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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
| ¨ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
| x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2014
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
| ¨ | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Date of event requiring this shell company report
For the transition period from to
Commission file number 001-33725
Textainer Group Holdings Limited
(Exact name of Registrant as specified in its charter)
Not Applicable
(Translation of Registrant’s name into English)
Bermuda
(Jurisdiction of incorporation or organization)
Century House
16 Par-La-Ville Road
Hamilton HM 08
Bermuda
(Address of principal executive offices)
Christopher C. Morris
Textainer Group Holdings Limited
Century House
16 Par-La-Ville Road
Hamilton HM 08
Bermuda
(441) 296-2500
ccm@textainer.com
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
| Title of each class | Name of each exchange on which registered | |
| Common Shares, $0.01 par value | New York Stock Exchange |
Securities registered or to be registered pursuant to Section 12(g) of the Act.
None
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
None
(Title of Class)
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
56,863,094 Common Shares
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. Yes ¨ No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer ¨ Accelerated filer x Non-accelerated filer ¨
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
U.S. GAAP x International Financial Reporting Standards as issued by the International Accounting Standards Board ¨ Other ¨
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17 ¨ Item 18 ¨
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
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In this Annual Report on Form 20-F, unless indicated otherwise, references to: (1) “Textainer,” “TGH,” “the Company,” “we,” “us” and “our” refer, as the context requires, to Textainer Group Holdings Limited, which is the registrant and the issuer of the class of common shares that has been registered pursuant to Section 12(b) of the Securities Exchange Act of 1934, as amended, or Textainer Group Holdings Limited and its subsidiaries; (2) “TEU” refers to a “Twenty-Foot Equivalent Unit,” which is a unit of measurement used in the container shipping industry to compare shipping containers of various lengths to a standard 20’ dry freight container, thus a 20’ container is one TEU and a 40’ container is two TEU; (3) “CEU” refers to a Cost Equivalent Unit, which is a unit of measurement based on the approximate cost of a container relative to the cost of a standard 20’ dry freight container, so the cost of a standard 20’ dry freight container is one CEU; the cost of a 40’ dry freight container is 1.6 CEU; the cost of a 40’ high cube dry freight container (9’6” high) is 1.7 CEU; and the cost of a 40’ high cube refrigerated container is 8.0 CEU; (4) “our owned fleet” means the containers we own; (5) “our managed fleet” means the containers we manage that are owned by other container investors; (6) “our fleet” and “our total fleet” mean our owned fleet plus our managed fleet plus any containers we lease from other lessors; (7) “container investors” means the owners of the containers in our managed fleet; and (8) “Trencor” refers to Trencor Ltd., a public South African investment holding company, listed on the JSE Limited in Johannesburg, South Africa, which, together with certain of its subsidiaries, are the discretionary beneficiaries of a trust that indirectly owns approximately 47.9% of our common shares (such interest, “beneficiary interest”). See Item 4, “Information on the Company” for an explanation of the relationship between Trencor and us.
Dollar amounts in this Annual Report on Form 20-F are expressed in thousands, unless otherwise indicated.
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INFORMATION REGARDING FORWARD-LOOKING STATEMENTS; CAUTIONARY LANGUAGE
This Annual Report on Form 20-F, including the sections entitled Item 3, “Key Information — Risk Factors,” and Item 5, “Operating and Financial Review and Prospects,” contains forward-looking statements within the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements include all statements that are not statements of historical facts and may relate to, but are not limited to, expectations or estimates of future operating results or financial performance, capital expenditures, introduction of new products, regulatory compliance, plans for growth and future operations, as well as assumptions relating to the foregoing. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “intend,” “potential,” “continue” or the negative of these terms or other similar terminology. Forward-looking statements include, among others, statements regarding: (i) our belief that the consolidation trend in our industry will continue and will likely offer us growth opportunities; (ii) our belief that the ongoing downturn in the world’s major economies and the constraints in the credit markets may result in potential acquisition opportunities, including the purchase and leaseback of customer-owned containers; (iii) our belief that many of our customers will renew leases for containers that are less than sale age at the expiration of their leases; (iv) our expectation that containers under our current term leases will be re-priced downward due to the current low level of new container rental rates; (v) our belief that business conditions in 2015 will be similar to 2014; (vi) our belief that our utilization will remain high and that competition will remain strong with continued pressure on rental rates due to the high level of liquidity available to container lessors coupled with low new container prices, ample factory capacity and low interest rates; (vii) our belief that two factors that could have a positive effect on our financial performance, an increase in interest rates and an increase in new container prices, seem less likely now than they did six months ago; (viii) our belief that the strong U.S. dollar, lower oil prices and weaker projected global growth suggest that increases in interest rates are unlikely in the near term; (ix) our belief that, unless steel prices or demand for containers increase, neither of which we expect in the short term, container prices are unlikely to increase; (x) our belief that over a longer-term horizon, returns earned on containers purchased in today’s lower-priced environment will benefit when container prices or interest rates increase and these containers re-price or are sold under stronger market conditions; (xi) our belief that cash flow from operations, proceeds from the sale of containers and borrowing availability under our debt facilities are sufficient to meet our liquidity needs for the next twelve months; and (xii) our expectation that we will generate sufficient operating cash flow to meet our ongoing contractual obligations in the forseeable future.
Although we do not make forward-looking statements unless we believe we have a reasonable basis for doing so, we cannot guarantee their accuracy, and actual results may differ materially from those we anticipated due to a number of uncertainties, many of which cannot be foreseen. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including, among others, the risks we face that are described in the section entitled Item 3, “Key Information — Risk Factors” and elsewhere in this Annual Report on Form 20-F.
We believe that it is important to communicate our future expectations to potential investors, shareholders and other readers. However, there may be events in the future that we are not able to accurately predict or control and that may cause actual events or results to differ materially from the expectations expressed in or implied by our forward-looking statements. The risk factors listed in Item 3, “Key Information — Risk Factors,” as well as any cautionary language in this Annual Report on Form 20-F, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. Before you decide to buy, hold or sell our common shares, you should be aware that the occurrence of the events described in Item 3, “Key Information — Risk Factors” and elsewhere in this Annual Report on Form 20-F could negatively impact our business, cash flows, results of operations, financial condition and share price. Potential investors, shareholders and other readers should not place undue reliance on our forward-looking statements.
Forward-looking statements regarding our present plans or expectations involve risks and uncertainties relative to return expectations and related allocation of resources, and changing economic or competitive
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conditions which could cause actual results to differ from present plans or expectations, and such differences could be material. Similarly, forward-looking statements regarding our present expectations for operating results and cash flow involve risks and uncertainties related to factors such as utilization rates, per diem rates, container prices, demand for containers by container shipping lines, supply and other factors discussed under Item 3, “Key Information — Risk Factors” or elsewhere in this Annual Report on Form 20-F, which could also cause actual results to differ from present plans. Such differences could be material.
All future written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. New risks and uncertainties arise from time to time, and we cannot predict those events or how they may affect us. We assume no obligation to, and do not plan to, update any forward-looking statements after the date of this Annual Report on Form 20-F as a result of new information, future events or developments, except as required by federal securities laws. You should read this Annual Report on Form 20-F and the documents that we reference and have filed as exhibits with the understanding that we cannot guarantee future results, levels of activity, performance or achievements and that actual results may differ materially from what we expect.
Industry data and other statistical information used in this Annual Report on Form 20-F are based on independent publications, reports by market research firms or other published independent sources. Some data are also based on our good faith estimates, derived from our review of internal surveys and the independent sources listed above. Although we believe these sources are reliable, we have not independently verified the information.
In this Annual Report on Form 20-F, unless otherwise specified, all monetary amounts are in U.S. dollars. To the extent that any monetary amounts are not denominated in U.S. dollars, they have been translated into U.S. dollars in accordance with our accounting policies as described in Item 18, “Financial Statements” in this Annual Report on Form 20-F.
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PART I
| ITEM 1. | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS |
Not applicable.
| ITEM 2. | OFFER STATISTICS AND EXPECTED TIMETABLE |
Not applicable.
| ITEM 3. | KEY INFORMATION |
| A. | Selected Financial Data |
The selected financial data presented below under the heading “Statement of Income Data” for the years ended December 31, 2014, 2013 and 2012 and under the heading “Balance Sheet Data” as of December 31, 2014 and 2013 have been derived from our audited consolidated financial statements included in Item 18, “Financial Statements” in this Annual Report on Form 20-F. The selected financial data presented below under the heading “Statement of Income Data” for the years ended December 31, 2011 and 2010 and under the heading “Balance Sheet Data” as of December 31, 2012, 2011 and 2010 are audited and have been derived from our audited consolidated financial statements not included in this Annual Report on Form 20-F. The data presented below under the heading “Other Financial and Operating Data” have not been audited. Historical results are not necessarily indicative of the results of operations to be expected in future periods. You should read the selected consolidated financial data and operating data presented below in conjunction with Item 5, “Operating and Financial Review and Prospects” and with Item 18, “Financial Statements” in this Annual Report on Form 20-F.
| Fiscal Years Ended December 31, | ||||||||||||||||||||
| 2014 | 2013 | 2012 | 2011 | 2010 | ||||||||||||||||
| (Dollars in thousands, except per share data) | ||||||||||||||||||||
| Statement of Income Data: |
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| Revenues: |
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| Lease rental income |
$ | 504,225 | $ | 468,732 | $ | 383,989 | $ | 327,627 | $ | 235,827 | ||||||||||
| Management fees |
17,408 | 19,921 | 26,169 | 29,324 | 29,137 | |||||||||||||||
| Trading container sales proceeds |
27,989 | 12,980 | 42,099 | 34,214 | 11,291 | |||||||||||||||
| Gains on sale of containers, net |
13,469 | 27,340 | 34,837 | 31,631 | 27,624 | |||||||||||||||
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| Total revenues |
563,091 | 528,973 | 487,094 | 422,796 | 303,879 | |||||||||||||||
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| Operating expenses: |
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| Direct container expense |
47,446 | 43,062 | 25,173 | 18,307 | 25,542 | |||||||||||||||
| Cost of trading containers sold |
27,465 | 11,910 | 36,810 | 29,456 | 9,046 | |||||||||||||||
| Depreciation expense and container impairment |
176,596 | 148,974 | 104,844 | 83,177 | 58,972 | |||||||||||||||
| Amortization expense |
4,010 | 4,226 | 5,020 | 6,110 | 6,544 | |||||||||||||||
| General and administrative expense |
25,778 | 24,922 | 23,015 | 23,495 | 21,670 | |||||||||||||||
| Short-term incentive compensation expense |
4,075 | 1,779 | 5,310 | 4,921 | 4,805 | |||||||||||||||
| Long-term incentive compensation expense |
6,639 | 4,961 | 6,950 | 5,950 | 5,318 | |||||||||||||||
| Bad debt (recovery) expense, net |
(474 | ) | 8,084 | 1,525 | 3,007 | 145 | ||||||||||||||
| Gain on sale of containers to noncontrolling interest |
— | — | — | (19,773 | ) | — | ||||||||||||||
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| Total operating expenses |
291,535 | 247,918 | 208,647 | 154,650 | 132,042 | |||||||||||||||
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| Income from operations |
271,556 | 281,055 | 278,447 | 268,146 | 171,837 | |||||||||||||||
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| Fiscal Years Ended December 31, | ||||||||||||||||||||
| 2014 | 2013 | 2012 | 2011 | 2010 | ||||||||||||||||
| (Dollars in thousands , except per share data) | ||||||||||||||||||||
| Other (expense) income: |
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| Interest expense |
(85,931 | ) | (85,174 | ) | (72,886 | ) | (44,891 | ) | (18,151 | ) | ||||||||||
| Interest income |
119 | 122 | 146 | 32 | 27 | |||||||||||||||
| Realized losses on interest rate swaps, collars and caps, net |
(10,293 | ) | (8,409 | ) | (10,163 | ) | (10,824 | ) | (9,844 | ) | ||||||||||
| Unrealized gains (losses) on interest rate swaps, collars and caps, net |
1,512 | 8,656 | 5,527 | (3,849 | ) | (4,021 | ) | |||||||||||||
| Bargain purchase gain |
— | — | 9,441 | — | — | |||||||||||||||
| Other, net |
23 | (45 | ) | 44 | (115 | ) | (1,591 | ) | ||||||||||||
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| Net other expense |
(94,570 | ) | (84,850 | ) | (67,891 | ) | (59,647 | ) | (33,580 | ) | ||||||||||
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| Income before income tax and noncontrolling interest |
176,986 | 196,205 | 210,556 | 208,499 | 138,257 | |||||||||||||||
| Income tax benefit (expense) |
18,068 | (6,831 | ) | (5,493 | ) | (4,481 | ) | (4,493 | ) | |||||||||||
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| Net income |
195,054 | 189,374 | 205,063 | 204,018 | 133,764 | |||||||||||||||
| Less: Net (income) loss attributable to the noncontrolling interests |
(5,692 | ) | (6,565 | ) | 1,887 | (14,412 | ) | (13,733 | ) | |||||||||||
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| Net income attributable to Textainer Group Holdings Limited common shareholders |
$ | 189,362 | $ | 182,809 | $ | 206,950 | $ | 189,606 | $ | 120,031 | ||||||||||
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| Net income attributable to Textainer Group Holdings Limited common shareholders per share: |
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| Basic |
$ | 3.34 | $ | 3.25 | $ | 4.04 | $ | 3.88 | $ | 2.50 | ||||||||||
| Diluted |
$ | 3.32 | $ | 3.21 | $ | 3.96 | $ | 3.80 | $ | 2.43 | ||||||||||
| Weighted average shares outstanding (in thousands): |
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| Basic |
56,719 | 56,317 | 51,277 | 48,859 | 48,108 | |||||||||||||||
| Diluted |
57,079 | 56,862 | 52,231 | 49,839 | 49,307 | |||||||||||||||
| Other Financial and Operating Data (unaudited): |
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| Cash dividends declared per common share |
$ | 1.88 | $ | 1.85 | $ | 1.63 | $ | 1.28 | $ | 0.99 | ||||||||||
| Purchase of containers and fixed assets |
$ | 818,451 | $ | 765,418 | $ | 1,087,489 | $ | 823,694 | $ | 402,286 | ||||||||||
| Utilization rate(1) |
96.10 | % | 94.90 | % | 97.40 | % | 98.40 | % | 95.60 | % | ||||||||||
| Total fleet in TEU (as of the end of the period) |
3,233,364 | 3,040,454 | 2,775,034 | 2,469,039 | 2,314,219 | |||||||||||||||
| Balance Sheet Data (as of the end of the period): |
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| Cash and cash equivalents |
$ | 107,067 | $ | 120,223 | $ | 100,127 | $ | 74,816 | $ | 57,081 | ||||||||||
| Containers , net |
3,629,882 | 3,233,131 | 2,916,673 | 1,903,855 | 1,437,259 | |||||||||||||||
| Net investment in direct financing and sales-type leases (current and long-term) |
369,005 | 282,121 | 216,887 | 110,196 | 91,341 | |||||||||||||||
| Total assets |
4,358,977 | 3,908,983 | 3,476,080 | 2,310,204 | 1,747,207 | |||||||||||||||
| Long-term debt (including current portion) |
2,995,977 | 2,667,284 | 2,261,702 | 1,509,191 | 889,197 | |||||||||||||||
| Total liabilities |
3,106,612 | 2,763,489 | 2,429,947 | 1,625,278 | 1,076,640 | |||||||||||||||
| Total Textainer Group Holdings Limited shareholders ‘equity |
1,192,545 | 1,097,823 | 1,007,503 | 683,828 | 583,882 | |||||||||||||||
| Noncontrolling interest |
59,820 | 47,671 | 38,630 | 1,098 | 86,685 | |||||||||||||||
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| (1) We measure the utilization rate on the basis of CEU on lease, using the actual number of days on-hire, expressed as a percentage of CEU available for lease, using the actual days available for lease. CEU available for lease excludes CEU that have been manufactured for us but have not been delivered yet to a lessee and CEU designated as held-for-sale units. |
Effective January 1, 2014, we began reporting utilization including containers on direct financing and sales-type leases. We previously reported utilization only for containers under operating leases but, as direct financing and sales-type leases become a more significant part of our business, we believe that including these containers provides a better indication of the utilization of our total fleet and it makes our calculation comparable with some of our public peers. Accordingly, utilization for the years ended December 31, 2013, 2012, 2011 and 2010 was revised to include direct financing and sales-type leases to conform to the current presentation.
| B. | Capitalization and Indebtedness |
Not applicable.
| C. | Reasons for the Offer and Use of Proceeds |
Not applicable.
| D. | Risk Factors |
An investment in our common shares involves a high degree of risk. You should carefully consider the following risk factors, together with the other information contained elsewhere in this Annual Report on Form 20-F, including our financial statements and the related notes thereto, before you decide to buy, hold or sell our common shares. Any of the risk factors we describe below could adversely affect our business, cash flows, results of operations and financial condition. The market price of our common shares could decline and you may lose some or all of your investment if one or more of these risks and uncertainties develop into actual events.
Risks Related to Our Business and Industry
The demand for leased containers depends on many factors beyond our control.
Substantially all of our revenue comes from activities related to the leasing, managing and selling of containers. Our ability to continue successfully leasing containers to container shipping lines, earning management fees on leased containers and sourcing capital required to purchase containers depends, in part, upon the continued demand for leased containers.
Demand for containers depends largely on the rate of world trade and economic growth, with worldwide consumer demand being the most critical factor affecting this growth. Demand for leased containers is also driven by our customers’ “lease vs. buy” decisions. Economic downturns in the U.S., Europe, Asia and countries with consumer-oriented economies could result in a reduction in world trade volume and demand by container shipping lines for leased containers. Thus, a decrease in the volume of world trade may adversely affect our utilization and per diem rates and lead to reduced revenue and increased operating expenses (such as storage and repositioning costs), and have an adverse effect on our financial performance. We cannot predict whether, or when, such downturns will occur. Other material factors affecting demand for leased containers, utilization and per diem rates include the following:
| • | prices of new and used containers; |
| • | economic conditions, profitability, competitive pressures and consolidation in the container shipping industry; |
| • | shifting trends and patterns of cargo traffic; |
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| • | fluctuations in demand for containerized goods outside their area of production; |
| • | the availability and terms of container financing for us and for our competitors and customers; |
| • | fluctuations in interest rates and currency exchange rates; |
| • | overcapacity, undercapacity and consolidation of container manufacturers; |
| • | the lead times required to purchase containers; |
| • | the number of containers purchased by competitors and container lessees (both containers purchased in the current year and the volume of containers purchased in prior years); |
| • | container ship fleet overcapacity or undercapacity; |
| • | increased repositioning by container shipping lines of their own empty containers to higher demand locations in lieu of leasing containers; |
| • | port congestion and the efficient movement of containers as impacted by labor disputes, work stoppages, increased vessel size, shipping line alliances or other factors that reduce or increase the speed at which containers are handled; |
| • | consolidation, withdrawal or insolvency of individual container shipping lines; |
| • | import/export tariffs and restrictions; |
| • | customs procedures, foreign exchange controls and other governmental regulations; |
| • | natural disasters that are severe enough to affect local and global economies or interfere with trade, such as the 2011 earthquake and tsunami in Japan; and |
| • | other political and economic factors. |
Many of these and other factors affecting the container industry are inherently unpredictable and beyond our control. These factors will vary over time, often quickly and unpredictably, and any change in one or more of these factors may have a material adverse effect on our business and results of operations. In addition, many of these factors also influence the decision by container shipping lines to lease or buy containers. Should one or more of these factors influence container shipping lines to buy a larger percentage of the containers they operate, our utilization rate and/or per diems could decrease, resulting in decreased revenue and increased storage and repositioning costs, which would harm our business, results of operations and financial condition.
Any deceleration or reversal of the current domestic and global economic recoveries may materially and negatively impact our business, results of operations, cash flows, financial condition and future prospects.
The global financial crisis in 2008 and 2009 brought about weak US and global economic conditions, inefficiencies and uncertainty in the credit markets, a low level of liquidity in many financial markets and extreme volatility in many equity markets and increasing sovereign credit risks. Although these conditions appear to be somewhat abating and domestic and global growth seems to be underway, the continued sustainability of the US and international recovery is uncertain. Any deceleration or reversal of the relatively slow and modest US and global economic recoveries could heighten a number of material risks to our business, results of operations, cash flows and financial condition, as well as our future prospects, including the following:
| • | Containerized cargo volume growth — A contraction or slowdown in containerized cargo volume growth or negative containerized cargo volume growth would likely create lower utilization, higher direct costs, weaker shipping lines going out of business, pressure for us to offer lease concessions and lead to a reduction in the size of our customers’ container fleets. High utilization of our containers and fleet growth may not be sufficient to provide revenue and income growth if increased competition or other factors keep container lease rates low for prolonged periods. |
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| • | Credit availability and access to equity markets — Issues involving liquidity and capital adequacy affecting lenders could affect our ability to fully access our credit facilities or obtain additional debt and could affect the ability of our lenders to meet their funding requirements when we need to borrow. Further, a high level of volatility in the equity markets could make it difficult for us to access the equity markets for additional capital at attractive prices, if at all. If we are unable to obtain credit or access the capital markets, our business could be negatively impacted. Additionally, in recent years there has been increased access to debt financing on favorable terms by us and our competitors and this has led to greater competition for lease transactions and lower container lease rates. |
| • | Credit availability to our customers — We believe that many of our customers are reliant on liquidity from global credit markets and, in some cases, require external financing to fund their operations. As a consequence, if our customers lack liquidity, it would likely negatively impact their ability to pay amounts due to us. |
Lease and/or utilization rates may decrease, which could harm our business, results of operations and financial condition.
We compete mostly on price and the availability of containers. Lease rates for our containers depend on a large number of factors, including the following:
| • | the supply of, and demand for, containers available; |
| • | the price of new containers (which is positively correlated with the price of steel); |
| • | the type and length of the lease; |
| • | interest rates and the availability of financing for leasing companies and shipping lines; |
| • | embedded assumptions regarding residual value and future lease pricing; |
| • | the type and age of the container; |
| • | the location of the container being leased; |
| • | the quantity of containers available for lease by our competitors; and |
| • | lease rates offered by our competitors. |
Most of these factors are beyond our control. In addition, lease rates can be negatively impacted by, among other things, the entrance of new leasing companies, overproduction of new containers by factories and the over-buying by shipping lines, leasing competitors and tax-driven container investors. For example, during 2001 and again in the second quarter of 2005, overproduction of new containers, coupled with a build-up of container inventories in Asia by leasing companies and shipping lines, led to decreased utilization rates. Additionally in 2012 and continuing in 2013 and 2014, container leasing companies, including us, raised substantial amounts of new funds in the debt and equity markets and also were able to repeatedly refinance existing debt on ever more favorable terms. This increased availability of, and ongoing repricing of, funds, which given a limited demand for containers, has contributed to downward pressure on lease rates. The impact to us of any future decrease in lease rates may be more severe than past rate decreases due to the substantial growth in our owned fleet in the past few years and the relatively high prices paid for new containers in the period from 2010 to 2012 that were initially leased at historically high rates. If future market lease rates decrease or remain at historically low levels, revenues generated by our fleet will likely be adversely affected, which could harm our business, results of operations, cash flows and financial condition.
Lessee defaults may harm our business, results of operations and financial condition by decreasing revenue and increasing storage, repositioning, collection and recovery expenses.
Our containers are leased to numerous container lessees. Lessees are required to pay rent and to indemnify us for damage to or loss of containers. Lessees may default in paying rent and performing other obligations under
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their leases. A delay or diminution in amounts received under the leases (including leases on our managed containers), or a default in the performance of maintenance or other lessee obligations under the leases could adversely affect our business, results of operations and financial condition and our ability to make payments on our debt.
We believe that there is the continued risk of lessee defaults in 2015. During the last several years shipping lines have made a number of efforts to raise freight rates on the major trade lanes, however rate increases have generally not been sustainable for long periods of time. Additionally, excess vessel capacity due to new ship production, including the production of very large ships, and the re-activation of previously laid up vessels will continue to be a factor in 2015. Volatile fuel costs also may impact the financial performance of shipping lines as it is possible that recent fuel price declines will lead to aggressive freight rate competition among shipping lines or fuel prices could increase again, hurting their profitability. Major shipping lines reported improved but mixed financial performance in 2014, but profits have not been consistent. While containerized trade grew modestly in 2014, it was not sufficient to fully utilize the increased vessel capacity. Existing excess vessel capacity and continued new vessel deliveries, especially the delivery of very large vessels, are expected to continue to pressure freight rates for some time. As a result we continue to face heightened risk that our financial performance and cash flow could be severely affected by defaults by our customers.
When lessees default, we may fail to recover all of our containers, and the containers that we do recover may be returned to locations where we will not be able to quickly re-lease or sell them on commercially acceptable terms. In recovery actions we must locate the containers and often need to pay accrued storage charges to depots and terminals. We also may have to reposition these containers to other places where we can re-lease or sell them, which could be expensive, depending on the locations and distances involved. Following repositioning, we may need to repair the containers and pay container depots for storage until the containers are re-leased. These recovery, repair and repositioning costs generally are reflected in our financial statements under direct container expense. Accordingly the amount of our bad debt expense may not capture the total adverse financial impact on us from a shipping line’s default. For our owned containers, these costs directly reduce our income and for our managed containers, lessee defaults decrease rental revenue and increase operating expenses, and thus reduce our management fee revenue. While we maintain insurance to cover some defaults, it is subject to large deductible amounts and significant exclusions and, therefore, may not be sufficient to prevent us from suffering material losses. Additionally, this insurance might not be available to us in the future on commercially reasonable terms or at all. Any such future defaults could harm our business, results of operations and financial condition.
Historically we have recovered a very high percentage of the containers from defaulted lessees. However in 2013 we encountered defaults from several smaller lessees where recoveries did not track to our historical experience and significant losses were incurred. These losses were due to a number of containers being unrecoverable as the containers were not in the control of the lessee or the containers were detained by depots or terminals that demanded storage charges in excess of the value of the detained containers after accounting for repair and repositions costs. If a material amount of future recoveries from defaulted lessees continue to deviate from our historical recovery experience, our financial performance and cash flow could be severely adversely affected.
Certain liens may arise on our containers.
Depot operators, manufacturers, repairmen and transporters may come into possession of our containers from time to time and have amounts due to them from the lessees or sublessees of the containers. In the event of nonpayment of those charges by the lessees or sublessees, we may be delayed in, or entirely barred from, repossessing the containers, or be required to make payments or incur expenses to discharge such liens on our containers.
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Sustained reduction in the prices of new containers could harm our business, results of operations and financial condition.
If the downturn in new container prices is sustained, the lease rates of older, off-lease containers would also be expected to decrease and the prices obtained for containers sold at the end of their useful life would also be expected to decrease. Since the beginning of 2013 we have seen new container pricing and the sale prices of our containers sold at the end of their useful life decline. If the reduction in the price of new containers is sustained such that the market lease rate or resale value for all containers is reduced, this trend could harm our business, results of operations and financial condition, even if this sustained reduction in price would allow us to purchase new containers at a lower cost.
If we are unable to lease our new containers shortly after we purchase them, our business, results of operations, cash flows and financial condition may be harmed.
Lease rates for new containers are positively correlated to the fluctuations in the price of new containers, which is positively correlated with the price of steel, a major component used in the manufacture of new containers. In the past five years, prices for new standard 20’ dry freight containers have moved in a wide range, with prices ranging between an average of $1,900 to $2,700 during this time. Our average new container cost per CEU decreased 3.9% during 2014 from 2013. If we are unable to lease the new containers that we purchase within a short period of time of such purchase, the market price of new containers and the corresponding market lease rates for new containers may decrease, regardless of the higher cost of the previously purchased containers. Additionally, if we believe new container prices are attractive, we may determine to purchase more containers than we have immediate demand for if we expect container prices or lease rates may rise. If prices do not rise or new container demand weakens, we may be unable to lease this speculative inventory on attractive terms or at all. Declines in new container prices, lease rates, or the inability to lease new containers could harm our business, results of operations and financial condition.
We face risks associated with re-leasing containers after their initial long term lease.
We estimate the useful lives of our non-refrigerated containers other than open top and flat rack containers, refrigerated containers, tank containers and open top and flat rack containers to be 13, 12, 20 and 14 years, respectively. When we purchase newly produced containers, we typically lease them out under long-term leases with terms of three to five years at a lease rate that is correlated to the price paid for the container and prevailing interest rates. As containers leased under term leases are not leased out for their full economic life, we face risks associated with re-leasing containers after their initial long term lease at a rate that continues to provide a reasonable economic return based on the initial purchase price of the container. If prevailing container lease rates decline significantly between the time a container is initially leased out and when its initial long term lease expires, or if overall demand for containers declines, we may be unable to earn a similar lease rate from the re-leasing of containers when their initial term leases expire. These could materially adversely impact our results and financial performance.
Gains and losses associated with the disposition or trading of used equipment may fluctuate and adversely affect our business, results of operations and financial condition.
We regularly sell used containers at the end of their useful lives in marine service or when we believe it maximizes the projected financial return, considering the location, sale price, cost of repair, possible repositioning expenses, earnings prospects and remaining useful life. The residual value of these containers affects our profitability. The volatility of the residual values of used containers may be significant. These values depend upon, among other factors, demand for used containers for secondary purposes, comparable new container costs, used container availability, condition and location of the containers, and market conditions. Most of these factors are outside of our control. Additionally, if shipping lines or our leasing company competitors determine to sell their used containers at a younger age than we believe to be the useful life of our equipment, our containers may be more difficult to sell or may sell for less than containers that were more recently manufactured.
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Gains or losses on the disposition of used container equipment and the sales fees earned on the disposition of managed containers will also fluctuate and may be significant if we sell large quantities of used containers. Any such fluctuations could harm our business, results of operations and financial condition. See Item 5, “Operating and Financial Review and Prospects” for a discussion of our gains or losses on the disposition of used container equipment.
In addition to disposing of our fleet’s used containers at the end of their useful life, we opportunistically purchase used containers for resale from our shipping line customers and other sellers. Traditionally shipping lines would enter into trading deals with us at the time they were ready to dispose of older containers. Recently, shipping lines have entered into purchase leaseback transactions with us where they sell us older containers and then lease them back until the shipping line is ready to dispose of the containers. We face resale price risk with purchase leaseback transactions since we may not get the container returned from shipping lines for several years after we have paid for them and prevailing prices for older containers may decline.
If the supply of trading equipment becomes limited because these sellers develop other means for disposing of their equipment or develop their own sales network, our equipment trading revenues and our profitability could be negatively impacted. If selling prices rapidly deteriorate and we are holding a large inventory that was purchased when prices for trading equipment were higher or if prices decline over the life of our purchase leaseback transactions, then our gross margins from trading and the sale of containers acquired through purchase leaseback transactions could decline or become negative.
Sustained reduction in the production of new containers could harm our business, results of operations and financial condition.
The lack of new production of standard dry freight containers from the fourth quarter of 2008 through the end of 2009, combined with continued retirement of older containers in the ordinary course, led to a decline in the world container fleet of approximately 4% in 2009, creating a shortage of containers as worldwide cargo volumes increased by 12.0% in 2010 and 8.6% in 2011. During the period of decline in the world container fleet, container manufacturers lost up to 60% of their skilled work force due to long shutdowns, and had limited production capacity in 2010 as they had to hire and train a new skilled work force. Although manufacturers resumed production in 2011 and continued steady production from 2012 through 2014, if there is a sustained reduction in the production of new containers, it could impact our ability to expand our fleet, which could harm our business, results of operations and financial condition.
Consolidation of container manufacturers or the disruption of manufacturing for the major manufacturers could result in higher new container prices and/or decreased supply of new containers. Any material increase in the cost or reduction in the supply of new containers could harm our business, results of operations and financial condition.
We currently purchase almost all of our containers from manufacturers based in the People’s Republic of China (the “PRC”). If it were to become more expensive for us to procure containers in the PRC or to transport these containers at a low cost from the manufacturer to the locations where they are needed by our container lessees because of changes in exchange rates between the U.S. Dollar and Chinese Yuan, consolidation among container suppliers, increased tariffs imposed by the U.S. or other governments, increased fuel costs, increased labor costs, or for any other reason, we may have to seek alternative sources of supply. While we are not dependent on any single manufacturer for our supply of containers, we may not be able to make alternative arrangements quickly enough to meet our container needs, and the alternative arrangements may increase our costs.
In particular, the availability and price of containers depend significantly on the capacity and bargaining position of the major container manufacturers. Due to consolidation in the container manufacturing industry, three major manufacturers have approximately 80% of that industry’s market share. This market structure has
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lead to significant variability in container prices. If an increased cost of purchasing containers is not matched by a corresponding increase in lease rates, our business, results of operations and financial condition would be harmed.
A contraction or slowdown in containerized cargo growth or negative containerized cargo growth would lead to a surplus of containers and a lack of storage space, which could negatively impact us.
We depend on third party depot operators to repair and store our equipment in port areas throughout the world. Growth in the world’s container fleet has significantly outpaced growth in depot capacity and even in the current period of historically high utilization, we are experiencing limited depot capacity in certain major port cities, including Singapore, Hong Kong and Pusan. Additionally, the land occupied by depots is increasingly being considered prime real estate, as it is a coastal land in or near major cities, and this land may be developed into other uses or there may be increasing restrictions on depot operations by local communities. This could increase depots costs and in some cases force depots to relocate to sites further from the port areas. If these changes affect a large number of our depots, or if we experience a period of lower container utilization, it could significantly increase the cost of maintaining and storing our off-hire containers. Additionally, if depot space is unavailable, we may be unable to accept returned containers from lessees, which may cause us to breach our lease agreements.
We own a large and growing number of containers in our fleet and are subject to significant ownership risk and increasing our owned fleet entails increasing our debt, which could result in financial instability.
Ownership of containers entails greater risk than management of containers for container investors. In 2014, we increased the percentage of containers in our fleet that we own from 75.6% at the beginning of the year to 78.9% at the end of the year and as of March 1, 2015 the owned percentage of our fleet is approximately 79.1%. The increased number of containers in our owned fleet increases our exposure to financing costs, financing risks, changes in per diem rates, re-leasing risk, changes in utilization rates, lessee defaults, repositioning costs, storage expenses, impairment charges and changes in sales price upon disposition of containers. The number of containers in our owned fleet fluctuates over time as we purchase new containers, sell containers into the secondary resale market, and acquire other fleets. As part of our strategy, we focus on increasing the number of owned containers in our fleet and we therefore expect our ownership risk to increase correspondingly.
As we increase the number of containers in our owned fleet, we will likely have more capital at risk and may need to maintain higher debt balances. For example, our total debt increased from $2,667.3 million at the start of 2014 to $2,996.0 million at the end of 2014. Additional borrowings may not be available under our revolving credit facilities or our secured debt facilities, and we may not be able to refinance these facilities, if necessary, on commercially reasonable terms or at all. We may need to raise additional debt or equity capital in order to fund our business, expand our sales activities and/or respond to competitive pressures. We may not have access to the capital resources we desire or need to fund our business or may not have access on attractive terms. These effects, among others, may reduce our profitability and adversely affect our plans to maintain the container ownership portion of our business.
Terrorist attacks, the threat of such attacks or the outbreak of war and hostilities could negatively impact our operations and profitability and may expose us to liability.
Terrorist attacks and the threat of such attacks have contributed to economic instability in the U.S. and elsewhere, and further acts or threats of terrorism, violence, war or hostilities could similarly affect world trade and the industries in which we and our container lessees operate. For example, worldwide containerized trade dramatically decreased in the immediate aftermath of the September 11, 2001 terrorist attacks in the U.S., which affected demand for leased containers. In addition, terrorist attacks, threats of terrorism, violence, war or hostilities may directly impact ports, depots, our facilities or those of our suppliers or container lessees and could
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impact our sales and our supply chain. A severe disruption to the worldwide ports system and flow of goods could result in a reduction in the level of international trade and lower demand for our containers.
Our lease agreements require our lessees to indemnify us for all costs, liabilities and expenses arising out of the use of our containers, including property damage to the containers, damage to third-party property and personal injury. However, our lessees may not have adequate resources to honor their indemnity obligations after a terrorist attack. Our insurance coverage is limited and is subject to large deductibles and significant exclusions and we have very limited insurance for liability arising from a terrorist attack. Accordingly, we may not be protected from liability (and expenses in defending against claims of liability) arising from a terrorist attack.
We derive a substantial portion of our lease billings from a limited number of container lessees, and the loss of, or reduction in business by, any of these container lessees could harm our business, results of operations and financial condition.
We have derived, and believe that we will continue to derive, a significant portion of lease billings and cash flow from a limited number of container lessees. Lease billings from our 20 largest container lessees represented $462.5 million or 74.7% of the total fleet billings during 2014, with lease billings from our single largest container lessee accounting for $72.8 million, or 11.8% of container lease billings during such fiscal year. Given the high concentration of our customer base, a default by any of our largest customers would result in a major reduction in leasing revenue, large repossession expenses, potentially large lost equipment charges and a material adverse impact on our performance and financial condition.
The introduction of very large container ships (13,000 TEU+) on the major trade lanes may lead to further industry consolidation, an even greater reliance by us on our largest customers, and negatively impact the performance of smaller and mid-size shipping lines. Several of the largest shipping lines have invested heavily in these very large ships and reportedly have achieved meaningful unit cost advantages and increased market shares on the major trade lanes. In response, some smaller shipping lines have started to exit the major trade lanes, while others are seeking to form closer operating partnerships.
We face extensive competition in the container leasing industry and our lessees may decide to buy, rather than lease their containers.
We may be unable to compete favorably in the highly competitive container leasing and container management businesses. We compete with a relatively small number of major leasing companies, many smaller lessors, companies and financial institutions offering finance leases, and promoters of container ownership and leasing as a tax-efficient investment. Some of these competitors may have greater financial resources and access to capital than we do. Additionally, some of these competitors may have large, underutilized inventories of containers, which could, if leased, lead to significant downward pressure on per diem rates, margins and prices of containers. Competition among container leasing companies depends upon many factors, including, among others: per diem rates; supply reliability; lease terms, including lease duration, drop-off restrictions and repair provisions; customer service; and the location, availability, quality and individual characteristics of containers. New entrants into the leasing business may be attracted by the historically high rate of containerized trade growth, access to the capital markets and the recent financial performance of the publicly traded leasing companies. New entrants may be willing to offer pricing or other terms that we are unwilling or unable to match. Additionally, the management agreements under which we manage containers for other parties do not restrict these container owners from having other container fleets managed by competing leasing companies or from directly competing with us.
We, like other suppliers of leased containers, are dependent upon decisions by shipping lines to lease rather than buy their container equipment. Shipping lines own a significant amount of the world’s intermodal containers and effectively compete with us. In part due to constraints on their financing and desire to allocate capital to new ship purchases and port terminals, in recent years, shipping lines have generally reduced their purchases of new
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containers. In 2014 we believe more than half of all shipping containers were purchased by leasing companies and we estimate that this trend will continue in 2015. Should shipping lines decide to buy a larger percentage of the containers they operate, our utilization rate would decrease, resulting in decreased leasing revenues, increased storage costs and increased positioning costs. A decrease in the portion of leased containers would also reduce our investment opportunities and significantly constrain our growth.
Our results of operations are subject to changes resulting from the political and economic policies of the PRC and economic activity in the PRC.
A substantial portion of our containers are leased out from locations in the PRC. The main manufacturers of containers are also located in the PRC. The political and economic policies of the PRC and the level of economic activity in the PRC may have a significant impact on our company and our financial performance.
Changes in the political leadership of the PRC may have a significant effect on laws and policies that impact economic growth and trade and the corresponding need for containers to ship goods from the PRC, including the introduction of measures to control inflation, changes in the rate or method of taxation, and the imposition of additional restrictions on currency conversion, remittances abroad, and foreign investment. Moreover, economic reforms and growth in the PRC have been more successful in certain provinces than in others, and the continuation of or increases in such disparities could affect the political or social stability of the PRC. Furthermore, the current high level of debt by some companies in China may lead to defaults which may not be supported by the Chinese government.
A large number of our shipping line customers are domiciled either in the PRC (including Hong Kong) or in Taiwan. In 2014, approximately 26.6% of our revenue was attributable to shipping line customers that were either domiciled in the PRC (including Hong Kong) or in Taiwan. Almost all container manufacturing facilities from which we purchased our containers in 2014 are located in the PRC. A reduced rate of economic growth, changes to economic policy or political instability in either the PRC or Taiwan could have a negative effect on our major customers, our ability to obtain containers and correspondingly, our results of operations and financial condition.
The legal systems in the PRC and other jurisdictions have inherent uncertainties that could limit the legal protections available to us and even if legal judgments are obtained, collection may be difficult.
We currently purchase almost all of our containers from manufacturers based in the PRC. In addition, a substantial portion of our containers are leased out from locations in the PRC. California law governs almost all of these agreements. However, disputes or settlements arising out of these agreements may need to be enforced in the PRC. The PRC legal system is based on written statutes. Prior court decisions may be cited for reference but have limited precedential value. Since 1979, PRC legislation and regulations have significantly enhanced the protections afforded to various forms of foreign investments in the PRC. However, since these laws and regulations are relatively new and the PRC legal system continues to evolve, the interpretations of many laws, regulations and rules are not always uniform and may be subject to considerable discretion, variation, or influence by external forces unrelated to the legal merits of a particular matter. The enforcement of these laws, regulations, and rules involves uncertainties that may limit remedies available to us. Any litigation or arbitration in the PRC may be protracted and may result in substantial costs and diversion of resources and management attention. In addition, the PRC may enact new laws or amend current laws that may be detrimental to us, which may have a material adverse effect on our business operations. If we are unable to enforce any legal rights that we may have under our contracts or otherwise in the PRC, our ability to compete and our results of operations could be harmed.
In addition, as our containers are used in trade involving goods being shipped to locations throughout the world, it is not possible to predict, with any degree of certainty, the jurisdictions in which enforcement proceedings may be commenced. Litigation and enforcement proceedings have inherent uncertainties in any
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jurisdiction and are expensive. These uncertainties are enhanced in countries that have less developed legal systems where the interpretation of laws and regulations is not consistent, may be influenced by factors other than legal merits and may be cumbersome, time-consuming and even more expensive. For example, repossession from defaulting lessees may be difficult and more expensive in jurisdictions whose laws do not confer the same security interests and rights to creditors and lessors as those in the United States and where the legal system is not as well developed. Additionally, even if we are successful in obtaining judgments against defaulting lessees, these lessees may have limited owned assets and/or heavily encumbered assets and the collection and enforcement of a monetary judgment may be unsuccessful. As a result, the remedies available and the relative success and expedience of collection and enforcement proceedings with respect to the containers in various jurisdictions cannot be predicted.
Because substantially all of our revenues are generated in U.S. dollars, but a significant portion of our expenses are incurred in other currencies, exchange rate fluctuations could have an adverse impact on our results of operations.
The U.S. dollar is our primary operating currency. Almost all of our revenues are denominated in U.S. dollars, and approximately 72% of our direct container expenses were denominated in U.S. dollars for the year ended December 31, 2014. Accordingly, a significant amount of our expenses are incurred in currencies other than the U.S. dollar. This difference could lead to fluctuations in net income due to changes in the value of the U.S. dollar relative to the other currencies. During 2014, 2013 and 2012, 28%, 32%, and 36%, respectively, of our direct container expenses were paid in up to 18 different foreign currencies. A decrease in the value of the U.S. dollar against non-U.S. currencies in which our expenses are incurred translates into an increase in those expenses in U.S. dollar terms, which would decrease our net income. While the prices of the used containers we trade or dispose of are primarily quoted and billed in U.S. Dollars, declines in the currencies where these containers are sold relative to the U.S. Dollar can serve to reduce the market prices for used containers, which will decrease our net income. We do not engage in foreign currency hedging activities which might reduce the volatility associated with exchange rates.
Sustained Asian economic instability could reduce demand for leasing, which would harm our business, results of operations and financial condition.
Many of our customers are substantially dependent upon shipments of goods exported from Asia. From time to time, there have been health scares, such as Severe Acute Respiratory Syndrome and avian flu, financial turmoil, natural disasters and political instability in Asia. If these events were to occur in the future, they could adversely affect our container lessees and the general demand for shipping and lead to reduced demand for leased containers or otherwise adversely affect us. Any reduction in demand for leased containers would harm our business, results of operations and financial condition.
The demand for leased containers is partially tied to international trade. If this demand were to decrease due to increased barriers to trade, or for any other reason, it could reduce demand for intermodal container leasing, which would harm our business, results of operations and financial condition.
A substantial portion of our containers are used in trade involving goods being shipped from the PRC and other Asian countries to the United States, Europe or other regions. The willingness and ability of international consumers to purchase foreign goods is dependent on political support, in the United States, Europe and other countries, for an absence of government-imposed barriers to international trade in goods and services. For example, international consumer demand for foreign goods is related to price; if the price differential between foreign goods and domestically-produced goods were to decrease due to increased tariffs on foreign goods, strengthening in the applicable foreign currencies relative to domestic currencies, rising wages, increasing input or energy costs or other factors, demand for foreign goods could decrease, which could result in reduced demand for intermodal container leasing. A similar reduction in demand for intermodal container leasing could result from an increased use of quotas or other technical barriers to restrict trade. The current regime of relatively free trade may not continue.
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The international nature of the container shipping industry exposes us to numerous risks.
We are subject to risks inherent in conducting business across national boundaries, any one of which could adversely impact our business. These risks include:
| • | regional or local economic downturns; |
| • | fluctuations in currency exchange rates; |
| • | changes in governmental policy or regulation; |
| • | restrictions on the transfer of funds or other assets into or out of different countries; |
| • | import and export duties and quotas; |
| • | domestic and foreign customs, tariffs and taxes; |
| • | war, hostilities and terrorist attacks, or the threat of any of these events; |
| • | government instability; |
| • | nationalization of foreign assets; |
| • | government protectionism; |
| • | compliance with export controls and economic sanctions, including those of the U.S. Department of Commerce and the U.S. Treasury; |
| • | compliance with import procedures and controls, including those of the U.S. Department of Homeland Security; |
| • | consequences from changes in tax laws, including tax laws pertaining to the container investors; |
| • | potential liabilities relating to foreign withholding taxes; |
| • | labor or other disruptions at key ports; |
| • | difficulty in staffing and managing widespread operations; and |
| • | restrictions on our ability to own or operate subsidiaries, make investments or acquire new businesses in various jurisdictions. |
One or more of these factors or other related factors may impair our current or future international operations and, as a result, harm our business, results of operations and financial condition.
We rely on our proprietary information technology systems to conduct our business. If these systems fail to perform their functions adequately, or if we experience an interruption in their operation, our business, results of operations and financial condition could be harmed.
The efficient operation of our business is highly dependent on our proprietary information technology systems. We rely on our systems to record transactions, such as repair and depot charges, purchases and disposals of containers and movements associated with each of our owned or managed containers. We use the information provided by these systems in our day-to-day business decisions in order to effectively manage our lease portfolio, reduce costs and improve customer service. We also rely on these systems for the accurate tracking of the performance of our managed fleet for each container investor. The failure of our systems to perform as we expect could disrupt our business, adversely affect our results of operations and cause our relationships with lessees and container investors to suffer. Our information technology systems are vulnerable to damage or interruption from circumstances beyond our control, including fire, natural disasters, power loss and computer systems failures and viruses or cyber-attacks. Even though we have developed redundancies and other contingencies to mitigate any disruptions to our information technology systems, these redundancies and contingencies may not completely prevent interruptions to our information technology systems. Any such interruptions could harm our business, results of operations and financial condition.
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Consolidation, shipping line alliances, and concentration in the container shipping industry could decrease the demand for leased containers.
We primarily lease containers to container shipping lines. The container shipping lines have historically relied on a large number of leased containers to satisfy their needs. The shipping industry has been consolidating for a number of years, and further consolidation is expected. Historically shipping lines have also formed a number of alliances to share vessel space and the creation of new alliances and changes in the membership of each alliance is ongoing. Consolidation of major container shipping lines and growth of alliances could create efficiencies and decrease the demand that container shipping lines have for leased containers because they may be able to fulfill a larger portion of their needs through their owned container fleets. Consolidation could also create concentration of credit risk if the number of our container lessees decreases. If shipping line alliances are effective at making shipping lines more efficient, this could reduce the demand for containers. Additionally, large container shipping lines with significant resources could choose to manufacture or purchase their own containers, which would decrease their demand for leased containers and could harm our business, results of operations and financial condition.
We may incur significant costs to reposition our containers, which could harm our business, results of operations and financial condition.
When lessees return containers to locations where supply exceeds demand, we sometimes reposition containers to higher demand areas. Repositioning expenses vary depending on geographic location, distance, freight rates and other factors, and may not be fully covered by drop-off charges collected from the previous lessee of the containers or pick-up charges paid by the new lessee. We seek to limit the number of and impose surcharges on containers returned to low demand locations. Market conditions, however, may not enable us to continue such practices. In addition, we may not be able to accurately anticipate which locations will be characterized by higher or lower demand in the future, and our current contracts will not protect us from repositioning costs if locations that we expect to be higher demand locations turn out to be lower demand locations at the time the containers are returned. Any such increases in costs to reposition our containers could harm our business, results of operations and financial condition.
Our indebtedness reduces our financial flexibility and could impede our ability to operate.
We have historically operated with, and anticipate continuing to operate with, a significant amount of debt. As of December 31, 2014, we had outstanding indebtedness of $2,996.0 million under our debt facilities. All of our outstanding indebtedness is secured debt collateralized by our container assets. There is no assurance that we will be able to refinance our outstanding indebtedness on terms that we can afford or at all. If we are unable to refinance our outstanding indebtedness, or if we are unable to increase the amount of our borrowing capacity, it could limit our ability to grow our business.
The amount of our indebtedness, and the terms of the related indebtedness (including interest rates and covenants), could have important consequences for us, including the following:
| • | require us to dedicate a substantial portion of our cash flow from operations to make payments on our debt, thereby reducing funds available for operations, investments, dividends, and future business opportunities and other purposes; |
| • | limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate; |
| • | reduce our ability to make acquisitions or expand our business; |
| • | make it more difficult for us to satisfy our current or future debt obligations; |
| • | any failure to comply with our debt obligations, including financial and other restrictive covenants, could result in an event of default under the agreements governing such indebtedness, which could lead |
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| to, among other things, an acceleration of our indebtedness or foreclosure on the assets securing our indebtedness and have a material adverse effect on our business or financial condition; |
| • | limit our ability to borrow additional funds or to sell assets to raise funds, if needed, for working capital, capital expenditures, acquisitions or other purposes; and |
| • | increase our vulnerability to general adverse economic and industry conditions, including changes in interest rates. |
We may not generate sufficient cash flow from operations to service and repay our debt and related obligations and have sufficient funds left over to achieve or sustain profitability in our operations, meet our working capital and capital expenditure needs or compete successfully in our industry.
We will require a significant amount of cash to service and repay our outstanding indebtedness, fund future capital expenditures, and our ability to generate cash depends on many factors beyond our control.
Our ability to make payments on and repay our indebtedness and to fund planned capital expenditures will depend on our ability to generate cash in the future. Our business primarily generates cash from our container assets. Our lenders, rating agencies and the investors in our asset-backed debt securities look to the historical and anticipated performance of our container assets when deciding whether to lend to us and the terms for such lending. It is possible that:
| • | our business will not generate sufficient cash flow from operations to service and repay our debt and to fund working capital requirements and future capital expenditures; |
| • | future borrowings will not be available under our current or future credit facilities in an amount sufficient to enable us to refinance our debt; or |
| • | we will not be able to refinance any of our debt on commercially reasonable terms or at all due to declining historical or anticipated financial performance of our assets or for other reasons. |
The terms of our debt facilities impose, and the terms of any future indebtedness may impose, significant operating, financial and other restrictions on us and our subsidiaries.
Restrictions imposed by our secured debt facilities, revolving credit facilities, term loan and bonds may limit or prohibit, among other things, our ability to:
| • | incur additional indebtedness; |
| • | pay dividends on or redeem or repurchase our common shares; |
| • | enter into new lines of business; |
| • | issue capital stock of our subsidiaries; |
| • | make loans and certain types of investments; |
| • | incur liens; |
| • | sell certain assets or merge with or into other companies or acquire other companies; |
| • | enter into certain transactions with shareholders and affiliates; and |
| • | restrict dividends, distributions or other payments from our subsidiaries. |
We are also required to comply with certain financial ratio covenants. These restrictions could adversely affect our ability to finance our future operations or capital needs and pursue available business opportunities. A breach of any of these restrictions, including a breach of financial covenants, could result in a default in respect of the related indebtedness. If a default occurs, the relevant lenders could elect to declare the indebtedness, together with accrued interest and fees, to be immediately due and payable and proceed against any collateral securing that indebtedness, which will constitute substantially all of our container assets.
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If we are unable to enter into interest rate swaps, collars and caps on reasonable commercial terms or if a counterparty under our interest rate swap, collar and cap agreements defaults, our exposure associated with our variable rate debt could increase.
We have typically funded a significant portion of the purchase price of new containers through borrowings under our revolving credit facilities and our secured debt facilities and intend to use borrowings under our revolving credit facilities and our secured debt facilities for such funding in the future. All of our outstanding debt, other than the $558.4 million in aggregate principal amount under TMCL III’s Series 2013-1 and Series 2014-1 Fixed Rate Asset Backed Notes are subject to variable interest rates. We have entered into various interest rate swap and cap agreements to mitigate our exposure associated with variable rate debt. The swap agreements involve payments by us to counterparties at fixed rates in return for receipts based upon variable rates indexed to the London Inter Bank Offered Rate. There can be no assurance that interest rate caps and swaps will be available in the future, or if available, will be on terms satisfactory to us. Moreover, our interest rate swap agreements are subject to counterparty credit exposure, which is defined as the ability of a counterparty to perform its financial obligations under a derivative contract. While we monitor our counterparties’ credit ratings on an on-going basis, we cannot be certain that they will stay in compliance with the related derivative agreements and not default in the future. If we are unable to obtain interest rate caps, collars and swaps or if a counterparty under our interest rate swap, collar and cap agreements defaults, our exposure associated with our variable rate debt could increase.
Use of counterfeit and improper refrigerant in refrigeration machines for refrigerated containers could cause irreparable damage to the refrigeration machines, death or personal injury, and materially impair the value of our refrigerated container fleet.
In the past few years, there have been a limited number of reports of counterfeit and improper refrigerant gas being used to service refrigeration machines in depots in Asia. The use of this counterfeit gas has led to the explosion of several refrigeration machines. Several of these incidents have resulted in personal injury or death, and in all cases, the counterfeit gas has led to irreparable damage to the refrigeration machines.
Safer testing procedures have been developed and were implemented by refrigeration manufacturers and industry participants in order to determine whether counterfeit or improper gas has been used to service a refrigeration machine. However, there can be no assurance that these procedures will prove to be reliable and cost effective. If the recently developed tests and industry procedures are not proven safe and effective or if the use of such counterfeit and improper refrigerant is more widespread than currently believed or other counterfeit refrigerant issues emerge in the future, the value of our refrigerated container fleet and our ability to lease refrigerated containers could be materially impaired and could therefore have a material adverse effect on our financial condition, results of operations and cash flows. Additionally, we might be subject to claims for damages by parties injured by contaminated refrigeration machinery operated by our lessees which may materially adversely affect us.
We face risks from our tank container management agreement with Trifleet Leasing (The Netherlands) B.V.
In June 2013 we announced that we had entered into a tank container management agreement with Trifleet Leasing (The Netherlands) B.V. (“Trifleet”). Under this agreement, we invest funds with Trifleet for the purchase and leasing of tank containers. Trifleet is our exclusive manager for investments in tank containers. Intermodal tank containers are used for the transport and storage of liquid foodstuffs, chemicals and gases. This is a specialized market subject to a number of regulations and strict operating procedures. As Trifleet is investing funds on our behalf in tank containers, our return on any investments under this management agreement are highly reliant on their skill and performance, as well as, the overall investment climate for tank containers. While we approve of the amounts committed under the management agreement, Trifleet selects the lessees, negotiates
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lease terms, determines equipment specifications, negotiates equipment orders and supervises production, and is responsible for all other management activities including customer billing, equipment return, re-leasing, maintenance and repairs. If Trifleet or the tank container market does not perform as we anticipate, we may not receive adequate returns on our investment and our results could be materially impacted. Additionally, given the nature of tank containers and their cargos, our ownership of tank containers could expose us to different and additional risks than we generally face as the owner and lessor of dry freight and refrigerated containers. While lessees, Trifleet and ourselves all maintain insurance, and lessees agree to accept liability for claims caused by the operation of tank containers, this may still be inadequate to shield us from costs and liability from any claims arising from tank containers that we own pursuant to the Trifleet management agreement.
If our insurance is inadequate or if we are unable to obtain insurance, we may experience losses.
Under all of our leases, our lessees are generally responsible for loss of or damage to a container beyond ordinary wear and tear, and they are required to purchase insurance to cover any other liabilities. Our depots are also required to maintain insurance and indemnify us against losses. We also maintain our own insurance to cover our containers when they are not on-hire to lessees or when the lessee fails to have adequate primary coverage, and third-party liability insurance for both on-hire and off-hire containers. In addition, we maintain insurance that, after satisfying our deductibles, would cover loss of revenue as a result of default under most of our leases, as well as, the recovery cost or replacement value of most of our containers. Lessees’ and depots’ insurance policies and indemnity rights may not protect us against losses. Our own insurance may prove to be inadequate to prevent against losses or in the future coverage may be unavailable or uneconomic, and losses could arise from a lack of insurance coverage.
U.S. investors in our company could suffer adverse tax consequences if we are characterized as a passive foreign investment company for U.S. federal income tax purposes.
Based upon the nature of our business activities, we could be classified in the future as a passive foreign investment company (“PFIC”) for U.S. federal income tax purposes. Such characterization could result in adverse U.S. tax consequences to direct or indirect U.S. investors in our common shares. For example, if we are a PFIC, our U.S. investors could become subject to increased tax liabilities under U.S. tax laws and regulations and could become subject to burdensome reporting requirements. The determination of whether or not we are a PFIC is made on an annual basis and depends on the composition of our income and assets from time to time. Specifically, for any taxable year we will be classified as a PFIC for U.S. tax purposes if either:
| • | 75% or more of our gross income in a taxable year is passive income, or |
| • | the average percentage of our assets (which includes cash) by value in a taxable year which produce or are held for the production of passive income is at least 50%. |
In applying these tests, we are treated as owning or generating directly our pro rata share of the assets and income of any corporation in which we own at least 25% by value. In addition, the composition of our income and assets will be affected by how, and how quickly, we spend the cash we have raised.
If you are a U.S. investor and we are a PFIC for any taxable year during which you own our common shares, you could be subject to adverse U.S. tax consequences. Under the PFIC rules, unless a U.S. investor is permitted to and does elect otherwise under the Internal Revenue Code, such U.S. investor would be liable to pay U.S. federal income tax at the then prevailing income tax rates on ordinary income plus interest upon excess distributions and upon any gain from the disposition of our common shares, as if the excess distribution or gain had been recognized ratably over the investor’s holding period for our common shares. Based on the composition of our income, valuation of our assets (including goodwill), and our election to treat certain of our subsidiaries as disregarded entities for U.S. federal income tax purposes, we do not believe we were a PFIC for any period after our initial public offering (“IPO”) date and we do not expect that we should be treated as a PFIC for our current taxable year. However, there can be no assurance at all in this regard. Because the PFIC determination is highly
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fact intensive and made at the end of each taxable year, it is possible that we may be a PFIC for the current or any future taxable year or that the U.S. Internal Revenue Service (“IRS”) may challenge our determination concerning our PFIC status.
We may become subject to unanticipated tax liabilities that may have a material adverse effect on our results of operations.
Textainer Group Holdings Limited is a Bermuda company, and we believe that a significant portion of the income derived from our operations will not be subject to tax in Bermuda, which currently has no corporate income tax, or in many other countries in which we conduct activities or in which our customers or containers are located. However, this belief is based on the anticipated nature and conduct of our business, which may change. It is also based on our understanding of our position under the tax laws of the countries in which we have assets or conduct activities. This position is subject to review and possible challenge by taxing authorities and to possible changes in law that may have retroactive effect.
A portion of our income is treated as effectively connected with our conduct of a trade or business within the U.S., and is accordingly subject to U.S. federal income tax. It is possible that the IRS will conclude that a greater portion of our income is effectively connected income that should be subject to U.S. federal income tax.
Our results of operations could be materially and adversely affected if we become subject to a significant amount of unanticipated tax liabilities.
Our U.S. subsidiaries may be treated as personal holding companies for U.S. federal tax purposes now or in the future.
Any of our direct or indirect U.S. subsidiaries could be subject to additional U.S. tax on a portion of its income if it is considered to be a personal holding company (“PHC”) for U.S. federal income tax purposes. This status depends on whether more than 50% of the subsidiary’s shares by value could be deemed to be owned (taking into account constructive ownership rules) by five or fewer individuals and whether 60% or more of the subsidiary’s adjusted ordinary gross income consists of “personal holding company income,” which includes certain forms of passive and investment income. The PHC rules do not apply to non-U.S. corporations. We believe that none of our U.S. subsidiaries should be considered PHCs. In addition, we intend to cause our U.S. subsidiaries to manage their affairs in a manner that reduces the possibility that they will meet the 60% income threshold. However, because of the lack of complete information regarding our ultimate share ownership (i.e., particularly as determined by constructive ownership rules), our U.S. subsidiaries may become PHCs in the future and, in that event, the amount of U.S. federal income tax that would be imposed could be material.
The U.S. government has special contracting requirements that create additional risks.
We have a firm, fixed price, indefinite quantity contract with the U.S. Transportation Command Directorate of Acquisition (“USTranscom”) to supply leased marine containers to the U.S. military. As an indefinite quantity contract, there is no guarantee that the U.S. military will pay more than the minimum guarantee, which guaranteed amount is substantially below the total amount authorized under the contract. Thus, the expected revenues from the USTranscom contract may not fully materialize. If we do not perform in accordance with the terms of the USTranscom contract, we may receive a poor performance report that would be considered by the U.S. military in making any future awards. Accordingly, we cannot be certain that we will be awarded any future government contracts.
In contracting with the U.S. military, we are subject to U.S. government contract laws, regulations and other requirements that impose risks not generally found in commercial contracts. For example, U.S. government contracts require contractors to comply with a number of socio-economic requirements and to submit periodic reports regarding compliance, are subject to audit and modification by the U.S. government in its sole discretion,
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and impose certain requirements relating to software and/or technical data that, if not followed, could result in the inadvertent grant to the U.S. government of broader licenses to use and disclose such software or data than intended.
These laws, regulations and contract provisions also permit, under certain circumstances, the U.S. government unilaterally to:
| • | suspend or prevent us for a set period of time from receiving new government contracts or extending existing contracts based on violations or suspected violations of laws or regulations; |
| • | terminate the USTranscom contract; |
| • | reduce the scope and value of the USTranscom contract; |
| • | audit our performance under the USTranscom contract and our compliance with various regulations; and |
| • | change certain terms and conditions in the USTranscom contract. |
In addition, the U.S. military may terminate the USTranscom contract either for its convenience at any time or if we default by failing to perform in accordance with the contract schedule and terms. Termination for convenience provisions generally enable the contractor to recover only those costs incurred or committed, and settlement expenses and profit on the work completed prior to termination. Termination for default provisions do not permit these recoveries and make the contractor liable for excess costs incurred by the U.S. military in procuring undelivered items from another source.
In addition, the U.S. government could bring criminal and civil charges against us based on intentional or unintentional violations of the representations and certifications that we have made in the USTranscom contract. Although adjustments arising from U.S. government audits and reviews have not seriously harmed our business in the past, future audits and reviews could cause adverse effects. We could also suffer serious harm to our reputation if allegations of impropriety were to be made against us.
We may choose to pursue acquisitions or joint ventures that could present unforeseen integration obstacles or costs and we face risks from our two joint ventures.
We may pursue acquisitions and joint ventures. Acquisitions involve a number of risks and present financial, managerial and operational challenges, including:
| • | potential disruption of our ongoing business and distraction of management; |
| • | difficulty integrating personnel and financial and other systems; |
| • | hiring additional management and other critical personnel; and |
| • | increasing the scope, geographic diversity and complexity of our operations. |
In addition, we may encounter unforeseen obstacles or costs in the integration of acquired businesses. Also, the presence of one or more material liabilities of an acquired company that are unknown to us at the time of acquisition may have a material adverse effect on our business. Acquisitions or joint ventures may not be successful, and we may not realize any anticipated benefits from acquisitions or joint ventures.
On August 5, 2011, a joint venture, TW Container Leasing, Ltd (“TW”), was formed between our wholly-owned subsidiary, Textainer Limited (“TL”), and Wells Fargo Container Corp (“WFC”), a wholly-owned subsidiary of Wells Fargo and Company. The purpose of TW is to lease containers to lessees under direct financing leases. TW is governed by members, credit and management agreements. Under the members agreement, TL owns 25% and WFC owns 75% of the common shares and related voting rights of TW. TL also has two seats and WFC has six seats on TW’s board of directors, with each seat having equal voting rights, provided, however, that the approval of at least one TL-appointed director is required for any action of the board of directors. As we do not own the majority of TW, we face risks associated with investing in an entity that we
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do not control and it is possible that the interests of the controlling stockholder could be different from our interests. Conflicts between us and the controlling stockholder of TW could result in litigation, an inability to operate TW, lost business opportunities for TW and us, and other problems that might have a material adverse impact on us as a whole.
On December 20, 2012, TL purchased 50.1% of the outstanding common shares of TAP Funding Ltd. (“TAP Funding”). TAP Funding owns a fleet of containers under our management. TAP Funding is governed by members and management agreements. TL has two voting rights and TAP Ltd. (“TAP”), the 49.9% shareholder, has one voting right in TAP Funding, with the exception of certain matters such as bankruptcy proceedings, the incurrence of debt and mergers and consolidations, which require unanimity. TL also has two seats and TAP has one seat on TAP Funding’s board of directors. While we own the majority of TAP Funding, we face risks associated with TAP Funding’s structure that requires both shareholders to agree on certain significant matters such as debt financing, mergers and liquidation. It is possible that the interests of the other shareholder could be different from our interests. Conflicts between us and the other shareholder of TAP Funding could result in litigation, an inability to finance and operate TAP Funding, and other problems that might have a material adverse impact on us as a whole.
Our senior executives are critical to the success of our business and any inability to retain them or recruit and successfully integrate new personnel could harm our business, results of operations and financial condition.
Our senior management has a long history in the container leasing industry, with an average of 17 years of service with us. We rely on this knowledge and experience in our strategic planning and in our day-to-day business operations. Our success depends in large part upon our ability to retain our senior management, the loss of one or more of whom could have a material adverse effect on our business.
In October 2011, our then President and Chief Executive Officer, John Maccarone, retired and Philip Brewer was promoted to this position. At that time, Robert Pedersen was promoted to be the President and Chief Executive Officer of Textainer Equipment Management Limited, the wholly-owned subsidiary which provides container management, acquisition and disposition services for us. In September 2011, we hired Daniel Cohen as our Vice President and General Counsel, a new position. In January 2012, we hired Hilliard Terry, III, as our Executive Vice President and Chief Financial Officer, and Ernest Furtado, who previously held this position, became our Senior Vice President and Chief Accounting and Compliance Officer. Our success depends on the successful integration and performance of our newly hired officers and on the successful performance of our long-standing officers in their new positions.
Our success also depends on our ability to retain our experienced sales force and technical personnel as well as recruit new skilled sales, marketing and technical personnel. Competition for these individuals in our industry is intense and we may not be able to successfully recruit, train or retain qualified personnel. If we fail to retain and recruit the necessary personnel, our business and our ability to obtain new container lessees and provide acceptable levels of customer service could suffer. We have “at will” employment agreements with all of our executive officers.
The lack of an international title registry for containers increases the risk of ownership disputes.
Although the Bureau International des Containers registers and allocates a four letter prefix to every container in accordance with ISO standard 6346 (Freight container coding, identification and marking) to identify the owner/operator and each container has a unique prefix and serial number, there is no internationally recognized system of recordation or filing to evidence our title to containers nor is there an internationally recognized system for filing security interests in containers. Although this has not occurred to date, the lack of a title recordation system with respect to containers could result in disputes with lessees, end-users, or third parties who may improperly claim ownership of containers.
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We may incur costs associated with new cargo security regulations, which may adversely affect our business, results of operations and financial condition.
We may be subject to regulations promulgated in various countries, including the U.S., seeking to protect the integrity of international commerce and prevent the use of containers for international terrorism or other illicit activities. For example, the Container Security Initiative, the Customs-Trade Partnership Against Terrorism and Operation Safe Commerce are among the programs administered by the U.S. Department of Homeland Security that are designed to enhance security for cargo moving throughout the international transportation system by identifying existing vulnerabilities in the supply chain and developing improved methods for ensuring the security of containerized cargo entering and leaving the U.S. Moreover, the International Convention for Safe Containers, 1972, as amended, adopted by the International Maritime Organization, applies to containers and seeks to maintain a high level of safety of human life in the transport and handling of containers by providing uniform international safety regulations. As these regulations develop and change, we may incur compliance costs due to the acquisition of new, compliant containers and/or the adaptation of existing containers to meet new requirements imposed by such regulations. Additionally, certain companies are currently developing or may in the future develop products designed to enhance the security of containers transported in international commerce. Regardless of the existence of current or future government regulations mandating the safety standards of intermodal shipping containers, our competitors may adopt such products or our container lessees may require that we adopt such products. In responding to such market pressures, we may incur increased costs, which could have a material adverse effect on our business, results of operations and financial condition.
Environmental liability and regulations may adversely affect our business, results of operations and financial condition.
We are subject to federal, state, local and foreign laws and regulations relating to the protection of the environment, including those governing the discharge of pollutants to air, ground and water, the management and disposal of hazardous substances and wastes and the cleanup of contaminated sites. We could incur substantial costs, including cleanup costs, fines and costs arising out of third-party claims for property or natural resource damage and personal injury, as a result of violations of or liabilities under or compliance with environmental laws and regulations in connection with our or our lessees’ current or historical operations. Under some environmental laws in the U.S. and certain other countries, the owner or operator of a container may be liable for environmental damage, cleanup or other costs in the event of a spill or discharge of material from the container without regard to the fault of the owner or operator. While we typically maintain certain limited liability insurance and typically require lessees to provide us with indemnity against certain losses, the insurance coverage may not be sufficient to protect against any or all liabilities and such indemnities may not be sufficient, or available, to protect us against losses arising from environmental damage. Moreover, our lessees may not have adequate resources, or may refuse to honor their indemnity obligations and our insurance coverage is subject to large deductibles, coverage limits and significant exclusions.
Environmental regulations also impact container production and operation, including regulations on the use of chemical refrigerants due to their ozone depleting and global warming effects. Our refrigerated containers currently use R134A refrigerant. While R134A does not contain chlorofluorocarbons (“CFCs”), the European Union (“EU”) has instituted regulations to phase out the use of R134A in automobile air conditioning systems beginning in 2011 due to concern that the release of R134A into the atmosphere may contribute to global warming. While the European Union regulations do not currently restrict the use of R134A in refrigerated containers or trailers, it is possible that the phase out of R134A in automobile air conditioning systems will be extended to containers in the future and our operations could be impacted. It has been proposed that R134A usage in containers be banned beginning in 2025, although the final decision has not been made as of yet.
Container production also raises environmental concerns. The floors of dry freight containers are plywood typically made from tropical hardwoods. Due to concerns regarding de-forestation and climate change, many countries have implemented severe restrictions on the cutting and export of this wood. Accordingly, container manufacturers have switched a significant portion of production to alternatives such as birch, bamboo, and other farm grown wood and users are also evaluating alternative designs that would limit the amount of plywood
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required and are also considering possible synthetic materials. New woods or other alternatives have not proven their durability over the typical life of a dry freight container, and if they cannot perform as well as the hardwoods have historically, the future repair and operating costs for these containers may be impacted. Also, the insulation foam in the walls of certain refrigerated containers requires the use of a blowing agent that contains CFCs. Manufacturers are phasing out the use of this blowing agent in manufacturing, however, if future regulations prohibit the use or servicing of containers with insulation manufactured with this blowing agent we could be forced to incur large retrofitting expenses and these containers might bring lower rental rates and disposal prices. EU regulations currently restrict the sale or use of refrigerated containers manufactured with the CFC containing blowing agent and strict enforcement of these regulations could impact our ability to lease or sell these refrigerated containers in EU countries.
We are subject to certain U.S. laws that may impact our international operations and any investigation or determination that we violated these laws may affect our business and operations adversely.
As a Bermuda corporation that has an indirect wholly-owned U.S. subsidiary with operations in the U.S., we are subject to certain U.S. laws that may impact our international operations. We are subject to the regulations imposed by the Foreign Corrupt Practices Act, which generally prohibits U.S. companies and their intermediaries from making improper payments to foreign officials for the purpose of obtaining or keeping business. We are also subject to U.S. Executive Orders and U.S. Treasury sanctions regulations restricting or prohibiting business dealings in or with certain nations and with certain specially designated nationals (individuals and legal entities). Any determination or investigation into violations of these laws and regulations could have a material adverse effect on our business, financial condition, results of operations and cash flows.
We could face litigation involving our management of containers for container investors.
We manage containers for container investors under management agreements that are negotiated with each container investor. We make no assurances to container investors that they will make any amount of profit on their investment or that our management activities will result in any particular level of income or return of their initial capital. Although our management agreements contain contractual protections and indemnities that are designed to limit our exposure to such litigation, such provisions may not be effective, and we may be subject to a significant loss in a successful litigation by a container investor.
We may not always pay dividends on our common shares or our dividends could be reduced.
We may not be able to pay future dividends, or we may need to reduce our dividend, because dividends depend on future earnings, capital requirements, and financial condition. The declaration, amount and payment of future dividends are at the discretion of our board of directors and will be dependent on our future operating results and the cash requirements of our business. There are a number of factors that can affect our ability to pay dividends and there is no guarantee that we will pay dividends in any given year, in each quarter of a year, or pay any specific amount of dividends. In addition, we will not pay dividends in the event we are not allowed to do so under Bermuda law, are in default under (or such payment would cause a default under) TL’s revolving credit facility or term loan, or if such payment would cause us to breach any of our covenants. These covenants include certain financial covenants, which would be directly affected by the payment of dividends, such as a maximum ratio of consolidated funded debt to consolidated tangible net worth (which amount would decrease by the amount of any dividend paid). The reduction, suspension or elimination of dividends may negatively affect the market price of our common shares. Furthermore, since we are a holding company, substantially all of the assets shown on our consolidated balance sheet are held by our subsidiaries. Accordingly, our earnings and cash flow and our ability to pay dividends are largely dependent upon the earnings and cash flows of our subsidiaries and the distribution or other payment of such earnings to us in the form of dividends.
The calculation of our income tax expense requires significant judgment and the use of estimates.
We periodically assess tax positions based on current tax developments, including enacted statutory, judicial and regulatory guidance. In analyzing our overall tax position, consideration is given to the amount and timing of
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recognizing income tax liabilities and benefits. In applying the tax and accounting guidance to the facts and circumstances, income tax balances are adjusted appropriately through the income tax provision. We account for income tax positions on uncertainties by recognizing the effect of income tax positions only if those positions are more likely than not of being sustained and maintain reserves for income tax positions we believe are not more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. However, due to the significant judgment required in estimating those reserves, actual amounts paid, if any, could differ significantly from these estimates.
Future changes in accounting rules could significantly impact how both we and our customers account for our leases.
Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The Financial Accounting Standards Board (“FASB”) and International Accounting Standards Board (“IASB”) issued a new Exposure Draft on lease accounting in May 2013 with a comment period that closed in September 2013 that could significantly change the accounting and reporting for lease arrangements. The main objective of the proposed standard is to create a new accounting model for both lessees and lessors, replacing the existing concepts of operating and capital leases with models based on “right-of-use” concepts. The new models would result in the elimination of most off-balance sheet lease financing for lessees. Some lessees find leasing attractive because under current U.S. GAAP they are not required to include the value (and associated liabilities) of equipment leased under operating leases on their balance sheets, thus improving certain financial metrics. If there are future changes in U.S. GAAP with regard to how we and our customers must account for leases, it could change the way we and our customers conduct our businesses, including eliminating for lessees the financial statement benefit of entering into operating leases, which might have an adverse effect on our business. The FASB and IASB continue to deliberate the Exposure Draft. The timing of the issuance of the final standard is uncertain at this point in time.
Risks Related to Our Common Shares
The market price and trading volume of our common shares, which may be affected by market conditions beyond our control, have been volatile and could continue to remain volatile.
The market price of our common shares has been, and may continue to be highly volatile and subject to wide fluctuations. In addition, the trading volume in our common shares has fluctuated and may continue to fluctuate, causing significant price variations to occur. Since our initial public offering, our common shares have fluctuated from an intra-day low of $4.23 per share to an intra-day high of $43.96 per share. If the market price of the shares declines significantly, the value of an investment in our common shares would decline. The market price of our common shares may fluctuate or decline significantly in the future. Some of the factors that could negatively affect the price of our common shares or result in fluctuations in the price or trading volume of our common shares include:
| • | variations in our quarterly operating results; |
| • | failure to meet analysts’ earnings estimates; |
| • | publication of research reports about us, other intermodal container lessors or the container shipping industry or the failure of securities analysts to cover our common shares or our industry; |
| • | additions or departures of key management personnel; |
| • | adverse market reaction to any indebtedness we may incur or preference or common shares we may issue in the future; |
| • | changes in our dividend payment policy or failure to execute our existing policy; |
| • | actions by shareholders; |
| • | changes in market valuations of similar companies; |
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| • | announcements by us or our competitors of significant contracts, acquisitions, dispositions, strategic partnerships, joint ventures or capital commitments; |
| • | speculation in the press or investment community; |
| • | changes or proposed changes in laws or regulations affecting the container shipping industry or enforcement of these laws and regulations, or announcements relating to these matters; and |
| • | impact of global financial crises or stock market disruptions. |
Recently and in the past, the stock market has experienced extreme price and volume fluctuations. These market fluctuations could result in extreme volatility in the trading price of our common shares, which could cause a decline in the value of your investment in our common shares. In addition, the trading price of our common shares could decline for reasons unrelated to our business or financial results, including in reaction to events that affect other companies in our industry even if those events do not directly affect us. You should also be aware that price volatility may be greater if the public float and trading volume of our common shares are low.
One of our major shareholders, Halco Holdings Inc. (“Halco”), is a company owned by a trust of which Trencor and certain of its affiliates are discretionary beneficiaries, and Halco could act in a manner with which other shareholders may disagree or that is not necessarily in the interests of other shareholders.
Halco currently owns approximately 47.9% of our issued and outstanding common shares. Accordingly, Halco has the ability to influence the outcome of matters submitted to our shareholders for approval, including the election of directors and any amalgamation, merger, consolidation or sale of all or substantially all of our assets. Five of our ten directors are also directors of Trencor. Halco may have interests that are different from other shareholders. For example, it may support proposals and actions with which you may disagree or which are not in your interests as a shareholder of our company. The concentration of ownership could delay or prevent a change in control of us or otherwise discourage a potential acquirer from attempting to obtain control of us, which in turn could reduce the price of our common shares.
Affiliates of Halco and Trencor may compete with us and compete with some of our customers.
Halco and Trencor, through their affiliates, are free to compete with us, and have engaged in the past and will likely continue to engage in businesses that are similar to ours. In particular, Leased Assets Pool Company Limited (“LAPCO”), an affiliate of Halco, owns containers, has competed against us and our customers through its investment in containers and has used our competitors to manage some of its containers in the past. Thus, although we have a management agreement with LAPCO to manage a majority of its containers, we expect that we will continue to compete with LAPCO in the future, which may result in various conflicts of interest.
Our current management and share ownership structure may create conflicts of interest.
Five of our ten directors are also directors of Trencor. These directors owe fiduciary duties to each company and may have conflicts of interest in matters involving or affecting us as well as Halco and Trencor, including matters arising under our agreements with Halco and its affiliates. In addition, to the extent that some of these directors may own shares in Trencor, they may have conflicts of interest when faced with decisions that could have different implications for Trencor than they do for us. Furthermore, Trencor, as a South African company, endorses the Code of Corporate Practices and Conduct in the King III Report on Corporate Governance. The King III Report on Corporate Governance is a document promulgated by the South African Institute of Directors which, among other things, suggests that corporations in their corporate decision-making consider the following stakeholders in addition to the owners of shares: parties who contract with the enterprise; parties who have a non-contractual nexus with the enterprise (including civic society and the environment); and the state. Halco and/or Trencor may seek to impose these corporate governance practices on us, which may result in constraints on management and may involve significant costs. Your interests as a holder of our common shares may not align with the interests of Halco and/or Trencor and their affiliates and shareholders.
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We are a holding company with no material direct operations and rely on our operating subsidiaries to provide us with funds necessary to meet our financial obligations and to pay dividends.
We are a holding company with no material direct operations. Our principal assets are the equity interests we directly or indirectly hold in our operating subsidiaries, which own our operating assets. As a result, we are dependent on loans, dividends and other payments from our subsidiaries to generate the funds necessary to meet our financial obligations and to pay dividends on our common shares. Our subsidiaries are legally distinct from us and may be prohibited or restricted from paying dividends or otherwise making funds available to us under certain conditions. If we are unable to obtain funds from our subsidiaries, we may be unable to, or our board may exercise its discretion not to, pay dividends on our common shares.
Our ability to issue securities in the future may be materially constrained by Trencor’s South African currency restrictions and JSE Listings Requirements.
Trencor, a South African company listed on the JSE Limited (the “JSE”), is a beneficiary under a trust which owns 100% of Halco, which currently has an interest in 47.9% of our issued and outstanding shares. Five of our ten directors are also directors of Trencor. Both South African exchange control authorities and the JSE impose certain restrictions on Trencor.
South Africa’s exchange control regulations provide for restrictions on exporting capital from South Africa. These restrictions require Trencor to obtain approval from South African exchange control authorities before Halco engages in transactions that would result in dilution of Halco’s share interest in us below certain thresholds, whether through Halco’s sale of its own shareholdings or through its approval of our issuance of new shares. The exchange control authorities may decide not to grant such approval if a proposed transaction were to dilute Halco’s interest in us below certain levels. While the South African government has, to some extent, relaxed exchange controls in recent years, it is difficult to predict whether or how it will further relax or abolish exchange control measures in the future. The above requirements could restrict or limit our ability to issue new shares. In addition, Trencor is required to comply with JSE Listings Requirements in connection with Halco’s holding or sale of our common shares.
The above requirements could limit our financial flexibility by, among other things, impacting our future ability to raise funds through the issuance of securities, preventing or limiting the use of our common shares as consideration in acquisitions, and limiting our use of option grants and restricted share grants to our directors, officers and other employees as incentives to improve the financial performance of our company.
It may not be possible for investors to enforce U.S. judgments against us.
We and all of our direct and indirect subsidiaries, except Textainer Equipment Management (U.S.) Limited and Textainer Equipment Management (U.S.) II LLC, are incorporated in jurisdictions outside the U.S. A substantial portion of our assets and those of our subsidiaries are located outside of the U.S. In addition, most of our directors are non-residents of the U.S., and all or a substantial portion of the assets of these non-residents are located outside the U.S. As a result, it may be difficult or impossible for U.S. investors to serve process within the U.S. upon us, our non-U.S. subsidiaries, or our directors, or to enforce a judgment against us for civil liabilities in U.S. courts. In addition, you should not assume that courts in the countries in which we or our subsidiaries are incorporated or where our assets or the assets of our subsidiaries are located would enforce judgments of U.S. courts obtained in actions against us or our subsidiaries based upon the civil liability provisions of applicable U.S. federal and state securities laws, or would enforce, in original actions, liabilities against us or our subsidiaries based on those laws.
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We are a foreign private issuer and, as a result, under New York Stock Exchange (“NYSE”) rules, we are not required to comply with certain corporate governance requirements.
As a foreign private issuer, we are permitted by the NYSE to comply with Bermuda corporate governance practice in lieu of complying with certain NYSE corporate governance requirements. This means that we are not required to comply with NYSE requirements that:
| • | the board of directors consists of a majority of independent directors; |
| • | independent directors meet in regularly scheduled executive sessions; |
| • | the audit committee satisfy NYSE standards for director independence (although we must still comply with independence standards pursuant to Rule 10A-3 promulgated under the U.S. Securities Exchange Act of 1934, as amended); |
| • | the audit committee have a written charter addressing the committee’s purpose and responsibilities; |
| • | we have a nominating and corporate governance committee composed of independent directors with a written charter addressing the committee’s purpose and responsibilities; |
| • | we have a compensation committee composed of independent directors with a written charter addressing the committee’s purpose and responsibilities; |
| • | we establish corporate governance guidelines and a code of business conduct; |
| • | our shareholders approve any equity compensation plans; and |
| • | there be an annual performance evaluation of the nominating and corporate governance and compensation committees. |
Our board of directors has adopted an audit committee charter, a compensation committee charter and a nominating and governance committee charter. Additionally, we have a company code of conduct, corporate governance guidelines, conduct performance evaluations of our board and committees, and have obtained shareholder approval for our equity compensation plan. However, we use some of the exemptions available to a foreign private issuer. As a result, our board of directors may not consist of a majority of independent directors and our compensation committee may not consist of any or a majority of independent directors. Accordingly, our shareholders may not have the same protections afforded to shareholders of companies that are subject to all of the NYSE corporate governance requirements.
Required public company corporate governance and financial reporting practices and policies have increased our costs, and we may be unable to provide the required financial information in a timely and reliable manner.
Our management may not be able to continue to meet the regulatory compliance and reporting requirements that are applicable to us as a public company. This result may subject us to adverse regulatory consequences, and could lead to a negative reaction in the financial markets due to a loss of confidence in the reliability of our financial statements. If we do not maintain compliance with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or if we or our independent registered public accounting firm identify deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses, we could suffer a loss of investor confidence in the reliability of our financial statements, which could cause the market price of our common shares to decline.
In addition, if we fail to maintain effective controls and procedures, we may be unable to provide the required financial information in a timely and reliable manner or otherwise comply with the standards applicable to us as a public company. Any failure by us to timely provide the required financial information could materially and adversely impact our financial condition and the market value of our common shares. Furthermore, testing and maintaining internal controls can divert our management’s attention from other matters
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that are important to our business. These regulations have increased our legal and financial compliance costs, we expect the regulations to make it more difficult to attract and retain qualified officers and directors, particularly to serve on our audit committee, and make some activities more difficult, time consuming and costly.
Future sales of a large number of our securities into the public market, or the expectation of such sales, could cause the market price of our common shares to decline significantly.
Sales of substantial amounts of common securities into the public market, or the perception that such sales will occur, may cause the market price of our common shares to decline significantly. In September 2012, we completed a sale of 8,625,000 common shares, including 2,500,000 common shares offered by a selling shareholder, Halco. The price of our shares could be negatively impacted if we undertake additional offerings to sell securities. In addition, at our 2010 Annual General Meeting of Shareholders held on May 19, 2010, our shareholders approved an amendment to our 2007 Share Incentive Plan to increase the maximum number of our common shares issuable pursuant to such plan by 1,468,500 shares from 3,808,371 shares to 5,276,871 shares. The common shares to be issued pursuant to awards under our 2007 Share Incentive Plan have been registered on registration statements on Form S-8 filed with the Securities Exchange Commission and, when issued, will be freely tradable under the Securities Act of 1933.
We have anti-takeover provisions in our bye-laws that may discourage a change of control.
Bermuda law and our bye-laws contain provisions that could make it more difficult for a third party to acquire us without the consent of our board of directors. These include provisions:
| • | requiring the approval of not less than 66% of our issued and outstanding voting shares for certain merger or amalgamation transactions that have not been approved by our board of directors; |
| • | prohibiting us from engaging in a business combination with an interested shareholder for a period of three years after the date of the transaction in which the person becomes an interested shareholder, unless certain conditions are met; |
| • | authorizing our board of directors to issue blank-check preference shares without shareholder approval; |
| • | establishing a classified board with staggered three-year terms; |
| • | only authorizing the removal of directors (i) for cause by the affirmative vote of the holders of a majority of the votes cast at a meeting or (ii) without cause by the affirmative vote of the holders of 66% of the common shares then issued and outstanding and entitled to vote on the resolution; and |
| • | establishing advance notice requirements for nominations for election to our board of directors. |
These provisions may make it difficult and expensive for a third party to pursue a tender offer, change in control or takeover attempt that is opposed by our management and/or our board of directors. Public shareholders who might desire to participate in these types of transactions may not have an opportunity to do so. These anti-takeover provisions could substantially impede the ability of public shareholders to benefit from a change in control or change our management and board of directors and, as a result, may adversely affect the market price of our common shares and your ability to realize any potential change of control premium.
As a shareholder of our company, you may have greater difficulties in protecting your interests than as a shareholder of a U.S. corporation.
The Companies Act 1981 of Bermuda, as amended (the “Companies Act”), applies to our company and differs in material respects from laws generally applicable to U.S. corporations and their shareholders. Taken together with the provisions of our bye-laws, some of these differences may result in your having greater difficulties in protecting your interests as a shareholder of our company than you would have as a shareholder of
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a U.S. corporation. This affects, among other things, the circumstances under which transactions involving an interested director are voidable, whether an interested director can be held accountable for any benefit realized in a transaction with our company, what approvals are required for business combinations by our company with a large shareholder or a wholly-owned subsidiary, what rights you may have as a shareholder to enforce specified provisions of the Companies Act or our bye-laws, and the circumstances under which we may indemnify our directors and officers.
Our bye-laws restrict shareholders from bringing legal action against our officers and directors.
Our bye-laws contain a broad waiver by our shareholders of any claim or right of action, both individually and on our behalf, against any of our officers or directors. The waiver applies to any action taken by an officer or director, or the failure of an officer or director to take any action, in the performance of his or her duties, except with respect to any matter involving any fraud or dishonesty on the part of the officer or director. This waiver limits the right of shareholders to assert claims against our officers and directors unless the act or failure to act involves fraud or dishonesty.
| ITEM 4. | INFORMATION ON THE COMPANY |
| A. | History and Development of the Company |
Our business began operations in 1979. We reorganized our business in 1993 and incorporated Textainer Group Holdings Limited under the laws of Bermuda as a holding company of a group of corporations involved in the purchase, ownership, management, leasing and disposal of a fleet of intermodal containers. Textainer Group Holdings Limited is incorporated with an indefinite duration under registration number EC18896. Textainer Group Holdings Limited’s common shares are listed on the New York Stock Exchange (“NYSE”) under the symbol “TGH”. Textainer Group Holdings Limited’s headquarters office is located at Century House, 16 Par-La-Ville Road, Hamilton HM 08 Bermuda and our telephone number is (441) 296-2500. Our agent in the United States is Daniel W. Cohen, Textainer Group Holdings Limited, c/o Textainer Equipment Management (U.S.) Limited, 650 California Street, 16th Floor, San Francisco, CA 94108.
At December 31, 2014, Textainer Group Holdings Limited had two directly-owned subsidiaries:
| • | Textainer Equipment Management Limited (“TEML”), our wholly-owned subsidiary incorporated in Bermuda, which provides container management, acquisition and disposal services to affiliated and unaffiliated container investors; and |
| • | Textainer Limited (“TL”), our wholly-owned subsidiary incorporated in Bermuda, which owns containers directly and via five subsidiaries: |
| • | Textainer Marine Containers II Limited (“TMCL II”), a Bermuda company which is wholly-owned by TL; |
| • | Textainer Marine Containers III Limited (“TMCL III”), a Bermuda company which is wholly-owned by TL; |
| • | Textainer Marine Containers IV Limited (“TMCL IV”), a Bermuda company which is wholly-owned by TL; |
| • | TAP Funding Ltd. (“TAP Funding”), a Bermuda company in which TL and TAP Limited (“TAP”) hold common shares of 50.1% and 49.9%, respectively, and voting rights of 66.7% and 33.3%, respectively; and |
| • | TW Container Leasing Ltd. (“TW”), a Bermuda company in which TL and Wells Fargo Container Corp. (“WFC”) hold common shares and related voting rights of 25% and 75%, respectively. |
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Trencor Limited (“Trencor”), a company publicly traded on the JSE Limited (the “JSE”) in Johannesburg, South Africa under the symbol “TRE”, and its affiliates currently have beneficiary interest in 47.9% of our issued and outstanding common shares as discretionary beneficiaries of one of our shareholders, Halco Holdings Inc.
Our internet website address is www.textainer.com. The information contained on, or that can be accessed through, our website is not incorporated into and is not intended to be a part of this Annual Report on Form 20-F.
Significant Events
On February 3, 2012, one of TL’s wholly-owned subsidiaries, Textainer Marine Containers Limited (“TMCL”), entered into a commitment letter (the “Commitment”) issued by a bank to provide an irrevocable letter of credit (“Letter of Credit”) with a maximum available commitment amount of $100,000 on the conversion date of TMCL’s secured debt facility if the facility was not refinanced or terminated on or prior to its conversion date. The purpose of the Commitment Letter was to maintain TMCL’s current credit ratings on its bonds issued in 2005 and 2011. The purpose of the Letter of Credit was to supplement the bonds and TMCL’s secured debt facility by covering possible shortfalls in principal and interest payments under certain stress scenarios modeled by TMCL’s credit rating agencies. The interest rate on the letter of credit, payable monthly in arrears, would have been one-month London Inter Bank Offered Rate (“LIBOR”) plus 5.50% to 6.50% per annum for the five-year period following the conversion date and one-month LIBOR plus 11.50% per annum thereafter. There was also a commitment fee of $500,000, which was paid in full upon issuance of the Commitment Letter on February 3, 2012, and an unused fee on the commitment letter, payable in arrears, of 0.25% per annum, from February 3, 2012 through the conversion date and 0.625% per annum thereafter. The Commitment Letter was terminated on May 1, 2012 and the Letter of Credit was never issued.
On April 18, 2012, TMCL issued $400.0 million aggregate principal amount of Series 2012-1 Fixed Rate Asset Backed Notes (the “2012-1 Bonds”) to qualified institutional investors pursuant to Rule 144A under the Securities Act of 1933 (the “Securities Act”) and to non-U.S. persons in accordance with Regulation S promulgated under the Securities Act. The 2012-1 Bonds represented fully amortizing notes payable on a straight-line basis over a scheduled payment term of 10 years, but not to exceed a maximum payment term of 15 years. Under the terms of the 2012-1 Bonds, both principal and interest incurred were payable monthly. We were not permitted to make voluntary prepayments of all, or a portion of, the principal balance of the 2012-1 Bonds prior to May 15, 2014. The interest rate for the outstanding principal balance of the 2012-1 Bonds was fixed at 4.21% per annum. The final target payment date and legal final payment date were April 15, 2022 and April 15, 2027, respectively. The 2012-1 Notes were used to repay certain outstanding indebtedness of TMCL, in particular a portion of TMCL’s secured debt facility (the “TMCL Secured Debt Facility”), and for general corporate purposes.
On May 1, 2012, TMCL II entered into a secured debt facility (the “TMCL II Secured Debt Facility”) that provides for an aggregate commitment amount of up to $1.2 billion and it acquired a portion of the containers owned by TMCL. TMCL used the proceeds it received from TMCL II for the containers to terminate its secured debt facility. The TMCL II Secured Debt Facility provided for payments of interest only during an initial two-year revolving period, with a provision that if not renewed the secured debt facility would partially amortize over a five year period and then mature. The interest rate on the secured debt facility, payable monthly in arrears, was one-month LIBOR plus 2.625% until May 1, 2014. There was also a commitment fee of 0.75% on the unused portion of the secured debt facility, which was payable monthly in arrears. If the secured debt facility was not refinanced or renewed prior to May 1, 2014, the interest rate would have increased to one-month LIBOR plus 3.625%.
On August 1, 2012, we purchased approximately 30,300 containers that we had been managing for an institutional investor, including related accounts receivable, due from owners, net, net investment in direct financing and sales-type leases, accounts payable and accrued expenses for a purchase price of $65.4 million.
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On September 19, 2012, we completed an underwritten public offering of an aggregate of 8,625,000 of our common shares at a price to the public of $31.50 per share. Of the common shares sold, we sold 6,125,000 new common shares and Halco Holdings Inc. (“Halco”) sold 2,500,000 of its existing common shares. We received $184.8 million and Halco received $75.4 million after deducting underwriting discounts and other offering expenses. Halco’s total ownership and voting interest in our common shares before and after the offering was 60.0% and 48.9%, respectively.
On September 24, 2012, we extended the term of TL’s revolving credit facility (the “TL Revolving Credit Facility”) and amended certain terms, thereof, including an increase in the aggregate commitment amount from $205,000 to $600,000 (which includes a $50,000 letter of credit facility). The maturity date was changed from April 22, 2013 to September 24, 2017. The TL Revolving Credit Facility provides for payments of interest only during its term beginning on its inception date through September 24, 2017 when all borrowings are due in full. Interest on the outstanding amount due under the revolving credit facility at December 31, 2014 was based either on the U.S. prime rate or LIBOR plus a spread between 1.0% and 2.0%, which varies based on TGH’s consolidated leverage.
On September 30, 2012, we purchased approximately 50,800 containers that we had been managing for an institutional investor, including related accounts receivable, due from owners, net, net investment in direct financing and sales-type leases, accounts payable and accrued expenses for a purchase price of $103.7 million.
On October 1, 2012, we amended TW’s revolving credit facility (the “TW Revolving Credit Facility”) to reduce its aggregate commitment amount from $425.0 million to $250.0 million. The TW Revolving Credit Facility provided for payment of interest, payable monthly in arrears through August 5, 2014. Interest on the outstanding amount due under the TW Revolving Credit Facility was based on one-month LIBOR plus 2.75% per annum. There is a commitment fee of 0.5% on the unused portion of the TW Revolving Credit Facility, which is payable monthly in arrears. In addition, there is an agent’s fee of 0.025% on the aggregate commitment amount of the TW Revolving Credit Facility, which is payable monthly in arrears. TW is required to make principal payments on a monthly basis to the extent that the outstanding amount due exceeds TW’s borrowing base.
On December 20, 2012, TL purchased 50.1% of the outstanding common shares of TAP Funding Ltd. (“TAP Funding”) from TAP Ltd. (“TAP”). TAP Funding leases containers to lessees under operating and direct financing and sales-type leases. This purchase allowed us to increase the size of our owned fleet at an attractive price and was immediately accretive to our earnings. TAP Funding is governed by members and management agreements. Under the members agreement, TL owns 50.1% and TAP owns 49.9% of the common shares of TAP Funding. As common shareholders, TL has two voting rights and TAP has one voting right of TAP Funding, with the exception of certain matters such as bankruptcy proceedings, the incurrence of debt and mergers and consolidations, which require unanimity. TL also has two seats and TAP has one seat on TAP Funding’s board of directors. In addition, TL has an option to purchase the remaining outstanding common shares of TAP Funding held by TAP during the period beginning January 1, 2019 and through December 1, 2020. Under the management agreement, TEML manages all of TAP Funding’s containers, making day-to-day decisions regarding the marketing, servicing and design of TAP Funding’s leases. Subsequent to TL’s purchase of a majority ownership of TAP Funding’s common shares, the Company includes TAP Funding’s financial statements in its consolidated financial statements. TAP Funding’s profits and losses are allocated to TL and TAP on the same basis as their ownership percentages. The equity owned by TAP in TAP Funding is shown as a noncontrolling interest on the Company’s consolidated balance sheets and the net income (loss) attributable to the noncontrolling interest’s operations is shown as net (income) loss attributable to noncontrolling interests on the Company’s consolidated statements of comprehensive income. We also recorded a bargain purchase gain of $9.4 million for the amount by which the fair value of TAP Funding’s net assets exceeded our purchase consideration.
On December 31, 2012, we purchased approximately 16,100 containers that we had been managing for an institutional investor for a purchase price of $33.0 million.
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On April 26, 2013, TAP Funding entered into a credit agreement with a group of banks that provided for a revolving credit facility with an aggregate commitment amount of up to $170.0 million (the “TAP Funding Revolving Credit Facility”). TAP Funding used proceeds from the TAP Funding Revolving Credit Facility to terminate TAP Funding’s existing revolving credit facility that had an aggregate commitment amount of up to $120.0 million. The interest rate on the TAP Funding Revolving Credit Facility, payable monthly in arrears, was one-month LIBOR plus 2.00% beginning on its inception date through its maturity date, April 26, 2016. There was a commitment fee of 0.65% (if aggregate loan principal balance was less than 70% of the commitment amount) and 0.50% (if aggregate loan principal balance was equal to or greater than 70% of the commitment amount) on the unused portion of the TAP Funding Revolving Credit Facility, which was payable monthly in arrears. TAP Funding is required to make principal payments on a monthly basis to the extent that the outstanding amount due exceeds TAP Funding’s borrowing base. The revolving credit period would end on April 26, 2016 and the aggregate loan principal balance would be due on the maturity date.
On May 7, 2013, TMCL II entered into an amendment of the TMCL II Secured Debt Facility which extended the Conversion Date to May 7, 2015, lowered the interest rate to one-month LIBOR plus 1.95%, payable monthly in arrears, during the revolving period prior to the Conversion Date and lowered the commitment fee to 0.50% (if the aggregate principal balance was less than 50% of the commitment amount) and 0.375% (if the aggregate principal balance was equal to or greater than 50% of the commitment amount) on the unused portion of the TMCL II Secured Debt Facility, which was payable in arrears. The amendment also replaced the borrowing capacity of one of the TMCL II Secured Debt Facility lenders with another lender.
On May 16, 2013, TW entered into an amendment of the TW Revolving Credit Facility which lowered the interest rate to LIBOR plus 2.375%.
On June 5, 2013, we signed an agreement with Trifleet Leasing (The Netherlands) B.V. (“Trifleet”) under which we invest in new intermodal tank containers to be managed by Trifleet, marking our entry into the tank container market. Trifleet acquires and lease the containers on behalf of us, serving as our exclusive manager in the intermodal tank container market.
On June 25, 2013, we utilized an accordion feature in TL’s revolving credit facility to expand the facility from $600.0 million to $700.0 million.
On August 5, 2013, TMCL IV entered into a securitization facility (the “TMCL IV Secured Debt Facility”) that provides for an aggregate commitment amount of up to $300.0 million. TMCL IV is required to make principal payments on any payment date for the outstanding loan principal amount that exceeds the borrowing base on such payment date. The interest rate on the TMCL IV Secured Debt Facility, payable monthly in arrears, was LIBOR plus 2.25% from its inception until its Conversion Date (August 5, 2015). There was also a commitment fee of 0.70% on the unused portion of the TMCL IV Secured Debt Facility if total borrowings under the TMCL IV Secured Credit Facility were less than 50% of the total commitment and a designated bank’s commitment was more than $150.0 million; otherwise, the commitment fee was 0.50%. In addition, there is an agent’s fee, which is payable monthly in arrears.
On September 25, 2013, TMCL III issued $300.9 million aggregate principal amount of Series 2013-1 Fixed Rate Asset Backed Notes (the “2013-1 Bonds”) to qualified institutional investors pursuant to Rule 144A under the Securities Act and to non-U.S. persons in accordance with Regulation S promulgated under the Securities Act. The 2013-1 Bonds represent fully amortizing notes payable on a straight-line basis over a scheduled payment term of 10 years, but not to exceed a maximum payment term of 25 years. Under the terms of the 2013-1 Bonds, both principal and interest incurred are payable monthly. We are not permitted to make voluntary prepayments of all, or a portion of, the principal balance of the 2013-1 Bonds prior to September 20, 2015. The interest rate for the outstanding principal balance of the 2013-1 Bonds is fixed at 3.90% per annum. The final target payment date and legal final payment date are September 20, 2023 and September 20, 2038, respectively.
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On December 12, 2013, we were awarded a master lease contract with the U.S. military after having successfully completed ten years of our previous contract with the U.S. military. The new contract covers a base year starting on December 24, 2013, with the potential for one year renewals that may extend the contract until December 24, 2018.
Effective January 1, 2014, we began calculating earnings and profits under U.S. federal income tax principles for purposes of determining whether distributions to shareholders exceed our current and accumulated earnings and profits. If 2014 or future year distributions to shareholders exceed our earnings and profits calculated under U.S. federal income tax principles, some or all of such distributions may be treated by U.S. shareholders as a return of capital rather than dividends.
On January 22, 2014, we purchased approximately 24,100 containers that we had been managing for an institutional investor for a purchase price of $34.6 million.
In November 2012, we received notification from the Internal Revenue Service (“IRS”) that the 2010 United States tax return for TGH had been selected for examination. On March 5, 2014, the IRS issued a letter indicating that it had completed its examination of TGH’s tax return for 2010 and would make no changes to the return as filed. As a result of this, we recognized a discrete benefit during 2014 of $22,408 for the re-measurement of our unrecognized tax benefits for the impacted years.
On April 30, 2014, TL entered into a $500,000 five-year term loan (the “TL Term Loan”) with a group of financial institutions that represents a partially-amortizing term loan with the remaining principal due in full on April 30, 2019. Interest on the outstanding amount due under the TL Term Loan is based on the U.S. prime rate or LIBOR plus a spread between 1.0% and 2.0% which is based upon TGH’s leverage. Under the terms of the TL Term Loan, principal repayments are payable in twenty quarterly installments, consisting of nineteen quarterly installments, which commenced on September 30, 2014, each in an amount of equal to 1.58% of the initial principal balance and one installment payable on the Maturity Date (April 30, 2019) in an amount equal to 69.98% of the initial principal balance. Interest payments are payable in arrears on the last day of each interest period, not to exceed three months. We used proceeds from the TL Term Loan and our secured debt facilities and TMCL’s available cash to repay all of the outstanding principal balance of TMCL’s bonds. TMCL then transferred all of its containers, net, net investment in direct financing and sales-type leases and remaining net assets, to TL, TMCL II and TMCL IV.
On July 18, 2014, we purchased approximately 6,000 containers that we had been managing for an institutional investor for a purchase price of $9.4 million.
On July 25, 2014, we reached a settlement for outstanding claims we had in bankruptcy proceedings with one of our Korean lessees for amounts past due on billings to that lessee. We had previously reserved for all outstanding billings from this customer. The settlement amount was paid for in the stock of and a note payable from the newly organized, post-bankruptcy lessee. We negotiated the sale of our rights to the stock and note payable for cash, which was completed on August 21, 2014 for $9,926, $7,855 of which was be attributable to our owned fleet. Accordingly, we recognized a bad debt recovery of $4,958 for billings included in our allowance for doubtful accounts and lease rental income of $2,620 and gain on sale of containers, net of $277 for billings that were not previously recognized.
On September 15, 2014, TMCL II entered into an amendment of the TMCL II Secured Debt Facility which extended the Conversion Date to September 15, 2017 and lowered the interest rate to one-month LIBOR plus 1.70%, payable in arrears, during the revolving period prior to the Conversion Date. The TMCL II Secured Debt Facility will partially amortize over a four-year period and then mature if it is not renewed by the Conversion Date. The amendment also lowered the commitment fee to 0.45% (if the aggregate principal balance is less than
50% of the commitment amount) and 0.365% (if the aggregate principal balance is equal to or greater than 50%
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of the commitment amount) on the unused portion of the TMCL II Secured Debt Facility, which is payable in arrears. Overdue payments of principal and interest accrue interest at a rate of 2.0% above the interest rate ordinarily applicable to such amounts.
On October 30, 2014, TMCL III issued $301.4 million aggregate principal amount of Series 2014-1 Fixed Rate Asset Backed Notes (the “2014-1 Bonds”) to qualified institutional investors pursuant to Rule 144A under the Securities Act and to non-U.S. persons in accordance with Regulation S promulgated under the Securities Act. The 2014-1 Bonds represent fully amortizing notes payable on a straight-line basis over a scheduled payment term of 10 years, but not to exceed a maximum payment term of 25 years. Under the terms of the 2013-1 Bonds, both principal and interest incurred are payable monthly. We are not permitted to make voluntary prepayments of all, or a portion of, the principal balance of the 2014-1 Bonds prior to November 30, 2016. The interest rate for the outstanding principal balance of the 2014-1 Bonds is fixed at 3.27% per annum. The final target payment date and legal final payment date are October 30, 2024 and October 30, 2039, respectively.
On December 23, 2014, TAP Funding entered into an amendment of its revolving credit facility (the “TAP Funding Revolving Credit Facility”) which reduced the aggregate commitment amount down to $150,000, extended the maturity date to December 23, 2018 and lowered the interest rate to one-month LIBOR plus 1.75%, payable in arrears. The amendment also lowered to commitment fee to 0.55% (if aggregate loan principal balance is less than 70% of the commitment amount) and 0.365% (if aggregate loan principal balance is equal to or greater than 70% of the commitment amount) on the unused portion of the TAP Funding Revolving Credit Facility, which is payable monthly in arrears. In addition, there is an agent’s fee, which is payable annually in advance. The aggregate loan principal balance is due on the maturity date, December 23, 2018.
On February 4, 2015, TMCL IV entered into an amendment of the TMCL IV Secured Debt Facility which extended the Conversion Date to February 2, 2018, lowered the interest rate to LIBOR plus 1.95%, payable in arrears, during the revolving period prior to the Conversion Date. The amendment also lowered the commitment fee, which is payable in arrears, to 0.485% on the unused portion of the TMCL IV Secured Debt Facility if total borrowings under the TMCL IV Secured Credit Facility are less than 50% of the total commitment; otherwise, the commitment fee is 0.40%.
Principal Capital Expenditures
Our capital expenditures for containers in our owned fleet and fixed assets during 2014, 2013 and 2012 were $818.5 million, $765.4 million and $1,087.5 million, respectively. We received proceeds from the sale of containers and fixed assets during 2014, 2013 and 2012 of $141.2 million, $123.7 million and $91.3 million, respectively.
As all of our containers are used internationally, where no one container is domiciled in one particular place for a prolonged period of time, all of our long-lived assets are considered to be international with no single country of use. Our capital requirements are primarily financed through cash flows from operations, our secured debt facilities, share offerings and our revolving credit facilities.
B. Business Overview
Our Company
We are the world’s largest lessor of intermodal containers based on fleet size, with a total fleet of more than 2.1 million containers, representing more than 3.2 million TEU. Containers are an integral component of intermodal trade, providing a secure and cost-effective method of transportation because they can be used to transport freight by ship, rail or truck, making it possible to move cargo from point of origin to final destination without repeated unpacking and repacking. We lease containers to approximately 400 shipping lines and other
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lessees, including each of the world’s top 20 container lines, as measured by the total TEU capacity of their container vessels. We believe that our scale, global presence, access to capital, customer service, market knowledge and long history with our customers have made us one of the most reliable suppliers of leased containers. We have a long track record in the industry, operating since 1979, and have developed long-standing relationships with key industry participants. Our top 20 customers, as measured by revenues, have leased containers from us for an average of 29 years.
We have provided an average of more than 257,000 TEU of new containers per year for the past five years, and have been one of the largest buyers of new containers over the same period. We are one of the largest sellers of used containers, having sold an average of more than 84,000 containers per year for the last five years to more than 1,400 customers.
We provide our services worldwide via an international network of 14 regional and area offices and 485 independent depots.
We operate our business in three core segments.
| • | Container Ownership. As of December 31, 2014, we owned containers accounting for approximately 79% of our fleet. |
| • | Container Management. As of December 31, 2014, we managed containers on behalf of 14 affiliated and unaffiliated container investors, providing acquisition, management and disposal services. As of December 31, 2014, total managed containers account for 21% of our fleet. |
| • | Container Resale. We generally sell containers from our fleet when they reach the end of their useful lives in marine service or when we believe it is financially attractive for us to do so, considering location, sale price, the cost of repair, and possible repositioning expenses. We also purchase and lease or resell containers from shipping line customers, container traders and other sellers of containers. |
Our total revenues primarily consist of leasing revenues derived from the lease of our owned containers and, to a lesser extent, fees received for managing containers owned by third parties and equipment resale. The most important driver of our profitability is the extent to which revenues on our owned fleet and management fee income exceed our operating costs. The key drivers of our revenues are fleet size, rental rates, utilization and direct costs. Our operating costs primarily consist of depreciation and amortization, interest expense, direct operating expenses and administrative expenses. Our lessees are generally responsible for loss of or damage to a container beyond ordinary wear and tear, and they are required to purchase insurance to cover any other liabilities.
Our total fleet consists of containers that we own and containers owned by other container investors that we manage. In general, owning containers during periods of high demand for containers provides higher margins than managing containers, since we receive all of the net operating income for the containers that we own but only a percentage of the net operating income of the containers as a management fee for the containers that we manage. On the other hand, managing containers during periods of low demand for containers reduces the negative financial impact of such periods since the container investors bear the cost of owning the containers.
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For 2014, we generated revenues, income from operations and income before income tax and noncontrolling interests of $563.1 million, $271.6 million and $177.0 million, respectively. During 2014, the average utilization of our owned fleet was 96.1%. As mentioned above, we operate in three reportable segments: Container Ownership, Container Management and Container Resale. The following tables summarize revenues, by category of activity, and income before income tax and noncontrolling interests generated from each of our operating segments reconciled to our total revenues and income before income tax and noncontrolling interests shown in our consolidated statements of comprehensive income included in Item 18, “Financial Statements” in this Annual Report on Form 20-F for the fiscal years ended December 31, 2014, 2013 and 2012:
| Container Ownership |
Container Management |
Container Resale |
Other | Eliminations | Totals | |||||||||||||||||||
| 2014 |
||||||||||||||||||||||||
| Lease rental income |
$ | 502,596 | $ | 1,629 | $ | — | $ | — | $ | — | $ | 504,225 | ||||||||||||
| Management fees from external customers |
345 | 13,656 | 3,407 | — | — | 17,408 | ||||||||||||||||||
| Inter-segment management fees |
— | 49,032 | 10,206 | — | (59,238 | ) | — | |||||||||||||||||
| Trading container sales proceeds |
— | — | 27,989 | — | — | 27,989 | ||||||||||||||||||
| Gains on sale of containers, net |
13,469 | — | — | — | — | 13,469 | ||||||||||||||||||
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|
|
|
|
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|
|||||||||||||
| Total revenues |
$ | 516,410 | $ | 64,317 | $ | 41,602 | $ | — | $ | (59,238 | ) | $ | 563,091 | |||||||||||
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|
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| Segment income before income tax and noncontrolling interests |
$ | 143,618 | $ | 30,298 | $ | 10,249 | $ | (3,291 | ) | $ | (3,888 | ) | $ | 176,986 | ||||||||||
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| 2013 |
||||||||||||||||||||||||
| Lease rental income |
$ | 467,647 | $ | 1,085 | $ | — | $ | — | $ | — | $ | 468,732 | ||||||||||||
| Management fees from external customers |
375 | 15,904 | 3,642 | — | — | 19,921 | ||||||||||||||||||
| Inter-segment management fees |
— | 45,016 | 10,369 | — | (55,385 | ) | — | |||||||||||||||||
| Trading container sales proceeds |
— | — | 12,980 | — | — | 12,980 | ||||||||||||||||||
| Gains on sale of containers, net |
27,340 | — | — | — | — | 27,340 | ||||||||||||||||||
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|
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|
|
|
|||||||||||||
| Total revenues |
$ | 495,362 | $ | 62,005 | $ | 26,991 | $ | — | $ | (55,385 | ) | $ | 528,973 | |||||||||||
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|
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|
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|
|
|
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| Segment income before income tax and noncontrolling interests |
$ | 160,145 | $ | 33,011 | $ | 10,740 | $ | (3,841 | ) | $ | (3,850 | ) | $ | 196,205 | ||||||||||
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| 2012 |
||||||||||||||||||||||||
| Lease rental income |
$ | 383,127 | $ | 862 | $ | — | $ | — | $ | — | $ | 383,989 | ||||||||||||
| Management fees from external customers |
— | 21,764 | 4,405 | — | — | 26,169 | ||||||||||||||||||
| Inter-segment management fees |
— | 47,526 | 7,300 | — | (54,826 | ) | — | |||||||||||||||||
| Trading container sales proceeds |
— | — | 42,099 | — | — | 42,099 | ||||||||||||||||||
| Gains on sale of containers, net |
34,829 | 8 | — | — | — | 34,837 | ||||||||||||||||||
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|
|||||||||||||
| Total revenues |
$ | 417,956 | $ | 70,160 | $ | 53,804 | $ | — | $ | (54,826 | ) | $ | 487,094 | |||||||||||
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| Segment income before income tax and noncontrolling interests |
$ | 175,291 | $ | 36,956 | $ | 12,787 | $ | (3,890 | ) | $ | (10,588 | ) | $ | 210,556 | ||||||||||
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General and administrative expenses are allocated to the reportable business segments based on direct overhead costs incurred by those segments. Amounts reported in the “Other” column represent activity unrelated to the active reportable operating segments. Amounts reported in the “Eliminations” column represent inter-segment management fees between the container management, container resale and container ownership segments.
Our container lessees use containers for their global trade utilizing many worldwide trade routes. The Company earns its revenue from these international carriers when the containers are on lease. Substantially all of our leasing related revenues are denominated in U.S. dollars.
The largest portion of our fleet is comprised of dry freight containers, which are by far the most common of the three principal types of intermodal containers. Dry freight intermodal containers are large, standardized steel boxes used to transport cargo by multiple modes of transportation, including ships, trains and trucks. We also lease refrigerated containers, which have integral refrigeration units on one end that plug into an outside power source and are used to transport perishable goods. Compared to traditional shipping methods, intermodal containers typically provide users with faster loading and unloading as well as some protection from weather and theft, thereby reducing both transportation costs and time to market for our lessees’ customers.
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We primarily lease containers under four different types of leases. Term leases provide a customer with a specified number of containers for a specified period of time, typically ranging from three to five years, with an associated set of pick-up and drop-off conditions. Term leases also include lifecycle leases, under which lessees will lease containers until they reach a pre-specified age which is typically near the end of their useful lives. Once containers under lifecycle leases are returned to us, they are generally sold due to the age of the containers. Term leases represented 75.1% of our total on-hire fleet as of December 31, 2014. Master leases, which provide a framework of terms and conditions valid for a specified period of time, typically one year, give customers greater pick-up and drop-off flexibility than is typical in term leases and represented 13.7% of our total on-hire fleet as of December 31, 2014. Finance leases, which provide customers an alternative means for purchasing containers, represented 8.9% of our total on-hire fleet as of December 31, 2014. Spot leases, which provide customers with containers for a relatively short lease period and fixed pick-up and drop-off locations, represented 2.3% of our total on-hire fleet as of December 31, 2014.
Our expertise and flexibility in managing containers after their initial lease is an important factor in our success. The administrative process of leasing new containers is relatively easy because initial leases for new containers typically cover large volumes of units and are fairly standardized transactions. However, to successfully compete in our industry, we must not only obtain favorable initial long-term leases for new containers, but also maximize the return generated by these containers throughout their useful life in marine service and their ultimate sale into the secondary market. To do that, we focus on renewing or extending our long-term container leases beyond their expiration date (typically three to five years from the start of the lease). In addition, we attempt to negotiate favorable return provisions on all leases, maintain an active presence in the master and spot lease markets, and work to increase our options for disposing of off-lease containers so that we have attractive alternatives if it is not possible to achieve reasonable renewal or extension of terms with the current lessee. Unlike some of our competitors, we have the capability and the infrastructure to re-lease or dispose of our containers at comparatively attractive terms, which increases our leverage with the lessees.
We supply leased containers to the U.S. military pursuant to a contract with the U.S. Transportation Command Directorate of Acquisition (“USTranscom”) and earn a fee for supplying and managing its fleet of leased containers. We are the main supplier of leased intermodal containers to the U.S. military.
We believe that we have the ability to reposition containers, if necessary, that are returned in lower demand locations to higher demand locations at competitive costs as a result of our experienced logistics team. Our large customer base of approximately 400 lessees increases our ability to re-lease returned containers. Our Container Resale segment is positioned to sell containers and optimize their residual value in multiple markets, including lower demand locations. This system of generating an attractive revenue stream from and achieving high utilization of our container fleet has enabled us to become the world’s largest container lessor and led to 28 consecutive years of profits.
Industry Overview
Containers are built in accordance with standard dimensions and weight specifications established by the International Organization for Standardization (“ISO”). The industry-standard measurement unit is the Twenty-Foot Equivalent Unit (“TEU”), which compares the length of a container to a standard 20’ container. For example, a 20’ container is equivalent to one TEU and a 40’ container is equivalent to two TEU. Standard dry freight containers are typically 8’ wide, come in lengths of 20’, 40’ or 45’ and are either 8’6” or 9’6” high. The three principal types of containers are described as follows:
| • | Dry freight standard containers. A dry freight standard container is constructed of steel sides, roof, an end panel on one end and a set of doors on the other end, a wooden floor and a steel undercarriage. Dry freight standard containers are the least expensive and most commonly used type of container. They are used to carry general cargo, such as manufactured component parts, consumer staples, electronics and apparel. According to the latest available data, dry freight standard containers comprised approximately 90.1% of the worldwide container fleet, as measured in TEU, at December 31, 2013. |
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| • | Dry freight specialized containers. Dry freight specialized containers consist of open-top and flat-rack containers. An open-top container is similar in construction to a dry freight standard container except that the roof is replaced with a tarpaulin supported by removable roof bows. A flat-rack container is a heavily reinforced steel platform with a wood deck and steel end panels. Open-top and flat-rack containers are generally used to transport heavy or oversized cargo, such as marble slabs, building products or machinery. According to the latest available data, dry freight specialized containers comprised approximately 2.3% of the worldwide container fleet, as measured in TEU, at December 31, 2013. |
| • | Other containers. Other containers include refrigerated containers, tank containers, 45’ containers, pallet-wide containers and other types of containers. The two most prominent types of such containers are refrigerated containers and tank containers. A refrigerated container has an integral refrigeration unit on one end which plugs into an outside power source and is used to transport perishable goods. Tank containers are used to transport liquid bulk products such as chemicals, oils, and other liquids. According to the latest available data, other containers comprised approximately 7.6% of the worldwide container fleet, as measured in TEU, at December 31, 2013. |
Containers provide a secure and cost-effective method of transportation because they can be used in multiple modes of transportation, making it possible to move cargo from a point of origin to a final destination without repeated unpacking and repacking. As a result, containers reduce transit time and freight and labor costs, as they permit faster loading and unloading of shipping vessels and more efficient utilization of transportation containers than traditional break bulk shipping methods. The protection provided by containers also reduces damage, loss and theft of cargo during shipment. While the useful life of containers varies based upon the damage and normal wear and tear suffered by the container, we estimate that our useful life for a standard dry freight container used in intermodal transportation is on average 13 years. Some shipping lines have recently indicated that they intend to keep their containers for longer than 13 years.
According to World Cargo News, container lessors owned approximately 49% of the total worldwide container fleet of 34.4 million TEU as of January 2014. The percentage of leased containers utilized by shipping lines ranged from 39% to 54% from 1980 through 2014 and may increase in the next few years, given competing needs for capital expenditures by our customers and the competitive cost of leasing containers. Given the uncertainty and variability of export volumes and the fact that shipping lines have difficulty in accurately forecasting their container requirements at different ports, the availability of containers for lease significantly reduces a shipping line’s need to purchase and maintain excess container inventory. In addition, leasing a portion of their total container fleets enables shipping lines to serve their manufacturer and retailer customers better by:
| • | increasing their flexibility to manage the availability and location of containers; |
| • | increasing their ability to meet peak demand requirements, particularly prior to holidays such as Christmas and Chinese New Year; and |
| • | reducing their capital expenditures. |
While international containerized trade grew rapidly and was consistently positive for the twenty-six years through 2007, there was a global financial crisis and recession during the second half of 2008, which continued through 2009. With virtually no new standard dry freight containers manufactured from the fourth quarter of 2008 through the end of 2009, we estimate that the world container fleet declined by approximately 4% in 2009 as a result of the continued retirement of older containers in the ordinary course. During this period, container manufacturers lost up to 60% of their skilled workers due to long shutdowns. The difficulties manufacturers faced in hiring and training new workers limited their production capacity throughout 2010 and full production capacity only resumed in 2011. However, we have observed since 2011 that many shipping lines are still seeking to strengthen their respective balance sheets, and therefore may not have the required capital budget to purchase all of the new containers they are expected to need in 2015. Based on industry analyst reports, we expect new dry freight container production to be 2.6 million TEU in 2015 compared to 3.0 million TEU in 2014 and, lessors are expected to purchase 55% to 60% of total production in 2015 compared to approximately 55% in 2014.
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Furthermore, we expect to see solid replacement demand combined with growth due to vessel delivery of approximately 1.8 million TEU, vessel capacity growth equal to approximately 9% of current capacity and cargo volume growth of approximately 4% to 5%.
Counterparty risk has been reduced over the last several years as several major container shipping lines have been able to recapitalize. Despite the continued challenging economic environment, to date we have not seen any bankruptcies among our major customers.
The shipping business has also been characterized by cyclical swings due to lengthy periods of excess or scarce vessel capacity. We believe that these sustained periods of vessel supply/demand imbalances are mainly a function of the multi-year ordering and production cycle associated with the manufacture of new vessels, which requires shipping lines to estimate market growth many years into the future. Container leasing companies are partially insulated from the risks of these shipping cycles by the relatively short production time associated with the manufacture of new containers. Lead times for new container orders are typically only a few months, so the rate of new container ordering can be quickly adjusted to reflect unexpected market changes.
Our term leases maturing in 2015, which represent approximately 8% of our total fleet, have the highest average rental rates of any of our current leases and we expect containers under those leases to be re-priced downward due to the current low level of new container rental rates. Although rental rates are down, so are container prices and interest rates, which results in a net return to us for new container purchases similar to the returns we have achieved over the last 12 to 18 months.
Additionally, for most leasing companies, the percentage of containers on long-term lease has grown over the past ten years, while the percentage on master lease has declined. As of December 31, 2014, approximately 75% of our total on-hire fleet was on long-term leases, compared to approximately 67% ten years ago. As a result, changes in utilization have become less volatile for Textainer and most leasing companies.
According to World Cargo News, intermodal leasing companies, as ranked by total TEU as of January 2014, are as follows:
| Company |
TEU (000’s) |
Percent
of Total |
||||||
| Textainer(1) |
3,040 | 18.1 | % | |||||
| Triton Container International |
2,200 | 13.1 | % | |||||
| TAL International Group Inc. |
2,050 | 12.2 | % | |||||
| Florens Container Services |
1,900 | 11.3 | % | |||||
| SeaCube Container Leasing Ltd. |
1,300 | 7.8 | % | |||||
| SeaCo Global(2) |
1,190 | 7.1 | % | |||||
| CAI International, Inc. |
1,150 | 6.9 | % | |||||
| Cronos Group(2) |
880 | 5.3 | % | |||||
| Dong Fang International Asset Management Ltd. |
555 | 3.3 | % | |||||
| Touax Global Container Solutions |
500 | 3.0 | % | |||||
| Beacon Intermodal Leasing |
485 | 2.9 | % | |||||
| Blue Sky Intermodal |
250 | 1.5 | % | |||||
| Other |
1,250 | 7.5 | % | |||||
|
|
|
|
|
|||||
| Grand Total |
16,750 | 100.0 | % | |||||
|
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|
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| (1) | Textainer Group’s owned and managed fleet consisted of 3,233 TEU at December 31, 2014. |
| (2) | In January 2015, Bohai Leasing Company of China (“Bohai”) acquired SeaCo Group. Cronos Group is also wholly owned by Bohai. |
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Competitive Strengths
We believe that we possess a number of strengths that provide us with a competitive advantage, including:
Largest Container Lessor in the Industry. We operate the world’s largest fleet of leased intermodal containers by fleet size, with a total fleet of more than 2.1 million containers, representing more than 3.2 million TEU, as of December 31, 2014. We provide our services worldwide via a network of regional and area offices and independent depots. We have been one of the largest buyers of new containers purchasing an average of more than 257,000 TEU per year for the last five years and are also one of the largest sellers of used containers, selling an average of more than 84,000 containers per year for the last five years. Our consistent presence in the market buying and selling containers provides us with broad market intelligence, and valuable insight into the demand patterns of our shipping line customers and resale container buyers.
Proven Ability to Grow Our Fleet. Our ability to invest in our fleet on a consistent basis has allowed us to become the world’s largest container lessor. We have demonstrated our ability to increase the size of our container fleet by purchasing containers from manufacturers and by acquiring existing container fleets or their management rights. Over the past 16 years, we have acquired the rights to manage over 1,400,000 TEU from former competitors and we have acquired approximately 673,000 TEU of containers from our managed fleet. This experience provides us with a competitive advantage over other lessors who are less experienced in assuming ownership or management of other container fleets. As one of the largest buyers of new containers, we have developed strong relationships with container manufacturers. These relationships, along with our large volume buying power and solid financial structure, enable us to reliably purchase containers during periods of high demand.
Ability to Generate Attractive Returns Throughout the Container Life-Cycle. One of our major strengths is our demonstrated ability to generate attractive revenue streams throughout the economic life of a container in marine service and upon resale of the container at the end of its marine service life. At the end of a lease, we generally have the ability to either negotiate an extension of the lease term or to take back the container and re-lease or sell it maximizing the container’s return. This flexibility, coupled with our international coverage, organization and resources, allows us to deploy containers to those markets where we can re-lease or sell them on comparatively attractive terms, thereby optimizing our returns and the residual value of our fleet.
Strong Long-Standing Relationships with Customers. Our scale, long presence in the business and reliability as a supplier of containers has resulted in strong relationships with our customers. We lease containers to approximately 400 shipping lines and other lessees, including each of the world’s top 20 container lines, as measured by vessel fleet size in TEU and we sell containers to over 1,400 resale customers. We believe our ability to consistently supply containers in locations where our customers need them makes us one of the most reliable lessors of containers. Our top 20 customers, as measured by revenues, have leased containers from us for an average of 29 years.
Strategic Management of Container Portfolio. We believe that the long-term nature of our lease portfolio, as well as the presence of both owned and managed containers in our fleet, provides us with a more predictable source of revenues and operating cash flow and higher operating margins over time, enabling us to manage and grow our business more effectively. We derive revenues from leasing our owned containers, managing containers owned by third parties, buying and selling containers and supplying leased containers to the U.S. military. These multiple revenue streams provide for a diverse income base, mitigate the effects of our cyclical industry on profitability and allow us to optimize our use of capital.
Experienced Management Team. Our senior management has a long history in the industry. Our senior management have an average of 17 years of service with us. The management team has extensive experience in sourcing, leasing, financing, selling, trading and managing containers, as well as a long track record of successfully acquiring and selling container assets.
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Business Strategies
We intend to grow our business profitably by pursuing the following strategies:
Leverage Our Status as the Largest Container Lessor and Consistent Purchaser and Seller of Containers. We maintain a young fleet age profile by making regular purchases of available containers to replace older containers and increase the size of our fleet. We believe that this consistent purchasing behavior and the resulting scale and young fleet age profile provides us with a competitive advantage in maintaining strong relationships with manufacturers and growing our market share with our existing customers.
Be the Most Reliable Supplier of Quality Containers. We continue to provide superior equipment and ensure that it is available in the right location and at the right time. Having the world’s largest owned and managed container fleet, we are in a strong position to be the most reliable supplier of dry freight containers to meet the demands of shipping lines.
Pursue Attractive Container Related Acquisition Opportunities. We will continue to seek to identify and attempt to acquire attractive portfolios of containers and companies to allow us to grow our fleet profitably. We believe that the consolidation trend in our industry will continue and will likely offer us future growth opportunities. We also believe that the ongoing downturn in the world’s major economies and the constraints in the credit markets may also result in potential acquisition opportunities, including the purchase and leaseback of customer-owned containers. Purchase and leaseback transactions can be attractive to our customers because they free up cash for other capital needs, and these transactions enable us to buy attractively priced containers and at the same time place them on leases for the remainder of their marine service lives.
Continue to Focus on Maintaining High Levels of Utilization and Operating Efficiency. We will continue to target high utilization rates and attractive returns on our assets through our focus on longer-term leases and disciplined portfolio management. As of December 31, 2014, approximately 75% of our total on hire fleet (based on total TEU) was on long-term leases, compared to approximately 67% ten years ago. We also drive operating efficiency by maintaining a low cost structure, having brought down our fleet management cost per CEU per day by approximately 44% and grown the number of CEU per employee by over 198%, in each case over the 10 years ended December 31, 2014. Our management cost per CEU per day and CEU per employee metrics are significantly better than those of the other two container leasing companies publicly traded in the U.S. Furthermore, we believe that we can continue to grow our fleet without a proportionate increase in our headcount, thereby continuing to improve profitability by spreading our operating expenses over a larger revenue base.
Extend the Lease of In-fleet Containers. Since many shipping lines must utilize capital to finance vessels, it is possible that some will conclude in 2015, as they did in 2014, that it is more cost-effective to extend leases of in-fleet containers than either to buy containers or to lease new containers.
Grow Our Container Resale Business. Our container resale and trading business is a significant source of profits. We look to sell containers from our fleet when they reach the end of their useful lives in marine service or when we believe it is financially attractive for us to do so, considering the location, sales price, cost of repair, and possible repositioning expenses. In order to improve the sales price of our containers, we often move them from the location where they are returned by the lessee to another location that has a higher market price. We benefit not only as a result of the increased sales price but also because we often receive rental revenue from a shipping line for the one-way lease of the container. We also buy and resell containers from shipping line customers, container traders and other sellers of containers. We attempt to improve the sales price of these containers in the same manner as with containers from our fleet.
Maintain Access to Diverse Sources of Capital. We have successfully utilized a wide variety of financing alternatives to fund our growth, including secured debt financings, bank financing, and equity from third party investors in containers. We believe this diversity of funding, combined with our access to the public equity markets, provides us with an advantage in terms of both cost and availability of capital, versus our smaller competitors and also our shipping line customers.
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Operations
We operate our business through a network of regional and area offices and independent depots. We maintain four regional offices as follows:
| • | Americas Region in Hackensack, New Jersey, USA responsible for North and South America; |
| • | European Region in New Malden, UK responsible for Europe, the Mediterranean, the Middle East, and Africa; |
| • | North Asia Region in Yokohama, Japan responsible for Japan, South Korea, and Taiwan; and |
| • | South Asia Region in Singapore, responsible for Southeast Asia, the People’s Republic of China (“PRC”) (including Hong Kong) and Australia. |
Regional vice presidents are in charge of regional leasing and operations. Marketing directors and assistants located in the regional and area offices handle day-to-day marketing and collection activities. Our operations include a global sales force, container operations group, container resale group, and logistics services group. Our headquarters office is in Hamilton, Bermuda. Our administrative office is located in San Francisco, California.
Our Container Fleet
As of December 31, 2014, we operated 3,233,364 TEU. We attempt to continually invest in our container fleet each year in an effort to replace the older containers being retired from marine service and to build our fleet size. We purchased an average of more than 257,000 TEU of new containers per year over the past five years. Our ability to invest in our fleet on a consistent basis has been instrumental in our becoming the world’s largest container lessor. Our container fleet consists primarily of standard dry freight and refrigerated containers. The containers that we lease are generally either owned outright by us or owned by third parties and managed by us. The table below summarizes the composition of our owned and managed fleets, in TEU and CEU, by type of containers as of December 31, 2014 (unaudited):
| TEU | CEU | |||||||||||||||||||||||
| Owned | Managed | Total | Owned | Managed | Total | |||||||||||||||||||
| Standard dry freight |
2,402,406 | 658,477 | 3,060,883 | 2,149,091 | 589,531 | 2,738,622 | ||||||||||||||||||
| Refrigerated |
95,697 | 12,473 | 108,170 | 389,527 | 50,022 | 439,549 | ||||||||||||||||||
| Other specialized |
53,995 | 10,316 | 64,311 | 79,921 | 17,387 | 97,308 | ||||||||||||||||||
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| Total fleet |
2,552,098 | 681,266 | 3,233,364 | 2,618,539 | 656,940 | 3,275,479 | ||||||||||||||||||
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| Percent of total fleet |
78.9 | % | 21.1 | % | 100.0 | % | 79.9 | % | 20.1 | % | 100.0 | % | ||||||||||||
The amounts in the table above did not change significantly from December 31, 2014 to the date of this Annual Report on Form 20-F.
Our containers are designed to meet a number of criteria outlined by the ISO. The standard criteria include the size of the container and the gross weight rating of the container. This standardization ensures that the widest possible number of transporters can use containers and it facilitates container and vessel sharing by the shipping lines. The standardization of the container is also an important element of the container leasing business since we can operate one fleet of containers that can be used by all of our major customers.
Maintenance and repair of our containers is performed by independent depots that we retain in major port areas and inland locations. Such depots also handle and inspect containers that are either picked up or redelivered by lessees, and store containers that are not leased.
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Our Leases
Most of our revenues are derived from leasing our owned fleet of containers to our core shipping line customers. The vast majority of our container leases are structured as operating leases, though we also provide customers with finance leases. Regardless of lease type, we seek to exceed our targeted return on our owned and managed containers over the life of each container by managing container utilization, lease rates, drop-off restrictions and the disposal process. We lease containers under three different types of operating leases (term leases, master leases and spot leases) and also under finance leases.
Term leases
Term leases (also referred to as long-term leases) provide a customer with a specified number of containers for a specified period, typically ranging from three to five years, with an associated set of pick-up and drop-off conditions. Our term leases generally require our lessees to maintain all units on lease for the duration of the lease. Term leases also include lifecycle leases, under which lessees will lease containers until they reach a pre-specified age which is typically near the end of their useful lives rather than for a specified period. Once containers under lifecycle leases are returned to us, they are generally sold due to the age of the containers. Term leases provide us with enhanced cash flow certainty due to their extended duration but carry lower per diem rates than other lease types. As of December 31, 2014, 75.1% of our owned on-hire fleet, as measured in TEU, was on term leases.
As of December 31, 2014, our term leases had an average remaining duration of 3.2 years, assuming no leases are renewed. However, we believe that many of our customers will renew leases for containers that are less than sale age at the expiration of the lease. In addition, our containers typically remain on-hire at the contractual per diem rate for an average of an additional 20 months beyond the end of the contractual lease term, for leases that are not extended.
The following are the minimum future rentals for our owned fleet at December 31, 2014, due under long-term leases (in thousands):
| Year ending December 31 (dollars in thousands): |
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| 2015 |
$ | 317,390 | ||
| 2016 |
233,601 | |||
| 2017 |
166,116 | |||
| 2018 |
105,562 | |||
| 2019 and thereafter |
92,887 | |||
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| Total future minimum lease payments receivable |
$ | 915,556 | ||
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Some of our term leases give our customers Early Termination Options (“ETOs”). If exercised, ETOs allow customers to return containers prior to the expiration of the term lease. However, if an ETO is exercised, the customer is required to pay a penalty per diem rate that is applied retroactively to the beginning of the lease. As a result of this retroactive penalty, ETOs have historically rarely been exercised.
Master leases
Master leases provide a framework of terms and conditions pursuant to which lessees can lease containers on an as-needed basis for unspecified periods of time. Master lease terms and conditions are valid for a set period, typically one year, and provide the lessee with greater flexibility than is typical in term leases. Under our master leases, lessees know in advance their per diem rates and drop-off locations, subject to monthly drop-off location limits. In addition, under these master lease agreements, the lessee is generally not committed to leasing a minimum number of containers from us during the lease term and may generally return the containers to us at any time, subject to certain restrictions. Due to their flexibility and duration, master leases command higher per diem rates than term leases. A subset of master leases are our special leases, which are predominately round-trip
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Asia leases, allowing customers to return containers at any time but with restrictions on drop-off locations, generally in higher demand locations in Asia. As of December 31, 2014, 13.7% of our owned on-hire fleet, as measured in TEU, was on master leases.
Spot leases
Spot leases provide the customer with containers for a relatively short lease period with fixed pick-up and drop-off locations. Spot leases are generally used to position a container to a desired location for subsequent lease or sale. As of December 31, 2014, 2.3% of our total on-hire fleet, as measured in TEU, was on spot leases.
Finance Leases
Finance leases provide our lessees with an alternative method to finance their container acquisitions. Finance leases are long-term in nature, typically ranging from three to eight years and require relatively little customer service attention. They ordinarily require fixed payments over a defined period and provide lessees with a right to purchase the subject containers for a nominal amount at the end of the lease term. Per diem rates include an element of repayment of capital and, therefore, typically are higher than rates charged under other leases. Finance leases require the lessee to keep the containers on lease for the entire term of the lease. Finance leases are reflected as “Net investment in direct financing and sales-type leases” on our consolidated balance sheets. As of December 31, 2014, approximately 8.9% of our owned on-hire fleet, as measured in TEU, was on finance leases with an average remaining term of 2.4 years.
Maintenance, Repair and Damage Protection
Under all of our leases, our lessees are generally responsible for loss of or damage to a container beyond ordinary wear and tear, and they are required to purchase insurance to cover any other liabilities. Any damage must be repaired at the expense of the lessee according to standardized guidelines promulgated by the Institute of International Container Lessors (“IICL”). Lessees are also required to obtain insurance to cover loss of the equipment on lease, public liability and property damage insurance as well as indemnify us from claims related to their usage of the leased containers. In some cases, a Damage Protection Plan (“DPP”) is provided whereby the lessee pays us (in the form of either a higher per-diem rate or a fixed one-time payment upon the return of a container) to assume a portion of the financial burden of repairs up to a pre-negotiated amount. This DPP does not cover damages from war or war risks, loss of a container, constructive total loss of the container, damages caused by contamination or corrosion from cargo, damages to movable parts and any costs incurred in removing labels, which are all responsibilities of the lessees. DPP is generally cancelable by either party with prior written notice. Maintenance is monitored through inspections at the time that a container is leased out and returned. In 2014, DPP revenue was 1.5% of total lease rental income. We also maintain our own insurance to cover our containers when they are not on-hire to lessees or when the lessee fails to have adequate primary coverage, and third-party liability insurance for both on-hire and off-hire containers. In addition, we maintain insurance that, after satisfying our deductibles, would cover loss of revenue as a result of default under most of our leases, as well as the recovery cost or replacement value of most of our containers.
Lease Agreements
In general, our lease agreements consist of two basic elements, a master terms and conditions agreement (“Master Agreement”), and a lease schedule. Lease schedules contain the business terms (including daily rate, term duration and drop-off schedule, among other things) for specific leasing transactions, while Master Agreements outline the general rights and obligations of the lessor and lessee under all of the lease schedules covered by the Master Agreement. For most customers, we have a small number of Master Agreements (often one) and a large number of lease schedules.
Our standard Master Agreements generally require the lessees to pay rentals, depot charges, taxes and other charges when due, to maintain the containers in good condition and repair, to return the containers in good condition in accordance with the return conditions set forth in the Master Agreement, to use the containers in compliance with all laws, and to pay us for the value of the container as determined by us if the container is lost or destroyed. The default clause gives us certain legal remedies in the event that the lessee is in breach of the lease.
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Re-leasing, Logistics and Depot Management
We believe that managing the period after termination of our containers’ first lease is one of the most important aspects of our business. The container shipping industry is characterized by large regional trade imbalances, with loaded containers generally flowing from export-oriented economies in Asia to North America and Western Europe. Because of these trade imbalances, container shipping lines have an incentive to return leased containers in North America and Western Europe to avoid the cost of shipping empty containers back to Asia. Successful management of the deployment of our containers after they come off their first lease requires disciplined re-leasing capabilities, logistics management, depot management, careful cost control and effective sales of used containers.
Re-leasing
Since our leases allow our lessees to return their containers, we typically lease a container several times during the time that it is part of our fleet. New containers can usually be leased with a limited sales and customer service infrastructure because initial leases for new containers typically cover large volumes of units and are fairly standardized transactions. Used containers, on the other hand, are typically leased in smaller transactions that are structured to accommodate pick-ups and returns in a variety of locations. Our utilization rates depend in part on our re-leasing capabilities. Factors that affect our ability to re-lease used containers include the size of our lessee base, ability to anticipate lessee needs, our presence in relevant geographic locations and the level of service we provide our lessees. We believe that our global presence and relationships with approximately 400 container lessees provide us an advantage in re-leasing our containers relative to many of our smaller competitors.
Logistics
Other methods of reducing off-lease risks include:
| • | Limiting or prohibiting container returns to low-demand areas. In order to reduce our repositioning costs, our leases typically include a prohibition on returning containers to specific locations, limitations on the number of containers that may be returned to lower demand locations, drop-off charges for returning containers to lower demand locations or a combination of these provisions. |
| • | Taking advantage of a robust secondary resale market when available. In order to optimize the investment return on a container, we have sold containers in our excess inventory locations when an analysis indicates it is financially more attractive than attempting to re-lease or reposition the container. |
| • | Seeking one-way lease opportunities to move containers from lower demand locations to higher demand locations. One-way leases may include incentives, such as free days, credits and limited damage waivers. The cost of offering these incentives is generally less than the cost we would incur if we were to pay to reposition the containers. We also use one-way leases to move containers from locations where the market price for selling containers is low to locations with a higher market price for containers, to improve the resale value of the containers. |
| • | Paying to reposition our containers to higher demand locations. At locations where our inventories remain high, despite the efforts described above, we will selectively choose to pay to reposition excess containers to locations with higher demand. |
| • | Diversifying our customers. We have sought to diversify our customers and, correspondingly, the locations where containers are needed around the world. |
Depot Management
As of December 31, 2014, we managed our container fleet through 485 independent container depot facilities in 239 locations. Depot facilities are generally responsible for repairing containers when they are returned by lessees and for storing the containers while they are off-hire. Our operations group is responsible for
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managing our depot relationships and periodically visiting the depot facilities to conduct quality assurance audits to control costs and ensure repairs meet industry standards. We occasionally supplement our internal operations group with the use of independent inspection agents. Furthermore, depot repair work is periodically audited to prevent over-charging. We are in regular communication with our depot partners through the use of electronic data interchange (“EDI”) and/or e-mail. The electronic exchange of container activity information with each depot is conducted via the internet. As of December 31, 2014, a large majority of our off-lease inventory was located at depots that are able to report notice of container activity and damage detail via EDI. We use the industry standard, ISO 9897 Container Equipment Data Exchange messages, for most EDI reporting.
Most of the depot agency agreements follow a standard form and generally provide that the depot will be liable for loss or damage of containers and, in the event of loss, will pay us the previously agreed loss value of the applicable containers. The agreements require the depots to maintain insurance against container loss or damage and we carry insurance to cover the risk when a depot’s insurance proves insufficient.
Our container repair standards and processes are generally managed in accordance with standards and procedures specified by the IICL. The IICL establishes and documents the acceptable interchange condition for containers and the repair procedures required to return damaged containers to the acceptable interchange condition. At the time that containers are returned by lessees, the depot arranges an inspection of the containers to assess the repairs required to return the containers to acceptable IICL condition. As part of the inspection process, damages are categorized either as lessee damage or normal wear and tear. Items typically designated as lessee damage include dents in the container and debris left in the container, while items such as rust are typically designated as normal wear and tear. In general, lessees are responsible for the lessee damage portion of the repair costs and we are responsible for normal wear and tear. The lessees are generally billed the lessee damage portion at the time the containers are returned. As discussed above in “Operations—Our Leases,” for an additional fee, we sometimes offer our lessees a DPP, pursuant to which we assume financial responsibility for repair costs up to a previously negotiated amount.
Management Services
As of December 31, 2014, we owned approximately 79% of the containers in our fleet, and managed the rest, equaling 681,266 TEU, on behalf of 14 affiliated and unaffiliated container investors. We earn acquisition, management and disposal fees on managed containers. Our information technology (“IT”) systems track revenues and operating expenses attributable to specific containers and the container investors receive payments based on the net operating income of their own containers. Fees to manage containers typically include acquisition fees of 1% to 2% of the purchase price; daily management fees of 8% to 13% of net operating income; and disposal fees of 5% to 12% of cash proceeds when containers are sold. We earned combined acquisition, management and disposal fees on our managed fleet of $17.4 million, $19.9 million and $26.2 million for the years ended December 31, 2014, 2013 and 2012, respectively. If operating expenses were to exceed revenues, the container investors would be obligated to pay the excess or we would deduct the excess, including our management fee, from future net operating income. In some cases, we are compensated for sales through a percentage sharing of sale proceeds over an agreed floor amount. We will typically indemnify the container investors for liabilities or losses arising from negligence, willful misconduct or breach of our obligations in managing the containers. The container investors will indemnify us as the manager against any claims or losses arising with respect to the containers, provided that such claims or losses were not caused by our negligence, willful misconduct or breach of our obligations. Typically, the terms of the management agreements are for the expected remaining useful life in marine services of the containers subject to the agreement.
In June 2003, we entered into a contract with the USTranscom pursuant to which we serve as a major supplier of leased marine containers to the U.S. military. Compared to our shipping line customers, we provide a much broader level of services to the U.S. military under the USTranscom contract. We have developed and currently operate a proprietary information system for the U.S. military which provides the U.S. military real-time access to the status of its leased fleet. Furthermore, unlike our shipping line customers, who pick up from and return containers to container depots, for the U.S. military we are required to arrange transportation from a
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container depot to a military facility upon lease out and to pick up a container at a military facility and return it to a container depot when the lease period has ended. This requires us to arrange for movement of the empty containers by truck, rail and/or vessel. The USTranscom contract provides added compensation for these services. In addition, since approximately half of these services are required in non-U.S. locations, our expenses for contracting for these services may be incurred in foreign currencies. The USTranscom contract contains a foreign currency adjustment feature such that we are protected against many foreign currency risks for the expenses incurred under the USTranscom contract.
The USTranscom is the only lessee for which we are required, under the USTranscom contract, to provide all containers that they request. In the event that containers are not available within our fleet, we fulfill our obligations under the USTranscom contract by purchasing new or used containers or subleasing containers and equipment from other leasing companies. This contract also allows the U.S. military to return containers in many locations throughout the world. Since the inception of the USTranscom contract, we have delivered or transitioned approximately 158,000 containers and chassis to the U.S. military, of which approximately 105,000 containers have been returned. In addition, approximately 49,000 containers have been reported as unaccounted for and the U.S. Military paid a stipulated value for each such container. The USTranscom contract expired on June 23, 2013 and we were awarded a new contract on December 12, 2013. The new contract covered a base year starting on December 24, 2013, was renewed on October 1, 2014 and has the potential for additional one year renewals that may extend the contract until September 30, 2018.
Resale of Containers
Our Resale Division sells containers from our fleet, at the end, typically about 13 years, of their useful lives in marine service, or when we believe it is financially attractive for us to do so, considering the location, sale price, cost of repair, and possible repositioning expenses. In addition, we buy used containers (trading containers) from shipping lines and other third parties that we then lease or resell. Our Resale Division has a global team of 17 container sales and operations specialists in seven offices globally that manage the sale process for these used containers. Our Resale Division is one of the largest sellers of used containers among container lessors, selling an average of more than 84,000 containers per year for the last five years to more than 1,400 customers. Our Resale Division has been a significant profit center for us. From 2009 through 2014, this Division generated $42.9 million in income before income tax and noncontrolling interests, including $10.2 million during 2014. We generally sell containers to depots, domestic storage companies, freight forwarders (who often use the containers for one-way trips into less developed countries) and other purchasers of used containers.
Underwriting and Credit Controls
We only lease to container shipping lines and other lessees or sell to buyers that meet our credit criteria. Our credit approval process is rigorous and all of our underwriting and credit decisions are controlled by our credit committee, which is made up of senior management from different disciplines. Our credit committee sets different maximum exposure limits depending on our relationship and previous experience with each customer lessee and container sales customer. Credit criteria may include, but are not limited to, trade route, country, social and political climate, assessments of financial performance including net worth and profitability, asset ownership, bank and trade credit references, credit bureau reports, operational history and financial strength. Our marketing and resale staff are also responsible for collections, which positively contributes to our strong collection and credit approval process through our staff’s close communication with our customers.
Our credit department sets and reviews credit limits for new and existing customer lessees and container sales customers, monitors compliance with those limits on an on-going basis, monitors collections, and deals with customers in default. Our credit department actively maintains a credit watch report on our proprietary information technology systems, which is available to all regional and area offices. This credit watch report lists customer lessees and container sales customers at or near their credit limits. New leases of containers to lessees on the credit watch report would only be allowed with the approval of our credit department. Similarly, management may decide to stop sales of containers to purchasers whose payments are delinquent. Our
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underwriting processes are aided by the long payment experience we have with most of our customer lessees and container sales customers, our broad network of relationships in the container shipping industry that provides current information about customer lessees’ and container sales customers’ market reputations and our focus on collections.
Other factors reducing losses due to default by a lessee or customer include effective collection tools, our high recovery rate for containers in default situations and the re-marketability of our container fleet. The strong growth in the container shipping industry helps reduce the risk of customer defaults since the core assets of a poorly performing shipping line, its ships and containers, have historically been needed to meet the demand for world containerized trade. In addition, the law in several major port locations is highly favorable to creditors and many of our large customers call on ports that will allow us to arrest, or seize, the customers’ ships or fuel storage bunkers, or repossess our containers if the customer is in default under our container leases. Finally, we also purchase insurance for equipment recovery and loss of revenue due to customer defaults, in addition to the insurance that our customers are required to obtain.
During 2010 through 2014, we recovered, on average, 88.7% of the containers that were the subject of defaulted contracts which had at least 1,000 CEU on lease. We typically incur operating expenses such as repairs and repositioning when containers are recovered after a default. However, recovery expenses are typically covered under insurance and we are reimbursed above our deductible amount. Due to the above, over the last five years, our write-offs of customer receivables for our owned and managed fleet have averaged 0.5% of our lease rental income over such period.
Marketing and Customer Service
Our global sales and customer service force is responsible for developing and maintaining relationships with senior management staff at our shipping line customers, negotiating lease contracts and maintaining day-to-day coordination with operations staff at our customers. This close customer communication often assists us in negotiating lease contracts that satisfy both our financial return requirements and our customers’ operating needs. It also makes us more likely to be aware of our customers’ potential equipment shortages and makes our customers more likely to be aware of our available container inventories.
Our senior sales people have considerable industry experience and we believe that the quality of our customer relationships and the level of communication with our customers represent an important advantage for us. As of December 31, 2014, our global sales and customer service group consisted of approximately 66 people, with 15 in North America, 34 in Asia and Australia, 11 in Europe and 6 in Africa.
Customers
We believe that our staff, organization and long presence in the business have resulted in very strong relationships with our shipping line customers. Our top 20 customers, as measured by lease billings, have leased containers from us for an average of 29 years and have an average Dynamar credit rating, a common credit report used in the maritime sector, of 3.8. The Dynamar credit rating ranges from 1 to 10, with 1 indicating low credit risk. We had one customer that individually accounted for 10.6%, 10.5% and 11.7% of our lease billings for owned containers in 2014, 2013 and 2012, respectively. Our top 20 customers include 16 of the 20 largest shipping lines, as measured by container vessel fleet size. We currently have containers on-hire to approximately 400 customers. Our customers are mainly international shipping lines, but we also lease containers to freight forwarding companies and the U.S. military. Our five largest customers accounted for approximately 38.2% of our total owned and managed fleet’s 2014 lease billings. Our top five customers by lease billings in 2014 were CMA-CGM S.A., Mediteranean Shipping Company S.A., Mitsui O.S.K. Lines, Evergreen Marine Corp. Ltd. and Hanjin Shipping Co. Ltd. During 2014, 2013 and 2012, lease billings from our 20 largest container lessees by lease billings represented 74.7%, 72.1% and 73.7% of our total owned and managed fleet’s container leasing billings, respectively, with lease billings from our single largest container lessee accounting for $72.8 million, $72.6 million and $71.2 million or 11.8%, 12.0% and 12.0% of our total owned and managed fleet’s container lease billings during the respective periods. A default by any of these major customers could have a material
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adverse impact on our business, results from operations and financial condition. In addition, the largest lessees of our owned fleet are often among the largest lessees of our managed fleet. The largest lessees of our managed fleet are responsible for a significant portion of the billings that generate our management fee revenue.
Proprietary Information Technology
We have developed proprietary IT systems that allow us to monitor container status and offer our customers a high level of service. Our systems include internet-based updates regarding container availability and booking status. Our systems record the status of and provide the accounting and billing for each of our containers individually by container number. We also have the ability to produce complete management reports for each portfolio of equipment we own and manage. This makes us a preferred candidate to quickly assume management of competitors’ container fleets. We also maintain proprietary systems in support of our military business.
In addition, our systems allow our business partners to conduct certain business with us through our website, www.textainer.com. These systems allow customers to check our container inventories, review design specifications, request bookings for container pick-ups and review and approve repair bills. Our website also allows depots to download recent statements for self-billing activity and to check the status of containers.
Suppliers
We have long relationships with all of our major suppliers. We currently purchase almost all of our containers in the PRC. There are three major manufacturers of dry freight standard and specialized containers. Our operations staff reviews the designs for our containers and periodically audits the production facilities of our suppliers. In addition, we use our Asian operations group and occasionally third party inspectors to visit factories when our containers are being produced to provide an extra layer of quality control. Nevertheless, defects in our containers do sometimes occur. We work with the manufacturers to correct these defects, and our manufacturers have generally honored their warranty obligations in such cases.
Competition
According to World Cargo News, as of January 2014, the top ten container leasing companies, as measured on a TEU basis, control approximately 88.1%, and the top five container leasing companies control approximately 62.6%, of the total equipment held by all container lessors. According to this data, we are the world’s largest lessor of intermodal containers based on fleet size by TEU and we manage approximately 18.1% by TEU of the equipment held by all container leasing companies.
We compete with approximately ten other large or medium size container leasing companies, many smaller lessors, companies and financial institutions offering finance leases, and promoters of container ownership and leasing as a tax-efficient investment. It is common for our shipping line customers to utilize several leasing companies to meet their container needs.
Other lessors compete with us in many ways, including pricing, lease flexibility and supply reliability, as well as the location, availability, quality and individual characteristics of their containers and customer service. While we are forced to compete aggressively on price, we emphasize our supply reliability and high level of customer service to our customers. We invest heavily to ensure container availability in higher demand locations. We dedicate a large part of our organization to building customer relationships, maintaining close day-to-day coordination with customers’ operating staffs and have developed powerful and user-friendly systems that allow our customers to transact business with us through the internet. We believe that our close customer relationships, experienced staff, reputation for market leadership, scale efficiencies and proprietary systems provide important competitive advantages.
Legal Proceedings
From time to time we are a party to litigation matters arising in connection with the normal course of our business. While we cannot predict the outcome of these matters, in the opinion of our management, any liability
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arising from these matters will not have a material adverse effect on our business. Nevertheless, unexpected adverse future events, such as an unforeseen development in our existing proceedings, new claims brought against us or changes in our current insurance arrangements could result in liabilities that have a material adverse impact on our business.
Environmental
We are subject to federal, state, local and foreign laws and regulations relating to the protection of the environment, including those governing the discharge of pollutants to air and water, the management and disposal of hazardous substances and wastes and the cleanup of contaminated sites. We could incur substantial costs, including cleanup costs, fines and third-party claims for property damage and personal injury, as a result of violations of or liabilities under environmental laws and regulations in connection with our or our lessees’ current or historical operations or the storage of our containers. Under some environmental laws in the U.S. and certain other countries, the owner or operator of a leased container may be liable for environmental damage, cleanup or other costs in the event of a spill or discharge of material from a container without regard to the fault of the owner or operator. While we maintain certain limited liability insurance coverage as well as require our lessees to provide us with indemnity against certain losses, the insurance coverage is subject to large deductibles, limits on maximum coverage and significant exclusions and may not be sufficient to protect against any or all liabilities and such indemnities may not cover or be sufficient to protect us against losses arising from environmental damage and/or systems or services we may be required to install.
In addition to environmental regulations affecting container movement, shipping, movement and spillage, environmental regulations also impact container production and operation, including regulations on the use of chemical refrigerants due to their ozone depleting and global warming effects. Our refrigerated containers currently use R134A or R404A refrigerant. While R134A does not contain chlorofluorocarbons (“CFC’s”) , the European Union has instituted regulations to phase out the use of R134A in automobile air conditioning systems beginning in 2011 due to concern that the release of R134A into the atmosphere may contribute to global warming. While the European Union regulations do not currently restrict the use of R134A in refrigerated containers or trailers, it is possible that the phase out of R134A in automobile air conditioning systems will be extended to containers in the future and our operations could be impacted. It has been proposed that R134A usage in containers be banned beginning in 2025, although the final decision has not been made as of yet.
Container production also raises environmental concerns. The floors of dry containers are plywood made from timber which may include tropical hardwoods. Due to concerns regarding de-forestation and climate change, many countries have implemented severe restrictions on the cutting and export of this wood. Accordingly, container manufacturers have switched a significant portion of production to alternatives such as birch, bamboo, and other farm grown wood and users are also evaluating alternative designs that would limit the amount of plywood required and are also considering possible synthetic materials. New woods or other alternatives have not proven their durability over the typical life of a dry container, and if they cannot perform as well as the hardwoods have historically, the future repair and operating costs for these containers may be impacted. Also, the insulation foam in the walls of refrigerated containers requires the use of a blowing agent that contains CFC’s. Manufacturers are phasing out the use of this blowing agent in manufacturing. However, if future regulations prohibit the use or servicing of containers with insulation manufactured with this blowing agent we could be forced to incur large retrofitting expenses and these containers might bring lower rental rates and disposal prices.
Regulation
We may be subject to regulations promulgated in various countries, including the U.S., seeking to protect the integrity of international commerce and prevent the use of containers for international terrorism or other illicit activities. For example, the Container Security Initiative, the Customs-Trade Partnership Against Terrorism and Operation Safe Commerce are among the programs administered by the U.S. Department of Homeland Security that are designed to enhance security for cargo moving throughout the international transportation
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system by identifying existing vulnerabilities in the supply chain and developing improved methods for ensuring the security of containerized cargo entering and leaving the U.S. Moreover, the International Convention for Safe Containers, 1972, as amended, adopted by the International Maritime Organization, applies to new and existing containers and seeks to maintain a high level of safety of human life in the transport and handling of containers by providing uniform international safety regulations. As these regulations develop and change, we may incur increased compliance costs due to the acquisition of new, compliant containers and/or the adaptation of existing containers to meet any new requirements imposed by such regulations.
We may also be affected by legal or regulatory responses to potential global climate change. Please see Item 3, “Key Information — Risk Factors – Environmental liability and regulations may adversely affect our business, results of operations and financial condition.”
C. Organizational Structure
Our current corporate structure is as follows:
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We currently own 100% of all of our direct and indirect subsidiaries, except for TAP Funding and TW. TAP Funding is a joint venture involving TL and TAP. As of December 31, 2014, TL owned 50.1% and TAP owned 49.9% of the common shares and TL had two voting rights and TAP had one voting right of TAP Funding, with the exception of certain matters such as bankruptcy proceedings, the incurrence of debt and mergers and consolidations, which require unanimity. TW is a joint venture involving TL and WFC, a wholly-owned subsidiary of Wells Fargo and Company. As of December 31, 2014, TL owned 25% and WFC owned 75% of the common shares and related voting rights of TW.
Our principal shareholder, Halco, is owned by a discretionary trust with an independent trustee. Trencor and certain of its affiliates are the sole discretionary beneficiaries of this trust. Halco, which owned approximately 48.0% of our outstanding share capital as of December 31, 2014, is a wholly-owned subsidiary of the Halco Trust. Trencor is a South African public investment holding company, that has been listed on the JSE in Johannesburg, South Africa since 1955. Trencor’s origins date from 1929, and it currently has businesses owning, leasing and managing marine cargo containers and finance related activities.
The protectors of the Halco Trust are Neil I. Jowell, the chairman of both our board of directors and the board of directors of Trencor, Cecil Jowell, James E. McQueen and David M. Nurek all members of our board of directors and the board of directors of Trencor, and Edwin Oblowitz, a member of the board of directors of Trencor. The protectors of the trust have the power, under the trust documents, to appoint or remove the trustee. The protectors cannot be removed and have the right to nominate replacement protectors. In addition, any changes to the beneficiary of the Halco Trust must be agreed to by both the independent trustee and the protectors of the trust.
| D. | Property, Plant and Equipment |
As of December 31, 2014, our employees were located in 14 regional and area offices in 13 different countries. We maintain an office in Bermuda, where Textainer Group Holdings Limited is incorporated. We have 13 offices outside Bermuda, including our administrative office in San Francisco, California and offices in Hackensack, New Jersey; New Malden, United Kingdom; Hamburg, Germany; Durban, South Africa; Yokohama, Japan; Seoul, South Korea; Taipei, Taiwan; Singapore; Sydney, Australia; Port Klang, Malaysia; Hong Kong, and Shanghai, China. We lease our office space in Bermuda, the U.S., United Kingdom and Singapore and have exclusive agents that secure office space for us in our other locations. The lease for our Bermuda office expires in December 2016, the lease for our San Francisco office expires in December 2016, the lease for our Hackensack, New Jersey office expires in October 2016, the lease for our New Malden, United Kingdom office expires in December 2019 and our lease for our Singapore office expires in December 2015. In addition, we have non-exclusive agents who represent us in India, Indonesia, Pakistan, Republic of the Philippines, Sri Lanka, Thailand, and Vietnam. We believe that our current facilities are adequate to meet current requirements and that additional or substitute space will be available as needed to accommodate our expected growth.
| ITEM 4A. | UNRESOLVED STAFF COMMENTS |
Not applicable.
| ITEM 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS |
The following Operating and Financial Review and Prospects should be read in conjunction with our audited consolidated financial statements and related notes included elsewhere in this Annual Report on Form 20-F. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results may differ materially from those contained in or implied by any forward-looking statements. See “Information Regarding Forward-Looking Statements; Cautionary Language.” Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report on Form 20-F, particularly in Item 3, “Key Information - Risk Factors.”
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Dollar amounts in this section of this Annual Report on Form 20-F are expressed in thousands of U.S. dollars unless otherwise indicated.
Executive Summary
Operating since 1979, we are the world’s largest lessor of intermodal containers based on fleet size, with a total fleet of more than 2.1 million containers, representing more than 3.2 million TEU. We had solid results in 2014, including record total revenues and fleet size, which demonstrates our continued successful execution of our growth strategy and industry leading position. Specifically, in 2014, (i) we grew our owned and managed fleet to a total size of over 3.2 million TEU with the acquisition of 281,000 TEU of new standard dry freight containers, 14,000 TEU of new refrigerated containers, 8,000 TEU of open top and flat rack containers and 146,000 TEU of used containers in 2014 following the acquisition of 33,000 TEU of new containers in the fourth quarter of 2013 for lease out in 2014, representing approximately $925 million in capital expenditures, (ii) we increased the owned portion of our total fleet to 78.9% as of December 31, 2014 from 75.6% as of December 31, 2013, (iii) we completed over $2.4 billion of financing in the debt markets, resulting in over $280 million in net incremental debt funding, (iv) utilization averaged 96.1% in 2014, reaching 97.5% in the fourth quarter of 2014; (v) we received a letter from the Internal Revenue Service (“IRS”) that it had completed its examination of TGH’s tax return for 2010 and would make no changes to the return as filed, resulting in the recognition of a discrete benefit of $22.4 million for the re-measurement of our unrecognized tax benefits for the impacted years; and (vi) we reached a $9.9 million settlement, $7.9 million of which related to our owned fleet; for outstanding claims we had in bankruptcy proceedings with one of our Korean lessees for past due billings. Refer to “2015 Outlook” below for further discussion.
Our business comprises three reportable segments for financial reporting purposes: Container Ownership, Container Management and Container Resale. Our total revenues primarily consist of leasing revenues derived from the leasing of our owned containers and, to a lesser extent, fees received for managing containers owned by third parties, equipment resale and military management. The most important driver of our profitability is the extent to which net operating income on our owned fleet and management fee income exceed our operating costs. The key drivers of our net operating income are fleet size, rental rates, direct costs and utilization. Our operating costs primarily consist of depreciation and amortization, interest expense, direct operating expenses and administrative expenses. Our lessees are generally responsible for loss of or damage to a container beyond ordinary wear and tear, and they are required to purchase insurance to cover any other liabilities.
Key Factors Affecting Our Performance
We believe there are a number of key factors that have affected, and are likely to continue to affect, our operating performance. These key factors include the following, among others:
| • | the demand for leased containers; |
| • | lease rates; |
| • | our ability to lease our new containers shortly after we purchase them; |
| • | prices of new and used containers and the impact of changing prices on the residual value of our owned containers; |
| • | remarketing risk; |
| • | the creditworthiness of our customers; |
| • | further consolidation of container manufacturers and/or decreased access to new containers; and |
| • | global and macroeconomic factors that affect trade generally, such as recessions, terrorist attacks, pandemics or the outbreak of war and hostilities. |
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For further details of these and other factors which may affect our business and results of operations, see Item 3, “Key Information - Risk Factors.”
2015 Outlook
For 2015, we expect business conditions to remain similar to 2014. While we believe our utilization will remain high, we also believe competition will remain strong with continued pressure on rental rates due to the high level of liquidity available to container lessors coupled with low new container prices, ample factory capacity and low interest rates. Two factors that could have a positive effect on our financial performance, an increase in interest rates and an increase in new container prices, seem less likely now than they did six months ago. The strong U.S. dollar, lower oil prices and weaker projected global growth suggest that increases in interest rates are unlikely in the near term. Unless steel prices or demand for containers increases, neither of which we expect in the short term, we do not believe that an increase in new container prices will be likely. We have invested and will continue to invest in new containers only when the projected returns meet or exceed our investment criteria. Furthermore, we believe that over a longer-term horizon, returns earned on containers purchased in today’s lower-priced environment will benefit when container prices or interest rates increase and these containers re-price or are sold under stronger market conditions.
Revenue
Our revenue comprises lease rental income, management fees, trading container sale proceeds and gain on sale of containers, net.
Lease Rental Income. We generate lease rental income by leasing our owned containers to container shipping lines and other customers. Lease rental income comprises daily per diem rental charges due under the lease agreements, together with payments for other charges set forth in the leases, such as handling fees, drop-off charges and pick-up charges and credits (together “geography revenue”) and charges for a damage protection plan (“DPP”). The operating results of our owned container business are determined by the amount by which our container rental revenue exceeds our ownership costs, consisting primarily of depreciation, interest expense, storage, handling and other direct operating expenses and management costs.
Utilization is a key performance indicator that demonstrates how much of our equipment is on lease at a point in time or over a period of time. We measure utilization on the basis of CEU on lease, dividing the actual number of CEU days on-hire by actual CEU days available for lease. We calculate containers available for lease by excluding containers that have been manufactured for us but have not yet been delivered to a lessee and containers designated as held-for-sale units. Our utilization is primarily a function of our current lease structure, overall level of container demand, the location of our available containers and prevailing lease terms by location. The location of available containers is critical because containers available in high-demand locations are more readily leased and are typically leased on more favorable terms than containers available in low-demand locations.
Lease rental income is also affected by per diem rates. The per diem rate for a lease is set at the time we enter into a lease agreement. Our long-term per diem rate for new containers has historically been strongly influenced by new container pricing (which in turn is heavily influenced by the cost of container manufacturing inputs such as steel, paint, wood, labor and other components), interest rates, the balance of supply and demand for containers at a particular time and location, our estimate of the residual value of the container at the end of its useful life in marine service, the type of the container being leased, container purchasing activities by container shipping lines and competitors, and efficiencies in container utilization by container shipping lines. Average per diem rates for containers in our owned fleet and in the portfolios of containers comprising our managed fleet change slowly in response to changes in new container prices because existing lease agreements can only be re-priced upon the expiration of the lease.
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Management Fees. Management fee revenue is generated by our management services, which include the acquisition, leasing, repair, repositioning, storage and disposition of containers. We provide these management services pursuant to management agreements with container investors. Under these agreements, we earn fees for the acquisition of new containers and the management of the containers, and a sales commission upon disposition of containers under management. The management agreements typically cover the entire economic life of the containers.
Our acquisition fees are calculated as a percentage of the cost of the container. Our management fees are calculated as a percentage of net operating income of the containers. Net operating income is calculated as the lease payment and any other revenue attributable to a container, minus operating expenses related to that container (but not depreciation or financing expenses of the container investor). The management fee percentage generally varies based upon the type of lease and the terms of the management agreement. Management fee percentages for long-term leases are generally lower than management fee percentages for master or spot leases because less daily involvement by management personnel is required to manage long-term leases. Our sales commissions are either fixed dollar amount or based on a percentage of the sales price.
All rental operations are conducted worldwide in our name as agent for the container investors. Revenues, customer accounts receivable, operating expenses, and vendor payables arising from direct container operations of the managed portion of our fleet are excluded from our financial statements.
Trading Container Sales Proceeds. Our Container Resale Division purchases used containers from third parties, primarily shipping lines, and resells these containers to a wide variety of buyers. This activity is reported as trading container sales proceeds.
Gains on Sale of Containers, net. Gain on sale of containers, net, represents the excess of the sale price of our owned fleet containers over their net book value at the time of sale. Containers are generally sold at the end of their useful lives in marine service or when we believe it is financially attractive for us to do so, considering the location, sale price, cost of repair and possible repositioning expenses.
Gain on sale of containers, net, also includes gains and losses recognized at the inception of sales-type leases, representing the excess of the estimated fair value of containers placed on sales-type leases over their book value.
Operating Expenses
Our operating expenses include direct container expenses and depreciation of container rental equipment applicable to our owned containers, as well as general and administrative expenses for our total fleet.
Direct Container Expenses. Storage, handling, maintenance, repositioning and other direct container expenses are operating costs of our owned fleet. Storage and handling expenses occur when our customers drop off containers at depots around the world. Storage and handling expenses vary significantly by location. Other direct container expenses include maintenance expenses, which are the result of normal wear and tear on the containers, and repositioning expenses, which are incurred when we contract to move containers from locations where our inventories exceed actual or expected demand to locations with higher demand. Storage, handling, maintenance, repositioning and other direct container expenses are directly related to the number of containers in our owned fleet and inversely related to our utilization rate for those containers. As utilization increases, we typically have lower storage, handling, maintenance and repositioning expenses. We use the direct expense method of accounting for maintenance and repairs.
Our leases require the lessee to pay for any damage to the container beyond normal wear and tear at the end of the lease term. We also offer a DPP pursuant to which the lessee pays a fee over the term of the lease (per diem) or a lump sum upon return of containers in exchange for not being charged for certain damages at the end of the lease term. This revenue is recognized as earned over the term of the lease. We do not recognize revenue
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and related expense over the lease term for customers who are billed at the end of the lease term under the DPP or for other lessees who do not participate in the DPP. Based on past history, there is uncertainty as to collectability of these amounts from lessees who are billed at the end of the lease term because the amounts due under the DPP are typically re-negotiated at the end of the lease term or the lease term is extended.
Cost of Trading Containers Sold. We buy used containers for resale, primarily from shipping lines. Cost of trading containers sold represents the cost of these containers and is recognized as an expense at the time the containers are sold.
Depreciation Expense and Container Impairment. We depreciate our non-refrigerated containers other than open top and flat rack containers, refrigerated containers, tank containers and open top and flat rack containers on a straight-line basis over a period of 13, 12, 20 and 14 years, respectively, to a fixed residual value. We regularly assess both the estimated useful life of our containers and the expected residual values, and, when warranted, adjust our depreciation estimate accordingly. Depreciation expense will vary over time based upon the number and the purchase price of containers in our owned fleet. Beginning in the first quarter of 2013, depreciation of our existing owned fleet decreased as a result of an increase in the estimated useful life of our non-refrigerated containers other than open top and flat rack containers. However, this decrease was more than offset as a result of an increase in the size of our owned fleet in subsequent periods.
We evaluate our containers held for use in our leasing operation to determine whether there has been any event such as a decline in results of operations or residual values that would cause the book value of our containers held for use to be impaired. When an impairment exists, the containers are written down to their fair value and the amount of the write down is recorded in depreciation expense and container impairment.
Amortization Expense. Amortization expense represents the amortization of the price paid for the rights to manage the container fleets of Capital Intermodal Limited, Capital Intermodal GmbH, Capital Intermodal Inc., Capital Intermodal Assets Limited and Xines Limited (collectively “Capital Intermodal”); Amphibious Container Leasing Limited (“Amficon”); Capital Lease Limited, Hong Kong (“Capital”) and Gateway Management Services Limited (“Gateway”). The purchase prices are being amortized over the expected useful lives of the contracts on a pro-rata basis to the expected management fees.
General and Administrative Expense. Our general and administrative expenses are primarily employee-related costs such as salary, employee benefits, rent, travel and entertainment costs, as well as expenses incurred for outside services such as legal, consulting, tax and audit-related fees.
Short-term Incentive Compensation Expense. Short-term incentive compensation expense is the annual bonus plan in which all company employees participate. The compensation amounts are determined on an annual basis based on the company’s performance.
Long-term Incentive Compensation Expense. Long-term incentive compensation expense represents costs recorded for share-based and cash compensation that vests over several years in which some company employees participate.
Bad Debt Expense, net. Bad debt expense, net, represents the amounts recorded to provide for an allowance for the doubtful collection of accounts receivable for the owned fleet.
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A. Operating Results
Comparison of the Years Ended December 31, 2014, 2013 and 2012
The following table summarizes our total revenues for the years ended December 31, 2014, 2013 and 2012 and percentage changes between those periods:
| Year Ended December 31, | % Change Between | |||||||||||||||||||
| 2014 | 2013 | 2012 | 2014 and 2013 | 2013 and 2012 | ||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||
| Lease rental income |
$ | 504,225 | $ | 468,732 | $ | 383,989 | 7.6 | % | 22.1 | % | ||||||||||
| Management fees |
17,408 | 19,921 | 26,169 | (12.6 | %) | (23.9 | %) | |||||||||||||
| Trading container sales proceeds |
27,989 | 12,980 | 42,099 | 115.6 | % | (69.2 | %) | |||||||||||||
| Gains on sale of containers, net |
13,469 | 27,340 | 34,837 | (50.7 | %) | (21.5 | %) | |||||||||||||
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| Total revenues |
$ | 563,091 | $ | 528,973 | $ | 487,094 | 6.4 | % | 8.6 | % | ||||||||||
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Lease rental income increased $35,493 (7.6%) from 2013 to 2014. This increase was primarily due to a 13.4% increase in our owned fleet size and a 1.3 percentage point increase in utilization for our owned fleet, partially offset by a 7.1% decrease in average per diem rental rates. Lease rental income increased $84,743 (22.1%) from 2012 to 2013. This increase was primarily due to a 29.7% increase in our owned fleet size, partially offset by a 3.4% decrease in average per diem rental rates and a 2.7 percentage point decrease in utilization for our owned fleet.
Management fees decreased $2,513 (-12.6%) from 2013 to 2014 due to a $1,002 decrease resulting from a 5.9% decrease in the size of the managed fleet primarily due to our acquisitions throughout 2014 of approximately 42,000 TEU of containers that we previously managed, a $933 decrease due to lower fleet profitability, a $338 decrease from lower acquisition fees due to fewer managed container purchases and a $240 decrease in sales commissions. Management fees decreased $6,248 (-23.9%) from 2012 to 2013 due to a $4,164 decrease resulting from a 22.5% decrease in the size of the managed fleet primarily due to our acquisitions throughout 2012 of approximately 155,000 TEU of containers that we previously managed, a $948 decrease from lower acquisition fees due to fewer managed container purchases, a $763 decrease in sales commissions and a $373 decrease due to lower fleet profitability.
Trading container sales proceeds increased $15,009 (115.6%) from 2013 to 2014 due to a $23,997 increase resulting from a 184.9% increase in unit sales due to an increase in the number of trading containers that we were able to source and sell, partially offset by a $8,988 decrease due to a decrease in average sales proceeds per container. Trading container sales proceeds decreased $29,119 (-69.2%) from 2012 to 2013 due to a $28,403 decrease resulting from a 67.5% decrease in unit sales due to a decrease in the number of trading containers that we were able to source and sell and a $716 decrease due to a decrease in average sales proceeds per container.
Gains on sale of containers, net, decreased $13,871 (-50.7%) from 2013 to 2014 due to a $16,707 decrease resulting from a decrease in average sales proceeds of $203 per unit and a $1,731 decrease resulting from 826 containers placed on sales-type leases in 2014 compared to 3,539 containers placed on sales-type leases in 2013, partially offset by a $3,591 increase resulting from a 13.8% increase in the number of containers sold and a $976 increase resulting from an increase in average gains on sales-type leases of $276 per unit. Gains on sale of containers, net, decreased $7,497 (-21.5%) from 2012 to 2013 due to a $20,536 decrease resulting from a decrease in average sales proceeds of $283 per unit, a $2,431 decrease resulting from a decrease in average net gains on sales-type leases of $343 per unit and a $1,283 decrease in net gains on sales-type leases resulting from 3,539 containers placed on sales-type leases in 2013 compared to 7,081 containers placed on sales-type leases in 2012, partially offset by a $16,753 increase resulting from a 56.2% increase in the number of containers sold.
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The following table summarizes our total operating expenses for the years ended December 31, 2014, 2013 and 2012 and percentage changes between those periods:
| Year Ended December 31, | % Change Between | |||||||||||||||||||
| 2014 | 2013 | 2012 | 2014 and 2013 | 2013 and 2012 | ||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||
| Direct container expense |
$ | 47,446 | $ | 43,062 | $ | 25,173 | 10.2 | % | 71.1 | % | ||||||||||
| Cost of trading containers sold |
27,465 | 11,910 | 36,810 | 130.6 | % | (67.6 | %) | |||||||||||||
| Depreciation expense and container impairment |
176,596 | 148,974 | 104,844 | 18.5 | % | 42.1 | % | |||||||||||||
| Amortization expense |
4,010 | 4,226 | 5,020 | (5.1 | %) | (15.8 | %) | |||||||||||||
| General and administrative expense |
25,778 | 24,922 | 23,015 | 3.4 | % | 8.3 | % | |||||||||||||
| Short-term incentive compensation expense |
4,075 | 1,779 | 5,310 | 129.1 | % | (66.5 | %) | |||||||||||||
| Long-term incentive compensation expense |
6,639 | 4,961 | 6,950 | 33.8 | % | (28.6 | %) | |||||||||||||
| Bad debt (recovery) expense, net |
(474 | ) | 8,084 | 1,525 | (105.9 | %) | 430.1 | % | ||||||||||||
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| Total operating expenses |
$ | 291,535 | $ | 247,918 | $ | 208,647 | 17.6 | % | 18.8 | % | ||||||||||
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Direct container expense increased $4,384 (10.2%) from 2013 to 2014 primarily due to an increase in the size of our owned fleet, partially offset by an increase in utilization for our owned fleet and included a $2,912 increase in repositioning expense and a $1,244 increase in repair and recovery costs for slow-paying and bankrupt lessees. Direct container expense increased $17,889 (71.1%) from 2012 to 2013 primarily due to a decrease in utilization and an increase in the size of our owned fleet and included a $11,867 increase in storage expense, a $1,873 increase in handling expense and a $1,428 increase in maintenance expense.
Cost of trading containers sold increased $15,555 (130.6%) from 2013 to 2014 due to a $22,019 increase resulting from a 184.9% increase in the number of containers sold due to an increase in the number of trading containers that we were able to source and sell, partially offset by a $6,464 decrease resulting from a 19.1% decrease in the average cost per unit of containers sold. Cost of trading containers sold decreased $24,900 (-67.6%) from 2012 to 2013 due to a $24,835 decrease resulting from a 67.5% decrease in unit sales due to a decrease in the number of trading containers that we were able to source and sell and a $65 decrease resulting from a 0.5% decrease in the average cost per unit of containers sold.
Depreciation expense and container impairment increased $27,622 (18.5%) from 2013 to 2014 due to a $23,405 increase resulting from an increase in the size of our owned fleet and an increase in impairments of $7,243 to write down the value of containers held for sale to their estimated fair value less cost to sell, partially offset by a $3,026 decrease in impairments for containers that were economically unrecoverable from lessees in default. Depreciation expense and container impairment increased $44,130 (42.1%) from 2012 to 2013 due to a $63,568 increase resulting from an increase in the size of our owned fleet and an impairment of $4,677 in 2013 for containers that were economically unrecoverable from lessees in default, partially offset by a $24,115 decrease due to an increase in estimated useful lives used in the calculation of depreciation expense for non-refrigerated containers other than open top and flat rack containers. We experienced a significant increase in the useful lives of our non-refrigerated containers other than open top and flat rack containers over the few years prior to January 1, 2013 as we entered into leases with longer terms and container prices increased resulting in shipping lines leasing containers for longer periods. Based on this extended period of longer useful lives and our expectations that new equipment lives would remain near those levels, we increased the estimated useful lives of our non-refrigerated containers other than open top and flat rack containers from 12 years to 13 years, effective January 1, 2013.
Amortization expense was $4,010, $4,226 and $5,020 in 2014, 2013 and 2012, respectively. Amortization expense represents the amortization of the amounts paid to acquire the rights to manage the Capital Intermodal, Amficon, Capital and Gateway fleets. Amortization expense decreased $216 (-5.1%) from 2013 to 2014 primarily due to a revision in amortization estimates for management fees for the Capital, Amficon and Capital
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Intermodal fleets. Amortization expense decreased $794 (-15.8%) from 2012 to 2013 primarily due to the August 2012 acquisition of the Gateway fleet that we previously managed and the September 2012 acquisition of a portion of the Capital fleet that we previously managed.
General and administrative expense increased $856 (3.4%) from 2013 to 2014 primarily due to a $730 increase in compensation costs, a $207 increase in rent expense and a $198 increase in information technology costs, partially offset by a $250 decrease in travel costs. General and administrative expense increased $1,907 (8.3%) from 2012 to 2013 primarily due to a $1,382 increase in professional fees, a $207 increase in compensation costs and $149 increase in travel costs.
Short-term incentive compensation expense increased $2,296 (129.1%) from 2013 to 2014 primarily due to an increase in the incentive compensation awards for 2014 compared to 2013. Short-term incentive compensation expense decreased $3,531 (-66.5%) from 2012 to 2013 primarily due to a decrease in the incentive compensation awards for 2013 compared to 2012.
Long-term incentive compensation expense increased $1,678 (33.8%) from 2013 to 2014 primarily due to additional share options and restricted share units that were each granted under the 2007 Share Incentive Plan (the “2007 Plan”) in November 2013 and 2014, partially offset by share options and restricted share units granted under the 2007 Plan in November 2009 and 2008, respectively, that vested in January 2014. Long-term incentive compensation expense decreased $1,989 (-28.6%) from 2012 to 2013 primarily due to share options and restricted share units that were granted under the 2007 Plan in November 2008 and October 2007, respectively, that vested in January 2013 and an adjustment to forfeiture rates, partially offset by share options and restricted share units that were each granted under the 2007 Plan in November 2012 and 2013.
Bad debt (recovery) expense, net, changed from a net expense of $8,084 in 2013 to a net recovery of $474 in 2014 primarily due to a provision of $6,104 in 2013 resulting from the bankruptcy of one customer and the default of two additional customers, management’s assessment that the financial condition of certain of the Company’s lessees and their ability to make required payments had deteriorated during 2013 and 2014, collections on accounts during 2013 that had previously been included in the allowance for doubtful accounts at December 31, 2012 and $4,958 of proceeds received during 2014 from the settlement of outstanding claims with a bankrupt lessee for billings included in the allowance for doubtful accounts. Bad debt expense, net, increased $6,559 (430.1%) from 2012 to 2013 primarily due to a provision of $6,104 in 2013 resulting from the bankruptcy of one customer and the default of two additional customers and management’s assessment that the financial condition of certain of the Company’s lessees and their ability to make required payments had deteriorated in 2013, partially offset by collections on accounts during 2013 that had previously been included in the allowance for doubtful accounts at December 31, 2012.
The following table summarizes other income (expenses) for the years ended December 31, 2014, 2013 and 2012 and percentage changes between those periods:
| Year Ended December 31, | % Change Between | |||||||||||||||||||
| 2014 | 2013 | 2012 | 2014 and 2013 | 2013 and 2012 | ||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||
| Interest expense |
$ | (85,931 | ) | $ | (85,174 | ) | $ | (72,886 | ) | 0.9 | % | 16.9 | % | |||||||
| Interest income |
119 | 122 | 146 | (2.5 | %) | (16.4 | %) | |||||||||||||
| Realized losses on interest rate swaps, collars and caps, net |
(10,293 | ) | (8,409 | ) | (10,163 | ) | 22.4 | % | (17.3 | %) | ||||||||||
| Unrealized gains on interest rate swaps, collars and caps, net |
1,512 | 8,656 | 5,527 | (82.5 | %) | 56.6 | % | |||||||||||||
| Bargain purchase gain |
— | — | 9,441 | N/A | N/A | |||||||||||||||
| Other, net |
23 | (45 | ) | 44 | (151.1 | %) | (202.3 | %) | ||||||||||||
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| Net other expense |
$ | (94,570 | ) | $ | (84,850 | ) | $ | (67,891 | ) | 11.5 | % | 25.0 | % | |||||||
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Interest expense increased $757 (0.9%) from 2013 to 2014 and $12,288 (16.9%) from 2012 to 2013. Interest expense for 2014 included the write-off of unamortized debt issuance costs of $6,424 and $390 related to the early redemption of Textainer Marine Containers Limited’s (“TMCL”) bonds and the amendment of Textainer Marine Containers II Limited’s (“TMCL II”) secured debt facility, respectively. Interest expense for 2013 included the write-off of unamortized debt issuance costs of $650 and $245 related to the termination of TAP Funding Ltd.’s (“TAP Funding”) revolving credit facility and the amendment of TMCL II’s secured debt facility, respectively. Interest expense for 2012 included the write-off of unamortized debt issuance costs of $1,463 related to the termination of TMCL’s secured debt facility. Excluding the write-off of unamortized debt issuance costs, the decrease in interest expense for 2014 compared to 2013 was due to a $15,215 decrease resulting from a decrease in average interest rates of 0.55 percentage points, partially offset by a $10,053 increase resulting from an increase in average debt balances of $292,895. Excluding the write-off of unamortized debt issuance costs, the increase in interest expense for 2013 compared to 2012 was due to a $27,734 increase resulting from an increase in average debt balances of $686,810, partially offset by a $14,878 decrease due to a decrease in average interest rates on the Company’s debt of 0.61 percentage points.
Realized losses on interest rate swaps, collars and caps, net increased $1,884 (22.4%) from 2013 to 2014 due to a $5,386 increase resulting from an increase in average interest rate swap notional amounts of $390,075, partially offset by a $3,502 decrease from a decrease in the average net settlement differential between variable interest rates received compared to fixed interest rates paid on interest rate swaps of 0.35 percentage points. Realized losses on interest rate swaps, collars and caps, net decreased $1,754 (-17.3%) from 2012 to 2013 due to a $3,848 decrease resulting from a decrease in the average net settlement differential between variable interest rates received compared to fixed interest rates paid on interest rate swaps of 0.63 percentage points, partially offset by a $2,094 increase resulting from an increase in average interest rate swap notional amounts of $104,061.
Unrealized gains on interest rate swaps, collars and caps decreased $7,114 (-82.5%) from 2013 to 2014 and increased $3,129 (56.6%) from 2012 to 2013. The decrease in unrealized gains on interest rate swaps, collars and caps, net during 2014 compared to 2013 was primarily due to a lower increase in long-term interest rates during 2014 compared to 2013. The increase in unrealized gains on interest rate swaps, collars and caps, net during 2013 compared to 2012 was primarily due to a higher increase in long-term interest rates during 2013 compared to 2012. Under the majority of our interest rate swap agreements, we make interest payments based on fixed interest rates and receive payments based on the applicable prevailing variable interest rate. As long-term interest rates increased during 2014, 2013 and 2012, the current market rate on interest rate swap agreements with similar terms decreased relative to our existing interest rate swap agreements, which resulted in the unrealized gains on interest rate swaps, collars and caps, net during each of the periods.
On December 20, 2012, our wholly-owned subsidiary, Textainer Limited (“TL”) (a Bermuda company), purchased 50.1% of the outstanding common shares of TAP Funding for cash consideration of $20,532 and reduced management fees with a fair value of $3,852. The purchase of TAP Funding’s common shares was accounted for as a business combination and, because the fair value of the net assets acquired was greater than the fair value of the consideration transferred, a bargain purchase gain of $9,441 was recorded in 2012.
The following table summarizes income tax expense and net (loss) income attributable to the noncontrolling interests for the years ended December 31, 2014, 2013 and 2012 and percentage changes between those periods:
| Year Ended December 31, | % Change Between | |||||||||||||||||||
| 2014 | 2013 | 2012 | 2014 and 2013 | 2013 and 2012 | ||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||
| Income tax (benefit) expense |
$ | (18,068 | ) | $ | 6,831 | $ | 5,493 | (364.5 | %) | 24.4 | % | |||||||||
| Net income (loss) attributable to the noncontrolling interests |
$ | 5,692 | $ | 6,565 | $ | (1,887 | ) | (13.3 | %) | (447.9 | %) | |||||||||
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Income tax (benefit) expense changed from an income tax expense of $6,831 in 2013 to an income tax benefit of $18,068 in 2014. In November 2012, the Company received notification from the IRS that the 2010 United States tax return for TGH had been selected for examination. On March 5, 2014 the IRS issued a letter indicating that it had completed its examination of TGH’s tax return for 2010 and would make no changes to the return as filed. As a result of this, the Company recognized a discrete benefit of $22,408 during 2014 for the re-measurement of its unrecognized tax benefits for the impacted years. The remaining change in income tax (benefit) expense in 2014 compared to 2013 was due to a $163 decrease in reserves for uncertain tax positions in 2014 compared to a $5,898 increase in reserves for uncertain tax positions in 2013 and a $280 decrease resulting from a lower level of income before tax and noncontrolling interests, partially offset by a $2,564 increase resulting from a higher effective tax rate excluding the re-measurement of unrecognized tax benefits and released liabilities for uncertain tax positions and a $1,286 increase resulting from a lower release of reserves for uncertain tax positions in 2014 compared to 2013. Income tax expense increased $1,338 (24.4%) from 2012 to 2013 due to a $2,065 increase resulting from a higher effective tax rate excluding released liabilities for uncertain tax positions and a $1,759 increase resulting from a lower release of reserves for uncertain tax positions in 2013 compared to 2012, partially offset by a $2,428 decrease resulting from a lower increase in reserves for uncertain tax positions in 2013 compared to 2012 and a $58 decrease resulting from a lower level of income before tax and noncontrolling interests.
Net income attributable to the noncontrolling interests in 2014 and 2013 represents the noncontrolling interest’s portion of TAP Funding and TW Container Leasing, Ltd.’s (“TW”) net income. Net loss attributable to the noncontrolling interests in 2012 primarily represents the noncontrolling interest’s portion of TW’s net loss. See Item 4, “Information on the Company—History and Development of the Company.”
Segment Information
The following table summarizes our income before income tax and noncontrolling interests attributable to each of our business segments for the years ended December 31, 2014 and 2013 and 2012 (before inter-segment eliminations) and percentage changes between those periods:
| Year Ended December 31, | % Change Between | |||||||||||||||||||
| 2014 | 2013 | 2012 | 2014 and 2013 | 2013 and 2012 | ||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||
| Container ownership |
$ | 143,618 | $ | 160,145 | $ | 175,291 | (10.3 | %) | (8.6 | %) | ||||||||||
| Container management |
30,298 | 33,011 | 36,956 | (8.2 | %) | (10.7 | %) | |||||||||||||
| Container resale |
10,249 | 10,740 | 12,787 | (4.6 | %) | (16.0 | %) | |||||||||||||
| Other |
(3,291 | ) | (3,841 | ) | (3,890 | ) | (14.3 | %) | (1.3 | %) | ||||||||||
| Eliminations |
(3,888 | ) | (3,850 | ) | (10,588 | ) | 1.0 | % | (63.6 | %) | ||||||||||
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| Income before income tax and noncontrolling interests |
$ | 176,986 | $ | 196,205 | $ | 210,556 | (9.8 | %) | (6.8 | %) | ||||||||||
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Income before income tax and noncontrolling interests attributable to the Container Ownership segment decreased $16,527 (-10.3%) from 2013 to 2014. The following table summarizes the variances included within this decrease:
| Increase in depreciation expense and container impairment |
$ | (28,247 | )(1) | |
| Decrease in gains on sale of containers, net |
(13,871 | )(2) | ||
| Decrease in unrealized gains on interest rate swaps, collars and caps, net |
(7,144 | )(3) | ||
| Increase in direct container expense |
(7,112 | )(4) | ||
| Increase in realized losses on interest rate swaps, collars and caps, net |
(1,884 | )(5) | ||
| Increase in interest expense |
(757 | )(6) | ||
| Increase in overhead expense |
(527 | )(7) | ||
| Increase in lease rental income |
34,949 | (8) | ||
| Change from bad debt expense, net in 2013 to a bad debt recovery, net in 2014 |
8,524 | (9) | ||
| Other |
(458 | ) | ||
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| $ | (16,527 | ) | ||
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| (1) | The increase in depreciation expense and container impairment was primarily due to a $24,030 increase resulting from an increase in the size of our owned fleet and an increase in impairments of $7,243 to write down the value of containers held for sale to their estimated fair value less cost to sell, partially offset by a decrease in impairments of $3,026 for containers that were economically unrecoverable from lessees in default. |
| (2) | The decrease in gains on sale of containers, net was due to a decrease in average sales proceeds of $203 per unit and a 76.6% decrease in the number of containers placed on sales-type leases, partially offset by a 13.8% increase in the number of containers sold and an increase in average gains on sales-type leases of $276 per unit. |
| (3) | The decrease in unrealized gains on interest rate swaps, collars and caps, net was due to a lower increase in long-term interest rates in 2014 compared to 2013. |
| (4) | The increase in direct container expense was primarily due to an increase in the size of our owned fleet, partially offset by an increase in utilization for our owned fleet and included increases in repositioning expense and repair and recovery costs for slow-paying and bankrupt lessees. The increase in direct container expense also included an increase in inter-segment management fees of $3,273 paid to our Container Management segment primarily due to an increase in the size and improved performance of the owned fleet, partially offset by a decrease in inter-segment sales commissions of $163 paid to our Container Resale segment primarily due to decrease in average sales proceeds of owned container sales. Inter-segment management fees and sales commissions are eliminated in consolidation. |
| (5) | The increase in realized losses on interest rate swaps, collars and caps, net was due to an increase in average interest rate swap notional amounts of $390,075, partially offset by a decrease in the average net settlement differential between variable interest rates received compared to fixed interest rates paid on interest rate swaps of 0.35 percentage points. |
| (6) | Interest expense for 2014 included the write-off of unamortized debt issuance costs of $6,424 and $390 related to the early redemption of TMCL’s bonds and the amendment of TMCL II’s secured debt facility, respectively. Interest expense for 2013 included the write-off of unamortized debt issuance costs of $650 and $245 related to the termination of TAP Funding’s revolving credit facility and the amendment of TMCL II’s secured debt facility, respectively. Excluding the write-off of unamortized debt issuance costs, the decrease in interest expense for 2014 compared to 2013 was due to an increase in average interest rates of 0.55 percentage points, partially offset by an increase in average debt balances of $292,895. |
| (7) | The increase in overhead expense was primarily due to an increase in overhead management fees paid to our Container Management segment resulting primarily from an increase in compensation costs. |
| (8) | The increase in lease rental income was primarily due to a 13.4% increase in our owned fleet size and a 1.3 percentage point increase in utilization for our owned fleet, partially offset by a 7.1% decrease in average per diem rental rates. |
| (9) | Bad debt (recovery) expense, net, changed from a net expense of $7,816 in 2013 to a net recovery of $708 in 2014 primarily due to a provision of $6,104 in 2013 resulting from the bankruptcy of one customer and the |
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| default of two additional customers, management’s assessment that the financial condition of certain of the Company’s lessees and their ability to make required payments had deteriorated during 2013 and 2014, collections on accounts during 2013 that had previously been included in the allowance for doubtful accounts at December 31, 2012 and $4,958 of proceeds received during 2014 from the settlement of outstanding claims with a bankrupt lessee for billings included in the allowance for doubtful accounts. |
Income before income tax and noncontrolling interests attributable to the Container Ownership segment decreased $15,146 (-8.6%) from 2012 to 2013. The following table summarizes the variances included within this decrease:
| Increase in depreciation expense and container impairment |
$ | (44,270 | )(1) | |
| Increase in direct container expense |
(25,045 | )(2) | ||
| Increase in interest expense |
(12,288 | )(3) | ||
| Bargain purchase gain in 2012 |
(9,441 | )(4) | ||
| Decrease in gains on sale of containers, net |
(7,489 | )(5) | ||
| Increase in bad debt expense |
(6,288 | )(6) | ||
| Increase in lease rental income |
84,520 | (7) | ||
| Increase in unrealized gains on interest rate swaps, collars and caps, net |
3,129 | (8) | ||
| Decrease in realized losses on interest rate swaps, collars and caps, net |
1,754 | (9) | ||
| Other |
272 | |||
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| $ | (15,146 | ) | ||
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| (1) | The increase in depreciation expense and container impairment was due to a $63,708 increase resulting from an increase in the size of our owned fleet and an impairment of $4,677 in 2013 for containers that were economically unrecoverable from lessees in default, partially offset by a $24,115 decrease due to an increase in the estimated useful lives used in the calculation of depreciation expense for non-refrigerated containers other than open top and flat rack containers. |
| (2) | The increase in direct container expense was primarily due to a decrease in utilization for our owned fleet and an increase in the size of our owned fleet and included increases in storage, handling and maintenance expenses. The increase in direct container expense also included increases in inter-segment management fees and sales commissions of $3,768 and $3,069, respectively, paid to our Container Management and Container Resale segments, respectively, primarily due to an increase in the size and a decline in the performance of the owned fleet and an increase in the volume of owned container sales. Inter-segment management fees and sales commissions are eliminated in consolidation. |
| (3) | Interest expense for 2013 included the write-off of unamortized debt issuance costs of $650 and $245 related to the termination of TAP Funding’s revolving credit facility and the amendment of TMCL II’s secured debt facility, respectively. Interest expense for 2012 included the write-off of unamortized debt issuance costs of $1,463 related to the termination of TMCL’s secured debt facility. Excluding the write-off of unamortized debt issuance costs, the increase in interest expense was due to an increase in the average debt balances of $686,810, partially offset by a decrease in average interest rates of 0.61 percentage points. |
| (4) | The noncash bargain purchase gain in 2012 resulted from TL’s acquisition of a controlling interest in TAP Funding. |
| (5) | The decrease in gains on sale of containers, net was due to a decrease in average sales proceeds of $283 per unit, a decrease in average net gains on sales-type leases of $343 per unit and a 50.0% decrease in the number of containers placed on sales-type leases, partially offset by a 56.2% increase in the number of containers sold. |
| (6) | The increase in bad debt expense was primarily due to a provision of $6,104 in 2013 resulting from the bankruptcy of one customer and the default of two additional customers and management’s assessment that the financial condition of certain of the Company’s lessees and their ability to make required payments had deteriorated in 2013, partially offset by collections on accounts during 2013 that had previously been included in the allowance for doubtful accounts at December 31, 2012. |
| (7) | The increase in lease rental income was primarily due to a 29.7% increase in our owned fleet size, partially offset by a 3.4% decrease in average per diem rental rates and a 2.7 percentage point decrease in utilization for our owned fleet. |
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| (8) | The increase in unrealized gains on interest rate swaps, collars and caps, net was due to a higher increase in long-term interest rates in 2013 compared to 2012. |
| (9) | The decrease in realized losses on interest rate swaps, collars and caps, net was due to a decrease in the average net settlement differential between variable interest rates received compared to fixed rates paid on interest rate swaps of 0.63 percentage points, partially offset by an increase in average interest rate swap notional amounts of $104,061. |
Income before income tax and noncontrolling interests attributable to the Container Management segment decreased $2,713 (-8.2%) from 2013 to 2014. The following table summarizes the variances included within this decrease:
| Increase in short-term incentive compensation expense |
$ | (2,081 | )(1) | |
| Increase in overhead expense |
(1,368 | )(2) | ||
| Increase in long-term incentive compensation expense |
(1,782 | )(3) | ||
| Increase in management fees |
1,768 | (4) | ||
| Decrease in amortization expense |
202 | (5) | ||
| Other |
548 | |||
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| $ | (2,713 | ) | ||
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| (1) | The increase in short-term incentive compensation expense was due to an increase in the incentive compensation awards for 2014 compared to 2013. |
| (2) | The increase in overhead expense was primarily due to an increase in compensation costs, rent expense and information technology costs, partially offset by a decrease in travel costs. |
| (3) | The increase in long-term incentive compensation expense was primarily due to additional share options and restricted share units that were each granted under the 2007 Plan in November 2013 and 2014, partially offset by share options and restricted share units granted under the 2007 Plan in November 2009 and 2008, respectively, that vested in January 2014. |
| (4) | The increase in management fees was due to a $3,273 increase in inter-segment management fees received from our Container Ownership segment primarily due to an increased size and improved profitability of the owned container fleet and a $743 increase in inter-segment acquisition fees received from our Container Ownership segment primarily due to an increase in the amount of owned container purchases, partially offset by a $2,248 decrease in management fees from external customers resulting from a 5.9% decrease in the size of the managed fleet primarily due to our acquisitions throughout 2014 of approximately 42,000 TEU of containers that we previously managed. Inter-segment management fees and acquisition fees are eliminated in consolidation. |
| (5) | The decrease in amortization expense was primarily due to a revision in amortization estimates for management fees for the Capital, Amficon and Capital Intermodal fleets. |
Income before income tax and noncontrolling interests attributable to the Container Management segment decreased $3,945 (-10.7%) from 2012 to 2013. The following table summarizes the variances included within this decrease:
| Decrease in management fees |
$ | (8,370 | )(1) | |
| Increase in overhead expense |
(768 | )(2) | ||
| Decrease in short-term incentive compensation expense |
3,298 | (3) | ||
| Decrease in amortization expense |
987 | (4) | ||
| Decrease in long-term incentive compensation expense |
939 | (5) | ||
| Other |
(31 | ) | ||
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| $ | (3,945 | ) | ||
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| (1) | The decrease in management fees was primarily due to a $5,860 decrease in management fees from external customers resulting from a 22.5% decrease in the size of the managed fleet primarily due to our acquisitions throughout 2012 of 155,000 TEU of containers that we previously managed and a $6,278 decrease in |
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| inter-segment acquisition fees received from our Container Ownership segment primarily due to a decrease in the amount of owned container purchases, partially offset by a $3,768 increase in inter-segment management fees received from our Container Ownership segment due to an increase in the size and a decline in the profitability of the owned container fleet. Inter-segment management fees and acquisition fees are eliminated in consolidation. |
| (2) | The increase in overhead expense was primarily due to an increase in professional fees, compensation costs and travel costs. |
| (3) | The decrease in short-term incentive compensation expense was due to a lower incentive compensation award for 2013 compared to 2012. |
| (4) | The decrease in amortization expense was primarily due to the acquisitions of managed containers discussed above. |
| (5) | The decrease in long-term incentive compensation expense was primarily due to share options and restricted share units that were granted under the 2007 Plan in November 2008 and October 2007, respectively, that vested in January 2013 and an adjustment to forfeiture rates, partially offset by share options and restricted share units that were each granted under the 2007 Plan in November 2012 and 2013. |
Income before income tax and noncontrolling interests attributable to the Container Resale segment decreased $491 (-4.6%) from 2013 to 2014. The following table summarizes the variances included within this decrease:
| Decrease in gains on container trading, net |
$ | (546 | )(1) | |
| Decrease in management fees |
(398 | )(2) | ||
| Change from bad debt expense, net in 2013 to a bad debt recovery, net in 2014 |
502 | (3) | ||
| Other |
(49 | ) | ||
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| $ | (491 | ) | ||
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| (1) | The decrease in gains on container trading, net was due to a decrease in average sales margin per container, partially offset by a 184.9% increase in unit sales resulting from an increase in the number of trading containers that we were able to source and sell. |
| (2) | The decrease in management fees was due to a decrease in sales commissions resulting from a $235 decrease in sales commissions from external customers and a $163 decrease in inter-segment sales commissions received from our Container Ownership segment primarily due to a decrease in average sales proceeds of managed and owned container sales. Inter-segment sales commissions are eliminated in consolidation. |
| (3) | Bad debt (recovery) expense, net changed from a net expense of $268 in 2013 to a net recovery of $234 in 2014 primarily due to proceeds received during 2014 from the settlement of outstanding claims with a bankrupt lessee for billings included in the allowance for doubtful accounts. |
Income before income tax and noncontrolling interests attributable to the Container Resale segment decreased $2,047 (-16.0%) from 2012 to 2013. The following table summarizes the variances included within this decrease:
| Decrease in gains on container trading, net |
$ | (4,219 | )(1) | |
| Increase in management fees |
2,306 | (2) | ||
| Other |
(134 | ) | ||
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| $ | (2,047 | ) | ||
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| (1) | The decrease in gains on container trading, net was due to a 67.5% decrease in unit sales resulting from a decrease in the number of trading containers that we were able to source and sell and a decrease in average sales margin per container. |
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| (2) | The increase in management fees was due to an increase in sales commissions resulting from $3,069 increase in inter-segment sales commissions received from our Container Ownership segment primarily due to an increase in the volume of owned container sales, partially offset by a $763 decrease in sales commissions from external customers primarily due to a decrease in the volume of managed container sales. Inter-segment sales commissions are eliminated in consolidation. |
Loss before income tax and noncontrolling interests attributable to Other activities unrelated to our reportable business segments decreased $550 (-14.3%) from 2013 to 2014 primarily due to a $478 decrease in corporate overhead expense resulting primarily from a decrease in professional fees and a $74 decrease in long-term incentive compensation expense resulting from share options and restricted share units that were granted under the 2007 Plan in November 2009 and 2008, respectively, that vested in January 2014.
Loss before income tax and noncontrolling interests attributable to Other activities unrelated to our reportable business segments decreased $49 (-1.3%) from 2012 to 2013 primarily due to a $841 decrease in long-term incentive compensation expense resulting from share options and restricted share units that were granted under the 2007 Plan in November 2008 and October 2007, respectively, that both vested in January 2013 and an adjustment to forfeiture rates, partially offset by a $791 increase in corporate overhead expense primarily due to an increase in professional fees.
Segment eliminations increased $38 (1.0%) from 2013 to 2014 and consisted of a $743 increase in acquisition fees received by our Container Management segment from our Container Ownership segment, partially offset by a $705 increase in depreciation expense related to capitalized acquisition fees received by our Container Management segment from our Container Ownership segment. Our Container Ownership segment capitalizes acquisition fees billed by our Container Management segment as part of containers, net and records depreciation expense to amortize the acquisition fees over the useful lives of the containers, which is eliminated in consolidation.
Segment eliminations decreased $6,738 (-63.6%) from 2012 to 2013 and primarily consisted of a $6,278 decrease in acquisition fees received by our Container Management segment from our Container Ownership segment and a $602 increase in depreciation expense related to capitalized acquisition fees received by our Container Management segment from our Container Ownership segment.
Currency
As in previous years, almost all of our revenues are denominated in U.S. dollars and approximately 72% of our direct container expenses in 2014 were denominated in U.S. dollars. Our operations in locations outside of the U.S. have some exposure to foreign currency fluctuations, and trade growth and the direction of trade flows can be influenced by large changes in relative currency values. In 2014, our non-U.S. dollar operating expenses were spread among 18 currencies, resulting in some level of self-hedging. We do not engage in currency hedging.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to use judgment in making estimates and assumptions that affect the reported amounts of assets and liabilities, the reported amounts of income and expenses during the reporting period and the disclosure of contingent assets and liabilities as of the date of the financial statements. We have identified the policies and estimates below as among those critical to our business operations and the understanding of our results of operations. These policies and estimates are considered critical due to the existence of uncertainty at the time the estimates are made, the likelihood of changes in estimates from period to period and the potential impact that these estimates can have on our financial statements. The following accounting policies and estimates include inherent risks and uncertainties related to judgments and assumptions made by us. Our estimates are based on the relevant information available at the end of each period.
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Revenue Recognition
Lease Rental Income. We recognize revenue from operating leases of our owned containers as earned over the term of the lease. The Company’s container leases generally do not include step-rent provisions, nor do they depend on indices or rates. The Company recognizes revenue on container leases that include lease concessions in the form of free-rent periods using the straight-line method over the minimum terms of the leases. We cease recognition of lease revenue if and when a container lessee defaults in making timely lease payments or we otherwise determine that future lease payments are not likely to be collected from the lessee. Our determination of the collectability of future lease payments is made by management on the basis of available information, including the current creditworthiness of container shipping lines that lease containers from us, historical collection results and review of specific past due receivables. If we experience unexpected payment defaults from our container lessees, we will cease revenue recognition for those leases, which will reduce container rental revenue. Finance lease income is recognized using the effective interest method, which generates a constant rate of interest over the period of the lease. The same risks of collectability discussed above apply to our collection of finance lease income. If we experience unexpected payment defaults under our finance leases, we will cease revenue recognition for those leases that will reduce finance lease income.
Our leases typically require the lessee to pay, at the end of the lease term, for any damage to the container beyond normal wear and tear. We also offer a Damage Protection Plan (“DPP”) pursuant to which the lessee pays a fee over the term of the lease, primarily on a daily basis, in exchange for not being charged for certain damages at the end of the lease term. It is our policy to recognize these revenues as earned on a daily basis over the related term of the lease. We have not recognized revenue for customers who are billed at the end of the lease term under our DPP or for other lessees who do not participate in the DPP. Based on past history, there is uncertainty as to collectability of these amounts because the amounts due under the DPP are typically re-negotiated at the end of the lease term or when the lease term is extended.
Management Fee Revenue. We recognize revenue from management fees earned under management agreements on an as-earned basis. Fees are typically calculated as a percentage of net operating income, which is revenue from the containers under management minus direct operating expense related to those containers. If a lessee of a managed container defaults in making timely lease payments or we otherwise determine that future lease payments are not likely to be collected from the lessee, then we will cease to record lease revenue, which in turn will result in reduced management fee revenue.
Accounting for Container Leasing Equipment
Accounting for container leasing equipment includes depreciation, impairment of held for use equipment and the impairment of containers held for sale.
Depreciation and Container Impairment. When we acquire containers, we record the cost of the container on our balance sheet. We then depreciate the container over its estimated useful life (which represents the number of years we expect to be able to lease the container to shipping lines) to its estimated “residual value” (which represents the amount we estimate we will recover upon the sale or other disposition of the equipment at the end of its “useful life” as a shipping container). Our estimates of useful life are based on our actual experience with our fleet, and our estimates of residual value are based on a number of factors including disposal price history.
We review our depreciation policies, including our estimates of useful lives and residual values, on a regular basis to determine whether a change in our estimates of useful lives and residual values is warranted. We estimate the useful lives of our non-refrigerated containers other than open top and flat rack containers, refrigerated containers, tank containers and open top and flat rack containers to be 13, 12, 20 and 14 years, respectively. Over a few years prior to January 1, 2013, we experienced a significant increase in the useful lives of our non-refrigerated containers other than open top and flat rack containers as we entered into leases with longer terms and container prices increased resulting in shipping lines leasing containers for longer periods.
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Based on this extended period of longer useful lives and our expectation that new equipment lives will remain near those levels, we increased the estimated useful lives of our non-refrigerated containers other than open top and flat rack containers from 12 years to 13 years, effective January 1, 2013. The effect of this change has been and will continue to be a reduction in depreciation expense as compared to what would have been reported using the previous estimate. We estimate the residual values of our primary non-refrigerated containers other than open top and flat rack containers to be $1,050 for a 20’, $1,300 for a 40’, $1,650 for a 40’ high cube and the residual value of our 40’ high cube refrigerated containers to be $4,500. Our residual value estimates are based on recent sales history, market conditions for the sale of used containers and trends, which we believe are currently the best indicator of the residual value we will realize.
If market conditions in the future warrant a further change of our estimates of the useful lives or residual values of our containers, we may be required to again recognize increased or decreased depreciation expense. A decrease in either the useful life or residual value of our containers would result in increased depreciation expense and decreased net income.
On a quarterly basis we evaluate our containers held for use in our leasing operation to determine whether there has been any event such as a decline in results of operations or residual values that would cause the book value of our containers held for use to be impaired. This evaluation is performed at the lowest level of identifiable cash flows which we have determined to be groups of containers based on equipment type and year of manufacture. Any such impairment would be expensed in our results of operations. Impairment exists when the estimated future undiscounted cash flows to be generated by an asset group are less than the net book value of that asset group. Were there to be a triggering event that may indicate impairment, undiscounted future cash flows would be compared to the book values of the corresponding asset group. Estimated undiscounted cash flows would be based on historical lease operating revenue and expenses and historical residual values, adjusted to reflect current market conditions. In 2013 and 2014 the Company recorded impairments for containers that were economically unrecoverable from lessees in default. Prior to 2013, the Company had never recorded an impairment for any container while classified as held for use, see below for discussion of Containers Held for Sale. When an impairment exists, the containers are written down to their fair value. This fair value is then the containers’ new cost basis and is depreciated over their remaining useful lives in marine services to their estimated residual values. Any impairment charge results in decreased net income.
Containers Held for Sale. We also evaluate all off-lease containers to determine whether the containers will be repaired and returned to service or sold based upon what we estimate will be the best economic alternative. If we designate a container as held for sale, depreciation on the container ceases, and the container is reported at the lower of (1) its recorded value or (2) the amount we expect to receive upon sale (less the estimated cost to sell the container). Containers held for sale are evaluated for impairment on a quarterly basis based on sale prices for similar types of equipment in the locations in which the containers are stored. Any write-down of containers held for sale is reflected in our statement of operations as an expense. If a large number of containers are designated as held for sale or prices for used containers drop, impairment charges for containers held for sale may increase which would result in decreased net income.
Allowance for Doubtful Accounts
We only lease to container shipping lines and other lessees that meet our credit criteria. Our credit approval process is rigorous and all of our underwriting and credit decisions are controlled by our credit committee, which is made up of senior management from different disciplines. Our credit committee sets different maximum exposure limits depending on our relationship and previous experience with each shipping line customer and container sales customer. Credit criteria may include, but are not limited to, trade route, country, social and political climate, assessments of net worth, asset ownership, bank and trade credit references, credit bureau reports, operational history and financial strength.
Our credit department sets and reviews credit limits for new and existing shipping line customers and container sales customers, monitors compliance with those limits on an on-going basis, monitors collections, and
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deals with customers in default. Our credit department actively maintains a credit watch report on our proprietary information technology systems, which is available to all regional and area offices. This credit watch report lists shipping line customers and container sales customers at or near their credit limits. New leases of containers by shipping line customers on the credit watch report would only be allowed with the approval of our credit department. Similarly, management may decide to stop sales of containers to purchasers whose payments are delinquent. Our underwriting processes are aided by the long payment experience we have with most of our shipping line customers and container sales customers, our broad network of relationships in the container shipping industry that provide current information about shipping line customers’ and container sales customers’ market reputations and our focus on collections.
Other factors reducing losses due to default by a lessee or customer include effective collection tools, our high recovery rate for containers in default situations and the re-marketability of our container fleet. The strong growth in the container shipping industry helps reduce the risk of customer defaults since the core assets of a poorly performing shipping line, its ships and containers, have historically been needed to meet the demand for world containerized trade. In addition, the law in several major port locations is highly favorable to creditors and many of our large customers call on ports that will allow us to arrest, or seize, the customers’ ships or fuel storage bunkers, or repossess our containers if the customer is in default under our container leases. Finally, we also purchase insurance for equipment recovery and loss of revenue due to customer defaults for most of our customers, in addition to the insurance that our customers are required to obtain.
During 2009 through 2014, we recovered 90.0% of the containers that were the subject of defaulted contracts which had at least 1,000 CEU on lease. We typically incur operating expenses such as repairs and repositioning when containers are recovered after a default. However, recovery expenses are typically covered under insurance and we are reimbursed above our deductible amount.
Our allowance for doubtful accounts is reviewed regularly by our management and is based on the risk profile of the receivables, credit quality indicators such as the level of past due amounts and economic conditions. Our credit committee meets regularly to assess performance of our container lessees and to recommend actions to be taken in order to reduce credit risks. Changes in economic conditions or other events may necessitate additions or deductions to the allowance for doubtful accounts. The allowance is intended to provide for losses inherent in the owned fleet’s accounts receivable, and requires the application of estimates and judgments as to the outcome of collection efforts and the realization of collateral, among other things. If the financial condition of our container lessees were to deteriorate, reducing their ability to make payments, additional allowances may be required, which would decrease our net income or increase our net loss in the period of the adjustment.
Income Taxes
Deferred tax liabilities and assets are recognized for the expected future tax consequences of events that have been reflected in our consolidated financial statements. Deferred tax liabilities and assets are determined based on the differences between the book values and the tax basis of particular assets and liabilities, using tax rates in effect for the years in which the differences are expected to reverse. A valuation allowance would be recorded to reduce our deferred tax assets to an amount we determine is more likely than not to be realized, based on our analyses of past operating results, future reversals of existing taxable temporary differences and projected taxable income. Our analyses of future taxable income are subject to a wide range of variables, many of which involve estimates. Uncertainty regarding future events and changes in tax regulation could materially alter our valuation of deferred tax liabilities and assets. If we determine that we would not be able to realize all or part of our deferred tax assets in the future, we would record a valuation allowance and make a corresponding change to our earnings in the period in which we make such determination. If we later determine that we are more likely than not to realize our deferred tax assets, we would reverse the applicable portion of the previously provided valuation allowance.
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In certain situations, a taxing authority may challenge positions adopted in our income tax filings. For transactions that we believe may be challenged, we may apply a different tax treatment for financial reporting purposes. We account for income tax positions by recognizing the effect of income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in the recognition or measurement are reflected in the period in which the change in judgment occurs. Should an audit by a taxing authority result in settlement for an amount greater than the amount we have reserved, we will incur additional tax expense and reduced net income.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). This new standard will replace all current U.S. GAAP guidance on this topic and eliminate industry-specific guidance. Leasing revenue recognition is specifically excluded from ASU 2014-09, and therefore, the new standard will only apply to sales of equipment portfolios and dispositions of used equipment. The guidance is effective for interim and annual periods beginning after December 15, 2016, with early application prohibited. We do not expect the adoption of ASU 2014-09 to have a material impact on our consolidated financial statements.
| B. | Liquidity and Capital Resources |
As of December 31, 2014, we had cash and cash equivalents of $107,067. Our principal sources of liquidity have been (1) cash flows from operations, (2) the sale of containers, (3) borrowings under the revolving credit facilities extended to TL (the “TL Revolving Credit Facility”), TW (the “TW Revolving Credit Facility”), and TAP Funding (the “TAP Funding Revolving Credit Facility), (4) borrowings under conduit facilities (which allow for recurring borrowings and repayments) granted to TMCL II (the “TMCL II Secured Debt Facility”) and Textainer Marine Containers IV Limited (“TMCL IV”) (the “TMCL IV Secured Debt Facility”), (5) proceeds from TL’s term loan (the “TL Term Loan”), (6) proceeds from the issuance of Series 2012-1, 2013-1 and 2014-1 Fixed Rate Asset Backed Notes (the “2012-1 Bonds”, “2013-1 Bonds” and“2014-1 Bonds”, respectively) and (7) proceeds from the issuance of common shares in a public offering. As of December 31, 2014, we had the following outstanding borrowings and borrowing capacities under the TMCL II Secured Debt Facility, the TMCL IV Secured Debt Facility, the TL Revolving Credit Facility, the TW Revolving Credit Facility, the TAP Funding Revolving Credit Facility, the TL Term Loan and the 2013-1 and 2014-1 Bonds (in thousands):
| Facility: |
Current Borrowing |
Additional Borrowing Commitment |
Total Commitment |
Current Borrowing |
Borrowing, as Limited by our Borrowing Base |
Current and Available Borrowing |
||||||||||||||||||||
| TMCL II Secured Debt Facility |
$ | 852,100 | $ | 347,900 | $ | 1,200,000 | $ | 852,100 | $ | 43,786 | $ | 895,886 | ||||||||||||||
| TMCL IV Secured Debt Facility |
165,000 | 135,000 | 300,000 | 165,000 | — | 165,000 | ||||||||||||||||||||
| TL Revolving Credit Facility |
684,500 | 15,500 | 700,000 | 684,500 | 15,500 | 700,000 | ||||||||||||||||||||
| TW Revolving Credit Facility |
134,290 | 115,710 | 250,000 | 134,290 | 2,919 | 137,209 | ||||||||||||||||||||
| TAP Funding Revolving Credit Facility |
126,000 | 24,000 | 150,000 | 126,000 | 24,000 | 150,000 | ||||||||||||||||||||
| TL Term Loan |
475,700 | — | 475,700 | 475,700 | — | 475,700 | ||||||||||||||||||||
| 2013-1 Bonds |
263,288 | — | 263,288 | 263,288 | — | 263,288 | ||||||||||||||||||||
| 2014-1 Bonds |
296,377 | — | 296,377 | 296,377 | — | 296,377 | ||||||||||||||||||||
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| Total |
$ | 2,997,255 | $ | 638,110 | $ | 3,635,365 | $ | 2,997,255 | $ | 86,205 | $ | 3,083,460 | ||||||||||||||
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We have typically funded a significant portion of the purchase price of new containers through borrowings under our TMCL II Secured Debt Facility, TMCL IV Secured Debt Facility, TL Revolving Credit Facility, TW Revolving Credit Facility, and TAP Funding Revolving Credit Facility and intend to continue to utilize these facilities in the future. In 2012, 2013 and 2014, at such time as our secured debt facilities reached an appropriate size, the facilities were refinanced through the issuance of bonds to institutional investors. We anticipate similar
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refinancings at such times as the TMCL II Secured Debt Facility and the TMCL IV Secured Debt Facility or any similar revolving debt facilities we establish nears their maximum size. This timing will depend on our level of future purchases of containers and the size of our debt facilities in the future.
Our cash inflows from operations are affected by the utilization rate of our fleet and the per diem rates of our leases, whereas the cash inflows from proceeds for the sale of containers are affected by market demand for used containers and our available inventory of containers for sale. Our cash outflows are affected by payments and expenses related to our purchasing of containers, interest on our debt obligations or other contingencies discussed in Note 13 “Commitments and Contingencies” to our consolidated financial statements in Item 18, “Financial Statements” in this Annual Report on Form 20-F, which may place demands on our short-term liquidity.
We are a holding company with no material direct operations. Our principal assets are the equity interests we directly or indirectly hold in our operating subsidiaries, which own our operating assets. As a result, we are dependent on loans, dividends and other payments from our subsidiaries to generate the funds necessary to meet our financial obligations and to pay dividends on our common shares. Our subsidiaries are legally distinct from us and may be prohibited or restricted from paying dividends or otherwise making funds available to us under certain conditions. If we are unable to obtain funds from our subsidiaries, we may be unable to, or our board may exercise its discretion not to, pay dividends on our common shares. Our board of directors takes a fresh view every quarter, taking into consideration our cash needs for opportunities that may be available to us, and sets our dividend accordingly. The TL Revolving Credit Facility and TL Term Loan also prohibit TL from paying dividends to TGH in excess of 70% of TL’s immediately preceding four quarters of net income attributable to TL excluding unrealized losses (gains) on interest rate swaps, collars and caps, net. A substantial amount of cash used by TGH to pay dividends to its common shareholders is received from TL in the form of dividends.
Our consolidated financial statements do not reflect the income taxes that would be payable to foreign taxing jurisdictions if the earnings of a group of corporations operating in those jurisdictions were to be transferred out of such jurisdictions, because such earnings are intended to be permanently reinvested in those countries. At December 31, 2014, cumulative earnings of approximately $32,617 would be subject to income taxes of approximately $9,785 if such earnings of foreign corporations were transferred out of such jurisdictions in the form of dividends.
The disruption in the credit market in 2008 and 2009 had a significant adverse impact on a number of financial institutions. To date, our liquidity has not been impacted by the current credit environment. Assuming that our lenders remain solvent, we currently believe that cash flow from operations, proceeds from the sale of containers and borrowing availability under our debt facilities are sufficient to meet our liquidity needs, including for the payment of dividends, for the next twelve months. We will continue to monitor our liquidity and the credit markets. However, we cannot predict with any certainty the impact to the Company of any further disruptions in the credit environment.
Description of Indebtedness
TMCL II Secured Debt Facility. TMCL II has a securitization facility with a total commitment of $1,200,000 (the “TMCL II Secured Debt Facility”). Our primary ongoing container financing requirements have been funded by commitments under the TMCL II Secured Debt Facility. Of the total commitment amount, $852,100 had been drawn and the additional amount available for borrowing, as limited by TMCL II’s borrowing base, was $43,786 at December 31, 2014.
TMCL II is required to make principal payments on any payment date for the outstanding loan principal amount that exceeds the borrowing base on such payment date. The interest rate on the TMCL II Secured Debt Facility, payable monthly in arrears, is one-month London Inter Bank Offered Rate (“LIBOR”) plus 1.70% during the revolving period prior to the Conversion Date (September 15, 2017). Overdue payments of principal
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and interest accrue interest at a rate of 2.0% above the interest rate ordinarily applicable to such amounts. There is a commitment fee of 0.45% (if the aggregate principal balance is less than 50% of the commitment amount) and 0.365% (if the aggregate principal balance is equal to or greater than 50% of the commitment amount) on the unused portion of the TMCL II Secured Debt Facility, which is payable in arrears. In addition, there is an agent’s fee, which is payable monthly in arrears.
Under the TMCL II Indenture, TGH, TMCL II and TGH’s wholly-owned subsidiary, Textainer Equipment Management Limited (“TEML”), must maintain certain financial covenants, including the following (i) TMCL II must maintain at least a 1.25 to 1.00 ratio of earnings (before interest expense and taxes) to interest expense; (ii) TEML may not incur more than $1,000 of consolidated funded debt; (iii) TEML must make at least $2,000 in after-tax profits annually; (iv) Textainer Equipment Management (U.S.) Limited (“TEML US”), a wholly-owned subsidiary of TEML, may not incur more than $1,000 of consolidated funded debt; (v) TEML US must make at least $200 in after-tax profits annually; and (vi) TGH must maintain a ratio of consolidated funded debt to consolidated tangible net worth that is no greater than 4.00 to 1.00. We were in compliance with these requirements at December 31, 2014.
The TMCL II Secured Debt Facility is governed by the Indenture and secured by a pledge of, among other things, TMCL II’s containers, certain contracts related to TMCL II’s containers and the securitization facility, certain bank accounts, proceeds from the operation of TMCL II’s containers, and all other assets of TMCL II to the extent that they relate to the containers. Under the terms of the TMCL II Secured Debt Facility, the total outstanding principal may not exceed an amount that is calculated by a formula based on TMCL II’s book value of equipment, restricted cash and direct financing and sales-type leases. The total obligations under the TMCL II Secured Debt Facility are secured by a pledge of TMCL II’s total assets, which amounted to $1,187,198 at December 31, 2014. The Secured Debt Facility also contains restrictive covenants regarding the average age of TMCL II’s container fleet, ability to incur other obligations and to distribute earnings, and overall asset base minimums, with which TMCL II and TEML were in compliance at December 31, 2014.
We have made certain representations and warranties and are subject to certain reporting requirements and other covenants in connection with the Indenture and the TMCL II Secured Debt Facility. In addition, we are required to reaffirm certain representations and warranties as a condition to borrowing. If we are not able to do so, the committed borrowing amounts may not be available. These covenants restrict, among other things, TMCL II’s ability to transfer the collateral, permit liens on collateral, engage in activities within the U.S., incur indebtedness, make loans or guarantees, consummate mergers, sell assets, enter into or amend certain contracts, create subsidiaries and make investments. We were in compliance with all such covenants at December 31, 2014.
Events of default under the TMCL II Indenture include, among others:
| • | a default in required payment; |
| • | failure to perform or observe covenants set forth in the loan documentation within a specified period of time; |
| • | any representation or warranty proving to have been incorrect when made and the continuance for a specific period of time; |
| • | insolvency defaults; |
| • | manager default shall have occurred and shall have not been remedied, waived or cured; |
| • | invalidity of the lien on collateral; |
| • | the funded notes exceeding the asset base over a specific period; |
| • | payment on the notes by the insurer thereof; |
| • | TMCL II becoming obligated to register as an investment company under the Investment Company Act; and |
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| • | the occurrence of certain Employee Retirement Income Security Act (“ERISA”) events. |
| • | TL or its affiliates shall fail to own all of the authorized and issued shares of TMCL II. |
TMCL IV Secured Debt Facility. TMCL IV has a securitization facility pursuant to which it has issued Floating Rate Asset Backed Notes 2013-1 (“2013-1 Notes”) with a total commitment of up to $300,000 (the “TMCL IV Secured Debt Facility”). TMCL IV’s ongoing container financing requirements have been funded by commitments under the TMCL IV Secured Debt Facility. Of the total commitment amount, $165,000 had been drawn and the additional amount available for borrowing, as limited by TMCL IV’s borrowing base, was $0 at December 31, 2014. The TMCL IV Secured Debt Facility was amended on February 4, 2015 to extend its Conversion Date from August 5, 2015 to February 2, 2018, reduce its interest rate during the revolving period prior to the Conversion Date from LIBOR plus 2.25% to LIBOR plus 1.95% and reduce its commitment fee. Overdue payments of principal and interest accrue interest at a rate of 2.0% above the interest rate ordinarily applicable to such amounts. TMCL IV is required to make principal payments on any payment date for the outstanding loan principal amount that exceeds the borrowing base on such payment date. Interest is payable monthly in arrears from its inception until its Conversion Date.
Prior to the amendment dated February 4, 2015, the commitment fee, which was payable monthly in arrears, was 0.70% on the unused portion of the TMCL IV Secured Debt Facility if total borrowings under the TMCL IV Secured Credit Facility were less than 50% of the total commitment and a designated bank’s commitment is more than $150,000; otherwise, the commitment fee was 0.50%. As amended, the commitment fee, which is payable monthly in arrears, is 0.485% on the unused portion of the TMCL IV Secured Debt Facility if total borrowings under the TMCL IV Secured Credit Facility is less than 50% of the total commitment; otherwise, the commitment fee is 0.40%.
Prior to the Conversion Date, each of the 2013-1 Notes is a revolving note with a maximum principal amount equal to the amount of that 2013-1 Note. As a result, the amount funded under such 2013-1 Notes may be less than the face amount of that 2013-1 Note. TMCL IV may request funding under the 2013-1 Notes from time to time prior to the Conversion Date. Each of the 2013-1 Notes provides for payments of interest only during the period from its inception until its Conversion date, with a provision that if not renewed the 2013-1 Notes will be payable in full on the final payment date, two years after the Conversion Date.
Under the TMCL IV Indenture, TGH, TMCL IV, TEML and TEMUS must maintain certain financial covenants, including the following (i) TMCL IV must maintain at least a 1.25 to 1.00 ratio of earnings (before interest expense and taxes) to interest expense; (ii) TMCL IV and TGH must maintain at least a 1.00:1.00 container disposition ratio; (iii) TEML may not incur more than $1,000 of consolidated funded debt; (iv) TEML must make at least $2,000 in after-tax profits annually; (v) TEML US may not incur more than $1,000 of consolidated funded debt (vi); TEML US must make at least $200 in after-tax profits annually; and (vii) TGH must maintain a ratio of consolidated funded debt to consolidated tangible net worth that is no greater than 4.00 to 1.00. We were in compliance with these requirements at December 31, 2014.
The TMCL IV Secured Debt Facility is governed by the Indenture and secured by a pledge of, among other things, TMCL IV’s containers, certain contracts related to TMCL IV’s containers and the securitization facility, certain bank accounts, proceeds from the operation of TMCL IV’s containers, and all other assets of TMCL IV to the extent that they relate to the containers. Under the terms of the TMCL IV Secured Debt Facility, the total outstanding principal may not exceed an amount that is calculated by a formula based on TMCL IV’s book value of equipment, excess funding amount, restricted cash and direct financing and sales-type leases. The total obligations under the TMCL IV Secured Debt Facility are secured by a pledge of TMCL IV’s total assets, which amounted to $285,590 at December 31, 2014. The TMCL IV Secured Debt Facility also contains restrictive covenants regarding the ability to incur other obligations and to distribute earnings, and overall asset base minimums, with which TMCL IV and TEML were in compliance at December 31, 2014.
We have made certain representations and warranties and are subject to certain reporting requirements and other covenants in connection with the Indenture and the TMCL IV Secured Debt Facility. In addition, we are
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required to reaffirm certain representations and warranties as a condition to borrowing. If we are not able to do so, the committed borrowing amounts may not be available. These covenants restrict, among other things, TMCL IV’s ability to transfer the collateral, permit liens on collateral, engage in activities within the U.S., incur indebtedness, make loans or guarantees, consummate mergers, sell assets, enter into or amend certain contracts, create subsidiaries and make investments. We were in compliance with all such covenants at December 31, 2014.
Events of default under the 2013-1 Notes include, among others:
| • | a default in required payment; |
| • | failure to perform or observe covenants set forth in the loan documentation within a specified period of time; |
| • | any representation or warranty proving to have been incorrect when made and the continuance for a specific period of time; |
| • | insolvency defaults; |
| • | manager default shall have occurred and shall have not been remedied, waived or cured and no replacement manager shall have been appointed and assumed the management of all Terminated Managed Containers per the Management Agreement within a specific period; |
| • | invalidity of the lien on collateral; |
| • | the funded notes exceeding the asset base over a specific period; |
| • | TMCL IV becoming obligated to register as an investment company under the Investment Company Act; and |
| • | the occurrence of certain ERISA events. |
TL Revolving Credit Facility. TL has a credit agreement with Bank of America, N.A. and other lenders to provide it with a revolving credit facility (the “TL Credit Agreement”) with a total commitment amount of up to $700,000 (which includes a $50,000 letter of credit facility, together, the “TL Revolving Credit Facility”). The TL Revolving Credit Facility provides for payments of interest only during its term, beginning on its inception date through September 24, 2017, the Maturity Date. Interest on the borrowings under the TL Revolving Credit Facility at December 31, 2014 was based on either the U.S. prime rate or LIBOR plus a spread between 1.0% and 2.0%, which varies based on TGH’s leverage. There is a commitment fee of 0.30% to 0.40% on the unused portion of the TL Revolving Credit Facility, which varies based on the leverage of TGH and is payable quarterly in arrears. In addition, there is an agent’s fee on the commitment amount, which is payable annually in advance. As of December 31, 2014, $684,500 was outstanding under the TL Revolving Credit Facility.
Under the terms of the TL Revolving Credit Facility, the total outstanding principal amount available to be drawn thereunder is calculated pursuant to a formula based on the net book value of our containers and our outstanding debt with respect thereto. Any outstanding letter of credit not cash collateralized will reduce the amount available in the form of cash borrowings under the TL Revolving Credit Facility. The TL Revolving Credit Facility provided an additional amount available, as limited by the Company’s borrowing base, in the amount of $15,500 at December 31, 2014.
The TL Revolving Credit Facility contains restrictive covenants, including limitations on certain liens, indebtedness and investments. In addition, the TL Credit Facility contains certain restrictive financial covenants on TL and TGH. The TL Revolving Credit Facility’s covenants require TGH and TL each to maintain (1) a consolidated leverage ratio of 4.0 to 1.00 or less; and (2) a minimum consolidated interest coverage ratio of 2.00 to 1.00. We were in compliance with all such covenants at December 31, 2014.
Although no repayment of the principal amount of outstanding borrowings is required until September 24, 2017, we may make optional prepayments prior to this date. Mandatory prepayments are required prior to the
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Maturity Date if the amount of outstanding loans and letters of credit exceeds the amount of the borrowing base. Any such prepayment will be in the amount required to reduce the amount of outstanding loans and letters of credit to the amount of the borrowing base.
The TL Revolving Credit Facility is secured by certain container-related assets of TL. TGH acts as a guarantor of the TL Revolving Credit Facility. The guaranty is secured by ordinary shares of TL, cash, assets readily convertible into cash and amounts due to us from our subsidiaries.
We have made certain representations and warranties in the TL Credit Agreement and are subject to certain reporting requirements and financial performance and other covenants. We are required to reaffirm certain representations and warranties as a condition to borrowing. If we are not able to do so, the committed borrowing amounts may not be available. The TL Credit Agreement restricts, among other things, our ability to consummate mergers, sell and acquire assets, make certain types of payments relating to our share capital, including dividends, incur indebtedness, permit liens on assets, make investments, enter into or amend certain contracts, enter into certain transactions with affiliates or negative pledge with respect to shares of TMCL II, TMCL III, TMCL IV, TAP Funding, TW and other receivable subsidiaries.
Events of default under the TL Credit Agreement include, among others:
| • | a default in required payment; |
| • | failure to perform or observe covenants set forth in the loan documentation within a specified period of time; |
| • | any representation or warranty proving to have been incorrect when made or deemed made; |
| • | a default in required payment by TL or TGH on certain indebtedness or guarantee in excess of $15,000; |
| • | bankruptcy or insolvency defaults of TL or TGH or any subsidiary; |
| • | inability to pay debts by TL or TGH or any subsidiary; |
| • | unsatisfied judgments against us that could result in a material adverse change or that equal at least $15,000 to the extent not subject to a policy of insurance; |
| • | the occurrence of certain ERISA events; |
| • | actual or asserted invalidity or impairment of any loan documentation; |
| • | change of control of TGH, TL, TMCL II, TMCL III, TMCL IV and TEML. |
TW Revolving Credit Facility. Our 25% owned joint venture, TW, has a credit agreement (“TW Credit Agreement”) with Wells Fargo Bank, N.A. (“WFB”), a wholly-owned subsidiary of Wells Fargo & Company, with a total commitment amount of up to $250,000 (the “TW Revolving Credit Facility”). TW’s primary ongoing container financing requirements are funded by commitments under the TW Revolving Credit Facility. The interest rate on the TW Revolving Credit Facility, payable monthly in arrears, is one-month LIBOR plus 2.0% through September 18, 2016. There is a commitment fee of 0.50% on the unused portion of the TW Revolving Credit Facility, which is payable monthly in arrears. In addition, there is an agent’s fee of 0.025% on the aggregate commitment amount of the TW Revolving Credit Facility, which is payable monthly in arrears. TW is required to make principal payments on a monthly basis for the outstanding loan principal amount that exceeds the borrowing base on such payment date. The aggregate loan principal balance is due on the maturity date, September 18, 2026. As of December 31, 2014, $134,290 was outstanding under the TWCL Revolving Credit Facility.
The TW Revolving Credit Facility is secured by TW’s containers and under the terms of the TW Revolving Credit Facility, the total outstanding principal may not exceed the lesser of the commitment amount and the borrowing base, a formula based on TW’s net book value of containers and restricted cash and direct financing and sales-type leases. The additional amount available for borrowing under the TW Revolving Credit Facility, as limited by TW’s borrowing base, was $2,919 at December 31, 2014.
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The TW Revolving Credit Facility is secured by a pledge of TW’s assets. TW’s total assets amounted to $167,302 as of December 31, 2014. The TW Revolving Credit Facility contains restrictive covenants, including limitations on TW’s finance lease default ratio, debt service coverage ratio, certain liens, indebtedness and investments. In addition, the TW Revolving Credit Facility contains certain restrictive financial covenants on TGH’s leverage, debt service coverage, TEML’s net income and debt levels, and TW’s overall Asset Base minimums. We were in compliance with all such covenants at December 31, 2014.
We have made certain representations and warranties in the TW Credit Agreement and are subject to certain reporting requirements and financial performance and other covenants. We are required to reaffirm certain representations and warranties as a condition to borrowing. If we are not able to do so, the committed borrowing amounts may not be available.
Events of default under the TW Credit Agreement include, among others:
| • | a default in required payment; |
| • | the aggregate loan principal balance exceeding the asset base beyond cure period; |
| • | failure to perform or observe covenants set forth in the loan documentation within a specified period of time; |
| • | any representation or warranty proving to have been incorrect when made and the continuance for a specific period of time; |
| • | manager default shall have occurred and shall have not been remedied, waived or cured; |
| • | an assignment for the benefit of creditors or inability to pay debts; |
| • | bankruptcy or insolvency defaults; |
| • | unsatisfied judgments against us that equal at least $1,000 to the extent not subject to a policy of insurance; |
| • | any of the loan documents shall be cancelled, terminated, revoked or rescinded or if the liens on the collateral shall cease to be perfected or to have the priority contemplated by the security documents without prior agreement of the lenders; |
| • | TW becoming obligated to register as an investment company under the Investment Company Act; and |
| • | the occurrence of certain ERISA events. |
TAP Funding Revolving Credit Facility. Our 50.1% owned joint venture, TAP Funding, has a credit agreement (the “TAP Funding Credit Agreement”) with a group of banks that provides for a revolving credit facility with an aggregate commitment amount of up to $150,000 (the “TAP Funding Revolving Credit Facility”). The interest rate on the TAP Funding Revolving Credit Facility, payable monthly in arrears, is one-month LIBOR plus 1.75% through its maturity date, December 23, 2018. There is a commitment fee of 0.55% (if aggregate loan principal balance is less than 70% of the commitment amount) and 0.365% (if aggregate loan principal balance is equal to or greater than 70% of the commitment amount) on the unused portion of the TAP Funding Revolving Credit Facility, which is payable monthly in arrears. TAP Funding is required to make principal payments on a monthly basis to the extent that the outstanding amount due exceeds TAP Funding’s borrowing base. The revolving credit period ends on December 23, 2018 and the aggregate loan principal balance is due on the maturity date. Total outstanding principal under the TAP Funding Revolving Credit Facility was $126,000 at December 31, 2014.
The TAP Funding Revolving Credit Facility is secured by TAP Funding’s containers and under the terms of the TAP Funding Revolving Credit Facility, the total outstanding principal may not exceed the lesser of the commitment amount or the borrowing base, a formula based on TAP Funding’s net book value of containers and direct financing and sales-type leases. The additional amount available for borrowing under the TAP Funding Revolving Credit Facility, as limited by TAP Funding’s borrowing base, was $24,000 at December 31, 2014.
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The TAP Funding Revolving Credit Facility II is secured by a pledge of TAP Funding’s assets. TAP Funding’s total assets amounted to $201,354 as of December 31, 2014. The TAP Funding Revolving Credit Facility II also contains restrictive covenants, including limitations on TEML’s net income and debt levels, TAP Funding’s certain liens, indebtedness, investments, overall Asset Base minimums, certain earnings ratio, tangible net worth and the average age of TAP Funding’s container fleet, in which TAP Funding was in full compliance at December 31, 2014.
We have made certain representations and warranties in the TAP Funding Credit Agreement and are subject to certain reporting requirements and financial performance and other covenants. We are required to reaffirm certain representations and warranties as a condition to borrowing. If we are not able to do so, the committed borrowing amounts may not be available.
Events of default under the TAP Funding Credit Agreement include, among others:
| • | a default in required payment; |
| • | the aggregate loan principal balance exceeding the asset base beyond cure period; |
| • | failure to perform or observe covenants set forth in the loan documentation within a specified period of time; |
| • | any representation or warranty proving to have been incorrect when made and the continuance for a specific period of time; |
| • | manager default shall have occurred and shall have not been remedied, waived or cured; |
| • | an assignment for the benefit of creditors or inability to pay debts; |
| • | bankruptcy or insolvency defaults; |
| • | unsatisfied judgments against us that equal at least $1,000 to the extent not subject to a policy of insurance; |
| • | any of the loan documents shall be cancelled, terminated, revoked or rescinded or if the liens on the collateral shall cease to be perfected or to have the priority contemplated by the security documents without prior agreement of the lenders; TAP Funding becoming obligated to register as an investment company under the Investment Company Act; |
| • | the occurrence of certain ERISA events; and |
| • | a change of control occurs. |
TL Term Loan. TL has a five-year term loan (the “TL Term Loan”) with a group of financial institutions that represents a partially-amortizing term loan with the remaining principal due in full on April 30, 2019. The TL Term Loan was entered into on April 30, 2014 and proceeds from the TL Term Loan, our secured debt facilities and available cash were used to repay all of the outstanding principal balance of TMCL’s bonds. TMCL then transferred all of its containers, net, net investment in direct financing and sales-type leases and remaining net assets, to TL, TMCL II and TMCL IV.
Interest on the outstanding amount due under the TL Term Loan is based on the U.S. prime rate or LIBOR plus a spread between 1.0% and 2.0% which is based upon TGH’s leverage. Under the terms of the TL Term Loan, scheduled principal repayments are payable in twenty quarterly installments, consisting of nineteen quarterly installments, commencing on September 30, 2014, each in an amount of equal to 1.58% of the initial principal balance and one final installment payable on the maturity date. Interest payments are payable in arrears on the last day of each interest period, not to exceed three months.
The TL Term Loan is secured by a segregated pool of the our containers and under the terms of the TL Term Loan, the total outstanding principal may not exceed the lesser of the outstanding debt and a formula based on the TGH’s net book value of containers.
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TGH acts as an unconditional guarantor of the TL Term Loan. In addition, there is an agent’s fee which is payable annually in advance. The TL Term Loan contains restrictive covenants, including limitations on certain liens, indebtedness and investments. In addition, the TL Term Loan contains restrictive financial covenants on TGH’s leverage and interest coverage and on TL’s leverage and interest coverage. We were in compliance with all such covenants at December 31, 2014.
Events of default under the TL Term Loan include, among others:
| • | a default in required payment; |
| • | failure to perform or observe covenants set forth in the loan documentation within a specified period of time; |
| • | any representation or warranty proving to have been incorrect when made or deemed made; |
| • | a default in required payment by TL or TGH on certain indebtedness or guarantee in excess of $15,000; |
| • | bankruptcy or insolvency defaults of TL or TGH or any subsidiary; |
| • | inability to pay debts by TL or TGH or any subsidiary; |
| • | unsatisfied judgments against us that could result in a material adverse change or that equal at least $15,000 to the extent not subject to a policy of insurance; |
| • | the occurrence of certain ERISA events; |
| • | actual or asserted invalidity or impairment of any loan documentation; |
| • | change of control of TGH, TL, TMCL II, TMCL III, TMCL IV and TEML. |
2013-1 Bonds. TMCL III has issued $300,900 aggregate principal amount at 99.5% of par value of Series 2013-1 Fixed Rate Asset Backed Notes (the “2013-1 Bonds”) pursuant to its Series 2013-1 Supplement, dated as of September 25, 2013, to its Indenture, dated as of September 25, 2013 (as amended as of October 30, 3014) (the “TMCL III Indenture”). The 2013-1 Bonds are term notes and were purchased by various institutional investors.
Payments of principal and interest on the 2013-1 Bonds are due monthly. The 2013-1 Bonds fully amortize on a straight-line basis over a payment term that is scheduled to equal 10 years (with a final target payment date of September 20, 2023), but shall not exceed a maximum payment term of 25 years (with a legal final payment date of September 20, 2038). Under a 10-year amortization schedule, $30,090 in 2013-1 Bond principal will amortize per year. TMCL III will not be permitted to make voluntary prepayments of all, or a portion of, the principal balance of the 2013-1 Bonds prior to September 20, 2015. The interest rate applicable to the 2013-1 Bonds is fixed at 3.90% per annum. Overdue payments of principal and interest on the 2013-1 Bonds accrue interest at a rate of 2.0% above the interest rate ordinarily applicable to such amounts.
Under the TMCL III Indenture and Series 2013-1 Supplement, TGH, TMCL III, TEML and TEML US must maintain certain financial covenants, including the following (i) TMCL III must maintain at least a 1.10 to 1.00 ratio of earnings (before interest expense and taxes) to interest expense; (ii) TEML may not incur more than $1,000 of consolidated funded debt; (iii) TEML must make at least $2,000 in after-tax profits annually; (iv) TEML US may not incur more than $1,000 of consolidated funded debt; (v) TEML US must make at least $200 in after-tax profits annually; and (vi) TGH must maintain a ratio of consolidated funded debt to consolidated tangible net worth that is no greater than 4.00 to 1.00. We were in compliance with these requirements at December 31, 2014
The 2013-1 Bonds are all governed by the TMCL III Indenture and are secured by a pledge of, among other things, TMCL III’s containers, certain contracts related to TMCL III’s containers and the securitization facility, certain bank accounts, proceeds from the operation of TMCL III’s containers, and all other assets of TMCL III to the extent that they relate to the containers. Under the terms of the 2013-1 Bonds, the total outstanding principal may not exceed an amount that is calculated by a formula based on TMCL III’s book value of equipment, excess
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funding amount, restricted cash and direct financing and sales-type leases. The 2013-1 Bonds also contain restrictive covenants regarding the average age of TMCL III’s container fleet, ability to incur other obligations and to distribute earnings, and overall asset base minimums, with which TMCL III and TEML were in compliance at December 31,2014.
2014-1 Bonds. TMCL III has issued $301,400 aggregate principal amount at 99.9% of par value of Series 2014-1 Fixed Rate Asset Backed Notes (the “2014-1 Bonds”) pursuant to its Series 2014-1 Supplement, dated as of October 30, 2014, to the TMCL III Indenture. The 2014-1 Bonds are term notes and were purchased by various institutional investors.
Payments of principal and interest on the 2014-1 Bonds are due monthly. The 2014-1 Bonds fully amortize on a straight-line basis over a payment term that is scheduled to equal 10 years (with a final target payment date of October 20, 2024), but shall not exceed a maximum payment term of 25 years (with a legal final payment date of October 20, 2039). Under a 10-year amortization schedule, $30,140 in 2014-1 Bond principal will amortize per year. TMCL III will not be permitted to make voluntary prepayments of all, or a portion of, the principal balance of the 2014-1 Bonds prior to the payment date occurring on November 30, 2016. The interest rate applicable to the 2014-1 Bonds is fixed at 3.27% per annum. Overdue payments of principal and interest on the 2014-1 Bonds accrue interest at a rate of 2.0% above the interest rate ordinarily applicable to such amounts.
Under the TMCL III Indenture and Series 2014-1 Supplement, TGH, TMCL III, TEML and TEML US must maintain certain financial covenants, including the following (i) TMCL III must maintain at least a 1.10 to 1.00 ratio of earnings (before interest expense and taxes) to interest expense; (ii) TEML may not incur more than $1,000 of consolidated funded debt; (iii) TEML must make at least $2,000 in after-tax profits annually; (iv) TEML US may not incur more than $1,000 of consolidated funded debt; (v) TEML US must make at least $200 in after-tax profits annually; and (vi) TGH must maintain a ratio of consolidated funded debt to consolidated tangible net worth that is no greater than 4.00 to 1.00. We were in compliance with these requirements at December 31, 2014
The 2013-1 and 2014-1 Bonds are all governed by the TMCL III Indenture and are secured by a pledge of, among other things, TMCL III’s containers, certain contracts related to TMCL III’s containers and the securitization facility, certain bank accounts, proceeds from the operation of TMCL III’s containers, and all other assets of TMCL III to the extent that they relate to the containers. Under the terms of the 2013-1 Bonds and the 2014-1 Bonds, the total outstanding principal may not exceed an amount that is calculated by a formula based on TMCL III’s book value of equipment, excess funding amount, restricted cash and direct financing and sales-type leases. The 2013-1 Bonds and 2014-1 Bonds also contain restrictive covenants regarding the average age of TMCL III’s container fleet, ability to incur other obligations and to distribute earnings, and overall asset base minimums, with which TMCL III and TEML were in compliance at December 31, 2014.
We have made certain representations and warranties and are subject to certain reporting requirements and other covenants in connection with the TMCL III Indenture and the 2013-1 Bonds and the 2014-1 Bonds. In addition, we are required to reaffirm certain representations and warranties as a condition to borrowing. If we are not able to do so, the committed borrowing amounts may not be available. These covenants restrict, among other things, TMCL III’s ability to transfer the collateral, permit liens on collateral, engage in activities within the U.S., incur indebtedness, make loans or guarantees, consummate mergers, sell assets, enter into or amend certain contracts, create subsidiaries and make investments. We were in compliance with all such covenants at December 31, 2014.
Events of default under the 2013-1 Bonds and the 2014-1 Bonds include, among others:
| • | a default in required payment; |
| • | failure to perform or observe covenants set forth in the loan documentation within a specified period of time; |
| • | any representation or warranty proving to have been incorrect when made and the continuance for a specific period of time; |
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| • | insolvency defaults; |
| • | manager default shall have occurred and shall have not been remedied, waived or cured and no replacement manager shall have been appointed and assumed the management of all Terminated Managed Containers per the Management Agreement within a specified period; |
| • | invalidity of the lien on collateral; |
| • | the funded notes exceeding the asset base over a specific period; |
| • | payment on the notes by the insurer thereof; |
| • | certain defaults under other documents related to each of the notes; |
| • | the funded notes exceeding the asset base; |
| • | payment on the notes by the insurer thereof; |
| • | TMCL III becoming obligated to register as an investment company under the Investment Company Act; and |
| • | the occurrence of certain ERISA events. |
Cash Flow
The following table summarizes historical cash flow information for the years ended December 31, 2014, 2013 and 2012:
| December 31, | % Change Between | |||||||||||||||||||
| 2014 | 2013 | 2012 | 2014 and 2013 | 2013 and 2012 | ||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||
| Net income |
$ | 195,054 | $ | 189,374 | $ | 205,063 | 3.0 | % | (7.7 | %) | ||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities |
167,753 | 127,255 | 73,292 | 31.8 | % | 73.6 | % | |||||||||||||
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| Net cash provided by operating activites |
362,807 | 316,629 | 278,355 | 14.6 | % | 13.8 | % | |||||||||||||
| Net cash used in investing activities |
(599,097 | ) | (584,480 | ) | (986,115 | ) | 2.5 | % | (40.7 | %) | ||||||||||
| Net cash provided by financing activities |
223,246 | 287,992 | 732,929 | (22.5 | %) | (60.7 | %) | |||||||||||||
| Effect of exchange rate changes |
(112 | ) | (45 | ) | 142 | 148.9 | % | (131.7 | %) | |||||||||||
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| Net (decrease) increase in cash and cash equivalents |
(13,156 | ) | 20,096 | 25,311 | (165.5 | %) | (20.6 | %) | ||||||||||||
| Cash and cash equivalents at beginning of year |
120,223 | 100,127 | 74,816 | 20.1 | % | 33.8 | % | |||||||||||||
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| Cash and cash equivalents at end of year |
$ | 107,067 | $ | 120,223 | $ | 100,127 | (10.9 | %) | 20.1 | % | ||||||||||
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Operating Activities
Net cash provided by operating activities increased $46,178 (14.6%) from 2013 to 2014. The following table summarizes the variances included within this increase:
| Increase in net income adjusted for noncash items |
$ | 18,996 | (1) | |
| Decrease in gains on sale of containers, net |
13,871 | (2) | ||
| Decrease in trading containers, net in 2014 compared to an increase in 2013 |
12,049 | (3) | ||
| Other, net |
1,262 | |||
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|
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| $ | 46,178 | |||
|
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|
| (1) | The increase in net income adjusted for noncash items such as depreciation expense and container impairment, discrete tax benefits for the re-measurement of unrecognized tax benefits and unrealized gains on interest rate swaps, collars and caps, net was primarily due to a 13.4% increase in our owned fleet size due to the purchase of new and used containers and a 1.3 percentage point increase in utilization for our owned fleet, partially offset by a 7.1% decrease in average per diem rental rates. |
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| (2) | The decrease in gains on sale of containers, net was due to a decrease in average sales proceeds of $203 per unit and a 76.7% decrease in the number of containers placed on sales-type leases, partially offset by a 13.8% increase in the number of containers sold and an increase in average net gains on sales-type leases of $276 per unit. |
| (3) | The decrease in trading containers, net in 2014 compared to an increase in 2013 was due to a change in the number of trading containers that were held for sale. |
Net cash provided by operating activities increased $38,274 (13.8%) from 2012 to 2013. The following table summarizes the variances included within this increase:
| Increase in net income adjusted for noncash items |
$ | 42,048 | (1) | |
| Decrease in due from affiliates, net in 2013 compared to an increase in 2012 |
7,941 | (2) | ||
| Increase in trading containers, net in 2013 compared to a decrease in 2012 |
(11,387 | )(3) | ||
| Other, net |
(328 | ) | ||
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| $ | 38,274 | |||
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| (1) | The increase in net income adjusted for noncash items such as depreciation expense and container impairment, bargain purchase gain and unrealized gains on interest rate swaps, collars and caps, net was primarily due to a 29.7% increase in our owned fleet size due to the purchase of new and used containers, partially offset by a 3.4% decrease in per diem rental rates and a 2.7 percentage point decrease in utilization for our owned fleet. |
| (2) | The decrease in due from affiliates, net in 2013 compared to the increase in 2012 was due to the timing of payments received from affiliates. |
| (3) | The increase in trading containers, net in 2013 compared to the decrease in 2012 was due to a change in the number of trading containers that were held for sale. |
Investing Activities
Net cash used in investing activities increased $14,617 (2.5%) from 2013 to 2014 due to a higher amount of container purchases, partially offset by a higher receipt of payments on direct financing and sales-type leases, net of income earned and higher proceeds from the sale of containers and fixed assets.
Net cash used in investing activities decreased $401,635 (-40.7%) from 2012 to 2013 due to a lower amount of container purchases, the payment for the acquisition of TAP Funding in 2012, a higher receipt of payments on direct financing and sales-type leases, net of income earned and higher proceeds from the sale of containers and fixed assets.
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Financing Activities
Net cash provided by financing activities decreased $64,746 (-22.5%) from 2013 to 2014. The following table summarizes the variances included within this increase:
| Increase in principal payments on bonds payable |
$ | (602,383 | ) | |
| Decrease in net proceeds from revolving credit facilities |
(226,251 | ) | ||
| Principal payments on term loan |
(24,300 | ) | ||
| Increase in dividends paid |
(2,449 | ) | ||
| Decrease in proceeds received from the issuance of common shares upon the exercise of share options |
(1,120 | ) | ||
| Decrease in excess tax benefit from share-based compensation awards |
(320 | ) | ||
| Proceeds from term loan |
500,000 | |||
| Increase in net proceeds from secured debt facilities |
273,900 | |||
| Decrease in restricted cash during 2014 compared to an increase in restricted cash during 2013 |
11,065 | |||
| Increase in capital contributions from noncontrolling interest |
3,981 | |||
| Increase in proceeds from bonds payable |
1,939 | |||
| Decrease in debt issuance costs paid |
1,192 | |||
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| $ | (64,746 | ) | ||
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Net cash provided by financing activities decreased $444,937 (-60.7%) from 2012 to 2013. The following table summarizes the variances included within this decrease:
| Proceeds received from the issuance of common shares in our public offering in 2012, net of offering costs |
$ | (184,839 | ) | |
| Net payments on secured debt facilities in 2013 compared to net proceeds in 2012 |
(118,703 | ) | ||
| Decrease in proceeds from bonds payable |
(100,641 | ) | ||
| Increase in principal payments on bonds payable |
(20,854 | ) | ||
| Increase in dividends paid |
(20,726 | ) | ||
| Decrease in capital contributions from noncontrolling interest |
(9,531 | ) | ||
| Decrease in proceeds received from the issuance of common shares upon the exercise of share options |
(1,052 | ) | ||
| Higher increase in restricted cash |
(1,042 | ) | ||
| Lower excess tax benefit from share-based compensation awards |
(136 | ) | ||
| Decrease in debt issuance costs paid |
10,415 | |||
| Increase in net proceeds from revolving credit facilities |
2,172 | |||
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| $ | (444,937 | ) | ||
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| C. | Research and Development, Patents and Licenses, etc. |
We do not carry out research and development activities and our business and profitability are not materially dependent upon any patents or licenses. We have registered “TEXTAINER,” “TEX” and “tex” (logo) in the U.S. Patent and Trademark Office and in the patent and trademark agencies of thirteen countries as trademarks.
| D. | Trend Information |
Please see Item 5, “Operating and Financial Review and Prospects – Tabular Disclosure of Contractual Obligations” for a description of identifiable trends, demands, commitments, events or uncertainties that will result in, or that are reasonably likely to result in, our liquidity either increasing or decreasing at present or in the foreseeable future. We will require sufficient capital in the future to meet our payments and other obligations
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under our contractual obligations and commercial commitments. The need to make such payments is a “Trend” as it is unlikely that all such obligations will be eliminated from our future business activities. We intend to utilize cash on hand in order to meet our obligations under our contractual obligations and commercial commitments. It is likely that we will generate sufficient operating cash flow to meet these ongoing obligations in the foreseeable future. From time to time, we may issue additional debt in order to raise capital for future requirements.
| E. | Off-Balance Sheet Arrangements |
At December 31, 2014, we had no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, change in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
| F. | Tabular Disclosure of Contractual Obligations |
The following table sets forth our contractual obligations and commercial commitments by due date as of December 31, 2014:
| Payments Due by Period | ||||||||||||||||||||||||||||
| Total | 1 year | 1-2 years | 2-3 years | 3-4 years | 4-5 years | >5 years | ||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||||
| (Unaudited) | ||||||||||||||||||||||||||||
| Total debt obligations: |
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| TMCL II Secured Debt Facility |
$ | 852,100 | $ | — | $ | — | $ | 21,303 | $ | 85,210 | $ | 85,210 | $ | 660,377 | ||||||||||||||
| TMCL IV Secured Debt Facility |
165,000 | — | — | — | 165,000 | — | — | |||||||||||||||||||||
| TL Revolving Credit Facility |
684,500 | — | — | 684,500 | — | — | — | |||||||||||||||||||||
| TW Revolving Credit Facility |
134,290 | — | — | — | — | — | 134,290 | |||||||||||||||||||||
| TAP Funding Revolving Credit Facility |
126,000 | — | — | — | — | 126,000 | — | |||||||||||||||||||||
| TL Term Loan |
475,700 | 31,600 | 31,600 | 31,600 | 31,600 | 349,300 | — | |||||||||||||||||||||
| 2013-1 Bonds |
263,288 | 30,090 | 30,090 | 30,090 | 30,090 | 30,090 | 112,838 | |||||||||||||||||||||
| 2014-1 Bonds |
296,377 | 30,140 | 30,140 | 30,140 | 30,140 | 30,140 | 145,677 | |||||||||||||||||||||
| Interest obligation (1) |
295,741 | 62,589 | 57,347 | 50,917 | 37,600 | 27,940 | 59,348 | |||||||||||||||||||||
| Interest rate swaps payable (2) |
33,605 | 10,630 | 8,476 | 7,129 | 4,968 | 1,710 | 692 | |||||||||||||||||||||
| Office lease obligations |
3,211 | 1,539 | 1,372 | 100 | 100 | 100 | — | |||||||||||||||||||||
| Container contracts payable |
63,323 | 63,323 | — | — | — | — | — | |||||||||||||||||||||
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| Total contractual obligations |
$ | 3,393,135 | $ | 229,911 | $ | 159,025 | $ | 855,779 | $ | 384,708 | $ | 650,490 | $ | 1,113,222 | ||||||||||||||
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| (1) | Assuming an estimated current interest rate of LIBOR plus a margin, which equals an all-in interest rate of 2.16%. |
| (2) | Calculated based on the difference between our fixed contractual rates and the counterparties’ estimated average LIBOR rate of 0.17%, for all periods, for all interest rate contracts outstanding as of December 31, 2014. |
| G. | Safe Harbor |
This Annual Report on Form 20-F contains forward-looking statements. See “Information Regarding Forward-Looking Statements; Cautionary Language.”
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| ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES |
| A. | Directors and Senior Management |
The following table sets forth information regarding our executive officers and directors as of March 13, 2015. Our board of directors is elected annually and each director holds office until his successor has been duly elected, except in the event of his death, resignation, removal or earlier termination of his office. Our bye-laws provide for, among other things, the election of our board of directors on a staggered basis. The business address of each of our executive officers and non-management directors is Century House, 16 Par-La-Ville Road, Hamilton HM 08, Bermuda.
In accordance with our bye-laws, our board of directors are elected annually on a staggered basis, with each director holding office until his successor has been duly elected, except in the event of his death, resignation, removal or earlier termination of his office. Philip K. Brewer, Isam K. Kabbani and James E. McQueen are designated Class II directors, to hold office until our 2015 annual general meeting of shareholders, John A. Maccarone, Dudley R. Cottingham, Hyman Shwiel and James E. Hoelter are designated Class I directors, to hold office until our 2016 annual general meeting of shareholders and Neil I. Jowell, Cecil Jowell and David M. Nurek are designated Class III directors, to hold office until our 2017 annual general meeting of shareholders. Thereafter, directors in each class will be elected for three-year terms. Directors may be re-elected when their term of office expires.
As of March 6, 2016, Trencor, through the Halco Trust and Halco, held a beneficiary interest in approximately 47.9% of our outstanding share capital. See Item 4, “Information on the Company—Organizational Structure” for an explanation of the relationship between us and Trencor. As indicated below, five of our directors are also directors of Trencor.
| Executive Officers and Directors |
Age |
Position | ||||
| Neil I. Jowell(1)(2)(3)(4) |
81 | Chairman | ||||
| Philip K. Brewer |
57 | Director, President and Chief Executive Officer | ||||
| Dudley R. Cottingham(1)(2)(3) |
63 | Director | ||||
| James E. Hoelter(1)(2)(3)(4) |
75 | Director | ||||
| Cecil Jowell(4) |
79 | Director | ||||
| Isam K. Kabbani |
80 | Director | ||||
| John A. Maccarone(2)(3) |
70 | Director | ||||
| James E. McQueen(1)(4) |
70 | Director | ||||
| David M. Nurek(2)(3)(4) |
65 | Director | ||||
| Hyman Shwiel(1)(2)(3) |
70 | Director | ||||
| Robert D. Pedersen |
55 | President and Chief Executive Officer of Textainer Equipment Management Limited | ||||
| Hilliard C. Terry, III |
45 | Executive Vice President and Chief Financial Officer | ||||
| Ernest J. Furtado |
59 | Senior Vice President and Chief Accounting Officer | ||||
| (1) | Member of the audit committee. Messrs. Cottingham and Shwiel are voting members and Messrs. Hoelter, Neil Jowell and McQueen are non-voting members. |
| (2) | Member of the compensation committee. |
| (3) | Member of the nominating and governance committee. |
| (4) | Director of Trencor, the indirect beneficiary of 47.9% of our share interest. |
Certain biographical information about each of these individuals is set forth below.
Directors
Neil I. Jowell has served as our director and chairman since December 1993. He has been a director of Trencor since 1966, and was appointed chairman in 1973. Mr. Jowell has over 50 years of experience in the transportation industry. He holds an M.B.A. from Columbia University and Bachelor of Commerce and L.L.B. degrees from the University of Cape Town. Mr. Neil I. Jowell and Mr. Cecil Jowell are brothers.
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Philip K. Brewer was appointed President and Chief Executive Officer and to our board of directors in October 2011. Mr. Brewer served as our Executive Vice President from 2006 to October 2011, responsible for managing our capital structure and identifying new sources of finance for our company, as well as overseeing the management and coordinating the activities of our risk management and resale divisions. Mr. Brewer was Senior Vice President of our asset management group from 1999 to 2005 and Senior Vice President of our capital markets group from 1996 to 1998. Prior to joining our company in 1996, Mr. Brewer worked at Bankers Trust starting in 1990 as a Vice President and ending as a Managing Director and President of its Indonesian subsidiary. From 1989 to 1990, he was Vice President in Corporate Finance at Jardine Fleming. From 1987 to 1989, he was Capital Markets Advisor to the United States Agency for International Development in Indonesia. From 1984 to 1987, he was an associate with Drexel Burnham Lambert, an investment banking firm, in New York. Mr. Brewer holds a B.A. in Economics and Political Science from Colgate University and an M.B.A. in Finance from Columbia University.
Dudley R. Cottingham has been a member of our board of directors since December 1993 and served as assistant Secretary and/or secretary between December 1993 and October 2007. He has also served in the past as president of certain of our subsidiaries and continues to serve as a director of our Bermuda subsidiaries. Mr. Cottingham has over 30 years of experience in public accounting for a variety of international and local clients. He is a director and the audit committee chairman of Bermuda Press (Holdings) Ltd., a newspaper publishing and commercial printing company listed on the Bermuda Stock Exchange and is chairman of the listing committee of the Bermuda Stock Exchange. He is chairman and an Investment and Operational Committee member of the Aurum Funds which are listed on the Bermuda and Irish Stock Exchanges. He is a managing director of and was formerly a partner of Arthur Morris & Company Limited, a provider of audit and accounting services for international clients, since 1982, and has served as vice president and director of Continental Management Ltd., a Bermuda company providing corporate representation, administration and management services, since 1982 and Continental Trust Corporation Ltd., a Bermuda company that provides corporate and individual trust administration services, since 1994. He is a director of Morris, Cottingham & Co. Ltd. and their other group companies in Turks & Caicos Islands. Mr. Cottingham is a Chartered Accountant.
James E. Hoelter has been a member of our board of directors since December 1993 and was our President and Chief Executive Officer from that time until his retirement in December 1998. Mr. Hoelter is a non-executive member of the board of directors of Trencor and a member of Trencor’s risk committee. Mr. Hoelter received a Bachelor of Business Administration from the University of Wisconsin and an M.B.A. from the Harvard Business School.
Cecil Jowell has been a member of our board of directors since March 2003. Mr. C. Jowell also serves on the board of Trencor and has been an executive of Trencor for over 40 years. He has also served as a director and chairman of WACO International Ltd., an international industrial group previously listed on the JSE. Mr. C. Jowell holds a Bachelor of Commerce and Bachelor of Laws degrees from the University of Cape Town and is a graduate of the Institute of Transport.
John A. Maccarone retired as our President and Chief Executive Officer in October 2011 when he became a non-executive director of Textainer Group Holdings Limited. He served as our President and Chief Executive Officer since January 1999, and as a member of our board of directors since December 1993. Until October 2011, Mr. Maccarone was a member of the board of directors of the Institute of International Container Lessors, a trade association for the container and chassis leasing industry, and served as its chairman from January 2006 to December 2006. Mr. Maccarone co-founded Intermodal Equipment Associates, a marine container leasing company based in San Francisco, and held a variety of executive positions with the company from 1979 until 1987, when he joined the Textainer Group as President and Chief Executive Officer of Textainer Equipment Management Limited, now a subsidiary of our company. From 1977 through 1978, Mr. Maccarone was Director of Marketing based in Hong Kong for Trans Ocean Leasing Corporation, a San Francisco-based company. From 1969 to 1976, Mr. Maccarone was a marketing representative for IBM Corporation in Chicago, Illinois. From 1966 to 1968, he served as a Lieutenant in the U.S. Army Corps of Engineers in Thailand and Virginia. Mr. Maccarone holds a B.S. in Engineering Management from Boston University and an M.B.A. from Loyola University of Chicago.
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Isam K. Kabbani has been a member of our Board of Directors since December 1993. Mr. Kabbani is the chairman and principal stockholder of the IKK Group, Jeddah, Saudi Arabia, a manufacturing, trading and construction group active both in Saudi Arabia and internationally. In 1959, Mr. Kabbani joined the Saudi Arabian Ministry of Foreign Affairs, and in 1960 moved to Ministry of Petroleum for a period of ten years. During this time, he was seconded to the Organization of Petroleum Exporting Countries (“OPEC”). After a period as Chief Economist of OPEC, in 1967 he became the Saudi Arabian member of OPEC’s Board of Governors. In 1970, he left the Ministry of Petroleum to establish his own business starting with National Marketing, a small trading company in specialized building materials. The IKK Group has been for the past decade consistently among the largest 35 Saudi Companies. Mr. Kabbani holds a B.A. from Swarthmore College (Pennsylvania, USA) and an M.A. in Economics and International Relations from Columbia University.
James E. McQueen has been a member of our board of directors since March 2003. Mr. McQueen joined Trencor in June 1976 and has served as financial director of Trencor since April 1984. Mr. McQueen is also a director of a number of Trencor’s subsidiaries. Prior to joining Trencor, Mr. McQueen was an accountant in public practice. Mr. McQueen received a Bachelor of Commerce degree and a Certificate in the Theory of Accounting from the University of Cape Town and is a Chartered Accountant (South Africa).
David M. Nurek has been a member of our board of directors since September 2007. Mr. Nurek was appointed as an alternate director of Trencor in November 1992 and as a non-executive member of its board of directors in July 1995 and is chairman of Trencor’s remuneration and nomination and social and ethics committees and a member of its audit committee. Mr. Nurek is an executive of Investec Bank Limited, a subsidiary of Investec Limited, which is listed on the JSE. Investec Limited has entered into a dual listed company structure with Investec plc, which is quoted on the London Stock Exchange (collectively, the “Investec Group”). He is the regional chairman of Investec Limited’s various businesses in the Western Cape, South Africa, and is also the Investec Group’s worldwide head of legal risk. Prior to joining Investec Limited in June 2000, Mr. Nurek served as chairman of the South African legal firm Sonnenberg Hoffmann & Galombik, which has since changed its name to Edward Nathan Sonnenbergs Inc. Mr. Nurek serves as a non-executive on the boards of directors of various listed and unlisted companies in South Africa and holds a Diploma in Law and a Graduate Diploma in Company Law from the University of Cape Town, and completed a Program of Instruction for Lawyers at Harvard Law School and a Leadership in Professional Services Firms program at Harvard Business School.
Hyman Shwiel has been a member of our board of directors since September 2007. Mr. Shwiel was a partner with Ernst & Young LLP for 25 years. He served during that period in various roles, including Area Managing Partner and as National Director of Enterprise and Professional Risk. Upon his retirement in 2005, he became a consultant to Ernst & Young until 2007. Mr. Shwiel holds a C.T.A. and a M.B.A. from the University of Cape Town and is a Chartered Accountant (South Africa) and a CPA.
Executive Officers
For certain biographical information about Philip K. Brewer, see “Directors” above.
Robert D. Pedersen was appointed President and Chief Executive Officer of Textainer Equipment Management Limited, our management company, in October 2011. Mr. Pedersen served as our Executive Vice President responsible for worldwide sales and marketing related activities and operations since January 2006. Mr. Pedersen was Senior Vice President of our leasing group from 1999 to 2005. From 1991 to 1999, Mr. Pedersen held several positions within our company, and from 1978 through 1991, he worked in various capacities for Klinge Cool, a manufacturer of refrigerated container cooling units, XTRA, a container lessor, and Maersk Line, a container shipping line. Mr. Pedersen is a graduate of the A.P. Moller Shipping and Transportation Program and the Merkonom Business School in Copenhagen, where he majored in Company Organization.
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Hilliard C. Terry, III was appointed Executive Vice President and Chief Financial Officer in January 2012. Prior to joining the company, Mr. Terry served as Vice President and Treasurer at Agilent Technologies, Inc., where he worked prior to the company’s initial public offering in 1999 and subsequent spin-off from Hewlett-Packard Company (HP). He previously served as the head of Investor Relations until he was appointed Vice President and Treasurer in 2006. Before joining Agilent Technologies, Mr. Terry worked in marketing and investor relations for HP’s VeriFone subsidiary and joined VeriFone, Inc. in 1995 prior to the company’s acquisition by HP in 1997. He also held positions in investor relations with Kenetech Corporation and investment banking at Goldman, Sachs & Co. Mr. Terry currently serves on the board of directors of Umpqua Holdings Corporation, a publicly traded financial services company and on the board of its principal subsidiary, Umpqua Bank. Mr. Terry also serves of the board of trustees of the Oakland Museum of California. Mr. Terry holds a B.A. in Economics from the University of California at Berkeley and an M.B.A. from Golden Gate University.
Ernest J. Furtado has served as our First Vice President, Senior Vice President, Chief Financial Officer and Secretary or Assistant Secretary since 1999. Mr. Furtado currently serves as our Senior Vice President and Chief Accounting Officer. Prior to joining our company in 1991, Mr. Furtado was Controller for Itel Instant Space, a container leasing company based in San Francisco, California, and Manager of Accounting for Itel Containers International Corporation, a container leasing company based in San Francisco, California. Mr. Furtado was also a Manager of Internal Audit for Wells Fargo Bank and worked as a Certified Public Accountant at John F. Forbes & Co. Mr. Furtado is a Certified Public Accountant and holds a B.S. in Business Administration from the University of California at Berkeley and an M.B.A. in Information Systems from Golden Gate University.
Board of Directors
Our board of directors currently consists of ten members. Our bye-laws provide that our board of directors shall consist of five to twelve directors, as the board of directors may determine from time to time.
| B. | Compensation |
The aggregate direct compensation we paid to our executive officers as a group (four persons) for the year ended December 31, 2014 was approximately $2.3 million, which included approximately $0.6 million in bonuses and approximately $85 in funds set aside or accrued to provide for health and life insurance, retirement, or similar benefits. On November 19, 2014, our executive officers as a group were granted 89,965 share options, with an exercise price of $34.14 and an expiration date of November 19, 2024, and 89,965 restricted share units through our 2007 Share Incentive Plan. This amount does not include expenses we incurred for other payments, including dues for professional and business associations, business travel and other expenses. We did not pay our officers who also serve as directors any separate compensation for their directorship during 2014, other than reimbursements for travel expenses.
All of our full-time employees, including employees of our direct and indirect subsidiaries and dedicated agents and our executive officers, were eligible to participate in our 2014 Short Term Incentive Plan (“STIP”). Under that plan, all eligible employees received an incentive award based on their respective job classification and our return on assets and earnings per share. In 2014, all STIP participants, including our executive officers received 70% of their target incentive award.
The aggregate direct compensation we paid to our directors who are not officers for their services as directors as a group for the year ended December 31, 2014 was approximately $579. Some directors were also reimbursed for expenses incurred in order to attend board or committee meetings.
2007 Share Incentive Plan
Our board of directors adopted the 2007 Share Incentive Plan (“2007 Plan”) on August 9, 2007, and our shareholders approved the 2007 Plan on September 4, 2007. The maximum number of common shares of Textainer Group Holdings Limited that could be granted pursuant to the 2007 Plan was 3,808,371 shares,
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representing 8% of the number of common shares issued and outstanding 45 days following our initial public offering on October 9, 2007, subject to adjustments for share splits, share dividends or other similar changes in our common shares or our capital structure. On February 23, 2010, the Company’s Board of Directors approved an increase in the number of shares available for future issuance by 1,468,500 from 3,808,371 shares to 5,276,871 shares, which was approved by the Company’s shareholders at the annual meeting of shareholders on May 19, 2010. The shares to be issued pursuant to awards under the 2007 Plan may be authorized, but unissued, or reacquired common shares.
The 2007 Plan provides for the grant of share options, restricted shares, restricted share units, share appreciation rights and dividend equivalent rights, collectively referred to as “awards.” Share options granted under the 2007 Plan may be either incentive share options under the provisions of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), or non-qualified share options. We may grant incentive share options only to our employees or employees of any parent or subsidiary of Textainer Group Holdings Limited. Awards other than incentive share options may be granted to our employees, directors and consultants or the employees, directors and consultants of any parent or subsidiary of Textainer Group Holdings Limited.
Our board of directors or a committee designated by our board of directors, referred to as the “plan administrator,” will administer the 2007 Plan, including selecting the award recipients, determining the number of shares to be subject to each award, determining the exercise or purchase price of each award and determining the vesting and exercise periods of each award. Awards under the plan may vest upon the passage of time or upon the attainment of certain performance criteria.
The exercise price of all share options granted under the 2007 Plan will be at least equal to 100% of the fair market value of our common shares on the date of grant. If, however, incentive share options are granted to an employee who owns shares possessing more than 10% of the voting power of all classes of our common shares or the shares of any parent or subsidiary, the exercise price of any incentive share option granted must equal at least 110% of the fair market value on the grant date and the maximum term of these incentive share options must not exceed five years. The maximum term of all other awards under the 2007 Plan will be ten years. The plan administrator will determine the term and exercise or purchase price of any other awards granted under the 2007 Plan.
Under the 2007 Plan, incentive share options may not be sold, pledged, assigned, hypothecated, transferred or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised during the lifetime of the participant only by the participant. Other awards shall be transferable by will or by the laws of descent or distribution and to the extent provided in the award agreement. The 2007 Plan permits the designation of beneficiaries by holders of awards, including incentive share options.
In the event a participant in the 2007 Plan terminates employment or is terminated by us (or by our parent or subsidiary) without cause, any options which have become exercisable prior to the time of termination will remain exercisable for three months from the date of termination (unless a shorter or longer period of time is determined by the plan administrator). In the event a participant in the 2007 Plan is terminated by us (or by our parent or subsidiary) for cause, any options which have become exercisable prior to the time of termination will immediately terminate. If termination was caused by death or disability, any options which have become exercisable prior to the time of termination, will remain exercisable for twelve months from the date of termination (unless a shorter or longer period of time is determined by the plan administrator). Unless an individual award agreement otherwise provides, all vesting of all other awards will generally terminate upon the date of termination.
Subject to any required action by our shareholders, the number of common shares covered by outstanding awards, the number of common shares that have been authorized for issuance under the 2007 Plan, the exercise or purchase price of each outstanding award, the maximum number of common shares that may be granted subject to awards to a participant in any calendar year, and the like, shall be proportionally adjusted by the plan administrator in the event of any increase or decrease in the number of issued common shares resulting from certain changes in our capital structure as described in the 2007 Plan.
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In the event of a corporate transaction or a change in control of Textainer Group Holdings Limited, all outstanding awards under the 2007 Plan will terminate unless the acquirer assumes or replaces such awards. In addition and except as otherwise provided in an individual award agreement, assumed or replaced awards will automatically become fully vested if a participant is terminated by the acquirer without cause within twelve months after a corporate transaction. In the event of a corporate transaction where the acquirer does not assume or replace awards granted under the 2007 Plan, all of these awards become fully vested immediately prior to the consummation of the corporate transaction. In the event of a change in control and except as otherwise provided in an individual award agreement, outstanding awards will automatically become fully vested if a participant is terminated by the acquirer without cause within twelve months after such change in control.
Under the 2007 Plan, a “corporate transaction” is generally defined as:
| • | acquisition of 50% or more of the common shares by any individual or entity including by tender offer; |
| • | a reverse merger or amalgamation in which 40% or more of the common shares by an individual or entity is acquired; |
| • | a sale, transfer or other disposition of all or substantially all of the assets of Textainer Group Holdings Limited; |
| • | a merger, amalgamation or consolidation in which Textainer Group Holdings Limited is not the surviving entity; or |
| • | a complete liquidation or dissolution. |
Under the 2007 Plan, a “change in control” is generally defined as:
| • | acquisition of 50% or more of the common shares by any individual or entity which a majority of our board of directors (who have served on the board for at least 12 months) do not recommend that our shareholders accept, or |
| • | a change in the composition of the board of directors as a result of contested elections over a period of 12 months or less. |
Unless terminated sooner, the 2007 Plan will automatically terminate in 2017. The board of directors will have authority to amend or terminate the 2007 Plan. To the extent necessary to comply with applicable provisions of federal securities laws, state corporate and securities laws, the Code, the rules of any applicable stock exchange or national market system, and the rules of any non-U.S. jurisdiction applicable to awards granted to residents therein, we will obtain shareholder approval of any such amendment to the 2007 Plan in such a manner and to such a degree as required.
2008 Bonus Plan
On September 21, 2007, our board of directors approved the Textainer Group Holdings Limited 2008 Bonus Plan (the “Bonus Plan”). The Bonus Plan provides for incentive payments to our employees and those of our affiliates, including our dedicated agents and key. Although the Bonus Plan permits the awards to be paid in shares, we expect that the awards will be cash-based. The Bonus Plan is designed to provide incentive awards based on the achievement of goals relating to our performance and the performance of our individual business units while maintaining a degree of flexibility in the amount of incentive compensation paid to such individuals. Under the Bonus Plan, performance goals may relate to one or more of the following measures, for the company as a whole, a line of business, service or product: increase in share price, earnings per share, total shareholder return, operating margin, gross margin, return on equity, return on assets, return on investment, operating income, net operating income, pre-tax income, cash flow, revenue, expenses, earnings before interest, taxes and depreciation, economic value added, market share, corporate overhead costs, liquidity management, net interest income, net interest income margin, return on capital invested, shareholders’ equity, income before income tax
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expense, residual earnings after reduction for certain compensation expenses, net income, profitability of an identifiable business unit or product, or performance relative to a peer group of companies on any of the foregoing measures. The Bonus Plan replaced our 2007 Short Term Incentive Plan beginning in 2008.
Employment and Consulting Agreements with Executive Officers and Directors
We have entered into employment agreements with most of our executive officers. Each of these employment agreements contains provisions requiring us to make certain severance payments in case the executive officer is terminated without cause. The agreements terminate upon termination of employment. Employment is at-will for each of our executive officers and they may be terminated at any time for any reason. In addition, in the past we have entered into consulting arrangements with Mr. Hoelter, one of our directors.
Other than as disclosed above, none of our directors has service contracts with us or any of our subsidiaries providing for benefits upon termination of employment.
| C. | Board Practices |
Our corporate governance practices are in compliance with, and are not prohibited by, the laws of Bermuda. Therefore, we are exempt from many of the New York Stock Exchange’s (“NYSE”) corporate governance practices, other than the establishment of a formal audit committee satisfying the requirements of Rule 10A-3 under the Exchange Act and notification of non-compliance with NYSE listing requirements pursuant to Rule 10A-3 promulgated under the Exchange Act. The practices that we follow in lieu of the NYSE’s corporate governance rules are described below.
| • | We do not, and are not required under Bermuda law to, maintain a board of directors with a majority of independent directors. Currently, a majority of our directors are not independent, as that term is defined by the NYSE. |
| • | We are not required by Bermuda law to hold regular meetings of the board of directors at which only independent directors are present. |
| • | Under Bermuda law, compensation of executive officers does not need to be determined by an independent committee. We have established a compensation committee that reviews and approves the compensation and benefits for our executive officers and other key executives, makes recommendations to the board regarding compensation matters and is responsible for awarding compensation to our executive officers and other employees under our share compensation plans. The committee also has the discretion to interpret and amend the terms of, and take all other actions necessary to administer, the 2007 Share Incentive Plan. However, our compensation committee is not comprised solely of independent directors, as required by NYSE standards. The members of our compensation committee are Messrs. Cottingham, Hoelter, Maccarone, Neil Jowell, Nurek and Shwiel. Messrs. Neil Jowell, Hoelter and Nurek are directors of Trencor. Messrs. Cottingham and Shwiel satisfy the NYSE’s standards for director independence and Mr. Shwiel serves as our Lead Independent Director. |
| • | We have established an audit committee responsible (i) for advising the board regarding the selection of independent auditors, (ii) overseeing the Company’s accounting and financial reporting process, (iii) evaluating our internal controls, and (iv) overseeing compliance with policies and legal requirements with respect to financial reporting. Our audit committee need not comply with NYSE requirements that the audit committee have a minimum of three members or the NYSE’s standards of director independence for domestic issuers. Our audit committee has five members, Messrs. Shwiel, Cottingham, Neil Jowell, McQueen and Hoelter. Messrs. Shwiel and Cottingham are voting members of the committee and are independent as that term is defined in Rule 10A-3 under the Exchange Act. The other three members are directors of Trencor and have no voting rights. |
| • | We have established a nominating and governance committee, although this committee is not comprised solely of independent directors, as would be required of a domestic issuer. Our nominating and |
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| governance committee has six members, Messrs. Cottingham, Hoelter, Maccarone, Neil Jowell, Nurek and Shwiel. Messrs. Cottingham and Shwiel satisfy the NYSE’s standards for director independence. Our board of directors has adopted a nominating and governance committee charter. |
| • | Under Bermuda law, we are not required to obtain shareholder consent prior to issuing securities or adopting share compensation plans. Nonetheless, we sought and received the approval of our shareholders for our 2007 Share Incentive Plan on September 4, 2007. Under Bermuda law, consent of the Bermuda Monetary Authority is required for the issuance of securities in certain circumstances. |
| • | Under Bermuda law, we are not required to adopt corporate governance guidelines or a code of business conduct. Nonetheless, we have adopted both corporate governance guidelines and a code of business conduct. |
| D. | Employees |
As of December 31, 2014, we employed 162 people. We believe that our relations with our employees are good, and we are not a party to any collective bargaining agreements.
| E. | Share Ownership |
See Item 7, “Major Shareholders and Related Party Transactions” for information regarding director and senior management ownership of our common shares.
| ITEM 7. | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS |
| A. | Major Shareholders |
The following table presents information regarding the beneficial ownership of our common shares as of March 6, 2015:
| • | each person or entity that we know beneficially owns more than 5% of our issued and outstanding shares; |
| • | each director, director nominee and executive officer; and |
| • | all of our directors, director nominees and executive officers as a group. |
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Beneficial ownership is determined in accordance with the rules of the SEC and generally includes any shares over which a person exercises sole or shared voting or investment power. The percentage of beneficial ownership of our common shares owned is based on 56,983,324 common shares issued and outstanding on March 6, 2015. We do not believe that we are directly or indirectly owned or controlled by any foreign government. The voting rights of our common shares held by major shareholders are the same as the voting rights of shares held by all other shareholders. We are unaware of any arrangement that might result in a change of control.
| Number of Common Shares | ||||||||
| Beneficially Owned | ||||||||
| Holders |
Shares (1) | % (2) | ||||||
| 5% or More Shareholders |
||||||||
| Halco Holdings Inc. (3) |
27,278,802 | 47.9 | % | |||||
| Trencor Limited (3) |
27,278,802 | 47.9 | % | |||||
| Directors and Executive Officers |
||||||||
| Philip K. Brewer (4) |
359,162 | * | ||||||
| Dudley R. Cottingham |
8,080 | * | ||||||
| James E. Hoelter (5) |
28,286,528 | 49.6 | % | |||||
| Cecil Jowell (6) |
27,876,791 | 48.9 | % | |||||
| Neil I. Jowell (6) |
27,876,791 | 48.9 | % | |||||
| Isam K. Kabbani (7) |
2,829,385 | 5.0 | % | |||||
| John A. Maccarone (8) |
1,485,565 | 2.6 | % | |||||
| James E. McQueen (9) |
27,283,882 | 47.9 | % | |||||
| David M. Nurek (10) |
27,283,882 | 47.9 | % | |||||
| Hyman Shwiel |
6,033 | * | ||||||
| Robert D. Pedersen |
315,201 | * | ||||||
| Hilliard C. Terry, III |
88,316 | * | ||||||
| Ernest J. Furtado (11) |
193,593 | * | ||||||
| Current directors and executive officers (13 persons) as a group |
34,778,001 | 61.0 | % | |||||
| * | Less than 1%. |
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| (1) | Beneficial ownership by a person assumes the exercise of all share options, warrants and rights held by such person, even if not vested. Common shares beneficially owned include the following share options and restricted share units: |
| Grant Date | ||||||||||||||||||||||||||||||||||||||||
| October 9, 2007 |
November 19, 2008 |
November 18, 2009 |
November 18, 2010 |
November 16, 2011 |
January 20, 2012 |
November 14, 2012 |
November 14, 2013 |
May 22, 2014 |
November 19, 2014 |
|||||||||||||||||||||||||||||||
| Share options |
||||||||||||||||||||||||||||||||||||||||
| Exercise price |
$ | 16.50 | $ | 7.10 | $ | 16.97 | $ | 28.26 | $ | 28.54 | $ | 31.34 | $ | 28.05 | $ | 38.36 | N/A | $ | 34.14 | |||||||||||||||||||||
| Expiration date |
|
October 8, 2017 |
|
|
November 18, 2018 |
|
|
November 17, 2019 |
|
|
November 17, 2020 |
|
|
November 15, 2021 |
|
|
January 19, 2022 |
|
|
November 14, 2022 |
|
|
November 14, 2023 |
|
N/A | |
November 19, 2024 |
| ||||||||||||
| Philip K. Brewer |
16,802 | 12,998 | 22,350 | 15,000 | 30,000 | — | 32,000 | 36,000 | — | 38,520 | ||||||||||||||||||||||||||||||
| Dudley R. Cottingham |
— | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||
| James E. Hoelter |
— | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||
| Cecil Jowell |
— | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||
| Neil I. Jowell |
— | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||
| Isam K. Kabbani |
— | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||
| John A. Maccarone |
— | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||
| James E. McQueen |
— | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||
| David M. Nurek |
— | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||
| Hyman Shwiel |
— | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||
| Robert D. Pedersen |
— | — | 4,692 | 7,500 | 16,500 | — | 23,000 | 26,000 | — | 27,820 | ||||||||||||||||||||||||||||||
| Hilliard C. Terry, III |
— | — | — | — | — | 10,000 | 11,000 | 12,500 | — | 13,375 | ||||||||||||||||||||||||||||||
| Ernest J. Furtado |
— | — | — | 5,000 | 7,125 | — | 10,000 | 10,000 | — | 10,250 | ||||||||||||||||||||||||||||||
| Restricted share units |
||||||||||||||||||||||||||||||||||||||||
| Philip K. Brewer |
— | — | — | — | 7,500 | — | 16,000 | 27,000 | — | 38,520 | ||||||||||||||||||||||||||||||
| Dudley R. Cottingham |
— | — | — | — | — | — | — | — | 1,033 | — | ||||||||||||||||||||||||||||||
| James E. Hoelter |
— | — | — | — | — | — | — | — | 1,033 | — | ||||||||||||||||||||||||||||||
| Cecil Jowell |
— | — | — | — | — | — | — | — | 1,033 | — | ||||||||||||||||||||||||||||||
| Neil I. Jowell |
— | — | — | — | — | — | — | — | 1,033 | — | ||||||||||||||||||||||||||||||
| Isam K. Kabbani |
— | — | — | — | — | — | — | — | 1,033 | — | ||||||||||||||||||||||||||||||
| John A. Maccarone |
— | — | — | — | — | — | — | — | 1,033 | — | ||||||||||||||||||||||||||||||
| James E. McQueen |
— | — | — | — | — | — | — | — | 1,033 | — | ||||||||||||||||||||||||||||||
| David M. Nurek |
— | — | — | — | — | — | — | — | 1,033 | — | ||||||||||||||||||||||||||||||
| Hyman Shwiel |
— | — | — | — | — | — | — | — | 1,033 | — | ||||||||||||||||||||||||||||||
| Robert D. Pedersen |
— | — | — | — | 5,500 | — | 11,500 | 19,500 | — | 27,820 | ||||||||||||||||||||||||||||||
| Hilliard C. Terry, III |
— | — | — | — | — | 2,500 | 5,500 | 9,375 | — | 13,375 | ||||||||||||||||||||||||||||||
| Ernest J. Furtado |
— | — | — | — | 2,375 | — | 5,000 | 7,500 | — | 10,250 | ||||||||||||||||||||||||||||||
| (2) | Percentage ownership is based on 56,983,324 shares outstanding as of March 6, 2015. |
| (3) | Includes 27,278,802 shares held by Halco Holdings Inc. (“Halco”). Halco is wholly-owned by Halco Trust, a discretionary trust with an independent trustee. Trencor and certain of Trencor’s subsidiaries are the sole discretionary beneficiaries of Halco Trust. The protectors of the trust are Mr. Neil Jowell, the chairman of both our board of directors and the board of directors of Trencor, Mr. Cecil Jowell, Mr. McQueen and Mr. Nurek, all members of our board of directors and the board of directors of Trencor and Mr. Edwin Oblowitz, a member of the board of directors of Trencor. |
| (4) | Includes 66,472 shares held by the Philip Brewer 2009 Trust. |
| (5) | Includes 27,278,802 shares held by Halco (which in terms of SEC regulations are solely reported herewith as beneficially owned by Mr. Hoelter due to his position as a director of Trencor), 116,791 shares held by the James E. Hoelter & Virginia S. Hoelter Trust, 519,156 shares held by the JEH-VSH Limited Partnership #1, and 370,746 shares held by the JEH-VSH Limited Partnership #2. The general partners of each of the partnerships are James and Virginia Hoelter. Mr. Hoelter is one of our directors and a member of the board of directors of Trencor. Mr. Hoelter disclaims beneficial ownership, except to the extent of his pecuniary interest therein, if any, of the shares held by Halco. |
| (6) | Includes 27,278,802 shares held by Halco (which in terms of SEC regulations are solely reported herewith as beneficially owned by Mr. Cecil Jowell and Mr. Neil Jowell due to their positions as directors of Trencor) and 596,956 shares held by Hemisphere Investments Limited (“Hemisphere”), a company owned by a trust in which members of Mr. Cecil Jowell’s and Mr. Neil Jowell’s families are discretionary beneficiaries. Mr. Cecil Jowell and Mr. Neil Jowell are our directors, directors of Halco, protectors of The Halco Trust and members of the board of directors of Trencor. In addition, Mr. Cecil Jowell and Mr. Neil Jowell and family trusts of which they are discretionary beneficiaries have significant ownership interests in Trencor. Mr. Cecil Jowell and Mr. Neil Jowell disclaim beneficial ownership, except to the extent of his pecuniary interest therein, if any, of the shares held by Hemisphere and Halco. |
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| (7) | Includes 2,696,454 shares held by Delmas Inv. Holding S.A, an affiliate of Mr. Kabbani and 130,073 shares held by Rima Tariq Alsafadi, Mr. Kabbani’s spouse. |
| (8) | Includes 1,205,100 shares held by the Maccarone Family Partnership L.P., 276,982 shares held by the Maccarone Revocable Trust, 1,100 shares held by the Maccarone Charitable Trust, 1,000 shares held by the John Maccarone IRA Rollover and 350 shares held by the Bryan Maccarone UTMA. |
| (9) | Includes 27,278,802 shares are held by Halco (which in terms of SEC regulations are solely reported herewith as beneficially owned by Mr. McQueen due to his position as a director of Trencor). Mr. McQueen is one of our directors, a director of Halco, a protector of the Halco Trust and a member of the board of directors of Trencor. Mr. McQueen disclaims beneficial ownership, except to the extent of his pecuniary interest therein, if any, of the shares held by Halco. |
| (10) | Includes 27,278,802 shares are held by Halco (which in terms of SEC regulations are solely reported herewith as beneficially owned by Mr. Nurek due to his position as a director of Trencor). Mr. Nurek is one of our directors, a protector of the Halco Trust and a member of the board of directors of Trencor. Mr. Nurek disclaims beneficial ownership, except to the extent of his pecuniary interest therein, if any, of the shares held by Halco. |
| (11) | Includes 126,093 shares held by Ernest James Furtado and Barbara Ann Pelletreau, Trustees of the Furtado-Pelletreau 2003 Revocable Living Trust UDT dated November 28, 2003. |
As of March 6, 2014, based on information available to the Company, 6,000 of our common shares issued and outstanding were held by one record holder in our domicile and headquarters country (Bermuda).
| B. | Related Party Transactions |
We do not have a corporate policy regarding related party transactions, nor are there any provisions in our memorandum of association or bye-laws regarding related party transactions, other than the provision, as permitted by Bermuda law, that we, or one of our subsidiaries, may enter into a contract in which our directors or officers are directly or indirectly interested if the director or officer discloses his interest to our board of directors at the first opportunity at a meeting of directors or in writing.
Loans to Executive Officers
As permitted by Bermuda law, in the past, we have extended loans to our employees in connection with their acquisition of our common shares in accordance with our various employees’ share schemes. As of December 31, 2014 and 2013, no amounts were outstanding on such loans to employees. Currently, there are no loans outstanding to our directors or executive officers, and we will not extend loans to our directors or executive officers in the future, in compliance with the requirements of Section 402 of the Sarbanes-Oxley Act of 2002 and Section 13(k) of the Securities Exchange Act of 1934, as amended.
Indemnification of Officers and Directors
We have entered into indemnification agreements with each of our directors and executive officers to give such directors and officers, as well as their immediate family members, additional contractual assurances regarding the scope of indemnification set forth in our bye-laws, and to provide additional procedural protections which may, in some cases, be broader than the specific indemnification provisions contained in our bye-laws. The indemnification agreements may require us, among other things, to indemnify such directors and officers, as well as their immediate family members, against liabilities that may arise by reason of their status or service as directors or officers and to advance expenses as a result of any proceeding against them as to which they could be indemnified.
Agreements with IKK Group
Textainer Equipment Management Limited has entered into a management agreement with IKK Foundation, related to Textainer Equipment Management Limited’s management of containers owned by IKK Foundation. Director Isam Kabbani is the beneficial owner of IKK Foundation. In 2014, 2013 and 2012, we managed
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approximately 10,000 TEU (for which we received approximately $154 in management fees), 10,000 TEU (for which we received approximately $116 in management fees) and 8,000 TEU (for which we received approximately $155 in management fees), respectively, for IKK Foundation.
Relationships and Agreements with Entities Related to Trencor Limited
Halco is wholly-owned by Halco Trust, a discretionary trust with an independent trustee. Trencor and certain of Trencor’s subsidiaries are the sole discretionary beneficiaries of Halco Trust. The protectors of the trust include Neil I. Jowell, Cecil Jowell, David Nurek and James McQueen, all of whom are members of our board of directors and the board of directors of Trencor. In addition, two of our directors, Cecil Jowell and James McQueen, are also members of the board of directors of Halco.
We have entered into an agreement with LAPCO, an associate of Halco, related to our management of containers owned by LAPCO. Pursuant to this agreement, LAPCO has the right, but not an obligation, to require us to purchase containers on its behalf, within guidelines specified in the agreement and for as long as the management agreement is in place. In 2014, 2013 and 2012, we received the following fees or commissions from LAPCO: (i) $3,048, $3,455 and $3,072, respectively, in management fees and (ii) $634, $939 and $1,195, respectively, in sales commissions. In 2014, 2013 and 2012, fees received under the LAPCO agreement accounted for 3.8%, 4.9% and 3.4%, respectively, of total combined Container Management and Container Resale segment revenue and 0.7%, 0.8% and 0.9%, respectively, of total revenue. LAPCO is free to compete against us with respect to its investment in containers and uses our competitors to manage some of its containers.
Halco acquired 2,100,000 common shares in the Company’s initial public offering on October 15, 2007 at the initial public offering price. The underwriters did not receive any discount or commission on these shares. The common shares that were purchased by Halco in the offering are not freely tradable in the public market due to Halco’s status as our “affiliate,” as such term is defined in Rule 144 under the Securities Act. See Item 14. “Material Modifications to the Rights of Security Holders and Use of Proceeds” for further details on these trading restrictions.
Transactions with Umpqua Bank
Our Executive Vice President and Chief Financial Officer, Hilliard C. Terry, III, serves as a member of the Board of Directors of Umpqua Holdings Corporation, the NASDAQ listed holding company for Umpqua Bank and Umpqua Investments, Inc. Umpqua Bank is a lender with a less than 5% commitment in the $700,000 TL Credit Agreement. Umpqua Bank participates in the TL Credit Agreement on the same terms as the other lenders in the facility.
| C. | Interests of Experts and Counsel |
Not applicable.
| ITEM 8. | FINANCIAL INFORMATION |
| A. | Consolidated Statements and Other Financial Information |
Financial Statements
Our audited consolidated financial statements which are comprised of our consolidated balance sheets as of December 31, 2014 and 2013 and the related consolidated statements of comprehensive income, shareholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2014 and the notes to those statements and the report of independent registered public accounting firm thereon, are included under Item 18, “Financial Statements” of this Annual Report on Form 20-F. Also, see Item 5, “Operating and Financial Review and Prospects” for additional financial information.
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Legal Proceedings
See Item 4, “Information on the Company — Business Overview—Legal Proceedings” for information on our legal proceedings which may have, or have had in the recent past, significant effects on our financial position or profitability.
Dividend Policy
The following table summarizes dividends that we have declared and paid since January 1, 2012:
| Date Declared |
Dividend per Outstanding Common Share |
Total Dividend |
||||||
| February 2012 |
$ | 0.37 | $ | 18,288 | ||||
| May 2012 |
$ | 0.40 | $ | 19,816 | ||||
| August 2012 |
$ | 0.42 | $ | 20,839 | ||||
| November 2012 |
$ | 0.44 | $ | 24,530 | ||||
| February 2013 |
$ | 0.45 | $ | 25,313 | ||||
| May 2013 |
$ | 0.46 | $ | 25,896 | ||||
| August 2013 |
$ | 0.47 | $ | 26,481 | ||||
| October 2013 |
$ | 0.47 | $ | 26,509 | ||||
| February 2014 |
$ | 0.47 | $ | 26,626 | ||||
| May 2014 |
$ | 0.47 | $ | 26,644 | ||||
| August 2014 |
$ | 0.47 | $ | 26,655 | ||||
| October 2014 |
$ | 0.47 | $ | 26,723 | ||||
| February 2015 |
$ | 0.47 | $ | 26,781 | ||||
Our board of directors has adopted a dividend policy which reflects its judgment that our shareholders would be better served if we distributed to them, as quarterly dividends payable at the discretion of our board of directors, a part of the total shareholder return, balancing near term cash needs for potential acquisitions or other growth opportunities, rather than retaining such excess cash or using such cash for other purposes. On an annual basis we expect to pay dividends with cash flow from operations, but due to seasonal or other temporary fluctuations in cash flow, we may from time to time use temporary short-term borrowings to pay quarterly dividends.
We are not required to pay dividends, and our shareholders will not be guaranteed, or have contractual or other rights, to receive dividends. The timing and amount of future dividends will be at the discretion of our board of directors and will be dependent on our future operating results and the cash requirements of our business. There are a number of factors that can affect our ability to pay dividends and there is no guarantee that we will pay dividends in any given year. See Item 3, “Key Information — Risk Factors,” for a discussion of these factors. Our board of directors may decide, in its discretion, at any time, to decrease the amount of dividends, otherwise modify or repeal the dividend policy or discontinue entirely the payment of dividends.
In addition, we will not pay dividends in the event we are not allowed to do so under Bermuda law, are in default under (or such payment would cause a default under) the revolving credit facility or term loan of our wholly-owned subsidiary, Textainer Limited, or if such payment would cause us to breach any of our covenants. These covenants include certain financial covenants, which would be directly affected by the payment of dividends, such as (i) a minimum tangible net worth level (which level would decrease by the amount of any dividend paid), (ii) a maximum ratio of consolidated funded debt to consolidated tangible net worth (which amount would decrease by the amount of any dividend paid) and (iii) a minimum ratio of certain income (which amount would decrease by the amount of any dividend paid) to current obligations. Please see Item 5, “Operating and Financial Review and Prospects—Liquidity and Capital Resources” for a description of these covenants. Furthermore, since we are a holding company, substantially all of the assets shown on our consolidated balance
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sheet are held by our subsidiaries. Accordingly, our earnings and cash flow and our ability to pay dividends are largely dependent upon the earnings and cash flows of our subsidiaries and the distribution or other payment of such earnings to us in the form of dividends.
In 2014 we began calculating our earnings and profits under U.S. federal income tax principles for purposes of determining whether distributions exceed our current and accumulated earnings and profits. We believe that some or all of our distributions will be treated as a return of capital to our U.S. shareholders and we report each quarter on our website at www.textainer.com whether that quarter’s distribution exceeds our current accumulated earnings and profits. The taxability of the dividends does not impact our corporate tax position. You should consult with a tax advisor to determine the proper tax treatment of these distributions.
| B. | Significant Changes |
Except as disclosed in the Annual Report on Form 20-F, no significant changes have occurred since December 31, 2014, which is the date of our audited consolidated financial statements included in this Annual Report on Form 20-F.
| ITEM 9. | THE OFFER AND LISTING |
| A. | Offer and Listing Details |
Trading Markets and Price History
Our common shares have been listed on the New York Stock Exchange (“NYSE”) under the symbol “TGH” since October 10, 2007. Prior to that time, there was no public market for our common shares. The following table sets forth the high and low closing sale prices, as reported on the NYSE for our common shares for the periods indicated:
| High | Low | |||||||
| Annual Highs and Lows: |
||||||||
| 2014 |
$ | 39.87 | $ | 29.25 | ||||
| 2013 |
$ | 43.06 | $ | 31.98 | ||||
| 2012 |
$ | 39.00 | $ | 27.45 | ||||
| 2011 |
$ | 37.56 | $ | 19.74 | ||||
| 2010 |
$ | 31.35 | $ | 14.72 | ||||
| Quarterly Highs and Lows (two most recent full financial years): |
||||||||
| Fourth quarter 2014 |
$ | 35.98 | $ | 29.25 | ||||
| Third quarter 2014 |
$ | 39.14 | $ | 31.12 | ||||
| Second quarter 2014 |
$ | 39.87 | $ | 37.68 | ||||
| First quarter 2014 |
$ | 38.51 | $ | 35.27 | ||||
| Fourth quarter 2013 |
$ | 40.22 | $ | 34.87 | ||||
| Third quarter 2013 |
$ | 39.21 | $ | 32.92 | ||||
| Second quarter 2013 |
$ | 40.60 | $ | 35.85 | ||||
| First quarter 2013 |
$ | 41.01 | $ | 34.87 | ||||
| Monthly Highs and Lows (over the most recent six month period): |
||||||||
| February 2015 |
$ | 34.27 | $ | 32.20 | ||||
| January 2015 |
$ | 34.44 | $ | 31.34 | ||||
| December 2014 |
$ | 35.20 | $ | 32.27 | ||||
| November 2014 |
$ | 35.98 | $ | 33.95 | ||||
| October 2014 |
$ | 34.44 | $ | 29.25 | ||||
| September 2014 |
$ | 35.49 | $ | 31.12 | ||||
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Transfer Agent
A register of holders of our common shares is maintained by Continental Management Limited in Bermuda and a branch register is maintained in the United States by Computershare Limited. The transfer agent and branch registrar for our common shares is Computershare Shareholder Services, Inc. and its fully owned subsidiary Computershare Trust Company, N.A., having its principal office at 250 Royall Street, Canton, MA 02021.
| B. | Plan of Distribution |
Not applicable.
| C. | Markets |
See Item 9, “Offer and Listing Details—Trading Markets” above.
| D. | Selling Shareholders |
Not applicable.
| E. | Dilution |
Not applicable.
| F. | Expenses of the Issue |
Not applicable.
| ITEM 10. | ADDITIONAL INFORMATION |
| A. | Share Capital |
Not applicable.
| B. | Memorandum and Articles of Association |
We are an exempted company incorporated under the laws of Bermuda. We are registered with the Registrar of Companies in Bermuda under registration number EC18896. We were incorporated on December 3, 1993 under the name Textainer Group Holdings Limited, prior to that time our business was based in Panama. Our headquarters office is located at 16 Par-La-Ville Road, Hamilton HM 08 Bermuda.
We incorporate by reference into this Annual Report on Form 20-F the description of our memorandum of association and our bye-laws contained in “Description of Share Capital” of our Registration Statement on Form F-1 filed with the SEC on September 26, 2007. Such information is a summary which does not purport to be complete and is qualified in its entirety by reference to our memorandum of association and our bye-laws, copies of which have been filed as Exhibits 3.1 and 3.2, respectively, to such Registration Statement.
| C. | Material Contracts |
We have not entered into any material contracts during the two years immediately preceding the date of this Annual Report on Form 20-F other than contracts entered into in the ordinary course of business and other than those described in Item 4, “Information on the Company—History and Development of the Company—Significant Events” or elsewhere in this Annual Report on Form 20-F.
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| D. | Exchange Controls |
Trencor, a South African company listed on the JSE, has an indirect beneficiary interest in 47.9% of our issued and outstanding shares. South Africa’s exchange control regulations provide for restrictions on exporting capital from South Africa. These restrictions require Trencor to obtain approval from South African exchange control authorities before engaging in transactions that would result in dilution of their share interest in us below certain thresholds, whether through their sale of their own shareholdings or through the approval of our issuance of new shares. The exchange control authorities may decide not to grant such approval if a proposed transaction were to dilute Trencor’s beneficiary interest in us below certain levels. While the South African government has, to some extent, relaxed exchange controls in recent years, it is difficult to predict whether or how it will further relax or abolish exchange control measures in the future. The above requirements could restrict or limit our ability to issue new shares. In addition, Trencor is required to comply with JSE Listings Requirements in connection with its holding or sale of our common shares.
| E. | Taxation |
The following discussion is a summary of the material Bermuda and U.S. federal income tax consequences of an investment in our common shares. This discussion is not exhaustive of all possible tax considerations. In particular, this discussion does not address the tax consequences under state, local, and other national (e.g., non-Bermuda and non-U.S.) tax laws. Accordingly, we urge you to consult your own tax advisor regarding your particular tax circumstances and the tax consequences under state, local, and other national tax laws. The following discussion is based upon laws and relevant interpretations thereof in effect as of the date hereof, all of which are subject to change, possibly with retroactive effect.
Bermuda Tax Consequences
The following is a summary of the material Bermuda tax consequences of an investment in our common shares. The following discussion is not exhaustive of all possible tax considerations. We urge you to consult your own tax advisor regarding your particular tax circumstances.
Taxation of the Companies
We and our Bermuda subsidiaries have obtained an assurance from the Bermuda Minister of Finance under the Exempted Undertakings Tax Protection Act 1966 that, if any legislation is enacted in Bermuda imposing any tax computed on profits or income, or computed on any capital asset, gain, or appreciation, or any tax in the nature of estate duty or inheritance tax, then such tax will not until March 28, 2016 be applicable to us or any of our operations, or to any of our shares, debentures, or other obligations, except insofar as such tax applies to persons ordinarily resident in Bermuda or is payable by us in respect of real property owned or leased by us in Bermuda. Given the limited duration of the Minister of Finance’s assurance, we cannot be certain that we will not be subject to any Bermuda tax after March 28, 2016. However, given recently enacted legislation, we intend to apply for an extension of this assurance through 2035. As an exempted company, we are required to pay to the Bermuda government an annual fee presently not to exceed $32, based on our assessable capital.
Taxation of Holders
Currently, there is no Bermuda income or profits tax, withholding tax, capital gains tax, capital transfer tax, estate duty or inheritance tax payable by our shareholders in respect of our common shares. The issue, transfer, or redemption of our common shares is not currently subject to stamp duty.
United States Federal Income Tax Consequences
The following is a summary of the material U.S. federal income tax consequences of an investment in our common shares. The following discussion is not exhaustive of all possible tax considerations. This summary is
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based upon the Code, regulations promulgated under the Code by the U.S. Treasury Department (including proposed and temporary regulations), rulings, current administrative interpretations and official pronouncements of the IRS, and judicial decisions, all as currently available and all of which are subject to differing interpretations or to change, possibly with retroactive effect. Such change could materially and adversely affect the tax consequences described below. No assurance can be given that the IRS will not assert, or that a court will not sustain, a position contrary to any of the tax consequences described below.
This summary does not address all aspects of the U.S. federal income taxation that may be important to a particular holder in light of its investment or tax circumstances or to holders subject to special tax rules, such as: banks; financial institutions; insurance companies; dealers in stocks, securities, or currencies; traders in securities that elect to use a mark-to-market method of accounting for their securities holdings; tax-exempt organizations; real estate investment trusts; regulated investment companies; qualified retirement plans, individual retirement accounts, and other tax-deferred accounts; expatriates of the U.S.; persons subject to the alternative minimum tax; persons holding common shares as part of a straddle, hedge, conversion transaction, or other integrated transaction; persons who acquired common shares pursuant to the exercise of any employee share option or otherwise as compensation for services; persons actually or constructively holding 10% or more of our voting shares; and U.S. Holders (as defined below) whose functional currency is other than the U.S. dollar.
This discussion is not a comprehensive description of all of the U.S. federal tax consequences that may be relevant with respect to an investment in common shares. We urge you to consult your own tax advisor regarding your particular circumstances and the U.S. federal income and estate tax consequences to you of owning and disposing of common shares, as well as any tax consequences arising under the laws of any state, local, or foreign or other tax jurisdiction and the possible effects of changes in U.S. federal or other tax laws.
This summary is directed solely to persons who hold their common shares as capital assets within the meaning of Section 1221 of the Code, which includes property held for investment. For purposes of this discussion, the term “U.S. Holder” means a beneficial owner of common shares that is any of the following:
| • | a citizen or resident of the U.S. or someone treated as a U.S. citizen or resident for U.S. federal income tax purposes; |
| • | a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the U.S., any state thereof, or the District of Columbia; |
| • | an estate, the income of which is subject to U.S. federal income taxation regardless of its source; |
| • | a trust if a U.S. court can exercise primary supervision over the trust’s administration and one or more U.S. persons have the authority to control all substantial decisions of the trust; or |
| • | a trust in existence on August 20, 1996 that has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person. |
The term “Non-U.S. Holder” means a beneficial owner of common shares that is not a U.S. Holder or an entity treated as a partnership for U.S. federal income tax purposes. As described in “—Taxation of Non-U.S. Holders” below, the tax consequences to a Non-U.S. Holder may differ substantially from the tax consequences to a U.S. Holder.
If a partnership (including for this purpose any entity treated as a partnership for U.S. federal income tax purposes) is a beneficial owner of common shares, the U.S. federal income tax consequences to a partner in the partnership will depend on the status of the partner and the activities of the partnership. A holder of common shares that is a partnership and the partners in such partnership should consult their own tax advisors regarding the U.S. federal income tax consequences of an investment in common shares.
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Taxation of the Companies
Textainer and Non-U.S. Subsidiaries
A non-U.S. corporation deemed to be engaged in a trade or business within the U.S. is subject to U.S. federal income tax on income which is treated as effectively connected with the conduct of that trade or business. Such income tax, if imposed, is based on effectively connected income computed in a manner similar to the manner in which the income of a domestic corporation is computed, except that a foreign corporation will be entitled to deductions and credits for a taxable year only if it timely files a U.S. federal income tax return for that year. In addition, a non-U.S. corporation may be subject to the U.S. federal branch profits tax on the portion of its effectively connected earnings and profits, with certain adjustments, deemed repatriated out of the U.S. Currently, the maximum U.S. federal income tax rates are 35% for a corporation’s effectively connected income and 30% for the branch profits tax.
A portion of our income is treated as effectively connected with the conduct of a trade or business within the U.S., and such effectively connected income is subject to U.S. federal income tax. U.S. federal income tax returns have been filed declaring such effectively connected income.
The determination of whether a person is engaged in a U.S. trade or business is based on a highly factual analysis. In general, there is no clear test as to the nature and scope of activities that constitute being engaged in a U.S. trade or business, and it is unclear how a court would construe the existing authorities with respect to our activities. Accordingly, it is possible that the IRS could assert that a significantly greater portion of our income than we currently report is derived from the conduct of a U.S. trade or business and therefore, is effectively connected income that is subject to U.S. federal income tax.
In addition to U.S. federal income tax on income associated with a U.S. trade or business, we are also subject to a 30% U.S. withholding tax imposed on the gross amount of certain “fixed or determinable annual or periodic gains, profits and income” derived from sources within the U.S. (such as rents, dividends and interest on investments), to the extent such amounts are not effectively connected income. This 30% U.S. withholding tax is subject to reduction by applicable treaties. Distributions by our U.S. subsidiaries to us are expected to be subject to this 30% U.S. withholding tax.
U.S. Subsidiaries
Our U.S. subsidiaries are subject to U.S. federal income tax at regular corporate rates on their worldwide income, regardless of its source, subject to reduction by allowable foreign tax credits.
Transfer Pricing
Under U.S. federal income tax laws, transactions among taxpayers that are owned or controlled directly or indirectly by the same interests generally must be at arm’s-length terms. We consider the transactions among our subsidiaries and us to be at arm’s-length terms. However, the IRS may distribute, apportion, or allocate gross income, deductions, credits, or allowances between or among such taxpayers if it determines that such transactions are not at arm’s-length terms and that such distribution, apportionment, or allocation is necessary in order to clearly reflect the income of any of such taxpayers. In such a situation, we may incur increased tax liability, possibly materially, thereby reducing our profitability and cash flows.
Taxation of U.S. Holders
The discussion in “—Distributions on Common Shares” and “—Dispositions of Common Shares” below assumes that we will not be treated as a passive foreign investment company (“PFIC”) for U.S. federal income tax purposes. For a discussion of the rules that apply if we are treated as a PFIC, see “—Passive Foreign Investment Company” below.
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Distributions on Common Shares
General. Subject to the discussion in “—Passive Foreign Investment Company” below, if you actually or constructively receive a distribution on common shares, you must include the distribution in gross income as a taxable dividend on the date of your receipt of the distribution, but only to the extent of our current or accumulated earnings and profits, as calculated under U.S. federal income tax principles. Such amount must be included without reduction for any foreign taxes withheld. Dividends paid by us will not be eligible for the dividends received deduction allowed to corporations with respect to dividends received from certain domestic corporations. Dividends paid by us may or may not be eligible for preferential rates applicable to qualified dividend income, as described below. In addition, certain non-corporate U.S. Holders may be subject to an additional 3.8% Medicare tax on dividend income whether or not it is “qualified dividend income.” See “—Medicare Tax” below.
To the extent a distribution exceeds our current and accumulated earnings and profits, it will be treated first as a non-taxable return of capital to the extent of your adjusted tax basis in the common shares, and thereafter as capital gain. Preferential tax rates for long-term capital gain may be applicable to non-corporate U.S. Holders. In addition, certain non-corporate U.S. Holders may be subject to an additional 3.8% Medicare tax on capital gain. See “—Medicare Tax” below.
Qualified Dividend Income. With respect to non-corporate U.S. Holders (i.e., individuals, trusts, and estates), the maximum individual U.S. federal income tax rate applicable to “qualified dividend income” (“QDI”) generally is 20%. Among other requirements, dividends will be treated as QDI if either (i) our common shares are readily tradable on an established securities market in the U.S., or (ii) we are eligible for the benefits of a comprehensive income tax treaty with the U.S. which includes an information exchange program and which is determined to be satisfactory by the Secretary of the U.S. Treasury. The income tax treaty between the U.S. and Bermuda (the jurisdiction of our incorporation) does not qualify for these purposes. However, under current administrative guidance, our common shares are “readily tradable” on an established securities market as a result of being listed on the NYSE.
In addition, for dividends to be treated as QDI, we must not be a PFIC (as discussed below) for either the taxable year in which the dividend was paid or the preceding taxable year. We do not believe that we were a PFIC for our prior taxable year and we intend to conduct our business so that we should not be treated as a PFIC for our current taxable year or any future taxable year. However, because the PFIC determination is highly fact intensive and made at the end of each taxable year, it is possible that we may be a PFIC for the current or any future taxable year. Please see the discussion under “—Passive Foreign Investment Company” below. Additionally, in order to qualify for QDI treatment, you generally must have held the common shares for more than 60 days during the 121-day period beginning 60 days prior to the ex-dividend date. However, your holding period will be reduced for any period during which the risk of loss is diminished.
Since the QDI rules are complex, you should consult your own tax advisor regarding the availability of the preferential tax rates for dividends paid on common shares.
In-Kind Distributions. Generally, distributions to you of new common shares or rights to subscribe for new common shares that are received as part of a pro rata distribution to all of our shareholders will not be subject to U.S. federal income tax. The adjusted tax basis of the new common shares or rights so received will be determined by allocating your adjusted tax basis in the old common shares between the old common shares and the new common shares or rights received, based on their relative fair market values on the date of distribution. However, in the case of a distribution of rights to subscribe for common shares, the adjusted tax basis of the rights will be zero if the fair market value of the rights is less than 15% of the fair market value of the old common shares on the date of distribution and you do not make an election to determine the adjusted tax basis of the rights by allocation as described above. Your holding period for the new common shares or rights should include the holding period for the old common shares on which the distribution was made.
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Foreign Tax Credits. Subject to certain conditions and limitations, any foreign taxes paid on or withheld from distributions from us and not refundable to you may be credited against your U.S. federal income tax liability or, alternatively, may be deducted from your taxable income. This election is made on a year-by-year basis and applies to all foreign taxes paid by you or withheld from you that year.
Distributions will constitute foreign source income for foreign tax credit limitation purposes. The foreign tax credit limitation is calculated separately with respect to two specific classes of income. For this purpose, distributions characterized as dividends distributed by us are expected to constitute “passive category income” or, in the case of certain U.S. Holders, “general category income.” Special limitations may apply if a dividend is treated as QDI (as defined above).
Since the rules governing foreign tax credits are complex, you should consult your own tax advisor regarding the availability of foreign tax credits in your particular circumstances.
Dispositions of Common Shares
Subject to the discussion in “—Passive Foreign Investment Company” below, you will recognize taxable gain or loss on the sale or other taxable disposition of common shares equal to the difference between the U.S. dollar value of (i) the amount realized on the disposition (i.e., the amount of cash plus the fair market value of any property received), and (ii) your adjusted tax basis in the common shares. Such gain or loss will be capital gain or loss.
If you have held the common shares for more than one year at the time of disposition, such capital gain or loss will be long-term capital gain or loss. Preferential tax rates for long-term capital gain apply for non-corporate U.S. Holders. The maximum rate for individuals on net long-term capital gain is currently 20%. In the case of a corporation, capital gains are taxed at the same rate as ordinary income, the maximum rate for which is currently 35%. If you have held the common shares for one year or less, such capital gain or loss will be short-term capital gain or loss taxable as ordinary income at your marginal income tax rate. The deductibility of capital losses is subject to limitations. In addition, certain U.S. persons, including individuals, estates and trusts, will be subject to an additional 3.8% Medicare tax on capital gain income. See “—Medicare Tax” below.
Any gain or loss recognized on the disposition of common shares is not expected to give rise to foreign source income for U.S. foreign tax credit purposes.
You should consult your own tax advisor regarding the U.S. federal income tax consequences if you receive currency other than U.S. dollars upon the disposition of common shares.
Passive Foreign Investment Company
We will be a PFIC under Section 1297 of the Code if, for a taxable year, either (a) 75% or more of our gross income for such taxable year is passive income (the “income test”) or (b) 50% or more of the average percentage, generally determined by fair market value, of our assets during such taxable year either produce passive income or are held for the production of passive income (the “asset test”). “Passive income” includes, for example, dividends, interest, certain rents and royalties, certain gains from the sale of stock and securities, and certain gains from commodities transactions. However, rents meeting certain requirements are treated as derived from the conduct of an active trade or business and are not treated as passive income.
Certain “look through” rules apply for purposes of the income and asset tests described above. If we own, directly or indirectly, 25% or more of the total value of the outstanding shares of another corporation, we will be treated as if we (a) held directly a proportionate share of the other corporation’s assets, and (b) received directly a proportionate share of the other corporation’s income. In addition, passive income does not include any interest, dividends, rents, or royalties that are received or accrued by us from a “related person” (as defined in Section 954(d)(3) of the Code), to the extent such items are properly allocable to income of such related person that is not passive income.
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Under the income and asset tests, whether or not we are a PFIC will be determined annually based upon the composition of our income and the composition and valuation of our assets, all of which are subject to change. In analyzing whether we should be treated as a PFIC, we are relying on the amount and character of our projected revenues and the amount and character of our projected capital expenditures, the valuation of our assets, and our election to treat certain of our subsidiaries as disregarded entities for U.S. federal income tax purposes. If the amount and character of our actual revenues and capital expenditures do not match our projections, we may be a PFIC. In these calculations, we have valued our intangible assets based on our market capitalization, determined using the market price of our common shares. Such market price may fluctuate. If our market capitalization is less than anticipated or subsequently declines, this will decrease the value of our intangible assets and we may be a PFIC. Furthermore, we have made a number of assumptions regarding the value of our intangible assets. We believe our valuation approach is reasonable. However, it is possible that the IRS could challenge the valuation of our intangible assets, which may result in our being a PFIC.
We do not believe that we were a PFIC for our prior taxable year and we intend to conduct our business so that we should not be treated as a PFIC for our current taxable year or any future taxable year. However, because the PFIC determination is highly fact intensive and made at the end of each taxable year, it is possible that we may be a PFIC for the current or any future taxable year or that the IRS may challenge our determination concerning our PFIC status.
Default PFIC Rules under Section 1291 of the Code. If we are a PFIC, the U.S. federal income tax consequences to a U.S. Holder of an investment in common shares will depend on whether such U.S. Holder is permitted to make and makes (i) an election to treat us as a qualified electing fund (“QEF”) under Section 1295 of the Code (a “QEF Election”) or (ii) a mark-to-market election under Section 1296 of the Code (a “Mark-to-Market Election”). A U.S. Holder owning common shares while we were or are a PFIC that has not made either a QEF Election or a Mark-to-Market Election will be referred to in this summary as a “Non-Electing U.S. Holder.”
If you are a Non-Electing U.S. Holder, you will be subject to the default tax rules of Section 1291 of the Code with respect to:
| • | any “excess distribution” paid on common shares, which means the excess (if any) of the total distributions received by you during the current taxable year over 125% of the average distributions received by you during the three preceding taxable years (or during the portion of your holding period for the common shares prior to the current taxable year, if shorter); and |
| • | any gain recognized on the sale or other taxable disposition (including a pledge) of common shares. |
Under these default tax rules:
| • | any excess distribution or gain will be allocated ratably over your holding period for the common shares; |
| • | the amount allocated to the current taxable year and any period prior to the first day of the first taxable year in which we were a PFIC will be treated as ordinary income in the current year; |
| • | the amount allocated to each of the other years will be treated as ordinary income and taxed at the highest applicable tax rate in effect for that year; and |
| • | the resulting tax liability from any such prior years will be subject to the interest charge applicable to underpayments of tax. |
In addition, notwithstanding any election you may make, dividends that you receive from us will not be eligible for the preferential tax rates applicable to QDI (as discussed above in “—Distributions on Common Shares”) if we are a PFIC either in the taxable year of the distribution or the preceding taxable year, but will instead be taxable at rates applicable to ordinary income.
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Special rules for Non-Electing U.S. Holders will apply to determine U.S. foreign tax credits with respect to foreign taxes imposed on distributions on common shares.
If we are a PFIC for any taxable year during which you hold common shares, we will continue to be treated as a PFIC with respect to you for all succeeding years during which you hold common shares, regardless of whether we actually continue to be a PFIC.
QEF Election. We currently do not intend to prepare or provide you with certain tax information that would permit you to make a QEF Election to avoid the adverse tax consequences associated with owning PFIC stock.
Mark-to-Market Election. U.S. Holders may make a Mark-to-Market Election, but only if the common shares are marketable stock. The common shares will be “marketable stock” as long as they remain listed on the NYSE and are regularly traded. Shares are “regularly traded” for any calendar year during which it is traded (other than in de minimis quantities) on at least fifteen days during each calendar quarter. There can be no assurances, however, that our common shares will be treated, or continue to be treated, as regularly traded.
If you make a Mark-to-Market Election, you generally will not be subject to the default rules of Section 1291 of the Code discussed above. Rather, you will be required to recognize ordinary income for any increase in the fair market value of the common shares for each taxable year that we are a PFIC. You will also be allowed to deduct as an ordinary loss any decrease in the fair market value to the extent of net marked-to-market gain previously included in prior years. Your adjusted tax basis in the common shares will be adjusted to reflect the amount included or deducted.
The Mark-to-Market Election will be effective for the taxable year for which the election is made and all subsequent taxable years, unless the common shares cease to be marketable stock or the IRS consents to the revocation of the election. You should consult your own tax advisor regarding the availability of, and procedure for making, a Mark-to-Market Election.
Since the PFIC rules are complex, you should consult your own tax advisor regarding them and how they may affect the U.S. federal income tax consequences of an investment in common shares.
Medicare Tax
Certain U.S. persons, including individuals, estates and trusts, may be required to pay an additional 3.8% on, among other things, dividends and capital gains from the sale or disposition of Common Shares. For individuals, the additional Medicare tax applies to the lesser of (i) “net investment income” or (ii) the excess of “modified adjusted gross income” over $200,000 ($250,000 if married and filing jointly or $125,000 if married and filing separately). “Net investment income” generally equals the taxpayer’s gross investment income reduced by the deductions that are allocable to such income. U.S. Holders likely will not be able to credit foreign taxes against the 3.8% Medicare tax. You should consult your tax advisors regarding the implications of the additional Medicare tax resulting from your ownership and disposition of our common shares.
Information Reporting and Backup Withholding
Information reporting requirements will apply to distributions on common shares or proceeds from the disposition of common shares paid within the U.S. (and, in certain cases, outside the U.S.) to a U.S. Holder unless such U.S. Holder is an exempt recipient, such as a corporation. Furthermore, backup withholding (currently at 28%) may apply to such amounts unless such U.S. Holder (i) is an exempt recipient that, if required, establishes its right to an exemption, or (ii) provides its taxpayer identification number, certifies that it is not currently subject to backup withholding, and complies with other applicable requirements. A U.S. Holder may avoid backup withholding if it furnishes a properly completed IRS Form W-9 and is able to make the required certifications.
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Backup withholding is not an additional tax. Rather, amounts withheld under the backup withholding rules may be credited against your U.S. federal income tax liability. Furthermore, you may obtain a refund of any excess amounts withheld by filing an appropriate claim for refund with the IRS and furnishing any required information in a timely manner.
Information Reporting Regarding PFICs and Specified Foreign Financial Assets
If we are a PFIC, all U.S. Holders may be required to file annual tax returns (including on Form 8621) containing such information as the U.S. Treasury requires.
U.S. Holders who are individuals will be subject to reporting obligations with respect to their common shares if they do not hold their common shares in an account maintained by a financial institution and the aggregate value of their common shares and certain other “specified foreign financial assets” exceeds $50,000. Significant penalties can apply if a U.S. Holder is required to disclose its common shares under these rules and fails to do so.
In the event a U.S. Holder does not file the information reports described above relating to ownership of a PFIC or disclosure of specified foreign financial assets, the statute of limitations on the assessment and collection of U.S. federal income taxes of such U.S. holder for the related tax year will not close before such report is filed.
If you are a U.S. Holder, you are urged to consult with your own tax advisor regarding the application of the PFIC and specified foreign financial assets information reporting requirements and related statute of limitations tolling provisions with respect to our common shares.
Taxation of Non-U.S. Holders
Distributions on Common Shares
Subject to the discussion in “—Information Reporting and Backup Withholding” below, as a Non-U.S. Holder, you generally will not be subject to U.S. federal income tax, including withholding tax, on distributions received on common shares, unless the distributions are effectively connected with a trade or business that you conduct in the U.S. and (if an applicable income tax treaty so requires) attributable to a permanent establishment that you maintain in the U.S.
If distributions are effectively connected with a U.S. trade or business and (if applicable) attributable to a U.S. permanent establishment, you will be subject to tax on such distributions in the same manner as a U.S. Holder, as described in “Taxation of U.S. Holders – Distributions on Common Shares” above. In addition, any such distributions received by a corporate Non-U.S. Holder may also, under certain circumstances, be subject to an additional “branch profits tax” at a 30% rate or such lower rate as may be specified by an applicable income tax treaty.
Dispositions of Common Shares
Subject to the discussion in “—Information Reporting and Backup Withholding” below, as a Non-U.S. Holder, you generally will not be subject to U.S. federal income tax, including withholding tax, on any gain recognized on a sale or other taxable disposition of common shares, unless (i) the gain is effectively connected with a trade or business that you conduct in the U.S. and (if an applicable income tax treaty so requires) attributable to a permanent establishment that you maintain in the U.S., or (ii) you are an individual and are present in the U.S. for at least 183 days in the taxable year of the disposition, and certain other conditions are met.
If you meet the test in clause (i) above, you generally will be subject to tax on any gain that is effectively connected with your conduct of a trade or business in the U.S. in the same manner as a U.S. Holder, as described
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in “Taxation of U.S. Holders – Dispositions of Common Shares” above. Effectively connected gain realized by a corporate Non-U.S. Holder may also, under certain circumstances, be subject to an additional “branch profits tax” at a 30% rate or such lower rate as may be specified by an applicable income tax treaty.
If you meet the test in clause (ii) above, you generally will be subject to tax at a 30% rate on the amount by which your U.S. source capital gain exceeds your U.S. source capital loss during the taxable year.
Information Reporting and Backup Withholding
Payments to Non-U.S. Holders of distributions on, or proceeds from the disposition of, common shares are generally exempt from information reporting and backup withholding. However, a Non-U.S. Holder may be required to establish that exemption by providing certification of non-U.S. status on an appropriate IRS Form W-8.
Backup withholding is not an additional tax. Rather, amounts withheld under the backup withholding rules may be credited against your U.S. federal income tax liability. Furthermore, you may obtain a refund of any excess amounts withheld by filing an appropriate claim for refund with the IRS and furnishing any required information in a timely manner.
| F. | Dividends and Paying Agents |
Not applicable.
| G. | Statement by Experts |
Not applicable.
| H. | Documents on Display |
Whenever a reference is made in this Annual Report on Form 20-F to any contract, agreement or other document, the reference may not be complete and you should refer to the copy of that contract, agreement or other document filed as an exhibit to one of our previous SEC filings. You can read our SEC filings over the Internet at the SEC’s website at http://www.sec.gov. You may also read and copy any document we file with the SEC at its public reference facilities at 100 F Street N.E., Washington, D.C. 20549. You may also obtain copies of these documents at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street N.E., Washington, D.C. 20549. Please call the SEC at 1-800- SEC-0330 for further information on the operation of the public reference facilities. Copies of reports and other information may also be inspected in the offices of the NYSE, 20 Broad Street, New York, New York 10005.
| I. | Subsidiary Information |
Not applicable.
| ITEM 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Market risk represents the risk of changes in value of a financial instrument, derivative or non-derivative, caused by fluctuations in foreign exchange rates and interest rates. Changes in these factors could cause fluctuations in our results of operations and cash flows. We are exposed to the market risks described below.
Foreign Exchange Rate Risk. Although we have significant foreign-based operations, the U.S. dollar is our primary operating currency. Thus, substantially all of our revenue and the majority of our expenses in 2014, 2013 and 2012 were denominated in U.S. dollars. During 2014, 2013 and 2012, 28%, 32% and 36%, respectively, of
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our direct container expenses were paid in up to 18 different foreign currencies, respectively. We do not hedge these container expenses as there are no significant payments made in any one foreign currency. Foreign exchange fluctuations did not materially impact our financial results in those periods.
Interest Rate Risk. We have entered into various interest rate swap, collar and cap agreements to mitigate our exposure associated with our variable rate debt. The swap agreements involve payments by us to counterparties at fixed rates in return for receipts based upon variable rates indexed to the London Inter Bank Offered Rate (“LIBOR”). The differentials between the fixed and variable rate payments under these agreements are recognized in realized (losses) gains on interest rate swaps, collars and caps, net in the consolidated statement of income.
As of December 31, 2014, 2013 and 2012, none of the derivative instruments we have entered into qualify for hedge accounting. The fair value of the derivative instruments is measured at each of these balance sheet dates and the change in fair value is recorded in the consolidated statements of comprehensive income as unrealized gains (losses) on interest rate swaps and caps, net.
We utilize a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. This hierarchy prioritizes the inputs into three broad levels as follows: Level 1 inputs which are observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 inputs which are inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly, which include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active; and Level 3 inputs which are unobservable inputs that reflect the reporting entity’s own assumptions.
We use the exchange price notion, which is the price in an orderly transaction between market participants to sell an asset or transfer a liability in the market in which the reporting entity would transact for the asset or liability, that is, the principal or most advantageous market for the asset or liability. The transaction to sell the asset or transfer the liability is a hypothetical transaction at the measurement date, considered from the perspective of a market participant that holds the asset or owes the liability. Therefore, the definition focuses on the price that would be received to sell the asset or paid to transfer the liability (an exit price), not the price that would be paid to acquire the asset or received to assume the liability (an entry price).
Our liability valuation reflects our credit standing and the credit standing of the counterparties to the interest rate swaps and caps. The valuation technique we utilized to calculate the fair value of the interest rate swaps and caps was the income approach. This approach represents the present value of future cash flows based upon current market expectations. The decrease in the interest rate swap agreements’ net fair value liability during 2013 primarily reflects a decrease in long-term interest rates.
The notional amount of the interest rate swap agreements was $1,181,534 as of December 31, 2014, with expiration dates between January 2015 and July 2023. We receive fixed rates between 0.41% and 1.99% under the interest rate swap agreements. The net fair value liability of these agreements was $651 and $2,113 as of December 31, 2014 and 2013, respectively.
The notional amount of the interest rate collar agreements was $61,216 as of December 31, 2014, with expiration dates between April 2019 and October 2022.
The notional amount of the interest rate cap agreements was $625,260 as of December 31, 2014, with expiration dates between January 2015 and December 2015.
Based on the debt balances and derivative instruments as of December 31, 2014, it is estimated that a 1% increase in interest rates would result in a decrease in the fair value of interest rate swaps, collars and caps, net of $25,317, an increase in interest expense of $27,738 and a decrease in realized losses on interest rate swaps and caps, net of $10,159.
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Quantitative and Qualitative Disclosures About Credit Risk
We maintain detailed credit records about our container lessees. Our credit policy sets different maximum exposure limits for our container lessees. Credit criteria may include, but are not limited to, container lessee trade route, country, social and political climate, assessments of net worth, asset ownership, bank and trade credit references, credit bureau reports, including those from Dynamar B.V. or “Dynamar,” and Lloyd’s Marine Intelligence Unit (common credit reporting agencies used in the maritime sector), operational history and financial strength. We monitor our container lessees’ performance and our lease exposures on an ongoing basis, and our credit management processes are aided by the long payment experience we have with most of our container lessees and our broad network of long-standing relationships in the shipping industry that provide current information about our container lessees. In managing this risk, we also make an allowance for doubtful accounts. The allowance for doubtful accounts is developed based on two key components:
| • | specific reserves for receivables which are impaired for which management believes full collection is doubtful; and |
| • | reserves for estimated losses inherent in the receivables based upon historical trends. |
As of December 31, 2014, approximately 95.5% of accounts receivable for our total fleet and 99.7% of the finance lease receivables were from container lessees and customers outside of the U.S. Customers in the PRC (including Hong Kong), France, Korea, Switzerland, Singapore and Taiwan accounted for approximately 16.5%, 11.8%, 11.5%, 10.8%, 10.6% and 10.1%, respectively, of our total fleet container leasing revenue for 2014. Customers in no other country accounted for greater than 10.0% of our total fleet container leasing revenue for the same period. Total fleet container leasing revenue differs from our reported container rental revenue in that total fleet container leasing revenue comprises revenue earned from leases on containers in our total fleet, including revenue earned by our investors from leases on containers in our managed fleet, while our reported container revenue only comprises container leasing revenue associated with our owned fleet. We derive revenue with respect to container leasing revenue associated with our managed fleet from management fees based upon the operating performance of the managed containers.
Lease billings from our 20 largest container lessees represented $462,469, or 74.7% of our total owned and managed fleet container lease billings for 2014, with lease billings from our single largest container lessee accounting for $72,800, or 11.8% and another container lessee accounting for $69,158, or 11.2% of our owned and managed fleet container lease billings during such period. We had no other container lessees accounting for over 10% of our owned and managed fleet container lease billings in 2014.
An allowance for doubtful accounts of $12,139 has been established against receivables as of December 31, 2014 for our owned fleet. During 2014, receivable write-offs, net of recoveries, totaled $2,278 for our owned fleet.
| ITEM 12. | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES |
Not applicable.
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PART II
| ITEM 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES |
None.
| ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |
On October 15, 2007, we completed our initial public offering of our common shares at a price of $16.50 per share and listed our common shares on the New York Stock Exchange (“NYSE”) under the symbol “TGH.” We sold an aggregate of 9,000,000 of our common shares and generated proceeds of $138.0 million, after deducting underwriting discounts and other offering expenses. The managing underwriters of our initial public offering were Credit Suisse Securities (USA) LLC, Wachovia Capital Markets, LLC, Jefferies & Company, Inc., Piper Jaffray & Co. and Fortis Securities LLC. There have been no material modifications to the rights of our security holders and the use of proceeds from our initial public offering previously disclosed in our registration statement on Form F-1 (File No. 333-146304) filed by us in connection with our initial public offering.
On September 19, 2012, we completed an underwritten public offering of an aggregate of 8,625,000 of our common shares at a price of $31.50. We sold 6,125,000 new common shares, which were listed on the NYSE under the symbol “TGH” and Halco Holdings Inc. (“Halco”) sold 2,500,000 of its existing common shares. We received $184.8 million after deducting underwriting discounts and other offering expenses. The managing underwriters of our public offering were Merril Lynch, Pierce, Fenner & Smith Incorporated, Wells Fargo Securities, LLC and Credit Suisse Securities (USA) LLC. There have been no material modifications to the rights of our security holders and the use of proceeds from our public offering previously disclosed in our registration statement on Form F-3 (File No. 333-171410) and related prospectus supplements filed by us in connection with our public offering.
| ITEM 15. | CONTROLS AND PROCEDURES |
| A. | Disclosure Controls and Procedures |
Textainer’s Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of December 31, 2014, have concluded that, as of such date, our disclosure controls and procedures were effective.
Disclosure controls are controls and procedures designed to reasonably assure that information required to be disclosed in our reports filed under the Exchange Act, such as this Annual Report on Form 20-F, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls are also designed to reasonably assure that this information is accumulated and communicated to our management, including the Chief Executive Officer and the Chief Financial Officer, to allow timely decisions regarding required disclosure.
| B. | Management’s Annual Report on Internal Control Over Financial Reporting |
Textainer’s management, with oversight by the Board of Directors, is responsible for establishing and maintaining adequate internal control over financial reporting. Textainer’s internal control system was designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation and fair presentation of financial statements in accordance with generally accepted accounting principles in the United States.
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Textainer’s management assessed the effectiveness of our internal control over financial reporting as of December 31, 2014. In making this assessment, management used the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, our management concluded that our internal control over financial reporting was effective as of December 31, 2014.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective may not prevent or detect misstatements and can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
| C. | Report of the Registered Public Accounting Firm |
Our internal controls over financial reporting as of December 31, 2014 have been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report, which is included under Item 18, “Financial Statements” on page F-3 in this Annual Report on Form 20-F.
| D. | Changes in Internal Control Over Financial Reporting |
Textainer’s management assessed the effectiveness of our internal control over financial reporting as of December 31, 2013. In making this assessment, management used the criteria established in Internal Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, our management concluded that our internal control over financial reporting was not effective as of December 31, 2013 because of the material weakness described below, which did not result in any audit adjustments or misstatements. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
As of December 31, 2013, a deficiency in the design of internal control over financial reporting existed which resulted in the ability of key accounting personnel to prepare and post journal entries without appropriate independent review. While this deficiency in the design of internal controls did not result in any audit adjustments or misstatements, a reasonable possibility existed that a material misstatement in the Company’s annual or interim financial statements would not have been prevented or detected.
Subsequent to December 31, 2013, we revised our internal controls by removing the ability to both prepare and post journal entries in our accounting and financial reporting systems. We also performed independent reviews of any journal entries prepared and posted by the same person prior to the system modification, and determined that the entries were valid, accurate, and complete. We believe the newly implemented controls remediate the material weakness in our internal controls related to journal entries. We have tested the remediated controls, found them to be effective, and concluded that these efforts were sufficient to remediate this material weakness.
There have been no other changes in the Company’s internal control over financial reporting during the period covered by this Annual Report on Form 20-F that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
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| ITEM 16. | [RESERVED] |
| ITEM 16A. | AUDIT COMMITTEE FINANCIAL EXPERT |
In accordance with New York Stock Exchange (“NYSE”) rules, we have an audit committee responsible for advising the board regarding the selection of independent auditors and evaluating our internal controls. As a foreign private issuer, we are not required to comply with NYSE requirements that our audit committee has a minimum of three members and that all of our audit committee members satisfy the NYSE’s requirements for independence. Our audit committee has five members, Messrs. Shwiel (Lead Independent Director), Cottingham, Neil Jowell, McQueen and Hoelter. Messrs. Shwiel and Cottingham are voting members of the audit committee and are independent as that term is defined in Rule 10A-3 under the Exchange Act. The board affirmatively determined that Mr. Shwiel and Mr. Cottingham are audit committee financial experts. The other three members (Messrs. Hoelter, Neil Jowell and McQueen) are directors of Trencor and have no voting rights. Our board of directors has adopted an audit committee charter effective October 9, 2007.
| ITEM 16B. | CODE OF ETHICS |
We have adopted the Textainer Group Holdings Limited Code of Business Conduct and Ethics (the “Code of Business Conduct and Ethics”), which covers members of our board of directors and all of our employees (including our principal executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions).
The Code of Business Conduct and Ethics addresses, among other things, the following items:
| • | honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; |
| • | full, fair, accurate, timely and understandable disclosure in reports and documents that we file with, or submit to, the Securities and Exchange Commission and in other public communications made by us; |
| • | compliance with applicable governmental laws, rules and regulations; |
| • | the prompt internal reporting of violations of the code to an appropriate person or persons identified in the code; and |
| • | accountability for adherence to the code. |
During 2014, no waivers or amendments were made to the Code of Business Conduct and Ethics for any of our directors or executive officers. We have posted the text of the Code of Business Conduct and Ethics on our website at www.textainer.com.
| ITEM 16C. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
Our audit committee pre-approves all services provided by our principal accountants, KPMG LLP. All of the services and fees described below were reviewed and pre-approved by our audit committee. Our audit committee has delegated to the chairman of the audit committee certain limited authority to grant pre-approvals. These decisions to pre-approve a service must be presented to the full audit committee at its next scheduled meeting.
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The following is a summary of the fees billed to us by our principal accountants for professional services rendered during 2014 and 2013:
| Fee Category |
2014 Fees |
2013 Fees |
||||||
| Audit Fees |
$ | 1,700 | $ | 1,477 | ||||
| Audit-Related Fees |
16 | 63 | ||||||
| Tax Fees |
3 | 3 | ||||||
| All Other Fees |
58 | 64 | ||||||
|
|
|
|
|
|||||
| Total Fees |
$ | 1,777 | $ | 1,607 | ||||
|
|
|
|
|
|||||
Audit Fees— Consists of fees billed for professional services rendered for the audit of our financial statements and services that are normally provided by our principal accountants in connection with statutory and regulatory filings or engagements.
Audit-Related Fees—Consists of fees for attestation related services other than those described above as Audit fees. Fees of $16 and $63 billed in 2014 and 2013, respectively, relate to the performance of agreed upon procedures on certain specific lender requirements.
Tax Fees— Consists of fees billed for professional services for tax compliance, tax advice and tax planning.
All Other Fees— Consists of fees for product and services other than the services reported above.
| ITEM 16D. | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES |
We rely on the exemption afforded by Rule 10A-3(b)(1)(iv)(D) under the Exchange Act. Three of the five members of our audit committee (Messrs. Hoelter, Neil Jowell and McQueen) are directors of Trencor, which, together with certain of its subsidiaries, are the discretionary beneficiaries of a trust that indirectly owns a majority of our common shares. Each of Messrs. Hoelter, Neil Jowell and McQueen is neither a voting member nor chairperson of our audit committee nor one of our executive officers. We believe that such reliance does not materially adversely affect the ability of the audit committee to act independently or to satisfy the other requirements of Rule 10A-3.
| ITEM 16E. | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS |
None.
| ITEM 16F. | CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT |
None.
| ITEM 16G. | CORPORATE GOVERNANCE |
Our corporate governance practices are in compliance with, and are not prohibited by, the laws of Bermuda. Therefore, we are exempt from many of the New York Stock Exchange’s (“NYSE”) corporate governance practices, other than the establishment of a formal audit committee satisfying the requirements of Rule 10A-3 under the Exchange Act and notification of non-compliance with NYSE listing requirements pursuant to Rule 10A-3 promulgated under the Exchange Act. The practices that we follow in lieu of the NYSE’s corporate governance rules are described below.
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| • | We do not, and are not required under Bermuda law to, maintain a board of directors with a majority of independent directors. Currently, a majority of our directors are not independent, as that term is defined by the NYSE. |
| • | We are not required by Bermuda law to hold regular meetings of the board of directors at which only independent directors are present. |
| • | Mr. Shwiel serves as our lead independent director. The lead independent director is an independent director as defined by applicable NYSE rules and is elected annually by the independent directors of the board. The lead independent director is responsible for coordinating the activities of the independent directors and shall perform such other duties and responsibilities as the board may determine. In addition to the duties of all board members, the specific responsibilities of the lead independent director are as follows: |
| • | Act as the principal liaison between the independent directors of the board and the chairman of the board; |
| • | Develop the agenda for and preside at executive sessions of the board’s independent directors when needed; |
| • | If requested by the chairman, approve with the chairman of the board the agenda for board and board committee meetings and the need for special meetings of the board, and service as deputy board chairman; |
| • | Advise the chairman of the board as to the quality, quantity and timeliness of the information submitted by the Company’s management that is necessary or appropriate for the independent directors to effectively and responsibly perform their duties; |
| • | Recommend to the board the retention of advisors and consultants who report directly to the board; |
| • | Assist the board and Company officers in better ensuring compliance with and implementation of the Corporate Governance Guidelines; |
| • | Serve as chairman of the board when the chairman is not present; and |
| • | Serve as a liaison for consultation and communication with shareholders. |
| • | Under Bermuda law, compensation of executive officers need not be determined by an independent committee. We have established a compensation committee that reviews and approves the compensation and benefits for our executive officers and other key executives, makes recommendations to the board regarding compensation matters and is responsible for awarding compensation to our executive officers and other employees under our share compensation plans. The committee also has the discretion to interpret and amend the terms of, and take all other actions necessary to administer, the 2007 Share Incentive Plan. However, our compensation committee is not comprised solely of independent directors, as required by NYSE standards. The members of our compensation committee are Messrs. Neil Jowell, Cottingham, Hoelter, Maccarone, Nurek and Shwiel. Messrs. Neil Jowell, Hoelter and Nurek are directors of Trencor. Messrs. Cottingham, Maccarone and Shwiel satisfy the NYSE’s standards for director independence. Our board of directors has also adopted a compensation committee charter. |
| • | We have established an audit committee responsible for (i) advising the board regarding the selection of independent auditors, (ii) overseeing the Company’s accounting and financial reporting processes, (iii) evaluating our internal controls, and (iv) overseeing compliance with policies and legal requirements with respect to financial reporting. Our audit committee need not comply with the NYSE’s requirements that the audit committee have a minimum of three members or the NYSE’s standards of independence for domestic issuers. Our audit committee has five members, Messrs. Neil Jowell, Cottingham, Hoelter, McQueen and Shwiel. Messrs. Cottingham and Shwiel are voting members of the committee and are independent as that term is defined in Rule 10A-3 under the Exchange Act. The other three members are directors of Trencor and have no voting rights. Our board of directors has also adopted an audit committee charter. |
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| • | We have established a nominating and governance committee, although this committee is not comprised solely of independent directors, as would be required of a domestic issuer. Our nominating and governance committee has five members, Messrs. Neil Jowell, Cottingham, Hoelter, Maccarone, Nurek and Shwiel. Messrs. Cottingham, Maccarone and Shwiel satisfy the NYSE’s standards for director independence. Our board of directors has also adopted a nominating and governance committee charter. |
| • | Under Bermuda law, we are not required to obtain shareholder consent prior to issuing securities or adopting share compensation plans. Nonetheless, we sought and received the approval of our shareholders for our 2007 Share Incentive Plan on September 4, 2007. We are also required under Bermuda law to obtain the consent of the Bermuda Monetary Authority for the issuance of securities in certain circumstances. |
| • | Under Bermuda law, we are not required to adopt corporate governance guidelines or a code of business conduct. Nonetheless, we have adopted both corporate governance guidelines and a code of business conduct. |
| • | As a foreign private issuer, we are not required to solicit proxies or provide proxy statements to the NYSE. However, we have provided a proxy statement to the NYSE and expect to continue to do so in the future. |
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PART III
| ITEM 17. | FINANCIAL STATEMENTS |
We have responded to Item 18 “Financial Statements.”
| ITEM 18. | FINANCIAL STATEMENTS |
Reference is made to pages F-1 through F-46 and is incorporated herein by reference.
| Page | ||||
| Audited Consolidated Financial Statements |
||||
| F-2 | ||||
| Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2014, 2013 and 2012 |
F-4 | |||
| Consolidated Balance Sheets as of December 31, 2014 and 2013 |
F-5 | |||
| Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2014, 2013 and 2012 |
F-6 | |||
| Consolidated Statements of Cash Flows for the Years Ended December 31, 2014, 2013 and 2012 |
F-7 | |||
| F-8 | ||||
| Financial Statement Schedules |
||||
| F-43 | ||||
| F-46 | ||||
| ITEM 19. | EXHIBITS |
The exhibits filed as part of this Annual Report on Form 20-F are listed in the Exhibit Index.
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The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf.
| Textainer Group Holdings Limited |
| /S/ PHILIP K. BREWER |
| Philip K. Brewer President and Chief Executive Officer |
| /S/ HILLIARD C. TERRY, III |
| Hilliard C. Terry, III Executive Vice President and Chief Financial Officer |
March 13, 2015
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TEXTAINER GROUP HOLDINGS LIMITED AND SUBSIDIARIES
| Page | ||||
| Audited Consolidated Financial Statements |
||||
| F-2 | ||||
| Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2014, 2013 and 2012 |
F-4 | |||
| Consolidated Balance Sheets as of December 31, 2014 and 2013 |
F-5 | |||
| Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2014, 2013 and 2012 |
F-6 | |||
| Consolidated Statements of Cash Flows for the Years Ended December 31, 2014, 2013 and 2012 |
F-7 | |||
| F-8 | ||||
| Financial Statement Schedules |
||||
| F-43 | ||||
| F-46 | ||||
F-1
Table of Contents
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Textainer Group Holdings Limited:
We have audited the accompanying consolidated balance sheets of Textainer Group Holdings Limited and subsidiaries as of December 31, 2014 and 2013, and the related consolidated statements of comprehensive income, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2014. In connection with our audits of the consolidated financial statements, we also have audited financial statement schedules I and II. These consolidated financial statements and financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Textainer Group Holdings Limited and subsidiaries as of December 31, 2014 and 2013, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2014, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Textainer Group Holdings Limited and subsidiaries’ internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 13, 2015 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
/s/ KPMG LLP
San Francisco, CA
March 13, 2015
F-2
Table of Contents
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Textainer Group Holdings Limited:
We have audited Textainer Group Holdings Limited and subsidiaries’ internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Textainer Group Holdings Limited and subsidiaries’ management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Textainer Group Holdings Limited and subsidiaries’ maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Textainer Group Holdings Limited and subsidiaries as of December 31, 2014 and 2013, and the related consolidated statements of comprehensive income, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2014, and the financial statement schedules I and II, and our report dated March 13, 2015 expressed an unqualified opinion on those consolidated financial statements and financial statement schedules.
/s/ KPMG LLP
San Francisco, CA
March 13, 2015
F-3
Table of Contents
TEXTAINER GROUP HOLDINGS LIMITED AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
Years ended December 31, 2014, 2013 and 2012
(All currency expressed in United States dollars in thousands, except per share amounts)
| 2014 | 2013 | 2012 | ||||||||||||||||||||||
| Revenues: |
||||||||||||||||||||||||
| Lease rental income |
$ | 504,225 | $ | 468,732 | $ | 383,989 | ||||||||||||||||||
| Management fees |
17,408 | 19,921 | 26,169 | |||||||||||||||||||||
| Trading container sales proceeds |
27,989 | 12,980 | 42,099 | |||||||||||||||||||||
| Gains on sale of containers, net |
13,469 | 27,340 | 34,837 | |||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||
| Total revenues |
563,091 | 528,973 | 487,094 | |||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||
| Operating expenses: |
||||||||||||||||||||||||
| Direct container expense |
47,446 | 43,062 | 25,173 | |||||||||||||||||||||
| Cost of trading containers sold |
27,465 | 11,910 | 36,810 | |||||||||||||||||||||
| Depreciation expense and container impairment |
176,596 | 148,974 | 104,844 | |||||||||||||||||||||
| Amortization expense |
4,010 | 4,226 | 5,020 | |||||||||||||||||||||
| General and administrative expense |
25,778 | 24,922 | 23,015 | |||||||||||||||||||||
| Short-term incentive compensation expense |
4,075 | 1,779 | 5,310 | |||||||||||||||||||||
| Long-term incentive compensation expense |
6,639 | 4,961 | 6,950 | |||||||||||||||||||||
| Bad debt (recovery) expense, net |
(474 | ) | 8,084 | 1,525 | ||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||
| Total operating expenses |
291,535 | 247,918 | 208,647 | |||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||
| Income from operations |
271,556 | 281,055 | 278,447 | |||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||
| Other (expense) income : |
||||||||||||||||||||||||
| Interest expense |
(85,931 | ) | (85,174 | ) | (72,886 | ) | ||||||||||||||||||
| Interest income |
119 | 122 | 146 | |||||||||||||||||||||
| Realized losses on interest rate swaps, collars and caps, net |
(10,293 | ) | (8,409 | ) | (10,163 | ) | ||||||||||||||||||
| Unrealized gains on interest rate swaps, collars and caps, net |
1,512 | 8,656 | 5,527 | |||||||||||||||||||||
| Bargain purchase gain |
— | — | 9,441 | |||||||||||||||||||||
| Other, net |
23 | (45 | ) | 44 | ||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||
| Net other expense |
(94,570 | ) | (84,850 | ) | (67,891 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||
| Income before income tax and noncontrolling interests |
176,986 | 196,205 | 210,556 | |||||||||||||||||||||
| Income tax benefit (expense) |
18,068 | (6,831 | ) | (5,493 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||
| Net income |
195,054 | 189,374 | 205,063 | |||||||||||||||||||||
| Less: Net (income) loss attributable to the noncontrolling interests |
(5,692 | ) | (6,565 | ) | 1,887 | |||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||
| Net income attributable to Textainer Group Holdings Limited common shareholders |
$ | 189,362 | $ | 182,809 | $ | 206,950 | ||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||
| Net income attributable to Textainer Group Holdings Limited common shareholders per share: |
||||||||||||||||||||||||
| Basic |
$ | 3.34 | $ | 3.25 | $ | 4.04 | ||||||||||||||||||
| Diluted |
$ | 3.32 | $ | 3.21 | $ | 3.96 | ||||||||||||||||||
| Weighted average shares outstanding (in thousands): |
||||||||||||||||||||||||
| Basic |
56,719 | 56,317 | 51,277 | |||||||||||||||||||||
| Diluted |
57,079 | 56,862 | 52,231 | |||||||||||||||||||||
| Other comprehensive income: |
||||||||||||||||||||||||
| Foreign currency translation adjustments |
(112 | ) | (45 | ) | 142 | |||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||
| Comprehensive income |
194,942 | 189,329 | 205,205 | |||||||||||||||||||||
| Comprehensive (income) loss attributable to the noncontrolling interest |
(5,692 | ) | (6,565 | ) | 1,887 | |||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||
| Comprehensive income attributable to Textainer Group Holdings Limited common shareholders |
$ | 189,250 | $ | 182,764 | $ | 207,092 | ||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||
See accompanying notes to consolidated financial statements.
F-4
Table of Contents
TEXTAINER GROUP HOLDINGS LIMITED AND SUBSIDIARIES
December 31, 2014 and 2013
(All currency expressed in United States dollars in thousands)
| 2014 | 2013 | |||||||
| Assets | ||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 107,067 | $ | 120,223 | ||||
| Accounts receivable, net of allowance for doubtful accounts of $12,139 and $14,891 at 2014 and 2013, respectively |
91,866 | 91,967 | ||||||
| Net investment in direct financing and sales-type leases |
89,003 | 64,811 | ||||||
| Trading containers |
6,673 | 13,009 | ||||||
| Containers held for sale |
25,213 | 31,968 | ||||||
| Prepaid expenses and other current assets |
17,593 | 19,063 | ||||||
| Deferred taxes |
2,100 | 1,491 | ||||||
|
|
|
|
|
|||||
| Total current assets |
339,515 | 342,532 | ||||||
| Restricted cash |
60,310 | 63,160 | ||||||
| Containers, net of accumulated depreciation of $685,667 and $562,456 at 2014 and 2013, respectively |
3,629,882 | 3,233,131 | ||||||
| Net investment in direct financing and sales-type leases |
280,002 | 217,310 | ||||||
| Fixed assets, net of accumulated depreciation of $9,139 and $8,286 at 2014 and 2013, respectively |
1,385 | 1,635 | ||||||
| Intangible assets, net of accumulated amortization of $30,968 and $27,092 at 2014 and 2013, respectively |
24,991 | 29,157 | ||||||
| Interest rate swaps, collars and caps |
1,568 | 1,831 | ||||||
| Other assets |
21,324 | 20,227 | ||||||
|
|
|
|
|
|||||
| Total assets |
$ | 4,358,977 | $ | 3,908,983 | ||||
|
|
|
|
|
|||||
| Liabilities and Equity | ||||||||
| Current liabilities: |
||||||||
| Accounts payable |
$ | 5,652 | $ | 8,086 | ||||
| Accrued expenses |
11,935 | 9,838 | ||||||
| Container contracts payable |
63,323 | 22,819 | ||||||
| Deferred revenue and other liabilities |
317 | 345 | ||||||
| Due to owners, net |
11,003 | 12,775 | ||||||
| Term loan |
31,600 | — | ||||||
| Bonds payable |
59,959 | 161,307 | ||||||
|
|
|
|
|
|||||
| Total current liabilities |
183,789 | 215,170 | ||||||
| Revolving credit facilities |
944,790 | 860,476 | ||||||
| Secured debt facilities |
1,017,100 | 808,600 | ||||||
| Term loan |
444,100 | — | ||||||
| Bonds payable |
498,428 | 836,901 | ||||||
| Interest rate swaps, collars and caps |
2,219 | 3,994 | ||||||
| Income tax payable |
7,696 | 16,050 | ||||||
| Deferred taxes |
5,675 | 19,166 | ||||||
| Other liabilities |
2,815 | 3,132 | ||||||
|
|
|
|
|
|||||
| Total liabilities |
3,106,612 | 2,763,489 | ||||||
|
|
|
|
|
|||||
| Equity: |
||||||||
| Textainer Group Holdings Limited shareholders’ equity: |
||||||||
| Common shares, $0.01 par value. Authorized 140,000,000 shares; issued and outstanding 56,863,094 and 56,450,580 at 2014 and 2013, respectively |
565 | 564 | ||||||
| Additional paid-in capital |
378,316 | 366,197 | ||||||
| Accumulated other comprehensive income |
(43 | ) | 69 | |||||
| Retained earnings |
813,707 | 730,993 | ||||||
|
|
|
|
|
|||||
| Total Textainer Group Holdings Limited shareholders’ equity |
1,192,545 | 1,097,823 | ||||||
| Noncontrolling interests |
59,820 | 47,671 | ||||||
|
|
|
|
|
|||||
| Total equity |
1,252,365 | 1,145,494 | ||||||
|
|
|
|
|
|||||
| Total liabilities and equity |
$ | 4,358,977 | $ | 3,908,983 | ||||
|
|
|
|
|
|||||
See accompanying notes to consolidated financial statements.
F-5
Table of Contents
TEXTAINER GROUP HOLDINGS LIMITED AND SUBSIDIARIES
Consolidated Statements of Shareholders’ Equity
Years ended December 31, 2014, 2013 and 2012
(All currency expressed in United States dollars in thousands, except share amounts)
| Textainer Group Holdings Limited Shareholders’ Equity | ||||||||||||||||||||||||||||
| Additional paid-in capital |
Accumulated other comprehensive income (loss) |
|||||||||||||||||||||||||||
| Common shares | Retained earnings |
Noncontrolling interest |
Total equity |
|||||||||||||||||||||||||
| Shares | Amount | |||||||||||||||||||||||||||
| Balances, December 31, 2011 |
48,951,114 | $ | 490 | $ | 154,460 | $ | (28 | ) | $ | 528,906 | $ | 1,098 | $ | 684,926 | ||||||||||||||
| Dividends to shareholders ($1.63 per common share) |
— | — | — | — | (83,473 | ) | — | (83,473 | ) | |||||||||||||||||||
| Restricted share units vested |
376,315 | 4 | (4 | ) | — | — | — | — | ||||||||||||||||||||
| Exercise of share options |
302,100 | 3 | 4,666 | — | — | — | 4,669 | |||||||||||||||||||||
| Issuance of common shares in public offering, net of offering costs |
6,125,000 | 61 | 184,778 | 184,839 | ||||||||||||||||||||||||
| Long-term incentive compensation expense |
— | — | 7,968 | — | — | — | 7,968 | |||||||||||||||||||||
| Tax benefit from share options exercised and restricted share units vested |
— | — | 2,580 | — | — | — | 2,580 | |||||||||||||||||||||
| Capital contributions from noncontrolling interest |
— | — | — | — | — | 12,007 | 12,007 | |||||||||||||||||||||
| Acquisition of TAP Funding Ltd. |
— | — | — | — | — | 27,412 | 27,412 | |||||||||||||||||||||
| Comprehensive income: |
||||||||||||||||||||||||||||
| Net income attributable to Textainer Group Holdings Limited common shareholders |
— | — | — | — | 206,950 | — | 206,950 | |||||||||||||||||||||
| Net income attributable to noncontrolling interests |
— | — | — | — | — | (1,887 | ) | (1,887 | ) | |||||||||||||||||||
| Foreign currency translation adjustments |
— | — | — | 142 | — | — | 142 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total comprehensive income |
205,205 | |||||||||||||||||||||||||||
|
|
|
|||||||||||||||||||||||||||
| Balances, December 31, 2012 |
55,754,529 | 558 | 354,448 | 114 | 652,383 | 38,630 | 1,046,133 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Dividends to shareholders ($1.85 per common share) |
— | — | — | — | (104,199 | ) | — | (104,199 | ) | |||||||||||||||||||
| Restricted share units vested |
488,860 | 4 | (4 | ) | — | — | — | — | ||||||||||||||||||||
| Exercise of share options |
207,191 | 2 | 3,615 | — | — | — | 3,617 | |||||||||||||||||||||
| Long-term incentive compensation expense |
— | — | 5,694 | — | — | — | 5,694 | |||||||||||||||||||||
| Tax benefit from share options exercised and restricted share units vested |
— | — | 2,444 | — | — | — | 2,444 | |||||||||||||||||||||
| Capital contributions from noncontrolling interest |
— | — | — | — | — | 2,476 | 2,476 | |||||||||||||||||||||
| Comprehensive income: |
||||||||||||||||||||||||||||
| Net income attributable to Textainer Group Holdings Limited common shareholders |
— | — | — | — | 182,809 | — | 182,809 | |||||||||||||||||||||
| Net income attributable to noncontrolling interests |
— | — | — | — | — | 6,565 | 6,565 | |||||||||||||||||||||
| Foreign currency translation adjustments |
— | — | — | (45 | ) | — | — | (45 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total comprehensive income |
189,329 | |||||||||||||||||||||||||||
|
|
|
|||||||||||||||||||||||||||
| Balances, December 31, 2013 |
56,450,580 | 564 | 366,197 | 69 | 730,993 | 47,671 | 1,145,494 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Dividends to shareholders ($1.88 per common share) |
— | — | — | — | (106,648 | ) | — | (106,648 | ) | |||||||||||||||||||
| Restricted share units vested |
281,438 | 1 | (1 | ) | — | — | — | — | ||||||||||||||||||||
| Exercise of share options |
131,076 | — | 2,497 | — | — | — | 2,497 | |||||||||||||||||||||
| Long-term incentive compensation expense |
— | — | 7,499 | — | — | — | 7,499 | |||||||||||||||||||||
| Tax benefit from share options exercised and restricted share units vested |
— | — | 2,124 | — | — | — | 2,124 | |||||||||||||||||||||
| Capital contributions from noncontrolling interest |
— | — | — | — | — | 6,457 | 6,457 | |||||||||||||||||||||
| Comprehensive income: |
||||||||||||||||||||||||||||
| Net income attributable to Textainer Group Holdings Limited common shareholders |
— | — | — | — | 189,362 | — | 189,362 | |||||||||||||||||||||
| Net income attributable to noncontrolling interests |
— | — | — | — | — | 5,692 | 5,692 | |||||||||||||||||||||
| Foreign currency translation adjustments |
— | — | — | (112 | ) | — | — | (112 | ) | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Total comprehensive income |
194,942 | |||||||||||||||||||||||||||
|
|
|
|||||||||||||||||||||||||||
| Balances, December 31, 2014 |
56,863,094 | $ | 565 | $ | 378,316 | $ | (43 | ) | $ | 813,707 | $ | 59,820 | $ | 1,252,365 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
See accompanying notes to consolidated financial statements.
F-6
Table of Contents
TEXTAINER GROUP HOLDINGS LIMITED AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2014, 2013 and 2012
(All currency expressed in United States dollars in thousands)
| 2014 | 2013 | 2012 | ||||||||||
| Cash flows from operating activities: |
||||||||||||
| Net income |
$ | 195,054 | $ | 189,374 | $ | 205,063 | ||||||
|
|
|
|
|
|
|
|||||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||||||
| Depreciation expense and container impairment |
176,596 | 148,974 | 104,844 | |||||||||
| Bad debt (recovery) expense, net |
(474 | ) | 8,084 | 1,525 | ||||||||
| Unrealized gains on interest rate swaps, collars and caps, net |
(1,512 | ) | (8,656 | ) | (5,527 | ) | ||||||
| Amortization of debt issuance costs and accretion of bond discount |
17,144 | 11,587 | 11,700 | |||||||||
| Amortization of intangible assets |
4,010 | 4,226 | 5,020 | |||||||||
| Amortization of acquired net below-market leases |
— | — | (33 | ) | ||||||||
| Amortization of deferred revenue |
— | (1,001 | ) | (6,026 | ) | |||||||
| Gains on sale of containers, net |
(13,469 | ) | (27,340 | ) | (34,837 | ) | ||||||
| Bargain purchase gain |
— | — | (9,441 | ) | ||||||||
| Share-based compensation expense |
7,499 | 5,694 | 7,968 | |||||||||
| Decrease (increase) in: |
||||||||||||
| Accounts receivable, net |
575 | (5,949 | ) | (4,226 | ) | |||||||
| Trading containers, net |
6,336 | (5,713 | ) | 5,674 | ||||||||
| Prepaid expenses and other current assets |
(12,240 | ) | (4,692 | ) | 218 | |||||||
| Due from affiliates, net |
— | 4,377 | (3,564 | ) | ||||||||
| Other assets |
8,196 | (3,852 | ) | 2,219 | ||||||||
| Increase (decrease) in: |
||||||||||||
| Accounts payable |
(2,434 | ) | 3,635 | 1,631 | ||||||||
| Accrued expenses |
2,097 | (4,491 | ) | (4,850 | ) | |||||||
| Deferred revenue and other liabilities |
(345 | ) | (413 | ) | (316 | ) | ||||||
| Due to owners, net |
(1,772 | ) | (443 | ) | (1,460 | ) | ||||||
| Long-term income tax payable |
(8,354 | ) | (11,530 | ) | 4,851 | |||||||
| Deferred taxes, net |
(14,100 | ) | 14,758 | (2,078 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| Total adjustments |
167,753 | 127,255 | 73,292 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net cash provided by operating activities |
362,807 | 316,629 | 278,355 | |||||||||
|
|
|
|
|
|
|
|||||||
| Cash flows from investing activities: |
||||||||||||
| Purchase of containers and fixed assets |
(818,451 | ) | (765,418 | ) | (1,087,489 | ) | ||||||
| Payment for TAP Funding Ltd. |
— | — | (20,532 | ) | ||||||||
| Proceeds from sale of containers and fixed assets |
141,181 | 123,738 | 91,324 | |||||||||
| Receipt of payments on direct financing and sales-type leases, net of income earned |
78,173 | 57,200 | 30,582 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net cash used in investing activities |
(599,097 | ) | (584,480 | ) | (986,115 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Cash flows from financing activities: |
||||||||||||
| Proceeds from revolving credit facilities |
393,251 | 447,138 | 435,720 | |||||||||
| Principal payments on revolving credit facilities |
(308,937 | ) | (136,573 | ) | (127,327 | ) | ||||||
| Proceeds from secured debt facilities |
470,500 | 249,600 | 907,000 | |||||||||
| Principal payments on secured debt facilities |
(262,000 | ) | (315,000 | ) | (853,697 | ) | ||||||
| Proceeds from term loan |
500,000 | — | — | |||||||||
| Principal payments on term loan |
(24,300 | ) | — | — | ||||||||
| Proceeds from bonds payable |
301,298 | 299,359 | 400,000 | |||||||||
| Principal payments on bonds payable |
(741,405 | ) | (139,022 | ) | (118,168 | ) | ||||||
| Decrease (increase) in restricted cash |
2,850 | (8,215 | ) | (7,173 | ) | |||||||
| Debt issuance costs |
(12,441 | ) | (13,633 | ) | (24,048 | ) | ||||||
| Issuance of common shares upon exercise of share options |
2,497 | 3,617 | 4,669 | |||||||||
| Issuance of common shares in public offering, net of offering costs |
— | — | 184,839 | |||||||||
| Excess tax benefit from share-based compensation awards |
2,124 | 2,444 | 2,580 | |||||||||
| Capital contributions from noncontrolling interest |
6,457 | 2,476 | 12,007 | |||||||||
| Dividends paid |
(106,648 | ) | (104,199 | ) | (83,473 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Net cash provided by financing activities |
223,246 | 287,992 | 732,929 | |||||||||
|
|
|
|
|
|
|
|||||||
| Effect of exchange rate changes |
(112 | ) | (45 | ) | 142 | |||||||
|
|
|
|
|
|
|
|||||||
| Net (decrease) increase in cash and cash equivalents |
(13,156 | ) | 20,096 | 25,311 | ||||||||
| Cash and cash equivalents, beginning of the year |
120,223 | 100,127 | 74,816 | |||||||||
|
|
|
|
|
|
|
|||||||
| Cash and cash equivalents, end of the year |
$ | 107,067 | $ | 120,223 | $ | 100,127 | ||||||
|
|
|
|
|
|
|
|||||||
| Supplemental disclosures of cash flow information: |
||||||||||||
| Cash paid during the year for: |
||||||||||||
| Interest and realized losses on interest rate swaps, collars and caps, net |
$ | 79,536 | $ | 81,440 | $ | 70,392 | ||||||
| Net income taxes paid |
$ | 2,045 | $ | 1,454 | $ | 820 | ||||||
| Supplemental disclosures of noncash investing activities: |
||||||||||||
| Increase (decrease) in accrued container purchases |
$ | 40,504 | $ | (64,889 | ) | $ | 62,198 | |||||
| Containers placed in direct financing and sales-type leases |
$ | 164,218 | $ | 121,152 | $ | 149,115 | ||||||
| Intangible assets relinquished for container purchases |
$ | — | $ | — | $ | 8,305 | ||||||
See accompanying notes to consolidated financial statements.
F-7
Table of Contents
TEXTAINER GROUP HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2014, 2013, and 2012
(All currency expressed in U.S. dollars in thousands)
(1) Nature of Business and Summary of Significant Accounting Policies
| (a) | Nature of Operations |
Textainer Group Holdings Limited (“TGH”) is incorporated in Bermuda. TGH is the holding company of a group of corporations, Textainer Group Holdings Limited and subsidiaries (the Company), involved in the purchase, management, leasing and resale of a fleet of marine cargo containers. The Company manages and provides administrative support to the affiliated and unaffiliated owners (the “Owners”) of the containers and structures and manages container leasing investment programs.
The Company conducts its business activities in three main areas: Container Ownership, Container Management and Container Resale. These activities are described below (also see Note 12 “Segment Information”).
TGH completed an underwritten public offering of an aggregate of 8,625,000 of its common shares at a price to the public of $31.50 per share on September 19, 2012. Of the common shares sold, TGH sold 6,125,000 new common shares and Halco Holdings Inc. (“Halco”) sold 2,500,000 of its existing common shares. TGH received $184,839 and Halco received $75,424 after deducting underwriting discounts and other offering expenses. Halco’s total ownership and voting interest in TGH’s common shares before and after the offering was 60% and 49%, respectively. The Company used all of its net proceeds from the offering for capital expenditures and general corporate purposes.
Container Ownership
The Company’s containers consist primarily of standard dry freight containers, but also include special-purpose containers. These containers are financed through retained earnings; revolving credit facilities, secured debt facilities and a term loan provided by banks; bonds payable to investors; and a public offering of TGH’s common shares. Expenses related to lease rental income include direct container expenses, depreciation expense and interest expense.
Container Management
The Company manages, on a worldwide basis, a fleet of containers for and on behalf of the Owners.
All rental operations are conducted worldwide in the name of the Company who, as agent for the Owners, acquires and sells containers, enters into leasing agreements and depot service agreements, bills and collects lease rentals from the lessees, disburses funds to depots for container handling, and remits net amounts, less management fees and commissions, to the Owners. Revenues, customer accounts receivable, fixed assets, depreciation and other operating expenses, and vendor payables arising from direct container operations of the managed portion of the Owners’ fleet have been excluded from the Company’s financial statements.
Management fees are typically a percentage of net operating income of each Owner’s fleet and consist of fees earned by the Company for services related to the management of the containers, sales commissions and net acquisition fees earned on the acquisition of containers. Expenses related to the provision of management services include general and administrative expense, short-term and long-term incentive compensation expense and amortization expense.
F-8
Table of Contents
TEXTAINER GROUP HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements—Continued
December 31, 2014, 2013, and 2012
(All currency expressed in U.S. dollars in thousands)
Container Resale
The Company buys and subsequently resells used containers (trading containers) from third parties. Container sales revenue represents the proceeds on the sale of containers purchased for resale. Cost of containers sold represents the cost of equipment purchased for resale that were sold as well as the related selling costs. The Company earns sales commissions related to the sale of the containers that it manages.
| (b) | Principles of Consolidation and Variable Interest Entity |
The consolidated financial statements of the Company include TGH and all of its subsidiaries. All material intercompany balances have been eliminated in consolidation.
On December 20, 2012, the Company’s wholly-owned subsidiary, Textainer Limited (“TL”), purchased 50.1% of the outstanding common shares of TAP Funding Ltd. (“TAP Funding”) (a Bermuda company) from TAP Ltd. (“TAP”) (also see Note 2 “Bargain Purchase Gain”). Both before and after this purchase, TAP Funding leases containers to lessees under operating, direct financing and sales-type leases. TAP is governed by members and management agreements and the Company’s wholly-owned subsidiary, Textainer Equipment Management Limited (“TEML”), manages all of TAP Funding’s containers, making day-to-day decisions regarding the marketing, servicing and design of TAP Funding’s leases. TL’s purchase of a majority ownership of TAP Funding’s common shares allowed the Company to increase the size of its owned fleet at an attractive price. Under TAP Funding’s members agreement, TL owns 50.1% and TAP owns 49.9% of the common shares of TAP Funding. As common shareholders, TL has two voting rights and TAP has one voting right of TAP Funding, with the exception of certain matters such as bankruptcy proceedings and the incurrence of debt and mergers and consolidations, which require unanimity. TL also has two seats and TAP has one seat on TAP Funding’s board of directors. In addition, TL has an option to purchase the remaining outstanding common shares of TAP Funding held by TAP during the period beginning January 1, 2019 and through December 1, 2020 for a purchase price equal to the equity carrying value of TAP Funding plus 6% of TAP’s percentage ownership interest in TAP Funding minus the sum of any and all U.S. federal, state and local taxes of any nature that would be recognized by TL if TAP Funding was liquidated by TL immediately after TL purchased its shares.
Subsequent to TL’s purchase of a majority ownership of TAP Funding’s common shares, the Company includes TAP Funding’s financial statements in its consolidated financial statements. TAP Funding’s profits and losses are allocated to TL and TAP on the same basis as their ownership percentages. The equity owned by TAP in TAP Funding is shown as a noncontrolling interest on the Company’s consolidated balance sheets and the net (income) loss attributable to the noncontrolling interest’s operations is shown as net (income) loss attributable to the noncontrolling interests on the Company’s consolidated statements of comprehensive income.
The Company has a joint venture, TW Container Leasing, Ltd. (“TW”) (a Bermuda company), between TL and Wells Fargo Container Corp. (“WFC”). The purpose of TW is to lease containers to lessees under direct financing leases. TW is governed by members, credit and management agreements. Under the members agreement, TL owns 25% and WFC owns 75% of the common shares and related voting rights of TW. TL also has two seats and WFC has six seats on TW’s board of directors, with each seat having equal voting rights, provided, however, that the approval of at least one TL-appointed director is required for any action of the board of directors. Under a credit agreement with Wells Fargo
F-9
Table of Contents
TEXTAINER GROUP HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements—Continued
December 31, 2014, 2013, and 2012
(All currency expressed in U.S. dollars in thousands)
Bank, N.A. (“WFB”), TW maintains a revolving credit facility with an aggregate commitment of up to $250,000 for the origination of direct financing leases to finance up to 85% of the book value of TW’s net investment in direct financing leases (see Note 11 “Secured Debt Facilities, Revolving Credit Facilities, Term Loan and Bonds Payable, and Derivative Instruments”). Both WFC and WFB are directly and indirectly wholly-owned subsidiaries of Wells Fargo and Company. The remaining cost of originating direct financing leases will be provided in the form of capital contributions from TL and WFC, split 25% and 75%, respectively. Under the management agreement, TEML manages all of TW’s containers, making day-to-day decisions regarding the marketing, servicing and design of TW’s direct financing leases.
Based on the combined design and provisions of TW’s members, credit and management agreements, the Company has determined that TW is a variable interest entity (“VIE”) and that the Company is the primary beneficiary of TW by its equity ownership in the entity and by virtue of its role as manager of the vehicle. An entity is the primary beneficiary of a VIE if it meets both of the following criteria:
| • | The power to direct the activities of a VIE that most significantly impact the VIE’s economic performance; and |
| • | The obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could be potentially significant to the VIE. |
Accordingly, the Company includes TW’s financial statements in its consolidated financial statements. TW’s profits and losses are allocated to TL and WFC on the same basis as their ownership percentages. The equity owned by WFC in TW is shown as a noncontrolling interest on the Company’s consolidated balance sheets and the net (income) loss attributable to the noncontrolling interest’s operations is shown as net (income) loss attributable to noncontrolling interests on the Company’s consolidated statements of comprehensive income.
The majority of the container equipment included in the accompanying consolidated financial statements is owned by TL, Textainer Marine Containers II Limited (“TMCL II”) and Textainer Marine Containers III Limited (“TMCL III”), all Bermuda companies and all of which were wholly-owned subsidiaries of the Company as of December 31, 2014 and 2013.
| (c) | Cash and Cash Equivalents and Restricted Cash |
Cash and cash equivalents are comprised of interest-bearing deposits or money market securities with original maturities of three months or less. The Company maintains cash and cash equivalents and restricted cash (see Note 13 “Commitments and Contingencies—Restricted Cash”) with various financial institutions. These financial institutions are located in Bermuda, Canada, Hong Kong, Malaysia, Singapore, the United Kingdom and the United States. A significant portion of the Company’s cash and cash equivalents and restricted cash is maintained with a small number of banks and, accordingly, the Company is exposed to the credit risk of these counterparties in respect of the Company’s cash and cash equivalents and restricted cash. Furthermore, the deposits maintained at some of these financial institutions exceed the amount of insurance provided on the deposits. Restricted cash is excluded from cash and cash equivalents and is included in long-term assets.
F-10
Table of Contents
TEXTAINER GROUP HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements—Continued
December 31, 2014, 2013, and 2012
(All currency expressed in U.S. dollars in thousands)
| (d) | Intangible Assets |
Intangible assets, consisting primarily of exclusive rights to manage container fleets, are amortized over the expected life of the contracts based on forecasted income to the Company. The contract terms range from 11 to 13 years. The Company reviews its intangible assets for impairment if events and circumstances indicate that the carrying amount of the intangible assets may not be recoverable. The Company compares the carrying value of the intangible assets to expected future undiscounted cash flows for the purpose of assessing the recoverability of the recorded amounts. If the carrying amount exceeds expected undiscounted cash flows, the intangible assets shall be reduced to their fair value.
| (e) | Lease Rental Income |
Leasing income arises principally from the renting of containers owned by the Company to various international shipping lines. Revenue is recorded when earned according to the terms of the container rental contracts. These contracts are typically for terms of three to five years, but can vary from one to eight years, and are generally classified as operating leases.
Under long-term lease agreements, containers are usually leased from the Company for periods of three to five years. Such leases are generally cancelable with a penalty at the end of each 12-month period. Under master lease agreements, the lessee is not committed to leasing a minimum number of containers from the Company during the lease term and may generally return the containers to the Company at any time, subject to certain restrictions in the lease agreement. Under long-term lease and master lease agreements, revenue is earned and recognized evenly over the period that the equipment is on lease. Under direct financing and sales-type leases, the containers are usually leased from the Company for the remainder of the container’s useful life with a bargain purchase option at the end of the lease term. Revenue is earned and recognized on direct financing leases over the lease terms so as to produce a constant periodic rate of return on the net investment in the leases. Under sales-type leases, a gain or loss is recognized at the inception of the leases by subtracting the book value of the containers from the estimated fair value of the containers and the remaining revenue is earned and recognized over the lease terms so as to produce a constant periodic rate of return on the net investment in the leases.
The Company’s container leases generally do not include step-rent provisions, nor do they depend on indices or rates. The Company recognizes revenue on container leases that include lease concessions in the form of free-rent periods using the straight-line method over the minimum terms of the leases.
The following is a schedule, by year, of future minimum lease payments receivable under the long-term leases as of December 31, 2014:
| Year ending December 31: |
| |||
| 2015 |
$ | 317,390 | ||
| 2016 |
233,601 | |||
| 2017 |
166,116 | |||
| 2018 |
105,562 | |||
| 2019 and thereafter |
92,887 | |||
|
|
|
|||
| Total future minimum lease payments receivable |
$ | 915,556 | ||
|
|
|
|||
F-11
Table of Contents
TEXTAINER GROUP HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements—Continued
December 31, 2014, 2013, and 2012
(All currency expressed in U.S. dollars in thousands)
The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its lessees to make required payments. These allowances are based on management’s current assessment of the financial condition of the Company’s lessees and their ability to make their required payments. If the financial condition of the Company’s lessees were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.
| (f) | Direct Container Expense |
Direct container expense represents the operating costs arising from the containers owned by the Company and includes storage, handling, maintenance, Damage Protection Plan (“DPP”) repair, agent and insurance expense.
| (g) | Containers Held for Resale |
The Company, through one or more of its subsidiaries, buys trading containers for resale, which are valued at the lower of cost or market value. The cost of trading containers sold is specifically identified.
| (h) | Foreign Currencies |
A functional currency is determined for each of the entities within the Company based on the currency of the primary economic environment in which the entity operates. The Company’s functional currency, excluding its foreign subsidiaries, is the U.S. dollar. Assets and liabilities denominated in a currency other than the entity’s functional currency are re-measured into its functional currency at the balance sheet date with a gain or loss recognized in current year net income. Foreign currency exchange gains and losses that arise from exchange rate changes on transactions denominated in a foreign currency are recognized in net income as incurred. Foreign currency exchange gains (losses), reported in direct container expense in the consolidated statements of comprehensive income were $67, $75, and $(177) for the years ended December 31, 2014, 2013 and 2012, respectively. For consolidation purposes, the financial statements are translated into U.S. dollars using the current exchange rate for the assets and liabilities and a weighted average exchange rate for the revenues and expenses recorded during the year with any translation adjustment shown as an element of accumulated other comprehensive income.
| (i) | Containers and Fixed Assets |
Capitalized container costs include the container cost payable to the manufacturer and the associated transportation costs incurred in moving the containers from the manufacturer to the containers’ first destined port. Containers purchased new are depreciated using the straight-line method over their estimated useful lives to an estimated dollar residual value. The Company estimates the useful lives of its non-refrigerated containers other than open top and flat rack containers, refrigerated containers, tank containers and open top and flat rack containers to be 13, 12, 20 and 14 years, respectively. Containers purchased used are depreciated based upon their remaining useful lives at the date of acquisition to an estimated dollar residual value. The Company evaluates the estimated residual values and remaining estimated useful lives on an ongoing basis.
Over a few years prior to January 1, 2013, the Company experienced a significant increase in the useful lives of its non-refrigerated containers other than open top and flat rack containers as the Company entered
F-12
Table of Contents
TEXTAINER GROUP HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements—Continued
December 31, 2014, 2013, and 2012
(All currency expressed in U.S. dollars in thousands)
into leases with longer terms and container prices increased resulting in shipping lines leasing containers for longer periods. Based on this extended period of longer useful lives and the Company’s expectation that new equipment lives would remain near those levels, the Company increased the estimated useful lives of its non-refrigerated containers other than open top and flat rack containers from 12 years to 13 years, effective January 1, 2013. The effect of this change was a reduction in depreciation expense of $34,846 ($33,881 after tax) and $24,115 ($23,155 after tax) for the years ended December 31, 2014 and 2013, respectively. Depreciation expense may fluctuate in future periods based on fluctuations in these estimates.
Fixed assets are recorded at cost and depreciated on a straight-line basis over the estimated useful lives of the assets, ranging from three to seven years.
The Company reviews its containers and fixed assets for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable. The Company compares the carrying value of the containers to expected future undiscounted cash flows for the purpose of assessing the recoverability of the recorded amounts. If the carrying value exceeds expected future undiscounted cash flows, the assets are reduced to fair value. In addition, containers identified as being available for sale are valued at the lower of carrying value or fair value, less costs to sell.
The Company has evaluated the recoverability of the recorded amount of container rental equipment at December 31, 2014 and 2013. During the years ended December 31, 2014 and 2013, depreciation expense and container impairment included impairments of $1,651 and $4,677, respectively, for containers that were economically unrecoverable from lessees in default.
During the years ended December 31, 2014, 2013 and 2012, the Company recorded impairments of $11,457, $4,214 and $759, which are included in depreciation expense and container impairment in the consolidated statements of comprehensive income, to write-down the carrying value of 35,953, 13,226 and 1,771 containers identified for sale, respectively, to their estimated fair value. The fair value was estimated based on recent gross sales proceeds for sales of similar containers. When containers are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized. At December 31, 2014 and 2013, the carrying value of 9,452 and 4,405 containers identified for sale included impairment charges of $3,892 and $1,383, respectively. The carrying value of these containers identified for sale amounted to $10,606 and $7,418 as of December 31, 2014 and 2013, respectively, and is included in containers held for sale in the consolidated balance sheets.
During the years ended December 31, 2014, 2013 and 2012, the Company recorded the following net gains on sales of containers, included in gains on sale of containers, net in the consolidated statements of comprehensive income:
| 2014 | 2013 | 2012 | ||||||||||||||||||||||
| Units | Amount | Units | Amount | Units | Amount | |||||||||||||||||||
| Gains on sale of previously written down containers, net |
30,686 | $ | 3,657 | 9,431 | $ | 2,954 | 1,441 | $ | 971 | |||||||||||||||
| Gains on sale of containers not written down, net |
66,877 | 9,812 | 64,553 | 24,386 | 45,621 | 33,866 | ||||||||||||||||||
|
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|
|
|
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|
|
|
|
|||||||||||||
| Gains on sales of containers, net |
97,563 | $ | 13,469 | 73,984 | $ | 27,340 | 47,062 | $ | 34,837 | |||||||||||||||
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F-13
Table of Contents
TEXTAINER GROUP HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements—Continued
December 31, 2014, 2013, and 2012
(All currency expressed in U.S. dollars in thousands)
If other containers are subsequently identified as available for sale, the Company may incur additional write-downs or may incur losses on the sale of these containers if they are sold. The Company will continue to evaluate the recoverability of recorded amounts of containers and a write-down of certain containers held for continued use and/or an increase in its depreciation rate may be required in future periods for some or all containers.
| (j) | Income Taxes |
The Company uses the asset and liability method to account for income taxes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in the tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recorded when the realization of a deferred tax asset is unlikely.
The Company also accounts for income tax positions by recognizing the effect on income tax positions only if those positions are more likely than not of being sustained. Recognized income tax positions are measured at the largest amount that is greater than 50% likely of being realized. Changes in the recognition or measurement are reflected in the period in which the change in judgment occurs. If there are findings in future regulatory examinations of the Company’s tax returns, those findings may result in additional income tax expense.
The Company records interest and penalties related to unrecognized tax benefits in income tax expense.
| (k) | Maintenance and Repair Expense and Damage Protection Plan |
The Company’s leases generally require the lessee to pay for any damage to the container beyond normal wear and tear at the end of the lease term. The Company offers a DPP to certain lessees of its containers. Under the terms of the DPP, the Company charges lessees an additional amount primarily on a daily basis and the lessees are no longer obligated for certain future repair costs for containers subject to the DPP. It is the Company’s policy to recognize these revenues as earned on a daily basis over the related term of its lease. The Company has not recognized revenue and related expense for customers who are billed at the end of the lease term under the DPP or for other lessees who do not participate in the DPP. Based on past history, there is uncertainty as to collectability of these amounts from lessees who are billed at the end of the lease term because the amounts due under the DPP are typically renegotiated at the end of the lease term or the lease term is extended. The Company uses the direct expense method of accounting for maintenance and repairs.
| (l) | Debt Issuance Costs |
The Company capitalizes costs directly associated with the issuance or modification of its debt in prepaid expenses and other current assets and other assets in the consolidated balance sheets. Debt issuance costs are amortized using the interest rate method over the terms of the related debt and the amortization is recorded in the consolidated statements of comprehensive income as interest expense. In 2014, 2013 and 2012, debt issuance costs of $12,490, $13,633 and $24,048, respectively, were
F-14
Table of Contents
TEXTAINER GROUP HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements—Continued
December 31, 2014, 2013, and 2012
(All currency expressed in U.S. dollars in thousands)
capitalized and amortization of debt issuance costs of $10,044, $10,612 and $10,237, respectively, were recorded in interest expense. When the Company’s debt is modified or terminated, any unamortized debt issuance costs related to a decrease in borrowing capacity under any of the Company’s lenders is immediately written-off and recorded in interest expense. In 2014, interest expense included $390 and $6,424 of write-offs of unamortized debt issuance costs related to the amendment of TMCL II’s secured debt facility and the redemption of the Company’s wholly-owned subsidiary, Textainer Marine Containers Limited’s (“TMCL”) (a Bermuda Company) 2005-1 Bonds, 2011-1 Bonds and 2012-2 Bonds, respectively, (see Note 11 “Secured Debt Facilities, Revolving Debt Facilities, Term Loan and Bonds Payable, and Derivative Instruments”). In 2013, interest expense included $650 and $245 of write-offs of unamortized debt issuance costs related to the termination of TAP Funding’s revolving credit facility and the amendment of TMCL II’s secured debt facility, respectively. In 2012, interest expense included a $1,463 write-off of unamortized debt issuance costs related to the termination of TMCL’s secured debt facility.
| (m) | Concentrations |
Although substantially all of the Company’s income from operations is derived from assets employed in foreign countries, virtually all of this income is denominated in U.S. dollars. The Company does pay some of its expenses in various foreign currencies. During 2014, 2013 and 2012, $13,442 or 28%, $13,925 or 32%, and $9,073 or 36%, respectively, of the Company’s direct container expenses were paid in up to 18 different foreign currencies. In accordance with its policy, the Company does not hedge these container expenses as there are no significant payments made in any one foreign currency.
The Company’s customers are international shipping lines, which transport goods on international trade routes. Once the containers are on-hire with a lessee, the Company does not track their location. The domicile of the lessee is not indicative of where the lessee is transporting the containers. The Company’s business risk in its foreign concentrations lies with the creditworthiness of the lessees rather than the geographic location of the containers or the domicile of the lessees. Except for one major lessee (CMA-CGM S.A.) which accounted for 10.6%, 10.5% and 11.7% of the Company’s lease rental income during 2014, 2013 and 2012, respectively, no other single lessees accounted for greater than 10% of the Company’s lease rental income for each of those years. One single lessee (CMA-CGM S.A.) accounted for 9.3% and 12.8% of the Company’s gross accounts receivable as of December 31, 2014 and 2013.
Total fleet lease rental income differs from reported lease rental income in that total fleet lease rental income comprises revenue earned from leases on containers in the Company’s total fleet, including revenue earned by the Owners from leases on containers in its managed fleet, while the Company’s reported lease rental income only comprises income associated with its owned fleet. The Company’s largest customer (CMA-CGM S.A.) represented approximately $72.8 million or 11.8%, $72.6 million or 12.0% and $71.2 million or 12.0% of the Company’s total fleet leasing billings in 2014, 2013 and 2012, respectively. The Company has another customer (Mediterranean Shipping Company S.A.) that represented $69.2 million or 11.2%, $64.3 million or 10.6% and $61.5 million or 10.4% of the Company’s total fleet lease billings in 2014, 2013 and 2012, respectively. The Company had no other customer that individually accounted for over 10% of the lease billings of the Company’s total fleet in 2014, 2013 and 2012. The Company currently has containers on-hire to approximately 400 customers. The Company’s customers are mainly international shipping lines, but the Company also leases containers to freight forwarding companies and the U.S. military. The Company’s five largest
F-15
Table of Contents
TEXTAINER GROUP HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements—Continued
December 31, 2014, 2013, and 2012
(All currency expressed in U.S. dollars in thousands)
customers accounted for approximately 38.2%, 38.0% and 37.2% of the Company’s total fleet leasing billings in 2014, 2013 and 2012, respectively. During 2014, 2013 and 2012, revenue from the Company’s 20 largest container lessees by lease billings represented 74.7%, 72.1% and 73.7% of the Company’s total fleet container lease billings, respectively. A default by any of these major customers could have a material adverse impact on the Company’s business, results from operations and financial condition.
As of December 31, 2014 and 2013, approximately 95.5% and 96.3%, respectively, of the Company’ accounts receivable for its total fleet were from container lessees and customers outside of the U.S. As of December 31, 2014 and 2013, approximately 99.7% and 99.4%, respectively, of the Company’s finance lease receivables for its total fleet were from container lessees and customers outside of the U.S. Except for the countries outside of the U.S. noted in the table below, customers in no other single country made up greater than 10% of the Company’s total fleet container lease billings during 2014, 2013 and 2012.
| Country |
2014 | 2013 | 2012 | |||||||||
| People’s Republic of China |
16.5 | % | 22.8 | % | 24.1 | % | ||||||
| France |
11.8 | % | 12.1 | % | 12.2 | % | ||||||
| Korea |
11.5 | % | 10.0 | % | n/a | |||||||
| Switzerland |
10.8 | % | 10.2 | % | n/a | |||||||
| Singapore |
10.6 | % | n/a | n/a | ||||||||
| Taiwan |
10.1 | % | na | n/a | ||||||||
| (n) | Derivative Instruments |
The Company has entered into various interest rate swap, collar and cap agreements to mitigate its exposure associated with its variable rate debt. The swap agreements involve payments by the Company to counterparties at fixed rates in return for receipts based upon variable rates indexed to the London Inter Bank Offered Rate (“LIBOR”). The differentials between the fixed and variable rate payments under these agreements are recognized in realized losses on interest rate swaps, collars and caps, net in the consolidated statements of comprehensive income.
As of the balance sheet dates, none of the derivative instruments are designated by the Company for hedge accounting. The fair value of the derivative instruments is measured at each balance sheet date and the change in fair value is recorded in the consolidated statements of comprehensive income as unrealized gains (losses) on interest rate swaps, collars and caps, net.
| (o) | Share Options and Restricted Share Units |
The Company estimates the fair value of all employee share options awarded under its 2007 Share Incentive Plan (the “2007 Plan”) on the grant date. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods in the Company’s consolidated statements of comprehensive income as part of long-term incentive compensation expense.
The Company uses the Black-Scholes-Merton (“Black-Scholes”) option-pricing model to determine the estimated fair value for employee share option awards. The Company uses the fair market value of the Company’s common shares on the grant date, discounted for estimated dividends that will not be received by the employees during the vesting period, for determining the estimated fair value for restricted share units. Compensation expense for employee share awards is recognized on a
F-16
Table of Contents
TEXTAINER GROUP HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements—Continued
December 31, 2014, 2013, and 2012
(All currency expressed in U.S. dollars in thousands)
straight-line basis over the vesting period of the award. Share-based compensation expense of $7,499, $5,694 and $7,968 was recorded as a part of long-term incentive compensation during 2014, 2013 and 2012, respectively, for share options and restricted share units awarded to employees under the 2007 Plan.
| (p) | Comprehensive Income |
The Company discloses the effect of its foreign currency translation adjustment as a component of other comprehensive income in the Company’s consolidated statements of comprehensive income.
| (q) | Estimates |
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company’s management evaluates its estimates on an ongoing basis, including those related to the container rental equipment, intangible assets, accounts receivable, income taxes, and accruals.
These estimates are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments regarding the carrying values of assets and liabilities. Actual results could differ from those estimates under different assumptions or conditions.
| (r) | Net income attributable to Textainer Group Holdings Limited common shareholders per share |
Basic earnings per share (“EPS”) is computed by dividing net income attributable to Textainer Group Holdings Limited common shareholders by the weighted average number of shares outstanding during the applicable period. Diluted EPS reflects the potential dilution that could occur if all outstanding share options were exercised for, and all restricted share units were converted into, common shares. During 2014, 2013 and 2012, 244,971, 38,130 and 343,146 share options were excluded, respectively from the computation of diluted earnings per share because they were anti-dilutive under the treasury stock method. A reconciliation of the numerator and denominator of basic EPS with that of diluted EPS during 2014, 2013 and 2012 is presented as follows:
| Share amounts in thousands | 2014 | 2013 | 2012 | |||||||||
| Numerator: |
||||||||||||
| Net income attributable to Textainer Group Holdings Limited common shareholders |
$ | 189,362 | $ | 182,809 | $ | 206,950 | ||||||
| Denominator: |
||||||||||||
| Weighted average common shares outstanding—basic |
56,719 | 56,317 | 51,277 | |||||||||
| Dilutive share options and restricted share units |
360 | 545 | 954 | |||||||||
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|
|
|
|
|
|||||||
| Weighted average common shares outstanding—diluted |
$ | 57,079 | $ | 56,862 | $ | 52,231 | ||||||
|
|
|
|
|
|
|
|||||||
| Net income attributable to Textainer Group Holdings Limited common shareholders per common share |
||||||||||||
| Basic |
$ | 3.34 | $ | 3.25 | $ | 4.04 | ||||||
| Diluted |
$ | 3.32 | $ | 3.21 | $ | 3.96 | ||||||
F-17
Table of Contents
TEXTAINER GROUP HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements—Continued
December 31, 2014, 2013, and 2012
(All currency expressed in U.S. dollars in thousands)
| (s) | Fair value measurements |
The Company utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those levels:
| • | Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities. |
| • | Level 2: Inputs other than quoted prices which are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active. |
| • | Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions. |
The Company uses the exchange price notion, which is the price in an orderly transaction between market participants to sell an asset or transfer a liability in the market in which the reporting entity would transact for the asset or liability, that is, the principal or most advantageous market for the asset or liability. The transaction to sell the asset or transfer the liability is a hypothetical transaction at the measurement date, considered from the perspective of a market participant that holds the asset or owes the liability. Therefore, the definition focuses on the price that would be received to sell the asset or paid to transfer the liability (an exit price), not the price that would be paid to acquire the asset or received to assume the liability (an entry price).
The following table summarizes the Company’s assets and liabilities measured at fair value on a recurring basis as of December 31, 2014 and 2013:
| Quoted Prices in Active Markets for Identical Assets |
Significant Other Observable Inputs |
Significant Unobservable Inputs |
||||||||||
| (Level 1) | (Level 2) | (Level 3) | ||||||||||
| December 31, 2014 |
||||||||||||
| Assets |
||||||||||||
| Interest rate swaps, collars and caps |
$ | — | $ | 1,568 | $ | — | ||||||
|
|
|
|
|
|
|
|||||||
| Total |
$ | — | $ | 1,568 | $ | — | ||||||
|
|
|
|
|
|
|
|||||||
| Liabilities |
||||||||||||
| Interest rate swaps, collars and caps |
$ | — | $ | 2,219 | $ | — | ||||||
|
|
|
|
|
|
|
|||||||
| Total |
$ | — | $ | 2,219 | $ | — | ||||||
|
|
|
|
|
|
|
|||||||
| December 31, 2013 |
||||||||||||
| Assets |
||||||||||||
| Interest rate swaps, collars and caps |
$ | — | $ | 1,831 | $ | — | ||||||
|
|
|
|
|
|
|
|||||||
| Total |
$ | — | $ | 1,831 | $ | — | ||||||
|
|
|
|
|
|
|
|||||||
| Liabilities |
||||||||||||
| Interest rate swaps, collars and caps |
$ | — | $ | 3,994 | $ | — | ||||||
|
|
|
|
|
|
|
|||||||
| Total |
$ | — | $ | 3,994 | $ | — | ||||||
|
|
|
|
|
|
|
|||||||
F-18
Table of Contents
TEXTAINER GROUP HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements—Continued
December 31, 2014, 2013, and 2012
(All currency expressed in U.S. dollars in thousands)
The following table summarizes the Company’s assets measured at fair value on a non-recurring basis as of December 31, 2014 and 2013:
| Quoted Prices in Active Markets for Identical Assets |
Significant Other Observable Inputs |
Significant Unobservable Inputs |
Years Ended December 31, 2014 and 2013 |
|||||||||||||
| (Level 1) | (Level 2) | (Level 3) | Total Impairments (2) |
|||||||||||||
| December 31, 2014 |
||||||||||||||||
| Assets |
||||||||||||||||
| Containers held for sale (1) |
$ | — | $ | 10,606 | $ | — | $ | 11,457 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | — | $ | 10,606 | $ | — | $ | 11,457 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| December 31, 2013 |
||||||||||||||||
| Assets |
||||||||||||||||
| Containers held for sale (1) |
$ | — | $ | 7,418 | $ | — | $ | 4,214 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| Total |
$ | — | $ | 7,418 | $ | — | $ | 4,214 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| (1) | Represents the carrying value of containers included in containers held for sale in the consolidated balance sheets that have been impaired to write down the value of the containers to their estimated fair value less cost to sell. |
| (2) | Included in depreciation expense and container impairment in the accompanying consolidated statements of income. |
When the Company is required to write down the cost basis of its containers identified for sale to fair value less cost to sell, the Company measures the fair value of its containers identified for sale under a Level 2 input. The Company relies on its recent sales prices for identical or similar assets in markets, by geography, that are active. The Company records impairments to write down the value of containers identified for sale to their estimated fair value less cost to sell.
The Company measures the fair value of its $1,868,010 notional amount of interest rate swaps, collars and caps under a Level 2 input. The valuation also reflects the credit standing of the Company and the counterparties to the interest rate swaps, collars and caps. The valuation technique utilized by the Company to calculate the fair value of the interest rate swaps, collars and caps is the income approach. This approach represents the present value of future cash flows based upon current market expectations. The Company’s interest rate swap, collar and cap agreements had a net fair value asset and liability of $1,568 and $2,219, respectively, as of December 31, 2014 and a fair value asset and liability of $1,831 and $3,994, respectively, as of December 31, 2013. The credit valuation adjustment was determined to be $102 and $181 (both of which were additions to the net liability) as of December 31, 2014 and 2013, respectively. The change in fair value during 2014, 2013 and 2012 of $1,512, $8,656 and $5,527, respectively, was recorded in the consolidated statements of comprehensive income as unrealized gains on interest rate swaps and caps, net.
The Company calculates the fair value of financial instruments and includes this additional information in the notes to the consolidated financial statements when the fair value is different from the book value of those financial instruments. The Company’s financial instruments include cash and cash equivalents, restricted cash, accounts receivable and payable, net investment in direct financing and sales-type leases, container contracts payable, due to owners, net, debt and interest rate swaps,
F-19
Table of Contents
TEXTAINER GROUP HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements—Continued
December 31, 2014, 2013, and 2012
(All currency expressed in U.S. dollars in thousands)
collars and caps. At December 31, 2014 and 2013, the fair value of the Company’s financial instruments approximates the related book value of such instruments except that, the fair value of net investment in direct financing and sales-type leases (including the short-term balance) was approximately $354,443 and $272,258 at December 31, 2014 and 2013, respectively, compared to book values of $369,005 and $282,121 at December 31, 2014 and 2013, respectively, and the fair value of long-term debt (including current maturities) based on the borrowing rates available to the Company was approximately $2,998,220 and $2,672,406 at December 31, 2014 and 2013, respectively, compared to book values of $2,995,977 and $2,667,284 at December 31, 2014 and 2013, respectively.
| (t) | Recently Issued Accounting Standards |
In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). This new standard will replace all current U.S. GAAP guidance on this topic and eliminate industry-specific guidance. Leasing revenue recognition is specifically excluded from ASU 2014-09, and therefore, the new standard will only apply to sales of equipment portfolios and dispositions of used equipment. The guidance is effective for interim and annual periods beginning after December 15, 2016, with early application prohibited. The Company does not expect the adoption of ASU 2014-09 to have a material impact on our consolidated financial statements.
(2) Bargain Purchase Gain
On December 20, 2012, TL purchased 501 common shares of TAP Funding from TAP for cash consideration of $20,532 and reduced management fees with a fair value of $3,852. The common shares acquired by TL represented 50.1% of TAP Funding’s total outstanding 1,000 common shares held by TAP before the acquisition. TL’s purchase of a majority controlling ownership interest in TAP Funding’s common shares allowed the Company to increase the size of its owned fleet at an attractive price. In accordance with the FASB’s ASC Topic 805 Business Combinations, (“ASC 805”), the Company accounted for this transaction as a business combination. ASC 805 requires that a gain be recorded when the fair value of the net assets acquired is greater than the fair value of the consideration transferred. Because the fair value of TAP Funding’s net assets exceeded the purchase consideration, a bargain purchase gain was recorded in 2012 as follows:
| Containers, net |
$ | 161,038 | ||
| Net investment in direct financing and sales-type leases |
4,120 | |||
| Revolving credit facility |
(108,471 | ) | ||
| Other net assets |
3,607 | |||
|
|
|
|||
| Net assets |
$ | 60,294 | ||
|
|
|
|||
| Net assets acquired by TL (1) |
$ | 33,825 | ||
| Cash consideration |
(20,532 | ) | ||
| Reduced management fees |
(3,852 | ) | ||
|
|
|
|||
| Bargain purchase gain |
$ | 9,441 | ||
|
|
|
| (1) | In accordance with ASC 805, the control acquired by TL was calculated as TL’s ownership interest in TAP Funding’s common shares of 50.1% plus a control premium determined to be 12% of the noncontrolling interest in TAP Funding’s common shares of 49.9%. |
F-20
Table of Contents
TEXTAINER GROUP HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements—Continued
December 31, 2014, 2013, and 2012
(All currency expressed in U.S. dollars in thousands)
The fair value of reduced management fees was recorded as a part of deferred revenue and other liabilities on the consolidated balance sheets and is amortized to management fees from the acquisition date through January 1, 2019, the beginning of the period in which TL has an option to purchase TAP Funding under TAP Funding’s members agreement. Amortization of the fair value of reduced management fees is eliminated entirely by net income attributable to the noncontrolling interest.
(3) Bankruptcy Settlement
On July 25, 2014, the Company reached a settlement for outstanding claims it had in bankruptcy proceedings with one of its Korean lessees for amounts past due on billings to that lessee. The Company had previously reserved for all outstanding billings from this customer. The settlement amount was paid for in the stock of and a note payable from the newly organized, post-bankruptcy lessee. The Company negotiated the sale of its rights to the stock and note payable for cash, which was completed on August 21, 2014 for $9,926, $7,855 of which was be attributable to the Company’s owned fleet. Accordingly, a bad debt recovery of $4,958 was recognized for billings included in the Company’s allowance for doubtful accounts and lease rental income of $2,620 and gain on sale of containers, net of $277 were recognized for billings that were not previously recognized by the Company during 2014.
(4) Container Purchases
In 2014, the Company concluded five separate purchases totaling approximately 33,400 containers that it had been managing for institutional investors, including related net investment in direct financing and sales-type leases, for total purchase consideration of $48,244 (consisting of cash of $48,088 and elimination of the Company’s intangible asset for the management rights relinquished of $156. The total purchase price, which was allocated based on the fair value of the assets and liabilities acquired, was recorded as follows:
| Containers, net |
$ | 45,927 | ||
| Net investment in direct financing and sales-type leases |
2,317 | |||
|
|
|
|||
| $ | 48,244 | |||
|
|
|
In 2012, excluding the containers obtained as part of the TAP Funding business combination discussed in Note 3 “Bargain Purchase Gain”, the Company concluded five separate purchases of approximately 102,900 containers that it had been managing for institutional investors, including related accounts receivable, due from owners, net, net investment in direct financing leases, accounts payable and accrued expenses for total purchase consideration of $211,679 (consisting of cash of $203,374 and elimination of the Company’s intangible asset for the management rights relinquished of $8,305). The total purchase price, which was allocated based on the fair value of the assets and liabilities acquired, was recorded as follows:
| Containers, net |
$ | 200,080 | ||
| Other net assets |
11,599 | |||
|
|
|
|||
| $ | 211,679 | |||
|
|
|
(5) Transactions with Affiliates and Owners
Amounts due from affiliates, net generally result from cash advances and the payment of affiliated companies’ administrative expenses by the Company on behalf of such affiliates. Balances are generally paid within 30 days. There were no amounts due from affiliates at December 31, 2014 and 2013.
F-21
Table of Contents
TEXTAINER GROUP HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements—Continued
December 31, 2014, 2013, and 2012
(All currency expressed in U.S. dollars in thousands)
Management fees, including acquisition fees and sales commissions during 2014, 2013 and 2012 were as follows:
| 2014 | 2013 | 2012 | ||||||||||
| Fees from affiliated Owner |
$ | 4,000 | $ | 4,410 | $ | 5,259 | ||||||
| Fees from unaffiliated Owners |
11,289 | 13,447 | 18,906 | |||||||||
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| Fees from Owners |
15,289 | 17,857 | 24,165 | |||||||||
| Other fees |
2,119 | 2,064 | 2,004 | |||||||||
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| Total management fees |
$ | 17,408 | $ | 19,921 | $ | 26,169 | ||||||
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Due to owners, net represents lease rentals collected on behalf of and payable to Owners, net of direct expenses and management fees receivable. Due to owners, net at December 31, 2014 and 2013 consisted of the following:
| 2014 | 2013 | |||||||
| Affiliated Owner |
$ | 897 | $ | 884 | ||||
| Unaffiliated Owners |
10,106 | 11,891 | ||||||
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| Total due to Owners, net |
$ | 11,003 | $ | 12,775 | ||||
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(6) Direct Financing and Sales-type Leases
The Company leases containers under direct financing and sales-type leases. The Company had 174,271 and 120,338 containers under direct financing and sales-type leases as of December 31, 2014 and 2013, respectively.
The components of the net investment in direct financing and sales-type leases, which are reported in the Company’s Container Ownership segment as of December 31, 2014 and 2013 were as follows:
| 2014 | 2013 | |||||||
| Future minimum lease payments receivable |
$ | 422,451 | $ | 326,273 | ||||
| Residual value of containers |
8,650 | 9,055 | ||||||
| Less unearned income |
(62,096 | ) | (53,207 | ) | ||||
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| Net investment in direct financing and sales-type leases |
$ | 369,005 | $ | 282,121 | ||||
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| Amounts due within one year |
$ | 89,003 | $ | 64,811 | ||||
| Amounts due beyond one year |
280,002 | 217,310 | ||||||
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| Net investment in direct financing and sales-type leases |
$ | 369,005 | $ | 282,121 | ||||
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The carrying value of TW’s net investment in direct financing and sales-type leases was $160,182 and $104,803 at December 31, 2014 and 2013, respectively.
The Company maintains detailed credit records about its container lessees. The Company’s credit policy sets different maximum exposure limits for its container lessees. The Company uses various credit criteria to set maximum exposure limits rather than a standardized internal credit rating. Credit criteria used by the Company to set maximum exposure limits may include, but are not limited to, container lessee trade route, country, social and political climate, assessments of net worth, asset ownership, bank and trade credit
F-22
Table of Contents
TEXTAINER GROUP HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements—Continued
December 31, 2014, 2013, and 2012
(All currency expressed in U.S. dollars in thousands)
references, credit bureau reports, including those from Dynamar B.V. and Lloyd’s Marine Intelligence Unit (common credit reporting agencies used in the maritime sector), operational history and financial strength. The Company monitors its container lessees’ performance and its lease exposures on an ongoing basis, and its credit management processes are aided by the long payment experience the Company has had with most of its container lessees and the Company’s broad network of long-standing relationships in the shipping industry that provide the Company current information about its container lessees.
If the aging of current billings for the Company’s direct financing and sales-type leases included in accounts receivable, net were applied to the related balances of the unbilled future minimum lease payments receivable component of the Company’s net investment in direct finance leases and sales-type leases as of December 31, 2014, the aging would be as follows:
| 1-30 days past due |
$ | 133,906 | ||
| 31-60 days past due |
619 | |||
| 61-90 days past due |
— | |||
| Greater than 90 days past due |
22,877 | |||
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| Total past due |
157,402 | |||
| Current |
265,049 | |||
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| Total future minumum lease payments |
$ | 422,451 | ||
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The Company maintains allowances, if necessary, for doubtful accounts and estimated losses resulting from the inability of its lessees to make required payments under direct financing and sales-type leases based on, but not limited to, each lessee’s payment history, management’s current assessment of each lessee’s financial condition and the adequacy of the fair value of containers that collateralize the leases compared to the book value of the related net investment in direct financing and sales-type leases. The changes in the carrying amount of the allowance for doubtful accounts related to billed amounts under direct financing and sales-type leases and included in accounts receivable, net, during the years ended December 31, 2014 and 2013 are as follows:
| Balance as of December 31, 2012 |
$ | 451 | ||
| Additions charged to expense |
187 | |||
| Write-offs |
(25 | ) | ||
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| Balance as of December 31, 2013 |
613 | |||
| Additions charged to expense |
530 | |||
| Write-offs |
— | |||
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| Balance as of December 31, 2014 |
$ | 1,143 | ||
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F-23
Table of Contents
TEXTAINER GROUP HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements—Continued
December 31, 2014, 2013, and 2012
(All currency expressed in U.S. dollars in thousands)
The following is a schedule by year of future minimum lease payments receivable under these direct financing and sales-type leases as of December 31, 2014:
| Year ending December 31: |
||||
| 2015 |
$ | 112,636 | ||
| 2016 |
99,739 | |||
| 2017 |
100,461 | |||
| 2018 |
40,953 | |||
| 2019 and thereafter |
68,662 | |||
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| Total future minimum lease payments receivable |
$ | 422,451 | ||
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Lease rental income includes income earned from direct financing and sales-type leases in the amount of $24,136, $21,438 and $11,040 during 2014, 2013 and 2012, respectively.
(7) Containers and Fixed Assets
Containers, net at December 31, 2014 and 2013 consisted of the following:
| 2014 | 2013 | |||||||
| Containers |
$ | 4,315,549 | $ | 3,795,587 | ||||
| Less accumulated depreciation |
(685,667 | ) | (562,456 | ) | ||||
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| Containers, net |
$ | 3,629,882 | $ | 3,233,131 | ||||
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Trading containers had carrying values of $6,673 and $13,009 as of December 31, 2014 and 2013, respectively, and are not subject to depreciation. Containers held for sale had carrying values of $25,213 and $31,968 as of December 31, 2014 and 2013, respectively, and are also not subject to depreciation. All owned containers are pledged as collateral for debt as of December 31, 2014 and 2013.
Fixed assets, net at December 31, 2014 and 2013 consisted of the following:
| 2014 | 2013 | |||||||
| Computer equipment and software |
$ | 7,255 | $ | 6,762 | ||||
| Office furniture and equipment |
1,429 | 1,386 | ||||||
| Automobiles |
43 | 43 | ||||||
| Leasehold improvements |
1,797 | 1,730 | ||||||
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| 10,524 | 9,921 | |||||||
| Less accumulated depreciation |
(9,139 | ) | (8,286 | ) | ||||
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| Fixed assets, net |
$ | 1,385 | $ | 1,635 | ||||
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F-24
Table of Contents
TEXTAINER GROUP HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements—Continued
December 31, 2014, 2013, and 2012
(All currency expressed in U.S. dollars in thousands)
(8) Intangible Assets
The changes in the carrying amount of intangible assets during the years ended December 31, 2014, 2013 and 2012 are as follows:
| Balance as of December 31, 2011 |
$ | 46,675 | ||
| Amortization expense of step acquisition adjustment related to lease contracts (1) |
33 | |||
| Amortization expense |
(5,020 | ) | ||
| Reduction arising from the relinquishment of management rights from the purchase of containers from institutional investors |
(8,305 | ) | ||
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| Balance as of December 31, 2012 |
33,383 | |||
| Amortization expense |
(4,226 | ) | ||
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| Balance as of December 31, 2013 |
29,157 | |||
| Amortization expense |
(4,010 | ) | ||
| Reduction arising from the relinquishment of management rights from the purchase of containers from institutional investors |
(156 | ) | ||
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| Balance as of December 31, 2014 |
$ | 24,991 | ||
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| (1) | Represents a step acquisition adjustment related to TL’s purchase of 3,000 additional Class A shares of TMCL on November 1, 2007. The adjustment was recorded to increase the balance of lease contracts to an amount that equaled the fair market value of the lease contracts on the date of the acquisition. |
The following is a schedule, by year, of future amortization of intangible assets as of December 31, 2014:
| Year ending December 31: |
||||
| 2015 |
$ | 4,674 | ||
| 2016 |
4,597 | |||
| 2017 |
4,346 | |||
| 2018 |
4,177 | |||
| 2019 and thereafter |
7,197 | |||
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| Total future amortization of intangible assets |
$ | 24,991 | ||
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(9) Accrued Expenses
Accrued expenses at December 31, 2014 and 2013 consisted of the following:
| 2014 | 2013 | |||||||
| Accrued compensation |
$ | 4,462 | $ | 2,104 | ||||
| Direct container expense |
2,077 | 1,916 | ||||||
| Interest payable |
3,964 | 4,420 | ||||||
| Other |
1,432 | 1,398 | ||||||
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| Total accrued expenses |
$ | 11,935 | $ | 9,838 | ||||
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F-25
Table of Contents
TEXTAINER GROUP HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements—Continued
December 31, 2014, 2013, and 2012
(All currency expressed in U.S. dollars in thousands)
(10) Income Taxes
The Company is not subject to taxation in its country of incorporation; however, the Company is subject to taxation in certain other jurisdictions due to the nature of the Company’s operations. The Company estimates its tax liability based upon its understanding of the tax laws of the various countries in which it operates. Income tax (benefit) expense for 2014, 2013 and 2012 consisted of the following:
| 2014 | 2013 | 2012 | ||||||||||
| Current |
||||||||||||
| Bermuda |
$ | — | $ | — | $ | — | ||||||
| Foreign |
(17,251 | ) | 8,571 | 7,571 | ||||||||
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| (17,251 | ) | 8,571 | 7,571 | |||||||||
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| Deferred |
||||||||||||
| Bermuda |
— | — | — | |||||||||
| Foreign |
(817 | ) | (1,740 | ) | (2,078 | ) | ||||||
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| (817 | ) | (1,740 | ) | (2,078 | ) | |||||||
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| $ | (18,068 | ) | $ | 6,831 | $ | 5,493 | ||||||
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The components of income before income taxes and noncontrolling interest were as follows:
| 2014 | 2013 | 2012 | ||||||||||
| Bermuda sources |
$ | — | $ | — | $ | — | ||||||
| Foreign sources |
176,986 | 196,205 | 210,556 | |||||||||
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| $ | 176,986 | $ | 196,205 | $ | 210,556 | |||||||
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A reconciliation of the differences between the Bermuda statutory income tax rate and the effective tax rate as provided in the consolidated statements of comprehensive income is as follows:
| 2014 | 2013 | 2012 | ||||||||||
| Bermuda tax rate |
0.00 | % | 0.00 | % | 0.00 | % | ||||||
| Foreign tax rate |
1.53 | % | 0.92 | % | 0.54 | % | ||||||
| Tax uncertainties |
-11.74 | % | 2.56 | % | 2.07 | % | ||||||
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| -10.21 | % | 3.48 | % | 2.61 | % | |||||||
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F-26
Table of Contents
TEXTAINER GROUP HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements—Continued
December 31, 2014, 2013, and 2012
(All currency expressed in U.S. dollars in thousands)
The tax effects of temporary differences that give rise to significant portions of the current and non-current deferred tax assets and deferred tax liabilities at December 31, 2014 and 2013 are presented below:
| 2014 | 2013 | |||||||
| Current deferred tax assets |
||||||||
| Other |
$ | 2,100 | $ | 1,491 | ||||
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| Current deferred tax assets |
2,100 | 1,491 | ||||||
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| Non-current deferred tax assets |
||||||||
| Net operating loss carryforwards |
18,128 | 314 | ||||||
| Other |
1,833 | 2,524 | ||||||
|
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|
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| Non-current deferred tax assets |
19,961 | 2,838 | ||||||
|
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| Non-current deferred tax liabilties |
||||||||
| Containers, net |
24,910 | 21,318 | ||||||
| Other |
726 | 686 | ||||||
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|
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| Non-current deferred tax liabilties |
25,636 | 22,004 | ||||||
|
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| Net deferred tax liability |
$ | 3,575 | $ | 17,675 | ||||
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In assessing the extent to which deferred tax assets are realizable, the Company’s management considers whether it is more likely than not that the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. The Company’s management considers the projected future reversal of taxable temporary items for making this assessment. Based upon the projections for the reversal of taxable temporary items over the periods in which the deferred tax assets are deductible, the Company’s management believes it is more likely than not the Company will realize the benefits of these deductible differences noted above.
The Company has net operating loss carry-forwards of $62,588 that will begin to expire from December 31, 2018 through December 31, 2034 if not utilized. The Company expects to utilize the net operating loss carry-forwards prior to their expiration.
The accompanying consolidated financial statements do not reflect the income taxes that would be payable to foreign taxing jurisdictions if the earnings of a group of corporations operating in those jurisdictions were to be transferred out of such jurisdictions, because such earnings are intended to be permanently reinvested in those countries. At December 31, 2014, cumulative earnings of approximately $32,617 would be subject to income taxes of approximately $9,785 if such earnings of foreign corporations were transferred out of such jurisdictions in the form of dividends.
The Company’s foreign tax returns, including the United States, State of California, State of New Jersey, State of Texas, Malaysia, Singapore, and United Kingdom, are subject to examination by the various tax authorities. The Company’s foreign tax returns are no longer subject to examinations by taxing authorities for years before 2010, except for its United Kingdom tax returns which are no longer subject to examinations for years before 2008.
In November 2012, the Company received notification from the IRS that the 2010 United States tax return for TGH had been selected for examination. On March 5, 2014, the IRS issued a letter indicating that
F-27
Table of Contents
TEXTAINER GROUP HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements—Continued
December 31, 2014, 2013, and 2012
(All currency expressed in U.S. dollars in thousands)
it had completed its examination of TGH’s tax return for 2010 and would make no changes to the return as filed. As a result of this, the Company recognized a discrete benefit during 2014 of $22,408 for the re-measurement of its unrecognized tax benefits for the impacted years.
A reconciliation of the beginning and ending unrecognized tax benefit amounts for 2014 and 2013 are as follows:
| Balance at December 31, 2012 |
$ | 26,084 | ||
| Increases related to prior year tax positions |
171 | |||
| Decreases related to prior year tax positions |
(598 | ) | ||
| Increases related to current year tax positions |
5,973 | |||
| Settlements |
(220 | ) | ||
| Lapse of statute of limitations |
(1,727 | ) | ||
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|
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| Balance at December 31, 2013 |
29,683 | |||
| Increases related to prior year tax positions |
— | |||
| Decreases related to prior year tax positions |
(15,139 | ) | ||
| Increases related to current year tax positions |
2,383 | |||
| Settlements |
(6,644 | ) | ||
| Lapse of statute of limitations |
(484 | ) | ||
|
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| Balance at December 31, 2014 |
$ | 9,799 | ||
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|
|
If the unrecognized tax benefits of $9,799 at December 31, 2014 were recognized, tax benefits in the amount of $9,595 would reduce our annual effective tax rate. The Company believes the total amount of unrecognized tax benefit as of December 31, 2014 will decrease by $648 in the next twelve months due to expiration of the statute of limitations, of which $534 would reduce our annual effective tax rate.
Interest and penalty (benefit) expense recorded during 2014 and 2013 amounted to ($729) and $376, respectively. Total accrued interest and penalties as of December 31, 2014 and 2013 were $575 and $1,304, respectively, and were included in non-current income taxes payable.
F-28
Table of Contents
TEXTAINER GROUP HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements—Continued
December 31, 2014, 2013, and 2012
(All currency expressed in U.S. dollars in thousands)
(11) Secured Debt Facilities, Revolving Credit Facilities, Term Loan and Bonds Payable, and Derivative Instruments
The following represents the Company’s debt obligations as of December 31, 2014 and 2013:
| 2014 | 2013 | |||||||
| Secured Debt Facilities, Revolving Credit Facilities, Term Loan and Bonds Payable |
||||||||
| TMCL II Secured Debt Facility, weighted average variable interest at 1.86% and 2.12% at December 31, 2014 and 2013, respectively |
$ | 852,100 | $ | 775,100 | ||||
| TMCL IV Secured Debt Facility, weighted average variable interest at 2.42% at December 31, 2014 and 2013 |
165,000 | 33,500 | ||||||
| TL Revolving Credit Facility, weighted average variable interest at 1.73% and 1.71% at December 31, 2014 and 2013, respectively |
684,500 | 648,500 | ||||||
| TW Revolving Credit Facility, weighted average variable interest at 2.16% and 2.54% at December 31, 2014 and 2013, respectively |
134,290 | 91,476 | ||||||
| TAP Funding Revolving Credit Facility, weighted average variable interest at 1.91% and 2.17% at December 31, 2014 and 2013, respectively |
126,000 | 120,500 | ||||||
| TL Term Loan, weighted average variable interest rate at 1.76% at December 31, 2014 |
475,700 | — | ||||||
| 2005-1 Bonds, variable interest at 0.70% |
— | 72,958 | ||||||
| 2011-1 Bonds, fixed interest at 4.70% |
— | 300,000 | ||||||
| 2012-1 Bonds, fixed interest at 4.21% |
— | 333,333 | ||||||
| 2013-1 Bonds, fixed interest at 3.90% |
262,109 | 291,917 | ||||||
| 2014-1 Bonds, fixed interest at 3.27% |
296,278 | — | ||||||
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|
|||||
| Total debt obligations |
$ | 2,995,977 | $ | 2,667,284 | ||||
|
|
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|
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| Amount due within one year |
$ | 91,559 | $ | 161,307 | ||||
|
|
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|
|||||
| Amounts due beyond one year |
$ | 2,904,418 | $ | 2,505,977 | ||||
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Secured Debt Facilities
TMCL II— In May 2012, TMCL II entered into a securitization facility (the “TMCL II Secured Debt Facility”) that provides for an aggregate commitment amount of up to $1,200,000 and requires principal payments on any payment date for the outstanding loan principal amount that exceeds the borrowing base on such payment date. The interest rate on the TMCL II Secured Debt Facility, payable monthly in arrears, was LIBOR plus 1.95% during the revolving period prior to its Conversion Date (May 7, 2015). The TMCL II Secured Debt Facility would partially amortize over a five year period and then mature if it was not renewed by its Conversion Date. There was also a commitment fee of 0.50% (if the aggregate principal balance is less than 50% of the commitment amount) and 0.375% (if the aggregate principal balance is equal to or greater than 50% of the commitment amount) on the unused portion of the TMCL II Secured Debt Facility, which was payable in arrears.
On September 15, 2014, TMCL II entered into an amendment of the TMCL II Secured Debt Facility which extended the Conversion Date to September 15, 2017 and lowered the interest rate to one-month LIBOR plus 1.70%, payable in arrears, during the revolving period prior to the Conversion Date. The TMCL II Secured Debt Facility would partially amortize over a four-year period and then mature if it was
F-29
Table of Contents
TEXTAINER GROUP HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements—Continued
December 31, 2014, 2013, and 2012
(All currency expressed in U.S. dollars in thousands)
not renewed by the Conversion Date. The amendment also lowered the commitment fee to 0.45% (if the aggregate principal balance is less than 50% of the commitment amount) and 0.365% (if the aggregate principal balance is equal to or greater than 50% of the commitment amount) on the unused portion of the TMCL II Secured Debt Facility, which is payable in arrears. Overdue payments of principal and interest accrue interest at a rate of 2.0% above the interest rate ordinarily applicable to such amounts. The amendment also replaced the borrowing capacity of one of the TMCL II Secured Debt Facility lenders with the commitment allocated to five existing lenders and, accordingly, the Company wrote-off $390 of unamortized debt issuance costs in September 2014.
TMCL IV— In August 2013, one of the Company’s wholly-owned subsidiaries, Textainer Marine Containers IV Limited (“TMCL IV”) (a Bermuda company) entered into a securitization facility (the “TMCL IV Secured Debt Facility”) that provides for an aggregate commitment amount of up to $300,000 and requires principal payments on any payment date for the outstanding loan principal amount that exceeds the borrowing base on such payment date. The interest rate on the TMCL IV Secured Debt Facility, payable monthly in arrears, was LIBOR plus 2.25% from its inception until its Conversion Date (August 5, 2015). There was also a commitment fee, which was payable in arrears, of 0.70% on the unused portion of the TMCL IV Secured Debt Facility if total borrowings under the TMCL IV Secured Credit Facility are less than 50% of the total commitment and a designated bank’s commitment is more than $150,000; otherwise, the commitment fee was 0.50%. In addition, there is an agent’s fee, which is payable monthly in arrears.
Under the terms of the TMCL II Secured Debt Facility and TMCL IV Secured Debt Facility, the total outstanding principal of each of these two programs may not exceed an amount (the “Asset Base”), which is calculated by a formula based on TMCL II and TMCL IV’s book value of equipment, restricted cash and direct financing and sales-type leases as specified in each of the relevant secured debt facility indentures. The total obligations under the TMCL II Secured Debt Facility and the TMCL IV Secured Debt Facility are secured by a pledge of TMCL II and TMCL IV’s assets, respectively. As of December 31, 2014, TMCL II and TMCL IV’s total assets amounted to $1,187,198 and $285,590, respectively.
Revolving Credit Facilities
TL— TL has a credit agreement, dated as of September 24, 2012, with a group of banks that provides for a revolving credit facility (the “TL Revolving Credit Facility”) with an aggregate commitment amount of up to $700,000 (which includes a $50,000 letter of credit facility). The TL Revolving Credit Facility provides for payments of interest only during its term beginning on its inception date through September 24, 2017 when all borrowings are due in full. Interest on the outstanding amount due under the TL Revolving Credit Facility at December 31, 2014 was based either on the U.S. prime rate or LIBOR plus a spread between 1.0% and 2.0%, which varies based on TGH’s leverage. The Company had no outstanding letters of credit under the TL Revolving Credit Facility as of December 31, 2014 and 2013.
The TL Revolving Credit Facility is secured by a segregated pool of the Company’s containers and under the terms of the TL Revolving Credit Facility, the total outstanding principal may not exceed the lesser of the commitment amount and an amount determined by a formula based on the Company’s net book value of containers and outstanding debt.
TGH acts as an unconditional guarantor of the TL Revolving Credit Facility. There is a commitment fee of 0.30% to 0.40% on the unused portion of the TL Revolving Credit Facility, which varies based on the leverage of TGH and is payable in arrears. In addition, there is an agent’s fee, which is payable annually in advance.
F-30
Table of Contents
TEXTAINER GROUP HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements—Continued
December 31, 2014, 2013, and 2012
(All currency expressed in U.S. dollars in thousands)
TW— TW has a credit agreement, dated as of October 1, 2012, with WFB as the lender, which provides for a revolving credit facility with an aggregate commitment amount of up to $250,000 (the “TW Revolving Credit Facility”). The TW Revolving Credit Facility provided for payments of interest, payable monthly in arrears, during its term beginning on its inception date through August 5, 2014. Interest on the outstanding amount due under the TW Revolving Credit Facility was based on one-month LIBOR plus 2.375%. On August 4, 2014, the TW Revolving Credit Facility was amended and its revolving term was extended to September 19, 2014. On September 19, 2014, the TW Revolving Credit Facility was amended again and its revolving term was extended to September 18, 2016 and its interest rate was lowered to one-month LIBOR plus 2.0%. There is a commitment fee of 0.50% on the unused portion of the TW Revolving Credit Facility, which is payable monthly in arrears. In addition, there is an agent’s fee of 0.025% on the aggregate commitment amount of the TW Revolving Credit Facility, which is payable monthly in arrears. TW is required to make principal payments on a monthly basis to the extent that the outstanding amount due exceeds TW’s borrowing base. The aggregate loan principal balance is due on the maturity date, September 18, 2026.
The TW Revolving Credit Facility is secured by a pledge of TW’s total assets and under the terms of the TW Revolving Credit Facility, the total outstanding principal may not exceed the lesser of the commitment amount or the borrowing base, a formula based on TW’s net book value of containers, restricted cash and direct financing and sales-type leases. TW’s total assets amounted to $167,302 as of December 31, 2014.
TAP Funding— TAP Funding has a credit agreement, dated as of April 30, 2012, that provided for a revolving credit facility with an aggregate commitment amount of up to $170,000 (the “TAP Funding Revolving Credit Facility”) prior to its amendment on December 23, 2014. The interest rate on the TAP Funding Revolving Credit Facility, payable monthly in arrears, was one-month LIBOR plus 2.0% beginning on its inception date, as amended, through its maturity date, April 26, 2016. There was a commitment fee of 0.65% (if aggregate loan principal balance is less than 70% of the commitment amount) and 0.50% (if aggregate loan principal balance is equal to or greater than 70% of the commitment amount) on the unused portion of the TAP Funding Revolving Credit Facility, which was payable monthly in arrears. In addition, there is an agent’s fee, which is payable annually in advance. TAP Funding was required to make principal payments on a monthly basis to the extent that the outstanding amount due exceeds TAP Funding’s borrowing base. The aggregate loan principal balance was due on the maturity date, April 26, 2016.
On December 23, 2014, TAP Funding entered into an amendment of the TAP Funding Revolving Credit Facility which lowered the aggregate commitment amount to $150,000, extended the maturity date to December 23, 2018 and lowered the interest rate to one-month LIBOR plus 1.75%, payable monthly in arrears. The amendment also lowered the commitment fee to 0.55% (if aggregate loan principal balance is less than 70% of the commitment amount) and 0.365% (if aggregate loan principal balance is equal to or greater than 70% of the commitment amount) on the unused portion of the TAP Funding Revolving Credit Facility, which is payable monthly in arrears.
The TAP Funding Revolving Credit Facility is secured by a pledge of TAP Funding’s total assets and under the terms of the TAP Funding Revolving Credit Facility, the total outstanding principal may not exceed the lesser of the commitment amount or the borrowing base, a formula based on TAP Funding’s net book value of containers and direct financing and sales-type leases. TAP Funding’s total assets amounted to $201,354 as of December 31, 2014.
F-31
Table of Contents
TEXTAINER GROUP HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements—Continued
December 31, 2014, 2013, and 2012
(All currency expressed in U.S. dollars in thousands)
Term Loan
On April 30, 2014, TL entered into a $500,000 five-year term loan (the “TL Term Loan”) with a group of financial institutions that represents a partially-amortizing term loan with the remaining principal due in full on April 30, 2019. Interest on the outstanding amount due under the TL Term Loan is based on the U.S. prime rate or LIBOR plus a spread between 1.0% and 2.0% which is based upon TGH’s leverage. Under the terms of the TL Term Loan, scheduled principal repayments are payable in twenty quarterly installments, consisting of nineteen quarterly installments, commencing on September 30, 2014, each in an amount of equal to 1.58% of the initial principal balance and one final installment payable on the Maturity Date (April 30, 2019). Interest payments are payable in arrears on the last day of each interest period, not to exceed three months. The Company used proceeds from the TL Term Loan and the Company’s secured debt facilities and TMCL’s available cash to repay all of the outstanding principal balance of TMCL’s bonds. TMCL then transferred all of its containers, net, net investment in direct financing and sales-type leases and remaining net assets, to TL, TMCL II and TMCL IV.
The TL Term Loan is secured by a segregated pool of the Company’s containers and under the terms of the TL Term Loan, the total outstanding principal may not exceed the lesser of the outstanding debt and a formula based on the Company’s net book value of containers. TGH acts as an unconditional guarantor of the TL Term Loan. In addition, there is an agent’s fee which is payable annually in advance.
Bonds Payable
TMCL— In 2005, TMCL issued $580,000 in variable rate amortizing bonds (the “2005-1 Bonds”) to institutional investors. The $580,000 in 2005-1 Bonds were fully amortizing notes payable on a straight-line basis over a scheduled payment term of 10 years, but not to exceed the maximum payment term of 15 years. Under the terms of the 2005-1 Bonds, both principal and interest incurred were payable monthly. TMCL was permitted to make voluntary prepayments of all, or a portion of, the principal balance of the 2005-1 Bonds. Ultimate payment of the 2005-1 Bonds’ principal was insured and the cost of this insurance coverage, which was equal to 0.275% of the outstanding principal balance of the 2005-1 Bonds, was recognized as incurred on a monthly basis. The interest rate for the outstanding principal balance of the 2005-1 Bonds equaled one-month LIBOR plus 0.25%. The target final payment date and legal final payment date were May 15, 2015 and May 15, 2020, respectively. On May 15, 2014, the unpaid principal amount of $55,792 was fully repaid by proceeds from the TL Term Loan and the Company’s secured debt facilities and TMCL’s available cash.
In June 2011, TMCL issued $400,000 aggregate principal amount of Series 2012-1 Fixed Rate Asset Backed Notes (the “2011-1 Bonds”) to qualified institutional investors pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”) and to non-U.S. persons in accordance with Regulation S promulgated under the Securities Act. The $400,000 in 2011-1 Bonds were fully amortizing notes payable on a straight-line basis over a scheduled payment term of 10 years, but not to exceed a maximum payment term of 15 years. Under the terms of the 2011-1 Bonds, both principal and interest incurred were payable monthly. TMCL was permitted to make voluntary prepayments of all, or a portion of, the principal balance of the 2011-1 Bonds. The interest rate for the outstanding principal balance of the 2011-1 Bonds was fixed at 4.70% per annum. The target final payment date and legal final payment date were June 15, 2021 and June 15, 2026, respectively. On May 15, 2014, the unpaid principal amount of $286,667 was fully repaid by proceeds from the TL Term Loan and the Company’s secured debt facilities and TMCL’s available cash.
F-32
Table of Contents
TEXTAINER GROUP HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements—Continued
December 31, 2014, 2013, and 2012
(All currency expressed in U.S. dollars in thousands)
In April 2012, TMCL issued $400,000 aggregate principal amount of Series 2012-1 Fixed Rate Asset Backed Notes (the “2012-1 Bonds”) to qualified institutional investors pursuant to Rule 144A under the Securities Act and to non-U.S. persons in accordance with Regulation S promulgated under the Securities Act. The $400,000 in 2012-1 Bonds were fully amortizing notes payable on a straight-line basis over a scheduled payment term of 10 years, but not to exceed a maximum payment term of 15 years. Under the terms of the 2012-1 Bonds, both principal and interest incurred were payable monthly. TMCL was not permitted to make voluntary prepayments of all, or a portion of, the principal balance of the 2012-1 Bonds prior to May 15, 2014. The interest rate for the outstanding principal balance of the 2012-1 Bonds was fixed at 4.21% per annum. The target final payment date and legal final payment date were April 15, 2022 and April 15, 2027, respectively. On May 15, 2014, the unpaid principal amount of $320,000 was fully repaid by proceeds from the TL Term Loan and the Company’s secured debt facilities and TMCL’s available cash.
TMCL III— In September 2013, TMCL III, one of the Company’s wholly-owned subsidiaries, issued $300,900 aggregate principal amount of Series 2013-1 Fixed Rate Asset Backed Notes (the “2013-1 Bonds”) to qualified institutional investors pursuant to Rule 144A under the Securities Act and to non-U.S. persons in accordance with Regulation S promulgated under the Securities Act. The 2013-1 Bonds were issued at 99.5% of par value, resulting in a discount of $1,542 which is being accreted to interest expense using the interest rate method over a 10 year term. The $300,900 in 2013-1 Bonds represent fully amortizing notes payable on a straight-line basis over a scheduled payment term of 10 years, but not to exceed a maximum payment term of 25 years. Based on the outstanding principal amount at December 31, 2014 and under the 10-year amortization schedule, $30,090 in 2013-1 Bond principal will amortize per year. Under the terms of the 2013-1 Bonds, both principal and interest incurred are payable monthly. TMCL III is not permitted to make voluntary prepayments of all, or a portion of, the principal balance of the 2013-1 Bonds prior to September 20, 2015. The interest rate for the outstanding principal balance of the 2013-1 Bonds is fixed at 3.90% per annum. The target final payment date and legal final payment date are September 20, 2023 and September 20, 2038, respectively.
In October 2014, TMCL III issued $301,400 aggregate principal amount of Series 2014-1 Fixed Rate Asset Backed Notes (the “2014-1 Bonds”) to qualified institutional investors pursuant to Rule 144A under the Securities Act and to non-U.S. persons in accordance with Regulation S promulgated under the Securities Act. The 2014-1 Bonds were issued at 99.9% of par value, resulting in a discount of $102 which is being accreted to interest expense using the interest rate method over a 10 year term. The $301,400 in 2014-1 Bonds represent fully amortizing notes payable on a straight-line basis over a scheduled payment term of 10 years, but not to exceed a maximum payment term of 25 years. Based on the outstanding principal amount at December 31, 2014 and under the 10-year amortization schedule, $30,140 in 2014-1 Bond principal will amortize per year. Under the terms of the 2014-1 Bonds, both principal and interest incurred are payable monthly. TMCL III is not permitted to make voluntary prepayments of all, or a portion of, the principal balance of the 2014-1 Bonds prior to November 20, 2016. The interest rate for the outstanding principal balance of the 2014-1 Bonds is fixed at 3.27% per annum. The target final payment date and legal final payment date are October 20, 2024 and October 20, 2039, respectively.
Under the terms of the 2013-1 Bonds and the 2014-1 Bonds, the total outstanding principal may not exceed an amount (the “Asset Base”), which is calculated by a formula based on TMCL III’s book value of equipment, restricted cash and direct financing and sales-type leases as specified in the bond indenture. The total obligations under the 2013-1 Bonds and the 2014-1 Bonds are secured by a pledge of TMCL III’s assets. As of December 31, 2014, TMCL III’s total assets amounted to $738,000.
F-33
Table of Contents
TEXTAINER GROUP HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements—Continued
December 31, 2014, 2013, and 2012
(All currency expressed in U.S. dollars in thousands)
Restrictive Covenants
The Company’s secured debt facilities, revolving credit facilities, the TL Term Loan, the 2013-1 Bonds and the 2014-1 Bonds contain restrictive covenants, including limitations on certain liens, indebtedness and investments. The TL Revolving Credit Facility and the TL Term Loan contain certain restrictive financial covenants on TGH and TL’s leverage and interest coverage. The TMCL II Secured Debt Facility, the TMCL IV Secured Debt Facility, the TW Revolving Credit Facility, the TAP Funding Revolving Credit Facility and the 2013-1 Bonds and the 2014-1 Bonds contain restrictive covenants on TGH’s leverage, debt service coverage, TGH’s container management subsidiary net income and debt levels and TMCL II, TMCL IV, TW, TAP Funding and TMCL III’s overall Asset Base minimums, respectively. The TW Revolving Credit Facility also contains restrictive covenants limiting TW’s finance lease default ratio and debt service coverage ratio. The TMCL II Secured Debt Facility, the TMCL IV Secured Debt Facility, the TAP Funding Revolving Credit Facility and the 2013-1 Bonds and the 2014-1 Bonds also contains restrictive covenants regarding certain earnings ratios and the average age of the container fleets of TMCL II, TMCL IV, TAP Funding and TMCL III, respectively. The TMCL II Secured Debt Facility, the TMCL IV Secured Debt Facility and the 2013-1 Bonds and the 2014-1 Bonds also contain restrictive covenants on TMCL II, TMCL IV and TMCL III’s ability to incur other obligations and distribute earnings. TGH and its subsidiaries were in full compliance with these restrictive covenants at December 31, 2014.
The following is a schedule by year, of future scheduled repayments, as of December 31, 2014:
| Years ending December 31, | Available Borrowing, as Limited by the Borrowing Base |
Current and Available Borrowing |
||||||||||||||||||||||||||||||
| 2015 | 2016 | 2017 | 2018 | 2019 and Thereafter |
Total Borrowing |
|||||||||||||||||||||||||||
| TMCL II Secured Debt Facility |
$ | — | $ | — | $ | 21,303 | $ | 85,210 | $ | 745,587 | $ | 852,100 | $ | 43,786 | $ | 895,886 | ||||||||||||||||
| TMCL IV Secured Debt Facility |
— | — | — | 165,000 | — | 165,000 | — | 165,000 | ||||||||||||||||||||||||
| TL Revolving Credit Facility |
— | — | 684,500 | — | — | 684,500 | 15,500 | 700,000 | ||||||||||||||||||||||||
| TW Revolving Credit Facility |
— | — | — | — | 134,290 | 134,290 | 2,919 | 137,209 | ||||||||||||||||||||||||
| TAP Funding Revolving Credit Facility |
— | — | — | — | 126,000 | 126,000 | 24,000 | 150,000 | ||||||||||||||||||||||||
| TL Term Loan |
31,600 | 31,600 | 31,600 | 31,600 | 349,300 | 475,700 | — | 475,700 | ||||||||||||||||||||||||
| 2013-1 Bonds (1) |
30,090 | 30,090 | 30,090 | 30,090 | 142,928 | 263,288 | — | 263,288 | ||||||||||||||||||||||||
| 2014-1 Bonds (2) |
30,140 | 30,140 | 30,140 | 30,140 | 175,817 | 296,377 | — | 296,377 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Total |
$ | 91,830 | $ | 91,830 | $ | 797,633 | $ | 342,040 | $ | 1,673,922 | $ | 2,997,255 | $ | 86,205 | $ | 3,083,460 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| (1) | Future scheduled payments for the 2013-1 Bonds exclude an unamortized discount of $1,179. |
| (2) | Future scheduled payments for the 2014-1 Bonds exclude an unamortized discount of $99. |
The future repayments schedule for the TMCL II Secured Debt Facility is based on the assumption that the facility will not be extended on its Conversion Date and will then convert into a four-year partially amortizing note payable.
F-34
Table of Contents
TEXTAINER GROUP HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements—Continued
December 31, 2014, 2013, and 2012
(All currency expressed in U.S. dollars in thousands)
Derivative Instruments
The Company has entered into interest rate cap, collar and swap agreements with several banks to reduce the impact of changes in interest rates associated with its debt obligations. The following is a summary of the Company’s derivative instruments as of December 31, 2014:
| Derivative instruments |
Notional amount |
|||
| Interest rate cap contract with a bank with a fixed rate of 5.63% per annum, amortizing notional amount, with a termination date of November 16, 2015 |
$ | 2,260 | ||
| Interest rate cap contracts with several banks with fixed rates between 3.15% and 3.16% per annum, nonamortizing notional amounts, with termination dates through December 15, 2015 |
623,000 | |||
| Interest rate collar contracts with a bank which caps rates between 1.30% and 2.18% per annum, and sets floors for rates between 0.80% and 1.68% per annum, with termination dates through October 15, 2022 |
61,216 | |||
| Interest rate swap contracts with several banks, with fixed rates between 0.41% and 1.99% per annum, amortizing notional amounts, with termination dates through July 15, 2023 |
1,181,534 | |||
|
|
|
|||
| Total notional amount as of December 31, 2014 |
$ | 1,868,010 | ||
|
|
|
|||
The Company’s interest rate cap, collar and swap agreements had a fair value asset and fair value liability of $1,568 and $2,219, respectively, as of December 31, 2014 and a fair value asset and a fair value liability of $1,831 and $3,944, respectively, as of December 31, 2013, which are inclusive of counterparty risk. The primary external risk of the Company’s interest rate swap agreements is the counterparty credit exposure, as defined as the ability of a counterparty to perform its financial obligations under a derivative contract. The Company monitors its counterparties’ credit ratings on an on-going basis and they were in compliance with the related derivative agreements at December 31, 2014. The Company does not have any master netting arrangements with its counterparties. The change in fair value was recorded in the consolidated statement of comprehensive income as unrealized gains on interest rate swaps, collars and caps, net.
F-35
Table of Contents
TEXTAINER GROUP HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements—Continued
December 31, 2014, 2013, and 2012
(All currency expressed in U.S. dollars in thousands)
(12) Segment Information
As described in Note 1(a) “Nature of Operations”, the Company operates in three reportable segments: Container Ownership, Container Management and Container Resale. The following tables show segment information for 2014, 2013 and 2012, reconciled to the Company’s income before income tax and noncontrolling interests as shown in its consolidated statements of comprehensive income:
| 2014 |
Container Ownership |
Container Management |
Container Resale |
Other | Eliminations | Totals | ||||||||||||||||||
| Lease rental income |
$ | 502,596 | $ | 1,629 | $ | – | $ | – | $ | – | $ | 504,225 | ||||||||||||
| Management fees from external customers |
345 | 13,656 | 3,407 | – | – | 17,408 | ||||||||||||||||||
| Inter-segment management fees |
– | 49,032 | 10,206 | – | (59,238 | ) | – | |||||||||||||||||
| Trading container sales proceeds |
– | – | 27,989 | – | – | 27,989 | ||||||||||||||||||
| Gains on sale of containers, net |
13,469 | – | – | – | – | 13,469 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total revenue |
$ | 516,410 | $ | 64,317 | $ | 41,602 | $ | – | $ | (59,238 | ) | $ | 563,091 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Depreciation expense and container impairment |
$ | 181,036 | $ | 912 | $ | – | $ | – | $ | (5,352 | ) | $ | 176,596 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Interest expense |
$ | 85,931 | $ | – | $ | – | $ | – | $ | – | $ | 85,931 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Unrealized gains on interest rate swaps, collars and caps, net |
$ | 1,512 | $ | – | $ | – | $ | – | $ | – | $ | 1,512 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Segment income before income tax and noncontrolling interests |
$ | 143,618 | $ | 30,298 | $ | 10,249 | $ | (3,291 | ) | $ | (3,888 | ) | $ | 176,986 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total assets |
$ | 4,329,318 | $ | 116,415 | $ | 8,190 | $ | 5,096 | $ | (100,042 | ) | $ | 4,358,977 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Purchases of long-lived assets |
$ | 858,293 | $ | 662 | $ | – | $ | – | $ | – | $ | 858,955 | ||||||||||||
|
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|
|
|
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|
|
|
|
|
|||||||||||||
F-36
Table of Contents
TEXTAINER GROUP HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements—Continued
December 31, 2014, 2013, and 2012
(All currency expressed in U.S. dollars in thousands)
| 2013 |
Container Ownership |
Container Management |
Container Resale |
Other | Eliminations | Totals | ||||||||||||||||||
| Lease rental income |
$ | 467,647 | $ | 1,085 | $ | – | $ | – | $ | – | $ | 468,732 | ||||||||||||
| Management fees from external customers |
375 | 15,904 | 3,642 | – | – | 19,921 | ||||||||||||||||||
| Inter-segment management fees |
– | 45,016 | 10,369 | – | (55,385 | ) | – | |||||||||||||||||
| Trading container sales proceeds |
– | – | 12,980 | – | – | 12,980 | ||||||||||||||||||
| Gains on sale of containers, net |
27,340 | – | – | – | – | 27,340 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total revenue |
$ | 495,362 | $ | 62,005 | $ | 26,991 | $ | – | $ | (55,385 | ) | $ | 528,973 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Depreciation expense and container impairment |
$ | 152,789 | $ | 877 | $ | – | $ | – | $ | (4,692 | ) | $ | 148,974 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Interest expense |
$ | 85,174 | $ | – | $ | – | $ | – | $ | – | $ | 85,174 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Unrealized gains on interest rate swaps and caps, net |
$ | 8,656 | $ | – | $ | – | $ | – | $ | – | $ | 8,656 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Segment income before income tax and noncontrolling interests |
$ | 160,145 | $ | 33,011 | $ | 10,740 | $ | (3,841 | ) | $ | (3,850 | ) | $ | 196,205 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total assets |
$ | 3,861,688 | $ | 108,227 | $ | 14,211 | $ | 3,012 | $ | (78,155 | ) | $ | 3,908,983 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Purchases of long-lived assets |
$ | 699,638 | $ | 891 | $ | – | $ | – | $ | – | $ | 700,529 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| 2012 |
Container Ownership |
Container Management |
Container Resale |
Other | Eliminations | Totals | ||||||||||||||||||
| Lease rental income |
$ | 383,127 | $ | 862 | $ | – | $ | – | $ | – | $ | 383,989 | ||||||||||||
| Management fees from external customers |
– | 21,764 | 4,405 | – | – | 26,169 | ||||||||||||||||||
| Inter-segment management fees |
– | 47,526 | 7,300 | – | (54,826 | ) | – | |||||||||||||||||
| Trading container sales proceeds |
– | – | 42,099 | – | – | 42,099 | ||||||||||||||||||
| Gains on sale of containers, net |
34,829 | 8 | – | – | – | 34,837 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total revenue |
$ | 417,956 | $ | 70,160 | $ | 53,804 | $ | – | $ | (54,826 | ) | $ | 487,094 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Depreciation expense and container impairment |
$ | 108,519 | $ | 793 | $ | – | $ | – | $ | (4,468 | ) | $ | 104,844 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Interest expense |
$ | 72,886 | $ | – | $ | – | $ | – | $ | – | $ | 72,886 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Unrealized gains on interest rate swaps and caps, net |
$ | 5,527 | $ | – | $ | – | $ | – | $ | – | $ | 5,527 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Segment income before income tax and noncontrolling interests |
$ | 175,291 | $ | 36,956 | $ | 12,787 | $ | (3,890 | ) | $ | (10,588 | ) | $ | 210,556 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total assets |
$ | 3,408,194 | $ | 130,786 | $ | 9,088 | $ | 4,977 | $ | (76,965 | ) | $ | 3,476,080 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Purchases of long-lived assets |
$ | 1,148,990 | $ | 697 | $ | – | $ | – | $ | – | $ | 1,149,687 | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
General and administrative expenses are allocated to the reportable business segments based on direct overhead costs incurred by those segments. Amounts reported in the “Other” column represent activity
F-37
Table of Contents
TEXTAINER GROUP HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements—Continued
December 31, 2014, 2013, and 2012
(All currency expressed in U.S. dollars in thousands)
unrelated to the active reportable business segments. Amounts reported in the “Eliminations” column represent inter-segment management fees between the Container Management and the Container Resale segments and the Container Ownership segment.
Geographic Segment Information
The Company’s container lessees use containers for their global trade utilizing many worldwide trade routes. The Company earns its revenue from international carriers when the containers are in use and carrying cargo around the world. Substantially all of the Company’s leasing related revenue is denominated in U.S. dollars. As all of the Company’s containers are used internationally, where no one container is domiciled in one particular place for a prolonged period of time, all of the Company’s long-lived assets are considered to be international with no single country of use.
(13) Commitments and Contingencies
| (a) | Leases |
The Company has entered into several operating leases for office space. Rent expense amounted to $1,557, $1,350 and $1,479 during 2014, 2013 and 2012, respectively.
Future minimum lease payment obligations under the Company’s noncancelable operating leases at December 31, 2014 were as follows:
| Operating leasing |
||||
| Year ending December 31: |
||||
| 2015 |
$ | 1,539 | ||
| 2016 |
1,372 | |||
| 2017 |
100 | |||
| 2018 |
100 | |||
| 2019 and thereafter |
100 | |||
|
|
|
|||
| Total |
$ | 3,211 | ||
|
|
|
|||
| (b) | Restricted Cash |
Restricted interest-bearing cash accounts were established by the Company as additional collateral for outstanding borrowings under the Company’s TMCL II Secured Debt Facility, TMCL IV Secured Debt Facility, TW Revolving Credit Facility, TAP Funding Revolving Credit Facility, 2005-1 Bonds, 2011-1 Bonds, 2012-1 Bonds, 2013-1 Bonds and 2014-1 Bonds. The total balance of these restricted cash accounts was $60,310 and $63,160 as of December 31, 2014 and 2013, respectively.
| (c) | Container Commitments |
At December 31, 2014, the Company had placed orders with manufacturers for containers to be delivered subsequent to December 31, 2014 in the total amount of $88,194.
(14) Share Option and Restricted Share Unit Plans
As of December 31, 2014, the Company maintained one active share option and restricted share unit plan, the 2007 Plan. The 2007 Plan provides for the grant of share options, restricted share units,
F-38
Table of Contents
TEXTAINER GROUP HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements—Continued
December 31, 2014, 2013, and 2012
(All currency expressed in U.S. dollars in thousands)
restricted shares, share appreciation rights and dividend equivalent rights. The 2007 Plan provides for grants of incentive share options only to the Company’s employees or employees of any parent or subsidiary of TGH. Awards other than incentive share options may be granted to the Company’s employees, directors and consultants or the employees, directors and consultants of any parent or subsidiary of TGH. Under the 2007 Plan, which was approved by the Company’s shareholders on September 4, 2007, a maximum of 3,808,371 share awards may be granted under the plan. On February 23, 2010, the Company’s Board of Directors approved an increase in the number of shares available for future issuance by 1,468,500 shares, which was approved by the Company’s shareholders at the annual meeting of shareholders on May 19, 2010. At December 31, 2014, 339,953 shares were available for future issuance under the 2007 Plan.
Share options are granted at exercise prices equal to the fair market value of the shares on the grant date. Each employee’s options vest in increments of 25% per year beginning approximately one year after an option’s grant date. Unless terminated pursuant to certain provisions within the share option plans, including discontinuance of employment with the Company, all unexercised options expire ten years from the date of grant.
Beginning approximately one year after a restricted share unit’s grant date for each employee’s restricted share unit granted prior to 2010, each employee’s restricted share units vest in increments of 15% per year for the first two years, 20% for the third year and 25% for the fourth and fifth year. Beginning approximately one year after a restricted share unit’s grant date for each restricted share unit granted in 2010 and thereafter, each employee’s restricted share units vest in increments of 25% per year. Restricted share units granted to directors fully vest one year after their grant date.
The following is a summary of activity in the Company’s 2007 Plan for the years ended December 31, 2014, 2013, and 2012:
| Share options (common share equivalents) |
Weighted average exercise price |
|||||||
| Balances, December 31, 2011 |
1,069,045 | $ | 18.86 | |||||
| Options granted during the period |
201,658 | $ | 28.21 | |||||
| Options exercised during the period |
(302,100 | ) | $ | 15.45 | ||||
| Options forfeited during the period |
(2,675 | ) | $ | 22.63 | ||||
|
|
|
|
|
|||||
| Balances, December 31, 2012 |
965,928 | $ | 21.87 | |||||
| Options granted during the period |
213,907 | $ | 38.36 | |||||
| Options exercised during the period |
(207,191 | ) | $ | 17.46 | ||||
| Options forfeited during the period |
(29,262 | ) | $ | 26.63 | ||||
|
|
|
|
|
|||||
| Balances, December 31, 2013 |
943,382 | $ | 26.43 | |||||
| Options granted during the period |
225,865 | $ | 34.14 | |||||
| Options exercised during the period |
(131,076 | ) | $ | 19.07 | ||||
| Options expired during the period |
(54,976 | ) | $ | 17.06 | ||||
| Options forfeited during the period |
(22,164 | ) | $ | 32.91 | ||||
|
|
|
|
|
|||||
| Balances, December 31, 2014 |
961,031 | $ | 29.63 | |||||
|
|
|
|
|
|||||
| Options exercisable at December 31, 2014 |
383,035 | $ | 24.16 | |||||
|
|
|
|
|
|||||
| Options vested and expected to vest at December 31, 2014 |
928,414 | $ | 29.46 | |||||
|
|
|
|
|
|||||
F-39
Table of Contents
TEXTAINER GROUP HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements—Continued
December 31, 2014, 2013, and 2012
(All currency expressed in U.S. dollars in thousands)
| Restricted share units |
Weighted average grant date fair value |
|||||||
| Balances, December 31, 2011 |
1,178,612 | $ | 15.95 | |||||
| Share units granted during the period |
213,295 | $ | 28.29 | |||||
| Share units vested during the period |
(376,056 | ) | $ | 14.37 | ||||
| Share units forfeited during the period |
(4,445 | ) | $ | 17.58 | ||||
|
|
|
|
|
|||||
| Balances, December 31, 2012 |
1,011,406 | $ | 19.13 | |||||
| Share units granted during the period |
223,492 | $ | 33.84 | |||||
| Share units vested during the period |
(488,860 | ) | $ | 16.16 | ||||
| Share units forfeited during the period |
(42,135 | ) | $ | 19.91 | ||||
|
|
|
|
|
|||||
| Balances, December 31, 2013 |
703,903 | $ | 24.57 | |||||
| Share units granted during the period |
235,162 | $ | 29.85 | |||||
| Share units vested during the period |
(281,438 | ) | $ | 21.05 | ||||
| Share units forfeited during the period |
(24,409 | ) | $ | 27.39 | ||||
|
|
|
|
|
|||||
| Balances, December 31, 2014 |
633,218 | $ | 27.99 | |||||
|
|
|
|
|
|||||
| Share units outstanding and expected to vest at December 31, 2014 |
603,381 | $ | 26.67 | |||||
|
|
|
|
|
|||||
The estimated weighted average grant date fair value of share options granted during 2014, 2013 and 2012 was $10.67, $13.19 and $9.42 per share, respectively. As of December 31, 2014, $18,734 of total compensation cost related to non-vested share option and restricted share unit awards not yet recognized is expected to be recognized over a weighted average period of 2.8 years. The aggregate intrinsic value of all options exercisable and outstanding, which represents the total pre-tax intrinsic value, based on the Company’s closing common share price of $34.32 per share as of December 31, 2014 was $4,098. The aggregate intrinsic value is calculated as the difference between the exercise prices of the Company’s share options that were in-the-money and the market value of the common shares that would have been issued if those share options were exercised as of December 31, 2014. The aggregate intrinsic value of all options exercised during 2014, 2013 and 2012, based on the closing share price on the date each option was exercised was $2,347, $4,716 and $5,504, respectively.
F-40
Table of Contents
TEXTAINER GROUP HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements—Continued
December 31, 2014, 2013, and 2012
(All currency expressed in U.S. dollars in thousands)
The following table summarizes information about share options exercisable and outstanding at December 31, 2014:
| Share options exercisable | Share options outstanding | |||||||||||||||
| Number of shares | Weighted average exercise price |
Number of shares | Weighted average exercise price |
|||||||||||||
| Range of per-share exercise prices: |
||||||||||||||||
| $7.10 |
34,580 | $ | 7.10 | 34,580 | $ | 7.10 | ||||||||||
| $16.50 |
62,170 | $ | 16.50 | 62,170 | $ | 16.50 | ||||||||||
| $16.97 |
56,243 | $ | 16.97 | 56,243 | $ | 16.97 | ||||||||||
| $28.05 |
76,951 | $ | 28.05 | 164,838 | $ | 28.05 | ||||||||||
| $28.26 |
48,939 | $ | 28.26 | 80,654 | $ | 28.26 | ||||||||||
| $28.54 |
48,217 | $ | 28.54 | 123,002 | $ | 28.54 | ||||||||||
| $31.34 |
5,000 | $ | 31.34 | 10,000 | $ | 31.34 | ||||||||||
| $34.14 |
— | — | 225,865 | $ | 34.14 | |||||||||||
| $38.36 |
50,935 | $ | 38.36 | 203,679 | $ | 38.36 | ||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| 383,035 | $ | 24.16 | 961,031 | $ | 29.63 | |||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
The weighted average contractual life of options exercisable and outstanding as of December 31, 2014 was 6.0 years and 7.6 years, respectively.
The fair value of each share option granted under the 2007 Plan was estimated on the date of grant using the Black-Scholes option pricing model for the years ended December 31, 2014, 2013 and 2012 with the following assumptions:
| 2014 | 2013 | 2014 | ||||
| Risk-free interest rates |
1.6% | 1.3% | 0.7% - 1.1% | |||
| Expected terms (in years) |
5.0 | 5.0 | 5.2 - 5.7 | |||
| Expected common share price volatilities |
54.7% | 58.2% | 62.5% - 67.1% | |||
| Expected dividends |
5.5% | 4.9% | 4.5% - 6.3% | |||
| Expected forfeitures |
3.4% | 3.4% | 1.0% |
The risk-free interest rate is based on the implied yield on a U.S. Treasury zero-coupon issue with a remaining term equal to the expected term of the share option life. The expected term is calculated based on historical exercises. The expected common share price volatility for the 2007 Plan is based on the historical volatility of publicly traded companies within the Company’s industry. The dividend yield reflects the estimated future yield on the date of grant. The Company only recognizes expense for share-based awards that are ultimately expected to vest. The forfeiture rate is based on the Company’s estimate of share options that are expected to cancel prior to vesting.
(15) Subsequent Events
TMCL IV Secured Debt Facility
On February 4, 2015, TMCL IV entered into an amendment of the TMCL IV Secured Debt Facility which extended the Conversion Date to February 2, 2018, lowered the interest rate to LIBOR plus 1.95%,
F-41
Table of Contents
TEXTAINER GROUP HOLDINGS LIMITED AND SUBSIDIARIES
Notes to Consolidated Financial Statements—Continued
December 31, 2014, 2013, and 2012
(All currency expressed in U.S. dollars in thousands)
payable in arrears, during the revolving period prior to the Conversion Date. The amendment also lowered the commitment fee, which is payable in arrears, to 0.485% on the unused portion of the TMCL IV Secured Debt Facility if total borrowings under the TMCL IV Secured Credit Facility are less than 50% of the total commitment; otherwise, the commitment fee is 0.40%.
Derivative Instruments
During January 2015, the Company entered into an interest rate swap contract with a bank, with a fixed rate of 1.27% per annum, an amortizing notional amount with initial notional amount of $60,000 and a term from January 15, 2015 to January 15, 2020.
During January 2015, the Company entered into an interest rate cap contract with a bank, which caps one-month LIBOR at 3.17% per annum, in non-amortizing notional amount of $50,000 and a term from January 15, 2015 to April 15, 2015.
During January 2015, the Company entered into an interest rate cap contract with a bank, which caps one-month LIBOR at 3.17% per annum, in non-amortizing notional amount of $25,000 and a term from January 20, 2015 to July 20, 2015.
During January 2015, the Company entered into an interest rate collar contract with a bank, which caps one-month LIBOR at 1.70% per annum and sets a floor for one-month LIBOR at 1.20% per annum, in initial amortizing notional amount of $13,983 and a term from January 29, 2015 to February 15, 2023.
During January 2015, the Company entered into an interest rate collar contract with a bank, which caps one-month LIBOR at 1.73% per annum and sets a floor for one-month LIBOR at 1.23% per annum, in initial amortizing notional amount of $5,929 and a term from February 26, 2015 to March 15, 2023.
During February 2015, the Company entered into an interest rate cap contract with a bank, which caps one-month LIBOR at 3.17% per annum, in non-amortizing notional amount of $280,000 and a term from February 17, 2015 to May 15, 2015.
During February 2015, the Company entered into an interest rate cap contract with a bank, which caps one-month LIBOR at 3.17% per annum, in non-amortizing notional amount of $140,000 and a term from February 17, 2015 to May 15, 2015.
During March 2015, the Company entered into an interest rate cap contract with a bank, which caps one-month LIBOR at 3.27% per annum, in non-amortizing notional amount of $70,000 and a term from March 31, 2015 to September 30, 2015.
Dividend
On February 9, 2015, the Company’s board of directors approved and declared a quarterly cash dividend of $0.47 per share on the Company’s issued and outstanding common shares, payable on March 10, 2015 to shareholders of record as of February 27, 2016.
F-42
Table of Contents
TEXTAINER GROUP HOLDINGS LIMITED AND SUBSIDIARIES
SCHEDULE I—CONDENSED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended December 31, 2014, 2013 and 2012
(All currency expressed in United States dollars in thousands)
| 2014 | 2013 | 2012 | ||||||||||||||||||||||
| Operating expenses: |
||||||||||||||||||||||||
| General and administrative expense |
$ | 3,755 | $ | 3,353 | $ | 2,555 | ||||||||||||||||||
| Long-term incentive compensation expense |
425 | 499 | 1,340 | |||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||
| Total operating expenses |
4,180 | 3,852 | 3,895 | |||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||
| Loss from operations |
(4,180 | ) | (3,852 | ) | (3,895 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||
| Other income: |
||||||||||||||||||||||||
| Equity in net income of subsidiaries |
199,232 | 193,222 | 209,036 | |||||||||||||||||||||
| Interest income |
2 | 4 | 5 | |||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||
| Net other income |
199,234 | 193,226 | 209,041 | |||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||
| Income before income tax |
195,054 | 189,374 | 205,146 | |||||||||||||||||||||
| Income tax expense |
— | — | (83 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||
| Net income |
195,054 | 189,374 | 205,063 | |||||||||||||||||||||
| Less: Net (income) loss attributable to the noncontrolling interests |
(5,692 | ) | (6,565 | ) | 1,887 | |||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||
| Net income attributable to Textainer Group Holdings Limited common shareholders |
$ | 189,362 | $ | 182,809 | $ | 206,950 | ||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||
| Net income attributable to Textainer Group Holdings Limited common shareholders per share: |
||||||||||||||||||||||||
| Basic |
$ | 3.34 | $ | 3.25 | $ | 4.04 | ||||||||||||||||||
| Diluted |
$ | 3.32 | $ | 3.21 | $ | 3.96 | ||||||||||||||||||
| Weighted average shares outstanding (in thousands): |
||||||||||||||||||||||||
| Basic |
56,719 | 56,317 | 51,277 | |||||||||||||||||||||
| Diluted |
57,079 | 56,862 | 52,231 | |||||||||||||||||||||
| Other comprehensive income: |
||||||||||||||||||||||||
| Foreign currency translation adjustments |
(112 | ) | (45 | ) | 142 | |||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||
| Comprehensive income |
194,942 | 189,329 | 205,205 | |||||||||||||||||||||
| Comprehensive (income) loss attributable to the noncontrolling interest |
(5,692 | ) | (6,565 | ) | 1,887 | |||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||
| Comprehensive income attributable to Textainer Group Holdings Limited common shareholders |
$ | 189,250 | $ | 182,764 | $ | 207,092 | ||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||
F-43
Table of Contents
TEXTAINER GROUP HOLDINGS LIMITED AND SUBSIDIARIES
SCHEDULE I—CONDENSED BALANCE SHEETS
December 31, 2014 and 2013
(All currency expressed in United States dollars in thousands)
| 2014 | 2013 | |||||||
| Assets | ||||||||
| Current assets: |
||||||||
| Cash and cash equivalents |
$ | 2,743 | $ | 1,256 | ||||
| Prepaid expenses |
204 | 200 | ||||||
| Due from affiliates, net |
410 | 3,302 | ||||||
|
|
|
|
|
|||||
| Total current assets |
3,357 | 4,758 | ||||||
| Investments in subsidiaries |
1,189,841 | 1,093,789 | ||||||
|
|
|
|
|
|||||
| Total assets |
$ | 1,193,198 | $ | 1,098,547 | ||||
|
|
|
|
|
|||||
| Liabilities and Shareholders’ Equity | ||||||||
| Current liabilities: |
||||||||
| Accrued expenses |
$ | 653 | $ | 724 | ||||
|
|
|
|
|
|||||
| Total current liabilities |
653 | 724 | ||||||
|
|
|
|
|
|||||
| Shareholders’ equity: |
||||||||
| Common shares |
565 | 564 | ||||||
| Additional paid-in capital |
378,316 | 366,197 | ||||||
| Accumulated other comprehensive income |
(43 | ) | 69 | |||||
| Retained earnings |
813,707 | 730,993 | ||||||
|
|
|
|
|
|||||
| Total shareholders’ equity |
1,192,545 | 1,097,823 | ||||||
|
|
|
|
|
|||||
| Total liabilities and shareholders’ equity |
$ | 1,193,198 | $ | 1,098,547 | ||||
|
|
|
|
|
|||||
F-44
Table of Contents
TEXTAINER GROUP HOLDINGS LIMITED AND SUBSIDIARIES
SCHEDULE I—CONDENSED STATEMENTS OF CASH FLOWS
Parent Company Information
Years ended December 31, 2014, 2013 and 2012
(All currency expressed in United States dollars in thousands)
| 2014 | 2013 | 2012 | ||||||||||
| Cash flows from operating activities: |
||||||||||||
| Net income attributable to Textainer Group Holdings Limited common shareholders |
$ | 195,054 | $ | 189,374 | $ | 205,063 | ||||||
|
|
|
|
|
|
|
|||||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||||||
| Equity in income of subsidiaries |
(199,232 | ) | (193,222 | ) | (209,036 | ) | ||||||
| Dividends received from subsidiaries |
99,500 | 98,000 | 76,500 | |||||||||
| Share-based compensation |
7,499 | 5,694 | 7,968 | |||||||||
| Decrease (increase) in: |
||||||||||||
| Accounts receivable, net |
- | - | 50 | |||||||||
| Prepaid expenses |
(4 | ) | 52 | (22 | ) | |||||||
| Increase (decrease) in: |
||||||||||||
| Accrued expenses |
(71 | ) | 335 | (454 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| Total adjustments |
(92,308 | ) | (89,141 | ) | (124,994 | ) | ||||||
|
|
|
|
|
|
|
|||||||
| Net cash provided by operating activities |
102,746 | 100,233 | 80,069 | |||||||||
|
|
|
|
|
|
|
|||||||
| Cash flows from investing activities: |
||||||||||||
| Increase (decrease) in investments in subsidiaries, net |
112 | 46 | (184,142 | ) | ||||||||
|
|
|
|
|
|
|
|||||||
| Net cash provided by (used in) investing activities |
112 | 46 | (184,142 | ) | ||||||||
|
|
|
|
|
|
|
|||||||
| Cash flows from financing activities: |
||||||||||||
| Issuance of common shares upon exercise of share options |
2,497 | 3,617 | 4,669 | |||||||||
| Issuance of common shares in public offering |
- | - | 184,839 | |||||||||
| Dividends paid |
(106,648 | ) | (104,199 | ) | (83,473 | ) | ||||||
| Due from affiliates, net |
2,892 | (2,451 | ) | (636 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| Net cash (used in) provided by financing activities |
(101,259 | ) | (103,033 | ) | 105,399 | |||||||
|
|
|
|
|
|
|
|||||||
| Effect of exchange rate changes |
(112 | ) | (45 | ) | 142 | |||||||
|
|
|
|
|
|
|
|||||||
| Net increase (decrease) in cash and cash equivalents |
1,487 | (2,799 | ) | 1,468 | ||||||||
|
|
|
|
|
|
|
|||||||
| Cash and cash equivalents, beginning of the year |
1,256 | 4,055 | 2,587 | |||||||||
|
|
|
|
|
|
|
|||||||
| Cash and cash equivalents, end of the year |
$ | 2,743 | $ | 1,256 | $ | 4,055 | ||||||
|
|
|
|
|
|
|
|||||||
F-45
Table of Contents
Schedule II
TEXTAINER GROUP HOLDINGS LIMITED AND SUBSIDIARIES
Years ended December 31, 2014, 2013 and 2012
(All currency expressed in United States dollars in thousands)
| Balance at Beginning of Year |
Additions Charged to Expense (Recovery) |
Additions/ (Deductions) |
Balance at End of Year |
|||||||||||||
| December 31, 2012 |
||||||||||||||||
| Accounts receivable, allowance for doubtful accounts |
$ | 7,840 | $ | 1,525 | $ | (1,340 | ) | $ | 8,025 | |||||||
| December 31, 2013 |
||||||||||||||||
| Accounts receivable, allowance for doubtful accounts |
$ | 8,025 | $ | 8,084 | $ | (1,218 | ) | $ | 14,891 | |||||||
| December 31, 2014 |
||||||||||||||||
| Accounts receivable, allowance for doubtful accounts |
$ | 14,891 | $ | (474 | ) | $ | (2,278 | ) | $ | 12,139 | ||||||
F-46
Table of Contents
| ITEM 19. | EXHIBITS |
The following exhibits are filed as part of this Annual Report on Form 20-F:
| Exhibit Number |
Description of Document | |
| 1.1 | Memorandum of Association of Textainer Group Holdings Limited (1) | |
| 1.2 | Bye-laws of Textainer Group Holdings Limited (2) | |
| 2.1 | Form of Common Share Certificate (3) | |
| 4.1 | Office Lease, dated August 8, 2001, by and between Pivotal 650 California St., LLC and Textainer Equipment Management (U.S.) Limited (the “Office Lease”) (4) | |
| 4.2 | First Amendment to the Office Lease, dated as of December 23, 2008, by and between A – 650 California Street, LLC and Textainer Equipment Management (U.S.) Limited (5) | |
| 4.3* | Employment Agreement, dated as of October 1, 2011 by and between Textainer Equipment Management (U.S.) Limited and Philip K. Brewer (6) | |
| 4.4* | Employment Agreement, dated April 1, 2012 by and between Textainer Equipment Management (U.S.) Limited and Ernest J. Furtado (7) | |
| 4.5* | Employment Agreement, dated October 1, 2011 by and between Textainer Equipment Management (U.S.) Limited and Robert D. Pedersen (8) | |
| 4.6* | Employment Agreement, dated January 10, 2012 by and between Textainer Equipment Management (U.S.) Limited and Hilliard C. Terry, III (9) | |
| 4.7* | 2007 Short-Term Incentive Plan effective January 1, 2007 (10) | |
| 4.8* | 2007 Share Incentive Plan (as amended and restated effective May 19, 2010) (11) | |
| 4.9* | 2008 Bonus Plan (12) | |
| 4.10* | Form of Indemnification Agreement (13) | |
| 4.11† | Amended and Restated Indenture, dated September 15, 2014, by and between Textainer Marine Containers Limited II, as issuer and Wells Fargo Bank, National Association, as indenture trustee (“TMCL II Indenture”) | |
| 4.12† | Amended and Restated Textainer Marine Containers Limited II Series 2012-1 Supplement, dated September 15, 2014 to the TMCL II Indenture | |
| 4.13 | Credit Agreement, dated September 24, 2012, by and among, Textainer Limited, as borrower, Textainer Group Holdings Limited, as guarantor, Bank of America, N.A., as agent and the lenders party thereto (“TL Credit Agreement”) (14) | |
| 4.14 | Amendment Number 1, dated as of July 25, 2013 to the TL Credit Agreement (15) | |
| 4.15† | Amendment Number 2, dated April 30, 2014 to the TL Credit Agreement | |
| 4.16† | Term Loan Agreement, dated April 30, 2014 among Textainer Limited, as borrower, Textainer Group Holdings Limited, as guarantor and Union Bank, as administrative agent | |
| 4.16.1** | Fourth Amended and Restated Equipment Management Services Agreement, dated as of June 1, 2002, by and between Textainer Equipment Management Limited and Leased Assets Pool Company Limited (16) | |
| 4.17 | Amendment to Fourth Amended and Restated Equipment Management Services Agreement, dated as of September 12, 2007, by and between Textainer Equipment Management Limited and Leased Asset Pool Company Limited (17) | |
Table of Contents
| Exhibit Number |
Description of Document | |
| 4.18** | Container Management Services Agreement (revised), dated as of September 1, 1990, by and between Isam K. Kabbani and Textainer Equipment Management N.V., as amended (18) | |
| 4.19 | Credit Agreement, dated August 5, 2011, by and among TW Container Leasing, Ltd., as Borrower, the Lenders from time to time party thereto and Wells Fargo Securities LLC, as Administrative Agent (“TWCL Credit Agreement”) (19) | |
| 4.20 | Amendment No. 1, dated March 26, 2012 to the TWCL Credit Agreement (20) | |
| 4.21 | Amendment No. 2, dated October 1, 2012 to the TWCL Credit Agreement (21) | |
| 4.22 | Amendment No. 3, dated December 12, 2012 to the TWCL Credit Agreement (22) | |
| 4.23 | Amendment No. 4, dated May 16, 2013 to the TWCL Credit Agreement (23) | |
| 4.24† | Amendment No. 5, dated May 22, 2014 to the TWCL Credit Agreement | |
| 4.25† | Amendment No. 6, dated August 4, 2015 to the TWCL Credit Agreement | |
| 4.26† | Amendment No. 7, dated September 17, 2014 to the TWCL Credit Agreement | |
| 4.27 | Members Agreement, dated August 5, 2011 of the members of TW Container Leasing, Ltd, and Supplement Number 1 to the Members Agreement, dated August 5, 2011 (24) | |
| 4.28 | Equipment Management Services Agreement, dated August 5, 2011, between Textainer Equipment Management Limited and TW Container Leasing, Ltd. (25) | |
| 4.29 | Share Purchase Agreement, dated June 29, 2011 between TCG Fund I, L.P. and Textainer Limited (26) | |
| 4.30 | Contribution and Distribution Agreement, dated June 30, 2011 among TCG Fund I, L.P., Textainer Limited and Textainer Marine Containers Limited (27) | |
| 4.31 | Credit Agreement, dated April 26, 2013, among TAP Funding Ltd., the lenders from time to time party thereto and ABN Amro Capital USA LLC as administrative agent (“TAP Funding Credit Agreement”) (28) | |
| 4.32† | Amendment Number 1 to TAP Funding Credit Agreement, dated December 23, 2014 | |
| 4.33 | Second Amended and Restated Management Agreement, dated April 26, 2013, between Textainer Equipment Management Limited and TAP Funding Ltd. (29) | |
| 4.34 | Share Purchase Agreement, dated December 20, 2012, between TAP Ltd. and Textainer Limited (30) | |
| 4.35 | Members Agreement, dated December 20, 2012 of the members of TAP Funding Ltd. (31) | |
| 4.36 | Container Purchase Agreement, dated December 20, 2012, between Textainer Group Holdings Limited and TAP Funding Ltd. (32) | |
| 4.37 | Container Lease Management Agreement, dated May 31, 2013, between Textainer Limited and Trifleet Leasing (The Netherlands) B.V. (33) | |
| 4.38 | Indenture, dated as of September 25, 2013, by and between Textainer Marine Containers Limited III, as issuer, and Wells Fargo Bank, National Association, as indenture trustee (the “TMCLIII Indenture”) (34) | |
| 4.39 | Textainer Marine Containers Limited III Series 2013-1 Supplement, dated as of September 25, 2013 to the TMCLIII Indenture (35) | |
| 4.40† | Textainer Marine Containers III Series 2014-1 Supplement, dated October 30, 2014 to the TMCL III Indenture | |
Table of Contents
| Exhibit Number |
Description of Document | |
| 4.41† | Amendment Number 1 and Supplement to TMCL III Indenture, dated October 30, 2014 | |
| 4.42 | Indenture, dated as of August 5, 2013, by and between Textainer Marine Containers Limited IV, as issuer, and Wells Fargo Bank, National Association, as indenture trustee (the “TMCLIV Indenture”) (36) | |
| 4.43 | Textainer Marine Containers Limited IV Series 2013-1 Supplement, dated as of August 5, 2013 to the TMCLIV Indenture (37) | |
| 4.44 | Amendment No. 1 to the TMCL IV Indenture and 2013-1 Series Supplement, dated as of October 29, 2013 (38) | |
| 8.1† | Subsidiaries of the Registrant | |
| 12.1† | Certification of the Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 12.2† | Certification of the Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
| 13.1† | Certification of the Chief Executive Officer required by Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 13.2† | Certification of the Chief Financial Officer required by Rule 13a-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
| 15.1† | Consent of KPMG LLP | |
| 101.INS† | XBRL Instance Document | |
| 101.SCH† | XBRL Taxonomy Extension Schema Document | |
| 101.CAL† | XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF† | XBRL Taxonomy Definition Linkbase Document | |
| 101.LAB† | XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE† | XBRL Taxonomy Extension Presentation Linkbase Document | |
| † | Filed herewith. |
| * | Indicates management contract or compensatory plan. |
| ** | Confidential treatment requested for certain portions of this exhibit, which portions are omitted and filed separately with the SEC. |
| (1) | Incorporated by reference to Exhibit 3.1 to the Registrant’s Registration Statement on Form F-1 (File No. 333-146304) filed with the SEC on September 26, 2007. |
| (2) | Incorporated by reference to Exhibit 3.2 to the Registrant’s Registration Statement on Form F-1 (File No. 333-146304) filed with the SEC on September 26, 2007. |
| (3) | Incorporated by reference to Exhibit 4.1 to the Registrant’s Registration Statement on Form F-1 (File No. 333-146304) filed with the SEC on September 26, 2007. |
| (4) | Incorporated by reference to Exhibit 10.1 to the Registrant’s Registration Statement on Form F-1 (File No. 333-146304) filed with the SEC on September 26, 2007. |
| (5) | Incorporated by reference to Exhibit 4.2 to the Registrant’s Annual Report on Form 20-F (File No. 001-33725) filed with the SEC on March 16, 2009. |
Table of Contents
| (6) | Incorporated by reference to Exhibit 4.3 to the Registrant’s Annual Report on Form 20-F (File No. 001-33725) filed with the SEC on March 15, 2012. |
| (7) | Incorporated by reference to Exhibit 4.4 to the Registrant’s Annual Report on Form 20-F (File No. 001-33725) filed with the SEC on March 15, 2013. |
| (8) | Incorporated by reference to Exhibit 4.5 to the Registrant’s Annual Report on Form 20-F (File No. 001-33725) filed with the SEC on March 15, 2012. |
| (9) | Incorporated by reference to Exhibit 4.6 to the Registrant’s Annual Report on Form 20-F (File No. 001-33725) filed with the SEC on March 15, 2012. |
| (10) | Incorporated by reference to Exhibit 10.6 to the Registrant’s Registration Statement on Form F-1 (File No. 333-146304) filed with the SEC on September 26, 2007. |
| (11) | Incorporated by reference to Exhibit 4.4 to the Registrant’s Registration Statement on Form S-8 (File No. 333-171409) filed with the SEC on December 23, 2010. |
| (12) | Incorporated by reference to Exhibit 10.8 to the Registrant’s Registration Statement on Form F-1 (File No. 333-146304) filed with the SEC on September 26, 2007. |
| (13) | Incorporated by reference to Exhibit 4.10 to the Registrant’s Annual Report on Form 20-F (File No. 001-33725) filed with the SEC on March 15, 2012. |
| (14) | Incorporated by reference to Exhibit 4.25 to the Registrant’s Annual Report on Form 20-F (File No. 001-33725) filed with the SEC on March 15, 2013. |
| (15) | Incorporated by reference to Exhibit 4.27 to the Registrant’s Annual Report on Form 20-F (File No. 001-33725) filed with the SEC on March 19, 2014. |
| (16) | Incorporated by reference to Exhibit 10.17 to the Registrant’s Registration Statement on Form F-1 (File No. 333-146304) filed with the SEC on September 26, 2007. |
| (17) | Incorporated by reference to Exhibit 10.18 to the Registrant’s Registration Statement on Form F-1 (File No. 333-146304) filed with the SEC on September 26, 2007. |
| (18) | Incorporated by reference to Exhibit 10.19 to the Registrant’s Registration Statement on Form F-1 (File No. 333-146304) filed with the SEC on September 26, 2007. |
| (19) | Incorporated by reference to Exhibit 4.27 to the Registrant’s Annual Report on Form 20-F (File No. 001-33725) filed with the SEC on March 15, 2012. |
| (20) | Incorporated by reference to Exhibit 4.32 to the Registrant’s Amended Annual Report on Form 20-F/A (File No. 001-33725) filed with the SEC on June 27, 2012. |
| (21) | Incorporated by reference to Exhibit 4.31 to the Registrant’s Annual Report on Form 20-F (File No. 001-33725) filed with the SEC on March 15, 2013. |
| (22) | Incorporated by reference to Exhibit 4.32 to the Registrant’s Annual Report on Form 20-F (File No. 001-33725) filed with the SEC on March 15, 2013. |
| (23) | Incorporated by reference to Exhibit 4.35 to the Registrant’s Annual Report on Form 20-F (File No. 001-33725) filed with the SEC on March 19, 2014. |
| (24) | Incorporated by reference to Exhibit 4.28 to the Registrant’s Annual Report on Form 20-F (File No. 001-33725) filed with the SEC on March 15, 2012. |
| (25) | Incorporated by reference to Exhibit 4.29 to the Registrant’s Annual Report on Form 20-F (File No. 001-33725) filed with the SEC on March 15, 2012. |
| (26) | Incorporated by reference to Exhibit 4.30 to the Registrant’s Annual Report on Form 20-F (File No. 001-33725) filed with the SEC on March 15, 2012. |
| (27) | Incorporated by reference to Exhibit 4.31 to the Registrant’s Annual Report on Form 20-F (File No. 001-33725) filed with the SEC on March 15, 2012. |
| (28) | Incorporated by reference to Exhibit 4.40 to the Registrant’s Annual Report on Form 20-F (File No. 001-33725) filed with the SEC on March 19, 2014. |
| (29) | Incorporated by reference to Exhibit 4.41 to the Registrant’s Annual Report on Form 20-F (File No. 001-33725) filed with the SEC on March 19, 2014. |
| (30) | Incorporated by reference to Exhibit 4.40 to the Registrant’s Annual Report on Form 20-F (File No. 001-33725) filed with the SEC on March 15, 2013. |
| (31) | Incorporated by reference to Exhibit 4.41 to the Registrant’s Annual Report on Form 20-F (File No. 001-33725) filed with the SEC on March 15, 2013. |
Table of Contents
| (32) | Incorporated by reference to Exhibit 4.43 to the Registrant’s Annual Report on Form 20-F (File No. 001-33725) filed with the SEC on March 15, 2013. |
| (33) | Incorporated by reference to Exhibit 4.45 to the Registrant’s Annual Report on Form 20-F (File No. 001-33725) filed with the SEC on March 19, 2014. |
| (34) | Incorporated by reference to Exhibit 4.46 to the Registrant’s Annual Report on Form 20-F (File No. 001-33725) filed with the SEC on March 19, 2014. |
| (35) | Incorporated by reference to Exhibit 4.47 to the Registrant’s Annual Report on Form 20-F (File No. 001-33725) filed with the SEC on March 19, 2014. |
| (36) | Incorporated by reference to Exhibit 4.48 to the Registrant’s Annual Report on Form 20-F (File No. 001-33725) filed with the SEC on March 19, 2014. |
| (37) | Incorporated by reference to Exhibit 4.49 to the Registrant’s Annual Report on Form 20-F (File No. 001-33725) filed with the SEC on March 19, 2014. |
| (38) | Incorporated by reference to Exhibit 4.50 to the Registrant’s Annual Report on Form 20-F (File No. 001-33725) filed with the SEC on March 19, 2014. |
EXHIBIT 4.11
TEXTAINER MARINE CONTAINERS II LIMITED
Issuer
and
WELLS FARGO BANK, NATIONAL ASSOCIATION
Indenture Trustee
AMENDED AND RESTATED INDENTURE
Dated as of September 15, 2014
TABLE OF CONTENTS
| Page | ||||||
| ARTICLE I DEFINITIONS |
4 | |||||
| Section 101. |
Defined Terms |
4 | ||||
| Section 102. |
Other Definitional Provisions |
38 | ||||
| Section 103. |
Computation of Time Periods |
38 | ||||
| Section 104. |
Statutory References |
39 | ||||
| Section 105. |
Duties of Administrative Agent and Manager Transfer Facilitator |
39 | ||||
| ARTICLE II THE NOTES |
40 | |||||
| Section 201. |
Authorization of Notes |
40 | ||||
| Section 202. |
Form of Notes; Book-Entry Notes |
40 | ||||
| Section 203. |
Execution, Recourse Obligation |
43 | ||||
| Section 204. |
Certificate of Authentication |
44 | ||||
| Section 205. |
Registration; Registration of Transfer and Exchange of Notes |
44 | ||||
| Section 206. |
Mutilated, Destroyed, Lost and Stolen Notes |
46 | ||||
| Section 207. |
Delivery, Retention and Cancellation of Notes |
47 | ||||
| Section 208. |
ERISA Deemed Representations |
47 | ||||
| Section 209. |
FATCA |
48 | ||||
| ARTICLE III PAYMENT OF NOTES; STATEMENTS TO NOTEHOLDERS |
49 | |||||
| Section 301. |
Principal and Interest |
49 | ||||
| Section 302. |
Trust Account |
49 | ||||
| Section 303. |
Investment of Monies Held in the Trust Account, the Restricted Cash Account and Series Accounts |
58 | ||||
| Section 304. |
Copies of Reports to Noteholders, each Interest Rate Hedge Provider and each Series Enhancer |
60 | ||||
| Section 305. |
Records |
61 | ||||
| Section 306. |
Restricted Cash Account |
61 | ||||
| Section 307. |
CUSIP Numbers |
62 | ||||
| Section 308. |
No Claim |
62 | ||||
| Section 309. |
Compliance with Withholding Requirements |
62 | ||||
| Section 310. |
Tax Treatment of Notes |
63 | ||||
| Section 311. |
Subordination |
63 | ||||
| Section 312. |
Letters of Credit and L/C Cash Account |
63 | ||||
| ARTICLE IV COLLATERAL |
65 | |||||
| Section 401. |
Collateral |
65 | ||||
| Section 402. |
Pro Rata Interest |
66 | ||||
| Section 403. |
Indenture Trustee’s Appointment as Attorney-in-Fact |
66 | ||||
| Section 404. |
Release of Security Interest |
67 | ||||
| Section 405. |
Administration of Collateral |
68 | ||||
| Section 406. |
Quiet Enjoyment |
69 | ||||
TABLE OF CONTENTS
(continued)
| Page | ||||||
| ARTICLE V RIGHTS OF NOTEHOLDERS; ALLOCATION AND APPLICATION OF NET ISSUER PROCEEDS; REQUISITE GLOBAL MAJORITY |
70 | |||||
| Section 501. |
Rights of Noteholders |
70 | ||||
| Section 502. |
Allocations Among Series |
70 | ||||
| Section 503. |
Determination of Requisite Global Majority |
70 | ||||
| ARTICLE VI COVENANTS |
71 | |||||
| Section 601. |
Payment of Principal and Interest, Payment of Taxes |
71 | ||||
| Section 602. |
Maintenance of Office |
71 | ||||
| Section 603. |
Corporate Existence |
72 | ||||
| Section 604. |
Protection of Collateral |
72 | ||||
| Section 605. |
Performance of Obligations |
73 | ||||
| Section 606. |
Negative Covenants |
73 | ||||
| Section 607. |
Non-Consolidation of Issuer |
75 | ||||
| Section 608. |
No Bankruptcy Petition |
76 | ||||
| Section 609. |
Liens |
76 | ||||
| Section 610. |
Other Indebtedness |
77 | ||||
| Section 611. |
Guarantees, Loans, Advances and Other Liabilities |
77 | ||||
| Section 612. |
Consolidation, Amalgamation, Merger and Sale of Assets; Ownership of the Issuer |
77 | ||||
| Section 613. |
Other Agreements |
77 | ||||
| Section 614. |
Charter Documents |
78 | ||||
| Section 615. |
Capital Expenditures |
78 | ||||
| Section 616. |
Permitted Activities |
78 | ||||
| Section 617. |
Investment Company |
79 | ||||
| Section 618. |
Payments of Collateral |
79 | ||||
| Section 619. |
Notices |
79 | ||||
| Section 620. |
Books and Records |
79 | ||||
| Section 621. |
Taxes |
80 | ||||
| Section 622. |
Subsidiaries |
80 | ||||
| Section 623. |
Investments |
80 | ||||
| Section 624. |
Use of Proceeds |
80 | ||||
| Section 625. |
Asset Base Report |
80 | ||||
| Section 626. |
Financial Statements |
80 | ||||
| Section 627. |
Interest Rate Hedge Agreements |
81 | ||||
| Section 628. |
UNIDROIT Convention |
85 | ||||
| Section 629. |
Other Information |
85 | ||||
| Section 630. |
Separate Identity |
85 | ||||
| Section 631. |
Purchase of Additional Containers |
85 | ||||
| ARTICLE VII DISCHARGE OF INDENTURE; PREPAYMENTS | 86 | |||||
| Section 701. |
Full Discharge |
86 | ||||
| Section 702. |
Prepayment of Notes |
86 | ||||
| Section 703. |
Unclaimed Funds |
88 | ||||
-ii-
TABLE OF CONTENTS
(continued)
| Page | ||||||
| ARTICLE VIII DEFAULT PROVISIONS AND REMEDIES |
89 | |||||
| Section 801. |
Event of Default |
89 | ||||
| Section 802. |
Acceleration of Stated Maturity; Rescission and Annulment |
91 | ||||
| Section 803. |
Collection of Indebtedness |
93 | ||||
| Section 804. |
Remedies |
93 | ||||
| Section 805. |
Indenture Trustee May Enforce Claims Without Possession of Notes |
94 | ||||
| Section 806. |
Allocation of Money Collected |
94 | ||||
| Section 807. |
Limitation on Suits |
95 | ||||
| Section 808. |
Unconditional Right of Holders to Receive Principal, Interest and Commitment Fees |
95 | ||||
| Section 809. |
Restoration of Rights and Remedies |
96 | ||||
| Section 810. |
Rights and Remedies Cumulative |
96 | ||||
| Section 811. |
Delay or Omission Not Waiver |
96 | ||||
| Section 812. |
Control by Requisite Global Majority |
96 | ||||
| Section 813. |
Waiver of Past Defaults |
97 | ||||
| Section 814. |
Undertaking for Costs |
97 | ||||
| Section 815. |
Waiver of Stay or Extension Laws |
97 | ||||
| Section 816. |
Sale of Collateral |
98 | ||||
| Section 817. |
Action on Notes |
98 | ||||
| ARTICLE IX CONCERNING THE INDENTURE TRUSTEE | 99 | |||||
| Section 901. |
Duties of Indenture Trustee |
99 | ||||
| Section 902. |
Certain Matters Affecting the Indenture Trustee |
100 | ||||
| Section 903. |
Indenture Trustee Not Liable |
101 | ||||
| Section 904. |
Indenture Trustee May Own Notes |
102 | ||||
| Section 905. |
Indenture Trustee’s Fees, Expenses and Indemnities |
102 | ||||
| Section 906. |
Eligibility Requirements for Indenture Trustee |
103 | ||||
| Section 907. |
Resignation and Removal of Indenture Trustee |
103 | ||||
| Section 908. |
Successor Indenture Trustee |
104 | ||||
| Section 909. |
Merger or Consolidation of Indenture Trustee |
104 | ||||
| Section 910. |
Separate Indenture Trustees, Co-Indenture Trustees and Custodians |
105 | ||||
| Section 911. |
Representations and Warranties |
106 | ||||
| Section 912. |
Indenture Trustee Offices |
107 | ||||
| Section 913. |
Notice of Event of Default |
107 | ||||
| ARTICLE X SUPPLEMENTAL INDENTURES | 108 | |||||
| Section 1001. |
Supplemental Indentures Not Creating a New Series Without Consent of Holders |
108 | ||||
| Section 1002. |
Supplemental Indentures Not Creating a New Series with Consent of Holders |
109 | ||||
| Section 1003. |
Execution of Supplemental Indentures |
110 | ||||
| Section 1004. |
Effect of Supplemental Indentures |
110 | ||||
| Section 1005. |
Reference in Notes to Supplemental Indentures |
110 | ||||
| Section 1006. |
Issuance of Series of Notes |
110 | ||||
-iii-
TABLE OF CONTENTS
(continued)
| Page | ||||||
| ARTICLE XI HOLDERS LISTS |
113 | |||||
| Section 1101. |
Indenture Trustee to Furnish Names and Addresses of Holders | 113 | ||||
| Section 1102. |
Preservation of Information; Communications to Holders |
113 | ||||
| ARTICLE XII EARLY AMORTIZATION EVENT | 114 | |||||
| Section 1201. |
Early Amortization Event |
114 | ||||
| Section 1202. |
Remedies |
115 | ||||
| ARTICLE XIII MISCELLANEOUS PROVISIONS | 116 | |||||
| Section 1301. |
Compliance Certificates and Opinions |
116 | ||||
| Section 1302. |
Form of Documents Delivered to Indenture Trustee |
116 | ||||
| Section 1303. |
Acts of Holders |
117 | ||||
| Section 1304. |
Inspection |
117 | ||||
| Section 1305. |
Limitation of Rights |
118 | ||||
| Section 1306. |
Severability |
118 | ||||
| Section 1307. |
Notices |
119 | ||||
| Section 1308. |
Consent to Jurisdiction |
119 | ||||
| Section 1309. |
Captions |
120 | ||||
| Section 1310. |
Governing Law |
120 | ||||
| Section 1311. |
No Petition |
120 | ||||
| Section 1312. |
General Interpretive Principles |
120 | ||||
| Section 1313. |
WAIVER OF JURY TRIAL |
121 | ||||
| Section 1314. |
Waiver of Immunity |
121 | ||||
| Section 1315. |
Judgment Currency |
121 | ||||
| Section 1316. |
Statutory References |
122 | ||||
| Section 1317. |
Counterparts |
122 | ||||
| Section 1318. |
Transactions Under Prior Agreement |
122 | ||||
-iv-
This Amended and Restated Indenture, dated as of September 15, 2014 (as amended or supplemented from time to time as permitted hereby, the “Indenture”), between TEXTAINER MARINE CONTAINERS II LIMITED, a company organized and existing under the laws of Bermuda (the “Issuer”), and WELLS FARGO BANK, NATIONAL ASSOCIATION, a national banking association, as Indenture Trustee (the “Indenture Trustee”).
W I T N E S S E T H:
WHEREAS, the Issuer and Wells Fargo Bank, National Association, as indenture trustee, entered into an Indenture, dated as of May 1, 2012 (the “Prior Agreement”);
WHEREAS, the Issuer and the Indenture Trustee wish to amend the Prior Agreement as of September 15, 2014 (the “Restatement Date”), and, for ease of reference, to restate the terms of the Indenture in their entirety;
NOW THEREFORE, in consideration of the mutual agreements herein contained, each party agrees as follows for the benefit of the Noteholders, each Series Enhancer and each Interest Rate Hedge Provider:
GRANTING CLAUSE
To secure the payment of the Aggregate Outstanding Obligations and the performance of all of the Issuer’s covenants and agreements in this Indenture and each other Related Document to which it is a party, the Issuer hereby grants, assigns, conveys, mortgages, pledges, charges, hypothecates and transfers to the Indenture Trustee, for the benefit of the Noteholders, each Series Enhancer and each Interest Rate Hedge Provider, a first priority perfected security interest in and to all assets and property of the Issuer, whether now existing or hereafter acquired including, without limitation, all of the Issuer’s right, title and interest in, to and under the following whether now existing or hereafter created or acquired (with respect to clauses (v) through (xv) below, only to the extent such assets or property arise out of or in any way relate to (but only to the extent they relate to) the Managed Containers):
(i) the Managed Containers and all other Transferred Assets;
(ii) all Deposit Accounts and all Securities Accounts, including the Trust Account, the Restricted Cash Account, the Counterparty Collateral Account, L/C Cash Account, any Pre-Funding Account and any Series Account, and all cash and cash equivalents, Eligible Investments, Financial Assets, Investment Property, Securities Entitlements and other instruments or amounts credited or deposited from time to time in any of the foregoing;
(iii) the Container Sale Agreement, each Container Transfer Agreement, the Management Agreement, Interest Rate Hedge Agreement and each other Related Document to which the Issuer is a party;
(iv) all collections received by the Issuer from the operation of the Managed Containers, including any Issuer Proceeds and Pre-Adjustment Issuer Proceeds, on deposit in the Master Account;
(v) all Accounts;
(vi) all Chattel Paper, and all Leases and all schedules, supplements, amendments, modifications, renewals, extensions and all guaranties and other credit support with respect to the foregoing and all rentals, payments and monies due and to become due in respect of the foregoing, and all rights to terminate or compel performance thereof;
(vii) all Contracts;
(viii) all Documents;
(ix) all General Intangibles;
(x) all Instruments;
(xi) all Inventory;
(xii) all Supporting Obligations;
(xiii) all Equipment;
(xiv) all Letter of Credit Rights;
(xv) all Commercial Tort Claims;
(xvi) all property of the Issuer held by the Indenture Trustee including, without limitation, all property of every description now or hereafter in the possession or custody of or in transit to the Indenture Trustee for any purpose, including, without limitation, safekeeping, collection or pledge, for the account of the Issuer, or as to which the Issuer may have any right or power;
(xvii) the right of the Issuer to terminate, perform under, or compel performance of the terms of the Container Related Agreements and all claims for damages arising out of the breach of any Container Related Agreement;
(xviii) any guarantee of the Container Related Agreements and any rights of the Issuer in respect of any subleases or assignments permitted under the Container Related Agreements;
(xix) all or any part of insurance proceeds of all or any part of the Collateral and all proceeds of the voluntary or involuntary disposition of all or any part of the Collateral or such proceeds;
(xx) any and all payments made or due to the Issuer in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral by any Governmental Authority and any other cash or non-cash receipts from the sale, exchange, collection or other disposition of all or any part of the Collateral;
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(xxi) to the extent not otherwise included, all income, payments and Proceeds of each of the foregoing and all accessions to, substitutions and replacements for, and rents, profits and products of each of the foregoing.
All of the property described in this Granting Clause is herein collectively called the “Collateral” and as such is security for the payment of the Aggregate Outstanding Obligations and the performance of all of the Issuer’s covenants and agreements in this Indenture and each other Related Document to which it is a party.
In furtherance of the foregoing, the Issuer hereby grants, assigns, conveys, mortgages, pledges, charges, hypothecates and transfers to the Indenture Trustee, for the benefit of the Noteholders, each Series Enhancer and each Interest Rate Hedge Provider (i) a fixed charge over the Container Sale Agreement, each Container Transfer Agreement, each Interest Rate Hedge Agreement and the Management Agreement and (ii) a floating charge over all other assets of the Issuer.
In furtherance of the foregoing, the Issuer hereby appoints the Indenture Trustee as its designee for purposes of exercising the power of attorney granted by the Manager pursuant to Section 11.4 of the Management Agreement.
The Indenture Trustee acknowledges such Grant, accepts the trusts hereunder in accordance with the provisions hereof, and agrees to perform the duties herein required as hereinafter provided. Notwithstanding the foregoing, the Indenture Trustee does not assume, and shall have no liability to perform, any of the Issuer’s obligations under any agreement included in the Collateral and shall have no liability arising from the failure of the Issuer or any other Person to duly perform any such obligations. The Issuer hereby confirms and the Indenture Trustee hereby acknowledges that the Issuer does not currently have any rights with respect to Commercial Tort Claims on the Closing Date.
The Issuer hereby irrevocably authorizes the Indenture Trustee at any time, and from time to time, to file in any filing office in any UCC jurisdiction any financing statements (including any such financing statements claiming a security interest in all assets of the Issuer) and amendments thereto that (i) indicate the Collateral, regardless of whether any particular asset comprised in the Collateral falls within the scope of Article 9 of the UCC, and (ii) provide any other information required by Article 9 of the UCC for the sufficiency or filing office acceptance of any financing statement or amendment, including whether the Issuer is an organization, the type of organization and any organizational identification number issued to the Issuer. The Issuer agrees to furnish any such information to the Indenture Trustee promptly upon the Indenture Trustee’s request. The Issuer also ratifies its authorization for the Indenture Trustee to have filed in any jurisdiction any similar initial financing statements or amendments thereto if filed prior to the date hereof.
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ARTICLE I
DEFINITIONS
Section 101. Defined Terms.
Capitalized terms used in this Indenture shall have the following meanings and the definitions of such terms shall be equally applicable to both the singular and plural forms of such terms:
Account: Any “account”, as such term is defined in Section 9-102(a)(2) of the UCC.
Administrative Agent: The Person performing the duties of the Administrative Agent under the Administrative Agreement; initially, Wells Fargo Securities, LLC, acting under the trade name Wells Fargo Securities.
Administrative Agent Fee: This term shall have the meaning set forth in the Administration Agreement, as such agreement may be amended, modified and restated from time to time in accordance with its terms.
Administration Agreement: The Administration Agreement, dated as of the Closing Date, among the Issuer, the Manager, the Administrative Agent and the Indenture Trustee, as such agreement may be amended, modified and restated from time to time in accordance with its terms.
Advance Rate: Eighty percent (80.00%); provided that, at all times after the Residual Requirement is not met, the Advance Rate shall be seventy-two and one-half of one percent (72.50%). A failure to comply with the Residual Requirement is not curable, and such noncompliance can be waived only by (i) the Requisite Global Majority and (ii) if specified in a Supplement, the percentage of Noteholders of such Series set forth in such Supplement.
Affiliate: With respect to a specified Person, any other Person that directly or indirectly through one or more intermediaries controls or is controlled by or is under common control with the specified Person. For the purposes of this definition, “control”, when used with respect to any specified 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 terms “controlling” and “controlled” have meanings correlative to the foregoing.
Aggregate Available Amount: As of any date of determination, an amount equal to the sum of the then amount available for drawings under all Eligible Letters of Credit then in effect.
Aggregate Net Book Value: As of any date of determination, an amount equal to the sum of the Net Book Values of all Eligible Containers.
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Aggregate Outstanding Obligations: As of any date of determination, an amount equal to the sum of (i) the Outstanding Obligations for all Series of Notes then Outstanding, and (ii) all other amounts owing by the Issuer to the Indenture Trustee, any Series Enhancer, any Noteholder, or any Interest Rate Hedge Provider pursuant to the terms of any Related Document.
Aggregate Principal Balance: As of any date of determination, an amount equal to the sum of the then unpaid principal balance of all Series of Notes then Outstanding.
Applicable Law: With respect to any Person or Managed Container, all law, treaties, judgment, decrees, injunctions, waits, rules, regulations, orders, directives, concessions, licenses and permits of any Governmental Authority applicable to such Person or its Property or in respect of its operations.
Asset Base: Either or both (as the context may require) of a Senior Asset Base or a Subordinate Asset Base.
Asset Base Deficiency: The condition that exists on any Payment Date, after giving effect to the payment of (i) all Supplemental Principal Payment Amounts then due and payable for each Series of Senior Notes on such Payment Date (to the extent that there is cash available to make such payments), if the sum of the then unpaid principal balances of all Series of Senior Notes exceeds the Senior Asset Base, or (ii) all Subordinate Supplemental Principal Payment Amounts then due and payable for each Series of Subordinate Notes on such Payment Date (to the extent that there is cash available to make such payments), if the sum of the then unpaid principal balances of all Series of Subordinate Notes exceeds the Subordinate Asset Base.
Asset Base Report: A certificate with appropriate insertions setting forth the components of the Asset Base as of the date of determination for which such certificate is submitted, which certificate shall be substantially in the form of Exhibit A to this Indenture and shall be certified by an Authorized Signatory of the Manager or one of its permitted Affiliates on behalf of the Manager.
Authorized Signatory: Any Person designated by written notice delivered to the Indenture Trustee and the related Series Enhancer as authorized to execute documents and instruments on behalf of a Person.
Available Distribution Amount: For any Payment Date, an amount equal to the sum (without duplication) of (i) the Pre-Adjustment Issuer Proceeds and (without duplication) Issuer Proceeds received from the Manager during the immediately preceding Collection Period, less certain sums deducted in accordance with the terms of the Management Agreement, (ii) all amounts received by the Issuer on the related Determination Date pursuant to any Interest Rate Hedge Agreement, (iii) all Warranty Purchase Amounts and Manager Advances received by the Issuer since the immediately preceding Determination Date and (iv) any earnings on Eligible Investments in the Trust Account to the extent that such earnings were credited to such account during the related Collection Period.
Back-up Data Files: This term shall have the meaning set forth in the Management Agreement.
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Bankruptcy Code: The United States Bankruptcy Reform Act of 1978, as amended.
Book-Entry Custodian: The Person appointed pursuant to the terms of this Indenture to act in accordance with a certain letter of representations agreement such Person has with the Depositary, in which the Depositary delegates its duties to maintain the Book-Entry Notes to such Person and authorizes such Person to perform such duties.
Book-Entry Notes: Collectively, the Rule 144A Book-Entry Notes, the Regulation S Temporary Book-Entry Notes and the Unrestricted Book-Entry Notes.
Business Day: Any day other than a Saturday, a Sunday or a day on which the New York Stock Exchange, the Federal Reserve Bank or banking institutions in San Francisco, California, New York, New York, London, United Kingdom, Amsterdam, The Netherlands or the city in which the Corporate Trust Office is located, are authorized or are obligated by law, executive order or governmental decree to be closed.
Casualty Loss: Any of the following events with respect to any Managed Container: (a) the actual total loss or compromised total loss of such Managed Container, (b) the loss, theft or destruction of such Managed Container, (c) thirty (30) days following a determination by, or on behalf of, the Issuer that such Managed Container is damaged beyond repair or permanently rendered unfit for use for any reason whatsoever, (d) the seizure, condemnation or confiscation of such Managed Container for a period exceeding sixty (60) days or (e) if such Managed Container is subject to a Lease, such Managed Container shall have been deemed under its Lease to have suffered a casualty loss as to the entire Managed Container. In determining the date on which a Casualty Loss occurred, the application of the time frames set forth in clauses (a) through (e) above shall in no event result in the deemed occurrence of a Casualty Loss prior to the date on which an officer of the Issuer or the Manager obtains actual knowledge of such Casualty Loss.
Casualty Proceeds: This term shall have the meaning set forth in the Management Agreement.
CEU: A cost-equivalent unit which is a fixed unit of measurement based on the cost of a Container relative to the cost of a twenty-foot standard dry freight Container.
Chattel Paper: Any lease (including any Finance Lease) or other “chattel paper”, as such term is defined in Section 9-102(a)(11) of the UCC.
Class: With respect to any Series, all Notes within such Series having the same rights to payment under the related Supplement.
Closing Date: This term shall have the meaning set forth in the related Supplement.
Code: The Internal Revenue Code of 1986, as amended, or any successor statute thereto.
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Collateral: This term shall have the meaning set forth in the Granting Clause of this Indenture.
Collection Period. The period from the first day of the calendar month immediately preceding the month in which such Payment Date occurs through and including the last day of such calendar month.
Collections: With respect to any Collection Period, all payments (including any cash proceeds) actually received by the Issuer, or by the Manager on behalf of the Issuer, with respect to the Managed Containers and the other items of Collateral.
Commercial Tort Claims: Any “commercial tort claim”, as such term is defined in 9-102(a)(13) of the UCC.
Competitor: Any Person engaged and competing with any of the Issuer, Textainer Limited, Textainer Group Holdings Limited or the Manager in the Container leasing business; provided, however, that in no event shall any insurance company, bank, bank holding company, savings institution or trust company, fraternal benefit society, pension, retirement or profit sharing trust or fund, or any collateralized bond obligation fund or similar fund (or any trustee of any such fund) or any holder of any obligations of any such fund (solely as a result of being such a holder) be deemed to be a Competitor.
Container: Any dry freight cargo, high cube or other type of marine or intermodal container.
Container Related Agreement: Any agreement relating to the Managed Containers or agreements relating to the use or management of such Managed Containers whether in existence on any Series Issuance Date or thereafter acquired, including, but not limited to, all Leases, the Management Agreement, each Container Transfer Agreement, the Container Sale Agreement and the Chattel Paper.
Container Representations and Warranties: This term shall have the meanings set forth in the Container Sale Agreement and each Container Transfer Agreement, respectively.
Container Sale Agreement: The Container Sale Agreement, dated as of May 1, 2012, between the Issuer and Textainer Limited, as such agreement may be amended, modified or supplemented from time to time in accordance with its terms.
Container Transfer Agreement: Each container transfer agreement entered into from time to time between the Issuer and a Special Purpose Entity including without limitation (i) that certain Container Transfer Agreement, dated as of September 25, 2013, between the Issuer and TMCL III, (ii) that certain Container Transfer Agreement, dated as of August 5, 2013, between the Issuer and TMCL IV), and (iii) any agreement substantially similar to those described in clause (i) and (ii), executed and delivered after the Restatement Date in each case, as such agreement may be amended, modified or supplemented from time to time in accordance with its terms.
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Contracts: All contracts, undertakings, franchise agreements or other agreements (other than rights evidenced by Chattel Paper, Documents or Instruments), arising out of or in any way related to the Managed Containers or to the Notes, in or under which Issuer may now or hereafter have any right, title or interest, including, without limitation, the Management Agreement, the Container Sale Agreement, each Container Transfer Agreement, any Interest Rate Hedge Agreements and any related agreements, security interests or UCC or other financing statements and, with respect to an Account, any agreement relating to the terms of payment or the terms of performance thereof.
Control Agreement: A control agreement, among the Issuer, the Indenture Trustee and the Securities Intermediary, which shall be substantially in the form of Exhibit G to this Indenture, for each of the Trust Account, the Restricted Cash Account, the L/C Cash Account and each Series Account.
Control Party: This term shall have the meaning set forth in the Supplement for the related Series.
Conversion Date: With respect to any Series of Warehouse Notes, the date on which a Conversion Event occurs with respect to such Series of Warehouse Notes.
Conversion Event: With respect to any Series of Warehouse Notes, any event that will result in the termination of the revolving period for such Series and the commencement of principal amortization of such Series as set forth in the related Supplement.
Corporate Trust Office: The principal office of the Indenture Trustee at which at any particular time its corporate trust business shall be administered. As of the Closing Date, such office is located at Sixth Street and Marquette Avenue in Minneapolis, Minnesota 55479.
Corporate Trust Officer: Any Treasurer, Assistant Treasurer, Assistant Trust Officer, Trust Officer, Assistant Vice President, Vice President or Senior Vice President of the Indenture Trustee or any other officer who customarily performs functions similar to those performed by the Persons who at the time shall be such officers to whom any corporate trust matter is referred because of their knowledge of and familiarity with the particular subject.
Counterparty Collateral Account: The account or accounts established by and held in the name of the Indenture Trustee as provided in Section 627(i).
Default Interest: The incremental interest specified in the related Supplement payable by the Issuer resulting from (i) the failure of the Issuer to pay when due any principal of or interest on the Notes of the related Series or (ii) the occurrence of an Event of Default with respect to such Series.
Definitive Note: A Note issued in physical form pursuant to the terms and conditions of Section 202 hereof.
Deposit Account: Any “deposit account,” as such term is defined in Section 9-102(a)(29) of the UCC.
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Depositary: The Depository Trust Company until a successor depositary shall have become such pursuant to the applicable provisions of this Indenture and thereafter “Depositary” shall mean or include each Person who is then a Depositary hereunder. For purposes of this Indenture, unless otherwise specified pursuant to Section 202, any successor Depositary shall, at the time of its designation and at all times while it serves as Depositary, be a clearing agency registered under the Exchange Act, and any other applicable statute or regulation.
Depositary Participants: A broker, dealer, bank, other financial institution or other Person for whom from time to time the Depositary effects book-entry transfers and pledges of securities deposited with the Depositary.
Depreciation Expense: With respect to any calculation of the Asset Base, means either (i) the Depreciation Policy or (ii) such other depreciation policy as may be utilized by the Manager from time to time, with the prior written consent of the Control Party for each Series.
Depreciation Policy: A depreciation policy:
(i) under which, for purposes of calculating the Asset Base, the Original Equipment Cost of a Managed Container is depreciated (x) in the case of a Managed Container originally acquired by TL directly from the manufacturer of such Managed Container, using the straight-line method over a thirteen (13) year useful life (except in the case of 2R, 2Y and 4Y (refrigerated) containers, in which case a twelve (12) year useful life will be used or in the case of 2T, 2L, 4T and 4L containers, in which case a fourteen (14) year useful life will be used), in each case, to the Residual Value, or (y) in the case of a Managed Container not included in clause (x), using the straight-line method over the remaining useful life of such Managed Container as of the date of acquisition of such Managed Container by TL (based upon a total useful life of thirteen (13) years (except in the case of 2R, 2Y and 4Y (refrigerated) containers, in which case a twelve (12) year useful life will be used or, in the case of 2T, 2L, 4T and 4L containers, in which case a fourteen (14) year useful life will be used, to the Residual Value)); and
(ii) which, for any purpose other than calculating the Asset Base, is determined in accordance with GAAP.
Determination Date: The fourth (4th) Business Day prior to the related Payment Date.
Director Services Provider: AMACAR Investments LLC, a Delaware limited liability company, and its successors and assigns.
Documents: Any “documents,” as such term is defined in Section 9-102(a)(30) of the UCC.
Dollars: Dollars and the sign “$” means lawful money of the United States of America.
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Downgraded Letter of Credit Provider: This term shall have the meaning set forth in Section 312.
Early Amortization Event: The occurrence of any of the events or conditions set forth in Section 1201 hereof.
EBIT: For any fiscal quarter, earnings (loss) before Interest Expense and taxes, determined in accordance with GAAP, including gains and losses from the sale of assets and foreign exchange transactions, but excluding gains or losses resulting from changes in the Depreciation Policy and excluding unrealized gains or losses arising from implementation of Statement of Financial Accounting Standards No. 133 issued by the Financial Accounting Standards Board.
EBIT Ratio: For the Issuer as of any date of determination, the ratio of (a) aggregate EBIT to (b) aggregate Interest Expense, in each case for the most recently concluded six (6) fiscal quarters.
Eligible Account: Any of (a) a segregated account with an Eligible Institution, (b) a segregated trust account with the corporate trust department of a depository institution organized under the laws of the United States or any of the states thereof, including the District of Columbia (or any domestic branch of a foreign bank), and acting as a trustee for funds deposited in such account, so long as the senior securities of such depository institution shall have a credit rating from each of Moody’s and Standard & Poor’s in one of its generic credit rating categories no lower than “A3” or “A-”, as the case may be, or (c) an account held with the Indenture Trustee.
Eligible Bank: A banking, financial or similar institution capable of issuing an Eligible Letter of Credit which has long-term unsecured debt rating of “A-” or better from S&P.
Eligible Container: As of any date of determination, any Managed Container which, when considered with all other Managed Containers, shall comply with various customary requirements including each of the following requirements which are subject to modification upon, and receipt of, the prior written consent of the Requisite Global Majority:
(i) Maximum Concentration of Specialized Containers. The sum of the Net Book Values of all specialized Containers (other than twenty foot (20’) dry freight, forty foot (40’) dry freight or forty foot (40’) high cube dry freight cargo Containers and refrigerated Containers) then owned by the Issuer shall not exceed an amount equal to fifteen percent (15%) of the Aggregate Net Book Value on such date;
(ii) Specifications. The Container conforms to the standard specifications used by the Manager for Containers purchased by and on behalf of Container owners other than the Issuer for that category of Container and to any applicable standards promulgated by applicable international standards organizations;
(iii) Finance Leases. The sum of the Net Book Values of all Eligible Containers then owned by the Issuer whose initial Leases were Finance Leases shall not exceed an amount equal to ten percent (10%) of the Aggregate Net Book Value on such date, provided, that the Issuer, or the Manager, on behalf of the Issuer, has to the extent necessary, taken the actions specified in Section 3.5 of the Management Agreement with respect to such Finance Leases;
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(iv) Casualty Losses. Such Container shall not have suffered a Casualty Loss;
(v) Title. The related Seller shall have had good and marketable title to such Container at the time of sale to the Issuer;
(vi) No Violation. The contribution and conveyance of such Container to the Issuer does not violate any agreement of the related Seller;
(vii) Assignability. Except with respect to the U.S. Lease Contract or other Leases with the U.S. government, the Lease rights with respect to such Container are freely assignable;
(viii) All Necessary Actions Taken. The related Seller and the Issuer shall have taken all necessary actions to transfer title to such Container and all related Leases (other than TUS Subleases) from such Seller to the Issuer;
(ix) Non-Monthly Leases. The percentage of CEUs of all Eligible Containers that are subject to Leases specifying that rental payments are payable less frequently than monthly shall not exceed two percent (2%) of the aggregate number of CEUs of all Eligible Containers on such date;
(x) Non-United States Dollar Leases. The percentage of CEUs of all Eligible Containers that are subject to Leases specifying payment in a currency other than United States Dollars and that are not sufficiently hedged in accordance with the currency hedging policy approved by the Requisite Global Majority shall not exceed two percent (2%) of the aggregate number of CEUs of all Eligible Containers on such date;
(xi) General Trading Terms. Substantially all of the Leases for such Containers shall contain the general trading terms the Manager uses in its normal course of business;
(xii) Maximum Concentration for Insolvent Lessees. Both of the following: (A) the sum of the Net Book Values of all Eligible Containers that are on Lease to any lessee (or sublessee) that is the subject of an Insolvency Proceeding shall not exceed 25% of the Aggregate Net Book Value, and (B) such Managed Container is not then on Lease to a lessee that is both (x) the subject of an Insolvency Proceeding and (y) more than 150 days delinquent on any rental payment owing with respect to any Managed Container in the Fleet;
(xiii) Purchase Price. In the case of a purchase (as opposed to a capital contribution) of a Container, the purchase price paid by the related Seller and/or the Issuer for such Container was not greater than the fair market value of the Container at the time of acquisition;
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(xiv) Lessees. The sum of the CEUs of all Eligible Containers that are subject to Leases to Persons for use other than the intermodal transportation of cargo shall not exceed seven percent (7%) of the aggregate CEUs of all Eligible Containers on such date;
(xv) No Adverse Selection Procedures. The selection procedures in selecting any Container to be transferred to the Issuer did not or shall not, as the case may be, discriminate against the Issuer as to the type of Containers, utilization potential, lease rates, lessees, age of Containers or Lease terms, in comparison to the Fleet, except for any such adverse selection as may result from the compliance with paragraphs (ix) and/or (x) above;
(xvi) No Prohibited Person or Prohibited Jurisdiction. Such Container is then not on lease to a Prohibited Person, and to the actual knowledge of the Issuer or the Manager, is not subleased to a Prohibited Person or located, operated or used in a Prohibited Jurisdiction unless it is used by the government of the United States or one of its allies or pursuant to a license granted by the Office of Foreign Assets Control of the United States Treasury Department;
(xvii) Good Title; No Liens. The Issuer has good and marketable title to such Managed Container, free and clear of all Liens other than Permitted Encumbrances;
(xviii) Container Representations and Warranties. Each Managed Container complies with the Container Representations and Warranties applicable to such Managed Container;
(xix) Restrictions on Leases with Affiliates. Such Managed Container is not subject to a Lease in which the Manager, the Issuer or any of their respective Affiliates is the lessee; provided however that a Managed Container is permitted to be subject to a Head Lease Agreement and a TUS Sublease;
(xx) Bankrupt Lessees under Finance Leases. Such Managed Container is not then under a Finance Lease to a lessee which, to the best knowledge of the Manager, is the subject of an Insolvency Proceeding;
(xxi) Maximum Concentration for Single Lessee. The sum of the Net Book Values of all Eligible Containers that are on Lease to any single lessee (or sublessee) shall not exceed 25% of the Aggregate Net Book Value;
(xxii) Maximum Concentration of Top Ten Lessees. The sum of the Net Book Values of all Eligible Containers that are on Lease to any ten (10) lessees (or sublessees) shall not exceed 75% of the Aggregate Net Book Value;
(xxiii) U.S. Government Leases. The sum of the Net Book Values of all Eligible Containers that are on Lease to the U.S. government under the U.S. Lease Contract and any other Lease under which the U.S. government is the Lessee shall not exceed 4% of the Aggregate Net Book Value; provided, any Containers subject to any such Lease shall not count against the limitation contained in this paragraph (xxiii) following the execution by the appropriate U.S. governmental official(s) of a consent to assignment
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with respect thereto; provided, further, any Containers subject to any such Lease shall not count against the limitation contained in this paragraph (xxiii) following delivery to the Indenture Trustee of an Opinion of Counsel to the effect that the Assignment of Claims Act of 1940, as amended (31 U.S.C. 3727, 41 U.S.C. 15), has been complied with by the Issuer (or an agent thereof) regarding such Containers;
(xxiv) Maximum Concentration of Finance Leases by Lessee. The sum of the Net Book Values of all Eligible Containers that are subject to Finance Leases with a single Lessee shall not exceed five percent (5%) of the Aggregate Net Book Value on such date; and
(xxv) Maximum Concentration of Refrigerated Containers. The sum of the Net Book Values of all refrigerated Containers then owned by the Issuer shall not exceed an amount equal to fifty percent (50%) of the Aggregate Net Book Value on such date.
In applying the concentration limits set forth in clauses (i), (iii), (ix), (x), (xii), (xiv) and (xxi) through (xxv), TUS, in its capacity as Lessee under the Head Lease Agreement, shall be excluded from such calculations, and each TUS Sublease shall be included in such calculations. The concentration limit set forth in clause (xii) shall not be applicable with respect to any Managed Container acquired by the Issuer on the Closing Date.
Eligible Institution: Any one or more of the following institutions: (i) the corporate trust department of the Indenture Trustee; provided that the Indenture Trustee maintains a long-term unsecured senior debt rating of at least “A” or better from Standard & Poor’s or “A2” or better from Moody’s (so long an Notes deemed Outstanding hereunder are rated by Moody’s), or (ii) a depositary institution organized under the laws of the United States of America or any one of the states thereof or the District of Columbia (or any domestic branch of a foreign bank), (a) which has both (x) a long-term unsecured senior debt rating of not less than “A” by Standard & Poor’s Ratings Group and “A2” by Moody’s Investors Service, Inc., and (y) a short-term unsecured senior debt rating rated in the highest rating category by each Rating Agency and (b) whose deposits are insured by the Federal Deposit Insurance Corporation.
Eligible Interest Rate Hedge Provider: At the time of execution and delivery of the related Interest Rate Hedge Agreement, any bank or other financial institution (or any party providing credit support on such Person’s behalf) that (A) has (x) a long-term senior unsecured debt rating of at least “A-” from Standard & Poor’s or “ A3” from Moody’s and (y) a short-term unsecured debt rating of “A-2” from Standard & Poor’s or “P-2” from Moody’s, or (B) is otherwise approved by each Control Party for each Series of Notes.
Eligible Investments: One or more of the following:
(i) direct obligations of, and obligations fully guaranteed as to the timely payment of principal and interest by, the United States or obligations of any agency or instrumentality thereof when such obligations are backed by the full faith and credit of the United States;
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(ii) certificates of deposit and bankers’ acceptances (which shall each have an original maturity of not more than three hundred sixty-five (365) days) of any United States depository institution or trust company incorporated under the laws of the United States or any State and subject to supervision and examination by federal and/or State authorities, provided that the long-term unsecured senior debt obligations of such depository institution or trust company at the date of acquisition thereof have been rated “AA-/Aa3” or the equivalent or better by the Rating Agencies, or the short-term unsecured senior debt obligations of such depository institution or trust company are rated by each Rating Agency in its highest rating category;
(iii) commercial paper (having original maturities of not more than two hundred seventy (270) days) of any corporation incorporated under the laws of the United States or any State thereof which on the date of acquisition has been rated by each Rating Agency in the highest short-term unsecured commercial paper rating category;
(iv) any money market fund that has been rated by each Rating Agency in its highest rating category (including any designations of “plus” or “minus”) or that invests solely in Eligible Investments;
(v) eurodollar deposits (which shall each have an original maturity of not more than three hundred sixty-five (365) days) of any depository institution or trust company, provided that the long-term unsecured senior debt obligations of such depository institution or trust company at the date of acquisition thereof have been rated “AA-/Aa3” or the equivalent or better by the Rating Agencies, or the short-term unsecured senior debt obligations of such depository institution or trust company are rated by each Rating Agency in its highest rating category; and
(vi) other obligations or securities that are acceptable to the related Series Enhancer and each Rating Agency as an Eligible Investment hereunder and will not result in a reduction or withdrawal in the then current rating of the Notes as evidenced by a letter to such effect from each Rating Agency and the related Series Enhancer.
Nothing in the definition of “Eligible Investments” is intended to prohibit the Issuer from acquiring (to the extent permitted above) an Eligible Investment issued by the Indenture Trustee or an Affiliate of the Indenture Trustee.
Eligible Letter of Credit: Either of the following: Any irrevocable, transferable, unconditional standby letter of credit (a) issued by an Eligible Bank and for which the Indenture Trustee is the beneficiary, (b) having a Letter of Credit Expiration Date of not earlier than one year after its issuance date and that permits drawing thereon prior to non-renewal, (c) that may be drawn upon at the principal offices of the Eligible Bank as the same shall be designated from time to time by notice to the Indenture Trustee pursuant to the terms of such letter of credit, (d) which is payable in Dollars in immediately available funds in an amount of not less than the available drawing amount specified therein, and (e) that may be transferred by the Indenture Trustee, without a fee payable by the Indenture Trustee and without the consent of the related Letter of Credit Provider, to any replacement Indenture Trustee appointed in accordance with the terms of this Indenture.
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Enhancement Agreement: Any agreement, instrument or document governing the terms of any Series Enhancement or pursuant to which any Series Enhancement is issued or outstanding.
Entitlement Order: Any “entitlement order” as defined in Section 8-102(8) of the UCC.
Equipment: Any “equipment” as defined in Section 9-102(a)(33) of the UCC.
ERISA: The Employee Retirement Income Security Act of 1974, as amended.
ERISA Affiliate: With respect to any Person, any other Person meeting the requirements of paragraphs (b), (c), (m) or (o) of Section 414 of the Code.
Event of Default: With respect to any Series, the occurrence of any of the events or conditions set forth in Section 801 of this Indenture.
Exchange Act: The Securities Exchange Act of 1934, as amended.
Existing Commitment: With respect to any Series (A) of Warehouse Notes (i) prior to its Conversion Date, the aggregate Initial Commitment with respect to such Series of Notes Outstanding, consisting of one or more classes, expressed as a dollar amount, as set forth in the related Supplement and subject to reduction from time to time in accordance with the related Supplement and (ii) after its Conversion Date, the then unpaid principal balance of the Notes of such Series and (B) of Term Notes, the then unpaid principal balance of the Notes of such Series.
Expected Final Payment Date: With respect to any Series, the date on which the principal balance of the Outstanding Notes of such Series is expected to be paid in full. The Expected Final Payment Date for a Series shall be set forth in the related Supplement.
Failed Test Cure: The occurrence of either of the following events: (i) during the twelve month period immediately following the end of the Failed Test Period, the Manager has, with the concurrence of the Independent Accountants, reduced the estimated Residual Value of each type of Managed Container to an amount not greater than the average Sales Proceeds per CEU, for all types of Managed Container during the Failed Test Period, or (ii) the average Sales Proceeds per CEU of all Managed Containers sold during the twelve month period immediately following the end of the Failed Test Period exceeds $850 per CEU.
Failed Test Period: Any Test Period during which the average Sales Proceeds per CEU realized from all sales of Managed Containers during such Test Period is less than Seven Hundred Fifty Dollars ($750).
FATCA: The Foreign Account Tax Compliance Act, as amended.
FATCA Withholding Tax: This term shall have the meaning set forth in Section 209 of this Indenture.
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Finance Lease: Any Lease of a Container whose initial lease agreement provides the Lessee the right or option to purchase the Container at the expiration of the Lease and whose initial lease agreement satisfies the criteria for classification as a capital lease pursuant to GAAP, including Statement of Financial Accounting Standards No. 13, as amended.
Financial Asset: Any “financial asset” as such term is defined in Section 8-102(a)(9) of the UCC.
Fleet: As of any date of determination, both of the following collectively: (i) the Managed Containers and (ii) without duplication of clause (i), all other Containers then managed by Manager.
General Intangibles: Any “general intangible” as such term is defined in Section 9-102(a)(42) of the UCC.
Generally Accepted Accounting Principles or GAAP: With respect to any Person, those generally accepted accounting principles and practices which are recognized as such by (i) the American Institute of Certified Public Accountants acting through its Accounting Principles Board or by the Financial Accounting Standards Board or through other appropriate boards or committees thereof consistently applied as to the party in question or (ii) such other equivalent entity(ies) that has or have authority for promulgating accounting principles and practices applicable to such Person.
Governmental Authority: Any of the following: (i) any national, state or other sovereign government, and any federal, regional, state, provincial, local, city government or other political subdivision, (ii) any governmental or quasi-governmental agency, authority, board, bureau, commission, department, instrumentality or public body, (iii) any court or administrative tribunal or (iv) with respect to any Person, any arbitration tribunal or other non-governmental authority to whose jurisdiction that Person has consented.
Grant: To grant, bargain, sell, convey, assign, transfer, mortgage, pledge, create and perfect a security interest in and right of set-off against, deposit, set over and confirm.
Head Lease Agreement: A Lease with TUS, as lessee, that possesses all of the following attributes:
| (1) | the rent payable by TUS under such Lease with respect to Managed Containers equals at least 98.5% of the amount of rent received by TUS from the applicable TUS Sublessee; |
| (2) | the obligations of TUS under such Lease are secured by a first priority security interest granted by TUS in all TUS Subleases, and the proceeds of such TUS Subleases, in each case, to the extent but only to the extent related to the Managed Containers subject to the Head Lease Agreement; |
| (3) | such Lease requires that all rental payments payable under the TUS Subleases shall be remitted directly to a Master Account; |
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| (4) | such Lease requires that a Managed Container not be subleased by TUS to a Prohibited Person and, to the actual knowledge of TUS, shall not be subleased by a TUS Sublessee to a Prohibited Person or located, operated or used in a Prohibited Jurisdiction unless it is used pursuant to a license granted by the Office of Foreign Assets Control of the United States Treasury Department; |
| (5) | the term of such Head Lease Agreement with respect to a Managed Container shall expire upon the expiration or earlier termination of the TUS Sublease of such Managed Container; |
| (6) | events of default by TUS under such Lease shall include (but not be limited to) the following: |
| i. | any rental or other payments received by TUS with respect to a TUS Sublease (other than (i) amounts permitted to be deducted pursuant to Section 6.1 of the Management Agreement and (ii) amounts equal to the TUS Sublease Spread) with respect to a TUS Sublease of a Managed Container are not remitted to the Trust Account within seven days after the last Business Day of the week during which such payments are received by TUS from the applicable TUS Sublessees, and such condition continues unremedied for three (3) Business Days after such remittance is due; |
| ii. | any representation and warranty made by TUS in such Lease, or in any certificate, report, or financial statement delivered by it pursuant thereto, shall prove to have been untrue in any material and adverse respect when made and shall continue unremedied for a period of 30 days after the earlier to occur of (i) an officer of TUS has actual knowledge thereof or (ii) TUS receives notice thereof; |
| iii. | TUS shall cease to be engaged in the container management business; |
| iv. | the filing of any petition in any bankruptcy proceeding, any assignment for the benefit of creditors, appointment of a receiver of all or any of TUS’s assets, entry into any type of liquidation, whether compulsory or voluntary, or the initiation of any other bankruptcy or insolvency proceeding by or against TUS including, without limitation, any action by TUS to call a meeting of its creditors or to compound with or negotiate for any composition with its creditors; provided that, in the case of any involuntary proceeding, such proceeding is not dismissed or stayed within 60 days; |
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| v. | TUS is unable to pay its debts when due or shall commence an insolvency proceeding; |
| vi. | TUS assigns its interest in such Lease (provided that no sublease of a Managed Container shall be deemed to constitute an assignment of such Lease); |
| vii. | TUS shall have failed to pay any amounts due or suffered to exist an event of default with respect to the term of any indebtedness which singularly or in the aggregate exceeds $1,000,000 and the effect of such failure or event of default is to cause such indebtedness to be immediately declared due and payable prior to the date on which it would otherwise have been due and payable; |
| viii. | either of the following shall occur: (i) TUS shall have Consolidated Funded Debt (as defined in the Management Agreement) in excess of $1,000,000 or (ii) the annual after-tax profit of TUS (calculated on a rolling four quarter basis) shall be less than $200,000; |
| ix. | (i) TUS amalgamates or consolidates with, or merges with or into, another Person, (ii) TUS sells, assigns, conveys, transfers, leases, or otherwise disposes of (in each case, whether in one transaction or a series of transactions) all, or substantially all, of its assets to any person, other than pursuant to subleases of Containers, (iii) any person amalgamates or consolidates with, or merges with or into, TUS, or (iv) the Manager shall fail to own, directly or indirectly, a majority of the equity interests in TUS; |
| x. | a judgment is rendered against TUS that is in excess of $1,000,000 and such judgment is not covered by insurance or bonded or stayed within 30 days of becoming final; or |
| xi. | the lien, created by TUS on its interest in the TUS Subleases and the proceeds thereof (the “Sublease Collateral”) pursuant to the terms of the Head Lease Agreement, shall fail to be perfected or the Sublease Collateral shall be subject to a Lien other than a Permitted Encumbrance. |
Hedging Reference Date: The first date on which the Aggregate Principal Balance equals more than Fifteen Million Dollars ($15,000,000); provided however, that the date will be reset and deemed not to have occurred if the Issuer or an Affiliate thereof shall issue a series of asset-backed term notes and the Outstanding Obligations are repaid with the proceeds of such issuance so that the Aggregate Principal Balance is less than Fifteen Million Dollars ($15,000,000).
Holder: See Noteholder.
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Indebtedness: With respect to any Person means, without duplication, (a) any obligation of such Person for borrowed money, including, without limitation, (i) any obligation incurred through the issuance and sale of bonds, debentures, notes or other similar debt instruments, and (ii) any obligation for borrowed money which is non-recourse to the credit of such Person but which is secured by any asset of such Person, (b) any obligation of such Person on account of deposits or advances, (c) any obligation of such Person for the deferred purchase price of any property or services, except accounts payable arising in the ordinary course of such Person’s business, (d) any obligation of such Person as lessee under a capital lease, (e) any Indebtedness of another secured by a Lien on any asset of such Person, whether or not such Indebtedness is assumed by such Person, (f) any obligation in respect of interest rate or foreign exchange hedging agreements, (g) liabilities and obligations of others for which such Person is directly or indirectly liable, by way of guaranty (whether by direct guaranty, suretyship, discount, endorsement, take-or-pay agreement, agreement to purchase or advance or keep in funds or other agreement having the effect of a guaranty) and (h) any obligation of such Person to reimburse the issuer of any letter of credit issued for the account of such Person upon which a draw has been made.
Indenture: This Indenture, dated as of the Closing Date, between the Issuer and the Indenture Trustee and all amendments hereof and supplements hereto, including, with respect to any Series or Class, the related Supplement.
Indenture Trustee: The Person performing the duties of the Indenture Trustee under this Indenture.
Indenture Trustee Fee: The compensation payable to the Indenture Trustee for its services under this Indenture and the other Related Documents to which it is a party. Indenture Trustee Fees do not include Indenture Trustee Indemnified Amounts.
Indenture Trustee Indemnified Amounts: Any indemnities payable to the Indenture Trustee pursuant to Section 905 of the Indenture.
Independent Accountants: KPMG LLP or other independent certified public accountants of internationally recognized standing selected by Issuer and acceptable to the Administrative Agent and each Series Enhancer.
Initial Commitment: With respect to any Series, the aggregate initial commitment, expressed as a dollar amount, to purchase up to a specified principal balance of all Classes of such Series, which commitments shall be set forth in the related Supplement.
Insolvency Law: The Bankruptcy Code, the Bermuda Companies Act 1981 or similar Applicable Law in any other applicable jurisdiction.
Insolvency Proceeding: Any Proceeding under any applicable Insolvency Law.
Instrument: Any “instrument,” as such term is defined in Section 9-102(a)(47) of the UCC.
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Insurance Agreement: Any Insurance and Indemnification Agreement among the Issuer, the Manager, the Indenture Trustee and the related Series Enhancer.
Interest Expense: For any period, the aggregate amount of interest expense as shown for such period on the income statement of the Issuer, determined in accordance with GAAP.
Interest Payment: For each Series of Notes Outstanding on any Payment Date, all amounts to be paid from the related Series Account on such Payment Date which represent payments of (i) interest (but not Default Interest, Warehouse Note Increased Interest or Step Up Warehouse Fees) on such Series of Notes, (ii) commitment fees or deal agent fees payable to the Holders of such Series of Notes, and (iii) other fees acceptable to any Series Enhancer. If any Interest Payments are paid by a Series Enhancer, then any reimbursement obligations of the Issuer to such Series Enhancer in respect of such payments, including interest thereon shall be included in the calculation of the Interest Payments for such Series and shall be paid to the Series Enhancer to the extent that such payment would not cause a shortfall in other Interest Payments for the Noteholders of such Series.
Interest Rate Hedge Agreement: An interest rate cap agreement, interest rate swap agreement, interest rate ceiling agreement, interest rate floor agreement or any combination of the foregoing or other similar agreement entered into pursuant to Section 627 of this Indenture between the Issuer and an Interest Rate Hedge Provider named therein, including any schedules and confirmations prepared and delivered in connection therewith, pursuant to which the provisions of Section 627(d) of this Indenture, shall be incorporated by reference and recourse by the Interest Rate Hedge Provider to the Issuer is limited to the Collateral and the Available Distribution Amount which pursuant to the terms of the Indenture is available for such purpose.
Interest Rate Hedge Provider: Any Eligible Interest Rate Hedge Provider or any counterparty to a cap, collar or other hedging instrument permitted to be entered into pursuant to this Indenture.
Interest Rate Hedge Provider Required Rating Downgrade Event: Unless waived in writing by Control Party for each Series, the Interest Rate Hedge Provider’s (or any party providing credit support on its behalf) rating with respect to its unsecured and unsubordinated debt, deposit or letter of credit obligations are rated as set forth in the table below:
| Rating of Interest Rate Hedge Provider | ||
| S&P |
Moody’s | |
| Long-term of “BBB” or lower |
Long-term of “Baa2” or lower | |
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Interest Rate Hedge Provider Required Rating Replacement Event: Unless waived in writing by Control Party for each Series, the Interest Rate Hedge Provider’s (or any party providing credit support on its behalf) rating with respect to its unsecured and unsubordinated debt, deposit or letter of credit obligations are rated as set forth in the table below:
| Rating of Interest Rate Hedge Provider | ||
| S&P |
Moody’s | |
|
Long-term of “BB-” or lower |
Long-term of “Ba3” or lower | |
Inventory: Any “inventory,” as such term is defined in Section 9-102(a)(48) of the UCC.
Investment: When used in connection with any Person, any investment by or of that Person, whether by means of purchase or other acquisition of securities of any other Person or by means of loan, advance, capital contribution, guaranty or other debt or equity participation or interest in any other Person including any partnership and joint venture interests of each Person in any other Person. The amount of any Investment shall be the original principal or capital amount thereof, plus additional paid in capital (including, without limitation, share premium and contributed surplus), plus retained earnings, less all returns of principal or equity thereon (and without adjustment by reason of the financial condition of such other Person) and shall, if made by the transfer or exchange of property other than cash, be deemed to have been made in an original principal or capital amount equal to the fair market value of such property.
Investment Property: Any “investment property” as such term is defined in Section 9-102(a)(49) of the UCC.
Issuer: Textainer Marine Containers II Limited, a company organized and existing under the laws of Bermuda.
Issuer Expenses: For any Collection Period an amount equal to overhead and all other costs, expenses and liabilities of the Issuer (other than Operating Expenses paid pursuant to the Management Agreement and any Management Fee) payable during such Collection Period (including costs and expenses permitted to be paid to or by the Manager in connection with the conduct of the Issuer’s business), in each case determined on a cash basis, including but not limited to the following:
| (A) | administration expenses; |
| (B) | accounting and audit expenses of the Issuer, and tax preparation, filing and audit expenses of the Issuer; |
| (C) | premiums for liability, casualty, fidelity, directors and officers and other insurance; |
| (D) | directors’ fees and expenses, including fees and expenses of the Director Services Provider; |
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| (E) | legal fees and expenses; |
| (F) | other professional fees; |
| (G) | taxes (including personal or other property taxes and all sales, value added, use and similar taxes but excluding any such amounts that are included as an Operating Expense); |
| (H) | taxes imposed in respect of any and all issuances of equity interests, stock exchange listing fees, registrar and transfer expenses and trustee’s fees with respect to any outstanding securities of the Issuer; |
| (I) | the fees, if any, due under any Enhancement Agreement, if any, or any agreement relating thereto; |
| (J) | surveillance fees assessed by the Rating Agencies; and |
| (K) | the expenses, if any, incurred by the Manager in performing its duties pursuant to Sections 3.4, 7.11 and 7.12 of the Management Agreement. |
Notwithstanding the foregoing, Issuer Expenses shall not include (i) depreciation or amortization on the Managed Containers, (ii) payments of principal, interest and premium, if any, on or with respect to the Notes, or (iii) funds used to acquire additional Containers. In no event shall the Manager be obligated to pay any Issuer Expenses from its own funds.
Issuer Proceeds: This term shall have the meaning set forth in the Management Agreement.
L/C Cash Account: An Eligible Account to be established by the Issuer in the name of the Indenture Trustee, pursuant to Section 312 of this Indenture, for the benefit of the Noteholders.
Lease: A lease relating to one or more Managed Containers entered into on behalf of the Issuer (which lease may relate to both Managed Containers and other Containers). Leases may be in the name of Manager, any Affiliate thereof or any third-party lessor from whom Manager has acquired management rights. Leases shall include all TUS Subleases.
Legal Final Payment Date: With respect to any Series, the date on which the unpaid principal balance of, and accrued interest on, the Notes of such Series will be due and payable. The Legal Final Payment Date for a Series shall be set forth in the related Supplement.
Letter of Credit: Any irrevocable, transferable, unconditional standby letter of credit issued for the benefit of the Indenture Trustee in accordance with the terms of this Indenture.
Letter of Credit Expiration Date: For any Letter of Credit, the stated expiration date set forth in such Letter of Credit, as such date may be extended in accordance with the terms of such Letter of Credit.
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Letter of Credit Fee: The periodic interest and/or fees payable by the Issuer to a Letter of Credit Provider; provided, however, that in no event shall the Letter of Credit Fee include reimbursement for any draws made on the related Letter of Credit.
Letter of Credit Provider: The issuing bank of a Letter of Credit.
Letter of Credit Right: Any “letter-of-credit right,” as such term is defined in Section 9-102(a)(51) of the UCC.
Lien: Any security interest, lien, charge, pledge, equity or encumbrance of any kind.
LOC Pro Rata Share: With respect to any Letter of Credit, a fraction (stated as percentage) the numerator of which is the available amount of such Letter of Credit and the denominator of which is the then Aggregate Available Amount.
Long-Term Lease: A Lease, other than a Finance Lease, having an initial term of twenty-four (24) months or more.
Managed Containers: As of any date of determination, all Containers then owned by the Issuer.
Management Agreement: The Amended and Restated Management Agreement, dated as of September 15, 2014, between the Manager and the Issuer, as such agreement shall be amended, supplemented or modified from time to time in accordance with its terms.
Management Fee: For any Collection Period, the Management Fee calculated in accordance with the terms of the Management Agreement.
Management Fee Arrearage: For any Payment Date, an amount equal to any unpaid Management Fee from all prior Collection Periods.
Manager: The Person performing the duties of the Manager under the Management Agreement; initially, TEML.
Manager Advance: The term shall have the meaning as set forth in the Management Agreement.
Manager Default: The occurrence of any of the events or conditions set forth in Section 11.1 of the Management Agreement.
Manager Report: A written informational statement in the form attached as Exhibit A to the Management Agreement to be provided by the Manager in accordance with the Management Agreement and furnished to the Indenture Trustee.
Manager Termination Notice: A written notice to be provided to the Manager and other specified Persons pursuant to Section 405(b) of this Indenture.
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Manager Transfer Facilitator: The Person performing the duties of the Manager Transfer Facilitator under the Manager Transfer Facilitator Agreement; initially, ABN AMRO Bank N.V.
Manager Transfer Facilitator Agreement: The Manager Transfer Facilitator Agreement, dated as of Closing Date, by and among the Manager Transfer Facilitator, the Issuer and the Indenture Trustee, as such agreement shall be amended, supplemented or modified from time to time in accordance with its terms.
Manager Transfer Facilitator Fee: This term shall have the meaning set forth in the Manager Transfer Facilitator Agreement.
Managing Officer: Any representative of the Manager involved in, or responsible for, the management of the day-to-day operations of the Issuer and the administration and servicing of the Managed Containers whose name appears on a list of managing officers furnished to Issuer, the Series Enhancer and the Indenture Trustee by the Manager, as such list may from time to time be amended.
Master Account: The term shall have the meaning as set forth in the Management Agreement.
Master Lease: A Lease other than a Long-Term Lease or a Finance Lease.
Material Adverse Change: Any set of circumstances or events which (i) has, or could reasonably be expected to have, any material adverse effect whatsoever upon the validity or enforceability of any Related Document or the security for any of the Notes, (ii) is, or could reasonably be expected to be, material and adverse to the condition (financial or otherwise) or business operations of Issuer or Manager, individually or taken together as a whole, (iii) materially impairs, or could reasonably be expected to materially impair, the ability of Issuer or Manager to perform any of their respective obligations under the Related Documents, or (iv) materially impairs, or could reasonably be expected to materially impair, the ability of Indenture Trustee or the Series Enhancer to enforce any of its or their respective legal rights or remedies pursuant to the Related Documents.
Maximum Letter of Credit Fee: For each Payment Date, an amount not to exceed the sum of (i) a fee accrued for the related Interest Accrual Period, calculated at a rate of 0.625% per annum of the undrawn amount of the Letter of Credit during the related Interest Accrual Period and (ii) interest for the related Interest Accrual Period, calculated at an interest rate of 5.5% per annum, on drawn amounts under the Letter of Credit.
Maximum Principal Withdrawal Amount: With respect to the Legal Final Payment Date of any Series, an amount equal to the product of (i) all funds and Eligible Investments on deposit in the Restricted Cash Account on such Payment Date (calculated after giving effect to the disbursements to be made from the Restricted Cash Account on such Payment Date to pay interest shortfalls on all Series of Notes) and (ii) a fraction, the numerator of which is the then unpaid principal balance of the Series for which the Legal Final Payment Date has occurred and the denominator of which is the then Aggregate Principal Balance.
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Minimum Principal Payment Amount: With respect to any Series, the amount identified as such in the related Supplement.
Moody’s: Moody’s Investors Service, Inc. and any successor thereto.
Net Book Value: For purposes of the calculation of the Asset Base, Asset Base Deficiency and any related calculations, including without limitation calculations pursuant to Sections 606, 627, 801 and 1201 of this Indenture, one of the following:
(i) With respect to a Container that is not subject to Finance Lease, as of any date of determination, an amount equal to the Original Equipment Cost of such Container, less any accumulated depreciation calculated utilizing the Depreciation Policy; and
(ii) With respect to a Container that is subject to a Finance Lease, the then “investment” in such Finance Lease, as determined in accordance with GAAP.
Net Issuer Proceeds: This term shall have the meaning set forth in the Management Agreement.
Noteholder or Holder: The Person in whose name a Note is registered in the Note Register, except that, solely for the purposes of giving any consent, waiver, request or demand, the interest evidenced by any Note registered in the name of either of the Sellers or the Issuer or any Affiliate of any of them known to be such an Affiliate by the Indenture Trustee shall not be taken into account in determining whether the requisite percentage of the Aggregate Principal Balance of the Outstanding Notes necessary to effect any such consent, waiver, request or demand is represented.
Noteholder FATCA Information: Information sufficient to eliminate the imposition of, or determine the amount of, U.S. withholding tax under FATCA.
Noteholder Tax Identification Information: Properly completed and signed tax certifications (generally, in the case of U.S. Federal Income Tax, IRS Form W 9 (or applicable successor form) in the case of a person that is a “United States Person” within the meaning of Section 7701(a)(30) of the Code or the appropriate IRS Form W 8 (or applicable successor form) in the case of a person that is not a “United States Person” within the meaning of Section 7701(a)(30) of the Code).
Note Purchase Agreement: Any underwriting agreement or other agreement for the Notes of any Series or Class.
Note Register: The register maintained by the Indenture Trustee pursuant to Section 205 of this Indenture.
Note Registrar: This term shall have the meaning set forth in Section 205(a) of this Indenture.
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Notes: One or more of the promissory notes or other securities executed by the Issuer pursuant to this Indenture and authenticated by, or on behalf of, the Indenture Trustee, substantially in the form attached to the related Supplement.
OFAC: The Office of Foreign Assets Control of the United States Department of the Treasury.
Officer’s Certificate: A certificate signed by a duly authorized officer of the Person who is required to sign such certificate.
Operating Expenses: This term shall have the meaning set forth in the Management Agreement.
Opinion of Counsel: A written opinion of counsel, in each case reasonably acceptable to the Person or Persons to whom such Opinion of Counsel is to be delivered. Unless otherwise specified, the counsel rendering such opinion may be counsel employed by the Issuer, any Seller, or the Manager, as the context may require. The counsel rendering such opinion may rely (i) as to factual matters, on a certificate of a Person whose duties relate to the matters being certified, and (ii) insofar as the opinion relates to local law matters, upon opinions of local counsel.
Original Equipment Cost: With respect to a Managed Container, one of the following:
(A) for each Managed Container acquired by the Issuer from any Special Purpose Entity, the original equipment cost reflected on the books and records of such Special Purpose Entity;
(B) with respect to each Managed Container originally acquired by TL directly from the manufacturer of such Managed Container, an amount equal to the sum of (i) the vendor’s or manufacturer’s invoice price of the related Container, (ii) all reasonable and customary inspection, transport, and initial positioning costs necessary to put such Container in service and (iii) reasonable acquisition fees and other fees not to exceed 2.5% of the amounts described in clauses (i) and (ii) above; or
(C) with respect to each Managed Container originally acquired by TL from a third party that is not the manufacturer of such Managed Container, the cash purchase price paid by TL for such Managed Container.
Outstanding: When used with reference to the Notes and as of any particular date, any Note theretofore and thereupon being authenticated and delivered except:
(i) any Note canceled by the Indenture Trustee or proven to the satisfaction of the Indenture Trustee to have been duly canceled by the Issuer at or before said date;
(ii) any Note, or portion thereof, called for payment or redemption for which monies equal to the principal amount or redemption price thereof, as the case may be, with interest to the date of maturity or redemption, shall have theretofore been deposited with the Indenture Trustee (whether upon or prior to maturity or the redemption date of such Note);
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(iii) any Note in lieu of or in substitution for which another Note shall subsequently have been authenticated and delivered; and
(iv) any Note held by the Issuer, the Sellers or any Affiliate of either the Issuer or Sellers.
Notwithstanding the foregoing, any Note on which any portion of principal or interest has been paid by a Series Enhancer pursuant to an Enhancement Agreement, shall be Outstanding until such Series Enhancer has been reimbursed in full therefor in accordance with the related Enhancement Agreement.
Outstanding Obligations: As of any date of determination for any Series of Notes issued under this Indenture or any Supplement thereto, an amount equal to the sum of (i) all accrued interest payable on such Series of Notes (including, for any Series of Notes for which the related Noteholder has funded or maintains its investment through the issuance of commercial paper, interest accrued through the last maturing tranche, interest or fixed period, as applicable), (ii) the then outstanding principal balance of such Series of Notes, (iii) all other amounts owing by the Issuer to Noteholders or to any Person under this Indenture or any Supplement hereto and any amounts owed to the Series Enhancer and (iv) amounts owing by the Issuer under any Interest Rate Hedge Agreement.
Overdue Rate: The rate of interest specified in the related Supplement applicable to a Note then earning Default Interest, but in no event to exceed two percent (2%) over the interest rate per annum otherwise then applicable to such Note.
Ownership Interest: An ownership interest in a Book-Entry Note.
Payment Date: With respect to any Series, the fifteenth (15th) calendar day of each calendar month; provided, however, if such day is not a Business Day, then the immediately succeeding Business Day.
Permitted Encumbrance: With respect to the Collateral, any of the following: (i) Liens for taxes not yet due or which are being contested in good faith by appropriate Proceedings and for the payment of which adequate reserves are provided by the Manager; (ii) with respect to the Managed Containers, carriers’, warehousemen’s, mechanics’, or other like Liens arising in the ordinary course of business and relating to amounts not yet due or which shall not have been overdue for a period of more than sixty (60) days or which are being contested in good faith by appropriate Proceedings and for the payment of which adequate reserves are provided for by the Manager; (iii) with respect to the Managed Containers, Leases entered into in the ordinary course of business providing for the leasing of Managed Containers; (iv) Liens created by this Indenture; and (v) the rights of the Manager under the Management Agreement; provided, however, that Proceedings described in (i) and (ii) above could not reasonably subject the Series Enhancer, the Indenture Trustee or the Noteholders to any civil or criminal penalty or liability or involve any material risk of loss, sale or forfeiture of any of the Collateral.
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Permitted Payment Date Withdrawals: Both of the following with respect to each Series of Notes: (i) on any Payment Date other than the Legal Final Payment Date for a Series of Notes, the amounts required to pay any shortfall in interest on each Series of Notes (calculated after giving effect to the application of all Available Distribution Amounts on such Payment Date); and (ii) on the Legal Final Payment Date for a Series of Notes, the amount (not to exceed the Maximum Principal Withdrawal Amount for such Series of Notes) required to pay any shortfall in the unpaid principal balance of such Series of Notes (calculated after giving effect to the application of the Available Distribution Amount on such Payment Date).
Person: An individual, a partnership, a limited liability company, a corporation, a joint venture, an unincorporated association, a joint-stock company, a trust, or other entity or a Governmental Authority.
Plan: An “employee benefit plan,” as such term is defined in Section 3(3) of ERISA, or a plan described in Section 4975(e)(1) of the Code of the Issuer or its ERISA Affiliates.
Policy: This term shall have the meaning set forth in each Supplement.
Pre-Adjustment Issuer Proceeds: This term shall have the meaning set forth in the Management Agreement.
Pre-Funding Account: An account that is designated as a “Pre-Funding Account” for any Series of Notes in the Supplement for such Series, to be used solely to hold funds that will be used to acquire additional Containers from the Sellers during a specified period of time following the issuance of such Series of Notes.
Premium: A fee or premium payable to a Series Enhancer for guaranteeing all or a portion of the Notes of a Series (or a Class thereof).
Prepayment: Any mandatory or optional prepayment of principal of any Series of Notes prior to the Expected Final Payment Date of such Series including, without limitation, any prepayment made in accordance with the provisions of Article VII of this Indenture.
Principal Terms: With respect to any Series, all of the following: (i) the name or designation of such Series; (ii) the initial principal amount of the Notes to be issued for such Series (or method for calculating such amount) and the Minimum Principal Payment Amounts and the Scheduled Principal Payment Amount for each Payment Date (or method for calculating such amount); (iii) the interest rate to be paid with respect to each Class of Notes for such Series (or method for the determination thereof); (iv) the Payment Date and the date or dates from which interest shall accrue and principal shall be paid; (v) the designation of any Series Accounts and the terms governing the operation of any such Series Accounts including the Permitted Payment Date Withdrawals with respect to such Series; (vi) the terms of any form of Series Enhancement with respect thereto; (vii) the Expected Final Payment Date for the Series; (viii) the Legal Final Payment Date for the Series; (ix) the number of Classes of Notes of the Series and, if the Series consists of more than one Class, the rights and priorities of each such Class; (x) the priority of the Series with respect to any other Series; (xii) the designation of such Series on its Series Issuance Date as either a Term Note or a Warehouse Note; and (xiii) the Control Party with respect to such Series; and (xii) any other terms of such Series.
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Proceeding: Any suit in equity, action at law, or other judicial or administrative proceeding.
Proceeds: Any “proceeds,” as such term is defined in Section 9-102(a)(64) of the UCC.
Prohibited Jurisdiction: Any country or jurisdiction, from time to time, that is the subject of a prohibition order (or any similar order or directive), sanctions or restrictions promulgated or administered by the Office of Foreign Assets Control of the United States Treasury Department.
Prohibited Person: Any of the following currently or in the future: (i) a person named on the list of Specially Designated Nationals or Blocked Persons maintained by OFAC available at http://www.treas.gov/offices/eotffc/ofac/sdn/index.html, or (ii) (A) an agency of the government of a Prohibited Jurisdiction, (B) an organization controlled by a Prohibited Jurisdiction, or (C) a person resident in a Prohibited Jurisdiction, to the extent the agency, organization, or person is subject to a sanctions program administered by OFAC.
Prospective Owner: This term shall have the meaning as set forth in Section 205 of this Indenture.
Purchaser Letter: This term shall have the meaning set forth in Section 205(h) of this Indenture.
Rated Institutional Noteholder: An institutional Noteholder whose long term unsecured debt obligations are then rated “BBB-” or better by Standard & Poor’s and “Baa3” or better by Moody’s.
Rating Agency or Rating Agencies: With respect to any Outstanding Series, each statistical rating agency selected by the Issuer (with the approval of any Series Enhancer for such Series) to rate such Series which has an outstanding public rating with respect to such Series.
Rating Agency Condition: Each of the following:
(i) With respect to (A) the issuance of an additional Series, (B) any Change in Control of the Manager, (C) any waiver of an Event of Default or Manager Default or (D) any other action expressly specified in any Related Document as requiring the affirmative approval or consent of each Rating Agency, the Rating Agency Condition shall mean (1) the confirmation issued in writing by each Rating Agency of any Series of Notes then Outstanding that the rating(s) on such existing Series will not be downgraded or withdrawn as the result of the issuance of such additional Series, Change of Control, waiver or other action and (2) any other requirement for the fulfillment of the Rating Agency Condition that may be set forth in a Supplement for any Series of Notes which is not rated shall be satisfied; and
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(ii) With respect to any other action, the Rating Agency Condition shall mean (1) that each Rating Agency of any Series of Notes then Outstanding shall have been given ten (10) Business Days (or such shorter period as is practicable or acceptable to such Rating Agency) prior notice thereof and, within such notice period, such Rating Agency shall not have notified the Seller, the Indenture Trustee or Issuer in writing that such action will result in a downgrade, qualification or withdrawal of any such outstanding rating and (2) any other requirement for the fulfillment of the Rating Agency Condition that may be set forth in a Supplement for any Series of Notes which is not rated shall be satisfied.
Record Date: With respect to any Payment Date, the last Business Day of the month preceding the month in which the related Payment Date occurs, except as otherwise provided with respect to a Series in the related Supplement.
Regulation S Book-Entry Notes: Collectively, the Unrestricted Book-Entry Notes and the Regulation S Temporary Book-Entry Notes.
Regulation S Temporary Book-Entry Notes: The temporary book-entry notes in fully registered form without coupons that represent the Notes sold in offshore transactions within the meaning of and in compliance with Regulation S under the Securities Act and which will be registered with the Depositary.
Reimbursement Agreement: An agreement between the Issuer and a Letter of Credit Provider with respect to certain terms and conditions under which a letter of credit is issued, including Letter of Credit Fees payable by the Issuer and the reimbursement obligations of the Issuer.
Reimbursement Amount: Reimbursement and other amounts payable by the Issuer to a Series Enhancer under an Insurance Agreement, Policy or a premium letter for the related Series Enhancer.
Related Documents: With respect to any Series, each Container Transfer Agreement, the Container Sale Agreement, this Indenture, the related Supplement, the Notes of such Series, the Note Purchase Agreement for such Series, the Management Agreement, the Enhancement Agreement for such Series (if any), each Policy, each Letter of Credit, each Reimbursement Agreement, each Interest Rate Hedge Agreement (upon execution thereof), the Insurance Agreement for such Series (if any), each premium letter and each other document or instrument executed in connection with the issuance of any Series, as any of the foregoing may from time to time be amended, modified, supplemented or renewed.
Release Date: The date on which Released Assets are transferred by the Issuer to any Seller or any Affiliate of any Seller pursuant to the terms of the Related Documents.
Released Assets: This term shall have the meaning set forth in the Container Sale Agreement or each Container Transfer Agreement (as applicable).
Replacement Manager: Any Person appointed to replace the then Manager as manager of the Managed Containers, which Person shall be acceptable to the Requisite Global Majority.
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Reportable Event: This term shall have the meaning given to such term in ERISA.
Required Deposit Rating: With regard to an institution, the short-term unsecured senior debt rating of such institution is in the highest category by each Rating Agency.
Requisite Global Majority: As of any date of determination, the determination of whether a Requisite Global Majority exists with respect to a particular course of action shall be determined in accordance with Section 503 of this Indenture.
Residual Deficiency: The condition that will exist on any Payment Date if (A) a Failed Test Period has occurred and (B) both (i) twelve months shall have elapsed since the occurrence of such Failed Test Period and (ii) a Failed Test Cure has not occurred with respect to such Failed Test Period. If a Residual Deficiency has occurred, such Residual Deficiency shall continue until waived by the Requisite Global Majority.
Residual Requirement: The requirement that shall be satisfied if the average Sales Proceeds for the most recently concluded six (6) month period, equal or exceed (i) $550 per CEU for dry freight and specialized Containers, (ii) $3,000 per unit for 40-foot high cube refrigerated Containers and (iii) $2,000 per unit for 20-foot refrigerated Containers; provided, however, if for any calculation period the total number of refrigerated Containers sold is less than one hundred (100), all such refrigerated Container sales for such calculation period will be subject to clause (i).
A failure to comply with the Residual Requirement is not curable, and such noncompliance can be waived only by (i) the Requisite Global Majority and (ii) if specified in a Supplement, the percentage of Noteholders of such Series set forth in such Supplement.
Residual Value: A stated residual value determined in accordance with GAAP, provided that the stated residual value may not exceed the values shown on Exhibit B (which exhibit may not be amended in a manner that would increase the assumed residual value without the approval of all of the Noteholders).
Restricted Cash Account: This term shall have the meaning set forth in Section 306 of this Indenture.
Restricted Cash Amount: As of any Payment Date, the aggregate amount of cash and Eligible Investments required to be deposited or maintained in the Restricted Cash Account, which shall be equal to the difference of:
(A) the Restricted Cash Target Amount as of such Payment Date, over
(B) an amount equal to the sum of (i) the Aggregate Available Amount on such Payment Date (calculated after giving effect to all draws made on such Payment Date) and (ii) all cash and Eligible Investments then on deposit in the L/C Cash Account (calculated after giving effect to all draws on such date); provided, however, that the Restricted Cash Amount shall not in any event be less than an amount equal to the product of (i) one-twelfth, (ii) the weighted average (based on the then Aggregate Principal Balance, calculated after giving effect
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to any principal payments paid on such Payment Date) of the annual rates of interest payable on all Series of Notes then Outstanding (or, if any Series bears interest at a variable rate of interest, the interest rate then in effect on such Series of Notes), and (iii) the Aggregate Principal Balance, calculated after giving effect to all advances of principal and principal payments made on such Payment Date.
Restricted Cash Target Amount: As of any Payment Date, an amount equal the product of (i) five (5), (ii) one-twelfth, (iii) the weighted average (based on the then Aggregate Principal Balance, calculated after giving effect to any principal payments paid on such Payment Date) of the annual rates of interest payable on all Series of Notes then Outstanding (or, if any Series bears interest at a variable rate of interest, the interest rate then in effect on such Series of Notes), and (iv) the Aggregate Principal Balance, calculated after giving effect to all advances of principal and principal payments made on such Payment Date; provided, however, that, on any Payment Date on or after the Conversion Date for any Series of Warehouse Notes, if there is an incremental increase in the weighted average of the annual rates of interest in clause (iii) above resulting from such Conversion Date, then any resulting increase in the required amount of the Restricted Cash Amount shall be deposited or maintained in the Restricted Cash Account, in equal amounts, over the course of three (3) consecutive Payment Dates (commencing on such Payment Date).
Rule 144A: Rule 144A under the Securities Act, as such Rule may be amended from time to time.
Rule 144A Book-Entry Notes: The permanent book-entry notes in fully registered form without coupons that represent the Notes sold in reliance on Rule 144A and which will be registered with the Depositary.
Sale: This term shall have the meaning set forth in Section 816 of this Indenture.
Sales Proceeds: This term shall have the meaning set forth in the Management Agreement.
Scheduled Principal Payment Amount: With respect to any Series of Notes, the amount identified as such in the related Supplement.
Securities Account: Any “securities account,” as such term is defined in Section 8-501 of the UCC.
Securities Act: The Securities Act of 1933, as amended from time to time.
Securities Entitlement: Any “securities entitlement,” as such term is defined in Section 8-102(a)(17) of the UCC.
Securities Intermediary: Any “securities intermediary”, as such term is defined in Section 8-102 of the UCC.
Seller(s): Any or all, as the context may require, of TL and any Special Purpose Entity.
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Senior Asset Base: As of any date of determination, an amount equal to the sum of (a) the product of (i) the Advance Rate and (ii) the Aggregate Net Book Value, determined as of such date of determination, (b) an amount equal to the sum of (x) the amount of cash and Eligible Investments then on deposit in the Restricted Cash Account and the L/C Cash Account on such date of determination and (y) the Aggregate Available Amount, in each case, after giving effect to all deposits to, withdrawals from the Restricted Cash Account and the L/C Cash Account, and draws on the Eligible Letter(s) of Credit on such date and (c) the amount of cash and Eligible Investments on deposit in any Pre-Funding Account as of such date (and in the case of clause (c), solely as funded from an issuance of a Series of Notes).
Senior Notes: With respect to any Series of Notes, those Note(s) of such Series, if any, that are designated as “Senior Notes” in the related Supplement. Notwithstanding the foregoing, the Series 2012-1 Notes shall be deemed to constitute “Senior Notes”.
Senior Series: Any Series of Senior Notes issued pursuant to a Supplement.
Senior Warehouse Notes: Any Series of Warehouse Notes that constitute Senior Notes.
Series: Any series of Notes established pursuant to a Supplement.
Series 2012-1 Notes: The Series 2012-1 Notes established pursuant to the Series 2012-1 Supplement.
Series 2012-1 Supplement: The Amended and Restated Series 2012-1 Supplement, dated as of the Restatement Date, between the Issuer and the Indenture Trustee, as such agreement may be amended, modified and restated from time to time in accordance with its terms.
Series Account: Any deposit, trust, escrow or similar account maintained for the benefit of the Noteholders of any Series or Class as specified in the related Supplement.
Series Enhancement: The rights and benefits provided to the Noteholders of any Series or Class pursuant to any surety bond, financial guaranty insurance policy, insurance agreement or other similar arrangement. The subordination of any Class to another Class shall not be deemed to be a Series Enhancement.
Series Enhancer: For each Series, the Person as set forth in the related Supplement then providing any Series Enhancement, other than the Noteholders of any Class which is subordinated to another Class.
Series Enhancer Expenses: For any Collection Period, an amount equal to all reasonable out-of-pocket expenses incurred by any Series Enhancer pursuant to the Related Documents.
Series Issuance Date: With respect to any Series, the date on which the Notes of such Series are to be originally issued in accordance with Section 1006 of this Indenture and the related Supplement.
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Special Purpose Entity: A trust, partnership, corporation, exempted company with limited liability or other entity established and wholly-owned (directly or indirectly) by TL and/or one or more subsidiaries wholly-owned (directly or indirectly) by TL (each an “Entity”) to acquire Containers, leases, other related assets and proceeds of the foregoing, provided that:
(a) no portion of the indebtedness or any other obligations (contingent or otherwise) of such Entity (i) is guaranteed by TL or TGH (excluding guarantees of obligations pursuant to standard securitization undertakings), (ii) is recourse to or obligates TL or TGH in any way other than pursuant to standard securitization undertakings or (iii) subjects any property or asset of TL or TGH, directly or indirectly, contingently or otherwise, to the satisfaction of obligations of such Entity incurred in such transactions, other than pursuant to standard securitization undertakings;
(b) none of TL or TGH has any material contract, agreement, arrangement or understanding with such Entity other than on terms no less favorable to TL or TGH than those that might be obtained at the time from persons that are not affiliates of such Entity, other than fees payable in the ordinary course of business in connection with servicing and managing containers; provided that a sale of Containers at net book value shall be deemed to comply with this paragraph (b); and
(c) none of TL or TGH has any obligation to maintain or preserve the financial condition of such Entity or cause such Entity to achieve certain levels of operating results.
Notwithstanding the foregoing, each of TMCLIII and TMCLIV constitutes a Special Purpose Entity.
Standard & Poor’s: Standard and Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc., and any successor thereto.
Step Up Warehouse Fee: The incremental fee (whether or not characterized as a fee in the relevant Related Documents) payable by the Issuer on the Warehouse Notes upon the occurrence and continuance of an Early Amortization Event or Event of Default.
Subordinate Advance Rate: The advance rate percentage for a Series of Subordinate Notes, as set forth in the Supplement for such Series.
Subordinate Asset Base: As of any date of determination, an amount equal to the excess (not less than zero) of (1) the sum of (a) an amount equal to the product of (i) the Subordinate Advance Rate and (ii) the Aggregate Net Book Value, determined as of such date of determination, (b) an amount equal to the sum of (x) the amount of cash and Eligible Investments then on deposit in the Restricted Cash Account and the L/C Cash Account on such date of determination and (y) the Aggregate Available Amount, in each case, after giving effect to all deposits to, withdrawals from the Restricted Cash Account and the L/C Cash Account, and draws on the Eligible Letter(s) of Credit on such date (c) any amount on deposit in any Pre-Funding Account as of such date, minus (2) the sum of the then unpaid principal balances on such date of determination of all Series of Senior Notes then Outstanding, such then unpaid principal balances to be determined after giving effect to (i) all advances of principal made by the Noteholders of Senior Notes on such date and (ii) principal payments actually paid in respect of Senior Notes by the Issuer to the Noteholders thereof on such date.
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Subordinate Notes: With respect to any Series of Notes, those Note(s), if any, that are designated as “Subordinate Notes” in the related Supplement.
Subordinate Series: Any Series of Subordinate Notes issued pursuant to a Supplement.
Subordinate Supplemental Principal Payment Amount: With respect to any Series of Subordinate Notes on any Payment Date, one of the following:
(i) If on any Payment Date a Residual Deficiency shall exist and shall not have been waived by the Requisite Global Majority, an amount equal to the excess (if any) of (x) the unpaid principal balance of such Subordinate Notes (after giving effect to all payments of Minimum Principal Payment Amounts and Scheduled Principal Payment Amounts actually paid on such Subordinate Notes on such Payment Date) over (y) the excess of (A) Subordinate Asset Base on such Payment Date less (B) the product of fifteen percent (15%) and the cumulative amount of all Sales Proceeds which have accrued since the date on which such Subordinate Residual Deficiency initially occurred; or
(ii) On any Payment Date not addressed in clause (i) above, an amount equal to the excess, if any, of (x) the then unpaid principal balance of such Subordinate Notes (after giving effect to all payments of Minimum Principal Payment Amounts and Scheduled Principal Payment Amounts actually paid on such Subordinate Notes on such Payment Date), over (y) the Subordinate Asset Base on such Payment Date.
Subsidiary: A subsidiary of a Person means any corporation, association, partnership, limited liability company, joint venture or other business entity of which more than fifty percent (50.0%) of the voting stock or other equity interests (in the case of Persons other than corporations) is owned or controlled directly or indirectly by such Person, or one or more of the Subsidiaries of such Person, or a combination thereof.
Supplement: Any supplement to the Indenture executed in accordance with Article X of this Indenture.
Supplemental Principal Payment Amount: With respect to any Series of Senior Notes on any Payment Date, one of the following:
(i) If on any Payment Date a Residual Deficiency shall exist and shall not have been waived by the Requisite Global Majority, an amount equal to the excess (if any) of (x) the unpaid principal balance of such Senior Notes (after giving effect to all payments of Minimum Principal Payment Amounts and Scheduled Principal Payment Amounts actually paid on such Senior Notes on such Payment Date) over (y) the excess of (A) Senior Asset Base on such Payment Date less (B) the product of fifteen percent (15%) and the cumulative amount of all Sales Proceeds which have accrued since the date on which such Residual Deficiency initially occurred; or
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(ii) On any Payment Date not addressed in clause (i) above, an amount equal to the excess, if any, of (x) the then unpaid principal balance of such Senior Notes (after giving effect to all payments of Minimum Principal Payment Amounts and Scheduled Principal Payment Amounts actually paid on such Senior Notes on such Payment Date), over (y) the Senior Asset Base on such Payment Date.
Supporting Obligation: Any “supporting obligation” as defined in Section 9-102(a)(77) of the UCC.
TEML: Textainer Equipment Management Limited, a company continued into and existing under the laws of Bermuda, and its successors and permitted assigns.
Term Lease: This term shall have the meaning set forth in the Management Agreement.
Term Note: Any Note that pays principal and interest on each Payment Date from and after its date of issuance.
Test Period: With respect to any Payment Date, the period of six consecutive calendar months ending on the last day of the calendar month immediately preceding the month in which such Payment Date occurs.
TEU: A twenty (20) foot equivalent unit, an industry standard measure based on the physical dimensions of a Container.
TGH: Textainer Group Holdings Limited, a company with limited liability incorporated under the laws of Bermuda, including its permitted successors and assigns.
TL: Textainer Limited, a company incorporated and existing under the laws of Bermuda, including its permitted successors and assigns.
TMCL III: Textainer Marine Containers Limited III, a company incorporated and existing under the laws of Bermuda, including its permitted successors and assigns.
TMCL IV: Textainer Marine Containers Limited IV, a company incorporated and existing under the laws of Bermuda, including its permitted successors and assigns.
Transferred Assets: (i) the “Transferred Assets” (as defined in the Container Sale Agreement) transferred by TL to the Issuer thereunder, and (ii) the “Transferred Assets” (as defined in each Container Transfer Agreement) transferred by a Special Purpose Entity to the Issuer thereunder.
Trust Account: The account or accounts established by the Indenture Trustee, in the name of the Indenture Trustee, for the benefit of the Noteholders, each Interest Rate Hedge Provider and each Series Enhancer pursuant to Section 302 hereof.
TUS: This term shall have the meaning set forth in the Management Agreement.
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TUS Sublease Spread: This term shall have the meaning set forth in the Management Agreement.
TUS Sublease: This term shall have the meaning set forth in the Management Agreement.
TUS Sublessee: This term shall have the meaning set forth in the Management Agreement.
UCC: The Uniform Commercial Code as the same may, from time to time, be in effect in the State of New York; provided, however, in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection or priority of Indenture Trustee’s security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of New York, the term “UCC” shall mean the Uniform Commercial Code as in effect in such other jurisdiction for purposes of the provisions hereof relating to such attachment, perfection of priority and for purposes of definitions related to such provisions.
Unrestricted Book-Entry Notes: The permanent book-entry notes in fully registered form without coupons that are exchangeable for Regulation S Temporary Book-Entry Notes after the expiration of the 40-day distribution compliance period and which will be registered with the Depositary.
U.S. Lease Contract: The Container Management Streamlining Contract (Contract No. DAMTO1-03-D-0173) effective as of June 24, 2003, between TEML (US) and The Surface Deployment and Distribution Command (f/k/a The Military Traffic Management Command), as such agreement may be further amended, supplemented or modified from time to time in accordance with its terms.
Warehouse Note: Any Series of Notes that has a revolving period during which periodic payments of principal are not scheduled to be paid.
Warehouse Note Increased Interest: The incremental interest payable by the Issuer on the Warehouse Notes upon the occurrence of a Conversion Event.
Warranty Purchase Amount: With respect to any Container, (i) the “Warranty Purchase Amount” (as defined in each Container Sale Agreement) or (ii) the sum of the “Agreed Values” (as defined in each Container Transfer Agreement) of “Non-Conforming Assets” (as defined in each Container Transfer Agreement) owned by the Issuer, as applicable.
Weighted Average Age: For any date of determination shall be equal to the quotient of (A) the sum of the products of (i) the age in years (determined from the date of the initial sale thereof by the manufacturer) of each Managed Container being evaluated, multiplied by (ii) the Net Book Value of such Managed Container being evaluated, divided by (B) the sum of the Net Book Values of all Managed Containers being evaluated.
Wells Fargo Securities: Wells Fargo Securities, LLC, a Delaware limited liability company, and its permitted successors and assigns.
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Section 102. Other Definitional Provisions.
(a) With respect to any Series, all terms used herein and not otherwise defined herein shall have meanings ascribed to them in the related Supplement.
(b) All terms defined in this Indenture shall have the defined meanings when used in any agreement, certificate or other document made or delivered pursuant hereto, including any Supplement, unless otherwise defined therein.
(c) As used in this Indenture and in any certificate or other document made or delivered pursuant hereto or thereto, accounting terms not defined in this Indenture or in any such certificate or other document, and accounting terms partly defined in this Indenture or in any such certificate or other document to the extent not defined, shall have the respective meanings given to them under GAAP, consistently applied. To the extent that the definitions of accounting terms in this Indenture or in any such certificate or other document are inconsistent with the meanings of such terms under GAAP or regulatory accounting principles, the definitions contained in this Indenture or in any such certificate or other document shall control.
(d) With respect to any Collection Period, the “related Record Date,” the “related Determination Date,” and the “related Payment Date,” shall mean the Record Date occurring on the last Business Day of such Collection Period and the Determination Date and Payment Date occurring in the month immediately following the end of such Collection Period.
(e) With respect to any Series of Notes, the “related Supplement” shall mean the Supplement pursuant to which such Series of Notes is issued and the “related Series Enhancer” shall mean the Series Enhancer for such Series of Notes.
(f) References to the Manager’s financial statements shall mean the financial statements of the Manager and its consolidated Subsidiaries.
(g) With respect to any ratio analysis required to be performed as of the most recently completed fiscal quarter, the most recently completed fiscal quarter shall mean the fiscal quarter for which financial statements were required hereunder to have been delivered.
(h) With respect to the calculation of any financial ratio set forth in this Indenture or any other Related Document, the components of such calculations are to be determined in accordance with GAAP, consistently applied, with respect to the Issuer or the Manager, as the case may be.
Section 103. Computation of Time Periods.
Unless otherwise stated in this Indenture or any Supplement issued pursuant to the terms hereof, in the computation of a period of time from a specified date to a later specified date, the word “from” means “from and including” and the words “to” and “until” each means “to but excluding.”
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Section 104. Statutory References.
References in this Indenture and any other Related Document to any section of the UCC shall mean, on or after the effective date of adoption of any revision to the UCC in the applicable jurisdiction, such revised or successor section thereto.
Section 105. Duties of Administrative Agent and Manager Transfer Facilitator.
All of the duties and responsibilities of the Administrative Agent and Manager Transfer Facilitator set forth in this Indenture, any Supplement or any other Related Document issued pursuant hereto are subject in all respects to the terms and conditions of the Administration Agreement and the Manager Transfer Facilitator Agreement, respectively. Each of the Issuer, the Indenture Trustee and, by acceptance of its Notes, each Noteholder hereby acknowledges the terms of the Administration Agreement and the Manager Transfer Facilitator Agreement, respectively, and agrees to cooperate with the Administrative Agent and the Manager Transfer Facilitator in their execution of its respective duties and responsibilities.
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ARTICLE II
THE NOTES
Section 201. Authorization of Notes.
(a) The number of Series or Classes of Notes which may be created by this Indenture is not limited; provided, however, that, the issuance of any Series of Notes shall not result in, or with the giving of notice or the passage of time or both would result in, the occurrence of an Early Amortization Event. The aggregate principal amount of Notes of each Series which may be issued, authenticated and delivered under this Indenture is not limited except as shall be set forth in any Supplement and as restricted by the provisions of this Indenture.
(b) The Notes issuable under this Indenture shall be issued in such Series, and such Class or Classes within a Series, as may from time to time be created by a Supplement pursuant to this Indenture. Each Series shall be created by a different Supplement and shall be designated to differentiate the Notes of such Series from the Notes of any other Series.
(c) Upon satisfaction of and compliance with the requirements and conditions to closing set forth in the related Supplement, Notes of the Series to be executed and delivered on a particular Series Issuance Date pursuant to such related Supplement, may be executed by the Issuer and delivered to the Indenture Trustee for authentication following the execution and delivery of the related Supplement creating such Series or from time to time thereafter, and the Indenture Trustee shall authenticate and deliver Notes upon an Issuer request set forth in an Officer’s Certificate of the Issuer signed by one of its Authorized Signatories, without further action on the part of the Issuer.
Section 202. Form of Notes; Book-Entry Notes.
(a) Notes of any Series or Class may be issued, authenticated and delivered, at the option of the Issuer, as Regulation S Book-Entry Notes, Rule 144A Book-Entry Notes, or as Definitive Notes or as may otherwise be set forth in a Supplement and shall be substantially in the form of the exhibits attached to the related Supplement. Notes of each Series shall be dated the date of their authentication and shall bear interest at such rate, be payable as to principal, premium, if any, and interest on such date or dates, and shall contain such other terms and provisions as shall be established in the related Supplement. Except as otherwise provided in any Supplement, the Notes shall be issued in minimum denominations of $250,000 and in integral multiples of $250,000 in excess thereof; provided that one Note of each Class may be issued in a nonstandard denomination.
(b) If the Issuer shall choose to issue Regulation S Book-Entry Notes or Rule 144A Book-Entry Notes, such notes shall be issued in the form of one or more Regulation S Book-Entry Notes or one or more Rule 144A Book-Entry Notes which (i) shall represent, and shall be denominated in an aggregate amount equal to, the aggregate principal amount of all Notes to be issued hereunder, (ii) shall be delivered as one or more Notes held by the Book-Entry Custodian, or, if appointed to hold such Notes as provided below, the Notes shall be registered in
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the name of the Depositary or its nominee, (iii) shall be substantially in the form of the exhibits attached to the related Supplement, with such changes therein as may be necessary to reflect that each such Note is a Book-Entry Note, and (iv) shall each bear a legend substantially to the effect included in the form of the exhibits attached to the related Supplement.
(c) Notwithstanding any other provisions of this Section 202 or of Section 205, unless and until a Book-Entry Note is exchanged in whole for Definitive Notes, a Book-Entry Note may be transferred, in whole, but not in part, and in the manner provided in this Section 202, only by (i) the Depositary to a nominee of such Depositary, or (ii) by a nominee of such Depositary to such Depositary or another nominee of such Depositary or (iii) by such Depositary or any such nominee to a successor Depositary selected or approved by the Issuer or to a nominee of such successor Depositary or in the manner specified in Section 202(d). The Depositary shall order the Note Registrar to authenticate and deliver any Book-Entry Notes and any Book-Entry Note for each Class of Notes having an aggregate initial outstanding principal balance equal to the initial outstanding balance of such Class. Noteholders shall hold their respective Ownership Interests in and to such Notes through the book-entry facilities of the Depositary. Without limiting the foregoing, any Book-Entry Noteholders shall hold their respective Ownership Interests, if any, in Book-Entry Notes only through Depositary Participants.
(d) If (i) the Issuer elects to issue Definitive Notes, (ii) the Depositary for the Notes represented by one or more Book-Entry Notes at any time notifies the Issuer that it is unwilling or unable to continue as Depositary of the Notes or if at any time the Depositary shall no longer be a clearing agency registered under the Exchange Act and any other applicable statute or regulation, and a successor Depositary is not appointed or approved by the Issuer within 90 days after the Issuer receives such notice or becomes aware of such condition, as the case may be, (iii) the Indenture Trustee, at the written direction of the Noteholders representing more than 50% of the outstanding principal balance of the Notes, elects to terminate the book-entry system through the Depositary or (iv) after an Event of Default or a Manager Default, Noteholders notify the Depositary, or Book-Entry Custodian, as the case may be, in writing that the continuation of a book-entry system through the Depositary, or the Book-Entry Custodian, as the case may be, is no longer in the Noteholders’ best interest, upon the request of the Noteholders, the Issuer will promptly execute, and the Indenture Trustee, upon receipt of an Officer’s Certificate evidencing such determination by the Issuer, will promptly authenticate and make available for delivery, Definitive Notes, in authorized denominations and in an aggregate principal amount equal to the principal amount of the Book-Entry Note then outstanding in exchange for such Book-Entry Note or as an original issuance of Notes and this Section 202(d) shall no longer be applicable to the Notes. Upon the exchange of the Book-Entry Notes for such Definitive Notes without coupons, in authorized denominations, such Book-Entry Notes shall be canceled by the Indenture Trustee. All Definitive Notes shall be issued without coupons. Such Definitive Notes issued in exchange of the Book-Entry Notes pursuant to this Section 202(d) shall be registered in such names and in such authorized denominations as the Depositary, in the case of an exchange, or the Note Registrar, in the case of an original issuance, pursuant to instructions from its direct or indirect participants or otherwise, shall instruct the Indenture Trustee. The Indenture Trustee may conclusively rely on any such instructions furnished by the Depositary or the Note Registrar, as the case may be, and shall not be liable for any delay in delivery of such instructions. The Indenture Trustee shall make such Notes available for delivery to the Persons in whose names such Notes are so registered.
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(e) As long as the Notes outstanding are represented by one or more Book-Entry Notes:
(i) the Note Registrar and the Indenture Trustee may deal with the Depositary for all purposes (including the payment of principal of and interest on the Notes) as the authorized representative of the Noteholders;
(ii) the rights of Noteholders shall be exercised only through the Depositary and shall be limited to those established by law and agreements between such Noteholders and the Depositary and/or the Depositary Participants. Unless and until Definitive Notes are issued, the Depositary will make book-entry transfers among the Depositary Participants and receive and transmit payments of principal of, and interest on, the Notes to such Depositary Participants; and
(iii) whenever this Indenture requires or permits actions to be taken based upon instructions or directions of Holders of Notes evidencing a specified percentage of the voting rights of a particular series, the Depositary shall be deemed to represent such percentage only to the extent that it has received instructions to such effect from Noteholders and/or Depositary Participants owning or representing, respectively, such required percentage of the beneficial interest in the Notes (or Class of Notes) and has delivered such instruction to the Indenture Trustee.
(f) Whenever a notice or other communication to the Noteholders is required under this Indenture, unless and until Definitive Notes have been issued to Noteholders, the Indenture Trustee shall give all such notices and communications to the Depositary.
(g) The Indenture Trustee is hereby initially appointed as the Book-Entry Custodian and hereby agrees to act as such in accordance with the agreement that it has with the Depositary authorizing it to act as such. The Book-Entry Custodian may, and, if it is no longer qualified to act as such, the Book-Entry Custodian shall, appoint, by written instrument delivered to the Issuer and the Depositary, any other transfer agent (including the Depositary or any successor Depositary) to act as Book-Entry Custodian under such conditions as the predecessor Book-Entry Custodian and the Depositary or any successor Depositary may prescribe, provided that the predecessor Book-Entry Custodian shall not be relieved of any of its duties or responsibilities by reason of any such appointment of other than the Depositary. If the Indenture Trustee resigns or is removed in accordance with the terms hereof, the successor Indenture Trustee or, if it so elects, the Depositary shall immediately succeed to its predecessor’s duties as Book-Entry Custodian. The Issuer shall have the right to inspect, and to obtain copies of, any Notes held as Book-Entry Notes by the Book-Entry Custodian.
(h) The provisions of Section 205(i) shall apply to all transfers of Definitive Notes, if any, issued in respect of Ownership Interests in the Rule 144A Book-Entry Notes.
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(i) No transfer of any Note or interest therein shall be made unless that transfer is made pursuant to an effective registration statement under the Securities Act, and effective registration or qualification under applicable state securities laws, or is made in a transaction that does not require such registration or qualification. If a transfer of any Definitive Note is to be made without registration under the Securities Act (other than in connection with the initial issuance thereof or a transfer thereof by the Depositary or one of its Affiliates), then the Note Registrar shall refuse to register such transfer unless it receives (and upon receipt, may conclusively rely upon) either: (i) a certificate from such Noteholder substantially in the form attached as Exhibit C hereto or such other certification reasonably acceptable to the Indenture Trustee and a certificate from such Noteholder’s prospective transferee substantially in the form attached as Exhibit C hereto or such other certification reasonably acceptable to the Indenture Trustee; or (ii) an Opinion of Counsel satisfactory to the Indenture Trustee to the effect that such transfer may be made without registration under the Securities Act (which Opinion of Counsel shall not be an expense of the Issuer or any Affiliate thereof or of the Depositary, the Manager or Affiliate thereof, the Indenture Trustee or the Note Registrar in their respective capacities as such), together with the written certification(s) as to the facts surrounding such transfer from the Noteholder desiring to effect such transfer and/or such Noteholder’s prospective transferee on which such Opinion of Counsel is based. If such a transfer of any interest in a Book-Entry Note is to be made without registration under the Securities Act, the transferor will be deemed to have made each of the representations and warranties set forth on Exhibit C hereto in respect of such interest as if it was evidenced by a Definitive Note and the transferee will be deemed to have made each of the representations and warranties set forth in Exhibit C hereto in respect of such interest as if it was evidenced by a Definitive Note. None of the Depositary, the Issuer, the Indenture Trustee or the Note Registrar is obligated to register or qualify any Class of Notes under the Securities Act or any other securities law or to take any action not otherwise required under this Indenture to permit the transfer of any Note or interest therein without registration or qualification. Any Noteholder desiring to effect such a transfer shall, and does hereby agree to, indemnify the Depositary, the Issuer, the Indenture Trustee and the Note Registrar against any liability that may result if the transfer is not so exempt or is not made in accordance with such federal and state laws.
Section 203. Execution, Recourse Obligation.
The Notes shall be executed on behalf of the Issuer by an Authorized Signatory of the Issuer. The Notes shall be dated the date of their authentication by the Indenture Trustee.
In case any Authorized Signatory of the Issuer whose signature shall appear on the Notes shall cease to be an Authorized Signatory of the Issuer before the authentication by the Indenture Trustee and delivery of such Notes, such signature or facsimile signature shall nevertheless be valid and sufficient for all purposes.
All Notes and the interest thereon shall be full recourse obligations of the Issuer and shall be secured by all of the Issuer’s right, title and interest in the Collateral. The Notes shall never constitute obligations of the Indenture Trustee, the Manager, the Sellers or of any shareholder or any Affiliate of any Seller (other than the Issuer) or any member or shareholder of the Issuer, or any officers, directors, employees or agents of any thereof, and no recourse may be had under or upon any obligation, covenant or agreement of this Indenture, any Supplement or of
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any Notes, or for any claim based thereon or otherwise in respect thereof, against any incorporator or against any past, present, or future owner, partner of an owner or any officer, employee or director thereof or of any successor entity, or any other Person, either directly or through the Issuer, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly agreed that this Indenture and the obligations issued hereunder are solely obligations of the Issuer, and that no such personal liability whatever shall attach to, or is or shall be incurred by, any other Person under or by reason of this Indenture, any Supplement or any Notes or implied therefrom, or for any claim based thereon or in respect thereof, all such liability and any and all such claims being hereby expressly waived and released as a condition of, and as a consideration for, the execution of this Indenture and the issue of such Notes. Except as provided in any Supplement, no Person other than the Issuer shall be liable for any obligation of the Issuer under this Indenture or any Note or any losses incurred by any Noteholder.
Section 204. Certificate of Authentication.
No Notes shall be secured hereby or entitled to the benefit hereof or shall be or become valid or obligatory for any purpose unless there shall be endorsed thereon a certificate of authentication by the Indenture Trustee, substantially in the form set forth in the form of Note attached to the related Supplement. Such certificate on any Note issued by the Issuer shall be conclusive evidence and the only competent evidence that it has been duly authenticated and delivered hereunder.
At the written direction of the Issuer, the Indenture Trustee shall authenticate and deliver the Notes. It shall not be necessary that the same Authorized Signatory of the Indenture Trustee execute the certificate of authentication on each of the Notes.
Section 205. Registration; Registration of Transfer and Exchange of Notes.
(a) The Indenture Trustee shall keep at its Corporate Trust Office books for the registration and transfer of the Notes (the “Note Register”). The Issuer hereby appoints the Indenture Trustee as its registrar (the “Note Registrar”) and transfer agent to keep such books and make such registrations and transfers as are hereinafter set forth in this Section 205 and also authorizes and directs the Indenture Trustee to provide a copy of such registration record to each of the Administrative Agent and the Manager upon their request. The names and addresses of the Holders of all Notes and all transfers of, and the names and addresses of the transferee of, all Notes will be registered in such Note Register. The Person in whose name any Note is registered shall be deemed and treated as the owner and Holder thereof for all purposes of this Indenture, and the Indenture Trustee, the related Series Enhancer and the Issuer shall not be affected by any notice or knowledge to the contrary. The related Series Enhancer and, if a Person other than the Indenture Trustee is appointed by the Issuer to maintain the Note Register, the Indenture Trustee shall have the right to inspect the Note Register at all reasonable times and to obtain copies thereof and the Indenture Trustee shall have the right to conclusively rely upon a certificate executed on behalf of the Note Registrar by an officer thereof as to the names and addresses of the Noteholders and the principal amounts and number of such Notes. If a Person other than the Indenture Trustee is appointed by the Issuer to maintain the Note Register, the Issuer will give the Indenture Trustee and the Administrative Agent prompt written notice of such appointment and of the location, and any change in the location, of the successor note registrar.
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(b) Payments of principal, premium, if any, and interest on any Note shall be payable on each Payment Date only to the registered Holder thereof on the Record Date immediately preceding such Payment Date. The principal of, premium, if any, and interest on each Note shall be payable at the Corporate Trust Office in immediately available funds in such coin or currency of the United States of America as at the time for payment shall be legal tender for the payment of public and private debts. Except as set forth in any Supplement, all interest payable on the Notes shall be computed on the basis of a 360-day year for the actual number of days which have elapsed in the relevant calculation period. Notwithstanding the foregoing or any provision in any Note to the contrary, if so requested by the registered Holder of any Note by written notice to the Indenture Trustee, all amounts payable to such registered Holder may be paid either (i) by crediting the amount to be distributed to such registered Holder to an account maintained by such registered Holder with the Indenture Trustee or by transferring such amount by wire to such other bank in the United States, including a Federal Reserve Bank, as shall have been specified in such notice, for credit to the account of such registered Holder maintained at such bank, or (ii) by mailing a check to such address as such Holder shall have specified in such notice, in either case without any presentment or surrender of such Note to the Indenture Trustee at the Corporate Trust Office.
(c) All payments on the Notes shall be paid to the Noteholders reflected in the Note Register as of the related Record Date by wire transfer of immediately available funds for receipt prior to 2:00 p.m. (New York City time) on the related Payment Date. Any payments received by the Noteholders after 2:00 p.m. (New York City time) on any day shall be considered to have been received on the next succeeding Business Day; provided, however, that if the Issuer has deposited the required funds with the Indenture Trustee by 1:00 p.m. (New York City time), on such date, then the Issuer, upon receipt by the Noteholders of such payment, shall be deemed to have made such payment at the time so required. Notwithstanding the foregoing or any provision in any Note to the contrary, if so requested by the registered Noteholder by written notice to the Indenture Trustee, all amounts payable to such registered Noteholder may be paid by mailing on the related Payment Date a check to such address as such Noteholder shall have specified in such notice, in either case without any presentment or surrender of such Note to the Indenture Trustee at the Corporate Trust Office.
(d) Upon surrender for registration of transfer of any Note at the Corporate Trust Office, the Issuer shall execute and the Indenture Trustee, upon written request, shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Notes of the same class, of any authorized denominations and of a like aggregate original principal amount.
(e) All Notes issued upon any registration of transfer or exchange of Notes shall be the legal, valid and binding obligations of the Issuer, evidencing the same debt, and entitled to the same benefits under this Indenture and any Supplement, as the Notes surrendered upon such registration of transfer or exchange.
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(f) Every Note presented or surrendered for registration of transfer or for exchange shall (if so required by the Issuer or the Indenture Trustee) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Issuer and the Indenture Trustee duly executed, by the Holder thereof or his attorney duly authorized in writing.
(g) Any service charge, fees or expenses made or expense incurred by the Indenture Trustee for any such registration, discharge from registration or exchange referred to in this Section 205 shall be paid by the Noteholder. The Indenture Trustee or the Issuer may require payment by the Holder of a sum sufficient to cover any tax expense or other governmental charge payable in connection therewith.
(h) If Notes are issued or exchanged in definitive form under Section 202, such Notes will not be registered by the Indenture Trustee unless each prospective initial Noteholder acquiring a Note, each prospective transferee acquiring a Note and each prospective owner (or transferee thereof) of a beneficial interest in Notes (each, a “Prospective Owner”) acquiring such beneficial interest provides the Manager, the Issuer, the Indenture Trustee and any successor Manager with a written representation that the statement in either subsection (1) or (2) of Section 208 is an accurate representation as to all sources of funds to be used to pay the purchase price of the Notes.
(i) No transfer of a Note shall be deemed effective unless (x) the transference of such Note is not to a Competitor and (y) the registration and prospectus delivery requirements of Section 5 of the Securities Act and any applicable state securities laws are complied with, or such transfer is exempt from the registration and prospectus delivery requirements under said Securities Act and laws. In the event that a transfer is to be made without registration or qualification, such Noteholder’s prospective transferee shall deliver to the Indenture Trustee an investment letter substantially in the form of Exhibit C hereto (the “Purchaser Letter”). Neither the Indenture Trustee nor the Issuer is under any obligation to register the Notes under the Securities Act or any other securities law or to bear any expense with respect to such registration by any other Person or monitor compliance of any transfer with the securities laws of the United States regulations promulgated in connection thereto or ERISA.
Section 206. Mutilated, Destroyed, Lost and Stolen Notes.
(a) If (i) any mutilated Note is surrendered to the Indenture Trustee, or the Indenture Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Note, and (ii) there is delivered to the Indenture Trustee such security or indemnity as it and the Issuer may require to hold the Issuer, the Manager and the Indenture Trustee harmless, then the Issuer shall execute and the Indenture Trustee shall authenticate and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Note, a replacement Note of the same Series and Class and maturity and of like terms as the mutilated, destroyed, lost or stolen Note; provided, however, that if any such destroyed, lost or stolen Note, but not a mutilated Note, shall have become, or within seven days shall be due and payable, the Issuer may pay such destroyed, lost or stolen Note when so due or payable instead of issuing a replacement Note.
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(b) If, after the delivery of such replacement Note, or payment of a destroyed, lost or stolen Note pursuant to the proviso to the preceding sentence, a bona fide purchaser of the original Note in lieu of which such replacement Note was issued presents for payment such original Note, the Issuer and the Indenture Trustee shall be entitled to recover upon the security or indemnity provided therefor to the extent of any and all loss, damage, cost or expense incurred by the Issuer or the Indenture Trustee in connection therewith.
(c) The Indenture Trustee and the Issuer may, for each new Note authenticated and delivered under the provisions of this Section 206, require the advance payment by the Noteholder of the expenses, including counsel fees, service charges and any tax or governmental charge which may be incurred by the Indenture Trustee or the Issuer. Any Note issued under the provisions of this Section 206 in lieu of any Note alleged to be destroyed, mutilated, lost or stolen, shall be equally and proportionately entitled to the benefits of this Indenture with all other Notes of the same Series and Class. The provisions of this Section 206 are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Notes.
Section 207. Delivery, Retention and Cancellation of Notes.
Each Noteholder is required, and hereby agrees, to return to the Indenture Trustee on or prior to the Legal Final Payment Date (or, if earlier, the date on which the unpaid principal balance of, and accrued interest and other amounts related to, the applicable Series of Notes shall have been paid in full (for example, pursuant to a refinancing of the Notes of the applicable Series or pursuant to the exercise of remedies under Article VIII hereof)), any Note on which the final payment due thereon has been made for the related Series of Notes. Any such Note as to which the Indenture Trustee has made or holds the final payment thereon shall be deemed canceled and unless any unreimbursed payment on such Note has been made by a Series Enhancer, shall no longer be Outstanding for any purpose of this Indenture, whether or not such Note is ever returned to the Indenture Trustee. Matured Notes delivered upon final payment to the Indenture Trustee and any Notes transferred or exchanged for other Notes shall be canceled and disposed of by the Indenture Trustee in accordance with its policy of disposal and the Indenture Trustee shall promptly deliver to the Issuer such canceled Notes upon reasonable prior written request. If the Indenture Trustee shall acquire, for its own account, any of the Notes, such acquisition shall not operate as a redemption or satisfaction of the indebtedness represented by such Notes. If the Issuer shall acquire any of the Notes, such acquisition shall operate as a redemption or satisfaction of the indebtedness represented by such Notes. Notes which have been canceled by the Indenture Trustee shall be deemed paid and discharged for all purposes under this Indenture.
Section 208. ERISA Deemed Representations.
Unless otherwise specified in any applicable Supplement, each prospective initial Noteholder acquiring Notes and each Prospective Owner will be deemed to have represented by such purchase to Wells Fargo Securities, LLC, as the initial purchaser of the Notes, the Issuer, the Indenture Trustee, the Manager and any successor Manager that either (1) it is not acquiring the Notes with the assets of a Plan; or (2) the acquisition and holding of the Notes will not give rise to a nonexempt prohibited transaction under Section 406(a) of ERISA or Section 4975 of the Code.
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Section 209. FATCA.
The Issuer represents, warrants and covenants to the Indenture Trustee that, (i) to the best of the Issuer’s knowledge, the Indenture Trustee is not obligated in respect of any payments to be made by it pursuant to this Indenture, to make any withholding or deduction pursuant to an agreement described in Section 1471(b) of the Code or otherwise imposed pursuant to Sections 1471 through 1474 of the Code and any regulations or agreements thereunder or official interpretations thereof (“FATCA Withholding Tax”); (ii) the Issuer will require the Noteholders to collect and provide the Noteholder FATCA Information to the Issuer; and (iii) to the extent the Issuer determines that FATCA Withholding Tax is applicable, it will promptly notify the Indenture Trustee of such fact. The Issuer will provide the Noteholder FATCA Information to the Indenture Trustee upon request. Each holder of a Note or an interest therein, by acceptance of such Note or such interest in such Note, will be deemed to have agreed to provide the Indenture Trustee with the Noteholder Tax Identification Information and, to the extent FATCA Withholding Tax is applicable, the Noteholder FATCA Information. In addition, each holder of a Note will be deemed to understand that the Indenture Trustee has the right to withhold interest payable with respect to the Note (without any corresponding gross-up) on any beneficial owner of an interest in a Note that fails to comply with the foregoing requirements.
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ARTICLE III
PAYMENT OF NOTES; STATEMENTS TO NOTEHOLDERS
Section 301. Principal and Interest.
Distributions of principal, premium, if any, and interest on any Series or Class of Notes shall be made to Noteholders of each Series and Class as set forth in Section 302 of this Indenture and the related Supplement. The maximum Overdue Rate for any Note under any Series shall be equal to the sum of (i) two percent (2.00%) per annum, plus (ii) the interest rate for such Note prior to the occurrence of the relevant Event of Default. If interest or principal amounts are paid by a Series Enhancer, then the Overdue Rate shall be owed to such Series Enhancer and shall not be paid to applicable Noteholders of such Series unless the related Series Enhancer has failed to make payment of such amounts in accordance with the terms of any applicable Enhancement Agreement. Except as set forth in any Supplement, all interest and fees payable on, or with respect to, the Notes shall be computed on the basis of a 360-day year for the actual number of days which have elapsed in the relevant calculation period.
Section 302. Trust Account.
(a) On or prior to the Closing Date, the Indenture Trustee shall establish and maintain the Trust Account into which the following amounts shall be deposited: all (i) Collections, (ii) Warranty Purchase Amounts and (iii) other payments required by this Indenture and other Related Documents to be deposited therein. Such Trust Account shall initially be established and maintained with the Corporate Trust Office in trust for the Indenture Trustee, on behalf of the Noteholders, each Interest Rate Hedge Provider and each Series Enhancer, and shall be maintained until the Aggregate Outstanding Obligations are paid in full. The Trust Account shall at all times be an Eligible Account and shall be pledged to the Indenture Trustee pursuant to the terms of this Indenture. The Issuer shall not establish any additional Trust Accounts without prior written notice to the Indenture Trustee and without the prior written consent of the Requisite Global Majority.
(b) The Issuer shall cause the Manager to deposit funds into the Trust Account at the times and in the amounts required pursuant to the terms of the Management Agreement. So long as no Event of Default, Manager Default or an Early Amortization Event of the type described in clauses (1), (2), (3), (4), (5) or (9) of Section 1201 of this Indenture shall have occurred and then be continuing, the Manager shall be permitted to request the Indenture Trustee to withdraw from amounts on deposit in the Trust Account, or otherwise net out, from amounts otherwise required to be deposited into the Trust Account pursuant to Section 302(a) the amount of any Management Fees or Management Fee Arrearage that would otherwise be due and payable on the immediately succeeding Payment Date.
(c) On each Determination Date, the Manager, pursuant to the Management Agreement, shall prepare and deliver to the Issuer, the Indenture Trustee, each Interest Rate Hedge Provider, each Series Enhancer and the Administrative Agent, the Manager Report. On each Payment Date, the Indenture Trustee, based on the Manager Report (provided that, in the absence of any Manager Report, the Indenture Trustee shall distribute all funds available for
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distribution in accordance with written instructions from the Administrative Agent (with a copy to the Issuer, each Series Enhancer, each Interest Rate Hedge Provider and the Administrative Agent) and shall hold until delivery of such Manager Report (i) any funds otherwise payable to the Issuer and (ii) any other amounts which the Administrative Agent is unable to ascertain or allocate to a specific payment priority set forth in this Indenture), shall distribute funds in an amount equal to the Available Distribution Amount to the following Persons in the following order of priority:
(I) On each Payment Date, if neither an Early Amortization Event nor an Event of Default shall have occurred and then be continuing, the Indenture Trustee will make the following payments from the Available Distribution Amount then on deposit in the Trust Account to the following Persons in the following order of priority:
(1) To the Indenture Trustee by wire transfer of immediately available funds (not to exceed $20,000 annually for each Series of Notes then Outstanding at any time Wells Fargo Bank, National Association, is acting as Indenture Trustee), all Indenture Trustee Fees then due and payable for all Series then Outstanding;
(2) To the Manager, any unpaid Management Fees and any Management Fee Arrearages to the extent not withheld by the Manager in accordance with the terms of the Management Agreement;
(3) To the Issuer and the Series Enhancer, pro rata, to pay Issuer Expenses (in an aggregate amount not to exceed $250,000 annually) and Series Enhancer Expenses (in an aggregate amount not to exceed $250,000 annually) to the extent such payments would not result in the occurrence of an Early Amortization Event or an Event of Default;
(4) To the Manager Transfer Facilitator, the amount of any Manager Transfer Facilitator Fee (including any reimbursements payable to the Manager Transfer Facilitator pursuant to the Manager Transfer Facilitator Agreement);
(5) In payment of the following amounts on a pro rata basis: (A) to the Administrative Agent, the amount of Administrative Agent Fee (and any arrearages thereof) then due and payable and (B) to each Series Enhancer, any Premium payments then due and payable;
(6) To each Interest Rate Hedge Provider on a pro rata basis (based on amounts then due and payable under all Interest Rate Hedge Agreements), all scheduled payments and interest thereon (but excluding termination payments thereunder) then due and payable under the related Interest Rate Hedge Agreement and the amount of any arrearages thereof;
(7) In payment of the following amounts on a pro rata basis: (A) to each Series Account for each Series of Senior Notes then Outstanding on a pro rata basis (based on respective amounts then due), an amount equal to the Interest Payments then due and payable for such Series of Senior Notes, (B) to each Letter of Credit Provider, on a pro rata basis, all Letter of Credit Fees (but not to exceed the Maximum Letter of
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Credit Fee) then due and payable, and (C) to each Series Enhancer with respect to Senior Notes, any Reimbursement Amounts then due and payable in respect of Interest Payments for such Senior Notes paid by such Series Enhancer (including interest thereon at the rate specified in the Insurance Agreement or the related Supplement) and any arrearages of Premium payments then due and payable to such Series Enhancer with respect to such Senior Notes (including interest thereon at the rate specified in the Insurance Agreement or the related Supplement);
(8) To each Series Account for each Series of Subordinate Notes then Outstanding, an amount equal to the Interest Payments then due and payable for such Series of Subordinate Notes;
(9) First to the Restricted Cash Account, the amount (if any) necessary to restore amounts on deposit therein to the Restricted Cash Amount for such Payment Date and then to each Letter of Credit Provider, on a pro rata basis, for reimbursement of unpaid draws on the Letter of Credit issued by such Letter of Credit Provider;
(10) To the Series Account for each Series of Senior Notes then Outstanding and subject to the provisions of Section 302(d), an amount equal to the Minimum Principal Payment Amounts then due and payable for such Series;
(11) To the Series Account for each Series of Senior Notes then Outstanding and subject to the provisions of Section 302(d), an amount equal to the Scheduled Principal Payment Amounts then due and payable for such Series;
(12) To the Series Account for each Series of Senior Notes in accordance with the provisions of Section 302(e) hereof, an amount equal to the Supplemental Principal Payment Amount then due and payable;
(13) To each Interest Rate Hedge Provider on a pro rata basis (based on amounts then due and payable under all Interest Rate Hedge Agreements), all remaining amounts then due and payable under the related Interest Rate Hedge Agreement (after giving effect to clause (6) above);
(14) To each Series Account for each Series of Senior Notes then Outstanding on a pro rata basis (based on respective amounts then due), an amount equal to all other amounts then due and payable to the Noteholders of such Series and the related Series Enhancer, including, without limitation, Step Up Warehouse Fees, Default Interest, increased costs, taxes and indemnity payments identified in the related Supplement;
(15) To the Series Account for each Series of Subordinate Notes then Outstanding and subject to the provisions of Section 302(d), an amount equal to the Minimum Principal Payment Amounts then due and payable for such Series;
(16) To the Series Account for each Series of Subordinate Notes then Outstanding and subject to the provisions of Section 302(d), an amount equal to the Scheduled Principal Payment Amounts then due and payable for such Series;
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(17) To the Series Account for each Series of Subordinate Notes in accordance with the provisions of Section 302(e) hereof, an amount equal to the Subordinate Supplemental Principal Payment Amount then due and payable;
(18) To each Series Account for each Series of Subordinate Notes then Outstanding on a pro rata basis (based on respective amounts then due), an amount equal to all other amounts then due and payable to the Noteholders of such Series and the related Series Enhancer, including, without limitation, Step Up Warehouse Fees, Warehouse Note Increased Interest, Default Interest, increased costs, taxes and indemnity payments identified in the related Supplement;
(19) To the Manager, the amount of any unreimbursed Manager Advances;
(20) To the Indenture Trustee, the amount of any unpaid Indenture Trustee Indemnified Amounts;
(21) To the officers and directors of the Issuer, the amount of any unpaid indemnification payments then due and payable to them by the Issuer;
(22) To the Manager in the amount of any unpaid indemnification payments payable to the Manager pursuant to Section 18.1 of the Management Agreement; and
(23) To the Issuer (or its designee), any remaining Available Distribution Amount.
(II) On each Payment Date, if an Early Amortization Event shall have occurred and then be continuing with respect to any Series then Outstanding, but no Event of Default has occurred and is continuing, the Indenture Trustee will make the following payments from the Available Distribution Amount then on deposit in the Trust Account to the following Persons in the following order of priority:
(1) To the Indenture Trustee by wire transfer of immediately available funds (not to exceed $20,000 annually for each Series of Notes then Outstanding at any time Wells Fargo Bank, National Association, is acting as Indenture Trustee), all Indenture Trustee Fees then due and payable for all Series then Outstanding;
(2) To the Manager, any unpaid Management Fees and any Management Fee Arrearages to the extent not withheld by the Manager in accordance with the terms of the Management Agreement;
(3) To the Issuer and the Series Enhancer, pro rata, to pay Issuer Expenses (in an aggregate amount not to exceed $250,000 annually) and Series Enhancer Expenses (in an aggregate amount not to exceed $250,000 annually) to the extent such payments would not result in the occurrence of an Event of Default;
(4) To the Manager Transfer Facilitator, the amount of any Manager Transfer Facilitator Fee (including any reimbursements payable to the Manager Transfer Facilitator pursuant to the Manager Transfer Facilitator Agreement);
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(5) In payment of the following amounts on a pro rata basis: (A) to the Administrative Agent, the amount of Administrative Agent Fee (and any arrearages thereof) then due and payable, and (B) to each Series Enhancer, any Premium payments then due and payable;
(6) To each Interest Rate Hedge Provider on a pro rata basis (based on amounts then due and payable under all Interest Rate Hedge Agreements), all scheduled payments and interest thereon (but excluding termination payments thereunder) then due and payable under the related Interest Rate Hedge Agreement and the amount of any arrearages thereof;
(7) In payment of the following amounts on a pro rata basis: (A) to each Series Account for each Series of Senior Notes then Outstanding on a pro rata basis (based on respective amounts then due), an amount equal to the Interest Payments then due and payable for such Series of Senior Notes, and (B) to each Letter of Credit Provider, on a pro rata basis, all Letter of Credit Fees (but not to exceed the Maximum Letter of Credit Fee) then due and payable, and (C) to each Series Enhancer with respect to Senior Notes, any Reimbursement Amounts then due and payable in respect of Interest Payments for such Senior Notes paid by such Series Enhancer (including interest thereon at the rate specified in the Insurance Agreement or the related Supplement) and any arrearages of Premium payments then due and payable to such Series Enhancer with respect to such Senior Notes (including interest thereon at the rate specified in the Insurance Agreement or the related Supplement);
(8) To each Series Account for each Series of Subordinate Notes then Outstanding, an amount equal to the Interest Payments then due and payable for such Series of Subordinate Notes;
(9) First to the Restricted Cash Account, the amount (if any) necessary to restore amounts on deposit therein to the Restricted Cash Amount for such Payment Date and then to each Letter of Credit Provider, on a pro rata basis, for reimbursement of unpaid draws on the Letter of Credit issued by such Letter of Credit Provider;
(10) To the Series Account for each Series of Senior Notes then Outstanding and subject to the provisions of Section 302(d) hereof, an amount equal to the Minimum Principal Payment Amounts then due and payable for such Series;
(11) To the Series Account for each Series of Senior Notes then Outstanding and subject to the provisions of Section 302(d) hereof, an amount equal to the Scheduled Principal Payment Amounts then due and payable for such Series;
(12) To the Series Account for each Series of Senior Notes then Outstanding (other than the Series Account for any Series of Senior Warehouse Notes for which a Conversion Event has not occurred) on a pro rata basis (based on the unpaid principal balance then Outstanding), all remaining Available Distribution Amount until the principal balance of all Senior Notes then Outstanding are paid in full (including Reimbursement Amounts payable in respect thereof to the Series Enhancer);
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(13) To each Interest Rate Hedge Provider on a pro rata basis (based on amounts then due and payable under all Interest Rate Hedge Agreements), all remaining amounts then due and payable under the related Interest Rate Hedge Agreement (after giving effect to clause (6) above);
(14) To each Series Account for each Series of Senior Notes then Outstanding on a pro rata basis (based on respective amounts then due), an amount equal to all other amounts then due and payable to the Noteholders of such Series and the related Series Enhancer, including, without limitation, Step Up Warehouse Fees, Warehouse Note Increased Interest, Default Interest, increased costs, taxes and indemnity payments identified in the related Supplement;
(15) To the Series Account for each Series of Subordinate Notes then Outstanding and subject to the provisions of Section 302(d) hereof, an amount equal to the Minimum Principal Payment Amounts then due and payable for such Series;
(16) To the Series Account for each Series of Subordinate Notes then Outstanding and subject to the provisions of Section 302(d) hereof, an amount equal to the Scheduled Principal Payment Amounts then due and payable for such Series;
(17) To the Series Account for each Series of Subordinate Notes then Outstanding (other than the Series Account for any Series of Subordinate Warehouse Notes for which a Conversion Event has not occurred) on a pro rata basis (based on the unpaid principal balance then Outstanding), all remaining Available Distribution Amount until the principal balance of all Subordinate Notes then Outstanding are paid in full;
(18) To each Series Account for each Series of Subordinate Notes then Outstanding on a pro rata basis (based on respective amounts then due), an amount equal to all other amounts then due and payable to the Noteholders of such Series and the related Series Enhancer, including, without limitation, Step Up Warehouse Fees, Warehouse Note Increased Interest, Default Interest, increased costs, taxes and indemnity payments identified in the related Supplement;
(19) To the Manager, the amount of any unreimbursed Manager Advances;
(20) To the Indenture Trustee, the amount of any unpaid Indenture Trustee Indemnified Amounts;
(21) To the officers and directors of the Issuer, the amount of any unpaid indemnification payments then due and payable to them by the Issuer;
(22) To the Manager in the amount of any unpaid indemnification payments payable to the Manager pursuant to Section 18.1 of the Management Agreement; and
(23) To the Issuer (or its designee), any remaining Available Distribution Amount.
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(III) On each Payment Date, if an Event of Default shall have occurred and then be continuing with respect to any Series then Outstanding, the Indenture Trustee will make the following payments from the Available Distribution Amount then on deposit in the Trust Account to the following Persons in the following order of priority:
(1) To the Indenture Trustee by wire transfer of immediately available funds (not to exceed $20,000 annually for each Series of Notes then Outstanding at any time Wells Fargo Bank, National Association, is acting as Indenture Trustee), all Indenture Trustee Fees then due and payable for all Series then Outstanding;
(2) To the Manager, any unpaid Management Fees and any Management Fee Arrearages to the extent not withheld by the Manager in accordance with the terms of the Management Agreement;
(3) To the Issuer and the Series Enhancer, pro rata, to pay Issuer Expenses (in an aggregate amount not to exceed $250,000 annually) and Series Enhancer Expenses (in an aggregate amount not to exceed $250,000 annually);
(4) To the Manager Transfer Facilitator, the amount of any Manager Transfer Facilitator Fee (including any reimbursements payable to the Manager Transfer Facilitator pursuant to the Manager Transfer Facilitator Agreement);
(5) In payment of the following amounts on a pro rata basis: (A) to the Administrative Agent, the amount of Administrative Agent Fee (and any arrearages thereof) then due and payable and (B) to each Series Enhancer, any Premium payments then due and payable;
(6) To each Interest Rate Hedge Provider on a pro rata basis (based on amounts then due and payable under all Interest Rate Hedge Agreements), all scheduled payments and interest thereon (but excluding termination payments thereunder) then due and payable under the related Interest Rate Hedge Agreement and the amount of any arrearages thereof;
(7) In payment of the following amounts on a pro rata basis: (A) to each Series Account for each Series of Senior Notes then Outstanding on a pro rata basis (based on respective amounts then due), an amount equal to the Interest Payments then due and payable for such Series of Senior Notes, and (B) to each Letter of Credit Provider, on a pro rata basis, all Letter of Credit Fees (but not to exceed the Maximum Letter of Credit Fee) then due and payable, and (C) to each Series Enhancer with respect to Senior Notes, any Reimbursement Amounts then due and payable in respect of Interest Payments for such Senior Notes paid by such Series Enhancer (including interest thereon at the rate specified in the Insurance Agreement or the related Supplement) and any arrearages of Premium payments then due and payable to such Series Enhancer with respect to such Senior Notes (including interest thereon at the rate specified in the Insurance Agreement or the related Supplement);
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(8) To each Series Account for each Series of Subordinate Notes then Outstanding, an amount equal to the Interest Payments then due and payable for such Series of Subordinate Notes;
(9) One of the following: (A) if the Notes of any Series then Outstanding have been accelerated, each of the following on a pro rata and a pari passu basis (based on amounts then due), all remaining Available Distribution Amount, (1) to each Series Account for each Series of Senior Notes Outstanding, the then unpaid principal balance of such Series (pro rata based on the amounts unpaid on the date on which such Event of Default first occurs) (including Reimbursement Amounts payable in respect thereof to the Series Enhancer) and (2) to each Interest Rate Hedge Provider, the remaining amounts then due and payable under the related Interest Rate Hedge Agreement, until such amounts are paid in full; or (B) if none of the Notes of any Series then Outstanding has been accelerated, to the Series Account for each Series of Senior Notes then Outstanding (pro rata based on the amounts unpaid on the date on which such Event of Default occurs) all remaining Available Distribution Amount until the then unpaid principal balances of all Notes then Outstanding are paid in full (including Reimbursement Amounts payable in respect thereof to the Series Enhancer);
(10) To each Series Account for each Series of Senior Notes then Outstanding on a pro rata basis (based on respective amounts then due), an amount equal to all other amounts then due and payable to the Noteholders of such Series and the related Series Enhancer, including, without limitation, Step Up Warehouse Fees, Warehouse Note Increased Interest, Default Interest, increased costs, taxes and indemnity payments identified in the related Supplement;
(11) To each Interest Rate Hedge Provider on a pro rata basis (based on amounts then due and payable under all Interest Rate Hedge Agreements), all remaining amounts then due and payable under the related Interest Rate Hedge Agreement (after giving effect to clauses (6) and (9)(A) above);
(12) All remaining Available Distribution Amount, to each Series Account for each Series of Subordinate Notes Outstanding, the then unpaid principal balance of such Series (pro rata based on the amounts unpaid on the date on which such Event of Default first occurs);
(13) To each Series Account for each Series of Subordinate Notes then Outstanding on a pro rata basis (based on respective amounts then due), an amount equal to all other amounts then due and payable to the Noteholders of such Series and the related Series Enhancer, including, without limitation, Step Up Warehouse Fees, Warehouse Note Increased Interest, Default Interest, increased costs, taxes and indemnity payments identified in the related Supplement;
(14) To each Letter of Credit Provider, on a pro rata basis, in reimbursement of unpaid draws on the Letter of Credit issued by such Letter of Credit Provider;
(15) To the Manager, the amount of any unreimbursed Manager Advances;
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(16) To the Indenture Trustee, the amount of any unpaid Indenture Trustee Indemnified Amounts;
(17) To the officers and directors of the Issuer, the amount of any unpaid indemnification payments then due and payable to them by the Issuer;
(18) To the Manager in the amount of any unpaid indemnification payments payable to the Manager pursuant to Section 18.1 of the Management Agreement; and
(19) To the Issuer (or its designee), any remaining Available Distribution Amount.
(d) If on any Payment Date on which no Event of Default is then continuing there are not sufficient funds to pay, in full, the Minimum Principal Payment Amounts and/or Scheduled Principal Payment Amounts owing to all Series of Notes then Outstanding, as the case may be, then principal payments having the same payment priority will be paid, in full, to the Series first issued (based on their respective dates of issuance or Conversion Dates, as applicable) in chronological order based on their respective dates of issuance or Conversion Dates, as applicable. For purposes of this Section 302(d) only, any Series designated as a Warehouse Note will be deemed to have an issuance date equivalent to its Conversion Date. If two or more Series of the Notes were issued on the same date or have the same Conversion Date, then principal payments having the same payment priority will be allocated among each such Series, on a pro rata basis, based on the principal payments then due.
(e) (I) On each Payment Date, any Supplemental Principal Payment Amount then due and owing shall be applied first to each Senior Series of Warehouse Notes then Outstanding on a pro rata basis, in proportion to the then unpaid principal balance of such Warehouse Notes, until the principal balances of such Warehouse Notes have been paid in full, and then to all Senior Series of Term Notes then Outstanding on a pro rata basis, in proportion to the then unpaid principal balance of each such Senior Series of Term Notes. Notwithstanding the foregoing, if sufficient funds are not available to allow the Issuer to prepay the principal balance of the Senior Series of Warehouse Notes on such Payment Date in an amount equal to the Asset Base Deficiency with respect to the Senior Asset Base (if any), then the amount of any Supplemental Principal Payment Amount to be actually paid on such Payment Date shall be allocated among all Series of Senior Notes then Outstanding (including the Term Notes) on a pro rata basis, in proportion to the then unpaid principal balance of such Notes; and
(II) On each Payment Date, any Subordinate Supplemental Principal Payment Amount then due and owing shall be applied first to each Subordinate Series of Warehouse Notes then Outstanding on a pro rata basis, in proportion to the then unpaid principal balance of such Warehouse Notes, until the principal balances of such Warehouse Notes have been paid in full, and then to all Subordinate Series of Term Notes then Outstanding on a pro rata basis, in proportion to the then unpaid principal balance of each such Subordinate Series of Term Notes. Notwithstanding the foregoing, if sufficient funds are not available to allow the Issuer to prepay the principal balance of the Subordinate Series of Warehouse Notes on such Payment Date in an amount equal to the Asset Base Deficiency with respect to the Subordinate Asset Base (if any), then the amount of any Subordinate Supplemental Principal Payment Amount to be actually paid on such Payment Date shall be allocated among all Series of Subordinate Notes then Outstanding (including the Term Notes) on a pro rata basis, in proportion to the then unpaid principal balance of such Notes.
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(f) If any Series has more than one Class of Notes then Outstanding, then the Available Distribution Amount shall be calculated without regard to the payment priorities of the Classes of Notes within such Series. Once the Available Distribution Amount has been allocated to each Series, then that portion of the Available Distribution Amount allocable to such Series shall be paid to each Class of Noteholders of such Series in accordance with the priority of payments set forth in the related Supplement.
Section 303. Investment of Monies Held in the Trust Account, the Restricted Cash Account and Series Accounts.
(a) Subject to the provisions of Section 703 hereof, the Indenture Trustee shall invest any cash deposited in the Trust Account, the Restricted Cash Account and each Series Account in such Eligible Investments as the Issuer or its designee (or its authorized agent) shall direct in writing or by telephone, subsequently confirmed in writing. Each Eligible Investment (including reinvestment of the income and proceeds of Eligible Investments) shall be held to its maturity and shall mature or shall be payable on demand not later than the Determination Date immediately preceding the next succeeding Payment Date. If the Indenture Trustee has not received written instructions from the Issuer or its designee by 2:30 p.m. (New York time) on the day such funds are received as to the investment of funds then on deposit in any of the aforementioned accounts, the Issuer hereby instructs the Indenture Trustee to invest such funds in overnight investments in Wells Fargo Bank, National Association of the type described in clause (iv) of the definition of Eligible Investments. Any funds in the Trust Account, each Restricted Cash Account and each Series Account not so invested must be fully insured by the Federal Deposit Insurance Corporation. Eligible Investments shall be made in the name of the Indenture Trustee for the benefit of the Noteholders, each Interest Rate Hedge Provider and each Series Enhancer. Any earnings on Eligible Investments in the Trust Account, the Restricted Cash Account and each Series Account shall be retained in each such account and be distributed in accordance with the terms of this Indenture or any related Supplement. The Indenture Trustee shall not be liable or responsible for losses on any investments made by it pursuant to this Section 303.
(b) On or prior to the Closing Date, each of the Issuer and the Securities Intermediary shall enter into Control Agreements each in the form of Exhibit G hereto for each of the Trust Account, the Restricted Cash Account and any Series Accounts. At all times on and after the Closing Date, each such account shall be the subject of a Control Agreement.
(c) The Indenture Trustee, acting in accordance with the terms of this Indenture, shall be entitled to deliver an Entitlement Order to the Securities Intermediary at which such accounts are maintained at any time; provided, however, that the Indenture Trustee agrees not to invoke its right to provide an Entitlement Order unless an Event of Default has occurred and is continuing. The Control Agreements shall provide that upon receipt of the Entitlement Order in accordance with the provisions of this Indenture, the Indenture Trustee shall comply with such Entitlement Order without further consent by the Issuer or any other Person.
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(d) Each of the Trust Account, the Restricted Cash Account and the Series Accounts shall be initially established with the Indenture Trustee and, so long as any Outstanding Obligation remains unpaid, shall be maintained with the Indenture Trustee so long as (A) the short-term unsecured debt obligations of the financial institution fulfilling the role of the Indenture Trustee are rated not less than the Required Deposit Rating or (B) each of the Trust Account, the Restricted Cash Account and the Series Accounts are maintained at the Corporate Trust Office. If any of the Trust Account, the Restricted Cash Account or the Series Accounts are not maintained at the Corporate Trust Office or if the short-term unsecured debt obligations of the Indenture Trustee fall below the Required Deposit Rating, then the Issuer shall within ten (10) days after obtaining knowledge of such condition, with the Indenture Trustee’s assistance as necessary, cause each of the Trust Account, the Restricted Cash Account and the Series Accounts to be transferred to either (A) an Eligible Institution which then maintains the Required Deposit Rating and is otherwise acceptable to the Administrative Agent and each Series Enhancer, or (B) with the prior written consent of the Administrative Agent and each Series Enhancer, the Corporate Trust Office of the successor Indenture Trustee. Prior to any of the Trust Account, the Restricted Cash Account or any Series Accounts being maintained with a Person other than the Indenture Trustee, the Issuer shall obtain the prior written consent of the Administrative Agent and each Series Enhancer and shall cause a new Control Agreement to be entered into with such Person as securities intermediary.
(e) Each of the Trust Account, the Restricted Cash Account and the Series Accounts shall be maintained in the State of New York and shall be governed by the laws of the State of New York, regardless of any provision in any other agreement. Each Control Agreement shall provide for purposes of the UCC that New York shall be deemed to be the Securities Intermediary’s jurisdiction and each of the Trust Account, the Restricted Cash Account and each Series Account (as well as the Securities Entitlements related thereto) shall be governed by the laws of the State of New York.
(f) The Indenture Trustee, in its capacity as the Securities Intermediary, has not entered into, and until the termination of this Indenture will not enter into, any agreement with any other Person relating to any of the Trust Account, the Restricted Cash Account, any Series Account or any Financial Assets credited thereto pursuant to which it has agreed to comply with Entitlement Orders of such other Person and the Securities Intermediary has not entered into, and until the termination of this Agreement will not enter into, any agreement with the Issuer, any Seller, the Manager or the Indenture Trustee purporting to limit or condition the obligation of the Securities Intermediary to comply with Entitlement Orders as set forth in Section 303(c) hereof.
(g) Except for the claims and interest of the Indenture Trustee and of the Issuer hereunder in each of the Trust Account, the Restricted Cash Account and each Series Account, to the best of its knowledge without independent investigation, the Indenture Trustee, in its capacity as the initial Securities Intermediary, knows of no claim to, or interest in, any of the Trust Account, the Restricted Cash Account, any Series Account or in any Financial Asset credited thereto. If any other Person asserts any Lien, encumbrance or adverse claim (including any writ, garnishment, judgment, warrant of attachment, execution or similar process) against any of the Trust Account, the Restricted Cash Account, any Series Account or in any Financial Asset credited thereto, the Securities Intermediary will promptly notify the Indenture Trustee, the Manager, the Administrative Agent, each Series Enhancer, each Interest Rate Hedge Provider and the Issuer thereof.
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(h) The Indenture Trustee shall possess a perfected security interest in all right, title and interest in and to all funds on deposit from time to time in each of the Trust Account, the Restricted Cash Account, each Series Account and in all Proceeds thereof. Each of the Trust Account, the Restricted Cash Account and each Series Account shall be in the name of and under the sole dominion and control of the Indenture Trustee for the benefit of the Noteholders, each Interest Rate Hedge Provider and each Series Enhancer. The Indenture Trustee shall make withdrawals and payments from each of the Trust Account, the Restricted Cash Account and each Series Account and apply such amounts in accordance with the provisions of the Indenture and the related Manager Report or, in the absence of any Manager Report, in accordance with written instructions from the Administrative Agent. Effective upon any submission by the Indenture Trustee to each Series Enhancer of a certificate requesting a draw under any related Enhancement Agreement, the Indenture Trustee will be deemed to have assigned to each Series Enhancer all rights under the obligations insured under such Enhancement Agreement in respect of which payment is being requested to each Series Enhancer.
(i) The Issuer shall not direct the Indenture Trustee to make any investment of any funds or to sell any investment held in any of the Trust Account, the Restricted Cash Account and any Series Account unless the security interest of the Indenture Trustee in such account and any funds or investments held therein shall continue to be perfected without any further action by any Person.
(j) The Financial Assets and other items deposited to the accounts will not be subject to deduction, set-off, banker’s lien, or any other right in favor of any Person except as created pursuant to this Indenture. For the avoidance of doubt, the fees and expenses of the Indenture Trustee shall be payable solely pursuant to Section 302 or Section 806 of this Indenture and shall not be subject to deduction, set-off, bankers lien or other right of the Indenture Trustee.
Section 304. Copies of Reports to Noteholders, each Interest Rate Hedge Provider and each Series Enhancer.
(a) Upon request, the Indenture Trustee shall promptly furnish to each Noteholder, the Administrative Agent, each Interest Rate Hedge Provider and each Series Enhancer a copy of all reports, financial statements and notices received by the Indenture Trustee pursuant to the Container Sale Agreement, this Indenture, the Management Agreement or any other Related Document.
(b) The Indenture Trustee will make available promptly upon receipt thereof to the Noteholders via the Indenture Trustee’s internet website at www.CTSLink.com the financial statements referred to in Section 7.2 of the Management Agreement, the Equipment and Lease Report, the Manager Report, the Asset Base Report and the annual insurance confirmation; provided, that, as a condition to access to the Indenture Trustee’s website, the Indenture Trustee shall require each such Noteholder to execute the Indenture Trustee’s standard
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form documentation, and upon such execution, each such Noteholder shall be deemed to have certified to the Indenture Trustee it (i) is a Noteholder, (ii) understands that such items contain material nonpublic information (within the meaning of U.S. Federal Securities laws), (iii) is requesting the information solely for use in evaluating such party’s investment in the Notes and will keep such information strictly confidential (with such exceptions and restrictions to distribution of the information as are more fully set forth in the information request certification) and (iv) is not a Competitor. Each time a Noteholder accesses the internet website, it will be deemed to have confirmed the representations and warranties made pursuant to the confirmation as of the date of such access. The Indenture Trustee will provide the Issuer with copies of such information request certification. Assistance in using the Indenture Trustee’s website can be obtained by calling the Indenture Trustee’s customer service desk at (866) 846-4526.
Section 305. Records.
The Indenture Trustee shall cause to be kept and maintained adequate records pertaining to the Trust Account, each Restricted Cash Account and each Series Account and all receipts and disbursements therefrom. The Indenture Trustee shall deliver at least monthly an accounting thereof in the form of a trust statement to the Issuer, each member of the Issuer, the Manager, the Administrative Agent, each Interest Rate Hedge Provider and each Series Enhancer.
Section 306. Restricted Cash Account.
(a) The Indenture Trustee shall establish and maintain in the name of the Indenture Trustee an Eligible Account with the Corporate Trust Office which shall be designated the restricted cash account (the “Restricted Cash Account”) for all Series and which shall be held by the Indenture Trustee pursuant to this Indenture and the related Supplements. Any and all moneys remitted by the Issuer, or Manager on its behalf, to the Restricted Cash Account from the Trust Account, together with any Eligible Investments in which such moneys are or will be invested or reinvested, shall be held in the Restricted Cash Account for all Series. On the issuance date of any Series, the Issuer will deposit, or cause to be deposited, into the Restricted Cash Account sufficient amount of funds such that, after giving effect to such deposit, the amount of funds on deposit therein shall be equal to the Restricted Cash Amount, and thereafter amounts shall be deposited in the Restricted Cash Account in accordance with Section 302, or as additional amounts from time to time at Issuer’s option. Any and all moneys remitted by the Indenture Trustee to the Restricted Cash Account shall be invested in Eligible Investments in accordance with this Indenture and shall be distributed in accordance with this Section 306.
(b) On each Determination Date, the Indenture Trustee shall, in accordance with the terms of each applicable Supplement and the Manager Report or, in the absence of a Manager Report, pursuant to written instructions from the Administrative Agent, withdraw from the Restricted Cash Account and deposit into the Series Account for each affected Series an amount equal to the Permitted Payment Date Withdrawals for such Series. Amounts transferred to a Series Account pursuant to the provisions of this Section 306(b) may only be used to pay amounts specified in the definition of “Permitted Payment Date Withdrawals”. Any other conditions or restrictions related to such draw for a specific Series shall be set forth in the related Supplement.
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(c) On each Payment Date, the Indenture Trustee shall, in accordance with the Manager Report or, in the absence of a Manager Report, pursuant to written instructions from the Administrative Agent, deposit in the Trust Account for distribution in accordance with Section 302 of this Indenture the excess, if any, of (A) amounts then on deposit in the Restricted Cash Account (after giving effect to any withdrawals therefrom on such Payment Date) over (B) the Restricted Cash Amount. On the Legal Final Payment Date for the Series with the latest Legal Final Payment Date, any remaining funds in the Restricted Cash Account shall be deposited in the Trust Account and, subject to the limitations set forth in any Supplement, distributed in accordance with Section 302 of this Indenture and the related Supplements.
(d) If the amount on deposit in the Restricted Cash Account on a Determination Date is not sufficient to pay in full the aggregate Permitted Payment Date Withdrawals referred to in Section 306(b) above, then the amount of funds then available in the Restricted Cash Account will be allocated among the various Series on a pro rata basis in proportion to the amount of their respective Permitted Payment Date Withdrawals.
(e) In addition to the withdrawals set forth in Section 306(b) above, on any date on which an Event of Default has occurred and is continuing and the Notes have been accelerated in accordance with the terms of this Indenture, the Indenture Trustee, acting at the direction of the Requisite Global Majority, shall withdraw all amounts on deposit in the Restricted Cash Account and use such amounts to pay the sum of interest and arrearages then payable on the Notes plus the Aggregate Principal Balance in accordance with the priorities set forth in Section 806 hereof.
Section 307. CUSIP Numbers.
The Issuer in issuing the Notes may use “CUSIP” numbers (if then generally in use), and, if so, the Indenture Trustee shall use “CUSIP” numbers in notices of redemption as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Notes or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Notes, and any such redemption shall not be affected by any defect in or omission of such numbers. The Issuer will promptly notify the Indenture Trustee of any change in the “CUSIP” numbers.
Section 308. No Claim.
The Indenture Trustee hereby agrees, and by accepting the benefits of this Indenture, each of the Seller and Manager shall be deemed to have agreed, that amounts payable to it pursuant to the terms of the Related Documents shall be non-recourse to the Issuer and shall not constitute a claim against the Issuer or the Collateral in the event such amounts are not paid in accordance with Section 302 or 806 of this Indenture.
Section 309. Compliance with Withholding Requirements.
Notwithstanding any other provision of this Indenture, the Indenture Trustee shall comply with all United States federal income tax withholding requirements with respect to payments to Noteholders of interest, original issue discount, or other amounts that the Indenture Trustee reasonably believes are applicable under the Code. The consent of Noteholders shall not be required for any such withholding.
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Section 310. Tax Treatment of Notes.
The Issuer has entered into this Indenture, and the Notes will be issued, with the intention that, for United States federal, state and local income, single business and franchise tax purposes, the Notes will qualify as indebtedness. The Issuer and the Indenture Trustee, by entering into this Indenture, and each Noteholder, by its acceptance of its Note, agree to treat the Notes for United States federal, state and local income, single business and franchise tax purposes as indebtedness.
Section 311. Subordination.
Wells Fargo Bank, National Association, in its capacity as the Securities Intermediary hereby irrevocably subordinates to the security interest of the Indenture Trustee under this Indenture any and all security interest in, liens on and rights of setoff against any and all of the Collateral that the Securities Intermediary may have or acquire on the date hereof or at any time hereafter until all Outstanding Obligations, and all amounts payable by the Issuer under this Indenture and all other Related Documents have been paid in full and all covenants and agreements of the Issuer in this Indenture and all other Related Documents have been fully performed.
Section 312. Letters of Credit and L/C Cash Account.
(a) Delivery of Letter of Credit and Establishment of L/C Cash Account. The Issuer may, at its option, deliver to the Indenture Trustee on any Business Day after the Restatement Date, one or more Eligible Letters of Credit in order to satisfy a portion of the Restricted Cash Target Amount. The Indenture Trustee shall on the Restatement Date establish and maintain in the name of the Indenture Trustee an Eligible Account with the Corporate Trust Office which shall be designated as the L/C Cash Account.
(b) Drawings on Letters of Credit. On each Determination Date, the Indenture Trustee shall, based on the Manager Report delivered on such Determination Date, submit a draw request on the Letter(s) of Credit in an amount equal to the lesser of:
(x) the Aggregate Available Amount; and
(y) an amount equal to the excess of (x) the Permitted Payment Date Withdrawals for the related Payment Date, over (y) any amounts drawn from the Restricted Cash Account on such Determination Date to satisfy such Permitted Payment Date Withdrawals in accordance with the terms of the Supplements.
(c) The Indenture Trustee shall receive the proceeds of all drawings on the Letter(s) of Credit on behalf of the Noteholders. Any drawings in respect of a Letter of Credit shall be deposited into the L/C Cash Account and paid in accordance with the terms of the Supplements.
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(d) If there is more than one Letter of Credit on the date of any draw on the Letter(s) of Credit pursuant to the terms of this Indenture, the Indenture Trustee shall draw on each Letter of Credit in an amount equal to the LOC Pro Rata Share of the related Letter of Credit Provider.
(e) If the L/C Cash Account has been funded in accordance with the terms of this Indenture, then the Indenture Trustee shall, based on the information set forth in the Manager Report (or, if the Manager Report has not been submitted, based on the written direction of the Administrative Agent), make drawings outlined in Section 312(b) from amounts on deposit in the L/C Cash Account.
(f) If prior to the date which is ten (10) days prior to the then scheduled Letter of Credit Expiration Date of a Letter of Credit, the Aggregate Available Amount, calculated to exclude the amount available to be drawn under such Letter of Credit but taking into account any substitute Letter of Credit which has been obtained from an Eligible Bank in respect of such expiring Letter of Credit, would be less than the available amount on such expiring Letter of Credit, then the Manager shall notify the Indenture Trustee in writing no later than two Business Days prior to such Letter of Credit Expiration Date of the available amount of such Letter of Credit. Upon acknowledgment of receipt of such notice by the Indenture Trustee on or prior to 10:00 a.m. (New York City time) on any Business Day, the Indenture Trustee shall, by 2:00 p.m. (New York City time) on such Business Day (or, in the case of any notice given to the Indenture Trustee after 10:00 a.m. (New York City time), by 2:00 p.m. (New York City time) on the next following Business Day), draw on the expiring Letter of Credit an amount equal to the amount set forth above. The proceeds of any such drawing shall be deposited in the L/C Cash Account.
(g) The Issuer shall, or shall cause the Manager to, notify the Indenture Trustee in writing within one Business Day of becoming aware that the long-term senior unsecured debt credit rating of any Letter of Credit Provider has fallen below “A-” as determined by S&P (each, a “Downgraded Letter of Credit Provider”). The Downgraded Letter of Credit Provider and the Issuer shall have 30 days to deliver to the Indenture Trustee a replacement Eligible Letter of Credit from an Eligible Bank having an available drawing amount at least equal to the available drawing amount under the Letter of Credit provided by the Downgraded Letter of Credit Provider. If the Downgraded Letter of Credit Provider and the Issuer fail to provide such replacement letter of credit within such timeframe, the Issuer or the Manager shall notify the Indenture Trustee of the amount available to be drawn on the downgraded Letter of Credit. Upon acknowledgment of receipt of such notice by the Indenture Trustee on or prior to 10:00 a.m. (New York City time) on any Business Day, the Indenture Trustee shall, by 2:00 p.m. (New York City time) on such Business Day (or, in the case of any notice given to the Indenture Trustee after 10:00 a.m. (New York City time), by 2:00 p.m. (New York City time) on the next following Business Day), draw on such Letter of Credit in an amount equal to the amount set forth in the immediately preceding sentence on such Business Day. The proceeds of any such drawing shall be deposited in the L/C Cash Account.
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ARTICLE IV
COLLATERAL
Section 401. Collateral.
(a) The Notes and the obligations of the Issuer hereunder shall be obligations of the Issuer as provided in Section 203 hereof. The Noteholders, each Interest Rate Hedge Provider and each Series Enhancer shall also have the benefit of, and the Notes shall be secured by and be payable from, the Issuer’s right, title and interest in the Collateral. The income, payments and Proceeds of such Collateral shall be allocated to each such Series of Notes strictly in accordance with the applicable payment priorities set forth in Section 302 and Section 806 hereof.
(b) Notwithstanding anything contained in this Indenture to the contrary, the Issuer expressly agrees that it shall remain liable under each of its Contracts and Leases to observe and perform all the conditions and obligations to be observed and performed by it thereunder and that it shall perform all of its duties and obligations thereunder, all in accordance with and pursuant to the terms and provisions of each such Contract or Lease, as the case may be.
(c) The Indenture Trustee hereby acknowledges the appointment by the Issuer of the Manager to service and administer the Collateral in accordance with the provisions of the Management Agreement and, so long as such Management Agreement shall not have been terminated in accordance with its terms, the Indenture Trustee hereby agrees to provide the Manager with such documentation and to take all such actions with respect to the Collateral as the Manager may reasonably request in writing in accordance with the express provisions of the Management Agreement; provided, however, that the Indenture Trustee shall be entitled to receive from the Issuer reasonable compensation and cost reimbursement for any such action. Until such time as the Management Agreement has been terminated in accordance with its terms, the Manager, on behalf of the Issuer, shall continue to collect all Accounts and payments on the Leases in accordance with the provisions of the Management Agreement and make such deposits into the Trust Account as are required pursuant to the terms of the Management Agreement. Any Proceeds received directly by the Issuer in payment of any Account or Leases or in payment for, or in respect of, any of the Managed Containers or on account of any of the Contracts to which the Issuer is a party shall be promptly deposited by the Issuer in precisely the form received (with all necessary endorsements) in the Trust Account, and until so deposited shall be deemed to be held in trust by the Issuer as the Indenture Trustee’s property and shall continue to be collateral security for all of the obligations secured by this Indenture and shall not constitute payment thereof until applied as hereinafter provided. If (i) an Event of Default has occurred, (ii) any Sale of the Collateral pursuant to Section 816 hereof shall have occurred or (iii) a Manager Default has occurred, the Issuer shall at the request of the Indenture Trustee, acting with the consent of or at the direction of the Requisite Global Majority, to the extent practicable and to the extent the Issuer possesses such documents, deliver to the Indenture Trustee (or such other Person as the Indenture Trustee may direct) originals (or, to the extent originals cannot be delivered, copies) of all other documents evidencing, and relating to, the sale and delivery of the Managed Containers and the Issuer shall, to the extent practicable and to the extent the Issuer
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possesses such documents, deliver originals (or, to the extent originals cannot be delivered, copies) of all other documents evidencing and relating to, the performance of any labor, maintenance, remarketing or other service which created such Accounts, including, without limitation, all original orders, invoices and shipping receipts. The Issuer shall be required to deliver or disclose any information, data, document or agreement which is proprietary to the Issuer, only to the extent required by the terms of the Management Agreement.
Section 402. Pro Rata Interest.
(a) Except as expressly provided for herein and in any Supplement, the Notes of all Outstanding Series shall be equally and ratably entitled to the benefits of this Indenture without preference, priority or distinction, all in accordance with the terms and provisions of this Indenture and the related Supplement. All Notes of a particular Class issued hereunder are and are to be, to the extent (including any exceptions) provided in this Indenture and the related Supplement, equally and ratably secured by this Indenture without preference, priority or distinction on account of the actual time or times of the authentication or delivery of the Notes so that all Notes of a particular Series and Class at any time Outstanding (including Notes owned by any Seller and its Affiliates, other than the Issuer) shall have the same right, Lien and preference under this Indenture and shall all be equally and ratably secured hereby with like effect as if they had all been executed, authenticated and delivered simultaneously on the date hereof.
(b) With respect to each Series of Notes, the execution and delivery of the related Supplement shall be upon the express condition that if the conditions specified in Section 701 of this Indenture are met with respect to such Series of Notes, the security interest and all other estate and rights granted by this Indenture with respect to such Series of Notes shall cease and become null and void and all of the property, rights, and interest granted as security for the Notes of such Series shall revert to and revest in the Issuer without any other act or formality whatsoever.
Section 403. Indenture Trustee’s Appointment as Attorney-in-Fact.
(a) The Issuer hereby irrevocably constitutes and appoints Indenture Trustee, and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of the Issuer and in the name of the Issuer or in its own name, from time to time, for the purpose of carrying out the terms of this Indenture, to take any and all action and to execute and deliver any and all documents and instruments which may be necessary or desirable to accomplish the purposes of this Indenture; provided, however, that the Indenture Trustee has no obligation or duty to take such action nor to determine whether to perfect, file, record or maintain any perfected, filed or recorded document or instrument (all of which the Issuer shall prepare, deliver and instruct the Indenture Trustee to execute) in connection with the grant of a security interest in the Collateral hereunder.
(b) The Indenture Trustee shall not exercise the power of attorney or any rights granted to the Indenture Trustee pursuant to this Section 403 unless an Event of Default shall have occurred and then be continuing. The Issuer hereby ratifies, to the extent permitted by law, all actions that said attorney shall lawfully do or cause to be done by virtue hereof. The power of attorney granted pursuant to this Section 403 is a power coupled with an interest and shall be irrevocable until all Series of Notes are paid and performed in full.
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(c) The powers conferred on the Indenture Trustee hereunder are solely to protect Indenture Trustee’s interests in the Collateral and shall not impose any duty upon it to exercise any such powers except as set forth herein. The Indenture Trustee shall be accountable only for amounts that it actually receives as a result of the exercise of such powers and neither it nor any of its officers, directors, employees, agents or representatives shall be responsible to the Issuer for any act or failure to act, except for its own negligence or willful misconduct.
(d) The Issuer also authorizes (but does not obligate) the Indenture Trustee to (i) so long as a Manager Default is continuing, communicate with any party to any Contract or Lease relating to a Managed Container with regard to the assignment of the right, title and interest of the Issuer in and under the Contracts or Leases relating to a Managed Container hereunder and other matters relating thereto and (ii) so long as an Event of Default is continuing, execute, in connection with the sale of Collateral provided for in Article VIII hereof, any endorsements, assignments or other instruments of conveyance or transfer with respect to the Collateral.
(e) If the Issuer fails to perform or comply with any of its agreements contained herein and the Indenture Trustee, with the consent of and at the direction of the Requisite Global Majority, shall perform or comply, or otherwise cause performance or compliance, with such agreement, the reasonable expenses, including attorneys’ fees and expenses, of Indenture Trustee incurred in connection with such performance or compliance together with interest thereon at the rate specified in the related Supplement, shall be payable by the Issuer to the Indenture Trustee on demand and shall constitute additional Outstanding Obligations secured hereby.
Section 404. Release of Security Interest.
The Indenture Trustee, at the written direction of the Manager, shall release from the Lien of this Indenture, any Managed Container and the Related Assets sold or transferred or paid-in-kind pursuant to, and in accordance with the terms of, Section 606(a) hereof. In effectuating such release, the Indenture Trustee shall be provided with and shall be entitled to rely on: (A) so long as no Early Amortization Event is then continuing, a written direction of the Manager (with a copy to the Administrative Agent and each Series Enhancer) identifying each Managed Container or other items to be released from the Lien of this Indenture in accordance with the provisions of this Section 404 accompanied by an Asset Base Certificate, or (B) (x) if an Early Amortization Event is then continuing, all of the following: (i) the items set forth in clause (A) above, and (ii) a certificate from the Manager (with a copy to the Administrative Agent and each Series Enhancer) stating that such release is in compliance with Sections 404 and 606(a) hereof and (y) if a Manager Default (other than a Manager Default of the type described in Section 11.1(i), (j) or (l) of the Management Agreement) is then continuing, the prior consent of the Requisite Global Majority shall also be required with respect to each such release. The Indenture Trustee shall, at the expense of the Issuer, execute documents prepared by, or on behalf of, the Issuer evidencing such release was made in accordance with the provisions of this Section 404. The Issuer is authorized to file any UCC partial releases in the appropriate jurisdictions with respect to such released Containers.
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The Indenture Trustee will, promptly upon receipt of such certificate from the Manager and at the Issuer’s expense, execute and deliver to the Issuer, the Sellers or, the Manager, as appropriate, the Administrative Agent, each Interest Rate Hedge Provider and each Series Enhancer, a non-recourse certificate of release substantially in the form of Exhibit E hereto and such additional documents and instruments as that Person may reasonably request to evidence the termination and release from the Lien of this Indenture of such Container and the other related items of Collateral.
Section 405. Administration of Collateral.
(a) The Indenture Trustee hereby acknowledges the appointment by the Issuer of the Manager to service and administer the Collateral in accordance with the provisions of the Management Agreement and agrees to provide the Manager with such documentation, and to take all such actions, as the Manager may reasonably request in accordance with the provisions of the Management Agreement.
(b) The Indenture Trustee shall promptly as practicable notify the Noteholders, each Series Enhancer, the Administrative Agent, each Interest Rate Hedge Provider and the Manager Transfer Facilitator of any Manager Default of which a Corporate Trust Officer has actual knowledge. If a Manager Default shall have occurred and then be continuing, the Indenture Trustee, in accordance with the written direction of the Requisite Global Majority, shall deliver to the Manager (with a copy to the Administrative Agent, each Interest Rate Hedge Provider, each Series Enhancer and the Manager Transfer Facilitator) a Manager Termination Notice terminating the Manager of its responsibilities in accordance with the terms of the Management Agreement. If the Manager Transfer Facilitator is unable to locate and qualify a Replacement Manager acceptable to the Requisite Global Majority within sixty (60) days after the date of delivery of the Manager Termination Notice, then the Indenture Trustee may and shall, at the direction of the Requisite Global Majority, appoint, or petition a court of competent jurisdiction to appoint as a successor Manager, a Person acceptable to the Requisite Global Majority, having a net worth of not less than $15,000,000 and whose regular business includes marine cargo container leasing and/or container chassis leasing. In connection with the appointment of a Replacement Manager, the Indenture Trustee or Administrative Agent may, with the written consent of the Requisite Global Majority, make such arrangements for the compensation of such Replacement Manager out of Collections as the Indenture Trustee (acting in accordance with the Requisite Global Majority), each Series Enhancer, the Administrative Agent and such Replacement Manager shall agree. The terminated Manager shall not be entitled to receive any Management Fee or other amounts owing to it pursuant to the Management Agreement for any period after the effective date of such replacement, but shall be entitled to receive any such amounts earned or accrued through the effective date of such replacement which amounts shall be payable in accordance with Section 302 of this Indenture. The Indenture Trustee shall take such action, consistent with the Management Agreement and the other Related Documents, as shall be reasonably necessary to effectuate any such succession including exercising the power of attorney granted by the Manager pursuant to Section 11.4 of the Management Agreement.
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(c) Upon a Corporate Trust Officer obtaining actual knowledge or the receipt of notice by the Indenture Trustee that any repurchase obligations of the Sellers under Section 2.04 of the Container Sale Agreement or Section 2.04 of any Container Transfer Agreement have arisen, the Indenture Trustee shall notify each Series Enhancer, each Interest Rate Hedge Provider and each Noteholder of such event and shall enforce such repurchase obligations at the written direction of the Requisite Global Majority.
Section 406. Quiet Enjoyment.
The security interest hereby granted to the Indenture Trustee by the Issuer is subject to the right of any lessee to the quiet enjoyment of any Managed Container under lease to such lessee for so long as such lessee is not in default under the Lease therefor and the Manager under the Management Agreement (including any Replacement Manager) or the Indenture Trustee (as provided in Section 405 hereof) continues to receive all amounts payable under such Lease.
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ARTICLE V
RIGHTS OF NOTEHOLDERS; ALLOCATION
AND APPLICATION OF NET ISSUER PROCEEDS;
REQUISITE GLOBAL MAJORITY
Section 501. Rights of Noteholders.
The Noteholders of each Series shall have the right to receive, to the extent necessary to make the required payments with respect to the Notes of such Series at the times and in the amounts specified in the related Supplement, (i) the portion of Collections allocable to Noteholders of such Series pursuant to this Indenture and the related Supplement, (ii) funds on deposit in the Trust Account (subject to the priorities set forth in Section 302 hereof) and the Restricted Cash Account, and (iii) funds on deposit in any Series Account for such Series or Class, or payable with respect to any Series Enhancement for such Series or Class. Each Noteholder, by acceptance of its Notes, (a) acknowledges and agrees that (except as expressly provided herein and in a Supplement entered into in accordance with Section 1006(b) hereof) the Noteholders of a Series or Class shall not have any interest in any Series Account or Series Enhancement for the benefit of any other Series or Class and (b) ratifies and confirms the terms of this Indenture and the Related Documents executed in connection with such Series.
Section 502. Allocations Among Series.
With respect to each Collection Period, Collections on deposit in the Trust Account will be allocated to each Series then Outstanding in accordance with Article III of this Indenture and the Supplements.
Section 503. Determination of Requisite Global Majority.
A Requisite Global Majority shall exist with respect to any action proposed to be taken pursuant to the terms of this Indenture or any Supplement if the Control Party or Control Parties representing more than fifty percent (50%) of the sum of the Existing Commitments of all Series then Outstanding shall approve or direct such proposed action (in making such a determination, each Control Party shall be deemed to have voted the entire Existing Commitment of the related Series in favor of, or in opposition to, such proposed action, as the case may be). The Indenture Trustee shall be responsible for identifying the Requisite Global Majority in accordance with the terms of this Section 503.
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ARTICLE VI
COVENANTS
For so long as any Aggregate Outstanding Obligation of the Issuer remains outstanding the Issuer shall observe each of the following covenants:
Section 601. Payment of Principal and Interest, Payment of Taxes.
(a) The Issuer will duly and punctually pay the principal of and interest on the Notes in accordance with the terms of the Notes, this Indenture and the related Supplement.
(b) The Issuer will take all actions as are necessary to insure that all taxes and governmental claims, if any, in respect of the Issuer’s activities and assets are promptly paid.
Section 602. Maintenance of Office.
(a) The only “place of business” (within the meaning of Section 9-307 of the UCC) of the Issuer is located at Century House, 16 Par-la-Ville Road, Hamilton HM HX, Bermuda. The Issuer shall not establish a new place of business or location for its chief executive office outside of Bermuda unless (i) it shall have given to the Indenture Trustee, the Administrative Agent, each Interest Rate Hedge Provider and each Series Enhancer not less than sixty (60) days’ prior written notice of its intention so to do, clearly describing such new location and providing such other information in connection therewith as the Indenture Trustee, the Administrative Agent, any Interest Rate Hedge Provider or any Series Enhancer may reasonably request, (ii) not less than fifteen (15) days’ prior to the effective date of such relocation, the Issuer shall have taken, at its own cost, all action necessary so that such change of location does not impair the security interest of the Indenture Trustee in the Collateral, or the perfection of the sale or contribution of the containers to the Issuer, and shall have delivered to the Indenture Trustee, the Administrative Agent, each Interest Rate Hedge Provider and each Series Enhancer copies of all filings required in connection therewith and (iii) the Issuer has delivered to the Indenture Trustee, the Administrative Agent, each Series Enhancer and each Eligible Interest Rate Hedge Provider, one or more Opinions of Counsel satisfactory to the Requisite Global Majority, stating that, after giving effect to such change of location: (A) none of the Sellers and the Issuer will, pursuant to applicable Insolvency Law, be substantively consolidated in the event of any Insolvency Proceeding by, or against, any Seller, (B) under applicable Insolvency Law, the transfers of Transferred Assets made in accordance with the terms of the Related Documents will be treated as a “true sale” in the event of any Insolvency Proceeding by, or against, either Seller, and (C) either (1) in the opinion of such counsel, all registration of charges, financing statements, or other documents of similar import, and amendments thereto have been executed and filed that are necessary to fully preserve and protect the interest of the Issuer and the Indenture Trustee in the Transferred Assets, or (2) stating that, in the opinion of such counsel, no such action shall be necessary to preserve and protect such interest.
(b) The Issuer shall not maintain a place of business within the United States of America.
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Section 603. Corporate Existence.
The Issuer will keep in full effect its existence, rights and franchises as a company incorporated under the laws of Bermuda, and will obtain and preserve its qualification in each jurisdiction in which such qualification is necessary to protect the validity and enforceability of this Indenture, any Supplements issued hereunder and the Notes.
Section 604. Protection of Collateral.
The Issuer, at its expense, will cause this Indenture and any Supplement to be registered under Section 55 of the Companies Act of 1981 Bermuda in the Register of Charges kept at the Office of the Registrar of Companies of Bermuda (or under any statute enacted in lieu thereof and for the time being in force, or under any law of general application relating to the registration of mortgages of or charges upon personal property for the time being in force in the Islands of Bermuda). In addition, the Issuer will from time to time execute and deliver all amendments thereto and all such financing statements, continuation statements, instruments of further assurance and other instruments, and will, upon the reasonable request of the Manager, the Indenture Trustee, the Administrative Agent, any Interest Rate Hedge Provider or any Series Enhancer, take such other action necessary or advisable to:
(a) grant more effectively the security interest in all or any portion of the Collateral;
(b) maintain or preserve the Lien of this Indenture (and the priority thereof) or carry out more effectively the purposes hereof including executing and filing such documents, as may be required under any international convention for the perfection of interests in containers that may be adopted subsequent to the date of this Indenture;
(c) perfect, publish notice of, or protect the validity of the security interest in the Collateral created pursuant to this Indenture;
(d) enforce any of the items of the Collateral;
(e) preserve and defend its right, title and interest to the Collateral and the rights of the Indenture Trustee in such Collateral against the claims of all Persons (other than the Noteholders or any Person claiming through the Noteholders);
(f) pay any and all taxes levied or assessed upon all or any part of the Collateral;
(g) pay any and all fees, taxes and other charges payable in connection with the registration of this Indenture and any Supplement with the Office of the Registrar of Companies of Bermuda or any other Governmental Authority; or
(h) notify such parties of any Commercial Tort Claims in which the Issuer has rights that arise after the Closing Date and exceed $250,000 and take such actions necessary to create and perfect the Indenture Trustee’s Lien therein.
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In furtherance of clauses (b) and (c) above, the Issuer hereby agrees that if at any time subsequent to a Closing Date there is a change in Applicable Law (or a change in the interpretation of Applicable Law as in effect on such Closing Date) which, in the reasonable judgment of the Requisite Global Majority, may affect the perfection of the Indenture Trustee’s security interest in the Collateral, then the Issuer shall, within thirty (30) days after written request from the Requisite Global Majority, furnish to the Indenture Trustee, the Administrative Agent and each Series Enhancer, an Opinion of Counsel either (i) stating that, in the opinion of such counsel, such action has been taken with respect to the recording, filing, re-recording and refiling of this Indenture, any Supplements and any other requisite documents, and with respect to the execution and filing of any financing statements and continuation statements, as are necessary to maintain the Lien created by this Indenture and reciting the details of such action, or (ii) stating that, in the opinion of such counsel, no such action is necessary to maintain such Lien. Such Opinion of Counsel shall also describe the recording, filing, re-recording and refiling of this Indenture, any Supplements and any other requisite documents and the execution and filing of any financing statements and continuation statements that, in the opinion of such counsel, are required to maintain the Lien and security interest of this Indenture.
Section 605. Performance of Obligations.
Except as otherwise permitted by this Indenture, the Management Agreement, the Container Sale Agreement or any Container Transfer Agreement, the Issuer will not take, or fail to take, any action, and will use its best efforts not to permit any action to be taken by others, which would release any Person from any of such Person’s covenants or obligations under any agreement or instrument included in the Collateral (excluding any Interest Rate Hedge Agreement), or which would result in the amendment, hypothecation, subordination, termination or discharge of, or impair the validity or effectiveness of, any such agreement or instrument (excluding any Interest Rate Hedge Agreement).
Section 606. Negative Covenants.
The Issuer will not, without the prior written consent of the Requisite Global Majority :
(a) at any time sell, transfer, exchange or otherwise dispose of any of the Collateral, except as follows:
(i) in connection with a sale following the occurrence of an Event of Default pursuant to Section 816 hereof;
(ii) sales of Managed Containers in the ordinary course of business (including any such sales resulting from the sell/repair decision of the Manager) regardless of the sales proceeds realized from such sales so long as neither an Early Amortization Event nor an Event of Default is then continuing or would result from such sale of Managed Containers;
(iii) if an Early Amortization Event but no Event of Default is then continuing or would result from such sale of Managed Containers, sales of Managed Containers in the normal course of business (including any such sales
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resulting from the sell/repair decision of the Manager) so long as the sum of the Net Book Values of all Managed Containers that were sold for less than Net Book Value during the four (4) immediately preceding Collection Periods shall not exceed an amount equal to the product of (x) five percent (5%) and (y) an amount equal to the quotient of (i) the sum of the aggregate Net Book Value as of the last day of each of the four (4) immediately preceding Collection Periods, divided by (ii) four (4);
(iv) any other sales of Managed Containers not covered by clauses (i), (ii) or (iii), provided that each such sale must be specifically approved in writing by the Requisite Global Majority;
(v) in connection with a repurchase or substitution by any Seller to remedy a breach of the Container Representations and Warranties;
(vi) [reserved];
(vii) sales to an Affiliate of the Issuer of one or more Managed Containers which are not then classified as Eligible Containers and which are not included in the calculation of the Asset Base, so long as (x) none of an Early Amortization Event, Asset Base Deficiency, nor an Event of Default is then continuing or would result from a sale of such Managed Containers, (y) the cash sales proceeds realized by the Issuer from a sale of such Managed Containers shall equal or exceed an amount equal to the sum of the Net Book Values of all such sold Managed Containers, and (z) the sum of the Net Book Values of all such sold Managed Containers shall not exceed $15,000,000;
(viii) sales to an Affiliate of the Issuer that is not a Special Purpose Entity of one or more Managed Containers included in the calculation of the Asset Base not otherwise addressed in clause (vii), so long as (w) none of an Early Amortization Event, Asset Base Deficiency or an Event of Default is then continuing or would result from a sale of such Managed Containers, (x) the cash sales proceeds realized by the Issuer from such sale of Managed Containers shall equal or exceed an amount equal to the greater of (A) the sum of the then Net Book Values of all such sold Managed Containers and (B) the sum of the then fair market values of all such sold Managed Containers, and (y) the Indenture Trustee shall have received a written confirmation from counsel to the Issuer confirming that such sales shall not change the conclusions set forth in its previously delivered Opinions of Counsel regarding true sale and nonconsolidation;
(ix) sales to a Special Purpose Entity, of one or more Managed Containers and related assets, so long as (x) none of an Early Amortization Event, Asset Base Deficiency or an Event of Default is then continuing or would result from a sale of such Managed Containers, (y) the sales proceeds realized by the Issuer from such sale of Managed Containers shall equal or exceed an amount equal to or greater than the sum of the then Net Book Values of all such sold Managed Containers and (z) the cash portion of such sales proceeds shall be not
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less than the product of (i) the Advance Rate then in effect and (ii) the sum of the then Net Book Values of the sold Managed Containers. For purposes of clarification, no true sale or nonconsolidation legal opinion shall be required with respect to any sale pursuant to this clause (ix).
(b) claim any credit on, make any deduction from the principal, premium, if any, or interest payable in respect of the Notes (other than amounts properly withheld from such payments under any Applicable Law) or assert any claim against any present or former Noteholder by reason of the payment of any taxes levied or assessed upon any of the Collateral;
(c) (i) permit the validity or effectiveness of this Indenture to be impaired, or (ii) permit the Lien of this Indenture with respect to the Collateral (excluding any Interest Rate Hedge Agreement) to be subordinated, terminated or discharged, except as permitted with respect to a sale of such Collateral made in accordance with Section 404, this Section 606 or Article VII hereof or upon payment in full of all Aggregate Outstanding Obligations, or (iii) permit any Person to be released from any covenants or obligations with respect to such Collateral (excluding any Interest Rate Hedge Agreement), except as may be expressly permitted by the Management Agreement, the Container Transfer Agreement or the Container Sale Agreement;
(d) permit any Lien (except any Permitted Encumbrance) to be created on or extend to or otherwise arise upon or burden the Collateral or any part thereof or any interest therein or the Proceeds thereof other than the Lien created pursuant to this Indenture;
(e) permit the Lien of this Indenture not to constitute a valid first priority perfected security interest in the Collateral;
(f) fail to maintain the registration of this Indenture or any Supplement with the Office of the Registrar of Companies of Bermuda or fail to maintain the effectiveness of any required UCC financing statements filed in the applicable jurisdictions;
(g) engage in any activities within the United States; provided that containers owned by the Issuer may be leased by the Issuer to Persons in the United States or for use in the United States; or
(h) for purposes of the Asset Base calculation, revise the Depreciation Policy with respect to the Managed Containers in such a way as to reduce the amount of depreciation expense that would be recorded in any year from that which would have been recorded pursuant to the Depreciation Policy without obtaining in each such instance the prior written consent of (A) the Requisite Global Majority and (B) if specified in a Supplement for a Series of Notes, the percentage of Noteholders set forth therein.
Section 607. Non-Consolidation of Issuer.
(a) The Issuer shall be operated in such a manner that it shall not be substantively consolidated with the estate of any other Person in the event of the bankruptcy or insolvency of the Issuer or such other Person. Without limiting the foregoing, the Issuer shall (1) conduct its business in its own name, (2) maintain its books, records and bank accounts separate
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from those of any other Person, (3) not commingle its funds with those of any other Person (except for any commingling of monies attributable to the Managed Containers that are on deposit in the Master Account until such time as such monies are transferred to the Trust Account in accordance with the terms of the Management Agreement), (4) maintain separate financial statements, showing its assets and liabilities separate and apart from those of any other Person and, to the extent that the Issuer’s assets, liabilities, expenses, revenues, and other financial information are required to be included in any consolidated financial statement, a note will be included in such financial statements that indicates that the Issuer is a separate legal entity from the other members of the consolidated group, its assets are not assets of any other member of the consolidated group, and its assets are not available to the creditors of any other member of the consolidated group, (5) other than with respect to Manager Advances, pay its own liabilities and expenses out of its own funds, (6) enter into a transaction with an Affiliate only if such transaction is intrinsically fair, commercially reasonable and on the same terms as would be available in an arm’s length transaction with a Person or entity that is not an Affiliate (provided, any transaction between the Issuer and an Affiliate pursuant to the Management Agreement, any Container Transfer Agreement or the Container Sale Agreement shall be deemed to have satisfied this clause (6)), (7) allocate fairly and reasonably any overhead expenses that are shared with an Affiliate, (8) hold itself out as a separate entity and maintain adequate capital in light of its contemplated business operations, (9) correct any known misunderstanding regarding its separate identity, (10) use separate stationary, invoices and checks from those of any other Person and (11) observe all other organizational formalities.
(b) Notwithstanding any provision of law which otherwise empowers the Issuer, the Issuer shall not (1) hold itself out as being liable for the debts of any other Person, (2) act other than in its corporate name and through its duly authorized officers or agents, (3) engage in any joint activity or transaction of any kind with or for the benefit of any Affiliate including any of the transactions described in Section 611 hereof, except (i) payment of lawful distributions to its members and (ii) the execution, delivery and performance of the Management Agreement, (4) enter into any transaction that is prohibited pursuant to the provisions of Section 610 herein or (5) take any other action that would be inconsistent with maintaining the separate legal identity of the Issuer or engage in any other activity not contemplated by this Indenture and the Related Documents.
Section 608. No Bankruptcy Petition.
The Issuer shall not (1) commence any Insolvency Proceeding seeking to have an order for relief entered with respect to it, or seeking reorganization, arrangement, adjustment, wind-up, liquidation, dissolution, composition or other relief with respect to it or its debts, (2) seek appointment of a receiver, trustee, custodian or other similar official for it or any part of its assets, (3) make a general assignment for the benefit of creditors, or (4) take any action in furtherance of, or consenting or acquiescing in, any of the foregoing.
Section 609. Liens.
The Issuer shall not (i) permit any Lien (except any Permitted Encumbrance) to be created on or extend to or otherwise arise upon or burden the Collateral or any part thereof or any interest therein or the Proceeds thereof; or (ii) permit the Lien of this Indenture not to constitute a valid first priority security interest in the Collateral.
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Section 610. Other Indebtedness.
The Issuer shall not contract for, create, incur, assume or suffer to exist any Indebtedness except (i) any Notes issued pursuant to this Indenture or any Supplement issued hereunder, (ii) obligations incurred in accordance with the terms of the Related Documents including, without limitation, Manager Advances and Management Fees incurred in accordance with the terms of the Management Agreement, (iii) trade payables and expense accruals incurred in the ordinary course and which are incidental to the purposes permitted pursuant to the Issuer’s charter documents and (iv) Interest Rate Hedge Agreements required or permitted pursuant to the terms of Section 627 hereof. For the avoidance of doubt, the Issuer shall not incur any Indebtedness for borrowed money other than pursuant to clauses (i) and (iv) of this Section 610.
Section 611. Guarantees, Loans, Advances and Other Liabilities.
The Issuer will not make any loan, advance or credit to, or guarantee (directly or indirectly or by an instrument having the effect of assuring another’s payment or performance on any obligation or capability of so doing, or otherwise), endorse (except for the endorsement of checks for collection or deposit) or otherwise become contingently liable, directly or indirectly, in connection with the obligations, stock or dividends of, or own, purchase, repurchase or acquire (or agree contingently to do so) any stock, obligations or securities of, or any other interest in, or make any capital contribution to, any other Person.
Section 612. Consolidation, Amalgamation, Merger and Sale of Assets; Ownership of the Issuer.
(a) The Issuer shall not consolidate with, amalgamate or merge with or into any other Person or sell, convey, transfer or lease all or substantially all of its assets, whether in a single transaction or a series of transactions, to any Person, except for (i) any such sale, conveyance or transfer contemplated in this Indenture or any Supplement issued hereunder and (ii) any Lease of a container in accordance with the terms of the Management Agreement.
(b) The obligations of the Issuer hereunder shall not be assignable nor shall any Person succeed to the obligations of the Issuer hereunder except in each case in accordance with the provisions of this Indenture.
(c) The Issuer shall give prior written notice to the Control Party for each Series of Notes and to each Interest Rate Hedge Provider of any action pursuant to this Section 612; provided, that such notice shall also be given to each Noteholder of any Warehouse Notes.
Section 613. Other Agreements.
(a) The Issuer will not after the date of the issuance of the Notes enter into or become a party to any agreements or instruments other than (i) this Indenture, the Supplements, the Container Sale Agreement, any Container Transfer Agreement, the Management Agreement, the Note Purchase Agreement, the other Related Documents for any Series of Notes and any
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agreements or instruments contemplated under the foregoing agreements listed in this Section 613(i), (ii) any agreement pursuant to which the Issuer issues additional shares to any other Person, (iii) any indemnification agreements with officers and directors of the Issuer provided that any payments owing by the Issuer thereunder shall be payable only to the extent set forth in Section 302 hereof, (iv) any agreement among the Issuer and one or more Affiliates with respect to the payment and accounting treatment of routine administrative expenses incurred by or on behalf of the Issuer in the normal course of its business, (v) any Interest Rate Hedge Agreement required or permitted pursuant to the terms of Section 627 hereof, and (vi) any other agreement(s) contemplated by any Related Document, including, without limitation, any agreement(s) for disposition of the Transferred Assets permitted by Sections 404, 606(a), 804 or 816 hereof and any agreement(s) for the sale, repurchase, lease or re-lease of a container made in accordance with the provisions of any Container Transfer Agreement, the Container Sale Agreement or the Management Agreement.
(b) In addition, the Issuer will not amend, modify or waive any provision of the Container Sale Agreement, the Management Agreement or any other Related Documents or give any approval or consent or permission provided for therein without the prior written consent of the requisite Persons set forth in the Container Sale Agreement, the Management Agreement or such other Related Documents, respectively, except to the extent such waiver, modification or amendment is permitted pursuant to the terms of such agreement. Nothing contained in this Section 613 shall prohibit the assignment, novation or termination of an Interest Rate Hedging Agreement done in compliance with Section 627 of this Indenture, subject to the terms of the related Interest Rate Hedging Agreement.
Section 614. Charter Documents.
The Issuer will not amend or modify its memorandum of association or bye-laws without (i) the vote of 75% of the directors and 70% of the shareholders of the Issuer; (ii) the prior written consent of the Requisite Global Majority and (iii) the prior written notice to the Control Party for each Series of Notes.
Section 615. Capital Expenditures.
The Issuer will not make any expenditure (by long-term or operating lease or otherwise) for capital assets (both realty and personalty), except for (a) acquisition of additional containers made in accordance with the terms of the Management Agreement or (b) capital improvements to the containers in the ordinary course of its business and in accordance with the Management Agreement.
Section 616. Permitted Activities.
The Issuer will not engage in any activity or enter into any transaction except as permitted under its memorandum of association or bye-laws. The Issuer will observe all organizational and managerial procedures required by its constitutional documents and Applicable Law. The Issuer shall (i) keep complete minutes of the meetings and other proceedings of the Issuer and (ii) continuously maintain the resolutions, agreements and other instruments underlying the transaction contemplated by the Related Documents.
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Section 617. Investment Company.
The Issuer will conduct its operations in a manner which will not subject it to registration as an “investment company” under the Investment Company Act of 1940, as amended.
Section 618. Payments of Collateral.
If the Issuer shall receive from any Person any payments with respect to the Collateral (to the extent such Collateral has not been released from the Lien of this Indenture in accordance with Section 404 hereof), the Issuer shall receive such payment in trust for the Indenture Trustee, as secured party hereunder, and subject to the Indenture Trustee’s security interest and shall, by not later than one Business Day after receipt thereof, deposit such payment in the Trust Account.
Section 619. Notices.
The Issuer shall notify the Indenture Trustee, the Administrative Agent, each Series Enhancer, each Interest Rate Hedge Provider and the Manager Transfer Facilitator (but only with respect to the occurrence of a Manager Default) in writing of any of the following immediately upon learning of the occurrence thereof, describing the same and, if applicable, the steps being taken by the Person(s) affected with respect thereto:
(a) Event of Default. The occurrence of an Event of Default and any acceleration of any Notes hereunder;
(b) Litigation. The institution of any litigation, arbitration proceeding or Proceeding before any Governmental Authority which might have or result in a Material Adverse Change;
(c) Material Adverse Change. The occurrence of a Material Adverse Change;
(d) Other Events. The occurrence of an Early Amortization Event or such other events that may, with the giving of notice or the passage of time or both, constitute an Event of Default.
Section 620. Books and Records.
The Issuer shall, and shall cause the Manager to, maintain complete and accurate books and records in which full and correct entries in conformity with GAAP shall be made of all dealings and transactions in relation to its business and activities. In connection with each transfer of Transferred Assets, the Issuer shall report, or cause to be reported, on its financial records the transfer of the Transferred Assets as a purchase under GAAP. The Issuer will ensure that no financial statement, nor any consolidated financial statements of the Issuer, suggests that the assets of the Issuer are available to pay the debts of either of the Sellers, the Manager, or any of their Affiliates.
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Section 621. Taxes.
The Issuer shall, or shall cause the Manager to, pay when due, all of its taxes, unless and only to the extent that Issuer is contesting such taxes in good faith and by appropriate Proceedings and Issuer has set aside on its books such reserves or other appropriate provisions therefor as may be required by GAAP.
Section 622. Subsidiaries.
The Issuer shall not create any Subsidiaries.
Section 623. Investments.
The Issuer shall not make or permit to exist any Investment in any Person except for Investments in Eligible Investments made in accordance with the terms of this Indenture.
Section 624. Use of Proceeds.
The Issuer shall use the proceeds of the Notes only for general corporate purposes, including the distribution of dividends, the repayment of other indebtedness and paying the costs of the issuance of the Notes. In addition, Issuer shall not permit any proceeds of the Notes to be used, either directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of “purchasing or carrying any margin stock” within the meaning of Regulation U of the Board of Governors of the Federal Reserve System, as amended from time to time, and shall furnish to each Holder, upon its request, a statement in conformity with the requirements of Regulation U.
Section 625. Asset Base Report.
The Issuer shall prepare and deliver to the Indenture Trustee, each Series Enhancer, each Interest Rate Hedge Provider and the Administrative Agent on each Determination Date, an Asset Base Report.
Section 626. Financial Statements.
The Issuer shall prepare and deliver to the Indenture Trustee, each Series Enhancer, each Interest Rate Hedge Provider and the Administrative Agent, or shall cause the Manager to prepare and deliver to such parties pursuant to the Management Agreement, quarterly financial statements of the Issuer, the Manager, Textainer Group Holdings Limited and Textainer Limited within sixty (60) days after the end of each of the first three (3) fiscal quarters of each fiscal year and separate annual financial statements of the Issuer and the Manager, audited by their regular Independent Accountants, within one hundred twenty (120) days after the end of each fiscal year ending on and after December 31, 2012. All financial statements shall be prepared in accordance with GAAP. Delivery of such reports, information and documents to the Indenture Trustee is for informational purposes only and the Indenture Trustee’s receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Issuer’s compliance with any of its covenants hereunder (as to which the Indenture Trustee is entitled to rely exclusively on Officer’s Certificates).
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Section 627. Interest Rate Hedge Agreements.
(a) On the date of this Indenture, the Issuer is a party to one or more Interest Rate Hedge Agreements with, in each case, an Eligible Interest Rate Hedge Provider. Upon the earliest to occur of (w) the eight month anniversary of the Hedging Reference Date, (x) the first day after the date on which one month LIBOR (as determined by the Administrative Agent in accordance with its standard practices) shall exceed or equal two and three quarters of one percent (2.75%), (y) the first day after the date on which the 5-year swap rate (as set forth in The Wall Street Journal) shall equal or exceed four percent (4.00%), and (z) the date on which an Event of Default, Early Amortization Event or Manager Default has occurred, the Issuer shall (or shall cause the Manager on its behalf), to the extent commercially practicable, enter into and maintain transactions under Interest Rate Hedge Agreements with respect to (i) Managed Containers that are then subject to Long-Term Leases and Finance Leases and (ii) Managed Containers that are then subject to Master Leases, in the amounts required by the hedging policy set forth in Exhibit F hereto; provided that, except with respect to the initial entry by the Issuer into the required Interest Rate Hedge Agreements under the preceding clause (z) (if such clause is applicable), so long as an Early Amortization Event or an Event of Default is continuing, neither the Issuer (nor the Manager on its behalf) shall enter into any additional transactions under Interest Rate Hedge Agreements other than by terminating existing transactions; provided, further, that upon the earlier to occur of (A) the Conversion Date and (B) any of the dates referenced in clauses (x), (y) or (z) of the second sentence in this paragraph, the Interest Rate Hedge Agreements related to Long-Term Leases and Finance Leases must have a weighted average tenor of no less than one year less than the then weighted average remaining term of the applicable Long-Term Leases and Finance Leases.
(b) In the event that the application of the formulas set forth in Exhibit F hereto indicates that either (i) the Issuer is required to enter into additional transactions under Interest Rate Hedge Agreements, with a total notional balance in excess of Ten Million Dollars ($10,000,000) or (ii) the aggregate notional balance of all outstanding transactions under Interest Rate Hedge Agreements then in effect exceeds the aggregate required notional amount (as determined by application of the formulas set forth in Exhibit F hereto) by the lesser of (A) Twenty Million Dollars ($20,000,000) or (B) the then Aggregate Principal Balance (excluding, in such calculation, the unpaid principal balance of any Note of any Series upon which interest is paid at a fixed rate pursuant to the terms of the related Supplement), then the Issuer shall provide notice of such event to the Indenture Trustee, each Interest Rate Hedge Provider and each Series Enhancer within 5 Business Days after such condition is determined to exist. The Issuer (or the Manager on behalf of the Issuer) shall within thirty (30) days after the date on which such condition is determined to exist, remedy such imbalance (x) under circumstances described in the preceding clause (i), by entering into one or more transactions under Interest Rate Hedge Agreements in order to comply with the requirements of Section 627(a) and not exceed such requirements by more than the amounts set forth in clause (ii) above, or (y) under circumstances described in the preceding clause (ii) by terminating swap transactions for all, or a portion, of one or more transactions under Interest Rate Hedge Agreements then in effect so that the remaining notional amounts for all future calculation periods under all transactions outstanding
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under the Interest Rate Hedge Agreements then in effect, shall comply with the requirements of Section 627(a) and not exceed such requirements by more than the amounts set forth in clause (ii) above. The calculations to be made under this Section 627(b) shall exclude all transactions where the Issuer is not required to make any scheduled periodic payments other than premium payments or fees, and the Net Book Value of the containers hedged by such transactions. So long as no Early Amortization Event or Event of Default is then continuing, the Issuer (or the Manager on its behalf) may exercise its discretion in selecting the specific transactions and notional amounts thereof to be terminated. If an Early Amortization Event or Event of Default is then continuing, termination swaps shall be effected over all outstanding transactions under Interest Rate Hedge Agreements then in effect on a pro rata basis, based on the respective notional amounts for each remaining calculation period, so that the remaining notional amounts for each remaining calculation period will comply with the requirements of Section 627(a) hereof and not exceed the amounts set forth in Section 627(b)(ii) hereof. If provided for in the terms of an Interest Rate Hedge Agreement, the Issuer may assign to, or accept an assignment or novation of, any Interest Rate Hedge Agreement with a Special Purpose Entity in order to comply with the provisions of this Section 627.
(c) In the event the Issuer, or Manager on behalf of Issuer, fails to enter into or terminate swap transactions as required under Section 627(b) within the 30 day time period provided in Section 627(b), the Requisite Global Majority (A) will have the right, in its sole discretion, to direct the Indenture Trustee to enter into additional transactions under Interest Rate Hedge Agreements on the Issuer’s behalf in order to comply with the requirements of Section 627(a) hereof or (B) within 5 Business Days after the 30 day period provided in Section 627(b) will have the right, in its sole discretion, to direct the Indenture Trustee to terminate, in whole or in part, all outstanding transactions under Interest Rate Hedge Agreements then in effect on a pro rata basis, based on the respective notional amounts for each remaining calculation period, so that the remaining notional amounts for each remaining calculation period will comply with the requirements of Section 627(a) hereof and not exceed the amounts set forth in Section 627(b)(ii) hereof. In the event the Requisite Global Majority directs the Indenture Trustee to enter into an Interest Rate Hedge Agreement on the Issuer’s behalf, the Requisite Global Majority shall promptly send a copy of any such agreement to the Issuer and may provide the Indenture Trustee and Manager with a written direction to deposit in the Trust Account certain amounts to purchase, or reimburse the Requisite Global Majority or a third-party for purchasing, such Interest Rate Hedge Agreement. All payments received from an Interest Rate Hedge Provider shall be deposited by the Issuer directly into the Trust Account.
(d) With respect to any transaction which is to be terminated in accordance with the terms of this Section 627, the Issuer (or the Manager or Requisite Global Majority) will give the Interest Rate Hedge Provider not less than three Business Days notice of such termination, specifying the relevant transaction, the notional amount thereof to be terminated for each remaining calculation period and the effective date of such termination. An “Additional Termination Event” and an “Early Termination Date” (as such terms are used in the 1992 ISDA Master Agreement Multicurrency–Cross Border form agreement) shall be deemed to have occurred under the transaction on the specified termination date with respect to the notional amounts so terminated. For purposes of such Early Termination Date and Section 6(e) of the applicable Interest Rate Hedge Agreement, the “Terminated Transaction” shall be only that portion relating to the terminated notional amounts and the remainder of the transaction will
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continue in full force and effect and the Issuer will be the “Affected Party” for purposes of such termination. The amount payable under Section 6(e) of the applicable Interest Rate Hedge Agreement shall be determined by the Interest Rate Hedge Provider and shall be due and payable in accordance with the terms of such Section 6(e), provided that “Market Quotation” under the Interest Rate Hedge Agreement shall be determined on the basis of the quotation of one Reference Market-maker selected by the Interest Rate Hedge Provider, which may be such Interest Rate Hedge Provider to the extent its quotation is reasonably determined in good faith. The provisions of this Section 627(d) shall be incorporated by reference in each Interest Rate Hedge Agreement.
(e) On each Determination Date, Issuer shall provide or cause to be provided to the Indenture Trustee, each Interest Rate Hedge Provider and each Series Enhancer, a monthly report reflecting the hedging policy calculations (including, without limitation, the calculation of the formulas set forth in Exhibit F hereto) as of the end of the preceding calendar month based on all transactions outstanding as of the end of such month under Interest Rate Hedge Agreements then in effect, including transactions which are scheduled to commence on a future date.
(f) The termination provisions provided for in this Indenture relating to the Interest Rate Hedge Agreements are in addition to, and not to the exclusion of, any termination provisions contained in the Interest Rate Hedge Agreements.
(g) Any changes made after the Closing Date in the hedging policy set forth in Exhibit F must be approved in advance by each Control Party. Each Series Enhancer shall have the right to approve any new Interest Rate Hedge Agreements (or any amendments of existing or new Interest Rate Hedge Agreements) entered into or made after the Closing Date which are materially different from the Interest Rate Hedge Agreements existing on the Closing Date (as such agreements may have been amended through such date).
(h) The Issuer shall enter into each Interest Rate Hedge Agreement only with an Eligible Interest Rate Hedge Provider. Each Interest Rate Hedge Agreement shall provide that if the Eligible Interest Rate Hedge Provider or any party providing credit support on its behalf suffers an Interest Rate Hedge Provider Required Rating Downgrade Event, such Interest Rate Hedge Provider will be required (i) to post, within ten (10) Business Days (or such other period of time as may be set forth in the related Interest Rate Hedge Agreement not to exceed thirty (30) days) after such Interest Rate Hedge Provider Required Rating Downgrade Event, collateral set forth in the applicable Interest Rate Hedge Agreement and execute a credit support annex in connection therewith or (ii) otherwise remedy such Interest Rate Hedge Provider Required Rating Downgrade Event in accordance with the terms of the related Interest Rate Hedge Agreement. Failure to post collateral or so otherwise remedy such Interest Rate Hedge Provider Required Rating Downgrade Event within the applicable period of time shall constitute a termination event under the terms of the applicable Interest Rate Hedge Agreement. Such Interest Rate Hedge Provider may transfer (at its own cost), with the cooperation of the Issuer and the Manager, all of its rights and obligations under its Interest Rate Hedge Agreement to an Eligible Interest Rate Hedge Provider in accordance with the terms of its Interest Rate Hedge Agreement. Each Interest Rate Hedge Agreement shall also provide that if the Interest Rate Hedge Provider (or any party providing credit support identified in the Interest Rate Hedge Agreement or any credit support annex thereto on its behalf) suffers an Interest Rate Hedge Provider Required Rating Replacement Event, such Interest Rate Hedge
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Provider will be required to transfer (at its own cost) all of its rights and obligations under its Interest Rate Hedge Agreement to an Eligible Interest Rate Hedge Provider not later than thirty (30) Business Days (or such other period of time as may be set forth in the related Interest Rate Hedge Agreement) after the occurrence of the Interest Rate Hedge Provider Required Rating Replacement Event. Upon the occurrence of an Interest Rate Hedge Provider Required Rating Replacement Event, and the failure of the Interest Rate Hedge Provider to transfer (at its own cost) all of its rights and obligations under its Interest Rate Hedge Agreement to an Eligible Interest Rate Hedge Provider within the applicable period of time, any Series Enhancer shall have the right to direct the Issuer to terminate the applicable Interest Rate Hedge Agreement. The Issuer may, with the prior written consent of each Series Enhancer and the Administrative Agent, or shall, at the direction of any Series Enhancer or the Administrative Agent, terminate an Interest Rate Hedge Agreement and simultaneously enter into a replacement Interest Rate Hedge Agreement in the event an Interest Rate Hedge Provider fails to post collateral or transfer its rights and interests under an Interest Rate Hedge Agreement in accordance with the terms of the Interest Rate Hedge Agreement as required in relation to an Interest Rate Hedge Provider Required Rating Downgrade Event or an Interest Rate Hedge Provider Required Rating Replacement Event, as applicable.
(i) The Indenture Trustee shall, promptly after the Closing Date, establish a single segregated trust account (with separate subaccounts for each financial institution acting as an Interest Rate Hedge Provider) in the name of the Indenture Trustee (collectively, the “Counterparty Collateral Account”), which shall be held in trust in the name of the Indenture Trustee for the benefit of the Noteholders and any Series Enhancer under this Indenture and over which the Indenture Trustee shall have exclusive control and the sole right of withdrawal. Notwithstanding anything to the contrary in this section, investment earnings on amounts held in the Counterparty Collateral Account shall be remitted to the applicable Interest Rate Hedge Provider upon its written request in accordance with the terms of the applicable Interest Rate Hedge Agreement. The Indenture Trustee shall deposit all collateral received from an Interest Rate Hedge Provider under an Interest Rate Hedge Agreement in the Counterparty Collateral Account. Any and all funds at any time on deposit in, or otherwise held to the credit of, the Counterparty Collateral Account shall be held in trust by the Indenture Trustee for the benefit of the Noteholders and any Series Enhancer under this Indenture. The only permitted withdrawal from or application of funds on deposit in, or otherwise to the credit of the Counterparty Collateral Account shall be (i) for application to obligations of the applicable Interest Rate Hedge Provider to the Issuer under its Interest Rate Hedge Agreement if such Interest Rate Hedge Agreement becomes subject to early termination, or (ii) to return collateral or investment earnings to such Interest Rate Hedge Provider when and as required by such Interest Rate Hedge Agreement. Wells Fargo Bank, National Association as Indenture Trustee and as Securities Intermediary shall take all actions necessary to return collateral to any Interest Rate Hedge Provider as described in the preceding sentence including, without limitation, issuance of entitlement orders to any Securities Intermediary. All actions to be taken by an Interest Rate Hedge Provider under this Section 627 shall be at the expense of such Interest Rate Hedge Provider.
(j) The parties hereto acknowledge and agree that the Indenture Trustee shall not be required to act as a “commodity pool operator” (as defined in the Commodity Exchange Act, as amended) or be required to undertake regulatory filings related to this Indenture in connection therewith.
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Section 628. UNIDROIT Convention.
The Issuer shall comply with the terms and provisions of the UNIDROIT Convention or any other internationally recognized system for recording interests in or liens against shipping containers at the time that such convention is adopted by the container leasing industry.
Section 629. Other Information.
For so long as any of the Notes are “restricted securities” within the meaning of Rule 144(a)(3) under the Securities Act and the Issuer is not subject to Section 13 or 15(d) of the Exchange Act, the Issuer will, and shall cause Manager to, (i) provide or cause to be provided to any Holder of Notes and any prospective purchaser thereof designated by such a Holder, upon the request of such Holder or prospective purchaser, the information required to be provided to such Holder or prospective purchaser by Rule 144A(d)(4) under the Securities Act; and (ii) update such information to prevent such information from becoming materially false and materially misleading in a manner adverse to any Noteholder.
Section 630. Separate Identity.
The Issuer will be operated, or will cause itself to be operated, so that the Issuer will not be substantively consolidated with Textainer Limited, TGH, any Special Purpose Entity, the Manager or any of their respective Affiliates.
Section 631. Purchase of Additional Containers.
The Issuer shall not use funds to be classified as an Issuer Expense to purchase additional Containers.
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ARTICLE VII
DISCHARGE OF INDENTURE; PREPAYMENTS
Section 701. Full Discharge.
Upon payment in full of the Aggregate Outstanding Obligations, the Indenture Trustee shall, at the request and at the expense of the Issuer, execute and deliver to the Issuer such deeds or other instruments as shall be requisite to evidence the satisfaction and discharge of this Indenture and the security hereby created with respect to the applicable Series, and to release the Issuer from its covenants contained in this Indenture and the related Supplement with respect to such Series. In connection with the satisfaction and discharge of the Indenture the Indenture Trustee shall be provided with and shall be entitled to conclusively rely upon an Opinion of Counsel stating that such satisfaction and discharge is authorized and permitted.
Section 702. Prepayment of Notes.
(a) Mandatory Prepayments. Unless otherwise specified in a Supplement for a Senior Series of Notes, the Issuer shall be required to prepay the then unpaid principal balance of all, or a portion, of one or more Senior Series of Notes then Outstanding if, on any Payment Date, the then unpaid principal balance of all Senior Series of Notes exceeds the Senior Asset Base. Unless otherwise specified in a Supplement for a Subordinate Series of Notes, the Issuer shall be required to prepay the then unpaid principal balance of all, or a portion of, one or more Subordinate Series of Notes then Outstanding if, on any Payment Date, the then unpaid principal balance of all Subordinate Series of Notes exceeds the Subordinate Asset Base. Such Prepayment shall be in the amount of the applicable Asset Base Deficiency and shall be paid in accordance with the priority of payments set forth in Section 302 hereof. The calculations referred to herein shall be evidenced by the Asset Base Report received by the Indenture Trustee on any Determination Date. Any such Prepayment shall be allocated, first, to each Senior Series or Subordinate Series, as the case may be, of Warehouse Notes then Outstanding on a pro rata basis, in proportion to the then unpaid principal balance of such Warehouse Notes, until the principal balances of such Warehouse Notes have been paid in full, and then to all Senior Series or Subordinate Series, as the case may be, of Term Notes then Outstanding on a pro rata basis, in proportion to the then unpaid principal balance of each such Series of Term Notes. Notwithstanding the foregoing, if sufficient funds are not available to allow the Issuer to prepay the principal balance of the Senior Series of Warehouse Notes or the Subordinate Series of Warehouse Notes, as the case may be, on such Payment Date in an amount equal to the applicable Asset Base Deficiency, then the amount of any such Supplemental Principal Payment Amount or Subordinate Supplemental Principal Payment Amount, as the case may be, to be actually paid on such Payment Date shall be applied among the Warehouse Notes and the Term Notes in accordance with Section 302(e) hereof.
(b) Voluntary Prepayments. So long as no Early Amortization Event is then continuing, the Issuer may, from time to time, make an optional Prepayment of principal of the Notes of a Series at the times, in the amounts and subject to the conditions and limitations set forth in the Supplement for the Series of Notes to be prepaid. If an Early Amortization Event is then continuing, all optional Prepayments made in accordance with the provisions of this Section
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702(b) shall be applied in accordance with the applicable provisions of Section 302 hereof. The Issuer shall promptly confirm any telephonic notice of prepayment in writing. Any optional Prepayment of principal made by the Issuer pursuant to this Section 702(b) shall also include accrued interest to the date of the prepayment on the amount being prepaid. Any optional Prepayment made pursuant to the provisions of this Section 702(b) shall be accomplished by a deposit of funds directly into the Trust Account and, unless otherwise specified in the Supplement for any Series of Notes then Outstanding, may be applied by the Issuer to reduce the unpaid principal balance of one or more Series of Notes then Outstanding, such Series to be selected in the sole discretion of the Issuer. Notice of any voluntary prepayment of a Series of Term Notes to be made by the Issuer pursuant to the provisions of this Section 702(b) shall be given by the Issuer to the Indenture Trustee and, if applicable, the Series of Notes to be prepaid, not later than the tenth (10th) day prior to the date of such prepayment and not earlier than the Payment Date immediately preceding the date of such Prepayment.
(c) Repayment of Eligible Interest Rate Hedge Providers. If the Issuer has elected to make a voluntary Prepayment in accordance with the provisions of Section 702(b) above or is required to make a Prepayment in accordance with the provisions of Section 702(a) above, then in addition to such Prepayment, the Issuer shall pay such amount, including any termination payments, necessary (in each case as determined by the Administrative Agent and after taking account of payment priorities set forth in Section 302 hereunder) to reduce the aggregate notional balance of all outstanding transactions under the Interest Rate Hedge Agreements then in effect to the level required under Section 627(b) and not in excess of such requirements by more than the amounts set forth in Section 627(a) hereof. So long as no Early Amortization Event or Event of Default is then continuing, the Issuer (or the Manager on its behalf) may exercise its discretion in selecting the specific transactions and the notional amounts thereof to be terminated. If an Early Amortization Event or Event of Default is then continuing the outstanding transactions will be terminated on a pro rata basis, based on the respective notional amounts for each remaining calculation period so that the remaining notional amounts for all future calculation periods under such transactions shall comply with the requirements of Section 627(b) and not exceed such requirements by more than the amounts set forth in Section 627(a) hereof.
(d) Adjustment of Prospective Minimum Principal Payment Amounts and Scheduled Principal Payment Amounts. In the event that the Issuer makes a prepayment of less than all of the aggregate unpaid principal balance of any Series of Term Notes in accordance with the provisions of Section 702(a) or Section 702(b), then the Issuer shall promptly (but in any event within five (5) Business Days after the date on which such Prepayment is made) thereafter recalculate (subject to verification by the Indenture Trustee) the Minimum Principal Payment Amount and Scheduled Principal Payment Amount for each future Payment Date for each such Series of Notes being prepaid by an amount equal to the quotient of (i) the aggregate amount of the prepayment received by such Series divided by (ii) the number of remaining Payment Dates to and including, (A) the Legal Final Payment Date (with respect to the Minimum Principal Payment Amount) or (B) the Expected Final Payment Date (with respect to the Scheduled Principal Payment Amount), for such Series of Notes.
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Section 703. Unclaimed Funds.
In the event that any amount due to any Noteholder remains unclaimed, the Issuer shall, at its expense, cause to be published once, in the eastern edition of The Wall Street Journal notice that such money remains unclaimed. Any such unclaimed amounts shall not be invested by the Indenture Trustee (notwithstanding the provisions of Section 303 hereof) and no additional interest shall accrue on the related Note subsequent to the date on which such funds were available for distribution to such Noteholder. Any such unclaimed amounts shall be held by the Indenture Trustee in trust until the latest of (i) two (2) years after the date of the publication described in the second preceding sentence, (ii) the date all other registered Noteholders of such Series shall have received full payment of all principal, interest, premium, if any, and other sums payable to them on such Notes or the Indenture Trustee shall hold (and shall have notified the registered Noteholders that it holds) in trust for that purpose an amount sufficient to make full payment thereof when due and (iii) the date the Issuer shall have fully performed and observed all its covenants and obligations contained in this Indenture and the related Supplement with respect to such Series of Notes. Thereafter, any such unclaimed amounts shall be paid to the Issuer by the Indenture Trustee on written demand; and thereupon each of the Indenture Trustee and the Issuer shall be released from all further liability with respect to such monies, and thereafter the registered Noteholders in respect of which such monies were so paid to the Issuer shall have no rights in respect thereof; provided, that if such money or any portion thereof had been previously deposited by the Series Enhancer with the Indenture Trustee for the payment of principal or interest on the Notes, to the extent any amounts are owing to the Series Enhancer, such amounts shall be paid promptly to the Series Enhancer.
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ARTICLE VIII
DEFAULT PROVISIONS AND REMEDIES
Section 801. Event of Default.
“Event of Default”, wherever used herein with respect to any Series of Notes, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any Governmental Authority):
(i) default in (A) the payment on any Payment Date of any interest or premium, if any, then due and payable on any Series of Notes or (B) the payment on the Legal Final Payment Date of the then unpaid principal balance of any Series of Notes;
(ii) default in the payment of (A) any Indenture Trustee’s Fees then due and payable, or (B) other amounts not dealt with in clause (i) above owing to the Noteholders of any Series or any Series Enhancer, and the continuation of such default for more than three (3) Business Days after the same shall have become due and payable in accordance with the terms of such Notes, this Indenture, the related Supplement or any other Related Documents;
(iii) default in the performance, or breach, of any covenant of the Issuer or any Seller in any Related Document (to the extent such breach is not otherwise addressed in this Section 801) which breach materially and adversely affects the interest of any Noteholder, any Interest Rate Hedge Provider or any Series Enhancer and continues for a period of sixty (60) days after the earliest of (i) any Authorized Officer of the Issuer or such Seller, as the case may be, first acquiring knowledge thereof, (ii) the Indenture Trustee’s giving written notice thereof to the Issuer or such Seller, as the case may be, or (iii) any Noteholder or any Series Enhancer giving written notice thereof to the Issuer or such Seller, as the case may be, and the Indenture Trustee; provided, however, that if the Issuer or the Sellers, as the case may be, is or are diligently attempting to effect such cure at the end of such sixty (60) day period, the Issuer or such Sellers, as the case may be, shall be entitled to an additional sixty (60) day period in which to complete such cure; provided, further, that, no notice whatsoever shall be required with respect to any default in the due observance or performance of Section 603 hereof or of any negative covenant set forth in Sections 606, 607 (except clause (a)(4) thereof), 608, 609, 610, 611, 612, 613, 614, 615, 616, 622, 623, 630 or 631 hereof, Section 4.01(a)(iii) or 4.01(f) of any Container Transfer Agreement or Section 4.01(a)(iii) or 4.01(f) of the Container Sale Agreement; provided, further, that no waiver by a Series Enhancer of an Event of Default of the type described in Section 801(viii) shall constitute a waiver of an Event of Default under this clause (iii) with respect to the default in the due observance or performance of the negative covenant set forth in Section 609 hereof.
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(iv) any representation or warranty of the Issuer or the Sellers made in any Related Document shall prove to be incorrect in any material respect as of the time when the same shall have been made which breach materially and adversely affects the interest of any Noteholder, any Interest Rate Hedge Provider or any Series Enhancer and continues and, if capable of cure, the continuance of such condition for a period of 30 days after the earliest of (i) any Authorized Officer of the Issuer or the Sellers, as the case may be, first acquiring knowledge thereof, (ii) the Indenture Trustee’s giving written notice thereof to the Issuer or the Sellers, as the case may be, or (iii) any Noteholder or Series Enhancer giving written notice thereof to the Issuer or the Sellers, as the case may be, and the Indenture Trustee; provided, however, that if the Issuer or the Sellers, as the case may be, is diligently attempting to effect such cure at the end of such thirty (30) day period, the Issuer or the Sellers, as the case may be, shall be entitled to an additional thirty (30) day period in which to complete such cure;
(v) the entry of a decree or order for relief by a court having jurisdiction in respect of the Issuer in any involuntary case under any applicable Insolvency Law, or other similar law now or hereafter in effect, or appointing a receiver, liquidator, assignee, custodian, trustee, or sequestrator (or other similar official) for the Issuer or for any substantial part of its properties, or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order unstayed and in effect for a period of 60 consecutive days;
(vi) the commencement by the Issuer of a voluntary case under any applicable Insolvency Law, or other similar law now or hereafter in effect, or the consent by the Issuer to the appointment of or taking possession by a receiver, liquidator, assignee, custodian, trustee or sequestrator (or other similar official) of the Issuer or any substantial part of its properties, or the making by the Issuer of any general assignment for the benefit of creditors, or the failure by the Issuer generally to pay its debts as they become due, or the taking of any action by the Issuer in furtherance of any such action;
(vii) all of the following conditions shall have occurred: (A) a Manager Default shall have occurred and shall not have been remedied, waived or cured, (B) the Indenture Trustee (acting at the direction of the Requisite Global Majority) shall have directed the Issuer in writing, with a copy of such written direction delivered to the Manager (the “Replacement Request”), to appoint a Replacement Manager for the Terminated Managed Containers in accordance with the terms of the Management Agreement, and (C) a Replacement Manager shall not have been appointed and assumed the management of all Terminated Managed Containers pursuant to a management agreement reasonably acceptable to the Requisite Global Majority by the date which is ninety (90) days after the date on which such Manager Default initially occurred;
(viii) the Indenture Trustee shall fail to have a first priority perfected security interest in the Collateral (unless waived by each Series Enhancer);
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(ix) the occurrence of a default by the Issuer under the terms of any Related Document not otherwise addressed in this Section 801, and the continuation of such default for two (2) consecutive Payment Dates;
(x) The earlier to occur of the following conditions or events:
(A) as of any Payment Date, an Asset Base Deficiency exists, and such condition continues unremedied for a period of ninety (90) consecutive days; or
(B) as of any date of determination, the Aggregate Principal Balance shall exceed the sum of (A) the product of (i) one hundred percent (100%) and (ii) the Aggregate Net Book Value, plus (B) the product of (i) one hundred percent (100%) and (ii) an amount equal to the then current balance of the Restricted Cash Account, any Pre-Funding Account and the L/C Cash Account, plus (C) the product of (i) one hundred percent (100%) and (ii) the Aggregate Available Amount;
(xi) any payment is made by a Series Enhancer under any Enhancement Agreement;
(xii) the Issuer is required to register as an Investment Company under the Investment Company Act of 1940, as amended;
(xiii) the occurrence of a reportable event (within the meaning of Section 4043 of ERISA) with respect to any Plan maintained by the Issuer as to which the Pension Benefit Guaranty Corporation has not by regulation waived the requirement that it be notified thereof, or the occurrence of any event or condition with respect to a Plan which reasonably could be expected to result in any liability in excess of $250,000 or which actually results in the imposition of a Lien on the assets of the Issuer; or
(xiv) Textainer Limited or its Affiliates shall fail to own all of the authorized and issued shares of the Issuer.
The occurrence of an Event of Default with respect to one Series of Notes, except to the extent waived in accordance with Section 813 hereof, shall constitute an Event of Default with respect to all other Series of Notes then Outstanding unless the related Supplement with respect to each such Series of Notes shall specifically provide to the contrary.
Section 802. Acceleration of Stated Maturity; Rescission and Annulment.
(a) Upon the occurrence of an Event of Default of type described in paragraph (v) or (vi) of Section 801, the unpaid principal balance of, and accrued interest on, all Series of Notes, together with all other amounts then due and owing to the Noteholders, each Series Enhancer and each Interest Rate Hedge Provider shall become immediately due and payable without further action by any Person. Except as set forth in the immediately preceding sentence,
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if an Event of Default under Section 801 occurs and is continuing, then and in every such case the Indenture Trustee may, and shall at the direction of any of (A) any affected Noteholder in the case of the occurrence of an Event of Default of the type described in Section 801(i), (B) the respective Series Enhancer in the case of the occurrence of an Event of Default of the type described in Section 801(xi), or (C) the Requisite Global Majority in these and all other instances, declare the principal of and accrued interest on all Notes of all Series then Outstanding to be due and payable immediately, by a notice in writing to the Issuer and to the Indenture Trustee given by the Requisite Global Majority, and upon any such declaration such principal and accrued interest shall become immediately due and payable.
(b) At any time after such a declaration of acceleration has been made and before a judgment or decree for payment of the money due has been obtained by the Indenture Trustee as hereinafter in this Article provided, the Requisite Global Majority, by written notice to the Issuer and the Indenture Trustee, may rescind and annul such declaration and its consequences if:
(i) the Issuer has paid or deposited with the Indenture Trustee a sum sufficient to pay:
(A) all of the installments of interest and premium on and, if the Legal Final Payment Date has occurred with respect to any Series, principal of all Notes of such Series which were overdue prior to the date of such acceleration;
(B) to the extent that payment of such interest is lawful, interest at the applicable Overdue Rate on the amounts set forth in clause (A) above;
(C) all sums paid or advanced by the Indenture Trustee hereunder or the Manager and the reasonable compensation, out-of-pocket expenses, disbursements and advances of the Indenture Trustee, its agents and counsel incurred in connection with the enforcement of this Indenture;
(D) all amounts due to each Series Enhancer;
(E) all payments due under any Interest Rate Hedge Agreement, together with interest thereon in accordance with the terms thereof, and
(ii) all Events of Default, other than the nonpayment of the principal of or interest on Notes which have become due solely by such declaration of acceleration, have been cured or waived as provided in Section 813 hereof.
No such rescission with respect to any Event of Default shall affect any subsequent Event of Default or impair any right consequent thereon, nor shall any such rescission affect any Interest Rate Hedge Agreement which has been terminated in accordance with its terms.
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Section 803. Collection of Indebtedness.
The Issuer covenants that, if an Event of Default occurs and is continuing and a declaration of acceleration has been made under Section 802 and not rescinded, the Issuer will, upon demand of the Indenture Trustee, pay to the Indenture Trustee, for the benefit of the Noteholders of all Series then Outstanding and each Series Enhancer and each Interest Rate Hedge Provider, an amount equal to the sum of (i) the sum of (A) the whole amount then due and payable for all Series of Notes then Outstanding, (B) all amounts owing by the Issuer under any Interest Rate Hedge Agreement, and (C) such further amounts as shall be required to pay in full all of the Outstanding Obligations, including in each case, the costs and out-of-pocket expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Indenture Trustee the Requisite Global Majority, their agents and counsel incurred in connection with the enforcement of this Indenture, and (ii) to the extent that the payment of such interest is lawful, interest on the amount set forth in clause (i) at the applicable Overdue Rate with respect to the Notes and at the applicable default rate as set forth in the related Interest Rate Hedge Agreements or other Related Documents.
Section 804. Remedies.
If an Event of Default shall occur and be continuing, the Indenture Trustee, by such officer or agent as it may appoint, shall notify each Noteholder, the Administrative Agent, each Series Enhancer and each Interest Rate Hedge Provider, if any, of such Event of Default. So long as an Event of Default is continuing, the Indenture Trustee may, and shall if instructed by any of (A) any affected Noteholder in the case of the occurrence of an Event of Default of the type described in Section 801(i), (B) the respective Series Enhancer in the case of the occurrence of an Event of Default of the type described in Section 801(xi), or (C) the Requisite Global Majority in these and all other instances:
(i) institute any Proceedings, in its own name and as trustee of an express trust, for the collection of all amounts then due and payable on the Notes of all Series or under this Indenture or the related Supplement with respect thereto, whether by declaration or otherwise, enforce any judgment obtained, and collect from the Collateral and any other assets of the Issuer any monies adjudged due;
(ii) subject to the quiet enjoyment rights of any lessee of a Managed Container, sell (including any sale made in accordance with Section 816 hereof), hold or lease the Collateral or any portion thereof or rights or interest therein, at one or more public or private transactions conducted in any manner permitted by law;
(iii) institute any Proceedings from time to time for the complete or partial foreclosure of the Lien created by this Indenture with respect to the Collateral;
(iv) institute such other appropriate Proceedings to protect and enforce any other rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy;
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(v) exercise any remedies of a secured party under the UCC or any Applicable Law and take any other appropriate action to protect and enforce the rights and remedies of the Indenture Trustee or the Noteholders hereunder;
(vi) appoint a receiver or a manager over the Issuer or its assets; and
(vii) if a Manager Default is then continuing, terminate the Management Agreement in accordance with its terms;
provided, however, that the prior consent of the Requisite Global Majority shall be required in order to take the actions set forth in clauses (ii), (iii), (v), (vi) and (vii) above.
Section 805. Indenture Trustee May Enforce Claims Without Possession of Notes.
(a) In all Proceedings brought by the Indenture Trustee (and also any Proceedings involving the interpretation of any provision of this Indenture to which the Indenture Trustee shall be a party), the Indenture Trustee shall be held to represent all of the Noteholders, and it shall not be necessary to make any Noteholder a party to any such Proceedings.
(b) All rights of action and claims under this Indenture, the related Supplement or any of the Notes may be prosecuted and enforced by the Indenture Trustee without the possession of such Notes or the production thereof in any Proceeding relating thereto, and any such Proceeding instituted by the Indenture Trustee shall be brought in its own name as trustee of an express trust, and any recovery whether by judgment, settlement or otherwise shall, after provision for the payment of the compensation, expenses, and disbursements incurred and advances made, by the Indenture Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Notes, subject to the subordination of payments among Classes of a particular Series as set forth in the related Supplement.
Section 806. Allocation of Money Collected.
If the Notes of all Series have been declared due and payable following an Event of Default and such declaration and its consequences have not been rescinded or annulled, any money collected by the Indenture Trustee pursuant to this Article or otherwise and any other monies that may be held or thereafter received by the Indenture Trustee as security for such Notes shall be applied, to the extent permitted by law, in the following order, at the date or dates fixed by the Indenture Trustee:
FIRST: To the payment of all amounts due the Indenture Trustee under Section 905 hereof; and
SECOND: Any remaining amounts shall be distributed in accordance with Section 302(c)(III) hereof.
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Section 807. Limitation on Suits.
Except with respect to an Event of Default of the type described in Section 801(i) hereof and solely to the extent permitted under clause (A) of Section 804 hereof, no Noteholder shall have the right to institute any Proceeding, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless:
(i) such Holder has previously given written notice to the Indenture Trustee and the Requisite Global Majority of a continuing Event of Default;
(ii) the Requisite Global Majority shall have made written request to the Indenture Trustee to institute Proceedings in respect of such Event of Default in its own name as Indenture Trustee hereunder;
(iii) such Holder or Holders have offered to the Indenture Trustee security or indemnity satisfactory to it against the costs, expenses and liabilities to be incurred in compliance with such request;
(iv) the Indenture Trustee has, for thirty (30) days after its receipt by a Corporate Trust Officer of such notice, request and offer of security or indemnity, failed to institute any such Proceeding; and
(v) no direction inconsistent with such written request has been given to the Indenture Trustee during such thirty (30) day period by the Requisite Global Majority;
it being understood and intended that no one or more Noteholders shall have any right in any manner whatsoever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Noteholder, or to obtain or to seek to obtain priority or preference over any other Noteholder (except to the extent provided in the related Supplement) or to enforce any right under this Indenture, except in the manner herein provided and for the benefit of all Noteholders.
Section 808. Unconditional Right of Holders to Receive Principal, Interest and Commitment Fees.
Notwithstanding any other provision of this Indenture, each Noteholder (including any Series Enhancer with respect to a Note) shall have the right, which is absolute and unconditional, to receive payment of the principal of, and interest, commitment fees and premiums in respect of such Note as such principal, interest and commitment fees becomes due and payable in accordance with the provisions of this Indenture and the related Supplement and to institute any Proceeding for the enforcement of such payment, and such rights shall not be impaired without the consent of such Holder or Series Enhancer.
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Section 809. Restoration of Rights and Remedies.
If the Indenture Trustee, any Series Enhancer or any Holder has instituted any Proceeding to enforce any right or remedy under this Indenture or the related Supplement and such Proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Indenture Trustee, any Series Enhancer or to such Holder, then and in every such case, subject to any determination in such Proceeding, the Issuer, the Indenture Trustee, such Series Enhancer and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Indenture Trustee, such Series Enhancer and the Holders shall continue as though no such Proceeding had been instituted.
Section 810. Rights and Remedies Cumulative.
No right or remedy conferred upon or reserved to the Indenture Trustee, any Series Enhancer, any Interest Rate Hedge Provider or to the Holders pursuant to this Indenture or any Supplement is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy.
Section 811. Delay or Omission Not Waiver.
No delay or omission of the Indenture Trustee, any Series Enhancer, any Interest Rate Hedge Provider or any Holder of any Note to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Indenture Trustee, any Series Enhancer, any Interest Rate Hedge Provider, or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Indenture Trustee, by any Series Enhancer, by any Interest Rate Hedge Provider, or by the Holders, as the case may be.
Section 812. Control by Requisite Global Majority.
(a) Upon the occurrence of an Event of Default, the Requisite Global Majority shall have the right to direct in writing the time, method and place of conducting any Proceeding for any remedy available to the Indenture Trustee or exercising any trust or power conferred on the Indenture Trustee, provided that (i) such direction shall not be in conflict with any rule of law or with this Indenture, including, without limitation, Section 804 hereof and (ii) the Indenture Trustee may take any other action deemed proper by the Indenture Trustee which is not inconsistent with such direction.
(b) Notwithstanding the grant of a security interest to secure the Outstanding Obligations owing to the Indenture Trustee, for the benefit of the Noteholders, each Series Enhancer and each Interest Rate Hedge Provider, all rights to direct actions or to exercise rights or remedies under this Indenture or the UCC (including those set forth in Section 804 hereof) shall be vested solely in the Requisite Global Majority and, by accepting the benefits of this Indenture, each Noteholder and Interest Rate Hedge Provider acknowledges such statement; provided, however, that nothing contained herein shall constitute a modification of Section 808, Section 813(b) or Section 816(d) hereof.
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Section 813. Waiver of Past Defaults.
(a) The Requisite Global Majority may, on behalf of all Noteholders of all Series, waive any past Event of Default and its consequences, except an Event of Default
(i) in the payment of (x) the principal balance of any Note on the Legal Final Payment Date, (y) interest on any Note of any Series on any Payment Date, or (z) commitment fees or any Premium owed to any Series Enhancer in respect of any Note of any Series on any Payment Date, all of which defaults can be waived solely by the affected Noteholder or Series Enhancer, as the case may be, or
(ii) in respect of a covenant or provision hereof which cannot be modified or amended without the consent of all the Noteholders of all Series pursuant to Section 1002 of this Indenture.
(b) Upon any such waiver, such Event of Default shall cease to exist and shall be deemed to have been cured and not to have occurred for every purpose of this Indenture; provided, however, that no such waiver shall extend to any subsequent or other Event of Default or impair any right consequent thereon nor affect any Interest Rate Hedge Agreement which has been terminated in accordance with its terms.
Section 814. Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any Note by acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Indenture Trustee for any action taken, suffered or omitted by it as Indenture Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys’ fees and expenses, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; provided, however, that the provisions of this Section shall not apply to any suit instituted by the Indenture Trustee or any Holder or group of Holders, holding in the aggregate more than ten percent (10%) of the aggregate principal balance of the Notes of all Series then Outstanding, or (ii) to any suit instituted by any Holder for the enforcement of (x) the payment of interest on any Notes on any Payment Date or (y) the payment of the principal of any Note on or after the Legal Final Payment Date of such Note.
Section 815. Waiver of Stay or Extension Laws.
The Issuer covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Issuer (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Indenture Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted.
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Section 816. Sale of Collateral.
(a) The power to effect any sale (a “Sale”) of any portion of the Collateral pursuant to Section 804 hereof shall not be exhausted by any one or more Sales as to any portion of the Collateral remaining unsold, but shall continue unimpaired until the entire Collateral shall have been sold or the Aggregate Outstanding Obligations shall have been paid in full. The Indenture Trustee at the written direction of the Requisite Global Majority may from time to time postpone any Sale by public announcement made at the time and place of such Sale.
(b) Upon any Sale, whether made under the power of sale hereby given or under judgment, order or decree in any Proceeding for the foreclosure or involving the enforcement of this Indenture: (i) the Indenture Trustee, at the written direction of the Requisite Global Majority, may bid for and purchase the property being sold, and upon compliance with the terms of such Sale may hold, retain and possess and dispose of such property in accordance with the terms of this Indenture; and (ii) the receipt of the Indenture Trustee or of any officer thereof making such Sale shall be a sufficient discharge to the purchaser or purchasers at such Sale for its or their purchase money, and such purchaser or purchasers, and its or their assigns or personal representatives, shall not, after paying such purchase money and receiving such receipt of the Indenture Trustee or of such officer therefor, be obliged to see to the application of such purchase money or be in any way answerable for any loss, misappropriation or non-application thereof.
(c) The Indenture Trustee shall execute and deliver an appropriate instrument of conveyance provided to it transferring its interest in any portion of the Collateral in connection with a Sale thereof. In addition, the Indenture Trustee is hereby irrevocably appointed the agent and attorney-in-fact of the Issuer to transfer and convey its interest (subject to lessee’s rights of quiet enjoyment) in any portion of the Collateral in connection with a Sale thereof, and to take all action necessary to effect such Sale. No purchaser or transferee at such a Sale shall be bound to ascertain the Indenture Trustee’s authority, inquire into the satisfaction of any conditions precedent or see to the application of any monies.
(d) The right of the Indenture Trustee to sell, transfer or otherwise convey any Interest Rate Hedge Agreement or any transaction outstanding thereunder, or to exercise foreclosure rights with respect thereto shall be subject to compliance with the provisions of the applicable Interest Rate Hedge Agreement.
(e) The Indenture Trustee shall provide prior written notice to the Issuer, to the Administrative Agent and to each Interest Rate Hedge Provider of any Sale of any portion of the Collateral under this Section 816.
Section 817. Action on Notes.
The Indenture Trustee’s right to seek and recover judgment on the Notes under this Indenture or any Supplement shall not be affected by the seeking, obtaining or application of any other relief under or with respect to this Indenture or any Supplement. Neither the Lien of this Indenture nor any rights or remedies of the Indenture Trustee, any Series Enhancer, any Interest Rate Hedge Provider or the Noteholders shall be impaired by the recovery of any judgment by the Indenture Trustee against the Issuer or by the levy of any execution under such judgment upon any portion of the Collateral or upon any of the assets of the Issuer.
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ARTICLE IX
CONCERNING THE INDENTURE TRUSTEE
Section 901. Duties of Indenture Trustee.
The Indenture Trustee, prior to the occurrence of an Event of Default with respect to any Series or after the cure or waiver of any Event of Default with respect to any Series which may have occurred, undertakes to perform such duties and only such duties as are specifically set forth in this Indenture and the related Supplement and no duties shall be inferred or implied. If an Event of Default with respect to any Series has occurred and is continuing, the Indenture Trustee, at the written direction of the Requisite Global Majority, shall exercise such of the rights and powers vested in it by this Indenture and the related Supplement, and use the same degree of care and skill in its exercise as a prudent Person would exercise or use under the circumstances in the conduct of such Person’s own affairs.
The Indenture Trustee, upon receipt of all resolutions, certificates, statements, opinions, reports, documents, orders or other instruments furnished to the Indenture Trustee which are specifically required to be furnished pursuant to any provisions of this Indenture and any applicable Supplement, shall determine whether they are substantially in the form required by this Indenture and any applicable Supplement; provided, however, that the Indenture Trustee shall not be responsible for the accuracy or content of any such resolution, certificate, statement, opinion, report, document, order or other instrument furnished pursuant to this Indenture and any applicable Supplement.
No provision of this Indenture or any Supplement shall be construed to relieve the Indenture Trustee from liability for its own negligent action, its own negligent failure to act or its own willful misconduct; provided, however, that:
(i) Prior to the occurrence of an Event of Default and after the cure or waiver of any Event of Default which may have occurred, the duties and obligations of the Indenture Trustee shall be determined solely by the express provisions of this Indenture and any Supplements issued pursuant to the terms hereof. The Indenture Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Indenture and any Supplements issued pursuant to the terms hereof, and no implied covenants or obligations shall be read into this Indenture against the Indenture Trustee and, in the absence of bad faith on the part of the Indenture Trustee, the Indenture Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates, statements, reports, documents, orders, opinions or other instruments (whether in their original or facsimile form) furnished to the Indenture Trustee and conforming to the requirements of this Indenture and any Supplements issued pursuant to the terms hereof;
(ii) The Indenture Trustee shall not be liable for an error of judgment made in good faith by a Corporate Trust Officer or Corporate Trust Officers, unless it shall be proved that the Indenture Trustee was negligent in ascertaining the pertinent facts; and
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(iii) The Indenture Trustee shall not be personally liable with respect to any action taken, suffered or omitted to be taken by it in good faith in accordance with the direction of the Requisite Global Majority relating to the time, method and place of conducting any Proceeding for any remedy available to the Indenture Trustee, or exercising any trust or power conferred upon the Indenture Trustee, under this Indenture.
No provision of this Indenture shall require the Indenture Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of its duties hereunder, or in the exercise of any of its rights or powers, if repayment of such funds or adequate security or indemnity against such risk or liability is not provided to it.
Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Indenture Trustee shall be subject to the provisions of this Section 901.
Section 902. Certain Matters Affecting the Indenture Trustee.
Except as otherwise provided in Section 901 hereof:
(i) The Indenture Trustee may conclusively rely and shall be fully protected in acting or refraining from acting upon any Opinion of Counsel, certificate of an officer of the Issuer or the Manager, certificate of auditors or any other certificate, statement, instrument, opinion, report, notice, request, consent, order, appraisal, bond or other paper or document (whether in its original or facsimile form) believed by it to be genuine and to have been signed or presented by the proper party or parties;
(ii) The Indenture Trustee may consult with counsel of its selection and any advice or opinion of such counsel shall be full and complete authorization and protection in respect of any action taken or suffered or omitted by it hereunder in good faith and in accordance in reliance thereof;
(iii) The Indenture Trustee shall be under no obligation to institute, conduct or defend any litigation or Proceeding hereunder or in relation hereto at the request, order or direction of the Requisite Global Majority, pursuant to the provisions of this Indenture, unless the Indenture Trustee shall have security or indemnity reasonably satisfactory to it against the costs, expenses and liabilities which may be incurred therein or thereby;
(iv) The Indenture Trustee shall not be liable for any action taken, suffered or omitted by it in good faith and believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Indenture;
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(v) The Indenture Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond or other paper or document, unless requested in writing to do so by the Requisite Global Majority; provided, however, that the Indenture Trustee may require reasonable security or indemnity satisfactory to it against any cost, expense or liability likely to be incurred in making such investigation as a condition to so proceeding. The expense of any such examination shall be paid, on a pro rata basis, by the Noteholders of the applicable Series requesting such examination or, if paid by the Indenture Trustee, shall be reimbursed by such Noteholders upon demand;
(vi) The Indenture Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through its agents or attorneys, and the Indenture Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed by it with due care hereunder;
(vii) The Indenture Trustee shall not be charged with knowledge of any Event of Default unless either a Corporate Trust Officer shall have actual knowledge or written notice of such shall have been given to a Corporate Trust Officer of the Indenture Trustee; and
(viii) The rights, privileges, protections, immunities and benefits given to the Indenture Trustee, including, without limitation, its right to be indemnified, are extended to, and shall be enforceable by, the Indenture Trustee in each of its capacities hereunder, and to each agent, custodian and other Person employed to act hereunder.
The provisions of this Section 902 shall be applicable to the Indenture Trustee in its capacity as Indenture Trustee under this Indenture.
Section 903. Indenture Trustee Not Liable.
(a) The recitals contained herein (other than the representations and warranties contained in Section 911 hereof), in any Supplement and in the Notes (other than the certificate of authentication on the Notes) shall be taken as the statements of the Issuer, and the Indenture Trustee assumes no responsibility for their correctness. The Indenture Trustee makes no representations as to the validity or sufficiency of this Indenture, any Supplement, the Notes, the Collateral or of any Related Document. The Indenture Trustee shall not be accountable for (i) the use or application by the Issuer of the proceeds of any Series or Class of Notes, and (ii) the use or application of any funds paid to the Issuer or the Manager in respect of the Collateral except for any payment in accordance with the Manager Report of amounts on deposit in any of the Trust Accounts.
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(b) The Indenture Trustee shall have no responsibility or liability for or with respect to the existence or validity of any Managed Container, the perfection of any security interest (whether as of the date hereof or at any future time), the maintenance of or the taking of any action to maintain such perfection, the validity of the assignment of any portion of the Collateral to the Indenture Trustee or of any intervening assignment, the compliance by the Sellers or the Manager with any covenant or the breach by the Sellers or the Manager of any warranty or representation made hereunder, in any Supplement or in any Related Document or the accuracy of such warranty or representation, any investment of monies in the Trust Account, the Restricted Cash Account or any Series Account or any loss resulting therefrom (provided that such investments are made in accordance with the provisions of Section 303 hereof), or the acts or omissions of the Sellers or the Manager taken in the name of the Indenture Trustee.
(c) The Indenture Trustee shall not have any obligation or liability under any Contract by reason of or arising out of this Indenture or the granting of a security interest in such Contract hereunder or the receipt by the Indenture Trustee of any payment relating to any Contract pursuant hereto, nor shall the Indenture Trustee be required or obligated in any manner to perform or fulfill any of the obligations of the Issuer, the Sellers or the Manager under or pursuant to any Contract, or to make any payment, or to make any inquiry as to the nature or the sufficiency of any payment received by it, or the sufficiency of any performance by any party, under any Contract.
Section 904. Indenture Trustee May Own Notes.
The Indenture Trustee in its individual or any other capacity may become the owner or pledgee of Notes with the same rights it would have if it were not Indenture Trustee; provided that such transaction shall not result in the disqualification of the Indenture Trustee for purposes of Rule 3a-7 under the Investment Company Act of 1940.
Section 905. Indenture Trustee’s Fees, Expenses and Indemnities.
(a) The Indenture Trustee Fees shall be paid by the Issuer in accordance with Section 302 hereof; provided however, that the Indenture Trustee Fees of the Indenture Trustee payable pursuant to Section 302 or 806 hereof shall not exceed Twenty Thousand Dollars ($20,000) annually for each Series of Notes then Outstanding at any time Wells Fargo Bank, National Association, is acting as Indenture Trustee. The Issuer shall indemnify the Indenture Trustee (and any predecessor Indenture Trustee) and each of its officers, directors and employees for, and hold them harmless against, any and all loss, liability, damage claim or expense incurred without negligence or willful misconduct on their part, arising out of or in connection with the acceptance or administration of this trust, including the costs and expenses of defending itself both individually and in its representative capacity against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder (the “Indenture Trustee Indemnified Amounts”).
(b) The obligations of the Issuer under this Section 905 to compensate the Indenture Trustee, to pay or reimburse the Indenture Trustee for expenses, disbursements and advances and to indemnify and hold harmless the Indenture Trustee, shall constitute Outstanding Obligations hereunder and shall survive the resignation or removal of the Indenture Trustee and the satisfaction and discharge of this Indenture.
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(c) When the Trustee incurs expenses or renders services in connection with an Event of Default specified in Section 801(iii) or Section 801(iv), the expenses and the compensation for the services are intended to constitute expenses of administration under Insolvency Law.
Section 906. Eligibility Requirements for Indenture Trustee.
The Indenture Trustee hereunder shall at all times be a national banking association or a corporation, organized and doing business under the laws of the United States of America or any State, and authorized under such laws to exercise corporate trust powers. In addition, the Indenture Trustee or its parent corporation shall at all times (i) have a combined capital and surplus of at least Two Hundred Fifty Million Dollars ($250,000,000), (ii) be subject to supervision or examination by Federal or state authority and (iii) have a long-term unsecured senior debt rating of “A2” or better by Moody’s and a long-term unsecured senior debt rating of “A” by Standard & Poor’s and short-term unsecured senior debt rating of “P-1” or better by Moody’s and a short-term unsecured senior debt rating of “A-2” by Standard & Poor’s. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of such supervising or examining authority, then, for the purposes of this Section 906, the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. In case at any time the Indenture Trustee shall cease to be eligible in accordance with the provisions of this Section, the Indenture Trustee shall resign immediately in the manner and with the effect specified in Section 907 hereof.
Section 907. Resignation and Removal of Indenture Trustee.
The Indenture Trustee may at any time resign and be discharged from the trusts hereby created by giving written notice thereof to the Issuer, the Manager, the Administrative Agent, each Series Enhancer, each Interest Rate Hedge Provider and the Noteholders. Upon receiving such notice of resignation, the Issuer at the direction and subject to the consent of the Requisite Global Majority shall promptly appoint a successor Indenture Trustee by written instrument, in duplicate, one copy of which instrument shall be delivered to the resigning Indenture Trustee, the Administrative Agent, each Series Enhancer, each Interest Rate Hedge Provider and one copy to the successor Indenture Trustee. If no successor Indenture Trustee shall have been so appointed by the Issuer or the proposed successor Indenture Trustee has not accepted its appointment within fifteen (15) days after the giving of such notice of resignation or removal, the Requisite Global Majority may appoint a successor trustee or, if it does not do so within fifteen (15) days thereafter, the resigning Indenture Trustee, with the consent of the Administrative Agent and each Series Enhancer, may petition at the expense of the Issuer any court of competent jurisdiction for the appointment of a successor Indenture Trustee, which successor trustee shall meet the eligibility standards set forth in Section 906.
If at any time the Indenture Trustee shall cease to be eligible in accordance with the provisions of Section 906 hereof and shall fail to resign after written request therefor by the Issuer at the direction of the Requisite Global Majority, any Series Enhancer or the Administrative Agent, or if at any time the Indenture Trustee shall become incapable of acting, or shall be adjudged bankrupt or insolvent, or a receiver of the Indenture Trustee or of its
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property shall be appointed, or any public officer shall take charge or control of the Indenture Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then the Issuer at the direction of the Requisite Global Majority shall remove the Indenture Trustee and appoint a successor Indenture Trustee by written instrument, in duplicate, one copy of which instrument shall be delivered to the Indenture Trustee so removed and one copy to the successor Indenture Trustee.
Any resignation or removal of the Indenture Trustee and appointment of a successor Indenture Trustee pursuant to any of the provisions of this Section shall become effective upon acceptance of appointment by the successor Indenture Trustee as provided in Section 908 hereof.
Section 908. Successor Indenture Trustee.
Any successor Indenture Trustee appointed as provided in Section 907 hereof shall execute, acknowledge and deliver to the Issuer and to its predecessor Indenture Trustee an instrument accepting such appointment hereunder, and thereupon the resignation or removal of the predecessor Indenture Trustee shall become effective and such successor Indenture Trustee, without any further act, deed or conveyance, shall become fully vested with all the rights, powers, duties and obligations of its predecessor hereunder, with like effect as if originally named as Indenture Trustee herein. The predecessor Indenture Trustee shall deliver to the successor Indenture Trustee all documents relating to the Collateral, if any, delivered to it, together with any amount remaining in the Trust Account, Restricted Cash Account and any other Series Accounts. In addition, the predecessor Indenture Trustee and, upon request of the successor Indenture Trustee, the Issuer shall execute and deliver such instruments and do such other things as may reasonably be required for more fully and certainly vesting and confirming in the successor Indenture Trustee all such rights, powers, duties and obligations.
No successor Indenture Trustee shall accept appointment as provided in this Section unless at the time of such acceptance such successor Indenture Trustee shall be eligible under the provisions of Section 906 hereof and shall be acceptable to the Requisite Global Majority and each Interest Rate Hedge Provider.
Upon acceptance of appointment by a successor Indenture Trustee as provided in this Section, the Issuer shall mail notice of the succession of such Indenture Trustee hereunder to all Noteholders at their addresses as shown in the registration books maintained by the Indenture Trustee and to each Interest Rate Hedge Provider. If the Issuer fails to mail such notice within ten (10) days after acceptance of appointment by the successor Indenture Trustee, the successor Indenture Trustee shall cause such notice to be mailed at the expense of the Issuer.
Section 909. Merger or Consolidation of Indenture Trustee.
Any corporation into which the Indenture Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Indenture Trustee shall be a party, or any corporation succeeding to all or substantially all of the business of the Indenture Trustee, shall be the successor of the Indenture Trustee hereunder, provided such corporation shall be eligible under the provisions of Section 906 hereof, without the execution or filing of any paper or any further act on the part of any of the parties hereto, anything herein to the contrary notwithstanding.
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Section 910. Separate Indenture Trustees, Co-Indenture Trustees and Custodians.
If the Indenture Trustee is not capable of acting outside the United States or of exercising trust powers within the United States, it shall have the power from time to time to appoint (subject to the prior approval of the Administrative Agent) one or more Persons or corporations to act either as co-trustees jointly with the Indenture Trustee, or as separate trustees, or as custodians, for the purpose of holding title to, foreclosing or otherwise taking action with respect to any of the Collateral, when such separate trustee or co-trustee is necessary or advisable under any Applicable Laws or for the purpose of otherwise conforming to any legal requirement, restriction or condition in any applicable jurisdiction. The separate trustees, co-trustees, or custodians so appointed shall be trustees, co-trustees, or custodians for the benefit of all Noteholders and shall have such powers, rights and remedies as shall be specified in the instrument of appointment; provided, however, that no such appointment shall, or shall be deemed to, constitute the appointee an agent of the Indenture Trustee. The Issuer shall join in any such appointment, but such joining shall not be necessary for the effectiveness of such appointment.
Every separate trustee, co-trustee and custodian shall, to the extent permitted by law, be appointed and act subject to the following provisions and conditions:
(i) all powers, duties, obligations and rights conferred upon the Indenture Trustee in respect of the receipt, custody and payment of moneys shall be exercised solely by the Indenture Trustee;
(ii) all other rights, powers, duties and obligations conferred or imposed upon the Indenture Trustee shall be conferred or imposed upon and exercised or performed by the Indenture Trustee and such separate trustee, co-trustee, or custodian jointly, except to the extent that under any law of any jurisdiction in which any particular act or acts are to be performed the Indenture Trustee shall be incompetent or unqualified to perform such act or acts, in which event such rights, powers, duties and obligations (including the holding of title to the Collateral or any portion thereof in any such jurisdiction) shall be exercised and performed by such separate trustee, co-trustee or custodian;
(iii) the Indenture Trustee shall not be personally liable for any act or omission of any separate trustee, co-trustee or custodian appointed by the Indenture Trustee; and
(iv) the Issuer or the Indenture Trustee may at any time accept the resignation of or remove any separate trustee, co-trustee or custodian so appointed by it or them if such resignation or removal does not violate the other terms of this Indenture.
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Any notice, request or other writing given to the Indenture Trustee shall be deemed to have been given to each of the then separate trustees and co-trustees, as effectively as if given to each of them. Every instrument appointing any separate trustee, co-trustee, or custodian shall refer to this Indenture and the conditions of this Article. Each separate trustee and co-trustee, upon its acceptance of the trusts conferred, shall be vested with the estates or property specified in its instrument of appointment, either jointly with the Indenture Trustee or separately, as may be provided therein, subject to all the provisions of this Indenture, specifically including every provision of this Indenture relating to the conduct of, affecting the liability of, or affording protection to, the Indenture Trustee. Every such instrument shall be furnished to the Indenture Trustee, each Interest Rate Hedge Provider and each Series Enhancer.
Any separate trustee, co-trustees, or custodian may, at any time, constitute the Indenture Trustee, its agent or attorney-in-fact, with full power and authority, to the extent not prohibited by law, to do any lawful act under or in respect of this Indenture on its behalf and in its name. If any separate trustee, co-trustee, or custodian shall die, become incapable of acting, resign or be removed, all of its estates, properties, rights, remedies and trusts shall vest in and be exercised by the Indenture Trustee, to the extent permitted by law, without the appointment of a new or successor trustee or custodian.
No separate trustee, co-trustee or custodian hereunder shall be required to meet the terms of eligibility as a successor Indenture Trustee under Section 906 hereof and no notice to Noteholders of the appointment thereof shall be required under Section 908 hereof.
The Indenture Trustee agrees to instruct the co-trustees, if any, to the extent necessary to fulfill the Indenture Trustee’s obligations hereunder.
Section 911. Representations and Warranties.
The Indenture Trustee hereby represents and warrants as of each Series Issuance Date that:
(a) Organization and Good Standing. The Indenture Trustee is a national banking association duly organized, validly existing and in good standing under the laws of the United States, and has the power to own its assets and to transact the business in which it is presently engaged;
(b) Authorization. The Indenture Trustee has the power, authority and legal right to execute, deliver and perform this Indenture and each Supplement and to authenticate the Notes, and the execution, delivery and performance of this Indenture and each Supplement and the authentication of the Notes has been duly authorized by the Indenture Trustee by all necessary corporate action;
(c) Binding Obligations. This Indenture and each Supplement, assuming due authorization, execution and delivery by the Issuer, constitutes the legal, valid and binding obligations of the Indenture Trustee, enforceable against the Indenture Trustee in accordance with its terms, except that (i) such enforcement may be subject to bankruptcy, insolvency, reorganization, moratorium or other similar laws (whether statutory, regulatory or decisional) now or hereafter in effect relating to creditors’ rights generally and the rights of trust companies
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in particular and (ii) the remedy of specific performance and injunctive and other forms of equitable relief may be subject to certain equitable defenses and to the discretion of the court before which any Proceeding therefor may be brought, whether in a Proceeding at law or in equity;
(d) No Violation. The performance by the Indenture Trustee of its obligations under this Indenture and each Supplement will not conflict with, result in any breach of any of the terms and provisions of, or constitute (with or without notice, lapse of time or both) a default under, the charter documents or bylaws of the Indenture Trustee;
(e) No Proceedings. There are no Proceedings or investigations to which the Indenture Trustee is a party pending, or, to the best of its knowledge without independent investigation, threatened, before any court, regulatory body, administrative agency or other tribunal or Governmental Authority (A) asserting the invalidity of this Indenture or the Notes, (B) seeking to prevent the issuance of the Notes or the consummation of any of the transactions contemplated by this Indenture or (C) seeking any determination or ruling that would materially and adversely affect the performance by the Indenture Trustee of its obligations under, or the validity or enforceability of, this Indenture or the Notes; and
(f) Approvals. Neither the execution or delivery by the Indenture Trustee of this Indenture nor the consummation of the transactions by the Indenture Trustee contemplated hereby requires the consent or approval of, the giving of notice to, the registration with or the taking of any other action with respect to any Governmental Authority under any existing federal or State of Minnesota law governing the banking or trust powers of the Indenture Trustee.
Section 912. Indenture Trustee Offices.
The Indenture Trustee shall maintain in the State of Minnesota an office or offices or agency or agencies where Notes may be surrendered for registration of transfer or exchange, which office is currently located at Sixth Street and Marquette Avenue, MAC N9311-161, Minneapolis, MN 55479, and shall promptly notify the Issuer, the Manager, each Interest Rate Hedge Provider, each Series Enhancer and the Noteholders of any change of such location.
Section 913. Notice of Event of Default.
If a Corporate Trust Officer shall have actual knowledge that an Event of Default with respect to any Series has occurred and be continuing, the Indenture Trustee shall promptly (but in any event within five (5) Business Days) give written notice thereof to the Noteholders, the Administrative Agent, each Interest Rate Hedge Provider and the Series Enhancer of such Series. For all purposes of this Indenture, in the absence of actual knowledge by a Corporate Trust Officer, the Indenture Trustee shall not be deemed to have actual knowledge of any Event of Default unless notified in writing thereof by the Issuer, any Seller, the Manager, any Series Enhancer, the Administrative Agent, any Interest Rate Hedge Provider or any Noteholder, and such notice references the applicable Series of Notes generally, the Issuer, this Indenture or the applicable Supplement.
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ARTICLE X
SUPPLEMENTAL INDENTURES
Section 1001. Supplemental Indentures Not Creating a New Series Without Consent of Holders.
(a) Without the consent of any Holder and based on an Opinion of Counsel to the effect that such Supplement is for one of the purposes set forth in clauses (i) through (viii) below, the Issuer and the Indenture Trustee, at any time and from time to time, may, in the case of clauses (i) through (viii) below with the consent of each affected Interest Rate Hedge Provider (if such proposed amendment would adversely affect the rights, duties or immunities of such Interest Rate Hedge Provider under this Indenture or otherwise), enter into one or more Supplements in form satisfactory to the Indenture Trustee, for any of the following purposes:
(i) to add to the covenants of the Issuer in this Indenture for the benefit of the Holders of all Series then Outstanding or of any Series Enhancer, or to surrender any right or power conferred upon the Issuer in this Indenture;
(ii) to cure any ambiguity, to correct or supplement any provision in this Indenture which may be inconsistent with any other provision in this Indenture, or to make any other provisions with respect to matters or questions arising under this Indenture;
(iii) to correct or amplify the description of any property at any time subject to the Lien of this Indenture, or better to assure, convey and confirm unto the Indenture Trustee any property subject or required to be subjected to the Lien of this Indenture, or to subject additional property to the Lien of this Indenture;
(iv) to add to the conditions, limitations and restrictions on the authorized amount, terms and purposes of issue, authentication and delivery of the Notes, as herein set forth, or additional conditions, limitations and restrictions thereafter to be observed by the Issuer;
(v) to convey, transfer, assign, mortgage or pledge any additional property to or with the Indenture Trustee;
(vi) to evidence the succession of the Indenture Trustee pursuant to Article IX; or
(vii) to add any additional Early Amortization Events or Events of Default.
(b) Promptly after the execution by the Issuer and the Indenture Trustee of any Supplement pursuant to this Section, the Issuer shall mail to the Holders of all Notes then Outstanding, the Administrative Agent, each Interest Rate Hedge Provider and Series Enhancer related to such Series, a notice setting forth in general terms the substance of such Supplement, together with a copy of such Supplement. Any failure of the Issuer to mail any such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such Supplement.
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Section 1002. Supplemental Indentures Not Creating a New Series with Consent of Holders.
(a) With the consent of the Requisite Global Majority, each affected Series Enhancer and each affected Interest Rate Hedge Provider (if such proposed amendment would adversely affect such Interest Rate Hedge Provider’s rights, duties or immunities under this Indenture or otherwise), the Issuer and the Indenture Trustee may enter into a Supplement hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders under this Indenture (other than any such additions, changes, eliminations or modifications described in Section 1001); provided, however, that no such Supplement shall, without the consent of the Holder of each Outstanding Note affected thereby:
(i) reduce the principal amount of any Note or the rate of interest thereon, change the priority of any such payments (other than to increase the priority thereof) required pursuant to this Indenture or any Supplement in a manner adverse to any Noteholder, or the date on which, or the amount of which, or the place of payment where, or the coin or currency in which, any Note or the interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Expected Final Payment Date thereof,
(ii) reduce the percentage of Outstanding Notes or Existing Commitments required for (a) the consent of any Supplement to this Indenture, (b) the consent required for any waiver of compliance with certain provisions of this Indenture or a Supplement, (c) certain Events of Default hereunder and their consequences as provided for in this Indenture or (d) the consent required to waive any payment default on the Notes;
(iii) modify any provision of this Indenture or any Supplement which specifies that such provision cannot be modified or waived without the consent of (x) the Holder of each Outstanding Note affected thereby or (y) a specified percentage of the Holders of a specified Series of Notes (which provisions can only be modified with the consent of not less than the specified percentage);
(iv) modify or alter the definition of the terms “Outstanding”, “Requisite Global Majority”, “Existing Commitment” or “Initial Commitment”;
(v) impair or adversely affect the Collateral in any material respect as a whole except as otherwise permitted herein;
(vi) modify or alter Section 702(a) of this Indenture; or
(vii) permit the creation of any Lien ranking prior to or on a parity with the Lien of this Indenture with respect to any part of the Collateral or terminate the Lien of this Indenture on any property at any time subject hereto or deprive the Holder of any Note of the security afforded by the Lien of this Indenture.
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A Supplement issued to evidence a Series of Notes may also include additional restrictions on the ability to modify or amend each Supplement. Prior to the execution of any Supplement issued pursuant to this Section 1002, the Issuer shall provide written notice to each Interest Rate Hedge Provider and each Series Enhancer setting forth in general terms the substance of any such Supplement and the proposed form of such Supplement.
(b) Promptly after the execution by the Issuer and the Indenture Trustee of any Supplement pursuant to this Section, the Issuer shall mail to the Holders of the Notes, the Administrative Agent, each Interest Rate Hedge Provider and Series Enhancer related to such Series, a notice setting forth in general terms the substance of such Supplement, together with a copy of such Supplement. Any failure of the Issuer to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such Supplement.
Section 1003. Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by, a Supplement permitted by this Article or the modification thereby of the trusts created by this Indenture, the Indenture Trustee shall be entitled to receive, and shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such Supplement is authorized or permitted by this Indenture. The Indenture Trustee may, but shall not be obligated to, enter into any such Supplement which affects the Indenture Trustee’s own rights, duties or immunities under this Indenture or otherwise.
Section 1004. Effect of Supplemental Indentures.
Upon the execution of any Supplement under this Article, this Indenture shall be modified in accordance therewith, and such Supplement shall form a part of this Indenture for all purposes, and every Holder of Notes theretofore or thereafter authenticated and delivered hereunder shall be bound thereby.
Section 1005. Reference in Notes to Supplemental Indentures.
Notes authenticated and delivered after the execution of any Supplement pursuant to this Article may, and shall if required by the Issuer, bear a notation in form approved by the Indenture Trustee as to any matter provided for in such Supplement. If the Issuer shall so determine, new Notes so modified as to conform, in the opinion of the Indenture Trustee, may be prepared and executed by the Issuer and authenticated and delivered by the Indenture Trustee in exchange for Outstanding Notes.
Section 1006. Issuance of Series of Notes.
(a) The Issuer may from time to time direct the Indenture Trustee to execute and authenticate one or more Series of Notes as long as (i) the Rating Agency Condition shall have been satisfied with respect to the issuance of such Series of Notes, (ii) no Early Amortization Event or Event of Default (or event or condition which with the passage of time or
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giving of notice or both would become an Early Amortization Event or an Event of Default) is then continuing (nor would occur as a result of the issuance of such additional Series) and (iii) all of the applicable conditions set forth Section 1006(b) of this Indenture have been satisfied.
(b) On or before the Series Issuance Date relating to any Series, the parties hereto will execute and deliver a Supplement which will specify the Principal Terms of such Series. The terms of such Supplement may modify or amend the terms of this Indenture solely as applied to such Series, and, with the consent of the Control Party for any other Series and each affected Interest Rate Hedge Provider, may amend this Indenture as applicable to such other Series, in accordance with Section 1001 or 1002 hereof. The obligation of the Indenture Trustee to authenticate, execute and deliver the Notes of such Series and to execute and deliver the related Supplement is subject to the satisfaction of the following conditions:
(i) on or before the fifth (5th) Business Day immediately preceding the Series Issuance Date (unless the parties to be notified agree to a shorter notice period), the Issuer shall have given the Indenture Trustee, the Manager, the Administrative Agent, each Interest Rate Hedge Provider and each Series Enhancer entitled thereto pursuant to the relevant Supplement notice of the Series and the Series Issuance Date;
(ii) the Issuer shall have delivered to the Indenture Trustee the related Supplement, in form satisfactory to the Indenture Trustee, executed by each party hereto other than the Indenture Trustee;
(iii) the Issuer shall have delivered to the Indenture Trustee any related Enhancement Agreement executed by each of the parties thereto and the Series Enhancer under such Enhancement Agreement shall have acknowledged in writing the terms of the Administration Agreement;
(iv) the Rating Agency Condition shall have been satisfied with respect to the issuance of such Series of Notes;
(v) the Issuer shall have delivered to the Indenture Trustee, each Interest Rate Hedge Provider, each Series Enhancer and, if required, any Noteholder, any Opinions of Counsel required by the related Supplement, including without limitation with respect to true sale, enforceability, non-consolidation and security interest perfection issues;
(vi) the Issuer shall have delivered to the Indenture Trustee an Officer’s Certificate stating that no Early Amortization Event or Event of Default (or event or condition which with the passage of time or giving of notice or both would become an Early Amortization Event or an Event of Default) has occurred and is then continuing (or would result from the issuance of such additional Series);
(vii) no additional Series of Notes shall (A) have a Legal Final Payment Date that is earlier than the Legal Final Payment Date for any Series of Notes then Outstanding (immediately prior to the issuance of such additional Series), or (B) include more restrictive provisions regarding Early Amortization Events or Events of Default than the equivalent provisions contained in any Series of Notes then Outstanding (immediately prior to the issuance of such additional Series);
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(viii) written confirmation from an officer of the Manager that after giving effect to such proposed issuance, the aggregate unpaid principal balance of all Series of Notes then Outstanding does not exceed the Asset Base, as evidenced by the Asset Base Report most recently received by the Indenture Trustee (but not earlier than the preceding Payment Date);
(ix) such other conditions as shall be specified in the related Supplement; and
(x) the Issuer shall have delivered to the Indenture Trustee an Officer’s Certificate that all of the conditions specified in clauses (i) through (viii) have been satisfied.
Upon satisfaction of the above conditions, the Indenture Trustee shall execute the Supplement and authenticate, execute and deliver the Notes of such Series.
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ARTICLE XI
HOLDERS LISTS
Section 1101. Indenture Trustee to Furnish Names and Addresses of Holders.
Unless otherwise provided in the related Supplement, the Indenture Trustee will furnish or cause to be furnished to the Manager and each Series Enhancer not more than ten (10) days after receipt of a request, a list, in such form as the Indenture Trustee generally maintains, of the names, addresses and tax identification numbers of the Holders of Notes as of such date.
Section 1102. Preservation of Information; Communications to Holders.
The Indenture Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders contained in the most recent list furnished to the Indenture Trustee as provided in Section 1101 and the names and addresses of Holders received by the Indenture Trustee in its capacity as Note Registrar. The Indenture Trustee may destroy any list furnished to it as provided in Section 1101 upon receipt of a new list so furnished.
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ARTICLE XII
EARLY AMORTIZATION EVENT
Section 1201. Early Amortization Event.
As of any date of determination, the existence of any one of the following events or conditions:
(1) An “event of default” or a material “default” by TL, TEML or the Issuer under any Related Document (including an Event of Default hereunder) shall have occurred and then be continuing;
(2) A Manager Default shall have occurred and then be continuing;
(3) If on any Payment Date an Asset Base Deficiency with respect to the Senior Notes exists, and such condition remains unremedied for a period of ten (10) consecutive Business Days without having been cured;
(4) The amount of any scheduled payment of interest then due and owing on the Notes of any Series then Outstanding is not paid in full;
(5) The EBIT Ratio of the Issuer shall be less than 1.25:1.00;
(6) As of any Payment Date, the Weighted Average Age of the Eligible Container is greater than nine (9) years;
(7) Any payment shall be made by a Series Enhancer under any Enhancement Agreement;
(8) The occurrence of an additional Early Amortization Event as specified in the related Supplement for any Series; or
(9) (A) a breach of any financial covenant of TGH set forth in the documents governing any Indebtedness of TGH in an aggregate principal amount of $10,000,000 or greater (the “Funded Debt Documents”) shall have occurred and shall not have been permanently waived within sixty (60) days thereafter by the applicable lenders, or (B) any default, not described in clause (A), under any Funded Debt Document shall have occurred and as a result the required lenders under the affected financing transaction have accelerated all or part of such Indebtedness.
If the Early Amortization Event described in clause (5) has occurred, such breach shall be deemed cured and such Early Amortization Event shall be deemed no longer continuing if such condition does not exist on any two consecutive subsequent Payment Dates. In addition, if the Early Amortization Event described in clause (9)(A) has occurred, such Early Amortization Event shall be deemed no longer continuing immediately upon the permanent waiver within sixty (60) days thereafter by the required lenders under the affected financing transaction(s) of the event(s) or condition(s) described in such clause (A). Except as set forth in the two
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immediately preceding sentences, if an Early Amortization Event exists on any Payment Date, then such Early Amortization Event shall be deemed to continue until the Business Day on which the Requisite Global Majority waives, in writing, such Early Amortization Event.
Promptly following any occurrence of and, if applicable, any cure of an Early Amortization Event, the Issuer shall notify each Interest Rate Hedge Provider thereof.
Section 1202. Remedies.
Upon the occurrence of an Early Amortization Event, the Indenture Trustee shall have in addition to the rights provided in the Related Documents, all rights and remedies provided under all Applicable Laws.
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ARTICLE XIII
MISCELLANEOUS PROVISIONS
Section 1301. Compliance Certificates and Opinions.
(a) Upon any application or request by the Issuer to the Indenture Trustee to take any action under any provision of this Indenture or any Supplement, the Issuer shall furnish to the Indenture Trustee a certificate stating that all conditions precedent, if any, provided for in this Indenture and any relevant Supplement relating to the proposed action have been complied with and, if deemed reasonably necessary by the Indenture Trustee or if required pursuant to the terms of this Indenture, an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent, if any, have been complied with, except that in the case of any such application or request as to which the furnishing of such documents is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished.
(b) Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include:
(i) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto;
(ii) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based;
(iii) a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether such covenant or condition has been complied with; and
(iv) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with.
Section 1302. Form of Documents Delivered to Indenture Trustee.
(a) In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents.
(b) Any certificate or opinion may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous.
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(c) Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument.
Section 1303. Acts of Holders.
(a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture or any Supplement to be given or taken by Holders may be (i) embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by an agent duly appointed in writing, (ii) evidenced by the written consent or direction of Holders of the specified percentage of the principal amount of the Notes, or (iii) evidenced by a combination of such instrument or instruments; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments and record are delivered to the Indenture Trustee and, where it is hereby expressly required, to the Issuer. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and conclusive in favor of the Indenture Trustee and the Issuer, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which the Indenture Trustee deems sufficient.
(c) The ownership of Notes shall be proved by the Note Register.
(d) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Note shall bind every future Holder of the same Note and the Holder of every Note issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Indenture Trustee or the Issuer in reliance thereon, whether or not notation of such action is made upon such Note.
Section 1304. Inspection.
(a) Upon reasonable request, the Issuer agrees that it shall make available to any representative of the Indenture Trustee, Administrative Agent, any Interest Rate Hedge Provider, any Holder of a Warehouse Note or any Series Enhancer and their duly authorized representatives, attorneys or accountants, for inspection and copying its books of account, records and reports relating to the Managed Containers and copies of all Leases or other documents relating thereto, all in the format which the Manager uses for its own operations. Such inspections shall be conducted during normal business hours and shall not unreasonably disrupt the business of the Manager. The Indenture Trustee, each Series Enhancer, each Interest Rate Hedge Provider and each Noteholder shall, and shall cause their respective representatives
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to, hold in confidence all such information except to the extent disclosure may be required by law (and all reasonable applications for confidential treatment are unavailing); provided that, if no Event of Default shall have occurred and then be continuing, the Issuer shall not be required to provide such access to any such Person more than once per calendar year. Each Noteholder, the Administrative Agent, each Series Enhancer, each Interest Rate Hedge Provider, each Holder of a Warehouse Note and the Indenture Trustee agrees that it and its Affiliates and their respective shareholders, directors, agents, representatives, accountants and attorneys shall keep confidential any matter of which any of them becomes aware through such inspections or discussions (unless readily available from public sources), except as may be otherwise required by regulation, law or court order or required by appropriate Governmental Authorities (and all reasonable applications for confidential treatment are unavailing) or as necessary to preserve their rights or security under or to enforce the Related Documents, provided that the foregoing shall not limit the right of any Series Enhancer or any Interest Rate Hedge Provider, as the case may be, to make such information available to its regulators, securities rating agencies, reinsurers and credit and liquidity providers whom such Series Enhancer or Interest Rate Hedge Provider, as the case may be, reasonably believes will respect the confidential nature of such information. Any expense incident to the reasonable exercise by the Indenture Trustee, any Series Enhancer, any Interest Rate Hedge Provider or any Noteholder of any right under this Section shall be borne by the Person exercising such right unless an Event of Default shall have occurred and then be continuing in which case such expenses shall be borne by the Issuer.
(b) The Issuer also agrees (i) to make available a Managing Officer on a reasonable basis to the Indenture Trustee, Administrative Agent, each Interest Rate Hedge Provider, each Series Enhancer, any Noteholder or any Prospective Owner of a Note for the purpose of answering reasonable questions respecting recent developments affecting the Issuer and (ii) to allow the Indenture Trustee, Administrative Agent, Interest Rate Hedge Provider, Series Enhancer or any Prospective Owner of a Note to inspect the Manager’s facilities during normal business hours.
Section 1305. Limitation of Rights.
Except as expressly set forth in this Indenture, this Indenture shall be binding upon the Issuer, the Noteholders and their respective successors and permitted assigns and shall not inure to the benefit of any Person other than the parties hereto, the Noteholders and the Manager as provided herein. Notwithstanding the previous sentence, the parties hereto acknowledge that each Interest Rate Hedge Provider and the Series Enhancer for a Series of Notes is an express third party beneficiary hereof entitled to enforce its rights hereunder as if actually a party hereto.
Section 1306. Severability.
If any provision of this Indenture is held to be in conflict with any applicable statute or rule of law or is otherwise held to be unenforceable for any reason whatsoever, such circumstances shall not have the effect of rendering the provision in question inoperative or unenforceable in any other case or circumstance, or of rendering any other provision or provisions herein contained invalid, inoperative, or unenforceable to any extent whatsoever.
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The invalidity of any one or more phrases, sentences, clauses or Sections of this Indenture, shall not affect the remaining portions of this Indenture, or any part thereof.
Section 1307. Notices.
All demands, notices and communications hereunder shall be in writing, personally delivered, or by facsimile (with subsequent telephone confirmation of receipt thereof), or sent by internationally recognized overnight courier service, (a) in the case of the Indenture Trustee, at the following address: Sixth Street and Marquette Avenue, MAC N9311-161, Minneapolis, Minnesota 55479, Attention: Corporate Trust Services/Asset-Backed Administration (b) in the case of the Issuer, at the following address: Century House, 16 Par-la-Ville Road, Hamilton HM HX, Bermuda, Telephone: (441) 292-2487, Facsimile: (441) 295-4164, Attention: Senior Vice President - Asset Management, with a copy to each: (i) Textainer Equipment Management Limited at its address at Century House, 16 Par-la-Ville Road, Hamilton HM HX, Bermuda, Telephone: (441) 292-2487, Facsimile: (441) 295-4164, Attention: Senior Vice President - Asset Management, and (ii) Textainer Equipment Management (U.S.) Limited at its address at 650 California Street, 16th floor, San Francisco, CA 94108, Telephone: (415) 658-8363, Facsimile: (415) 434-0599, Attention: Senior Vice President - Asset Management, (c) in the case of a Series Enhancer, at its address set forth in the related Supplement, or at such other address as shall be designated by such party in a written notice to the other parties, and (d) in the case of an Interest Rate Hedge Provider, at its address set forth in the related Interest Rate Hedge Agreement, or at such other address as shall be designated by such party in a written notice to the other parties. Any notice required or permitted to be given to a Noteholder shall be given by certified first class mail, postage prepaid (return receipt requested), or by courier, or by facsimile, with subsequent telephone confirmation of receipt thereof, in each case at the address of such Holder as shown in the Note Register or to the telephone and fax number furnished by such Noteholder. Notice shall be effective and deemed received (a) two (2) days after being delivered to the courier service, if sent by courier, (b) upon receipt of confirmation of transmission, if sent by telecopy, or (c) when delivered, if delivered by hand.
Section 1308. Consent to Jurisdiction.
ANY LEGAL SUIT, ACTION OR PROCEEDING AGAINST THE ISSUER ARISING OUT OF OR RELATING TO THIS INDENTURE, OR ANY TRANSACTION CONTEMPLATED HEREBY, MAY BE INSTITUTED IN ANY FEDERAL OR STATE COURT IN THE CITY OF NEW YORK, STATE OF NEW YORK AND THE ISSUER HEREBY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING, AND, SOLELY FOR THE PURPOSES OF ENFORCING THIS INDENTURE, THE ISSUER HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY SUCH COURT IN ANY SUCH SUIT, ACTION OR PROCEEDING. THE ISSUER HEREBY IRREVOCABLY APPOINTS AND DESIGNATES NATIONAL CORPORATE RESEARCH LTD., HAVING AN ADDRESS AT 10 E. 40TH STREET, 10TH FLOOR, NEW YORK, NY 10016, ITS TRUE AND LAWFUL ATTORNEY-IN-FACT AND DULY AUTHORIZED AGENT FOR THE LIMITED PURPOSE OF ACCEPTING SERVICING OF LEGAL PROCESS AND THE ISSUER AGREES THAT SERVICE OF PROCESS UPON SUCH PARTY SHALL
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CONSTITUTE PERSONAL SERVICE OF SUCH PROCESS ON SUCH PERSON. THE ISSUER SHALL MAINTAIN THE DESIGNATION AND APPOINTMENT OF SUCH AUTHORIZED AGENT UNTIL ALL AMOUNTS PAYABLE UNDER THIS INDENTURE SHALL HAVE BEEN PAID IN FULL. IF SUCH AGENT SHALL CEASE TO SO ACT, THE ISSUER SHALL IMMEDIATELY DESIGNATE AND APPOINT ANOTHER SUCH AGENT SATISFACTORY TO THE INDENTURE TRUSTEE AND SHALL PROMPTLY DELIVER TO THE INDENTURE TRUSTEE EVIDENCE IN WRITING OF SUCH OTHER AGENT’S ACCEPTANCE OF SUCH APPOINTMENT.
Section 1309. Captions.
The captions or headings in this Indenture are for convenience only and in no way define, limit or describe the scope or intent of any provisions or sections of this Indenture.
Section 1310. Governing Law.
THIS INDENTURE SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK INCLUDING SECTION 5-1401 AND SECTION 5-1402 OF NEW YORK GENERAL OBLIGATIONS LAW, BUT WITHOUT GIVING EFFECT TO ANY OTHER PRINCIPLES OF CONFLICTS OF LAW, AND THE RIGHTS, OBLIGATIONS AND REMEDIES OF THE PARTIES HERETO SHALL BE DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
Section 1311. No Petition.
The Indenture Trustee, on its own behalf, hereby covenants and agrees, and each Noteholder by its acquisition of a Note shall be deemed to covenant and agree, that it will not institute against the Issuer any bankruptcy, reorganization, arrangement insolvency or liquidation Proceedings, or other Proceedings under any federal or state bankruptcy or similar law, at any time other than on a date which is at least one (1) year and one (1) day after the later of (a) the last date on which any Note of any Series was Outstanding and (b) the date on which all amounts owing to each Series Enhancer pursuant to the terms of this Indenture and the related Insurance Agreements have been paid in full.
Section 1312. General Interpretive Principles.
For purposes of this Indenture except as otherwise expressly provided or unless the context otherwise requires:
(a) the defined terms in this Indenture shall include the plural as well as the singular, and the use of any gender herein shall be deemed to include any other gender;
(b) accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles as in effect on the date hereof;
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(c) references herein to “Articles”, “Sections”, “Subsections”, “paragraphs”, and other subdivisions without reference to a document are to designated Articles, Sections, Subsections, paragraphs and other subdivisions of this Indenture;
(d) a reference to a Subsection without further reference to a Section is a reference to such Subsection as contained in the same Section in which the reference appears, and this rule shall also apply to paragraphs and other subdivisions;
(e) the words “herein”, “hereof’, “hereunder” and other words of similar import refer to this Indenture as a whole and not to any particular provision;
(f) the term “include” or “including” shall mean without limitation by reason of enumeration; and
(g) When referring to Section 302 or Section 806 of this Indenture, the term “or” shall be additive and not exclusive.
Section 1313. WAIVER OF JURY TRIAL.
EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, AS AGAINST THE OTHER PARTIES HERETO, ANY RIGHTS IT MAY HAVE TO A JURY TRIAL IN RESPECT OF ANY CIVIL ACTION OR PROCEEDING (WHETHER ARISING IN CONTRACT OR TORT OR OTHERWISE), INCLUDING ANY COUNTERCLAIM, ARISING UNDER OR RELATING TO THIS AGREEMENT OR ANY OTHER OPERATIVE DOCUMENT, INCLUDING IN RESPECT OF THE NEGOTIATION, ADMINISTRATION OR ENFORCEMENT HEREOF OR THEREOF.
Section 1314. Waiver of Immunity.
To the extent that any party hereto or any of its property is or becomes entitled at any time to any immunity on the grounds of sovereignty or otherwise from any legal actions, suits or Proceedings, from set-off or counterclaim, from the jurisdiction or judgment of any competent court, from service of process, from execution of a judgment, from attachment prior to judgment, from attachment in aid of execution, or from execution prior to judgment, or other legal process in any jurisdiction, such party, for itself and its successors and assigns and its property, does hereby irrevocably and unconditionally waive, and agrees not to plead or claim, any such immunity with respect to its obligations, liabilities or any other matter under or arising out of or in connection with this Indenture, the other Related Documents or the subject matter hereof or thereof, subject, in each case, to the provisions of the Related Documents and mandatory requirements of Applicable Law.
Section 1315. Judgment Currency.
The parties hereto (A) acknowledge that the matters contemplated by this Indenture are part of an international financing transaction and (B) hereby agree that (i) specification and payment of Dollars is of the essence, (ii) Dollars shall be the currency of account in the case of all obligations under the Related Documents unless otherwise expressly provided herein or therein, (iii) the payment obligations of the parties under the Related
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Documents shall not be discharged by an amount paid in a currency or in a place other than that specified with respect to such obligations, whether pursuant to a judgment or otherwise, except to the extent actually received by the Person entitled thereto and converted into Dollars by such Person (it being understood and agreed that, if any transaction party shall so receive an amount in a currency other than Dollars, it shall (A) if it is not the Person entitled to receive payment, promptly return the same (in the currency in which received) to the Person from whom it was received or (B) if it is the Person entitled to receive payment, either, in its sole discretion, (x) promptly return the same (in the currency in which received) to the Person from whom it was received or (y) subject to reasonable commercial practices, promptly cause the conversion of the same into Dollars), (iv) to the extent that the amount so paid on prompt conversion to Dollars under normal commercial practices does not yield the requisite amount of Dollars, the obligee of such payment shall have a separate cause of action against the party obligated to make the relevant payment for the additional amount necessary to yield the amount due and owing under the Related Documents, (v) if, for the purpose of obtaining a judgment in any court with respect to any obligation under any of the Related Documents, it shall be necessary to convert to any other currency any amount in Dollars due thereunder and a change shall occur between the rate of exchange applied in making such conversion and the rate of exchange prevailing on the date of payment of such judgment, the obligor in respect of such obligation will pay such additional amounts (if any) as may be necessary to insure that the amount paid on the date of payment is the amount in such other currency which, when converted into Dollars and transferred to New York City, New York, in accordance with normal banking procedures, will result in realization of the amount then due in Dollars and (vi) any amount due under this paragraph shall be due as a separate debt and shall not be affected by or merged into any judgment being obtained for any other sum due under or in respect of the Related Documents.
Section 1316. Statutory References.
References in this Indenture and each other Related Document for any Series to any section of the Uniform Commercial Code or the UCC shall mean, on or after the effective date of adoption of any revision to the Uniform Commercial Code or the UCC in the State of New York, such revised or successor section thereto.
Section 1317. Counterparts.
This Agreement may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. Delivery of an executed counterpart of a signature page of this Agreement by facsimile or e-mail (including in pdf format) shall be effective as delivery of a manually executed counterpart of this Agreement.
Section 1318. Transactions Under Prior Agreement.
On the Restatement Date, the Prior Agreement shall be amended and restated as provided in this Indenture and shall be superseded by this Indenture. The terms and conditions of this Indenture shall apply to all of the Liens created by, and all of the rights, obligations and remedies incurred by, the Issuer under the Prior Agreement, and the Issuer agrees that this Indenture is not intended to constitute a discharge of the rights, obligations and remedies existing under the Prior Agreement.
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IN WITNESS WHEREOF, the Issuer and the Indenture Trustee have caused this Indenture to be duly executed and delivered by their respective officers thereunto duly authorized as of the day and year first above written.
| TEXTAINER MARINE CONTAINERS II LIMITED | ||
| By: | /S/ Christopher C. Morris | |
| Name: |
| |
| Title: | Executive Vice President | |
| WELLS FARGO BANK, NATIONAL ASSOCIATION, as Indenture Trustee | ||
| By: | /S/ Kristen L. Puttin | |
| Name: |
| |
| Title: | Vice President | |
Amended and Restated Indenture
Exhibit G-1
EXHIBIT 4.12
TEXTAINER MARINE CONTAINERS II LIMITED
Issuer
and
WELLS FARGO BANK, NATIONAL ASSOCIATION
Indenture Trustee
AMENDED AND RESTATED SERIES 2012-1 SUPPLEMENT
Dated as of September 15, 2014
to
AMENDED AND RESTATED INDENTURE
Dated as of September 15, 2014
SERIES 2012-1 NOTES
EXHIBIT 4.12
TABLE OF CONTENTS
| Page | ||||||
| ARTICLE I Definitions; Calculation Guidelines | 1 | |||||
| Section 101. |
Definitions | 1 | ||||
| ARTICLE II Creation of the Series 2012-1 Notes | 10 | |||||
| Section 201. |
Designation | 10 | ||||
| Section 201A |
Series 2012-1 Notes | 11 | ||||
| Section 202. |
Interest Payments on the Series 2012-1 Notes | 12 | ||||
| Section 203. |
Principal Payments on the Series 2012-1 Notes; Prepayment of Principal on the Series 2012-1 Notes | 12 | ||||
| Section 204. |
Amounts and Terms of Series 2012-1 Noteholder Commitments; Payments | 13 | ||||
| Section 205. |
Taxes | 14 | ||||
| Section 206. |
Illegality | 16 | ||||
| Section 207. |
Increased Costs; Reserves on LIBOR Rate Loans | 16 | ||||
| Section 208. |
Replacement of Series 2012-1 Noteholder; Survival | 18 | ||||
| Section 209. |
Defaulting Noteholders | 18 | ||||
| ARTICLE III Series 2012-1 Series Account and Allocation and Application of Amounts Therein | 20 | |||||
| Section 301. |
Series 2012-1 Series Account | 20 | ||||
| Section 302. |
Drawing Funds from the Restricted Cash Account and Letters of Credits | 20 | ||||
| Section 303. |
Distribution from Series 2012-1 Series Account | 21 | ||||
| ARTICLE IV Additional Covenants and Agreements | 23 | |||||
| Section 401. |
Rule 144A | 23 | ||||
| Section 402. |
Depreciation Policy | 23 | ||||
| Section 403. |
Perfection Requirements | 23 | ||||
| Section 404. |
United States Federal Income Tax Election | 23 | ||||
| Section 405. |
OFAC Matters | 23 | ||||
| Section 406. |
Consent to Series Issuance | 24 | ||||
| ARTICLE V Conditions of Effectiveness and Future Lending | 24 | |||||
| Section 501. |
Effectiveness of Supplement | 24 | ||||
| Section 502. |
Subsequent Advances on Series 2012-1 Notes | 25 | ||||
| ARTICLE VI Representations and Warranties | 26 | |||||
| Section 601. |
Existence | 26 | ||||
| Section 602. |
Authorization | 26 | ||||
| Section 603. |
No Conflict, Legal Compliance | 26 | ||||
| Section 604. |
Validity and Binding Effect | 26 | ||||
| Section 605. |
Financial Statements | 26 | ||||
| Section 606. |
Executive Offices | 27 | ||||
i
| Section 607. |
No Agreements or Contracts | 27 | ||||
| Section 608. |
Consents and Approvals | 27 | ||||
| Section 609. |
Margin Regulations | 27 | ||||
| Section 610. |
Taxes | 27 | ||||
| Section 611. |
Other Regulations | 28 | ||||
| Section 612. |
Solvency and Separateness | 28 | ||||
| Section 613. |
Survival of Representations and Warranties | 29 | ||||
| Section 614. |
No Default | 29 | ||||
| Section 615. |
Litigation and Contingent Liabilities | 29 | ||||
| Section 616. |
Subsidiaries | 29 | ||||
| Section 617. |
No Partnership | 29 | ||||
| Section 618. |
Pension and Welfare Plans | 29 | ||||
| Section 619. |
Ownership of Issuer | 30 | ||||
| Section 620. |
Use of Proceeds | 30 | ||||
| Section 621. |
Security Interest Representations | 30 | ||||
| Section 622. |
FATCA | 32 | ||||
| ARTICLE VII Miscellaneous Provisions |
32 | |||||
| Section 701. |
Ratification of Indenture | 32 | ||||
| Section 702. |
Counterparts | 32 | ||||
| Section 703. |
Governing Law | 32 | ||||
| Section 704. |
Notices | 33 | ||||
| Section 705. |
Amendments, Waivers and Modifications of this Supplement | 33 | ||||
| Section 706. |
Consent to Jurisdiction | 34 | ||||
| Section 707. |
Waiver of Jury Trial | 35 | ||||
| Section 708. |
Successors | 35 | ||||
| Section 709. |
Nonpetition Covenant | 35 | ||||
| Section 710. |
Transactions Under Prior Agreement | 35 | ||||
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EXHIBIT 4.12
AMENDED AND RESTATED SERIES 2012-1 SUPPLEMENT, dated as of September 15, 2014 (as amended, modified and supplemented from time to time in accordance with the terms hereof, this “Supplement”), between TEXTAINER MARINE CONTAINERS II LIMITED, an exempted company organized and existing under the laws of Bermuda (the “Issuer”), and WELLS FARGO BANK, NATIONAL ASSOCIATION, a national banking association, as Indenture Trustee (the “Indenture Trustee”).
WHEREAS, pursuant to the Series 2012-1 Supplement, dated as of May 1, 2012 (as amended and supplemented from time to time in accordance with its terms, the “Prior Agreement”), between the Issuer and the Indenture Trustee, the Issuer issued the Series 2012-1 Notes; and
WHEREAS, the Issuer and the Indenture Trustee (acting at the direction of all of the Series 2012-1 Noteholders) desire to amend certain provisions of the Prior Agreement and, for ease of reference, to restate in its entirety the terms and conditions of the Supplement;
NOW THEREFORE, in consideration of the premises and mutual covenants herein contained, the parties hereto agree as follows:
ARTICLE I
Definitions; Calculation Guidelines
Section 101. Definitions. Whenever used in this Supplement, the following words and phrases shall have the following meanings, and the definitions of such terms are applicable to the singular as well as the plural forms of such terms and to the masculine as well as to the feminine and neuter genders of such terms.
“Aggregate Series 2012-1 Note Principal Balance” means, as of any date of determination, an amount equal to the sum of the then Series 2012-1 Note Principal Balances of all Series 2012-1 Notes then Outstanding.
“Alternative Rate” means on any day for any Series 2012-1 Advance allocated to an Interest Accrual Period, an interest rate per annum equal to the Base Rate if, on or before the first day of such Interest Accrual Period, a Series 2012-1 Noteholder (or an agent thereof) or its Deal Agent shall have notified the Issuer that a Eurodollar Disruption Event has occurred with respect to such Series 2012-1 Noteholder or, if applicable, a member of its Related Group.
“Applicable Margin” means, with respect to each day commencing on the Restatement Date during an Interest Accrual Period on which a Series 2012-1 Advance by a Series 2012-1 Noteholder is outstanding, one of the following amounts for such Series 2012-1 Advance:
| (A) | for each day occurring prior to the Conversion Date, one and seven tenths of one percent (1.70%) per annum; and |
| (B) | for each day on or subsequent to the Conversion Date, two and seven tenths of one percent (2.70%) per annum. |
“Availability” shall have the meaning set forth in the Series 2012-1 Note Purchase Agreement.
“Breakage Costs” means any amount or amounts as shall compensate a Series 2012-1 Noteholder for any loss, cost or expense incurred by such Series 2012-1 Noteholder or a member of its Related Group in connection with funding obtained by it with respect to a Series 2012-1 Advance (as reasonably determined by the related Deal Agent in its sole discretion on behalf of such Series 2012-1 Noteholder) as a result of (i) the failure of the Issuer to accept funding of a Series 2012-1 Advance in accordance with a Funding Notice submitted by Issuer, or (ii) the failure of the Issuer to make a prepayment in accordance with the terms of any of the Indenture, this Supplement or the Series 2012-1 Note Purchase Agreement, or (iii) the Issuer making a payment of principal on a Series 2012-1 Note on a day other than a Payment Date. Nothing contained herein shall obligate the Issuer to pay Breakage Costs with respect to any prepayment actually made by the Issuer on the last day of an Interest Accrual Period.
“Change in Law” means the occurrence, after the Restatement Date, of any of the following: (a) the adoption or taking effect of any law, rule, regulation or treaty, (b) any change in any law, rule, regulation or treaty or in the administration, interpretation, implementation or application thereof by any Governmental Authority or (c) the making or issuance of any request, rule, guideline or directive (whether or not having the force of law) by any Governmental Authority; provided that notwithstanding anything herein to the contrary, (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives thereunder or issued in connection therewith, (y) all requests, rules, guidelines or directives promulgated by the Bank for International Settlement, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities pursuant to Basel III, and (z) the implementation or application of, or compliance with, CRD IV (as defined below) or CRR (as defined below), or any law or regulation that implements or applies CRD IV or CRR shall, in each case, be deemed to be a “Change in Law”, regardless of the date enacted, adopted or issued or implemented. As used herein, “CRD IV” means Directive 2013/36/EU of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directive 2006/48/EC and 2006/49/EC, and “CRR” means regulation (EU) no. 575/2013 of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending regulation (EU) No. 648/2012.
“Control Party” means, with respect to Series 2012-1 Notes, the Majority of Holders of the Series 2012-1 Notes.
“Conversion Date” means the earlier to occur of (i) the date on which a Conversion Event occurs, and (ii) the date set forth in Section 2.5 of the Series 2012-1 Note Purchase Agreement, as such date in this clause (ii) may be extended from time to time in accordance with the terms, and subject to the conditions, of Section 2.5 of the Series 2012-1 Note Purchase Agreement.
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“Conversion Event” means the earlier to occur of (x) the date on which an Early Amortization Event occurs and (y) any Payment Date on which the then aggregate unpaid principal balance of any other Series of Notes issued by the Issuer exceeds the Minimum Targeted Principal Balance of such Series (determined after giving effect to any Minimum Principal Payment Amount actually paid on such Payment Date).
“Default Interest” means, for any Payment Date, the incremental amount of interest payable on the Notes in accordance with Section 202(b) hereof.
“Defaulting Noteholder” means any Series 2012-1 Noteholder (or, if applicable, any member of its Related Group that (a) has failed to fund any portion of any Series 2012-1 Advances required to be funded by it hereunder or under the Series 2012-1 Note Purchase Agreement, including any funding to be made in respect of a Delaying Noteholder, within two Business Days of the date required to be funded by it hereunder, unless such Series 2012-1 Noteholder is a Delaying Noteholder, (b) has otherwise failed to pay over to the Administrative Agent or any other Series 2012-1 Noteholder any other amount required to be paid by it under the Series 2012-1 Related Documents within two Business Days of the date when due, unless the subject of a good faith dispute, (c) has notified the Issuer (or any of its Affiliates) or the Administrative Agent in writing that it does not intend to comply with its funding obligations hereunder, or has made a public statement to that effect, (d) has failed, within three Business Days after written request by the Administrative Agent or the Issuer, to confirm in writing to the Administrative Agent and the Borrower that it will comply with its prospective funding obligations hereunder (provided that such Noteholder shall cease to be a Defaulting Noteholder pursuant to this clause (d) upon receipt of such written confirmation by the Administrative Agent and the Issuer), or (e) has, or has a direct or indirect parent company that has, (i) become the subject of a proceeding under any Insolvency Law, or (ii) had appointed for it a receiver, custodian, conservator, trustee, administrator, assignee for the benefit of creditors or similar Person charged with reorganization or liquidation of its business or assets, including the Federal Deposit Insurance Corporation or any other state or federal regulatory authority acting in such a capacity; provided that a Series 2012-1 Noteholder shall not be a Defaulting Noteholder solely by virtue of the ownership or acquisition of any equity interest in that Series 2012-1 Noteholder or any direct or indirect parent company thereof by a Governmental Authority so long as such ownership interest does not result in or provide such Series 2012-1 Noteholder with immunity from the jurisdiction of courts within the United States or from the enforcement of judgments or writs of attachment on its assets or permit such Series 2012-1 Noteholder (or such Governmental Authority) to reject, repudiate, disavow or disaffirm any contracts or agreements made with such Series 2012-1 Noteholder. Any determination by the [Administrative Agent] that a Series 2012-1 Noteholder is a Defaulting Noteholder under clauses (a) through (d) above shall be conclusive and binding absent manifest error, and such Series 2012-1 Noteholder shall be deemed to be a Defaulting Noteholder (subject to Section 209(c)) upon delivery of written notice of such determination to the Issuer and each Series 2012-1 Noteholder. For purposes of the Series 2012-1 Related Documents, a Delaying Noteholder shall not be a Defaulting Noteholder solely as a result of its status as a Delaying Noteholder. A Delaying Noteholder will be classified as a Defaulting Noteholder if such Delaying Noteholder fails to fund a Delayed Amount on the related Delaying Funding Date.
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“Delaying Funding Notice” shall have the meaning set forth in the Series 2012-1 Note Purchase Agreement.
“Delaying Noteholder” shall have the meaning set forth in the Series 2012-1 Note Purchase Agreement.
“Dollars” and the sign “$” mean lawful money of the United States of America.
“Eurodollar Disruption Event” means with respect to all Series 2012-1 Advances allocated to any Interest Accrual Period, any of the following events or conditions: (a) a determination by a Series 2012-1 Noteholder or its Deal Agent that any law has made it unlawful, or that any Governmental Authority has asserted that it is unlawful, for such Series 2012-1 Noteholder to make, maintain or fund Series 2012-1 Advance whose interest is determined by reference to the LIBOR Rate, or to determine or charge interest rates based upon the LIBOR Rate, or any Governmental Authority has imposed material restrictions on the authority of such Series 2012-1 Noteholder to purchase or sell, or to take deposits of, Dollars in the London interbank market, (b) a determination by a Series 2012-1 Noteholder or its Deal Agent that the LIBOR Rate applicable for such Interest Accrual Period does not adequately and fairly reflect the cost to the Series 2012-1 Noteholder (or, if applicable, any member of its Related Group) of making, funding or maintaining any Loan for such Interest Accrual Period, (c) the inability of a Series 2012-1 Noteholder (or, if applicable, any member of its Related Group) to obtain Dollars in the London interbank market to make, fund or maintain any Loan for such Interest Accrual Period, or (d) adequate and reasonable means do not exist for determining the LIBOR Rate for the applicable Interest Accrual Period.
“Excluded Taxes” means (i) taxes imposed by the jurisdiction in which that Indemnified Party’s principal office is located (and/or the office where such Indemnified Party books its investment in its Series 2012-1 Note) on all or part of the net income, profits or gains of such Indemnified Party and (ii) interest, penalties, and additions thereto arising out of such Indemnified Party’s gross negligence.
“Federal Funds Effective Rate” means for any day, the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, and determined by the applicable Deal Agent or, if such rate is not so published on the next succeeding Business Day, the average of the quotations for the day of such transactions received by the applicable Deal Agent from three federal funds brokers of recognized standing selected by it.
“FATCA” means:
(a) Sections 1471 to 1474 of the Code or any current or future associated regulations or other official guidance that is substantially comparable and not materially more onerous to comply with;
(b) any treaty, law, regulation or other official guidance enacted in any other jurisdiction, or relating to an intergovernmental agreement between the U.S. and any other jurisdiction, which (in either case) facilitates the implementation of paragraph (a) above; or
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(c) any agreement pursuant to the implementation of paragraphs (a) or (b) above with the U.S. Internal Revenue Service, the U.S. government or any governmental or taxation authority in any other jurisdiction.
“Federal Reserve Board” means the Board of Governors of the Federal Reserve System or any successor thereto.
“Fee Letter” means each fee letter, dated on or about the Restatement Date, between the Issuer and each Deal Agent.
“Funding Notice” has the meaning set forth in the Series 2012-1 Note Purchase Agreement.
“Increased Costs” means any fee, expense, increased cost or reduction in rate of return on capital charged to or incurred by an Indemnified Party on account of the occurrences set forth in Sections 206 and 207 hereof.
“Indemnified Party” shall have the meaning set forth in Section 205(a) hereof.
“Interest Accrual Period” means the period commencing on, and including, a Payment Date and ending on but excluding the next succeeding Payment Date. When switching from LIBOR Rate to Alternative Rate funding, the first such Interest Accrual Period shall be at the discretion of the applicable Deal Agent.
“LIBOR Rate” means for any Interest Accrual Period and any Series 2012-1 Advance, an interest rate per annum equal to the average per annum rate of interest determined by the Indenture Trustee (and notified to each of the Issuer, the Manager and the Administrative Agent) on the basis of the offered rates for deposits in Dollars for an amount equal to the requested advance of funds and for a term equal to either (i) with respect to any Series 2012-1 Advance made on the first day of such Interest Accrual Period, the applicable Interest Accrual Period or (ii) with respect to any Series 2012-1 Advance not made on the first day of such Interest Accrual Period, a term equal to the period remaining in the applicable Interest Accrual Period (provided, if no offered rate exists for such remaining period, the LIBOR Rate shall be interpolated on a straight-line basis based upon the LIBOR Rate for each of (i) the closest quoted period greater than such remaining period and (ii) the closest quoted period shorter than such remaining period), and commencing on the first day of such Interest Accrual Period, displayed on the Reuters screen “LIBOR01”, or any successor service for the purpose of displaying the London Interbank rates of major banks for Dollars (or such other page as may replace the Reuters screen “LIBOR01” on that service or such other service or services as may be denominated by the ICE Benchmark Administration for the purpose of displaying London Interbank offered rates for Dollar deposits), as of 11:00 A.M. (London time) on the Business Day which is the LIBOR Determination Date. If the Reuters Screen LIBO Page is not available, then “LIBOR Rate” shall mean the rate per annum equal to the average rate at which the principal London offices of Wells Fargo Bank, National Association, and Bank of America, N.A. (or their respective successors) are offered dollar deposits at or about 10:00 a.m., New York City time, two Business Days prior to the first Business Day of such Interest Accrual Period in the London eurodollar interbank market for delivery on the first day of such Interest Accrual Period for one month and in a principal amount equal to an amount of not less than $1,000,000.
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“LIBOR Determination Date” shall mean the date that is two (2) Business Days prior to the first day of any Interest Accrual Period.
“Loan” means an extension of credit made by a Series 2012-1 Advance pursuant to Section 204 hereof.
“Majority of Holders” means, with respect to the Series 2012-1 Notes as of any date of determination, one or more Series 2012-1 Noteholders representing more than fifty percent (50%) of the then aggregate Series 2012-1 Note Commitments of all Series 2012-1 Noteholders (or, if the Conversion Date has occurred, the then Aggregate Series 2012-1 Note Principal Balance); provided however, that the Series 2012-1 Note Commitments (or, if applicable, Series 2012-1 Note Principal Balance) of any Person classified as a Defaulting Noteholder on such date of determination shall be excluded for purposes of determining the Majority of Holders for Series 2012-1 Notes except to the extent expressly set forth in Section 209.
“Manager Report” shall have the meaning set forth in the Management Agreement.
“Minimum Principal Payment Amount” means, for the Series 2012-1 Notes on any Payment Date, one of the following:
| (1) | for any Payment Date on or prior to the Conversion Date, zero; |
| (2) | for any Payment Date following the Conversion Date, the excess, if any, of (x) the Aggregate Series 2012-1 Note Principal Balance, over (y) the Minimum Targeted Principal Balance for the Series 2012-1 Notes for such Payment Date. |
“Minimum Targeted Principal Balance” means for the Series 2012-1 Notes for each Payment Date subsequent to the Conversion Date, an amount equal to the product of (x) the Aggregate Series 2012-1 Note Principal Balance on the Conversion Date and (y) the percentage set forth opposite such Payment Date (based on the number of months elapsed from the Conversion Date; it being agreed that if the Conversion Date does not occur on a Payment Date, the number of months calculation shall commence with the Payment Date immediately following the Conversion Date) on Schedule 1 hereto under the column entitled “Minimum Targeted Principal Balance”.
“Note” means any Series 2012-1 Note.
“Other Taxes” shall have the meaning set forth in Section 205(b) hereof.
“Overdue Rate” means an interest rate per annum equal to the sum of (i) the interest rate otherwise in effect hereunder plus (ii) two percent (2%).
“Payment Date” shall have the meaning set forth in Section 201(b) hereof.
“Permitted Interest Withdrawal” shall have the meaning set forth in Section 302(a) hereof.
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“Permitted Principal Withdrawal” shall have the meaning set forth in Section 302(b) hereof.
“Prime Rate” means the rate announced by Wells Fargo Bank, National Association (or any successor thereto), from time to time as its “prime rate” or “base rate” in the United States, such rate to change as and when such designated rate changes. The Prime Rate is not intended to be the lowest rate of interest charged by Wells Fargo Bank, National Association (or any successor thereto) in connection with extensions of credit to debtors. For sake of clarity, the references to Wells Fargo Bank, National Association in the two preceding sentences are not intended to refer to the initial Indenture Trustee.
“Pro Rata” means in accordance with the Pro Rata Share of each Series 2012-1 Noteholder.
“Pro Rata Share” means, with respect to each Series 2012-1 Noteholder as of any date of determination, a ratio (expressed as a percentage) the numerator of which is equal to the Series 2012-1 Note Commitment (or, if the Conversion Date has occurred, the Series 2012-1 Note Principal Balance) of such Series 2012-1 Noteholder and the denominator of which is equal to the sum of the Series 2012-1 Note Commitments of all Series 2012-1 Noteholders (or, if the Conversion Date has occurred, the Aggregate Series 2012-1 Note Principal Balance).
“Purchaser” shall have the meaning set forth in the Series 2012-1 Note Purchase Agreement.
“Rating Agency Condition” means, in addition to the meaning set forth in the Indenture, that so long as there is no Rating Agency of the Series 2012-1 Notes, the Control Party for the Series 2012-1 Notes shall also have consented to the applicable action or decision.
“Restatement Date” means September 15, 2014.
“Scheduled Principal Payment Amount” means, for the Series 2012-1 Notes for any Payment Date, one of the following:
| (1) | for any Payment Date on or prior to the Conversion Date, zero (0); or |
| (2) | for any Payment Date following the Conversion Date, the excess, if any, of (x) the then Aggregate Series 2012-1 Note Principal Balance (determined after giving effect to any payment of the Minimum Principal Payment Amount for the Series 2012-1 Notes on such Payment Date), over (y) the Scheduled Targeted Principal Balance for the Series 2012-1 Notes for such Payment Date. |
“Scheduled Targeted Principal Balance” means, for the Series 2012-1 Notes for each Payment Date subsequent to the Conversion Date, an amount equal to the product of (x) the Aggregate Series 2012-1 Note Principal Balance on the Conversion Date and (y) the percentage set forth opposite such Payment Date (based on the number of months elapsed from the Conversion Date; it being agreed that if the Conversion Date does not occur on a Payment Date, the number of months calculation shall commence with the Payment Date immediately following the Conversion Date) on Schedule 2 hereto under the column entitled “Scheduled Targeted Principal Balance”.
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“Series 2012-1” means the Series of Notes the terms of which are specified in this Supplement.
“Series 2012-1 Advance” means any advance of funds made by, or on behalf of, a Series 2012-1 Noteholder pursuant to Section 204(b) hereof.
“Series 2012-1 Legal Final Payment Date” means, with respect to the Series 2012-1 Notes, the Payment Date immediately succeeding the date which is the fourth (4th) annual anniversary of the Payment Date immediately following the Conversion Date.
“Series 2012-1 Note” means any one of the notes issued pursuant to the terms hereof, substantially in the form of Exhibit A hereto, and shall include any and all replacements or substitutions of such notes.
“Series 2012-1 Note Commitment” means, for each Series 2012-1 Noteholder (excluding, however, any Series 2012-1 Noteholder which is a CP Purchaser), the commitment of such Series 2012-1 Noteholder to fund Series 2012-1 Advances in an aggregate amount outstanding at any point in time not to exceed the amount set forth opposite such Series 2012-1 Noteholder name on Schedule II to the Series 2012-1 Note Purchase Agreement, as such amount may be modified in accordance with the terms thereof. After the Conversion Date, the Series 2012-1 Note Commitment for each Series 2012-1 Noteholder shall be equal to the then Series 2012-1 Note Principal Balance of the Series 2012-1 Note owned by such Series 2012-1 Noteholder.
“Series 2012-1 Note Interest Payment” means for each Payment Date, an amount equal to the sum, for each Series 2012-1 Advance outstanding for each day during the related Interest Accrual Period, of the product of (i) if the Alternative Rate shall then be in effect, (A) the principal amount of such Series 2012-1 Advance, (B) an interest rate equal to the sum of (x) the Base Rate in effect and (y) the Applicable Margin, and (C) 1/365 or 1/366, as applicable, or (ii) if clause (i) above shall not apply, (A) the principal amount of such Series 2012-1 Advance, (B) an interest rate equal to the sum of (x) the LIBOR Rate for such Interest Accrual Period (but not less than zero) and (y) the Applicable Margin, and (C) 1/360.
“Series 2012-1 Note Principal Balance” means, with respect to any Series 2012-1 Note as of any date of determination, an amount equal to the excess of (x) all Series 2012-1 Advances made by or on behalf of the related Series 2012-1 Noteholder, over (y) the cumulative amount of all Minimum Principal Payment Amounts, Scheduled Principal Payment Amounts, Supplemental Principal Payment Amounts and any other Prepayments actually paid to the related Series 2012-1 Noteholder.
“Series 2012-1 Note Purchase Agreement” means the Amended and Restated Series 2012-1 Note Purchase Agreement, dated as of the Restatement Date, among the Issuer, the Purchasers, and the Deal Agents named therein pursuant to which document the Purchasers agreed to purchase the Series 2012-1 Notes and make Series 2012-1 Advances, as amended, supplemented or otherwise modified from time to time in accordance with its terms.
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“Series 2012-1 Noteholder” means, at any time of determination for the Series 2012-1 Notes, any Person in whose name a Series 2012-1 Note is registered in the Note Register, and shall be deemed to include each Purchaser and each related CP Purchaser.
“Series 2012-1 Related Documents” means any and all of the Indenture, this Supplement (including any documents necessary to effectuate an increase in the Aggregate Series 2012-1 Note Commitment, as provided for in Section 2.7 of the Series 2012-1 Note Purchase Agreement), the Series 2012-1 Notes, the Management Agreement, the Container Sale Agreement, the Container Transfer Agreement, the Series 2012-1 Note Purchase Agreement, the Administration Agreement, the Manager Transfer Facilitator Agreement, each Interest Rate Hedge Agreement (upon execution thereof), each Fee Letter and any and all other agreements, documents and instruments executed and delivered by or on behalf or in support of the Issuer with respect to the issuance and sale of the Series 2012-1 Notes, as any of the foregoing may from time to time be amended, modified, supplemented or renewed.
“Series 2012-1 Scheduled Maturity Date” means with respect to the Series 2012-1 Notes, the Payment Date immediately succeeding the date which is the fourth (4th) annual anniversary of the Conversion Date.
“Series 2012-1 Series Account” means the account established by the Issuer with the Indenture Trustee into which funds are deposited from the Trust Account pursuant to Section 303 of the Indenture.
“Step Up Warehouse Fee” means, for the Series 2012-1 Notes, for each Payment Date, an amount equal to zero.
“Super Majority of Holders” means, with respect to the Series 2012-1 Notes as of any date of determination, Series 2012-1 Noteholders that, in aggregate, comply with both of the following: (A) Series 2012-1 Noteholders representing more than 60% (measured by number of Related Groups) of the Related Groups (as defined in the Series 2012-1 Note Purchase Agreement) and (B) Series 2012-1 Noteholders representing more than sixty six and two thirds percent (66 2/3%) of the then aggregate Series 2012-1 Note Commitments of all Series 2012-1 Noteholders (or, if the Conversion Date has occurred, the then Aggregate Series 2012-1 Note Principal Balance); provided however, that the Related Groups and Series 2012-1 Note Commitments (or, if applicable, Series 2012-1 Note Principal Balance) of any Person classified as a Defaulting Noteholder on such date of determination shall be excluded for purposes of determining the Super Majority of Holders for Series 2012-1 Notes except to the extent expressly set forth in Section 209.
“Supplemental Principal Payment Amount” means the amount of any Prepayment made in accordance with the provisions of Section 702(a) of the Indenture that is allocated to the Series 2012-1 Notes in accordance with each provision of the Indenture.
“Taxes” shall have the meaning set forth in Section 205(a) hereof.
“Unused Commitment” means, with respect to each Series 2012-1 Noteholder as of any date of determination, the excess of (i) the Series 2012-1 Note Commitment then in effect for such Series 2012-1 Noteholder, over (ii) the Series 2012-1 Note Principal Balance of the Series 2012-1 Note owned by such Series 2012-1 Noteholder as of such date of determination, measured after giving effect to all Series 2012-1 Advances made and all principal payments to be received by such Series 2012-1 Noteholder on such date of determination.
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“Unused Fee” shall have the meaning set forth in Section 204(c) hereof.
“Unused Fee Percentage” means, as of any date of determination, one of the following:
(i) If the quotient (expressed as a percentage) obtained by dividing (y) the Series 2012-1 Note Principal Balance by (y) the sum of the Series 2012-1 Note Commitments of all Series 2012-1 Noteholders shall be less than fifty percent (50%) as of such date of determination, forty five hundredths of one percent (0.45%) per annum; or
(ii) If the quotient (expressed as a percentage) obtained by dividing (y) the Series 2012-1 Note Principal Balance by (y) the sum of the Series 2012-1 Note Commitments of all Series 2012-1 Noteholders shall be equal to or greater than fifty percent (50%) as of such date of determination, three hundred sixty five thousandths of one percent (0.365%) per annum.
“Warehouse Note Increased Interest” means the incremental interest payable by the Issuer on the Series 2012-1 Notes upon the occurrence of a Conversion Event.
(b) Capitalized terms used herein and not otherwise defined shall have the meaning set forth in the Indenture or, if not defined therein, as defined in the Series 2012-1 Note Purchase Agreement.
ARTICLE II
Creation of the Series 2012-1 Notes
Section 201. Designation.
(a) There is hereby created a Series of Notes to be issued in one Class pursuant to the Indenture and this Supplement to be known respectively as “Textainer Marine Containers II Limited Floating Rate Asset-Backed Notes, Series 2012-1”. The Series 2012-1 Notes were previously issued in the initial maximum principal balance of One Billion, Two Hundred Million Dollars ($1,200,000,000). The Series 2012-1 Notes will not have priority over any other Series, except to the extent set forth in the Supplement for such other Series.
(b) The Payment Date with respect to the Series 2012-1 Notes shall be the fifteenth (15th) calendar day of each month (or, if such day is not a Business Day, the immediately following Business Day).
(c) Payments of principal on the Series 2012-1 Notes shall be payable from funds on deposit in the Series 2012-1 Series Account or otherwise at the times and in the amounts set forth in Article III of the Indenture and Article III hereof.
(d) Each Series 2012-1 Note is classified as a “Senior Note” and “Warehouse Note”, as such term is used in the Indenture.
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(e) The Series 2012-1 Notes were issued on May 1, 2012 without the benefit of an Enhancement Agreement and no Enhancement Agreement is in effect on the Restatement Date.
(f) The Series 2012-1 Notes were not rated on May 1, 2012 by any Rating Agency; the Series 2012-1 Notes are not publicly rated by any Rating Agency. Accordingly, so long as no Rating Agency maintains a public rating for the Series 2012-1 Notes, the term “Rating Agency Condition”, as used in the Related Documents, shall have the meaning set forth in this Supplement.
(g) The Series 2012-1 Legal Final Maturity Date shall also constitute the Expected Final Payment Date for the purposes of this Supplement and the Series 2012-1 Notes.
(h) For purposes of the Indenture, a “Permitted Payment Date Withdrawal” for the Series 2012-1 Notes shall mean, for any Payment Date, either or both of the Permitted Interest Withdrawal for such Payment Date and the Permitted Principal Withdrawal for such Payment Date.
(i) In the event that any term or provision contained herein shall conflict with or be inconsistent with any term or provision contained in the Indenture, the terms and provisions hereof shall govern.
Section 201A Series 2012-1 Notes.
(a) The Issuer has previously signed, and the Indenture Trustee has authenticated, and each Series 2012-1 Noteholder has received, a Series 2012-1 Note with a maximum principal balance equal to its Series 2012-1 Note Commitment. All such Series 2012-1 Notes shall remain in effect on the Restatement Date and all Series 2012-1 Advances that remain unpaid as the Restatement Date shall remain a valid obligation of the Issuer entitled to the benefits of the Series 2012-1 Related Documents. Each Series 2012-1 Noteholder (or its Deal Agent) shall maintain records of all Series 2012-1 Advances and repayments made on each Series 2012-1 Note, which records shall, absent manifest error, be conclusive.
(b) In connection with any assignment or transfer of a Series 2012-1 Note made in accordance with the terms of the Related Documents, or an increase in the Series 2012-1 Note Commitments made in accordance with the terms of the Series 2012-1 Related Documents, the Issuer shall execute and deliver, and the Indenture Trustee shall in accordance with the direction of the Issuer, authenticate additional Series 2012-1 Notes.
(c) The Issuer shall pay interest on the Series 2012-1 Notes at the rates and in the manner set forth in Section 202 hereof. The unpaid principal amount of the Series 2012-1 Notes and all unpaid interest accrued thereon, together with any unpaid Unused Fees and, without duplication of the amounts set forth in Section 203, all other fees, expenses, costs and other sums chargeable to Issuer incurred in connection therewith, shall be due and payable on the Series 2012-1 Legal Final Payment Date.
(d) In accordance with Section 202 of the Indenture, the Series 2012-1 Notes shall be represented by one or more Definitive Notes.
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(e) The Series 2012-1 Notes shall be executed by manual, electronic (PDF) or facsimile signature on behalf of the Issuer by any officer of the Issuer and shall be substantially in the form of Exhibit A hereto.
(f) The Series 2012-1 Notes shall be issued in minimum denominations of $250,000 and in integral multiples of $100,000 in excess thereof.
Section 202. Interest Payments on the Series 2012-1 Notes.
(a) Interest on Series 2012-1 Notes. Interest will be payable on the Series 2012-1 Notes on each Payment Date in an amount equal to the Series 2012-1 Note Interest Payment. Such interest shall be payable on each Payment Date from amounts on deposit in the Series 2012-1 Series Account in accordance with Section 302 of the Indenture and Section 303 hereof. The revised definition of “Applicable Margin” set forth in this Supplement shall become effective as of the opening of business on the Restatement Date.
(b) Interest on Overdue Amounts. If the Issuer shall default in the payment of (i) the Series 2012-1 Note Principal Balance of any Series 2012-1 Note on the Series 2012-1 Legal Final Payment Date, or (ii) the Series 2012-1 Note Interest Payment on any Series 2012-1 Note on any Payment Date, or (iii) any other amount becoming due under this Supplement, the Issuer shall, from time to time, pay interest on such unpaid amounts, to the extent permitted by Applicable Law, at a rate per annum equal to the Overdue Rate, for the period during which such principal, interest or other amount shall be unpaid from the due date of such payment to the date of actual payment thereof (after as well as before judgment). Default Interest shall be payable at the times and subject to the priorities set forth in Section 303 hereof.
(c) Maximum Interest Rate. In no event shall the interest charged with respect to a Series 2012-1 Note exceed the maximum amount permitted by Applicable Law. If at any time the interest rate charged with respect to the Series 2012-1 Notes exceeds the maximum rate permitted by Applicable Law, the rate of interest to accrue pursuant to this Supplement and such Series 2012-1 Note shall be limited to the maximum rate permitted by Applicable Law, but any subsequent reductions in the LIBOR Rate or Alternative Rate, as the case may be, shall not reduce the interest to accrue on such Series 2012-1 Note below the maximum amount permitted by Applicable Law until the total amount of interest accrued on such Series 2012-1 Note equals the amount of interest that would have accrued if a varying rate per annum equal to the interest rate had at all times been in effect. If the total amount of interest paid or accrued on the Series 2012-1 Note under the foregoing provisions is less than the total amount of interest that would have accrued if the interest rate had at all times been in effect, the Issuer agrees to pay to the Series 2012-1 Noteholders an amount equal to the difference between (a) the lesser of (i) the amount of interest that would have accrued if the maximum rate permitted by Applicable Law had at all times been in effect, or (ii) the amount of interest that would have accrued if the interest rate had at all times been in effect, and (b) the amount of interest actually paid in accordance with the other provisions hereof.
Section 203. Principal Payments on the Series 2012-1 Notes; Prepayment of Principal on the Series 2012-1 Notes.
(a) The principal balance of the Series 2012-1 Notes shall be payable on each Payment Date from amounts on deposit in the Series 2012-1 Series Account in an amount equal
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to (i) so long as no Early Amortization Event is continuing, the sum of the Minimum Principal Payment Amount, the Scheduled Principal Payment Amount and Supplemental Principal Payment Amount for such Payment Date, or (ii) if an Early Amortization Event is then continuing, the then Aggregate Series 2012-1 Note Principal Balance shall be payable in full to the extent that funds are available for such purposes in accordance with the provisions of clause (4) of Part (II) of Section 303 hereof. The unpaid principal amount of each Series 2012-1 Note, together with all unpaid interest (including all Default Interest), fees, expenses, costs and other amounts payable by the Issuer to the Series 2012-1 Noteholders and the Indenture Trustee pursuant to the terms of the Indenture and this Supplement, shall be due and payable in full on the earlier to occur of (x) the date on which an Event of Default shall occur and the Series 2012-1 Notes have been accelerated in accordance with the provisions of Section 802 of the Indenture and (y) the Series 2012-1 Legal Final Payment Date.
(b) The Issuer will have the option to prepay, without premium, all, or a portion of, the Aggregate Series 2012-1 Note Principal Balance, in a minimum amount of Two Hundred Fifty Thousand Dollars ($250,000). Any such Prepayment of the Aggregate Series 2012-1 Note Principal Balance shall also include accrued interest to the date of Prepayment on the principal balance being prepaid, and, if such prepayment is made on a Business Day other than a Payment Date, any Breakage Costs attributable to such Prepayment. The Issuer may not make such Prepayment from funds in the Trust Account, the Series 2012-1 Series Account or the Restricted Cash Account, except to the extent that funds in any such account would otherwise be payable to the Issuer in accordance with the terms hereof and the Indenture. In the event of any Prepayment of the Series 2012-1 Notes in accordance with this Section 203(b), Section 206 or any other provision of the Indenture, the Issuer shall pay any termination, notional reduction, breakage or other fees or costs assessed by any Interest Rate Hedge Provider. The Issuer must provide advance notice of at least two Business Days to the Series 2012-1 Noteholders and each Interest Rate Hedge Provider of any such Prepayment, which notice shall be irrevocable when delivered.
(c) Any Prepayment of less than the entire Aggregate Series 2012-1 Note Principal Balance, made in accordance with the provisions of Section 203 hereof and occurring after the Conversion Date, shall be applied to reduce the Minimum Principal Payment Amounts and Scheduled Principal Payment Amounts of the Series 2012-1 Notes in respect of each subsequent Payment Date in equal amounts such that, after giving effect to such adjustment, the Minimum Principal Payment Amounts and Scheduled Principal Payment Amounts for each subsequent Payment Date shall be reduced by an amount equal to the quotient of (x) the aggregate amount of such Prepayment divided by (y) the number of remaining Payment Dates to and including the Series 2012-1 Legal Final Payment Date.
Section 204. Amounts and Terms of Series 2012-1 Noteholder Commitments; Payments.
(a) Subject to the terms and conditions hereof and the Series 2012-1 Note Purchase Agreement, each Series 2012-1 Noteholder agrees to make its Series 2012-1 Note Commitment available to the Issuer on the Restatement Date.
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(b) The Issuer may make a request for a Series 2012-1 Advance in accordance with the terms of the Series 2012-1 Note Purchase Agreement. Subject to the terms of the Series 2012-1 Note Purchase Agreement, each Series 2012-1 Noteholder shall fund its Pro Rata Share of the requested Series 2012-1 Advance in accordance with the terms of the Series 2012-1 Note Purchase Agreement.
(c) Each request for a Series 2012-1 Advance shall constitute an affirmation by Issuer that all of the conditions precedent set forth in Section 502 of the Supplement and the Series 2012-1 Note Purchase Agreement are true, correct and complete in all material respects to the same extent as though made on and as of the date of the request, except to the extent such representations and warranties specifically relate to an earlier date, in which event they shall be true, correct and complete in all material respects as of such earlier date.
(d) If a Series 2012-1 Noteholder fails to fund a requested Series 2012-1 Advance pursuant to a valid request made in accordance with Section 204(b), and has not delivered a Delaying Funding Notice in accordance with the terms of the Series 2012-1 Note Purchase Agreement, the Issuer shall promptly notify the Indenture Trustee that such Person should be classified as a Defaulting Noteholder. Thereafter, the Issuer shall promptly notify the Indenture Trustee of any subsequent change in such classification.
(e) Subject to Section 209(a)(iii), on each Payment Date, the Issuer shall pay an unused fee (the “Unused Fee”) to each Series 2012-1 Noteholder in an amount equal to the sum for each day during the immediately preceding Interest Accrual Period of the product of (x) the applicable Unused Fee Percentage on such date, (y) 1/360 and (z) the Unused Commitment of such Series 2012-1 Noteholder on such date. Such Unused Fee shall be payable from amounts then on deposit in the Series 2012-1 Series Account in accordance with Section 303 hereof. The revised definition of “Unused Fee Percentage” set forth in this Supplement shall become effective as of the opening of business on the Restatement Date.
(f) All payments of principal and interest on the Series 2012-1 Notes and fees with respect to the Series 2012-1 Notes shall be paid to the Series 2012-1 Noteholders reflected in the Note Register as of the related Record Date on a Pro Rata basis by wire transfer of immediately available funds for receipt prior to 11:00 a.m. (New York City time) on the related Payment Date. Any payments received by a Series 2012-1 Noteholder after 11:00 a.m. (New York City time) on any day shall be considered to have been received on the next succeeding Business Day.
Section 205. Taxes.
(a) In addition to payments of principal and interest on the Series 2012-1 Notes when due, the Issuer shall pay, but only in accordance with the priorities for distributions set forth in Section 303 hereof, to each affected Series 2012-1 Noteholder, any member of its Related Group or any other Person that has advanced funds to, sold, committed to advance funds to, or committed to purchase from a Series 2012-1 Noteholder, an interest in the Series 2012-1 Note owned by such Series 2012-1 Noteholder (such Series 2012-1 Noteholder, any member of its Related Group and any such Person being an “Indemnified Party”), any and all present or future taxes, fees, duties, levies, imposts, or charges, or any other similar deduction or withholding, imposed by any Governmental Authority on payments owing by the Issuer to such Indemnified Party, and all liabilities with respect thereto, excluding Excluded Taxes (all such non-Excluded Taxes, levies, imposts, deductions, charges, withholdings and liabilities being hereinafter referred to as “Taxes”).
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(b) In addition, the Issuer shall pay, subject to the priorities set forth in Section 303, any present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies which arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Supplement or any other documents related to the issuance of the Series 2012-1 Notes (hereinafter referred to as “Other Taxes”).
(c) If any Taxes or Other Taxes are directly asserted or imposed against any Indemnified Party, the Issuer shall indemnify and hold harmless such Indemnified Party, subject to the priorities for distribution set forth in Section 303, for the full amount of the Taxes or Other Taxes (including any Taxes or Other Taxes asserted or imposed by any jurisdiction on amounts payable under this Section 205) paid by the Indemnified Party and any liability (including penalties, interest, additions to tax and expenses) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted or imposed. If the Issuer fails to pay any Taxes or Other Taxes when due to the appropriate taxing authority or fails to remit to the Indemnified Party the required receipts or other required documentary evidence, the Issuer shall indemnify the Indemnified Party for any incremental Taxes or Other Taxes, interest or penalties that may become payable by the Indemnified Party as a result of any such failure. Payment under this indemnification shall be made in accordance with the priorities for distributions set forth in Section 303 hereof after the Indemnified Party makes written demand therefor. The Indemnified Party shall give prompt notice to Issuer of any assertion of Taxes or Other Taxes so that Issuer may, at its option, contest such assertion.
(d) Within thirty (30) days after the date of any payment by the Issuer of Taxes or Other Taxes, the Issuer shall furnish to each of the Series 2012-1 Noteholders the original or a certified copy of a receipt evidencing payment thereof, or other evidence of payment satisfactory to the Series 2012-1 Noteholders.
(e) Taxes and Other Taxes shall not constitute a “claim” (as defined in Section 101(5) of the Bankruptcy Code) against the Issuer or the Collateral in the event there are insufficient funds to make such payments in accordance with the payment priorities set forth in Section 303 hereof.
(f) On or before the date it acquires a Series 2012-1 Note (and, so long as it may properly do so, periodically thereafter, as requested by Issuer, to keep forms up to date), each Indemnified Party that is organized under the laws of a jurisdiction outside the United States of America shall deliver to the Indenture Trustee any certificates, documents or other evidence that shall be required by the Code (or any regulations issued pursuant thereto) to establish that, assuming the Series 2012-1 Notes are properly characterized as indebtedness, it is exempt from existing United States Federal withholding requirements, including (i) two original copies of Internal Revenue Service Form 1001 or Form 4224 or successor applicable form, properly completed and duly executed by the Series 2012-1 Noteholder certifying that it is entitled to receive payments under this Supplement without deduction or withholding of any United States Federal income taxes, and (ii) an original copy of Internal Revenue Service Form W-8 or W-9 or applicable successor form, properly completed and duly executed; provided, that
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if any Series 2012-1 Noteholder does not comply with this Section 205(f), amounts payable to such Series 2012-1 Noteholder under this Section 205 shall be limited to amounts that would have been payable under this Section 205 if such Series 2012-1 Noteholder had so complied.
(g) The Administrative Agent and any Series 2012-1 Noteholder shall, to the extent it is legally entitled to do so, deliver to the Issuer and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which the Administrative Agent or such Series 2012-1 Noteholder becomes the Administrative Agent or a Series 2012-1 Noteholder under this Supplement (and from time to time thereafter upon the reasonable request of the Issuer or the Administrative Agent), executed originals of any other form prescribed by applicable law as a basis for claiming exemption from or a reduction in withholding tax, duly completed, together with such supplementary documentation as may be prescribed by applicable law to permit the Issuer or the Administrative Agent to determine the withholding or deduction required to be made.
Section 206. Illegality. If, in any applicable jurisdiction, it becomes unlawful for any Series 2012-1 Noteholder to perform any of its obligations as contemplated by this Supplement or to fund or maintain its participation in any Series 2012-1 Advance:
(i) that Series 2012-1 Noteholder shall promptly notify the Administrative Agent and the Issuer upon becoming aware of that event;
(ii) upon notifying the Issuer, the Series 2012-1 Note Commitment of that Series 2012-1 Noteholder will be immediately cancelled; and
(iii) the Issuer shall repay all Series 2012-1 Advances owing to that Series 2012-1 Noteholder on the Payment Date occurring after the Series 2012-1 Noteholder has notified the Issuer or, if earlier, the date specified by the Series 2012-1 Noteholder in the notice delivered to the Issuer (being no earlier than the last day of any applicable grace period permitted by law).
Section 207. Increased Costs; Reserves on LIBOR Rate Loans.
(a) Increased Costs Generally. If any Change in Law shall:
(i) impose, modify or deem applicable any reserve, special deposit, compulsory loan, insurance charge or similar requirement against assets of, deposits with or for the account of, or credit extended or participated in by, any Series 2012-1 Noteholder (or any member of its Related Group) (except any reserve requirement contemplated by the definition of LIBOR Rate);
(ii) subject any Indemnified Party to any taxes described in clause (i) of the definition of Excluded Taxes on its loans, loan principal, commitments, or other obligations, or its deposits, reserves, other liabilities or capital attributable thereto; or
(iii) impose on any Series 2012-1 Noteholder (or any member of its Related Group) or the London interbank market any other condition, cost or expense affecting this Supplement or any Series 2012-1 Advance the interest on which is determined by reference to the LIBOR Rate made by such Series 2012-1 Noteholder (or any member of its Related Group);
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and the result of any of the foregoing shall be to increase the cost to such Series 2012-1 Noteholder (or any member of its Related Group) of making, converting to, continuing or maintaining any Series 2012-1 Advance the interest on which is determined by reference to the LIBOR Rate (or of maintaining its obligation to make any such Series 2012-1 Advance, or to reduce the amount of any sum received or receivable by such Series 2012-1 Noteholder hereunder (whether of principal, interest or any other amount) then, upon request of such Series 2012-1 Noteholder, the Issuer will pay to such Series 2012-1 Noteholder such additional amount or amounts as will compensate such Series 2012-1 Noteholder for such additional costs incurred or reduction suffered, subject to Sections 207(c) and (d).
(b) Capital Requirements. If any Series 2012-1 Noteholder determines that any Change in Law affecting such Series 2012-1 Noteholder, such Series 2012-1 Noteholder’s holding company, if any, or other member of its Related Group regarding capital or liquidity requirements has or would have the effect of reducing the rate of return on such Series 2012-1 Noteholder’s capital, or on the capital or liquidity of such Series 2012-1 Noteholder’s holding company, if any, or other member of its Related Group as a consequence of this Supplement, the Series 2012-1 Note Commitments of such Series 2012-1 Noteholder or the Series 2012-1 Advances made by such Series 2012-1 Noteholder, to a level below that which such Series 2012-1 Noteholder or such Series 2012-1 Noteholder’s holding company could have achieved but for such Change in Law (taking into consideration such Series 2012-1 Noteholder’s policies and the policies of such Series 2012-1 Noteholder’s holding company with respect to capital adequacy or liquidity (other than a change solely in such policy)), then from time to time the Issuer will pay to such Series 2012-1 Noteholder such additional amount or amounts as will compensate such Series 2012-1 Noteholder or such Series 2012-1 Noteholder’s holding company for any such reduction suffered.
(c) Certificates for Reimbursement. A certificate of a Series 2012-1 Noteholder setting forth the amount or amounts necessary to compensate such Series 2012-1 Noteholder or its holding company, as the case may be, as specified in Section 207(a) or (b) and delivered to the Issuer shall be conclusive absent manifest error; provided that such certificate (i) sets forth in reasonable detail the amount or amounts payable to such Indemnified Party pursuant to such Section 207(a) or (b), (ii) explains the methodology used to determine such amount, (iii) states that the applicable increased costs or reductions were suffered no more than ninety (90) days (or, if the circumstances giving rise to such increased costs or reductions were retroactive, such period in excess of ninety (90) days as includes the period of retroactive effect) prior to the date of such certificate, and (iv) states that such amount is consistent with amounts that such Indemnified Party has required other similarly situated borrowers or obligors to pay with respect to such increased costs or reductions. The Issuer shall pay such Series 2012-1 Noteholder the amount shown as due on any such certificate in accordance with the priority of payments set forth in the Indenture and this Supplement. Such amounts shall not constitute a “claim” (as defined in Section 101(5) of the Bankruptcy Code) against the Issuer or the Collateral in the event there are insufficient funds to make such payments in accordance with the payment priorities set forth in Section 303 hereof.
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(d) Delay in Requests. Failure or delay on the part of any Indemnified Party (if so entitled) to demand compensation pursuant to the foregoing provisions of this Section 207 shall not constitute a waiver of such Indemnified Party’s right to demand such compensation; provided that the Issuer shall not be required to compensate an Indemnified Party pursuant to the foregoing provisions of this Section 207 for any increased costs incurred or reductions (i) suffered more than ninety (90) days prior to the date that such Indemnified Party notifies the Issuer of the Change in Law giving rise to such increased costs or reductions and of such Indemnified Party’s intention to claim compensation therefor (except that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the ninety (90) day period referred to above shall be extended to include the period of retroactive effect thereof) or (ii) if such Indemnified Party has not required other similarly situated borrowers or obligors to pay comparable amounts with respect to such increased costs or reductions.
Section 208. Replacement of Series 2012-1 Noteholder; Survival.
(a) The Issuer may, at its sole expense and effort, upon not less than three Business Days prior written notice to any Indemnified Party that makes a demand pursuant to Section 205 or Section 207 (each an “Affected Party”), require such Affected Party to transfer and assign, without recourse (in accordance with and subject to the restrictions contained in the Indenture and the Series 2012-1 Note Purchase Agreement), all of its interests, rights and obligations under its Series 2012-1 Note to an assignee that shall assume such assigned obligations (which assignee may or may not be another Series 2012-1 Noteholder, if a Series 2012-1 Noteholder accepts such assignment, but is not required to be another Series 2012-1 Noteholder); provided that (A) such Affected Party shall have received payment of an amount equal to the outstanding principal of its Series 2012-1 Note, accrued interest thereon, accrued fees and all other amounts payable to it hereunder (including any amounts that have been accrued pursuant to Section 205 and/or Section 207, as applicable) and under the other Series 2012-1 Related Documents from the Issuer or the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Issuer (in the case of all other amounts); and (B) such assignment does not conflict with Applicable Law.
(b) All of the Issuer’s obligations under Sections 205 and 207 shall survive termination of the Aggregate Commitments, repayment of all other Obligations hereunder and resignation of the Administrative Agent.
Section 209. Defaulting Noteholders.
(a) Adjustments. Notwithstanding anything to the contrary contained in any Series 2012-1 Related Document, if any Series 2012-1 Noteholder becomes a Defaulting Noteholder, then, until such time as that Series 2012-1 Noteholder is no longer a Defaulting Noteholder, to the extent permitted by applicable law:
(i) Waivers and Amendments. Notwithstanding anything to the contrary in any Series 2012-1 Related Document, a Series 2012-1 Noteholder that is then classified as Defaulting Noteholder shall not have any right to approve or disapprove any amendment, waiver or consent under any Series 2012-1 Related Document (and any amendment, waiver or consent which by its terms requires the consent of all Series 2012-1 Noteholders or each affected Series 2012-1 Noteholder may be effected with the consent of the applicable Series
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2012-1 Noteholders other than Defaulting Noteholders), except that (A) the Series 2012-1 Note Commitment of any Defaulting Noteholder may not be increased or extended without the consent of such Series 2012-1 Noteholder and (B) any waiver, amendment or modification requiring the consent of all Series 2012-1 Noteholders or each affected Series 2012-1 Noteholder that by its terms affects any Defaulting Noteholder more adversely than other affected Series 2012-1 Noteholders shall require the consent of such Defaulting Noteholder.
(ii) Limited Right of Set-off. Until the Conversion Date, any amounts on deposit in the Series 2012-1 Series Account which would otherwise be payable as principal, interest, fees or other amounts (whether payable pursuant to Section 303 or otherwise) to a Series 2012-1 Noteholder that is then classified as a Defaulting Noteholder, shall, in accordance with the written direction of the Issuer, be applied to fund to the Issuer any previously requested Series 2012-1 Advance in respect of which such Defaulting Noteholder has failed to fund its portion thereof as required by the terms of the Series 2012-1 Related Documents. Any payments, prepayments or other amounts paid or payable to a Defaulting Noteholder that are so applied shall be deemed paid to and redirected by such Defaulting Noteholder, and each Series 2012-1 Noteholder is hereby deemed to have irrevocably consented to this treatment.
(iii) Unused Fees. A Defaulting Noteholder shall not be entitled to receive any Unused Fee accrued during any period in which such Series 2012-1 Noteholder is a Defaulting Noteholder (and the Issuer shall not be required to pay any such fee that otherwise would have been required to have been paid to such Defaulting Noteholder).
(b) Replacement of Defaulting Noteholder. The Issuer may, at its sole expense and effort, upon not less than three Business Days prior written notice to a Defaulting Noteholder, require such Defaulting Noteholder to transfer and assign, without recourse (in accordance with and subject to the restrictions contained in the Indenture), all of its interests, rights and obligations under its Series 2012-1 Note to an assignee that shall assume such assigned obligations (which assignee may or may not be another Series 2012-1 Noteholder, if a Series 2012-1 Noteholder accepts such assignment, but is not required to be another Series 2012-1 Noteholder); provided that (A) such Defaulting Noteholder shall have received payment of an amount equal to the outstanding principal of its Series 2012-1 Note, accrued interest thereon, accrued fees and all other amounts payable to it hereunder and under the other Series 2012-1 Related Documents, excluding Breakage Costs, from the Issuer or the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Issuer (in the case of all other amounts), except to the extent that any Unused Fees are not due and payable to such Defaulting Noteholder pursuant to Section 209(a)(iii); and (B) such assignment does not conflict with Applicable Law.
(c) Defaulting Noteholder Cure. If through the application of the provisions of Section 209(a)(ii) hereof or otherwise by the Defaulting Noteholder, a Defaulting Noteholder shall have fully funded all Series 2012-1 Advances that it has previously failed to fund, such Person shall cease to be classified as a Defaulting Noteholder.
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ARTICLE III
Series 2012-1 Series Account and
Allocation and Application of Amounts Therein
Section 301. Series 2012-1 Series Account. The Issuer has established and will maintain, so long as any Series 2012-1 Note is Outstanding, an Eligible Account with the Indenture Trustee which shall be designated as the Series 2012-1 Series Account, which account shall be held by the Indenture Trustee for the benefit of the Series 2012-1 Noteholders. All deposits of funds by or for the benefit of the Series 2012-1 Noteholders from the Trust Account and the Restricted Cash Account shall be accumulated in, and withdrawn from, the Series 2012-1 Series Account in accordance with the provisions of the Indenture and this Supplement. To secure the payment of the Outstanding Obligations under the Series 2012-1 Notes, the Issuer hereby grants to the Indenture Trustee, for the benefit of the Series 2012-1 Noteholders, a security interest in the Series 2012-1 Series Account, all cash and Eligible Investments on deposit therein, all securities entitlement credited thereto, and income and proceeds of the foregoing.
Section 302. Drawing Funds from the Restricted Cash Account and Letters of Credits.
(a) In the event that the Manager Report with respect to any Determination Date shall state that (or the Administrative Agent shall, pursuant to Section 302(c) of the Indenture, determine that) the funds on deposit in the Series 2012-1 Series Account will not be sufficient to make payment in full on the related Payment Date of the related Interest Payment then due for the Series 2012-1 Notes (the amount of such deficiency, the “Permitted Interest Withdrawal”), then the Indenture Trustee shall on such Determination Date draw on the Restricted Cash Account in an amount equal to the lesser of (x) the Permitted Interest Withdrawal, and (y) the amount then on deposit in the Restricted Cash Account. If the amount on deposit in the Restricted Cash Account is not sufficient to fund in full the Permitted Interest Withdrawal, then the Indenture Trustee shall, on such Determination Date, based on the information set forth on the Manager Report (or, if no Manager Report has been delivered based on the written instruction of the Administrative Agent), submit a draw request on the Letters of Credit in an amount equal the lesser of (x) the remaining Permitted Interest Withdrawal and (y) the Aggregate Available Amount.
(b) In the event that the Manager Report delivered with respect to the Determination Date immediately preceding the Series 2012-1 Legal Final Payment Date shall state that (or the Administrative Agent shall, pursuant to Section 302(c) of the Indenture, determine that) the funds on deposit in the Series 2012-1 Series Account will not be sufficient to make payment in full on the Series 2012-1 Legal Final Payment Date of the then Aggregate Series 2012-1 Note Principal Balance (the amount of such deficiency, the “Permitted Principal Withdrawal”), then the Indenture Trustee shall on such Determination Date, based on the information set forth on the Manager Report (or, if no Manager Report has been delivered based on the written instruction of the Administrative Agent), draw on the Restricted Cash Account in an amount equal to the least of (w) the Aggregate Series 2012-1 Note Principal Balance, (x) the Permitted Principal Withdrawal, (y) the Maximum Principal Withdrawal Amount as calculated for Series 2012-1 and (z) the amount then on deposit in the Restricted Cash Account. If the amount on deposit in the Restricted Cash Account is not sufficient to fund in full the Permitted Principal Withdrawal then the Indenture Trustee shall, on such Determination Date submit a draw request on the Letters of Credit in an amount equal the lesser of (x) the remaining Permitted Principal Withdrawal and (y) the Aggregate Available Amount.
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(c) Drawings will be made pursuant to Section 302(a) before any drawing is made on such date pursuant to Section 302(b), and notice of each such drawing will be delivered to the Manager, by hand delivery or facsimile transmission. Drawings will be made on the Restricted Cash Account before any drawings are made on the Letter of Credit pursuant to Section 302. Any such funds actually received by the Indenture Trustee pursuant to Section 302(a) or Section 302(b) shall be used solely to make payments of the Series 2012-1 Note Interest Payment or the Aggregate Series 2012-1 Note Principal Balance, as the case may be.
Section 303. Distribution from Series 2012-1 Series Account. On each Payment Date, the Indenture Trustee shall distribute funds then on deposit in the Series 2012-1 Series Account in accordance with the provisions of Section 303(a), (b) or (c), in each case, subject to Section 209:
(a) If neither an Early Amortization Event nor an Event of Default shall have occurred and be continuing with respect to any Series of Notes:
(1) To each Holder of a Series 2012-1 Note on the immediately preceding Record Date, an amount equal to its Pro Rata portion of the Interest Payment allocated to Series 2012-1, as follows: (A) such Holder’s Pro Rata portion of the Series 2012-1 Note Interest Payment (exclusive of Default Interest, Warehouse Note Increased Interest and Step Up Warehouse Fees) for such Payment Date, plus (B) such Holder’s Pro Rata portion of the Unused Fee for such Payment Date;
(2) To each Holder of a Series 2012-1 Note on the immediately preceding Record Date, an amount equal to its Pro Rata portion of the Minimum Principal Payment Amount then due and payable to Series 2012-1 Noteholders on such Payment Date;
(3) To each Holder of a Series 2012-1 Note on the immediately preceding Record Date, an amount equal to its Pro Rata portion of the Scheduled Principal Payment Amount then due and payable to Series 2012-1 Noteholders on such Payment Date;
(4) To each Holder of a Series 2012-1 Note on the immediately preceding Record Date, an amount equal to its Pro Rata portion (if any) of the Supplemental Principal Payment Amount then due and payable to Series 2012-1 Noteholders on such Payment Date;
(5) To each Holder of a Series 2012-1 Note on the immediately preceding Record Date and each other Indemnified Party, its pari passu and pro rata portion of an amount equal to Taxes, Other Taxes, Increased Costs, Breakage Costs, Step Up Warehouse Fee, Warehouse Note Increased Interest, indemnities and other amounts (including Default Interest) then due and payable to the Series 2012-1 Noteholders and each other Indemnified Party pursuant to the Series 2012-1 Related Documents; and
(6) To the Issuer, any remaining amounts then on deposit in the Series 2012-1 Series Account.
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(b) If an Early Amortization Event shall have occurred and be continuing with respect to any Series but no Event of Default shall have occurred and be continuing with respect to any Series:
(1) To each Holder of a Series 2012-1 Note on the immediately preceding Record Date, an amount equal to its Pro Rata portion of the Interest Payment allocated to Series 2012-1, as follows: (A) such Holder’s Pro Rata portion of the Series 2012-1 Note Interest Payment (exclusive of Default Interest, Warehouse Note Increased Interest and Step Up Warehouse Fees) for such Payment Date, plus (B) such Holder’s Pro Rata portion of the Unused Fee for such Payment Date;
(2) To each Holder of a Series 2012-1 Note on the immediately preceding Record Date, an amount equal to its Pro Rata portion of the Minimum Principal Payment Amount then due and payable to Series 2012-1 on such Payment Date;
(3) To each Holder of a Series 2012-1 Note on the immediately preceding Record Date, an amount equal to its Pro Rata portion of the Scheduled Principal Payment Amount then due and payable to Series 2012-1 on such Payment Date;
(4) To each Holder of a Series 2012-1 Note on the immediately preceding Record Date, an amount equal to its Pro Rata portion of the then Aggregate Series 2012-1 Note Principal Balance until the Aggregate Series 2012-1 Note Principal Balance has been reduced to zero;
(5) To each Holder of a Series 2012-1 Note on the immediately preceding Record Date and each other Indemnified Party, its Pro Rata portion of an amount equal to Taxes, Other Taxes, Increased Costs, Breakage Costs, Step Up Warehouse Fee, Warehouse Note Increased Interest, indemnities and other amounts (including Default Interest) then due and payable to Series 2012-1 Noteholders and each Indemnified Party pursuant to the Series 2012-1 Related Documents; and
(6) After application of the amounts required to be paid pursuant to Section 302 of the Indenture, to the Issuer, any remaining amounts then on deposit in the Series 2012-1 Series Account.
(c) If an Event of Default shall have occurred and be continuing with respect to any Series:
(1) To each Holder of a Series 2012-1 Note on the immediately preceding Record Date, an amount equal to its Pro Rata portion of the Interest Payment allocated to Series 2012-1, as follows: (A) such Holder’s Pro Rata portion of the Series 2012-1 Note Interest Payment (exclusive of Default Interest, Warehouse Note Increased Interest and Step Up Warehouse Fees) for such Payment Date, plus (B) such Holder’s Pro Rata portion of the Unused Fee for such Payment Date;
(2) To each Holder of a Series 2012-1 Note on the immediately preceding Record Date its Pro Rata portion of an amount equal to the then Aggregate Series 2012-1 Note Principal Balance until the Series 2012-1 Notes are paid in full;
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(3) To each Holder of a Series 2012-1 Note on the immediately preceding Record Date and each other Indemnified Party, its Pro Rata portion of an amount equal to Taxes, Other Taxes, Increased Costs, Breakage Costs, Step Up Warehouse Fee, Warehouse Note Increased Interest, indemnities and other amounts (including Default Interest) then due and payable to the Series 2012-1 Noteholders and each other Indemnified Party pursuant to the Series 2012-1 Related Documents; and
(4) After application of the amounts required to be paid pursuant to Section 302 of the Indenture, to the Issuer, any remaining amounts then on deposit in the Series 2012-1 Series Account.
ARTICLE IV
Additional Covenants and Agreements
In addition to the covenants set forth in Article VI of the Indenture, the Issuer hereby makes the following additional covenants for the benefit of the Series 2012-1 Noteholders:
Section 401. Rule 144A. So long as any of the Series 2012-1 Notes are “restricted securities” within the meaning of Rule 144(a)(3) under the Securities Act, the Issuer shall, unless it becomes subject to and complies with the reporting requirements of Section 13 and 15(d) of the Exchange Act, or Rule 12g3-2(b) thereunder, provide to any Series 2012-1 Noteholder of such restricted securities, or to any prospective Series 2012-1 Noteholder of such restricted securities designated by a Series 2012-1 Noteholder, upon the request of such Series 2012-1 Noteholder or prospective Series 2012-1 Noteholder, any information required to be provided by Rule 144A(d)(4) under the Securities Act.
Section 402. Depreciation Policy. For purposes of the calculation of the Asset Base, the Issuer will not, without obtaining in each such instance the prior written consent of all of the Series 2012-1 Noteholders (other than any Defaulting Noteholders), (i) increase the assumed useful life of a Managed Container to more than twelve (12) years, (ii) increase the residual value of a type of Managed Container to an amount in excess of the Residual Value for such type of Managed Container that is set forth on Exhibit B to the Indenture, or (iii) otherwise revise the Depreciation Policy with respect to the Managed Containers in such a way as to reduce the amount of depreciation expense that would be recorded in any year from that which would have been recorded pursuant to the Depreciation Policy.
Section 403. Perfection Requirements. The Issuer will not (a) change any of (i) its corporate name or (ii) the name under which it does business or (b) amend any provision of its certificate of formation or operating agreement or become organized under the laws of any other jurisdiction without the prior written consent of the Control Party.
Section 404. United States Federal Income Tax Election. The Issuer shall not make an election to be classified as an association taxable as a corporation pursuant to Section 301.7701-3 of the United States Treasury Regulations.
Section 405. OFAC Matters. The Issuer shall not in an manner which would violate the laws of the United States, other than pursuant to a license issued by OFAC (i) lease, or consent to any sublease of, any of the Containers to any Person that is a Prohibited Person or
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(ii) derive any of its assets or operating income from investments in or transactions with any such Prohibited Person. If the Issuer obtains knowledge that a Container is subleased to a Prohibited Person or located or used in a Prohibited Jurisdiction in a manner which would violate the laws of the United States (other than pursuant to a license issued by OFAC), then the Issuer shall, within ten (10) Business Days after obtaining knowledge thereof, remove such Container from the Asset Base for so long as such condition continues.
Section 406. Consent to Series Issuance. The Issuer shall not issue any additional Series of Notes without obtaining the prior written consent of, with respect to any Series of Senior Notes, the Majority of Holders and, with respect to any Series of Subordinate Notes, the Holders of all of the Series 2012-1 Notes.
ARTICLE V
Conditions of Effectiveness and Future Lending
Section 501. Effectiveness of Supplement. The effectiveness hereof is subject to the condition precedent that the Indenture Trustee shall have received all of the following, each duly executed and delivered, in form and substance satisfactory to all of the initial Series 2012-1 Noteholders and each (except for the Series 2012-1 Notes, of which only the originals shall be signed) in sufficient number of signed counterparts, which may be photocopied or electronic, to provide one for each Series 2012-1 Noteholder:
(a) Series 2012-1 Notes. Unless previously delivered, separate Series 2012-1 Notes executed by the Issuer in favor of each Series 2012-1 Noteholder in the stated maximum principal amount equal to the Series 2012-1 Note Commitment of such Series 2012-1 Noteholder.
(b) Certificate(s) of Secretary or Assistant Secretary or Officer. Separate certificates executed by the corporate secretary, assistant secretary or authorized officer of each of the Manager and the Issuer as of the Restatement Date, certifying (i) that the respective company has the authority to execute and deliver, and perform its respective obligations under each of the Series 2012-1 Related Documents to which it is a party, and (ii) that attached are true, correct and complete copies of the Memorandum of Association, Certificate of Incorporation, by-laws, board resolutions and incumbency certificates of the related company in form and substance satisfactory to each Deal Agent as to such matters as the Deal Agent shall reasonably require.
(c) Security Documents. This Supplement and a control agreement (dated as of May 1, 2012) with respect to the Series 2012-1 Series Account, each in form and substance satisfactory to all of the initial Series 2012-1 Noteholders, shall have been executed and delivered by the Issuer, and all other parties thereto, together with all UCC financing statements, documents of similar import in other jurisdictions, and other documents reasonably requested by any Deal Agent.
(d) Opinions of Counsel. Opinions from counsel to the Issuer and counsel to the Manager (and reliance letters regarding existing opinions for Series 2012-1 Noteholders that require such reliance letters) each dated the Restatement Date and in form and in substance satisfactory to each Deal Agent as to such matters as it shall reasonably require including, without limitation, that the Issuer has granted a first priority perfected security interest in the Collateral to the Indenture Trustee.
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(e) Certificate as to Containers. A certificate from the Manager, dated the Restatement Date, certifying that it is managing all of the Managed Containers in accordance with the Management Agreement in satisfactory form shall have been duly executed and delivered.
(f) Fees. The Issuer shall have (A) paid all fees to each Deal Agent in accordance with its respective Fee Letter or (B) authorized each Deal Agent to offset and retain the amount of such fees from the Series 2012-1 Advance made on the Restatement Date.
(g) Opinion of Counsel to the Indenture Trustee. An opinion of counsel to the Indenture Trustee, as of the Restatement Date, as to the due organization of the Indenture Trustee, the enforceability of the Indenture and as to such other matters as each Deal Agent may reasonably request.
Section 502. Subsequent Advances on Series 2012-1 Notes. The obligation of a Series 2012-1 Noteholder to make any Series 2012-1 Advance on the Series 2012-1 Note pursuant to its Series 2012-1 Note Commitment under this Supplement and the Series 2012-1 Note Purchase Agreement is subject to the following further conditions precedent:
(a) Default. Before and after giving effect to such Series 2012-1 Advance, no Event of Default shall have occurred and be continuing (or would occur with the giving of notice or the passage of time or both).
(b) Early Amortization Event. Before and after giving effect to such advance, no Early Amortization Event shall have occurred and be continuing (or would occur with the giving of notice or the passage of time or both) unless such Series 2012-1 Advance has been approved by each Series 2012-1 Noteholder (other than a then Defaulting Noteholder).
(c) Certification. The Issuer shall have delivered to the Deal Agents a compliance certificate, signed by an officer of Issuer, certifying that (A) the Issuer has complied with all of the conditions precedent set forth in Sections 501 and 502 hereof; (B) all of the representations and warranties of the Issuer, the Seller and the Manager contained in any of the Series 2012-1 Related Documents are true and correct in all material respects as of the date of such Series 2012-1 Advance, except to the extent such representations and warranties specifically relate to an earlier date, in which event they shall be true, correct and complete in all material respects as of such earlier date; and (C) all of the conditions precedent to the making of such Series 2012-1 Advance have been satisfied.
(d) Asset Base Report. The Issuer shall have delivered to each Deal Agent a duly completed and executed Asset Base Report, determined after giving effect to any Eligible Containers to be acquired with the proceeds of such Series 2012-1 Advance, which demonstrates that, after giving effect to such Series 2012-1 Advance, the sum of the then unpaid principal balance of all Series of Notes then Outstanding (calculated after giving effect to the requested Series 2012-1 Advance) does not exceed the Asset Base.
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(e) Conversion Date. The Conversion Date shall not have occurred, unless such Series 2012-1 Advance has been approved by each Series 2012-1 Noteholder (other than a then Defaulting Noteholder).
ARTICLE VI
Representations and Warranties
To induce the Series 2012-1 Noteholders to continue its investment in the Series 2012-1 Notes hereunder, the Issuer hereby represents and warrants to the Series 2012-1 Noteholders that:
Section 601. Existence. The Issuer is a company duly incorporated, validly existing and in compliance under the laws of Bermuda. The Issuer is in good standing and is duly qualified to do business in each jurisdiction where the failure to do so would have a material adverse effect upon the Issuer and in each jurisdiction in which a failure to so qualify would materially and adversely effect the ability of the Indenture Trustee to enforce its security interest in the Collateral.
Section 602. Authorization. The Issuer has the power and is duly authorized to execute and deliver this Supplement and the other Series 2012-1 Related Documents to which it is a party. The Issuer is and will continue to be duly authorized to borrow monies hereunder; and the Issuer is and will continue to be authorized to perform its obligations under this Supplement and under the other Series 2012-1 Related Documents. The execution, delivery and performance by the Issuer hereof and the other Series 2012-1 Related Documents to which it is a party and the borrowings hereunder do not and will not require any consent or approval of any Governmental Authority, stockholder or any other Person which has not already been obtained.
Section 603. No Conflict, Legal Compliance. The execution, delivery and performance hereof and each of the other Series 2012-1 Related Documents and the execution, delivery and payment of the Series 2012-1 Notes will not: (a) contravene any provision of Issuer’s memorandum of association or bye-laws; (b) contravene, conflict with or violate any Applicable Law or regulation, or any order, writ, judgment, injunction, decree, determination or award of any Governmental Authority; or (c) violate or result in the breach of, or constitute a default under the Indenture, the Series 2012-1 Related Documents, any other indenture or other loan or credit agreement, or other agreement or instrument to which the Issuer is a party or by which the Issuer, or its property and assets may be bound or affected. Issuer is not in violation or breach of or default under any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award or any contract, agreement, lease, license, indenture or other instrument to which it is a party.
Section 604. Validity and Binding Effect. This Supplement is, and each Series 2012-1 Related Document to which Issuer is a party, when duly executed and delivered, will be, the legal, valid and binding obligation of the Issuer, enforceable against the Issuer in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency or other similar laws of general application affecting the enforcement of creditors’ rights or by general principles of equity limiting the availability of equitable remedies.
Section 605. Financial Statements. Since the date of the most recent audited financial statements delivered pursuant to Section 626 of the Indenture, there has been no Material Adverse Change in the financial condition of any of the Issuer, either Seller or the Manager.
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Section 606. Executive Offices. The Issuer’s only “place of business” (within the meaning of 9-307 of the UCC) is located at Century House, 16 Par-la-Ville Road, Hamilton HM HX, Bermuda. The Issuer does not maintain an office or assets in the United States, other than (i) the Trust Account, the Restricted Cash Account and the Series Accounts and (ii) off-hire containers located in depots in the United States and containers described in Section 606(g) of the Indenture.
Section 607. No Agreements or Contracts. The Issuer is not now and has not been a party to any contract or agreement (whether written or oral) other than the Related Documents.
Section 608. Consents and Approvals. No approval, authorization or consent of any trustee or holder of any Indebtedness or obligation of Issuer or of any other Person under any agreement, contract, lease or license or similar document or instrument to which Issuer is a party or by which Issuer is bound, is required to be obtained by Issuer in order to make or consummate the transactions contemplated under the Series 2012-1 Related Documents, except for those approvals, authorizations and consents that have been obtained on or prior to the Restatement Date. All consents and approvals of, filings and registrations with, and other actions in respect of, all Governmental Authorities required to be obtained by Issuer in order to make or consummate the transactions contemplated under the Series 2012-1 Related Documents have been, or prior to the time when required will have been, obtained, given, filed or taken and are or will be in full force and effect.
Section 609. Margin Regulations. Issuer does not own any “margin security”, as that term is defined in Regulation U of the Federal Reserve Board, and the proceeds of the Series 2012-1 Notes issued under this Supplement will be used only for the purposes contemplated hereunder. None of such proceeds will be used, directly or indirectly, for the purpose of purchasing or carrying any margin security, for the purpose of reducing or retiring any Indebtedness which was originally incurred to purchase or carry any margin security or for any other purpose which might cause any of the loans under this Supplement to be considered a “purpose credit” within the meaning of Regulations T, U and X. Issuer will not take or permit any agent acting on its behalf to take any action which might cause this Supplement or any document or instrument delivered pursuant hereto to violate any regulation of the Federal Reserve Board.
Section 610. Taxes. All federal, state, local and foreign tax returns, reports and statements required to be filed by Issuer have been filed with the appropriate Governmental Authorities, and all Taxes, Other Taxes and other impositions shown thereon to be due and payable by Issuer have been paid prior to the date on which any fine, penalty, interest or late charge may be added thereto for nonpayment thereof, or any such fine, penalty, interest, late charge or loss has been paid, or Issuer is contesting its liability therefor in good faith and has fully reserved all such amounts according to GAAP in the financial statements provided to the Noteholders pursuant to Section 626 of the Indenture. Issuer has paid when due and payable all material charges upon the books of Issuer and no Governmental Authority has asserted any Lien against Issuer with respect to unpaid Taxes or Other Taxes. Proper and accurate amounts have
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been withheld by Issuer from its employees for all periods in full and complete compliance with the tax, social security and unemployment withholding provisions of applicable federal, state, local and foreign law and such withholdings have been timely paid to the respective Governmental Authorities.
Section 611. Other Regulations. Issuer is not an “investment company,” or an “affiliated person” of, or a “promoter” or “principal underwriter” for, an “investment company,” as such terms are defined in the Investment Company Act of 1940, as amended. The issuance of the Series 2012-1 Notes hereunder and the application of the proceeds and repayment thereof by Issuer and the performance of the transactions contemplated by this Supplement and the other Series 2012-1 Related Documents will not violate any provision of the Investment Company Act, or any rule, regulation or order issued by the SEC thereunder.
Section 612. Solvency and Separateness.
(i) The capital of the Issuer is adequate for the business and undertakings of the Issuer.
(ii) Other than with respect to the transactions contemplated hereby, the Issuer is not engaged in any business transactions with the Sellers or the Manager except as permitted by the Management Agreement, the Container Transfer Agreement or the Container Sale Agreement.
(iii) The Bye-laws of Issuer provide that Issuer shall have seven directors, one of which must be an Independent Director (as defined therein). Issuer’s Bye-laws further require the affirmative vote of all its members and directors (including the Independent Director) for (a) the amalgamation, consolidation or merger of Issuer with or into any other entity, (b) the sale of all or substantially all of Issuer’s assets, (c) the discontinuance of Issuer in Bermuda and continuance of Issuer in a jurisdiction outside Bermuda, (d) the institution of any proceeding (the “Proceedings”) by Issuer seeking liquidation, winding-up, reorganization, arrangement, adjustment, protection, relief or composition of its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee or other similar official for it or for any substantial part of its property, (e) in the case of any Proceedings being initiated against the Issuer (but not being instituted by the Issuer), authorizing or consenting to such Proceedings (including, without limitation, the entry of any order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for it, or any substantial part of its property, or that of any subsidiary) and (f) the winding up or termination of Issuer’s corporate existence.
(iv) The Issuer’s funds and assets are not, and will not be, commingled with those of the Sellers or the Manager, except as permitted by the Management Agreement.
(v) The bye-laws of the Issuer require it to maintain correct and complete books and records of account, and Bermuda law requires it to maintain minutes of the meetings and other proceedings of its members.
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(vi) The Issuer is not insolvent under the Insolvency Law and will not be rendered insolvent by the transactions contemplated by the Series 2012-1 Related Documents and after giving effect to such transactions, the Issuer will not be left with an unreasonably small amount of capital with which to engage in its business nor will the Issuer have intended to incur, or believe that it has incurred, debts beyond its ability to pay such debts as they mature. The Issuer does not contemplate the commencement of insolvency, bankruptcy, liquidation or consolidation Proceedings or the appointment of a receiver, liquidator, trustee or similar official in respect of the Issuer or any of its assets.
Section 613. Survival of Representations and Warranties. So long as any of the Series 2012-1 Notes shall be Outstanding and until payment and performance in full of the Aggregate Outstanding Obligations, the representations and warranties contained herein shall have a continuing effect as having been true when made.
Section 614. No Default. No Event of Default or Early Amortization Event (or event or condition which with the giving of notice or passage of time or both would become an Event of Default or Early Amortization Event) has occurred and is continuing.
Section 615. Litigation and Contingent Liabilities. No claims, litigation, arbitration Proceedings or governmental Proceedings by any Governmental Authority are pending or threatened against or are affecting the Issuer or any of its Affiliates the results of which might interfere with the consummation of any of the transactions contemplated by this Supplement or any document issued or delivered in connection herewith.
Section 616. Subsidiaries. Issuer has had no subsidiaries.
Section 617. No Partnership. Issuer is not a partner or joint venturer in any partnership or joint venture.
Section 618. Pension and Welfare Plans. No accumulated funding deficiency (as defined in Section 412 of the Code or Section 302 of ERISA) or reportable event (within the meaning of Section 4043 of ERISA), has occurred with respect to any Plan of the Issuer or any ERISA Affiliate. The present value of all benefit liabilities under all Plans of the Issuer or any ERISA Affiliate subject to Title IV of ERISA, as defined in Section 4001(a)(16) of ERISA, exceeds the fair market value of all assets of Plans subject to Title IV of ERISA (determined as of the most recent valuation date for such Plan on the basis of assumptions prescribed by the Pension Benefit Guaranty Corporation for the purpose of Section 4044 of ERISA), by no more than $1.9 million. Neither Issuer nor any ERISA Affiliate is subject to any present or potential withdrawal liability pursuant to Title IV of ERISA and no multiemployer plan (with the meaning of Section 4001(a)(3) of ERISA) to which the Issuer or any ERISA Affiliate has an obligation to contribute or any liability, is or is likely to be disqualified for tax purposes, in reorganization within the meaning of Section 4241 of ERISA or Section 418 of the Code) or is insolvent (as defined in Section 4245 of ERISA). No liability (other than liability to make periodic contributions to fund benefits) with respect to any Plan of Issuer, or Plan subject to Title IV of ERISA or any ERISA Affiliate, has been, or is expected to be, incurred by Issuer or an ERISA Affiliate, either directly or indirectly. All Plans of Issuer are in material compliance with ERISA and the Code. No lien under Section 412 of the Code or 302(f) of ERISA or requirement to
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provide security under the Code or ERISA has been or is reasonably expected by Issuer to be imposed on its assets. The Issuer does not have any obligation under any collective bargaining agreement. As of the Restatement Date, the Issuer is not an “employee benefit plan” with the meaning of ERISA or a “plan” within the meaning of Section 4975 of the Code and assets of the Issuer do not constitute “plan assets” within the meaning of Section 2510.3-101 of the regulations of the Department of Labor.
Section 619. Ownership of Issuer. The Issuer is a wholly-owned subsidiary of TL.
Section 620. Use of Proceeds. The Issuer shall use the proceeds from the issuance of the Series 2012-1 Notes (i) to acquire Containers and other Collateral, (ii) to pay the costs of issuance of the Series 2012-1 Notes, (iii) to repay other indebtedness, and (iv) for general corporate purposes. For avoidance of doubt, the Issuer may use the proceeds of any Series 2012-1 Advance to make payments on, or in respect of, any other Series of Notes.
Section 621. Security Interest Representations.
(a) The Indenture creates a valid and continuing security interest (as defined in the applicable UCC) in the Containers and the proceeds thereof in favor of the Indenture Trustee, which security interest is prior to all other Liens, and is enforceable as such against creditors of and purchasers from the Issuer.
(b) The Containers constitutes “goods” within the meaning of the applicable UCC.
(c) The Issuer owns and has good and marketable title to the Containers free and clear of any Lien, claim, or encumbrance of any Person.
(d) The Issuer has caused or will have caused, within ten days, the filing of all appropriate financing statements in the proper filing office in the appropriate jurisdictions under applicable law in order to perfect the security interest in the Containers and the proceeds thereof granted to the Indenture Trustee under the Indenture.
(e) Other than the security interest granted to the Indenture Trustee pursuant to the Indenture, the Issuer has not pledged, assigned, sold, granted a security interest in, or otherwise conveyed any of the Containers or the proceeds thereof. The Issuer has not authorized the filing of and is not aware of any financing statements against the Issuer that include a description of collateral covering the Containers or the proceeds thereof other than any financing statement relating to the security interest granted to the Indenture Trustee under the Indenture or that has been terminated. The Issuer is not aware of any judgment or tax lien filings against the Issuer.
(f) No creditor of the Issuer other than Indenture Trustee has in its possession any goods that constitute or evidence the Containers or the proceeds thereof.
(g) The Indenture creates a valid and continuing security interest (as defined in the applicable UCC) in the Trust Account, the Restricted Cash Account and the Series 2012-1 Series Account in favor of the Indenture Trustee, which security interest is prior to all other Liens, and is enforceable as such against creditors of and purchasers from Issuer.
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(h) All Eligible Investments have been and will have been credited to one of the Trust Account, the Restricted Cash Account and the Series 2012-1 Series Account. The securities intermediary for each Trust Account, the Restricted Cash Account and the Series 2012-1 Series Account has agreed to treat all assets credited to the Trust Account, the Restricted Cash Account and the Series 2012-1 Series Account as “financial assets” within the meaning of the UCC.
(i) The Issuer owns and has good and marketable title to each of the Trust Account, the Restricted Cash Account, the Series 2012-1 Series Account and the Eligible Investments credited thereto (collectively, the “Securities Entitlements Collateral”) free and clear of any Lien, claim, or encumbrance of any Person.
(j) The Issuer has received all consents and approvals required by the terms of the Eligible Investments to the transfer to the Indenture Trustee all of its interest and rights in the Eligible Investments.
(k) The Issuer has delivered to Indenture Trustee a fully executed agreement pursuant to which the securities intermediary has agreed to comply with all instructions originated by the Indenture Trustee relating to the Trust Account, the Restricted Cash Account and the Series 2012-1 Series Account without further consent by the Issuer; or:
(l) Other than the security interest granted to the Indenture Trustee pursuant to the Indenture, the Issuer has not pledged, assigned, sold, granted a security interest in, or otherwise conveyed any of the Securities Entitlement Collateral. The Issuer has not authorized the filing of and is not aware of any financing statements against the Issuer that include a description of collateral covering the Securities Entitlement Collateral other than any financing statement relating to the security interest granted to the Indenture Trustee hereunder or that has been terminated.
(m) The Trust Account, the Restricted Cash Account and the Series 2012-1 Series Account are not in the name of any person other than the Issuer or the Indenture Trustee. The Issuer has not consented to the securities intermediary of any Trust Account, the Restricted Cash Account and the Series 2012-1 Series Account to comply with entitlement orders of any person other than the Indenture Trustee.
(n) The Indenture creates a valid and continuing security interest (as defined in the applicable UCC) in the Issuer’s contractual rights under any Interest Rate Hedge Agreement, the Contribution and Sale Agreement and the Management Agreement (collectively, the “General Intangible Collateral”) in favor of the Indenture Trustee, which security interest is prior to all other Liens, and is enforceable as such against creditors of and purchasers from the Issuer.
(o) The Issuer’s contractual rights under any Interest Rate Hedge Agreement, the Contribution and Sale Agreement and the Management Agreement constitutes “general intangibles” within the meaning of the applicable UCC.
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(p) The Issuer owns and has good and marketable title to the General Intangible Collateral free and clear of any Lien, claim, or encumbrance of any Person.
(q) The Issuer has received all consents and approvals required by the terms of the General Intangible Collateral to pledge such General Intangibles Collateral to the Indenture Trustee.
(r) The Issuer has caused or will have caused, within ten days, the filing of all appropriate financing statements in the proper filing office in the appropriate jurisdictions under applicable law in order to perfect the security interest in the General Intangible Collateral granted to the Indenture Trustee.
(s) Other than the security interest granted to the Indenture Trustee pursuant to the Indenture, the Issuer has not pledged, assigned, sold, granted a security interest in, or otherwise conveyed any of the General Intangible Collateral . The Issuer has not authorized the filing of and is not aware of any financing statements against the Issuer that include a description of collateral covering the General Intangible Collateral other than any financing statement relating to the security interest granted to the Indenture Trustee hereunder or that has been terminated. The Issuer is not aware of any judgment or tax lien filings against the Issuer.
The representations and warranties set forth in this Section 621 shall survive until this Supplement is terminated in accordance with its terms and the terms of the Indenture. Any breaches of the representations and warranties set forth in this Section 621 may be waived by the Indenture Trustee, only with the prior written consent of the Control Party, and satisfaction of the Rating Agency Condition.
Section 622. FATCA. This Supplement is a material modification of the Series 2012-1 Notes for FATCA purposes
ARTICLE VII
Miscellaneous Provisions
Section 701. Ratification of Indenture. As supplemented by this Supplement, the Indenture is in all respects ratified and confirmed and the Indenture as so supplemented by this Supplement shall be read, taken and construed as one and the same instrument.
Section 702. Counterparts. This Supplement may be executed in two or more counterparts, and by different parties on separate counterparts, each of which shall be an original, but all of which shall constitute one and the same instrument. Delivery of an executed counterpart hereof by facsimile or by electronic means shall be equally effective as the delivery of an originally executed counterpart.
Section 703. Governing Law. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, INCLUDING SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW BUT OTHERWISE WITHOUT REFERENCE TO ITS CONFLICTS OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
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Section 704. Notices. All demands, notices and communications hereunder shall be in writing, personally delivered, or by facsimile (with subsequent telephone confirmation of receipt thereof), or sent by internationally recognized overnight courier service, (a) in the case of the Indenture Trustee, at the following address: Sixth Street and Marquette Avenue, MAC N9311-161, Minneapolis, Minnesota, 55479, Attention: Corporate Trust Services/Asset-Backed Administration, and (b) in the case of the Issuer, at the following address: Century House, 16 Par-la-Ville Road, Hamilton HM HX, Bermuda, Telephone: (441) 292-2487, Facsimile: (441) 295-4164, Attention: Executive Vice President - Asset Management, with a copy to each: (i) Textainer Equipment Management Limited at its address at Century House, 16 Par-la-Ville Road, Hamilton HM HX, Bermuda, Telephone: (441) 292-2487, Facsimile: (441) 295-4164, Attention: Executive Vice President - Asset Management, and (ii) Textainer Equipment Management (U.S.) Limited at its address at 650 California Street, 16th floor, San Francisco, CA 94108, Telephone: (415) 658-8363, Facsimile: (415) 434-0599, Attention: Executive Vice President - Asset Management, or at such other address as shall be designated by such party in a written notice to the other parties. Any notice required or permitted to be given to a Noteholder shall be given by certified first class mail, postage prepaid (return receipt requested), or by courier, or by facsimile, with subsequent telephone confirmation of receipt thereof, in each case at the address of such Holder as shown in the Note Register or to the telephone and fax number furnished by such Noteholder. Notice shall be effective and deemed received (a) upon receipt, if sent by courier or U.S. mail, (b) upon receipt of confirmation of transmission, if sent by facsimile, or (c) when delivered, if delivered by hand.
Section 705. Amendments, Waivers and Modifications of this Supplement.
(a) Any amendment, modification or waiver of terms of this Supplement shall be deemed a Supplement subject to Article 10 of the Indenture. Except for the matters set forth in Section 209(a)(i), Sections 705(b), 705(c) and 705(d), the terms hereof may be waived, modified, or amended only in a written instrument signed by each of the Issuer, the Control Party and the Indenture Trustee (except with respect to the matters set forth in Section 1001(a) of the Indenture, in the case of which any such waiver, modification or amendment shall be made subject to the terms of such Section 1001).
(b) An amendment, modification or waiver of the following matters may be effectuated only in a written instrument signed by each of the Issuer, the Indenture Trustee and the Super Majority of Holders:
(i) an amendment to the provisions of this Section 705(b); or
(ii) an amendment, modification or waiver of the definitions of the terms “Advance Rate” (in a manner that would increase such amount including any waiver of any non-compliance of the Residual Requirement), “Asset Base” (in a manner that would increase such amount), “Senior Asset Base” (in a manner that would increase such amount), “Subordinate Asset Base” (in a manner that would increase such amount), “Restricted Cash Target Amount” (in a manner that would decrease such amount) or “Eligible Letter of Credit” (in a manner that would make such definition less restrictive, as evidenced by an Officer’s Certificate to that effect, delivered to the Indenture Trustee; provided that if an Officer’s Certificate is delivered to the Indenture Trustee certifying that an amendment, modification or
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waiver of the definition of the term “Eligible Letter of Credit” would make such definition more restrictive, or no less restrictive, then such amendment, modification or waiver shall require the consent of the Control Party, rather than the Super Majority of Holders).
(c) An amendment, modification or waiver of each of the following matters may be effectuated only in a written instrument signed by each affected Series 2012-1 Noteholder:
(i) any increase in the Series 2012-1 Note Commitment of such Series 2012-1 Noteholder or extension of the Conversion Date, and the Series 2012-1 Note Purchase Agreement may only be amended, in accordance with the provisions of Section 9.1 of the Series 2012-1 Note Purchase Agreement; or
(ii) subject to Section 209(a)(i), any waiver of any conditions precedent set forth in Article V hereof, or a reduction, modification or amendment of any rights, indemnification, Breakage Costs or amounts under Sections 205, 206 and 207 owing or accruing to any Series 2012-1 Noteholder.
(d) An amendment, modification or waiver of each of the following matters may be effectuated only in a written instrument signed by each of the Series 2012-1 Noteholders.
(i) an amendment of this Section 705(d); or
(ii) an amendment, modification or waiver of any provision of this Supplement that expressly states that any amendment, modification or waiver thereof requires the consent or approval of all of the Series 2012-1 Noteholders.
(e) Promptly after the execution by the Issuer and the Indenture Trustee of any written instrument pursuant to this Section, the Indenture Trustee shall mail to the Noteholders, Deal Agents, the Administrative Agent, and each Interest Rate Hedge Provider, a copy of such Supplement. Any failure of the Indenture Trustee to mail such copy, or any defect therein, shall not, however, in any way impair or affect the validity of any such Supplement.
Section 706. Consent to Jurisdiction. ANY LEGAL SUIT, ACTION OR PROCEEDING AGAINST THE ISSUER ARISING OUT OF OR RELATING TO THIS SUPPLEMENT, OR ANY TRANSACTION CONTEMPLATED HEREBY, MAY BE INSTITUTED IN ANY FEDERAL OR STATE COURT IN THE CITY OF NEW YORK, STATE OF NEW YORK AND THE ISSUER HEREBY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING, AND, SOLELY FOR THE PURPOSES OF ENFORCING THIS SUPPLEMENT, THE ISSUER HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY SUCH COURT IN ANY SUCH SUIT, ACTION OR PROCEEDING. THE ISSUER HEREBY IRREVOCABLY APPOINTS AND DESIGNATES NATIONAL CORPORATE RESEARCH LTD. HAVING AN ADDRESS AT 10 E. 40TH STREET, 10TH FLOOR, NEW YORK, NY 10016, ITS TRUE AND LAWFUL ATTORNEY-IN-FACT AND DULY AUTHORIZED AGENT FOR THE LIMITED PURPOSE OF ACCEPTING SERVICE OF LEGAL PROCESS AND THE ISSUER AGREES THAT SERVICE OF PROCESS UPON SUCH PARTY SHALL CONSTITUTE PERSONAL
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SERVICE OF SUCH PROCESS ON SUCH PERSON. THE ISSUER SHALL MAINTAIN THE DESIGNATION AND APPOINTMENT OF SUCH AUTHORIZED AGENT UNTIL ALL AMOUNTS PAYABLE UNDER THIS SUPPLEMENT SHALL HAVE BEEN PAID IN FULL. IF SUCH AGENT SHALL CEASE TO SO ACT, THE ISSUER SHALL IMMEDIATELY DESIGNATE AND APPOINT ANOTHER SUCH AGENT SATISFACTORY TO THE INDENTURE TRUSTEE AND SHALL PROMPTLY DELIVER TO THE INDENTURE TRUSTEE EVIDENCE IN WRITING OF SUCH OTHER AGENT’S ACCEPTANCE OF SUCH APPOINTMENT.
Section 707. Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, AS AGAINST THE OTHER PARTIES HERETO, ANY RIGHTS IT MAY HAVE TO A JURY TRIAL IN RESPECT OF ANY CIVIL ACTION OR PROCEEDING (WHETHER ARISING IN CONTRACT OR TORT OR OTHERWISE), INCLUDING ANY COUNTERCLAIM, ARISING UNDER OR RELATING TO THIS SUPPLEMENT OR ANY OTHER SERIES 2012-1 RELATED DOCUMENT, INCLUDING IN RESPECT OF THE NEGOTIATION, ADMINISTRATION OR ENFORCEMENT HEREOF OR THEREOF.
Section 708. Successors. This Supplement shall inure to the benefit of and be binding upon the Issuer, the Indenture Trustee and, by its acceptance of any Series 2012-1 Note or any legal or beneficial interest therein, each Series 2012-1 Noteholder and each of such Person’s successors and assigns.
Section 709. Nonpetition Covenant. Each Series 2012-1 Noteholder by its acquisition of a Series 2012-1 Note shall be deemed to covenant and agree, that it will not institute against the Issuer any bankruptcy, reorganization, arrangement insolvency or liquidation Proceedings, or other Proceedings under any federal or state bankruptcy or similar law, at any time other than on a date which is at least one (1) year and one (1) day after the last date on which any Note of any Series was Outstanding.
Section 710. Transactions Under Prior Agreement. On the Restatement Date, the Prior Agreement shall be amended and restated as provided in this Supplement and shall be superseded by this Supplement. The terms and conditions of this Supplement shall apply to all of the Liens created by, and all of the rights, obligations and remedies incurred by, the Issuer under the Prior Agreement, and the Issuer agrees that this Supplement is not intended to constitute a discharge of the rights, obligations (including any unpaid Series 2012-1 Advance) and remedies existing under the Prior Agreement.
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IN WITNESS WHEREOF, the Issuer and the Indenture Trustee have caused this Supplement to be duly executed and delivered by their respective officers thereunto duly authorized, all as of the day and year first above written.
| TEXTAINER MARINE CONTAINERS II LIMITED | ||
| By: | /S/ Christopher C. Morris | |
| Name: |
| |
| Title: | Executive Vice President | |
Amended and Restated Series 2012-1 Supplement
| WELLS FARGO BANK, NATIONAL ASSOCIATION, | ||
| as Indenture Trustee | ||
| By: | /S/ Kristen L. Puttin | |
| Name: |
| |
| Title: | Vice President | |
Amended and Restated Series 2012-1 Supplement
EXHIBIT 4.15
CONSENT AND AMENDMENT NO. 2 TO CREDIT AGREEMENT AND SECURITY AGREEMENT
THIS AMENDMENT NO. 2, dated as of April 30, 2014 (this “Amendment”), by and among TEXTAINER LIMITED (“TL”), a company with limited liability organized under the laws of Bermuda (the “Borrower”), TEXTAINER GROUP HOLDINGS LIMITED (the “Guarantor’’), a company with limited liability organized under the laws of Bermuda, the financial institutions listed on the signature pages hereof under the headings “LENDERS” (each a “Lender” and, collectively, the “Lenders”), or “SWAP CONTRACT COUNTERPARTIES” (each a “Swap Contract Counterparty” and, collectively, the “Swap Contract Counterparties”), and BANK OF AMERICA, N.A., as administrative agent for the Lenders (in such capacity, the “Administrative Agent”) and L/C Issuer, is made to the Credit Agreement (as defined below) and the Security Agreement.
WITNESSETH:
WHEREAS, the Borrower, the Guarantor, the Lenders and the Administrative Agent are parties to a Credit Agreement, dated as of September 24, 2012 (as amended by Amendment Number 1 to Credit Agreement and Security Agreement, dated as of July 25, 2013. the “Credit Agreement”);
WHEREAS, the parties desire to amend the Credit Agreement in order to modify certain provisions thereof; and
WHEREAS, the Required Lenders have agreed to such amendment of the Credit Agreement, subject to the terms and conditions hereof;
NOW THEREFORE, in consideration of the promises and mutual covenants herein contained, the parties hereto agree as follows:
SECTION 1 Definitions; Interpretation.
(a) Terms Defined in Credit Agreement. All capitalized terms used in this Amendment (including in the recitals hereof) and not otherwise defined herein shall have the meanings assigned to them in the Credit Agreement.
(b) Interpretation. The rules of interpretation set forth in Section 1.02 of the Credit Agreement shall be applicable to this Amendment and are incorporated herein by this reference.
SECTION 2 Amendments to the Credit Agreement. Pursuant to Section 11.01 of The Credit Agreement, the Credit Agreement is hereby amended as follows:
(a) Section 1.01 of the Credit Agreement is hereby amended as follows:
(i) The following new defined terms are hereby added to Section 1.01 in the appropriate alphabetical order:
“Permitted Acquisition” has the meaning specified in Section 7.03(k).
“Segregated Management Agreement” means the Equipment Management Services Agreement, dated as of on or about May 2, 2014, between TEML and the Borrower, as the same may be amended, restated, supplemented or otherwise modified from time to time. The term “Segregated Management Agreement”
shall also be deemed to include any and all other written agreements which the Borrower and TEML may enter into from time to time under which TEML shall have a right to hold, manage, lease or rent property included in the Segregated Collateral Pool.
“TAP Funding” means TAP Funding LTD., an exempted company limited by shares incorporated under the laws of Bermuda, and its successors and assigns.
“TMCLIII” means Textainer Marine Containers III Limited, an exempted company with limited liability incorporated under the laws of Bermuda, and its successors and assigns.
“TMCLIII Indenture” means the Indenture, dated as of September 25, 2013, between TMCLIII and Wells Fargo Bank, National Association, as indenture trustee, as amended, restated, supplemented or otherwise modified from time to time in accordance with its terms, including refinancings thereof.
“TMCLIV” means Textainer Marine Containers IV Limited, an exempted company with limited liability incorporated under the laws of Bermuda, and its successors and assigns.
“TMCLIV Indenture” means the Indenture, dated as of August 5, 2013, between TMCLIV and Wells Fargo Bank, National Association, as indenture trustee, as amended, restated, supplemented or otherwise modified from time to time in accordance with its terms, including refinancings thereof.
(ii) The definition of “Consolidated Interest Coverage Ratio” is hereby amended and restated in its entirety to read as follows:
““Consolidated Interest Coverage Ratio” means for any Person during any Measurement Period, the ratio of (A) the sum of (i) Consolidated Net Income of such Person (or, in the case of the Borrower, such Person without giving effect to any of its Subsidiaries (except as set forth in the proviso in this clause (i)) for such Measurement Period; provided, however, that with respect to the Consolidated Net Income of the Borrower, dividends paid by any Subsidiary of the Borrower or TWC shall be included in the calculation of the Consolidated Net Income of the Borrower, but only to the extent such dividends are actually paid in cash to the Borrower during such Measurement Period, (ii) income tax expense of such Person and its Subsidiaries (or, in the case of the Borrower, such Person without giving effect to any of its Subsidiaries) for such Measurement Period, (iii) Consolidated Interest Expense of such Person and its Subsidiaries (or, in the case of the Borrower, such Person without giving effect to any of its Subsidiaries (except as set forth in the proviso in this clause (iii)) for such Measurement Period; provided, however, that with respect to the Consolidated Interest Expense of the Borrower, interest expense payments made by the Borrower during such Measurement Period under any guaranties of Indebtedness of its Subsidiaries shall be included in the calculation of the Consolidated Interest Expense of the Borrower to the extent (x) not otherwise included in the Borrower’s Consolidated Interest Expense and (y) deducted in calculating the Borrower’s Consolidated Net Income during such Measurement Period, and (iv) rental expense of such Person and its Subsidiaries (or, in the case of the Borrower, such Person without giving effect to any of its Subsidiaries) during such
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Measurement Period relating to any lease of Marine Containers or transportation equipment under which such Person or Subsidiary is lessee, to (B) the sum of (1) Consolidated Interest Expense of such Person and its Subsidiaries (or, in the case of the Borrower, such Person without giving effect to any of its Subsidiaries, except as set forth in the proviso in this clause (1)) during such Measurement Period (to the extent that such amount is actually paid in cash by such Person during such Measurement Period); provided, however, that with respect to the Consolidated Interest Expense of the Borrower, interest expense payments made by the Borrower during such Measurement Period under any guaranties of Indebtedness of its Subsidiaries shall be included in the calculation of the Consolidated Interest Expense of the Borrower during such Measurement Period to the extent not otherwise included in the Borrower’s Consolidated Interest Expense for such Measurement Period, and (2) rental expense of such Person and its Subsidiaries (or, in the case of the Borrower, such Person without giving effect to any of its Subsidiaries) during such Measurement Period relating to any lease of Marine Containers or transportation equipment under which such Person or any Subsidiary thereof is lessee. For purposes of Section 7.11 of this Agreement, the Consolidated Interest Coverage Ratio of each Loan Party shall be calculated to exclude the net income of (i) of TWC (except as set forth in the proviso in clause (i) above) shown in the most recent consolidating financial statements of the Guarantor delivered pursuant to Section 6.01 and (ii) of any Subsidiary to the extent of any ownership of such Subsidiary held by any Person that is not a Loan Party or Affiliate thereof.”
(iii) The definition of “Lien” is hereby amended by replacing the phrase “neither the TEML Management Agreement nor” in the proviso thereof with the phrase “none of the TEML Management Agreement, the Segregated Management Agreement or”.
(iv) The definition of “Receivables Document” is hereby amended by amending and restating the last sentence thereof to read in its entirety as follows:
“Each of (i) the Second Amended and Restated Contribution and Sale Agreement, dated as of June 8, 2006 (as amended, restated, supplemented or modified from time to time), between the Borrower and TMCL, (ii) the Container Sale Agreement, dated as of May 1, 2012 (as amended, restated, supplemented or modified from time to time), between the Borrower and TMCL II, (iii) the Contribution and Sale Agreement, dated as of September 25, 2013 (as amended, restated, supplemented or modified from time to time), between the Borrower and TMCLIII and (iv) the Contribution and Sale Agreement, dated as of August 5, 2013 (as amended, restated, supplemented or modified from time to time), between the Borrower and TMCLIV, shall be a Receivables Document.”
(v) The definition of “Related Document” is hereby amended by (A) amending and restating clause (iii) thereof and (B) inserting new clauses (iv) and (v) at the end thereof, to read as follows:
“(iii) the TMCLIII Indenture and each “Related Document” (as defined in TMCLIII Indenture), (iv) the TMCLIV Indenture and each “Related Document” (as defined in the TMCLIV Indenture), and (v) the transaction documents governing any Qualified Receivables Transaction not addressed in clauses (i) through (iv) above”.
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(vi) The definition of “Restricted Payment” is hereby amended and restated in its entirety to read as follows:
“Restricted Payment” means any dividend or other distribution (whether in cash, securities or other property) with respect to any capital stock or other Equity Interest of the Borrower or any Subsidiary, or any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any such capital stock or other Equity Interest, or on account of any return of capital to the Borrower’s stockholders, partners or members (or the equivalent Person thereof; provided, however, that with respect to the Borrower, any loan made by the Borrower to the Guarantor the proceeds of which will be used by the Guarantor either (a) to pay dividends to the shareholders of the Guarantor or (b) in connection with a Permitted Acquisition, shall also be subject to the limitations contained in Section 7.03(h)).
(vii) The definition of “Segregated Collateral Pool” is hereby amended by deleting the phrase “that are at least six years old,” on the second line thereof.
(viii) The definition of “Term Facility” is hereby amended and restated in its entirety to read as follows:
“Term Facility” means up to Five Hundred Million Dollars ($500,000,000) of term Indebtedness (whether in the form of a loan, sale-leaseback or private placement of notes) of the Borrower under one or more facilities (a) governed by documentation substantially similar to the Credit Agreement and (b) secured by one or more Segregated Collateral Pools.
(b) Section 6.01(a) of the Credit Agreement is hereby amended by amending and restating the phrase “(other than TWC)” on the second line thereof with the phrase “(other than TAP Funding and TWC)”.
(c) Section 6.02(h) of the Credit Agreement is hereby amended by amending and restating the phrase “(other than TWC)” where it appears on the seventh line thereof with the phrase “(other than TAP Funding and TWC)”.
(d) Section 7.01(k) of the Credit Agreement is hereby amended and restated in its entirety to read as follows:
“(k) Liens securing Indebtedness permitted under (i) Section 7.02(g), (h) or (k), (ii) Section 7.02(j), in the case of this clause (ii) solely to the extent that such Liens are not spread to any additional assets;”
(e) Section 7.02 of the Credit Agreement is hereby amended by:
| (i) | re-numbering Section 7.02(j) to become a new Section 7.02(k); and |
| (ii) | inserting the following as Section 7.02(j): |
“(j) Indebtedness of a Person existing at the time such Person becomes a Subsidiary of a Loan Party pursuant to a Permitted Acquisition, but only to the extent that such Indebtedness shall have been in existence at the time such Permitted Acquisition was consummated and either (i) was not incurred in connection with, as a result of, or in contemplation of, such
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Permitted Acquisition or (ii) was incurred to refinance or replace Indebtedness of the type referred to in clause (i); provided that with respect to Indebtedness incurred pursuant to clause (ii), (A) such Indebtedness shall have terms relating to principal amount, amortization, collateral (if any), subordination (if any), and other material terms taken as a whole no less favorable in any material respect to the Indebtedness referred to in clause (i), (B) such Indebtedness shall have a maturity no shorter than the maturity of the Indebtedness referred to in clause (i), (C) the interest rate applicable to such Indebtedness shall not exceed the then applicable market interest rate, and (D) such Indebtedness shall not become Indebtedness of any Loan Party.
(f) Section 7.03 of the Credit Agreement is hereby amended by:
(i) amending Section 7.03(c) by amending and restating the parenthetical in clause (ii)(B) thereof to read in its entirety as “(other than TAP Funding and TWC)”;
(ii) amending Section 7.03(h) by inserting the phrase “or for the purpose of providing funds for Permitted Acquisitions” immediately following the phrase “Equity Interests”, before the semicolon;
(iii) re-numbering Sections 7.03(i) and (j), respectively, to become new Sections 7.03(k) and (l);
(iv) inserting the following as Section 7.03(i):
“(i) Investments consisting of the purchase or other acquisition of capital stock or other securities or assets of another Person in the same line of business as the Borrower; provided that (i) no Default exists or would result from such acquisition, (ii) any Person acquired pursuant to this Section 7.03(i) shall become a wholly owned Subsidiary of a Loan Party, (iii) such acquisition shall be on arm’s length terms, (iv) such acquisition shall not be hostile and shall have been approved by the board of directors (or other similar body) and the requisite stockholders or other equityholders of such Person, (v) after giving effect to such acquisition, the Borrower and the Guarantor shall be in pro forma compliance with the financial covenants set forth in Section 7.11, (vi) the Borrower has notified the Administrative Agent and the Lenders of such proposed acquisition, and shall have furnished to the Administrative Agent and the Lenders (at least five Business Days prior to the consummation of such acquisition) a Compliance Certificate, historical financial information, and projections demonstrating compliance with the financial covenants set forth in Section 7.11 for the four fiscal quarters following consummation of such acquisition (a “Permitted Acquisition”);”
(v) inserting the following as Section 7.03(j):
“(j) Investments by a Loan Party in a Subsidiary acquired in connection with (or to effect) a Permitted Acquisition;”
(g) Section 7.04 of the Credit Agreement is hereby amended and restated in its entirety to read as follows:
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“7.04 Fundamental Changes. Merge, dissolve, liquidate, amalgamate, consolidate with or into another Person, except, so long as no Default exists or would result therefrom, (i) mergers or consolidations of Subsidiaries of the Loan Parties in connection with Permitted Acquisitions, and (ii) any merger of any Person with any Loan Party; provided that such Loan Party is the continuing or surviving Person.”
(h) Section 7.05(c) of the Credit Agreement is hereby amended and restated in its entirety to read as follows:
“(c) Sales, transfers and conveyances of Receivables Program Assets in connection with any Qualified Receivables Transaction so long as (i) no Default exists or would exist as a result of such sale, conveyance or transfer and (ii) Borrower has delivered a completed Borrowing Base Certificate to the Administrative Agent demonstrating that, after giving effect to such sale, transfer and conveyance, the Borrowing Base exceeds the Total Outstandings; and”.
(i) Section 7.06 of the Credit Agreement is hereby amended (i) by replacing the word “Declare” at the beginning of the first sentence thereof, with the phrase “Subject to the following sentence, declare”; and (ii) inserting the following sentence at the end thereof: “Notwithstanding the foregoing, any Restricted Payment shall be permitted to the extent that the proceeds thereof are used to effect a Permitted Acquisition and then, solely if the Loan Parties demonstrate pro forma compliance with the covenants in Section 7.11 after giving effect to such Restricted Payment and no Default otherwise exists or would result from the making of such Restricted Payment.”
(j) Section 7.09 of the Credit Agreement is hereby amended and restated in its entirety to read as follows:
“7.09 Negative Pledge with respect to Certain Equity Interests. In the case of Borrower sell, pledge, transfer or otherwise encumber (i) the 10,500 issued and outstanding Class A Shares of TMCL owned by the Borrower, (ii) the 1,000 issued and outstanding ordinary shares of TMCLII owned by the Borrower, (iii) the Equity Interests in TAP Funding owned by the Borrower, (iv) the Equity Interests in TWC owned by the Borrower, (v) the Equity Interests in any other Receivables Subsidiary owned by the Borrower or (vi) the Equity Interests in any Subsidiary acquired in a Permitted Acquisition.”
(k) Section 7.11 of the Credit Agreement is hereby amended by amending and restating clauses (a), (c) and (d) thereof in their entirety to read as follows:
“(a) Maximum Consolidated Leverage Ratio of Guarantor. In the case of the Guarantor, permit the Consolidated Leverage Ratio of the Guarantor to exceed 4.0 to 1.”
“(c) Maximum Consolidated Leverage Ratio of Borrower. In the case of the Borrower, permit the Consolidated Leverage Ratio of the Borrower to exceed 4.0 to 1.”
“(d) Minimum Consolidated Interest Coverage Ratio of Borrower. In the case of the Borrower, permit the ratio of Consolidated Interest Coverage Ratio of Borrower to be less than 2.0:1.”
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(l) Section 7.14 of the Credit Agreement is hereby amended and restated in its entirety to read as follows:
“7.14 Prepayments, Etc. of Indebtedness. Prepay, redeem, purchase, defease or otherwise satisfy prior to the scheduled maturity thereof in any manner, or make any payment in violation of any subordination terms of, any Indebtedness with a stated maturity later than the Maturity Date, except (a) the prepayment of the Credit Extensions in accordance with the terms of this Agreement; (b) regularly scheduled or required repayments, prepayments or redemptions of Indebtedness set forth in Schedule 5.05, and (c) repayments and prepayments of the Term Facility, provided that voluntary prepayments shall be permitted only if at the time of such prepayment, no Default exists or would result after giving effect thereto.”
(m) Section 8.01(l) of the Credit Agreement is hereby amended by amending and restating the parenthetical in clause (iii) thereof to read in its entirety as “(other than TAP Funding and TWC)”.
(n) Section 9.10(a)(i)(ii) of the Credit Agreement is hereby amended by replacing the phrase “that is sold or to be sold as part of or in connection with any sale” therein with the phrase “that is Disposed of or to be Disposed of as part of or in connection with any Disposition”.
(o) Section 9.10(b) of the Credit Agreement is hereby amended and restated in its entirety to read as follows:
“(b) (i) In the event of any Disposition of Collateral permitted pursuant to Section 7.05(c) or (d), the Lenders, the Administrative Agent and the L/C Issuer agree that the Secured Parties’ Lien on such Collateral automatically shall be released so long as the Borrower shall have submitted to the Administrative Agent a Borrowing Base Report demonstrating that, after giving pro forma effect to any such requested release of Collateral, the Total Outstandings shall not exceed the lesser of (x) the Aggregate Commitments and (y) the Borrowing Base. In such event, the Administrative Agent, on behalf of the Secured Parties, shall be deemed to have released such Collateral from the Lien of the Collateral Documents, and the Administrative Agent shall, at Borrower’s request, within three (3) Business Days execute any documentation reasonably required to evidence such release.
(ii) In the event of the granting of Liens on Collateral consisting of a Segregated Collateral Pool to secure the Term Facility, the Lenders, the Administrative Agent and the L/C Issuer agree that the Secured Parties’ Lien on such Collateral automatically shall be released so long as (w) such requests for release may be made no more frequently than quarterly; provided that during the ninety day period commencing with establishing of a Term Facility, such requests for release may be made no more frequently than three times, (x) such Liens are granted in connection with establishing a Term Facility, or are necessary to maintain compliance with the borrowing base provisions of such Term Facility, or the Borrower wishes to dispose of assets then included in such Segregated Collateral Pool, (y) the Borrower shall have submitted to the Administrative Agent a Borrowing Base Report demonstrating that, immediately prior to and after giving pro forma effect to any such requested release of Collateral, the Total Outstandings shall not exceed the lesser of (1) the Aggregate Commitments and (2) the Borrowing Base, and (z) the Borrower shall have
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submitted to the Administrative Agent a certificate, in form and substance satisfactory to the Administrative Agent, showing that after giving effect to such release of Collateral (as compared to the Collateral included in the Borrowing Base immediately prior to such release), (A) the Weighted Average age of the Eligible Marine Containers shall not have increased by more than one year, (B) the Weighted Average long term lease remaining tenor shall not have decreased by more than nine months, (C) the Weighted Average long term lease composition (as a percentage of the aggregate Borrowing Base pool of Eligible Marine Containers) shall not have decreased by more than five percentage points, (D) no individual customer’s concentration percentage shall have increased by more than five percentage points, measured by net book value, and (E) off-hire containers composition (as a percentage of the aggregate Borrowing Base pool of Eligible Marine Containers, measured by net book value) shall not have increased by more than two percentage points. For purposes of this section, “Weighted Average” for any factor, and any group of Eligible Marine Containers, shall be based on the net book value for such group of Eligible Marine Containers. In such event, the Administrative Agent, on behalf of the Secured Parties, shall be deemed to have released such Collateral from the Lien of the Collateral Documents, and the Administrative Agent shall, at Borrower’s request, within three (3) Business Days execute any documentation reasonably required to evidence such release.”
(p) Schedule 7.08 to the Credit Agreement is hereby amended as follows:
| (i) | Item 2 thereon is amended and restated in its entirety to read as follows: |
“2. Transactions contemplated under the TEML Management Agreement or the Segregated Management Agreement.”; and
| (ii) | A new item 6 is hereby added, to read in its entirety as follows: |
“6. The Guaranty by TGH of the “Obligations” as defined in the documentation governing the Term Facility.”
SECTION 3 Amendments to Security Agreement. Subject to the conditions precedent set forth in Section 5, pursuant to Section 10.4(c) of the Security Agreement, the Security Agreement is hereby amended as follows:
(a) The last paragraph of Section 2 of the Security Agreement is hereby amended by inserting, immediately prior to the “;” separating the two provisos therein, the phrase “, and (iii) the Segregated Management Agreement”.
(b) Section 10.4(c) of the Security Agreement is hereby amended and restated to read in its entirety as follows: “(c) None of the terms or provisions of this Security Agreement may be altered, modified or amended other than in accordance with Section 11.01 of the Credit Agreement.”.
SECTION 4 Consent. Subject to the conditions precedent set forth in Section 5, each of the parties hereto hereby consents to the execution and delivery by Borrower and TEML of the amendment to the TEML Management Agreement attached hereto as Exhibit A.
SECTION 5 Conditions of Effectiveness. Sections 2 through 4 of this Amendment shall become effective, as of the date first above written, upon the satisfaction of the following conditions:
(a) The execution and delivery of this Amendment by the Borrower, the Administrative Agent and Lenders representing in aggregate the Required Lenders.
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(b) There shall not have occurred a material adverse change (a) in the operations, business, properties, liabilities (actual or contingent) or condition (financial or otherwise) of the Guarantor, the Borrower or their Subsidiaries, taken as a whole, since December 31, 2013, (b) the ability of the Borrower or the Guarantor to perform their respective Obligations under the Loan Documents, (c) the legality, validity, binding effect or enforceability against the Borrower or Guarantor of the Loan Documents (collectively, a “Material Adverse Effect”), or (d) in the facts and information regarding the Borrower and Guarantor as represented to date.
(c) The absence of any action, suit, investigation or proceeding pending or, to the knowledge of the Borrower or any Guarantor, threatened in any court or before any arbitrator or governmental authority that could reasonably be expected to have a Material Adverse Effect.
(d) The Administrative Agent shall have received certified copies of resolutions or other action, incumbency certificates and/or other certificates of Responsible Officer of each Loan Party as the Administrative Agent may require evidencing the identity, authority and capacity of each Responsible Officer thereof authorized to act as a Responsible Officer in connection with this Amendment and the other Loan Documents to which such Loan Party is a party.
(e) The Administrative Agent shall have received results of lien searches (updated from August 2013) for each Loan Party in Bermuda and in the office of the District of Columbia Recorder of Deeds.
SECTION 6 Representations and Warranties. Each Loan Party hereby represents and warrants to the Administrative Agent, the Swap Contract Counterparties and the Lenders as follows:
(a) Each Loan Party hereby confirms and restates, as of the date hereof, the representations and warranties made by it in Article V of the Credit Agreement and in the other Loan Documents. For the purposes of this Section 6, any representations and warranties which relate solely to an earlier date shall not be deemed confirmed and restated as of the date hereof (provided that such representations and warranties shall be true, correct and complete as of such earlier date).
(b) This Amendment has been duly executed and delivered by each Loan Party. The execution, delivery and performance by each Loan Party of this Amendment is within such Loan Party’s corporate powers and has been duly authorized by all necessary corporate or other organizational action. This Amendment and the Credit Agreement as amended hereby, and all other Loan Documents to which such Loan Party is a party constitute the legal, valid and binding obligation of such Loan Party, enforceable against each Loan Party that is a party thereto in accordance with its terms.
(c) The execution and delivery by such Loan Party of this Amendment and the performance by such Loan Party of this Amendment and the Credit Agreement as amended hereby will not (a) violate any Law, the violation of which could be reasonably expected to result in a Material Adverse Effect, (b) conflict with or result in any breach or contravention of, or the creation of any Lien under, or require any payment to be made under (i) any Contractual Obligation to which such Loan Party is a party or affecting such Loan Party or the Properties of such Loan Party or any of its Subsidiaries or (ii) any order, injunction, writ or decree of any Governmental Authority or any arbitral award to which such Loan Party or its property is subject.
(d) No Default or Event of Default has occurred and is continuing.
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SECTION 7 Ratification. Except as expressly amended hereby, the Credit Agreement, the other Loan Documents and all documents, instruments and agreements related thereto, are hereby ratified and confirmed in all respects and shall continue in full force and effect. The Credit Agreement, together with this Amendment, shall be read and construed as a single agreement. All references in the Loan Documents to the Credit Agreement or any other Loan Document shall hereafter refer to the Credit Agreement or any other Loan Document as amended hereby. The Lenders’ and the Administrative Agent’s execution and delivery of, or acceptance of, this Amendment shall not be deemed to create a course of dealing or otherwise create any express or implied duty by any of them to provide any other or further amendments, consents or waivers in the future.
SECTION 8 Miscellaneous.
(a) No Reliance. The Borrower hereby acknowledges and confirms to the Administrative Agent, the Swap Contract Counterparties and the Lenders that the Borrower is executing this Amendment on the basis of its own investigation and for its own reasons without reliance upon any agreement, representation, understanding or communication by or on behalf of any other Person.
(b) Costs and Expenses. The Borrower agrees to pay to the Administrative Agent on demand the reasonable out-of-pocket expenses incurred by the Administrative Agent and its Affiliates, including the reasonable fees, charges and disbursements of counsel to the Administrative Agent, in connection with the preparation, negotiation, execution and delivery of this Amendment.
(c) Binding Effect. This Amendment shall be binding upon, inure to the benefit of and be enforceable by the Borrower, the Administrative Agent, each Lender and their respective successors and assigns.
(d) Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW THAT WOULD RESULT IN THE APPLICATION OF THE LAW OF ANOTHER JURISDICTION; PROVIDED THAT SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW SHALL APPLY.
(e) Complete Agreement; Amendments. This Amendment, together with the other Loan Documents, contains the entire and exclusive agreement of the parties hereto and thereto with reference to the matters discussed herein and therein. This Amendment supersedes all prior commitments, drafts, communications, discussions and understandings, oral or written, with respect thereto. This Amendment may not be modified, amended or otherwise altered except in accordance with the terms of Section 11.01 of the Credit Agreement.
(f) Severability. Whenever possible, each provision of this Amendment shall be interpreted in such manner as to be effective and valid under all applicable laws and regulations. If, however, any provision of this Amendment shall be prohibited by or invalid under any such law or regulation in any jurisdiction, it shall, as to such jurisdiction, be deemed modified to conform to the minimum requirements of such law or regulation, or, if for any reason it is not deemed so modified, it shall be ineffective and invalid only to the extent of such prohibition or invalidity without affecting the remaining provisions of this Amendment, or the validity or effectiveness of such provision in any other jurisdiction.
(g) Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement. Delivery of an executed counterpart of a signature page of this Amendment by facsimile or in electronic (i.e., “pdf’ or “tif’) format shall be effective as delivery of a manually executed counterpart of this Amendment.
10
(h) Loan Documents. This Amendment shall constitute a Loan Document.
[Signature Pages Follow]
11
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment, as of the date first above written.
| THE BORROWER | ||
| TEXTAINER LIMITED | ||
| By |
/s/ Christopher C. Morris | |
| Name: | Christopher C. Morris | |
| Title: | Executive Vice President | |
| THE ADMINISTRATIVE AGENT | ||
| BANK OF AMERICA, N.A. | ||
| By |
/S/ Robert Rittelmeyer | |
| Name: | ||
| Title: | Vice President | |
| CONSENTED TO AND | ||
| ACKNOWLEDGED BY: | ||
| GUARANTOR | ||
| TEXTAINER GROUP HOLDINGS LIMITED | ||
| By |
/s/ Christopher C. Morris | |
| Name: | Christopher C. Morris | |
| Title: | Executive Vice President | |
Signature Page to Amendment No. 2 to Credit Agreement
EXHIBIT 4.16
TERM LOAN AGREEMENT
Dated as of April 30, 2014
among
TEXTAINER LIMITED,
as the Borrower,
TEXTAINER GROUP HOLDINGS LIMITED,
as the Guarantor,
UNION BANK, N.A.,
as Administrative Agent,
and
THE OTHER LENDERS PARTY HERETO
Arranged By:
UNION BANK, N.A
ING BELGIUM SA/NV
As Joint Lead Arrangers and Joint Book Runners
TABLE OF CONTENTS
| Page | ||||||
| ARTICLE I |
DEFINITIONS AND ACCOUNTING TERMS | 1 | ||||
| 1.01 |
Defined Terms | 1 | ||||
| 1.02 |
Other Interpretive Provisions | 24 | ||||
| 1.03 |
Accounting Terms | 24 | ||||
| 1.04 |
Rounding | 25 | ||||
| 1.05 |
Times of Day | 25 | ||||
| 1.06 |
Currency Equivalents Generally | 25 | ||||
| ARTICLE II |
THE COMMITMENTS AND LOANS | 25 | ||||
| 2.01 |
Commitments to Make Loans | 25 | ||||
| 2.02 |
Borrowings, Conversions and Continuations of Loans | 25 | ||||
| 2.03 |
[Intentionally Omitted] | 26 | ||||
| 2.04 |
[Intentionally Omitted] | 26 | ||||
| 2.05 |
Prepayments | 26 | ||||
| 2.06 |
[Intentionally Omitted] | 27 | ||||
| 2.07 |
Repayment of Loans | 27 | ||||
| 2.08 |
Interest | 27 | ||||
| 2.09 |
Fees | 28 | ||||
| 2.10 |
Computation of Interest and Fees; Retroactive Adjustments of Applicable Rate | 28 | ||||
| 2.11 |
Evidence of Debt | 29 | ||||
| 2.12 |
Payments Generally; Administrative Agent’s Clawback | 29 | ||||
| 2.13 |
Sharing of Payments by Lenders | 31 | ||||
| ARTICLE III |
TAXES, YIELD PROTECTION AND ILLEGALITY | 33 | ||||
| 3.01 |
Taxes | 33 | ||||
| 3.02 |
Illegality | 36 | ||||
| 3.03 |
Inability to Determine Rates | 37 | ||||
| 3.04 |
Increased Costs; Reserves on Eurodollar Rate Loans | 37 | ||||
| 3.05 |
Compensation for Losses | 38 | ||||
| 3.06 |
Mitigation Obligations; Replacement of Lenders | 39 | ||||
| ARTICLE IV |
CONDITIONS PRECEDENT TO LOAN | 39 | ||||
| 4.01 |
Conditions of Initial Borrowing | 39 | ||||
| 4.02 |
Conditions to all Borrowings | 42 | ||||
| ARTICLE V |
REPRESENTATIONS AND WARRANTIES | 43 | ||||
| 5.01 |
Existence, Qualification and Power | 43 | ||||
| 5.02 |
Authorization; No Contravention | 43 | ||||
| 5.03 |
Governmental Authorization; Other Consents | 43 | ||||
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TABLE OF CONTENTS
(continued)
| Page | ||||||
| 5.04 |
Binding Effect | 44 | ||||
| 5.05 |
Financial Statements; No Material Adverse Effect | 44 | ||||
| 5.06 |
Litigation | 44 | ||||
| 5.07 |
No Default | 44 | ||||
| 5.08 |
Ownership of Property; Liens; Investments | 44 | ||||
| 5.09 |
Environmental Compliance | 45 | ||||
| 5.10 |
Insurance | 45 | ||||
| 5.11 |
Taxes | 45 | ||||
| 5.12 |
ERISA Compliance | 45 | ||||
| 5.13 |
Subsidiaries; Equity Interests | 46 | ||||
| 5.14 |
Margin Regulations; Investment Company Act | 46 | ||||
| 5.15 |
Disclosure | 46 | ||||
| 5.16 |
Compliance with Laws | 46 | ||||
| 5.17 |
Solvency | 47 | ||||
| 5.18 |
Casualty, Etc | 47 | ||||
| 5.19 |
Collateral Matters | 47 | ||||
| 5.20 |
Foreign Assets Control Regulations, Embargoed Persons | 47 | ||||
| 5.21 |
Update of Schedules | 48 | ||||
| 5.22 |
Guarantor | 48 | ||||
| ARTICLE VI |
AFFIRMATIVE COVENANTS | 48 | ||||
| 6.01 |
Financial Statements | 48 | ||||
| 6.02 |
Certificates; Other Information | 48 | ||||
| 6.03 |
Notices | 51 | ||||
| 6.04 |
Payment of Obligations | 51 | ||||
| 6.05 |
Preservation of Existence, Etc | 51 | ||||
| 6.06 |
Maintenance of Properties | 52 | ||||
| 6.07 |
Maintenance of Insurance | 52 | ||||
| 6.08 |
Compliance with Laws | 52 | ||||
| 6.09 |
Books and Records | 52 | ||||
| 6.10 |
Inspection Rights | 52 | ||||
| 6.11 |
Use of Proceeds | 52 | ||||
| 6.12 |
Compliance with Environmental Laws | 52 | ||||
| 6.13 |
Further Assurances | 53 | ||||
| 6.14 |
Compliance with Terms of Leaseholds | 53 | ||||
| 6.15 |
Lien Searches | 53 | ||||
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TABLE OF CONTENTS
(continued)
| Page | ||||||
| 6.16 |
Material Contracts | 53 | ||||
| 6.17 |
“Know your Customer” Information | 53 | ||||
| 6.18 |
Sanctions Laws | 54 | ||||
| ARTICLE VII |
NEGATIVE COVENANTS | 54 | ||||
| 7.01 |
Liens | 54 | ||||
| 7.02 |
Indebtedness | 55 | ||||
| 7.03 |
Investments | 56 | ||||
| 7.04 |
Fundamental Changes | 57 | ||||
| 7.05 |
Dispositions | 57 | ||||
| 7.06 |
Restricted Payments | 58 | ||||
| 7.07 |
Change in Nature of Business | 58 | ||||
| 7.08 |
Transactions with Affiliates | 58 | ||||
| 7.09 |
Negative Pledge with respect to Certain Equity Interests | 58 | ||||
| 7.10 |
Use of Proceeds | 58 | ||||
| 7.11 |
Financial Covenants | 58 | ||||
| 7.12 |
Amendments of Organization Documents or Segregated Management Agreement | 59 | ||||
| 7.13 |
Accounting Changes | 59 | ||||
| 7.14 |
Prepayments, Etc | 59 | ||||
| 7.15 |
Container Management System | 59 | ||||
| 7.16 |
Lease Obligations | 59 | ||||
| 7.17 |
Amendment, Etc | 60 | ||||
| 7.18 |
OFAC | 60 | ||||
| ARTICLE VIII |
EVENTS OF DEFAULT AND REMEDIES | 60 | ||||
| 8.01 |
Events of Default | 60 | ||||
| 8.02 |
Remedies upon Event of Default | 62 | ||||
| 8.03 |
Application of Funds | 62 | ||||
| ARTICLE IX |
ADMINISTRATIVE AGENT | 63 | ||||
| 9.01 |
Appointment and Authority | 63 | ||||
| 9.02 |
Rights as a Lender | 63 | ||||
| 9.03 |
Exculpatory Provisions | 63 | ||||
| 9.04 |
Reliance by Administrative Agent | 64 | ||||
| 9.05 |
Delegation of Duties | 64 | ||||
| 9.06 |
Resignation of Administrative Agent | 65 | ||||
| 9.07 |
Non-Reliance on Administrative Agent and Other Lenders | 65 | ||||
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TABLE OF CONTENTS
(continued)
| Page | ||||||
| 9.08 |
No Other Duties, Etc | 66 | ||||
| 9.09 |
Administrative Agent May File Proofs of Claim | 66 | ||||
| 9.10 |
Collateral Matters | 66 | ||||
| ARTICLE X |
CONTINUING GUARANTY | 68 | ||||
| 10.01 |
Guaranty | 68 | ||||
| 10.02 |
Rights of Lenders | 68 | ||||
| 10.03 |
Certain Waivers | 68 | ||||
| 10.04 |
Obligations Independent | 69 | ||||
| 10.05 |
Subrogation | 69 | ||||
| 10.06 |
Termination; Reinstatement | 69 | ||||
| 10.07 |
Subordination | 69 | ||||
| 10.08 |
Stay of Acceleration | 69 | ||||
| 10.09 |
Condition of Borrower | 69 | ||||
| ARTICLE XI |
MISCELLANEOUS | 70 | ||||
| 11.01 |
Amendments, Etc | 70 | ||||
| 11.02 |
Notices; Effectiveness; Electronic Communication | 71 | ||||
| 11.03 |
No Waiver; Cumulative Remedies | 72 | ||||
| 11.04 |
Expenses; Indemnity; Damage Waiver | 73 | ||||
| 11.05 |
Payments Set Aside | 74 | ||||
| 11.06 |
Successors and Assigns | 75 | ||||
| 11.07 |
Treatment of Certain Information; Confidentiality | 78 | ||||
| 11.08 |
Right of Setoff | 79 | ||||
| 11.09 |
Interest Rate Limitation | 79 | ||||
| 11.10 |
Counterparts; Integration; Effectiveness | 79 | ||||
| 11.11 |
Survival of Representations and Warranties | 79 | ||||
| 11.12 |
Severability | 80 | ||||
| 11.13 |
Replacement of Lenders | 80 | ||||
| 11.14 |
Governing Law; Jurisdiction; Etc | 80 | ||||
| 11.15 |
Waiver of Jury Trial | 81 | ||||
| 11.16 |
No Advisory or Fiduciary Responsibility | 81 | ||||
| 11.17 |
Electronic Execution of Assignments | 82 | ||||
| 11.18 |
USA PATRIOT Act | 82 | ||||
| 11.19 |
Time of the Essence | 82 | ||||
| 11.20 |
Judgment Currency | 82 | ||||
-iv-
TERM LOAN AGREEMENT
This TERM LOAN AGREEMENT (this “Agreement”) is entered into as of April 30, 2014, among TEXTAINER LIMITED, an exempted company with limited liability incorporated under the laws of Bermuda (the “Borrower”), TEXTAINER GROUP HOLDINGS LIMITED, an exempted company with limited liability incorporated under the laws of Bermuda (the “Guarantor”), each lender from time to time party hereto (collectively, the “Lenders” and individually, a “Lender”), and UNION BANK, N.A., as Administrative Agent.
The Borrower has requested that the Lenders provide a term loan facility, and the Lenders are willing to do so on the terms and conditions set forth herein.
In consideration of the mutual covenants and agreements herein contained, the parties hereto covenant and agree as follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
1.01 Defined Terms. As used in this Agreement, the following terms shall have the meanings set forth below:
“Administrative Agent” means Union Bank, in its capacity as administrative agent under any of the Loan Documents, or any successor administrative agent.
“Administrative Agent’s Office” means the Administrative Agent’s address and, as appropriate, account as set forth on Schedule 11.02, or such other address or account as the Administrative Agent may from time to time notify to the Borrower and the Lenders.
“Administrative Questionnaire” means an Administrative Questionnaire in substantially the form of Exhibit E-2 or any other form approved by the Administrative Agent.
“Affiliate” means, with respect to any Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified.
“Aggregate Outstanding Amount” means, as of any date of determination, an amount equal to the sum of Outstanding Amount of all Loans owing to all of the Lenders.
“Aggregate Commitments” means, as of any date of determination, an amount equal to the sum of the Commitments of all the Lenders.
“Agreement” means this Term Loan Agreement, as amended, modified and supplemented in accordance with the terms hereof.
“Applicable Percentage” means, with respect to any Lender at any time, the percentage (carried out to the ninth decimal place) of the Aggregate Commitments represented by such Lender’s Commitment at such time. If the commitment of each Lender to make Loans has been terminated pursuant to Section 8.02 or if the Aggregate Commitments have expired, then the Applicable Percentage of each Lender shall be determined based on the Applicable Percentage of such Lender most recently in effect, giving effect to any subsequent assignments. The initial Applicable Percentage of each Lender is set forth opposite the name of such Lender on Schedule 2.01 or in the Assignment and Assumption pursuant to which such Lender becomes a party hereto, as applicable.
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“Applicable Rate” means, from time to time, the following percentages per annum, based upon the Consolidated Leverage Ratio of the Guarantor as set forth in the most recent Compliance Certificate received by the Administrative Agent pursuant to Section 6.02(b):
Applicable Rate
| Pricing |
Consolidated Leverage |
Eurodollar Rate |
Base Rate | |||
| 1 | £ 2.50:1 | 1.50% | 1.00% | |||
| 2 | > 2.50:1 but £ 3.00:1 |
1.75% | 1.25% | |||
| 3 | > 3.00:1 | 2.00% | 1.50% | |||
Any increase or decrease in the Applicable Rate resulting from a change in the Consolidated Leverage Ratio of the Guarantor shall become effective as of the first Business Day immediately following the date a Compliance Certificate is delivered pursuant to Section 6.02(b); provided, however, that if a Compliance Certificate is not delivered when due in accordance with such Section, then Pricing Level 3 shall apply as of the first Business Day after the date on which such Compliance Certificate was required to have been delivered and in each case shall remain in effect until the date on which such Compliance Certificate is delivered. The Applicable Rate in effect from the Closing Date through the date on which the first Compliance Certificate is delivered pursuant to Section 6.02(b) shall be determined based upon Pricing Level 1.
Notwithstanding anything to the contrary contained in this definition, the determination of the Applicable Rate for any period shall be subject to the provisions of Section 2.10(b).
“Approved Fund” means any Fund that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.
“Arranger” means each of Union Bank, N.A. and [ING] in its capacity as joint lead arranger and joint bookrunner.
“Assignee Group” means two or more Eligible Assignees that are Affiliates of one another or two or more Approved Funds managed by the same investment advisor.
“Assignment and Assumption” means an assignment and assumption entered into by a Lender and an Eligible Assignee (with the consent of any party whose consent is required by Section 11.06(b)), and accepted by the Administrative Agent, in substantially the form of Exhibit E or any other form (including electronic documentation generated by MarkitClear or other electronic platform) approved by the Administrative Agent.
“Audited Financial Statements” means the audited consolidated balance sheet of the Guarantor and its Subsidiaries for the fiscal year ended December 31, 2013, and the related consolidated statements of income or operations, shareholders’ equity and cash flows for such fiscal year of the Guarantor and its Subsidiaries, including the notes thereto.
“Availability Period” means the period from and including the Closing Date and ending on the earlier to occur of (a) September 30, 2014 and (b) the date on which the Commitments are terminated pursuant to Section 8.02.
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“Base Rate” means for any day a fluctuating rate per annum equal to the highest of (a) the Federal Funds Rate plus 1/2 of 1%, (b) the rate of interest in effect for such day as publicly announced from time to time by Union Bank as its “prime rate” and (c) the Eurodollar Rate plus 1%. The “prime rate” is a rate set by Union Bank based upon various factors including Union Bank’s costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate. Any change in such rate announced by Union Bank shall take effect at the opening of business on the day specified in the public announcement of such change.
“Base Rate Loan” means a Loan that bears interest based on the Base Rate.
“Blanket Management Agreement” means the Amended and Restated Equipment Management Services Agreement, dated as of November 1, 2002, between TEML and Borrower, as the same may be amended, restated, supplemented or otherwise modified from time to time. The term “Blanket Management Agreement” shall also be deemed to include any and all other written agreements which Borrower and TEML may enter into from time to time under which TEML has a right to hold, manage, lease or rent property (including without limitation Marine Containers), other than Collateral, of Borrower.
“Borrower” has the meaning specified in the introductory paragraph hereto.
“Borrower Materials” has the meaning specified in Section 6.02.
“Borrowing” means a borrowing consisting of simultaneous Loans of the same Type and, in the case of Eurodollar Rate Loans, having the same Interest Period, made by each of the Lenders pursuant to Section 2.01.
“Borrowing Base” means, as at any date of determination, an amount equal to the product of (i) 85% and (ii) the sum of the Net Book Values on such date of all Eligible Marine Containers.
“Borrowing Base Certificate” means a certificate with appropriate insertions setting forth the components of the Borrowing Base as of the last day of the quarter for which such certificate is submitted, or as of a requested Loan funding date or applicable Collateral release date, as the case may be, which certificate shall be substantially in the form of Exhibit G and shall be certified by an Authorized Signatory of Borrower.
“Business Day” means any day other than a Saturday, Sunday or other day on which commercial banks are authorized to close under the Laws of, or are in fact closed in, the state where the Administrative Agent’s Office is located and, if such day relates to any Eurodollar Rate Loan, means any such day on which dealings in Dollar deposits are conducted by and between banks in the London interbank eurodollar market.
“Cash Equivalents” means, in the case of Borrower, any of the following which are free and clear of all Liens (other than Liens created under the Collateral Documents, or permitted under Section 7.01(l), or customary Liens in favor of financial institutions holding such assets) and, in the case of Guarantor, any of the following:
(a) readily marketable obligations issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof having maturities of not more than 360 days from the date of acquisition thereof; provided that the full faith and credit of the United States of America is pledged in support thereof;
(b) time deposits with, or insured certificates of deposit or bankers’ acceptances of, any commercial bank that (i) (A) is a Lender or (B) is organized under the laws of the United States of America, any state thereof or the District of Columbia or is the principal banking subsidiary of a bank holding company organized under the laws of the United States of America, any state thereof or the District of Columbia, and is a member of the Federal Reserve System, or is organized under the laws of Canada, any province thereof or is the principal banking subsidiary of
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a bank holding company organized under the laws of Canada or any province thereof, (ii) issues (or the parent of which issues) commercial paper rated as described in clause (c) of this definition and (iii) has combined capital and surplus of at least $1,000,000,000, in each case with maturities of not more than 90 days from the date of acquisition thereof;
(c) commercial paper in an aggregate amount of no more than $10,000,000 per issuer outstanding at any time issued by any Person organized under the laws of any state of the United States of America or any province of Canada and rated at least “Prime-1” (or the then equivalent grade) by Moody’s or at least “A-1” (or the then equivalent grade) by S&P, in each case with maturities of not more than 180 days from the date of acquisition thereof; and
(d) Investments, classified in accordance with GAAP as current assets of the Borrower or any of its Subsidiaries, in money market investment programs registered under the Investment Company Act of 1940, which are administered by financial institutions that have the highest rating obtainable from either Moody’s or S&P, and the portfolios of which are limited solely to Investments of the character, quality and maturity described in clauses (a), (b) and (c) of this definition.
“Casualty Event” means any of the following events with respect to any Marine Container: (a) the actual total loss or compromised total loss thereof, (b) such Marine Container shall become lost, stolen, destroyed, damaged beyond repair or permanently rendered unfit for use for any reason whatsoever, (c) the seizure thereof for a period exceeding sixty (60) days or the condemnation or confiscation thereof or (d) if such Marine Container is subject to a Lease, such Marine Container shall be deemed under its Lease to have suffered a casualty loss as to the entire Marine Container.
“Change in Law” means the occurrence, after the date of this Agreement, of any of the following: (a) the adoption or taking effect of any law, rule, regulation or treaty, (b) any change in any law, rule, regulation or treaty or in the administration, interpretation, implementation or application thereof by any Governmental Authority or (c) the making or issuance of any request, rule, guideline or directive (whether or not having the force of law) by any Governmental Authority; provided that notwithstanding anything herein to the contrary, (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives thereunder or issued in connection therewith, (y) all requests, rules, guidelines or directives promulgated by the Bank for International Settlement, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities pursuant to Basel III, and (z) the implementation or application of, or compliance with, CRD IV (as defined below) or CRR(as defined below), or any law or regulation that implements or applies CRD IV or CRR shall, in each case, be deemed to be a “Change in Law”, regardless of the date enacted, adopted or issued or implemented. As used herein, “CRD IV” means Directive 2013/36/EU of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directive 2006/48/EC and 2006/49/EC, and “CRR” means regulation (EU) no. 575/2013 of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending regulation (EU) No. 648/2012.
“Change of Control” means, with respect to any Person, an event or series of events after the date hereof by which:
(a) any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, but excluding any employee benefit plan of such person or its subsidiaries, and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan) becomes the “beneficial owner” (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, except that a person or group shall be deemed to have “beneficial ownership” of all securities that such person or group has the right to acquire, whether such right is exercisable immediately or only after the passage of time (such right, an “option right”)), directly or indirectly, of thirty percent (30%) or more of the equity securities of such Person entitled to vote for members of the board of directors or equivalent governing body of such Person on a fully-diluted basis (and taking into account all such securities that such person or group has the right to acquire pursuant to any option right);
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(b) during any period of twelve (12) consecutive months, a majority of the members of the board of directors or other equivalent governing body of such Person cease to be composed of individuals (i) who were members of that board or equivalent governing body on the first day of such period, (ii) whose election or nomination to that board or equivalent governing body was approved by individuals referred to in clause (i) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body or (iii) whose election or nomination to that board or other equivalent governing body was approved by individuals referred to in clauses (i) and (ii) above constituting at the time of such election or nomination at least a majority of that board or equivalent governing body (excluding, in the case of both clause (ii) and clause (iii), any individual whose initial nomination for, or assumption of office as, a member of that board or equivalent governing body occurs as a result of an actual or threatened solicitation of proxies or consents for the election or removal of one or more directors by any person or group other than a solicitation for the election of one or more directors by or on behalf of the board of directors); or
(c) any Person or two or more Persons acting in concert shall have acquired by contract or otherwise, or shall have entered into a contract or arrangement that, upon consummation thereof, will result in its or their acquisition of the power to exercise, directly or indirectly, a controlling influence over the management or policies of such Person, or control over the equity securities of such Person entitled to vote for members of the board of directors or equivalent governing body of such Person on a fully-diluted basis (and taking into account all such securities that such Person or group has the right to acquire pursuant to any option right) representing thirty percent (30%) or more of the combined voting power of such securities.
“Closing Date” means the first date all the conditions precedent in Section 4.01 are satisfied or waived in accordance with Section 11.01.
“Code” means the Internal Revenue Code of 1986.
“Collateral” means all of the “Collateral” referred to in the Collateral Documents and all of the other property in which a Lien is purported to be granted under the terms of the Collateral Documents in favor of the Administrative Agent for the benefit of the Secured Parties.
“Collateral Documents” means, collectively, the Security Agreement, and any other security agreements, pledge agreements or other similar agreements delivered to the Administrative Agent pursuant to Section 6.13.
“Commitment” means, as to each Lender, its obligation to make Loans to the Borrower pursuant to Section 2.01, in an aggregate principal amount at any one time outstanding not to exceed the amount set forth opposite such Lender’s name on Schedule 2.01 or in the Assignment and Assumption pursuant to which such Lender becomes a party hereto, as applicable, as such amount may be adjusted from time to time in accordance with this Agreement.
“Commitment Fee Rate” means, three tenths of one percent (0.30%) per annum.
“Commodity Exchange Act” means the Commodity Exchange Act (7 U.S.C. § 1 et seq.), as amended from time to time, and any successor statute.
“Competitor” means any Person engaged and competing with either the Borrower or the Manager in the container leasing business; provided, however, that in no event shall any insurance company, bank, bank holding company, savings institution or trust company, fraternal benefit society, pension, retirement or profit sharing trust or fund, or any collateralized bond obligation fund or similar fund
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(or any trustee of any such fund) or any holder of any obligations of any such fund (solely as a result of being such a holder) be deemed to be a Competitor unless such Person or any of its Affiliates are directly and actively engaged in the operation of a container leasing business.
“Compliance Certificate” means a certificate substantially in the form of Exhibit D.
“Connection Income Taxes” means Other Connection Taxes that are imposed on or measured by net income (however denominated) or that are franchise Taxes or branch profits Taxes.
“Consolidated Funded Debt” means for any Person, on a consolidated basis, as of any date of determination, the total amount of the Indebtedness of such Person and its Subsidiaries described in clauses (a) through (g) and clause (i) of the definition thereof; provided that, with respect to clause (c) of the definition thereof, any Swap Contracts entered into by such Person to hedge interest rate risk and which are not entered into for speculative purposes shall not be included in the calculation of Consolidated Funded Debt. For purposes of Section 7.11, the Consolidated Funded Debt of each Loan Party shall be calculated to exclude the Consolidated Funded Debt (i) of TWC shown in the most recent consolidating financial statements of the Guarantor delivered pursuant to Section 6.01 and (ii) of any Subsidiary to the extent of any ownership of such Subsidiary held by any Person that is not a Loan Party or Affiliate thereof.
“Consolidated Intangible Assets” means for any Person, on a consolidated basis, as of any date of determination, all of the assets of such Person and its Subsidiaries that are considered to be intangible assets under GAAP, including customer lists, goodwill, computer software, copyrights, trade names, trademarks, patents, franchises, licenses, unamortized deferred charges, unamortized debt discount, the unamortized purchase price of acquired servicing or management rights and capitalized research and development costs.
“Consolidated Interest Coverage Ratio” means for any Person during any Measurement Period, the ratio of (A) the sum of (i) Consolidated Net Income of such Person (or, in the case of the Borrower, such Person without giving effect to any of its Subsidiaries (except as set forth in the proviso in this clause (i)) for such Measurement Period; provided, however, that with respect to the Consolidated Net Income of the Borrower, dividends paid by any Subsidiary of the Borrower or TWC shall be included in the calculation of the Consolidated Net Income of the Borrower, but only to the extent such dividends are actually paid in cash to the Borrower during such Measurement Period, (ii) income tax expense of such Person and its Subsidiaries (or, in the case of the Borrower, such Person without giving effect to any of its Subsidiaries) for such Measurement Period, (iii) Consolidated Interest Expense of such Person and its Subsidiaries (or, in the case of the Borrower, such Person without giving effect to any of its Subsidiaries (except as set forth in the proviso in this clause (iii)) for such Measurement Period; provided, however, that with respect to the Consolidated Interest Expense of the Borrower, interest expense payments made by the Borrower during such Measurement Period under any guaranties of Indebtedness of its Subsidiaries shall be included in the calculation of the Consolidated Interest Expense of the Borrower to the extent (x) not otherwise included in the Borrower’s Consolidated Interest Expense and (y) deducted in calculating the Borrower’s Consolidated Net Income during such Measurement Period, and (iv) rental expense of such Person and its Subsidiaries (or, in the case of the Borrower, such Person without giving effect to any of its Subsidiaries) during such Measurement Period relating to any lease of Marine Containers or transportation equipment under which such Person or Subsidiary is lessee, to (B) the sum of (1) Consolidated Interest Expense of such Person and its Subsidiaries (or, in the case of the Borrower, such Person without giving effect to any of its Subsidiaries, except as set forth in the proviso in this clause (1)) during such Measurement Period (to the extent that such amount is actually paid in cash by such Person during such Measurement Period); provided, however, that with respect to the Consolidated Interest Expense of the Borrower, interest expense payments made by the Borrower during such Measurement Period under any guaranties of Indebtedness of its Subsidiaries shall be included in the calculation of the Consolidated Interest Expense of the Borrower during such Measurement Period to the extent not otherwise included in the Borrower’s Consolidated Interest Expense for such Measurement Period, and (2) rental expense of such Person and its Subsidiaries (or, in the case of the Borrower, such Person without giving effect to any of its Subsidiaries) during such
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Measurement Period relating to any lease of Marine Containers or transportation equipment under which such Person or any Subsidiary thereof is lessee. For purposes of Section 7.11 of this Agreement, the Consolidated Interest Coverage Ratio of each Loan Party shall be calculated to exclude the net income of (i) of TWC (except as set forth in the proviso in clause (i) above) shown in the most recent consolidating financial statements of the Guarantor delivered pursuant to Section 6.01 and (ii) of any Subsidiary to the extent of any ownership of such Subsidiary held by any Person that is not a Loan Party or Affiliate thereof.
“Consolidated Interest Expense” means for any Person on a consolidated basis during any Measurement Period, the aggregate amount of the interest expense during such Measurement Period in respect of Indebtedness of such Person and its Subsidiaries, as determined in accordance with GAAP. For purposes of determining the amount of interest expense paid in connection with Indebtedness described in (i) clause (c) of the definition thereof, net cash costs (or gains) under such Indebtedness (including amortization of fees) shall be included in the foregoing calculation, and (ii) clause (f) of the definition thereof, the interest component of payments on such Indebtedness paid, accrued and/or scheduled to be paid or accrued by such Person and its Subsidiaries during such Measurement Period shall be included in the foregoing calculation. For purposes of Section 7.11, the Consolidated Interest Expense shall be calculated to exclude the interest expense (i) of TWC shown in the most recent consolidating financial statements of the Guarantor delivered pursuant to Section 6.01 and (ii) of any Subsidiary to the extent of any ownership of such Subsidiary held by any Person that is not a Loan Party or Affiliate thereof.
“Consolidated Leverage Ratio” means for any Person, as of any date of determination, the ratio of (a) Consolidated Funded Debt of such Person to (b) Consolidated Tangible Net Worth of such Person on such date.
“Consolidated Net Income” means for any Person, on a consolidated basis, as calculated for any Measurement Period, the net income (or loss) of such Person and its Subsidiaries for such Measurement Period; provided, however, that Consolidated Net Income shall exclude (a) extraordinary gains and extraordinary losses for such Measurement Period, and (b) any unrealized adjustments, whether positive or negative, to such net income (or loss) arising from the implementation of Statement of Financial Accounting Standards No. 133 issued by the Financial Accounting Standards Board with respect to any interest rate hedge arrangement entered into by such Person for non-speculative purposes in order to mitigate interest rate exposure.
“Consolidated Net Worth” means, for any Person, on a consolidated basis, as of any date of determination, the consolidated shareholders’ equity of such Person and its Subsidiaries as of that date determined in accordance with GAAP; provided that Consolidated Net Worth shall exclude any unrealized adjustments, whether positive or negative, arising from the implementation of Statement of Financial Accounting Standards No. 133 issued by the Financial Accounting Standards Board.
“Consolidated Tangible Assets” means, for any Person, as of any date of determination, the difference between (i) the Consolidated Total Assets of such Person and (ii) the Consolidated Intangible Assets of such Person.
“Consolidated Tangible Net Worth” means, for any Person, as of any date of determination, the difference between the Consolidated Net Worth of such Person and the Consolidated Intangible Assets of such Person. For purposes of Section 7.11, the Consolidated Tangible Net Worth of any Loan Party shall be calculated without giving effect to the tangible assets (i) of TWC (other than the Investment of the Borrower in TWC) or the Indebtedness of TWC, in each case, as shown in the most recent consolidating financial statements of the Guarantor delivered pursuant to Section 6.01, and (ii) of any Subsidiary (other than the Investment of the Borrower in TWC) or the Indebtedness of such Subsidiary, in each case, to the extent of any ownership of such Subsidiary held by any Person that is not a Loan Party or Affiliate thereof.
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“Consolidated Total Assets” means for any Person, on a consolidated basis, as of any date of determination, all assets of such Person and its Subsidiaries on such date; provided, however, that Consolidated Total Assets shall exclude any unrealized adjustments, whether positive or negative, to the value of any asset consisting of an interest rate hedge arrangement, arising from the implementation of Statement of Financial Accounting Standards No. 133 issued by the Financial Accounting Standards Board, if such interest rate hedge arrangement was entered into by such Person for non-speculative purposes in order to mitigate interest rate exposure.
“Contractual Obligation” means, as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound.
“Contributed Container” has the meaning set forth in Section 4.02(f).
“Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. “Controlling” and “Controlled” have meanings correlative thereto.
“Debtor Relief Laws” means the Bankruptcy Code of the United States, the Companies Act of Bermuda and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally.
“Default” means any event or condition that constitutes an Event of Default or that, with the giving of any notice, the passage of time, or both, would be an Event of Default.
“Default Rate” means an interest rate equal to (i) the Base Rate plus (ii) the Applicable Rate, if any, applicable to Base Rate Loans plus (iii) 2% per annum; provided, however, that with respect to a Eurodollar Rate Loan, the Default Rate shall be an interest rate equal to the interest rate (including any Applicable Rate) otherwise applicable to such Loan plus 2% per annum.
“Defaulting Lender” means any Lender that (a) has failed to fund any portion of the Loans required to be funded by it hereunder within one Business Day of the date required to be funded by it hereunder unless such Lender notifies the Administrative Agent and the Borrower in writing that such failure is the result of such Lender’s determination that one or more conditions precedent to funding (each of which conditions precedent, together with any applicable default, shall be specifically identified in such writing) has not been satisfied, (b) has otherwise failed to pay over to the Administrative Agent or any other Lender any other amount required to be paid by it hereunder within one Business Day of the date when due, unless the subject of a good faith dispute, (c) has been deemed insolvent or become the subject of a bankruptcy or insolvency proceeding or (d) has, or has a direct or indirect parent company that has, (i) become the subject of a proceeding under any Debtor Relief Law, or (ii) had appointed for it a receiver, custodian, conservator, trustee, administrator, assignee for the benefit of creditors or similar Person charged with reorganization or liquidation of its business or assets, including the Federal Deposit Insurance Corporation or any other state or federal regulatory authority acting in such a capacity; provided that a Lender shall not be a Defaulting Lender solely by virtue of the ownership or acquisition of any Equity Interest in that Lender or any direct or indirect parent company thereof by a Governmental Authority so long as such ownership interest does not result in or provide such Lender with immunity from the jurisdiction of courts within the United States or from the enforcement of judgments or writs of attachment on its assets or permit such Lender (or such Governmental Authority) to reject, repudiate, disavow or disaffirm any contracts or agreements made with such Lender. Any determination by the Administrative Agent that a Lender is a Defaulting Lender under any one or more of clauses (a) through (d) above, and of the effective date of such status, shall be conclusive and binding absent manifest error, and such Lender shall be deemed to be a Defaulting Lender as of the date established therefor by the Administrative Agent in a written notice of such determination, which shall be delivered by the Administrative Agent to the Borrower and each other Lender promptly following such determination.
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“Designated Swap Contract” means a Swap Contract entered into by the Borrower with any Lender (or Affiliate of a Lender) to hedge interest rate risk with respect to the Loans.
“Disposition” or “Dispose” means the sale, transfer, license, lease or other disposition (including any sale and leaseback transaction) of any property by any Person (or the granting of any option or other right to do any of the foregoing), including any sale, assignment, transfer or other disposal, with or without recourse, of any notes or accounts receivable or any rights and claims associated therewith.
“Dollar” and “$” mean lawful money of the United States.
“Eligible Assignee” means any Person that meets the requirements to be an assignee under Sections 11.06(b)(iii), (v) and (vi) (subject to such consents, if any, as may be required under Section 11.06(b)(iii)).
“Eligible Marine Container” means any Marine Container (including those subject to a Finance Lease) which is owned by the Borrower and in which the Administrative Agent has a first priority perfected security interest free and clear of all Liens other than Permitted Collateral Liens; provided, however, that (A) no Marine Container which has been the subject of a Casualty Event shall be an Eligible Marine Container, (B) no Trading Marine Container shall be an Eligible Marine Container and (C) no Marine Container which is leased or subleased to a Sanctioned Person or a Sanctioned Entity (other than by the United States government, or pursuant to a license issued by the appropriate authority) shall be an Eligible Marine Container.
“Environmental Laws” means any and all Federal, state, local, and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or governmental restrictions relating to pollution and the protection of the environment or the release of any materials into the environment, including those related to hazardous substances or wastes, air emissions and discharges to waste or public systems.
“Environmental Liability” means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of the Borrower, any other Loan Party or any of their respective Subsidiaries directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.
“Equity Interests” means, with respect to any Person, all of the shares of capital stock of (or other ownership or profit interests in) such Person, all of the warrants, options or other rights for the purchase or acquisition from such Person of the shares of capital stock of (or other ownership or profit interests in) such Person, all of the securities convertible into or exchangeable for shares of capital stock of (or other ownership or profit interests in) such Person or warrants, rights or options for the purchase or acquisition from such Person of such shares (or such other interests), and all of the other ownership or profit interests in such Person (including partnership, member or trust interests therein), whether voting or nonvoting, and whether or not such shares, warrants, options, rights or other interests are outstanding on any date of determination.
“ERISA” means the Employee Retirement Income Security Act of 1974.
“ERISA Affiliate” means any trade or business (whether or not incorporated) under common control with the Borrower within the meaning of Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412 of the Code).
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“ERISA Event” means (a) a Reportable Event with respect to a Pension Plan; (b) the withdrawal of the Borrower or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which such entity was a “substantial employer” as defined in Section 4001(a)(2) of ERISA or a cessation of operations that is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by the Borrower or any ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization; (d) the filing of a notice of intent to terminate, the treatment of a Pension Plan amendment as a termination under Section 4041 or 4041A of ERISA; (e) the institution by the PBGC of proceedings to terminate a Pension Plan; (f) any event or condition which constitutes grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan; (g) the determination that any Pension Plan is considered an at-risk plan or a plan in endangered or critical status within the meaning of Sections 430, 431 and 432 of the Code or Sections 303, 304 and 305 of ERISA; or (h) the imposition of any liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, upon the Borrower or any ERISA Affiliate.
“Eurodollar Base Rate” has the meaning specified in the definition of Eurodollar Rate.
“Eurodollar Rate” means,
(a) for any Interest Period with respect to a Eurodollar Rate Loan, a rate per annum determined by the Administrative Agent pursuant to the following formula:
| Eurodollar Rate = |
Eurodollar Base Rate | |
| 1.00 – Eurodollar Reserve Percentage |
Where,
“Eurodollar Base Rate” means the rate per annum equal to (i) the ICE Benchmark Administration Limited LIBOR Rate (“BBA LIBOR”), as published by Reuters (or such other commercially available source providing quotations of BBA LIBOR as may be designated by the Administrative Agent from time to time) at approximately 11:00 a.m., London time, two (2) Business Days prior to the commencement of such Interest Period, for Dollar deposits (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period or, (ii) if such rate is not available at such time for any reason, the rate per annum determined by the Administrative Agent to be the rate at which deposits in Dollars for delivery on the first day of such Interest Period in same day funds in the approximate amount of the Eurodollar Rate Loan being made, continued or converted and with a term equivalent to such Interest Period would be offered by Union Bank’s London Branch to major banks in the London interbank eurodollar market at their request at approximately 11:00 a.m. (London time) two (2) Business Days prior to the commencement of such Interest Period; and
(b) for any interest calculation with respect to a Base Rate Loan on any date, a rate per annum determined by the Administrative Agent pursuant to the following formula:
| Eurodollar Rate = |
Eurodollar Base Rate | |
| 1.00 – Eurodollar Reserve Percentage |
Where, “Eurodollar Base Rate” means the rate per annum equal to (i) BBA LIBOR, at approximately 11:00 a.m., London time determined two (2) Business Days prior to such date for Dollar deposits being delivered in the London interbank market for a term of one month commencing that day or (ii) if such published rate is not available at such time for any reason, the rate per annum determined by the Administrative Agent to be the rate at which deposits in Dollars for delivery on the date of determination in same day funds in the approximate amount of the Base Rate Loan being made or maintained and with a term equal to one month would be offered by Union Bank’s London Branch to major banks in the London interbank Eurodollar market at their request at the date and time of determination.
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“Eurodollar Rate Loan” means a Loan that bears interest at a rate based on the Eurodollar Rate.
“Eurodollar Reserve Percentage” means, for any day during any Interest Period, the reserve percentage (expressed as a decimal, carried out to five decimal places) in effect on such day, whether or not applicable to any Lender, under regulations issued from time to time by the FRB for determining the maximum reserve requirement (including any emergency, supplemental or other marginal reserve requirement) with respect to Eurocurrency funding (currently referred to as “Eurocurrency liabilities”). The Eurodollar Rate for each outstanding Eurodollar Rate Loan shall be adjusted automatically as of the effective date of any change in the Eurodollar Reserve Percentage.
“Event of Default” has the meaning specified in Section 8.01.
“Excluded Swap Obligation” means any portion of the Obligations related to a Swap Obligation if, and to the extent that, all or a portion of the Guaranty of the Guarantor of, or the grant by the Guarantor of a security interest to secure, such Swap Obligation (or any guarantee thereof) is or becomes illegal under the Commodity Exchange Act or any rule, regulation or order of the Commodity Futures Trading Commission (or the application or official interpretation of any thereof) by virtue of such Guarantor’s failure for any reason to constitute an “eligible contract participant” as defined in the Commodity Exchange Act at the time the Guaranty becomes effective with respect to such related Swap Obligation. If a Swap Obligation arises under a master agreement governing more than one swap, such exclusion shall apply only to the portion of such Swap Obligation that is attributable to swaps for which the Guaranty or security interest is or becomes illegal.
“Excluded Taxes” means any of the following Taxes imposed on or with respect to any Recipient or required to be withheld or deducted from a payment to a Recipient, (a) Taxes imposed on or measured by net income (however denominated), franchise Taxes, and branch profits Taxes, in each case, (i) imposed as a result of such Recipient being organized under the laws of, or having its principal office or, in the case of any Lender, its Lending Office located in, the jurisdiction imposing such Tax (or any political subdivision thereof) or (ii) that are Other Connection Taxes, (b) in the case of a Lender, U.S. federal withholding Taxes imposed on amounts payable to or for the account of such Lender with respect to an applicable interest in a Loan or Commitment pursuant to a law in effect on the date on which (i) such Lender acquires such interest in the Loan or Commitment (other than pursuant to an assignment request by the Borrower under Section 11.13) or (ii) such Lender changes its Lending Office, except in each case to the extent that, pursuant to Section 3.01(a)(ii), (a)(iii) or (c), amounts with respect to such Taxes were payable either to such Lender’s assignor immediately before such Lender became a party hereto or to such Lender immediately before it changed its Lending Office, (c) Taxes attributable to such Recipient’s failure to comply with Section 3.01(e) and (d) any U.S. federal withholding Taxes imposed pursuant to FATCA.
“FATCA” means Sections 1471 through 1474 of the Code, as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with) and any current or future regulations or official interpretations thereof.
“Federal Funds Rate” means, for any day, the rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; provided that (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate (rounded upward, if necessary, to a whole multiple of 1/100 of 1%) charged to Union Bank on such day on such transactions as determined by the Administrative Agent.
“Fee Letter” means each fee letter agreement among the Borrower, an Arranger and any other parties thereto.
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“Finance Lease” means any Lease of a Marine Container that (i) provides the lessee with the right to purchase for nominal value such Marine Container at the expiration of the term of such Lease or (ii) otherwise satisfies the criteria for classification as a direct financing lease pursuant to GAAP.
“Foreign Lender” means any Lender that is organized under the Laws of a jurisdiction other than that in which the Borrower is resident for tax purposes. For purposes of this definition, the United States, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction.
“FRB” means the Board of Governors of the Federal Reserve System of the United States.
“Fund” means any Person (other than a natural Person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its activities.
“GAAP” means, subject to Section 1.03(b), generally accepted accounting principles in the United States set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or such other principles as may be approved by a significant segment of the accounting profession in the United States, that are applicable to the circumstances as of the date of determination, consistently applied.
“Governmental Authority” means the government of the United States or any other nation, or of any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including any supra-national bodies such as the European Union or the European Central Bank).
“Guarantee” means, as to any Person, (a) any obligation, contingent or otherwise, of such Person guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation payable or performable by another Person (the “primary obligor”) in any manner, whether directly or indirectly, and including any obligation of such Person, direct or indirect, (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation, (ii) to purchase or lease property, securities or services for the purpose of assuring the obligee in respect of such Indebtedness or other obligation of the payment or performance of such Indebtedness or other obligation, (iii) to maintain working capital, equity capital or any other financial statement condition or liquidity or level of income or cash flow of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation, or (iv) entered into for the purpose of assuring in any other manner the obligee in respect of such Indebtedness or other obligation of the payment or performance thereof or to protect such obligee against loss in respect thereof (in whole or in part), or (b) any Lien on any assets of such Person securing any Indebtedness or other obligation of any other Person, whether or not such Indebtedness or other obligation is assumed by such Person (or any right, contingent or otherwise, of any holder of such Indebtedness to obtain any such Lien). The amount of any Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the related primary obligation, or portion thereof, in respect of which such Guarantee is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by the guaranteeing Person in good faith. The term “Guarantee” as a verb has a corresponding meaning.
“Guarantor” has the meaning specified in the introductory paragraph hereto.
“Guaranty” means the Guaranty made by the Guarantor under Article X in favor of the Secured Parties.
“Hazardous Materials” means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos-containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law.
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“IFRS” means International Financial Reporting Standards (as published by the International Accounting Standards Board).
“Indebtedness” means, as to any Person at a particular time, without duplication, all of the following, whether or not included as indebtedness or liabilities in accordance with GAAP:
(a) all obligations of such Person for borrowed money and all obligations of such Person evidenced by bonds, debentures, notes, loan agreements or other similar instruments;
(b) all direct or contingent obligations of such Person arising under letters of credit (including standby and commercial), bankers’ acceptances, bank guaranties, surety bonds and similar instruments;
(c) net obligations of such Person under any Swap Contract;
(d) all obligations of such Person to pay the deferred purchase price of property or services (other than trade accounts payable and Vendor Debt in the ordinary course of business and, in each case, not past due based on the terms that were applicable to such trade account payable or Vendor Debt when such trade account payable or Vendor Debt was created);
(e) indebtedness (excluding prepaid interest thereon) secured by a Lien on property owned or being purchased by such Person (including indebtedness arising under conditional sales or other title retention agreements), whether or not such indebtedness shall have been assumed by such Person or is limited in recourse;
(f) (i) the capitalized amount of any Capitalized Lease and (ii) the capitalized amount of the remaining payments under any Synthetic Lease, in each case, that would appear on the balance sheet of such Person prepared at such time in accordance with GAAP;
(g) all obligations of such Person to purchase, redeem, retire, defease or otherwise make any payment in respect of any Equity Interest in such Person or any other Person, valued, in the case of a redeemable preferred interest, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends;
(h) all Guarantees of such Person in respect of any of the foregoing; and
(i) any of the foregoing of any partnership or joint venture (other than a joint venture that is itself a corporation or limited liability company) in which such Person is a general partner or a joint venturer, unless such Indebtedness is expressly made non-recourse to such Person.
“Indemnified Taxes” means (a) Taxes, other than Excluded Taxes, imposed on or with respect to any payment made by or on account of any obligation of any Loan Party under any Loan Document and (b) to the extent not otherwise described in (a), Other Taxes.
“Indemnitee” has the meaning specified in Section 11.04(b).
“Information” has the meaning specified in Section 11.07.
“ING” means ING Belgium SA/NV and its successors.
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“Interest Payment Date” means, (a) as to any Loan other than a Base Rate Loan, the last day of each Interest Period applicable to such Loan and the Maturity Date; provided, however, that if any Interest Period for a Eurodollar Rate Loan exceeds three months, the respective dates that fall every three months after the beginning of such Interest Period shall also be Interest Payment Dates; and (b) as to any Base Rate Loan, the last Business Day of each March, June, September and December and the Maturity Date.
“Interest Period” means, as to each Eurodollar Rate Loan, the period commencing on the date such Eurodollar Rate Loan is disbursed or converted to or continued as a Eurodollar Rate Loan and ending on the date one, two, three or six months thereafter, as selected by the Borrower in its Loan Notice; provided that:
(a) any Interest Period that would otherwise end on a day that is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day;
(b) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period; and
(c) no Interest Period shall extend beyond the Maturity Date.
“Inventory” means all goods (as defined in the UCC) of Borrower held for sale, lease or rental consisting of intermodal containers, trailers, Marine Containers, and other container related transportation goods.
“Investment” means, as to any Person, any direct or indirect acquisition or investment by such Person, whether by means of (a) the purchase or other acquisition of capital stock or other securities of another Person, (b) a loan, advance or capital contribution to, Guarantee or assumption of debt of, or purchase or other acquisition of any other debt or equity participation or interest in, another Person, including any partnership or joint venture interest in such other Person and any arrangement pursuant to which the investor Guarantees Indebtedness of such other Person, or (c) the purchase or other acquisition (in one transaction or a series of transactions) of assets of another Person that constitute a business unit or all or a substantial part of the business of, such Person. For purposes of covenant compliance, the amount of any Investment shall be the amount actually invested, without adjustment for subsequent increases or decreases in the value of such Investment.
“IRS” means the United States Internal Revenue Service.
“Laws” means, collectively, all international, foreign, Federal, state and local statutes, treaties, rules, guidelines, regulations, ordinances, codes and administrative or judicial precedents or authorities, including the interpretation or administration thereof by any Governmental Authority charged with the enforcement, interpretation or administration thereof, and all applicable administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authority, in each case whether or not having the force of law.
“Lease” means each and every item of chattel paper, installment sales agreement, lease or rental agreement (including progress payment authorizations) to the extent relating to a Marine Container owned by Borrower, and includes, with respect to the foregoing, (a) all payments to be made thereunder, (b) all rights of Borrower therein, and (c) any and all amendments, renewals, extensions or guaranties thereof.
“Lender” has the meaning specified in the introductory paragraph hereto.
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“Lending Office” means, as to any Lender, the office or offices of such Lender described as such in such Lender’s Administrative Questionnaire, or such other office or offices as a Lender may from time to time notify the Borrower and the Administrative Agent.
“Lien” means any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge, or preference, priority or other security interest or preferential arrangement in the nature of a security interest of any kind or nature whatsoever (including any conditional sale or other title retention agreement, any easement, right of way or other encumbrance on title to real property, and any financing lease having substantially the same economic effect as any of the foregoing); provided that, for purposes of clarification, neither the Blanket Management Agreement nor the Segregated Management Agreement shall be deemed to constitute a Lien on the assets subject to management thereunder.
“Loan” means each loan advanced by a Lender to the Borrower pursuant to Section 2.01.
“Loan Documents” collectively, (a) this Agreement (including the Guaranty), (b) the Notes, (c) the Collateral Documents and (d) the Fee Letter.
“Loan Notice” means a notice of (a) a Borrowing, (b) a conversion of Loans from one Type to the other, or (c) a continuation of Eurodollar Rate Loans, pursuant to Section 2.02(a), which, if in writing, shall be substantially in the form of Exhibit A.
“Loan Parties” means, collectively, the Borrower and the Guarantor.
“Manager” means TEML, in its capacity as Manager under the Segregated Management Agreement.
“Marine Container” means any dry cargo, refrigerated, open top, flat rack, tank, high cube or other type of marine container which is held for lease or rental or sale, including those used as land-based storage containers (including without limitation any Trading Marine Container).
“Marine Container Collateral” means all Marine Containers that are Collateral.
“Material Adverse Effect” means (a) a material adverse change in, or a material adverse effect upon, the operations, business, properties, liabilities (actual or contingent) or condition (financial or otherwise) of the Guarantor, the Borrower or their Subsidiaries taken as a whole; (b) a material impairment of the ability of any Loan Party to perform its obligations under any Loan Document to which it is a party; or (c) a material adverse effect upon the legality, validity, binding effect or enforceability against any Loan Party of any Loan Document to which it is a party.
“Material Subsidiary” means, with respect to any Loan Party, any Subsidiary of such Loan Party (other than a Receivables Subsidiary) that owns assets in excess of ten percent (10%) of the book value of the total assets of TGH and its Subsidiaries.
“Maturity Date” means April 30, 2019.
“Measurement Period” means, at any date of determination for any Person, the most recently completed four fiscal quarters of such Person.
“Moody’s” means Moody’s Investors Service, Inc. and any successor thereto.
“Multiemployer Plan” means any employee benefit plan of the type described in Section 4001(a)(3) of ERISA, to which the Borrower or any ERISA Affiliate makes or is obligated to make contributions, or during the preceding five plan years, has made or been obligated to make contributions.
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“Net Book Value” means, as of any date of determination with respect to (a) a Marine Container that is not subject to a Finance Lease, an amount equal to the Original Equipment Cost of such Marine Container, less any accumulated depreciation as of such date of determination, calculated utilizing the Borrower’s depreciation policy as set forth on Exhibit H and (b) a Marine Container that is subject to a Finance Lease, the then net investment value in such Finance Lease, as determined in accordance with GAAP.
“Note” means a promissory note made by the Borrower in favor of a Lender evidencing Loans made by such Lender, substantially in the form of Exhibit C.
“Obligations” means all advances to, and debts, liabilities, obligations, covenants and duties of, any Loan Party arising under any Loan Document or otherwise with respect to any (i) Loan or (ii) Designated Swap Contract, whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to become due, now existing or hereafter arising and including interest and fees that accrue after the commencement by or against any Loan Party or any Affiliate thereof of any proceeding under any Debtor Relief Laws naming such Person as the debtor in such proceeding, regardless of whether such interest and fees are allowed claims in such proceeding.
“OFAC” means the U.S. Department of the Treasury’s Office of Foreign Assets Control.
“Ordinary Course of Business” means, in respect of any transaction involving the Borrower, the Guarantor or any of its Subsidiaries, in accordance with the customary practice of operators of container fleets or similar businesses, and undertaken by the Borrower, the Guarantor or any of its Subsidiaries, in good faith and not for purposes of evading any covenant or restriction in any Loan Document, including, without limitation, any transfer of Receivables Program Assets from Borrower to any Receivables Subsidiary that is permitted pursuant to Section 7.05(c) or Disposition of Trading Marine Containers permitted pursuant to Section 7.05(d).
“Organization Documents” means, (a) with respect to any corporation, the certificate or articles of incorporation and the bylaws (or equivalent or comparable constitutive documents with respect to any non-U.S. jurisdiction); (b) with respect to any limited liability company, the certificate or articles of formation or organization and operating agreement (or equivalent or comparable documents with respect to any non-U.S. jurisdiction); and (c) with respect to any partnership, joint venture, trust or other form of business entity, the partnership, joint venture or other applicable agreement of formation or organization and any agreement, instrument, filing or notice with respect thereto filed in connection with its formation or organization with the applicable Governmental Authority in the jurisdiction of its formation or organization and, if applicable, any certificate or articles of formation or organization of such entity.
“Original Equipment Cost” means, with respect to each Marine Container, an amount equal to the sum of (i) the vendor’s or manufacturer’s invoice price of such Marine Container, and (ii) all reasonable and customary inspection, transport, and initial positioning costs necessary to put such Marine Container in service.
“Other Connection Taxes” means, with respect to any Recipient, Taxes imposed as a result of a present or former connection between such Recipient and the jurisdiction imposing such Tax (other than connections arising from such Recipient having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to or enforced any Loan Document, or sold or assigned an interest in any Loan or Loan Document).
“Other Taxes” means all present or future stamp, court or documentary, intangible, recording, filing or similar Taxes that arise from any payment made under, from the execution, delivery, performance, enforcement or registration of, from the receipt or perfection of a security interest under, or otherwise with respect to, any Loan Document, except any such Taxes that are Other Connection Taxes imposed with respect to an assignment (other than an assignment made pursuant to Section 3.06).
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“Outstanding Amount” means with respect to any Loan on any date, the unpaid principal amount thereof after giving effect to any borrowings, prepayments and repayments of such Loan occurring on such date.
“Participant” has the meaning specified in Section 11.06(d).
“Participant Register” has the meaning specified in Section 11.06(d).
“PBGC” means the Pension Benefit Guaranty Corporation.
“Pension Plan” means any “employee pension benefit plan” (as such term is defined in Section 3(2) of ERISA, but excluding any Multiemployer Plan) that is either covered by Title IV of ERISA or is subject to the minimum funding standards under Section 412 of the Code and is sponsored or maintained by the Borrower or any ERISA Affiliate or to which the Borrower or any ERISA Affiliate contributes or has an obligation to contribute, including any such plan that is a multiple employer or other plan described in Section 4064(a) of ERISA.
“Permitted Acquisition” has the meaning specified in Section 7.03(i).
“Permitted Collateral Liens” means Liens of the type set forth in Section 7.01(a), (c), (d), (m) or (o).
“Permitted Liens” means Liens not prohibited by Section 7.01.
“Person” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.
“Plan” means (i) any employee benefit plan within the meaning of Section 3(3) of ERISA (including a Pension Plan), maintained for employees of the Borrower (or, in the case of any such Plan that is a Pension Plan, maintained for employees of any ERISA Affiliate), or (ii) any such Plan to which the Borrower (or, in the case of any such Plan that is a Pension Plan, to which an ERISA Affiliate), is required to contribute on behalf of any of its employees.
“Platform” has the meaning specified in Section 6.02.
“Pro Rata” means, with respect to the Lenders, in accordance with the Outstanding Amounts of the Loans from each Lender to the Aggregate Outstanding Amount, or if no Loans are outstanding, in accordance with their respective shares of the Aggregate Commitments.
“Qualified ECP Guarantor” means, for any Swap Obligation and any guaranty or grant of a security interest by a Person securing such Swap Obligation, such Person that total assets exceeding $10,000,000 at the time such guaranty or grant becomes effective, or such other person as constitutes an “eligible contract participant” under the Commodity Exchange Act or any regulations promulgated thereunder.
“Qualified Receivables Transaction” means any transaction, or series of transactions, that may be entered into by the Borrower or any Seller pursuant to which the Borrower or any Seller may sell, convey or otherwise transfer to a Receivables Subsidiary (in the case of a transfer by the Borrower or any other Seller) and any other Person (in the case of a transfer by a Receivables Subsidiary), or may grant a security interest in, any Receivables Program Assets (whether now existing or arising in the future); provided that:
(a) no portion of the indebtedness or any other obligations (contingent or otherwise) of a Receivables Subsidiary (i) is guaranteed by the Borrower, the Guarantor or other Seller (excluding guarantees of obligations pursuant to Standard Securitization Undertakings), (ii) is
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recourse to or obligates the Borrower, the Guarantor or any other Seller in any way other than pursuant to Standard Securitization Undertakings or (iii) subjects any property or asset of the Borrower, the Guarantor or any other Seller, directly or indirectly, contingently or otherwise, to the satisfaction of obligations incurred in such transactions, other than pursuant to Standard Securitization Undertakings;
(b) none of the Borrower, the Guarantor or any other Seller has any material contract, agreement, arrangement or understanding with a Receivables Subsidiary (except in connection with a Qualified Receivables Transaction) other than on terms no less favorable to the Borrower or such Seller than those that might be obtained at the time from Persons that are not affiliates of the Borrower, other than fees payable in the ordinary course of business in connection with servicing accounts receivable; provided that a sale of Marine Containers at net book value shall be deemed to comply with this paragraph (b);
(c) any such sale, conveyance or transfer to a Receivables Subsidiary or other Person of Receivables Program Assets shall be in exchange for consideration not less than the sum of (x) with respect to any Inventory, the sum of the net book value of such Inventory, plus (y) with respect to any other assets constituting Receivables Program Assets, the fair market value thereof; and
(d) none of the Borrower, the Guarantor and any other Seller has any obligation to maintain or preserve the financial condition of a Receivables Subsidiary or cause such entity to achieve certain levels of operating results.
“Receivables” means all rights of the Borrower or any Seller to payments (whether constituting accounts, chattel paper, instruments, general intangibles or otherwise, and including the right to payment of any interest or finance charges), which rights are identified in the accounting records of the Borrower or such Seller as accounts receivable.
“Receivables Document” means each (x) receivables purchase agreement, pooling and servicing agreement, credit agreement, agreement to acquire undivided interests or any other agreement to transfer, or create a security interest in, Receivables Program Assets, in each case as amended, modified, supplemented or restated and in effect from time to time entered into by the Borrower, another Seller and/or a Receivables Subsidiary, and (y) other instrument, agreement or document entered into by the Borrower, any other Seller or a Receivables Subsidiary relating to the transactions contemplated by the items referred to in clause (x) above, in each case as amended, modified, supplemented or restated and in effect from time to time. Each of (i) the Second Amended and Restated Contribution and Sale Agreement, dated as of June 8, 2006 (as amended, restated, supplemented or modified from time to time), between the Borrower and TMCL, (ii) the Container Sale Agreement, dated as of May 1, 2012 (as amended, restated, supplemented or modified from time to time), between the Borrower and TMCL II, (iii) the Contribution and Sale Agreement, dated as of September 25, 2013 (as amended, restated, supplemented or modified from time to time), between the Borrower and TMCLIII and (iv) the Contribution and Sale Agreement, dated as of August 5, 2013 (as amended, restated, supplemented or modified from time to time), between the Borrower and TMCLIV, shall be a Receivables Document.
“Receivables Program Assets” means (a) all Inventory and Receivables which are purported to be transferred by the Borrower, another Seller or a Receivables Subsidiary pursuant to the Receivables Documents, (b) all Receivables Related Assets, and (c) all collections (including recoveries) and other proceeds of the assets described in the foregoing clauses (a) and (b).
“Receivables Related Assets” means (i) any rights arising under the documentation governing or relating to Inventory or Receivables (including rights in respect of liens securing such Receivables and other credit support in respect of such Receivables), (ii) any proceeds of such Inventory or Receivables and any lockboxes or accounts in which such proceeds are deposited, (iii) spread accounts and other similar accounts (and any amounts on deposit therein) established in connection with a Qualified Receivables Transaction, (iv) any warranty, indemnity, dilution and other intercompany claim arising out
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of Receivables Documents and (v) other assets which are customarily transferred or in respect of which security interests are customarily granted in connection with asset securitization transactions involving goods (as defined in the UCC) and Receivables.
“Receivables Subsidiary” means a Special Purpose Vehicle that is a Subsidiary of the Borrower created in connection with the transactions contemplated by a Qualified Receivables Transaction, which subsidiary engages in no activities other than those incidental to such Qualified Receivables Transaction. Each of TMCL, TMCL II, TMCLIII, TMCLIV, TAP Funding and TWC shall be deemed a Receivables Subsidiary.
“Recipient” means the Administrative Agent, any Lender or any other recipient of any payment to be made by or on account of any Obligation.
“Register” has the meaning specified in Section 11.06(c).
“Related Documents” means (i) the TMCL Indenture, and each “Related Document” (as defined in the TMCL Indenture), (ii) the TMCL II Indenture, and each “Related Document” (as defined in the TMCL II Indenture), (iii) the TMCLIII Indenture and each “Related Document” (as defined in TMCLIII Indenture), (iv) the TMCLIV Indenture and each “Related Document” (as defined in the TMCLIV Indenture) and (v) the transaction documents governing any Qualified Receivables Transaction not addressed in clauses (i) through (iv) above.
“Related Parties” means, with respect to any Person, such Person’s Affiliates and the partners, directors, officers, employees, agents, trustees and advisors of such Person and of such Person’s Affiliates.
“Reportable Event” means any of the events set forth in Section 4043(c) of ERISA, other than events for which the 30 day notice period has been waived.
“Required Lenders” means, as of any date of determination, two or more Lenders having more than 50% of the Aggregate Commitments or, if the commitment of each Lender to make Loans has expired or been terminated pursuant to Section 8.02, two or more Lenders holding in the aggregate more than 50% of the Total Outstandings; provided that the Commitment of, and the portion of the Total Outstandings held or deemed held by, any Defaulting Lender shall be excluded for purposes of making a determination of Required Lenders.
“Responsible Officer” means the chief executive officer, president, executive vice president, chief financial officer, director, secretary (or, with respect to the Guarantor, any assistant secretary) or treasurer of a Loan Party and, solely for purposes of notices given pursuant to Article II, any other officer or employee of the applicable Loan Party so designated by any of the foregoing officers in a notice to the Administrative Agent. Any document delivered hereunder that is signed by a Responsible Officer of a Loan Party shall be conclusively presumed to have been authorized by all necessary corporate, partnership and/or other action on the part of such Loan Party and such Responsible Officer shall be conclusively presumed to have acted on behalf of such Loan Party.
“Revolving Credit Agreement” means the Credit Agreement, dated as of September 24, 2012 and amended as of July 25, 2013 and the date hereof, among the Borrower, the Guarantor, Bank of America, N.A., as administrative agent, and the lenders set forth therein, as amended, restated, supplemented or otherwise modified, renewed, refinanced or replaced.
“Restricted Payment” means any dividend or other distribution (whether in cash, securities or other property) with respect to any capital stock or other Equity Interest of the Borrower or any Subsidiary, or any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any such capital stock or other Equity Interest, or on account of any return of capital to the Borrower’s
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stockholders, partners or members (or the equivalent Person thereof; provided, however, that with respect to the Borrower, any loan made by the Borrower to the Guarantor the proceeds of which will be used by the Guarantor either (a) to pay dividends to the shareholders of the Guarantor or (b) in connection with a Permitted Acquisition, shall also be subject to the limitations contained in Section 7.03(h)).
“S&P” means Standard & Poor’s Financial Services LLC, a subsidiary of The McGraw-Hill Companies, Inc., and any successor thereto.
“Sanction(s)” means any international economic sanction administered or enforced by OFAC, the United Nations Security Council, the European Union, Her Majesty’s Treasury or other sanctions authority with authority over a Loan Party.
“Sanctioned Entity” means any country, Person or vessel subject to a sanctions program identified on (A) the list maintained by OFAC and available at http://www.treasury.gov/resource-center/sanctions/Pages/default.aspx, or as otherwise published from time to time; or (B) (i) the sanctions list administered and updated from time to time by the European Union, the United Nations and all other applicable sanctions lists (the “EU/UN Sanctions List”), and (ii) without duplication of the foregoing clause (i), any Person (A) resident of, or organized under, the laws of Cuba, Iran, Sudan or Syria or (B) controlled by the Government of Iran, in each case until Sanctions Laws are not applicable to such Persons.
“Sanctioned Person” means any Person that is: (i) subject to the provisions of the Executive Order; (ii) named on the list of “Specially Designated Nationals and Blocked Persons” maintained by OFAC available at http://www.treasury.gov/resource-center/sanctions/SDN-List/Pages/default.aspx, or as otherwise published from time to time, the EU/UN Sanctions List (as such term is defined in the term “Sanctioned Entity”) or as otherwise published from time to time as such program may be applicable to such agency, organization or person; (iii) (A) an agency of the government of a Sanctioned Person, (B) an organization directly or indirectly controlled by a Sanctioned Entity, or (C) a person resident in a Sanctioned Person, to the extent subject to a sanctions program administered by OFAC, the European Union or the United Nations; (iv) an Affiliate of or affiliated with a Person listed above or (v) a Sanctioned Entity.
“Sanctions Laws” means (1) U.S. sanctions laws including the Trading With The Enemy Act, the International Emergency, Economic Powers Act, the Iran Sanctions Act of 1996, as amended, the Comprehensive Iran Sanctions, Accountability, and Divestment Act of 2010, the National Defense Authorization Act of 2012 (including the Iran Freedom Counter-Proliferation Act), the Iran Threat Reduction and Syria Human Rights Act of 2012, the OFAC Sanctions Programs (including the U.S. Sanctions List) and (2) any other similar or equivalent applicable sanctions laws of the European Union, the United Nations or other jurisdiction, in each case, commonly observed by companies in the same industry as the Borrower.
“SEC” means the Securities and Exchange Commission, or any Governmental Authority succeeding to any of its principal functions.
“Secured Parties” means, collectively, (i) the Administrative Agent, (ii) the Lenders and (iii) any Lender (or Affiliate of a Lender) that is a counterparty to a Designated Swap Contract.
“Security Agreement” means the Security Agreement, dated as of May 2, 2014, executed by the Borrower, substantially in the form of Exhibit B, as such agreement may be amended, modified and supplemented in accordance with the terms of the Loan Documents.
“Segregated Management Agreement” means the Equipment Management Services Agreement, dated as of May 2, 2014, between TEML and Borrower, as the same may be amended, restated, supplemented or otherwise modified from time to time. The term “Segregated Management
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Agreement” shall also be deemed to include any and all other written agreements which Borrower and TEML may enter into from time to time under which TEML has a right to hold, manage, lease or rent Collateral.
“Seller” means the Borrower and any Subsidiary or other affiliate of the Borrower (other than a Receivables Subsidiary) which is a party to a Receivables Document.
“Solvent” and “Solvency” mean, with respect to any Person on any date of determination, that on such date (a) the fair value of the property of such Person is greater than the total amount of liabilities, including contingent liabilities, of such Person, (b) the present fair salable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person’s ability to pay such debts and liabilities as they mature, (d) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person’s property would constitute an unreasonably small capital, and (e) such Person is able to pay its debts and liabilities, contingent obligations and other commitments as they mature in the ordinary course of business. The amount of contingent liabilities at any time shall be computed as the amount that, in the light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.
“Special Purpose Vehicle” means a trust, partnership or other special purpose entity established by the Borrower and/or its Subsidiaries to implement a Qualified Receivables Transaction.
“Standard Securitization Undertakings” means the representations, warranties, covenants and indemnities of the Borrower or any Subsidiary that are reasonably customary in a securitization or sale of receivables transaction.
“Subsidiary” of a Person means a corporation, partnership, joint venture, limited liability company or other business entity of which a majority of the shares of securities or other interests having ordinary voting power for the election of directors or other governing body (other than securities or interests having such power only by reason of the happening of a contingency) are at the time beneficially owned, or the management of which is otherwise controlled, directly, or indirectly through one or more intermediaries, or both, by such Person. Unless otherwise specified, all references herein to a “Subsidiary” or to “Subsidiaries” shall refer to a Subsidiary or Subsidiaries of the Borrower.
“Swap Contract” means (a) any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, spot contracts, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement (any such master agreement, together with any related schedules, a “Master Agreement”), including any such obligations or liabilities under any Master Agreement.
“Swap Obligation” means any obligation to pay or perform under any agreement, contract or transaction that constitutes a “swap” within the meaning of section 1a(47) of the Commodity Exchange Act.
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“Swap Termination Value” means, in respect of any one or more Swap Contracts, after taking into account the effect of any legally enforceable netting agreement relating to such Swap Contracts, (a) for any date on or after the date such Swap Contracts have been closed out and termination value(s) determined in accordance therewith, such termination value(s), and (b) for any date prior to the date referenced in clause (a), the amount(s) determined as the mark-to-market value(s) for such Swap Contracts, as determined based upon one or more mid-market or other readily available quotations provided by any recognized dealer in such Swap Contracts (which may include a Lender or any Affiliate of a Lender).
“Synthetic Lease” or “Synthetic Lease Obligation” means the monetary obligation of a Person under (a) a so-called synthetic, off-balance sheet or tax retention lease, or (b) an agreement for the use or possession of property creating obligations that do not appear on the balance sheet of such Person but which, upon the insolvency or bankruptcy of such Person, would be characterized as the indebtedness of such Person (without regard to accounting treatment).
“TAP Funding” means TAP Funding LTD., an exempted company limited by shares incorporated under the laws of Bermuda, and its successors and assigns.
“Taxes” means all present or future taxes, levies, imposts, duties, deductions, withholdings (including backup withholding), assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.
“TEML” means Textainer Equipment Management Limited, an exempted company with limited liability continued under the laws of Bermuda, and its successors and assigns.
“TGH” means Textainer Group Holdings Limited, an exempted company with limited liability incorporated under the laws of Bermuda, and its successors and assigns.
“TMCL” means Textainer Marine Containers Limited, an exempted company with limited liability incorporated under the laws of Bermuda, and its successors and assigns.
“TMCL Indenture” means the Second Amended and Restated Indenture, dated as of May 26, 2005, between TMCL and Wells Fargo Bank, National Association, as indenture trustee, as amended, restated, supplemented or otherwise modified from time to time in accordance with its terms, including refinancings thereof.
“TMCL II” means Textainer Marine Containers II Limited, an exempted company with limited liability incorporated under the laws of Bermuda, and its successors and assigns.
“TMCL II Indenture” means the Indenture, dated as of May 1, 2012, between TMCL II and Wells Fargo Bank, National Association, as indenture trustee, as amended, restated, supplemented or otherwise modified from time to time in accordance with its terms, including refinancings thereof.
“TMCLIII” means Textainer Marine Containers III Limited, an exempted company with limited liability incorporated under the laws of Bermuda, and its successors and assigns.
“TMCLIII Indenture” means the Indenture, dated as of September 25, 2013, between TMCLIII and Wells Fargo Bank, National Association, as indenture trustee, as amended, restated, supplemented or otherwise modified from time to time in accordance with its terms, including refinancings thereof.
“TMCLIV” means Textainer Marine Containers IV Limited, an exempted company with limited liability incorporated under the laws of Bermuda, and its successors and assigns.
“TMCLIV Indenture” means the Indenture, dated as of August 5, 2013, between TMCLIV and Wells Fargo Bank, National Association, as indenture trustee, as amended, restated, supplemented or otherwise modified from time to time in accordance with its terms, including refinancings thereof.
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“Total Outstandings” means, as of any date of determination, an amount equal to the then Aggregate Outstanding Amount.
“Trading Marine Container” means a Marine Container acquired by the Borrower for purpose of the future sale thereof to a third party, and which is not subject to a Lease.
“TWC” means TW Container Leasing, Ltd., a company with limited liability organized under the laws of Bermuda, and its successors and assigns.
“Type” means, with respect to a Loan, its character as a Base Rate Loan or a Eurodollar Rate Loan.
“UCC” means the Uniform Commercial Code as in effect in the State of New York; provided that, if perfection or the effect of perfection or non-perfection or the priority of any security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of New York, “UCC” means the Uniform Commercial Code as in effect from time to time in such other jurisdiction for purposes of the provisions hereof relating to such perfection, effect of perfection or non-perfection or priority.
“Union Bank” means Union Bank, N.A. and its successors.
“United States” and “U.S.” mean the United States of America.
“U.S. Person” means any Person that is a “United States Person” as defined in Section 7701(a)(30) of the Code.
“USA PATRIOT Act” means the USA PATRIOT Improvement and Reauthorization Act of 2005 (Pub. L. 109-177 (signed into law March 9, 2006)), as amended and in effect from time to time.
“Vendor Debt” means all vendor debt and trade payables of Borrower in connection with the acquisition by the Borrower of a Marine Container (including a Marine Container subject to a Finance Lease).
“Weighted Average Age” means, for any group of Marine Containers as of any date of determination, an amount equal to the quotient of (i) the sum of the products for such Marine Containers, of (A) the age in years (determined from the date of manufacture thereof by the manufacturer) of each such Marine Container multiplied by (B) the Net Book Value of each such Marine Container, divided by (ii) the sum of the Net Book Values of all such Marine Containers.
“Weighted Average Life to Maturity” means, when applied to any Indebtedness at any date, the number of years obtained by dividing (a) the then outstanding aggregate principal amount of such Indebtedness into (b) the sum of the total of the products obtained by multiplying:
(i) the amount of each then remaining installment, sinking fund, serial maturity or other required payment of principal, including payment at final maturity, in respect thereof, by
(ii) the number of years (calculated to the nearest one-twelfth) which will elapse between such date and the making of such payment.
“Withholding Agent” means the Borrower, any Loan Party, and the Administrative Agent or any agent of the Borrower, any Loan Party, and the Administrative Agent.
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1.02 Other Interpretive Provisions. With reference to this Agreement and each other Loan Document, unless otherwise specified herein or in such other Loan Document:
(a) The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation.” The word “will” shall be construed to have the same meaning and effect as the word “shall.” Unless the context requires otherwise, (i) any definition of or reference to any agreement, instrument or other document (including any Organization Document) shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein or in any other Loan Document), (ii) any reference herein to any Person shall be construed to include such Person’s successors and assigns, (iii) the words “hereto,” “herein,” “hereof” and “hereunder,” and words of similar import when used in any Loan Document, shall be construed to refer to such Loan Document in its entirety and not to any particular provision thereof, (iv) all references in a Loan Document to Articles, Sections, Preliminary Statements, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Preliminary Statements, Exhibits and Schedules to, the Loan Document in which such references appear, (v) any reference to any law shall include all statutory and regulatory provisions consolidating, amending, replacing or interpreting such law and any reference to any law or regulation shall, unless otherwise specified, refer to such law or regulation as amended, modified or supplemented from time to time, and (vi) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights.
(b) In the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including;” the words “to” and “until” each mean “to but excluding;” and the word “through” means “to and including.”
Section headings herein and in the other Loan Documents are included for convenience of reference only and shall not affect the interpretation of this Agreement or any other Loan Document.
1.03 Accounting Terms. (a) Generally. All accounting terms not specifically or completely defined herein shall be construed in conformity with, and all financial data (including financial ratios and other financial calculations) required to be submitted pursuant to this Agreement shall be prepared (unless otherwise specified herein) in conformity with, GAAP applied on a consistent basis, as in effect from time to time, applied in a manner consistent with that used in preparing the Audited Financial Statements, except as otherwise specifically prescribed herein. Notwithstanding the foregoing, for purposes of determining compliance with any covenant (including the computation of any financial covenant) contained herein, Indebtedness of the Borrower and its Subsidiaries shall be deemed to be carried at 100% of the outstanding principal amount thereof, and the effects of FASB ASC 825 and FASB ASC 470-20 on financial liabilities shall be disregarded.
(b) Changes in GAAP. If at any time any change in GAAP (including the adoption of IFRS, if applicable) would affect the computation of any financial ratio or requirement set forth in any Loan Document, and either the Borrower or the Required Lenders shall so request, the Administrative Agent, the Lenders and the Borrower shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such change in GAAP (subject to the approval of the Required Lenders); provided that, until so amended, (A) such ratio or requirement shall continue to be computed in accordance with GAAP prior to such change therein and (B) the Borrower shall provide to the Administrative Agent and the Lenders financial statements and other documents required under this Agreement or as reasonably requested hereunder setting forth a reconciliation between calculations of such ratio or requirement made before and after giving effect to such change in GAAP. Without limiting the foregoing, leases shall continue to be classified and accounted for on a basis consistent with that reflected in the Audited Financial Statements for all purposes of this Agreement, notwithstanding any change in GAAP relating thereto, unless the parties hereto shall enter into a mutually acceptable amendment addressing such changes, as provided for above.
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(c) Consolidation of Variable Interest Entities. All references herein to consolidated financial statements of the Borrower or the Guarantor and its respective Subsidiaries or to the determination of any amount for the Borrower or the Guarantor and its respective Subsidiaries on a consolidated basis or any similar reference shall, in each case, be deemed to include each variable interest entity that the Borrower or the Guarantor is required to consolidate pursuant to FASB Interpretation No. 46 – Consolidation of Variable Interest Entities: an interpretation of ARB No. 51 (January 2003) as if such variable interest entity were a Subsidiary as defined herein.
1.04 Rounding. Any financial ratios required to be maintained by the Borrower pursuant to this Agreement shall be calculated by dividing the appropriate component by the other component, carrying the result to one place more than the number of places by which such ratio is expressed herein and rounding the result up or down to the nearest number (with a rounding-up if there is no nearest number).
1.05 Times of Day. Unless otherwise specified, all references herein to times of day shall be references to Eastern time (daylight or standard, as applicable).
1.06 Currency Equivalents Generally. Any amount specified in this Agreement (other than in Articles II, IX and X) or any of the other Loan Documents to be in Dollars shall also include the equivalent of such amount in any currency other than Dollars, such equivalent amount thereof in the applicable currency to be determined by the Administrative Agent at such time on the basis of the Spot Rate (as defined below) for the purchase of such currency with Dollars. For purposes of this Section 1.07, the “Spot Rate” for a currency means the rate determined by the Administrative Agent to be the rate quoted by the Person acting in such capacity as the spot rate for the purchase by such Person of such currency with another currency through its principal foreign exchange trading office at approximately 2:00 p.m. on the date two (2) Business Days prior to the date of such determination; provided that the Administrative Agent may obtain such spot rate from another financial institution designated by the Administrative Agent if the Person acting in such capacity does not have as of the date of determination a spot buying rate for any such currency.
ARTICLE II
THE COMMITMENTS AND LOANS
2.01 Commitments to Make Loans.
(a) Subject to the terms and conditions of this Agreement, each Lender severally agrees to make a loan to the Borrower on not more than two occasions during the Availability Period; provided, however, that after giving effect to any Borrowing, (i) the Aggregate Outstanding Amount shall not exceed the lesser of (x) the Aggregate Commitments and (y) the Borrowing Base, and (ii) the aggregate Outstanding Amount of the Loans of any Lender shall not exceed the lesser of (x) such Lender’s Commitment and (y) such Lender’s Pro Rata share of the Borrowing Base.
(b) Each Lender’s Commitment shall terminate on the last day of the Availability Period, after giving effect to any Borrowing made on such day.
(c) The facility evidenced by this Agreement is a term loan facility. Accordingly, the Borrower may not reborrow any principal payments or prepayment made pursuant to the terms of this Agreement.
2.02 Borrowings, Conversions and Continuations of Loans.
(a) Each Borrowing, each conversion of Loans from one Type to the other, and each continuation of Eurodollar Rate Loans shall be made upon the Borrower’s irrevocable notice to the Administrative Agent, which may be given by telephone. Each such notice must be received by the Administrative Agent not later than 2:00 p.m. (i) three Business Days prior to the requested date of any Borrowing of, conversion to or continuation of Eurodollar Rate Loans or of any conversion of Eurodollar Rate Loans to Base Rate Loans, and (ii) two Business Days prior to any Borrowing of Base Rate Loans. Each telephonic notice by the Borrower pursuant to this Section 2.02(a) must be confirmed promptly by
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delivery to the Administrative Agent of a written Loan Notice, appropriately completed and signed by a Responsible Officer of the Borrower. Each Borrowing of, conversion to or continuation of Eurodollar Rate Loans shall be in a principal amount of not less than $2,000,000 or a whole multiple of $1,000,000 in excess thereof. Each Borrowing of or conversion to Base Rate Loans shall be in a principal amount of not less than $500,000 or a whole multiple of $100,000 in excess thereof. Each Loan Notice (whether telephonic or written) shall specify (i) whether the Borrower is requesting a Borrowing, a conversion of Loans from one Type to the other, or a continuation of Eurodollar Rate Loans, (ii) the requested date of the Borrowing, conversion or continuation, as the case may be (which shall be a Business Day), (iii) the principal amount of Loans to be borrowed, converted or continued, (iv) the Type of Loans to be borrowed or to which existing Loans are to be converted, and (v) if applicable, the duration of the Interest Period with respect thereto. If the Borrower fails to specify a Type of Loan in a Loan Notice or if the Borrower fails to give a timely notice requesting a conversion or continuation, then the applicable Loans shall be made as, or converted to, Base Rate Loans. Any such automatic conversion to Base Rate Loans shall be effective as of the last day of the Interest Period then in effect with respect to the applicable Eurodollar Rate Loans. If the Borrower requests a Borrowing of, conversion to, or continuation of Eurodollar Rate Loans in any such Loan Notice, but fails to specify an Interest Period, it will be deemed to have specified an Interest Period of one month.
(b) Following receipt of a Loan Notice, the Administrative Agent shall promptly notify each Lender of the amount of its Applicable Percentage of the applicable Loans, and if no timely notice of a conversion or continuation is provided by the Borrower, the Administrative Agent shall notify each Lender of the details of any automatic conversion to Base Rate Loans described in Section 2.02(a). In the case of a Borrowing, each Lender shall make the amount of its Loan available to the Administrative Agent in immediately available funds at the Administrative Agent’s Office not later than 1:00 p.m. on the Business Day specified in the applicable Loan Notice. Upon satisfaction of the applicable conditions set forth in Section 4.02 (and, if such Borrowing is the initial Borrowing, Section 4.01), the Administrative Agent shall make all funds so received available to the Borrower in like funds as received by the Administrative Agent either by (i) crediting the account of the Borrower on the books of Union Bank with the amount of such funds or (ii) wire transfer of such funds, in each case in accordance with instructions provided to (and reasonably acceptable to) the Administrative Agent by the Borrower.
(c) Except as otherwise provided herein, a Eurodollar Rate Loan may be continued or converted only on the last day of an Interest Period for such Eurodollar Rate Loan. During the existence of a Default, no Loans may be requested as, converted to or continued as, Eurodollar Rate Loans without the consent of the Required Lenders.
(d) The Administrative Agent shall promptly notify the Borrower and the Lenders of the interest rate applicable to any Interest Period for Eurodollar Rate Loans upon determination of such interest rate. At any time that Base Rate Loans are outstanding, the Administrative Agent shall notify the Borrower and the Lenders of any change in Union Bank’s prime rate used in determining the Base Rate promptly following the public announcement of such change.
(e) After giving effect to all Borrowings, all conversions of Loans from one Type to the other, and all continuations of Loans as the same Type, there shall not be more than twenty (20) Interest Periods in effect with respect to Loans.
| 2.03 | [Intentionally Omitted]. |
| 2.04 | [Intentionally Omitted]. |
| 2.05 | Prepayments. |
(a) The Borrower may, upon notice to the Administrative Agent, at any time or from time to time voluntarily prepay Loans in whole or in part without premium or penalty; provided that (i) such notice must be received by the Administrative Agent not later than 2:00 p.m. (A) three (3) Business Days prior to any date of prepayment of Eurodollar Rate Loans and (B) on the date of prepayment of Base Rate Loans;
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(ii) any prepayment of Eurodollar Rate Loans shall be in a principal amount of not less than $2,000,000 or a whole multiple of $1,000,000 in excess thereof; and (iii) any prepayment of Base Rate Loans shall be in a principal amount of not less than $500,000 or a whole multiple of $100,000 in excess thereof or, in each case, if less, the entire principal amount thereof then outstanding. Each such notice shall specify the date and amount of such prepayment and the Type(s) of Loans to be prepaid and, if Eurodollar Rate Loans are to be prepaid, the Interest Period(s) of such Loans. The Administrative Agent will promptly notify each Lender of its receipt of each such notice, and of the amount of such Lender’s Applicable Percentage of such prepayment. If such notice is given by the Borrower, the Borrower shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein. Any prepayment of a Eurodollar Rate Loan shall be accompanied by all accrued interest on the amount prepaid, together with any additional amounts required pursuant to Section 3.05. Each such prepayment shall be applied to the Loans of the Lenders in accordance with their respective Applicable Percentages and shall be used to reduce the scheduled principal payments set forth in Section 2.07(a) on a pro rata basis based on the amount of such scheduled principal payments prior to such voluntary prepayment.
(b) [Intentionally Omitted].
(c) If for any reason the Total Outstandings at any time exceed the Borrowing Base as evidenced by the Borrowing Base Certificate most recently received by the Administrative Agent, the Borrower shall immediately prepay the outstanding principal amount of the Loans in an amount equal to such excess. Any mandatory prepayment of the Loans made pursuant to this Section 2.05(c) shall be applied: first, to accrued and unpaid fees; second, to accrued and unpaid interest; and third, to the unpaid principal balance of such Loans and shall be used to reduce the scheduled principal payments set forth in Section 2.07(a) on a pro rata basis based on the amount of such scheduled principal payments prior to such mandatory prepayment.
(d) Any prepayment of principal of a Loan shall include all interest accrued to the date of prepayment. Each such prepayment shall be applied to reduce all remaining scheduled principal payment amounts (including the principal payment amount due on the Maturity Date) in reverse order of maturity and to reduce the outstanding principal balances of the Loans of each Lender on a Pro Rata basis. The Administrative Agent will promptly notify each Lender of its receipt of any notice of prepayment, and of the amount of such Lender’s prepayment. Unless otherwise specified by the Borrower, each prepayment received by a Lender shall be applied first to repay in full all Base Rate Loans and then to prepay all LIBOR Loans.
2.06 [Intentionally Omitted].
2.07 Repayment of Loans.
(a) Subject to Sections 2.05(a) and 2.05(c), the Outstanding Amount of all Loans made during the Availability Period shall be payable in twenty (20) quarterly installments, pro rata, consisting of (i) nineteen (19) quarterly installments, commencing on September 30, 2014, each in an amount equal to one and fifty eight hundredth of one percent (1.58%) of the initial Aggregate Outstanding Amount at the end of Availability Period (calculated after giving effect to any Borrowing made on such date) and continuing on the last Business Day of each calendar quarter thereafter through and including March 31, 2019 and (ii) one installment payable on the Maturity Date in an amount equal to sixty nine and ninety eight hundredths of one percent (69.98%) of the initial Aggregate Outstanding Amount at the end of the Availability Period (calculated after giving effect to any Borrowing made on such date).
(b) All Obligations shall be payable in full on the earlier to occur of (i) the Maturity Date and (ii) the date on which the Loans have been declared due and payable in accordance with the provisions of Section 8.02.
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2.08 Interest.
(a) Subject to the provisions of Section 2.08(b), (i) each Eurodollar Rate Loan shall bear interest on the outstanding principal amount thereof for each Interest Period at a rate per annum equal to the Eurodollar Rate for such Interest Period plus the Applicable Rate; and (ii) each Base Rate Loan shall bear interest on the outstanding principal amount thereof from the applicable borrowing date at a rate per annum equal to the Base Rate plus the Applicable Rate.
(b) (i) If any amount of principal of any Loan is not paid when due (without regard to any applicable grace periods), whether at stated maturity, by acceleration or otherwise, such amount shall thereafter bear interest at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws.
(ii) If any amount (other than principal of any Loan) payable by the Borrower under any Loan Document is not paid when due (without regard to any applicable grace periods), whether at stated maturity, by acceleration or otherwise, then upon the request of the Required Lenders, such amount shall thereafter bear interest at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws.
(iii) Upon the request of the Required Lenders, while any Event of Default exists (other than as set forth in Sections 2.08(b)(i) and (ii) above), the Borrower shall pay interest on the principal amount of all outstanding Obligations hereunder at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws.
(iv) Accrued and unpaid interest on past due amounts (including interest on past due interest) shall be due and payable upon demand.
(c) Interest on each Loan shall be due and payable in arrears on each Interest Payment Date applicable thereto and at such other times as may be specified herein. Interest hereunder shall be due and payable in accordance with the terms hereof before and after judgment, and before and after the commencement of any proceeding under any Debtor Relief Law.
2.09 Fees.
(a) Commitment Fee. The Borrower shall pay to the Administrative Agent for the account of each Lender in accordance with its Applicable Percentage, a commitment fee equal to the Commitment Fee Rate times the actual daily amount (during the period specified herein) by which the Aggregate Commitments exceed the Total Outstandings. The commitment fee shall accrue during the period commencing on the ninety-first (91st) day of the Availability Period and ending on the last day of the Availability Period and shall be due and payable in arrears on September 30, 2014.
(b) Other Fees. (i) The Borrower shall pay to the Arrangers and the Administrative Agent for their own respective accounts fees in the amounts and at the times specified in the Fee Letter. Such fees shall be fully earned when paid and shall not be refundable for any reason whatsoever.
(ii) The Borrower shall pay to the Lenders such fees as shall have been separately agreed upon in writing in the amounts and at the times so specified. Such fees shall be fully earned when paid and shall not be refundable for any reason whatsoever.
2.10 Computation of Interest and Fees; Retroactive Adjustments of Applicable Rate.
(a) All computations of interest for Base Rate Loans shall be made on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed. All other computations of fees and interest shall be made on the basis of a 360-day year and actual days elapsed (which results in more fees or interest, as applicable, being paid than if computed on the basis of a 365-day year). Interest shall accrue on each Loan for the day on which the Loan is made, and shall not accrue on a Loan, or any portion thereof, for the day on which the Loan or such portion is paid, provided that any Loan that is repaid on the same day on which it is made shall, subject to Section 2.12(a), bear interest for one day. Each determination by the Administrative Agent of an interest rate or fee hereunder shall be conclusive and binding for all purposes, absent manifest error.
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(b) If, as a result of any restatement of or other adjustment to the financial statements of the Guarantor or for any other reason, the Guarantor or the Lenders determine that (i) the Consolidated Leverage Ratio as calculated by the Guarantor as of any applicable date was inaccurate and (ii) a proper calculation of the Consolidated Leverage Ratio would have resulted in higher (or lower) pricing for such period, the Borrower shall immediately and retroactively be obligated to pay to (or receive a refund from) the Administrative Agent for the account of the applicable Lenders promptly on demand by the Administrative Agent (or Borrower, as applicable) (or, after the occurrence of an actual or deemed entry of an order for relief with respect to the Borrower or the Guarantor under the Bankruptcy Code of the United States, automatically and without further action by the Administrative Agent or any Lender), an amount equal to the excess (or deficiency) of the amount of interest and fees that should have been paid for such period over the amount of interest and fees actually paid for such period; provided, however, that no Lender shall be required to refund to the Borrower any amount under this sentence with respect to any Interest Period if the Borrower shall request a refund of such amount 180 days or more after the end of such Interest Period. This Section 2.10(b) shall not limit the rights of the Administrative Agent or any Lender, as the case may be, under Section 2.08(b) or under Article VIII. The Borrower’s obligations under this Section 2.10(b) shall survive the termination of the Aggregate Commitments and the repayment of all other Obligations hereunder.
2.11 Evidence of Debt. The Loans made by each Lender shall be evidenced by one or more accounts or records maintained by such Lender and by the Administrative Agent in the ordinary course of business. The accounts or records maintained by the Administrative Agent and each Lender shall be conclusive absent manifest error of the amount of the Loans made by the Lenders to the Borrower and the interest and payments thereon. Any failure to so record or any error in doing so shall not, however, limit or otherwise affect the obligation of the Borrower hereunder to pay any amount owing with respect to the Obligations. In the event of any conflict between the accounts and records maintained by any Lender and the accounts and records of the Administrative Agent in respect of such matters, the accounts and records of the Administrative Agent shall control in the absence of manifest error. Upon the request of any Lender made through the Administrative Agent, the Borrower shall execute and deliver to such Lender (through the Administrative Agent) a Note, which shall evidence such Lender’s Loans in addition to such accounts or records. Each Lender may attach schedules to its Note and endorse thereon the date, Type (if applicable), amount and maturity of its Loans and payments with respect thereto.
2.12 Payments Generally; Administrative Agent’s Clawback.
(a) General. All payments to be made by the Borrower shall be made free and clear of and without condition or deduction for any counterclaim, defense, recoupment or setoff. Except as otherwise expressly provided herein, all payments by the Borrower hereunder shall be made to the Administrative Agent, for the account of the respective Lenders to which such payment is owed, at the Administrative Agent’s Office in Dollars and in immediately available funds not later than 2:00 p.m. on the date specified herein. The Administrative Agent will promptly distribute to each Lender its Applicable Percentage (or other applicable share as provided herein) of such payment in like funds as received by wire transfer to such Lender’s Lending Office. All payments received by the Administrative Agent after 2:00 p.m. shall be deemed received on the next succeeding Business Day and any applicable interest or fee shall continue to accrue. If any payment to be made by the Borrower shall come due on a day other than a Business Day, payment shall be made on the next following Business Day, and such extension of time shall be reflected in computing interest or fees, as the case may be.
(b) (i) Funding by Lenders; Presumption by Administrative Agent. Unless the Administrative Agent shall have received notice from a Lender prior to the proposed date of any Borrowing of Eurodollar Rate Loans (or, in the case of any Borrowing of Base Rate Loans, prior to 12:00 noon on the date of such Borrowing) that such Lender will not make available to the Administrative Agent such Lender’s share of such Borrowing, the Administrative Agent may assume that such Lender has
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made such share available on such date in accordance with Section 2.02 (or, in the case of a Borrowing of Base Rate Loans, that such Lender has made such share available in accordance with and at the time required by Section 2.02) and may, in reliance upon such assumption, make available to the Borrower a corresponding amount. In such event, if a Lender has not in fact made its share of the applicable Borrowing available to the Administrative Agent, then the applicable Lender and the Borrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount in immediately available funds with interest thereon, for each day from and including the date such amount is made available to the Borrower to but excluding the date of payment to the Administrative Agent, at (A) in the case of a payment to be made by such Lender, the greater of the Federal Funds Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation, plus any administrative, processing or similar fees customarily charged by the Administrative Agent in connection with the foregoing, and (B) in the case of a payment to be made by the Borrower, the interest rate applicable to Base Rate Loans. If the Borrower and such Lender shall pay such interest to the Administrative Agent for the same or an overlapping period, the Administrative Agent shall promptly remit to the Borrower the amount of such interest paid by the Borrower for such period. If such Lender pays its share of the applicable Borrowing to the Administrative Agent, then the amount so paid shall constitute such Lender’s Loan included in such Borrowing. Any payment by the Borrower shall be without prejudice to any claim the Borrower may have against a Lender that shall have failed to make such payment to the Administrative Agent.
(ii) Payments by Borrower; Presumptions by Administrative Agent. Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders hereunder that the Borrower will not make such payment, the Administrative Agent may assume that the Borrower has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders the amount due. In such event, if the Borrower has not in fact made such payment, then each of the Lenders severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender, in immediately available funds with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation.
A notice of the Administrative Agent to any Lender or the Borrower with respect to any amount owing under this Section 2.12(b) shall be conclusive, absent manifest error.
(c) Failure to Satisfy Conditions Precedent. If any Lender makes available to the Administrative Agent funds for any Loan to be made by such Lender as provided in the foregoing provisions of this Article II, and such funds are not made available to the Borrower by the Administrative Agent because the conditions to the applicable Loan set forth in Article IV are not satisfied or waived in accordance with the terms hereof, the Administrative Agent shall return such funds (in like funds as received from such Lender) to such Lender, without interest.
(d) Obligations of Lenders Several. The obligations of the Lenders hereunder to make Loans and to make payments pursuant to Section 11.04(c) are several and not joint. The failure of any Lender to make any Loan or to make any payment under Section 11.04(c) on any date required hereunder shall not relieve any other Lender of its corresponding obligation to do so on such date, and no Lender shall be responsible for the failure of any other Lender to so make its Loan, to purchase its participation or to make its payment under Section 11.04(c).
(e) Funding Source. Nothing herein shall be deemed to obligate any Lender to obtain the funds for any Loan in any particular place or manner or to constitute a representation by any Lender that it has obtained or will obtain the funds for any Loan in any particular place or manner.
(f) Insufficient Funds. If at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of principal, interest and fees then due hereunder, such funds shall be applied (i) first, toward payment of interest and fees then due hereunder, ratably among the
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parties entitled thereto in accordance with the amounts of interest and fees then due to such parties, and (ii) second, toward payment of principal then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal then due to such parties.
2.13 Sharing of Payments by Lenders. If any Lender shall, by exercising any right of setoff or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of the Loans made by it, resulting in such Lender’s receiving payment of a proportion of the aggregate amount of such Loans or participations and accrued interest thereon greater than its pro rata share thereof as provided herein, then the Lender receiving such greater proportion shall (a) notify the Administrative Agent of such fact, and (b) purchase (for cash at face value) participations in the Loans of the other Lenders, or make such other adjustments as shall be equitable, so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of principal of and accrued interest on their respective Loans and other amounts owing them, provided that:
(a) if any such participations or subparticipations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations or subparticipations shall be rescinded and the purchase price restored to the extent of such recovery, without interest; and
(b) the provisions of this Section 2.13 shall not be construed to apply to (x) any payment made by or on behalf of the Borrower pursuant to and in accordance with the express terms of this Agreement (including the application of funds arising from the existence of a Defaulting Lender) or (y) any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans to any assignee or participant, other than to the Borrower or any Subsidiary thereof (as to which the provisions of this Section 2.13 shall apply).
The Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against Borrower rights of setoff and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of the Borrower in the amount of such participation.
ARTICLE III
TAXES, YIELD PROTECTION AND ILLEGALITY
3.01 Taxes.
(a) Payments Free of Taxes; Obligation to Withhold; Payments on Account of Taxes.
(i) Any and all payments by or on account of any obligation of any Loan Party under any Loan Document shall be made without deduction or withholding for any Taxes, except as required by applicable Laws. If any applicable Laws (as determined in the good faith discretion of the applicable Withholding Agent) require the deduction or withholding of any Tax from any such payment by the Administrative Agent or a Loan Party, then the Administrative Agent or such Loan Party shall be entitled to make such deduction or withholding, upon the basis of the information and documentation to be delivered pursuant to Section 3.01(e).
(ii) If any Loan Party or the Administrative Agent shall be required by the Code to withhold or deduct any Taxes, including both United States Federal backup withholding and withholding taxes, from any payment, then (A) the Administrative Agent shall withhold or make such deductions as are determined by the Administrative Agent to be required based upon the information and documentation it has received pursuant to Section 3.01(e), (B) the Administrative Agent shall timely pay the full amount withheld or deducted to the relevant Governmental Authority in accordance with the Code, and (C) to the extent that the withholding or deduction is made on account of Indemnified Taxes, the sum payable by the applicable Loan Party shall be increased as necessary so that after any required withholding or the making of all required deductions (including deductions applicable to additional sums payable under this Section 3.01) the applicable Recipient receives an amount equal to the sum it would have received had no such withholding or deduction been made.
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(iii) If any Loan Party or the Administrative Agent shall be required by any applicable Laws other than the Code to withhold or deduct any Taxes from any payment, then (A) such Loan Party or the Administrative Agent, as required by such Laws, shall withhold or make such deductions as are determined by it to be required based upon the information and documentation it has received pursuant to Section 3.01(e), (B) such Loan Party or the Administrative Agent, to the extent required by such Laws, shall timely pay the full amount withheld or deducted to the relevant Governmental Authority in accordance with such Laws, and (C) to the extent that the withholding or deduction is made on account of Indemnified Taxes, the sum payable by the applicable Loan Party shall be increased as necessary so that after any required withholding or the making of all required deductions (including deductions applicable to additional sums payable under this Section 3.01) the applicable Recipient receives an amount equal to the sum it would have received had no such withholding or deduction been made.
(b) Payment of Other Taxes by the Borrower and the Guarantor. Without limiting the provisions of Section 3.01(a), the Borrower and the Guarantor shall timely pay to the relevant Governmental Authority in accordance with applicable law, or at the option of the Administrative Agent timely reimburse it for the payment of, any Other Taxes.
(c) Tax Indemnifications. (i) The Borrower shall, and does hereby, indemnify each Recipient, and shall make payment in respect thereof within 10 days after demand therefor, for the full amount of any Indemnified Taxes (including Indemnified Taxes imposed or asserted on or attributable to amounts payable under this Section 3.01) payable or paid by such Recipient or required to be withheld or deducted from a payment to such Recipient, and any reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Borrower by or on behalf of a Recipient, shall be conclusive absent manifest error. The Borrower shall, and does hereby, indemnify the Administrative Agent, and shall make payment in respect thereof within 10 days after demand therefor, for any amount which a Lender for any reason fails to pay indefeasibly to the Administrative Agent as required pursuant to Section 3.01(c)(ii).
(ii) Each Lender shall, and does hereby, severally indemnify, and shall make payment in respect thereof within 10 days after demand therefor, (x) the Administrative Agent against any Indemnified Taxes attributable to such Lender (but only to the extent that the Borrower has not already indemnified the Administrative Agent for such Indemnified Taxes and without limiting the obligation of the Borrower to do so), (y) the Administrative Agent and the Borrower, as applicable, against any Taxes attributable to such Lender’s failure to comply with the provisions of Section 11.06(d) relating to the maintenance of a Participant Register and (z) the Administrative Agent and the Borrower, as applicable, against any Excluded Taxes attributable to such Lender, in each case, that are payable or paid by the Administrative Agent or the Borrower in connection with any Loan Document, and any reasonable expenses arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to any Lender by the Administrative Agent shall be conclusive absent manifest error. Each Lender hereby authorizes the Administrative Agent to set off and apply any and all amounts at any time owing to such Lender under this Agreement or any other Loan Document against any amount due to the Administrative Agent under this Section 3.01(c)(ii).
(d) Evidence of Payments. Upon request by the Borrower, the Guarantor or the Administrative Agent, as the case may be, after any payment of Taxes by the Borrower, the Guarantor or the Administrative Agent to a Governmental Authority as provided in this Section 3.01, the Borrower and the Guarantor shall each deliver to the Administrative Agent or the Administrative Agent shall deliver to the Borrower and the Guarantor, as the case may be, the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of any return required by Laws to report such payment or other evidence of such payment reasonably satisfactory to the Borrower, the Guarantor or the Administrative Agent, as the case may be.
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(e) Status of Lenders; Tax Documentation. (i) Any Lender that is entitled to an exemption from or reduction of withholding Tax with respect to payments made under any Loan Document shall deliver to the Borrower and the Administrative Agent, at the time or times reasonably requested by the Borrower or the Administrative Agent, such properly completed and executed documentation reasonably requested by the Borrower or the Administrative Agent as will permit such payments to be made without withholding or at a reduced rate of withholding. In addition, any Lender, if reasonably requested by the Borrower or the Administrative Agent, shall deliver such other documentation prescribed by applicable law or reasonably requested by the Borrower or the Administrative Agent as will enable the Borrower or the Administrative Agent to determine whether or not such Lender is subject to backup withholding or information reporting requirements. Notwithstanding anything to the contrary in the preceding two sentences, the completion, execution and submission of such documentation (other than such documentation set forth in Sections 3.01(e)(ii)(A), (B) and (D)) shall not be required if in the Lender’s reasonable judgment such completion, execution or submission would subject such Lender to any material unreimbursed cost or expense or would materially prejudice the legal or commercial position of such Lender.
(ii) Without limiting the generality of the foregoing, in the event that the Borrower is a U.S. Person,
(A) any Lender that is a U.S. Person shall deliver to the Borrower and the Administrative Agent on or prior to the date on which such Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), executed originals of IRS Form W-9 certifying that such Lender is exempt from U.S. federal backup withholding tax;
(B) any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to the Borrower and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), whichever of the following is applicable:
(I) in the case of a Foreign Lender claiming the benefits of an income tax treaty to which the United States is a party (x) with respect to payments of interest under any Loan Document, executed originals of IRS Form W-8BEN establishing an exemption from, or reduction of, U.S. federal withholding Tax pursuant to the “interest” article of such tax treaty and (y) with respect to any other applicable payments under any Loan Document, IRS Form W-8BEN establishing an exemption from, or reduction of, U.S. federal withholding Tax pursuant to the “business profits” or “other income” article of such tax treaty;
(II) executed originals of IRS Form W-8ECI;
(III) in the case of a Foreign Lender claiming the benefits of the exemption for portfolio interest under Section 881(c) of the Code, (x) a certificate substantially in the form of Exhibit J-1 to the effect that such Foreign Lender is not a “bank” within the meaning of Section 881(c)(3)(A) of the Code, a “10 percent shareholder” of the Borrower within the meaning of Section 881(c)(3)(B) of the Code, or a “controlled foreign corporation” described in Section 881(c)(3)(C) of the Code (a “U.S. Tax Compliance Certificate”) and (y) executed originals of IRS Form W-8BEN; or
(IV) to the extent a Foreign Lender is not the beneficial owner, executed originals of IRS Form W-8IMY, accompanied by IRS Form W-8ECI, IRS Form W-8BEN, a U.S. Tax Compliance Certificate substantially in the form of Exhibit J-2 or Exhibit J-3, IRS Form W-9, and/or other certification documents from each beneficial owner, as applicable; provided that if the Foreign Lender is a partnership and one or more direct or indirect partners of such Foreign Lender are claiming the portfolio interest exemption, such Foreign Lender may provide a U.S. Tax Compliance Certificate substantially in the form of Exhibit J-4 on behalf of each such direct and indirect partner;
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(C) any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to the Borrower and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), executed originals of any other form prescribed by applicable law as a basis for claiming exemption from or a reduction in U.S. federal withholding Tax, duly completed, together with such supplementary documentation as may be prescribed by applicable law to permit the Borrower or the Administrative Agent to determine the withholding or deduction required to be made; and
(D) if a payment made to a Lender under any Loan Document would be subject to U.S. federal withholding Tax imposed by FATCA if such Lender were to fail to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Code, as applicable), such Lender shall deliver to the Borrower and the Administrative Agent at the time or times prescribed by law and at such time or times reasonably requested by the Borrower or the Administrative Agent such documentation prescribed by applicable law (including as prescribed by Section 1471(b)(3)(C)(i) of the Code) and such additional documentation reasonably requested by the Borrower or the Administrative Agent as may be necessary for the Borrower and the Administrative Agent to comply with their obligations under FATCA and to determine that such Lender has complied with such Lender’s obligations under FATCA or to determine the amount to deduct and withhold from such payment. Solely for purposes of this Section 3.01(e)(ii)(D), “FATCA” shall include any amendments made to FATCA after the date of this Agreement.
(ii) Each Lender agrees that if any form or certification it previously delivered pursuant to this Section 3.01 expires or becomes obsolete or inaccurate in any respect, it shall update such form or certification or promptly notify the Borrower and the Administrative Agent in writing of its legal inability to do so.
(f) Treatment of Certain Refunds. Unless required by applicable Laws, at no time shall the Administrative Agent have any obligation to file for or otherwise pursue on behalf of a Lender or have any obligation to pay to any Lender any refund of Taxes withheld or deducted from funds paid for the account of such Lender. If the Administrative Agent, any Lender determines, in its sole discretion, that it has received a credit or refund of any Indemnified Taxes or Other Taxes as to which it has been indemnified by the Borrower or the Guarantor, as the case may be or with respect to which the Borrower or the Guarantor, as the case may be has paid additional amounts pursuant to this Section 3.01, it shall pay to the Borrower or the Guarantor, as the case may be, an amount equal to such refund (but only to the extent of indemnity payments made, or additional amounts paid, by the Borrower or the Guarantor, as the case may be, under this Section 3.01 with respect to the Indemnified Taxes or Other Taxes giving rise to such refund), net of all out-of-pocket expenses incurred by the Administrative Agent or such Lender, as the case may be, and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund), provided that the Borrower or the Guarantor, as the case may be, upon the request of the Administrative Agent or such Lender, agrees to repay the amount paid over to the Borrower or the Guarantor, as the case may be (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to the Administrative Agent, such Lender in the event the Administrative Agent or such Lender is required to repay such refund to such Governmental Authority. Notwithstanding anything to the contrary in this Section 3.01(f), in no event will the applicable indemnifying party be required to pay any amount to the indemnified party pursuant to this Section 3.01(f) the payment of which would place the indemnifying party in a less favorable net after-Tax position than such indemnifying party would have been in if the Tax subject to indemnification and giving rise to such refund had not been deducted, withheld or otherwise imposed and the indemnification payments or additional amounts with respect to such Tax had never been paid. This Section 3.01(f) shall not be construed to require the Administrative Agent or any Lender to make available its tax returns (or any other information relating to its taxes that it deems confidential) to the Borrower, the Guarantor or any other Person.
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3.02 Illegality.
(a) If any Lender determines that any Law has made it unlawful, or that any Governmental Authority has asserted that it is unlawful, for any Lender or its Lending Office to make, maintain or fund Loans whose interest is determined by reference to the Eurodollar Rate, or to determine or charge interest rates based upon the Eurodollar Rate, or any Governmental Authority has imposed material restrictions on the authority of such Lender to purchase or sell, or to take deposits of, Dollars in the London interbank market, then, on notice thereof by such Lender to the Borrower through the Administrative Agent, (i) any obligation of such Lender to make or continue Eurodollar Rate Loans or to convert Base Rate Loans to Eurodollar Rate Loans shall be suspended, and (ii) if such notice asserts the illegality of such Lender making or maintaining Base Rate Loans the interest rate on which is determined by reference to the Eurodollar Rate component of the Base Rate, the interest rate on which Base Rate Loans of such Lender shall, if necessary to avoid such illegality, be determined by the Administrative Agent without reference to the Eurodollar Rate component of the Base Rate, in each case until such Lender notifies the Administrative Agent and the Borrower that the circumstances giving rise to such determination no longer exist. Upon receipt of such notice, (x) the Borrower shall, upon demand from such Lender (with a copy to the Administrative Agent), prepay or, if applicable, convert all Eurodollar Rate Loans of such Lender to Base Rate Loans (the interest rate on which Base Rate Loans of such Lender shall, if necessary to avoid such illegality, be determined by the Administrative Agent without reference to the Eurodollar Rate component of the Base Rate), either on the last day of the Interest Period therefor, if such Lender may lawfully continue to maintain such Eurodollar Rate Loans to such day, or immediately, if such Lender may not lawfully continue to maintain such Eurodollar Rate Loans and (y) if such notice asserts the illegality of such Lender determining or charging interest rates based upon the Eurodollar Rate, the Administrative Agent shall during the period of such suspension compute the Base Rate applicable to such Lender without reference to the Eurodollar Rate component thereof until the Administrative Agent is advised in writing by such Lender that it is no longer illegal for such Lender to determine or charge interest rates based upon the Eurodollar Rate. Upon any such prepayment or conversion, the Borrower shall also pay accrued interest on the amount so prepaid or converted.
(b) If, in any applicable jurisdiction, it becomes unlawful for any Lender to perform any of its obligations as contemplated by this Agreement or to fund or maintain its participation in any Loan:
(i) that Lender shall promptly notify the Administration Agent upon becoming aware of that event;
(ii) upon the Administration Agent notifying the Borrower, the Commitment of that Lender will be immediately cancelled; and
(iii) the Borrower shall repay that Lender’s participation in the Loans made to that Borrower on the last day of the Interest Period for each Loan occurring after the Administrative Agent has notified the Borrower or, if earlier, the date specified by the Lender in the notice delivered to the Administrative Agent (being no earlier than the last day of any applicable grace period permitted by law).
3.03 Inability to Determine Rates. If the Required Lenders determine that for any reason in connection with any request for a Eurodollar Rate Loan or a conversion to or continuation thereof that (a) Dollar deposits are not being offered to banks in the London interbank eurodollar market for the applicable amount and Interest Period of such Eurodollar Rate Loan, (b) adequate and reasonable means do not exist for determining the Eurodollar Rate for any requested Interest Period with respect to a proposed Eurodollar Rate Loan or in connection with an existing or proposed Base Rate Loan, or (c) the Eurodollar Rate for any requested Interest Period with respect to a proposed Eurodollar Rate Loan does not adequately and fairly reflect the cost to such Lenders of funding such Loan, the Administrative Agent will promptly so notify the Borrower and each Lender. Thereafter, (x) the obligation of the Lenders to make or maintain Eurodollar Rate Loans shall be suspended, and (y) in the event of a determination described in the preceding sentence with respect to the Eurodollar Rate component of the Base Rate, the utilization of the Eurodollar Rate component in determining the Base Rate shall be suspended, in each case until the Administrative Agent (upon the instruction of the Required Lenders) revokes such notice. Upon receipt of such notice, the Borrower may revoke any pending request for a Borrowing of, conversion to or continuation of Eurodollar Rate Loans or, failing that, will be deemed to have converted such request into a request for a Borrowing of Base Rate Loans in the amount specified therein.
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3.04 Increased Costs; Reserves on Eurodollar Rate Loans.
(a) Increased Costs Generally. If any Change in Law shall:
(i) impose, modify or deem applicable any reserve, special deposit, compulsory loan, insurance charge or similar requirement against assets of, deposits with or for the account of, or credit extended or participated in by, any Lender (except any reserve requirement contemplated by Section 3.04(e));
(ii) subject any Recipient to any Taxes (other than (A) Indemnified Taxes, (B) Taxes described in clauses (b) through (d) of the definition of Excluded Taxes and (C) Connection Income Taxes) on its loans, loan principal, letters of credit, commitments, or other obligations, or its deposits, reserves, other liabilities or capital attributable thereto; or
(iii) impose on any Lender or the London interbank market any other condition, cost or expense affecting this Agreement or Eurodollar Rate Loans made by such Lender;
and the result of any of the foregoing shall be to increase the cost to such Lender of making, converting to, continuing or maintaining any Loan the interest on which is determined by reference to the Eurodollar Rate (or of maintaining its obligation to make any such Loan, or to reduce the amount of any sum received or receivable by such Lender hereunder (whether of principal, interest or any other amount) then, upon request of such Lender, the Borrower will pay to such Lender such additional amount or amounts as will compensate such Lender for such additional costs incurred or reduction suffered.
(b) Capital Requirements. If any Lender determines that any Change in Law affecting such Lender or any Lending Office of such Lender or such Lender’s holding company, if any, regarding capital or liquidity requirements has or would have the effect of reducing the rate of return on such Lender’s capital or on the capital or liquidity of such Lender’s holding company, if any, as a consequence of this Agreement, the Commitments of such Lender or the Loans made by such Lender, to a level below that which such Lender or such Lender’s holding company could have achieved but for such Change in Law (taking into consideration such Lender’s policies and the policies of such Lender’s holding company with respect to capital adequacy or liquidity (other than a change solely in such policy)), then from time to time the Borrower will pay to such Lender such additional amount or amounts as will compensate such Lender or such Lender’s holding company for any such reduction suffered.
(c) Certificates for Reimbursement. A certificate of a Lender setting forth the amount or amounts necessary to compensate such Lender or its holding company, as the case may be, as specified in Section 3.04(a) or (b) and delivered to the Borrower shall be conclusive absent manifest error. The Borrower shall pay such Lender the amount shown as due on any such certificate within 10 days after receipt thereof.
(d) Delay in Requests. Failure or delay on the part of any Lender to demand compensation pursuant to the foregoing provisions of this Section 3.04 shall not constitute a waiver of such Lender’s right to demand such compensation; provided that the Borrower shall not be required to compensate a Lender pursuant to the foregoing provisions of this Section 3.04 for any increased costs incurred or reductions (i) suffered more than six (6) months prior to the date that such Lender notifies the Borrower of the Change in Law giving rise to such increased costs or reductions and of such Lender’s intention to claim compensation therefor (except that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the six (6) month period referred to above shall be extended to include the period of retroactive effect thereof) or (ii) if such Lender has not required other similarly situated borrowers or obligors to pay comparable amounts with respect to such increased costs or reductions.
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(e) Reserves on Eurodollar Rate Loans. The Borrower shall pay to each Lender, as long as such Lender shall be required to maintain reserves with respect to liabilities or assets consisting of or including Eurocurrency funds or deposits (currently known as “Eurocurrency liabilities”), additional interest on the unpaid principal amount of each Eurodollar Rate Loan equal to the actual costs of such reserves allocated to such Loan by such Lender (as determined by such Lender in good faith, which determination shall be conclusive), which shall be due and payable on each date on which interest is payable on such Loan, provided the Borrower shall have received at least 10 days’ prior notice (with a copy to the Administrative Agent) of such additional interest from such Lender. If a Lender fails to give notice 10 days prior to the relevant Interest Payment Date, such additional interest shall be due and payable 10 days from receipt of such notice.
3.05 Compensation for Losses. Upon demand of any Lender (with a copy to the Administrative Agent) from time to time, the Borrower shall promptly compensate such Lender for and hold such Lender harmless from any loss, cost or expense incurred by it as a result of:
(a) any continuation, conversion, payment or prepayment of any Loan other than a Base Rate Loan on a day other than the last day of the Interest Period for such Loan (whether voluntary, mandatory, automatic, by reason of acceleration, or otherwise);
(b) any failure by the Borrower (for a reason other than the failure of such Lender to make a Loan) to prepay, borrow, continue or convert any Loan other than a Base Rate Loan on the date or in the amount notified by the Borrower; or
(c) any assignment of a Eurodollar Rate Loan on a day other than the last day of the Interest Period therefor as a result of a request by the Borrower pursuant to Section 11.13;
including any loss of anticipated profits and any loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain such Loan or from fees payable to terminate the deposits from which such funds were obtained. The Borrower shall also pay any customary administrative fees charged by such Lender in connection with the foregoing.
For purposes of calculating amounts payable by the Borrower to the Lenders under this Section 3.05, each Lender shall be deemed to have funded each Eurodollar Rate Loan made by it at the Eurodollar Base Rate used in determining the Eurodollar Rate for such Loan by a matching deposit or other borrowing in the London interbank eurodollar market for a comparable amount and for a comparable period, whether or not such Eurodollar Rate Loan was in fact so funded.
3.06 Mitigation Obligations; Replacement of Lenders.
(a) Designation of a Different Lending Office. If any Lender requests compensation under Section 3.04, or the Borrower is required to pay any Indemnified Taxes or additional amounts to any Lender, or any Governmental Authority for the account of any Lender pursuant to Section 3.01, or if any Lender gives a notice pursuant to Section 3.02, then such Lender shall, as applicable, use reasonable efforts to designate a different Lending Office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 3.01 or 3.04, as the case may be, in the future, or eliminate the need for the notice pursuant to Section 3.02, as applicable, and (ii) in each case, would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender. The Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment.
(b) Replacement of Lenders. If any Lender requests compensation under Section 3.04, or if the Borrower is required to pay any Indemnified Taxes or additional amounts to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 3.01 and, in each case, such Lender has declined or is unable to designate a different lending office in accordance with Section 3.06(a), the Borrower may replace such Lender in accordance with Section 11.13.
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(c) Survival. All of the Borrower’s obligations under this Article III shall survive termination of the Aggregate Commitments, repayment of all other Obligations hereunder and resignation of the Administrative Agent.
ARTICLE IV
CONDITIONS PRECEDENT TO LOAN
4.01 Conditions of Initial Borrowing. The obligation of each Lender to make its initial Loan hereunder is subject to satisfaction of the following conditions precedent:
(a) The Administrative Agent’s receipt of the following, each of which shall be originals or telecopies (followed promptly by originals) unless otherwise specified, each properly executed by a Responsible Officer of the signing Loan Party, each dated the Closing Date (or, in the case of certificates of governmental officials, a recent date before the Closing Date) and each in form and substance satisfactory to the Administrative Agent and each of the Lenders:
(i) executed counterparts of this Agreement, sufficient in number for distribution to the Administrative Agent, each Lender and the Borrower;
(ii) a Note executed by the Borrower in favor of each Lender requesting a Note;
(iii) executed counterparts of the Security Agreement, duly executed by the Borrower, together with:
(A) copies of (1) Uniform Commercial Code financing statements in proper form for filing with the office of the District of Columbia Recorder of Deeds and the California Secretary of State and (2) Form No. 9 in proper form for filing with the Registrar of Companies of Bermuda, each covering the Collateral described in the Security Agreement,
(B) results of lien searches for filings in the jurisdictions referred to in Section 4.01(a)(iii)(A) that name the Borrower as debtor, and
(C) evidence that all other action that the Administrative Agent may deem necessary or desirable in order to perfect the Liens created under the Security Agreement has been taken (including receipt of duly executed lien releases and UCC-3 termination statements relating to the Lien of the Revolving Credit Agreement with respect to the Contributed Containers for such Borrowing date);
(iv) certified copies of resolutions or other action, incumbency certificates and/or other certificates of Responsible Officers of each Loan Party as the Administrative Agent may require evidencing the identity, authority and capacity of each Responsible Officer thereof authorized to act as a Responsible Officer in connection with this Agreement and the other Loan Documents to which such Loan Party is a party;
(v) such documents and certifications as the Administrative Agent may reasonably require to evidence that each Loan Party is duly organized or formed and in good standing in Bermuda, including without limitation certificates of compliance issued by the Registrar of Companies of the Islands of Bermuda for each Loan Party, dated a date close to the date of this Agreement, stating that each Loan Party is duly incorporated and in good standing under the Companies Act 1981 of the Islands of Bermuda;
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(vi) favorable opinions of (1) Morrison & Foerster LLP, counsel to the Loan Parties, (2) Conyers Dill & Pearman LLP, special Bermuda counsel to the Loan Parties, and (3) appropriate local counsel to the Loan Parties, in each case addressed to the Administrative Agent and each Lender, as to the matters set forth in Exhibit F and such other matters concerning the Loan Parties and the Loan Documents as the Required Lenders may reasonably request;
(vii) a certificate of a Responsible Officer of each Loan Party either (A) attaching copies of all consents, licenses and approvals required in connection with the execution, delivery and performance by such Loan Party and the validity against such Loan Party of the Loan Documents to which it is a party, and such consents, licenses and approvals shall be in full force and effect, or (B) stating that no such consents, licenses or approvals are so required;
(viii) a certificate signed by a Responsible Officer of the Borrower and the Guarantor certifying (A) that the conditions specified in Sections 4.02(a) and (b) have been satisfied, and (B) that there has been no event or circumstance since the date of the Audited Financial Statements that has had or could be reasonably expected to have, either individually or in the aggregate, a Material Adverse Effect;
(ix) a duly completed Compliance Certificate as of the last day of the respective fiscal year of the Borrower and the Guarantor ended on December 31, 2013, signed by Responsible Officers of the Borrower and the Guarantor;
(x) evidence that all insurance required to be maintained pursuant to the Loan Documents has been obtained, is in effect and contains endorsements naming the Administrative Agent, on behalf of the Lenders, as a joint assured and/or co-loss payee, as the case may be, under such insurance;
(xi) evidence that all filings, recordations and searches necessary or desirable to perfect the Lien on any property granted to or held by the Administrative Agent under any Loan Document shall have been completed, and that all related filing and recording fees and taxes shall have been duly paid;
(xii) a Borrowing Base Certificate duly certified by a Responsible Officer of the Borrower relating to the initial Borrowing; and
(xiii) such other assurances, certificates, documents, consents or opinions as the Administrative Agent or the Required Lenders reasonably may require.
(b) (i) All fees required to be paid to the Administrative Agent and the Arrangers on or before the Closing Date shall have been paid and (ii) all fees required to be paid to the Lenders on or before the Closing Date shall have been paid.
(c) Unless waived by the Administrative Agent, the Borrower shall have paid all fees, charges and disbursements of counsel to the Administrative Agent (directly to such counsel if requested by the Administrative Agent) to the extent invoiced prior to or on the Closing Date, plus such additional amounts of such fees, charges and disbursements as shall constitute its reasonable estimate of such fees, charges and disbursements incurred or to be incurred by it through the closing proceedings (provided that such estimate shall not thereafter preclude a final settling of accounts between the Borrower and the Administrative Agent).
(d) The Administrative Agent shall have completed a due diligence investigation of the Guarantor, the Borrower and their respective Subsidiaries in scope, and with results, satisfactory to the Administrative Agent and shall have been given such access to the management, records, books of account, contracts and properties of the Guarantor, the Borrower and their respective Subsidiaries and shall have received such financial, business and other information regarding each of the foregoing
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persons and businesses as they shall have requested, including, without limitation, information as to possible contingent liabilities, tax matters, collective bargaining agreements and other arrangements with employees, the annual (or other audited) financial statements of the Guarantor, the Borrower and their respective Subsidiaries for the fiscal years ended 2011, 2012 and 2013, interim financial statements of the Guarantor, the Borrower and their respective Subsidiaries dated the end of the most recent fiscal quarter for which financial statements are available (or, in the event the Administrative Agent’s due diligence review reveals material changes since such financial statements, as of a later date within 45 days of the Closing Date); and no changes or developments shall have occurred, and no new or additional information, shall have been received or discovered by the Administrative Agent or the Lenders regarding the Guarantor, the Borrower or their respective Subsidiaries or the transactions contemplated hereby after December 31, 2013 that either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect, and nothing shall have come to the attention of the Administrative Agent or the Lenders to lead them to believe that the transactions contemplated hereby will have a Material Adverse Effect.
(e) No action, suit, investigation or proceeding is pending or, to the knowledge of the Guarantor or the Borrower, threatened in any court or before any arbitrator or governmental authority that could reasonably be expected to have a Material Adverse Effect.
Without limiting the generality of the provisions of the last paragraph of Section 9.03, for purposes of determining compliance with the conditions specified in this Section 4.01, each Lender that has signed this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to a Lender.
4.02 Conditions to all Borrowings. The obligation of each Lender to honor any Loan Notice (other than a Loan Notice requesting only a conversion of Loans to the other Type, or a continuation of Eurodollar Rate Loans), is subject to the following conditions precedent:
(a) The representations and warranties of the Borrower and each other Loan Party contained in Article V or any other Loan Document, or which are contained in any document furnished at any time under or in connection herewith or therewith, shall be true and correct on and as of the date of such Borrowing, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they shall be true and correct as of such earlier date.
(b) No Default shall exist, or would result from such proposed Loan or from the application of the proceeds thereof.
(c) The Administrative Agent shall have received a Loan Notice in accordance with the requirements hereof and the funding date for such Loan occurs during the Availability Period.
(d) The Borrowing Base exceeds the Total Outstandings both before and after giving effect to such Borrowing, and the Borrower shall have delivered to the Administrative Agent a duly completed and executed Borrowing Base Certificate demonstrating the same.
(e) Both before and after giving effect to such Loan, the Borrower and the Guarantor shall be in compliance with the financial covenants set forth in Section 7.11.
(f) With respect to the pool of Marine Containers that will be added as Eligible Marine Containers on the date of such Borrowing (the “Contributed Containers” for such date):
(i) The sum of the Net Book Values of all such Contributed Containers that are not then subject to a Lease (i.e., off-lease containers) shall not exceed an amount equal to eight percent (8%) of the sum of the then Net Book Values of all Contributed Containers added on such date.
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(ii) The Weighted Average Age of such Contributed Containers does not exceed eight (8) years.
(iii) The sum of the Net Book Values of such Contributed Containers that are on Lease to any single lessee (or sublessee) shall not exceed 25% of the aggregate Net Book Value of all such Contributed Containers and the sum of the Net Book Values of such Contributed Containers that are on Lease to any two lessees (or sublessees) shall not exceed 40% of the aggregate Net Book Value of all such Contributed Containers.
(iv) For such Contributed Containers that are subject to long term leases, the period remaining in the base term of such long term leases (on a weighted average basis for all such Contributed Containers) is at least 30 months.
(v) Such Contributed Containers are reasonably acceptable to the Administrative Agent (provided that such acceptance shall not unreasonably be withheld).
For sake of clarity, all of criteria set forth in clauses (i) through (v) inclusive shall be applied for each separate grouping of Contributed Containers.
(g) By not later than the fifth Business Day preceding the date of such Borrowing, the Borrower shall have delivered to the Administrative Agent (i) a list of the Contributed Containers for such Borrowing date and related Leases and (ii) a certificate of a Responsible Officer of the Borrower certifying that, after giving effect to the inclusion of such Contributed Containers among the Collateral, all of the criteria set forth in Section 4.02(e) and (f) above have been satisfied. Upon the request of the Administrative Agent, the Borrower will provide to the Administrative Agent all supporting calculations and documentation that evidence compliance with the criteria set forth in Section 4.02(f).
(h) The Borrower shall have delivered a supplemental security agreement, in the form attached hereto as Exhibit K, with regard to such Contributed Containers, and the Administrative Agent shall have received (A) evidence that all filings, recordations, releases (including a release with respect to the Lien of the Revolving Credit Agreement), and amendments to prior filings or recordations necessary or desirable to perfect the Lien on any Contributed Containers shall have been completed, and that all related filing and recording fees and taxes shall have been duly paid and (B) updates through the approximate date of the Borrowing of the lien searches referred to in Section 4.01(a)(iii)(B).
Each Loan Notice (other than a Loan Notice requesting only a conversion of Loans to the other Type or a continuation of Eurodollar Rate Loans) submitted by the Borrower shall be deemed to be a representation and warranty that the conditions specified in Sections 4.02(a), (b), (d), (e), (f) and (h) have been satisfied on and as of the date of the applicable Loan.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
Each Loan Party, for itself and, where applicable, its Subsidiaries, represents and warrants, to the Administrative Agent and the Lenders that:
5.01 Existence, Qualification and Power. Each Loan Party (a) is duly organized or formed, validly existing and, as applicable, in good standing under the Laws of the jurisdiction of its incorporation or organization, (b) has all requisite power and authority and all requisite governmental licenses, authorizations, consents and approvals to (i) own or lease its assets and carry on its business and (ii) execute, deliver and perform its obligations under the Loan Documents to which it is a party, and (c) is duly qualified and is licensed and, as applicable, in good standing under the Laws of each jurisdiction where its ownership, lease or operation of properties or the conduct of its business requires such qualification or license; except in each case referred to in clause (b)(i) or (c), to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect.
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5.02 Authorization; No Contravention. The execution, delivery and performance by each Loan Party of each Loan Document to which such Person is party, have been duly authorized by all necessary corporate or other organizational action, and do not and will not (a) contravene the terms of any of such Person’s Organization Documents; (b) conflict with or result in any breach or contravention of, or the creation of any Lien under, or require any payment to be made under (i) any Contractual Obligation to which such Person is a party or affecting such Person or the properties of such Person or any of its Subsidiaries or (ii) any order, injunction, writ or decree of any Governmental Authority or any arbitral award to which such Person or its property is subject; or (c) violate any Law, the violation of which could be reasonably expected to result in a Material Adverse Effect.
5.03 Governmental Authorization; Other Consents. Each approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority or any other Person necessary or required in connection with (a) the execution, delivery or performance by, or enforcement against, any Loan Party of this Agreement or any other Loan Document, (b) the grant by any Loan Party of the Liens granted by it pursuant to the Loan Documents, (c) the perfection or maintenance of the Liens created under the Loan Documents (including the first priority nature thereof) or (d) the exercise by the Administrative Agent or any Lender of its rights under the Loan Documents or the remedies in respect of the Collateral pursuant to the Collateral Documents, has been satisfied or obtained, except for the authorizations, approvals, actions, notices and filings set forth on Schedule 5.03.
5.04 Binding Effect. This Agreement has been, and each other Loan Document, when delivered hereunder, will have been, duly executed and delivered by each Loan Party that is party thereto. This Agreement constitutes, and each other Loan Document when so delivered will constitute, a legal, valid and binding obligation of such Loan Party, enforceable against each Loan Party that is party thereto in accordance with its terms.
5.05 Financial Statements; No Material Adverse Effect.
(a) The Audited Financial Statements (i) were prepared in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein; (ii) fairly present the financial condition of the Persons set forth therein and their respective Subsidiaries as of the date thereof and their results of operations for the period covered thereby in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein; and (iii) show all material indebtedness and other liabilities, direct or contingent, of the Persons set forth therein and their respective Subsidiaries as of the date thereof, including liabilities for taxes, material commitments and Indebtedness.
(b) [Intentionally Omitted.]
(c) Schedule 5.05 sets forth all material indebtedness and other liabilities, direct or contingent, of the each of Borrower, TAP Funding, TEML, TMCL, TMCL II, TMCLIII, TMCLIV, TWC and the Guarantor, and their respective Subsidiaries as of the Closing Date, including liabilities for taxes, material commitments and Indebtedness.
(d) Since the date of the Audited Financial Statements, there has been no event or circumstance, either individually or in the aggregate, that has had or could reasonably be expected to have a Material Adverse Effect.
5.06 Litigation. There are no actions, suits, proceedings, claims or disputes pending or, to the knowledge of each Loan Party after due and diligent investigation, threatened or contemplated, at law, in equity, in arbitration or before any Governmental Authority, by or against such Loan Party or any of its Subsidiaries or against any of their properties or revenues (a) that purport to affect or pertain to this
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Agreement or any other Loan Document, or any of the transactions contemplated hereby, or (b) as of the date hereof, except as specifically disclosed in Schedule 5.06, either individually or in the aggregate, if determined adversely, could reasonably be expected to have a Material Adverse Effect, and there has been no adverse change in the status, or financial effect on any Loan Party or any Subsidiary thereof, of the matters described on Schedule 5.06.
5.07 No Default. Neither any Loan Party nor any Subsidiary thereof is in default under or with respect to, or a party to, any Contractual Obligation that could, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. No Default has occurred and is continuing or would result from the consummation of the transactions contemplated by this Agreement or any other Loan Document.
5.08 Ownership of Property; Liens; Investments.
(a) Each Loan Party and each Subsidiary thereof has good record and marketable title in fee simple to, or valid leasehold interests in, all real property necessary or used in the ordinary conduct of its business, except for such defects in title as could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The property of the Loan Parties and their Subsidiaries is subject to no Liens, other than Permitted Liens.
(b) Schedule 5.08(b) sets forth a complete and accurate (as of the date hereof) list of all Liens on the property or assets of each Loan Party and each of its Subsidiaries. The property of each Loan Party is subject to no Liens, other than Permitted Liens.
(c) Schedule 5.08(c) sets forth a complete and accurate list of each Investment held by any Loan Party on the date hereof which is in excess (individually) of $1,000,000, showing as of the date hereof the amount, obligor or issuer and maturity, if any, thereof.
5.09 Environmental Compliance. Except as specifically disclosed in Schedule 5.09, to the Loan Parties’ knowledge, there exist no claims alleging potential liability or responsibility for violation of any Environmental Law on their respective businesses, operations and properties, which could, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
5.10 Insurance. The properties of each Loan Party and its Subsidiaries are insured with financially sound and reputable insurance companies not Affiliates of the Borrower, in such amounts (after giving effect to any self-insurance compatible with the following standards), with such deductibles and covering such risks as are customarily carried by companies engaged in similar businesses and owning similar properties in localities where each Loan Party or the applicable Subsidiary operates (provided that the possession by Lessees of property owned by the Borrower or any of its Subsidiaries in any locality shall not be deemed to constitute the engagement in business or owning of property by the Borrower or such Subsidiary in such locality).
5.11 Taxes. Each Loan Party and its Subsidiaries have filed all Federal, state and other material tax returns and reports required to be filed, and have paid all Federal, state and other material taxes, assessments, fees and other governmental charges levied or imposed upon them or their properties, income or assets otherwise due and payable, except those which are being contested in good faith by appropriate proceedings diligently conducted and for which adequate reserves have been provided in accordance with GAAP. There is no proposed tax assessment against any Loan Party or its respective Subsidiaries that would, if made, have a Material Adverse Effect. No Loan Party is party to any tax sharing agreement (and a “check-the-box” tax election shall not be deemed to constitute a “tax sharing agreement”).
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5.12 ERISA Compliance.
(a) Each Plan is in compliance in all material respects with the applicable provisions of ERISA, the Code and other Federal or state laws. Each Pension Plan that is intended to be a qualified plan under Section 401(a) of the Code has received a favorable determination letter or opinion from the Internal Revenue Service to the effect that the form of such Plan is qualified under Section 401(a) of the Code, or an application for such a letter is currently being processed by the Internal Revenue Service. To the best knowledge of the Borrower, nothing has occurred that would prevent or cause the loss of such tax-qualified status.
(b) There are no pending or, to the best knowledge of any Loan Party, threatened claims, actions or lawsuits, or action by any Governmental Authority, with respect to any Plan that could reasonably be expected to have a Material Adverse Effect. There has been no prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan that has resulted or could reasonably be expected to result in a Material Adverse Effect.
(c) (i) No ERISA Event has occurred, and neither the Borrower nor any ERISA Affiliate is aware of any fact, event or circumstance that could reasonably be expected to constitute or result in an ERISA Event with respect to any Pension Plan; (ii) the Borrower and each ERISA Affiliate has met all applicable requirements under the Pension Funding Rules in respect of each Pension Plan, and no waiver of the minimum funding standards under the Pension Funding Rules has been applied for or obtained; (iii) as of the most recent valuation date for any Pension Plan, the funding target attainment percentage (as defined in Section 430(d)(2) of the Code) is 60% or higher and neither the Borrower nor any ERISA Affiliate knows of any facts or circumstances that could reasonably be expected to cause the funding target attainment percentage for any such plan to drop below 60% as of the most recent valuation date; (iv) neither the Borrower nor any ERISA Affiliate has incurred any liability to the PBGC other than for the payment of premiums, and there are no premium payments which have become due that are unpaid; (v) neither the Borrower nor any ERISA Affiliate has engaged in a transaction that could be subject to Section 4069 or Section 4212(c) of ERISA; and (vi) no Pension Plan has been terminated by the plan administrator thereof nor by the PBGC, and no event or circumstance has occurred or exists that could reasonably be expected to cause the PBGC to institute proceedings under Title IV of ERISA to terminate any Pension Plan.
(d) Neither the Borrower or any ERISA Affiliate maintains or contributes to, or has any unsatisfied obligation to contribute to, or liability under, any active or terminated Pension Plan other than, on the Closing Date, those listed on Schedule 5.12(d).
5.13 Subsidiaries; Equity Interests. No Loan Party has any Subsidiaries other than those specifically disclosed in Schedule 5.13, and all of the outstanding Equity Interests in such Subsidiaries have been validly issued, are fully paid and non-assessable and are owned by a Loan Party in the amounts specified on Schedule 5.13 free and clear of all Liens except those created under the Collateral Documents. All of the outstanding Equity Interests in the Borrower have been validly issued, are fully paid and non-assessable and are owned by the Guarantor in the amounts specified on Part (a) of Schedule 5.13 free and clear of all Liens except those created under the Collateral Documents. Set forth on Part (b) of Schedule 5.13 is a complete and accurate list of all Loan Parties, showing as of the Closing Date (as to each Loan Party) the jurisdiction of its incorporation, the address of its principal place of business and its U.S. taxpayer identification number or, in the case of any non-U.S. Loan Party that does not have a U.S. taxpayer identification number, its unique identification number issued to it by the jurisdiction of its incorporation. The copy of the charter of each Loan Party and each amendment thereto provided pursuant to Section 4.01(a)(v) is a true and correct copy of each such document, each of which is valid and in full force and effect as of the date hereof.
5.14 Margin Regulations; Investment Company Act.
(a) The Borrower is not engaged and will not engage, principally or as one of its important activities, in the business of purchasing or carrying margin stock (within the meaning of Regulation U issued by the FRB), or extending credit for the purpose of purchasing or carrying margin stock.
(b) Neither the Borrower nor the Guarantor is, nor or is required to be, registered as an “investment company” under the Investment Company Act of 1940.
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5.15 Disclosure. Each Loan Party has disclosed to the Administrative Agent and the Lenders all agreements, instruments and corporate or other restrictions to which it or any of its Subsidiaries is subject, and all other matters known to it, in each case that (individually or in the aggregate) could reasonably be expected to result in a Material Adverse Effect. No report, financial statement, certificate or other information furnished (whether in writing or orally) by or on behalf of any Loan Party to the Administrative Agent or any Lender in connection with the transactions contemplated hereby and the negotiation of this Agreement or delivered hereunder or under any other Loan Document (in each case, as modified or supplemented by other information so furnished) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that, with respect to projected financial information, the Borrower represents only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time.
5.16 Compliance with Laws.
(a) Each Loan Party and each Subsidiary thereof is in compliance in all material respects with the requirements of all Laws and all orders, writs, injunctions and decrees applicable to it or to its properties, except in such instances in which (a) such requirement of Law or order, writ, injunction or decree is being contested in good faith by appropriate proceedings diligently conducted or (b) the failure to comply therewith, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect.
(b) To the knowledge of the Borrower, neither the giving of any Loan Notice nor any Borrowing will violate any Sanctions Laws.
5.17 Solvency. Each Loan Party is Solvent.
5.18 Casualty, Etc. Neither the businesses nor the properties of any Loan Party or any of its Subsidiaries are affected by any fire, explosion, accident, strike, lockout or other labor dispute, drought, storm, hail, earthquake, embargo, act of God or of the public enemy or other casualty (whether or not covered by insurance) that, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.
5.19 Collateral Matters. The provisions of the Collateral Documents are effective to create in favor of the Administrative Agent for the benefit of the Secured Parties a legal, valid and enforceable first priority Lien on all right, title and interest of the respective Loan Parties in the Collateral described therein. Except for filings completed prior to the Closing Date and as contemplated hereby and by the Collateral Documents, no filing or other action will be necessary to perfect or protect such Liens.
5.20 Foreign Assets Control Regulations, Embargoed Persons. At all times throughout the term of this Agreement:
(a) none of the requesting or borrowing of any Loan or the use of the proceeds of such Loan will violate the Trading With the Enemy Act, any of the Foreign Assets Control Regulations, any Sanctions Law or any enabling legislation or executive order relating thereto (which for the avoidance of doubt shall include, but shall not be limited to (a) the Executive Order and (b) the USA PATRIOT Act);
(b) none of the Borrower’s or Guarantor’s funds or other assets constitute property of, or are beneficially owned, directly or indirectly, by any person, entity, or government subject to trade restrictions under U.S. law, including the U.S. International Emergency Economic Powers Act, 50 U.S.C. §§ 1701 et seq., The Trading with the Enemy Act, any of the Foreign Assets Control Regulations, any Sanctions Laws or any enabling legislation or regulations promulgated thereunder, including the Executive Order and the USA PATRIOT Act, with the result that the investment in the Borrower (whether directly or indirectly), is prohibited by law or any Loan made by any Lender is in violation of law (such a person, an “Embargoed Person”).
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(c) no Embargoed Person or Sanctioned Person has any interest of any nature whatsoever in a Loan Party with the result that the investment in it (whether directly or indirectly), is prohibited by law or any Loan is in violation of law;
(d) none of the Borrower’s nor Guarantor’s funds have been derived from any unlawful activity with the result that any Loan to the Borrower or Guarantor (whether directly or indirectly), is in violation of law; and
(e) none of the Borrower, Guarantor or any of its Affiliates (i) is or will become a “blocked person” as described in the Executive Order, the Trading With the Enemy Act or the Foreign Assets Control Regulations, (ii) is or will become an Embargoed Person or a Sanctioned Person or (iii) engages or will engage in any dealings or transactions, or be otherwise associated, with any such “blocked person” or Sanctioned Person in violation of Sanctions Laws.
For purposes of determining whether or not a representation with respect to any indirect ownership is true or a covenant is being complied with under this Section 5.20, the Borrower shall not be required to make any investigation into (i) the ownership of publicly traded stock or other publicly traded securities or (ii) the ownership of assets by a collective investment fund that holds assets for employee benefit plans or retirement arrangements.
5.21 Update of Schedules. Any Schedule referenced in Article V may be periodically updated by any Loan Party as often as is necessary to insure the continued accuracy of such Schedule in respect of the representations and warranties by such Loan Party as set forth in this Article V. Such updated Schedule will be provided to the Administrative Agent, in writing or via electronic means, in accordance with the provisions of Section 11.02. Each such updated Schedule shall be effective immediately upon the receipt thereof by the Administrative Agent.
5.22 Guarantor. The Guarantor is a Qualified ECP Guarantor.
ARTICLE VI
AFFIRMATIVE COVENANTS
So long as any Lender shall have any Commitment hereunder, any Loan or other Obligation hereunder shall remain unpaid or unsatisfied each of the Borrower and the Guarantor shall:
6.01 Financial Statements. Deliver to the Administrative Agent, in form and detail satisfactory to the Administrative Agent and the Required Lenders:
(a) as soon as available, but in any event within 120 days after the end of each fiscal year of each Receivables Subsidiary (other than TAP Funding and TWC), the Borrower, TEML and the Guarantor (commencing with the fiscal year ended December 31, 2014), a consolidated and, with respect to the Guarantor and the Borrower, consolidating balance sheet of such Person and its Subsidiaries as at the end of such fiscal year, the related consolidated and, with respect to the Guarantor and the Borrower, consolidating statements of income or operations for such fiscal year, and the related consolidated changes in shareholders’ equity, and cash flows for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail and prepared in accordance with GAAP, audited and accompanied by a report and opinion of an independent certified public accountant of nationally recognized standing reasonably acceptable to the Required Lenders, which report and opinion shall be prepared in accordance with generally accepted auditing standards and shall not be subject to any “going concern” or like qualification or exception or any qualification or exception as to the scope of such audit; provided, however, that the Borrower’s annual financial statements may be unaudited; and
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(b) as soon as available, but in any event within 60 days after the end of each of the first three fiscal quarters of each fiscal year of each of the Borrower and the Guarantor (commencing with the fiscal year ended December 31, 2014), a consolidated and, with respect to the Guarantor and the Borrower, consolidating balance sheet of such Person and its Subsidiaries as at the end of such fiscal quarter, the related consolidated and, with respect to the Guarantor and the Borrower, consolidating statements of income or operations for such fiscal quarter, and the related consolidated changes in shareholders’ equity, and cash flows for such fiscal quarter and for the portion of such Person’s fiscal year then ended, setting forth in each case in comparative form the figures for the corresponding fiscal quarter of the previous fiscal year and the corresponding portion of the previous fiscal year, all in reasonable detail, certified by a Responsible Officer of Borrower as fairly presenting the financial condition, results of operations, shareholders’ equity and cash flows of such Person and its Subsidiaries in accordance with GAAP, subject only to normal year-end audit adjustments and the absence of footnotes.
6.02 Certificates; Other Information. In the case of the Borrower, deliver to the Administrative Agent, in form and detail satisfactory to the Administrative Agent and the Required Lenders:
(a) concurrently with the delivery of the financial statements referred to in Section 6.01(a), a certificate of its independent certified public accountants certifying such financial statements;
(b) concurrently with the delivery of the financial statements referred to in Sections 6.01(a) and (b) (commencing with the delivery of the financial statements for the fiscal quarter ended March 31, 2014), a duly completed Compliance Certificate signed by a Responsible Officer of the Borrower;
(c) promptly after any request by the Administrative Agent or any Lender, copies of any detailed audit reports, management letters or recommendations submitted to the board of directors (or the audit committee of the board of directors) of the Borrower by independent accountants in connection with the accounts or books of the Borrower or any Subsidiary, or any audit of any of them;
(d) promptly after the same are available, copies of each annual report, proxy or financial statement or other report or communication sent to the stockholders of the Borrower, and copies of all annual, regular, periodic and special reports and registration statements which the Borrower may file or be required to file with the SEC under Section 13 or 15(d) of the Securities Exchange Act of 1934, and not otherwise required to be delivered to the Administrative Agent pursuant hereto;
(e) a Borrowing Base Certificate duly executed by a Responsible Officer of Borrower, with appropriate insertions, (i) not later than thirty (30) days following the end of each calendar quarter, dated as of the last day of such quarter (unless any certificate required by (ii) or (iii) below has already been delivered to the Administrative Agent for such calendar quarter or as of a later date), (ii) in connection with each Loan Notice, dated as of the requested Loan funding date (but delivered to the Administrative Agent on the date Borrower delivers the Loan Notice to the Administrative Agent pursuant to Section 2.02(a)), and (iii) in connection with each release of Collateral which is permitted under Section 9.10(a) or Section 9.10(b)(ii), dated as of the applicable date of release (but delivered to the Administrative Agent at least one (1) Business Day prior to such date);
(f) upon Administrative Agent’s request, or, if the sum of the Net Book Values of all Marine Containers owned by the Borrower exceeds Thirty Million Dollars ($30,000,000), within thirty (30) days after the end of each quarter of each fiscal year of Borrower, a summary setting forth (i) the number and type of Marine Containers included in the Collateral, (ii) their aggregate net book value, and (iii) their aggregate original cost (or, upon the Administrative Agent’s request, a detailed report as of the end of such month, setting forth with respect to each unit of Marine Container then owned by Borrower its (1) serial or other identifying number, (2) in-service date, (3) net book value (including totals thereof), and (4) original cost (including totals thereof));
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(g) upon the Administrative Agent’s request, as soon as practicable, and in any event not later than thirty (30) days after the end of each fiscal quarter, a Responsible Officer of the Guarantor, relating to all inventory and fleets managed by TEML, dated as of the end of the quarter, setting forth: (i) a breakout of inventory by type, (ii) utilization by inventory type, (iii) average per diem rates by inventory type, and (iv) a list of the ten (10) largest (in terms of cost equivalent unit on hire) customers of the TEML fleet, with detailed accounts receivable aging reports (listing receivables of 30, 60, 90, and over 90 days duration) for each and a summarized aging report for all other customers giving the same aging information, in each case, in form and substance satisfactory to, and with such additional information as may be from time to time reasonably requested by, the Required Lenders;
(h) promptly following receipt thereof, copies of (x) each Asset Base Report and Manager Report (each, as defined in the TMCL Indenture) and each Equipment and Lease Report (as defined in Section 7.1 of the Management Agreement (as such term is defined in the TMCL Indenture)), (y) each Asset Base Report and Manager Report (each, as defined in the TMCL II Indenture) and each Equipment and Lease Report (as defined in Section 7.1 of the Management Agreement (as such term is defined in the TMCL II Indenture)) and (z) the equivalent of the items described in clauses (x) and (y) with respect to each of TMCL III, TMCL IV and each other Receivables Subsidiary (other than TAP Funding and TWC);
(i) promptly after the furnishing thereof, copies of any statement or report furnished to any holder of debt securities of any Loan Party pursuant to the terms of any indenture, loan or credit or similar agreement and not otherwise required to be furnished to the Lenders pursuant to Section 6.01 or any other provision of this Section 6.02;
(j) as soon as available, but in any event within 30 days after the end of each fiscal year of the Borrower, a report summarizing the insurance coverage (specifying type, amount and carrier) in effect for the Borrower and containing such additional information as the Administrative Agent, or any Lender through the Administrative Agent, may reasonably specify;
(k) promptly, and in any event within five Business Days after receipt thereof by any Loan Party, copies of each notice or other correspondence received from the SEC (or comparable agency in any applicable non-U.S. jurisdiction) concerning any investigation or possible investigation or other inquiry by such agency regarding financial or other operational results of any Loan Party, which, if pursued through a determination adverse to such Loan Party, could reasonably be expected to have a Material Adverse Effect;
(l) at least 15 days prior to the commencement of each fiscal year of each of the Borrower and the Guarantor, a reasonably detailed consolidated budget for each such Person for such fiscal year (including a projected consolidated balance sheet and related statements of projected operations and cash flow as of the end of and for each fiscal quarter during such fiscal year and setting forth the assumptions used for purposes of preparing each such budget) and, promptly when available and from time to time, any significant revisions of each such budget (including, without limitation, any amounts to be paid to any pension plan), which need not be prepared in accordance with GAAP, but which, in any event, shall be in a form acceptable to the Administrative Agent;
(m) promptly, such additional information regarding the business, financial or corporate affairs of the Borrower or any Subsidiary, or compliance with the terms of the Loan Documents, as the Administrative Agent or any Lender may from time to time reasonably request.
(n) not later than 30 days after the end of each fiscal quarter of Borrower, a report, signed by a Responsible Officer of the Borrower, setting forth as of the end of the most recent fiscal quarter of the Borrower (i) a breakout of the Marine Container Collateral by type, (ii) percentage (by Net Book Value) of Marine Container Collateral that is off-hire, by equipment type, as of the end of such quarter, (iii) Weighted Average Age of the Marine Container Collateral, and (iv) lessee concentrations with respect to the Marine Container Collateral.
Documents required to be delivered pursuant to Section 6.01(a) or (b) or Section 6.02(b) or (d) (to the extent any such documents are included in materials otherwise filed with the SEC) may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date on which made
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available on EDGAR following filing with the SEC; provided that (i) the Borrower shall deliver paper copies of such documents to the Administrative Agent or any Lender upon its request to the Borrower to deliver such paper copies until a written request to cease delivering paper copies is given by the Administrative Agent or such Lender and (ii) the Borrower shall notify the Administrative Agent and each Lender (by facsimile or electronic mail) of the posting of any such documents and provide to the Administrative Agent by electronic mail electronic versions (i.e., soft copies) of such documents. The Administrative Agent shall have no obligation to request the delivery of or to maintain paper copies of the documents referred to above, and in any event shall have no responsibility to monitor compliance by the Borrower with any such request by a Lender for delivery, and each Lender shall be solely responsible for requesting delivery to it or maintaining its copies of such documents.
The Borrower hereby acknowledges that (a) the Administrative Agent and/or the Arrangers may, but shall not be obligated to, make available to the Lenders materials and/or information provided by or on behalf of the Borrower hereunder (collectively, “Borrower Materials”) by posting the Borrower Materials on Debt Domain, IntraLinks, Syndtrak or another similar electronic system (the “Platform”) and (b) certain of the Lenders (each, a “Public Lender”) may have personnel who do not wish to receive material non-public information with respect to the Borrower or its Affiliates, or the respective securities of any of the foregoing, and who may be engaged in investment and other market-related activities with respect to such Persons’ securities. The Borrower hereby agrees that, so long as the Borrower is the issuer of any outstanding debt or equity securities that are registered or issued pursuant to a private offering or is actively contemplating issuing any such securities, (w) all Borrower Materials that are to be made available to Public Lenders shall be clearly and conspicuously marked “PUBLIC” which, at a minimum, shall mean that the word “PUBLIC” shall appear prominently on the first page thereof; (x) by marking Borrower Materials “PUBLIC,” the Borrower shall be deemed to have authorized the Administrative Agent, the Arranger, and the Lenders to treat such Borrower Materials as not containing any material non-public information with respect to the Borrower or its securities for purposes of United States Federal and state securities laws (provided, however, that to the extent such Borrower Materials constitute Information, they shall be treated as set forth in Section 11.07); (y) all Borrower Materials marked “PUBLIC” are permitted to be made available through a portion of the Platform designated “Public Side Information;” and (z) the Administrative Agent and the Arrangers shall be entitled to treat any Borrower Materials that are not marked “PUBLIC” as being suitable only for posting on a portion of the Platform not designated “Public Side Information.” Notwithstanding the foregoing, the Borrower shall be under no obligation to mark any Borrower Materials “PUBLIC.”
| 6.03 | Notices. Promptly notify the Administrative Agent: |
(a) of the occurrence of any Default;
(b) of any matter that has resulted or could reasonably be expected to result in a Material Adverse Effect, including any such matter consisting of (i) breach or non-performance of, or any default under, a Contractual Obligation of the Borrower; (ii) any dispute, litigation, investigation, proceeding or suspension between the Borrower and any Governmental Authority; (iii) the commencement of, or any material development in, any litigation or proceeding affecting the Borrower, including pursuant to any applicable Environmental Laws; or (iv) the occurrence of (x) any Early Amortization Event or Event of Default (as each such term is defined in the TMCL Indenture), (y) any Early Amortization Event or Event of Default (as each such term is defined in the TMCL II Indenture, the TMCL III Indenture or the TMCL IV Indenture) or (z) the equivalent of the events described in clauses (x) and (y) with respect to each of TMCL III, TMCL IV and each other Receivables Subsidiary (other than TAP Funding and TWC);
(c) of the occurrence of any ERISA Event;
(d) of any material change in accounting policies or financial reporting practices by the Borrower; and
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(e) following publication of a long-term debt rating of the Guarantor, of any notification from either Moody’s or S&P that such rating has (x) been placed on watch for a possible downgrade or (y) been downgraded.
Each notice pursuant to this Section 6.03 shall be accompanied by a statement of a Responsible Officer of the Borrower setting forth details of the occurrence referred to therein and stating what action the Borrower has taken and proposes to take with respect thereto. Each notice pursuant to Section 6.03(a) shall describe with particularity any and all provisions of this Agreement and any other Loan Document that have been breached.
6.04 Payment of Obligations. Pay and discharge as the same shall become due and payable, all its obligations and liabilities, including (a) all tax liabilities, assessments and governmental charges or levies upon it or its properties or assets, unless the same are being contested in good faith by appropriate proceedings diligently conducted and adequate reserves in accordance with GAAP are being maintained by the Borrower or such Subsidiary; (b) all lawful claims which, if unpaid, would by law become a Lien upon its property not permitted under the Loan Documents; and (c) all Indebtedness, as and when due and payable, but subject to any applicable terms of subordination.
6.05 Preservation of Existence, Etc. (a) Preserve, renew and maintain in full force and effect its legal existence and good standing under the Laws of the jurisdiction of its incorporation or organization except in a transaction permitted by Section 7.04 or 7.05; (b) take all reasonable action to maintain all rights, privileges, permits, licenses and franchises necessary or desirable in the normal conduct of its business, except to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect; and (c) preserve or renew all of its registered patents, trademarks, trade names and service marks, the non-preservation of which could reasonably be expected to have a Material Adverse Effect.
6.06 Maintenance of Properties. (a) Maintain, preserve and protect all of its material properties and equipment necessary in the operation of its business in good working order and condition, ordinary wear and tear excepted; (b) make all necessary repairs thereto and renewals and replacements thereof except where the failure to do so could not reasonably be expected to have a Material Adverse Effect; and (c) use the standard of care typical in the industry in the operation and maintenance of its facilities.
6.07 Maintenance of Insurance. Maintain, to the extent commercially practicable, with financially sound and reputable insurance companies not Affiliates of the Borrower, insurance with respect to its properties and business against loss or damage of the kinds customarily insured against by Persons engaged in the same or similar business, of such types and in such amounts (after giving effect to any self-insurance compatible with the following standards) as are customarily carried under similar circumstances by such other Persons and providing for not less than 30 days’ (or 10 days’, in the case of cancellation for nonpayment of premium) prior notice to the Administrative Agent of termination, lapse or cancellation of such insurance.
6.08 Compliance with Laws. Comply in all material respects with the requirements of all Laws and all orders, writs, injunctions and decrees applicable to it or to its business or property, except in such instances in which (a) such requirement of Law or order, writ, injunction or decree is being contested in good faith by appropriate proceedings diligently conducted; or (b) the failure to comply therewith could not reasonably be expected to have a Material Adverse Effect.
6.09 Books and Records. Maintain (a) proper books of record and account, in which full, true and correct entries in conformity with GAAP shall be made of all financial transactions and matters involving the assets and business of such Loan Party; and (b) such books of record and account in material conformity with all applicable requirements of any Governmental Authority having regulatory jurisdiction over such Loan Party.
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6.10 Inspection Rights. Permit representatives and independent contractors of the Administrative Agent to visit and inspect any of its properties, to examine its corporate, financial and operating records, and make copies thereof or abstracts therefrom, and to discuss its affairs, finances and accounts with its directors and officers, all at the expense of the Borrower and at all at such reasonable times (but no more frequently than twice per year) during normal business hours, upon reasonable advance notice to the Borrower; provided that, so long as no Default is continuing, the Borrower and the Guarantor shall, notwithstanding any other provision of this Agreement, only be required to reimburse the Administrative Agent for costs and expenses incurred in connection with one such inspection per year; provided, further, that when a Default or an Event of Default exists the Administrative Agent (or any of its representatives or independent contractors) may do any of the foregoing at the expense of the Borrower at any time (without limitation regarding frequency) during normal business hours and without advance notice.
6.11 Use of Proceeds. Use the proceeds of the Loans (i) to refinance existing indebtedness of the Borrower (including without limitation all amounts owing under the Revolving Credit Agreement) and its Subsidiaries, (ii) for working capital, capital expenditures and other corporate purposes of the Borrower which are not in contravention of any Law or of any Loan Document, and/or (iii) to make Investments in Subsidiaries. The proceeds of the Loans will be used in a manner that complies with Section 5.20(a).
6.12 Compliance with Environmental Laws. Comply, and cause all lessees and other Persons operating or occupying its properties to comply, in all material respects, with all applicable Environmental Laws and Environmental Permits; obtain and renew all Environmental Permits necessary for its operations and properties; and conduct any investigation, study, sampling and testing, and undertake any cleanup, removal, remedial or other action ordered by any Governmental Authority as necessary to remove and clean up all Hazardous Materials from any of its properties, in accordance with the requirements of all Environmental Laws; provided, however, that neither the Borrower nor any of its Subsidiaries shall be required to undertake any such cleanup, removal, remedial or other action to the extent that its obligation to do so is being contested in good faith and by proper proceedings and appropriate reserves are being maintained with respect to such circumstances in accordance with GAAP.
6.13 Further Assurances. Promptly upon request by the Administrative Agent, or any Lender through the Administrative Agent, (a) correct any material defect or error that may be discovered in any Loan Document or in the execution, filing or recordation thereof, and (b) do, execute, acknowledge, deliver, record, re-record, file, re-file, register and re-register any and all such further acts, deeds, certificates, assurances and other instruments as the Administrative Agent, or any Lender through the Administrative Agent, may reasonably require from time to time in order to (i) carry out more effectively the purposes of the Loan Documents, (ii) to the fullest extent permitted by applicable law, subject any Loan Party’s properties, assets, rights or interests (excluding (i) in the case of the Borrower, any Equity Interests in any Receivables Subsidiary and any property not related to the Marine Containers owned by Borrower and (ii) in the case of the Guarantor, any property other than Equity Interests in the Borrower) to the Liens now or hereafter intended to be covered by any of the Collateral Documents, (iii) perfect and maintain the validity, effectiveness and priority of any of the Collateral Documents and any of the Liens intended to be created thereunder and (iv) assure, convey, grant, assign, transfer, preserve, protect and confirm more effectively unto the Secured Parties the rights granted or now or hereafter intended to be granted to the Secured Parties under any Loan Document or under any other instrument executed in connection with any Loan Document to which any Loan Party or any of its Subsidiaries is or is to be a party, and cause each of its Subsidiaries to do so.
6.14 Compliance with Terms of Leaseholds. Make all payments and otherwise perform all obligations in respect of all leases of real property to which the Borrower or any of its Subsidiaries is a party, keep such leases in full force and effect and not allow such leases to lapse or be terminated or any rights to renew such leases to be forfeited or cancelled, notify the Administrative Agent of any default by any party with respect to such leases and cooperate with the Administrative Agent in all respects to cure any such default, and cause each of its Subsidiaries to do so, except, in any case, where the failure to do so, either individually or in the aggregate, would not be reasonably likely to have a Material Adverse Effect.
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6.15 Lien Searches. Promptly following receipt by the Loan Parties of the acknowledgment copy of any financing statement filed under the Uniform Commercial Code in any jurisdiction by or on behalf of the Secured Parties, deliver to the Administrative Agent completed lien search results listing such financing statement and all other effective financing statements filed in such jurisdiction that name any Loan Party as debtor.
6.16 Material Contracts. Materially perform and observe all the terms and provisions of its Contractual Obligations and maintain its material rights and obligations thereunder, except, in any case, where the failure to do so, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect.
| 6.17 | “Know your Customer” Information. |
(a) If (i) any Change in Law;
(ii) any change in the composition of the shareholders of the Borrower after the date hereof; or
(iii) a proposed assignment or transfer by a Lender of any of its rights and/or obligations under this Agreement to a party that is not a Lender prior to such assignment or transfer,
obliges the Administrative Agent or any Lender (or any prospective new Lender) to comply with “know your customer” or similar identification procedures in circumstances where the necessary information is not already available to it, the Borrower shall promptly upon the request of the Administrative Agent or any Lender supply, or procure the supply of, such documentation and other evidence as is reasonably requested by the Administrative Agent (for itself or on behalf of any Lender) or any Lender (for itself or on behalf of any prospective new Lender) in order for the Administrative Agent, such Lender or any prospective new Lender to carry out and be satisfied it has complied with all necessary “know your customer” or other similar checks under all applicable laws and regulations pursuant to the transactions contemplated in the Loan Documents.
(b) Each Lender shall promptly upon the request of the Administrative Agent supply, or procure the supply of, such documentation and other evidence as is reasonably requested by the Administrative Agent (for itself) in order for the Administrative Agent to carry out and be satisfied it has complied with all necessary “know your customer” or other similar checks under all applicable laws and regulations pursuant to the transactions contemplated in the Loan Documents.
6.18 Sanctions Laws. To the knowledge of the Borrower, each Loan Party and their Subsidiaries shall comply with Sanctions Laws.
ARTICLE VII
NEGATIVE COVENANTS
So long as any Lender shall have any Commitment hereunder, any Loan or other Obligation hereunder shall remain unpaid or unsatisfied neither the Borrower nor the Guarantor shall, nor shall they, if so indicated, permit their respective Subsidiaries to:
7.01 Liens. Create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, other than the following:
(a) Liens pursuant to any Loan Document;
(b) (i) Liens existing on the date hereof and listed on Schedule 5.08(b) and (ii) Liens securing Indebtedness permitted under Section 7.02(b)(ii) (provided that the scope of the collateral securing such Indebtedness is not expanded);
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(c) Liens for taxes not yet due or which are being contested in good faith and by appropriate proceedings diligently conducted, if adequate reserves with respect thereto are maintained on the books of the applicable Person in accordance with GAAP;
(d) carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s or other like Liens arising in the ordinary course of business which are not overdue for a period of more than 30 days or which are being contested in good faith and by appropriate proceedings diligently conducted, if adequate reserves with respect thereto are maintained on the books of the applicable Person;
(e) pledges or deposits in the ordinary course of business in connection with workers’ compensation, unemployment insurance and other social security legislation, other than any Lien imposed by ERISA;
(f) deposits to secure the performance of bids, trade contracts and leases (other than Indebtedness), statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business;
(g) easements, rights-of-way, restrictions and other similar encumbrances affecting real property which, in the aggregate, are not substantial in amount, and which do not in any case materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of the business of the applicable Person;
(h) Liens securing judgments for the payment of money not constituting an Event of Default under Section 8.01(h);
(i) Liens on Receivables Program Assets incurred in connection with Qualified Receivables Transactions;
(j) Liens securing Indebtedness permitted under Section 7.02(e) (provided that (x) such Liens do not at any time encumber any property other than the property financed by such Indebtedness and (y) the Indebtedness secured thereby does not exceed the cost or fair market value, whichever is lower, of the property being acquired on the date of acquisition);
(k) Liens securing Indebtedness permitted under (i) Section 7.02(g), (h) or (k) or (ii) solely to the extent that such Liens are not spread to additional assets, Section 7.02(j);
(l) Liens granted in connection with the Revolving Credit Agreement;
(m) rights under Leases held by (i) any lessee or sublessee thereunder or (ii) any owner (other than any Loan Party) of a Marine Container subject thereto;
(n) bankers’ Liens, rights of setoff and other similar Liens existing on property on deposit in one or more accounts maintained by such Loan Party; and
(o) Liens arising from or related to precautionary UCC or like personal property financing statements filed in connection with leases entered into in the Ordinary Course of Business.
7.02 Indebtedness. Create, incur, assume or suffer to exist any Indebtedness, or permit any of its Subsidiaries to do so, except (subject to the proviso at the end of this Section 7.02):
(a) Indebtedness under the Loan Documents;
(b) (i) Indebtedness existing on the date hereof and listed on Schedule 5.05 and (ii) any refinancings, renewals, refundings or replacements thereof; provided, that the terms relating to principal amount, amortization, maturity, collateral (if any) and subordination (if any), and other material terms
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taken as a whole, of any such refinancing, refunding, renewing or extending Indebtedness, and of any agreement entered into and of any instrument issued in connection therewith, are no less favorable in any material respect to the Loan Parties or the Lenders than the terms of any agreement or instrument governing the Indebtedness being refinanced, refunded, renewed or extended and the interest rate applicable to any such refinancing, refunding, renewing or extending Indebtedness does not exceed the then applicable market interest rate;
(c) Guarantees of (x) the Borrower in respect of Indebtedness not otherwise prohibited hereunder of any of its Subsidiaries, or (y) the Guarantor in respect of Indebtedness not otherwise prohibited hereunder of any of its Subsidiaries;
(d) obligations (contingent or otherwise) of the Borrower, the Guarantor or any of their respective Subsidiaries existing or arising under any Swap Contract, provided that (i) such obligations are (or were) entered into by such Person in the ordinary course of business for the purpose of directly mitigating risks associated with liabilities, commitments, investments, assets, or property held or reasonably anticipated by such Person, or changes in the value of securities issued by such Person, and not for purposes of speculation or taking a “market view;” and (ii) such Swap Contract does not contain any provision exonerating the non-defaulting party from its obligation to make payments on outstanding transactions to the defaulting party (other than by way of setoff);
(e) Vendor Debt incurred in connection with the acquisition by the Borrower of Marine Containers; provided that (A) such Vendor Debt represents the purchase price of Marine Containers, (B) the amount of such Vendor Debt does not exceed 100% of the purchase price (including any fees or other expenses incurred in connection therewith, such as repositioning costs) of the applicable Marine Containers and (C) such Vendor Debt is not overdue in accordance with the payment terms thereof; and
(f) for the Guarantor, unsecured Indebtedness (either directly or through the issuance by the Guarantor of a Guarantee with respect to Indebtedness of the Borrower) such that, before and after giving effect to the incurrence of such additional Indebtedness (when considered with all other outstanding Indebtedness of the Guarantor permitted or incurred hereunder), no Default shall occur;
(g) for TEML, Indebtedness in the maximum aggregate principal amount not to exceed Two Million Dollars ($2,000,000);
(h) Indebtedness incurred by any Receivables Subsidiary in connection with a Qualified Receivables Transaction;
(i) Indebtedness of such Person incurred as a result of an Investment in such Person not prohibited under Section 7.03;
(j) Indebtedness of a Person existing at the time such Person becomes a Subsidiary of a Loan Party pursuant to a Permitted Acquisition, but only to the extent that such Indebtedness shall have been in existence at the time such Permitted Acquisition was consummated and either (i) was not incurred in connection with, as a result of, or in contemplation of, such Permitted Acquisition or (ii) was incurred to refinance or replace Indebtedness of the type referred to in clause (i); provided that with respect to Indebtedness incurred pursuant to clause (ii), (A) such Indebtedness shall have terms relating to principal amount, amortization, collateral (if any), subordination (if any), and other material terms taken as a whole no less favorable in any material respect to the Indebtedness referred to in clause (i), (B) such Indebtedness shall have a maturity no shorter than the maturity of the Indebtedness referred to in clause (i), (C) the interest rate applicable to such Indebtedness shall not exceed the then applicable market interest rate, and (D) such Indebtedness shall not become Indebtedness of any Loan Party; and
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(k) for the Borrower or any of its Subsidiaries, Indebtedness (other than Guarantees by Borrower of Indebtedness of Guarantor) in an aggregate principal amount such that, before and after giving effect to the incurrence of such additional Indebtedness (when considered with all other outstanding Indebtedness of the Borrower permitted or incurred hereunder), no Default shall occur;
provided, however, that, notwithstanding the foregoing, Indebtedness otherwise permitted pursuant to the foregoing paragraphs of this Section 7.02 shall not be permitted if the incurrence thereof, when considered with all other outstanding Indebtedness of any Loan Party (or any Subsidiary thereof) permitted or incurred under this Agreement, would cause a violation of any financial covenant set forth in Section 7.11.
7.03 Investments. Make or hold any Investments, except:
(a) Investments in the form of Cash Equivalents;
(b) advances to officers, directors and employees of the Borrower and Subsidiaries in an aggregate amount not to exceed $5,000 at any time outstanding, for travel, entertainment, relocation and analogous ordinary business purposes;
(c) Investments by the Borrower in Subsidiaries; provided, however, that with respect to any Receivables Subsidiary, (i) Investments by the Borrower permitted under this Section 7.03(c) in such Receivables Subsidiary to cure an “early amortization event” or similar event for such Receivables Subsidiary shall be limited to two such Investments during any twelve month period and (ii) the amount thereof shall not exceed an amount equal to the lesser of (A) $20 million and (B) the total dividend payments actually received by the Borrower from all Receivables Subsidiaries (other than TAP Funding and TWC) during such twelve month period;
(d) Investments by the Borrower in TWC in an amount not to exceed Forty Million Dollars ($40,000,000);
(e) Investments by the Guarantor in either the Borrower or TEML; provided that, both before and after each such Investment, no Default shall have occurred;
(f) Investments consisting of extensions of credit in the nature of accounts receivable or notes receivable arising from the grant of trade credit in the ordinary course of business, and Investments received in satisfaction or partial satisfaction thereof from financially troubled account debtors to the extent reasonably necessary in order to prevent or limit loss;
(g) Guarantees permitted by Section 7.02;
(h) any Investment consisting of a loan by the Borrower to the Guarantor, the proceeds of which will be used by the Guarantor solely for the payment of dividends to holders of its Equity Interests or for the purpose of providing funds for Permitted Acquisitions; provided that the aggregate amount of such Investments made in any fiscal year, when added to the amount of Restricted Payments made by Borrower in compliance with Section 7.06 during such fiscal year, shall not exceed the amount of such Restricted Payments permitted to be made in such fiscal year pursuant to Section 7.06;
(i) Investments consisting of the purchase or other acquisition of capital stock or other securities or assets of another Person in the same line of intermodal container business as the Borrower; provided that (i) no Default exists or would result from such acquisition, (ii) any Person acquired pursuant to this Section 7.03(i) shall become a wholly owned Subsidiary of a Loan Party, (iii) such acquisition shall be on arm’s length terms, (iv) such acquisition shall not be hostile and shall have been approved by the board of directors (or other similar body) and the requisite stockholders or other equityholders of such Person, (v) after giving effect to such acquisition, the Borrower and the Guarantor shall be in pro forma compliance with the financial covenants set forth in Section 7.11, (vi) the Borrower has notified the Administrative Agent and the Lenders of such proposed acquisition, and shall have furnished to the Administrative Agent and the Lenders (at least five Business Days prior to the consummation of such
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acquisition) a Compliance Certificate, historical financial information, and projections demonstrating compliance with the financial covenants set forth in Section 7.11 for the four fiscal quarters following consummation of such acquisition (a “Permitted Acquisition”);
(j) Investments by a Loan Party in a Subsidiary acquired in connection with (or to effect) a Permitted Acquisition;
(k) Investments existing on the date hereof and listed on Schedule 5.08(c); and
(l) other Investments by the Borrower made in the Ordinary Course of Business.
7.04 Fundamental Changes. Merge, dissolve, liquidate, amalgamate, consolidate with or into another Person, except, so long as no Default exists or would result therefrom, (i) mergers or consolidations of Subsidiaries of the Loan Parties in connection with Permitted Acquisitions, and (ii) any merger of any Person with any Loan Party; provided that such Loan Party is the continuing or surviving Person.
7.05 Dispositions. Dispose of (whether in one transaction or in a series of transactions) all, or substantially, all of its assets (whether now owned or hereafter acquired) to or in favor of any Person, or enter into any agreement to do so, except:
(a) Leases of Marine Containers entered into in the Ordinary Course of Business;
(b) Dispositions of inventory (including Marine Container Collateral) in the Ordinary Course of Business, so long as, both before and after giving effect to each such Disposition, the Borrowing Base exceeds the Total Outstandings at such time;
(c) Sales, transfers and conveyances of Receivables Program Assets in connection with any Qualified Receivables Transaction so long as (i) no Default exists or would exist as a result of such sale, conveyance or transfer and (ii) Borrower has delivered a completed Borrowing Base Certificate to the Administrative Agent demonstrating that, after giving effect to such sale, transfer and conveyance, the Borrowing Base exceeds the Total Outstandings; and
(d) So long as no Default exists or would exist as a result of such sale, conveyance or transfer, Dispositions of Trading Marine Containers in the Ordinary Course of Business;
provided, however, that any Disposition to a Person that is not an Affiliate of any Loan Party or any of its Subsidiaries shall be for the fair market value of the asset(s) Disposed.
7.06 Restricted Payments. Subject to the following sentence, declare or make any Restricted Payment, or incur any obligation (contingent or otherwise) to do so, if, after giving effect to such Restricted Payment, (i) a Default would exist or (ii) in the case of the Borrower, the amount of such Restricted Payment made in any fiscal year, when aggregated with the amounts of all other such Restricted Payments made by Borrower in such fiscal year, would exceed seventy percent (70%) of Consolidated Net Income of the Borrower for the immediately preceding four fiscal quarters. Notwithstanding the foregoing, any Restricted Payment shall be permitted to the extent that the proceeds thereof are used to effect a Permitted Acquisition and then, solely if the Loan Parties demonstrate pro forma compliance with the covenants in Section 7.11 after giving effect to such Restricted Payment and no Default otherwise exists or would result from the making of such Restricted Payment.
7.07 Change in Nature of Business. Engage in any material line of business substantially different from those lines of business conducted by it on the date hereof or any business substantially related or incidental thereto, or any business engaged in by container lessors generally.
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7.08 Transactions with Affiliates. Enter into any transaction of any kind with any Affiliate of such Loan Party, whether or not in the ordinary course of business, other than (a) on fair and reasonable terms substantially as favorable to such Loan Party as would be obtainable by such Loan Party at the time in a comparable arm’s length transaction with a Person other than an Affiliate, (b) transactions otherwise not prohibited under this Article VII or (c) as described on Schedule 7.08 as in effect on the date hereof.
7.09 Negative Pledge with respect to Certain Equity Interests. In the case of Borrower sell, pledge, transfer or otherwise encumber (i) the 10,500 issued and outstanding Class A Shares of TMCL owned by the Borrower, (ii) the 1,000 issued and outstanding ordinary shares of TMCL II owned by the Borrower, (iii) the Equity Interests in TAP Funding owned by the Borrower, (iv) the Equity Interests in TWC owned by the Borrower, (v) the Equity Interests in any other Receivables Subsidiary owned by the Borrower or (vi) Equity Interests in any Subsidiary acquired in a Permitted Acquisition.
7.10 Use of Proceeds. Use the proceeds of any Loan, whether directly or indirectly, and whether immediately, incidentally or ultimately, to purchase or carry margin stock (within the meaning of Regulation U of the FRB) or to extend credit to others for the purpose of purchasing or carrying margin stock or to refund indebtedness originally incurred for such purpose.
7.11 Financial Covenants.
(a) Maximum Consolidated Leverage Ratio of Guarantor. In the case of the Guarantor, permit the Consolidated Leverage Ratio of the Guarantor to exceed 4.0 to 1.
(b) Minimum Consolidated Interest Coverage Ratio of Guarantor. In the case of the Guarantor, permit the Consolidated Interest Coverage Ratio of the Guarantor as of the end of any fiscal quarter to be less than 1.5 to 1.
(c) Maximum Consolidated Leverage Ratio of Borrower. In the case of the Borrower, permit the Consolidated Leverage Ratio of the Borrower to exceed 4.0 to 1.
(d) Minimum Consolidated Interest Coverage Ratio of Borrower. In the case of the Borrower, permit the ratio of Consolidated Interest Coverage Ratio of Borrower to be less than 2.0 to 1.
(e) Revised Financial Ratios. If at any time after the Closing Date any Loan Party shall enter into or be a party to any agreement governing Indebtedness for borrowed money which singularly or in the aggregate exceeds Eighty Million Dollars ($80,000,000), including all such instruments or agreements in existence as of the Closing Date and all such instruments or agreements entered into after the Closing Date (each, a “Principal Lending Agreement”), and any such Principal Lending Agreement at any time includes a Consolidated Leverage Ratio or a Consolidated Interest Coverage Ratio (or, in each case, any substantially comparable financial ratio) which is more restrictive on such Loan Party than the applicable Consolidated Leverage Ratio or Consolidated Interest Coverage Ratio requirements set forth in Sections 7.11(a) through (d), or such Principal Lending Agreement subsequently loosens or further restricts any such financial ratio (each such loosened or further restricted ratio, a “Revised Financial Ratio”), then and in any such event such Loan Party shall give written notice thereof to the Administrative Agent not later than thirty (30) days following the date of execution of such Principal Lending Agreement or amendment or termination thereof, as the case may be. Effective on the date of execution, amendment, modification or termination of such Principal Lending Agreement, as the case may be, the applicable provisions of Sections 7.11(a) through (d) shall automatically be deemed to be amended to include such Revised Financial Ratio; provided that in no event shall the level of any such Revised Financial Ratio be less restrictive on such Loan Party than the corresponding financial ratio in Sections 7.11(a) through (d) in effect on the Closing Date. Each Loan Party further covenants to promptly execute and deliver at its expense each and every amendment to this Agreement in form and substance satisfactory to the Administrative Agent evidencing the amendment of this Agreement to include, modify or exclude, as the case may be, the effect of such Revised Financial Ratio, provided that the execution and delivery of any such amendment shall not be a precondition to the effectiveness of such amendment, but shall merely be for the convenience of the parties hereto.
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7.12 Amendments of Organization Documents or Segregated Management Agreement. Amend any of its Organization Documents or the Segregated Management Agreement in a way that could cause a Material Adverse Effect.
7.13 Accounting Changes. Subject to Section 1.03, make any change in (a) accounting policies or reporting practices, except as required by GAAP, or (b) fiscal year.
7.14 Prepayments, Etc. of Indebtedness. Prepay, redeem, purchase, defease or otherwise satisfy prior to the scheduled maturity thereof in any manner, or make any payment in violation of any subordination terms of, any Indebtedness with a stated maturity later than the Maturity Date, except (a) the prepayment of the Loans in accordance with the terms of this Agreement and (b) regularly scheduled or required repayments, prepayments or redemptions of Indebtedness set forth in Schedule 5.05 as in effect on the date hereof.
7.15 Container Management System. Create, incur, assume or grant or suffer to exist, directly or indirectly, in favor of any Person, any Lien on the container management system (or similar software package and/or computer system designed to manage and track the Containers under management by the Manager) used by the Manager in the ordinary course of its business. Each Loan Party shall promptly take, or cause to be taken, such actions as may be necessary to discharge any such Lien.
7.16 Lease Obligations. Enter into any arrangement, directly or indirectly, whereby such Loan Party or any of their respective Subsidiaries shall sell or transfer any property owned by it in order then or thereafter to lease such property or lease other property that such Loan Party or any of their respective Subsidiaries intends to use for substantially the same purpose as the property being sold or transferred, other than any Capitalized Lease or Synthetic Lease.
7.17 Amendment, Etc. of Related Documents and Indebtedness. (a) Cancel or terminate any Related Document or consent to or accept any cancellation or termination thereof, (b) amend, modify, or change in any manner any term or condition of any Related Document or give any consent, waiver or approval thereunder, (c) waive any default under or any breach of any term or condition of any Related Document, (d) take any other action in connection with any Related Document or (e) add additional events of default to any such Related Document, in the case of each of the foregoing clauses (a) through (e), in such a manner as would result in a Material Adverse Effect.
7.18 OFAC; Borrowing Base Calculation.
(a) Lease, sublease or sell, or consent to the lease, sublease or sale of, a Marine Container owned by such Loan Party to a person or jurisdiction prohibited to such Loan Party under applicable law.
(b) If any Loan Party obtains knowledge that a Marine Container then included in the most recent calculation of the Borrowing Base submitted to the Administrative Agent hereunder is leased or subleased to a Sanctioned Person or a Sanctioned Entity (other than by the United States government, or pursuant to a license issued by the appropriate authority), then such Loan Party shall, within five (5) Business Days after obtaining knowledge thereof, remove such Marine Container from the calculation of the Borrowing Base for so long as such condition continues.
ARTICLE VIII
EVENTS OF DEFAULT AND REMEDIES
8.01 Events of Default. Any of the following shall constitute an Event of Default:
(a) Non-Payment. The Borrower or any other Loan Party fails to (i) pay when and as required to be paid herein, any amount of principal of any Loan, or (ii) pay within three days after the same becomes due, any interest on any Loan or any fee due hereunder, or (iii) pay within five days after the same becomes due, any other amount payable hereunder or under any other Loan Document; or
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(b) Specific Covenants. Any Loan Party fails to perform or observe any term, covenant or agreement contained in any of Sections 6.01, 6.02, 6.03, 6.05, 6.07, 6.10, 6.11, 6.12, or Article VII, or the Borrower fails to perform or observe any term, covenant or agreement contained in Sections 2, 5.7, 5.11 or 5.16 of the Security Agreement; or
(c) Other Defaults. Any Loan Party fails to perform or observe any other covenant or agreement (not specified in Section 8.01(a) or (b)) contained in any Loan Document on its part to be performed or observed and such failure continues for 30 days; or
(d) Representations and Warranties. Any representation, warranty, certification or statement of fact made or deemed made by or on behalf of the Borrower or any other Loan Party herein, in any other Loan Document shall be incorrect or misleading when made or deemed made; or
(e) Cross-Default. (i) Any Loan Party or any Material Subsidiary of a Loan Party (other than a Receivables Subsidiary) (A) fails to make any payment when due (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise) in respect of any Indebtedness or Guarantee (other than Indebtedness hereunder and Indebtedness under Swap Contracts) having an aggregate principal amount (including undrawn committed or available amounts and including amounts owing to all creditors under any combined or syndicated credit arrangement) of more than $15,000,000, or (B) fails to observe or perform any other agreement or condition relating to any such Indebtedness or Guarantee or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event occurs, the effect of which default or other event is to cause, or to permit the holder or holders of such Indebtedness or the beneficiary or beneficiaries of such Guarantee (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause, with the giving of notice if required, such Indebtedness to be demanded or to become due or to be repurchased, prepaid, defeased or redeemed (automatically or otherwise), or an offer to repurchase, prepay, defease or redeem such Indebtedness to be made, prior to its stated maturity, or such Guarantee to become payable or cash collateral in respect thereof to be demanded; or (ii) there occurs under any Swap Contract an Early Termination Date (as defined in such Swap Contract) resulting from (A) any event of default under such Swap Contract as to which a Loan Party or any Subsidiary thereof is the Defaulting Party (as defined in such Swap Contract) or (B) any Termination Event (as so defined) under such Swap Contract as to which a Loan Party or any Subsidiary thereof is an Affected Party (as so defined) and, in either event, the Swap Termination Value owed by a Loan Party or any Subsidiary thereof as a result thereof is greater than $5,000,000; or
(f) Insolvency Proceedings, Etc. Any Loan Party or any Subsidiary thereof institutes or consents to the institution of any proceeding under any Debtor Relief Law, or makes an assignment for the benefit of creditors; or applies for or consents to the appointment of any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer for it or for all or any material part of its property; or any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer is appointed without the application or consent of such Person and the appointment continues undischarged or unstayed for 60 calendar days; or any proceeding under any Debtor Relief Law relating to any such Person or to all or any material part of its property is instituted without the consent of such Person and continues undismissed or unstayed for 60 calendar days, or an order for relief is entered in any such proceeding; or
(g) Inability to Pay Debts; Attachment. (i) Any Loan Party or any Subsidiary thereof becomes unable or admits in writing its inability or fails generally to pay its debts as they become due, or (ii) any writ or warrant of attachment or execution or similar process is issued or levied against all or any material part of the property of any such Person and is not released, vacated or fully bonded within 30 days after its issue or levy; or
(h) Judgments. There is entered against any Loan Party or any Subsidiary thereof (i) one or more final judgments or orders for the payment of money in an aggregate amount (as to all such judgments and orders) exceeding $15,000,000 (to the extent not covered by independent third-party
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insurance as to which the insurer does not dispute coverage), or (ii) any one or more non-monetary final judgments that have, or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect and, in either case, (A) enforcement proceedings are commenced by any creditor upon such judgment or order, or (B) there is a period of 10 consecutive days during which a stay of enforcement of such judgment, by reason of a pending appeal or otherwise, is not in effect; or
(i) ERISA. (i) An ERISA Event occurs with respect to a Pension Plan or Multiemployer Plan which has resulted or could reasonably be expected to result in liability of the Borrower under Title IV of ERISA to the Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in excess of $10,000,000, or (ii) the Borrower or any ERISA Affiliate fails to pay when due, after the expiration of any applicable grace period, any installment payment with respect to its withdrawal liability under Section 4201 of ERISA under a Multiemployer Plan in an aggregate amount in excess of $10,000,000; or
(j) Invalidity of Loan Documents. Any provision of any Loan Document, at any time after its execution and delivery and for any reason other than as expressly permitted hereunder or thereunder or satisfaction in full of all the Obligations, ceases to be in full force and effect; or any Loan Party or any Affiliate thereof contests in any manner the validity or enforceability of any provision of any Loan Document; or any Loan Party denies that it has any or further liability or obligation under any provision of any Loan Document, or purports to revoke, terminate or rescind any provision of any Loan Document; or
(k) Change of Control. There occurs any Change of Control with respect to the Guarantor; or
(l) Ownership of Equity Interests. The occurrence of any of the following: (i) the Guarantor shall cease, directly, to own and control legally and beneficially all of the Equity Interests in the Borrower, (ii) the Guarantor shall cease, directly, to own and control legally and beneficially all of the Equity Interests in TEML, or (iii) the Borrower shall cease, directly, to own and control legally and beneficially all of the Equity Interests in each Receivables Subsidiary (other than TAP Funding and TWC); or
(m) Collateral Documents. Any Collateral Document after delivery thereof pursuant to Section 4.01 shall for any reason (other than pursuant to the terms thereof) cease to create a valid and perfected first priority (subject to Permitted Collateral Liens) Liens on the Collateral purported to be covered thereby free and clear of all Liens other than Permitted Collateral Liens.
8.02 Remedies upon Event of Default. If any Event of Default occurs and is continuing, the Administrative Agent shall, at the request of, or may, with the consent of, the Required Lenders, take any or all of the following actions:
(a) declare the commitment of each Lender to make Loans to be terminated, whereupon such commitments and obligation shall be terminated;
(b) declare the unpaid principal amount of all outstanding Loans, all interest accrued and unpaid thereon, and all other amounts owing or payable hereunder or under any other Loan Document to be immediately due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived by the Borrower; and
(c) exercise on behalf of itself, the Lenders all rights and remedies available to it and the Lenders under the Loan Documents;
provided, however, that upon the occurrence of an actual or deemed entry of an order for relief with respect to the Borrower under the Bankruptcy Code of the United States, the obligation of each Lender to make Loans shall automatically terminate, the unpaid principal amount of all outstanding Loans and all interest and other amounts as aforesaid shall automatically become due and payable without further act of the Administrative Agent or any Lender.
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8.03 Application of Funds.
(a) After the exercise of remedies provided for in Section 8.02 (or after the Loans have automatically become immediately due and payable as set forth in the proviso to Section 8.02), any amounts received on account of the Obligations shall be applied by the Administrative Agent in the following order:
First, to payment of that portion of the Obligations constituting fees, indemnities, expenses and other amounts (including fees, charges and disbursements of counsel to the Administrative Agent and amounts payable under Article III) payable to the Administrative Agent in its capacity as such;
Second, to payment of that portion of the Obligations constituting fees, indemnities and other amounts (other than principal, interest and amounts owing pursuant to the Designated Swap Contracts) payable to the Lenders (including fees, charges and disbursements of counsel to the respective Lenders (including fees and time charges for attorneys who may be employees of any Lender arising under the Loan Documents) and amounts payable under Article III, ratably among them in proportion to the respective amounts described in this clause Second payable to them;
Third, to payment of that portion of the Obligations constituting accrued and unpaid interest on the Loans and other Obligations arising under the Loan Documents and all Designated Swap Contracts including regularly scheduled payments on Designated Swap Contracts (but excluding Swap Termination Values), ratably among the Lenders and hedge counterparties in proportion to the respective amounts described in this clause Third payable to them;
Fourth, to payment of that portion of the Obligations constituting unpaid principal of the Loans, ratably among the Lenders and Swap Termination Values on Designated Swap Contracts; and
Last, the balance, if any, after all of the Obligations have been indefeasibly paid in full, to the Borrower or as otherwise required by Law.
ARTICLE IX
ADMINISTRATIVE AGENT
9.01 Appointment and Authority.
(a) Each of the Lenders hereby irrevocably appoints Union Bank to act on its behalf as the Administrative Agent hereunder and under the other Loan Documents and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms hereof or thereof, together with such actions and powers as are reasonably incidental thereto. The provisions of this Article are solely for the benefit of the Administrative Agent and the Lenders, and neither the Borrower nor any other Loan Party shall have rights as a third party beneficiary of any of such provisions. It is understood and agreed that the use of the term “agent” herein or in any other Loan Documents (or any other similar term) with reference to the Administrative Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable Law. Instead such term is used as a matter of market custom, and is intended to create or reflect only an administrative relationship between contracting parties.
(b) The Administrative Agent shall also act as the “collateral agent” under the Loan Documents, and each of the Lenders hereby irrevocably appoints and authorizes the Administrative Agent to act as the agent of such Lender for purposes of acquiring, holding and enforcing any and all Liens on Collateral granted by any of the Loan Parties to secure any of the Obligations, together with such powers and discretion as are reasonably incidental thereto. In this connection, the Administrative Agent, as “collateral agent” and any co-agents, sub-agents and attorneys-in-fact appointed by the Administrative Agent pursuant to Section 9.05 for purposes of holding or enforcing any Lien on the
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Collateral (or any portion thereof) granted under the Collateral Documents, or for exercising any rights and remedies thereunder at the direction of the Administrative Agent), shall be entitled to the benefits of all provisions of this Article IX and Article XI (including Section 11.04(c), as though such co-agents, sub-agents and attorneys-in-fact were the “collateral agent” under the Loan Documents) as if set forth in full herein with respect thereto.
9.02 Rights as a Lender. The Person serving as the Administrative Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Administrative Agent and the term “Lender” or “Lenders” shall, unless otherwise expressly indicated or unless the context otherwise requires, include the Person serving as the Administrative Agent hereunder in its individual capacity. Such Person and its Affiliates may accept deposits from, lend money to, own securities of, act as the financial advisor or in any other advisory capacity for and generally engage in any kind of business with the Borrower or any Subsidiary or other Affiliate thereof as if such Person were not the Administrative Agent hereunder and without any duty to account therefor to the Lenders.
9.03 Exculpatory Provisions. The Administrative Agent shall not have any duties or obligations except those expressly set forth herein and in the other Loan Documents, and its duties hereunder shall be administrative in nature. Without limiting the generality of the foregoing, the Administrative Agent:
(a) shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing;
(b) shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby or by the other Loan Documents that the Administrative Agent is required to exercise as directed in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be expressly provided for herein or in the other Loan Documents), provided that the Administrative Agent shall not be required to take any action that, in its opinion or the opinion of its counsel, may expose the Administrative Agent to liability or that is contrary to any Loan Document or applicable law, including for the avoidance of doubt any action that may be in violation of the automatic stay under any Debtor Relief Law or that may effect a forfeiture, modification or termination of property of a Defaulting Lender in violation of any Debtor Relief Law; and
(c) shall not, except as expressly set forth herein and in the other Loan Documents, have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrower or any of its Affiliates that is communicated to or obtained by the Person serving as the Administrative Agent or any of its Affiliates in any capacity.
The Administrative Agent shall not be liable for any action taken or not taken by it (i) with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary, or as the Administrative Agent shall believe in good faith shall be necessary, under the circumstances as provided in Sections 11.01 and 8.02) or (ii) in the absence of its own gross negligence or willful misconduct as determined by a court of competent jurisdiction by final and nonappealable judgment. The Administrative Agent shall be deemed not to have knowledge of any Default unless and until notice describing such Default is given in writing to the Administrative Agent by the Borrower or a Lender.
The Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement or any other Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein or therein or the occurrence of any Default, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement, any other Loan Document or any other agreement, instrument or document or the creation, perfection or priority of any Lien purported to be created by the Collateral Documents, (v) the value or the sufficiency of any Collateral, or (vi) the satisfaction of any condition set forth in Article IV or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent.
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9.04 Reliance by Administrative Agent. The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing (including any electronic message, Internet or intranet website posting or other distribution) believed by it to be genuine and to have been signed, sent or otherwise authenticated by the proper Person. The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to have been made by the proper Person, and shall not incur any liability for relying thereon. In determining compliance with any condition hereunder to the making of a Loan that by its terms must be fulfilled to the satisfaction of a Lender, the Administrative Agent may presume that such condition is satisfactory to such Lender unless the Administrative Agent shall have received notice to the contrary from such Lender prior to the making of such Loan. The Administrative Agent may consult with legal counsel (who may be counsel for the Borrower), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts.
9.05 Delegation of Duties. The Administrative Agent may perform any and all of its duties and exercise its rights and powers hereunder or under any other Loan Document by or through any one or more sub-agents appointed by the Administrative Agent. The Administrative Agent and any such sub-agent may perform any and all of its duties and exercise its rights and powers by or through their respective Related Parties. The exculpatory provisions of this Article shall apply to any such sub-agent and to the Related Parties of the Administrative Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent. The Administrative Agent shall not be responsible for the negligence or misconduct of any sub-agents except to the extent that a court of competent jurisdiction determines in a final and non appealable judgment that the Administrative Agent acted with gross negligence or willful misconduct in the selection of such sub-agents.
9.06 Resignation of Administrative Agent.
(a) The Administrative Agent may at any time give notice of its resignation to the Lenders and the Borrower. Upon receipt of any such notice of resignation, the Required Lenders shall have the right, in consultation with the Borrower, to appoint a successor, which shall be a Lender on the date of such appointment and have an office in the United States, or an Affiliate of any such bank with an office in the United States. If no such successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of its resignation (or such earlier day as shall be agreed by the Required Lenders) (the “Resignation Effective Date”), then the retiring Administrative Agent may (but shall not be obligated to) on behalf of the Lenders, appoint a successor Administrative Agent meeting the qualifications set forth above. Whether or not a successor has been appointed, such resignation shall become effective in accordance with such notice on the Resignation Effective Date.
(b) If the Person serving as Administrative Agent is a Defaulting Lender pursuant to clause (d) of the definition thereof, the Required Lenders may, to the extent permitted by applicable law, by notice in writing to the Borrower and such Person remove such Person as Administrative Agent and, in consultation with the Borrower, appoint a successor from among the other Lenders. If no such successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days (or such earlier day as shall be agreed by the Required Lenders) (the “Removal Effective Date”), then such removal shall nonetheless become effective in accordance with such notice on the Removal Effective Date.
(c) With effect from the Resignation Effective Date or the Removal Effective Date (as applicable) (1) the retiring or removed Administrative Agent shall be discharged from its duties and obligations hereunder and under the other Loan Documents (except that in the case of any collateral security held by the Administrative Agent on behalf of the Lenders under any of the Loan Documents, the
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retiring or removed Administrative Agent shall continue to hold such collateral security until such time as a successor Administrative Agent is appointed) and (2) except for any indemnity payments or other amounts then owed to the retiring or removed Administrative Agent, all payments, communications and determinations provided to be made by, to or through the Administrative Agent shall instead be made by or to each Lender directly, until such time, if any, as the Required Lenders appoint a successor Administrative Agent as provided for above. Upon the acceptance of a successor’s appointment as Administrative Agent hereunder, such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring (or removed) Administrative Agent (other than as provided in Section 3.01(g) and other than any rights to indemnity payments or other amounts owed to the retiring or removed Administrative Agent as of the Resignation Effective Date or the Removal Effective Date, as applicable), and the retiring or removed Administrative Agent shall be discharged from all of its duties and obligations hereunder or under the other Loan Documents (if not already discharged therefrom as provided above in this Section 9.06). The fees payable by the Borrower to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor. After the retiring or removed Administrative Agent’s resignation or removal hereunder and under the other Loan Documents, the provisions of this Article IX and Section 11.04 shall continue in effect for the benefit of such retiring or removed Administrative Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while the retiring or removed Administrative Agent was acting as Administrative Agent.
9.07 Non-Reliance on Administrative Agent and Other Lenders. Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender or any of their Related Parties and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender or any of their Related Parties and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any other Loan Document or any related agreement or any document furnished hereunder or thereunder.
9.08 No Other Duties, Etc. Anything herein to the contrary notwithstanding, none of the Bookrunners or Arrangers listed on the cover page hereof shall have any powers, duties or responsibilities under this Agreement or any of the other Loan Documents, except in its capacity, as applicable, as the Administrative Agent or a Lender.
9.09 Administrative Agent May File Proofs of Claim. In case of the pendency of any proceeding under any Debtor Relief Law or any other judicial proceeding relative to any Loan Party, the Administrative Agent (irrespective of whether the principal of any Loan shall then be due and payable as herein expressed or by declaration or otherwise and irrespective of whether the Administrative Agent shall have made any demand on the Borrower) shall be entitled and empowered, by intervention in such proceeding or otherwise,
(a) to file and prove a claim for the whole amount of the principal and interest owing and unpaid in respect of the Loans and all other Obligations that are owing and unpaid and to file such other documents as may be necessary or advisable in order to have the claims of the Lenders and the Administrative Agent (including any claim for the reasonable compensation, expenses, disbursements and advances of the Lenders and the Administrative Agent and their respective agents and counsel and all other amounts due the Lenders and the Administrative Agent under Sections 2.09 and 11.04) allowed in such judicial proceeding; and
(b) to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same;
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and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Lender to make such payments to the Administrative Agent and, in the event that the Administrative Agent shall consent to the making of such payments directly to the Lenders, to pay to the Administrative Agent any amount due for the reasonable compensation, expenses, disbursements and advances of the Administrative Agent and its agents and counsel, and any other amounts due the Administrative Agent under Sections 2.09 and 11.04.
Nothing contained herein shall be deemed to authorize the Administrative Agent to authorize or consent to or accept or adopt on behalf of any Lender any plan of reorganization, arrangement, adjustment or composition affecting the Obligations or the rights of any Lender to authorize the Administrative Agent to vote in respect of the claim of any Lender in any such proceeding.
9.10 Collateral Matters.
(a) The Lenders irrevocably authorize the Administrative Agent, at its option and in its discretion, to release any Lien on any Collateral (i) upon termination of the Aggregate Commitments and payment in full of all Obligations (other than contingent indemnification obligations), (ii) that is Disposed of or to be Disposed of as part of or in connection with any Disposition permitted hereunder or under any other Loan Document, or (iii) subject to Section 11.01, if approved, authorized or ratified in writing by the Required Lenders.
(b) (i) In the event of (A) any Disposition of Collateral permitted pursuant to Section 7.05(b), (c) or (d) (if applicable) or (B) the granting of Liens on existing Collateral to secure the Revolving Credit Agreement, the Lenders and the Administrative Agent agree that the Secured Parties’ Lien on such Collateral automatically shall be released so long as (x) the Borrower shall have submitted to the Administrative Agent a Borrowing Base Report demonstrating that, after giving pro forma effect to any such requested release of Collateral, the Total Outstandings shall not exceed the Borrowing Base and (y) in the case of any Released Containers (as defined below), the conditions set forth in Section 9.10(b)(ii) have been satisfied. In such event, the Administrative Agent, on behalf of the Secured Parties, shall be deemed to have released such Collateral from the Lien of the Collateral Documents, and the Administrative Agent shall, at Borrower’s request, within three (3) Business Days execute any documentation reasonably required to evidence such release.
(i) Subject to Section 9.10(b)(i), the Lenders and the Administrative Agent agree that the Lien on various Marine Containers included in the Marine Container Collateral (each such Released Marine Container, a “Released Container” and collectively, the “Released Containers”) and all Collateral specifically related to such Released Containers shall be automatically released from time to time upon request of Borrower and satisfaction of all of the following conditions:
(A) Borrower shall provide replacement Marine Containers (each, a “Substitute Container” and collectively, the “Substitute Containers”) in substitution for such Released Containers and the then aggregate Net Book Value of all Substitute Containers shall be not less than the then aggregate Net Book Value of all Released Containers,
(B) each Substitute Container shall be an Eligible Marine Container;
(C) on the date of such release, no Event of Default shall exist or will exist after giving effect to such substitution;
(D) such Substitute Containers, on an aggregate basis, are not materially different from the Released Containers, on an aggregate basis, in terms of (i) type (e.g., refrigerated, dry freight or specials), (ii) off-hire percentage, and (iii) Weighted Average Age;
(E) the sum of the Net Book Value of such Substitute Containers, when added to the sum of the Net Book Values of all Substitute Containers added to the Collateral (1) since the date that was twelve months prior to such release (the “Lookback Date”), does not exceed an amount equal to ten percent (10%) of the aggregate Net Book Value of all Marine Container Collateral measured
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on the Lookback Date, or (2) since the last day of the Availability Period, does not exceed an amount equal to twenty five percent (25%) of the aggregate Net Book Value of all Marine Container Collateral measured on the last day of the Availability Period;
(F) on or prior to the date of such release, (i) the Borrower shall have delivered to the Administrative Agent a supplemental security agreement, in the form attached hereto as Exhibit K, with regard to such Substitute Containers, and (ii) the Administrative Agent shall have received (x) evidence that all filings, recordations, releases, and amendments to prior filings or recordations necessary or desirable to perfect the Lien on any Contributed Containers shall have been completed, and that all related filing and recording fees and taxes shall have been duly paid and (y) updates through the approximate date of such substitution of the lien searches referred to in Section 4.01(a)(iii)(B); and
(G) after giving effect to such substitution, (A) the sum of the Net Book Values of all Marine Collateral Containers that are on lease to any single Lessee (or sublessee) shall not exceed an amount equal to twenty five percent (25%) the aggregate Net Book Values of all Marine Collateral Containers (measured after giving effect to such substitution) and (B) the sum of the Net Book Values of all Marine Collateral Containers that are on lease to any two Lessees shall not exceed an amount equal to forty percent (40%) of all Marine Collateral Containers (measured after giving effect to such substitution).
The criteria set forth in clauses (A) and (D) above shall be applied in aggregate with respect to each separate grouping of Substitute Containers and Released Containers. The criteria set forth in clause (E) above shall be applied on a cumulative basis for all Substitute Containers applicable to the periods set forth therein and the criteria set forth in clause (G) above shall be applied to all of the Marine Container Collateral, after giving effect to the addition of such Substitute Containers and release of the Released Containers.
In such event, the Administrative Agent, on behalf of the Secured Parties, shall be deemed to have released such Collateral from the Lien of the Collateral Documents, and the Administrative Agent shall, at Borrower’s request, within three (3) Business Days execute any documentation reasonably required to evidence such release.
(c) Upon request by the Administrative Agent at any time, the Required Lenders will confirm in writing the Administrative Agent’s authority to release its interest in Collateral pursuant to this Section 9.10. In each case as specified in this Section 9.10, the Administrative Agent will, at the Borrower’s expense, execute and deliver to the applicable Loan Party such documents as such Loan Party may reasonably request to evidence the release of such Collateral from the Lien of the Collateral Documents, in accordance with the terms of the Loan Documents and this Section 9.10. The Administrative Agent shall not be responsible for or have a duty to ascertain or inquire into any representation or warranty regarding the existence, value or collectability of the Collateral, the existence, priority or perfection of the Administrative Agent’s Lien thereon, or any certificate prepared by any Loan Party in connection therewith, nor shall the Administrative Agent be responsible or liable to the Lenders for any failure to monitor or maintain any portion of the Collateral.
ARTICLE X
CONTINUING GUARANTY
10.01 Guaranty. The Guarantor hereby absolutely and unconditionally guarantees, as a guaranty of payment and performance and not merely as a guaranty of collection, prompt payment when due, whether at stated maturity, by required prepayment, upon acceleration, demand or otherwise, and at all times thereafter, of any and all of the Obligations, whether for principal, interest, premiums, fees, indemnities, damages, costs, expenses or otherwise, of the Borrower to the Secured Parties, and whether arising hereunder or under any other Loan Document (including all renewals, extensions, amendments, refinancings and other modifications thereof and all costs, attorneys’ fees and expenses incurred by the Secured Parties in connection with the collection or enforcement thereof); provided, however, that the Obligations shall exclude all Excluded Swap Obligations. The Administrative Agent’s
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books and records showing the amount of the Obligations shall be admissible in evidence in any action or proceeding, and shall, absent manifest error, be binding upon the Guarantor and conclusive for the purpose of establishing the amount of the Obligations. This Guaranty shall not be affected by the genuineness, validity, regularity or enforceability of the Obligations or any instrument or agreement evidencing any Obligations, or by the existence, validity, enforceability, perfection, non-perfection or extent of any collateral therefor, or by any fact or circumstance relating to the Obligations which might otherwise constitute a defense to the obligations of the Guarantor under this Guaranty, and the Guarantor hereby irrevocably waives any defenses it may now have or hereafter acquire in any way relating to any or all of the foregoing.
10.02 Rights of Lenders. The Guarantor consents and agrees that the Secured Parties may, at any time and from time to time, without notice or demand, and without affecting the enforceability or continuing effectiveness hereof: (a) amend, extend, renew, compromise, discharge, accelerate or otherwise change the time for payment or the terms of the Obligations or any part thereof, in each case, in accordance with the terms of the applicable Loan Documents; (b) take, hold, exchange, enforce, waive, release, fail to perfect, sell, or otherwise dispose of any security for the payment of this Guaranty or any Obligations; (c) apply such security and direct the order or manner of sale thereof as the Secured Parties in their sole discretion may determine; and (d) release or substitute one or more of any endorsers or other guarantors of any of the Obligations. Without limiting the generality of the foregoing, the Guarantor consents to the taking of, or failure to take, any action which might in any manner or to any extent vary the risks of the Guarantor under this Guaranty or which, but for this provision, might operate as a discharge of the Guarantor.
10.03 Certain Waivers. The Guarantor waives (a) any defense arising by reason of any disability or other defense of the Borrower or any other guarantor, or the cessation from any cause whatsoever (including any act or omission of any Secured Party) of the liability of the Borrower; (b) any defense based on any claim that the Guarantor’s obligations exceed or are more burdensome than those of the Borrower; (c) the benefit of any statute of limitations affecting the Guarantor’s liability hereunder; (d) any right to proceed against the Borrower, proceed against or exhaust any security for the Obligations, or pursue any other remedy in the power of any Secured Party whatsoever; (e) any benefit of and any right to participate in any security now or hereafter held by any Secured Party; and (f) to the fullest extent permitted by law, any and all other defenses or benefits that may be derived from or afforded by applicable law limiting the liability of or exonerating guarantors or sureties. The Guarantor expressly waives all setoffs and counterclaims and all presentments, demands for payment or performance, notices of nonpayment or nonperformance, protests, notices of protest, notices of dishonor and all other notices or demands of any kind or nature whatsoever with respect to the Obligations, and all notices of acceptance of this Guaranty or of the existence, creation or incurrence of new or additional Obligations. As provided below, this Guaranty shall be governed by, and construed in accordance with, the laws of the State of New York.
10.04 Obligations Independent. The obligations of the Guarantor hereunder are those of primary obligor, and not merely as surety, and are independent of the Obligations and the obligations of any other guarantor, and a separate action may be brought against the Guarantor to enforce this Guaranty whether or not the Borrower or any other person or entity is joined as a party.
10.05 Subrogation. The Guarantor shall not exercise any right of subrogation, contribution, indemnity, reimbursement or similar rights with respect to any payments it makes under this Guaranty until all of the Obligations and any amounts payable under this Guaranty have been indefeasibly paid and performed in full and the Commitments are terminated. If any amounts are paid to the Guarantor in violation of the foregoing limitation, then such amounts shall be held in trust for the benefit of the Secured Parties and shall forthwith be paid to the Secured Parties to reduce the amount of the Obligations, whether matured or unmatured.
10.06 Termination; Reinstatement. This Guaranty is a continuing and irrevocable guaranty of all Obligations now or hereafter existing and shall remain in full force and effect until all Obligations and any other amounts payable under this Guaranty are indefeasibly paid in full in cash and the Commitments and
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the Obligations are terminated. Notwithstanding the foregoing, this Guaranty shall continue in full force and effect or be revived, as the case may be, if any payment by or on behalf of the Borrower or the Guarantor is made, or any of the Secured Parties exercises its right of setoff, in respect of the Obligations and such payment or the proceeds of such setoff or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by any of the Secured Parties in their discretion) to be repaid to a trustee, receiver or any other party, in connection with any proceeding under any Debtor Relief Laws or otherwise, all as if such payment had not been made or such setoff had not occurred and whether or not the Secured Parties are in possession of or have released this Guaranty and regardless of any prior revocation, rescission, termination or reduction. The obligations of the Guarantor under this Section 10.06 shall survive termination of this Guaranty.
10.07 Subordination. The Guarantor hereby subordinates the payment of all obligations and indebtedness of the Borrower owing to the Guarantor, whether now existing or hereafter arising, including but not limited to any obligation of the Borrower to the Guarantor as subrogee of the Secured Parties or resulting from the Guarantor’s performance under this Guaranty, to the Obligations. If the Secured Parties so request, any such obligation or indebtedness of the Borrower to the Guarantor shall be enforced and performance received by the Guarantor as trustee for the Secured Parties and the proceeds thereof shall be paid over to the Secured Parties on account of the Obligations, but without reducing or affecting in any manner the liability of the Guarantor under this Guaranty.
10.08 Stay of Acceleration. If acceleration of the time for payment of any of the Obligations is stayed, in connection with any case commenced by or against the Guarantor or the Borrower under any Debtor Relief Laws, or otherwise, all such amounts shall nonetheless be payable by the Guarantor immediately upon demand by the Secured Parties.
10.09 Condition of Borrower. The Guarantor acknowledges and agrees that it has the sole responsibility for, and has adequate means of, obtaining from the Borrower and any other guarantor such information concerning the financial condition, business and operations of the Borrower and any such other guarantor as the Guarantor requires, and that none of the Secured Parties has any duty, and the Guarantor is not relying on the Secured Parties at any time, to disclose to the Guarantor any information relating to the business, operations or financial condition of the Borrower or any other guarantor (the Guarantor waiving any duty on the part of the Secured Parties to disclose such information and any defense relating to the failure to provide the same).
ARTICLE XI
MISCELLANEOUS
11.01 Amendments, Etc. No amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent to any departure by the Borrower or any other Loan Party therefrom, shall be effective unless in writing signed by the Required Lenders and the Borrower or the applicable Loan Party, as the case may be, and acknowledged by the Administrative Agent, and each such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that:
(a) no such amendment, waiver or consent shall:
(i) waive any condition set forth in Section 4.01 (other than Section 4.01(b)(i) or (c)), or, in the case of any Borrowing, Section 4.02, without the written consent of each Lender;
(ii) extend or increase the Commitment of any Lender (or reinstate any Commitment terminated pursuant to Section 8.02) without the written consent of such Lender;
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(iii) postpone any date fixed by this Agreement or any other Loan Document for any payment (excluding mandatory prepayments) of principal, interest, fees or other amounts due to the Lenders (or any of them) hereunder or under such other Loan Document without the written consent of each Lender entitled to such payment;
(iv) reduce the principal of, or the rate of interest specified herein on, any Loan, or (subject to Section 11.01(b)(ii)) any fees or other amounts payable hereunder or under any other Loan Document, or change the manner of computation of any financial ratio (including any change in any applicable defined term) used in determining the Applicable Rate that would result in a reduction of any interest rate on any Loan or any fee payable hereunder without the written consent of each Lender entitled to such amount; provided, however, that only the consent of the Required Lenders shall be necessary (i) to amend the definition of “Default Rate” or to waive any obligation of the Borrower to pay interest at the Default Rate or (ii) to amend any financial covenant hereunder (or any defined term used therein) even if the effect of such amendment would be to reduce the rate of interest on any Loan or to reduce any fee payable hereunder;
(v) change Section 2.13 or Section 8.03 in a manner that would alter the pro rata sharing of payments required thereby without the written consent of each Lender;
(vi) change any provision of this Section 11.01 or the definition of “Required Lenders” or any other provision hereof specifying the number or percentage of Lenders required to amend, waive or otherwise modify any rights hereunder or make any determination or grant any consent hereunder without the written consent of each Lender;
(vii) subject to Section 9.10, release all or substantially all of the Collateral in any transaction or series of related transactions, without the written consent of each Lender;
(viii) release the Guarantor from the Guaranty without the written consent of each Lender;
(ix) impose any greater restriction on the ability of any Lender to assign any of its rights or obligations hereunder without the written consent of the Required Lenders; or
(x) amend Section 8.03 in any manner that would alter the priority of payments set forth in such Section without the written consent of each Lender.
(b) With respect to amendments, modifications or waivers impacting the rights and obligations of the Administrative Agent:
(i) no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent in addition to the Lenders required above, affect the rights or duties of the Administrative Agent under this Agreement or any other Loan Document; and
(ii) the Fee Letter may be amended, or rights or privileges thereunder waived, in a writing executed only by the parties thereto.
Notwithstanding anything to the contrary herein, no Defaulting Lender shall have any right to approve or disapprove any amendment, waiver or consent hereunder (and any amendment, waiver or consent which by its terms requires the consent of all Lenders or each affected Lender may be effected with the consent of the applicable Lenders other than Defaulting Lenders), except that (x) the Commitment of any Defaulting Lender may not be increased or extended without the consent of such Lender and (y) any waiver, amendment or modification requiring the consent of all Lenders or each affected Lender that by its terms affects any Defaulting Lender disproportionately adversely relative to other affected Lenders shall require the consent of such Defaulting Lender.
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11.02 Notices; Effectiveness; Electronic Communication.
(a) Notices Generally. Except in the case of notices and other communications expressly permitted to be given by telephone (and except as provided in Section 11.02(b) and the penultimate paragraph of Section 6.02), all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by facsimile as follows, and all notices and other communications expressly permitted hereunder to be given by telephone shall be made to the applicable telephone number, as follows:
(i) if to the Borrower, the Guarantor or the Administrative Agent, to the address, facsimile number, electronic mail address or telephone number specified for such Person on Schedule 11.02; and
(ii) if to any other Lender, to the address, facsimile number, electronic mail address or telephone number specified in its Administrative Questionnaire.
Notices and other communications sent by facsimile, hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when sent. Notices and other communications delivered through electronic communications to the extent provided in Section 11.02(b), shall be effective as provided in Section 11.02(b).
(b) Electronic Communications. Notices and other communications to the Lenders hereunder may be delivered or furnished by electronic communication (including e mail and Internet or intranet websites) pursuant to procedures approved by the Administrative Agent (which include those set forth in the penultimate paragraph of Section 6.02), provided that the foregoing shall not apply to notices to any Lender pursuant to Article II if such Lender has notified the Administrative Agent that it is incapable of receiving notices under such Article by electronic communication. The Administrative Agent or the Borrower may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it, provided that approval of such procedures may be limited to particular notices or communications.
Unless the Administrative Agent otherwise prescribes, (i) notices and other communications sent to an e-mail address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested” function, as available, return e-mail or other written acknowledgement), and (ii) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its e-mail address as described in the foregoing clause (i) of notification that such notice or communication is available and identifying the website address therefor; provided that, for both clauses (i) and (ii), if such notice, email or other communication is not sent during the normal business hours of the recipient, such notice, email or communication shall be deemed to have been sent at the opening of business on the next business day for the recipient.
(c) The Platform. THE PLATFORM IS PROVIDED “AS IS” AND “AS AVAILABLE.” THE AGENT PARTIES (AS DEFINED BELOW) DO NOT WARRANT THE ACCURACY OR COMPLETENESS OF THE BORROWER MATERIALS OR THE ADEQUACY OF THE PLATFORM, AND EXPRESSLY DISCLAIM LIABILITY FOR ERRORS IN OR OMISSIONS FROM THE BORROWER MATERIALS. NO WARRANTY OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY, INCLUDING ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OF THIRD PARTY RIGHTS OR FREEDOM FROM VIRUSES OR OTHER CODE DEFECTS, IS MADE BY ANY AGENT PARTY IN CONNECTION WITH THE BORROWER MATERIALS OR THE PLATFORM. In no event shall the Administrative Agent or any of its Related Parties (collectively, the “Agent Parties”) have any liability to the Borrower, the Guarantor, any Lender, or any other Person for losses, claims, damages, liabilities or expenses of any kind (whether in tort, contract or otherwise) arising out of the Borrower’s or the Administrative Agent’s transmission of Borrower Materials through the Internet, except to the extent that such losses, claims, damages, liabilities or expenses are determined by a court of competent jurisdiction by a final and nonappealable judgment to have resulted from the gross negligence or willful
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misconduct of such Agent Party; provided, however, that in no event shall any Agent Party have any liability to the Borrower, the Guarantor, any Lender or any other Person for indirect, special, incidental, consequential or punitive damages (as opposed to direct or actual damages).
(d) Change of Address, Etc. Each of the Borrower and the Administrative Agent may change its address, facsimile or telephone number for notices and other communications hereunder by notice to the other parties hereto (or, in the case of Borrower, to the Administrative Agent). Each other Lender may change its address, facsimile or telephone number for notices and other communications hereunder by notice to the Borrower and the Administrative Agent. In addition, each Lender agrees to notify the Administrative Agent from time to time to ensure that the Administrative Agent has on record (i) an effective address, contact name, telephone number, facsimile number and electronic mail address to which notices and other communications may be sent and (ii) accurate wire instructions for such Lender. Furthermore, each Public Lender agrees to cause at least one individual at or on behalf of such Public Lender to at all times have selected the “Private Side Information” or similar designation on the content declaration screen of the Platform in order to enable such Public Lender or its delegate, in accordance with such Public Lender’s compliance procedures and applicable Law, including United States Federal and state securities Laws, to make reference to Borrower Materials that are not made available through the “Public Side Information” portion of the Platform and that may contain material non-public information with respect to the Borrower or its securities for purposes of United States Federal or state securities laws.
(e) Reliance by Administrative Agent and Lenders. The Administrative Agent and the Lenders shall be entitled to rely and act upon any notices (including telephonic Loan Notices) purportedly given by or on behalf of the Borrower even if such notices were not made in a manner specified herein, were incomplete or were not preceded or followed by any other form of notice specified herein. The Borrower shall indemnify the Administrative Agent, each Lender and the Related Parties of each of them from all losses, costs, expenses and liabilities resulting from the reliance by such Person on each notice given by or on behalf of the Borrower. All telephonic notices to and other telephonic communications with the Administrative Agent may be recorded by the Administrative Agent, and each of the parties hereto hereby consents to such recording.
11.03 No Waiver; Cumulative Remedies. No failure by any Lender or the Administrative Agent to exercise, and no delay by any such Person in exercising, any right, remedy, power or privilege hereunder or under any other Loan Document shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges herein provided or under any other Loan Document are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law.
Notwithstanding anything to the contrary contained herein or in any other Loan Document, the authority to enforce rights and remedies hereunder and under the other Loan Documents against the Loan Parties or any of them shall be vested exclusively in, and all actions and proceedings at law in connection with such enforcement shall be instituted and maintained exclusively by, the Administrative Agent in accordance with Section 8.02 for the benefit of all the Lenders; provided, however, that the foregoing shall not prohibit (a) the Administrative Agent from exercising on its own behalf the rights and remedies that inure to its benefit (solely in its capacity as Administrative Agent) hereunder and under the other Loan Documents, (b) any Lender from exercising setoff rights in accordance with Section 11.08 (subject to the terms of Section 2.13), or (c) any Lender from filing proofs of claim or appearing and filing pleadings on its own behalf during the pendency of a proceeding relative to any Loan Party under any Debtor Relief Law; and provided, further, that if at any time there is no Person acting as Administrative Agent hereunder and under the other Loan Documents, then (i) the Required Lenders shall have the rights otherwise ascribed to the Administrative Agent pursuant to Section 8.02 and (ii) in addition to the matters set forth in clauses (b), (c) and (d) of the preceding proviso and subject to Section 2.13, any Lender may, with the consent of the Required Lenders, enforce any rights and remedies available to it and as authorized by the Required Lenders.
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11.04 Expenses; Indemnity; Damage Waiver.
(a) Costs and Expenses. The Borrower shall pay (i) all reasonable out of pocket expenses incurred by the Administrative Agent and its Affiliates (including the reasonable fees, charges and disbursements of counsel for the Administrative Agent), in connection with the syndication of the credit facilities provided for herein, the preparation, negotiation, execution, delivery and administration of this Agreement and the other Loan Documents or any amendments, modifications or waivers of the provisions hereof or thereof (whether or not the transactions contemplated hereby or thereby shall be consummated), (ii) all out of pocket expenses incurred by the Administrative Agent, any Lender (including the fees, charges and disbursements of any counsel for the Administrative Agent or any Lender), in connection with the enforcement or protection of its rights (A) in connection with this Agreement and the other Loan Documents, including its rights under this Section 11.04(a), or (B) in connection with the Loans, including all such out of pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans.
(b) Indemnification by the Borrower. The Borrower shall indemnify the Administrative Agent (and any sub-agent thereof), each Lender, and each Related Party of any of the foregoing Persons (each such Person being called an “Indemnitee”) against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities, penalties and related expenses (including the fees, charges and disbursements of any counsel for any Indemnitee), and shall indemnify and hold harmless each Indemnitee from all fees and time charges and disbursements for attorneys who may be employees of any Indemnitee, incurred by any Indemnitee or asserted against any Indemnitee by any Person (including the Borrower or any other Loan Party) other than such Indemnitee and its Related Parties arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement, any other Loan Document or any agreement or instrument contemplated hereby or thereby, the performance by the parties hereto of their respective obligations hereunder or thereunder, the consummation of the transactions contemplated hereby or thereby, or, in the case of the Administrative Agent (and any sub-agent thereof) and its Related Parties only, the administration of this Agreement and the other Loan Documents (including in respect of any matters addressed in Section 3.01), (ii) any Loan or the use or proposed use of the proceeds therefrom, (iii) any actual or alleged presence or release of Hazardous Materials on or from any property owned or operated by the Borrower or any of its Subsidiaries, or any Environmental Liability related in any way to the Borrower or any of its Subsidiaries, (iv) any civil penalty or fine assessed by OFAC against, and all reasonable costs and expenses (including reasonable counsel fees and disbursements) incurred in connection with defense thereof by, an Indemnitee as a result of conduct of any Loan Party or any Subsidiary thereof that violates a sanction enforced by OFAC, or (v) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory, whether brought by a third party or by the Borrower or any other Loan Party or any of the Borrower’s or such Loan Party’s directors, shareholders or creditors, and regardless of whether any Indemnitee is a party thereto; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses (x) are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee or (y) result from a claim brought by the Borrower or any other Loan Party against an Indemnitee for breach in bad faith of such Indemnitee’s obligations hereunder or under any other Loan Document, if the Borrower or such Loan Party has obtained a final and nonappealable judgment in its favor on such claim as determined by a court of competent jurisdiction. Without limiting the provisions of Section 3.01(c), this Section 11.04(b) shall not apply with respect to Taxes other than any Taxes that represent losses, claims, damages, etc. arising from any non-Tax claim.
(c) Reimbursement by Lenders. To the extent that the Borrower for any reason fails to indefeasibly pay any amount required under Section 11.04(a) or (b) to be paid by it to the Administrative Agent (or any sub-agent thereof) or any Related Party of any of the foregoing, each Lender severally agrees to pay to the Administrative Agent (or any such sub-agent), or such Related Party, as the case may be, such Lender’s pro rata share (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought based on each Lender’s share of the Total Credit Exposure at such time) of such unpaid amount (including any such unpaid amount in respect of a claim asserted by
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such Lender), such payment to be made severally among them based on such Lenders’ Applicable Percentage (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount, provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent (or any such sub-agent), or against any Related Party of any of the foregoing acting for the Administrative Agent (or any such sub-agent). The obligations of the Lenders under this Section 11.04(c) are subject to the provisions of Section 2.12(d).
(d) Waiver of Consequential Damages, Etc. To the fullest extent permitted by applicable law, the Borrower shall not assert, and hereby waives, and acknowledges that no other Person shall have, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any other Loan Document or any agreement or instrument contemplated hereby, the transactions contemplated hereby or thereby, any Loan or the use of the proceeds thereof. No Indemnitee referred to in Section 11.04(b) shall be liable for any damages arising from the use by unintended recipients of any information or other materials distributed to such unintended recipients by such Indemnitee through telecommunications, electronic or other information transmission systems in connection with this Agreement or the other Loan Documents or the transactions contemplated hereby or thereby, unless such distribution was made as a result of the gross negligence or willful misconduct of such Indemnitee or in violation by such Indemnitee of Section 11.07, other than for direct or actual damages resulting from the gross negligence or willful misconduct of such Indemnitee as determined by a final and nonappealable judgment of a court of competent jurisdiction.
(e) Payments. All amounts due under this Section 11.04 shall be payable not later than ten Business Days after demand therefor.
(f) Survival. The agreements in this Section 11.04 and the indemnity provisions of Section 11.02(e) shall survive the resignation of the Administrative Agent, the replacement of any Lender, the termination of the Aggregate Commitments and this Agreement and the repayment, satisfaction or discharge of all the other Obligations.
11.05 Payments Set Aside. To the extent that any payment by or on behalf of the Borrower is made to the Administrative Agent or any Lender, or the Administrative Agent or any Lender exercises its right of setoff, and such payment or the proceeds of such setoff or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by the Administrative Agent or such Lender in its discretion) to be repaid to a trustee, receiver or any other party, in connection with any proceeding under any Debtor Relief Law or otherwise, then (a) to the extent of such recovery, the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such setoff had not occurred, and (b) each Lender severally agrees to pay to the Administrative Agent upon demand its applicable share (without duplication) of any amount so recovered from or repaid by the Administrative Agent, plus interest thereon from the date of such demand to the date such payment is made at a rate per annum equal to the Federal Funds Rate from time to time in effect. The obligations of the Lenders under clause (b) of the preceding sentence shall survive the payment in full of the Obligations and the termination of this Agreement.
11.06 Successors and Assigns.
(a) Successors and Assigns Generally. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that neither the Borrower nor any other Loan Party may assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of the Administrative Agent and each Lender and no Lender may assign or otherwise transfer any of its rights or obligations hereunder except (i) to an assignee in accordance with the provisions of Section 11.06(b), (ii) by way of participation in accordance with the provisions of Section 11.06(d), or (iii) by way of pledge or assignment of a security interest subject to the restrictions of Section 11.06(f) (and any other attempted assignment or
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transfer by any party hereto shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, Participants to the extent provided in Section 11.06(d) and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent, and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.
(b) Assignments by Lenders. Any Lender may at any time assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it); provided that any such assignment shall be subject to the following conditions:
(i) Minimum Amounts.
(A) in the case of an assignment of the entire remaining amount of the assigning Lender’s Commitment and the Loans at the time owing to it or in the case of an assignment to a Lender, an Affiliate of a Lender or an Approved Fund, no minimum amount need be assigned; and
(B) in any case not described in Section 11.06(b)(i)(A), the aggregate amount of the Commitment (which for this purpose includes Loans outstanding thereunder) or, if the Commitment is not then in effect, the principal outstanding balance of the Loans of the assigning Lender subject to each such assignment, determined as of the date the Assignment and Assumption with respect to such assignment is delivered to the Administrative Agent or, if “Trade Date” is specified in the Assignment and Assumption, as of the Trade Date, shall not be less than $5,000,000 unless each of the Administrative Agent and, so long as no Event of Default has occurred and is continuing, the Borrower otherwise consents (each such consent not to be unreasonably withheld or delayed); provided, however, that concurrent assignments to members of an Assignee Group and concurrent assignments from members of an Assignee Group to a single Eligible Assignee (or to an Eligible Assignee and members of its Assignee Group) will be treated as a single assignment for purposes of determining whether such minimum amount has been met.
(ii) Proportionate Amounts. Each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender’s rights and obligations under this Agreement with respect to the Loans or the Commitment assigned.
(iii) Required Consents. No consent shall be required for any assignment except to the extent required by Section 11.06(b)(i)(B) and, in addition:
(A) the consent of the Borrower (which, except in the case of an assignee that is considered by the Borrower to be a Competitor of any Loan Party or Affiliate thereof, shall not unreasonably be withheld or delayed) shall be required unless (1) an Event of Default has occurred and is continuing at the time of such assignment or (2) such assignment is to a Lender, an Affiliate of a Lender or an Approved Fund; provided that the Borrower shall be deemed to have consented to any such assignment unless it shall object thereto by written notice to the Administrative Agent within five (5) Business Days after having received notice thereof; and provided, further, that the Borrower’s consent shall not be required during the primary syndication of the credit facility provided herein; and
(B) the consent of the Administrative Agent (such consent not to be unreasonably withheld or delayed) shall be required if such assignment is to a Person that is not a Lender, an Affiliate of such Lender or an Approved Fund with respect to such Lender.
(iv) Assignment and Assumption. The parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Assumption, together with a processing and recordation fee in the amount of $3,500; provided, however, that the Administrative Agent may, in its sole discretion, elect to waive such processing and recordation fee in the case of any assignment; provided, further, that in no event shall the Borrower be required to pay such fee. The assignee, if it is not a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire.
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(v) No Assignment to Borrower or a Defaulting Lender. No such assignment shall be made to the Borrower or any of the Borrower’s Affiliates or Subsidiaries or any Person that is then a Defaulting Lender.
(vi) No Assignment to Natural Persons. No such assignment shall be made to a natural person.
(vii) Certain Additional Payments. In connection with any assignment of rights and obligations of any Defaulting Lender hereunder, no such assignment shall be effective unless and until, in addition to the other conditions thereto set forth herein, the parties to the assignment shall make such additional payments to the Administrative Agent in an aggregate amount sufficient, upon distribution thereof as appropriate (which may be outright payment, purchases by the assignee of participations or subparticipations, or other compensating actions, including funding, with the consent of the Borrower and the Administrative Agent, the applicable pro rata share of Loans previously requested but not funded by the Defaulting Lender, to each of which the applicable assignee and assignor hereby irrevocably consent), to (x) pay and satisfy in full all payment liabilities then owed by such Defaulting Lender to the Administrative Agent or any Lender hereunder (and interest accrued thereon) and (y) acquire (and fund as appropriate) its full pro rata share of all Loans in accordance with its Applicable Percentage. Notwithstanding the foregoing, in the event that any assignment of rights and obligations of any Defaulting Lender hereunder shall become effective under applicable Law without compliance with the provisions of this Section 11.06(b)(vii), then the assignee of such interest shall be deemed to be a Defaulting Lender for all purposes of this Agreement until such compliance occurs.
Subject to acceptance and recording thereof by the Administrative Agent pursuant to Section 11.06(c), from and after the effective date specified in each Assignment and Assumption, the assignee thereunder shall be a party to this Agreement and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto) but shall continue to be entitled to the benefits of Sections 3.01, 3.04, 3.05, and 11.04 with respect to facts and circumstances occurring prior to the effective date of such assignment; provided that except to the extent otherwise expressly agreed by the affected parties, no assignment by a Defaulting Lender will constitute a waiver or release of any claim of any party hereunder arising from that Lender’s having been a Defaulting Lender. Upon request, the Borrower (at its expense) shall execute and deliver a Note to the assignee Lender. Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this Section 11.06(b) shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with Section 11.06(d).
(c) Register. The Administrative Agent, acting solely for this purpose as a non-fiduciary agent of the Borrower (and such agency being solely for tax purposes), shall maintain at the Administrative Agent’s Office a copy of each Assignment and Assumption delivered to it (or the equivalent thereof in electronic form) and a register for the recordation of the names and addresses of the Lenders, and the Commitments of, and principal amounts (and stated interest) of the Loans owing to, each Lender pursuant to the terms hereof from time to time (the “Register”). The entries in the Register shall be conclusive absent manifest error, and the Borrower, the Administrative Agent and the Lenders shall treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection (in person or in electronic format) by the Borrower and any Lender, at any reasonable time and from time to time upon reasonable prior notice.
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(d) Participations. Any Lender may at any time, without the consent of, or notice to, the Borrower or the Administrative Agent, sell participations to any Person (other than a natural person or the Borrower or any of the Borrower’s Affiliates or Subsidiaries) (each, a “Participant”) in all or a portion of such Lender’s rights and/or obligations under this Agreement (including all or a portion of its Commitment and/or the Loans owing to it); provided that (i) such Lender’s obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Borrower, the Administrative Agent and the Lenders shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement. For the avoidance of doubt, each Lender shall be responsible for the indemnity under Section 11.04(c) without regard to the existence of any participation.
Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, waiver or other modification described in Section 11.01(a) that affects such Participant. Subject to Section 11.06(e), the Borrower agrees that each Participant shall be entitled to the benefits of Sections 3.01, 3.04 and 3.05 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to Section 11.06(b) (it being understood that the documentation required under Section 3.01(e) shall be delivered to the Lender who sells the participation) to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to Section 11.06(b); provided that such Participant (A) agrees to be subject to the provisions of Sections 3.06 and 11.13 as if it were an assignee under Section 11.06(b) and (B) shall not be entitled to receive any greater payment under Section 3.01 or 3.04, with respect to any participation, than the Lender from whom it acquired the applicable participation would have been entitled to receive, except to the extent such entitlement to receive a greater payment results from a Change in Law that occurs after the Participant acquired the applicable participation. Each Lender that sells a participation agrees, at the Borrower’s request and expense, to use reasonable efforts to cooperate with the Borrower to effectuate the provisions of Section 3.06 with respect to any Participant. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 11.08 as though it were a Lender, provided such Participant agrees to be subject to Section 2.13 as though it were a Lender.
Each Lender that sells a participation shall, acting solely for this purpose as a non-fiduciary agent of the Borrower, maintain a register on which it enters the name and address of each Participant and the principal amounts (and stated interest) of each Participant’s interest in the Loans or other obligations under the Loan Documents (the “Participant Register”); provided that no Lender shall have any obligation to disclose all or any portion of the Participant Register (including the identity of any Participant or any information relating to a Participant’s interest in any commitments, loans, letters of credit or its other obligations under any Loan Document) to any Person except to the extent that such disclosure is necessary to establish that such commitment, loan, letter of credit or other obligation is in registered form under Section 5f.103-1(c) of the United States Treasury Regulations. The entries in the Participant Register shall be conclusive absent manifest error, and such Lender shall treat each Person whose name is recorded in the Participant Register as the owner of such participation for all purposes of this Agreement notwithstanding any notice to the contrary. For the avoidance of doubt, the Administrative Agent (in its capacity as Administrative Agent) shall have no responsibility for maintaining a Participant Register.
(e) Limitations upon Participant Rights. A Participant shall not be entitled to receive any greater payment under Section 3.01 or 3.04 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower’s prior written consent. A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 3.01 unless the Borrower is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrower, to comply with Section 3.01(e) as though it were a Lender.
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(f) Certain Pledges. Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement (including under its Note, if any) to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank, the European Central Bank or any other Governmental Authority; provided that no such pledge or assignment shall release such Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.
11.07 Treatment of Certain Information; Confidentiality. Each of the Administrative Agent, and the Lenders agree to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its Affiliates and to its Related Parties (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and agree to keep such Information confidential), (b) to the extent required or requested by any regulatory authority purporting to have jurisdiction over such Person or its Related Parties (including any self-regulatory authority, such as the National Association of Insurance Commissioners), (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (d) to any other party hereto, (e) in connection with the exercise of any remedies hereunder or under any other Loan Document or any action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section 11.07, to (i) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights and obligations under this Agreement or any Eligible Assignee invited to be a Lender pursuant to Section 11.01 or (ii) any actual or prospective party (or its Related Parties) to any swap, derivative or other transaction under which payments are to be made by reference to the Borrower and its obligations, this Agreement or payments hereunder, (g) on a confidential basis to (i) any rating agency in connection with rating the Borrower or its Subsidiaries or the credit facilities provided hereunder or (ii) the CUSIP Service Bureau or any similar agency in connection with the issuance and monitoring of CUSIP numbers or other market identifiers with respect to the credit facilities provided hereunder, (h) with the consent of the Borrower or (i) to the extent such Information (x) becomes publicly available other than as a result of a breach of this Section 11.07 or (y) becomes available to the Administrative Agent, any Lender or any of their respective Affiliates on a nonconfidential basis from a source other than the Borrower. For purposes of this Section 11.07, “Information” means all information received from any Loan Party or any Subsidiary relating to any Loan Party or any Subsidiary or any of their respective businesses, other than any such information that is available to the Administrative Agent, any Lender on a nonconfidential basis prior to disclosure by any Loan Party or any Subsidiary, provided that, in the case of information received from the Borrower or any Subsidiary after the date hereof, such information is clearly identified at the time of delivery as confidential. Any Person required to maintain the confidentiality of Information as provided in this Section 11.07 shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information.
Each of the Administrative Agent and the Lenders acknowledges that (a) the Information may include material non-public information concerning the Borrower or a Subsidiary, as the case may be, (b) it has developed compliance procedures regarding the use of material non-public information and (c) it will handle such material non-public information in accordance with applicable Law, including United States Federal and state securities Laws.
11.08 Right of Setoff. If an Event of Default shall have occurred and be continuing, each Lender and each of their respective Affiliates is hereby authorized at any time and from time to time, after obtaining the prior written consent of the Administrative Agent, to the fullest extent permitted by applicable law, to set off and apply any and all deposits (general or special, time or demand, provisional or final, in whatever currency) at any time held and other obligations (in whatever currency) at any time owing by such Lender or any such Affiliate to or for the credit or the account of the Borrower or any other Loan Party against any and all of the obligations of the Borrower or such Loan Party now or hereafter existing under this Agreement or any other Loan Document to such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement or any other Loan Document and although such obligations of the Borrower or such Loan Party may be contingent or unmatured or are owed to a branch
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or office of such Lender different from the branch or office holding such deposit or obligated on such indebtedness; provided that in the event that any Defaulting Lender shall exercise any such right of setoff, (x) all amounts so set off shall be paid over immediately to the Administrative Agent for further application in accordance with the provisions of Section 2.13 and, pending such payment, shall be segregated by such Defaulting Lender from its other funds and deemed held in trust for the benefit of the Administrative Agent and the Lenders, and (y) the Defaulting Lender shall provide promptly to the Administrative Agent a statement describing in reasonable detail the Obligations owing to such Defaulting Lender as to which it exercised such right of setoff. The rights of each Lender and their respective Affiliates under this Section 11.08 are in addition to other rights and remedies (including other rights of setoff) that such Lender or their respective Affiliates may have. Each Lender agrees to notify the Borrower and the Administrative Agent promptly after any such setoff and application, provided that the failure to give such notice shall not affect the validity of such setoff and application.
11.09 Interest Rate Limitation. Notwithstanding anything to the contrary contained in any Loan Document, the interest paid or agreed to be paid under the Loan Documents shall not exceed the maximum rate of non-usurious interest permitted by applicable Law (the “Maximum Rate”). If the Administrative Agent or any Lender shall receive interest in an amount that exceeds the Maximum Rate, the excess interest shall be applied to the principal of the Loans or, if it exceeds such unpaid principal, refunded to the Borrower. In determining whether the interest contracted for, charged, or received by the Administrative Agent or a Lender exceeds the Maximum Rate, such Person may, to the extent permitted by applicable Law, (a) characterize any payment that is not principal as an expense, fee, or premium rather than interest, (b) exclude voluntary prepayments and the effects thereof, and (c) amortize, prorate, allocate, and spread in equal or unequal parts the total amount of interest throughout the contemplated term of the Obligations hereunder.
11.10 Counterparts; Integration; Effectiveness. This Agreement may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement and the other Loan Documents constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Except as provided in Section 11.07, this Agreement shall become effective when it shall have been executed by the parties listed in the caption hereto and when the Administrative Agent shall have received counterparts hereof that, when taken together, bear the signatures of each of the other parties hereto. Delivery of an executed counterpart of a signature page of this Agreement by telecopy or other electronic imaging means shall be effective as delivery of a manually executed counterpart of this Agreement.
11.11 Survival of Representations and Warranties. All representations and warranties made hereunder and in any other Loan Document or other document delivered pursuant hereto or thereto or in connection herewith or therewith shall survive the execution and delivery hereof and thereof. Such representations and warranties have been or will be relied upon by the Administrative Agent and each Lender, regardless of any investigation made by the Administrative Agent or any Lender or on their behalf and notwithstanding that the Administrative Agent or any Lender may have had notice or knowledge of any Default at the time of any Borrowing, and shall continue in full force and effect as long as any Loan or any other Obligation hereunder shall remain unpaid or unsatisfied.
11.12 Severability. If any provision of this Agreement or the other Loan Documents is held to be illegal, invalid or unenforceable, (a) the legality, validity and enforceability of the remaining provisions of this Agreement and the other Loan Documents shall not be affected or impaired thereby and (b) the parties shall endeavor in good faith negotiations to replace the illegal, invalid or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the illegal, invalid or unenforceable provisions. The invalidity of a provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. Without limiting the foregoing provisions of this Section 11.12, if and to the extent that the enforceability of any provisions in this Agreement relating to Defaulting Lenders shall be limited by Debtor Relief Laws, as determined in good faith by the Administrative Agent, then such provisions shall be deemed to be in effect only to the extent not so limited.
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11.13 Replacement of Lenders. If the Borrower is entitled to replace a Lender pursuant to the provisions of Section 3.06, or if any Lender is a Defaulting Lender or if any other circumstance exists hereunder that gives the Borrower the right to replace a Lender as a party hereto, then the Borrower may, at its sole expense and effort, upon notice to such Lender and the Administrative Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in, and consents required by, Section 11.06), all of its interests, rights (other than its existing rights to payments pursuant to Sections 3.01 and 3.04) and obligations under this Agreement and the related Loan Documents to an Eligible Assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment), provided that:
(a) the Borrower shall have paid to the Administrative Agent the assignment fee (if any) specified in Section 11.06(b)(iv);
(b) such Lender shall have received payment of an amount equal to the outstanding principal of its Loans, accrued interest thereon, accrued fees and all other amounts payable to it hereunder and under the other Loan Documents (including any amounts under Section 3.05) from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts);
(c) in the case of any such assignment resulting from a claim for compensation under Section 11.07 or payments required to be made pursuant to Section 11.07, such assignment will result in a reduction in such compensation or payments thereafter; and
(d) such assignment does not conflict with applicable Laws.
A Lender shall not be required to make any such assignment or delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply.
11.14 Governing Law; Jurisdiction; Etc.
(a) GOVERNING LAW. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND ANY CLAIMS, CONTROVERSY, DISPUTE OR CAUSE OF ACTION (WHETHER IN CONTRACT OR TORT OR OTHERWISE) BASED UPON, ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT (EXCEPT, AS TO ANY OTHER LOAN DOCUMENT, AS EXPRESSLY SET FORTH THEREIN) AND THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
(b) SUBMISSION TO JURISDICTION. THE BORROWER AND EACH OTHER LOAN PARTY IRREVOCABLY AND UNCONDITIONALLY AGREES THAT IT WILL NOT COMMENCE ANY ACTION, LITIGATION OR PROCEEDING OF ANY KIND OR DESCRIPTION, WHETHER IN LAW OR EQUITY, WHETHER IN CONTRACT OR IN TORT OR OTHERWISE, AGAINST THE ADMINISTRATIVE AGENT, ANY LENDER, OR ANY RELATED PARTY OF THE FOREGOING IN ANY WAY RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS RELATING HERETO OR THERETO, IN ANY FORUM OTHER THAN THE COURTS OF THE STATE OF NEW YORK SITTING IN NEW YORK COUNTY AND OF THE UNITED STATES DISTRICT COURT OF THE SOUTHERN DISTRICT OF NEW YORK, AND ANY APPELLATE COURT FROM ANY THEREOF, AND EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF SUCH COURTS AND AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION, LITIGATION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE COURT OR, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE
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LAW, IN SUCH FEDERAL COURT. EACH OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION, LITIGATION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS AGREEMENT OR IN ANY OTHER LOAN DOCUMENT SHALL AFFECT ANY RIGHT THAT THE ADMINISTRATIVE AGENT, ANY LENDER MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AGAINST THE BORROWER OR ANY OTHER LOAN PARTY OR ITS PROPERTIES IN THE COURTS OF ANY JURISDICTION.
(c) WAIVER OF VENUE. THE BORROWER AND EACH OTHER LOAN PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT IN ANY COURT REFERRED TO IN SECTION 11.14(b). EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.
(d) SERVICE OF PROCESS. EACH PARTY HERETO IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 11.02. NOTHING IN THIS AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY HERETO TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW.
11.15 waiver of jury trial. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, ADMINISTRATIVE AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 11.15.
11.16 No Advisory or Fiduciary Responsibility. In connection with all aspects of each transaction contemplated hereby (including in connection with any amendment, waiver or other modification hereof or of any other Loan Document), each of the Borrower and the Guarantor acknowledges and agrees, and acknowledges its Affiliates’ understanding, that: (i) (A) the arranging and other services regarding this Agreement provided by the Administrative Agent and the Arrangers are arm’s-length commercial transactions between the Borrower, the Guarantor and their respective Affiliates, on the one hand, and the Administrative Agent and the Arranger, on the other hand, (B) each of the Borrower and the Guarantor has consulted its own legal, accounting, regulatory and tax advisors to the extent it has deemed appropriate, and (C) each of the Borrower and the Guarantor is capable of evaluating, and understands and accepts, the terms, risks and conditions of the transactions contemplated hereby and by the other Loan Documents; (ii) (A) the Administrative Agent and each Arranger is and has been acting solely as a principal and, except as expressly agreed in writing by the relevant parties, has not been, is not, and will not be acting as an advisor, agent or fiduciary for the Borrower, the Guarantor or any of their respective Affiliates, or any other Person and (B) neither the Administrative Agent nor the Arrangers have any obligation to the Borrower, the Guarantor or any of their respective Affiliates with respect to the transactions contemplated hereby except those obligations expressly set forth herein and in the other Loan Documents; and (iii) the Administrative Agent and the Arrangers and their respective Affiliates may be engaged in a broad range of transactions that involve interests that differ from those of the Borrower, the Guarantor and their respective Affiliates, and neither the Administrative Agent nor the Arrangers have any obligation to disclose any of such interests to the Borrower, the Guarantor or any of their respective
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Affiliates. To the fullest extent permitted by law, each of the Borrower and the Guarantor hereby waives and releases any claims that it may have against the Administrative Agent and the Arrangers with respect to any breach or alleged breach of agency or fiduciary duty in connection with any aspect of any transaction contemplated hereby.
11.17 Electronic Execution of Assignments. The words “execute,” “execution,” “signed,” “signature,” and words of like import in any Assignment and Assumption or in any amendment or other modification hereof (including waivers and consents) shall be deemed to include electronic signatures, the electronic matching of assignment terms and contract formations on electronic platforms approved by the Administrative Agent, or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any applicable law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on the Uniform Electronic Transactions Act.
11.18 USA PATRIOT Act. Each Lender that is subject to the Act (as hereinafter defined) and the Administrative Agent (for itself and not on behalf of any Lender) hereby notifies the Borrower that pursuant to the requirements of the USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Act”), it is required to obtain, verify and record information that identifies each Loan Party, which information includes the name and address of each Loan Party and other information that will allow such Lender or the Administrative Agent, as applicable, to identify each Loan Party in accordance with the Act. The Borrower shall, promptly following a request by the Administrative Agent or any Lender, provide all documentation and other information that the Administrative Agent or such Lender requests in order to comply with its ongoing obligations under applicable “know your customer” an anti-money laundering rules and regulations, including the Act.
11.19 Time of the Essence. Time is of the essence of the Loan Documents.
11.20 Judgment Currency. The parties hereto hereby agree that (i) specification and payment of Dollars is of the essence, (ii) Dollars shall be the currency of account in the case of all obligations under the Loan Documents unless otherwise expressly provided herein or therein, (iii) the payment obligations of the parties under the Loan Documents shall not be discharged by an amount paid in a currency or in a place other than that specified with respect to such obligations, whether pursuant to a judgment or otherwise, except to the extent actually received by the Person entitled thereto and converted into Dollars by such Person (it being understood and agreed that, if any transaction party shall so receive an amount in a currency other than Dollars, it shall (A) if it is not the Person entitled to receive payment, promptly return the same (in the currency in which received) to the Person from whom it was received or (B) if it is the Person entitled to receive payment, either, in its sole discretion, (x) promptly return the same (in the currency in which received) to the Person from whom it was received or (y) subject to reasonable commercial practices, promptly cause the conversion of the same into Dollars), (iv) to the extent that the amount so paid on prompt conversion to Dollars under normal commercial practices does not yield the requisite amount of Dollars, the obligee of such payment shall have a separate cause of action against the party obligated to make the relevant payment for the additional amount necessary to yield the amount due and owing under the Loan Documents, (v) if, for the purpose of obtaining a judgment in any court with respect to any obligation under any of the Loan Documents, it shall be necessary to convert to any other currency any amount in Dollars due thereunder and a change shall occur between the rate of exchange applied in making such conversion and the rate of exchange prevailing on the date of payment of such judgment, the obligor in respect of such obligation will pay such additional amounts (if any) as may be necessary to insure that the amount paid on the date of payment is the amount in such other currency which, when converted into Dollars and transferred to New York City, New York, in accordance with normal banking procedures, will result in realization of the amount then due in Dollars and (vi) any amount due under this paragraph shall be due as a separate debt and shall not be affected by or merged into any judgment being obtained for any other sum due under or in respect of the Loan Documents.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written.
| TEXTAINER LIMITED | ||
| By | /S/ Christopher C. Morris | |
| Name: | ||
| Title: | Executive Vice President | |
| TEXTAINER GROUP HOLDINGS LIMITED | ||
| By | /S/ Christopher C. Morris | |
| Name: | ||
| Title: | Executive Vice President | |
| UNION BANK, N.A., as Administrative Agent | ||
| By | /S/ Michael McCauley | |
| Name: | ||
| Title: | Vice President | |
| UNION BANK, N.A., as a Lender | ||
| By | /S/ Michael McCauley | |
| Name: | ||
| Title: | Vice President | |
EXHIBIT 4.24
AMENDMENT NUMBER 5
TO CREDIT AGREEMENT
THIS AMENDMENT NUMBER 5, dated as of May 22, 2014 (this “Amendment”), by and among TW CONTAINER LEASING, LTD., a company with limited liability organized under the laws of Bermuda (the “Borrower”), the financial institutions listed on the signature pages hereof under the heading “LENDERS” (each a “Lender” and, collectively, the “Lenders”), and WELLS FARGO SECURITIES LLC., as administrative agent for the Lenders (in such capacity, the “Administrative Agent”), is made to the Credit Agreement (as defined below).
WITNESSETH:
WHEREAS, the Borrower, the Lenders and the Administrative Agent are parties to a Credit Agreement, dated as of August 5, 2011 (the “Credit Agreement”);
WHEREAS, the parties desire to amend the Credit Agreement in order to modify certain provisions of the Credit Agreement; and
WHEREAS, subject to the terms and conditions hereof, the Majority Lenders have agreed to such amendment of the Credit Agreement;
NOW THEREFORE, in consideration of the promises and mutual covenants herein contained, the parties hereto agree as follows:
SECTION 1 Definitions; Interpretation.
(a) Terms Defined in Credit Agreement. All capitalized terms used in this Amendment (including in the recitals hereof) and not otherwise defined herein shall have the meanings assigned to them in the Credit Agreement.
(b) Interpretation. The rules of interpretation set forth in Section 1.2 of the Credit Agreement shall be applicable to this Amendment and are incorporated herein by this reference.
SECTION 2 Amendments to the Credit Agreement.
(a) Amendments. Pursuant to Section 15.12 of the Credit Agreement, the Credit Agreement is hereby amended as follows:
(i) Schedule 4 to the Credit Agreement is amended to add or update the Maximum Allowed Exposure for the entities noted in Schedule 1 to this Amendment.
(ii) The definition of “Eligible Lessee” appearing in Section 1.1 of the Credit Agreement is hereby amended to read as follows:
“Eligible Lessee”. Any Person (other than any Sanctioned Person) that meets all of the applicable requirements set forth in clauses (a), (b) and (c) below:
(a) in the case of any Person that is a prospective Lessee under a Finance Lease:
(1) Once at least fifteen Persons that have been approved by the Majority Lenders (in their sole discretion) have become Lessees under Finance Leases as to which Loans are advanced, and the Aggregate Net Investment Value is then equal to or greater than Two Hundred Fifty Million Dollars ($250,000,000), any Person engaged in the shipping industry so long as (A) no Bankruptcy Event is continuing with respect to such Person on the Funding Date for the related Finance Lease, and (B) the consummation of the Finance Lease then under consideration complies with all of the Lease Concentration Limits; or
(2) At all times not covered by clause (1), each of the following: (A) each Person, not addressed in clause (B) below, that has been approved by the Majority Lenders (in their sole discretion) to be Lessee under a Finance Lease, and (B) so long as no Bankruptcy Event is continuing with respect to such Person, each of the Persons set forth in Schedule 4, so long as the aggregate Credit Exposure related to such Person and its Affiliates (calculated after giving effect to the Finance Lease then under consideration) shall not exceed the Dollar amount set forth opposite the name of such Person on Schedule 4 under the column entitled “Maximum Allowed Exposure” (as such amounts may be amended from time to time in a written instrument signed by each of the Borrower and the Administration Agent, acting at the direction of the Majority Lenders);
(b) in the case of any Person that is a prospective Lessee under a Finance Lease, the Administrative Agent has received with respect to such Person all of the credit underwriting information set forth on Schedule 2 hereto and such information shall be satisfactory to the Administrative Agent (in its sole discretion); and
(c) the Administrative Agent has received with respect to such Person the information set forth on Schedule 3 to the Management Agreement and the Administrative Agent shall have determined, in its sole discretion, that such Person satisfies the Administrative Agent’s and WFBNA’s compliance requirements related to OFAC and any other statutes, regulations, rules, orders and other applicable restrictions imposed by any applicable Governmental Authority.
(iii) The following sentence is added to the end of Section 3.6(b).
“The Borrower may, at its option, utilize funds on deposit in TWCL Distribution Account to acquire or originate one or more Eligible Finance Lease(s).”
(b) References Within Credit Agreement. Each reference in the Credit Agreement to “this Agreement” and the words “hereof,” “herein,” “hereunder,” or words of like import, shall mean and be a reference to the Credit Agreement as amended by this Amendment.
SECTION 3 Conditions of Effectiveness. The effectiveness of Section 2 of this Amendment shall become effective as of the date first above written (the “Effective Date”), upon receipt by the Administrative Agent of this Amendment duly executed and delivered by the Borrower, the Administrative Agent and Lenders representing in aggregate the Majority Lenders.
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SECTION 4 Representations and Warranties. To induce the Lenders to enter into this Amendment, the Borrower hereby confirms and restates, as of the date hereof, the representations and warranties made by it in Section 7 of the Credit Agreement and in the other Loan Documents; provided that any representations and warranties which relate solely to an earlier date shall not be deemed confirmed and restated as of the date hereof (provided that such representations and warranties shall be true, correct and complete as of such earlier date).
SECTION 5 Miscellaneous.
(a) Notice. The Administrative Agent shall notify the Borrower and the Lenders of the occurrence of the Effective Date and promptly thereafter distribute to the Borrower and the Lenders copies of all documents delivered under Section 3 of this Amendment.
(b) Credit Agreement Otherwise Not Affected. Except as expressly amended pursuant hereto, the Credit Agreement thereof shall remain unchanged and in full force and effect and is hereby ratified and confirmed in all respects. The Lenders’ and the Administrative Agent’s execution and delivery of, or acceptance of, this Amendment shall not be deemed to create a course of dealing or otherwise create any express or implied duty by any of them to provide any other or further amendments, consents or waivers in the future.
(c) No Reliance. The Borrower hereby acknowledges and confirms to the Administrative Agent and the Lenders that the Borrower is executing this Amendment on the basis of its own investigation and for its own reasons without reliance upon any agreement, representation, understanding or communication by or on behalf of any other Person.
(d) Costs and Expenses. The Borrower agrees to pay to the Administrative Agent on demand the reasonable out-of-pocket expenses incurred by the Administrative Agent and its Affiliates, including the reasonable fees, charges and disbursements of counsel to the Administrative Agent, in connection with the preparation, negotiation, execution and delivery of this Amendment.
(e) Binding Effect. This Amendment shall be binding upon, inure to the benefit of and be enforceable by the Borrower, the Administrative Agent and each Lender and their respective successors and assigns.
(f) Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
(g) Complete Agreement; Amendments. This Amendment, together with the other Loan Documents, contains the entire and exclusive agreement of the parties hereto and thereto with reference to the matters discussed herein and therein. This Amendment supersedes all prior commitments, drafts, communications, discussions and understandings, oral or written, with respect thereto. This Amendment may not be modified, amended or otherwise altered except in accordance with the terms of Section 15.12 of the Credit Agreement.
(h) Severability. Whenever possible, each provision of this Amendment shall be interpreted in such manner as to be effective and valid under all applicable laws and regulations. If, however, any provision of this Amendment shall be prohibited by or invalid under any such
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law or regulation in any jurisdiction, it shall, as to such jurisdiction, be deemed modified to conform to the minimum requirements of such law or regulation, or, if for any reason it is not deemed so modified, it shall be ineffective and invalid only to the extent of such prohibition or invalidity without affecting the remaining provisions of this Amendment, or the validity or effectiveness of such provision in any other jurisdiction.
(i) Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement.
(j) Loan Document. This Amendment shall constitute a Loan Document.
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IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment, as of the date first above written.
| THE BORROWER | ||
| TW CONTAINER LEASING, LTD. | ||
| By | /S/ Robert Capps | |
| Name: | ||
| Title: | Director | |
| By | /S/ Philip Brewer | |
| Name: | ||
| Title: | Director | |
| THE ADMINISTRATIVE AGENT | ||
| WELLS FARGO SECURITIES LLC | ||
| By | /S/ Hatesh Singh | |
| Name: | ||
| Title: | Director | |
| CONSENTED TO AND ACKNOWLEDGED BY: | ||
| THE LENDERS | ||
| WELLS FARGO BANK, NATIONAL ASSOCIATION | ||
| By | /S/ Hatesh Singh | |
EXHIBIT 4.25
AMENDMENT NUMBER 6
TO CREDIT AGREEMENT
THIS AMENDMENT NUMBER 6, dated as of August 4, 2014 (this “Amendment”), by and among TW CONTAINER LEASING, LTD., a company with limited liability organized under the laws of Bermuda (the “Borrower”), the financial institutions listed on the signature pages hereof under the heading “LENDERS” (each a “Lender” and, collectively, the “Lenders”), and WELLS FARGO SECURITIES LLC., as administrative agent for the Lenders (in such capacity, the “Administrative Agent”), is made to the Credit Agreement (as defined below).
WITNESSETH:
WHEREAS, the Borrower, the Lenders and the Administrative Agent are parties to a Credit Agreement, dated as of August 5, 2011 (the “Credit Agreement”);
WHEREAS, the parties desire to amend the Credit Agreement in order to extend the scheduled expiration date of the Revolving Credit Period until September 19, 2014; and
WHEREAS, subject to the terms and conditions hereof, all of the Lenders have agreed to such amendment to the Credit Agreement;
NOW THEREFORE, in consideration of the promises and mutual covenants herein contained, the parties hereto agree as follows:
SECTION 1 Definitions; Interpretation.
(a) Terms Defined in Credit Agreement. All capitalized terms used in this Amendment (including in the recitals hereof) and not otherwise defined herein shall have the meanings assigned to them in the Credit Agreement.
(b) Interpretation. The rules of interpretation set forth in Section 1.2 of the Credit Agreement shall be applicable to this Amendment and are incorporated herein by this reference.
SECTION 2 Amendments to the Credit Agreement.
(a) Amendment. Pursuant to Section 15.12 of the Credit Agreement, the definition of “Revolving Credit Period” set forth appearing in Section 1.1 of the Credit Agreement is hereby amended to read as follows:
“Revolving Credit Period”. The period commencing on the Closing Date and ending on the earliest to occur of (a) September 19, 2014, as such date may be extended from time to time in accordance with Section 15.12, (b) the date on which the Aggregate Commitments have been terminated pursuant to Section 12.2(b) and (c) the date on which an Early Amortization Event occurs. The cure of an Early Amortization Event will not result in an automatic reinstatement of the Revolving Credit Period.
(b) References Within Credit Agreement. Each reference in the Credit Agreement to “this Agreement” and the words “hereof,” “herein,” “hereunder,” or words of like import, shall mean and be a reference to the Credit Agreement as amended by this Amendment.
SECTION 3 Conditions of Effectiveness. The effectiveness of Section 2 of this Amendment shall become effective as of the date first above written (the “Effective Date”), upon receipt by the Administrative Agent of this Amendment duly executed and delivered by the Borrower, the Administrative Agent and all of the Lenders.
SECTION 4 Representations and Warranties. To induce the Lenders to enter into this Amendment, the Borrower hereby confirms and restates, as of the date hereof, the representations and warranties made by it in Section 7 of the Credit Agreement and in the other Loan Documents; provided that any representations and warranties which relate solely to an earlier date shall not be deemed confirmed and restated as of the date hereof (provided that such representations and warranties shall be true, correct and complete as of such earlier date).
SECTION 5 Miscellaneous.
(a) Notice. The Administrative Agent shall notify the Borrower and the Lenders of the occurrence of the Effective Date and promptly thereafter distribute to the Borrower and the Lenders copies of all documents delivered under Section 3 of this Amendment.
(b) Credit Agreement Otherwise Not Affected. Except as expressly amended pursuant hereto, the Credit Agreement shall remain unchanged and in full force and effect and is hereby ratified and confirmed in all respects by the terms of this Agreement. The execution and delivery of, or acceptance of, this Amendment by the parties hereto shall not be deemed to create a course of dealing or otherwise create any express or implied duty by any of them to provide any other or further amendments, consents or waivers in the future. All Loans under the Credit Agreement that remain unpaid on the Effective Date shall remain outstanding and all other liens and encumbrances created by the terms of the Loan Documents shall remain in full force and effect.
(c) No Reliance. The Borrower hereby acknowledges and confirms to the Administrative Agent and the Lenders that the Borrower is executing this Amendment on the basis of its own investigation and for its own reasons without reliance upon any agreement, representation, understanding or communication by or on behalf of any other Person.
(d) Costs and Expenses. The Borrower agrees to pay to the Administrative Agent on demand the reasonable out-of-pocket expenses incurred by the Administrative Agent and its Affiliates, including the reasonable fees, charges and disbursements of counsel to the Administrative Agent, in connection with the preparation, negotiation, execution and delivery of this Amendment.
(e) Binding Effect. This Amendment shall be binding upon, inure to the benefit of and be enforceable by the Borrower, the Administrative Agent and each Lender and their respective successors and assigns.
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(f) Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
(g) Complete Agreement; Amendments. This Amendment, together with the other Loan Documents, contains the entire and exclusive agreement of the parties hereto and thereto with reference to the matters discussed herein and therein. This Amendment supersedes all prior commitments, drafts, communications, discussions and understandings, oral or written, with respect thereto. This Amendment may not be modified, amended or otherwise altered except in accordance with the terms of Section 15.12 of the Credit Agreement.
(h) Severability. Whenever possible, each provision of this Amendment shall be interpreted in such manner as to be effective and valid under all applicable laws and regulations. If, however, any provision of this Amendment shall be prohibited by or invalid under any such law or regulation in any jurisdiction, it shall, as to such jurisdiction, be deemed modified to conform to the minimum requirements of such law or regulation, or, if for any reason it is not deemed so modified, it shall be ineffective and invalid only to the extent of such prohibition or invalidity without affecting the remaining provisions of this Amendment, or the validity or effectiveness of such provision in any other jurisdiction.
(i) Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement.
(j) Loan Document. This Amendment shall constitute a Loan Document.
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IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment, as of the date first above written.
| THE BORROWER | ||
| TW CONTAINER LEASING, LTD. | ||
| By | /S/ Laks Suvaminathan | |
| Name: | ||
| Title: | Vice President | |
| By | /S/ Christopher C. Morris | |
| Name: | ||
| Title: | Executive Vice President | |
| THE ADMINISTRATIVE AGENT | ||
| WELLS FARGO SECURITIES LLC | ||
| By | /S/ Hatesh Singh | |
| Name: | ||
| Title: | Director | |
Amendment No. 6
to Credit Agreement
| CONSENTED TO AND ACKNOWLEDGED BY: | ||
| THE LENDERS | ||
| WELLS FARGO BANK, NATIONAL ASSOCIATION | ||
| By | /S/ Hatesh Singh | |
EXHIBIT 4.26
AMENDMENT NUMBER 7
TO CREDIT AGREEMENT
THIS AMENDMENT NUMBER 7, dated as of September 17, 2014 (this “Amendment”), by and among TW CONTAINER LEASING, LTD., a company with limited liability organized under the laws of Bermuda (the “Borrower”), the financial institutions listed on the signature pages hereof under the heading “LENDERS” (each a “Lender” and, collectively, the “Lenders”), and WELLS FARGO SECURITIES LLC., as administrative agent for the Lenders (in such capacity, the “Administrative Agent”), is made to the Credit Agreement (as defined below).
WITNESSETH:
WHEREAS, the Borrower, the Lenders and the Administrative Agent are parties to a Credit Agreement, dated as of August 5, 2011 (the “Credit Agreement”);
WHEREAS, the parties desire to amend the Credit Agreement in order to (i) extend the scheduled expiration date of the Revolving Credit Period until September 17, 2016 and (ii) modify certain provisions of the Credit Agreement; and
WHEREAS, subject to the terms and conditions hereof, all of the Lenders have agreed to such amendments to the Credit Agreement;
NOW THEREFORE, in consideration of the promises and mutual covenants herein contained, the parties hereto agree as follows:
SECTION 1 Definitions; Interpretation.
(a) Terms Defined in Credit Agreement. All capitalized terms used in this Amendment (including in the recitals hereof) and not otherwise defined herein shall have the meanings assigned to them in the Credit Agreement.
(b) Interpretation. The rules of interpretation set forth in Section 1.2 of the Credit Agreement shall be applicable to this Amendment and are incorporated herein by this reference.
SECTION 2 Amendments to the Credit Agreement.
(a) Amendments. Pursuant to Section 15.12 of the Credit Agreement, the Credit Agreement is hereby amended as follows:
(i) Schedule 1 to the Credit Agreement is deleted and replaced with Schedule 1 hereto.
(ii) The definition of “Revolving Credit Period” set forth appearing in Section 1.1 of the Credit Agreement is hereby amended to read as follows:
“Revolving Credit Period”. The period commencing on the Closing Date and ending on the earliest to occur of (a) September , 2016, as such date may be extended from time to time in accordance with Section 15.12, (b) the date on which the Aggregate Commitments have been terminated pursuant to Section 12.2(b) and (c) the date on which an Early Amortization Event occurs. The cure of an Early Amortization Event will not result in an automatic reinstatement of the Revolving Credit Period.
(iii) The definition of “Early Amortization Event” appearing in Section 1.1 of the Credit Agreement is amended to delete the text appearing in clause (h) of such definition and to replacing such deleted text with the following: “[Reserved]”.
(iv) The proviso appearing at the end of the definition of “Lease Concentration Limits” appearing in Section 1.1 of the Credit Agreement is hereby amended to read as follows:
“provided, that, for purposes of clarification, the Lessee Concentration Limits shall not apply at any time prior to the date on which (i) at least fifteen Persons described in clause (a)(1) of the definition of “Eligible Lessee” have become designated as an “Eligible Lessee” and (ii) the Aggregate Net Investment Value is equal to, or greater than, $250,000,000.
(v) Clause (i) included in the definition of “Eligible Finance Lease” is amended to read as follows:
“(i) Permissible Equipment Types. (A) Each Owner Container that is subject to such Finance Lease is of an equipment type listed in Part A of Schedule 5 hereto and (B) after giving effect to the acquisition by the Borrower of the Owner Containers that are subject to such Finance Lease, all Owner Containers are within the concentration limitations set forth on Part B of Schedule 5 hereto (provided that this clause (B) shall apply only to Finance Leases with related Funding Dates occurring after the date on which (i) at least fifteen Persons have become Lessees under Eligible Finance Leases and (ii) the Aggregate Net Investment Value is equal to, or greater than, $250,000,000).”
(vi) The definition of “Finance Lease” appearing in Section 1.1 of the Credit Agreement is amended to read as follows:
“Finance Lease”. Any Lease that complies with either of the following criteria:
(A) such Lease (x) is classified as a “direct financing lease” pursuant to GAAP and (y) provides the Lessee thereunder with the right or option to (i) purchase the Owner Containers subject thereto at the expiration of such lease or (ii) extend the term of such lease for an additional period, and, in either such instance, such Lease satisfies the criteria for classification as a capital lease pursuant to GAAP, including statement of Financial Accounting Standards No. 13 as amended; or
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(B) such Lease does not comply with clause (A) above but has been approved by all of the Lenders for classification as Finance Lease under this Credit Agreement.
(vii) The form of Loan Request attached as Exhibit D to the Credit Agreement is hereby deleted and replaced with Exhibit D hereto.
(viii) The definition of “Applicable Margin” appearing in Section 1.1 of the Credit Agreement is amended to read as follows:
“Applicable Margin”. With respect to each Loan for each Interest Period, one of the following:
(a) if (i) no Early Amortization Event is then continuing, or (ii) an Early Amortization Event of the type set forth in clause (f) or clause (g) of the definition of the term “Early Amortization Event” is then continuing, two percent (2.00%) per annum; and
(b) at all times not covered by clause (a), three percent (3.00%) per annum.
(ix) The definition of “TMCL Indenture” appearing in Section 1.1 of the Credit Agreement is amended to read as follows:
“TMCL Indenture”. The Indenture, dated as of May 1, 2012, between Textainer Marine Containers II Limited and Wells Fargo Bank, National Association, as indenture trustee, as such indenture may be amended, modified or supplemented from time to time in accordance with its terms.”
(x) The definition of “Net Investment Value” appearing in Section 1.1 of the Credit Agreement is amended to read as follows:
“Net Investment Value”. With respect to any Finance Lease, as of any date of determination, an amount equal to the “net investment in finance lease” with respect to such Finance Lease as determined in accordance with GAAP on the date on which such Finance Lease was originated (or, in the case of any “Finance Lease” under clause (B) of the definition thereof, as would be so determined in accordance with GAAP, if such Lease were a “Finance Lease” under clause (A) of that definition); provided, however, that the Net Investment Value of a Finance Lease that is classified as a Defaulted Finance Lease shall be deemed to be zero.”
(b) References Within Credit Agreement. Each reference in the Credit Agreement to “this Agreement” and the words “hereof,” “herein,” “hereunder,” or words of like import, shall mean and be a reference to the Credit Agreement as amended by this Amendment.
SECTION 3 Conditions of Effectiveness. The effectiveness of Section 2 of this Amendment shall become effective as of the date first above written (the “Effective Date”), upon receipt by the Administrative Agent of this Amendment duly executed and delivered by the Borrower, the Administrative Agent and all of the Lenders.
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SECTION 4 Representations and Warranties. To induce the Lenders to enter into this Amendment, the Borrower hereby confirms and restates, as of the date hereof, the representations and warranties made by it in Section 7 of the Credit Agreement and in the other Loan Documents; provided that any representations and warranties which relate solely to an earlier date shall not be deemed confirmed and restated as of the date hereof (provided that such representations and warranties shall be true, correct and complete as of such earlier date).
SECTION 5 Miscellaneous.
(a) Notice. The Administrative Agent shall notify the Borrower and the Lenders of the occurrence of the Effective Date and promptly thereafter distribute to the Borrower and the Lenders copies of all documents delivered under Section 3 of this Amendment.
(b) Credit Agreement Otherwise Not Affected. Except as expressly amended pursuant hereto, the Credit Agreement shall remain unchanged and in full force and effect and is hereby ratified and confirmed in all respects by the terms of this Agreement. The execution and delivery of, or acceptance of, this Amendment by the parties hereto shall not be deemed to create a course of dealing or otherwise create any express or implied duty by any of them to provide any other or further amendments, consents or waivers in the future. All Loans under the Credit Agreement that remain unpaid on the Effective Date shall remain outstanding and all other liens and encumbrances created by the terms of the Loan Documents shall remain in full force and effect.
(c) No Reliance. The Borrower hereby acknowledges and confirms to the Administrative Agent and the Lenders that the Borrower is executing this Amendment on the basis of its own investigation and for its own reasons without reliance upon any agreement, representation, understanding or communication by or on behalf of any other Person.
(d) Costs and Expenses. The Borrower agrees to pay to the Administrative Agent on demand the reasonable out-of-pocket expenses incurred by the Administrative Agent and its Affiliates, including the reasonable fees, charges and disbursements of counsel to the Administrative Agent, in connection with the preparation, negotiation, execution and delivery of this Amendment.
(e) Binding Effect. This Amendment shall be binding upon, inure to the benefit of and be enforceable by the Borrower, the Administrative Agent and each Lender and their respective successors and assigns.
(f) Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
(g) Complete Agreement; Amendments. This Amendment, together with the other Loan Documents, contains the entire and exclusive agreement of the parties hereto and thereto with reference to the matters discussed herein and therein. This Amendment supersedes all prior commitments, drafts, communications, discussions and understandings, oral or written, with respect thereto. This Amendment may not be modified, amended or otherwise altered except in accordance with the terms of Section 15.12 of the Credit Agreement.
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(h) Severability. Whenever possible, each provision of this Amendment shall be interpreted in such manner as to be effective and valid under all applicable laws and regulations. If, however, any provision of this Amendment shall be prohibited by or invalid under any such law or regulation in any jurisdiction, it shall, as to such jurisdiction, be deemed modified to conform to the minimum requirements of such law or regulation, or, if for any reason it is not deemed so modified, it shall be ineffective and invalid only to the extent of such prohibition or invalidity without affecting the remaining provisions of this Amendment, or the validity or effectiveness of such provision in any other jurisdiction.
(i) Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement.
(j) Loan Document. This Amendment shall constitute a Loan Document.
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IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment as of the date first above written.
| THE BORROWER | ||
| TW CONTAINER LEASING, LTD. | ||
| By | /S/ Christopher C. Morris | |
| Name: | ||
| Title: | Vice President | |
| By | /S/ Laks Swaminathan | |
| Name: | ||
| Title: | Vice President | |
| THE ADMINISTRATIVE AGENT | ||
| WELLS FARGO SECURITIES LLC | ||
| By | /S/ Hatesh Singh | |
| Name: | ||
| Title: | Director | |
Amendment No. 7
to Credit Agreement
| CONSENTED TO AND ACKNOWLEDGED BY: | ||
| THE LENDERS | ||
| WELLS FARGO BANK, NATIONAL ASSOCIATION | ||
| By |
/S/ Hatesh Singh | |
Amendment No. 7
to Credit Agreement
EXHBIT 4.32
AMENDMENT NUMBER 1
TO CREDIT AGREEMENT
THIS AMENDMENT NUMBER 1, dated as of December 23, 2014 (this “Amendment”), by and among TAP FUNDING LTD. (“TAP”), an exempted limited by shares incorporated under the laws of Bermuda (the “Borrower”), the financial institutions listed on the signature pages hereof under the headings “LENDERS” (each a “Lender” and, collectively, the “Lenders”), or “INTEREST RATE HEDGE COUNTERPARTIES” (each an “Interest Rate Hedge Counterparty” and, collectively, the “Interest Rate Hedge Counterparties”), and ABN AMRO CAPITAL USA LLC, as administrative agent for the Lenders (in such capacity, the “Administrative Agent”) is made to the Credit Agreement (as defined below).
WITNESSETH:
WHEREAS, the Borrower, the Lenders and the Administrative Agent are parties to a Credit Agreement, dated as of April 26, 2013 (the “Credit Agreement”);
WHEREAS, the parties desire to amend the Credit Agreement in order to modify certain provisions thereof; and
NOW THEREFORE, in consideration of the promises and mutual covenants herein contained, the parties hereto agree as follows:
SECTION 1 Definitions; Interpretation.
(a) Terms Defined in Credit Agreement. All capitalized terms used in this Amendment (including in the recitals hereof) and not otherwise defined herein shall have the meanings assigned to them in the Credit Agreement.
(b) Interpretation. The rules of interpretation set forth in Section 1.2 of the Credit Agreement shall be applicable to this Amendment and are incorporated herein by this reference.
SECTION 2 Amendments to the Credit Agreement. Pursuant to Section 15.12 of the Credit Agreement, the Credit Agreement is hereby amended on the Effective Date (as defined in Section 3 hereof) as follows:
(a) Section 1.1 of the Credit Agreement is hereby amended as follows:
(i) Definition of Applicable Margin. By amending and restating the definition of “Applicable Margin” to read as follows:
“Applicable Margin. With respect to each Loan for each Interest Period, one and three quarters of one percent (1.75%) per annum.”
(ii) Definition of Commitment Fee Percentage. By amending and restating the definition of “Commitment Fee Percentage” to read as follows:
“Commitment Fee Percentage. As of any date of determination, one of the following:
(i) If the quotient (expressed as a percentage) obtained by dividing (y) the Aggregate Loan Principal Balance by (y) the Aggregate Commitments shall be less than seventy percent (70%) as of such date of determination, fifty-five hundredths of one percent (0.55%) per annum; or
(ii) If the quotient (expressed as a percentage) obtained by dividing (y) the Aggregate Loan Principal Balance by (y) the Aggregate Commitments shall be equal to or greater than seventy percent (70%) as of such date of determination, three hundred sixty five thousandths of one percent (0.365%) per annum.”
(iii) Definition of Maturity Date. By amending and restating the definition of “Maturity Date” to read as follows:
“Maturity Date. The earlier to occur of (i) the date on which the Obligations have been accelerated in accordance with Section 12.2(a) and (ii) December 24, 2018, as such date may be extended from time to time in accordance with Section 15.12.”
(b) Clause (a) of Section 9.20 of the Credit Agreement is hereby amended and restated to read as follows:
“(a) As of the last day of each fiscal quarter of the Borrower, the Tangible Net Worth of the Borrower shall not be an amount that is less than Fifty Million Dollars ($50,000,000).”
(c) Schedule 1 to the Credit Agreement is hereby deleted and replaced with Schedule 1 hereto.
(d) Schedule 2 to the Credit Agreement is hereby deleted and replaced with Schedule 2 hereto.
SECTION 3 Conditions of Effectiveness. The amendments set forth in Section 2 of this Amendment shall become effective on the date on which all of the following conditions have been satisfied (such date, the “Effective Date”):
(a) the execution and delivery of this Amendment by the Borrower, the Administrative Agent, all of the Lenders and all of the Interest Rate Hedge Counterparties; and
(b) each Lender shall have received an amendment fee in an amount equal to the product of (i) the amount of the Commitment of such Lender as set forth on Schedule 2 hereto, and (ii) thirty five hundredths of one percent (0.35%).
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SECTION 4 Representations and Warranties. To induce the Lenders, Administrative Agent and the Interest Rate Hedge Counterparties to enter into this Amendment, the Borrower hereby confirms and restates, as of the date hereof, the representations and warranties made by the Borrower in Section 7 of the Credit Agreement. For the purposes of this Section 4, any representations and warranties which relate solely to an earlier date shall not be deemed confirmed and restated as of the date hereof (provided that such representations and warranties shall be true, correct and complete as of such earlier date).
SECTION 5 Miscellaneous.
(a) Agreements Otherwise Not Affected. Except as expressly amended pursuant hereto, each of the Agreements shall remain unchanged and in full force and effect and is hereby ratified and confirmed in all respects. The Lenders’, the Interest Rate Hedge Counterparties’ and the Administrative Agent’s execution and delivery of, or acceptance of, this Amendment shall not be deemed to create a course of dealing or otherwise create any express or implied duty by any of them to provide any other or further amendments, consents or waivers in the future.
(b) References Within the Agreements. Each reference in each Agreement to “this Agreement” and the words “hereof,” “herein,” “hereunder,” or words of like import, shall mean and be a reference to such Agreement as amended by this Amendment.
(c) No Reliance. The Borrower hereby acknowledges and confirms to the Administrative Agent, the Lenders and each Interest Rate Hedge Counterparty that the Borrower is executing this Amendment on the basis of its own investigation and for its own reasons without reliance upon any agreement, representation, understanding or communication by or on behalf of any other Person.
(d) Costs and Expenses. The Borrower agrees to pay to the Administrative Agent on demand the reasonable out-of-pocket expenses incurred by the Administrative Agent and its Affiliates, including the reasonable fees, charges and disbursements of counsel to the Administrative Agent, in connection with the preparation, negotiation, execution and delivery of this Amendment.
(e) Binding Effect. This Amendment shall be binding upon, inure to the benefit of and be enforceable by the Borrower, the Administrative Agent, each Lender, each Interest Rate Hedge Counterparty and their respective successors and assigns.
(f) Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW THAT WOULD RESULT IN THE APPLICATION OF THE LAW OF ANOTHER JURISDICTION; PROVIDED THAT SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW SHALL APPLY.
(g) Complete Agreement; Amendments. This Amendment, together with the other Loan Documents, contains the entire and exclusive agreement of the parties hereto and thereto with reference to the matters discussed herein and therein. This Amendment supersedes all prior commitments, drafts, communications, discussions and understandings, oral or written, with respect thereto. This Amendment may not be modified, amended or otherwise altered except in accordance with the terms of Section 15.12 of the Credit Agreement.
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(h) Severability. Whenever possible, each provision of this Amendment shall be interpreted in such manner as to be effective and valid under all applicable laws and regulations. If, however, any provision of this Amendment shall be prohibited by or invalid under any such law or regulation in any jurisdiction, it shall, as to such jurisdiction, be deemed modified to conform to the minimum requirements of such law or regulation, or, if for any reason it is not deemed so modified, it shall be ineffective and invalid only to the extent of such prohibition or invalidity without affecting the remaining provisions of this Amendment, or the validity or effectiveness of such provision in any other jurisdiction.
(i) Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute but one and the same agreement. Delivery of an executed counterpart of a signature page of this Amendment by facsimile or in electronic (i.e., “pdf” or “tif”) format shall be effective as delivery of a manually executed counterpart of this Amendment.
(j) Loan Documents. This Amendment shall constitute a Loan Document.
[Signature Pages Follow]
4
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment, as of the date first above written.
| THE BORROWER | ||
| TAP FUNDING LTD. | ||
| By | /S/ Christopher C. Morris | |
| Name: | ||
| Title: | Vice President | |
| THE ADMINISTRATIVE AGENT | ||
| ABN AMRO CAPITAL USA LLC | ||
| By | /S/ Ross Briggs | |
| Name: | ||
| Title: | VP | |
| By | /S/ R.Bisscheroux | |
| Name: | ||
| Title: | Director | |
TAP Revolver - Amendment 1
Schedule 2
DEPRECIATION POLICY
1. For purposes of any calculation of the Asset Base:
(a) a New Container that is a new Container is depreciated using the straight-line method, over the estimated useful life of such type of Container (as set forth below) to the Residual Value of such type of Container (as set forth below).
(b) an Existing Container is depreciated using the straight-line method, over the remaining estimated useful life (based upon a total estimated useful life) of such type of Container (as set forth below) to the Residual Value of such type of Container (as set forth below).
(c) a New Container that is a used Container is depreciated using the straight-line method, over the remaining estimated useful life of such type of Container (as set forth below) at the date of acquisition (based upon a total estimated useful life of such type of Container (as set forth below) to the Residual Value of such type of Container (as set forth below).
2. For any purpose other than that described in item 1 above, including without limitation the calculation of financial covenants, the preparation of financial reports, and the calculation of the purchase price to be paid for any containers, the Depreciation Policy shall be in accordance with GAAP (provided that any change in the Depreciation Policy, as described in this item 2, resulting from the application of GAAP, or from the requirements of the Borrower’s accountants applying GAAP, shall be deemed not to constitute a change to the Depreciation Policy under any of the Related Documents).
Residual Values based upon GAAP on the Closing Date
| Container Type |
Residual Value |
Estimated Useful Life | ||
| 2B |
604.00 | 13 | ||
| 2C |
393.00 | 13 | ||
| 2D |
845.00 | 13 | ||
| 2F |
140.00 | 13 | ||
| 2H |
666.00 | 13 | ||
| 2L |
1,300.00 | 14 | ||
| 2M |
834.00 | 13 | ||
| 2R |
2,750.00 | 12 | ||
| 2S |
1,050.00 | 13 | ||
| 2T |
1,500.00 | 14 | ||
| 2U |
2,377.00 | 13 | ||
| 2W |
765.00 | 13 | ||
| 2Y |
2,049.00 | 12 | ||
| 2Z |
2,534.00 | 13 | ||
| 4F |
820.00 | 13 | ||
| 4H |
1,650.00 | 13 | ||
| 4J |
1,500.00 | 13 | ||
| 4L |
2,000.00 | 14 | ||
| 4M |
1,169.00 | 13 | ||
| 4N |
765.00 | 13 | ||
| 4S |
1,300.00 | 13 | ||
| 4T |
2,500.00 | 14 | ||
| 4U |
2,288.00 | 13 | ||
| 4W |
1,253.00 | 13 | ||
| 4Y |
4,500.00 | 12 |
TAP Revolver - Amendment 1
EXHIBIT 4.40
TEXTAINER MARINE CONTAINERS III LIMITED
Issuer
and
WELLS FARGO BANK, NATIONAL ASSOCIATION
Indenture Trustee
SERIES 2014-1 SUPPLEMENT
DATED AS OF OCTOBER 30, 2014
TO
INDENTURE
DATED AS OF SEPTEMBER 25, 2013
SERIES 2014-1 FIXED RATE ASSET-BACKED NOTES
TABLE OF CONTENTS
| Page | ||||||
| ARTICLE I Definitions; Calculation Guidelines | 1 | |||||
| Section 101. |
Definitions | 1 | ||||
| ARTICLE II Creation of the Series 2014-1 Notes | 11 | |||||
| Section 201. |
Designation | 11 | ||||
| Section 202. |
Authentication and Delivery | 12 | ||||
| Section 203. |
Interest Payments on the Series 2014-1 Notes | 13 | ||||
| Section 204. |
Principal Payments on the Series 2014-1 Notes | 13 | ||||
| Section 205. |
Prepayment of Principal on the Series 2014-1 Notes | 14 | ||||
| Section 206. |
Payments of Principal and Interest | 15 | ||||
| Section 207. |
Restrictions on Transfer | 15 | ||||
| Section 208. |
Grant of Security Interest | 19 | ||||
| ARTICLE III Series 2014-1 Series Account and Allocation and Application of Amounts Therein | 20 | |||||
| Section 301. |
Series 2014-1 Series Account | 20 | ||||
| Section 302. |
Series 2014-1 Restricted Cash Account | 20 | ||||
| Section 303. |
Distributions from Series 2014-1 Series Account | 22 | ||||
| Section 304. |
Allocation of Series 2014-1 Shared Available Funds | 27 | ||||
| Section 305. |
Series 2014-1 L/C Cash Account | 30 | ||||
| Section 306. |
Drawing on Eligible Letters of Credit | 30 | ||||
| ARTICLE IV Series-Specific Early Amortization Events, Manager Defaults, Events of Default and Covenants for the Series 2014-1 Notes | 32 | |||||
| Section 401. |
Series-Specific Early Amortization Events | 32 | ||||
| Section 402. |
Series-Specific Manager Defaults | 33 | ||||
| Section 403. |
Series-Specific Events of Default | 33 | ||||
| Section 404. |
Series 2014-1 Management Fee | 34 | ||||
| Section 405. |
Additional Covenants | 35 | ||||
| ARTICLE V Conditions to Issuance | 35 | |||||
| Section 501. |
Conditions to Issuance | 35 | ||||
| ARTICLE VI Representations and Warranties | 35 | |||||
| Section 601. |
Existence | 35 | ||||
| Section 602. |
Authorization | 36 | ||||
| Section 603. |
No Conflict; Legal Compliance | 36 | ||||
| Section 604. |
Validity and Binding Effect | 36 | ||||
| Section 605. |
Financial Statements | 36 | ||||
| Section 606. |
Place of Business | 36 | ||||
| Section 607. |
No Agreements or Contracts | 36 | ||||
| Section 608. |
Consents and Approvals | 36 | ||||
| Section 609. |
Margin Regulations | 37 | ||||
| Section 610. |
Taxes | 37 | ||||
TABLE OF CONTENTS
(continued)
| Page | ||||||
| Section 611. |
Other Regulations | 37 | ||||
| Section 612. |
Solvency and Separateness | 37 | ||||
| Section 613. |
Title; Liens | 38 | ||||
| Section 614. |
No Default | 38 | ||||
| Section 615. |
Litigation and Contingent Liabilities | 38 | ||||
| Section 616. |
Subsidiaries | 39 | ||||
| Section 617. |
No Partnership | 39 | ||||
| Section 618. |
Pension and Welfare Plans | 39 | ||||
| Section 619. |
Ownership of Issuer | 39 | ||||
| Section 620. |
Security Interest Representations | 39 | ||||
| Section 621. |
ERISA Lien | 41 | ||||
| Section 622. |
Interest Rate Hedge Agreements | 41 | ||||
| Section 623. |
Additional Funding Amount | 41 | ||||
| Section 624. |
Survival of Representations and Warranties | 42 | ||||
| ARTICLE VII Miscellaneous Provisions | 42 | |||||
| Section 701. |
Ratification of Indenture | 42 | ||||
| Section 702. |
Counterparts | 42 | ||||
| Section 703. |
Governing Law | 42 | ||||
| Section 704. |
Notices | 42 | ||||
| Section 705. |
Amendments and Modifications | 43 | ||||
| Section 706. |
Consent to Jurisdiction | 45 | ||||
| Section 707. |
Waiver of Jury Trial | 45 | ||||
| Section 708. |
Successors | 45 | ||||
| Section 709. |
Nonpetition Covenant | 45 | ||||
| Section 710. |
Recourse Against the Issuer | 46 | ||||
| Section 711. |
Reports, Financial Statements and Other Information to Series 2014-1 Noteholders | 46 | ||||
- ii -
SERIES 2014-1 SUPPLEMENT, dated as of October 30, 2014 (as amended, restated, supplemented or otherwise modified from time to time, this “Supplement”), between TEXTAINER MARINE CONTAINERS III LIMITED, an exempted company with limited liability incorporated in Bermuda (the “Issuer”), and WELLS FARGO BANK, NATIONAL ASSOCIATION, a national banking association, as Indenture Trustee (the “Indenture Trustee”).
WHEREAS, pursuant to the Indenture, dated as of October 30, 2014 (as amended, restated, supplemented or otherwise modified from time to time, the “Indenture”), between the Issuer and the Indenture Trustee, the Issuer may from time to time direct the Indenture Trustee to authenticate one or more new Series of Notes. The Principal Terms of any new Series are to be set forth in a Supplement to the Indenture; and
WHEREAS, pursuant to this Supplement, the Issuer and the Indenture Trustee shall create a new Series of Notes and specify the Principal Terms thereof.
NOW THEREFORE, in consideration of the premises and mutual covenants herein contained, the parties hereto agree as follows:
ARTICLE I
Definitions; Calculation Guidelines
Section 101. Definitions. (a) Whenever used in this Supplement, the following words and phrases shall have the following meanings, and the definitions of such terms are applicable to the singular as well as the plural forms of such terms and to the masculine as well as to the feminine and neuter genders of such terms.
“144A Book-Entry Notes” means the 144A Book-Entry Notes substantially in the form of Exhibit A-1 hereto.
“Accelerated Measurement Period” shall have the meaning set forth in Section 205(c).
“Advance Rate” means eighty percent (80%).
“Aggregate L/C Available Amount” means as of any date of determination, an amount equal to the sum of the amount then available for drawings under all Eligible Letters of Credit then in effect for Series 2014-1.
“Aggregate Invested Amount” means of any date of determination, an amount equal to the sum of the Invested Amounts for all Series of Notes then Outstanding.
“Asset Base” means, as of any date of determination for Series 2014-1, an amount equal to the sum of (a) the product of (i) Asset Allocation Percentage for Series 2014-1 in effect on such date of determination, (ii) a percentage equal to one hundred percent (100%) minus the Series 2014-1 Required Overcollateralization Percentage in effect on such date of determination and (iii) the sum of (x) the Aggregate Net Book Value (measured as of the last day of the
immediately preceding calendar month) and (y) the aggregate outstanding balance of receivables resulting from the sale or disposition of Eligible Containers which have not been outstanding for more than 60 days, plus (b) an amount equal to the sum of (i) the amount of cash and Eligible Investments on deposit in the Series 2014-1 Restricted Cash Account on such date of determination, and (ii) an amount equal to the product of (x) the Series 2014-1 Asset Allocation Percentage in effect on such date of determination and (y) the amount of cash and Eligible Investments on deposit in the Excess Funding Account on such date of determination.
“Closing Date” means October 30, 2014.
“Consolidated Funded Debt” means, as of any date of determination, the total amount of all interest-bearing obligations (determined in accordance with GAAP and including all issued and undrawn letters of credit) which obligations shall include, without limitation, (i) the principal amount outstanding under all indebtedness, (ii) all contingent obligations, (iii) all capital lease obligations, (iv) all obligations for the deferred purchase price of equipment, and (v) the present value of all operating lease payments for leases of equipment (such present value shall be calculated using an annual discount rate equal to LIBOR plus one and one-half (1.5%) percent, but shall exclude intracompany obligations); provided that “Consolidated Funded Debt” of TGH shall exclude the portion thereof attributable to any Subsidiary of TGH, or to any joint venture of TGH or any such Subsidiary (each a “Specified Entity”), to the extent of any ownership interest in such Specified Entity held by any third party not an Affiliate of TGH.
“Consolidated Tangible Net Worth” means, as of any date of determination, the excess of: (a) the tangible assets calculated in accordance with GAAP, as reduced by adequate reserves in each case where reserves are proper, over (b) all Indebtedness; provided, however, that (i) in no event shall there be included in the above calculation any intangible assets such as patents, trademarks, trade names, copyrights, licenses, goodwill, organizational costs, amounts relating to covenants not to compete, or any securities unless the same are marketable in the United States of America or entitled to be used as a credit against federal income tax liabilities, (ii) securities included as such intangible assets shall be taken into account at their current market price or cost, whichever is lower, and (iii) any adjustments, both positive and negative, to either or both of tangible assets and indebtedness arising from the implementation of Statement of Financial Accounting Standards No. 133 issued by the Financial Accounting Standards Board shall be disregarded for purposes of this calculation; provided further that “Consolidated Tangible Net Worth” of TGH shall exclude the portion thereof attributable to any Subsidiary of TGH, or to any joint venture of TGH or any such Subsidiary (each a “Specified Entity”), to the extent of any ownership interest in such Specified Entity held by any third party not an Affiliate of TGH.
“Control Party” means, for Series 2014-1, Series 2014-1 Noteholders holding Series 2014-1 Note Principal Balances representing more than fifty percent (50%) of the Unpaid Principal Balance.
“Default Interest” shall have the meaning set forth in “Default Fees”.
“Default Fees” means, for any Payment Date, the amount of incremental interest payable on the Series 2014-1 Notes in accordance with the provisions of Section 203(b).
2
“Downgraded Letter of Credit Bank” shall have the meaning set forth in Section 306(e).
“DTC” shall have the meaning set forth in Section 207(b)(v).
“EBIT” means, for any fiscal period, the Issuer’s earnings (or loss) before Interest Expense and taxes, determined in accordance with GAAP, including gains and losses from the sale of assets and foreign exchange transactions, but excluding (i) gains or losses arising from changes in the applicable depreciation policy and (ii) unrealized gains or losses arising from the implementation of Statement of Financial Accounting Standards No. 133 issued by the Financial Accounting Standards Board.
“EBIT Ratio” means, for the Issuer, as of any Payment Date, the ratio of (x) EBIT to (y) Interest Expense, in each case for the most recently concluded six (6) full fiscal quarters or, if fewer than six (6) full fiscal quarters have passed since September 25, 2013, for the number of full fiscal quarters that have passed since September 25, 2013.
“Eligible Bank” means a banking, financial or similar institution capable of issuing an Eligible Letter of Credit which has long-term unsecured debt rating of “A” or better from the Rating Agency.
“Eligible Letter of Credit” means any irrevocable, transferable, unconditional standby letter of credit (a) issued after the Rating Agency Condition has been satisfied by providing twenty (20) Business Days notice to the Rating Agency (which Rating Agency Condition shall not require the affirmative response of the Rating Agency confirming the rating) by an Eligible Bank and for which the Indenture Trustee is the beneficiary, (b) that has a stated expiration date of not earlier than one year after its issuance date and that permits drawing thereon prior to non-renewal of such Letter of Credit if not replaced by cash or a replacement Eligible Letter of Credit, (c) that may be drawn upon at the principal office of the Eligible Bank as the same shall be designated from time to time by notice to the Indenture Trustee pursuant to the terms of such letter of credit, (d) which is payable in Dollars in immediately available funds in an amount of not less than the available drawing amount specified therein, and (e) that may be transferred by the Indenture Trustee, without a fee payable by the Indenture Trustee and without the consent of the related Letter of Credit Bank, to any replacement indenture trustee appointed in accordance with the terms of the Indenture.
“Finance Lease Management Fee” has the meaning set forth in Section 404(c).
“Initial Purchasers” means each of (i) Wells Fargo Securities, LLC, a limited liability company organized and existing under the laws of the State of Delaware, (ii) Merrill Lynch, Pierce, Fenner & Smith Incorporated, a corporation organized and existing under the laws of the State of Delaware, (iii) Credit Suisse Securities (USA) LLC, a Delaware limited liability company, (iv) RBC Capital Markets, LLC, a Minnesota limited liability company, (v) ABN AMRO Securities (USA) LLC, a Delaware limited liability company and (vi) KeyBanc Capital Markets Inc., an Ohio corporation.
“Interest Accrual Period” means the period beginning with, and including, a Payment Date and ending on (and including) the day before the next succeeding Payment Date; except that, in the case of the first Interest Accrual Period, the period beginning with and including the Closing Date and ending on and including the day before the initial Payment Date.
3
“Interest Expense” means, for any fiscal period, the aggregate amount of interest expense as shown for such period on the income statement of the Issuer, determined in accordance with GAAP.
“Interest Payment” means, for Series 2014-1 on each Payment Date, an amount equal to the product of (i) the Series 2014-1 Note Interest Rate, (ii) the Unpaid Principal Balance on the immediately preceding Payment Date (or, in the case of the first Payment Date, the Unpaid Principal Balance on the Series 2014-1 Closing Date), calculated after giving effect to all principal payments on the Series 2014-1 Notes actually paid on such date, and (iii) a fraction, the numerator of which is equal to the number of days elapsed during the related Interest Accrual Period (calculated on the basis of a 360 day year consisting of twelve (12) thirty (30) day periods) and the denominator of which is 360.
“Issuance Date” means, for Series 2014-1 Notes, the Closing Date.
“Issuance Date Restricted Cash Amount” means an amount equal to the sum of the Series 2014-1 Restricted Cash Amount on the Issuance Date of the Series 2014-1 Notes; this amount shall be Seven Million Three Hundred Ninety One Thousand Eight Hundred Thirty Five Dollars ($7,391,835.00).
“Letter of Credit” means any irrevocable, transferable, unconditional standby letter of credit issued for the benefit of the Indenture Trustee in accordance with the terms of this Supplement.
“Letter of Credit Bank” means the issuing bank of a Letter of Credit.
“Letter of Credit Fee” means the periodic interest and/or fees payable by the Issuer to a Letter of Credit Bank; provided, however, that in no event shall the Letter of Credit Fee include reimbursement for any unreimbursed draws made on the related Letter of Credit.
“Letter of Credit Expiration Date” means, with respect to any Letter of Credit, the stated expiration date set forth in such Letter of Credit, as such date may be extended in accordance with the terms of such Letter of Credit.
“Leverage Ratio” means as of any date of determination for any Person on a consolidated basis, the ratio of (a) Consolidated Funded Debt to (b) Consolidated Tangible Net Worth.
“LOC Pro Rata Share” means with respect to any Letter of Credit, a fraction (stated as percentage) the numerator of which is the available amount of such Letter of Credit and the denominator of which is the then Aggregate L/C Available Amount.
“Long-Term/PLB Management Fee” has the meaning set forth in Section 404(b).
“Master Lease Management Fee” has the meaning set forth in Section 404(a).
4
“Minimum Principal Payment Amount” means, for Series 2014-1 on any Payment Date, the difference, if any, of (x) the Unpaid Principal Balance minus (y) the Minimum Targeted Principal Balance for such Payment Date.
“Minimum Targeted Principal Balance” means for Series 2014-1 on any Payment Date, the amount set forth opposite such Payment Date on Schedule 1 hereto, as the amounts on Schedule 1 hereto may be amended from time to time in accordance with the provisions of this Supplement.
“Permitted Interest Withdrawal” shall have the meaning set forth in Section 302(b).
“Permitted Non-U.S. Person” means any Person (i) who is not a U.S. Person and (ii) to whom the offer and sale of the Series 2014-1 Notes may be made without registration under the Securities Act in reliance upon Regulation S.
“Permitted Payment Date Withdrawal” means, for any Payment Date, an amount equal to the sum of (i) the Permitted Interest Withdrawal for such Payment Date and (ii) the Permitted Principal Withdrawal for such Payment Date.
“Permitted Principal Withdrawal” shall have the meaning set forth in Section 302(c).
“Qualified Institutional Buyers” shall have the meaning set forth in Section 207(a)(i).
“Regulation S” means Regulation S under the Securities Act.
“Regulation S Temporary Book-Entry Notes” means the Regulation S Temporary Book-Entry Notes substantially in the form of Exhibit A-2.
“Reimbursement Agreement” means an agreement between the Issuer and a Letter of Credit Bank with respect to certain terms and conditions under which a letter of credit is issued, including Letter of Credit Fees payable by the Issuer and the reimbursement obligations of the Issuer.
“Required Payments” means for Series 2014-1 shall be as follows: (A) if neither a Series 2014-1 Early Amortization Event or a Series 2014-1 Event of Default is then continuing, the payments specified in Section 303(b)(i) through (xi), (B) if a Series 2014-1 Early Amortization Event shall then be continuing but no Event of Default for Series 2014-1 shall then be continuing (or a Series 2014-1 Event of Default is continuing but the Series 2014-1 Notes have not been accelerated in accordance with the Indenture), the payments set forth in Section 303(c)(i) through (xi), or (C) if a Series 2014-1 Event of Default shall then be continuing and the Series 2014-1 Notes have been accelerated in accordance with the Indenture and such consequence shall not have been rescinded or annulled, the payments set forth in Section 303(d)(i) through (ix). All such Required Payments shall be paid in ascending numerical order, with no payment being made to in respect of any item set forth in a clause having a higher numeric value until all payments outlined in any clause having a lower numeric value have been paid in full.
“Rule 144A” shall have the meaning set forth in Section 207(a)(i).
5
“Sale Management Fee” has the meaning set forth in Section 404(d).
“Scheduled Principal Payment Amount” means, for Series 2014-1 for any Payment Date, the difference, if any, of (x) the Unpaid Principal Balance (after giving effect to any payment of the Minimum Principal Payment Amount actually paid on such Payment Date), minus (y) the Scheduled Targeted Principal Balance for such Payment Date.
“Scheduled Targeted Principal Balance” means, for Series 2014-1 for any Payment Date, the amount set forth opposite such Payment Date on Schedule 2 hereto, as the amounts on Schedule 2 hereto may be amended from time to time in accordance with the provisions of this Supplement.
“Series 2014-1” means the Series of Notes the terms of which are specified in this Supplement.
“Series 2014-1 Asset Allocation Percentage” means of any date of determination, the Series 2014-1 Asset Allocation Percentage.
“Series 2014-1 Available Funds” means, as of any Payment Date, an amount equal to the sum of (i) an amount equal to the product of (x) the Available Distribution Amount for the most recently completed Collection Period and (y) the Collection Allocation Percentage in effect on the related Determination Date for Series 2014-1, (ii) all amounts transferred to the Series 2014-1 Series Account from the Series 2014-1 Restricted Cash Account on the related Determination Date pursuant to this Supplement, (iii) the amount of funds transferred to the Series 2014-1 Series Account on such Payment Date following transfer from the Excess Funding Account to the Trust Account pursuant to the Indenture, and (iv) the amount of any Shared Available Funds (as defined in the Supplements for each other Series of Notes then Outstanding) deposited to the Series 2014-1 Series Account on such Payment Date in accordance with the terms of the Supplement for each other Series of Notes then Outstanding.
“Series 2014-1 Collection Allocation Percentage” means for the Series 2014-1 Notes as of any date of determination, a fraction (expressed as a percentage) equal to (A) divided by (B), as follows:
(A) the Series 2014-1 Invested Amount; and
(B) the Aggregate Invested Amount (exclusive of the Invested Amount for any Liquidation Deficiency Series).
“Series 2014-1 Early Amortization Event” means any Early Amortization Event for the Series 2014-1 Notes.
“Series 2014-1 Event of Default” means any Event of Default for the Series 2014-1 Notes.
6
“Series 2014-1 Excess Concentration Percentage” means, as of any date of determination, an amount equal to the sum of the following percentages:
(a) Maximum Concentration of Dry Freight Special Containers. The amount by which (x) the sum of the Net Book Values of all Eligible Containers that are dry freight specialized Containers (other than refrigerated Containers), divided by the Aggregate Net Book Value, expressed as a percentage, exceeds (y) twenty-five percent (25%);
(b) Maximum Concentration of Finance Leases (Total). The amount by which (x) the sum of the Net Book Values of all Eligible Containers whose initial leases were Finance Leases divided by the Aggregate Net Book Value, expressed as a percentage, exceeds (y) ten percent (10%);
(c) Maximum Concentration of Non-Monthly Rental Payments. The amount by which (x) the sum of the Net Book Values of all Eligible Containers subject to Leases for which rentals are payable less frequently than monthly, divided by the Aggregate Net Book Value, expressed as a percentage, exceeds (y) two percent (2%);
(d) Maximum Concentration of Non-U.S. Currency Rentals. The amount by which (x) the sum of the Net Book Values of all Eligible Containers subject to Leases for which rentals are payable in a currency other than Dollars and which are not the subject of a currency hedge agreement, divided by the Aggregate Net Book Value, expressed as a percentage, exceeds (y) two percent (2%);
(e) Maximum Concentration of Non-Marine Cargo Users. The amount by which (x) the sum of the Net Book Values of all Eligible Containers subject to Leases under which the lessee is a Person that is not a marine cargo user divided by the Aggregate Net Book Value, expressed as a percentage, exceeds (y) seven percent (7%);
(f) Maximum Concentration of any Ten Lessees. The amount by which (x) the sum of the Net Book Values of all Eligible Containers then on lease to any ten lessees or sublessees, divided by the Aggregate Net Book Value, expressed as a percentage, exceeds (y) seventy-five percent (75%);
(g) Maximum Concentration of a Single Lessee. The amount by which (x) the sum of the Net Book Values of all Eligible Containers then on lease to any single lessee, divided by the Aggregate Net Book Value, expressed as a percentage, exceeds (y) twenty-five percent (25%); and
(h) U.S. Government Leases. The amount by which (x) the sum of the Net Book Values of all Eligible Containers on Lease to the U.S. government, divided by the Aggregate Net Book Value, exceeds (y) four percent (4%); provided that Leases for which (i) compliance with the Federal Assignment of Claims Act have been evidenced by a favorable Opinion of Counsel or (ii) the U.S. government has executed a consent to assignment shall not be included in the foregoing clause (x).
7
“Series 2014-1 Expected Final Payment Date” means the Payment Date occurring in October 2024.
“Series 2014-1 Invested Amount” means as of any date of determination for the Series 2014-1 Notes, one of the following: (a) if no Early Amortization Event for any Series or Event of Default for any Series is then continuing, an amount equal to (x) the Issuance Date Series 2014-1 Note Principal Balance minus the Issuance Date Restricted Cash Amount for Series 2014-1, divided by (y) 100% minus the Series 2014-1 Required Overcollateralization Percentage in effect on such date; or (b) if any Early Amortization Event for any Series or Event of Default for any Series is then continuing, an amount (not less than zero) equal to (x) the Unpaid Principal Balance on the date on which such Early Amortization Event for any Series or Event of Default for any Series occurred, minus the amount then on deposit in the Series 2014-1 Restricted Cash Account on the date on which such Early Amortization Event for any Series or Event of Default for any Series occurred, divided by (y) 100% minus the Series 2014-1 Required Overcollateralization Percentage on the date on which such Early Amortization Event for any Series or Event of Default for any Series occurred.
“Series 2014-1 L/C Account” means the account of that name established in accordance with Section 305.
“Series 2014-1 Legal Final Payment Date” means the Payment Date occurring in October 2039.
“Series 2014-1 Management Fee” means the sum of the Master Lease Management Fee, the Long-Term/PLB Management Fee, the Finance Lease Management Fee and the Sale Management Fee.
“Series 2014-1 Manager Default” means any Manager Default for the Series 2014-1 Notes.
“Series 2014-1 Note” means any one of the notes issued pursuant to the terms of Section 201(a), substantially in the form of Exhibit A-1, A-2, A-3 or A-4 to this Supplement, and any and all replacements or substitutions of such note. Each Series 2014-1 Note is designated as a “Senior Note” as defined in the Indenture.
“Series 2014-1 Note Interest Rate” means, with respect to any Series 2014-1 Note, three and twenty seven hundredths of one percent (3.27%) per annum.
“Series 2014-1 Note Principal Balance” means, with respect to any Series 2014-1 Note as of any date of determination, an amount equal to the excess, if any, of (x) the initial unpaid principal balance of such Series 2014-1 Note as of the Closing Date, over (y) the cumulative amount of all Minimum Principal Payment Amounts for Series 2014-1, Scheduled Principal Payment Amounts for Series 2014-1, Supplement Principal Payment Amounts for Series 2014-1 and any other principal payments (including Prepayments) actually paid to the related Series 2014-1 Noteholder subsequent to the Closing Date.
“Series 2014-1 Note Purchase Agreement” means the Series 2014-1 Note Purchase Agreement, dated as of October 27, 2014 (as amended, restated, supplemented or otherwise modified from time to time), among the Issuer, Textainer Limited, TGH and the Initial Purchasers.
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“Series 2014-1 Noteholder” means, on any date of determination, any Person in whose name a Series 2014-1 Note is registered in the Note Register.
“Series 2014-1 Related Documents” means any and all of the Indenture, this Supplement, the Series 2014-1 Notes, the Management Agreement, the Contribution and Sale Agreement, each Container Transfer Agreement, the Series 2014-1 Note Purchase Agreement, the Manager Transfer Facilitator Agreement, each Reimbursement Agreement (upon execution thereof), each Interest Rate Hedge Agreement (if any, upon execution thereof), each Letter of Credit (upon execution thereof) and any and all other agreements, documents and instruments executed and delivered by or on behalf or in support of the Issuer with respect to the issuance and sale of the Series 2014-1 Notes, as any of the foregoing may from time to time be amended, modified, supplemented or renewed.
“Series 2014-1 Required Overcollateralization Percentage” means, as of any date of determination, an amount equal to (a) one hundred percent (100%), minus (b) the Advance Rate plus (c) the Series 2014-1 Excess Concentration Percentage.
“Series 2014-1 Restricted Cash Account” means the account of that name established in accordance with Section 302.
“Series 2014-1 Restricted Cash Amount” means, on each Payment Date, the product of (a) nine (9), (b) one-twelfth, (c) the Series 2014-1 Note Interest Rate, and (d) the Unpaid Principal Balance as of such Payment Date, which Unpaid Principal Balance shall be calculated after giving effect to all advances of principal and principal payments made on such Payment Date.
“Series 2014-1 Series Account” means the account of that name established in accordance with Section 301.
“Series 2014-1 Shared Available Funds” means, on any Payment Date, the portion of the Series 2014-1 Available Funds remaining after giving effect to all Required Payments to be made on such Payment Date.
“Series 2014-1 Specific Collateral” shall have the meaning set forth in Section 208 hereto.
“Supplemental Principal Payment Amount” has the meaning set forth in Section 205(a).
“Transferor” shall have the meaning set forth in Section 207(b)(v).
“Unrestricted Book-Entry Notes” means the Unrestricted Book-Entry Notes substantially in the form of Exhibit A-3.
“U.S. Person” has the meaning set forth in Regulation S.
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“Weighted Average Age” means, for any date of determination, the quotient of (A) the sum of the products of (i) the age in years (determined from the date of the initial sale thereof by the manufacturer) of each Managed Container being evaluated, multiplied by (ii) the Net Book Value of each Managed Container being evaluated, divided by (B) the sum of the Net Book Values of all Managed Containers being evaluated.
(a) Capitalized terms used herein and not otherwise defined shall have the meaning set forth in the Indenture or, if not defined therein, as defined in the Series 2014-1 Note Purchase Agreement, or, if not defined therein, as defined in the Management Agreement.
(b) References in this Supplement and any other Series 2014-1 Related Document to any section of the Uniform Commercial Code or the UCC shall mean, on or after the effective date of adoption of any revision to the Uniform Commercial Code or the UCC in the applicable jurisdiction, such revised or successor section thereto.
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ARTICLE II
Creation of the Series 2014-1 Notes
Section 201. Designation. (a) There is hereby created a Series of Notes to be issued pursuant to the Indenture and this Supplement to be known as “Textainer Marine Containers III Limited Fixed Rate Asset-Backed Notes, Series 2014-1”. The Series 2014-1 Notes will be issued with an initial principal balance of Three Hundred One Million, Four Hundred Thousand Dollars ($301,400,000.00) and will not have priority over any other Series, except to the extent set forth in the Supplement for such other Series.
(b) Payments of principal on the Series 2014-1 Notes shall be payable from funds on deposit in the Series 2014-1 Series Account or otherwise at the times and in the amounts set forth in Article III of the Indenture and Article III of this Supplement.
(c) Each Series 2014-1 Note is classified as a “Term Note”, as such term is used in the Indenture.
(d) Each of the following terms defined in the Indenture shall have the following meanings with respect to the Series 2014-1 Notes:
(i) The “Available Funds” (as defined in the Indenture) for Series 2014-1 shall be the “Series 2014-1 Available Funds” (as defined in Section 101(a)).
(ii) The “Collection Allocation Percentage” ( as defined in the Indenture) for Series 2014-1 shall be the “Series 2014-1 Collection Allocation Percentage” (as defined in Section 101(a)).
(iii) The “Excess Concentration Percentage” (as defined in the Indenture) for Series 2014-1 shall be the “Series 2014-1 Excess Concentration Percentage” (as defined in Section 101(a)).
(iv) The “Expected Final Payment Date” (as defined in the Indenture) for Series 2014-1 shall be the “Series 2014-1 Expected Final Payment Date” (as defined in Section 101(a)).
(v) The “Invested Amount” (as defined in the Indenture) for Series 2014-1 shall be the “Series 2014-1 Invested Account” (as defined in Section 101(a)).
(vi) The “Legal Final Payment Date” (as defined in the Indenture) for Series 2014-1 shall be the “Series 2014-1 Legal Final Payment Date” (as defined in Section 101(a)).
(vii) The “Rating Agency” for Series 2014-1, as such term is used in the Indenture, shall be Standard & Poor’s.
(viii) The initial “Payment Date” (as defined in the Indenture) for Series 2014-1 shall be November 20, 2014.
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(ix) The initial “Record Date” (as defined in the Indenture) for Series 2014-1 shall be the Closing Date.
(x) The “Related Documents” for Series 2014-1, as such term is used in the Indenture, shall be the Series 2014-1 Related Documents (as defined in Section 101(a)).
(xi) The “Required Overcollateralization Percentage” (as defined in the Indenture) for Series 2014-1 shall be the “Series 2014-1 Required Overcollateralization Percentage” (as defined in Section 101(a)).
(xii) The “Restricted Cash Account” (as defined in the Indenture) for Series 2014-1 shall be the “Series 2014-1 Restricted Cash Account” (as defined in Section 101(a)).
(xiii) The “Restricted Cash Amount” (as defined in the Indenture) for Series 2014-1 shall be the “ Series 2014-1 Restricted Cash Amount” (as defined in Section 101(a)).
(xiv) The “Series Account” (as defined in the Indenture) for Series 2014-1 shall be the “Series 2014-1 Series Account” (as defined in Section 101(a)).
(xv) The “Series-Specific Collateral” (as defined in the Indenture) for Series 2014-1 shall be the “ Series 2014-1 Specific Collateral” (as defined in Section 101(a)).
(xvi) The “Shared Available Funds” (as defined in the Indenture) for Series 2014-1 shall be the “Series 2014-1 Shared Available Funds” (as defined in Section 101(a)).
(xvii) On the Closing Date, the Issuer shall deposit into the Trust Account funds in an amount equal to the Additional Funding Amount for the Leases to be acquired by the Issuer on the Closing Date.
(e) In the event that any term or provision contained herein shall conflict with or be inconsistent with any term or provision contained in the Indenture, the terms and provisions of this Supplement shall govern.
Section 202. Authentication and Delivery.
(a) On the Closing Date, Issuer shall sign, and shall direct the Indenture Trustee in writing pursuant to Section 204 of the Indenture to duly authenticate, and the Indenture Trustee, upon receiving such direction, shall authenticate, subject to compliance with the conditions precedent set forth in Section 501, the Series 2014-1 Notes in accordance with such written directions.
(b) In accordance with Section 202 of the Indenture, the Series 2014-1 Notes sold in reliance on Rule 144A shall be represented by one or more 144A Book-Entry Notes. Any Series 2014-1 Notes sold in reliance on Regulation S shall be represented by one or more Regulation S Book-Entry Notes. Any Series 2014-1 Notes sold to Institutional Accredited Investors or other Persons that are not Qualified Institutional Buyers or Permitted Non-U.S. Persons shall be represented by one or more Definitive Notes.
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(c) The Series 2014-1 Notes shall be executed by manual or facsimile signature on behalf of Issuer by any officer of Issuer and shall be substantially in the forms of Exhibit A-1, A-2, A-3 and A-4 hereto, as applicable.
(d) The Series 2014-1 Notes shall be issued in minimum denominations of $100,000 and in integral multiples of $1,000 in excess thereof.
Section 203. Interest Payments on the Series 2014-1 Notes.
(a) Interest on Series 2014-1 Notes. Interest on each Series 2014-1 Note shall (i) accrue during each Interest Accrual Period on each Series 2014-1 Note in an amount equal to the Interest Payment, (ii) be calculated on the basis of a year consisting of twelve thirty (30) day months, (iii) be due and payable on each Payment Date, (iv) be calculated based on the then Series 2014-1 Note Principal Balance of such Series 2014-1 Note and (v) be payable from the Series 2014-1 Series Account in accordance with Section 302 of the Indenture and in accordance with Section 303.
(b) Interest on Overdue Amounts. If the Issuer shall default in the payment of (i) the Unpaid Principal Balance on the Series 2014-1 Legal Final Payment Date, (ii) any Interest Payment on any Series 2014-1 Note due on any Payment Date, or (iii) following the acceleration of the Series 2014-1 Notes in accordance with the terms of the Indenture, any other amount owing under the Indenture not covered in clauses (i) and (ii) which is not paid when due, the Issuer shall, from time to time, pay interest on such unpaid amounts, to the extent permitted by Applicable Law, at a rate per annum equal to the sum of (x) the interest rate otherwise in effect hereunder plus (y) two percent (2.00%), for the period during which such principal, interest or other amount shall be unpaid from the due date of such payment to but not including the date of actual payment thereof (after as well as before judgment). Default Fees shall be payable at the times and subject to the priorities set forth in Section 303.
(c) Maximum Interest Rate. In no event shall the interest charged with respect to a Series 2014-1 Note exceed the maximum amount permitted by Applicable Law. If at any time the interest rate charged with respect to the Series 2014-1 Notes exceeds the maximum rate permitted by Applicable Law, the rate of interest to accrue pursuant to this Supplement and such Series 2014-1 Note shall be limited to the maximum rate permitted by Applicable Law. If the total amount of interest paid or accrued on the Series 2014-1 Note under the foregoing provisions is less than the total amount of interest that would have accrued if the interest rate had at all times been in effect, the Issuer agrees to pay to the Series 2014-1 Noteholders an amount equal to the difference between (a) the lesser of (i) the amount of interest that would have accrued if the maximum rate permitted by Applicable Law had at all times been in effect, or (ii) the amount of interest that would have accrued if the interest rate had at all times been in effect, and (b) the amount of interest accrued in accordance with the other provisions of this Supplement.
Section 204. Principal Payments on the Series 2014-1 Notes.
(a) The principal balance of the Series 2014-1 Notes shall be payable on each Payment Date from amounts on deposit in the Series 2014-1 Series Account in an amount equal to (i) so long as no Series 2014-1 Early Amortization Event or Series 2014-1 Event of Default is
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continuing, the sum of the Minimum Principal Payment Amount and the Scheduled Principal Payment Amount for such Payment Date, to the extent that funds are available for such purpose in accordance with the provisions of Section 303(b), or (ii) if a Series 2014-1 Early Amortization Event is then continuing but no Series 2014-1 Event of Default is continuing (or a Series 2014-1 Event of Default is continuing but the Series 2014-1 Notes have not been accelerated in accordance with the provisions of Section 802 of the Indenture), the Unpaid Principal Balance shall be payable in full to the extent that funds are available for such purposes in accordance with the provisions of Section 303(c).
(b) The unpaid principal amount of each Series 2014-1 Note together with all unpaid interest (including all Default Fees), fees, expenses, costs and other amounts payable by the Issuer to the Series 2014-1 Noteholders and the Indenture Trustee pursuant to the terms of the Indenture and this Supplement, shall be due and payable in full on the earlier to occur of (x) the date on which an Event of Default for Series 2014-1 shall occur and the Series 2014-1 Notes have been accelerated in accordance with the provisions of Section 802 of the Indenture and (y) the Series 2014-1 Legal Final Payment Date.
Section 205. Prepayment of Principal on the Series 2014-1 Notes.
(a) The Issuer shall be required to prepay the Unpaid Principal Balance on any Payment Date in the amount of, and to the extent that, on such Payment Date the Unpaid Principal Balance (calculated after giving effect to all Minimum Principal Payment Amounts and Scheduled Principal Payment Amounts actually paid on such Payment Date) exceeds an amount equal to the Asset Base for the Series 2014-1 Notes, determined as of the last day of the month immediately preceding such Payment Date (the “Supplemental Principal Payment Amount”). The Supplemental Principal Payment Amount shall be paid in accordance with the priority of payments set forth in Section 303. The calculation of such Supplemental Principal Payment Amount shall be evidenced by the Asset Base Report received by the Indenture Trustee on or before the applicable Determination Date.
(b) The Issuer will not be permitted to make a voluntary Prepayment of all, or any portion of, the principal balance of the Series 2014-1 Notes prior to the Payment Date occurring in November 2016. Beginning on that Payment Date and any Payment Date thereafter, the Issuer will have the option to prepay, without premium, on any Payment Date all, or a portion of, the Unpaid Principal Balance, in a minimum amount of One Hundred Thousand Dollars ($100,000), together with accrued interest thereon, to be applied to the Series 2014-1 Notes. The Issuer shall provide prior written notice of any Prepayment to the Indenture Trustee and the Series 2014-1 Noteholders. Any such Prepayment of the Unpaid Principal Balance shall also include accrued interest to the date of Prepayment on the principal balance being prepaid. The Issuer may not make such Prepayment from funds in the Trust Account, the Series 2014-1 Restricted Cash Account, the Excess Funding Account, the Series 2014-1 L/C Account or the Series 2014-1 Series Account, except to the extent that funds in any such account would otherwise be payable to the Issuer in accordance with the terms of this Supplement and the Indenture.
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(c) In the event that the Issuer makes a Prepayment in accordance with the provisions of this Section 205 of less than the Unpaid Principal Balance, the Issuer shall promptly (but in any event within five (5) Business Days after the date on which such Prepayment is made) thereafter recalculate the Minimum Targeted Principal Balance and Scheduled Targeted Principal Balance for each future Payment Date such that the Minimum Targeted Principal Balance and Scheduled Targeted Principal Balance are reduced by an amount equal to the quotient of (i) the aggregate amount of such Prepayment divided by (ii) the number of remaining Payment Dates to and including (A) the Series 2014-1 Legal Final Payment Date (in the case of the Minimum Targeted Principal Balance) and (B) the Series 2014-1 Expected Final Payment Date (in the case of the Scheduled Targeted Principal Balance). In addition, if an Early Amortization Event has occurred and been subsequently cured and/or waived in accordance with the Series 2014-1 Related Documents (the period between such occurrence and such cure or waiver being the “Accelerated Measurement Period”), the Minimum Targeted Principal Balance and Scheduled Targeted Principal Balance for each Payment Date following such Accelerated Measurement Period shall be reduced, utilizing a similar methodology, by the amount of payments made pursuant to Section 303(c)(viii) and Section 303(d)(vii), as the case may be, during the Accelerated Measurement Period in excess of the amounts that would have been paid pursuant to Section 303(b)(viii) and Section 303(b)(ix), as applicable, were such Accelerated Measurement Period not to have occurred. Promptly upon recalculating the Minimum Targeted Principal Balances and the Scheduled Targeted Principal Balances, the Issuer shall deliver to the Indenture Trustee updated versions of Schedules 1 and 2 reflecting such revised balances.
Section 206. Payments of Principal and Interest. All payments of principal and interest on the Series 2014-1 Notes shall be paid to the Series 2014-1 Noteholders reflected in the Note Register as of the related Record Date by wire transfer of immediately available funds for receipt prior to 11:00 a.m. (New York City time) on the related Payment Date. Any payments received by the Series 2014-1 Noteholders after 11:00 a.m. (New York City time) on any day shall be considered to have been received on the next succeeding Business Day.
Section 207. Restrictions on Transfer. (a) On the Closing Date, the Issuer shall sell the Series 2014-1 Notes to the Initial Purchasers pursuant to the Series 2014-1 Note Purchase Agreement and deliver such Series 2014-1 Notes in accordance herewith and therewith. Thereafter, no Series 2014-1 Note may be sold, transferred or otherwise disposed of except in compliance with the provisions of the Indenture and except as follows:
(i) to Persons that take delivery of such Series 2014-1 Note in an amount of at least $100,000 and that the transferring Person reasonably believes are qualified institutional buyers as defined in Rule 144A (“Qualified Institutional Buyers”) in reliance on the exemption from the registration requirements of the Securities Act provided by Rule 144A promulgated thereunder (“Rule 144A”);
(ii) to Permitted Non-U.S. Persons that take delivery of such Series 2014-1 Note in an amount of at least $100,000;
(iii) to Institutional Accredited Investors that take delivery of such Series 2014-1 Note in an amount of at least $100,000 and that deliver to the Indenture Trustee a letter substantially in the form of Exhibit D to the Indenture to the Indenture Trustee; or
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(iv) to a Person that is taking delivery of such Series 2014-1 Note in an amount of at least $100,000 and that is otherwise exempt from the registration requirements of the Securities Act and from any applicable State law securities registration or qualification requirements, as confirmed in an Opinion of Counsel addressed to the Indenture Trustee and the Issuer, which counsel and opinion are satisfactory to the Indenture Trustee and the Issuer.
The Indenture Trustee shall have no obligations or duties with respect to determining whether any transfers of the Series 2014-1 Notes are made in accordance with the Securities Act or any other law; provided that with respect to Definitive Notes, the Indenture Trustee shall enforce such transfer restrictions in accordance with the terms set forth in this Supplement.
(b) Each purchaser (other than any Initial Purchaser) of the Series 2014-1 Notes (including any purchaser, other than any Initial Purchaser, of an interest in the Series 2014-1 Notes which are Book-Entry Notes) shall be deemed to have acknowledged and agreed as follows:
(i) It is (A) Qualified Institutional Buyer and is acquiring such Series 2014-1 Notes for its own institutional account or for the account or accounts of a Qualified Institutional Buyer or (B) purchasing such Series 2014-1 Notes in a transaction exempt from registration under the Securities Act and in compliance with the provisions of this Supplement and in compliance with the legend set forth in Section 207(b)(v) below or (C) not a U.S. Person and is acquiring such Series 2014-1 Notes outside of the United States.
(ii) It is purchasing one or more Series 2014-1 Notes in an amount of at least $100,000 and it understands that such Series 2014-1 Notes may be resold, pledged or otherwise transferred only in an amount of at least $100,000.
(iii) It represents and warrants to the Issuer, the Indenture Trustee, each Initial Purchaser, the Manager and any successor Manager that (a) either (1) it is not, and is not acting on behalf of, a Plan or a governmental, church or non-U.S. plan which is subject to any federal, state, local, or non-U.S. law that is similar to the prohibited transaction provisions of Section 406 of ERISA or Section 4975 of the Code, and no part of the assets to be used by it to purchase or hold the Series 2014-1 Notes or any interest therein constitutes the assets of any Plan or such a governmental, church, or non-U.S. plan; or (2) (A) the acquisition, holding, and disposition of any Series 2014-1 Note will not give rise to a nonexempt prohibited transaction under Section 406 of ERISA or Section 4975 of the Code (or, in the case of a governmental, church, or non-U.S. plan, a violation of any similar federal, state, local, or non-U.S. law) and (B) the Series 2014-1 Notes are rated investment grade or better and such Person believes that the Series 2014-1 Notes are properly treated as indebtedness without substantial equity features for purposes of Section 2510.3-101 of the regulations issued by the U.S. Department of Labor, and agrees to so treat the Series 2014-1 Notes; and (b) it will not sell or otherwise transfer the Series 2014-1 Notes or any interest therein otherwise than to a purchaser or transferee that represents and agrees with respect to its purchase, holding, and disposition of the Series 2014-1 Notes to the same effect as the purchaser’s representation and agreement set forth in this Section 207(b)(ii). Alternatively, regardless of the rating of the Series 2014-1 Notes, such Person may provide the Indenture Trustee with an Opinion of Counsel, which Opinion of Counsel will not be at the expense of the Issuer, the Indenture Trustee, the Manager or any successor Manager which
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opines that the purchase, holding and transfer of such Series 2014-1 Notes or interest therein is permissible under applicable law, will not constitute or result in a non-exempt prohibited transaction under ERISA or Section 4975 of the Code and will not subject the Issuer, the Indenture Trustee, the Manager or any successor Manager to any obligation in addition to those undertaken in the Indenture;
(iv) It understands that the Series 2014-1 Notes are being transferred to it in a transaction not involving any public offering within the meaning of the Securities Act, and that, if in the future it decides to resell, pledge or otherwise transfer any Series 2014-1 Notes, such Series 2014-1 Notes may be resold, pledged or transferred only in accordance with applicable state securities laws and (1) in a transaction meeting the requirements of Rule 144A, to a Person that the seller reasonably believes is a Qualified Institutional Buyer that purchases for its own account (or for the account or accounts of a Qualified Institutional Buyer) and to whom notice is given that the resale, pledge or transfer is being made in reliance on Rule 144A, or (2) (A) to a Person that is an Institutional Accredited Investor, is taking delivery of such Series 2014-1 Notes in an amount of at least $100,000, and delivers to the Indenture Trustee a letter substantially in the form of Exhibit D to the Indenture or (B) to a Person that is taking delivery of such Series 2014-1 Notes pursuant to a transaction that is otherwise exempt from the registration requirements of the Securities Act and from any applicable state law securities registration or qualification requirements, as confirmed in an Opinion of Counsel addressed to the Indenture Trustee, the Issuer and the transferor, which counsel and Opinion are satisfactory to the Indenture Trustee, the Issuer and the transferor, or (3) in an offshore transaction in accordance with Rule 903 or 904 of Regulation S.
(v) It understands that each Series 2014-1 Note shall bear a legend substantially to the following effect:
[For Book-Entry Notes Only: UNLESS THIS SERIES 2014-1 NOTE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION (“DTC”), TO THE TRANSFEROR OF SUCH SERIES 2014-1 NOTE (THE “TRANSFEROR”) OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY SERIES 2014-1 NOTE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR THE USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. ]
THIS SERIES 2014-1 NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”). THE HOLDER HEREOF, BY PURCHASING THIS SERIES 2014-1 NOTE, AGREES THAT SUCH SERIES 2014-1 NOTE MAY BE RESOLD, PLEDGED OR TRANSFERRED ONLY IN ACCORDANCE WITH ANY APPLICABLE STATE SECURITIES LAWS AND (1) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A UNDER THE SECURITIES ACT (“RULE 144A”), TO A PERSON THAT TAKES DELIVERY OF SUCH SERIES 2014-1 NOTE IN AN AMOUNT OF AT LEAST $100,000 AND THAT THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER THAT PURCHASES FOR ITS OWN ACCOUNT (OR FOR THE ACCOUNT OR ACCOUNTS OF A QUALIFIED INSTITUTIONAL BUYER) AND TO WHOM NOTICE IS GIVEN
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THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, OR (2) IN AN OFFSHORE TRANSACTION COMPLYING WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT WITH SUCH SERIES 2014-1 NOTE IN AN AMOUNT OF AT LEAST $100,000 OR (3) TO A PERSON (A) THAT IS AN INSTITUTIONAL “ACCREDITED INVESTOR,” WITHIN THE MEANING OF RULE 501(A)(1), (2), (3) OR (7) OF REGULATION D UNDER THE SECURITIES ACT, IS TAKING DELIVERY OF SUCH SERIES 2014-1 NOTE IN AN AMOUNT OF AT LEAST $100,000 AND DELIVERS TO THE INDENTURE TRUSTEE A LETTER SUBSTANTIALLY IN THE FORM OF EXHIBIT D TO THE INDENTURE OR (B) THAT IS TAKING DELIVERY OF SUCH SERIES 2014-1 NOTE IN AN AMOUNT OF AT LEAST $100,000 PURSUANT TO A TRANSACTION THAT IS OTHERWISE EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND FROM ANY APPLICABLE STATE LAW SECURITIES REGISTRATION OR QUALIFICATION REQUIREMENTS, AS CONFIRMED IN AN OPINION OF COUNSEL ADDRESSED TO THE INDENTURE TRUSTEE AND THE ISSUER, WHICH COUNSEL AND OPINION ARE SATISFACTORY TO THE ISSUER AND THE INDENTURE TRUSTEE.
EACH PURCHASER OF A SERIES 2014-1 NOTE SHALL BE DEEMED TO REPRESENT AND WARRANT TO THE INITIAL PURCHASERS, THE ISSUER, THE INDENTURE TRUSTEE AND THE MANAGER THAT (I) EITHER (1) IT IS NOT ACQUIRING THE SERIES 2014-1 NOTE WITH THE ASSETS OF A PLAN; OR (2) (A) THE ACQUISITION AND HOLDING OF THE SERIES 2014-1 NOTE WILL NOT GIVE RISE TO A NONEXEMPT PROHIBITED TRANSACTION UNDER SECTION 406 OF ERISA OR SECTION 4975 OF THE CODE AND (B) THE SERIES 2014-1 NOTE IS RATED INVESTMENT GRADE OR BETTER AND SUCH PERSON BELIEVES THAT THE SERIES 2014-1 NOTE IS PROPERLY TREATED AS INDEBTEDNESS WITHOUT SUBSTANTIAL EQUITY FEATURES FOR PURPOSES OF THE DEPARTMENT OF LABOR REGULATIONS SECTION 2510.101, AND AGREES TO SO TREAT THE SERIES 2014-1 NOTE; AND (II) IT WILL NOT SELL OR OTHERWISE TRANSFER THE SERIES 2014-1 NOTES OR ANY INTEREST THEREIN OTHERWISE THAN TO A PURCHASER OR TRANSFEREE THAT REPRESENTS AND AGREES WITH RESPECT TO ITS PURCHASE, HOLDING, AND DISPOSITION OF THE SERIES 2014-1 NOTES TO THE SAME EFFECT AS THE PURCHASER’S REPRESENTATION AND AGREEMENT SET FORTH IN CLAUSE (I) OF THIS PARAGRAPH.
THIS SERIES 2014-1 NOTE IS NOT GUARANTEED OR INSURED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
(vi) Each Series 2014-1 Noteholder that is a Permitted Non-U.S. Person described in Section 207(b)(i)(C) understands that the Series 2014-1 Notes have not and will not be registered under the Securities Act, that any offers, sales or deliveries of the Series 2014-1 Notes purchased by it in the United States or to U.S. Persons prior to the date that is 40 days after the later of (i) the commencement of the distribution of the Series 2014-1 Notes and (ii) the Closing Date, may constitute a violation of United States law, and that distributions of principal and interest will be made in respect of such Series 2014-1 Notes only following the delivery by the holder of a certification of non-U.S. beneficial ownership or the exchange of beneficial interest in Regulation S Temporary Book-Entry Notes for beneficial interests in the related Unrestricted Book-Entry Notes (which in each case will itself require a certification of non-U.S. beneficial ownership), at the times and in the manner set forth in this Supplement.
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(vii) The Regulation S Temporary Book-Entry Notes representing the Series 2014-1 Notes sold to each Series 2014-1 Noteholder that is a Permitted Non-U.S. Person described in Section 207(b)(i)(C) will bear a legend to the following effect, unless the Issuer determines otherwise consistent with Applicable Law:
[FOR REGULATION S BOOK-ENTRY NOTES ONLY: THIS SERIES 2014-1 NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”) AND, PRIOR TO THE DATE THAT IS 40 DAYS AFTER THE LATER OF (I) THE COMPLETION OF THE DISTRIBUTION OF THE SERIES 2014-1 NOTES AND (II) THE CLOSING DATE, MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED IN THE UNITED STATES OR TO A U.S. PERSON EXCEPT PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.]
(viii) The Indenture Trustee shall not permit the transfer of any Series 2014-1 Notes unless such transfer complies with the terms of the foregoing legends and, in the case of a transfer (i) to an Institutional Accredited Investor (other than a Qualified Institutional Buyer), the transferee delivers to the Indenture Trustee a letter substantially in the form of Exhibit D to the Indenture, or (ii) to a Person other than a Qualified Institutional Buyer, an Institutional Accredited Investor or a Permitted Non-U.S. Person, upon delivery of an Opinion of Counsel satisfactory to the Indenture Trustee and the applicable transferor, to the effect that the transferee is taking delivery of the Series 2014-1 Notes in a transaction that is otherwise exempt from the registration requirements of the Securities Act and from any applicable state law securities registration or qualification requirements.
(c) The applicable transferor and transferee shall execute and deliver, or in the case of a Series 2014-1 Noteholder, is deemed to have executed and delivered, to the Indenture Trustee documentation in substantially the forms of (i) Exhibit(s) B through F hereto or (ii) Exhibit D to the Indenture, as appropriate, in connection with any transfer of Series 2014-1 Notes.
Section 208. Grant of Security Interest.
(a) In order to secure and provide for the repayment and payment of the Series 2014-1 Notes, the Issuer hereby grants a security interest in and assigns, pledges, grants, transfers and sets over to the Indenture Trustee, for the benefit of the Series 2014-1 Noteholders, all of the Issuer’s right, title and interest in and to the following (whether now or hereafter existing or accrued): (i) the Series 2014-1 Restricted Cash Account, the Series 2014-1 Series Account and the Series 2014-1 L/C Cash Account; (ii) all funds on deposit in the Series 2014-1 Restricted Cash Account, the Series 2014-1 Series Account, the Series 2014-1 L/C Cash Account and all Security Entitlements credited thereto from time to time; (iii) all investments made at any time and from time to time with monies in the Series 2014-1 Restricted Cash Account, the Series 2014-1 Series Account and the Series 2014-1 L/C Cash Account, whether constituting securities, instruments, general intangibles, investment property, financial assets or other property; (v) all interest, dividends, cash, instruments and other property from time to time received, receivable or otherwise distributed in respect of, or in exchange for, such Series 2014-1 Restricted Cash Account, the Series 2014-1 Series Account and the Series 2014-1 L/C Cash Account, the funds on deposit therein from time to time or the investments made with such funds; (vi) any Eligible Letter of Credit provided by the Issuer and (vii) all proceeds of any and all of the foregoing, including, without limitation, cash (items described in clauses (i) through (vii) collectively, the “Series 2014-1 Specific Collateral” for Series 2014-1). The Indenture Trustee shall possess all
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right, title and interest in and to all funds on deposit from time to time in the Series 2014-1 Restricted Cash Account, the Series 2014-1 Series Account and the Series 2014-1 L/C Cash Account and in all proceeds thereof, and shall be the only person authorized to originate Entitlement Orders with respect thereto. The Issuer may deliver to the Indenture Trustee, for the benefit of the Series 2014-1 Noteholders, one or more Eligible Letters of Credit in partial satisfaction of certain amounts that are required to be maintained on deposit in the Series 2014-1 Restricted Cash Account. No Series of Notes other than the Series 2014-1 Notes shall have an interest in such Letters of Credit.
(b) The Issuer hereby irrevocably authorizes the Indenture Trustee at any time, and from time to time, to file in any filing office in any UCC jurisdiction any financing statements with respect to the foregoing, including financing statements claiming a security interest in the Series 2014-1 Specific Collateral; provided, however, that the Indenture Trustee shall have no responsibility or liability for or with respect to the perfection of any security interest.
(c) In furtherance of the foregoing, the Issuer hereby grants, assigns, conveys, mortgages, pledges, charges, hypothecates and transfers to the Indenture Trustee, for the benefit of the Series 2014-1 Noteholders, a floating charge over all of the Series 2014-1 Specific Collateral.
(d) Upon the occurrence of a Series-Specific Event of Default, the Control Party for Series 2014-1 shall direct the exercise of remedies with respect to the Series 2014-1 Specific Collateral.
(e) In the event that Series 2014-1 shall be a Liquidating Series, the Control Party may direct a partial sale of Terminated Managed Containers and Leases included in the Collateral in accordance with the provisions of Article VIII of the Indenture.
ARTICLE III
Series 2014-1 Series Account and
Allocation and Application of Amounts Therein
Section 301. Series 2014-1 Series Account. The Issuer shall establish on the Closing Date and maintain, so long as any Series 2014-1 Note is Outstanding, an Eligible Account in the name of the Issuer with the Indenture Trustee which shall be designated as the Series 2014-1 Series Account, which account shall be pledged to the Indenture Trustee for the benefit of the Series 2014-1 Noteholders pursuant to the Indenture and this Supplement. All deposits of funds by, or for the benefit of, the Series 2014-1 Noteholders from the Trust Account and the Excess Funding Account, shall be accumulated in, and withdrawn from, the Series 2014-1 Series Account in accordance with the provisions of the Indenture and this Supplement. Any funds on deposit in the Series 2014-1 Series Account shall be invested in accordance with the provisions of Section 303 of the Indenture.
Section 302. Series 2014-1 Restricted Cash Account.
(a) The Issuer shall establish on or prior to the Closing Date, and shall thereafter maintain so long as any Series 2014-1 Note remains Outstanding, an Eligible Account in the name of the Issuer with the Indenture Trustee which shall be designated as the “Series 2014-1
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Restricted Cash Account”, which account shall be held by the Indenture Trustee for the benefit of the Series 2014-1 Noteholders pursuant to the terms of this Supplement. On the Closing Date and on any date thereafter in the event that the Issuer receives a capital contribution for such purpose, the Issuer will deposit (or cause to be deposited) into the Series 2014-1 Restricted Cash Account an amount necessary to cause the amount therein to be equal to the Series 2014-1 Restricted Cash Amount as of such date. In addition, on each Payment Date amounts shall be deposited in the Series 2014-1 Restricted Cash Account in accordance with Section 303. The Series 2014-1 Restricted Cash Account shall not be relocated to another financial institution except in accordance with the express provisions of Section 303(d) of the Indenture. Any and all monies on deposit in such account shall be invested in Eligible Investments in accordance with Section 303 of the Indenture and shall be distributed in accordance with this Section 302.
(b) In the event that the Manager Report with respect to any Determination Date shall state that the funds on deposit in the Series 2014-1 Series Account will not be sufficient to make payment in full on the related Payment Date of the Interest Payment then due for the Series 2014-1 Notes (the amount of such deficiency, the “Permitted Interest Withdrawal”), then the Indenture Trustee shall on such Determination Date draw on the Series 2014-1 Restricted Cash Account in an amount equal to the lesser of (x) the Permitted Interest Withdrawal, and (y) the amount then on deposit in the Series 2014-1 Restricted Cash Account (as set forth in the Manager Report). As more fully set forth in Section 302(d) below, drawings in respect of the Permitted Interest Withdrawal will be made from the Series 2014-1 Restricted Cash Account before any drawings are made on any Letters of Credit delivered pursuant to Section 306 hereof or drawings on the Series 2014-1 L/C Cash Account pursuant to Section 305 hereof.
(c) In the event that the Manager Report delivered with respect to the Determination Date immediately preceding the Series 2014-1 Legal Final Payment Date shall state that the funds on deposit in the Series 2014-1 Series Account will not be sufficient to make payment in full on the Series 2014-1 Legal Final Payment Date of the then Unpaid Principal Balance (the amount of such deficiency, the “Permitted Principal Withdrawal”), then the Indenture Trustee shall on such Determination Date draw on the Series 2014-1 Restricted Cash Account in an amount equal to the least of (w) the Unpaid Principal Balance, (x) the Permitted Principal Withdrawal and (y) the amount then on deposit in the Series 2014-1 Restricted Cash Account (as set forth in the Manager Report). As more fully set forth in Section 302(d) below, drawings in respect of the Permitted Principal Withdrawal will be made from the Series 2014-1 Restricted Cash Account before any drawings are made on any Letters of Credit delivered pursuant to Section 306 hereof or drawings on the Series 2014-1 L/C Cash Account pursuant to Section 305 hereof.
(d) Drawings will be made pursuant to Section 302(b) before any drawing is made on the applicable Determination Date pursuant to Section 302(c). Such drawings from the Series 2014-1 Restricted Cash Account will be made before any drawings are made on any Letters of Credit delivered pursuant to the provisions of Section 306 hereof or drawings on the Series 2014-1 L/C Cash Account pursuant to Section 305 hereof. Notice of each such drawing will be delivered to the Manager, by hand delivery or facsimile transmission (or, if applicable, included in the respective Manager Report delivered to the Indenture Trustee). Any such funds actually received by the Indenture Trustee pursuant to Section 302(b) or (c) shall be used solely to make payments of the Interest Payment or payment of the Unpaid Principal Balance, as the case may be.
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(e) On each Payment Date, the Indenture Trustee shall, in accordance with the Manager Report (or in the absence of any Manager Report, in accordance with written instructions from the Control Party), deposit in the Series 2014-1 Series Account for distribution in accordance with the terms of this Supplement the difference, if any, of (i) the amounts then on deposit in the Series 2014-1 Restricted Cash Account (after giving effect to any withdrawals therefrom on such Payment Date), minus (ii) an amount equal to the Series 2014-1 Restricted Cash Amount for such Payment Date.
(f) On the Series 2014-1 Legal Final Payment Date or, at the direction of the Control Party upon the occurrence of a Series 2014-1 Event of Default, any remaining funds in the Series 2014-1 Restricted Cash Account will be deposited in the Series 2014-1 Series Account and be distributed in accordance with Section 303.
(g) The Issuer shall have the option to satisfy a portion of the Series 2014-1 Restricted Cash Amount by the delivery to the Indenture Trustee of one or more Eligible Letter of Credit(s) from an Eligible Bank; provided, however, Eligible Letters of Credit may not replace that portion of the Series 2014-1 Restricted Cash Amount equal to eleven and one ninth of one percent (11.1111111%) of the Series 2014-1 Restricted Cash Amount. Any such Eligible Letters of Credit shall be drawn upon in accordance with Section 306 hereof.
(h) If, subsequent to the Closing Date, the Issuer shall deliver to the Indenture Trustee one or more Eligible Letters of Credit in accordance with clause (g) above, the Indenture Trustee (based on the Manager Report) shall, on the Payment Date immediately following the delivery of such Eligible Letters of Credit, draw from the Series 2014-1 Restricted Cash Account and remit to the Issuer funds in an amount equal to the sum of the available drawing amount on all such delivered Eligible Letter(s) of Credit.
Section 303. Distributions from Series 2014-1 Series Account. (a) On each Payment Date and on each other date on which any payment is to be made with respect to the Series 2014-1 Notes in accordance with Section 203, 204 or 205, based on the Manager Report (upon which the Indenture Trustee may conclusively rely) the Indenture Trustee shall distribute the Series 2014-1 Available Funds then on deposit in the Series 2014-1 Series Account in accordance with the provisions of Section 303(b), (c) and (d).
(b) If neither a Series 2014-1 Early Amortization Event nor a Series 2014-1 Event of Default shall have occurred and shall then be continuing:
(i) To the Indenture Trustee, an amount equal to the sum of (A) the Indenture Trustee Fees then due and payable (subject to a per annum dollar limitation of $40,000 for each Series of Notes then Outstanding) and (B) an amount equal to the product of (i) the Series 2014-1 Asset Allocation Percentage and (ii) any amounts payable to the Indenture Trustee on such Payment Date in accordance with the provisions of Section 403(e) of the Indenture;
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(ii) To the Manager, an amount equal to the Series 2014-1 Management Fees and any arrearages thereof to the extent not offset in accordance with the terms of the Management Agreement;
(iii) To the Manager, an amount equal to the product of (i) the Series 2014-1 Asset Allocation Percentage and (ii) reimbursement for any unpaid Manager Advances;
(iv) To each of the following on a pro rata basis: (A) to the Manager Transfer Facilitator, an amount equal to the sum of (x) Manager Transfer Facilitator Fees (not to exceed $4,800 per annum for each Series of Notes then Outstanding) and (y) the Series 2014-1 Asset Allocation Percentage of any amounts incurred by the Manager Transfer Facilitator, including those related to the actual transfer from the Manager to the Back-up Manager, and (B) to Back-up Manager, an amount equal to the product of (i) the Series 2014-1 Asset Allocation Percentage and (ii) any Back-Up Manager fees then due and payable;
(v) To the Persons entitled thereto, Issuer Expenses (not to exceed the product of the Series 2014-1 Asset Allocation Percentage and $50,000 annually);
(vi) To each of clause (A) and (B) on a pari passu basis: (A) to the Series 2014-1 Noteholders, on a pro rata basis, the Interest Payment due and payable and (B) to each Letter of Credit Bank, on a pro rata basis, any Letter of Credit Fees then due and payable;
(vii) To the Series 2014-1 Restricted Cash Account, an amount sufficient so that the total amount on deposit therein is equal to the Series 2014-1 Restricted Cash Amount and then to each Letter of Credit Bank, on a pro rata basis, in reimbursement of unpaid draws under each Letter of Credit;
(viii) To the Series 2014-1 Noteholders, on a pro rata basis, the Minimum Principal Payment Amount;
(ix) To the Series 2014-1 Noteholders, on a pro rata basis, the Scheduled Principal Payment Amount;
(x) To the Series 2014-1 Noteholders, on a pro rata basis, the Supplemental Principal Payment Amount, if any;
(xi) To the Series Accounts of each other Series pro rata based on all Series’ respective Required Payments remaining unpaid, for application to such unpaid Required Payments in accordance with the terms of each such Supplement (with any amount of Series 2014-1’s contribution to such Shared Available Funds remaining after application to such other Series’ Required Payments being returned to the Series 2014-1 Series Account).
(xii) To the Series 2014-1 Noteholders, all other unpaid amounts to the Series 2014-1 Noteholders including indemnified amounts;
(xiii) On a pro rata basis (a) to the Manager Transfer Facilitator, any amounts due and payable to the Manager Transfer Facilitator and (b) to the Back-up Manager, any unpaid amounts due to Back-up Manager, in each case calculated after giving effect to payments remaining after clause (iv) above;
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(xiv) To the Indenture Trustee, any remaining unpaid expenses and indemnified amounts;
(xv) On a pro rata basis: (a) to the Issuer any unpaid indemnified amounts and (b) to the Manager any unpaid indemnified amounts; and;
(xvi) All remaining Series 2014-1 Available Funds distributed to the Excess Funding Account.
(c) If a Series 2014-1 Early Amortization Event shall then be continuing, but no Event of Default for Series 2014-1 shall then be continuing (or a Series 2014-1 Event of Default is continuing but the Series 2014-1 Notes have not been accelerated in accordance with Section 802 of the Indenture or Section 403(b)):
(i) To the Indenture Trustee, an amount equal to the sum of (A) the Indenture Trustee Fees then due and payable (subject to a per annum dollar limitation of $40,000 for each Series of Notes then Outstanding) and (B) an amount equal to the product of (i) the Series 2014-1 Asset Allocation Percentage and (ii) any amounts payable to the Indenture Trustee on such Payment Date in accordance with the provisions of Section 403(e) of the Indenture;
(ii) To the Manager, an amount equal to the Series 2014-1 Management Fees and any arrearages thereof to the extent not offset in accordance with the terms of the Management Agreement;
(iii) To the Manager, an amount equal to the product of (i) the Series 2014-1 Asset Allocation Percentage and (ii) reimbursement for any unpaid Manager Advances;
(iv) To each of the following on a pro rata basis: (A) to the Manager Transfer Facilitator, amount equal to the product of (x) any Manager Transfer Facilitator Fees then due and payable (not to exceed $4,800 per annum) and (y) the Series 2014-1 Asset Allocation Percentage of any amounts incurred by the Manager Transfer Facilitator, including those related to the actual transfer from the Manager to the Back-up Manager, and (B) to the Back-up Manager, an amount equal to the product of (x) the Series 2014-1 Asset Allocation Percentage and (y) any Back-Up Manager fees then due and payable;
(v) To the Persons entitled thereto, Issuer Expenses (not to exceed the product of the Series 2014-1 Asset Allocation Percentage and $50,000 annually);
(vi) To each of clause (A) and (B) on a pari passu basis: (A) to the Series 2014-1 Noteholders, on a pro rata basis, the Series 2014-1 Interest Payment due and payable and (B) to each Letter of Credit Bank, on a pro rata basis, any Letter of Credit Fees then due and payable;
(vii) To the Series 2014-1 Restricted Cash Account, an amount sufficient so that the total amount on deposit therein is equal to the Series 2014-1 Restricted Cash Amount and then to each Letter of Credit Bank, on a pro rata basis, in reimbursement of unpaid draws under each Letter of Credit;
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(viii) To the Series 2014-1 Noteholders on a pro rata basis, all remaining funds to repay the Unpaid Principal Balance until the Unpaid Principal Balance has been reduced to zero;
(ix) To the Series Accounts of each other Series pro rata based on all Series’ respective Required Payments remaining unpaid, for application to such unpaid Required Payments in accordance with the terms of each such Supplement (with any amount of Series 2014-1’s contribution to such Shared Available Funds remaining after application to such other Series’ Required Payments being returned to the Series 2014-1 Series Account).
(x) To the Series 2014-1 Noteholders on a pro rata basis, any unpaid amounts owing to the Series 2014-1 Noteholders including indemnified amounts;
(xi) On a pro rata basis (a) to the Manager Transfer Facilitator, any amounts due and payable to the Manager Transfer Facilitator and (b) to the Back-up Manager, any unpaid amounts due to Back-up Manager, in each case calculated after giving effect to payments remaining after clause (iv) above;
(xii) To the Indenture Trustee, any remaining unpaid expenses and indemnified amounts;
(xiii) On a pro rata basis: (a) to the Issuer any unpaid indemnified amounts and (b) to the Manager any unpaid indemnified amounts; and
(xiv) All remaining Series 2014-1 Available Funds distributed to the Excess Funding Account.
(d) If a Series 2014-1 Event of Default shall have occurred and then be continuing and the Series 2014-1 Notes have been accelerated in accordance with Section 802 of the Indenture or Section 403(b) and such consequence shall not have been rescinded or annulled:
(i) To the Indenture Trustee, an amount equal to the sum of (A) the Indenture Trustee Fees then due and payable (subject to a per annum dollar limitation of $75,000 for each Series of Notes then Outstanding) and (B) an amount equal to the product of (i) the Series 2014-1 Asset Allocation Percentage and (ii) any amounts payable to the Indenture Trustee on such Payment Date in accordance with the provisions of Section 403(e) of the Indenture;
(ii) To the Manager, an amount equal to the Series 2014-1 Management Fees and any arrearages thereof to the extent not offset in accordance with the terms of the Management Agreement;
(iii) To the Manager, an amount equal to the product of (i) the Series 2014-1 Asset Allocation Percentage and (ii) reimbursement for any unpaid Manager Advances;
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(iv) On a pro rata basis: (a) to the Manager Transfer Facilitator, an amount equal to the sum of (x) Manager Transfer Facilitator Fees (not to exceed $4,800 per annum for each Series of Notes then Outstanding) and (y) the Series 2014-1 Asset Allocation Percentage of any amounts incurred by the Manager Transfer Facilitator, including those related to the actual transfer from the Manager to the Back-up Manager, and (b) to Back-up Manager, an amount equal to the product of (i) the Series 2014-1 Asset Allocation Percentage and (ii) any Back-Up Manager Fees then due and payable;
(v) To the Persons entitled thereto, Issuer Expenses (not to exceed the product of the Series 2014-1 Asset Allocation Percentage and $100,000 annually);
(vi) To each of clause (A) and (B) on a pari passu basis: (A) to the Series 2014-1 Noteholders, on a pro rata basis, the Series 2014-1 Interest Payment due and payable and (B) to each Letter of Credit Bank, on a pro rata basis, any Letter of Credit Fees then due and payable;
(vii) To the Series 2014-1 Noteholders, on a pro rata basis, all remaining funds to repay the Unpaid Principal Balance until the Unpaid Principal Balance has been reduced to zero;
(viii) To the Series Accounts of each other Series pro rata based on all Series’ respective Required Payments remaining unpaid, for application to such unpaid Required Payments in accordance with the terms of each such Supplement (with any amount of Series 2014-1’s contribution to such Shared Available Funds remaining after application to such other Series’ Required Payments being returned to the Series 2014-1 Series Account).
(ix) To the Series 2014-1 Noteholders, on a pro rata basis, any unpaid amounts owing to the Series 2014-1 Noteholders including indemnified amounts;
(x) To each Letter of Credit Bank, on a pro rata basis, in reimbursement of unpaid draws under each Letter of Credit;
(xi) On a pro rata basis (a) to the Manager Transfer Facilitator, any amounts due and payable to the Manager Transfer Facilitator and (b) to the Back-up Manager, any unpaid amounts due to Back-up Manager, in each case calculated after giving effect to payments remaining after clause (iv) above;
(xii) To the Indenture Trustee, any remaining unpaid expenses and indemnified amounts;
(xiii) On a pro rata basis: (a) to the Issuer any remaining unpaid indemnified amounts and (b) to the Manager any remaining unpaid indemnified amounts; and
(xiv) All remaining Series 2014-1 Available Funds will be treated as Shared Available Funds.
(e) Any amounts payable to a Series 2014-1 Noteholder pursuant to this Section 303 shall be made by wire transfer of immediately available funds to the account that such Series
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2014-1 Noteholder has designated to the Indenture Trustee in writing at least five (5) Business Days prior to the applicable Payment Date. Any amounts payable by the Issuer hereunder are contingent upon the availability of funds to make such payment in accordance with the provisions of this Section 303 and, to the extent such funds are not available, shall not constitute a “Claim” (as defined in Section 101(5) of the Bankruptcy Code) against the Issuer in any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings involving the Issuer in the event that such amounts are not paid in accordance with this Section 303.
Section 304. Allocation of Series 2014-1 Shared Available Funds.
(a) All Series 2014-1 Shared Available Funds that are available for distribution to other Series of Notes in accordance with the provisions of Section 303 shall be allocated by the Manager to all Series of Notes then Outstanding (other than (i) the Series 2014-1 Notes and (ii) any Liquidation Deficiency Series) that have a Required Payment Deficiency on the applicable Payment Date. Allocation of Series 2014-1 Shared Available Funds to any Liquidation Deficiency Series shall be made in accordance with Section 304(b) and only after all distributions shall have been made pursuant to this Section 304(a). Allocations shall be made to each such Series having a Required Payment Deficiency in accordance with the following order of priorities, with no payment being made at any level of priority until all prior priorities have been paid in full:
(1) to each Series that has not paid in full the Indenture Trustee Fees, indemnities and expenses payable by, or allocable to, such Series, the amount of such unpaid Indenture Trustee Fees, indemnities and expenses;
(2) to each Series that has not paid in full the Management Fee and Management Fee Arrearages payable by, or allocable to, such Series, the amount of such unpaid Management Fee and Management Fee Arrearages;
(3) to each Series that has not paid in full the Manager Advances payable by, or allocable to, such Series, the amount of such unpaid Manager Advances;
(4) to each Series that has not paid in full the Manager Transfer Facilitator Fees and Back-up Management Fees payable by, or allocable to, such Series, the amount of such unpaid Manager Transfer Facilitator Fees and Back-up Management Fees and any other amount due and owing to the Manager Transfer Facilitator;
(5) to each Series that has not paid in full the Issuer Expenses payable by, or allocable to, such Series, the amount of such unpaid Issuer Expenses;
(6) to each Series that has not paid in full all interest payments (excluding Default Fees) payable with respect to the senior Class of such Series and all commitment fees payable with respect to the senior Class of such Series, the amount of such unpaid interest payments and commitment fees;
(7) to each Series that has not paid in full all regularly scheduled payments (excluding termination payments) owing to each Interest Rate Hedge Counterparty that has entered into an Interest Rate Hedge Agreement with respect to one or more of the senior Class of such Series, the amount of such unpaid regularly scheduled payments;
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(8) to each Series that has not paid in full all interest payments (excluding Default Fees) payable with respect to the subordinate Class of such Series and all commitment fees payable with respect to the subordinate Class of such Series, the amount of such unpaid interest payments and commitment fees;
(9) to each Series that has not paid in full all Minimum Principal Payment Amounts for the senior Class of such Series, the amount of such unpaid Minimum Principal Payment Amounts;
(10) to each Series that has not paid in full all Scheduled Principal Payment Amounts for the senior Class of such Series, the amount of such unpaid Scheduled Principal Payment Amounts;
(11) to each Series that has not paid in full all Supplemental Principal Payment Amounts for the senior Class of such Series, the amount of such unpaid Supplemental Principal Payment Amounts;
(12) to each Series that has not paid in full all regularly scheduled payments (excluding termination payments) owing to each Interest Rate Hedge Counterparty that has entered into an Interest Rate Hedge Agreement with respect to the subordinate Class of such Series, the amount of such unpaid regularly scheduled payments;
(13) to each Series that has not paid in full all Minimum Principal Payment Amounts for the subordinate Class of such Series, the amount of such unpaid Minimum Principal Payment Amounts;
(14) to each Series that has not paid in full all Scheduled Principal Payment Amounts for the subordinate Class of such Series, the amount of such unpaid Scheduled Principal Payment Amounts;
(15) to each Series that has not paid in full all Supplemental Principal Payment Amounts for the subordinate Class of such Series, the amount of such unpaid Supplemental Principal Payment Amounts;
(16) on a pro rata basis: (a) to the Manager Transfer Facilitator, any amounts due and payable to the Manager Transfer Facilitator and (b) to the Back-up Manager, any unpaid amounts due to Back-up Manager;
(17) to the Indenture Trustee, any remaining unpaid expenses and indemnified amounts;
(18) on a pro rata basis: (a) to the Issuer, any unpaid indemnified amounts, and (b) to the Manager, any unpaid indemnified amounts; and
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(19) to each Series of Notes that has not been paid in full, all other amounts owing to the Noteholders of such Series.
If more than one Series shall be entitled to a distribution pursuant to a particular priority set forth in Section 304(a), funds shall be allocated among each such entitled Series on a pro rata basis based on the relative amount owing to each such Series pursuant to such payment priority.
(b) After the application of the allocation set forth in Section 304(a), any remaining Series 2014-1 Shared Available Funds shall be allocated in accordance with the following order of priorities, with no payment being made at any level of priority until all prior priorities have been paid in full:
(1) to each Liquidation Deficiency Series that has not paid in full the Indenture Trustee Fees, indemnities and expenses payable by, or allocable to, such Liquidation Deficiency Series, the amount of such unpaid Indenture Trustee Fees, indemnities and expenses;
(2) to each Liquidation Deficiency Series that has not paid in full the Management Fee and Management Fee Arrearages payable by, or allocable to, such Liquidation Deficiency Series, the amount of such unpaid Management Fee and Management Fee Arrearages;
(3) to each Liquidation Deficiency Series that has not paid in full the Manager Advances payable by, or allocable to, such Liquidation Deficiency Series, the amount of such unpaid Manager Advances;
(4) to each Liquidation Deficiency Series that has not paid in full the Manager Transfer Facilitator Fees and Back-up Management Fees payable by, or allocable to, such Liquidation Deficiency Series, the amount of such unpaid Manager Transfer Facilitator Fees and Back-up Management Fees and any other amount due and owing to the Manager Transfer Facilitator;
(5) to each Liquidation Deficiency Series that has not paid in full all interest payments (excluding Default Fees) and commitment fees payable with respect to the Senior Notes of such Liquidation Deficiency Series, the amount of such unpaid interest payments and commitment fees;
(6) to each Liquidation Deficiency Series that has not paid in full all regularly scheduled payments (excluding termination payments) owing to each Interest Rate Hedge Counterparty that has entered into an Interest Rate Hedge Agreement with respect to such Liquidation Deficiency Series, the amount of such unpaid regularly scheduled payments;
(7) to each Liquidation Deficiency Series that has not paid in full all Minimum Principal Payment Amounts to the Senior Notes of such Liquidation Deficiency Series, the amount of such unpaid Minimum Principal Payment Amounts;
(8) to each Liquidation Deficiency Series that has not paid in full all Scheduled Principal Payment Amounts to the Senior Notes of such Liquidation Deficiency Series, the amount of such unpaid Scheduled Principal Payment Amounts;
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(9) to each Liquidation Deficiency Series that has not paid in full all termination and all other payments owing to each Interest Rate Hedge Counterparty that has entered into an Interest Rate Hedge Agreement with respect to such Liquidation Deficiency Series, the amount of such unpaid termination and other payments;
(10) to each Liquidation Deficiency Series that has not paid in full all Minimum Principal Payment Amounts to the Senior Notes of such Liquidation Deficiency Series, the amount of such unpaid Minimum Principal Payment Amounts; and
(11) to each Liquidation Deficiency Series that has not paid in full all Scheduled Principal Payment Amounts to the Senior Notes of such Liquidation Deficiency Series, the amount of such unpaid Scheduled Principal Payment Amounts.
If more than one Liquidation Deficiency Series shall be entitled to a distribution pursuant to a particular priority set forth in Section 304(b), funds shall be allocated among each such entitled Liquidation Deficiency Series on a pro rata basis based on the relative amount owing to each such Liquidation Deficiency Series pursuant to such payment priority.
Section 305. Series 2014-1 L/C Cash Account.
(a) The Issuer has established and maintains with the Indenture Trustee, in the name of the Issuer, the Series 2014-1 L/C Cash Account, which Series 2014-1 L/C Cash Account has been pledged to the Indenture Trustee for the benefit of the Holders of the Series 2014-1 Notes. Any and all amounts on deposit in the Series 2014-1 L/C Cash Account may be invested in Eligible Investments in accordance with Section 303 of the Indenture.
(b) If the Series 2014-1 L/C Cash Account has been funded in accordance with the terms of this Supplement, then the Indenture Trustee shall, based on the information set forth in the Manager Report, make drawings outlined in Section 306(a) from amounts on deposit in the Series 2014-1 L/C Cash Account before any drawings are made on Eligible Letters of Credit.
(c) If, subsequent to the funding of the Series 2014-1 L/C Cash Account, the Issuer shall deliver to the Indenture Trustee an Eligible Letter of Credit, the Indenture Trustee shall, on the next succeeding Payment Date (based on the Manager Report), withdraw from the Series 2014-1 L/C Cash Account and remit to the Issuer funds in an amount equal to the available amount on such delivered Eligible Letter of Credit.
(d) At the direction of the Control Party upon the occurrence of a Series 2014-1 Event of Default, the Indenture Trustee will withdraw all amounts then on deposit in the Series 2014-1 L/C Cash Account and deposit such amounts in the Series 2014-1 Series Account to be distributed in accordance with Section 303.
Section 306. Drawing on Eligible Letters of Credit.
(a) On each Determination Date, the Indenture Trustee shall, based on the Manager Report delivered on such Determination Date, submit a draw request on the Letter(s) of Credit in an amount equal to the lesser of:
(x) the Aggregate L/C Available Amount; and
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(y) an amount equal to the excess of (x) the Permitted Payment Date Withdrawals for the related Payment Date, over (y) any amounts drawn from the Series 2014-1 Restricted Cash Account on such Determination Date to satisfy such Permitted Payment Date Withdrawals in accordance with the terms of this Supplement.
(b) If there is more than one Letter of Credit on the date of any draw on the Letter(s) of Credit pursuant to the terms of this Supplement, the Indenture Trustee shall draw on each Letter of Credit in an amount equal to the LOC Pro Rata Share of the related Letter of Credit Bank.
(c) The Indenture Trustee shall receive the proceeds of all drawings on the Letter(s) of Credit on behalf of the Series 2014-1 Noteholders. Any drawings in respect of a Letter of Credit due to a non-renewal of a Letter of Credit or a downgrade in the credit rating of a Letter of Credit Bank shall be deposited into the Series 2014-1 L/C Cash Account and paid in accordance with the terms of this Supplement.
(d) If, prior to the date which is ten (10) days prior to the then scheduled Letter of Credit Expiration Date of a Letter of Credit, the Issuer has not either (i) deposited cash into the Series 2014-1 Restricted Cash Account and/or delivered to the Indenture Trustee an Eligible Letter of Credit in an amount that is equal to or greater than the available amount on the expiring Letter of Credit or (ii) delivered to the Indenture Trustee an Eligible Letter of Credit having an available amount that is equal to or greater than the available amount on such expiring Letter of Credit, then the Manager shall notify the Indenture Trustee in writing no later than two Business Days prior to such Letter of Credit Expiration Date of the available amount of such expiring Letter of Credit. Upon acknowledgment of receipt of such notice by the Indenture Trustee on or prior to 10:00 a.m. (New York City time) on any Business Day, the Indenture Trustee shall, by 2:00 p.m. (New York City time) on such Business Day (or, in the case of any notice given to the Indenture Trustee after 10:00 a.m. (New York City time), by 2:00 p.m. (New York City time) on the next following Business Day), draw on the expiring Letter of Credit an amount equal to the amount set forth above. The proceeds of any such drawing shall be deposited in the Series 2014-1 L/C Cash Account.
(e) The Issuer shall, or shall cause the Manager to, notify the Indenture Trustee in writing within two Business Days after becoming aware that the long-term senior unsecured debt credit rating of any Letter of Credit Bank has fallen below “A”, as determined by the Rating Agency (each such Letter of Credit Bank, a “Downgraded Letter of Credit Bank”). The Downgraded Letter of Credit Bank and the Issuer shall have 60 days from the date of such downgrade to deliver to the Indenture Trustee a replacement Eligible Letter of Credit from an Eligible Bank having an available drawing amount at least equal to the available drawing amount under the Letter of Credit issued by the Downgraded Letter of Credit Bank. If the Downgraded Letter of Credit Bank and/or the Issuer fail to either (i) deposited cash into the Series 2014-1 Restricted Cash Account and/or delivered to the Indenture Trustee an Eligible Letter of Credit in an amount that is equal to or greater than the available amount on the expiring Letter of Credit or (ii) deliver such replacement Eligible Letter of Credit by the tenth day prior to the expiration of such 60 day period, the Issuer or the Manager shall notify the Indenture Trustee of the amount
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available to be drawn on the Letter of Credit issued by such Downgraded Letter of Credit Bank. Upon acknowledgment of receipt of such notice by the Indenture Trustee on or prior to 10:00 a.m. (New York City time) on any Business Day, the Indenture Trustee shall, by 2:00 p.m. (New York City time) on such Business Day (or, in the case of any notice given to the Indenture Trustee after 10:00 a.m. (New York City time), by 2:00 p.m. (New York City time) on the next following Business Day), draw on such Letter of Credit in an amount equal to the full amount of available amount under the Letter of Credit issued by such Downgraded Letter of Credit Bank. The proceeds of any such drawing shall be deposited in the Series 2014-1 L/C Cash Account.
(f) Upon the occurrence of a Series 2014-1 Event of Default, the Indenture Trustee shall promptly submit a draw for the available amount on all Letters of Credit and deposit the amount of such drawing in the Series 2014-1 Series Account to be distributed in accordance with Section 303.
ARTICLE IV
Series-Specific Early Amortization Events, Manager Defaults, Events of Default and Covenants
for the Series 2014-1 Notes
Section 401. Series-Specific Early Amortization Events.
(a) Each of the following events or conditions shall constitute a “Series-Specific Early Amortization Event” for Series 2014-1:
(i) The occurrence and continuance of a Series-Specific Event of Default.
(ii) As of any Payment Date, the EBIT Ratio shall be less than 1.1 to 1.0.
(iii) As of any Payment Date, the Weighted Average Age of the Eligible Containers exceeds nine (9) years.
(iv) (A) a breach of any financial covenant of TGH set forth in the documents governing any Indebtedness of TGH in an aggregate principal amount of $10,000,000 or greater (the “Funded Debt Documents”) shall have occurred and shall not have been permanently waived within sixty (60) days thereafter by the applicable lenders, or (B) any default, not described in clause (A), under any Funded Debt Document shall have occurred and as a result the required lenders under the affected financing transaction have accelerated all or part of such Indebtedness.
(b) Any Series-Specific Early Amortization Event described in Section 401(a)(ii) shall, for purposes of the Related Documents, be deemed no longer to be continuing, if such condition does not exist on any two consecutive subsequent Payment Dates, immediately upon such second consecutive Payment Date. Any Series-Specific Early Amortization Event described in Section 401(a)(iv) shall, for purposes of the Related Documents, be deemed no longer to be continuing immediately upon the cure or waiver thereof, within 60 days of the initial occurrence thereof, for purposes of the Funded Debt Documents. Except as described in the preceding two sentences, if a Series 2014-1 Early Amortization Event exists on any Payment Date, then such Series 2014-1 Early Amortization Event shall be deemed to continue until the Business Day on which the Series 2014-1 Control Party waives, in writing, such Series 2014-1 Early Amortization Event. The Indenture Trustee shall promptly provide notice of any such waiver to each Rating Agency for the Series 2014-1 Notes.
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(c) The existence of a Series 2014-1 Early Amortization Event (i) may alter the calculation of the Invested Amount for the Series 2014-1 Notes and the allocation of funds from the Series Account for such Series of Notes and each other Series of Notes and (ii) will determine the method in which cash flows will be allocated and distributed from the Series Account. The occurrence of a Series 2014-1 Early Amortization Event will not in and of itself result in the occurrence of a Trust Early Amortization Event or a Series-Specific Early Amortization Event for any other Series.
(d) If a Series 2014-1 Early Amortization Event shall have occurred and then be continuing, the Indenture Trustee shall have, in addition to the rights provided in the Related Documents, all rights and remedies provided under all applicable laws.
Section 402. Series-Specific Manager Defaults.
(a) Each of the following events or conditions shall constitute a “Series-Specific Manager Default” for Series 2014-1:
(i) The Leverage Ratio of TGH shall exceed 4.0 to 1.0 as of the end of any fiscal year.
(ii) Any event described in Section 401(a)(iv) shall have occurred and such event shall not have been rescinded or waived within sixty (60) days thereafter by the holders of the applicable indebtedness; provided that, in the event that the Funded Debt Documents shall have lapsed or been terminated, the financial covenants of TGH set forth therein (as in effect immediately prior to such lapse or termination) shall survive for purposes of this definition, unless waived by the Control Party, until new Funded Debt Documents have been entered into.
Section 403. Series-Specific Events of Default.
(a) Each of the following events or conditions shall constitute a “Series-Specific Event of Default” for Series 2014-1:
(i) The Issuer shall fail to pay (1) on any Payment Date, the full amount of the Interest Payments then due on the Series 2014-1 Notes, or (2) on the Legal Final Payment Date, the then Unpaid Principal Balance.
(ii) The Issuer shall fail to pay, within three Business Days after when due, any amounts owing to the Series 2014-1 Noteholders (unless constituting a Trust Event of Default or a Series-Specific Event of Default under Section 403(a)(i)).
(iii) There shall occur any breach of any covenant of the Issuer or any Seller in any Series 2014-1 Related Document, which breach (1) materially and adversely affects the interest of any Series 2014-1 Noteholder and (2) continues for a period of 60 days (subject to an additional 60-day cure period for defaults that the Issuer or any Seller is diligently attempting to cure), in each case, unless such breach constitutes a Trust Event of Default or a Series-Specific Event of Default under Section 403(a)(i) or (ii).
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(iv) Any representation or warranty of the Issuer or any Seller made in any Series 2014-1 Related Document shall prove to be incorrect in any material respect as of the time when the same shall have been made, which incorrectness (1) materially and adversely affects the interest of any Series 2014-1 Noteholder, and (2) if capable of cure, continues for a period of 30 days (subject to an additional 30-day cure period for defaults that the Issuer or any Seller is diligently attempting to cure).
(v) The Indenture Trustee shall fail to have a first priority perfected security interest in the Series 2014-1 Specific Collateral.
(b) Upon the occurrence and during the continuance of a Series 2014-1 Event of Default, the Control Party may declare the Series 2014-1 Notes to be immediately due and payable and may institute judicial proceedings for collection.
Section 404. Series 2014-1 Management Fee. As contemplated by the Management Agreement, the Manager shall be entitled to a management fee for each Collection Period equal to the sum of the following:
(a) A “Master Lease Management Fee”, in an amount equal to the product of (i) the product of (A) the Series 2014-1 Asset Allocation Percentage and (B) NOI (as defined in the Management Agreement) for the Master Lease Fleet (as defined in the Management Agreement) for such Collection Period (as defined in the Management Agreement), multiplied by (ii) eleven percent (11.0%).
(b) A “Long-Term/PLB Management Fee”, in an amount equal to the product of (i) the product of (A) the Series 2014-1 Asset Allocation Percentage and (B) the sum of the NOI (as defined in the Management Agreement) for such Collection Period (as defined in the Management Agreement) of (x) the Long-Term Lease Fleet (as defined in the Management Agreement) plus (y) any Managed Containers (as defined in the Management Agreement) then subject to purchase-leasebacks, multiplied by (ii) eight percent (8.0%).
(c) A “Finance Lease Management Fee”, in an amount equal to the product of (i) the product of (A) the Series 2014-1 Asset Allocation Percentage and (B) the Finance Lease Payments (excluding any payments relating to Managed Containers then subject to purchase-leasebacks) (as defined in the Management Agreement), multiplied by (ii) two percent (2.0%).
(d) A “Sale Management Fee”, in an amount equal to the product of (i) the product of (A) the Series 2014-1 Asset Allocation Percentage and (B) the Sales Proceeds (as defined in the Management Agreement) from the sale or other disposition of any Managed Container during such Collection Period (except for any sale or disposition (x) to Manager or any Affiliate of Manager, (y) pursuant to the exercise of a purchase option contained in a Lease, or (z) that is due to a Casualty Loss) (as defined in the Management Agreement), multiplied by (ii) five percent (5.0%).
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Section 405. Additional Covenants . In addition to the covenants set forth in Article VI of the Indenture, the Issuer hereby makes the following additional covenants for the benefit of the Series 2014-1 Noteholders:
(a) Rule 144A. So long as any of the Series 2014-1 Notes are “restricted securities” within the meaning of Rule 144(a)(3) under the Securities Act, Issuer shall, unless it becomes subject to and complies with the reporting requirements of Section 13 or 15(d) of the Exchange Act, or rule 12g3-2(b) thereunder, (i) provide to any Series 2014-1 Noteholder of such restricted securities, or to any prospective Series 2014-1 Noteholder of such restricted securities designated by a Series 2014-1 Noteholder, upon the request of such Series 2014-1 Noteholder or prospective Series 2014-1 Noteholder, any information required to be provided by Rule 144A(d)(4) under the Securities Act and (ii) update such information to prevent such information from becoming materially false and materially misleading in a manner adverse to any Series 2014-1 Noteholder.
(b) Use of Proceeds. The proceeds from the issuance of the Series 2014-1 Notes shall be used to (i) to pay the purchase price of Eligible Containers to be acquired from TL and TMCLII, (ii) to fund the initial deposit into the Series 2014-1 Restricted Cash Account and (if required) to fund the Additional Funding Amount for the initial Transfer Date, (iii) to pay the costs of issuance of the Series 2014-1 Notes and (iv) for other general corporate purposes permitted under the bye-laws of the Issuer, as contemplated in Section 624 of the Indenture.
(c) Perfection Requirements. The Issuer will not (a) change any of (i) its corporate name or (ii) the name under which it does business or (b) amend any provision of its memorandum of association or bye-laws or become organized under the laws of any other jurisdiction without the prior written consent of the Control Party.
ARTICLE V
Conditions to Issuance
Section 501. Conditions to Issuance. The Indenture Trustee shall not authenticate the Series 2014-1 Notes unless the Issuer shall have delivered a certificate to the Indenture Trustee to the effect that all conditions set forth in the Series 2014-1 Note Purchase Agreement, other than the condition precedent set forth in Section 8(p) thereof, shall have been satisfied or waived.
ARTICLE VI
Representations and Warranties
To induce the Series 2014-1 Noteholders to purchase the Series 2014-1 Notes hereunder, the Issuer hereby represents and warrants as of the Closing Date to the Indenture Trustee for the benefit of the Series 2014-1 Noteholders that:
Section 601. Existence. Issuer is a company duly incorporated, validly existing and in compliance under the laws of Bermuda. Issuer is in good standing and is duly qualified to do business in each jurisdiction where the failure to do so would have a material adverse effect upon the Issuer and in each jurisdiction in which a failure to so qualify would materially and adversely affect the ability of the Indenture Trustee to enforce its security interest in the Collateral.
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Section 602. Authorization. Issuer has the power and is duly authorized to execute and deliver this Supplement and the other Series 2014-1 Related Documents to which it is a party; Issuer is and will continue to be duly authorized to borrow monies hereunder; and Issuer is and will continue to be authorized to perform its obligations under this Supplement and under the other Series 2014-1 Related Documents. The execution, delivery and performance by Issuer of this Supplement and the other Series 2014-1 Related Documents to which it is a party and the borrowings hereunder do not and will not require any consent or approval of any Governmental Authority, shareholder or any other Person which has not already been obtained.
Section 603. No Conflict; Legal Compliance. The execution, delivery and performance of this Supplement and each of the other Series 2014-1 Related Documents and the execution, delivery and payment of the Series 2014-1 Notes will not: (a) contravene any provision of the Issuer’s bye-laws or memorandum of association; (b) contravene, conflict with or violate any Applicable Law or regulation, or any order, writ, judgment, injunction, decree, determination or award of any Governmental Authority; or (c) violate or result in the breach of, or constitute a default under the Indenture, the Series 2014-1 Related Documents, any other indenture or other loan or credit agreement, or other agreement or instrument to which Issuer is a party or by which Issuer, or its property and assets may be bound or affected. Issuer is not in violation or breach of or default under any law, rule, regulation, order, writ, judgment, injunction, decree, determination or award or any contract, agreement, lease, license, indenture or other instrument to which it is a party.
Section 604. Validity and Binding Effect. This Supplement is, and each Series 2014-1 Related Document to which Issuer is a party, when duly executed and delivered, will be, the legal, valid and binding obligation of Issuer, enforceable against Issuer in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency or other similar laws of general application affecting the enforcement of creditors’ rights or by general principles of equity limiting the availability of equitable remedies.
Section 605. Financial Statements. Since December 31, 2013, there has been no Material Adverse Change in the financial condition of any of the Issuer, the Sellers or the Manager.
Section 606. Place of Business. The Issuer’s only “place of business” (within the meaning of Section 9-307 of the UCC) is located at Century House, 16 Par-la-Ville Road, Hamilton HM HX, Bermuda. The Issuer does not maintain an office or assets in the United States, other than (i) the Trust Account, the Series 2014-1 Restricted Cash Account, the Excess Funding Account, the Series 2014-1 Series Account, the Series Accounts for each other Series of Notes Outstanding and the Series 2014-1 L/C Account and (ii) off-hire containers located in depots in the United States and Managed Containers described in Section 606(g) of the Indenture and Leases pursuant to Section 7.7 of the Management Agreement.
Section 607. No Agreements or Contracts. The Issuer is not a party to any contract or agreement (whether written or oral) other than the Related Documents.
Section 608. Consents and Approvals . No approval, authorization or consent of any trustee or holder of any Indebtedness or obligation of Issuer or of any other Person under any agreement, contract, lease or license or similar document or instrument to which Issuer is a party or by
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which Issuer is bound, is required to be obtained by Issuer in order to make or consummate the transactions contemplated under the Series 2014-1 Related Documents, except for those approvals, authorizations and consents that have been obtained on or prior to the Closing Date. All consents and approvals of, filings and registrations with, and other actions in respect of, all Governmental Authorities required to be obtained by Issuer in order to make or consummate the transactions contemplated under the Series 2014-1 Related Documents have been, or prior to the time when required will have been, obtained, given, filed or taken and are or will be in full force and effect.
Section 609. Margin Regulations. Issuer does not own any “margin security”, as that term is defined in Regulation U of the Federal Reserve Board, and the proceeds of the Series 2014-1 Notes issued under this Supplement will be used only for the purposes contemplated hereunder. None of such proceeds will be used, directly or indirectly, for the purpose of purchasing or carrying any margin security, for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase or carry any margin security or for any other purpose which might cause any of the loans under this Supplement to be considered a “purpose credit” within the meaning of Regulations T, U and X. Issuer will not take or permit any agent acting on its behalf to take any action which might cause this Supplement or any document or instrument delivered pursuant hereto to violate any regulation of the Federal Reserve Board.
Section 610. Taxes. All federal, state, local and foreign tax returns, reports and statements required to be filed by Issuer have been filed with the appropriate Governmental Authorities, and all taxes and other impositions shown thereon to be due and payable by Issuer have been paid prior to the date on which any fine, penalty, interest or late charge may be added thereto for nonpayment thereof, or any such fine, penalty, interest, late charge or loss has been paid, or Issuer is contesting its liability therefor in good faith and has fully reserved all such amounts according to GAAP in the financial statements provided to the Series 2014-1 Noteholders pursuant to Section 626 of the Indenture. Issuer has paid when due and payable all material charges upon the books of Issuer and no Governmental Authority has asserted any Lien against Issuer with respect to unpaid taxes. Proper and accurate amounts have been withheld by Issuer from its employees for all periods in full and complete compliance with the tax, social security and unemployment withholding provisions of applicable federal, state, local and foreign law and such withholdings have been timely paid to the respective Governmental Authorities.
Section 611. Other Regulations. The Issuer is not, and is not controlled by, an “investment company” registered or required to be registered under the Investment Company Act. The Issuer is not an “investment company” as defined in Section 3(a)(1) of the Investment Company Act, or, alternatively, the Issuer is relying on an exemption from such definition under Rule 3(a)(5) under the Investment Company Act. The Issuer is not relying on the exemptions set forth in Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act. The Issuer is structured so as not to constitute a “covered fund” for purposes of the Volcker Rule under the Dodd-Frank Act.
Section 612. Solvency and Separateness.
(a) The capital of the Issuer is adequate for the business and undertakings of the Issuer.
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(b) Other than with respect to the transactions contemplated hereby and by the other Related Documents (including without limitation the Management Agreement, the Contribution and Sale Agreement and the Container Transfer Agreements), the Issuer is not engaged in any business transactions with the Sellers or the Manager.
(c) The bye-laws of the Issuer provide that the Issuer shall have six (6) directors, unless increased to seven (7) directors under certain circumstances described in the bye-laws including those discussed below. If a resolution of the directors is proposed which involves a Specified Matter and/or a Special Bye-law Amendment (as such capitalized terms are defined in the bye-laws of the Issuer) then, in such instance, the number of directors of the Issuer shall automatically be increased to seven (7), and the quorum for any such vote shall be seven (7) directors, one of which must be an Independent Director who shall be elected by an affirmative vote of all of the other directors from a pool of candidates (and such pool may consist of only one person) put forward by AMACAR Group, L.L.C. The Independent Director so elected shall be a director until the resolution regarding the Specified Matter and/or the Special Bye-law Amendment has been voted upon and shall automatically cease to be a director of the Issuer immediately following such vote.
(d) The Issuer’s funds and assets are not, and will not be, commingled with those of the Sellers or the Manager, except as permitted by the Management Agreement.
(e) The bye-laws of the Issuer require it to maintain correct and complete books and records of account, and Bermuda law requires it to maintain minutes of the meetings and other proceedings of its members.
(f) The Issuer is not insolvent under the Insolvency Law and will not be rendered insolvent by the transactions contemplated by the Series 2014-1 Related Documents and after giving effect to such transactions, the Issuer will not be left with an unreasonably small amount of capital with which to engage in its business nor will the Issuer have intended to incur, or believe that it has incurred, debts beyond its ability to pay such debts as they mature. The Issuer does not contemplate the commencement of insolvency, bankruptcy, liquidation or consolidation proceedings or the appointment of a receiver, liquidator, trustee or similar official in respect of the Issuer or any of its assets.
Section 613. Title; Liens. On the Closing Date, the Issuer will have good, legal and marketable title to each of its respective assets, and none of such assets is subject to any Lien, except for Permitted Encumbrances.
Section 614. No Default. No Trust Event of Default or Trust Early Amortization Event (or event or condition which with the giving of notice or passage of time or both would become a Trust Event of Default or Trust Early Amortization Event) has occurred and is continuing.
Section 615. Litigation and Contingent Liabilities. No claims, litigation, arbitration proceedings or governmental Proceedings by any Governmental Authority are pending or threatened against or are affecting the Issuer or any of its Affiliates the results of which might interfere with the consummation of any of the transactions contemplated by this Supplement or any document issued or delivered in connection herewith.
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Section 616. Subsidiaries. Issuer has no subsidiaries.
Section 617. No Partnership. Issuer is not a partner or joint venturer in any partnership or joint venture.
Section 618. Pension and Welfare Plans. No accumulated funding deficiency (as defined in Section 412 of the Code or Section 302 of ERISA) or reportable event (within the meaning of section 4043 of ERISA), has occurred with respect to any Plan of the Issuer or any ERISA Affiliate. The present value of all benefit liabilities under all Plans of the Issuer or any ERISA Affiliate subject to Title IV of ERISA, as defined in Section 4001(a)(16) of ERISA, exceeds the fair market value of all assets of Plans subject to Title IV of ERISA (determined as of the most recent valuation date for such Plan on the basis of assumptions prescribed by the Pension Benefit Guaranty Corporation for the purpose of Section 4044 of ERISA), by no more than $1.9 million. Neither Issuer nor any ERISA Affiliate is subject to any present or potential withdrawal liability pursuant to Title IV of ERISA and no multi-employer plan (with the meaning of Section 4001(a)(3) of ERISA) to which the Issuer or any ERISA Affiliate has an obligation to contribute or any liability, is or is likely to be disqualified for tax purposes, in reorganization within the meaning of Section 4241 of ERISA or Section 418 of the Code) or is insolvent (as defined in Section 4245 of ERISA). No liability (other than liability to make periodic contributions to fund benefits) with respect to any Plan of Issuer, or Plan subject to Title IV of ERISA or any ERISA Affiliate, has been, or is expected to be, incurred by Issuer or an ERISA Affiliate, either directly or indirectly. All Plans of Issuer are in material compliance with ERISA and the Code. No lien under Section 412 of the Code or 302(f) of ERISA or requirement to provide security under the Code or ERISA has been or is reasonably expected by Issuer to be imposed on its assets. The Issuer does not have any obligation under any collective bargaining agreement. As of the Closing Date, the Issuer is not an employee benefit plan with the meaning of ERISA or a “plan” within the meaning of Section 4975 of the Code and assets of the Issuer do not constitute “plan assets” within the meaning of Section 2510.3-101 of the regulations of the Department of Labor.
Section 619. Ownership of Issuer. As of the Closing Date, the Issuer has one class of common shares issued and outstanding, all of which are owned by TL.
Section 620. Security Interest Representations.
(a) This Supplement creates a valid and continuing security interest (as defined in the UCC) in the Series 2014-1 Specific Collateral in favor of the Indenture Trustee, for the benefit of the Series 2014-1 Noteholders, which security interest is prior to all other Liens (other than Permitted Encumbrances), and is enforceable as such as against creditors of and purchasers from the Issuer.
(b) The Managed Containers constitute “goods” or “inventory” within the meaning of the applicable UCC. The Leases constitute “tangible chattel paper” within the meaning of the UCC. The lease receivables constitute “accounts” or “proceeds” of the Leases within the meaning of the UCC. The Trust Account, the Series 2014-1 Restricted Cash Account, the Excess Funding Account and the Series 2014-1 Series Account constitute “securities accounts” within the meaning of the UCC. The Issuer’s contractual rights under the Contribution and Sale Agreement, each Container Transfer Agreement and the Management Agreement constitute “general intangibles” within the meaning of the UCC.
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(c) The Issuer owns and has good and marketable title to the Collateral and any Series-Specific Collateral, free and clear of any Lien (whether senior, junior or pari passu), claim or encumbrance of any Person, except for Permitted Encumbrances.
(d) The Issuer has caused the filing of all appropriate financing statements or documents of similar import in the proper filing office in the appropriate jurisdictions under Applicable Law in order to perfect the security interest in the Collateral and any Series-Specific Collateral granted to the Indenture Trustee in this Supplement and the Indenture. All financing statements filed against the Issuer in favor of the Indenture Trustee in connection herewith describing the Collateral and any Series-Specific Collateral contain a statement to the following effect: “A purchase of or security interest in any collateral described in this financing statement will violate the rights of the Indenture Trustee.”
(e) Other than the security interest granted to the Indenture Trustee pursuant to this Supplement and the Indenture, the Issuer has not pledged, assigned, sold, granted a security interest in, or otherwise conveyed any of the Collateral and any Series-Specific Collateral, except as permitted pursuant to the Indenture. The Issuer has not authorized the filing of, and is not aware of, any financing statements against the Issuer that include a description of collateral covering the Collateral and any Series-Specific Collateral other than any financing statement or document of similar import (i) relating to the security interest granted to the Indenture Trustee in this Supplement or the Indenture or (ii) that has been terminated. The Issuer is not aware of any judgment or tax lien filings against the Issuer.
(f) The Issuer has received a written acknowledgment from the Manager that the Manager or an Affiliate thereof is holding the Leases, to the extent they relate to the Managed Containers, on behalf of, and for the benefit of, the Indenture Trustee and the other Persons set forth in the Indenture. None of the Leases that constitute or evidence the Collateral and any Series-Specific Collateral have any marks or notations indicating that they have been pledged, assigned or otherwise conveyed to any Person. The Sellers have caused the filing of all appropriate financing statements or documents of similar import in the proper filing office in the appropriate jurisdictions under Applicable Law in order to perfect the security interest of the Issuer (and the Indenture Trustee as its assignee) in the Leases (to the extent that such Leases relate to the Managed Containers) granted to the Issuer in the Contribution and Sale Agreement and each Container Transfer Agreement.
(g) The Issuer has received all necessary consents and approvals required by the terms of the Collateral and any Series-Specific Collateral to the pledge to the Indenture Trustee of its interest and rights in such Collateral and any Series-Specific Collateral hereunder or under the Indenture.
(h) The Issuer has taken all steps necessary to cause Wells Fargo Bank, National Association (in its capacity as securities intermediary) to identify in its records the Indenture Trustee as the Person having a Securities Entitlement in each of the Trust Account, the Series 2014-1 Restricted Cash Account, the Excess Funding Account and the Series 2014-1 Series Account.
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(i) The Trust Account, the Series 2014-1 Restricted Cash Account, the Excess Funding Account and Series 2014-1 Series Account are not in the name of any Person other than the Issuer or the Indenture Trustee. The Issuer has not consented to Wells Fargo Bank, National Association (as the Securities Intermediary of the Trust Account, the Series 2014-1 Restricted Cash Account, the Excess Funding Account and the Series 2014-1 Series Account) entering into any agreement in which it has agreed to comply with entitlement orders of any Person other than the Indenture Trustee.
(j) All Eligible Investments have been and will have been credited to one of the Trust Account, the Excess Funding Account, the Series 2014-1 Restricted Cash Account, the Series 2014-1 Series Account and the Series L/C Account. The securities intermediary for each of the Trust Account, the Excess Funding Account, the Series 2014-1 Restricted Cash Account, the Series 2014-1 Series Account and the Series L/C Account has agreed to treat all assets credited to the Trust Account, the Excess Funding Account, the Series 2014-1 Restricted Cash Account, the Series 2014-1 Series Account and the Series L/C Account as “financial assets” within the meaning of the UCC.
(k) The Issuer has delivered to Indenture Trustee a fully executed agreement pursuant to which the securities intermediary has agreed to comply with all instructions originated by the Indenture Trustee relating to the Trust Account, the Excess Funding Account, the Series 2014-1 Restricted Cash Account, the Series 2014-1 Series Account and the Series L/C Account without further consent by the Issuer.
(l) No creditor of the Issuer (other than (x) with respect to the Managed Containers, the related Lessee and (y) the Manager in its capacity as Manager under the Management Agreement) has in its possession any goods that constitute or evidence the Collateral or any Series-Specific Collateral.
Any breaches of the representations and warranties set forth in this Section 620 may be waived by the Indenture Trustee, only with the prior written consent of the Control Party and with the prior satisfaction of the Rating Agency Condition.
Section 621. ERISA Lien. As of the Closing Date, the Issuer has not received notice that any Lien arising under ERISA has been filed against the assets of the Issuer.
Section 622. Interest Rate Hedge Agreements. The Issuer has not entered into any Interest Rate Hedge Agreements in connection with the issuance of the Series 2014-1 Notes. The Issuer does not have any Interest Rate Hedge Agreements in effect on the Series 2014-1 Notes.
Section 623. Additional Funding Amount. The Issuer has deposited into the Trust Account on the Closing Date funds in an amount equal to the Additional Funding Amount for the Leases to be acquired by the Issuer on the Closing Date.
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Section 624. Survival of Representations and Warranties. So long as any of the Series 2014-1 Notes shall be Outstanding, the representations and warranties contained herein shall have a continuing effect as having been true when made.
ARTICLE VII
Miscellaneous Provisions
Section 701. Ratification of Indenture. As supplemented by this Supplement, the Indenture is in all respects ratified and confirmed and the Indenture as so supplemented by this Supplement shall be read, taken and construed as one and the same instrument.
Section 702. Counterparts. This Supplement may be executed in two or more counterparts, and by different parties on separate counterparts, each of which shall be an original, but all of which shall constitute one and the same instrument. Delivery of an executed counterpart of this Supplement by facsimile or by electronic means shall be equally effective as of the delivery of an originally executed counterpart.
Section 703. Governing Law. THIS SUPPLEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, INCLUDING SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAWS BUT OTHERWISE WITHOUT REFERENCE TO ITS CONFLICTS OF LAW PROVISIONS, AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS.
Section 704. Notices. All demands, notices and communications hereunder shall be in writing, personally delivered, or by facsimile (with subsequent telephone confirmation of receipt thereof), or sent by internationally recognized overnight courier service, (a) in the case of the Indenture Trustee, at the following address: Sixth Street and Marquette Avenue, MAC N9311-161, Minneapolis, Minnesota, 55479, Attention: Corporate Trust Services/Asset-Backed Administration, (b) in the case of the Issuer, at the following address: Century House, 16 Par-la-Ville Road, Hamilton HM HX, Bermuda, Telephone: (441) 292-2487, Facsimile: (441) 295-4164, Attention: Chief Financial Officer, with a copy to each: (i) Textainer Equipment Management Limited at its address at Century House, 16 Par-la-Ville Road, Hamilton HM HX, Bermuda, Telephone: (441) 292-2487, Facsimile: (441) 295-4164, Attention: Chief Financial Officer, and (ii) Textainer Equipment Management (U.S.) Limited at its address at 650 California Street, 16th floor, San Francisco, CA 94108, Telephone: (415) 658-8214, Facsimile: (415) 434-0599, Attention: Chief Financial Officer, and (c) in the case of Rating Agency, at the following address: Standard & Poor’s Ratings Services, 55 Water Street, New York, NY 10041-0003, or at such other address as shall be designated by such party in a written notice to the other parties. Any notice required or permitted to be given to a Series 2014-1 Noteholder shall be given by certified first class mail, postage prepaid (return receipt requested), or by courier, or by facsimile, with subsequent telephone confirmation of receipt thereof, in each case at the address of such Series 2014-1 Noteholder as shown in the Note Register or to the telephone and fax number furnished by such Series 2014-1 Noteholder. Notice shall be effective and deemed received (A) upon receipt, if sent by courier or U.S. mail, (B) upon receipt of confirmation of transmission, if sent by facsimile, or (C) when delivered, if delivered by hand. Any rights to
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notices conveyed to a Rating Agency pursuant to the terms hereof with respect to any Series shall terminate immediately if such Rating Agency no longer has a rating outstanding with respect to such Series.
Section 705. Amendments and Modifications.
(a) Subject to the provisions of Sections 705(b) through (d), the terms of this Supplement may be waived or amended in a written instrument signed by each of the Issuer and the Indenture Trustee (acting at the direction of the Control Party). For purposes of clarification, no change in the Depreciation Policy, for purposes other than calculating the Asset Base, by operation of paragraph (ii) of the definition of “Depreciation Policy” shall be deemed an amendment or modification to this Supplement subject to the requirements of this Section 705.
(b) Notwithstanding Section 705(a), but subject to Section 705(d), the Indenture Trustee shall execute and deliver any amendment to this Supplement, without the consent or direction of any Series 2014-1 Noteholder, if the Issuer shall have provided to the Indenture Trustee an Officer’s Certificate of the Issuer to the effect that such amendment or modification of this Supplement is for one of the following purposes:
(i) to add to the covenants of the Issuer in this Supplement, or to surrender any right or power conferred upon the Issuer in this Supplement;
(ii) to cure any ambiguity herein or to correct or supplement any provision hereof that may be inconsistent with any other provision hereof or of any other Related Document;
(iii) to correct or amplify the description of any Series 2014-1 Specific Collateral, or better to assure, convey and confirm unto the Indenture Trustee any property purported to be Series 2014-1 Specific Collateral, or to subject additional property to the Lien of this Supplement;
(iv) to add to the conditions, limitations and restrictions on the authorized amount, terms and purposes of issue, authentication and delivery of the Series 2014-1 Notes, or additional conditions, limitations and restrictions thereafter to be observed by the Issuer with respect to the Series 2014-1 Notes;
(v) to decrease the Advance Rate; or
(vi) to add any additional Series-Specific Events of Default, Series-Specific Early Amortization Events or Series-Specific Manager Defaults.
(c) Notwithstanding Section 705(a), but subject to Section 705(d), no amendment of this Supplement, or waiver of any requirement herein set forth shall, without the consent of each Series 2014-1 Noteholder directly and adversely affected thereby:
(i) reduce the principal amount of any Series 2014-1 Note, lengthen the Series 2014-1 Legal Final Payment Date, reduce the rate of interest payable on any Series 2014-1 Note, change the date on which, the amount of which, the place of payment where, or the coin or currency in which, any Series 2014-1 Note or the interest thereon, is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Legal Final Payment Date of the Series 2014-1 Notes;
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(ii) amend or waive any provision of this Supplement which specifies that such provision cannot be amended or waived without the consent of such Person;
(iii) amend this Section 705(c);
(iv) amend the definitions of “Asset Base”, “Series 2014-1 Asset Allocation Percentage”, “Series 2014-1 Required Overcollateralization Percentage” or “Control Party” or to increase the Advance Rate, except as permitted by the proviso at the end of this Section 705(c); or
(v) permit the creation of any Lien on the Series 2014-1 Specific Collateral ranking prior to, or on a parity with, the Lien granted under Section 208, or terminate such Lien, except as otherwise permitted in this Supplement.
(d) The obligation of the Indenture Trustee to execute and deliver any waiver or amendment of this Supplement is subject to the satisfaction of all of the following conditions:
(i) the Issuer shall have given the Indenture Trustee and the Manager not less than five days’ notice of such amendment and a copy of such proposed amendment, it being understood that the Indenture Trustee and the Manager from time to time may waive the right to receive such notice;
(ii) such waiver or amendment either (A) will not result in a Trust Early Amortization Event, Trust Event of Default or Asset Base Deficiency (in each case calculated after giving effect to such proposed waiver, modification or amendment) or (B) shall have been approved by the Requisite Global Majority;
(iii) the Issuer shall have delivered to the Indenture Trustee an Officer’s Certificate that all of the conditions specified in Sections 705(d)(i) and (ii) have been satisfied; and
(iv) the Issuer shall have given the Indenture Trustee an Opinion of Counsel stating that the execution of such waiver or amendment is authorized or permitted pursuant to the terms of this Supplement.
(e) Prior to the execution of any written instrument pursuant to this Section 705, the Issuer shall provide a written notice to the Rating Agency setting forth in general terms the substance of any such written instrument.
(f) Promptly after the execution by the Issuer and the Indenture Trustee of any written instrument pursuant to this Section 705, the Indenture Trustee shall mail to the Series 2014-1 Noteholders and the Rating Agency a copy of the text of such written instrument. Any failure of the Indenture Trustee to mail such copy, or any defect therein, shall not, however, in any way impair or affect the validity of any such written instrument.
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(g) (i) Any amendment or waiver of any Series-Specific Early Amortization Event, Series-Specific Manager Default or Series-Specific Event of Default in accordance with this Section 705 shall be effective for purposes of all Series of Notes (and, similarly, any amendment or waiver of any Series-Specific Early Amortization Event for any other Series of Notes, Series-Specific Manager Default for any other Series of Notes or Series-Specific Event of Default for any other Series of Notes in accordance with the provisions of the related Supplement shall be effective for purposes of the Series 2014-1 Notes).
(ii) Any amendment or waiver of any Trust Early Amortization Event, Trust Manager Default or Trust Event of Default in accordance with this Section 705 shall be effective as applied to Series 2014-1 only (and not for purposes of any other Series of Notes), unless similarly amended or waived in accordance with the Indenture or the related Supplement for any other Series of Notes.
Section 706. Consent to Jurisdiction. ANY LEGAL SUIT, ACTION OR PROCEEDING AGAINST THE ISSUER ARISING OUT OF OR RELATING TO THIS SUPPLEMENT, OR ANY TRANSACTION CONTEMPLATED HEREBY, MAY BE INSTITUTED IN ANY FEDERAL OR STATE COURT IN THE CITY OF NEW YORK, STATE OF NEW YORK AND THE ISSUER HEREBY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING, AND, SOLELY FOR THE PURPOSES OF ENFORCING THIS SUPPLEMENT, THE ISSUER HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY SUCH COURT IN ANY SUCH SUIT, ACTION OR PROCEEDING.
Section 707. Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, AS AGAINST THE OTHER PARTIES HERETO, ANY RIGHTS IT MAY HAVE TO A JURY TRIAL IN RESPECT OF ANY CIVIL ACTION OR PROCEEDING (WHETHER ARISING IN CONTRACT OR TORT OR OTHERWISE), INCLUDING ANY COUNTERCLAIM, ARISING UNDER OR RELATING TO THIS SUPPLEMENT OR ANY OTHER SERIES 2014-1 RELATED DOCUMENT, INCLUDING IN RESPECT OF THE NEGOTIATION, ADMINISTRATION OR ENFORCEMENT HEREOF OR THEREOF.
Section 708. Successors. This Supplement shall inure to the benefit of and be binding upon the Issuer, the Indenture Trustee and, by its acceptance of any Series 2014-1 Note or any legal or beneficial interest therein, each Series 2014-1 Noteholder, and each of such Person’s successors and assigns.
Section 709. Nonpetition Covenant. Each Series 2014-1 Noteholder by its acquisition of a Series 2014-1 Note shall be deemed to covenant and agree that it will not institute against the Issuer any bankruptcy, reorganization, arrangement insolvency or liquidation Proceedings, or other Proceedings under any federal or state bankruptcy or similar law, at any time other than on a date which is at least one (1) year and one (1) day after the later of (a) the last date on which any Note of any Series was Outstanding and (b) the date on which all amounts owing to each Series Enhancer pursuant to the terms of the related Insurance Agreements have been paid in full.
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Section 710. Recourse Against the Issuer. No recourse under or with respect to any obligation, covenant or agreement (including, without limitation, the payment of any fees or any other obligations) of the Issuer as contained in this Supplement or any other agreement, instrument or document entered into by the Issuer pursuant hereto or in connection herewith shall be had against any administrator of the Issuer or any incorporator, affiliate, shareholder, officer, employee, manager or director of the Issuer or of any such administrator, as such, by the enforcement of any assessment or by any legal or equitable proceeding, by virtue of any statute or otherwise; it being expressly agreed and understood that the agreements of the Issuer contained in this Supplement and all of the other agreements, instruments and documents entered into by the Issuer pursuant hereto or in connection herewith are, in each case, solely the corporate obligations of the Issuer, and that no personal liability whatsoever shall attach to or be incurred by any administrator of the Issuer or any incorporator, shareholder, affiliate, officer, employee, manager or director of the Issuer or of any such administrator, as such, or any other of them, under or by reason of any of the obligations, covenants or agreements of the Issuer contained in this Supplement or in any other such instruments, documents or agreements, or which are implied therefrom, and that any and all personal liability of every such administrator of the Issuer and each incorporator, shareholder, affiliate, officer, employee, manager or director of the Issuer or of any such administrator, as such, or any of them, for breaches by the Issuer of any such obligations, covenants or agreements, which liability may arise either at common law or at equity, by statute or constitution, or otherwise, is hereby expressly waived as a condition of and in consideration for the execution of this Supplement. The provisions of this Section 710 shall survive the termination of this Supplement.
Section 711. Reports, Financial Statements and Other Information to Series 2014-1 Noteholders. The Indenture Trustee will make available promptly upon receipt thereof to the Series 2014-1 Noteholders via the Indenture Trustee’s internet website at www.CTSLink.com the financial statements referred to in Section 7.2 of the Management Agreement, the Manager Report, the Asset Base Report, and the annual insurance confirmation; provided, that, as a condition to access to the Indenture Trustee’s website, the Indenture Trustee shall require each such Series 2014-1 Noteholder to execute the Indenture Trustee’s standard form documentation, and upon such execution, each such Series 2014-1 Noteholder shall be deemed to have certified to the Indenture Trustee it (i) is a Series 2014-1 Noteholder, (ii) understands that such items contain material nonpublic information (within the meaning of U.S. Federal Securities laws), (iii) is requesting the information solely for use in evaluating such party’s investment in the Series 2014-1 Notes and will keep such information strictly confidential (with such exceptions and restrictions to distribution of the information as are more fully set forth in the information request certification) and (iv) is not a Competitor. Each time a Series 2014-1 Noteholder accesses the internet website, it will be deemed to have confirmed the representations and warranties made pursuant to the confirmation as of the date of such access. The Indenture Trustee will provide the Issuer with copies of such information request certification. Assistance in using the Indenture Trustee’s website can be obtained by calling the Indenture Trustee’s customer service desk at (866) 846-4526.
[Signature pages follow]
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IN WITNESS WHEREOF, the Issuer and the Indenture Trustee have caused this Supplement to be duly executed and delivered by their respective officers all as of the day and year first above written.
| TEXTAINER MARINE CONTAINERS III LIMITED | ||
| By | /S/ Christopher C. Morris | |
| Name: | ||
| Title: | Executive Vice President | |
Series 2014-1 Supplement
| WELLS FARGO BANK, NATIONAL ASSOCIATION, as Indenture Trustee | ||
| By: | /S/ Brad Martin | |
| Name: |
| |
| Title: | Vice President | |
Series 2014-1 Supplement
EXHIBIT 4.41
AMENDMENT NO. 1 AND SUPPLEMENT TO INDENTURE
THIS AMENDMENT NO. 1 AND SUPPLEMENT TO INDENTURE, dated as of October 30, 2014 (this “Supplement”), is made to supplement the Indenture, dated as of September 25, 2013 (as amended, supplemented or otherwise modified from time to time, the “Indenture”), between TEXTAINER MARINE CONTAINERS III LIMITED, as issuer (the “Issuer”), and WELLS FARGO BANK, NATIONAL ASSOCIATION, as indenture trustee (the “Indenture Trustee”).
W I T N E S S E T H:
WHEREAS, the Issuer and the Indenture Trustee have previously entered into the Indenture and the Series 2013-1 Supplement;
WHEREAS, on the date hereof, the Issuer and the Indenture Trustee will enter into the Series 2014-1 Supplement, dated as of the date hereof;
WHEREAS, the parties desire to supplement the Indenture in order to modify certain provisions to the Indenture;
NOW THEREFORE, in consideration of the premises and mutual covenants herein contained, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:
Section 1. Defined Terms. Capitalized terms used in this Supplement and not otherwise defined herein shall have the meanings assigned to such terms in the Indenture.
Section 2. Supplement to the Indenture. Pursuant to Section 1002 of the Indenture, the Indenture is hereby supplemented as follows:
(a) The definition of “Collection Allocation Percentage” in Section 101 of the Indenture is amended to read as follows:
“Unless otherwise stated in a Supplement for any Series of Notes, as of any date of determination for such Series of Notes, a fraction (expressed as a percentage) equal to (A) divided by (B), as follows:
(A) the Invested Amount for such Series of Notes; and
(B) the sum of the Invested Amount for all Series of Notes Outstanding (exclusive of the Invested Amount for any Liquidation Deficiency Series).”
The above definition may be superseded by a definition set forth in a specific Series Supplement.
(b) The definition of “Invested Amount” in Section 101 of the Indenture is amended to read as follows:
“Unless otherwise stated in a Supplement for any Series of Notes, as of any date of determination for such Series of Notes, one of the following: (a) if no Early Amortization Event for any Series or Event of Default for any Series is then continuing, an amount equal to (x) the initial Unpaid Principal Balance of such Series on its Series Issuance Date minus the initial Restricted Cash Amount for such Series of Notes on its Series Issuance Date, divided by (y) 100% minus the Required Overcollateralization Percentage for such Series of Notes in effect on such date; or (b) if any Early Amortization Event for any Series or Event of Default for any Series is then continuing, an amount (not less than zero) equal to (x) the Unpaid Principal Balance on the date on which such Early Amortization Event for any Series or Event of Default for any Series occurred, minus the amount then on deposit in the Restricted Cash Account for such Series of Notes on the date on which such Early Amortization Event for any Series or Event of Default for any Series occurred, divided by (y) 100% minus the Required Overcollateralization Percentage for such Series of Notes on the date on which such Early Amortization Event for any Series or Event of Default for any Series occurred.”
The above definition may be superseded by a definition set forth in a specific Series Supplement.
Section 3. Representations and Warranties. (a) The Issuer hereby confirms that each of the representations and warranties set forth in Article VI of the Series 2014-1 Supplement are true and correct as of the date first written above with the same effect as though each had been made by such party as of such date, except to the extent that any of such representations and warranties expressly relate to earlier dates.
(b) The Issuer hereby confirms the representations and warranties set forth in the Indenture and the Related Documents is true and correct in all respects as of the date first written above with the same effect as though each had been made as of such date, except to the extent that any of such representations and warranties expressly relates to earlier dates.
(c) The Issuer hereby confirms that each of the conditions precedent to the supplement to the Indenture have been, or contemporaneously with the execution of this Supplement will be, satisfied.
(d) The Issuer hereby confirms no Early Amortization Event or Event of Default, nor any event that with the passage of time or the giving of notice or both would constitute an Early Amortization Event or an Event of Default, has occurred and is continuing.
Section 4. Effectiveness of Supplement.
(a) Section 2 of this Supplement shall be effective on the date on which the Requisite Global Majority shall have consented to the Issuer’s and Indenture Trustee’s entry into this Supplement.
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(b) Upon effectiveness of this Supplement as described in Section 4(a), this Supplement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.
(c) Upon effectiveness of this Supplement as described in Section 4(a), (i) this Supplement shall become a part of the Indenture and (ii) each reference in the Indenture to “this Indenture”, or “hereof”, “hereunder” or words of like import, and each reference in any other document to the Indenture shall mean and be a reference to such Indenture, as amended or modified hereby.
(d) Except as expressly amended or modified hereby, the Indenture shall remain in full force and effect and is hereby ratified and confirmed by the parties hereto.
(e) The Indenture Trustee shall have received the Opinion of Counsel with respect to this Supplement contemplated by Section 1003 of the Indenture;
Section 5. Execution in Counterparts, Effectiveness. This Supplement may be executed by the parties hereto in separate 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 6. Governing Law. THIS SUPPLEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (INCLUDING SECTIONS 5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS LAW BUT WITHOUT REFERENCE TO NEW YORK’S CONFLICTS OF LAW PRINCIPLES), AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
[Signature pages follow.]
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IN WITNESS WHEREOF, the parties hereto have caused this Supplement to be duly executed by their respective officers as of the day and year first above written.
| TEXTAINER MARINE CONTAINERS III LIMITED | ||
| By: | /S/ Christopher C. Morris | |
| Name: |
| |
| Title: | Executive Vice President | |
| WELLS FARGO BANK, NATIONAL as Indenture Trustee | ||
| By: | /S/ Brad Martin | |
| Name: |
| |
| Title: | Vice President | |
(Supplement)
Exhibit 8.1
LIST OF SUBSIDIARIES
| Name of Subsidiary |
Jurisdiction of Organization |
Name under which Subsidiary does Business | ||
| Textainer Limited |
Bermuda | Textainer Limited | ||
| Textainer Equipment Management Limited |
Bermuda | Textainer Equipment Management Limited | ||
| Textainer Equipment Management (S) Pte Ltd. |
Singapore | Textainer Equipment Management (S) Pte Ltd | ||
| Textainer Equipment Management (U.S.) Limited |
Deleware | Textainer Equipment Management (U.S.) Limited | ||
| Textainer Equipment Management (U.K.) Limited |
United Kingdom | Textainer Equipment Management (U.K.) Limited | ||
| Textainer Equipment Management (U.S.) II LLC |
Deleware | Textainer Equipment Management (U.S.) II LLC | ||
| Textainer Marine Containers Limited |
Bermuda | Textainer Marine Containers Limited | ||
| Textainer Marine Containers II Limited |
Bermuda | Textainer Marine Containers II Limited | ||
| Textainer Marine Containers III Limited |
Bermuda | Textainer Marine Containers III Limited | ||
| Textainer Marine Containers IV Limited |
Bermuda | Textainer Marine Containers IV Limited | ||
| TAP Funding Ltd. |
Bermuda | TAP Funding Ltd. | ||
| TW Container Leasing, Ltd. |
Bermuda | TW Container Leasing, Ltd. | ||
Exhibit 12.1
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
REQUIRED BY RULE 13A-14(A) OR RULE 15D-14(A)
UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Philip K. Brewer, certify that:
| 1. | I have reviewed this annual report on Form 20-F of Textainer Group Holdings Limited; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; |
| 4. | The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and |
| 5. | The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting. |
Date: March 13, 2015
| /S/ PHILIP K. BREWER |
| Philip K. Brewer |
| President and Chief Executive Officer |
| (Principal Executive Officer) |
Exhibit 12.2
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
REQUIRED BY RULE 13A-14(A) OR RULE 15D-14(A)
UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Hilliard C. Terry, III, certify that:
| 1. | I have reviewed this annual report on Form 20-F of Textainer Group Holdings Limited; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods presented in this report; |
| 4. | The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and |
| 5. | The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting. |
Date: March 13, 2015
| /s/ HILLIARD C. TERRY, III |
| Hilliard C. Terry, III |
| Executive Vice President and Chief Financial Officer |
| (Principal Financial Officer) |
Exhibit 13.1
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
REQUIRED BY RULE 13A-14(B) AND SECTION 1350
OF CHAPTER 63 OF TITLE 18 OF THE UNITED STATES CODE,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350 of Chapter 63 of Title 18 of the United States Code), the undersigned officer of Textainer Group Holdings Limited (the “Company”), hereby certifies, to such officer’s knowledge, that:
| 1. | The Annual Report on Form 20-F for the year ended December 31, 2014 (the “Report”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: March 13, 2015
| /S/ PHILIP K. BREWER |
| Philip K. Brewer |
| President and Chief Executive Officer |
| (Principal Executive Officer) |
Exhibit 13.2
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
REQUIRED BY RULE 13A-14(B) AND SECTION 1350
OF CHAPTER 63 OF TITLE 18 OF THE UNITED STATES CODE,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350 of Chapter 63 of Title 18 of the United States Code), the undersigned officer of Textainer Group Holdings Limited (the “Company”), hereby certifies, to such officer’s knowledge, that:
| 1. | The Annual Report on Form 20-F for the year ended December 31, 2014 (the “Report”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: March 13, 2015
| /s/ HILLIARD C. TERRY, III |
| Hilliard C. Terry, III |
| Executive Vice President and Chief Financial Officer |
| (Principal Financial Officer) |
Exhibit 15.1
Consent of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
Textainer Group Holdings Limited:
We consent to the incorporation by reference in the registration statement (No. 333-146304) on Form F-1, registration statements (Nos. 333-147961 and 333-171409 ) on Form S-8 and registration statement (No. 333-171410) on Form F-3 of Textainer Group Holdings Limited and subsidiaries of our reports dated March 13, 2015, with respect to the consolidated balance sheets of Textainer Group Holdings Limited and subsidiaries as of December 31, 2014 and 2013, and the related consolidated statements of comprehensive income, shareholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2014, and the related financial statement schedules, and the effectiveness of internal control over financial reporting as of December 31, 2014, which reports appear in the December 31, 2014 annual report on Form 20-F of Textainer Group Holdings Limited and subsidiaries.
/s/ KPMG LLP
San Francisco, California
March 13, 2015