised disclosure, or is disclosed in any legal
proceedings.
12.3 All notes, memoranda and other records (whether in documentary
form or stored on computer disk or tape) made by the Executive during his
employment with the Company and which relate to the business of any Group
Company shall belong to such Group Company and the Executive shall, from time to
time, promptly hand over such notes, memoranda and other records to the Company
(or as the Company may direct).
13 TERMINATION OF AGREEMENT
13.1 Automatic termination
This Agreement shall automatically terminate:
13.1.1 on the Executive reaching his 65th birthday; or
13.1.2 if the Executive becomes prohibited by law from being a director; or
13.1.3 if he resigns his office.
E111
<PAGE> 33
-9
13.2 Suspension
In order to investigate a complaint against the Executive of misconduct the
Company is entitled to suspend the Executive on full pay for so long as may be
necessary to carry out a proper investigation and hold a disciplinary hearing.
13.3 Immediate dismissal
The Company may by notice terminate this Agreement with immediate effect if the
Executive:
13.3.1 commits any act of gross misconduct or repeats or continues (after
written warning) any other material breach of his obligations under this
Agreement; or
13.3.2 is responsible for any conduct which in the reasonable and fair opinion
of the Board brings him, the Company or any Group Company into disrepute; or
13.3.3 is convicted of any criminal offence (excluding an offence under road
traffic legislation in Hong Kong or elsewhere for which he is not sentenced to
any term of imprisonment whether immediate or suspended); or
13.3.4 commits any act of dishonesty whether relating to the Company, any Group
Company, any of its or their employees or otherwise; or
13.3.5 becomes bankrupt or makes any arrangement or composition with his
creditors generally; or
E112
<PAGE> 34
-10
13.3.6 is in the reasonable and fair opinion of the Board incompetent in the
performance of his duties.
13.5 Garden Leave
The Company shall have the right at its discretion during the period of notice
and any part thereof to place the Executive on leave, in which case he shall be
paid his basic salary and contractual benefits.
13 Miscellaneous
On the termination of this Agreement for whatever reason, the Executive shall at
the request of the Company:
13.6.1 resign (without prejudice to any claims which the Executive
E113
<PAGE> 35
-11
may have against any company arising out of this Agreement or the termination
thereof) from all and any offices which he may hold as a Director of the Company
or of any Group Company and from all other appointments or offices which he
holds as nominee or representative of the Company or any Group Company; and
3/_2 ~transfer without payment to the Company or as the Company may direct any
qualifying shares provided by it to him;
and if he should fail to do so within seven days the Company is hereby
irrevocably authorised to appoint some person in his name and on his behalf to
sign any documents or do any things necessary or requisite to effect such
resignation(s) and/or transfer(s).
14 PROVISION AFTER TERMINATION
14.1 The Executive agrees that he will not at any time after the termination
of this Agreement, either personally or by his agent, directly or indirectly:
14.1.1 represent himself as being in any way connected with or interested in the
business of the Company or any Group Company;
14.1.2 use or disclose to any person, firm or company any Confidential
Information directly or indirectly relating to the affairs of the Company or any
Group Company or to a customer of the Company or any Group Company which may
have been acquired by him in the course of or incidental to his employment by
the Company for his own benefit or for the benefit of others or to the detriment
of the Company or any
E114
<PAGE> 36
-12
Group Company or such customer. This restriction shall continue to apply after
the termination of this Agreement for a period of one year but shall cease to
apply to information or knowledge which may come into the public domain
otherwise than through unauthorised disclosure by the Executive or any other
person.
14.2 The Executive shall not for a period of 6 months after the termination of
this Agreement directly or indirectly and whether on his own behalf or on behalf
of any other business, concern, person, partnership, firm, company or other body
which is wholly or partly in competition with the business carried on by a the
Company or Group Company:
14.2.1 canvass, solicit or approach or cause to be canvassed or solicited or
approached for orders in respect of any services provided or goods dealt in by
the Company or any Group Company in respect of the provision or sale of which
the Executive was engaged during the last 12 months of his employment with the
Company, any person who at the date of termination of this Agreement was
negotiating with the Company or any Group Company for the supply of services or
goods or within 12 months prior to such date is or was a client or customer of
the Company or any Group Company or was in the habit of dealing with the Company
or any Group Company and with whom the Executive shall have dealt;
14.2.2 interfere or seek to interfere or take such steps as may interfere with
the continuance of supplies to the Company or any Group Company (or the terms
relating to such supplies) from any suppliers who have been supplying
components, materials or services to the Company or any Group Company
E115
<PAGE> 37
-13
at any time during the last 12 months of this Agreement;
14.2.3 solicit or entice or endeavour to solicit or entice away from the Company
or any Group Company or offer or cause to be offered any employment to any
person employed by the Company or any Group Company in an executive capacity at
the date of such termination for whom the executive is responsible;
14.2.4 deal with any person or persons who or which at any time
during the period of 12 months prior to termination of this Agreement have been
in the habit of dealing under contract with the Company or any Group Company.
14.3 The restrictions contained in this clause are separate and severable and
enforceable accordingly and considered reasonable by the parties (the Executive
acknowledging the legitimate need for the Company and the Group Companies to
protect their business interests) but in the event that any such restriction
shall be found or held to be void in circumstances where it would be valid if
some part thereof where deleted or distance of application reduced, then the
parties agree that such restriction shall apply with such modification as may be
necessary to make it valid and effective.
15 GENERAL
15.1 Accrued rights
The expiration or termination of this Agreement however arising shall not
operate to affect such of the provisions of this Agreement as are expressed to
operate or have effect after then and shall be without prejudice to any accrued
rights or remedies of the parties.
E116
<PAGE> 38
-14
15.2 Proper law
The validity construction and performance of this Agreement shall be governed by
Hong Kong law.
15.3 Acceptance of *jurisdiction
All disputes claims or proceedings between the parties relating to the validity
construction or performance of this Agreement shall be subject to the
non-exclusive jurisdiction of the High Court of the Hong Kong Courts (`the High
Court') to which the parties irrevocably submit.
15.4 Notices
Any notice to be given by a party under this Agreement must be in writing and
must be given by delivery at or by sending by first class post or other faster
postal service, or telex, facsimile transmission or other means of
telecommunication in permanent written form (provided the addressee has his or
its own facilities for receiving such transmissions) to the last known postal
address or relevant telecommunications number of the other party. Where notice
is given by sending in a prescribed manner it shall be deemed to have been
received when in the ordinary course of the means of transmission it would be
received by the addressee. To prove the giving of a notice it shall be
sufficient to show it was despatched. A notice shall have effect from the sooner
of its actual or deemed receipt by the addressee.
IN WITNESS WHEREOF THE EXECUTIVE AND THE COMPANY HAVE EXECUTED THIS DOCUMENT AS
A DEED THE DAY AND YEAR FIRST BEFORE WRITTEN
E117
<PAGE> 39
-15
Signed and delivered as a deed by the Executive
FL
in the presence of
Name:
Address:
Occupation:
Signed and delivered as
a deed by [
Director and /I
Director
for and on behalf of the
Company
E118
<PAGE> 1
Exhibit 10.19
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of December
11, 1998 (the "Effective Date") by and between Dennis J. Tietz ("Tietz") and The
Cronos Group, a limited liability company organized and existing under the laws
of Luxembourg (the "Company") (collectively, the "Parties").
RECITAL
The Company desires to employ Tietz as its Chief Executive Officer, and Tietz is
willing to accept such employment by the Company, on the terms and subject to
the conditions set forth in this Agreement.
AGREEMENT
The parties agree as follows:
1. POSITION
During the term of this Agreement, Tietz shall be employed by the Company as its
Chief Executive Officer and shall be elected a director of the Company's Board
of Directors (the "Board").
E119
<PAGE> 2
2. TERM
(a) The initial term of this Agreement shall commence on the Effective Date
and shall continue until December 31, 2000. The Board may, in its discretion,
elect to renew the term of this Agreement for additional one-year terms, subject
to the agreement of Tietz.
(b) Tietz commits to work exclusively for the Company (which, for the
purposes of this provision, includes the companies directly and indirectly
whollyowned by the Company) during the term of this Agreement.
3. ANNUAL SALARY
From the Effective Date through December 31, 1999, Tietz' annual salary shall be
Two Hundred thirty-five Thousand Dollars ($235,000), paid in accordance with the
Company's standard payroll practices. After December 31, 1999, Tietz' annual
salary may be increased, in the discretion of the Board, but shall not be
reduced. In all events, Tietz' annual salary for the year 2000, and for each
year thereafter during the term of this Agreement, shall be increased, at a
minimum, in accordance with the ratio that the consumer price index compiled and
published by the United States Department of Labor's Bureau of Labor Statistics
for the San Francisco/Oakland Metropolitan area for the year just ended bears to
said figure for the calendar year preceding the year just ended.
4. BONUS
Tietz shall receive bonus compensation at such times, and in such amounts, as
are determined in the discretion of the Board.
-2
E120
<PAGE> 3
5. GROUP/EXECUTIVE BENEFITS
(a) Except as otherwise specifically provided herein, Tietz and his
family shall participate, on terms no less favorable than were provided to the
immediately preceding Chief Executive Officer of Company, in any group and/or
executive life, hospitalization or disability insurance plan, health program,
pension, profit sharing, 401(k) and similar benefit plans (qualified,
non-qualified and supplemental) that the Company sponsors for its officers or
employees, and in other fringe benefits, including any automobile allowance or
arrangement, club memberships and dues, and similar programs (collectively
referred to as the Benefits"). All waiting periods for such plans shall be
waived, except with respect to any pension plan where waiver of the applicable
waiting period is not permitted. It is understood that participating on the
"same terms" as the immediately preceding Chief Executive Officer of the Company
means the same rules and/or policies shall apply, recognizing that the result
upon applying them can be affected by different credited years of service.
(b) Without limiting the generality of the foregoing provisions of
this Section 5, the Company shall provide the following specific benefits to
Tietz:
(i) Automobile. For the Company's convenience, and as a
condition to Tietz' employment by the Company, Tietz shall, to the extent
reasonably possible, use a luxury automobile to be provided and maintained by
the Company. The Company shall also provide, at the Company's expense, adequate
personal injury and property damage insurance covering such automobile.
-3
E121
<PAGE> 4
(ii) Financial Planning. The Company will pay the fees for
outside custom financial planning for Tietz, by a recognized financial planning
organization.
(iii) Tax Preparation and Planning. The Company will pay the
fees for outside tax planning and tax return preparation services for Tietz, by
recognized experts in such fields, and any fees or expenses incurred by Tietz in
connection with any investigation or audit of such RETURNS by any taxing
authority.
(iv) Mitigation for Incremental Taxes. In recognition of the
fact that Tietz will relocate his residence to England, the Company shall
reimburse Tietz for any additional income taxes payable by him on his income
earned as an officer of the Company over the income taxes that would be payable
on such income were Tietz a resident of the state of California. The amount of
any such reimbursement shall be confirmed by the outside auditors of the
Company, and shall be payable to Tietz on or prior to March 31st of each year
for income earned by Tietz for the prior year.
(v) Vacation. Tietz shall be entitled to twenty-five (25)
business days of vacation during each calendar year during the term of this
Agreement and any extensions thereof, prorated for partial years. Tietz may
carry over to subsequent years up to five (5) business days of vacation each
year that he does not use.
(vi) Life Insurance. For the term of this Agreement and any
extensions thereof, the Company shall, at its expense, procure and keep in
effect life insurance on the life of Tietz, payable to such beneficiaries as he
may from time to time designate, in such amounts as called for by the Company's
current policy with respect to the provision of life insurance to senior
executives of the Company.
-4
E122
<PAGE> 5
(vii) Moving and Housing Allowance. THE Company recognizes that
Tietz will incur substantial relocation costs in connection with the
commencement of his employment by the Company at its principal executive offices
located at Orchard Lea, England. Accordingly, the Company shall reimburse Tietz
for all moving or relocation costs reasonably incurred by him, which may
include, without limitation, transportation costs, living expenses while Tietz
finds accommodations in Greater London, the costs of moving furniture and
personal belongings, and any other similar costs and expenses. The Company shall
further provide Tietz with a housing allowance for the first nine (9) months
that Tietz lives in London, in an amount necessary to pay the costs and expenses
of housing reasonably acceptable to Tietz in the Greater London area.
6. Equity Based Incentive Compensation
(a) In order to induce Tietz to accept the position of Chief Executive
Officer of the Company, the Company agrees, effective the Effective Date, to
grant Tietz an option (the "Option") to acquire 300,000 shares (the "Option
Shares") of the Company's Common Stock, $2.00 par value, at an exercise price
equal to the closing price of the Company's Common Stock, as quoted on NASDAQ,
as of the close of business on the Effective Date ($4.375 per share). The
Company agrees to submit the Option for the approval of the shareholders of the
Company by no later than the next regularly-scheduled annual meeting of the
shareholders of the Company. The effectiveness of the Option shall not, however,
be conditional upon approval thereof by the shareholders of the Company. Tietz'
right to purchase the Option Shares shall vest in full as of the Effective Date.
The Company agrees that the Option granted
-5
E123
<PAGE> 6
to Tietz for the Option Shares shall be exercisable for ten (10) years from the
date of grant.
(b) The Company currently has in place its Management Equity
Investment Plan (the "MEIP"), but the Company is in the process of terminating
the MEIP. As soon as practicable, the Company agrees to adopt an incentive stock
option plan pursuant to the provisions of Section 422 of the Internal Revenue
Code of 1986, as amended (hereinafter, the "Option Plan"). The Company agrees to
submit the Option Plan for approval of the shareholders of the Company within
twelve (12) months of the date the Option Plan is adopted by the Board. The
Company agrees that Tietz, as the Chief Executive Officer of the Company, shall
participate in the Option Plan, at the time or times and consistent with the
terms and vesting rules generally applicable to other senior executives of the
Company under the Option Plan.
(c) If there is a generally applicable award of options or restricted
shares to senior executives of the Company other than an award of options under
the Option Plan, Tietz shall participate in such award(s) on terms consistent
with the Company's then-current practices with respect to awards made to other
senior executives.
(d) In the event of a "Change in Control" of the Company, as that term
is defined in the Severance Agreement entered into by and between the Company
and Tietz concurrently with this Agreement, then all of Tietz' awards of stock
options, restricted shares or similar equity-based interests which have not
already vested shall immediately vest in full.
-6
E124
<PAGE> 7
(e) In the event that the Option granted by the Company to Tietz
pursuant to the provisions of subsection (a) above is not submitted to and/or
approved by the shareholders of the Company, then upon any merger, combination,
sale of all or substantially all of the assets of the Company, or consummation
of any tender or exchange offer for more than 50% of the issued and outstanding
shares of Common Stock of the Company occurring during the term of this
Agreement or within two (2) years of the termination of this Agreement other
than for Cause" (Section 7 hereof) (collectively, a "Reorganization Event"),
then Tietz shall be entitled to an incentive bonus equal to 3.5% of the
difference between the aggregate consideration received by the shareholders of
the Company as a result of the Reorganization Event and the value of said
outstanding shares of the Common Stock of the Company as of the Effective Date.
In the event that the consideration received by the shareholders of the Company
as a result of any reorganization event is not for cash in US Dollars, then the
value of the consideration received by the shareholders of the Company shall be
determined by the investment banker(s) retained by the Company to advise it in
connection with the Reorganization Event or, in the event that the Company does
not retain any such advisors, by the independent auditors of the Company. Any
such incentive bonus shall be payable to Tietz, in one lump sum payment, minus
appropriate withholding for taxes, on the date of closing or consummation of the
Reorganization Event.
(f) Cronos Capital Corp. ("CCC") is a California corporation and an
indirect wholly-owned subsidiary of the Company. CCC serves as the general
partner or managing general partner of eleven California limited partnerships
organized to
-7
E125
<PAGE> 8
own and manage marine cargo containers. Since 1992, Tietz has served as
President of CCC. Tietz shall continue to serve as President of CCC during the
term of this Agreement. Under the relevant partnership agreements of the
container partnerships, CCC, as general partner, is entitled to various forms of
compensation. The Company agrees to reallow to Tietz, as additional incentive
compensation, for the term of the container partnerships paying such
compensation, Three Percent (3%) of the fees and distributions payable and
distributable by the container partnerships to CCC. The incentive compensation
payable to Tietz under the provisions of this subsection (f) shall be payable to
him by CCC quarterly.
7. EVENTS TRIGGERING SEVERANCE BENEFITS
Upon the termination of Tietz' employment for any of the reasons described in
subsections (a)-(c) below, he will be entitled to receive the severance
benefits described in Section 8 hereof:
(a) The Company terminates Tietz' employment without "Cause."
(b) Tietz terminates his employment with the Company "For Good
Reason," which means he terminates it within six months of any event that
constitutes "Good Reason," as defined in subsection (d) below (the phrase
"Without Good Reason" means any termination by Tietz other than within six
months of an event constituting Good Reason).
(c) Tietz resigns following a "Change of Control" of the Company, as
that term (or any similar term) is defined under his Severance Agreement.
(d) Definitions:
-8
E126
<PAGE> 9
(i) "Cause" refers to Tietz' wilful dishonesty toward, fraud
upon, or deliberate injury or attempted injury to, the Company, or by reason of
Tietz' willful material breach of this Agreement which has resulted in a
material injury to the Company; provided however, that cause shall not be deemed
to exist as a result of any act or omission believed by Tietz, in good faith, to
have been in the interest of the Company.
(ii) "Good Reason" for Tietz to resign shall exist if any of the
following events occur without his consent: (A) the Company fails to pay or
provide required compensation, after the omission has been called to the
Company's attention and it has been given a reasonable opportunity to cure the
situation; or (B) the Company materially reduces Tietz' titles, position, duties
and/or authority; or (C) the Company materially breaches the terms of this
Agreement, provided Tietz has called the breach to the Company's attention and
allowed the Company a reasonable opportunity to cure it.
(iii) "Notice of Termination" shall mean a written notice which
(A) indicates the type of termination under this Agreement (e.g., for Cause) and
cites the applicable provision of this Agreement, (B) briefly describes the
facts and circumstances claimed to provide a basis for the stated type of
termination, if applicable, and (C) specifies the date of termination from
active service.
(e) Termination because of Tietz' death or disability will not require
payment of the severance benefits described in Section 8, nor will termination
for Cause or termination by Tietz Without Good Reason.
-9
E127
<PAGE> 10
(i) For purposes of this Agreement, Tietz will be deemed to be
disabled from performing his duties upon the earlier of: (A) the end of a six
consecutive month period during which, for any reason, he has been unable to
substantially perform his usual and customary duties as Chief Executive Officer;
or (B) the date when it becomes apparent that, for any reason, he will be unable
to substantially perform his usual and customary duties as Chief Executive
Officer for a period of at least six consecutive months, provided, however, that
in the case of a physical or mental injury or disease, his disability must be
determined in writing by a reputable physician or psychologist, selected jointly
by the Board and Tietz (or his personal representative). The Company shall
promptly give Tietz written notice of any determination that Tietz is disabled
from working and of any decision by the Board to terminate his employment by
reason thereof. In the event of disability, until the date of termination from
active service, the base salary payable to Tietz under Section 3 hereof shall be
reduced dollar-for-dollar by the amount of disability benefits paid to Tietz in
accordance with any disability plan, policy or program of the Company.
8. SEVERANCE BENEFITS
If Tietz qualifies for severance benefits under the provisions of Section 7
hereof, then the following terms and conditions shall apply:
(a) The Company shall pay Tietz all "Accrued Obligations" in a lump
sum in cash within thirty (30) days following his last day of active service;
provided, however, that any portion of the Accrued Obligations which consists of
bonus, deferred compensation, or incentive compensation shall be determined and
paid in
-10
E128
<PAGE> 11
accordance with the terms of the relevant plan or provision. "Accrued
Obligations" shall mean, as of Tietz' last day of active service, the sum of..
(i) his base salary under Section 3 hereof through the date of termination from
active service, to the extent not already paid; (ii) the amount of any bonus,
incentive compensation, deferred compensation and other cash compensation
accrued by Tietz as of his last day of active service, to the extent not already
paid; and (iii) any vacation pay, expense reimbursements and other cash
entitlements accrued by Tietz as of his last day of active service, to the
extent not already paid. For purposes of this Section, amounts shall be deemed
to accrue ratably over the period during which they are earned, but no
discretionary compensation shall be deemed earned or accrued until it is
specifically approved by the Board in accordance with the applicable plan,
program or policy.
(b) Within thirty (30) days after Tietz' last day of active service,
the Company shall pay him a lump sum equal to the amount that results when the
fraction described in subsection (i) below is multiplied times the sum described
in subsection (ii) below (i.e., full payment of the salary and bonus that would
have been due during the remainder of the term of this Agreement):
(i) A fraction, the numerator of which is the number of days
remaining from Tietz' last day of paid active service until the last day of the
term of this Agreement, and the denominator of which is 365;
(ii) The sum of his: (A) then-current annual salary and (B)
then-current annual performance bonus target or, if not yet established, his
most recent annual bonus payment.
-11
E129
<PAGE> 12
However, the payment to Tietz under this paragraph (b) shall be conditioned upon
his compliance with the Company's policy (as in effect on the Effective Date or
on his last day of active service, whichever is more favorable to Tietz)
regarding all salaried employees executing a waiver and release prior to
receiving severance compensation.
(c) Within thirty (30) days after Tietz' last day of active service,
the Company shall pay him a lump sum that represents a pro-rated annual bonus
for the year of termination. This amount shall be calculated by taking his
target bonus (or, if not yet established, his bonus for the prior year) for the
year of termination and multiplying it times a fraction (i) whose numerator is
the number of days elapsed in the current calendar year from January 1 of that
year through his final day of active service, and (ii) whose denominator is 365
(e.g., if his last day of active service was February 5, then this fraction
would be .10, calculated as follows: 36 days elapsed in year divided by 365
days).
(d) All options and restricted stock (including both shares and units)
that were granted before the date of termination but have not yet vested shall
immediately vest upon Tietz' final day of active service. All such options, and
also options that previously vested but have not yet been exercised, shall
remain exercisable in accordance with the Option Plan's terms for retirees.
The Company may at any time discharge Tietz from active service without advance
notice, by providing a Notice of Termination. Nothing in this Agreement shall be
construed as requiring the Company to allow Tietz to continue actively
performing the duties of Chief Executive Officer. Regardless of the reason
-12
E130
<PAGE> 13
for such termination or whether it constitutes a breach by the Company of this
Agreement, Tietz' exclusive remedy shall be payment of the severance benefits
described in subsections 8(a) - 8(d) hereof, he shall not be entitled to
reinstatement, nor to any other damages for wrongful termination; nor, after his
termination from active service, shall he be entitled to any other salary,
benefits or other compensation under this Agreement. Notwithstanding anything to
the contrary in the preceding sentences, Tietz shall be entitled to receive the
incentive compensation called for by the provisions of Section 6(f) of this
Agreement for the term of the container partnerships' paying such compensation,
shall be entitled to receive those severance benefits under his Severance
Agreement that are payable separate and apart from the severance benefits
payable to Tietz under Sections 8 or 9 hereof, as the case may be, and Tietz
shall be entitled to the benefits of the Indemnification Agreement entered into
concurrently herewith by the Company with Tietz.
9. OBLIGATIONS OF THE COMPANY UPON TERMINATION BY DEATH, DISABILITY,
DISCHARGE FOR CAUSE, OR RESIGNATION WITHOUT GOOD REASON
In the event this Agreement terminates due to the death or disability of Tietz,
or due to a termination for Cause or resignation or Tietz' retirement Without
Good Reason, the Company shall pay to Tietz all Accrued Obligations in a lump
sum in cash within thirty (30) days after his last day of active service;
provided, however, that any portion of the Accrued Obligations which consists of
bonus, deferred compensation, or incentive compensation shall be determined and
paid in accordance with the terms of the relevant plan or provision. Nothing in
this Section shall limit or otherwise adversely affect any rights Tietz may have
under applicable law, under any other agreement with the Company (including,
without limitation, the Severance
-13
E131
<PAGE> 14
Agreement, to the extent it provides for benefits not payable under this
Agreement, and the Indemnification Agreement), or under any compensation or
benefit plan or policy of the Company.
10. GROSS-UP PAYMENT FOR GOLDEN PARACHUTE TAXES
If it is determined that any payment the Company makes to or for the benefit of
Tietz, under this Agreement or otherwise, is subject to excise taxes imposed on
golden parachute payments, then the Company will make an additional payment to
him (a "gross-up" payment) which is equal to (i) the amount of the excise tax
plus (ii) the aggregate amount of any interest, penalties, fines, or additions
which are imposed in connection with the imposition of any such excise tax, plus
(iii) all income, excise, and other applicable taxes imposed on Tietz by any
taxing authority by reason of the payments required under clauses (i)-(iii)
hereof.
11. NO DUTY TO MITIGATE
With respect to the severance benefits provided under Section 8 of this
Agreement, Tietz shall not have any duty to mitigate his income loss after a
termination by finding alternative employment nor shall amounts he earns from
other employment be offset against those benefits.
12. TERMINATION BY EXECUTIVE
Tietz shall have no personal liability for damages to the Company for
voluntarily terminating his employment at any time, with or Without Good Reason,
so long as he gives at least thirty (30) days prior written notice.
-14
E132
<PAGE> 15
13. NON-COMPETITION
If Tietz' employment with the Company is terminated for any reason that entitles
him to receive severance benefits pursuant to Section 8 of this Agreement, then
for a period of twelve (12) months immediately following his last day of active
service, he shall abide by the following covenants and restrictions:
(a) Non-competition. He shall not Participate in the management of a
business entity that deals in Covered Services, unless that entity is merely a
purchaser or lessee of Covered Services which does not compete against the
Company.
(b) Raiding Employee. He shall not directly or indirectly solicit or
encourage any Existing Company Employee to leave the Company or to accept any
position with any other company.
(c) Non-disclosure. He shall not use or disclose to anyone any
Confidential Information regarding the Company.
(d) Definition. The following definitions shall apply to the
italicized terms used in subsections 13(a) - 13(c) above:
(i) "Covered Services" refers to the provision, as lessor, of
marine cargo containers to shipping companies or other lessees of marine cargo
containers.
(ii) "Participate" shall be construed broadly to include,
without limitation: (A) holding a position in which Tietz directly manages such
a business entity; (B) holding a position in which anyone else who directly
manages such a business entity is in Tietz' reporting chain or chain-of command,
regardless of the number of reporting levels between them; or (C) providing
ongoing consultation
-15
E133
<PAGE> 16
services regarding the management of such a business entity to anyone
responsible therefor.
(iii) "Existing Company Employee" means someone: (A) who became
employed by the Company before Tietz' active service terminates; and (B) who is
still employed by the Company as of the date when the facilitating act or
solicitation takes place; and (C) who holds a manager, director, or officer
level position at the Company (or an EQUIVALENT POSITION BASED on job duties).
(iv) "Confidential Information" shall include all non-public
information Tietz acquires by virtue of his positions with the Company which
might be of material value to a competitor or which might cause any economic
loss (directly or via loss of an opportunity) or substantial embarrassment to
the Company or its customers, lessees, or suppliers if disclosed. Examples of
such confidential information include, without limitation, non-public
information about the Company's strategic or marketing plans; its lessees,
customers, and suppliers; its business operations and structure; its pricing
policies; or its non-public financial data.
(e) Remedies. In the event of a breach or threatened breach of any
term of subsections 13(a) - 13(d) hereof, the Company shall be entitled to
injunctive relief and/or damages. The parties agree that breach of these
provisions would cause irreparable injury to the Company for which there would
be no adequate remedy at law, due among other reasons to the inherent difficulty
of determining the precise causation for loss of customers or measuring the
exact impact of losing key employees or having Confidential Information
disclosed.
-16
E134
<PAGE> 17
(f) Recital. Tietz acknowledges that by virtue of the positions he
will hold with the Company, he will acquire Confidential Information, including,
without limitation, knowledge of operational plans, strategic long range plans,
and leasing and marketing plans. Tietz also acknowledges that by virtue of the
positions he will hold with the Company, he will learn which Existing Company
Employees are critical to the Company's success and WILL DEVELOP RELATIONSHIPS
HE otherwise would not have had with such employees.
14. ARBITRATION
Should any dispute or controversy arising from or related to this Agreement
arise between the Parties that the Parties are incapable of resolving themselves
through good faith negotiation, then such dispute or controversy shall be
submitted for resolution by JAMS/ENDISPUTE ("JAMS") in San Francisco,
California, or at such other location as is agreed upon by the Parties. Any
dispute shall first be submitted to JAMS for mediation pursuant to the mediation
services provided by JAMS. Should the dispute between the Parties not be
successfully mediated by JAMS within 90 days of its submission (subject to any
extension agreed to by the Parties) then and in such event the dispute shall be
submitted for binding arbitration by JAMS pursuant to the rules and practices of
JAMS. Unless agreed to by the Parties, the representative of JAMS who attempts
to mediate any dispute between the Parties shall not be the representative of
JAMS who arbitrates the dispute. Judgment upon any award by the arbitrator(s)
may be entered in any court having jurisdiction thereof. It is agreed that the
prevailing party in any such arbitration or other action arising from or
relating to this Agreement shall be entitled
-17
E135
<PAGE> 18
to reimbursement of its or his reasonable costs and expenses, including
attorneys' fees. Each Party consents to the exercise over it or him of personal
jurisdiction by the arbitrator(s) selected by JAMS to resolve any dispute
hereunder.
15. FEES OF NEGOTIATING THIS AGREEMENT
The Company will pay all legal, accounting and other professional fees and
related expenses reasonably incurred by Tietz in connection with the negotiation
and preparation of this Agreement.
16. INDEMNIFICATION
To the fullest extent permitted by law and the Company's bylaws, the Company
shall indemnify Tietz (including the advancement of expenses) for any judgments,
fines, amounts paid in settlement and reasonable expenses, including attorneys'
fees, incurred by Tietz in connection with the defense of any lawsuit or other
claim to which he is made a party by reason of being an officer, director or
employee of the Company or any of its subsidiaries. Concurrently herewith, the
Company and Tietz are entering into an Indemnification Agreement for the purpose
of implementing the indemnification commitment of this Section 16.
17. BINDING EFFECT
This Agreement shall be binding upon and inure to the benefit of the heirs and
representatives of Tietz and the successors and assigns of the Company. The
Company shall require any successor (whether direct or indirect, by purchase,
merger, reorganization, consolidation, acquisition of property or stock,
liquidation or otherwise) to A or a substantial portion of its assets to assume
and agree to perform this Agreement in the same manner and to the same extent
that the Company would
-18
E136
<PAGE> 19
be required to perform it if no such succession had taken place; provided
however, that Tietz shall have the same obligations to the successor as he would
have had to the Company. Regardless of whether such an agreement is executed,
this Agreement shall be binding on any successor of the Company in accordance
with the operation of law, and such successor shall be deemed the Company for
all purposes under this Agreement.
18. NOTICES
Any notice, demand or communication required or permitted to be given by any
provision of this Agreement shall be deemed properly given if given in writing
or by electronic mail and either delivered through a commercially-recognized
overnight delivery service or, if sent by electronic mail or telecopier, to the
party or to an officer of the party to whom the same is directed, addressed as
follows:
(a) If to Cronos, to: The Cronos Group
Orchard Lea, Winkfield Windsor
Berkshire SL44RU
England
Attn: Rudolf J. Weissenberger
Fax: 01144 1344 894 102
Email: [email protected]
(b) If to Tietz, to: Dennis J. Tietz
Cronos Capital Corp.
444 Market Street, 15th Floor
San Francisco, California 94111
Fax: (415) 677-9196
Email: [email protected]
Any party identified above may change the address to which notices are to be
given hereunder by giving notice to the other party in the manner herein
provided.
-19
E137
<PAGE> 20
19. AMENDMENT OF AGREEMENT
This Agreement may not be amended except by written agreement signed by both
Parties. Only the Board has the authority to authorize such an amendment on
behalf of the Company.
20. SEVERABILITY
Each term of this Agreement is deemed severable, in whole or in part, and if any
provision of this Agreement or its application in any circumstance is found to
be unlawful or invalid, the remaining terms and provisions shall remain in full
force and effect.
21. EXECUTION IN COUNTERPARTS
This Agreement may be executed by the Parties hereto in counterparts, each of
which shall be deemed to be an original, but all such counterparts shall
constitute one and the same instrument, and all signatures need not appear on
any one counterpart.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the
day and year first above written.
THE CRONOS GROUP
Rudolf J. Weissenberger
Chairman of the Board of Directors
Dennis J. Tietz
By /s/ [SIGNATURE ILLEGIBLE]
-------------------------
-20
E138
<PAGE> 21
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (the "Agreement") is made and entered into
this 1114~- day of __________ 1998, by and between THE CRONOS GROUP, a limited
liability company incorporated in Luxembourg (the "Company", which term shall
include the Company's subsidiaries), and DENNIS J. TIETZ ("Indemnitee"). Certain
capitalized terms are used in this Agreement as specifically defined in Section
7.
In consideration of the premises and THE COVENANTS CONTAINED herein, the Company
and Indemnitee do hereby covenant and agree as follows:
1. Services by Indemnitee.
1.1 Indemnitee currently serves as a director and officer of CRONOS CAPITAL
CORR, a California corporation ("CW"), as a director and officer of CRONOS
SECURITIES CORP., a California corporation ("CSC"), and as a director of CRONOS
CONTAINERS, N.V., a Netherlands Antilles corporation ("CCNV"). On December 11,
1998, the Board of Directors of the Company appointed Indemnitee as the Chief
Executive Officer of the Indemnitee, and nominated him to serve on the Board of
Directors of the Company, subject to approval of the Company's shareholders. The
Board of Directors of the Company has also appointed Indemnitee to serve as an
officer and/or director of the following additional affiliates of the Company:
Cronos Containers Ltd., a UK corporation; Cronos Equipment (Bermuda) Ltd., a
Bermuda corporation; Cronos Holdings/Investments (US) Inc., a Delaware
corporation; Cronos Containers (Cayman) Ltd., a Cayman Islands corporation, and
Cronos Containers Leasing, N.V., a Netherlands Antilles corporation (said
affiliates referred to hereinafter as the "Other Affiliates").
1.2 The Company and Indemnitee are currently negotiating an Employment
Agreement pursuant to which Indemnitee shall serve as Chief Executive Officer of
the Company. The purpose of this Agreement is to provide indemnification to
Indemnitee on the terms and conditions set forth herein, with respect to any
services rendered by Indemnitee to the Company, CCC, CSC, CCW, the Other
Affiliates, or to any other company or entity affiliated with the Company. For
purposes of this Agreement, the term "Company" shall refer to The Cronos Group,
CCC, CSC, CCW, the Other Affiliates, and to each company, entity, or enterprise
affiliated with the Company, with respect to which, at the request of the
Company, Indemnitee serves as a director, officer, or fiduciary.
-1-
E139
<PAGE> 22
2. Indemnification and Advance.
2.1 The Company shall advance all Expenses incurred by or on behalf of
Indemnitee in connection with any Proceeding within fifteen days after the
receipt by the Company of a request therefor, accompanied or preceded by
reasonable evidence of such Expenses and by an undertaking to repay all Expenses
advanced to the extent Indemnitee shall be adjudicated, or determined pursuant
to Section 3.2 or 3.3, to be not entitled to indemnification therefor (which
undertaking shall be accepted by the Company without reference to Indemnitee's
financial ability to repay any such advances).
2.2 Except as specifically provided in Sections 3.1, 3.2 and 3.3, within 60
days after receipt of a request therefor the Company shall indemnify Indemnitee
to the full extent permitted by law against all Expenses, judgments, penalties,
fines and amounts paid in settlement actually and reasonably incurred by him or
on his behalf in connection with any Proceeding or any claim, issue or matter
therein. A request for indemnification shall be accompanied by reasonable
evidence of the amount for which indemnification is requested, and shall
indicate a choice of Independent Counsel, if any, to make any determination
pursuant to Section 3.3.
2.3 Notwithstanding any other provision of this Agreement, Indemnitee shall
be indemnified against all Expenses attributable to any Proceeding (or any
claim, issue or matter relating thereto) which was adjudicated or determined by
a court or other body of competent jurisdiction or authority, on the merits or
otherwise, in Indemnitee's favor or which was terminated by dismissal or
withdrawal with or without prejudice.
3. Exceptions.
3.1 No indemnification shall be provided hereunder with respect to any claim,
issue or matter to the extent that Indemnitee has been adjudicated not to have
acted in good faith and in a manner which the Indemnitee believed to be in, or
not opposed to, the best interests of the Company and, with respect to any
criminal proceeding, had no reasonable cause to believe his conduct was
unlawful. The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not create a presumption that the Indemnitee acted in a manner contrary to
that specified herein.
3.2 If a Change of Control has not occurred, no indemnification shall be
provided hereunder to the extent that, within 60 days of the receipt by the
Company of a request for indemnification, Indemnitee has been determined (after
investigation) by (a) the Board of Directors of the Company by majority vote of
a quorum of Disinterested Directors, or (b) if such a quorum is not obtainable,
or if directed by majority vote of a quorum of Disinterested Directors,
Independent Counsel (selected
-2-
E140
<PAGE> 23
by majority vote of the Disinterested Directors or, if none, by majority vote of
the Board of Directors) in a written opinion, not to have acted in good faith
and in a manner which the Indemnitee believed to be in, or not opposed to, the
best interests of the Company, and, with respect to any criminal proceeding, had
no reasonable cause to believe his conduct was unlawful.
3.3. If a Change in Control has occurred, no indemnification shall be provided
hereunder to the extent that, within 60 days of the receipt by the Company of a
request for indemnification, Indemnitee has been determined (after
investigation) by (a) the Independent Counsel specified by Indemnitee in the
request for indemnification or (b) if no such specification is made, by a
person, persons or entity who would be entitled to make such a determination
pursuant to Section 3.2 if a Change in Control had not OCCURRED, not to have
acted in good faith and in a manner which the Indemnitee believed to he in, or
not opposed to, the best interests of the Company and, with respect to any
criminal proceeding, had no reasonable cause to believe his conduct was
unlawful. A person, persons or entity making a determination pursuant to this
Section 3.3 shall presume that Indemnitee acted so as to be entitled to
indemnification, and the Company shall have the burden of proof in overcoming
that presumption.
3.4 Indemnitee shall cooperate with any person, persons or entity making an
investigation pursuant to Section 3.2 or 3.3 to the extent reasonably requested.
Any costs or expenses (including attorneys' fees and disbursements) incurred by
Indemnitee in so cooperating shall be borne by the Company (irrespective of the
determination as to Indemnitee's entitlement to indemnification), and the
Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.
4. Remedies of Indemnitee.
4.1 In the event that (i) a determination is made that Indemnitee is not
entitled to indemnification under this Agreement, (ii) a required advancement of
Expenses is not timely made, or (iii) payment of any required indemnification is
not timely made within the 60-day period prescribed in Sections 3.2 and 3.3,
Indemnitee shall be entitled to an adjudication in an appropriate state or
federal court in the City and County of San Francisco, California, and each of
the Company, CCC, CSC, CCW, and the Other affiliates hereby consent to the
jurisdiction over it of the state and federal courts in the City and County of
San Francisco for the purpose of resolving any such dispute. Alternatively,
Indemnitee, at his option, may seek an award in arbitration to be conducted by
and pursuant to the rules of JAMS/Endispute, San Francisco, California, and a
judgment upon any arbitration award may be entered in any court having
jurisdiction, including, without limitation, the state and federal courts in the
City and County of San Francisco, California. Indemnitee shall commence a
proceeding seeking such an adjudication or an award in arbitration within 270
days following the date on which Indemnitee first has knowledge of his right to
commence such proceeding. The Company shall not oppose Indemnitee's right to
seek any such adjudication or award in arbitration.
-3-
E141
<PAGE> 24
4.2 In the event that a determination shall have been made pursuant to this
Agreement that Indemnitee is not entitled to indemnification, any such judicial
proceeding or arbitration shall be conducted in all respects as a de nov trial,
or arbitration, on the merits and Indemnitee shall not be prejudiced by reason
of such adverse determination. If a Change of Control shall have occurred, in
any such judicial proceeding or arbitration the Company shall have the burden of
proving that Indemnitee is not entitled to indemnification or advancement of
Expenses, as the case may be, notwithstanding such adverse determination.
4.3 The Company shall be precluded from asserting in any judicial proceeding
or arbitration that the procedures and presumptions of this Agreement are not
valid, binding and enforceable and shall stipulate in any such court or before
any such arbitrator that the Company is bound by all the provisions of this
Agreement.
4.4 In the event that Indemnitee seeks a judicial adjudication of or an award
in arbitration to enforce his rights under, or to recover damages for breach of,
this Agreement, Indemnitee shall be entitled to recover from the Company, and
shall be indemnified by the Company against, any and all expenses (of the types
described in the definition of Expenses) actually and reasonably incurred by him
in such judicial adjudication or arbitration, if he prevails therein or if such
recovery is ordered by the court or the arbitrator. If it shall be determined in
such judicial adjudication that Indemnitee is entitled to receive part but not
all of the indemnification or advancement of expenses sought, the expenses
incurred by Indemnitee in connection with such judicial adjudication or
arbitration shall be appropriately prorated.
5. Security. To the extent requested by the Indemnitee and approved by the
Company's Board of Directors, the Company may at any time and from time to time
provide security to the Indemnitee for the Company's obligations hereunder
through an irrevocable bank letter of credit, funded trust or other collateral.
Any such security, once provided to the Indemnitee, may not be revoked or
released without the prior written consent of Indemnitee.
6. Insurance. To the extent that the Company maintains an insurance policy
or policies providing liability insurance for directors or executive officers of
the Company (or fiduciaries of any other enterprise), Indemnitee shall be
covered by such policy or policies in accordance with its or their terms to the
maximum extent of the coverage available for any director or executive officer
(or fiduciary) under such policy or policies, whether or not Indemnitee is still
a director or executive officer of the Company, CCC, CSC, CCW, or the Other
Affiliates. The Company shall not be liable under this Agreement to make any
payment of amounts otherwise indemnifiable hereunder if and to the extent
Indemnitee has otherwise actually received such payment under any insurance
policy, contract, agreement or otherwise.
-4-
E142
<PAGE> 25
7. Definitions.
7.1 "Change in Control" means a change in control of the Company of a nature
that would be required to be reported in response to Item 6(e) of Schedule 14A
of Regulation 14A (or in response to any similar item on any similar schedule or
form) promulgated under the Securities Exchange Act of 1934 (the "Act"), whether
or not the Company is then subject to such reporting requirement; provided,
however, that, without limitation, such a Change in Control shall be deemed to
have occurred if (i) any "Person" (as such term is used in Section 13(d) of the
Act) is or becomes the `beneficial owner' (as defined in Rule 13d-3 under the
Act), directly or indirectly, of securities of the Company representing 20% or
more of the combined voting power of the Company's then outstanding securities
without the prior approval of at least two thirds of the members of the Board of
Directors in office immediately prior to such person attaining such percentage
interest; (ii) the Company is a party to a merger, consolidation, sale of assets
or other reorganization, or a proxy contest, as a consequence of which members
of the Board of Directors in office immediately prior to such transaction or
event constitute less than a majority of the Board of Directors thereafter; or
(iii) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors (including for this
purpose any new director whose election or nomination for election by the
Company's stockholders was approved by a vote of at least two thirds of the
directors then still in office who were directors at the beginning of such
period) cease for any reason to constitute at least a majority of the Board of
Directors.
7.2 "Disinterested Director" means a director of the Company who is not and
was not a party to the Proceeding in respect of which indemnification is sought
by Indemnitee.
7.3 "Expenses" shall include all reasonable attorneys' fees, retainers, court
costs, transcript costs, fees of experts, travel expenses, duplicating costs,
printing and binding costs, telephone charges, postage, delivery service fees,
and all other disbursements or expenses of the type customarily incurred in
connection with prosecuting, defending, appearing as a witness in, preparing to
prosecute or defend or appear as a witness in, or investigating a Proceeding.
7.4 "Independent Counsel" means a law firm, or a member of a law firm, that
is experienced in matters of corporation law and neither presently is, nor in
the past five years has been, retained to represent: (i) the Company or
Indemnitee in any matter material to either such party, or (ii) any other party
to the Proceeding giving rise to a claim for indemnification hereunder.
Notwithstanding the foregoing, the term "Independent Counsel" shall not include
any person who, under the applicable standards of professional conduct then
prevailing, would have a conflict of interest in representing either the Company
or Indemnitee in any action to determine Indemnitee's rights under this
Agreement.
-5-
E143
<PAGE> 26
7.5 "Proceeding" means any pending, threatened or completed action, suit,
arbitration, alternate dispute resolution mechanism, investigation,
administrative hearing or any other proceeding whether civil, criminal,
administrative or investigative in which Indemnitee is or may be involved as a
witness, respondent, or defendant by reason of being, having been or having
agreed to become a director or executive officer of the Company, CCC, CSQ CCW,
to the Other Affiliates, or, at the request of the Company, being, having been
or having agreed to become a director, officer or fiduciary of any other entity
or enterprise.
8. General.
8.1 The rights provided by this Agreement shall not be exclusive of any other
rights to which Indemnitee may at any time be entitled under applicable law, the
Company's articles of incorporation or bylaws, any other agreement a vote of
stockholders or a resolution of directors, or otherwise.
8.2 This Agreement shall continue until and terminate upon the later of (a)
ten (10) years after the date that Indemnitee shall have ceased to serve as a
director or executive officer of the Company, CCC, CSC, or CCW, or the Other
Affiliates or as a fiduciary of any other corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise which Indemnitee
served at the request of the Company; or (b) the final termination of all
pending Proceedings in respect of which Indemnitee is granted rights hereunder
and of any proceeding commenced by Indemnitee relating thereto. This Agreement
shall be binding upon the Company and its successors and assigns and shall inure
to the benefit of Indemnitee and his heirs, executors and administrators.
8.3 In the event of any payment under this Agreement, the Company shall be
subrogated to the extent of such payment to all of the rights of recovery of
Indemnitee, who shall take all action necessary to secure such rights, including
execution of such documents as are necessary to enable the Company to bring suit
to enforce such rights.
8.4 If any provision or provisions of this Agreement shall be held to be
invalid, illegal or unenforceable for any reason whatsoever: (a) the validity,
legality and enforceability of the remaining provisions of this Agreement shall
not in any way be affected or impaired thereby: and (b) to the fullest extent
possible, the provisions of this Agreement shall be construed so as to give
effect to the intent manifested by the provision held invalid, illegal or
unenforceable.
8.5 No supplement, modification or amendment of this Agreement shall be
binding unless executed in writing by both of the parties hereto. No waiver of
any of the provisions of this Agreement shall be deemed or shall constitute a
waiver of any other provision hereof (whether or not similar) nor shall such
waiver constitute a continuing waiver.
-6-
E144
<PAGE> 27
8.6 Indemnitee agrees promptly to notify the Company in writing upon being
served with any summons, citation, subpoena, complaint, indictment, information
or other document relating to any Proceeding or matter which may be subject to
indemnification or advancement of Expenses covered hereunder; provided however,
that the failure to give any such notice shall not disqualify the Indemnitee
from indemnification hereunder.
8.7 All notices, requests, demands and other communications hereunder shall
be in writing and shall have been duly given if (i) actually received, or (ii)
mailed by certified or registered mail, postage prepaid, on the third business
day after the date on which it is so mailed.
8.8 This Agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of California.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day
and year first above written.
THE CRONOS GROUP
By
Its
And
Its
INDEMNITEE
Dennis Tietz
-7-
E145
<PAGE> 28
SEVERANCE AGREEMENT
THIS SEVERANCE AGREEMENT ("Agreement") is made and entered into this 11th day of
December 1998 (the "Effective Date") by and between The Cronos Group, a limited
liability company organized and existing under the laws of Luxembourg (the
"Company"), and Dennis J. Tietz (the "Employee").
WHEREAS, the Employee is currently employed by the Company as its Chief
Executive Officer; and
WHEREAS, the Company believes that it is in the best interest of the Company and
its shareholders to enter into this Agreement in order to provide for stability
in the management of the Company;
NOW, THEREFORE, in consideration of the foregoing and the terms and conditions
set forth herein, the Company and the Employee hereby agree as follows:
1. DEFINITIONS
1.1. "Board" means the Board of Directors of the Company.
1.2. "Change of Control" means any one of the following events;
1.2.1. Schedule 13D or- 13G Filing. A Schedule 13D or 13G is filed
pursuant to the Exchange Act indicating that any person or group (as such terms
are defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") has become the holder of more than twenty percent
(20%) of the outstanding Voting Shares. For purposes of calculating the
percentage of Voting
E146
<PAGE> 29
Shares, such person or group shall be deemed the owner of any Voting Shares
which such person or group may acquire upon conversion of securities or upon the
exercise of options, warrants or rights.
1.2.2. Certain Changes in Directors. As a result of or in connection with any
cash tender offer, merger, or other business combination, sale of assets or
contested election, or combination of the foregoing, the persons who were
directors of the Company just prior to such event shall cease within one year to
constitute a majority of the Board.
1.2.3. Going Private. The Company's stockholders approve a definitive agreement
providing for a transaction in which the Company will cease to be an independent
publicly-owned corporation.
1.2.4. Certain Corporate Transactions. The stockholders of the Company approve a
definitive agreement (i) to merge or consolidate the Company with or into
another corporation in which the holders of Voting Shares immediately before
such merger or reorganization will not, immediately following such merger or
reorganization, hold as a group on a fully-diluted basis both the ability to
elect at least a majority of the directors of the surviving corporation and at
least a majority in value of the surviving corporation's outstanding equity
securities, or (ii) to sell or otherwise dispose of all or substantially all of
the assets of the Company.
1.2.5. Tender or Exchange Offer. An Offer is made by a person or group (as such
terms are defined in Section 13(d)(3) of the Exchange Act) and such Offer has
resulted in such person or group holding an aggregate of twenty percent (20%) or
more of the outstanding Voting Shares. For purposes of this
-2-
E147
<PAGE> 30
E148
<PAGE> 31
paragraph 1.25, Voting Shares held by such person or group shall be calculated
in accordance with the last sentence of Section 1.2.1 hereof.
1.2.6. Existing Shareholder. Employee is aware that as disclosed in the
Company's Annual Report on Form 20-F for the year ended December 31, 1997,
Stefan M. Palatin is disclosed as the record owner of 31.9% of the issued and
outstanding shares of Common Stock of the Company, subject to the conditions and
restrictions set forth in said Annual Report. No Change of Control" within the
meaning of this Section 1.2. shall be deemed to occur should Mr. Palatin, from
and after the date of this Agreement, file an amendment to his Schedule 13D
updating the extent of his holdings of outstanding shares of Common Stock of the
Company; provided, however, that a Change of Control within the meaning of this
Section 1.2 shall be deemed to occur in the event that Mr. Palatin files a
Schedule 13D indicating that he or any group of persons of which he is a member
hold more than 35% of the outstanding Voting Shares.
1.3. "Offer" means a tender offer or an exchange offer for shares of the
Company's Stock.
1.4. "Stock" means the Common Stock, $2.00 par value, of the Company.
1.5. "Termination Date" means the date on which Employee's employment with the
Company is terminated.
1.6. "Termination For Cause" means the termination by the Company of
Employee's employment by the Company by reason of Employee's willful dishonesty
towards, fraud upon, or deliberate injury or attempted injury to the
-3-
E149
<PAGE> 32
E150
<PAGE> 33
Company, or by reason of Employee's willful material breach of any employment
agreement with the Company, which has resulted in material injury to the
Company; provided, however, that Employee's employment shall not be deemed to
have terminated in a Termination For Cause if such termination took place as a
result of any act or omission believed by Employee in good faith to have been in
the interest of the Company.
1.7. "Termination Without Cause" means termination of Employee's employment
other than pursuant to a Termination For Cause. Termination Without Cause
includes a termination by Employee following (a) a reduction by more than 5% of
Employee's base salary per month, exclusive of bonus, fringe benefits, and other
non-salary compensation (the "Monthly Base Salary") or (b) a material reduction
in Employee's titles, positions, duties and/or responsibilities as an officer of
the Company.
1.8. "Voting Shares" means the outstanding shares of the Company entitled to
vote for the election of directors.
2. PAYMENTS AND BENEFITS UPON TERMINATION WITHOUT CAUSE
In the event of a Termination Without Cause, the Employee shall be entitled to
receive the following: 2.1. Monthly Base Salary For a period of six (6) months
following the Termination Date, Employee shall receive his Monthly Base Salary
at a rate equal to the highest Monthly Base Salary paid to Employee within the
six (6) months preceding the Termination Date. In addition, if Employee has been
employed by Company for more than five years, Employee shall be entitled to
additional Monthly
-4-
E151
<PAGE> 34
[This page intentionally left blank]
E152
<PAGE> 35
Base Salary, determined in accordance with the preceding sentence, for the
applicable period set forth in Schedule 2.1 hereto. At the option of the
Company, all or part of such Monthly Base Salary may be paid in a lump sum. For
purposes of this Section 2.1, employment by any subsidiary of the Company shall
be deemed employment by the Company.
2.2. Bonus. If, an the Termination Date, Employee is a participant in any
Company bonus plan or program, Employee shall be paid, when such bonus payments
typically are made to plan or program participants, a portion of each such bonus
determined by multiplying (i) a fraction, the numerator of which shall be the
number of months that shall have passed to the last day of the month in which
the Termination Date occurs, and the denominator of which shall be twelve, and
(ii) the bonus to which Employee would have been entitled had such termination
not occurred. For purposes of the foregoing clause (ii), Employee shall be not
be entitled to a pro rata amount of bonus that is discretionary, unless such
Employee is specifically awarded such discretionary amount in accordance with
the terms and conditions of the applicable bonus plan or program.
2.3. Benefits. So long as Employee is receiving his Monthly Base Salary or
until Employee is reemployed, whichever first occurs, Employee also shall be
entitled to all employee benefits, including medical and life insurance,
pension, retirement and other benefits to which Employee was entitled on the
Termination Date.
2.4. Vesting If, on the Termination Date, Employee holds any Voting Shares or
options or other rights to acquire Voting Shares which are subject
-5-
E153
<PAGE> 36
[This page intentionally left blank]
E154
<PAGE> 37
to restrictions based on continued employment with the Company, such
restrictions shall lapse as of the Termination Date. In addition, if Employee
is a participant in any Company deferred compensation plan, then all amounts
credited under such plan to Employee shall become fully vested and
nonforfeitable.
2.5. Outplacement Services. The Company shall pay, on behalf of Employee,
expenses and fees relating to outplacement services utilized by Employee, in an
amount that is the usual and customary rate for such services for an individual
at Employee's level.
2.6. Multiple, Benefit. To the extent that any other agreement ("Other
Agreement") between the Employee and the Company would provide for salary
continuation (or a lump sum payment in lieu of salary continuation) and bonus
payments under the same circumstances as such benefits would be provided
pursuant to Sections 2.1 and 2.2 hereof, then Employee shall not receive such
benefits under both the Other Agreement and Sections 2.1 and 2.2, but shall
instead receive the greater of the salary continuation benefit payable under
either Section 2.1 or the Other Agreement and the greater of the bonus benefit
payable under either Section 2.2 and the Other Agreement. Except as provided by
the foregoing sentence, the benefits payable under this Agreement shall be in
addition to, and not in lieu of, any other benefits that may be provided under
any plan, program or agreement.
3. EMPLOYMENT
The sole purpose of this Agreement is to provide Employee with severance
benefits in the event Employee is Terminated Without Cause. This
-6-
E155
<PAGE> 38
[This page intentionally left blank]
E156
<PAGE> 39
Agreement is not an employment agreement. This Agreement shall not affect any
right of the Company to terminate Employee's employment at any time.
4. HEADINGS
The headings used in this Agreement are for convenience only, and shall not be
used to construe the terms and conditions of the Agreement.
5. GOVERNING LAW
This Agreement shall be governed by and construed according to the laws of the
State of California. The terms of this Agreement shall bind and shall inure to
the benefit of the successors and assigns of the parties hereto.
IN WITNESS WHEREOF, the Company and the Employee have executed this Agreement as
of the day and year first above written.
THE CRONOS GROUP
By
Its
And Its
De
-7-
E157
<PAGE> 40
Scheduled 2.
In accordance with Section 2.1, Employee shall be entitled to receive additional
monthly base salary as provided in the following units.
<TABLE>
<CAPTION>
Additional Total Months
Completed Months of Base of Base Pay
Years of Service Pay Continuation Continuation
---------------- ---------------- ------------
<S> <C> <C>
5 7 13
6 8 14
7 9 15
8 10 16
9 11 17
10 or more 12 18
</TABLE>
E158
<PAGE> 1
Exhibit 21.1
SUBSIDIARIES
The Company's principal wholly-owned subsidiaries at December 31, 1998,
were as follows:
<TABLE>
<CAPTION>
COUNTRY OF
COMPANY INCORPORATION PRINCIPAL ACTIVITY
- ------- ------------- ------------------
<S> <C> <C>
Cronos Containers Limited* UK Container leasing management
and administration
Cronos Containers N.V.* Netherlands Antilles Container management,
financing and administration
Cronos Containers (Cayman) Limited* Cayman Islands Container management and
administration
Cronos Capital Corp. USA General Partner and limited
partnership administration
Cronos Securities Corp. USA Securities brokering
Cronos Containers Inc. USA Administration and marketing
- USA
Cronos Containers PTE Limited* Singapore Administration and marketing
- Singapore
Cronos Containers Pty Limited* Australia Administration and marketing
- Australia
Cronos Containers S.r.l. Italy Administration and marketing
- Southern Europe
Cronos Containers (Hong Kong) Hong Kong Administration and marketing
Limited* - Hong Kong and Australia
Cronos Container Leasing GmbH Germany Administration and marketing
- Germany
Cronos Equipment S.A.* Liberia Container investment
Cronos Equipment (Jersey) Ltd* Jersey Container investment
Cronos Equipment (Bermuda) Ltd* Bermuda Container investment
Cronos Containers Insurance Ltd* Guernsey Container insurance
Cronos Equipment Limited UK Administration
Advanced Property Services Limited UK Property investment
Cronos Containers (Belgium) N.V. Belgium Administration and marketing
- Belgium
CG Finance BV Netherlands Financing
Cronos Management N.V.* Netherlands Antilles Holding Company and provision
of Executive services
Cronos Holdings Investments Inc. USA Holding Company
Cronos Containers Scandinavia AB Sweden Administration and Marketing
- Scandinavia
Intermodal Leasing AB Sweden Container investment
</TABLE>
- --------------------
* Denotes companies owned directly by the Company. All the other companies
are owned indirectly.
E159
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet at December 31, 1998 and the consolidated income
statement for the twelve months ended December 31, 1998 and is qualified in its
entirety by reference to such financial statements included as part of its
annual report on Form 10k for the period ended December 31, 1998.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 9,281
<SECURITIES> 1,403
<RECEIVABLES> 37,661
<ALLOWANCES> 4,446
<INVENTORY> 315
<CURRENT-ASSETS> 80,778
<PP&E> 251,295
<DEPRECIATION> 69,779
<TOTAL-ASSETS> 279,979
<CURRENT-LIABILITIES> 147,636
<BONDS> 148,466
0
0
<COMMON> 17,717
<OTHER-SE> 38,370
<TOTAL-LIABILITY-AND-EQUITY> 279,979
<SALES> 157,746
<TOTAL-REVENUES> 163,655
<CGS> 0
<TOTAL-COSTS> 110,845
<OTHER-EXPENSES> 53,253
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,718
<INCOME-PRETAX> (16,161)
<INCOME-TAX> 306
<INCOME-CONTINUING> (16,467)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (16,467)
<EPS-PRIMARY> (1.86)
<EPS-DILUTED> (1.86)
</TABLE>
