-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BNjZ8sIuMXyXF3RY+ubPzp05YbrPIPGENftOdelFn6dDwplHWqL61uY93yc+tne8 oHOoBvdUsSrAGkdYZC7isQ== 0000950149-00-001147.txt : 20000516 0000950149-00-001147.hdr.sgml : 20000516 ACCESSION NUMBER: 0000950149-00-001147 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CRONOS GLOBAL INCOME FUND XVI LP CENTRAL INDEX KEY: 0001002519 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EQUIPMENT RENTAL & LEASING, NEC [7359] IRS NUMBER: 943230380 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-27496 FILM NUMBER: 630943 BUSINESS ADDRESS: STREET 1: 444 MARKET ST 15TH FLOOR STREET 2: C/O CRONOS CAPITAL CORP CITY: SAN FRANCISCO STATE: CA ZIP: 94111 BUSINESS PHONE: 4156778990 MAIL ADDRESS: STREET 1: 444 MARKET ST 15TH FLOOR STREET 2: C/O CRONOS CAPITAL CORP CITY: SAN FRANCISCO STATE: CA ZIP: 94111 10-Q 1 QUARTERLY REPORT FOR PERIOD ENDED MARCH 31, 2000 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2000 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 0-27496 CRONOS GLOBAL INCOME FUND XVI, L.P. (Exact name of registrant as specified in its charter) California 94-3230380 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 444 Market Street, 15th Floor, San Francisco, California 94111 (Address of principal executive offices) (Zip Code) (415) 677-8990 (Registrant's telephone number, including area code) 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 [ ] 2 CRONOS GLOBAL INCOME FUND XVI, L.P. REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000 TABLE OF CONTENTS
PAGE PART I - FINANCIAL INFORMATION Item 1. Financial Statements Condensed Balance Sheets - March 31, 2000 and December 31, 1999 (unaudited) 4 Condensed Statements of Operations for the three months ended March 31, 2000 and 1999 (unaudited) 5 Condensed Statements of Cash Flows for the three months ended March 31, 2000 and 1999 (unaudited) 6 Notes to Condensed Financial Statements (unaudited) 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Item 3. Quantitative and Qualitative Disclosures About Market Risk 11 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 12
2 3 PART I - FINANCIAL INFORMATION Item 1. Financial Statements Presented herein are the Registrant's condensed balance sheets as of March 31, 2000 and December 31, 1999, condensed statements of operations for the three months ended March 31, 2000 and 1999, and condensed statements of cash flows for the three months ended March 31, 2000 and 1999. 3 4 CRONOS GLOBAL INCOME FUND XVI, L.P. CONDENSED BALANCE SHEETS (UNAUDITED)
March 31, December 31, 2000 1999 ------------ ------------ Assets Current assets: Cash and cash equivalents, includes $1,374,902 at March 31, 2000 and $1,987,785 at December 31, 1999 in interest-bearing accounts $ 1,375,609 $ 1,987,885 Net lease receivables due from Leasing Company (notes 1 and 2) 517,309 513,262 ------------ ------------ Total current assets 1,892,918 2,501,147 ------------ ------------ Container rental equipment, at cost 29,905,424 26,618,929 Less accumulated depreciation 5,951,273 5,542,131 ------------ ------------ Net container rental equipment 23,954,151 21,076,798 ------------ ------------ Other assets 812,487 50,000 ------------ ------------ Total assets $ 26,659,556 $ 23,627,945 ============ ============ Liabilities and partners' capital Current liabilities: Current portion of equipment debt $ 550,933 $ -- ------------ ------------ Total current liabilities 550,933 -- ------------ ------------ Equipment debt less current portion 2,754,667 -- ------------ ------------ Total liabilities 3,305,600 -- ------------ ------------ Partners' capital (deficit): General partner (15,467) (12,730) Limited partners 23,369,423 23,640,675 ------------ ------------ Total partners' capital 23,353,956 23,627,945 ------------ ------------ Total liabilities and partners' capital $ 26,659,556 $ 23,627,945 ============ ============
The accompanying notes are an integral part of these condensed financial statements. 4 5 CRONOS GLOBAL INCOME FUND XVI, L.P. CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended ----------------------------- March 31, March 31, 2000 1999 ----------- ----------- Net lease revenue (notes 1 and 3) $ 810,544 $ 678,913 Other operating expenses: Depreciation 413,423 402,516 Other general and administrative expenses 20,468 13,710 ----------- ----------- 433,891 416,226 ----------- ----------- Income from operations 376,653 262,687 Other income (loss): Interest income 23,255 19,132 Net gain (loss) on disposal of equipment (351) 5,891 ----------- ----------- 22,904 25,023 ----------- ----------- Net income $ 399,557 $ 287,710 =========== =========== Allocation of net income: General partner $ 30,941 $ 33,967 Limited partners 368,616 253,743 ----------- ----------- $ 399,557 $ 287,710 =========== =========== Limited partners' per unit share of net income $ 0.23 $ 0.16 =========== ===========
The accompanying notes are an integral part of these condensed financial statements. 5 6 CRONOS GLOBAL INCOME FUND XVI, L.P. CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended ----------------------------- March 31, March 31, 2000 1999 ----------- ----------- Net cash provided by operating activities $ 43,541 $ 753,021 Cash flows provided by investing activities: Proceeds from disposal of equipment 17,727 10,820 Cash flows used in financing activities: Distribution to partners (673,544) (631,446) ----------- ----------- Net increase (decrease) in cash and cash equivalents (612,276) 132,395 Cash and cash equivalents at January 1 1,987,885 1,843,812 ----------- ----------- Cash and cash equivalents at March 31 $ 1,375,609 $ 1,976,207 =========== ===========
Non cash financing activity: In connection with the acquisition of container rental equipment, Cronos Global Income Fund XVI, L.P. financed the purchase of $3,305,600 of equipment through debt. The accompanying notes are an integral part of these condensed financial statements. 6 7 CRONOS GLOBAL INCOME FUND XVI, L.P. NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS (1) Summary of Significant Accounting Policies (a) Nature of Operations Cronos Global Income Fund XVI, L.P. (the "Partnership") is a limited partnership organized under the laws of the State of California on September 1, 1995, for the purpose of owning and leasing marine cargo containers, special purpose containers and container related equipment worldwide to ocean carriers. To this extent, the Partnership's operations are subject to the fluctuations of world economic and political conditions. Such factors may affect the pattern and levels of world trade. The Partnership believes that the profitability of, and risks associated with, leases to foreign customers is generally the same as those of leases to domestic customers. The Partnership's leases generally require all payments to be made in United States currency. Cronos Capital Corp. ("CCC") is the general partner and, with its affiliate Cronos Containers Limited (the "Leasing Company"), manages the business of the Partnership. CCC and the Leasing Company also manage the container leasing business for other partnerships affiliated with the general partner. The Partnership shall continue until December 31, 2015, unless sooner terminated upon the occurrence of certain events. The Partnership commenced operations on March 29, 1996, when the minimum subscription proceeds of $2,000,000 were received from over 100 subscribers (excluding from such count Pennsylvania residents, the general partner, and all affiliates of the general partner). On February 3, 1997, CCC suspended the offer and sale of units in the Partnership. The offering terminated on December 27, 1997. (b) Leasing Company and Leasing Agent Agreement The Partnership has entered into a Leasing Agent Agreement whereby the Leasing Company has the responsibility to manage the leasing operations of all equipment owned by the Partnership. Pursuant to the Agreement, the Leasing Company is responsible for leasing, managing and re-leasing the Partnership's containers to ocean carriers and has full discretion over which ocean carriers, and suppliers of goods and services it may deal with. The Leasing Agent Agreement permits the Leasing Company to use the containers owned by the Partnership, together with other containers owned or managed by the Leasing Company and its affiliates, as part of a single fleet operated without regard to ownership. Since the Leasing Agent Agreement meets the definition of an operating lease in Statement of Financial Accounting Standards (SFAS) No. 13, it is accounted for as a lease under which the Partnership is lessor and the Leasing Company is lessee. The Leasing Agent Agreement generally provides that the Leasing Company will make payments to the Partnership based upon rentals collected from ocean carriers after deducting direct operating expenses and management fees to CCC and the Leasing Company. The Leasing Company leases containers to ocean carriers, generally under operating leases which are either master leases or term leases (mostly one to five years). 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; rentals are based upon the number of containers used and the applicable per-diem rate. Accordingly, rentals under master leases are all variable and contingent upon the number of containers used. Most containers are leased to ocean carriers under master leases; leasing agreements with fixed payment terms are not material to the financial statements. Since there are no material minimum lease rentals, no disclosure of minimum lease rentals is provided in these condensed financial statements. 7 8 CRONOS GLOBAL INCOME FUND XVI, L.P. NOTES TO UNAUDITED FINANCIAL STATEMENTS (c) Basis of Accounting The Partnership utilizes the accrual method of accounting. Net lease revenue is recorded by the Partnership in each period based upon its leasing agent agreement with the Leasing Company. Net lease revenue is generally dependent upon operating lease rentals from operating lease agreements between the Leasing Company and its various lessees, less direct operating expenses and management fees due in respect of the containers specified in each operating lease agreement. (d) Financial Statement Presentation These condensed financial statements have been prepared without audit. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting procedures have been omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and accompanying notes in the Partnership's latest annual report on Form 10-K. The preparation of financial statements in conformity with accounting principles generally accepted in the United States (GAAP) requires the Partnership 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 reported period. Actual results could differ from those estimates. The interim financial statements presented herewith reflect all adjustments of a normal recurring nature which are, in the opinion of management, necessary to a fair statement of the financial condition and results of operations for the interim periods presented. The results of operations for such interim periods are not necessarily indicative of the results to be expected for the full year. (2) Net Lease Receivables Due from Leasing Company Net lease receivables due from the Leasing Company are determined by deducting direct operating payables and accrued expenses, base management fees payable, and reimbursed administrative expenses payable to CCC and its affiliates from the rental billings payable by the Leasing Company to the Partnership under operating leases to ocean carriers for the containers owned by the Partnership. Net lease receivables at March 31, 2000 and December 31, 1999 were as follows:
March 31, December 31, 2000 1999 ------------- ------------- Gross lease receivables $ 985,303 $ 869,797 Less: Direct operating payables and accrued expenses 270,533 223,001 Damage protection reserve 59,046 25,021 Base management fees payable 64,284 68,101 Reimbursed administrative expenses 37,943 16,942 Allowance for doubtful accounts 36,188 23,470 ------------- ------------- Net lease receivables $ 517,309 $ 513,262 ============= =============
8 9 CRONOS GLOBAL INCOME FUND XVI, L.P. NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS (3) Net Lease Revenue Net lease revenue is determined by deducting direct operating expenses, base management fees and reimbursed administrative expenses to CCC and its affiliates from the rental revenue billed by the Leasing Company under operating leases to ocean carriers for the containers owned by the Partnership. Net lease revenue for the three-month periods ended March 31, 2000 and 1999 was as follows:
Three Months Ended ---------------------------- March 31, March 31, 2000 1999 ----------- ----------- Rental revenue (note 4) $ 1,123,818 $ 963,942 Less: Rental equipment operating expenses 175,068 171,657 Base management fees 77,503 66,686 Reimbursed administrative expenses 60,703 46,686 ----------- ----------- $ 810,544 $ 678,913 =========== ===========
(4) Operating Segment The Financial Accounting Standards Board has issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," which changes the way public business enterprises report financial and descriptive information about reportable operating segments. An operating segment is a component of an enterprise that engages in business activities from which it may earn revenues and incur expenses, whose operating results are regularly reviewed by the enterprise's chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance, and about which separate financial information is available. Management operates the Partnership's container fleet as a homogenous unit and has determined, after considering the requirements of SFAS No. 131, that as such it has a single reportable operating segment. The Partnership derives its revenues from marine cargo containers. As of March 31, 2000, the Partnership operated 4,509 twenty-foot, 1,494 forty-foot and 956 forty-foot high-cube marine dry cargo containers, as well as 89 twenty-foot and 299 forty-foot refrigerated cargo containers, and 52 twenty-four thousand-liter tanks. A summary of gross lease revenue, by product, for the three-month periods ended March 31, 2000 and 1999 follows:
Three Months Ended ---------------------------- March 31, March 31, 2000 1999 ----------- ----------- Dry cargo containers $ 737,971 $ 537,982 Refrigerated containers 345,220 378,848 Tank containers 40,627 47,112 ----------- ----------- Total $ 1,123,818 $ 963,942 =========== ===========
Due to the Partnership's lack of information regarding the physical location of its fleet of containers when on lease in the global shipping trade, it is impracticable to provide the geographic area information required by SFAS No. 131. ****** 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations It is suggested that the following discussion be read in conjunction with the Registrant's most recent annual report on Form 10-K. 1) Material changes in financial condition between March 31, 2000 and December 31, 1999. At March 31, 2000, the Registrant had $1,375,609 in cash and cash equivalents, a decrease of $612,276 from the cash balances at December 31, 1999. At March 31, 2000, the Registrant had approximately $187,000 in cash generated from equipment sales reserved as part of its cash balances. Throughout the remainder of 2000, the Registrant expects to use cash generated from equipment sales to purchase and replace containers which have been lost or damaged beyond repair. The Registrant's allowance for doubtful accounts increased from $23,470 at December 31, 1999 to $36,188 at March 31, 2000. This increase was attributable to the delinquent account receivable balances of approximately nine lessees. The Leasing Company has either negotiated specific payment terms with these lessees or is pursuing other alternatives to collect the outstanding balances. In each instance, the Registrant believes it has provided sufficient reserves for all doubtful accounts. On March 30, 2000, the Registrant borrowed $3,305,600 under a term loan for the purpose of acquiring additional equipment. The Registrant borrowed an additional $1,011,000 on April 28, 2000 with another $727,000 to follow sometime in May. The term loan was obtained from one lending source allowing the Registrant to take advantage of equipment purchasing opportunities pursuant to the Registrant's Partnership Agreement. The loan, due to expire in the year 2006, is scheduled to be fully repaid in twenty-four quarterly installments from leasing revenue received by the Registrant. The Registrant's cash distribution from operations for the first quarter of 2000 was 8.0% (annualized) of the limited partners' original capital contribution, unchanged from the fourth quarter of 1999. These distributions are directly related to the Registrant's results from operations and may fluctuate accordingly. In order to take advantage of improving market conditions and stronger demand for leased containers, the Registrant undertook a strategy that was aimed at significantly reducing its inventory of idle equipment in some low-demand locations while, at the same time, fulfilling lessee container requirements. As part of this strategy, the Registrant offered leasing incentives to several lessees for picking up off-hire equipment from the Registrant's higher inventory areas. This not only resulted in stronger utilization of the Registrant's equipment, but it also significantly lowered Partnership expenses related to storage and handling. 2) Material changes in the results of operations between the three-month periods ended March 31, 2000 and 1999. Net lease revenue for the three-month period ended March 31, 2000 was $810,544, an increase of approximately 19% from the same three-month period in the prior year. Gross rental revenue (a component of net lease revenue) for the three-month period ended March 31, 2000 was $1,123,818, reflecting an increase of 17% from the same three-month period in the prior year. Dry cargo container average per-diem rental rates for the three-month period ended March 31, 2000 declined approximately 9% when compared to the same three-month period in the prior year. Refrigerated container average per-diem rental rates for the three-month period ended March 31, 2000 declined 5% when compared to the same period in the prior year. Tank container average per-diem rental rates for the three-month period ended March 31, 2000 declined 11% when compared to the same period in the prior year. 10 11 The Registrant's average fleet size and utilization rates for the three-month periods ended March 31, 2000 and 1999 were as follows:
Three Months Ended ------------------------- March 31, March 31, 2000 1999 --------- --------- Average fleet size (measured in twenty-foot equivalent units (TEU)) Dry cargo containers 6,815 6,840 Refrigerated containers 687 688 Tank containers 52 52 Average utilization Dry cargo containers 80.5% 74.2% Refrigerated containers 95.6% 99.6% Tank containers 75.2% 76.1%
Rental equipment operating expenses were 16% of the Registrant's gross lease revenue during the three-month period ended March 31, 2000, as compared to 18% during the same three-month period ended March 31, 1999. This decrease was largely attributable to handling and storage costs associated with fluctuating utilization levels. YEAR 2000 The Registrant relies upon the financial and operational systems provided by the Leasing Company and its affiliates, as well as the systems provided by other independent third parties to service the three primary areas of its business: investor processing/maintenance; container leasing/asset tracking; and accounting/finance. Neither the Registrant nor the Leasing Company experienced nor do they currently anticipate any material adverse effects on the Registrant's business, results of operations or financial condition as a result of Year 2000 issues involving internal use systems, third party products or any of their software products. Costs incurred in preparing for Year 2000 issues were expensed as incurred. Neither the Registrant nor the Leasing Company anticipate any additional material costs in connection with Year 2000 uncertainties. Pursuant to the Limited Partnership Agreement, CCC or the Leasing Company, may not seek reimbursement of data processing costs associated with the Year 2000 program. Item 3. Quantitative and Qualitative Disclosures About Market Risk Not applicable. 11 12 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits
Exhibit No. Description Method of Filing --------- ------------------------------------------------- -------------------- 3(a) Limited Partnership Agreement of the Registrant, * amended and restated as of December 28, 1995 3(b) Certificate of Limited Partnership of the ** Registrant 10 Form of Leasing Agent Agreement with Cronos *** Containers Limited 10.1 Note Purchase Agreement, dated as of March 30, Filed with this document 2000, by and between the Registrant (the "Company"), Cronos Containers Limited (the "Guarantor") and IBJ Whitehall Business Credit Corporation (the "Purchaser") 10.2 Guarantee, dated as of March 30, 2000, by and Filed with this document between the Guarantor, the Company and the Purchaser. 10.3 Secured note, dated as of March 30, 2000, by Filed with this document and between the Company and the Purchaser 10.4 Pledge and Security Agreement, dated as Filed with this document of March 30, 2000, by and between the Registrant (the "Debtor") and IBJ Whitehall Business Credit Corporation (the "Secured Party)" 27 Financial Data Schedule Filed with this document
(b) Reports on Form 8-K No reports on Form 8-K were filed by the Registrant during the quarter ended March 31, 2000. - ------------- * Incorporated by reference to Exhibit "A" to the Prospectus of the Registrant dated December 28, 1995, included as part of Registration Statement on Form S-1 (No. 33-98290) ** Incorporated by reference to Exhibit 3.2 to the Registration Statement on Form S-1 (No. 33-98290) *** Incorporated by reference to Exhibit 10.2 to the Registration Statement on Form S-1 (No. 33-98290) 12 13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. CRONOS GLOBAL INCOME FUND XVI, L.P. By Cronos Capital Corp. The General Partner By /s/ Dennis J. Tietz -------------------------------------- Dennis J. Tietz President and Director of Cronos Capital Corp. ("CCC") Principal Executive Officer of CCC Date: May 15, 2000 13 14 EXHIBIT INDEX
Exhibit No. Description Method of Filing --------- ------------------------------------------------- -------------------- 3(a) Limited Partnership Agreement of the Registrant, * amended and restated as of December 28, 1995 3(b) Certificate of Limited Partnership of the ** Registrant 10 Form of Leasing Agent Agreement with Cronos *** Containers Limited 10.1 Note Purchase Agreement, dated as of March 30, Filed with this document 2000, by and between the Registrant (the "Company"), Cronos Containers Limited (the "Guarantor") and IBJ Whitehall Business Credit Corporation (the "Purchaser") 10.2 Guarantee, dated as of March 30, 2000, by and Filed with this document between the Guarantor, the Company and the Purchaser. 10.3 Secured note, dated as of March 30, 2000, by and Filed with this document between the Company and the Purchaser 10.4 Pledge and Security Agreement, dated as of March Filed with this document 30, 2000, by and between the Registrant (the "Debtor") and IBJ Whitehall Business Credit Corporation (the "Secured Party)" 27 Financial Data Schedule Filed with this document
- ------------- * Incorporated by reference to Exhibit "A" to the Prospectus of the Registrant dated December 28, 1995, included as part of Registration Statement on Form S1 (No. 33-98290) ** Incorporated by reference to Exhibit 3.2 to the Registration Statement on Form S1 (No. 33-98290) *** Incorporated by reference to Exhibit 10.2 to the Registration Statement on Form S1 (No. 33-98290) EX-10.1 2 NOTE PURCHASE AGREEMENT 1 Exhibit 10.1 ================================================================================ NOTE PURCHASE AGREEMENT AMONG CRONOS GLOBAL INCOME FUND XVI, L.P., CRONOS CONTAINERS LIMITED, AND IBJ WHITEHALL BUSINESS CREDIT CORPORATION Dated as of March 30, 2000 ================================================================================ 2 TABLE OF CONTENTS
PAGE ---- ARTICLE I - DEFINITIONS SECTION 1.1. Defined Terms..........................................................1 SECTION 1.2. Accounting and Financial Determinations................................5 SECTION 1.3. Construction...........................................................5 ARTICLE II - PURCHASE AND SALE OF NOTES SECTION 2.1. Purchase Commitment....................................................6 SECTION 2.2. Sale of Notes..........................................................6 SECTION 2.3. Closings...............................................................6 ARTICLE III - CONDITIONS TO CLOSING SECTION 3.1. Conditions for Each Closing............................................6 SECTION 3.2. Conditions to Initial Closing..........................................7 SECTION 3.3. Legal Opinions.........................................................8 SECTION 3.4. Representations True; No Default......................................10 SECTION 3.5. Proceedings...........................................................10 ARTICLE IV - PAYMENTS, REGISTRATION, ETC. SECTION 4.1. Payment of Principal and Interest, Etc................................11 SECTION 4.2. Optional Prepayment...................................................11 SECTION 4.3. Manner of Payment.....................................................12 SECTION 4.4. Registration, Transfer, Etc...........................................12 SECTION 4.5. Additional Amounts....................................................12 ARTICLE V - GUARANTEE SECTION 5.1. Guarantee.............................................................12 ARTICLE VI - REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE GUARANTOR SECTION 6.1. Corporate Existence...................................................13 SECTION 6.2. Authorization of Notes, Etc...........................................13 SECTION 6.3. Collateral............................................................13 SECTION 6.4. Consents, Approvals, Etc..............................................14 SECTION 6.5. Litigation............................................................14 SECTION 6.6. No Conflicting Agreements.............................................14 SECTION 6.7. Financial Statements..................................................14 SECTION 6.8. No Material Adverse Change............................................14 SECTION 6.9. Subsidiaries..........................................................15 SECTION 6.10. Offering of Notes....................................................15 SECTION 6.11. Broker's or Finder's Commissions.....................................15
ii 3 SECTION 6.12. Use of Proceeds......................................................15 SECTION 6.13. Investment Company Status............................................15 SECTION 6.14. Environmental Compliance.............................................15 SECTION 6.15. Full Disclosure.......................................................16 ARTICLE VII - REPRESENTATIONS AND WARRANTIES OF THE PURCHASER SECTION 7.1. Experience............................................................16 SECTION 7.2. Investment............................................................16 SECTION 7.3. Limitations on Disposition............................................16 SECTION 7.4. Restrictive Legend....................................................16 ARTICLE VIII - COMPANY COVENANTS SECTION 8.1. Financial Statements..................................................17 SECTION 8.2. Partnership Existence, Etc............................................17 SECTION 8.3. Taxes and Claims......................................................18 SECTION 8.4. Insurance.............................................................18 SECTION 8.5. Compliance with Applicable Laws.......................................18 SECTION 8.6. Books and Accounts....................................................18 SECTION 8.7. Limitation on Liens...................................................19 SECTION 8.8. Maintenance and Use of Containers.....................................19 SECTION 8.9. Notices as to Default or Material Change..............................19 SECTION 8.10. Other Information....................................................19 SECTION 8.11. Change of Name/Location..............................................20 SECTION 8.12. Indemnification......................................................20 SECTION 8.13. Tangible Net Worth...................................................21 SECTION 8.14. Leverage..............................................................21 SECTION 8.15. Limitations on Distributions and Restricted Payments.................21 SECTION 8.16. Limitation on Sales of Assets and Containers.........................21 SECTION 8.17. Transactions with Affiliates.........................................21 SECTION 8.18. No Additional Indebtedness...........................................22 ARTICLE IX - GUARANTOR COVENANTS SECTION 9.1. Corporate Existence, Etc..............................................22 SECTION 9.2. Container Information.................................................22 SECTION 9.3. Taxes and Claims......................................................22 SECTION 9.4. Insurance.............................................................22 SECTION 9.5. Compliance with Applicable Laws.......................................22 SECTION 9.6. Books and Accounts....................................................23 SECTION 9.7. Transactions with Affiliates..........................................23 SECTION 9.8. Management of Containers..............................................23 ARTICLE X - CHANGE OF CONTROL, MERGERS, CONSOLIDATIONS AND SALES OF ASSETS SECTION 10.1. Change of Control....................................................23
iii 4 SECTION 10.2. Mergers, Consolidations and Sales of Assets..........................24 ARTICLE XI - DEFAULTS AND REMEDIES SECTION 11.1. Events of Default....................................................24 SECTION 11.2. Acceleration.........................................................25 ARTICLE XII - MISCELLANEOUS SECTION 12.1. Waivers, Amendments, Etc.............................................26 SECTION 12.2. Expenses.............................................................26 SECTION 12.3. Persons Deemed Owners................................................26 SECTION 12.4. Non-Business Days....................................................27 SECTION 12.5. Notices..............................................................27 SECTION 12.6. Notices to Subsequent Holder.........................................27 SECTION 12.7. Severability.........................................................27 SECTION 12.8. Headings.............................................................27 SECTION 12.9. Counterparts.........................................................27 SECTION 12.10. Governing Law.......................................................27 SECTION 12.11. Entire Agreement....................................................28 SECTION 12.12. Successors and Assigns..............................................28 SECTION 12.13. Submission to Jurisdiction..........................................28 SECTION 12.14. Confidentiality.....................................................28 SECTION 12.15. Further Assurances..................................................29 SECTION 12.16. Waivers of Jury Trial...............................................29
Exhibits EXHIBIT A - FORM OF NOTE AND GUARANTEE EXHIBIT B - FORM OF SECURITY AGREEMENT iv 5 NOTE PURCHASE AGREEMENT THIS NOTE PURCHASE AGREEMENT is made as of March 30, 2000, by and among CRONOS GLOBAL INCOME FUND XVI, L.P., a California limited partnership (the "Company"), CRONOS CONTAINERS LIMITED, a United Kingdom company (the "Guarantor"), and IBJ WHITEHALL BUSINESS CREDIT CORPORATION, a New York corporation (the "Purchaser"). W I T N E S S E T H: WHEREAS, the Company has authorized the issuance of $5,000,000 aggregate principal amount of its Secured Notes due 2006 (the "Notes") in substantially the form set forth in Exhibit A hereto; and WHEREAS, the Company has agreed to sell to the Purchaser, and the Purchaser has agreed to purchase from the Company, the Notes; and WHEREAS, the Guarantor has agreed to guarantee unconditionally the due and punctual payment of the principal of and premium and interest on the Notes and all of the other obligations of the Company hereunder and under the other Purchase Documents (as defined below). NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I DEFINITIONS SECTION 1.1. DEFINED TERMS. Except as otherwise expressly provided or unless the context otherwise requires, the following terms shall have the following meanings: "Accountants" means Deloitte Touche LLP or any other firm among the five largest independent public accountants selected by the Company or any other accounting firm approved by the Purchaser. "Affiliate" of any Person means any Person directly or indirectly controlling or controlled by or under direct or indirect common control with such Person. For the purposes of this definition, "control," when used with respect to any Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, and the words "controlling" and "controlled by" have meanings correlative to the foregoing. 6 "Agreement" means this Note Purchase Agreement, as from time to time amended, supplemented or otherwise modified. "Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banks in California or New York are authorized or obligated by law or executive order to close and, relative to the determination of the interest rate provided for in the Notes, "Business Day" also means a day on which dealings in U.S. Dollars are carried on in the interbank eurodollar market in which the Purchaser participates. "Capital Lease Obligation" means any lease obligation which, in accordance with U.S.GAAP, is required to be classified as a capital lease in the financial statements of the Company. "Capital Stock" means any and all shares of capital stock or other equity securities (however designated) that have no preference or priority over shares of capital stock or other equity securities of any other class or classes in the payment of dividends or the distribution of assets upon any liquidation, dissolution or winding up. "Change of Control" means (i) any consolidation or merger of the Company with or into any other Person in which the Company is not the surviving Person, (ii) any consolidation or merger of the Guarantor with or into any other Person in which the Guarantor is not the surviving Person, (iii) any sale or transfer of all or substantially all of the Company's assets to any Person, (iv) any liquidation, dissolution or winding up of the Company or any adoption of a plan of liquidation, dissolution or winding up of the Company, (v) any acquisition by any Person (other than any beneficial owner of 50% or more of the outstanding Capital Stock of the Guarantor on the date of this Agreement, and other than any Person engaged in the business of underwriting and distributing securities that purchases Capital Stock of the Guarantor for distribution), including its Affiliates and Related Persons, of Capital Stock of the Guarantor entitling such Person, together with any Affiliates and Related Persons thereof, to exercise 50% or more of the total voting power of all classes of Capital Stock of the Guarantor entitled to vote generally in elections of directors of the Guarantor, or (vi) any liquidation, dissolution or winding up of the Guarantor or any adoption of a plan of liquidation or winding up of the Guarantor. "Closing" is defined in Section 2.3 hereof. "Closing Date" is defined in Section 2.2 hereof. "Collateral" is defined in the Security Agreement. "Commitment" is defined in Section 2.1 hereof. "Containers" is defined in the Security Agreement. "Default" means any event which is, or after the giving of notice or the passage of time or both would be, an Event of Default. "Environmental Notice" is defined in Section 6.14 hereof. 2 7 "Event of Default" is defined in Section 11.1 hereof. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "First Payment Date" is defined in Section 4.1 hereof. "Funded Debt" means without duplication, all indebtedness, liabilities and obligations of the Company of any nature whatsoever, direct or contingent, matured or unmatured, joint and several, joint or several, including, without limitation (i) every obligation of the Company for borrowed money, (ii) all liabilities of the Company for the deferred purchase price of Property acquired by such Person (excluding accounts payable arising in the ordinary course of the Company's business but including all liabilities created or arising under any conditional sale or other title retention agreement entered into by such Person with respect to any such Property), (iii) the principal component of all Capital Lease Obligations of the Company, (iv) all payables of the Company due to manufacturers of Containers, and (v) all obligations of the Company secured by a Lien on any asset owned by such Person, and (vi) all guarantees of the Company, if any, guaranteeing or in effect guaranteeing any obligation of the type described in the foregoing clauses (i) through (v) above. "Guarantee" means one of the Guarantees of the Notes in substantially the form attached thereto. "Interest Period" means, relative to the setting of the initial interest rate of any Note or the rate to be determined on any LIBOR Interest Determination Date (as defined in the Notes) for any Note, the period which begins on the date of issuance of such Note or the Interest Reset Date (as defined in the Notes), as applicable, and ends on the date which is (i) with respect to periods commencing prior to the First Payment Date, the day of the immediately succeeding month that numerically corresponds to such date of issuance or Interest Reset Date, or (ii) with respect to periods commencing on and after the First Payment Date, the day of the immediately succeeding third month that numerically corresponds to such Interest Reset Date; provided, however, that: (a) if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day; (b) if any Interest Period commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period), such Interest Period shall end on the last Business Day of the last calendar month of such Interest Period; and (c) no Interest Period shall end later than the maturity date of such Note. "Leasing Agent Agreement" means the Leasing Agent Agreement dated as of October 9, 1995, among the Company, Cronos Capital Corp. and the Guarantor. 3 8 "Lien" means, with respect to any Property, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such Property. "Note" means one of the Secured Notes due 2006 payable by the Company to the order of the Purchaser in substantially the form of Exhibit A attached hereto issued under this Agreement and any other promissory note issued from time to time in substitution, replacement or renewal thereof. "Noteholder" means at any time a Person in whose name a Note is then registered in accordance with Section 4.4 hereof. "Obligations" is defined in Section 1 of the Security Agreement. "Permitted Liens" is defined in Section 8.7 hereof. "Person" means any individual, corporation, partnership, limited liability company, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Preferred Stock" means capital stock of any class or classes (however designated) that has a preference or priority over shares of capital stock of any other class or classes in the payment of dividends or the distribution of assets upon any liquidation, dissolution or winding up. "Property" means property of all kinds, real or personal, tangible or intangible. "Purchase Documents" means this Agreement, the Security Agreement, the Notes and the Guarantees, as from time to time amended, supplemented or otherwise modified. "Related Person" in respect of any Person means any other Person (i) owning ten percent (10%) or more of the outstanding voting stock of such Person or (ii) if such Person does not have voting stock, owning ten percent (10%) or more of the equity interest in such Person. "Restricted Investments" means all investments, made in cash or by delivery of Property, by the Company in any other Person, whether by acquisition of capital stock, securities, indebtedness or other obligations or by loan, advance or capital contribution; excluding, however, (i) investments in direct U.S. government or agency obligations maturing within one year; (ii) investments in corporate obligations rated at least AA by Standard & Poor's or at least Aa by Moody's Investors Service, Inc. maturing within one year; (iii) investments in certificates of deposit issued by any U.S. or state commercial bank or trust company, the U.S. branch of any foreign bank or any United Kingdom commercial bank, each with capital and surplus of not less than the equivalent of U.S. $100,000,000 and whose short-term certificate of deposit rating remains at least A+ by Standard & Poor's or at least A-1 by Moody's Investors Service, Inc. maturing within one year; (iv) Preferred Stock investments rated at least AA by Standard & Poor's or at least Aa by Moody's Investors Service, Inc. scheduled to be redeemed within one year; (v) any state, local or municipal obligations, foreign or domestic, rated at least AA by Standard & Poor's or at least Aa by Moody's Investors 4 9 Service, Inc. maturing within one year; and (vi) accounts and lease receivables incurred in the ordinary course of business. "Security Agreement" means the Security Agreement dated as of the date hereof between the Company and the Purchaser in the form of Exhibit B hereto, as from time to time amended, supplemented or otherwise modified. "Securities Act" means the Securities Act of 1933, as amended. "Standard & Poor's" means Standard & Poor's Rating Services, a division of The McGraw-Hill Companies. "Subsidiary" of any Person means any other Person whose equity securities entitled to elect more than 50% of the directors are, at the time of determination, owned directly or indirectly by such Person, excluding, however, any partnership or other non-corporate entity of which such Person or any of its Subsidiaries is general partner unless such Person owns, directly or indirectly, 50% or more of the economic interest in such entity. "Tangible Net Worth" means the sum of capital plus retained earnings plus subordinated indebtedness minus goodwill, patents, trade names and such other assets as are properly classified as "intangible assets" in accordance with U.S.GAAP. "Taxes" is defined in Section 4.5 hereof. "U.S.GAAP" means generally accepted accounting principles in the United States as in effect from time to time. SECTION 1.2. ACCOUNTING AND FINANCIAL DETERMINATIONS. Unless otherwise specified, all accounting terms used herein shall be interpreted, all accounting determinations and computations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared, in accordance with U.S.GAAP. SECTION 1.3. CONSTRUCTION. As used herein, words importing the singular number include the plural and vice versa, and words importing gender include all genders. 5 10 ARTICLE II PURCHASE AND SALE OF NOTES SECTION 2.1. PURCHASE COMMITMENT. Subject to the terms and conditions of this Agreement, until the first to occur of May 31, 2000, or a Default, the Company agrees from time to time to issue and sell to the Purchaser, and the Purchaser agrees to purchase from the Company, Notes in the aggregate original principal amount not to exceed $5,000,000 (the "Commitment"). Unless sooner terminated pursuant to the provisions of this Agreement, the obligation of the Purchaser to purchase Notes hereunder shall automatically terminate on May 31, 2000, without further action by, or notice of any kind from, the Purchaser. SECTION 2.2. SALE OF NOTES. The Company may make up to three (3) requests to the Purchaser to purchase Notes. Such requests shall be in writing and shall be made no later than three (3) Business Days prior to the requested date for the purchase of the Notes. Each such request shall (i) specify the requested date for purchasing such Notes, which date shall be a Business Day and with respect to purchases after the first purchase of Notes hereunder, shall also be on the first Business Day following the last day of an Interest Period, (ii) be accompanied by invoices for the Containers to be financed with the proceeds of such Notes, in such detail as the Purchaser shall require, and (iii) specify the principal amount of such Notes, which amount shall be not less than the lesser of $1,000,000.00 or the remaining balance of the Commitment and shall not exceed the amount shown on such invoices. On the requested date for purchasing Notes (each, a "Closing Date"), the Company will deliver to the Purchaser Notes, dated the applicable Closing Date, duly executed by the Company, with the Guarantee of the Guarantor duly endorsed thereon, in the aggregate principal amount requested and registered in the name of the Purchaser or its nominees, against delivery by the Purchaser to the Company of immediately available funds in the principal amount of such Notes. No Notes will be purchased by the Purchaser if such purchase together with all prior purchases of Notes hereunder by the Purchaser, exceeds the Commitment. SECTION 2.3. CLOSINGS. Delivery of Notes against payment therefor (each, a "Closing") shall take place at the offices of Ober, Kaler, Grimes & Shriver, A Professional Corporation, 120 East Baltimore Street, Baltimore, Maryland 21202, on the Closing Date at such time as the parties may agree. ARTICLE III CONDITIONS TO CLOSING SECTION 3.1. CONDITIONS FOR EACH CLOSING. The obligation of the Purchaser to purchase the Notes on any Closing Date is subject to the fulfillment, to the Purchaser's satisfaction, at or concurrently with each Closing, of the conditions set forth in Sections 3.4 and 3.5 below and of all of the following conditions: (a) the delivery of the Notes in accordance with Section 2.2 above; 6 11 (b) copies of invoices for the Containers being purchased by the Company with the proceeds of the Notes; and (c) a list of the Containers being purchased by the Company with the proceeds of the Notes. SECTION 3.2. CONDITIONS TO INITIAL CLOSING. In addition to the requirements of the conditions set forth in Section 3.1 above, the obligation of the Purchaser to purchase the Notes at the initial Closing is subject to the fulfillment, to the Purchaser's satisfaction, at or concurrently with the initial Closing, of the conditions set forth in Section 3.3 below and of all of the following conditions: (a) Copies of the Agreement of Limited Partnership of the Company and of the charter and bylaws of the general partner of the Company, each as in effect on the Closing Date, certified by the Secretary of the general partner of the Company (b) Resolutions of the Company authorizing the execution and delivery of this Agreement, the Security Agreement and the other Purchase Documents to which it is a party and the issuance and sale of the Notes, certified by the Secretary of the general partner of the Company; (c) Copies of the Memorandum of Association and Bylaws of the Guarantor as in effect on the Closing Date, certified by the Secretary of the Guarantor; (d) Resolutions of the Board of Directors of the Guarantor authorizing the execution and delivery of this Agreement, the Guarantees and the other Purchase Documents to which it is a party, certified by the Secretary of the Guarantor; (e) An original counterpart of this Agreement and the Security Agreement, each duly executed by the parties thereto and dated as of the initial Closing Date; (f) Official evidence that the Company has been duly formed and is an existing limited partnership in good standing under the laws of the State of California and that the Guarantor has been duly incorporated and is an existing corporation under the laws of the United Kingdom; (g) UCC-1 financing statements in a form approved by the Purchaser to be filed with the Secretary of State of California; (h) the deposit by the Company of $750,000 in a money market account with IBJ Whitehall Bank & Trust Company, which account shall be in the name of the Company but subject to the exclusive control of the Purchaser; (i) insurance certificate or certificates in respect of the Containers naming the Noteholders as loss payees and additional insureds; and (j) a list of all of the Company's Containers. 7 12 SECTION 3.3. LEGAL OPINIONS. The Purchaser shall have received the following legal opinions, dated as of the initial Closing Date: (a) The opinion of Denton Wilde Sapte, United Kingdom counsel to the Guarantor, to the effect that: (i) The Guarantor has been duly incorporated and is an existing corporation under the laws of United Kingdom and is duly qualified as a foreign corporation in each jurisdiction wherein the nature of its business or property makes such qualification necessary and where failure to qualify or to be in good standing would materially adversely affect its business or assets, and has the corporate power and authority to own its property and to carry on its business as now conducted. (ii) The Guarantor has full corporate power and authority to execute, deliver and perform this Agreement, the Guarantees and the other Purchase Documents to which it is a party. This Agreement, the Guarantees and the other Purchase Documents to which the Guarantor is a party have been duly authorized, executed and delivered by the Guarantor and constitute valid and legally binding obligations of the Guarantor enforceable in accordance with their respective terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. (iii) The execution, delivery and performance of this Agreement, the Guarantees and the other Purchase Documents to which the Guarantor is a party will not violate the Memorandum of Association or Bylaws of the Guarantor or any United Kingdom law, regulation, order or decree applicable to the Guarantor. (iv) No consent, approval, authorization, order, registration or qualification of or with any United Kingdom court or governmental agency or body is required for the execution, delivery and performance by the Guarantor of this Agreement, the Guarantees and the other Purchase Documents to which the Guarantor is a party. (v) Any judgment against the Guarantor duly obtained in the courts of the State of New York or in the United States District Court for the Southern District of New York in respect of this Agreement, the Guarantees and the other Purchase Documents to which the Guarantor is a party would be enforceable by suit against the Guarantor in a United Kingdom court provided that (a) such judgment is enforceable in the State of the court which rendered such judgment, (b) the court which rendered such judgment had jurisdiction over the subject matter of the action leading to such judgment, (c) the court which rendered such judgment acted in accordance with its own procedural laws, (d) such judgment was granted following proceedings where the counterparty had received notice and at which the counterparty had the opportunity to appear, and if it appeared, to present a defense, (e) the court which rendered such judgment applied the substantive laws chosen by the parties to govern the Purchase Documents, and (f) the decision is not contrary to United Kingdom public order. 8 13 (b) The opinion of Fotenos & Suttle, P.C., United States counsel to the Company, to the effect that, insofar as the laws of the State of California and the federal laws of the United States are concerned: (i) The Company has been duly organized and is validly existing under the laws of the State of California, is duly qualified as a foreign partnership in each jurisdiction wherein the nature of its business or property makes such qualification necessary and where failure to qualify or to be in good standing would materially adversely affect its business or assets, and has the partnership power and authority to own its property and to carry on its business as now conducted. (ii) The Company has full partnership power and authority to execute, deliver and perform this Agreement and the other Purchase Documents to which it is a party. This Agreement and the other Purchase Documents to which the Company is a party have been duly authorized, executed and delivered by the Company. (iii) No consent, approval, authorization, order, registration or qualification of or with any United States (federal, state or local) court or governmental agency or body is required for the execution, delivery and performance by the Company of this Agreement and the other Purchase Documents, except such consents, approvals, authorizations, orders, registrations or qualifications as have been issued, filed or obtained. (iv) To our knowledge, there are no actions, suits, investigations or proceedings at law or in equity pending or threatened against the Company, before or by any governmental body or authority which are reasonably expected to have a material adverse effect on the financial condition, business or Property of the Company or which call into question the validity or enforceability of this Agreement or the other Purchase Documents. To our knowledge, the Company is not in violation of any judgment, order, writ, injunction, decree, rule or regulation of any court or governmental body or authority the violation of which would, either individually or collectively, materially and adversely affect the business, Property or financial position of the Company and the Guarantor. (v) To our knowledge, (1) the Company is not in default under any mortgage, indenture, contract or agreement to which it is a party or by which it or any of its Property is bound, which default would have a material adverse effect on its financial position, business or Property; (2) the execution, delivery and performance of this Agreement and the other Purchase Documents will not constitute a default under, or result in the creation or imposition of, or obligation to create, any Lien upon any Property of the Company pursuant to the terms of any mortgage, indenture, contract or agreement (other than Permitted Liens); and (3) no provision of any existing mortgage, indenture, contract or agreement of the Company conflicts with, requires any consent under or in any way prevents the execution, delivery and performance of this Agreement or the other Purchase Documents. (vi) The Security Agreement and the description of the Collateral are sufficient, to create a valid Lien with respect to the Collateral in favor of the Noteholders to secure the 9 14 Obligations and upon the filing of an Uniform Commercial Code financing statement with the Secretary of State of California, the Noteholders will have a perfected security interest in the Collateral. (vii) Neither registration of the Notes or the Guarantees under the Securities Act nor qualification of an indenture with respect thereto under the Trust Indenture Act of 1939 is required for the offer and sale of the Notes and the Guarantees to the Purchaser in accordance with this Agreement. (viii) No tax, levy, impost or other charges of any nature whatsoever is required under the laws of the State of California to be deducted or withheld from any payment required to be made by the Company under the Notes. (ix) No stamp or other taxes are payable under the laws of the State of California in connection with the execution and delivery of this Agreement and the other Purchase Documents or to ensure the legality, validity, enforceability or admissibility in evidence thereof or to preserve or protect the security interest granted under the Security Agreement and the continuing priority of such security interest. (c) The opinion of Proskauer Rose LLP, special counsel to the Company, to the effect that, insofar as the laws of the State of New York and the federal laws of the United States are concerned, this Agreement and the other Purchase Documents to which the Company is a party constitute, and the Notes, when executed and delivered by the Company to the Purchaser against payment therefor as provided herein, will constitute, valid and legally binding obligations of the Company enforceable in accordance with their respective terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. SECTION 3.4. REPRESENTATIONS TRUE; NO DEFAULT. The representations and warranties of the Company and the Guarantor contained herein shall be true on each Closing Date, with the same effect as though such representations and warranties had been made on and as of such Closing Date, and there shall exist no Default or Event of Default. The Purchaser shall have received a certificate dated each Closing Date of a senior officer of the Company and of the Guarantor to the foregoing effect. SECTION 3.5. PROCEEDINGS. All corporate and other proceedings taken or to be taken by the Company and the Guarantor on or prior to each Closing Date in connection with the transactions contemplated hereby and all documents incident thereto (including without limitation any consents required in connection therewith) shall be satisfactory in form and substance to the Purchaser. 10 15 ARTICLE IV PAYMENTS, REGISTRATION, ETC. SECTION 4.1. PAYMENT OF PRINCIPAL AND INTEREST, ETC. (a) The principal amount of each Note shall be due and payable in twenty-four (24) consecutive equal quarterly installments each in the amount set forth in the Note, commencing on the three month anniversary of the date of the last purchase of Notes hereunder (the "First Payment Date") and continuing thereafter on each three month anniversary thereof, until repayment in full of such Note. (b) The Company shall pay interest on the unpaid principal amount of each Note on the last day of each Interest Period until the repayment in full of such Note. The rate of interest shall be determined in accordance with the provisions of the Notes entitled "LIBOR Rate." Each interest payment shall be calculated by dividing the applicable annual interest rate by 360 and multiplying the result by the actual number of days elapsed since the most recent interest payment date and multiplying the result by the principal amount of such Note outstanding. (c) Any overdue principal or any overdue installment of interest on any Note shall bear interest (to the extent that the payment of such interest shall be legally enforceable) at a rate equal to the lesser of (i) the maximum rate per annum permitted by applicable law or (ii) the applicable rate per annum provided in the Notes plus 2.0% until paid. Such interest shall be payable upon demand of the Noteholder. (d) The Notes shall be entitled to the benefits and security of the Security Agreement. SECTION 4.2. OPTIONAL PREPAYMENT. The Company may, at its option from time to time, upon fifteen (15) days' prior written notice, prepay on any regularly scheduled payment date all (but not less than all) of the outstanding principal amount of the Notes at a prepayment price equal to the sum of the outstanding principal amount of the Notes plus all accrued but unpaid interest thereon to the date of such prepayment plus a prepayment premium in an amount equal to the applicable prepayment percentage (as set forth below) of the then outstanding principal amount of the Notes.
Note Payment Date No: Prepayment Percentage --------------------- --------------------- 1 through 4 5.0% 5 through 8 4.0% 9 through 12 3.0% 13 through 16 2.0% 17 and thereafter 1.0%
SECTION 4.3. MANNER OF PAYMENT. Payments of principal, premium and interest on the Notes shall be made by wire transfer of funds to such account or accounts of the Noteholders as the Purchaser shall notify the Company in writing. 11 16 SECTION 4.4. REGISTRATION, TRANSFER, ETC. The Notes shall be issued only in registered form, without coupons, in minimum denominations of $1,000,000, or such lesser amount as may remain outstanding thereon. The Company shall keep a register in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Notes and the registration of transfer of Notes. Upon surrender to the Company for registration of transfer of any Note, the Company will, at its expense, issue one or more new Notes of like tenor and of a like aggregate outstanding principal amount, dated the date to which interest has been paid, with the Guarantee of the Guarantor duly endorsed thereon, registered in the name of the designated transferee or its nominee; provided, however, that, unless an Event of Default has occurred and is continuing, the Company shall not be obligated to register any transfer to, and no Noteholder shall be entitled to make any transfer to, a competitor of the Company or the Guarantor, or any other Person in the business of owning or leasing only marine cargo containers. The Company will issue, in exchange for any Note surrendered for such purpose, one or more new Notes of like tenor and of a like aggregate outstanding principal amount, dated the date to which interest has been paid, with the Guarantee of the Guarantor duly endorsed thereon, registered in the name of the holder of the Note so surrendered or its nominee. No service charge shall be imposed for any exchange or registration of transfer of Notes. All Notes presented or surrendered for registration of transfer, exchange, partial payment or payment shall (if so required by the Company) be duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company duly executed by, the holder or its attorney duly authorized in writing. SECTION 4.5. ADDITIONAL AMOUNTS. All payments made with respect to the Notes will be made free and clear of and without withholding or deduction for or on account of any present or future tax, duty, levy, impost, assessment or other governmental charge imposed or levied by or on behalf of any taxing authority (other than taxes levied by the United States Internal Revenue Service on or by reason of the income of the Noteholders) (hereinafter "Taxes"), unless the Company is required to withhold or deduct Taxes by law or by the interpretation or administration thereof. If the Company is so required to withhold or deduct any amount for or on account of Taxes from any payment made under or with respect to the Notes, the Company will pay such additional amounts, after such withholding or deduction, so that the Noteholders will not receive less than the amounts such holders would have received if such Taxes had not been withheld or deducted. ARTICLE V GUARANTEE SECTION 5.1. GUARANTEE. The Guarantor shall execute and deliver to the Purchaser Guarantees in the form attached to the Notes. 12 17 ARTICLE VI REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE GUARANTOR The Company and the Guarantor hereby represent and warrant to, and agree with, the Noteholders as follows: SECTION 6.1. CORPORATE EXISTENCE. Each of the Company and the Guarantor has been duly organized or formed and is existing under the laws of its jurisdiction of incorporation or formation, as applicable, is duly qualified as a foreign corporation or partnership, as applicable, in each jurisdiction wherein the nature of its business or property makes such qualification necessary and where failure to qualify or to be in good standing would materially adversely affect its business or assets, and has the corporate or partnership power and authority to own its property and to carry on its business as now conducted. SECTION 6.2. AUTHORIZATION OF NOTES, ETC. The Company has full partnership power and authority to execute, deliver and perform this Agreement, the Security Agreement, the Notes and the other Purchase Documents to which it is a party, and the Guarantor has full corporate power and authority to execute, deliver and perform this Agreement, the Guarantees and the other Purchase Documents to which it is a party. This Agreement, the Security Agreement and the other Purchase Documents to which the Company is a party have been duly authorized, executed and delivered by the Company and constitute, and the Notes have been duly authorized and when executed and delivered by the Company to the Purchaser against payment therefor as provided herein will constitute, valid and legally binding obligations of the Company enforceable in accordance with their respective terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. This Agreement and the other Purchase Documents to which the Guarantor is a party have been duly authorized, executed and delivered by the Guarantor and constitute, and the Guarantees have been duly authorized and when executed by the Guarantor and delivered by the Company to the Purchaser of the Notes against payment therefor as provided herein will constitute, valid and legally binding obligations of the Guarantor enforceable in accordance with their respective terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. SECTION 6.3. COLLATERAL. The Security Agreement, when executed and delivered by the Company to the Purchaser, will create a valid security interest in the Collateral securing the payment of the Obligations (as defined in the Security Agreement). All action necessary to perfect such security interest has been, or will be, taken, and such security interest has priority over any other Lien on such Collateral, except Permitted Liens. Upon the purchase by the Purchaser of the Notes and the application by the Company of the proceeds thereof in accordance with Section 6.12 hereof, there will be no Liens in favor of manufacturers of the Containers. SECTION 6.4. CONSENTS, APPROVALS, ETC. No consent, approval, authorization, order, registration or qualification of or with any United Kingdom or United States (federal, state or local) 13 18 court or governmental agency or body is required for the execution, delivery and performance by the Company and the Guarantor of this Agreement, the Security Agreement, the Notes and the other Purchase Documents, except such consents, approvals, authorizations, orders, registrations or qualifications as have been issued, filed or obtained. SECTION 6.5. LITIGATION. There are no actions, suits, investigations or proceedings at law or in equity pending or, to the knowledge of the Company or the Guarantor, threatened against the Company or the Guarantor, before or by any governmental body or authority which are reasonably expected to have a material adverse effect on the financial condition, business or Property of the Company or the Guarantor or which call into question the validity or enforceability of this Agreement or the other Purchase Documents. Neither the Company nor the Guarantor is in violation of any judgment, order, writ, injunction, decree, rule or regulation of any court or governmental body or authority the violation of which would, either individually or collectively, materially and adversely affect the business, Property or financial position of the Company or the Guarantor. SECTION 6.6. NO CONFLICTING AGREEMENTS. Neither the Company nor the Guarantor is in default under any mortgage, indenture, contract or agreement to which it is a party or by which it or any of its Property is bound, which default would have a material adverse effect on its financial position, business or Property. The execution, delivery and performance of this Agreement and the other Purchase Documents will not constitute a default under, or result in the creation or imposition of, or obligation to create, any Lien upon any Property of the Company or the Guarantor pursuant to the terms of any mortgage, indenture, contract or agreement (other than Permitted Liens). No provision of any existing mortgage, indenture, contract or agreement of the Company or the Guarantor conflicts with, requires any consent under or in any way prevents the execution, delivery and performance of this Agreement or the other Purchase Documents. SECTION 6.7. FINANCIAL STATEMENTS. The Purchaser has been furnished with (a) the Company's 10-K for the period ending December 31, 1998 and with the balance sheet of the Guarantor as at December 31, 1998, together with the related statements of operations, cash flow and partners' equity for the fiscal year ended December 31, 1998 (the "Annual Financial Statements"), including the related notes, all accompanied by the report thereon of Moore Stephens Chartered Accountants, independent public accountants, and (b) the Company's 10-Q for the period ending September 30, 1999 (the "10-Q"). The Annual Financial Statements and the 10-Q fairly present (subject, in the case of the 10-Q, to normal year-end adjustments), in all material respects, the financial position, results of operations and cash flows of the Company and of the Guarantor as at the dates and for the periods referred to therein in conformity with U.S.GAAP (except as otherwise stated therein or in the notes thereto). SECTION 6.8. NO MATERIAL ADVERSE CHANGE. There has not been any material adverse change in the condition, financial or otherwise, of the Company since September 30, 1999 or of the Guarantor subsequent to December 31, 1998. SECTION 6.9. SUBSIDIARIES. Neither the Company nor the Guarantor has any Subsidiary and neither shall create any Subsidiary without the prior written consent of the Noteholders. 14 19 SECTION 6.10. OFFERING OF NOTES. Neither the Company nor the Guarantor has, directly or indirectly, offered the Notes or any similar security for sale to, or solicited any offers to buy the Notes or any similar security from, or otherwise approached or negotiated with respect thereto with more than 50 Persons including the Purchaser, all of which Persons are "accredited investors" (as such term is defined under Rule 501 of the Securities and Exchange Commission), and neither the Company nor the Guarantor nor any agent acting on behalf of the Company or the Guarantor has taken any action which would require the issuance or sale of the Notes or the Guarantees to the Purchaser to be registered under the Securities Act or to be registered or qualified under any securities or Blue Sky law of any applicable jurisdiction. SECTION 6.11. BROKER'S OR FINDER'S COMMISSIONS. The Company and the Guarantor will hold the Noteholders harmless from any claim, demand or liability for broker's or finder's or placement fees or commissions alleged to have been incurred in connection with the issuance and sale of the Notes and the Guarantees, other than for any such claim, demand or liability by any broker or finder engaged by the Noteholders in connection with the transactions contemplated hereby. SECTION 6.12. USE OF PROCEEDS. The net proceeds from the sale of the Notes will be used by the Company to finance the purchase of new dry cargo 20 and 40 foot marine cargo containers. The Guarantor or the Company has provided to the Purchaser a schedule certified by an officer of the Guarantor setting forth the type, serial number, age, date of acquisition and original cost of each Container presently owned by the Company. None of the transactions contemplated by this Agreement (including, without limitation, the use of proceeds from the sale of the Notes) will violate or result in a violation of Section 7 of the Exchange Act or any regulations issued pursuant thereto. SECTION 6.13. INVESTMENT COMPANY STATUS. Neither the Company nor the Guarantor is an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended. SECTION 6.14. ENVIRONMENTAL COMPLIANCE. Neither the Company nor the Guarantor is in violation, or alleged to be in violation, of any judgment, decree, order, law, license, rule or regulation pertaining to environmental matters, including, without limitation, those arising under the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), the Superfund Amendments and Reauthorization Act of 1986, the Federal Clean Water Act, the Federal Clean Air Act, the Toxic Substances Control Act, or any state or local statute, regulation, ordinance, order or decree relating to health, safety or the environment (collectively, as amended, the "Environmental Laws"), which violation would have a material adverse effect on the business, assets or financial condition of the Company or of the Guarantor. Neither the Company nor the Guarantor has received any written or oral notice ("Environmental Notice") from any third party, including, without limitation, any federal, state or local governmental authority (i) that the Company or the Guarantor is in breach or violation of any Environmental Law, or (ii) of a claim of liability thereunder. Except in accordance with applicable law, at no time has the Company or the Guarantor stored, manufactured, generated, treated, transported, recycled or disposed of, or contracted with another party who, to their knowledge, has stored, transported, recycled or disposed of any hazardous waste, as defined by 42 U.S.C. ' 6903(5), any hazardous substances as defined by 42 U.S.C. ' 9601(14), any pollutant or 15 20 contaminant as defined by 42 U.S.C. ' 9601(33) and any toxic substances, oil or hazardous materials or other chemicals or substances regulated by any Environmental Laws. SECTION 6.15. FULL DISCLOSURE. The Annual Financial Statements and 10-Q do not, nor does this Agreement, nor do any written statements furnished by the Company or the Guarantor to the Noteholders in connection with the purchase of the Notes, contain any untrue statement of fact as of the date made or, considered together, omit a fact necessary to make the statements contained therein or herein not misleading. ARTICLE VII REPRESENTATIONS AND WARRANTIES OF THE PURCHASER The Purchaser represents and warrants to the Company and the Guarantor as follows: SECTION 7.1. EXPERIENCE. The Purchaser has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of the investment in the Notes and of making an informed decision regarding such investment. SECTION 7.2. INVESTMENT. The Purchaser is acquiring the Notes for investment for its own account and not with the view to, or for resale in connection with, any distribution thereof and understands that the Notes have not been registered under the Securities Act by reason of a specified exemption from such registration which depends upon, among other things, the bona fide nature of its investment intent as expressed herein. SECTION 7.3. LIMITATIONS ON DISPOSITION. The Purchaser acknowledges that the Notes must be held indefinitely unless they are subsequently registered under the Securities Act or an exemption from such registration is available and that the Company has no obligation or intention of registering the Notes and may take action to prevent the transfer of Notes in violation of this Agreement. SECTION 7.4. RESTRICTIVE LEGEND. Each Note shall (unless otherwise permitted or unless the Notes shall have been registered under the Securities Act) be stamped or otherwise imprinted with a legend in the following form (in addition to any legend required under applicable state securities laws): "THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM." 16 21 ARTICLE VIII COMPANY COVENANTS The Company covenants and agrees that so long as any of the Notes shall be outstanding: SECTION 8.1. FINANCIAL STATEMENTS. The Company will deliver to the Purchaser: (a) within 60 days after the end of each quarterly period (other than the last quarterly period) of each fiscal year, copies of unaudited interim financial statements of each of the Company and the Guarantor for that period and for that part of the fiscal year ended with such quarterly period prepared in accordance with U.S.GAAP, subject to year-end adjustments; (b) within 120 days after the end of each fiscal year, copies of the unaudited balance sheet and statements of operations, cash flow and partners' equity of each of the Company and of the Guarantor, certified by the principal financial officer of the Guarantor; and within 180 days after the end of each fiscal year, copies of the balance sheet and statements of operations, cash flow and partners' equity of the Company and of the Guarantor, accompanied by a report or opinion of the Accountants to the Company or the Guarantor, as applicable, based on their examination of said financial statements in accordance with U.S.GAAP, stating that such financial statements present fairly, in all material respects, the financial position of the Company and of the Guarantor as of the end of such year and the results of their operations and cash flows for the year then ended; (c) concurrently with the aforesaid financial statements delivered pursuant to Section 8.1(a) and 8.1(b) above, a certificate of the chief financial officer of the general partner of the Company and of the chief financial officer of the Guarantor stating that, to the best of his or her knowledge, neither the Company nor the Guarantor is in default in the fulfillment of any of the terms, covenants, provisions or conditions of this Agreement or the other Purchase Documents, or if any such default exists, specifying such default or defaults and the nature and status thereof and containing computations showing compliance by the Company with the provisions of Sections 8.13 and 8.14 hereof; and (d) concurrently with the aforesaid financial statements delivered pursuant to Section 8.1(b) above, a list of the Company's Containers, certified by a responsible officer of the Company. SECTION 8.2. PARTNERSHIP EXISTENCE, ETC. Subject to Section 10.2, the Company will do or cause to be done all things reasonably necessary to preserve and keep in full force and effect its limited partnership existence and all permits, rights and privileges necessary for the proper conduct of its business and continue to engage in the same line of business. The Company's chief executive office is located in San Francisco, California. The Company shall not enter into any amendment of its agreement of limited partnership that would have a material adverse affect on any Noteholder, the Collateral or the financial condition, business or Property of the Company. SECTION 8.3. TAXES AND CLAIMS. The Company will pay and discharge all taxes, assessments and other governmental charges and levies imposed upon it or upon its income or profits 17 22 or upon any Property belonging to it prior to the date on which penalties attach thereto and all lawful claims known to the management of the Company which, if unpaid, might become a Lien upon the Property of the Company, provided that so long as there is no material risk of the forfeiture of the Collateral, the Company shall not be required hereby to pay any such taxes, assessments, charges, levies or claims the payment of which are being contested in good faith and by proper proceedings and against which adequate reserves are being maintained in accordance with U.S. GAAP. SECTION 8.4. INSURANCE. The Company will maintain or cause to be maintained insurance of such type in such amounts and against such material risks as is usually carried by owners of similar businesses and properties in the same general areas in which the Company operates, in each case with good and responsible insurance companies. Without limiting the foregoing, the Company shall maintain in force (i) general liability insurance in an amount satisfactory to the Noteholders, naming the Noteholders as additional insureds; and (ii) all risk physical damage insurance (naming the Noteholders as sole loss payees) with respect to the Containers in an amount at least equal to $2,500,000.00. Any proceeds from such physical damage insurance paid to the Noteholders shall be paid by the Noteholders to the Company, provided no Default or Event of Default then exists, and shall be used by the Company for repair or replacement of such Containers (with any repaired Container continuing to be, and with any replacement Container becoming, part of the Collateral, and with such documentation to be executed in connection therewith as shall be acceptable to the Noteholders). If a Default or Event of Default exists at the time any proceeds of physical damage insurance are paid or payable, the Noteholders shall determine, in their sole discretion, whether such proceeds shall be used for such repair or replacement or shall be applied against the Notes in the inverse order of maturity. Any replacement container shall have a market value, utility, condition and remaining life equal to or greater than that of the replaced container immediately prior to the casualty event following which such Container is being replaced. SECTION 8.5. COMPLIANCE WITH APPLICABLE LAWS. The Company will comply with the requirements of all applicable laws, rules, regulations and orders of any governmental body or regulatory authority, the breach of any of which would be likely to have a material adverse effect on the financial position, business or Property of the Company. SECTION 8.6. BOOKS AND ACCOUNTS. The Company will maintain its present system of accounting, in which true and faithful entries of its transactions will be made and will set aside on its books from its earnings for each fiscal year all such proper reserves as shall be required under U.S.GAAP. SECTION 8.7. LIMITATION ON LIENS. The Company will not create or suffer to be created any Lien upon the Collateral or any part thereof or upon the income therefrom, other than the following (collectively, "Permitted Liens"): (i) the Liens created by the Security Agreement, (ii) the possessory leasehold interest of lessees under leases relating to the Collateral, (iii) liens for taxes, assessments and other governmental charges not delinquent or which can be paid without penalty, and for which adequate reserves have been established, (iv) unfiled, inchoate mechanics' and materialmen's liens for work in progress and for which payment is not yet due, (v) workmen's, repairmen's, warehousemen's and carrier's liens and other similar Liens, if any, arising in the ordinary course of business, and (vi) liens in favor of the manufacturers of Containers that secure the payment 18 23 of the purchase price of Containers, which payment is not past due. The Company will from time to time pay or cause to be paid as they become due and payable all taxes, assessments and governmental charges lawfully levied or assessed or imposed upon the Collateral or any part thereof or upon any income therefrom and also all taxes, assessments and governmental charges lawfully levied or assessed or imposed upon the Lien of the Noteholders in the Collateral, so that such Lien shall at all times be preserved; provided, however, that so long as there is no material risk of the forfeiture of the Collateral, the Company shall not be required hereby to pay any such taxes, assessments, charges, levies or claims the payment of which are being contested in good faith and by proper proceedings and against which adequate reserves are being maintained in accordance with U.S. GAAP. SECTION 8.8. MAINTENANCE AND USE OF CONTAINERS. The Company shall cause the Containers to be maintained in good working order and condition and in all respects shall deal with the Containers in accordance with industry standards and practices. SECTION 8.9. NOTICES AS TO DEFAULT OR MATERIAL CHANGE. The Company will deliver to the Noteholders, as soon as possible and in any event within five (5) days after the Company or the Guarantor becomes aware of the occurrence of Default or an Event of Default or an event or circumstances that would result in a material adverse effect on the financial condition of the Company or of the Guarantor, written notice setting forth the details of such occurrence, event or circumstances and the action which the Company proposes to take with respect thereto. Thereafter the Company will keep the Noteholders apprised of all material developments with respect thereto with reasonable frequency and promptness. SECTION 8.10. OTHER INFORMATION. (a) At any time when the Company is not subject to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Company will furnish, upon request of a Noteholder, to such Noteholder and any qualified institutional buyer (as such term is used in Rule 144A under the Securities Act) designated by such Noteholder, information required to be delivered under subsections (d)(3) and (d)(4) of Rule 144A under the Securities Act (or any successor provision thereto, in each case as may be amended from time to time) in connection with the resale of any Notes. (b) The Company will furnish to a Noteholder, with reasonable promptness, such other data and information as such Noteholder may from time to time reasonably request in connection herewith, provided that such Noteholder agrees or has agreed in writing to confidentiality provisions substantially in the form of Section 12.14 hereof. (c) The Company will furnish to the Noteholders copies of any Environmental Notice promptly after its receipt thereof. SECTION 8.11. CHANGE OF NAME/LOCATION. The Company shall notify the Noteholders thirty (30) days in advance of any change in its name or the location of its chief executive office. 19 24 SECTION 8.12. INDEMNIFICATION. The Company shall indemnify and hold harmless the Noteholders, on a net After-Tax basis, against and from any and all claims, demands, actions, expenses, penalties and liabilities (including, without limitation, reasonable attorneys' fees and legal expenses) of whatsoever nature (other than as a result of the negligence or willful misconduct or actions in breach of the Purchase Documents by the Noteholders) arising prior to (but not after) the Noteholders taking possession of the Collateral pursuant to the terms of the Security Agreement and (i) made by any lessee of any Container and arising out of the transactions contemplated by this Agreement or otherwise relating to the Containers, (ii) arising out of or resulting from the use by the Company, or any agents or employees of the Company, of any Container or any alteration thereof or any addition or attachment thereto, (iii) which may be imposed on, incurred by or asserted at any time against the Noteholders or any of the Collateral (whether or not also indemnified against by the Company in any other document or by any one else) and in any way relating to or arising out of the purchase, ownership, possession, use, operation, maintenance, repair, storage, mortgaging, leasing, selling or other handling, dealing with or disposition of any of the Containers (including, without limitation thereto, leakage, spillage, fire, explosion, damage, spoilage, contamination or loss of cargo, acts or omissions of lessees and carriers and their respective servants and agents, claims or penalties arising from violation of any treaty or the laws of any country or political subdivision thereof, as well as any claim arising out of latent or other defects, whether or not discoverable by the Company, and any claim for patent, trademark or copyright infringement) or in any way relating to or arising out of any of this Agreement, the Security Agreement, the other Purchase Documents or any lease or any action or inaction on the part of the Company or any one else in connection therewith, or (iv) arising out of or result from any past, present or future violation or alleged violation of any of the Environmental Laws. The obligation of the Company under the preceding sentence shall survive the termination of this Agreement and the repayment in full of the Obligations. For purposes hereof, the term "After-Tax" shall mean, when used in connection with an indemnity payment (the "initial payment") by one party to another party, that in addition to the initial payment the payor shall pay the recipient an additional amount (the "gross-up amount") such that (i) the initial payment, plus (ii) the gross-up amount, less (iii) any increase in the Federal, state or local income taxes actually payable by the recipient as a result of its receipt of the initial payment and the gross-up amount, and taking into account the income tax effect (including any savings) resulting from the events or payments giving rise to the initial payment, shall equal the initial payment. In the event any claims, demands, actions, expenses, penalties and liabilities are made against or incurred by the Noteholders arising out of or resulting from the use by any lessee, or the agents or employees thereof, of any Container or any alteration thereof or any addition or attachment thereto, the Company shall assist the Noteholders to any reasonable extent requested by the Noteholders in enforcing the Noteholders' rights (as assignees of the Company pursuant to the Security Agreement) under any applicable indemnity or hold-harmless provision for the benefit of the Company contained in any lease of the Containers. SECTION 8.13. TANGIBLE NET WORTH. The Company will maintain a Tangible Net Worth at the end of each fiscal quarterly period: (i) until and including December 31, 2000, of not less than $20,000,000; (ii) from January 1, 2001 and until and including December 31, 2001, of not less than $18,000,000; (iii) from January 1, 2002 and until and including December 31, 2002, of not less than $16,000,000; (iv) from January 1, 2003 and until and including December 31, 2003, of not less than 20 25 $14,000,000; (v) from January 1, 2004 and until and including December 31, 2004, of not less than $12,000,000; (vi)from January 1, 2005 and until and including December 31, 2005, of not less than $10,000,000; and (vi) thereafter, of not less than $8,000,000. SECTION 8.14. LEVERAGE. The Company will at all times maintain a ratio of Funded Debt to Tangible Net Worth of not greater than 0.25 to 1.0. SECTION 8.15. LIMITATIONS ON DISTRIBUTIONS AND RESTRICTED PAYMENTS. Until the occurrence and during the continuance of an Event of Default, the Company may (i) make any distributions with respect to any of its partnership interests, (ii) redeem, purchase or otherwise acquire any of its partnership interests, or (iii) make any Restricted Investments, provided that any such distribution, redemption, purchase or acquisition is not made with the proceeds of any of the Collateral. Notwithstanding the foregoing, the Company may make such distributions, redemptions, purchases and acquisitions with the proceeds of any sale or other disposition of the Collateral, provided that such distributions, redemptions, purchases and acquisitions do not exceed (x) $200,000 in the aggregate per year and (y) $1,000,000 in the aggregate over the term of the Notes. SECTION 8.16. LIMITATION ON SALES OF ASSETS AND CONTAINERS. Other than pursuant to Section 10.2, the Company will not sell, lease or otherwise dispose of any assets in one or a series of transactions, other than sales of assets in the ordinary course of business; provided, however, that the Guarantor (on behalf of the Company) may (i) lease the Containers pursuant to the Leasing Agent Agreement, and (ii) replace the Containers in accordance with Section 8.4 hereof. SECTION 8.17. TRANSACTIONS WITH AFFILIATES. The Company will not enter into or be a party to, any transaction or arrangement with any Affiliate (including without limitation, the purchase from, sale to or exchange of Property with, or the rendering of any service by or for, any Affiliate), except pursuant to the reasonable requirements of the Company's business and upon fair and reasonable terms no less favorable to the Company than could be obtained in a comparable arm's-length transaction with a Person other than an Affiliate. SECTION 8.18. NO ADDITIONAL INDEBTEDNESS. The Company will not create, incur guaranty, assume, permit to exist or otherwise become liable for any Funded Debt, except (a) Funded Debt to the Purchaser; (b) Funded Debt incurred by the endorsement of negotiable instruments for deposit or collection in the ordinary course of business; and (c) indebtedness to manufacturers of the Containers for the purchase price of the Containers. 21 26 ARTICLE IX GUARANTOR COVENANTS The Guarantor covenants and agrees that so long as any of the Notes shall be outstanding: SECTION 9.1. CORPORATE EXISTENCE, ETC. Subject to Section 10.2, the Guarantor will do or cause to be done all things reasonably necessary to preserve and keep in full force and effect its corporate existence and all permits, rights and privileges necessary for the proper conduct of its business and continue to engage in the same line of business. SECTION 9.2. CONTAINER INFORMATION. Upon request either (a) once, but not more than once, during any calendar year or (b) upon and during the continuance of a Default or an Event of Default or at any time after Noteholders have taken possession of the Collateral or have caused the Collateral to be sold pursuant to the provisions of the Security Agreement, the Guarantor shall cause to be provided to the Noteholders, at Guarantor's sole cost, a report setting forth a list of the Containers, to whom the Containers are on lease, the location of all Containers that are not on hire as such location appears on the Company's records. In addition, the Company and the Guarantor agree to provide the Purchaser and the other Noteholders the same access to the Guarantor's computer systems and electronic data with respect to the Containers as the Guarantor provides the Purchaser as of the date hereof. SECTION 9.3. TAXES AND CLAIMS. The Guarantor will pay and discharge all taxes, assessments and other governmental charges and levies imposed upon it or upon its income or profits or upon any Property belonging to it prior to the date on which penalties attach thereto and all lawful claims known to the management of the Guarantor which, if unpaid, might become a Lien upon the Property of the Guarantor, provided that the Guarantor shall not be required hereby to pay any such taxes, assessments, charges, levies or claims the payment of which are being contested in good faith and by proper proceedings and against which adequate reserves are being maintained. SECTION 9.4. INSURANCE. The Guarantor will maintain or cause to be maintained insurance of such type in such amounts and against such material risks as is usually carried by owners of similar businesses and properties in the same general areas in which the Guarantor operates, in each case with good and responsible insurance companies. SECTION 9.5. COMPLIANCE WITH APPLICABLE LAWS. The Guarantor will comply with the requirements of all applicable laws, rules, regulations and orders of any governmental body or regulatory authority, the breach of any of which would be likely to have a material adverse effect on the financial position, business or Property of the Guarantor, except where diligently contested in good faith and by proper proceedings. SECTION 9.6. BOOKS AND ACCOUNTS. The Guarantor will maintain its present system of accounting, in which true and faithful entries of its transactions will be made and will set aside on its books from its earnings for each fiscal year all such proper reserves as shall be required under United Kingdom accounting practices. 22 27 SECTION 9.7. TRANSACTIONS WITH AFFILIATES. The Guarantor will not enter into or be a party to, any transaction or arrangement with any Affiliate (including without limitation, the purchase from, sale to or exchange of Property with, or the rendering of any service by or for, any Affiliate), except pursuant to the reasonable requirements of the Guarantor's business and upon fair and reasonable terms no less favorable to the Guarantor than could be obtained in a comparable arm's-length transaction with a Person other than an Affiliate. SECTION 9.8. MANAGEMENT OF CONTAINERS. Upon and during the continuance of a Default or Event of Default, upon request of the Noteholders, the Guarantor will manage the leasing of the Containers for the benefit of the Noteholders upon the terms of the Leasing Agent Agreement or other terms mutually agreed upon by the Noteholders and the Guarantor. ARTICLE X CHANGE OF CONTROL, MERGERS, CONSOLIDATIONS AND SALES OF ASSETS SECTION 10.1. CHANGE OF CONTROL. Upon the occurrence of a Change of Control, the Company shall so notify each Noteholder in writing within five (5) Business Days thereafter, and each Noteholder shall have the right to require the Company to prepay the Notes held by such Noteholder (the "Prepayment Right") at a prepayment price equal to the sum of 100% of the unpaid principal amount thereof plus accrued interest to the date of prepayment plus a prepayment premium determined in accordance with Section 4.2 hereof. Notice of exercise by any Noteholder of the Prepayment Right shall be given in writing to the Company at any time within the thirty (30) day period after such Noteholder shall have received notice of such Change of Control from the Company. If a Noteholder does not elect to exercise the Prepayment Right during such thirty (30) day period, then such Noteholder shall not be able to exercise the Prepayment Right with respect to such Change of Control. The prepayment shall occur on a date selected by the Company (in a notice from the Company to such Noteholder at least three (3) days prior to such prepayment) that shall be not later than the later to occur of (i) 25 days after the Company has provided notice to such Noteholder of such Change of Control or (ii) ten (10) days after the giving of notice of exercise by such Noteholder. Any Note so prepaid shall be promptly thereafter surrendered by such Noteholder to the Company. SECTION 10.2. MERGERS, CONSOLIDATIONS AND SALES OF ASSETS. Neither the Company nor the Guarantor shall consolidate or merge with or transfer all or substantially all of its assets to another Person unless (i) the surviving entity or transferee shall expressly assume (pursuant to documentation reasonably satisfactory to Noteholders holding a majority of the outstanding principal amount of the Notes) the obligations of the Company under the Notes and the other Purchase Documents to which it is a party or the obligations of the Guarantor under the Guarantees and the other Purchase Documents to which it is a party, as the case may be; (ii) the surviving entity or transferee possesses immediately thereafter a Tangible Net Worth of not less than the Tangible Net Worth of the Company or the Guarantor, as the case may be, immediately prior thereto; and (iii) 23 28 immediately thereafter no Default or Event of Default exists. The Company shall be responsible for all expenses of the Purchaser (including, without limitation, reasonable attorneys' fees and expenses, filing fees, lien searches, etc.) incurred in connection with any such consolidation, merger or transfer, whether or not consummated and, upon the request of the Purchaser, shall execute and deliver such financing statements and other documents as the Purchaser may reasonably require or deem necessary to maintain and protect its first priority, perfected security interest in, and lien on, the Collateral. ARTICLE XI DEFAULTS AND REMEDIES SECTION 11.1. EVENTS OF DEFAULT. The following events shall be "Events of Default" hereunder: (a) the Company shall default in the payment of interest, principal or premium, if any, on any Note or any other amount payable under the Purchase Documents when and as the same becomes due and payable and such default shall continue for a period of five (5) Business Days after the date that such payment is due and payable; (b) the Company shall default in the performance of Sections 8.2, 8.4, 8.7, 8.11, 8.13, 8.14, 8.15, 8.16, 8.18 and 10.2 hereof; (c) the Company or the Guarantor shall fail to comply, for a period of thirty (30) days after written notice has been given to the Company or the Guarantor by any Noteholder, with any other provision of this Agreement or the other Purchase Documents or any material covenant under the other material agreements of the Company or the Guarantor; (d) (i) any event shall occur or any condition shall exist in respect of any indebtedness of the Company or the Guarantor (other than the Notes) in an aggregate unpaid principal amount of $1,000,000 or more (with respect to the Company) or $5,000,000 or more (with respect to the Guarantor), or under any agreement securing or relating to any such indebtedness, the effect of which is (1) to cause (or permit any holder of such indebtedness or a trustee to cause) the acceleration of the maturity of such indebtedness and such holder or trustee actually does accelerate such maturity or (2) in the case of the Company only, to permit such acceleration if such event or condition is not cured or waived (whether or not the giving of notice or the passage of time or both is necessary in order for such acceleration to occur), or (ii) any such indebtedness referred to in clause (i) shall not have been paid at the final maturity or due date thereof and any applicable grace period shall have expired; (e) a court of competent jurisdiction shall enter a decree or order in an involuntary case under any present or future federal or state bankruptcy, insolvency or similar law or appoint a conservator or receiver or liquidator in any insolvency, readjustment of debt, marshalling of assets and liabilities or similar proceedings, or for the winding-up or liquidation of the affairs of the 24 29 Company or the Guarantor, which decree or order shall have remained in force undischarged or unstayed for a period of ninety (90) days; (f) the Company or the Guarantor shall consent to the appointment of a conservator or receiver or liquidator in any insolvency, readjustment of debt, marshalling of assets and liabilities or similar proceedings of or relating to it or of or relating to all or substantially all of its Property; (g) the Company or the Guarantor shall admit in writing its inability to pay its debts generally as they become due, file a petition to take advantage of any applicable insolvency or reorganization statute, make an assignment for the benefit of its creditors or voluntarily suspend payment of its obligations; (h) the Security Agreement or any of the other Purchase Documents shall cease to be in full force and effect with respect to the Collateral or the rights of the Noteholders defined therein or the Noteholders no longer have a first priority perfected security interest in, and lien on, the Collateral; (i) Any representation or warranty of the Company or the Guarantor herein shall have been untrue or misleading in any material respect at and as of the date hereof; and (j) The Leasing Agent Agreement shall be terminated, invalidated or otherwise rendered unenforceable and the Company shall not have promptly entered into another agreement to manage the leasing of the Containers with the Guarantor (or other Person satisfactory to the Noteholders, in their sole discretion) upon terms similar to the Leasing Agent Agreement or otherwise satisfactory to the Noteholders, in their sole discretion. SECTION 11.2. ACCELERATION. If an Event of Default (other than the Event of Default specified in Section 11.1(e), (f) or (g) hereof) occurs and is continuing, each Noteholder may, at its option and in addition to any other right, power or remedy permitted by law or equity or herein granted, by notice to the Company, declare to be due and payable immediately the unpaid principal amount of all Notes held by such Noteholder, and upon any such declaration the same shall become and shall be immediately due and payable, together with all accrued and unpaid interest thereon. If an Event of Default specified in Section 11.1(e), (f) or (g) hereof occurs, there shall automatically become and be immediately due and payable, without any declaration or other act on the part of any of the Noteholders, the principal amount of all the Notes, together with all accrued and unpaid interest thereon. Each Noteholder by notice to the Company may rescind an acceleration and the consequences thereof in respect of the Notes held by such Noteholder. 25 30 ARTICLE XII MISCELLANEOUS SECTION 12.1. WAIVERS, AMENDMENTS, ETC. The provisions of this Agreement may from time to time be amended, modified or waived if such amendment, modification or waiver is in writing and consented to by the Company and the Noteholders. No failure or delay on the part of any Noteholder in exercising any power or right under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any such power or right preclude any other or further exercise thereof or the exercise of any other power or right. No notice to or demand on the Company in any case shall entitle it to any notice or demand in similar or other circumstances. No waiver or approval by any Noteholder under this Agreement shall, except as may be otherwise stated in such waiver or approval, be applicable to subsequent transactions. No waiver or approval hereunder shall require any similar or dissimilar waiver or approval thereafter to be granted hereunder. SECTION 12.2. EXPENSES. The Company agrees, whether or not the transactions hereby contemplated shall be consummated, to pay, and save the Noteholders harmless against liabilities for the payment of, (i) the out-of-pocket costs and expenses incurred by the Purchaser in connection with its due diligence and the preparation, negotiation, execution and delivery of this Agreement and the other Purchase Documents; provided, however, if such costs and expenses exceed $10,000, they will be shared equally between the Company and the Purchaser, (ii) all taxes (including any intangible personal property tax, together in each case with interest and penalties, if any, and also including any filing fees payable to any governmental authority, and any income tax payable by the Noteholders in respect of any reimbursement for any such tax or fee) which may be payable in respect of the execution or delivery of this Agreement or the other Purchase Documents (including, without limitation, the execution, delivery or acquisition of any Note issued under or pursuant to this Agreement), and (iii) the cost and expenses, including reasonable attorneys' fees, incurred by the Noteholders in enforcing any of the Noteholders' rights hereunder, including without limitation, costs and expenses incurred in connection with any bankruptcy case, restructuring or workout. The obligations of the Company under this Section shall survive any transfer of the Notes and the termination of this Agreement. SECTION 12.3. PERSONS DEEMED OWNERS. Prior to due presentment for registration of transfer, the Company may treat the Person in whose name any Note is registered as the owner and holder of such Note for the purpose of receiving payment of principal of and interest and premium (if any) on such Note and for all other purposes whatsoever, whether or not such Note shall be overdue, and the Company shall not be affected by notice to the contrary. SECTION 12.4. NON-BUSINESS DAYS. If the date for making any payment or the last date for performance of any act or the exercising of any right, as provided in this Agreement, shall not be a Business Day, such payment may be made or act performed or right exercised on the immediately succeeding Business Day with the same force and effect as if done on the nominal date provided in this Agreement, except that interest shall accrue and be payable for the period after such nominal date. 26 31 SECTION 12.5. NOTICES. All notices and other communications provided to any party hereto under this Agreement or any other instrument executed or delivered to the Purchaser or any Noteholder after the Closing Date (to the extent not otherwise provided therein) shall be in writing or by facsimile transmission (with telephonic confirmation of receipt) and addressed or delivered to it at its address set forth below its signature hereto or at such other address as may be designated by such party in a notice to the other parties. Any notice, if mailed and properly addressed with postage prepaid, shall be deemed given when received; any notice, if transmitted by facsimile transmission, shall be deemed given when transmitted if transmitted before the end of normal business hours of the receiving party, and if transmitted after the end of normal business hours of the receiving party, shall be deemed given as of the next day. SECTION 12.6. NOTICES TO SUBSEQUENT HOLDER. If any Note shall have been transferred to another holder pursuant to Section 4.4 and such holder shall have designated in writing the address to which communications with respect to such Note shall be mailed, all notices, certificates, requests, statements and other documents required or permitted to be delivered to the Purchaser with respect to such Note by any provision hereof shall be delivered to such holder. SECTION 12.7. SEVERABILITY. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement, which shall remain in full force and effect, or affecting the validity or enforceability of such provision in any other jurisdiction. SECTION 12.8. HEADINGS. The various headings of this Agreement are inserted for convenience only and shall not affect the meaning or interpretation of this Agreement or any provision hereof. SECTION 12.9. COUNTERPARTS. This Agreement may be executed by the parties hereto in several counterparts, each of which shall be deemed to be an original and all of which shall constitute together but one and the same agreement. SECTION 12.10. GOVERNING LAW. THIS AGREEMENT AND THE OTHER PURCHASE DOCUMENTS SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO ITS CONFLICT OF LAWS RULES (EXCEPT TITLE 14, SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW). SECTION 12.11. ENTIRE AGREEMENT. This Agreement and the other Purchase Documents constitute the entire understanding between the parties hereto with respect to the subject matter hereof and supersede any prior agreements, written or oral, with respect thereto. SECTION 12.12. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and permitted assigns. This Agreement may not be assigned by the Company. 27 32 SECTION 12.13. SUBMISSION TO JURISDICTION. The Company and the Guarantor hereby irrevocably submit to the nonexclusive jurisdiction of any New York state or federal court sitting in the Borough of Manhattan in the City of New York, U.S.A., in any action or proceeding arising out of or relating to this Agreement or the other Purchase Documents, and the Company and the Guarantor hereby irrevocably agree that all claims in respect of such action or proceeding may be heard and determined in such New York state or federal court. The Company and the Guarantor hereby irrevocably waive, to the fullest extent that they may legally do so, the defense of an inconvenient forum to the maintenance of such action or proceeding and agree that a final judgment in any such action or proceeding shall be conclusive to the fullest extent permitted by law and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. The Company and the Guarantor each hereby irrevocably designates and appoints Dennis J. Tietz, President of the general partner of the Company (and the successors in such office) as its agent to receive on its behalf service of all process brought against it with respect to any such proceeding in any such court in the State of New York, such service being hereby acknowledged to be effective and binding upon it in every respect. If for any reason such agent shall cease to be available to act as such, then the Company and the Guarantor shall promptly designate a new agent for such purpose in New York, New York. SECTION 12.14. CONFIDENTIALITY. Except as may be required to enforce the rights and duties established hereunder or under the other Purchase Documents, the Noteholders and their respective Affiliates agree (a) to keep confidential any information received from the Company or the Guarantor or any of their Affiliates pursuant to or in connection herewith and the transactions contemplated hereunder and reasonably designated by the Company or the Guarantor as being confidential ("Confidential Information"), (b) not to use Confidential Information in any manner, or in connection with any business or service, competitive with the Company or the Guarantor, and (c) not to disclose any Confidential Information; provided that the Noteholders may disclose such information (i) as may be required by law, regulation or legal process if, to the extent practical, the Noteholders provide the Company and the Guarantor prior notice of any such legally required disclosure (except that no prior notice shall be necessary before disclosure is made to the Securities Valuation Office of the NAIC, any bank examiner or other similar regulator) or (ii) that has become generally publicly available other than through a breach of this Agreement by the Noteholders, or (iii) as may be necessary or appropriate in the Noteholders' reasonable judgment in connection with providing information to securities exchanges, rating agencies, their lenders, auditors and other representatives which have a legitimate business reason to know and with which the Noteholders maintains a confidential relationship. SECTION 12.15. FURTHER ASSURANCES. Upon the request of the Purchaser or the Company, the other party, at the Company's sole cost and expense, shall execute and deliver to the requesting party such further instruments and shall do and cause to be done such further acts with respect to this Agreement and the other Purchase Documents as the requesting party reasonably may deem necessary or desirable to carry out more effectively the provisions and purposes of this Agreement and the other Purchase Documents. SECTION 12.16. WAIVERS OF JURY TRIAL. EACH OF THE NOTEHOLDERS, THE COMPANY AND THE GUARANTOR HEREBY KNOWINGLY, VOLUNTARILY AND 28 33 INTENTIONALLY WAIVES (TO THE EXTENT PERMITTED BY APPLICABLE LAW) ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY OF ANY DISPUTE ARISING UNDER OR RELATED TO THIS AGREEMENT OR THE OTHER PURCHASE DOCUMENTS AND AGREES THAT ANY SUCH DISPUTE SHALL BE TRIED BEFORE A JUDGE SITTING WITHOUT A JURY. [SIGNATURES CONTINUED] 29 34 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the day and year first above written. CRONOS GLOBAL INCOME FUND XVI, L.P. By: CRONOS CAPITAL CORP., as General Partner By: /s/ Dennis J. Tietz ------------------------------------- Dennis J. Tietz President Address: c/o Cronos Capital Corp. 444 Market Street San Francisco, CA 94111 Facsimile No.: (415) 677-9196 CRONOS CONTAINERS LIMITED By: /s/ Peter J. Younger ----------------------------------------- Peter J. Younger Director Address: Orchard Lea Winkfield Lane Winkfield Windsor Berkshire SL4 4RU England Facsimile No.: 011 44 344 89-1129 IBJ WHITEHALL BUSINESS CREDIT CORPORATION By: /s/ Robert F. Brown ----------------------------------------- Name: Robert F. Brown Title: Sr. Vice President Address: One State Street New York, New York 10004 Attention: Vice President/ Operations Facsimile No.: 212-952-1629 30 EX-10.2 3 GUARANTEE, DATED MARCH 30, 2000 1 Exhibit 10.2 GUARANTEE CRONOS CONTAINERS LIMITED, a company organized under the laws of the United Kingdom (the "Guarantor"), hereby unconditionally and irrevocably guarantees to the registered holder (the "Noteholder") of the Secured Note due 2006 (the "Note") of CRONOS GLOBAL INCOME FUND XVI, L.P. (the "Company") upon which this Guarantee is endorsed, the due and punctual payment in full of (i) the principal of, premium, if any, and interest on such Note when and as the same shall become due and payable, whether at the stated maturity, by acceleration, call for redemption, pursuant to an offer to purchase or otherwise, in accordance with the terms of such Note and of the Note Purchase Agreement dated as of March 30, 2000 (the "Purchase Agreement"), among the Company, the Guarantor and IBJ Whitehall Business Credit Corporation, and (ii) any other sums as may at any time be owing to the Noteholder by the Company pursuant to the Purchase Agreement or the other Purchase Documents (as defined therein). This Guarantee is a guaranty of payment and not of collection. The obligations and liabilities of the Guarantor under this Guarantee are primary, direct, unlimited, continuing, irrevocable and immediate and not conditional or contingent upon the pursuit by the Noteholder of any rights or remedies it may have against the Company or any person other than the Company. The obligations and liabilities of the Guarantor hereunder and under the other Purchase Documents shall not be subject to any counterclaim, recoupment, set-off, reduction, or defense based upon any claim that the Guarantor may have against the Noteholder, the Company or any other person. The Guarantor hereby agrees that its obligations hereunder shall be absolute and unconditional, irrespective of any extension of time for the payment of the Note, any invalidity, irregularity or unenforceability of the Note or the other Purchase Documents, the absence of any action to enforce the same, any release or amendment or waiver of any term of any other guarantee of, or any consent to departure from any requirement of any other guarantee of all or any of the Notes issued pursuant to the Purchase Agreement, any waiver or consent by the Noteholder with respect to any provisions thereof or of the other Purchase Documents, the obtaining of any judgment against the Company or any action to enforce the same or any other circumstances which might otherwise constitute a legal or equitable discharge or defense of a guarantor. The Guarantor hereby waives the benefits of diligence, presentment, demand of payment, any requirement that the Noteholder protect, secure, perfect or insure any security interest in or other lien on any property subject thereto or exhaust any right or take any action against the Company or any other Person, the filing of claims with a court in the event of insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest or notice with respect to the Note or the debt evidenced thereby and all demands whatsoever. The Guarantor hereby covenants that this Guarantee will not be discharged except by complete payment of the amounts guaranteed hereunder and the performance of the other obligations contained in the Note and in the other Purchase Documents. 8 2 The Guarantor hereby agrees that, in the event of a default in payment of principal of, premium, if any, or interest on the Note, whether at its stated maturity, by acceleration, call for redemption, purchase or otherwise, legal proceedings may be instituted by the Noteholder directly against the Guarantor to enforce this Guarantee without first proceeding against the Company or the Collateral (as defined in the Purchase Agreement). The Guarantor further agrees that if, after the occurrence and during the continuance of an Event of Default, the Noteholder is prevented by applicable law from exercising its right to accelerate the maturity of the Note, to collect interest on the Note or to enforce or exercise any other right or remedy with respect to the Note, the Guarantor will pay to the Noteholder, upon demand therefor, the amount that would otherwise have been due and payable had such rights and remedies been permitted to be exercised by the Noteholder. The Guarantor hereby waives any rights of subrogation in respect of any payment on the Note upon which this Guarantee is endorsed pursuant to the provisions of this Guarantee or the other Purchase Documents, until payment in full in cash of the obligations guaranteed hereunder. Any liability, indebtedness or obligation of the Company to the Guarantor of every kind or nature, whether now existing or hereafter created, due or to become due, direct or contingent, is hereby subordinated in all respects to the payment to the Noteholder of the amounts guaranteed hereunder. The Guarantor agrees not to accept or receive any payment with respect to any such liability, indebtedness or obligation until the payment and performance in full of all of the amounts guaranteed hereunder; provided, however, that, so long as no Event of Default then exists, the Guarantor may receive and retain payments from the Company pursuant to the Leasing Agent Agreement so long as the Guarantor is in compliance thereunder. This Guarantee shall remain in full force and effect and continue to be effective should any petition be filed by or against the Company for liquidation or reorganization, should the Company become insolvent or make an assignment for the benefit of creditors or should a receiver or trustee be appointed for all or any significant part of the Company's assets, and shall, to the fullest extent permitted by law, continue to be effective or be reinstated, as the case may be, if at any time payment and performance of the Note is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee on the Note, whether as a "voidable preference," "fraudulent transfer," or otherwise, all as though such payment or performance had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the Note shall, to the fullest extent permitted by law, be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned. The Guarantor acknowledges and agrees that the Note may be transferred in accordance with the Purchase Agreement, and each transferee, and its successors and assigns, shall have the right to enforce this Guarantee against the Guarantor. All payments made hereunder will be made free and clear of and without withholding or deduction for or on account of any Taxes (other than taxes levied by the United States Internal Revenue Service on or by reason of the income of the Noteholder), unless the Guarantor is required to withhold or deduct Taxes by law or by the interpretation or administration thereof. If the Guarantor is so required to withhold or deduct any amount for or on account of Taxes from any payment made under or with respect to this Guarantee, the Guarantor will pay such additional 9 3 amounts, after such withholding or deduction, so that the Noteholders will not receive less than the amounts such holders would have received if such Taxes had not been withheld or deducted. All terms used in this Guarantee which are defined in the Purchase Agreement shall have the meanings assigned to them in the Purchase Agreement unless otherwise defined herein. THIS GUARANTEE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO ITS CONFLICT OF LAWS RULES (EXCEPT TITLE 14, SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW). This Guarantee and the other Purchase Documents constitute the entire understanding between the Noteholder and the Guarantor with respect to the subject matter hereof and supersede any prior agreements, written or oral, with respect thereto. This Guarantee shall be binding upon the Guarantor and its successors and permitted assigns and shall inure to the benefit of the Noteholder and its successors and assigns. This Guarantee may not be assigned by the Guarantor. The Guarantor hereby irrevocably submits to the nonexclusive jurisdiction of any New York state or federal court sitting in the Borough of Manhattan in the City of New York, U.S.A., in any action or proceeding arising out of or relating to this Guarantee or the other Purchase Documents, and the Guarantor hereby irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in such New York state or federal court. The Guarantor hereby irrevocably waives, to the fullest extent that it may legally do so, the defense of an inconvenient forum to the maintenance of such action or proceeding and agrees that a final judgment in any such action or proceeding shall be conclusive to the fullest extent permitted by law and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. The Guarantor hereby irrevocably designates and appoints Christopher P. Langley, Company Secretary (and the successors to such office) as its agent to receive on its behalf service of all process brought against it with respect to any such proceeding in any such court in the State of New York, such service being hereby acknowledged to be effecting and binding upon it in every respect. If for any reason such agent shall cease to be available to act as such, then the Guarantor shall promptly designate a new agent for such purpose in New York, New York. Any provision of this Guarantee that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Guarantee, which shall remain in full force and effect, or affecting the validity or enforceability of such provision in any other jurisdiction. THE GUARANTOR HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES (TO THE EXTENT PERMITTED BY APPLICABLE LAW) ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY OF ANY DISPUTE ARISING UNDER OR RELATED TO THIS GUARANTEE OR THE OTHER PURCHASE DOCUMENTS AND AGREES THAT ANY SUCH DISPUTE SHALL BE TRIED BEFORE A JUDGE SITTING WITHOUT A JURY. 10 4 IN WITNESS WHEREOF, the Guarantor has caused this Guarantee to be duly executed. Dated: _____________, 2000 CRONOS CONTAINERS LIMITED By: /s/ Christopher P. Langley ------------------------------------- Christopher P. Langley Director 11 EX-10.3 4 SECURED NOTE, DATED MARCH 30, 2000 1 Exhibit 10.3 EXHIBIT A THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM. CRONOS GLOBAL INCOME FUND XVI, L.P. SECURED NOTE DUE 2006 CRONOS GLOBAL INCOME FUND XVI, L.P., a California limited partnership (the "Company"), for value received, hereby promises to pay to the order of IBJ WHITEHALL BUSINESS CREDIT CORPORATION, a New York corporation (the "Purchaser"), or registered assigns, the principal amount of _________________________________________ Dollars ($____________.00) (the "Indebtedness"), together with interest thereon from the date hereof until the Indebtedness and all interest thereon is paid in full in accordance with the following: The Indebtedness shall be repaid by the Company in twenty-four (24) consecutive equal quarterly installments of principal each in an amount set forth in Schedule 1 hereto commencing on the three month anniversary (the "First Payment Date") of the date of the last purchase of Notes under the Purchase Agreement (as defined below) and continuing thereafter on each three month anniversary thereof, until repayment in full of the Indebtedness. Interest on the unpaid balance of the Indebtedness shall be paid by the Company on the last day of each Interest Period (as defined below) until the repayment in full of the Indebtedness. Unless accelerated, the unpaid balance of the Indebtedness, together with interest accrued and unpaid thereon and all other fees and charges due hereunder, shall be due and payable in full on the date that the 24th quarterly installment of principal is due and payable hereunder. If any date on which a payment of principal or interest is due hereunder is not a Business Day (as defined below), then such payment shall be made on the immediately succeeding Business Day and interest shall accrue until such payment date. Payments of principal and interest on this Note shall be made in lawful money of the United States of America by wire transfer to the registered holder of this Note, as said holder shall have designated in writing to the Company pursuant to the terms of the Note Purchase Agreement dated as of March 30, 2000 (the "Purchase Agreement") among the Company, Cronos Containers Limited (the "Guarantor") and the Purchaser. 1. THE NOTE. This Note has been issued by the Company pursuant to the Purchase Agreement, and, to the extent set forth in the Purchase Agreement, each subsequent holder hereof is bound by and entitled to the benefits thereof and may enforce each of the agreements of the 2 Company and the Guarantor therein and may exercise each of the remedies provided for thereby or otherwise in respect hereof. The principal of this Note may be prepaid in whole or in part at the option of the Company at any time in accordance with the provisions of the Purchase Agreement. This Note is entitled to the benefits and security of the Security Agreement dated as of the date hereof, between the Company and the Purchaser in substantially the form attached as Exhibit B to the Purchase Agreement. 2. INTEREST RATE. The initial interest rate on this Note shall be _____% per annum. Such interest rate shall be in effect until reset as hereinafter provided. Interest on any overdue principal and on any overdue installment of interest (to the extent that the payment of such interest shall be legally enforceable) shall accrue at a rate equal to the lesser of (i) the maximum rate per annum permitted by applicable law and (ii) the applicable rate per annum payable on this Note plus 2.0% until paid. Such interest shall be payable upon demand of the Noteholder. (a) LIBOR Rate. The interest rate per annum payable on this Note shall be reset as follows: (i) The rate of interest will be reset on the first day of each Interest Period (each such date, an "Interest Reset Date"). The interest rate so reset will be LIBOR determined by the Noteholder as provided in clauses (ii), (iii) or (iv) below plus 1.75% per annum. (ii) On the Business Day prior to such Interest Reset Date (a "LIBOR Interest Determination Date"), the Noteholder will determine LIBOR on the basis of the London Interbank Offered Rate published in The Wall Street Journal on such Business Day for the previous Business Day in respect of deposits with a maturity date equal to the applicable Interest Period; provided, however, that if no such offered rate is so published, LIBOR for such LIBOR Interest Determination Date will be determined as provided in clause (iii) below. (iii) If on any LIBOR Interest Determination Date no London Interbank Offered Rate is so published in The Wall Street Journal for deposits with a maturity date equal to the applicable Interest Period, the Noteholder will determine LIBOR on the basis of the offered rate for deposits of not less than $1,000,000, having an index maturity equal to the applicable Interest Period, appearing on the display designated as Page 3750 on the Dow Jones Telerate Service (or such other page as may replace Page 3750 on that service for the purpose of displaying London interbank offered rates for U.S. Dollar deposits) ("Telerate Page 3750") at approximately 11:00 A.M., London time, on such LIBOR Interest Determination Date; provided, however, that if no such offered rate so appears, LIBOR for such LIBOR Interest Determination Date will be determined as described in (iv) below. (iv) If on any LIBOR Interest Determination Date no offered rate for an index maturity equal to the applicable Interest Period appears on Telerate Page 3750 as described in clause (iii) above, the Noteholder will determine LIBOR on the basis of the rates at approximately 11:00 A.M., London time, on such LIBOR Interest Determination Date at which deposits of not less than $1,000,000, having an index maturity equal to the applicable Interest Period, are offered to prime banks in the London interbank market by four major banks selected by the Noteholder. The 2 3 Noteholder will request the principal London office of each such bank to provide a quotation of its rate. If at least two such quotations are provided, LIBOR for such LIBOR Interest Determination Date will be the arithmetic mean of such quotations. If fewer than two quotations are provided, LIBOR for such LIBOR Interest Determination Date will be the arithmetic mean of the rates quoted at approximately 11:00 A.M., New York City time, on such LIBOR Interest Determination Date by three major banks in The City of New York selected by the Noteholder for loans of not less than $1,000,000 to leading European banks having an index maturity equal to the applicable Interest Period; provided, however, that if fewer than three banks selected as aforesaid are quoting as mentioned in this sentence, LIBOR will be the LIBOR in effect on the next preceding LIBOR Interest Determination Date (or, if the initial interest rate is then in effect, the initial interest rate). (b) Unavailability of Rate. If at any time the Noteholder (or, without duplication, the bank holding company of which the Noteholder is a Subsidiary) determines that either adequate and reasonable means do not exist for ascertaining LIBOR, or it becomes impractical for the Noteholder to obtain funds to make or maintain the financing hereunder with interest at LIBOR, or the Noteholder shall have determined that LIBOR will not adequately and fairly reflect the cost to the Noteholder of making, maintaining, or funding the transaction hereunder at LIBOR, or the Noteholder reasonably determines that, as a result of changes to applicable law after the date of execution of this Note, or the adoption or making after such date of any interpretations, directives or regulations (whether or not having the force of law) by any court, governmental authority or reserve bank charged with the interpretation or administration thereof, it shall be or become unlawful or impossible to make, maintain, or fund the financing hereunder at LIBOR, then the Noteholder promptly shall give notice to the Company of such determination, and the Noteholder and the Company shall negotiate in good faith a mutually acceptable alternative method of calculating the interest rate payable on this Note and shall execute and deliver such documents as reasonably may be required to incorporate such alternative method of calculating such interest rate in this Note, within thirty (30) days after the date of the Noteholder's notice to the Company. If the parties are unable mutually to agree to such alternative method of calculating the interest rate payable on this Note in a timely fashion, on the interest payment date next succeeding the expiration of such thirty (30) day period, the Company shall pay the Noteholder the unpaid balance of the Indebtedness, together with interest accrued and unpaid thereon and all other fees and charges due hereunder. (c) Increased Cost and Reduced Return. If at any time after the date hereof, the Noteholder (or, without duplication, the bank holding company of which the Noteholder is a Subsidiary) determines that the adoption or modification of any applicable law regarding taxation, the Noteholder's required levels of reserves, deposits, insurance or capital (including any allocation of capital requirements or conditions), or similar requirements, or any interpretation or administration thereof by any court or other governmental authority or compliance of the Noteholder with any of such requirements, has or would have the effect of (a) increasing the Noteholder's costs relating to the Indebtedness, or (b) reducing the yield or rate of return of the Noteholder on the Indebtedness, to a level below that which the Noteholder could have achieved but for the adoption or modification of any such requirements, the Company shall, within fifteen (15) days of any request by the Noteholder, pay to the Noteholder such additional amounts as (in the Noteholder's sole judgment, after good faith and reasonable computation) will compensate the Noteholder for such increase in costs or reduction in yield or rate of return of the Noteholder. No failure by the 3 4 Noteholder to immediately demand payment of any additional amounts payable hereunder shall constitute a waiver of the Noteholder's right to demand payment of such amounts at any subsequent time. Nothing herein contained shall be construed or so operate as to require the Company to pay any interest, fees, costs or charges greater than is permitted by applicable law. (d) Indemnity. Within fifteen (15) days after request by the Noteholder (or at the time of any prepayment), the Company shall pay to the Noteholder such amount or amounts as will compensate the Noteholder for any loss, cost, expense, penalty, claim or liability, including any loss incurred in obtaining, prepaying, liquidating or employing deposits or other funds from third parties and any loss of yield, as determined by the Noteholder in its judgment reasonably exercised (together, "Consequential Loss") incurred by it with respect to the funding of the Indebtedness evidenced by this Note as a result of: (i) the failure of the Company to make payments on the date specified under this Note or in any notice from Company to Noteholder, (ii) the payment or prepayment of any amount on a date other than the date such amount is required or permitted to be paid or prepaid, or (iii) any Change in Control; provided that the Noteholder delivers to the Company a certificate as to the amounts of the Consequential Loss, which certificate shall be conclusive in the absence of manifest error. The Noteholder shall have no obligation to purchase, sell and/or match funds in connection with the funding or maintaining of the Indebtedness or any portion thereof. The obligations of the Company under this Section shall survive any termination of the Purchase Agreement and payment of this Note and shall not be waived by any delay by the Noteholder in seeking such compensation. 3. PREPAYMENT; TRANSFER. Prepayment and transfer of this Note are subject to certain restrictions set forth in the Purchase Agreement. 4. REGISTERED HOLDERS. Prior to due presentment for registration of transfer of this Note, the Company may deem and treat the registered holder hereof as the absolute owner hereof for the purposes of receiving payments of principal, premium, if any, and interest hereon and for the purposes of any notices, waivers or consents. 5. PAYMENT AFTER EVENT OF DEFAULT. In case an Event of Default shall occur and be continuing, the principal of this Note may be declared due and payable in the manner and with the effect provided in the Purchase Agreement. 6. GOVERNING LAW. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO ITS CONFLICT OF LAWS RULES (EXCEPT TITLE 14, SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW). 7. DEFINED TERMS. The terms used in this Note which are defined in the Purchase Agreement shall have the meanings specified therein unless the context otherwise requires or unless such terms are otherwise defined herein. For purposes of this Note, the following terms shall have the following meanings: 4 5 "Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banks in California or New York are authorized or obligated by law or executive order to close and, relative to the determination of the interest rate provided for in the Notes, "Business Day" also means a day on which dealings in U.S. Dollars are carried on in the interbank eurodollar market in which the Purchaser participates. "Interest Period" means, relative to the setting of the initial interest rate of this Note or the rate to be determined on any LIBOR Interest Determination Date, the period which begins on the date of this Note or the Interest Reset Date, as applicable, and ends on the date which is (i) with respect to periods commencing prior to the First Payment Date, the day of the immediately succeeding month that numerically corresponds to such date of issuance or Interest Reset Date, or (ii) with respect to periods commencing on and after the First Payment Date, the day of the immediately succeeding third month that numerically corresponds to such Interest Reset Date; provided, however, that: (a) if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day; (b) if any Interest Period commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period), such Interest Period shall end on the last Business Day of the last calendar month of such Interest Period; and (c) no Interest Period shall end later than the maturity date of this Note. 8. HEADINGS. The headings of the sections and subsections of this Note are inserted for convenience only and do not constitute a part of this Note. 9. CURRENCY. Payments hereunder shall be made in lawful money of the United States of America. 10. ENTIRE AGREEMENT. This Note and the other Purchase Documents constitute the entire understanding between the Purchaser and the Company with respect to the subject matter hereof and supersede any prior agreements, written or oral, with respect thereto. 11. SUCCESSORS AND ASSIGNS. This Note shall be binding upon the Company and its successors and permitted assigns and shall inure to the benefit of the Purchaser and its successors and assigns. This Note may not be assigned by the Company. 12. SUBMISSION TO JURISDICTION. The Company hereby irrevocably submits to the nonexclusive jurisdiction of any New York state or federal court sitting in the Borough of Manhattan in the City of New York, U.S.A., in any action or proceeding arising out of or relating to this Note or the other Purchase Documents, and the Company hereby irrevocably agrees that all claims in 5 6 respect of such action or proceeding may be heard and determined in such New York state or federal court. The Company hereby irrevocably waives, to the fullest extent that it may legally do so, the defense of an inconvenient forum to the maintenance of such action or proceeding and agrees that a final judgment in any such action or proceeding shall be conclusive to the fullest extent permitted by law and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. The Company hereby irrevocably designates and appoints Dennis J. Tietz, President of the general partner of the Company (and the successors in such office) as its agent to receive on its behalf service of all process brought against it with respect to any such proceeding in any such court in the State of New York, such service being hereby acknowledged to be effecting and binding upon it in every respect. If for any reason such agent shall cease to be available to act as such, then the Company shall promptly designate a new agent for such purpose in New York, New York. 13. SEVERABILITY. Any provision of this Note that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Note, which shall remain in full force and effect, or affecting the validity or enforceability of such provision in any other jurisdiction. 14. REDUCTION IN INTEREST RATE. The interest rate required hereby or by any of the Purchase Documents shall not exceed the maximum rate permissible under applicable law, and any amounts paid in excess of such rate shall be applied to reduce the unpaid balance of the Indebtedness or shall be refunded to the Company at the sole option of the Purchaser. 15. WAIVERS OF JURY TRIAL. EACH OF THE PURCHASER AND THE COMPANY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES (TO THE EXTENT PERMITTED BY APPLICABLE LAW) ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY OF ANY DISPUTE ARISING UNDER OR RELATED TO THIS NOTE OR THE OTHER PURCHASE DOCUMENTS AND AGREES THAT ANY SUCH DISPUTE SHALL BE TRIED BEFORE A JUDGE SITTING WITHOUT A JURY. [SIGNATURE ON NEXT PAGE] IN WITNESS WHEREOF, CRONOS GLOBAL INCOME FUND XVI, L.P. has caused this Note to be executed by the manual signature of an officer thereunto duly authorized. Dated: _________, 2000 CRONOS GLOBAL INCOME FUND XVI, L.P. New York, New York By: CRONOS CAPITAL CORP., as General Partner By: /s/ Dennis J. Tietz ------------------------------- Dennis J. Tietz President 6 EX-10.4 5 PLEDGE AND SECURITY AGREEMENT 1 Exhibit 10.4 EXHIBIT B SECURITY AGREEMENT THIS SECURITY AGREEMENT (this "Agreement") is made as of March 30, 2000, by and between CRONOS GLOBAL INCOME FUND XVI, L.P., a California limited partnership (the "Debtor"), and IBJ WHITEHALL BUSINESS CREDIT CORPORATION (the "Secured Party"). W I T N E S S E T H: WHEREAS, the Debtor, Cronos Containers Limited and the Secured Party have entered into a Note Purchase Agreement dated as of the date hereof (the "Note Purchase Agreement"), relating to the offer and sale of Secured Notes due 2006 (the "Notes") and is obligated thereunder to enter into this Agreement to secure the due and punctual payment of the obligations of the Debtor under the Notes and the other Purchase Documents (as defined in the Note Purchase Agreement); and WHEREAS, under the terms and conditions and subject to the exceptions hereinbelow provided, the Debtor is granting the Secured Party and its registered assigns, as holders of the Notes (collectively, the "Holders"), a security interest in the Collateral (as defined herein). NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows: 1. SECURITY INTEREST IN THE COLLATERAL. For value received, and to induce the Secured Party to purchase the Notes, Debtor hereby grants and assigns to the Secured Party, as security for all present and future obligations and liabilities of the Debtor under the Notes, this Agreement and the other Purchase Documents (collectively, the "Obligations"), a security interest in, and lien on, all of the Debtor's right, title and interest in and to: (a) all standard and specialized marine cargo containers and all improvements, additions, parts, fittings, accessories, special tools, and attachments and accessions now or hereafter affixed thereto or used in connection therewith and all substitutions and replacements thereof (the "Containers"); (b) all leases, management agreements, sale and purchase agreements, instruments, invoices, orders, documents of title and bills of sale relating to the Containers (including, without limitation, the Leasing Agent Agreement (as defined in the Note Purchase Agreement)) and all rights to exercise any election or option or to make any decision or determination or to give or receive any notice, consent, waiver or approval or to take any other action under or in respect of any of the foregoing documents; 2 (c) all general intangibles, rights to payment, tolls, rents, issues, profits, revenues, income, accounts receivable, contract rights and proceeds of any kind (including, without limitation, insurance, disposition proceeds and condemnation awards) with respect to or on account of the Containers or the Leasing Agent Agreement; (d) all rights, claims and causes of action against the manufacturer or any other party, by contract or otherwise, in respect of any defect in any of the Containers; (e) (i) the Money Market Account, MMA Account No. 30865757, maintained by the Debtor with IBJ Whitehall Bank & Trust Company (the "Depository") representing money and funds currently on deposit by the Debtor with the Depository in the amount of $750,000 (the "Account"), or any account both now and hereafter opened in substitution or replacement for, or as a renewal, extension, reissue or roll-over of such Account or as a reinvestment of the money or funds on deposit thereto, (ii) all moneys and funds now and hereafter deposited to such account or payable thereon, and (iii) all interest, dividends, cash, income or other property now or hereafter payable or distributable under, on, to or by reason of, such Account; (f) all instruments, books and records maintained by or for the Debtor concerning any of the foregoing; and (g) any and all cash and non-cash proceeds of the foregoing; in each case, wherever located and whether now owned or hereafter created or acquired by the Debtor (collectively, the "Collateral"). The Debtor agrees that the Secured Party shall have the sole power of access and withdrawal from the Account. The Debtor shall deliver or promptly cause to be delivered to the Secured Party an acknowledgment duly executed and delivered by the Depository and in form and content satisfactory to the Secured Party under which, among other things, the Depository will accept and confirm notice of the Secured Party's security interest in the Account. Unless and until an Event of Default shall have occurred and is continuing, the Debtor shall be entitled to receive and retain any and all interest, income or dividends paid in cash on the Account on a quarterly basis. Upon the occurrence and during the continuance of an Event of Default, all such rights of the Debtor to receive interest, income or dividends shall cease, and all such rights shall thereupon become vested in the Secured Party as Collateral, and the Secured Party shall have the sole and exclusive right and authority to receive and retain such interest, income or dividends. All interest, income or dividends which are received by the Debtor contrary to the provisions hereof shall be received in trust for the benefit of the Secured Party, shall be segregated from other property or funds of the Debtor and shall be forthwith delivered to the Secured Party in the same form as so received with any necessary endorsement which the Debtor agrees to make. 2. WARRANTIES, COVENANTS AND AGREEMENTS OF THE DEBTOR. The Debtor warrants, covenants and agrees that: 2 3 (a) Except for the security interest granted hereby, the Debtor is, and as to Collateral acquired after the date hereof the Debtor shall be at the time of acquisition, the owner and holder of the Collateral free from any Lien (as defined in the Note Purchase Agreement) and covenants that at all times the Collateral will be and remain free of all Liens, except Permitted Liens (as defined in the Note Purchase Agreement); the Debtor has full power and lawful authority to enter into this Agreement and to grant to the Secured Party a security interest in the Collateral as herein provided; and the Debtor will defend the Collateral against all claims and demands of all persons at any time claiming the same or any interest therein. (b) The Debtor has not heretofore signed any financing statement or security agreement covering any of the Collateral, and no such financing statement or security agreement is now on file in any public office. (c) The Debtor authorizes the Secured Party to file, in its discretion, financing statements signed only by the Secured Party covering the Collateral and hereby appoints the Secured Party as the Debtor's attorney-in-fact to sign and file any such financing statements covering the Collateral. At the request of the Secured Party, the Debtor will join the Secured Party in executing such documents as the Secured Party may reasonably determine from time to time to be necessary or desirable under provisions of the laws of the States of California and New York and of any other jurisdiction from time to time identified by the Secured Party and, without limiting the generality of the foregoing, the Debtor will pay the costs of filing or recording the same or of filing or recording this Agreement in such public offices at any time and from time to time, whenever filing or recording of any such financing statement or of this Agreement is deemed by the Secured Party to be necessary or desirable. In connection with the foregoing, it is agreed and understood between the parties hereto (and the Secured Party is hereby authorized to carry out and implement this agreement and understanding and Debtor hereby agrees to pay the costs thereof) that the Secured Party may at any time or times file as a financing statement any counterpart, copy or reproduction of this Agreement. 3. FURTHER ASSURANCES. The Debtor agrees to take such actions and to execute such writings as the Secured Party may reasonably request to further confirm and assure the security interest granted hereby in the Collateral and to assist the realization thereon. 4. EVENTS OF DEFAULT. The occurrence of any "Event of Default" as defined in the Note Purchase Agreement shall constitute an "Event of Default" hereunder. 5. RIGHTS AND REMEDIES OF THE SECURED PARTY AND DEBTOR RELATED TO THE COLLATERAL. Until the occurrence of an Event of Default and subject to the provisions of the Note Purchase Agreement, the Debtor shall be entitled to exercise any and all rights pertaining to the Collateral or any part thereof for any purpose not inconsistent with the terms of this Agreement or the Note Purchase Agreement and shall receive all income from or interest on the Collateral, and if the Secured Party receives any such income or interest prior to the occurrence of an Event of Default, the Secured Party shall pay the same promptly to the Debtor. Upon the occurrence and continuance of an Event of Default, the Secured Party may exercise with reference to the Collateral any or all of the rights and remedies of a secured party under 3 4 applicable law, including, without limitation, the right and power to sell at public or private sale or sales or otherwise dispose of or otherwise utilize the Collateral and any part or parts thereof in any manner authorized or permitted under applicable law after default by a debtor and to apply the proceeds thereof toward payment of the Obligations. Specifically and without limiting the foregoing, the Secured Party shall have the right to take possession of and to exercise all rights of the Debtor pertaining to all or any part of the Collateral or any security therefor and of all books, records, papers and documents of Debtor or in Debtor's possession or control relating to the Collateral which are not already in the Secured Party's possession and for such purpose may enter upon any premises upon which any of the Collateral or any security therefor or any of said books, records, papers and documents are situated and remove the same therefrom without any liability for trespass or damages thereby occasioned. Upon the occurrence and continuance of an Event of Default, the Debtor shall hold in trust for Secured Party all rents and other payments thereafter received by Debtor with respect to the Collateral, which funds shall be delivered to the Secured Party immediately upon receipt thereof by the Debtor in the same form as received except for any necessary endorsement of the Debtor. To the extent permitted by law, Debtor expressly waives any notice of sale or other disposition of the Collateral and all other rights or remedies of Debtor or formalities prescribed by law relative to the sale or other disposition of the Collateral or the exercise of any other right or remedy of the Secured Party existing after default hereunder; and to the extent any such notice is required and cannot be waived, Debtor agrees that if such notice is given in the manner provided herein at least ten (10) days before the time of the sale or disposition, such notice shall be deemed reasonable and shall fully satisfy any requirement for giving of said notice. The Secured Party shall not be obligated to make any sale of Collateral regardless of notice of sale having been given. The Secured Party may adjourn any public or private sale. The Secured Party shall never be under any obligation to collect, attempt to collect, protect or enforce the Collateral or any security therefor, which the Debtor agrees and undertakes to do at the Debtor's expense, but the Secured Party may do so in its discretion at any time after the occurrence of an Event of Default and at such time the Secured Party shall have the right to take any steps by judicial process or otherwise it may deem proper to effect the collection of all or any portion of the Collateral or to protect or to enforce the Collateral or any security therefor. All expenses (including, without limitation, attorneys' fees and expenses) incurred or paid by the Secured Party in connection with or incident to any collection or attempt to collect the Collateral or actions to protect or enforce the Collateral, the Purchase Documents or any security therefor shall be borne by the Debtor or reimbursed by the Debtor to the Secured Party upon demand. The proceeds received by the Secured Party as a result of any such actions in collecting or enforcing or protecting the Collateral and the Purchase Documents shall be held by the Secured Party without liability for interest thereon and shall be applied by the Secured Party as provided herein. In the event the Secured Party shall pay any taxes, assessments, interests, costs, penalties or expenses incident to or in connection with the collection of the Collateral or protection or enforcement of the Collateral, the Purchase Documents or any security therefor, the Debtor, upon demand of the Secured Party, shall pay to the Secured Party the full amount thereof, and this Agreement shall operate as security therefor as fully and to the same extent as it operates as security 4 5 for payment of the other Obligations secured hereunder, and for the enforcement of such repayment the Secured Party shall have every right and remedy provided for enforcement of payment of the Obligations. The Secured Party shall not have any responsibility for (i) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relative to any Collateral, whether or not the Secured Party has or is deemed to have knowledge of such matters, or (ii) taking any necessary steps to preserve rights against any parties with respect to any Collateral. 6. PAYMENTS UPON DEFAULT. Monies received by the Secured Party through the enforcement of the security interests granted hereunder in favor of the Secured Party for the benefit of the Holders will be applied: first, to pay any amounts due to the Secured Party hereunder or under any of the other Purchase Documents; second, to pay interest (including late charges, if any) due on the Notes; and third, to pay the outstanding principal of the Notes. Any amounts and any Collateral remaining after such application and after payment of all of the Obligations in full shall be paid or delivered to Debtor, its successor or assigns, or as a court of competent jurisdiction may direct. 7. TERMINATION. This Agreement and the security interest created hereunder shall terminate when all the Obligations have been indefeasibly paid in full, at which time the Secured Party shall execute and deliver to the Debtor, at Debtor's cost and expense, all documents which the Debtor shall reasonably request to evidence termination of such security interest. 8. ABSOLUTE INTEREST. (a) All rights of the Secured Party hereunder, and all obligations of the Debtor hereunder, shall be absolute and unconditional irrespective of (i) any lack of validity or enforceability of any provision of this Agreement, any agreement with respect to the Obligations or any other agreement or instrument relating to any of the foregoing, (ii) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to any departure from this Agreement or any other agreement or instrument relating to the foregoing, (iii) any exchange, release or nonperfection of any Collateral, or any release or amendment or waiver of or any consent to or departure from any guarantee, for all or any of the Obligations, or (iv) any other circumstance which might constitute a defense available to, or a discharge of, the Debtor in respect of the Obligations or this Agreement. (b) This Agreement shall not be construed as relieving Debtor from full liability on the Obligations and any and all future and other indebtedness secured hereby and for any deficiency thereon. (c) The Secured Party is hereby subrogated to all of Debtor's interests, rights and remedies in respect to the Collateral and all security now or hereafter existing with respect thereto and all guaranties and endorsements thereof and with respect thereto. 9. NOTICES. Any communication, notice or demand to be given hereunder shall be duly given if delivered or mailed by certified mail, or if delivered by facsimile transmission (with 5 6 telephonic confirmation of receipt) within one day of such delivery, to the Debtor or the Secured Party at the respective address set forth below, or such other address as shall be designated by any party hereto to each other party hereto in a written notice delivered in accordance with the terms hereof: Debtor: Cronos Global Income Fund XVI, L.P. c/o Cronos Capital Corp. 444 Market Street San Francisco, CA 94111 Telephone No.: 415-677-8990 Facsimile No.: 415-677-9196 Attention: President Secured Party: IBJ Whitehall Business Credit Corporation One State Street New York, New York 10004 Telephone No.: 212-858-2000 Facsimile No.: 212-952-1629 Attention: Vice President / Operations 10. NO WAIVER; CUMULATIVE RIGHTS. No failure on the part of the Secured Party to exercise, and no delay in exercising, any right, remedy or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise by the Secured Party of any right, remedy or power hereunder preclude any other or future exercise of any other right, remedy or power. Each and every right, remedy and power hereby granted to the Secured Party or allowed it by law or other agreement shall be cumulative and not exclusive the one of any other, and may be exercised by the Secured Party from time to time. 11. APPLICABLE LAW; CONSENT TO JURISDICTION. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO ITS CONFLICT OF LAWS RULES (EXCEPT TITLE 14, SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW), EXCEPT TO THE EXTENT THAT THE LAWS OF ANOTHER JURISDICTION MANDATORILY GOVERN THE PERFECTION AND THE EFFECT OF PERFECTION OR NON-PERFECTION OF THE SECURITY INTEREST CREATED BY THIS AGREEMENT. Debtor hereby irrevocably submits to the non-exclusive jurisdiction of any New York state or federal court sitting in the Borough of Manhattan in the City of New York, New York, in any action or proceeding arising out of or relating to this Agreement, and the Debtor hereby irrevocably agrees that all claims in respect of such action or proceeding may be heard and determined in such New York state or federal court. The Debtor hereby irrevocably waives, to the fullest extent that it may legally do so, the defense of an inconvenient forum to the maintenance of such action or proceeding and agrees that a final judgment in any such action or proceeding shall be conclusive to the fullest extent permitted by law and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. The Debtor irrevocably designates and appoints Dennis J. 6 7 Tietz, President of the general partner of the Company (and the successors in such office) as its agent to receive on its behalf service of all process brought against it with respect to any such proceeding in any such court in the State of New York, such service being hereby acknowledged to be effecting and binding upon it in every respect. If for any reason such agent shall cease to be available to act as such, then the Debtor shall promptly designate a new agent for such purpose in New York, New York. 12. EXECUTION IN COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be an original, but such counterparts shall together constitute but one and the same instrument. 13. AMENDMENT. The Secured Party and the Debtor may agree in writing to amend this Agreement, or waive any of the provisions of this Agreement. 14. ENTIRE AGREEMENT. This Agreement and the other Purchase Documents constitute the entire understanding between the Secured Party and the Debtor with respect to the subject matter hereof and supersede any prior agreements, written or oral, with respect thereto. 15. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the Debtor and its successors and permitted assigns and shall inure to the benefit of the Secured Party and its successors and assigns. This Agreement may not be assigned by the Debtor. 16. SEVERABILITY. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of this Agreement, which shall remain in full force and effect, or affecting the validity or enforceability of such provision in any other jurisdiction. 17. WAIVERS OF JURY TRIAL. EACH OF THE DEBTOR AND THE SECURED PARTY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES (TO THE EXTENT PERMITTED BY APPLICABLE LAW) ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY OF ANY DISPUTE ARISING UNDER OR RELATED TO THIS AGREEMENT OR THE OTHER PURCHASE DOCUMENTS AND AGREES THAT ANY SUCH DISPUTE SHALL BE TRIED BEFORE A JUDGE SITTING WITHOUT A JURY. [SIGNATURES ON NEXT PAGE] 7 8 IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date first above written. CRONOS GLOBAL INCOME FUND XVI, L.P. By: CRONOS CAPITAL CORP., as General Partner By: /s/ DENNIS J. TIETZ ------------------------------------- Dennis J. Tietz President IBJ WHITEHALL BUSINESS CREDIT CORPORATION By: /s/ Robert F. Brown ----------------------------------------- Name: Robert F. Brown Title: Sr. Vice President 8 EX-27 6 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AT MARCH 31, 2000 (UNAUDITED) AND THE STATEMENT OF OPERATIONS FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS INCLUDED AS PART OF ITS QUARTERLY REPORT ON FORM 10-Q FOR THE PERIOD MARCH 31, 2000 3-MOS DEC-31-2000 JAN-01-2000 MAR-31-2000 1,375,609 0 517,309 0 0 1,892,918 29,905,424 5,951,273 26,659,556 550,933 0 0 0 0 23,353,956 26,659,556 0 810,544 0 433,891 0 0 0 0 0 0 0 0 0 399,557 0 0
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