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File Pursuant to Rule 424(b)(3)
Registration No. 333-91597
PROSPECTUS
[CRONOS LOGO]
500,000 Shares
THE CRONOS GROUP
Common Shares
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This Prospectus is part of a Registration Statement that we have filed with the
SEC using a "shelf" registration process. This means:
- The selling shareholders may each offer and sell the common shares
covered by this Prospectus from time-to-time;
- We will provide a Prospectus Supplement each time a selling shareholder
sells the common shares covered hereby; and
- The Prospectus Supplement will provide specific information about the
terms of the offering and also may add, update, or change information
contained in this Prospectus.
The Cronos Group's common shares trade on the NASDAQ National Market under the
symbol "CRNS."
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 7 OF THIS PROSPECTUS.
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NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED
OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
March 8, 2000
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TABLE OF CONTENTS
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ENFORCEABILITY OF CIVIL LIABILITIES......................... 3
WHERE YOU CAN FIND MORE INFORMATION......................... 4
THE COMPANY................................................. 4
THE SELLING SHAREHOLDERS.................................... 4
FORWARD-LOOKING STATEMENT................................... 5
RECENT DEVELOPMENTS......................................... 5
RISK FACTORS................................................ 7
USE OF PROCEEDS............................................. 13
PRICE RANGE OF COMMON SHARES................................ 13
FINANCIAL CONDITION AND RESULTS OF OPERATIONS AS OF
SEPTEMBER 30, 1999........................................ 13
SELLING SHAREHOLDERS........................................ 13
PLAN OF DISTRIBUTION........................................ 15
DESCRIPTION OF COMMON SHARES................................ 15
TAX CONSIDERATIONS.......................................... 19
LEGAL MATTERS............................................... 22
EXPERTS..................................................... 22
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............. 22
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ENFORCEABILITY OF CIVIL LIABILITIES
The Cronos Group is a holding company incorporated under the laws of
Luxembourg. Two of the six directors of Cronos are residents of countries other
than the United States, and all or a substantial portion of the assets of such
persons are located outside of the United States. As a result, it may not be
possible for investors to effect service of process within the United States
upon such persons to enforce against them judgments of courts of the United
States predicated upon the civil liability provisions of the Federal or state
securities laws of the United States. The Company has been advised by its
Luxembourg counsel, Elvinger, Hoss & Prussen, that there is doubt (a) whether a
judgment of a United States court predicated solely upon the civil liability
provisions of the Federal or state securities laws would be enforceable in
Luxembourg against Cronos or such persons, and (b) whether an action could be
brought in Luxembourg against Cronos or such persons in the first instance on
the basis of liability predicated solely upon the provisions of the Federal or
state securities laws.
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We have not taken any action to permit a public offering of the common
shares covered hereby outside of the United States or to permit the possession
or distribution of this Prospectus outside of the United States. Persons outside
of the United States who come into possession of this Prospectus must inform
themselves about and observe any restrictions relating to the offering of the
common shares and the distribution of this Prospectus outside of the United
States.
In this Prospectus, "Cronos," "Company," "we," "us," and "our" refer to The
Cronos Group.
YOU SHOULD RELY ONLY ON THE INFORMATION INCORPORATED BY REFERENCE OR
PROVIDED IN THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT. WE HAVE NOT AUTHORIZED
ANYONE ELSE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT MAKING AN
OFFER OF THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT PERMITTED. YOU
SHOULD NOT ASSUME THAT THE INFORMATION IN THIS PROSPECTUS OR ANY PROSPECTUS
SUPPLEMENT IS ACCURATE AS OF ANY DATE OTHER THAN ON THE FRONT OF THESE
DOCUMENTS.
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WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a Registration Statement on Form S-3 registering
the common shares offered hereby. This Prospectus, which constitutes a part of
the Registration Statement, does not contain all of the information in the
Registration Statement or the exhibits that are part of the Registration
Statement. For further information with respect to Cronos and the common shares,
please see the Registration Statement and the exhibits that are part of the
Registration Statement.
You may read and copy any document we file at the SEC's public reference
rooms in Washington, D.C., New York, New York, and Chicago, Illinois. Please
call the SEC at 1-800-SEC-0330 for further information about the public
reference rooms. Our SEC filings are also available to the public from the SEC's
Website at http://www.SEC.gov.
We are subject to the information and periodic reporting requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). As
required by the Exchange Act, we file periodic reports, proxy statements, and
other information with the SEC. These periodic reports, proxy statements, and
other information will be available for inspection and copying at the SEC's
public reference rooms and the Website of the SEC referred to above.
THE COMPANY
We are one of the world's leading lessors of intermodal marine 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 to the 20 largest ocean carriers. Cronos, through its
predecessor companies, has been in the container leasing business since November
1978. Cronos is a limited liability company (societe anonyme) organized in
Luxembourg, with register number RCS LUX B 27489. Cronos conducts its container
leasing business through operating subsidiaries. Cronos first offered its common
shares to the public in December 1995. Our registered offices are located at 16,
Allee Marconi, Boite Postale 260, L-2120 Luxembourg, and our telephone number is
352-453145.
THE SELLING SHAREHOLDERS
The common shares covered by this Prospectus are shares owned or that may
be acquired upon the exercise of warrants by MeesPierson N.V., a Dutch financial
institution ("MeesPierson") and First Union National Bank, a national banking
association ("FUNB") (MeesPierson and FUNB are referred to collectively as the
"Selling Shareholders"). The Selling Shareholders, each of whom is a lender to
the Company, each acquired 150,000 of our common shares and warrants to acquire
an additional 100,000 each of our common shares in August 1999 in connection
with a $50,000,000 loan made by the Selling Shareholders to a subsidiary of the
Company. This Prospectus covers the common shares owned and to be acquired by
the Selling Shareholders under the warrants issued to them.
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FORWARD-LOOKING STATEMENT
An investment in our common shares involves a high degree of risk. In
addition to the other information contained in this Prospectus, you should
carefully consider the risk factors identified below before investing in our
common shares. All statements, trend analyses, and other information contained
in this Prospectus regarding the markets for our container leasing services and
net revenue, profitability, and anticipated expense levels, and any statements
containing the words "anticipate," "believe," "plan," "estimate," "expect,"
"intend," or other similar expressions constitute forward-looking statements.
These forward-looking statements are subject to business and economic risks. Our
actual results of operations may differ materially from those contained in the
forward-looking statements. The cautionary statements made in this Prospectus
apply to all forward-looking statements wherever they appear in this Prospectus.
RECENT DEVELOPMENTS
On September 21, 1999, we received an unsolicited merger proposal from the
President of Interpool, Inc. ("Interpool"). Interpool is a competitor of the
Company. Cronos' container fleet consists of approximately 365,000 TEUs, both
owned and managed for third parties (a "TEU" is a measure used in the container
industry and signifies a "twenty-foot equivalent unit," with a 20-foot container
representing one TEU and a 40-foot container representing two TEUs.).
Interpool's fleet consists of approximately 500,000 TEUs. While we concentrate
primarily on the short-term and master lease market, meaning that most of our
leases have terms of less than one year, Interpool concentrates on the
longer-term lease market, with the bulk of its fleet of containers leased under
leases of terms of three years or more.
By its proposal, Interpool proposed a merger of Cronos with Interpool's
50%-owned Nevada subsidiary, Container Applications International, Inc. ("CAI").
Interpool proposed, subject to conditions, that the shareholders of Cronos would
receive $5.00 per share in the transaction. Interpool's proposal was subject to
numerous conditions, including the conduct of "confirmatory" due diligence, the
absence of a material adverse effect prior to closing, the negotiation of a
definitive acquisition agreement, and the obtaining of regulatory and other
approvals.
While Interpool indicated in its letter a willingness to discuss its
proposal and its structure, Interpool gave us 24 hours to provide a
"satisfactory response," or Interpool threatened to take its proposal "directly
to [our] shareholders." On September 23, 1999, Interpool filed its preliminary
proxy statement with the SEC proposing an alternative slate of nominees for the
Board of Directors of Cronos, whose sole purpose would be to merge Cronos with
and into CAI pursuant to the Interpool proposal.
Promptly after we received Interpool's September 21st proposal, we
instructed our financial advisors, First Union Securities, Inc. ("First Union"),
to evaluate it. On October 4 and 8, 1999, the Board met and unanimously
determined that the Interpool proposal, in its then current form, be rejected as
inadequate and not in the best interest of the Company and its shareholders. At
the same time, the Board instructed First Union to pursue strategic alternatives
to enhance shareholder value, including a possible sale of the Company.
The Company has entered into confidentiality and standstill agreements with
several parties, and has supplied these parties with financial and other
information about the Company. On January 4, 2000, the Company also entered into
a confidentiality agreement with Interpool, whereby the Company agreed to
provide Interpool with access to the same information as the Company made
available to other interested parties. Interpool also agreed not to pursue a
transaction with Cronos on
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an unsolicited basis until April 30, 2000. Interpool may pursue a transaction
with the Company on an unsolicited basis earlier than April 30, 2000, in the
event that Cronos enters into a letter of intent or an agreement in principle to
merge, or engages in a business combination or like transaction with another
entity, or if another entity or Cronos makes a tender or an exchange offer for
25% or more of the outstanding shares of common stock of Cronos.
The Company, with its advisor, First Union, has continued to hold
discussions with Interpool and other interested parties. However, at this time,
the Company is unable to predict whether a transaction will result from these
discussions.
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RISK FACTORS
You should carefully consider the following risk factors and all other
information contained in this Prospectus before investing in our common shares.
Investing in our common shares involves a high degree of risk. Any of the
following factors could harm our business and could result in a partial or
complete loss of your investment.
OUR BUSINESS IS CYCLICAL
Demand for leased containers and container leasing rates depend largely
upon levels of world trade. Recessionary business cycles and worldwide
oversupplies of containers can negatively impact our operating results. During
economic downturns, ocean carriers tend to lease fewer containers and rely on
their own fleets to satisfy a greater percentage of their requirements. Thus, a
decrease in the volume of world trade could adversely affect our financial
results.
Our industry has experienced cyclical downturns during the last fifteen
years. Since 1996, the container leasing industry has experienced declines in
container utilization and daily container rental rates due to consolidation in
the global shipping industry. While we have observed an improvement in terms of
world trade since the second quarter of 1999, as the economies of Asia and Latin
America recover from the financial crises that affected them in 1997, and while
we have seen indications that containerized trade volumes from North America and
Europe to Asia may be increasing, these positive signs have yet to have a
positive impact upon Cronos' operating performance. At December 31, 1999, the
combined utilization of our container fleet (based on approximate original
equipment cost) stood at 80%. This utilization represents an improvement over
the utilization of 75% reported at the end of 1998. However, our utilization at
December 31, 1999 was still lower than it was during the first six months of
1998. During the course of 1999, our per diem container rental rate fell by
approximately 11%.
Other factors that affect the demand for leased containers and utilization
and per-diem rental rates include the supply and pricing of new and used
containers, economic conditions in the shipping industry, the availability of
financing, fluctuations in interest rates, currency valuations, import-export
restrictions, quotas, tariffs, exchange restrictions, other governmental
regulations, and other factors that are inherently unpredictable and beyond the
control of Cronos.
DEPENDENCE ON FINANCING
We are heavily dependent upon third parties to supply us with the capital
needed to acquire containers. Our operations require significant capital on an
ongoing basis to expand the size of our fleet and to replace our existing fleet
of containers. We have historically funded container fleet expansion through a
combination of secured debt financings, capital leases, management of containers
for third-party container owners, and the sponsorship of public limited
partnerships in the United States.
All of the containers owned by Cronos are pledged to secure borrowings.
Additional financing will be necessary if we are to continue to increase the
rate of expansion of our fleet. We may not be able to obtain such financing when
needed or on terms favorable to us. Furthermore, delays in obtaining financing
for containers Cronos has ordered from container manufacturers could require
Cronos to reduce or curtail future orders, resulting in a reduction in the
expansion of our container fleet.
As of December 31, 1999, approximately 35% of our total container fleet had
been financed by United States public limited partnerships. During 1997, 1998,
and 1999 approximately 34%, 40%, and 43% respectively, of our gross lease
revenue was generated by containers managed by Cronos for third parties, and
approximately 38%, 35%, and 33% respectively, of our gross lease revenue was
generated from containers owned by public limited partnerships. We have not
offered a public limited
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partnership since 1997. While we intend to offer a limited partnership to the
public in the year 2000, there can be no assurance that we will be successful in
doing so or that the financing of our container fleet through the offering of
public limited partnerships will be a source of financing for us in the future.
As of December 31, 1999, we had total borrowings of $110 million, of which
$30 million (27%) bore interest at fixed rates and the remaining $80 million
(73%) bore interest at variable rates. All of the variable rate borrowings bear
interest at a margin over an established market rate (e.g., LIBOR) or over the
lender's own base rate. An increase of 1% in these base rates, leaving all other
factors constant, would increase our annual interest expense on the borrowings
outstanding at December 31, 1999, by $0.8 million.
WE FACE STIFF COMPETITION
We compete for lessees of our containers with several large container
leasing companies that have substantially greater financial and other resources
than we do. Competition among container leasing companies is based upon several
factors, including the location and availability of inventory, lease rates,
service, and the quality of containers. The industry has been in a period of
consolidation since 1993. As of December 31, 1999, the two largest container
leasing companies had fleets totaling approximately 2.3 million TEUs, or 42% of
the worldwide leased container fleet. Our larger competitors might be able to
exploit their greater financial resources and economies of scale and reduce
per-diem rates to enhance their market share. In addition, an increase in the
availability of capital or sustained low rates of interest could provide an
incentive for ocean carriers to purchase containers rather than to lease them
from the container leasing industry.
DEFAULTS BY LESSEES
We are dependent upon our lessees continuing to make lease payments for
their containers. A default by a lessee under a lease may cause us to lose
revenues for past services as well as future revenues. In addition, the
equipment may be returned to us in a location where we may be unable to arrange
efficiently for the re-leasing or the sale of such equipment, in which event we
could incur additional operating expenses. Consequently, defaults may prevent us
from being able to recover our investment in such equipment. In addition, due to
a variety of factors, repossession from defaulting lessees may be difficult in
certain jurisdictions.
In each of the last five years, Cronos' write-offs for specific doubtful
accounts have been less than 2% of annual gross lease revenue, although no
assurance can be given that the level of lessee defaults will remain at this
level or not increase to an extent that would materially affect our results of
operations or financial condition.
DISPUTE WITH THE CONTRIN GROUP
We manage containers for investment entities sponsored or affiliated with
Contrin Holding S.A., a Luxembourg holding company (collectively "Contrin").
Approximately 1.6% (measured by TEUs) of the fleet of containers we manage for
third parties is owned by members of the Contrin Group. We are in a dispute with
Contrin over funds that Contrin claims to have remitted to Cronos for the
purchase of containers. Contrin claims that in 1994 it transmitted $2.6 million
to Cronos for the purchase of containers. We believe that these funds were not
received by us but were diverted to an account in the name of and/or controlled
by our former chairman, Stefan M. Palatin, and that this was known or should
have been known by Contrin. We also believe that the bank that received the
funds is at fault. Contrin's counsel has advised us that Contrin will institute
proceedings for the recovery of the $2.6 million against Cronos, together with
accrued interest. While we believe that we
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have meritorious defenses to Contrin's claims, if a proceeding is instituted, we
could lose and be obligated to pay Contrin the money it is demanding.
THE SEC'S NOVEMBER 15, 1999 CEASE-AND-DESIST ORDER
On November 15, 1999, we consented to the entry by the SEC of an
administrative cease and desist order (the "Order"). Without admitting or
denying the findings made by the SEC in the Order, we agreed to cease and desist
from committing or causing any future violation of certain antifraud, reporting,
recordkeeping, and internal control provisions of the Federal securities laws.
The SEC's investigation of the Company began in February 1997 and was triggered
by the actions of our former chairman, Stefan M. Palatin. Cronos' Board removed
Mr. Palatin as CEO in May 1998 and, in July 1998, Mr. Palatin resigned from our
Board. While Mr. Palatin is no longer an officer or director of the Company, he
continues to control approximately 20% of our outstanding common shares.
The SEC made certain findings by its Order. We neither admitted nor denied
the findings made by the SEC. The SEC found that Cronos, under the domination
and control of Mr. Palatin, misrepresented, through affirmative misstatements
and omissions in its public statements and filings with the SEC, transactions it
had with Mr. Palatin for the period from December 1995 through 1997, including:
- That Mr. Palatin had intercepted payments between Cronos and one of its
major customers (which Mr. Palatin also controlled);
- That Cronos paid Mr. Palatin millions of dollars in 1994 before Cronos
first sold its shares of Common Stock to the public;
- That Mr. Palatin sold shares in Cronos' initial public offering through
another entity which he controlled;
- That Cronos paid additional monies to Mr. Palatin shortly after the 1995
offering; and
- That Mr. Palatin did not own certain collateral that he pledged to secure
loans he owed to Cronos.
The SEC further found that Cronos systematically fired or demoted employees
and directors who challenged or questioned Mr. Palatin's transactions or the
disclosures of the Company related thereto.
While the Order did not impose any fine or penalty against Cronos, we are
unable to predict what impact, if any, it will have on our future business or
whether it will lead to future litigation involving Cronos. Under the Order, we
have designated an agent for service of process with respect to any proceeding
instituted by the SEC to enforce the Order or with respect to any future
investigation of the Company by the SEC. In addition, the entry of the Order
precludes the Company and persons acting on its behalf from relying upon certain
protections accorded to forward-looking statements by the Securities Act of 1933
and the Securities Exchange Act of 1934 for the three years ended November 14,
2002.
CONTROL BY PRINCIPAL SHAREHOLDERS
Our four largest shareholders or groups of shareholders control
approximately 60% of our outstanding common shares. These shareholders,
individually, or as a group (were they to associate as a group), could have the
ability to elect members of our Board of Directors and to control the outcome of
certain matters submitted to a vote of shareholders, such as any proposed merger
or consolidation of Cronos.
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Our largest shareholder remains Stefan M. Palatin, our former Chief
Executive Officer and Chairman of the Board. We are in a dispute with Mr.
Palatin over monies he owes to us under promissory notes he signed in favor of a
subsidiary of the Company. In November 1999, we brought an action in New York
State Court to collect on the promissory notes, and on February 8, 2000, we
obtained a default judgment against Mr. Palatin in the amount of $6,583,666. We
do not know whether we will be able to collect on this judgment against Mr.
Palatin, as he is not resident in the United States. As a result of this and
other disputes between the Company and Mr. Palatin, we anticipate that Mr.
Palatin will vote the common shares that he exercises control over against the
recommendations of management on proposals we may submit to our shareholders.
LACK OF LIQUIDITY FOR OUR COMMON SHARES
Because of the percentage of our common shares controlled by a few
shareholders or groups of shareholders, the trading volume in our common shares
is low. For 1999, the average daily trading volume in our shares was 9,288
shares, or approximately 0.1% of our outstanding shares as of December 31, 1999.
The effect of limited liquidity can be to make it more difficult to sell our
common shares and can increase the volatility of the price of our common shares.
OUR SHAREHOLDER RIGHTS PLAN MAY LIMIT THE VALUE OF OUR COMMON SHARES
On October 25, 1999, we adopted a shareholder rights plan, commonly
referred to as a "poison pill." We adopted the plan in response to the
unsolicited proposal by one of our competitors, Interpool, Inc., to acquire the
Company by merger with Interpool's 50%-owned subsidiary, Container Applications
International, Inc., for $5.00 per share in cash for all of our outstanding
common shares. We discuss Interpool's proposal under "Recent Developments"
above.
Pursuant to the shareholder rights plan, Cronos declared an allocation of
one right to purchase one-tenth of a share of our common stock for each
outstanding share of common stock, payable to our shareholders of record on
October 25, 1999. Each right, when it becomes exercisable, entitles the
registered holder to purchase from Cronos one-tenth of a share of common stock
at a price per whole share of common stock of $16, subject to adjustment. The
rights generally become exercisable when a person or a group of persons acquires
the beneficial ownership of 20% or more of our outstanding common shares, or
after the commencement of or announcement of an intention to make a tender or
exchange offer for our shares that would result in a person or group becoming
the beneficial owner of 20% or more of our shares. The rights would not be
triggered in the event that an acquisition, or a tender or exchange offer, is at
a price and on terms that the Board of Cronos determines to be adequate and in
the best interest of Cronos and its shareholders. The plan is designed to
prevent takeover attempts of the Company, including any such attempt by
Interpool, without the approval of the Company's Board. The plan can also have
the effect of discouraging bidders interested in taking over the Company and of
depressing the price at which our common shares would otherwise trade to reflect
this reduced interest.
SHARES ELIGIBLE FOR FUTURE SALE
We issued 300,000 of our common shares to the Selling Shareholders on
August 2, 1999, and granted to them warrants to acquire an additional 200,000
shares. Upon issuance of these additional 200,000 shares, we will have 9,358,378
shares outstanding. In addition, our Chief Executive Officer, Dennis J. Tietz,
holds an option to acquire 300,000 of our common shares, and the Board adopted,
and the shareholders of the Company at the annual meeting held January 13, 2000,
approved, our 1999 Stock Option Plan, which authorizes the grant of options to
our officers and employees for the purchase of 500,000 common shares. On
February 4, 2000, the Compensation Committee of our
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Board authorized the grant of options for 420,000 of our common shares under the
1999 Stock Option Plan to eight officers of subsidiaries of the Company. Other
than for the shares held by certain of our largest shareholders, virtually all
of our outstanding common shares are available for immediate resale without
restriction. Given the limited liquidity of the market for our common shares,
the sale of the common shares covered hereby in open market transactions, or
sales of common shares by our existing shareholders in substantial amounts,
could depress the market price of our common shares.
WE ARE DEPENDENT UPON KEY MANAGEMENT
Most of our senior executives and other management-level employees have
been with us for over five years and have significant industry experience. The
loss of the services of one or more of them could have a material adverse effect
on our business. We believe that our future success will depend on our ability
to retain key members of our management team and to attract capable management
in the future. There can be no assurance that we will be able to do so. We do
not maintain "key man" life insurance on any of our officers.
FLUCTUATIONS IN FOREIGN EXCHANGE RATES COULD REDUCE OUR PROFITABILITY
Substantially all of our revenues are billed and paid in U.S. dollars, and
approximately 78% of our costs in 1999 were incurred and paid in U.S. dollars.
Of the remaining costs, most are not predictable and individually are of small
amounts and in various denominations, and thus are not suitable for
cost-effective hedging. From time to time we hedge a portion of the expenses
which are predictable and are principally in U.K. pounds sterling. In addition,
almost all of our container purchases are paid for in U.S. dollars. There can be
no assurance that exchange rate fluctuations will not adversely affect our
results of operations and financial condition.
WE MAY BE LIABLE FOR ENVIRONMENTAL CLEANUP AS THE OWNER OF CONTAINERS
Under the state and federal laws of the United Sates and the laws of
certain other countries, the owner of a container may be liable for
environmental damage, cleanup or other costs in the event of actual or
threatened contamination resulting from discharge of material from a container.
There is a possibility that such liability or a portion thereof may be imposed
on a container owner, such as Cronos, even if the owner is not at fault.
Although we maintain insurance against property damage and bodily injury and
generally we require lessees of containers to obtain similar insurance, there
can be no assurance that such insurance will protect us fully against damages
stemming from this risk or that we will be able to avoid liability for
environmental damages or costs relating to the operations of our lessees.
Many countries, including the United States, have taken action, both
collectively and individually, to regulate chlorofluorocarbon compounds
("CFCs"). CFCs historically have been used in the manufacture and operation of
refrigerated containers, including those we purchased prior to June 1993.
Refrigerated containers that we have purchased since that date do not use CFCs
as a refrigerant gas. The possibility exists that at some time in the future
market pressures or possible governmental regulations may require refrigerated
containers using CFCs to be retrofitted with non-CFC refrigerants. Also, there
can be no assurance that the replacement refrigerant used in our new
refrigerated containers will not become subject to similar market pressures or
governmental regulations. We may have to bear all or a substantial portion of
such costs relating to retrofitting the refrigerated containers that we own.
Although no assurance can be given in this regard, we do not believe that any
such further expenses would be material in relation to our financial position
and
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results of operation. In addition, refrigerated containers that are not
retrofitted may command lower prices in the market for used containers once we
retire these containers from our fleet.
CONSEQUENCES OF LUXEMBOURG INCORPORATION
We are organized as a Luxembourg company, and are governed by our Articles
of Incorporation, the Luxembourg Company Act of August 10, 1915, as amended, and
the Luxembourg Law on Holding Companies of July 31, 1929. Luxembourg law differs
in certain respects from the corporate laws of most states of the United States.
Principles of law relating to such matters as corporate procedures, fiduciary
duties of management, and the rights of our shareholders may differ from those
that would apply if we were incorporated in a state of the United States. For
example, our authorized but unissued capital stock is eliminated every five
years unless the shareholders reauthorize it, which is not typically required in
the United States, and shareholders have preemptive rights unless such rights
are suppressed every five years. In addition, Luxembourg law imposes a 1.0% tax
on most new issuances of shares that increase shareholders' equity.
HOLDING COMPANY STRUCTURE
We are a holding company. We derive all of our operating income and cash
flow from our subsidiaries. We rely upon distributions from our subsidiaries and
intercompany borrowings to generate the funds necessary to meet our obligations.
The ability of our subsidiaries to make payments to us is subject, among other
things, to applicable laws of their respective jurisdictions of incorporation
and such restrictions as may be contained in credit agreements or other
financing arrangements entered into by such subsidiaries. Claims of creditors of
our subsidiaries will generally have priority as to the assets of such
subsidiaries over our claims and those of our shareholders.
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USE OF PROCEEDS
We will not receive any proceeds from the sale of the common shares that
the Selling Shareholders will sell pursuant to this Prospectus.
PRICE RANGE OF COMMON SHARES
Our common shares are quoted on the Nasdaq National Market under the symbol
"CRNS." The following table sets forth, for the periods indicated, the high and
low closing prices per share of our common shares as reported on the Nasdaq
National Market.
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HIGH LOW
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CALENDAR YEAR 1998
First Quarter............................................... $7.25 $ 5.125
Second Quarter.............................................. $7.125 $ 5.00
Third Quarter............................................... $5.969 $ 4.875
Fourth Quarter.............................................. $6.625 $ 3.375
CALENDAR YEAR 1999
First Quarter............................................... $5.9375 $ 4.125
Second Quarter.............................................. $4.875 $ 3.50
Third Quarter............................................... $4.625 $ 3.50
Fourth Quarter.............................................. $5.625 $ 4.563
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On March 7, 2000, the last reported closing price of our common shares on
the Nasdaq National Market was $5.375 per share. As of December 31, 1999, there
were 446 shareholders of record of our common shares.
FINANCIAL CONDITION AND RESULTS OF OPERATIONS AS OF SEPTEMBER 30, 1999
For our financial condition and the results of our operations as of
September 30, 1999, we refer you to our quarterly report on Form 10-Q for the
quarter ended September 30, 1999.
SELLING SHAREHOLDERS
The Selling Shareholders are MeesPierson N.V., a Dutch financial
institution, and First Union National Bank, a national banking association. The
address of MeesPierson is Coolsingel 93, PO Box 749, 3000 AS Rotterdam, The
Netherlands, and the address of FUNB is One First Union Center, 301 South
College Street, TW-9, Charlotte, North Carolina 28288-0735.
The Selling Shareholders are lenders to the Company. The Selling
Shareholders may sell their shares independently of each other and are not
acting as a partnership, limited partnership, syndicate or group for the purpose
of acquiring, holding, or disposing of any of their shares. On August 2, 1999,
the Selling Shareholders lent a special purpose subsidiary organized by the
Company $50 million, the proceeds of which were used to repay existing
indebtedness of the Company and its subsidiaries. We described this financing in
our quarterly report on Form 10-Q for the quarter ended June 30, 1999.
In connection with the August 1999 refinancing, each of MeesPierson and
FUNB were issued 150,000 of our authorized but unissued common shares (300,000
shares in total), and we entered into a Warrant Agreement with the Selling
Shareholders. We filed a copy of the Warrant Agreement, as amended, as an
exhibit to our quarterly report referred to above.
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THE WARRANT AGREEMENT
Pursuant to the Warrant Agreement, each of MeesPierson and FUNB was granted
the right to purchase 100,000 of our authorized but unissued common shares, at
an exercise price of $4.41 per share, which was the average of the daily closing
prices of our common shares on the Nasdaq National Market during the 30-day
period preceding August 2, 1999, the date the Selling Shareholders lent us $50
million. The Selling Shareholders may purchase their shares under the Warrant
Agreement at any time prior to August 15, 2004 plus 90 days or, if later, the
date on which we fully repay the monies borrowed from the Selling Shareholders.
We issued 150,000 of our common shares to each of the Selling Shareholders
on August 2, 1999. These 150,000 shares represent 1.64% of the 9,158,378 common
shares we currently have outstanding. Were each of the Selling Shareholders to
exercise its warrant and purchase all 100,000 shares issuable to each Selling
Shareholder under the Warrant Agreement, then each of the Selling Shareholders
would own 250,000 of our common shares, representing 2.67% of the number of our
common shares that would then be outstanding (assuming we issue no additional
shares).
The number of shares issuable under the Warrant Agreement to the Selling
Shareholders shall be adjusted to take into account any stock dividend,
subdivision of our common shares, or like change. In addition, the number of
shares subject to the Warrant Agreement shall generally be adjusted to protect
the Selling Shareholders in the event that we issue or sell our common shares or
securities convertible into our common shares or rights or warrants to purchase
our common shares at a price per share lower than the price equal to 90% of the
average of the daily closing prices of our common shares on the Nasdaq National
Market during the 30-day period preceding such sale or issuance.
The Selling Shareholders are also entitled to protection under the Warrant
Agreement in the event that we merge or consolidate with another entity or sell
all of our assets. In any such event, the Selling Shareholders shall be entitled
to receive from the surviving entity the securities or other property (including
cash) to which the Selling Shareholders would have been entitled to if the
Selling Shareholders had exercised their right to purchase our common shares
prior to consummation of the transaction.
Under the Warrant Agreement, we have a right of first refusal to purchase
the warrants issued to a Selling Shareholder, in the event of a proposed
transfer of the warrants by the Selling Shareholder, at the same price and terms
offered to the Selling Shareholder by the third party. This restriction applies
only to the proposed transfer of the warrants, not to the common shares issuable
to the Selling Shareholder under the Warrant Agreement.
Until exercise of the warrants issued to a Selling Shareholder, a Selling
Shareholder has no rights as a shareholder of the Company with respect to the
common shares issuable under the warrants.
We have filed the Registration Statement of which this Prospectus is a part
pursuant to the Warrant Agreement, which obligates us to register the 300,000
shares issued to the Selling Shareholders on August 2, 1999, and the 200,000
shares issuable under the Warrant Agreement. We further agreed to bear the
expenses of the registration, including the SEC filing fee and the expenses of
our counsel and our auditors in assisting us to register the common shares
covered hereby.
We have further agreed with the Selling Shareholders to indemnify them
against any expenses or liabilities they may incur in connection with the use of
this Prospectus in the event that it contains any untrue statement or alleged
untrue statement of any material fact or omits to state a material fact
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required to be stated therein or necessary to make the statements in this
Prospectus not misleading (with the exception of written information furnished
to us by the Selling Shareholders for inclusion in this Prospectus).
PLAN OF DISTRIBUTION
The Selling Shareholders may sell the common shares offered hereby through
underwriting syndicates or by one or more underwriters, in each case as
specified in a Supplement to this Prospectus. The Prospectus Supplement will set
forth the terms of the offering, including the name or names of the
underwriters, and either (i) the public offering price, the discounts and
commissions to the underwriters and any discounts or concessions allowed or
reallowed to certain dealers, or (ii) the method by which the price at which the
underwriters will sell the common shares will be determined.
The common shares may be acquired by the underwriters for their own account
and may be resold from time to time in one or more transactions, including
negotiated transactions, at a fixed public offering price or at varying prices
determined at the time of sale. If so indicated in the Prospectus Supplement,
the Selling Shareholders will authorize the underwriters or other persons acting
as the Selling Shareholders' agent to solicit offers by certain institutions to
purchase the common shares on such terms and subject to such conditions as so
specified.
The Selling Shareholders may also sell the common shares offered hereby by
means of the related Prospectus Supplements from time to time directly to
purchasers in negotiated transactions or otherwise, at prices determined at the
time of sale. The Selling Shareholders may effect such transactions by selling
common shares to or through dealers and such dealers may receive compensation in
the form of underwriting discounts, concessions or commissions from the Selling
Shareholders and any purchasers of common shares for whom they may act as
agents.
The place and time of delivery for the common shares in respect of which
this Prospectus is delivered will be set forth in the related Prospectus
Supplement.
DESCRIPTION OF COMMON SHARES
GOVERNING LAW
Cronos is a Luxembourg company and its affairs are governed by its Articles
of Incorporation (the "Articles"), the Luxembourg Company Act of August 10,
1915, as amended (the "Company Act"), and the Luxembourg Law on Holding
Companies of July 31, 1929. A number of the provisions of the Company Act differ
in certain respects from the corporate laws of most states of the United States.
In addition, while the leading United States commercial jurisdictions, such as
California, Delaware and New York, have extensive bodies of case law
interpreting provisions of their respective statutes, the case law in Luxembourg
is less extensive.
We are filing a copy of our Articles as an exhibit to the Registration
Statement of which this Prospectus is a part. The summary that follows is
qualified by reference to the full text of the Articles.
AUTHORIZED SHARES
Cronos' authorized capital consists of 25,000,000 common shares, $2 par
value per share, of which 9,158,378 common shares are presently issued and
outstanding. If the Selling Shareholders
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exercise all of the warrants we have issued to them, then the number of our
outstanding shares would increase by 200,000 to 9,358,378 common shares
outstanding. Our Articles currently do not authorize the issuance of preferred
shares. All of our common shares are issued in registered form.
Under Luxembourg law, our authorized capital is automatically reduced to
the amount represented by our outstanding shares, unless our shareholders renew
the authorized capital every five years. Our shareholders last renewed our
authorized capital at the special shareholders' meeting held on August 13, 1997.
Accordingly, our authorized capital will automatically be reduced to the amount
represented by our outstanding shares in 2002, on the fifth anniversary of the
shareholders' meeting just referred to, unless the authorized capital is
extended at or before that meeting. The Board of Directors is authorized,
without further shareholder action, to issue additional common shares from time
to time up to the maximum number authorized at the time.
All common shares to be outstanding upon consummation of this offering will
be fully paid and nonassessable.
VOTING RIGHTS
All common shares entitle the holder thereof to cast one vote for each
share held. Under Luxembourg law shareholder action can generally be taken by a
simple majority of shares present or represented, without regard to any minimum
quorum requirements. Two exceptions to the law are (i) to amend the Articles,
which requires (x) a two-thirds vote of the shares present or represented and
(y) a quorum of 50% of the outstanding shares entitled to vote when the meeting
is first convened, and (ii) any action for which the Articles require more than
a majority vote or a quorum.
Our Articles currently provide that Cronos is to be managed by a Board of
Directors composed of at least three members who shall be elected by simple
majority of the outstanding shares for a term of three years and until their
successors are elected. The terms of our directors are staggered so that the
terms of one-third of the total number of Directors expire in each year.
Currently, our Board consists of six members.
Our common shares are traded on the Nasdaq Stock Market. Under Nasdaq's
rules, the minimum quorum for any meeting of shareholders of a Nasdaq company is
33 1/3% of the outstanding shares of the company's common voting stock. We
observe this requirement in holding our annual meetings of shareholders.
SHAREHOLDER MEETINGS AND NOTICE
Under the Articles, the Company is required to hold a general meeting of
shareholders at 3:30 p.m. on May 20th of each year at the Company's registered
office in Luxembourg or in another location as designated. In addition, the
Board may call any number of extraordinary general meetings, which may be held
in Luxembourg or elsewhere. The Articles require notice of any general meeting
to be sent by first class mail, postage prepaid, at least 20 days prior to any
such meeting. Shareholders may be represented by written proxy, provided the
written proxy is deposited with the Company at its registered office in
Luxembourg, or with any Director before the opening of the meeting.
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DIVIDENDS
Our common shares are entitled to such dividends as may be declared by the
Board of Directors from time to time out of funds legally available therefor. In
general, under Luxembourg law only realized profits on an unconsolidated basis,
determined in accordance with Luxembourg accounting principles, are available
for dividends. Interim dividends can be declared up to three times in any fiscal
year (at the end of the second, third or fourth quarters) by the Board of
Directors. Interim dividends can be paid, but only after our independent
auditors have reported to the Board of Directors that certain conditions have
been satisfied. Final dividends are declared once a year at the annual general
meeting by the shareholders; as specifically authorized by the Articles, both
interim and final dividends can be paid out of any earnings, retained and
current, as well as additional paid-in surplus. Luxembourg law authorizes the
payment of share dividends if sufficient surplus exists to provide for the
related increase in stated capital.
Luxembourg law requires that 5% of Cronos' unconsolidated net profits each
year be allocated to a legal reserve before declaration of dividends. This
requirement continues until the reserve is 10% of our stated capital, after
which no further allocations are required until further issuance of shares. The
legal reserve may also be satisfied by a transfer from capital surplus. The
legal reserve is not available for dividends. The Company currently maintains a
legal reserve equal to 10% of its stated capital. Upon issuance of the common
shares covered hereby pursuant to exercise by the Selling Shareholders of their
warrants, we will transfer an amount from additional paid-in surplus sufficient
to maintain our legal reserve equal to 10% of our stated capital.
LIQUIDATION
Under the Articles, in the event of the liquidation, dissolution or winding
up of the Company, all debts and obligations of the Company must first be paid,
and any surplus thereafter remaining will be distributed to the holders of our
common shares.
PREEMPTIVE RIGHTS
As a general rule shareholders are entitled to preemptive rights under
Luxembourg law unless the Articles provide otherwise. The Company's Articles
authorize the Board of Directors to suppress shareholders' preemptive rights,
and the Board has done so with respect to all authorized but unissued common
shares. Upon the expiration of authorized but unissued shares discussed above,
the suppression of preemptive rights will also terminate and shareholders will
be entitled to preemptive rights once again unless the Board recommends and the
shareholders approve suppressing further such rights. Accordingly, the common
shares sold in this offering will not be entitled to preemptive rights at least
until 2002.
SHAREHOLDER RIGHTS PLAN
On October 25, 1999, we adopted a shareholder rights plan (the "Plan"). For
shareholders of record on that date, we declared an allocation of one right to
purchase one-tenth of a share of our common stock. Such rights shall also attach
to each common share issued after October 25th until the "distribution date"
(defined below). Each right, when it becomes exercisable, generally entitles the
holders of our common shares to purchase from Cronos one-tenth of a common share
at a price per whole common share of $16, subject to adjustment. The terms of
the plan are set forth in a Rights Agreement between the Company and BankBoston,
N.A., dated as of October 28, 1999 (the "Rights Agreement"), a copy of which we
filed with the SEC as an exhibit to our Registration Statement on Form 8-A on
October 29, 1999.
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Initially, the rights will attach to all certificates representing our
common shares outstanding; no separate rights certificate will be distributed.
The rights will separate from our common shares upon the earliest to occur of
(i) a person or entity or group of affiliated or associated persons having
acquired beneficial ownership of 20% or more of our outstanding common shares
(except pursuant to a permitted offer, as defined below), or (ii) ten business
days (or such later date as the Board may determine) following the commencement
of, or announcement of an intention to make, a tender or exchange offer the
consummation of which would result in a person or group becoming an "acquiring
person" (the earliest of such dates referred to in the Plan as a "Distribution
Date"). A person or group whose acquisition of our common shares causes a
Distribution Date is defined under the Plan as an "Acquiring Person." A person
who acquires our common shares pursuant to a tender or exchange offer which is
for all of our outstanding shares at a price and on terms which the Board
determines (prior to the acquisition) to be adequate and in the best interest of
the Company and its shareholders (a "Permitted Offer") will not be deemed to be
an Acquiring Person under the Plan and such person's ownership will not trigger
a Distribution Date. The rights are not exercisable until the Distribution Date
and will expire on the close of business on October 28, 2009, unless earlier
terminated.
In the event that any person becomes an Acquiring Person, then each holder
of rights will generally have the right (a "Flip-In Right") to receive, upon
exercise of such rights, the number of whole common shares having a value
(immediately prior to such triggering event) equal to two times the aggregate
exercise price of such rights. In no event, however, will shares be issued upon
exercise of the Flip-In Rights for a price of less than the par value (currently
$2.00) per common share.
The Plan also has a "Flip-Over Right" that would apply in certain mergers
or other business combinations. In such event, each holder of rights would be
entitled to receive, upon exercise of such rights, common shares of the
acquiring company (or, in certain circumstances, its parent) having a value
equal to two times the aggregate exercise price of the rights.
At any time prior to a person becoming an Acquiring Person, or the
expiration of the rights, the Company may redeem the rights, in whole, but not
in part, at a price of $0.01 per right. The Plan may also be amended by the
Board prior to the Distribution Date; and may be amended after the Distribution
Date, subject to the requirements of applicable law, to cure any ambiguity,
defect, or inconsistency, or to make changes which the Board determines to be in
the best interest of the Company and its shareholders.
Until a right is exercised, the holder thereof, as such, will have no
rights as a shareholder of the Company, including, without limitation, the right
to vote or to receive dividends. While the distribution of the rights shall not
be taxable to the shareholders of the Company, the shareholders may, depending
on the circumstances, recognize taxable income should the rights become
exercisable or upon the occurrence of certain events thereafter.
For a complete description of the Plan, prospective purchasers of our
common shares are directed to the Registration Statement on Form 8-A and the
Rights Agreement, which we filed with the SEC on October 29, 1999.
TRANSFER AGENT AND REGISTRAR
We have appointed BankBoston, N.A. as Transfer Agent and Registrar for our
common shares.
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TAX CONSIDERATIONS
The following summary of the material Luxembourg and United States Federal
tax consequences is not a comprehensive description of all of the tax
considerations that may be relevant to a decision to purchase, own or dispose of
our common shares (the "shares"), and does not deal with the tax consequences
applicable to all categories of investors, some of which may be subject to
special rules. Prospective investors therefore should consult their tax advisors
with respect to the Luxembourg and United States and other tax consequences of
the purchase, ownership and disposition of Cronos' shares, including the effect
of any foreign, state or local tax laws.
LUXEMBOURG
The following summary of the material Luxembourg tax consequences of the
purchase, ownership and disposition of shares reflects the opinion of Elvinger,
Hoss & Prussen. Under present Luxembourg law, so long as the Company maintains
its status as a holding company, no income tax, withholding tax (including with
respect to dividends), capital gains tax, estate tax, or inheritance tax is
payable in Luxembourg by shareholders in respect of the shares, except for
shareholders domiciled, resident (or, in certain circumstances, formerly
resident), or having a permanent establishment in Luxembourg.
UNITED STATES
The following summary of the material United States Federal tax
consequences resulting from the purchase, ownership and disposition of shares
reflects the opinion of Fotenos & Suttle, P.C., San Francisco, California,
United States counsel to the Company. The summary is limited to holders that
hold shares as capital assets and that hold less than 10% of the voting stock in
the Company.
Non U.S. Holders
A beneficial owner of shares that is, for U.S. Federal income tax purposes,
a nonresident alien individual or a foreign corporation (a "Non U.S. Holder")
will not be subject to U.S. Federal income tax, including withholding taxes, on
dividends paid by the Company or gains recognized on the sale, exchange or
redemption of shares in the Company, unless the dividends or gains are
effectively connected with a U.S. trade or business or, in the case of gains
realized by an individual Non U.S. Holder, the Non U.S. Holder is present in the
United States for 183 days or more in the taxable year of sale, exchange or
redemption and certain other conditions are met.
U.S. Holders
Subject to the discussion of passive foreign investment companies below:
Dividends paid with respect to the shares will be included in the gross
income of a beneficial owner of shares that is, for United States Federal income
tax purposes, (i) a citizen or resident of the United States, (ii) a domestic
corporation, or (iii) a holder otherwise subject to the United States Federal
income taxation on a net income basis in respect of income or gain from the
shares (a "U.S. Holder") as ordinary income to the extent paid out of current or
accumulated earnings and profits of the Company, as determined under United
States Federal income tax principles. Such dividends will not be eligible for
the dividends received deduction allowed a United States corporation.
A distribution not paid out of earnings and profits of the Company will
reduce the basis of the shares, and, to the extent of the excess of such basis,
will constitute taxable gain. Such gain will
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generally be capital gain and will be long-term capital gain if the shares have
been held for more than one year.
A U.S. Holder will recognize gain or loss upon a sale, redemption or other
taxable disposition of shares measured by the difference between such U.S.
Holder's tax basis in the shares and the amount realized on the disposition,
assuming that the redemption is not treated as a dividend for U.S. Federal
income tax purposes. Such gain or loss will generally be capital gain or loss
and will be long-term capital gain or loss if the shares have been held for more
than one year.
PASSIVE FOREIGN INVESTMENT COMPANY RULES
Under Section 1297 of the Internal Revenue Code of 1986, as amended (the
"Code") and applicable temporary and final Treasury regulations (the
"Regulations"), a foreign corporation is a passive foreign investment company
("PFIC") as to a shareholder who is a citizen or resident of the United States,
a corporation or partnership organized in or under the laws of the United
States, any State thereof or the District of Columbia, an estate the income of
which is subject to United States Federal income tax regardless of its source, a
trust if a court within the United States is able to exercise primary
supervision over the administration of the trust, and one or more United States
persons have the authority to control all substantial decisions of the trust in
foreign countries (a "U.S. Person") if, for any current or prior taxable year of
the foreign corporation during which the U.S. Person owned shares in the foreign
corporation, either (a) at least 75% of the foreign corporation's gross income
was "passive income," or (b) at least 50% of the foreign corporation's gross
assets were "passive assets." Assets under lease and income from leasing
activities generally are not deemed to be "passive" for this purpose if the
income is derived by the foreign corporation or its subsidiaries from the active
conduct of a trade or business. The Treasury Regulations provide that leasing
income will be considered derived from the active conduct of a trade or business
if the lessor maintains and operates a leasing organization that is regularly
engaged in marketing, or marketing and servicing, the leased property and that
is substantial in relation to the leasing income derived from leasing property
as a result of the performance of such marketing functions. Whether the foreign
corporation's leasing organization is substantial is determined based upon all
of the facts and circumstances.
The Company believes that it should not constitute a PFIC because its
leasing organization is substantial and it derives its leasing income from the
active conduct of a trade or business for purposes of the PFIC provisions
described above, as follows: (i) the Company, through its subsidiaries, has more
than 55 employees engaged in leasing activities, the majority of whom are
engaged in sales, marketing and equipment management, (ii) the company directly
incurs a high proportion of the overall expenses related to its leasing
business, and (iii) the Company exercises close and direct supervision over the
performance of services by third parties incurring the remainder of its overall
leasing expenses. This matter is not entirely free from doubt, however, due to
the absence of relevant authority indicating the manner in which the PFIC
provisions should be applied and interpreted in this context, and accordingly
there can be no assurance that the Internal Revenue Service would not assert
that the Company is a PFIC or that there will not be a development or change in
the relevant factual circumstances or legal rules that would cause the Company
to become a PFIC.
If the Company were a PFIC, unless a U.S. Person made the election
described in the next paragraph, a special tax regime set forth in Section 1291
of the Code would apply to both (a) any "excess distribution" by the Company
(generally, the U.S. Person's ratable share of distributions in any year that
are greater than 125% of the average annual distributions received by such U.S.
Person in the three preceding years or its holding period, if shorter) and (b)
any gain realized on the sale or
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other disposition of the shares. Under this regime, any excess distribution and
realized gain would be treated as ordinary income and would be subject to tax as
if (a) the excess distribution or gain had been realized ratably over the U.S.
Person's holding period, (b) the amount deemed realized had been subject to tax
in each year of that holding period at the highest applicable tax rate, and (c)
the interest charge generally applicable to underpayment of tax had been imposed
on the taxes deemed to have been payable in those years.
If the Company were a PFIC, a U.S. Person could elect, under Code Section
1295, provided the Company complies with certain reporting requirements, to have
the Company treated, with respect to that Person's shareholding, as a "qualified
electing fund," in which case such U.S. Person would include annually in gross
income his pro rata share of the Company's annual ordinary earnings and annual
net realized gains, whether or not such amounts are actually distributed to the
U.S. Person. These amounts would be included by a U.S. Person for its taxable
year in or with which the Company's taxable year ends. If the election were
made, amounts included as income generally could be distributed tax free, and,
to the extent not distributed, would increase the tax basis of the shares.
A shareholder for whom a qualified electing fund election is in effect for
each of the years that are included in the shareholder's holding period for his
shares and for which the Company was determined to be a PFIC would not be
subject to the Code Section 1291 provisions discussed above. If a qualified
electing fund election is not in effect for each of such years, the shareholder
may make an election pursuant to which the shareholder is deemed to have sold
the shares in the PFIC at their fair market value; gain would be realized and
taxed under the Code Section 1291 regime, as discussed above.
As another possible means of avoiding, all or in part, the application of
the Code Section 1291 provisions, in the event the Company were determined to be
a PFIC, a shareholder could make a mark-to-market election under Code Section
1296 (relating to marketable PFIC stock). If this election were made, the
shareholder would include in income each year an amount equal to the excess, if
any, of the fair market value of the PFIC stock as of the close of the tax year
over the shareholder's adjusted basis in the stock. There would be a deduction
for the lesser of the excess, if any, of the adjusted basis of the PFIC stock
over its fair market value as of the close of the tax year or the unreversed
inclusions (i.e., the excess of the mark-to-market gains over the mark-to-market
losses) for previous years.
If the Company were determined to be a PFIC, then the Company would comply
with all requirements necessary to permit shareholders to make a "qualified
electing fund" election under Code Section 1295. Such an election would not,
however, retroactively eliminate adverse PFIC consequences for prior years,
unless the taxpayer satisfies the Treasury Regulation's requirements relating to
retroactive elections in circumstances in which a timely election is not made
because the taxpayer reasonably believed that the Company is not a PFIC. This
may require filing a "Protective Statement" or, in limited circumstances,
requesting IRS consent. However, certain "qualified shareholders" are deemed to
have satisfied the reasonable belief requirement and do not need to file a
"Protective Statement" or request IRS consent in order to make a retroactive
election for any open year in the shareholder's holding period. Generally, a
qualified shareholder must meet the following tests: (a) the shareholder must
own at all times during the tax year, directly, indirectly, or constructively,
less than 2% of the vote and value of each class of the Company's stock, (b)
with respect to the tax year of the Company ending within the shareholder's tax
year, the Company or its U.S. counsel must have indicated, in a public filing,
disclosure statement, or other notice ("filing") provided to U.S. Persons that
are shareholders of the Company that the Company (i) reasonably believes that it
is not or should not constitute a PFIC for the Company's taxable year, or (ii)
is unable to conclude that it is not or should not be a PFIC (due to certain
asset valuation or interpretation issues, or because PFIC status will depend on
the income or assets of the Company in
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the Company's subsequent taxable years) but reasonably believes that, more
likely than not, it ultimately will not be a PFIC, and (c) the shareholder must
not know or have reason to know that a filing by the Company regarding the
Company's PFIC status was inaccurate or know that the Company was a PFIC for the
tax year of the Company ending with or within such tax year of the shareholder.
FOREIGN PERSONAL HOLDING COMPANY RULES
The Company currently believes that it is not a foreign personal holding
company ("FPHC") because no group of five or fewer United States citizens or
residents owns, directly or indirectly, more than 50% of the Company's stock. If
the Company were to become a FPHC in the future (for example by reason of
certain constructive ownership rules or a change in the ownership of its stock)
then, in general, each U.S. Person holding shares on the last day of the
Company's taxable year would be treated as receiving a dividend in an amount
equal to each such U.S. Person's share of the Company's undistributed foreign
personal holding company income for such taxable year.
BACKUP WITHHOLDING
A beneficial owner of shares may, under certain circumstances, be subject
to United States "backup withholding" at the rate of 31% with respect to
dividends paid or the proceeds of a sale, exchange or redemption of shares,
unless such holder (a) is a corporation or is otherwise exempt; (b) is a Non
U.S. Holder who certifies as to its non-U.S. status; or (c) provides an accurate
taxpayer identification number, certifies as to no loss of exemption from backup
withholding and otherwise complies with applicable requirements of the backup
withholding rules.
LEGAL MATTERS
The validity of the common shares offered hereby will be passed upon for
the Company by Elvinger, Hoss & Prussen, Luxembourg. The summaries of Luxembourg
and United States federal tax consequences of an investment in the common
shares, as described under "Tax Considerations" herein, are based upon the
opinions of Elvinger, Hoss & Prussen (Luxembourg tax consequences) and Fotenos &
Suttle, P.C. (United States federal tax consequences).
EXPERTS
The consolidated balance sheets of Cronos as of December 31, 1998 and 1997,
and the consolidated statements of income, shareholders' equity, and cash flows
of Cronos for each of the three years ended December 31, 1998, incorporated by
reference in this Prospectus, have been incorporated herein in reliance on the
report of Moore Stephens, which includes explanatory paragraphs on Cronos'
ability to continue as a going concern and on the possibility of Cronos'
becoming a defendant in certain lawsuits. Said report of Moore Stephens,
independent accountants, is given on the authority of said firm as experts in
accounting and auditing.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This Prospectus incorporates documents by reference which are not presented
in or delivered with it. This means that we can disclose certain information by
referring a reader to certain documents. These documents (other than the
exhibits to such documents unless specifically
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incorporated by reference) are available, without charge, upon written or oral
request directed to Elinor A. Wexler, The Cronos Group, at its offices located
at 444 Market Street, 15th Floor San Francisco, California 94111; telephone
(415) 677-8990.
The following documents, which have been filed by Cronos with the SEC
pursuant to the Exchange Act (file no. 0-24464) are incorporated in this
Prospectus by reference and shall be deemed to be a part hereof:
(a) Annual Report on Form 10-K for the year ended December 31, 1998;
(b) Quarterly Reports on Form 10-Q for the quarters ended March 31,
1999, June 30, 1999, and September 30, 1999;
(c) Current Reports on Form 8-K dated March 15, April 1, April 13,
August 20, August 23, August 27, November 3, November 16, 1999, and January
24, 2000;
(d) The Company's Registration Statement on Form 8-A, filed with the
Commission on December 4, 1995, registering the Company's common shares
pursuant to Section 12(g) of the Exchange Act, and the Company's
Registration Statement on Form 8-A, filed with the Commission on October
29, 1999, registering the Company's common share purchase rights, including
any amendments or reports filed for the purpose of updating such
descriptions; and
(e) All documents filed by Cronos with the SEC pursuant to the
Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act subsequent to the
date of this Prospectus and prior to the termination of the offering made
by this Prospectus.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superceded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document that also is or is to be deemed to
be incorporated by reference modifies or supercedes such statement. Any such
statement so modified or superceded shall not be deemed, except as so modified
or superceded, to constitute a part of this Prospectus.
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