As filed with the Securities and Exchange Commission on July 14, 2000

Registration No. 333-12092

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Amendment No. 1

to
Form F-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

IFCO SYSTEMS N.V.
(Exact name of registrant as specified in its charter)

The Netherlands 3089 98-0216429
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code
organization) Number)

"Rivierstaete" Amsteldijk 166
1079 LH
Amsterdam, The Netherlands
31-20-504-1772
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)

Edward Rhyne, Esq.
c/o PalEx, Inc.
6829 Flintlock Road
Houston, Texas 77040
713-332-6145
(Name, address, including zip code, and telephone number, including area code,
of agent for service)

Copies to:

Randall G. Ray, Esq.
Gardere & Wynne, L.L.P.
1601 Elm Street, Suite 3000
Dallas, Texas 75204

Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this registration statement.

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]

----------------

The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+This prospectus is subject to completion or amendment. We have filed a +
+registration statement relating to these notes with the U.S. Securities and +
+Exchange Commission. We may not sell these notes nor may offers to buy be +
+accepted before the time the registration statement becomes effective. This +
+prospectus is not an offer to sell these securities and we are not +
+soliciting offers to buy these notes in any jurisdiction in which the offer, +
+solicitation, or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

PROSPECTUS Subject to completion dated July 14, 2000

OFFER TO EXCHANGE ALL OUTSTANDING
SERIES A 10 5/8% SENIOR SUBORDINATED NOTES DUE 2010
FOR
SERIES B 10 5/8% SENIOR SUBORDINATED NOTES DUE 2010
OF

IFCO SYSTEMS N.V.

We hereby offer, upon the terms and conditions described in this prospectus,
to exchange all of our outstanding Series A 10 5/8% Senior Subordinated Notes
due 2010 for our registered Series B 10 5/8% Senior Subordinated Notes due
2010. The Series A notes were issued on March 8, 2000 and, as of the date of
this prospectus, an aggregate principal amount of (Euro)200.0 million is
outstanding. The terms of the Series B notes are identical in all material
respects to the terms of the outstanding Series A notes, except that the Series
B notes are registered under the Securities Act of 1933 and will be freely
transferable in accordance with the transfer provisions of the indenture.

Please consider the following:

. Our offer to exchange Series A notes for Series B notes will be open until
5:00 p.m., New York City time, on August , 2000, unless we extend the
offer.

. You should also carefully review the procedures for tendering your Series
A notes beginning on page 23 of this prospectus.

. If you do not tender your Series A notes, you will continue to hold
unregistered securities and your ability to transfer them could be
adversely affected.

. We have applied for listing of the Series B notes on the Luxembourg Stock
Exchange.

Information about the Notes:

. The Series B notes will mature on March 15, 2010.

. We will pay interest on the Series B notes at an annual rate of 10 5/8% on
March 15 and September 15 of each year, beginning on September 15, 2000.

. We have the option to redeem all or a portion of the Series B notes on or
after March 15, 2005, at a redemption price equal to 100% of the principal
amount of the Series B notes plus a premium declining ratably to par, plus
accrued interest.

. At any time on or before March 15, 2003, we may redeem up to 35% of the
original principal amount of the Series B notes at a redemption price of
110.625% of the principal amount with money we raise in specified equity
offerings.

. Our obligations under the Series B notes will not be secured, will rank
junior to all our senior debt, and will rank equally to all of our
existing and future senior subordinated debt.

You should consider carefully the risk factors beginning on page 14 of this
prospectus in connection with the exchange offer and before investing in the
Series B notes.

Neither the SEC nor any state securities commission has approved or disapproved
of the Series B notes or passed upon the adequacy or accuracy of this
prospectus. Any representation to the contrary is a criminal offense.

-----------

, 2000

PRESENTATION OF FINANCIAL INFORMATION

In this prospectus, references to Deutsch marks or DM are to the currency of
Germany, references to euro or (Euro) means the common currency for the eleven
member states of the European Union, and references to U.S. dollars or $ are to
the currency of the United States. See "Exchange Rate Information" for
historical information regarding the noon buying rate for the Deutsch mark and
the euro by the Federal Reserve Bank of New York.

Various amounts and percentages set out in this prospectus have been rounded
and accordingly may not total.

EXCHANGE RATE INFORMATION

The table below sets forth, for the periods and dates indicated, information
concerning the noon buying rates for Deutsch marks, expressed in Deutsch marks
per $1.00, and for euros, expressed in U.S. dollars per (Euro)1.00. The
conversion rate between the euro and the Deutsch mark is fixed at (Euro)1.00 =
DM1.95583. No representation is made that the Deutsch mark or euro amounts, on
the one hand, or the U.S. dollar amounts, on the other hand, referred to in
this prospectus could be or could have been converted into U.S. dollars,
Deutsch marks, or euros, as the case may be, at any particular rate or at all.

Deutsch marks per $1.00
Deutsch mark: -------------------------------
Period Period
Calendar Year High Low Average(1) End
------------- ------ ------ ---------- ------

1995...................................... 1.5925 1.3565 1.4901 1.3835
1996...................................... 1.5477 1.3798 1.4655 1.5210
1997...................................... 1.7438 1.4725 1.6039 1.7438
1998...................................... 1.8810 1.7080 1.7978 1.8033

U.S. dollars per (Euro)1.00
Euro: -------------------------------
Period Period
Year High Low Average(1) End
---- ------ ------ ---------- ------

1999...................................... 1.1812 1.0023 1.0588 1.0070

Month
-----

January 2000.............................. 1.0335 0.9757 1.0131 0.9757
February 2000............................. 1.0060 0.9643 0.9834 0.9643
March 2000................................ 0.9724 0.9524 0.9643 0.9574
April 2000................................ 0.9647 0.9083 0.9449 0.9089
May 2000.................................. 0.9328 0.8891 0.9059 0.9328
June 2000................................. 0.9648 0.9307 0.9505 0.9545

- --------
(1)The average of the noon buying rates on the last business day of each month
during each year presented and the average of the noon buying rates on the
business days during each month presented.

In this prospectus, approximate dollar amounts are provided for euro-
denominated amounts based on the noon buying rate on July 7, 2000, of
(Euro)1.00 = $0.9484. Approximate dollar amounts are provided for Deutsch mark-
denominated amounts based on this euro rate and the fixed conversion rate of
(Euro)1.00 = DM1.95583, resulting in a rate of $0.4849 U.S. dollars for each
Deutsch mark. As of January 15, 1999, the Federal Reserve Bank of New York only
publishes noon buying rates for the euro and not for the individual member
states of the European Union. The exchange rates as of March 8, 2000, the
closing date for the merger, IPO, and initial offering of the notes, as
discussed in this prospectus, were (Euro)1.00 = $0.9576 and DM1 = $0.4896.

PROSPECTUS SUMMARY

The following summary highlights selected information contained elsewhere in
this prospectus. This summary may not contain all of the information that you
should consider in connection with the exchange offer and before investing in
the Series B notes. This prospectus includes specific terms of the Series B
notes we are offering as well as information regarding our business and
detailed financial data. We encourage you to read this prospectus carefully,
including the "Risk Factors" section and financial statements. Unless otherwise
indicated, all references in this prospectus to "we," "us," "our," and similar
terms, as well as references to the "Company" and "IFCO Systems," refer to IFCO
Systems N.V. and its subsidiaries after the contribution of the capital shares
of the IFCO Companies to IFCO Systems N.V. and to the IFCO Companies and their
subsidiaries before that time. As a result of the merger with PalEx, Inc., and
other related transactions, completed in March 2000, IFCO Systems owns all the
stock of the IFCO Companies and PalEx. The IFCO Companies are IFCO Europe
Beteiligungs GmbH, MTS Okologistik GmbH, and IFCO International Network
Beteiligungsgesellschaft mbH, which was formerly known as Schoeller
International Logistics Beteiligungsgesellschaft mbH, and their subsidiaries.
PalEx refers to PalEx, Inc., which traded on the Nasdaq National Market before
the merger, and its subsidiaries. For purposes of this prospectus, when we
describe information on a pro forma basis, unless otherwise indicated, we are
giving effect to the merger of PalEx with IFCO Systems, the IPO of IFCO
Systems' ordinary shares in March 2000, the initial offering of the Series A
notes, initial borrowings under the new senior credit facility, and other
transactions in connection with the merger and the IPO.

The Company

We are a leading international provider of round-trip systems, serving over
9,000 customers in 17 countries. We believe we:

. own and manage the largest pool of round-trip containers, or RTCs, in
Europe based on 1997 market information;

. own and manage a rental pool of over 1.5 million pallets in Canada,
making us the second largest pallet rental pool owner and manager in
North America;

. are the largest provider of new and recycled pallets in North America
based on our pallet industry experience and industry information; and

. are the largest provider of industrial container reconditioning services
in North America based on our 1998 volume and our estimate of the total
number of industrial containers reconditioned in the United States each
year using information obtained from the Reusable Industrial Packaging
Association.

Round-trip means that a container is used for the flow of products through
one whole distribution cycle and then is used multiple times. We provide RTCs
and related services to growers or manufacturers in order to distribute goods
to retailers. Retailers benefit from improved product handling and automation
capabilities, in-store display in RTCs, improved space efficiency, and
reduction of the amount of packaging for transport. We contract third parties
to collect empty RTCs from retailers for inspection and reconditioning by us.
The RTCs are then reintroduced into the round-trip system for reuse on a just-
in-time basis. Our RTCs, which are based on patented technology, are made of
plastic and are collapsible. The RTCs are available in many different
standardized sizes and structures depending on the goods to be moved. They are
designed to be stacked interchangeably regardless of size. Currently, we have
approximately 63.5 million IFCO RTCs in circulation. Our European pool now
serves over 4,000 growers supplying produce to approximately 15,000 supermarket
outlets throughout Western Europe. Currently, approximately 75 retailer groups
use our round-trip systems.

We also manufacture, sell, lease, and recycle wooden pallets in a variety of
shapes and sizes for the movement of various types of goods. We currently
conduct our pallet operations from approximately 60 facilities throughout the
United States and Canada. We also recondition industrial container products,
which include steel closed top drums, steel drums with fully removable heads,
plastic drums, and industrial bulk containers, from approximately 10 facilities
in the United States.

On a pro forma basis, our revenues for the year ended December 31, 1999,
were approximately $547.4 million and our EBITDA was approximately $85.9
million.

Company Strengths

We believe that we have the following strengths:

. Leading Provider of Round-trip Systems. We are a leading provider of
round-trip systems for the transport of fruits and vegetables in Europe.
In addition, we have a rental pool of over 1.5 million pallets in Canada
and are positioned to expand our pallet pooling services into the United
States.

. Systems Approach to Product Flow. We provide customers and retailers
with comprehensive systems to effectively manage the flow of products
throughout the distribution process. We offer solutions to our customers
tailored to their product categories or sectors. These solutions are
expected to reduce costs, maintain product quality and freshness, and
increase the efficiency of the flow of goods. We have an existing North
American network of approximately 80 distribution and maintenance
facilities and additional round-trip products--pallets and industrial
containers. By offering RTCs, pallets, and industrial containers and
services from the same sites in our extensive regional networks, we have
the ability to manage complete shipping platform systems for customers
and retailers, which include production, distribution, display,
collection of RTCs from retailers' back docks after use, and cleaning
and reuse.

. Innovative Patented Technology and Economic Efficiencies. Our patented
technology allows us to provide user-friendly, stackable, and
collapsible RTCs. Our plastic RTCs are competitive with other plastic
container alternatives. Most IFCO RTCs are manufactured in a one-piece
injection process, which reduces manufacturing costs. IFCO RTCs are also
stackable with other RTCs and cardboard boxes. While some competitors
offer RTCs that are collapsible, based on a comparison with our
principal competitor, we believe none are as fully and easily
collapsible as the IFCO RTCs. In addition, our RTCs offer a significant
economic advantage to retailers and growers and manufacturers over
corrugated and wood boxes for the following reasons:

. Multiple reuse--the containers are reusable, reducing the amount of
waste and disposal costs;

. Time savings--the time spent handling goods is reduced, both in terms
of product handling during distribution and direct placement on the
retail floor;

. Handling efficiency and space savings--the patented containers are
easier to handle for product loading and transport. After removal of
the product, RTCs are collapsible to the same height, minimizing the
amount of space a user needs to devote to handling and storing
containers;

. Reduction of product spoilage and waste--RTCs reduce spoilage and
waste, and promote longer shelf life, because RTCs are not subject to
water damage and there is less breakage and crushing during
distribution and display as compared to less durable corrugated
boxes;

. Energy efficiency--for produce, the open design of the RTCs allows
more efficient cooling through air circulation and better temperature
control; and

. Easier in-store display--products may be displayed in the RTCs
without any additional handling.

. Well-established Partnerships with Retailers and Growers. We have
established and will continue developing relationships with many
retailers and growers. Retailers using our products or services include,
for example, Metro in Germany, Migros in Switzerland, and Waitrose in
the United Kingdom. In many cases, retailers in Europe have begun to
require growers to use our RTCs. We have recently established
relationships with Wal-Mart and H.E. Butt in the United States, among
others, and intend to expand our market share in the United States.

. Geographic Diversity. We have geographically diverse operations with
approximately 60 locations in Europe, 11 locations in Japan, six
locations in Argentina, and approximately 80 locations in North America.
Our decentralized facilities provide us with a competitive advantage and
allow us to meet retailers' needs in these regions. We believe we are
positioned to take advantage of transcontinental transport opportunities
for the movement of produce and other perishables from producing regions
to consuming regions.

. Experienced Management Team and Strong Strategic Relationships. Our
management team has extensive experience in the transportation,
logistics, and packaging industries, transportation and logistics
operations, acquisitions, and knowledge of the U.S. market. Our
management group understands and has experience integrating acquired
businesses into a common infrastructure. We also enter both major
markets--Europe and North America--with established local management
personnel for day-to-day operations and expansion. In addition, GE
Capital Corporation has a continuing relationship with us because of the
right of its subsidiary to become a direct or indirect holder of our
ordinary shares. We intend to use this continuing relationship to avail
ourselves of GE Capital's extensive experience and other relationships.

Business Strategy

Our objective is to be the preeminent international provider of round-trip
systems through the implementation of the following strategy:

. Expand in the United States. We believe the combination of (1) our
comprehensive round-trip systems and high quality RTCs and (2) our
relationships with producers and retailers, knowledge of shipping
platform and container management services, and experience with North
American distribution channels offer us a significant opportunity to
expand our round-trip systems business in the United States. In Europe,
the IFCO round-trip systems have become several large-scale retailers'
preferred alternative to conventional packaging and are continuing to
grow in popularity. We believe a similar evolution will occur in the
United States based upon comparable opportunities and receptiveness
among growers and retailers. Since we will benefit from the existing
pallet and industrial container network of approximately 70 supply and
maintenance depots, this strategy is expected to reduce expenditures on
network infrastructure in the United States. These expenditures are a
significant part of start-up costs in the United States.

. Cross Sell Among Businesses in the United States. Additional benefits of
expanding the IFCO round-trip systems in the United States are the
operating efficiencies and transportation savings as a result of
increased volume at common depot facilities. We believe that we will be
able to offer round-trip systems to U.S. pallet and industrial container
customers and retailers, pallet and industrial container services to
U.S. RTC customers and retailers, and comprehensive shipping platform
and management of backdock services to both. Backdock services include
the initial product receiving and container or pallet disposition
operations on a retailer's back dock.

. Further Development of Markets. We intend to continue our expansion into
other geographic and product markets with both existing and new products
and services.

. Dry Goods--We intend to continue expanding our round-trip systems to
the dry goods market. The dry goods market is significantly larger
than the produce market in both Europe and the United States and
remains largely unpenetrated by RTCs. We believe the many advantages
of RTCs will enable us to attract dry goods manufacturers and
retailers and provide us with additional market share in geographic
markets where we are already a leading provider of RTCs for produce
and other perishables.

. Worldwide--In the future, we intend to continue expanding our round-
trip systems to other geographic markets with an initial emphasis on
accelerating the growth of our developing operations in Japan and
South America.

. Further Logistics Systems Opportunities. Retailers, distributors, and
producers are focusing increasingly on cost-effective means of
transporting and effectively tracking their goods. We intend to
capitalize upon this trend by increasing and improving our array of
logistics services. We plan to continue development of a number of
services that are intended to grow our business profitably and ensure
our position as a leading provider of round-trip systems. One example is
the development of technology beyond traditional barcode scanners that
will allow our customers to record and transmit electronically
significantly more data about the location and movement of RTCs and the
products being transported in the RTCs.

. Continue to Pursue Strategic Acquisitions and Alliances Worldwide. We
believe that the fragmented nature of our industries provides
opportunities for both internal growth and growth through strategic
acquisitions. We intend to pursue both strategic acquisitions and those
that enable us to expand in selected geographic areas. In the last two
years, we have successfully completed and integrated 24 acquisitions. In
addition, we will consider joint ventures that would give us access to
new products, markets, or technologies.

The Transactions

In March 2000, we completed the merger of PalEx with and into Silver Oak
Acquisition Corp., our newly formed, wholly owned subsidiary, which changed its
name to "PalEx, Inc." The merger became effective immediately prior to the
issuance of the Series A notes. As a result of the merger and related
transactions, we own all of the stock of the IFCO Companies and PalEx. In the
merger, PalEx stockholders received merger consideration with a total value of
$9.00 per share consisting of cash and/or our ordinary shares for each share of
PalEx common stock. The total merger consideration for all the shares of PalEx
common stock was approximately $71.4 million in cash and approximately 7.4
million of our ordinary shares based on elections by PalEx stockholders and
adjustments pursuant to the merger agreement. The total consideration for the
merger was approximately $184.5 million for the PalEx common stock plus the
assumption of debt of PalEx, which was approximately $153.5 million as of
March 8, 2000.

In connection with the merger, we also completed an initial public offering
of our ordinary shares and entered into a new senior credit facility. We
applied a portion of the proceeds from borrowings under the new senior credit
facility, together with cash on hand and proceeds from the initial offering of
the Series A notes and the IPO, to refinance a substantial portion of the debt
of the IFCO Companies and PalEx, to pay the merger consideration to PalEx's
stockholders, and to fund other related transactions.

In connection with the merger, Schoeller Logistics Industries GmbH and
Gebruder Schoeller Beteiligungsverwaltungs GmbH contributed to IFCO Systems,
directly or indirectly, the outstanding capital shares of IFCO Europe, MTS, and
IFCO International owned by them.

In addition, we, together with Schoeller Industries, the shareholders of
Schoeller Industries, Schoeller Plast Industries GmbH, Gebruder Schoeller, and
Schoeller KG entered into the Option Release and IPO-Facilitation Agreement
with GE Capital and General Electric Erste Beteiligungs GmbH, in connection
with the merger and the IPO. Pursuant to that agreement, Schoeller Logistic
Technologies Holding GmbH issued a DM45.0 million, or approximately $21.8
million, convertible debenture to GE Erste in exchange for the contribution of
the preferential share of IFCO Europe owned by GE Erste. We also paid GE
Capital DM43.0 million, or

approximately $21.0 million (as of March 8, 2000), out of the net proceeds of
the initial offering of the Series A notes, the IPO, and the initial borrowings
under the new senior credit facility in consideration of the release of GE
Capital's and GE Erste's options and other rights to purchase shares of the
IFCO Companies.

At the same time as the completion of the IPO, we purchased the interest of
Intertape Polymer Group Inc. in IFCO-U.S., L.L.C. for approximately $5.0
million in cash. In addition, we repaid debt owed by IFCO U.S. to Intertape, of
approximately $24.2 million. As a result of this purchase, we own all of the
equity interests in IFCO U.S.

The merger, the IPO, the initial offering of the Series A notes, the new
senior credit facility, the refinancing of debt, the payment to GE Capital, and
the purchase of the remaining interest in IFCO U.S. are collectively referred
to herein as the "Transactions."

The following diagram illustrates the structure of IFCO Systems and its
subsidiaries after completion of the Transactions. This diagram is only a
summary and does not precisely reflect all the legal and corporate entities or
their relationships to one another.

[POST-MERGER LOGO]

Summary of Key Terms of the Exchange Offer

Securities to be
Exchanged................ On March 8, 2000, we issued (Euro)200.0 million
principal amount of Series A notes to CIBC World
Markets Corp. and Banc One Capital Markets, Inc.,
the Initial Purchasers of the Series A Notes, in a
transaction exempt from the registration
requirements of the Securities Act. The terms of
the Series B notes and the Series A notes are
identical in all material respects, except that
Series B notes will be freely transferable by the
holders of the Series B notes in accordance with
the transfer provision of the indenture.

The Exchange Offer........ You must properly tender your Series A notes and we
must accept them for exchange. We will exchange all
Series A notes that you tender and do not withdraw
by the expiration date of the exchange offer. If
you exchange your Series A notes, we will issue
Series B notes to you on or promptly after the
expiration date.

Expiration of Exchange
Offer.................... 5:00 p.m., New York City time, on August , 2000.

Ability to Resell Series
B Notes.................. We believe you may offer for resale, resell, and
otherwise freely transfer the Series B notes
without registration or delivering a prospectus to
a buyer if:

. you acquire the Series B notes in the ordinary
course of your business;

. you are not participating, do not intend to
participate, and have no arrangement or
understanding with any person to participate in
the distribution of Series B notes; and

. you are not related to us.

If this belief is inaccurate and you sell or
transfer any Series B note without delivering a
prospectus to a buyer or without an exemption from
the registration requirements of the Securities
Act, you may be responsible for money or other
damages under the Securities Act. We will not pay
those damages on your behalf.

Each broker-dealer that receives Series B notes for
its own account in exchange for Series A notes it
acquired as a result of market-making or other
trading activities must acknowledge that it will
deliver a prospectus in connection with any resale
of the Series B notes. A broker-dealer may use this
prospectus for an offer to resell, resale, or other
retransfer of the Series B notes issued to it in
the exchange offer.

Exchange offers are not being made to:

. holders of Series A notes in any jurisdiction in
which the exchange offer or its acceptance would
not comply with the securities or blue sky laws
of that jurisdiction; and

. holders of Series A notes who we control.

No Minimum Required....... There is no minimum amount of Series A notes that
you must tender in the exchange offer.

Procedures for Exchanging
Your Series A Notes...... If you wish to exchange your Series A notes, you
must transmit to The Bank of New York, our exchange
agent, on or before the expiration date a properly
completed and executed letter of transmittal, which
we have provided to you with this prospectus, or a
facsimile of the letter of transmittal, together
with your Series A notes and any other
documentation requested by the letter of
transmittal; or

By agreeing to the letter of transmittal, you will
make those representations described on page 23
under the heading "The Exchange Offer--Purpose and
Effect."

Special Procedures for
Beneficial Owners........ If you are a beneficial owner whose Series A notes
are registered in the name of a broker, dealer,
commercial bank, trust company, or other nominee
and you wish to exchange your Series A notes, you
should contact the registered holder promptly and
instruct the registered holder to exchange the
Series A notes for you. If you wish to exchange
your Series A notes on your own behalf, you must
either make appropriate arrangements to register
ownership of the Series A notes in your name or
obtain a properly completed bond power from the
registered holder.

The transfer of registered ownership may take
considerable time and you may not be able to
complete the transfer before the expiration date of
the exchange offer.

Withdrawal Rights......... Unless we extend the date, you may withdraw your
tendered Series A notes at any time before 5:00
p.m., New York City time, on the expiration date of
the exchange offer.

Exchange Agent............ The address, telephone number and facsimile number
for the exchange agent is:

The Bank of New York The Bank of New York
101 Barclay Street 30 Cannon Street
New York, New York 10286
or London EC4M 6XH England
Telephone: (212) 815-5919 Telephone: 44-207-964-
Facsimile: (212) 815-4803 7284
Facsimile: 44-207-964-
6369

Kredietbank S.A. Luxembourgeoise, the Luxembourg
listing, paying, and transfer agent for the notes,
will also serve as the Luxembourg exchange agent.

Summary of Key Terms of the Series B Notes

You should be aware that the indenture that currently governs your Series A
notes is the same indenture that will govern the Series B notes, except that
there will be no restrictions on your sale of Series B notes.

Issuer.................... IFCO Systems, N.V.

Securities Offered........ (Euro)200,000,000 in aggregate principal amount of
Series B 10 5/8% Senior Subordinated Notes due
2010.

Maturity Date............. March 15, 2010.

Interest Rate............. 10 5/8% per year (calculated using a 360-day year).

Interest Payment Dates.... Each March 15 and September 15, beginning on
September 15, 2000.

Security and Ranking...... The Series B notes will not be secured by any
collateral.

The Series B notes will rank below all of our
senior debt. Therefore, if we default, your right
to payment under the Series B notes will be junior
to all of our senior debt, including any debt under
our new senior credit facility.

The Series B notes will effectively rank below all
liabilities (including trade payables) of our
subsidiaries that are not guarantors.

As of March 31, 2000, we had approximately $57.5
million of senior debt, excluding capital lease
obligations, and the ability to borrow additional
senior debt under the new senior credit facility.

Guarantees................ All of our material subsidiaries will guarantee the
payment of the Series B notes with unconditional
guarantees that will effectively rank below their
senior debt in right of payment.

Form of Notes; Payment.... You will not be entitled to receive Series B notes
in definitive form except in limited circumstances.

We will make payments on the Series B notes in
euros. You must notify the Common Depositary if you
wish to receive payments on the Series B notes in
U.S. dollars. You will bear all currency exchange
costs.

Optional Redemption after
Five Years............... Except in the case of certain public equity
offerings by us and in the case of certain
Netherlands tax events, we cannot redeem the Series
B notes prior to March 15, 2005.

At any time from and after that date, which may be
more than once, we may redeem some or all of the
Series B notes at specified prices, plus accrued
interest.

Optional Redemption after
Public Equity
Offerings................ At any time which may be more than once, before
March 15, 2003, we can buy back up to 35% of the
Series B notes with money we raise in one or more
public equity offerings, as long as:

. we pay 110.625% of the face amount of the Series
B notes bought, plus accrued interest;

. we buy the Series B notes within 60 days of
completing the public equity offering; and

. at least 65% of the Series B notes originally
issued remain outstanding afterwards.

Change of Control Offer... If we experience a change in control, we must give
holders of the Series B notes the opportunity to
sell us their Series B notes at 101% of their face
amount, plus accrued interest.

We may not be able to pay you the required price
for Series B notes you present to us at the time of
a change of control, because:

. we might not have enough funds at that time; or

. the terms of our senior debt, including the new
senior credit facility, may prevent us from
paying such amount.

Tax Gross-up and
Redemption .............. We will make payments on the Series B notes free of
withholding or deduction for Netherlands taxes
except as required by law. If withholding or
deduction is required, we may be required to pay
additional amounts so that the net amounts you
receive will equal the amount you would have
received if withholding or deduction had not been
imposed. In that event, however, we can redeem the
Series B notes, in whole but not in part, at any
time at 100% of their face amount, plus accrued
interest.

Asset Sale Proceeds....... We may have to use the cash proceeds from selling
assets to offer to buy back Series B notes at their
face amount, plus accrued interest.

Certain Indenture
Provisions............... The indenture governing the Series B notes will
limit what we, and most or all of our subsidiaries,
may do. The provisions of the indenture will limit
our ability to:

. incur more debt;

. pay dividends and make distributions;

. issue stock of subsidiaries;

. make investments;

. repurchase stock;

. create liens;

. enter into transactions with affiliates;

. enter into sale-leaseback transactions;

. merge or consolidate; and

. transfer or sell assets.

These covenants are subject to a number of
important exceptions.

Use of Proceeds........... We will not receive any cash proceeds from the
issuance of the Series B notes in this exchange
offer.

For more complete information about the Series B notes, see the "Description
of the Registered Notes" section of this prospectus.

Risk Factors

In connection with the exchange offer and before making an investment in the
Series B notes, you should consider carefully the information included in the
"Risk Factors" section of this prospectus, as well as other information
contained in this prospectus.

----------------

We were organized on March 31, 1999, under the laws of the Netherlands. Our
corporate headquarters are located at "Rivierstaete", Amsteldijk 166, 1079 LH,
Amsterdam, The Netherlands. Our telephone number at that address is 31-20-504-
1772.

Summary Unaudited Pro Forma Combined and Consolidated Financial Data

The summary pro forma financial information for IFCO Systems shows you how
we might have looked if the Transactions had been completed as of January 1,
1999, for purposes of the statement of operations data and other financial
data. When reading the summary pro forma financial information, you should also
read the unaudited pro forma combined and consolidated financial statements
included in this prospectus. The pro forma financial statements were prepared
using the purchase method of accounting, with the IFCO Companies treated as the
accounting acquiror. If we had actually completed the Transactions as of
January 1, 1999, we might have performed differently. You should not rely on
the pro forma financial information as an indication of the results that we
would have achieved if the Transactions had taken place earlier or the future
results that we will experience after completion of these Transactions.

Fiscal Three Months
Year Ended Ended March 31,
December 31, ------------------
1999 1999 2000
------------ -------- --------

Statement of Operations Data:
Revenues....................................... $547,364 $136,025 $133,283
Gross profit................................... 105,768 26,490 22,479
Income from operations......................... 22,713 6,680 1,330
Net interest cost.............................. (21,223) (5,361) (6,207)
Net (loss)..................................... (7,902) (2,117) (9,910)
Other Financial Data:
EBITDA(1)...................................... $ 85,853 $ 21,438 $ 22,268
EBITDA margin(1)............................... 15.7% 15.8% 16.7%
Depreciation and amortization.................. $ 56,738 $ 15,059 $ 19,205
Capital expenditures(2)........................ 30,767 16,835 9,004

- --------
(1) EBITDA is not presented as an alternative measure of operating results or
cash flows from operations as determined in accordance with generally
accepted accounting principles, but because it is an accepted financial
indicator of the ability to incur and service debt. EBITDA represents our
pro forma combined net (loss) after exclusion of net interest costs, income
tax provisions, depreciation and amortization charges, and nonrecurring,
one-time charges (credits). EBITDA as presented is not necessarily
comparable with similarly titled measures presented by other companies.
EBITDA margin is calculated by dividing our EBITDA by our pro forma
revenues for the same period. The following table reflects the calculation
of EBITDA:

Fiscal Three Months
Year Ended Ended March 31,
December 31, ---------------
1999 1999 2000
------------ ------- -------

Net (loss)(3)................................... $(6,786) $(2,052) $(9,910)
Income tax provision............................ 8,130 2,488 236
Net interest cost............................... 21,223 5,361 6,207
Depreciation and amortization................... 56,738 15,059 19,205
Non-recurring charges........................... 6,548 582 6,530
------- ------- -------
EBITDA........................................ $85,853 $21,438 $22,268
======= ======= =======

(2) Our pro forma capital expenditures have been calculated by adding the
historical capital expenditures of IFCO Systems and PalEx and do not
reflect any pro forma adjustments.

(3) Net loss in the above table excludes the effect of minority interest and
participating rights.

Summary Historical Financial Information

The following tables show summary historical financial information for IFCO
Systems and consolidated historical financial information for PalEx. The
summary combined and consolidated historical statement of operations data for
IFCO Systems for the three years ended December 31, 1999, is derived from the
audited combined and consolidated financial statements of IFCO Systems, which
were audited by PwC Deutsche Revision AG, independent accountants. All other
historical financial information for IFCO Systems is unaudited. The summary
consolidated historical statement of operations information for PalEx for the
three years ended December 26, 1999, is derived from PalEx's audited
consolidated financial statements, which were audited by Arthur Andersen LLP,
independent certified public accountants.You should read this summary
historical financial information along with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the combined and
consolidated financial statements of IFCO Systems and consolidated financial
statements of PalEx included in this prospectus. IFCO Systems' financial
statements have been prepared in U.S. dollars and in accordance with U.S. GAAP.

IFCO Systems

Three Months
Year Ended December 31, Ended March 31,
---------------------------- ----------------
1997 1998 1999 1999 2000
-------- -------- -------- ------- -------
(in thousands) (unaudited)

Statement of Operations Data:
Revenues...................... $118,546 $136,176 $154,726 $38,799 $57,263
Cost of sales................. 99,622 106,218 124,485 31,289 47,319
-------- -------- -------- ------- -------
Gross profit.................. 18,924 29,958 30,241 7,510 9,944
Selling, general and
administrative expenses...... 18,328 24,289 24,511 6,137 6,865
Merger and integration costs.. -- -- 3,519 582 1,283
Amortization of goodwill...... 675 383 289 72 642
Other operating (income),
net.......................... (840) (864) (639) (234) (147)
-------- -------- -------- ------- -------
Income (loss) from
operations................... 761 6,150 2,561 953 1,301
Net interest cost............. (10,415) (10,494) (11,934) (3,081) (4,303)
Other income (expense), net... (2,139) (2,997) (3,070) (1,110) (679)
Income tax (provision)
benefit...................... (47) (210) (320) (34) 707
Minority interest............. -- (1,274) (1,291) (65) --
Extraordinary loss on early
extinguishment of debt....... -- -- -- -- (5,600)
Cumulative effect of change in
accounting principle......... -- -- -- -- 770
-------- -------- -------- ------- -------
Net (loss).................... $(11,840) $ (8,825) $(14,054) $(3,337) $(7,804)
======== ======== ======== ======= =======

PalEx

Year Ended
--------------------------------------
December 28, December 27, December 26,
1997 1998 1999
------------ ------------ ------------
(in thousands)

Statement of Operations Data:
Revenues............................... $222,993 $319,691 $386,887
Cost of goods sold..................... 188,084 259,562 311,735
Inventory valuation adjustment......... -- 1,235 --
-------- -------- --------
Gross profit........................... 34,909 58,894 75,152
Selling, general and administrative
expenses.............................. 20,135 33,042 44,249
Amortization of goodwill and other
intangible assets..................... 593 3,334 4,774
Pooling expenses....................... -- 1,841 --
Compensation differential.............. 1,020 1,062 --
Restructuring charge................... -- 949 --
Plant closure costs and asset
abandonment loss...................... -- 1,369 --
-------- -------- --------
Income from operations................. 13,161 17,297 26,129
Net interest cost...................... (1,722) (8,468) (14,996)
Other income (expense), net............ (95) 262 1,397
Provision for income taxes............. (4,704) (5,105) (5,777)
-------- -------- --------
Net income............................. $ 6,640 $ 3,986 $ 6,753
======== ======== ========

RISK FACTORS

You should carefully consider all the information in this prospectus,
including the following risk factors, in connection with the exchange offer and
before making an investment decision regarding the Series B notes.

Risks Related to the Notes

Our level of debt could prevent us from fulfilling our obligations under the
notes

As of March 31, 2000, we had approximately $242.4 million of net debt,
including capital leases, representing approximately 42% of total
capitalization. Our level of debt may have important consequences to you. For
example it could:

. limit our ability to obtain additional financing for acquisitions,
working capital, capital expenditures, or other purposes;

. require us to dedicate a substantial portion of our cash flow to pay our
interest expense and debt amortization, which will reduce the funds that
would otherwise be available to us for our operations and future business
opportunities;

. limit our flexibility in planning for, or reacting to, changes in our
business and the industries in which we operate;

. place us at a competitive disadvantage compared to our competitors that
have less debt;

. increase our vulnerability to general adverse economic and industry
conditions; and

. make it more difficult for us to satisfy our obligations with respect to
the notes.

Our ability to pay interest on the notes and to satisfy our other debt
obligations will depend in part upon the future financial and operating
performance of our subsidiaries and upon our ability to renew or refinance
borrowings or to raise additional equity capital. Prevailing economic
conditions and financial, business, and other factors, many of which are beyond
our control, will affect our ability to make these payments. While we believe
that cash flow from operations will provide an adequate source of long-term
liquidity, a significant drop in operating cash flow resulting from adverse
economic conditions, competition, or other uncertainties beyond our control
would increase the need for alternative sources of liquidity. If we are unable
to generate sufficient cash flow to meet our debt service obligations, we will
have to pursue one or more alternatives, such as:

. reducing or delaying capital expenditures;

. refinancing debt;

. selling assets; or

. raising equity capital.

We cannot assure you that any of these alternatives could be accomplished on
satisfactory terms, if at all, or that those actions would yield sufficient
funds to retire the notes and the debt senior to the notes.

The risks described above could increase if we borrow more money through our
new senior credit facility

Despite our level of debt, our new senior credit facility and the indenture
governing the notes permit us to borrow additional money. Any additional debt
could rank senior in right of payment to the notes. If we borrow more money, as
we intend to do in order to make acquisitions and capital improvements, the
related risks described above could be significantly increased.

The notes and the guarantees are subordinate to our other debt

The notes and the guarantees are unsecured and rank behind all of our
existing and future senior debt, including our obligations under the new senior
credit facility. Our debt under the new senior credit facility will also become
due prior to the time the principal obligations under the notes become due. As
a result of the subordination provisions of the notes, in the event of a
liquidation or insolvency, our assets will be available to pay obligations on
the notes only after all of our senior debt has been paid in full. After our
senior debt has been paid in full there may not be sufficient assets remaining
to pay amounts due on any or all of the notes then outstanding. If we incur any
additional senior subordinated debt, the holders of that debt would be entitled
to share ratably with the holders of the notes in any proceeds distributed in
connection with any insolvency, liquidation, reorganization, dissolution or
other winding-up. This right may have the effect of reducing the amount of
proceeds paid to holders of the notes. In addition, no payments may be made
with respect to the principal of or premium, if any, or interest on the notes
if a payment default exists with respect to our senior debt and, under certain
circumstances, no payments may be made with respect to the principal of,
premium or interest on, the notes for a certain period if a non-payment default
exists with respect to the senior debt.

Federal and state fraudulent transfer statutes allow courts, under specific
circumstances, to void or subordinate indebtedness such as the notes in favor
of other creditors

Federal and state laws allow courts, under specific circumstances, to void
debts and require creditors to return payments received from debtors.

Under the federal bankruptcy law and comparable provisions of state
fraudulent transfer laws, a court could void the guarantees of the notes by
certain of our subsidiaries, or could subordinate claims in respect of those
guarantees to all of our other debts or the debts of any of our subsidiaries
that guarantee the notes if, among other things, that court found that any of
those subsidiaries, at the time we issued the notes and gave their guarantee:

(1) intended to hinder, delay, or defraud current or future creditors; or

(2) received less than reasonably equivalent value or fair consideration
for incurring the indebtedness and the subsidiary:

(A) was insolvent or was rendered insolvent by its guarantee of the
notes;

(B) was engaged or about to engage in a business or transaction for
which its assets remaining constituted unreasonably small capital
to carry on its business; or

If a court found that these conditions were met, it could, in addition, void
any payment by that subsidiary under the notes or its guarantee and require the
recipients of those payments to return them to that subsidiary or to a fund for
the benefit of creditors of that subsidiary.

While the various state and federal laws that might be applied by the courts
do not use identical tests, in general, a subsidiary would be considered
insolvent if:

. the sum of its debts, including contingent liabilities, were greater than
the fair saleable value of all of its assets; or

. the present fair saleable value of its assets were less than the amount
that it would need to pay its probable liability on existing debts,
including contingent liabilities, as they become absolute and mature.

We cannot assure you as to what standard a court would apply in making such
determinations or that a court would conclude that our subsidiaries were
solvent at the time of the offering.

To the extent these guarantees were voided as a fraudulent conveyance or
held unenforceable for any other reason, holders of notes would cease to have
any claim in respect of these subsidiaries and would be creditors solely of
IFCO Systems. In that event, the claims of holders of notes against these
subsidiaries would be subject to the prior payment of all liabilities and
preferred stock claims of these subsidiaries. We cannot assure you that, after
providing for all prior claims and preferred stock interests, if any, there
would be sufficient assets to satisfy the claims of holders of notes relating
to any voided portions of the guarantees of the notes by these subsidiaries.

Restrictions and covenants in our debt agreements limit our ability to take
certain actions and perform some corporate functions

Our debt agreements, which consist of the indenture governing the notes and
the credit agreement and any ancillary agreements governing the new senior
credit facility, contain a number of significant covenants that, among other
things, limit our ability to:

. incur additional debt or liens;

. pay dividends or make other restricted payments;

. make investments including the repurchase or redemption of either capital
stock or the notes;

. consummate asset sales;

. enter into transactions with affiliates;

. issue capital stock of a subsidiary or create dividend or other payment
restrictions with respect to subsidiaries;

. consolidate or merge with any person or transfer or sell all or
substantially all of our assets;

. make capital investments; and

. alter our conduct.

In addition, the new senior credit facility requires us to comply with
specific financial ratios and tests, under which we are required to achieve
specific financial and operating results. Our ability to comply with these
provisions may be affected by events beyond our control. A breach of any of
these covenants would result in a default under the new senior credit facility.
In the event of any default, depending on the actions taken by the lenders
under the new senior credit facility, we could be prohibited from making any
payments on the notes. In addition, our lenders could elect to declare all
amounts borrowed under the new senior credit facility, together with accrued
interest thereon, to be due and payable, which would be an event of default
under the indenture governing the notes. As a result of the priority afforded
the new senior credit facility, we cannot assure you that we would have
sufficient assets to pay debt then outstanding under the new senior credit
facility and the indenture. Any future refinancing of the new senior credit
facility is likely to contain similar restrictive covenants.

We may not have the ability to raise the funds necessary to finance a change
of control offer if required by the indenture

Upon the occurrence of a change of control, we will be required to make an
offer to purchase the notes at a price in cash equal to 101% of their aggregate
principal amount, plus any accrued and unpaid interest, to the date of
repurchase. Events involving a change of control may result in an event of
default under the new senior credit facility and other debt that may be
incurred in the future. This could result in an acceleration of the payment of
that debt, in which case the subordination provisions of the notes would
require payment in full of all senior debt before we can repurchase or make
other payments in respect of the notes. We cannot assure you that we would have
sufficient resources to repurchase the notes or pay our obligations if the debt
under the new senior credit facility or other future senior debt were
accelerated upon the occurrence of a change of control.

We cannot assure you that we will be able to obtain the consent of the lenders
under the new senior credit facility to enable us to repurchase the notes.

We cannot assure you that an active trading market for the Series B notes will
develop and your ability to transfer them may be limited

Before this exchange offer, there was no public market in the U.S. for the
Series A Notes, and we cannot assure you that a market for the Series B notes
will develop. We also cannot assure you of the ability of holders of the Series
B notes to sell their notes or the price at which holders may be able to sell
their notes. The Series B notes could trade at prices that may be lower than
the initial offering price depending on many factors, including prevailing
interest rates, our operating results and the market for similar securities.
The Initial Purchasers of the notes have advised us that they currently intend
to make a market in the Series B notes. The Initial Purchasers are not
obligated to do so, however, and any market-making with respect to the Series B
notes may be discontinued at any time without notice. In addition, market-
making activity will be subject to the limitations imposed by the Securities
Act and the Securities Exchange Act of 1934. We have applied to list the Series
B notes on the Luxembourg Stock Exchange. To the extent that Series A notes are
tendered and accepted in the exchange offer, the market for the remaining
untendered Series A notes among investors qualified to purchase and sell those
notes could be adversely affected.

The Series A notes will continue to be subject to transfer restrictions if you
do not exchange them in the exchange offer

If you do not exchange your Series A notes for Series B notes in the
exchange offer, the Series A notes will continue to be subject to the
restrictions on transfer described in the legend on the Series A notes. The
restrictions on transfer of the Series A notes exist because we issued the
Series A notes based upon exemptions to the registration requirements of the
Securities Act and applicable state securities laws. In general, you may only
offer or sell the currently outstanding Series A notes if they are registered
under the Securities Act and applicable state securities laws or are offered
and sold under an exemption from these registration requirements. We do not
intend to register the currently outstanding Series A notes under the
Securities Act.

Risks Related to IFCO Systems

The operational and financial benefits expected from the merger may not be
realized

Schoeller Industries and PalEx entered into the merger agreement with the
expectation that the merger would produce substantial operational and financial
benefits for both the IFCO Companies and PalEx, including the use of PalEx's
North American infrastructure to accelerate the expansion of the IFCO
Companies' business in the United States. The integration of two large
companies, incorporated in different countries, with geographically dispersed
operations, and with significant differences in business plans, business
cultures, and compensation structures, presents significant challenges and will
require substantial attention from management. The diversion of management's
attention and any difficulties encountered in the transition and integration
process could reduce revenues, increase levels of expenses, and impair
operating results of the combined company. In addition, we may not be
successful in using the PalEx North American locations in connection with the
IFCO Companies' U.S. business.

We will be controlled by a limited number of shareholders, which limits the
ability of the public shareholders to influence our affairs

Christoph and Martin Schoeller, through Schoeller Industries and/or
affiliates and Schoeller Holding, beneficially own, excluding options,
approximately 46.8% of our outstanding ordinary shares. The Schoellers are able
to influence our business, policies, and affairs and may be able to block
approval of any proposed merger, combination, or sale of substantially all our
assets. Because they have the largest beneficial ownership, the Schoellers may
legitimately seek to preserve their control and may not have the same interest
as the holders

of the notes in pursuing strategic investments or business combinations if the
result would be a decrease in control or would cause us no longer to exist as a
separate entity.

Christoph Schoeller does not devote his full time to IFCO Systems, which may
impair our business prospects

Under the terms of a management agreement with IFCO Europe, Schoeller
Industries provides administrative and management services, but Christoph
Schoeller, who is Chairman of our board of directors, does not devote to us his
full working time. Because of other Schoeller family business interests,
Christoph Schoeller will continue to be unable to devote his undivided
attention to our operations and management. This may impede our management and
operations and limit the growth prospects for our business.

Our international operations may prove more difficult or costly than our
domestic operations

Since we have significant operations outside of Germany and the United
States, we are subject to the risks associated with cross-border business
transactions and activities. These risks principally relate to delayed payments
from customers in some countries or difficulties in the collection of
receivables generally. Political, legal, trade, or economic changes or
instability could limit or curtail our business activities and operations in
Eastern Europe, Asia, and South America. Unexpected changes in regulatory
requirements, tariffs and other trade barriers, and price exchange controls
could limit operations and make the distribution of products difficult. In
addition, the uncertainty of the legal environment in these areas could limit
our ability to effectively enforce our rights.

We may incur increased costs due to fluctuations in interest rates and foreign
currency exchange rates

As a consequence of the global nature of our business, we are exposed to
increases in interest rates and changes in foreign currency exchange rates,
which may result in decreased profitability. We seek to minimize these risks
through regular operating and financing activities and, when appropriate,
through the use of currency and interest rate hedges and similar financial
instruments, although these measures may not be implemented or be effective. We
are also exposed to risks from changes in foreign currency exchange rates as a
result of our financial reporting in U.S. dollars.

We are dependent on extensive capital investment, which may not be readily
available

Our business plan calls for extensive capital investment. We may be unable
to obtain sufficient capital resources to finance our operations. A lack of
capital or an increase in the cost of capital may prevent us from achieving our
growth plans and our financial objectives.

We are dependent on our relationships with a small number of large retailers

We are dependent on our relationships with a small number of large
retailers. Our inability to maintain these relationships or cultivate new
relationships on similar terms will impair our ability to remain competitive in
the markets in which we operate. The loss of one or more of these relationships
would have a negative impact on our revenues and profitability.

Our growth strategies may not be achieved

We expect to grow both internally and through acquisitions and alliances. We
expect to spend significant time and effort in evaluating, completing, and
integrating acquisitions.

Acquisitions may involve a number of operational risks, including:

. integration of acquisitions may not be successful or may not be possible
without substantial costs, delays, or other problems, in either case
reducing any positive impact on our revenues and profitability or
actually decreasing profitability;

. adverse short-term effects on reported operating results, which will
result in lower profitability;

. diversion of management's attention from operations, which could result
in decreased profitability or limit internal growth; and

. dependence on retention, hiring, and training of key personnel, which
may impair our ability to integrate acquisitions successfully or may
prevent us from seizing future growth opportunities, both internally and
through acquisitions.

To the extent we are unable to manage our growth effectively, or are unable
to attract and retain qualified management, our ability to grow or maintain our
level of revenues and profitability, or to implement our business plan, could
be materially limited.

In addition, we may not be able to identify or acquire additional
businesses. We could also experience increased competition for acquisitions of
desirable companies, which could increase the amounts paid for acquisitions or
reduce the number of acquisition candidates, resulting in reduced growth
opportunities.

Our business models may not succeed in new markets

Our business plans rely on duplicating our business models in new markets,
including the United States. Our business models may not be successfully
duplicated in these new markets.

Weather conditions may reduce demand for our services and products

We provide a significant portion of our services and products to customers
who ship agricultural products. Severe weather, particularly during the
harvesting seasons, may cause a reduction in demand from agricultural
customers, lowering our revenues and profitability. For example, a heavy freeze
that damages citrus or other produce crops could have a significant negative
impact on our financial condition and results of operations.

Our operating results may fluctuate significantly due to seasonal factors

Our businesses are subject to seasonal variations in operations and demand.
Our operations experience the greatest demand for RTCs, new pallets, and
reconditioned industrial containers during the citrus and produce harvesting
seasons, generally October through May, with significantly lower demand from
the citrus and produce industries in the summer months. Moreover, yearly
results can also fluctuate significantly. Fluctuations are the result of the
size of the citrus and produce harvests, which, in turn, largely depend on the
occurrence and severity of inclement weather. Accordingly, our performance in
any particular quarter may not be indicative of the results that can be
expected for any other quarter or for the entire year.

Our cost of goods sold may be subject to increases because of unmanageable
changes in the cost or availability of lumber, the largest raw material cost
for pallets

The largest component of cost of goods sold for our wooden pallets is
lumber. Any increase in the cost of lumber or decrease in the availability of
lumber will materially increase cost of goods sold resulting in decreased
profitability unless there is a corresponding increase in the prices we charge
our customers. We, however, may be limited in how much of a cost increase, if
any, we are able to pass along to customers or how quickly we are able to pass
along a cost increase to customers. In addition, increases in prices may result
in a decrease in sales. The majority of the lumber used in the pallet industry
is hardwood, which is only grown in some regions of the United States.

If the demand for lumber is greater than the supply, the price will increase
and our cost for lumber will increase. The factors affecting supply and demand
are outside our control, including:

. competing demand from other pallet manufacturers and other industries
that use similar grades and types of lumber;

. governmental limits on logging on public lands or for environmental
reasons; and

. governmental agreements limiting lumber imports into the United States
or Canada.

Since lumber is difficult to harvest in adverse weather, adverse weather may
also decrease the supply, resulting in price increases. We may not be able to
secure adequate lumber supplies in the future at prices we consider reasonable.

Our RTC business competes in a highly competitive industry, which may limit
our business prospects

We face competition in all geographic markets and each industry sector in
which we operate. We expect aggressive competition from packaging industry
companies. We also face aggressive competition from the traditional packaging
industry. In addition, relatively few barriers prevent entry into the
traditional packaging and pallet industries. The effect of this competition
could reduce our revenues, limit our ability to grow, increase pricing pressure
on our products, and otherwise affect our financial results.

Our markets for pallet manufacturing and recycling services and industrial
container reconditioning services are highly competitive, which may limit our
ability to grow or maintain profitability

The markets for pallet manufacturing and recycling services and drum
reconditioning services are highly fragmented and competitive. As a result,
competition on pricing is often intense. Competition for customers and
competitive pricing pressure holding down prices may limit our ability to grow
or maintain profitability.

Our pallet manufacturing operations may also be subject to competition from
lumber mills, which could decrease our profitability

We often compete with lumber mills in the sale of new pallets. These mill
competitors typically view pallet manufacturing as an opportunity to use the
lower grade lumber that would otherwise be waste. As a result, they are able to
manufacture and sell low-cost pallets. This depresses pallet prices overall,
which could decrease our profitability.

Our pallet manufacturing and recycling operations are subject to competition
from larger competitors, which may limit our ability to grow or maintain
revenues and profitability

Other companies with significantly greater capital and other resources than
our capital and resources may enter or expand their operations in the pallet
manufacturing and recycling businesses in the future, which could place us in
direct competition with these larger companies in the markets for new and
recycled pallets. Increased competition from large competitors could reduce our
revenues through loss of customers or competitive pricing pressures. Decreases
in revenues could have a corresponding effect on profitability.

Our pallet operations face competition from other pallet alternatives, which
could limit or decrease revenues and profitability

Our new and recycled pallet operations face competition from pallet leasing
or other pallet systems providers, which are marketed as less expensive or
otherwise more favorable alternatives to new pallet purchasers. Pallet leasing
competes currently with new and recycled pallet sales to the grocery and
wholesale distribution industries and may expand into other industries in the
future. CHEP, with significantly greater resources than us, is currently the
dominant pallet leasing company in the world. Other pallet systems may include
pallets fabricated from non-wooden components like plastic as cost-effective,
durable alternatives to

wooden pallets. Increased competition from pallet leasing companies or
providers of other alternatives could make it more difficult for us to attract
and retain customers or force us to reduce prices. As a result, revenue growth
may be limited or may decrease with corresponding effects on our profitability.

We have potential exposure to environmental liabilities, which may increase
costs and lower profitability

Our operations are subject to various environmental laws and regulations,
including those dealing with handling and disposal of waste products, fuel
storage, and air quality. As a result of past and future operations at our
subsidiaries' facilities, we may be required to incur remediation costs and
other related expenses. In addition, although we intend to conduct appropriate
due diligence with respect to environmental matters in connection with future
acquisitions, we may not be able to identify or be indemnified for all
potential environmental liabilities relating to any acquired business. One of
our subsidiaries currently has potential exposure to environmental liabilities
as a result of contaminations at the Zellwood Groundwater Contamination Site in
Orange County, Florida. For a description of the potential exposure, see
"Business--Regulation--Industrial Containers." Environmental liabilities
incurred by us or our subsidiaries, if not covered by adequate insurance or
indemnification, will increase our costs and have a negative impact on our
profitability.

We may not be able to negotiate with union employees and may be subject to
work stoppages

Approximately 300 employees of our industrial container group are members of
various labor unions. If we are unable to negotiate acceptable contracts with
these unions as existing agreements expire, strikes or other work stoppages by
the affected workers could occur and increased operating costs due to higher
wages or benefits paid to union members may result. If the unionized employees
engage in a strike or other work stoppage, or other employees become unionized,
we could experience a significant disruption of our operations and higher
ongoing labor costs. This could result in decreased revenues and/or lower
profitability than otherwise could have been achieved.

Protecting securityholders rights may prove more difficult and costly than in
a U.S. corporation

Our corporate affairs are governed by our articles of association and by the
laws of the Netherlands. The rights of our securityholders and creditors and
the responsibilities of directors on our board of directors, our officers, and
the experts named in this prospectus, some of whom may reside outside of the
United States, are different than those established under the laws of Delaware
or other U.S. jurisdictions. Therefore, our public securityholders may have
more difficulty and be subject to higher costs in protecting their interests in
the face of actions by our management, the board of directors or controlling
securityholders than they would as securityholders of a corporation
incorporated in Delaware or other U.S. jurisdictions. This may include
difficulty in effecting service of process within the United States upon us or
those persons, or enforcing, in courts outside of the United States, judgments
against us or those persons obtained in U.S. courts and based upon the civil
liability provisions of the federal securities laws of the United States.
Furthermore, since a substantial portion of our assets will be located outside
of the United States, any judgment obtained in the United States against those
persons or us may not be collectible within the United States. Additionally,
there may be doubt as to the enforceability, in original actions in Dutch
courts, of liabilities based solely upon the federal securities laws of the
United States.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements contained in this prospectus discuss future
expectations, contain projections of results of operations or financial
condition of IFCO Systems or PalEx, or state other forward-looking information.
These statements may include financial information and/or statements for the
period following this exchange offer. You can find many of these statements by
looking for words like believes, expects, anticipates, estimates, or similar
expressions used in this prospectus.

These forward-looking statements may be affected by known and unknown risks,
uncertainties, and other factors that could cause the actual results to differ
materially from those contemplated by the statements. The forward-looking
information is based on various factors and was derived using numerous
assumptions that we believe to be reasonable.

Risks and uncertainties include the following:

. our ability to effectively integrate our operations and achieve our
operational and growth objectives;

. the competitive nature of the container businesses, including RTCs,
pallets, and industrial containers;

. customer demand and business and economic cycles;

. the ability to finance capital expenditures and growth;

. conditions in lumber markets;

. seasonality;

. weather conditions;

. changes in national or international politics and economics;

. currency exchange rate fluctuations; and

. changes in capital and financial markets, including the performance of
companies listed on the Frankfurt Stock Exchange or the Nasdaq National
Market.

Important factors that could cause our actual results to be materially
different from the forward-looking statements are also disclosed in the "Risk
Factors" section and throughout this prospectus.

THE EXCHANGE OFFER

Purpose and Effect

On March 8, 2000, we sold the Series A notes to the Initial Purchasers. In
connection with the sale of the Series A notes, we entered into a registration
rights agreement with the Initial Purchasers. The registration rights agreement
requires that we use our reasonable best efforts to register the Series B notes
with the SEC and offer to exchange the new Series B notes for the Series A
notes. A copy of the registration rights agreement has been filed with the SEC
as an exhibit to our registration statement and we strongly encourage you to
read the entire text of the registration rights agreement. We expressly qualify
all of our discussions of the registration rights agreement by the terms of the
agreement itself. Except as discussed below, upon the completion of the
exchange offer we will have no further obligations to register your notes.

We need certain representations from you before you can participate in the
exchange offer. In order to participate in the exchange offer, we require that
you represent to us that:

. you are acquiring the Series B notes in the ordinary course of your
business;

. neither you nor any other person is engaging in, or intends to engage in,
a distribution of the Series B notes;

. neither you nor any other person has an arrangement or understanding with
any person to participate in the distribution of the Series B notes;

. neither you nor any other person is our "affiliate," which is defined
under Rule 405 of the Securities Act as a person that directly, or
indirectly through one or more intermediaries, controls or is controlled
by, or is under common control with, us; and

. if you or any other person is a broker-dealer, you will receive Series B
notes for your own account, your Series B notes will be acquired as a
result of market making activities or other trading activities and you
will be required to acknowledge that you will deliver a prospectus in
connection with any resale of your Series B notes.

You may be entitled to "shelf" registration rights. In accordance with the
registration rights agreement, we are required to file a shelf registration
statement covering your Series A notes for a continuous offering in accordance
with Rule 415 of the Securities Act. This means that we must file a second
registration statement to register your Series A notes if:

. we are not permitted to complete the exchange offer because of any change
in law or applicable interpretations of the staff of the SEC; or

. we are notified by any holder of Series A notes that it is prohibited
from participating in the exchange offer because of SEC policy, it may
not resell the Series B notes because it cannot comply with the
prospectus delivery requirements or it is a broker-dealer who holds
Series A notes purchased directly from us or one of our affiliates.

If we are obligated to file a shelf registration statement, we will be
required to keep the shelf registration statement effective until March 8,
2002. Other than as described above, you will not have the right to participate
in the shelf registration or require that we register your notes in accordance
with the Securities Act.

If you participate in the exchange offer and make the representations
provided above, we believe you will be able to freely sell or transfer your
Series B notes. We base our belief upon existing interpretations by the SEC's
staff contained in several "no-action" letters to third-parties unrelated to us
if you tender your Series A notes in the exchange offer for the purpose of
participating in a distribution of Series B notes, you cannot rely on this
interpretation by the SEC's staff and you must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction. Each broker-dealer who

receives Series B notes for its own account in exchange for its Series A
notes, whether the Series B notes were acquired by that broker-dealer as a
result of market-making activities or other trading activities, must
acknowledge that the broker-dealer will deliver a prospectus in connection
with any resale of the Series B notes.

You may suffer adverse consequences if you fail to exchange your Series A
notes. See "Risk Factors."

Following the completion of the exchange offer, except as provided above
and in the registration rights agreement, you will not have any further
registration rights and your Series A notes will continue to be subject to
restrictions on transfer. Accordingly, if you do not participate in the
exchange offer, your ability to sell your Series A notes could be adversely
affected.

Terms of the Exchange Offer

We will accept any validly tendered notes that are not withdrawn, prior to
5:00 p.m., New York City time, on the expiration date of the exchange offer.
We will issue the Series B notes in denominations of (Euro)50,000 and in
increments of (Euro)1,000 above (Euro)50,000 in exchange for each (Euro)50,000
and (Euro)1,000 principal amount, respectively, of your Series A notes. You
may tender some or all of your notes in the exchange offer.

The form and terms of the Series B notes will be the same as the form and
terms of your notes except that:

. interest on the Series B notes will accrue from the last interest payment
date on which interest was paid on your Series A notes, or, if no
interest was paid, from the date of the original issuance of your Series
A notes; and

. the Series B notes have been registered under the Securities Act and will
not bear a legend restricting their transfer.

This prospectus, together with the letter of transmittal you received with
this prospectus, is being sent to you and to others believed to have
beneficial interests in the Series A notes. You do not have any appraisal or
dissenters' rights under the laws of the Netherlands or under the indenture
governing your notes. We intend to conduct the exchange offer in accordance
with the requirements of the Securities Exchange Act of 1934 and the rules and
regulations of the SEC.

We will have accepted your validly tendered Series A notes when we have
given oral or written notice to the exchange agent. The exchange agent, the
Bank of New York, will act as agent for the tendering holders for the purpose
of receiving the Series B notes from us. If the exchange agent does not accept
any tendered Series A notes for exchange because of an invalid tender or for
any other valid reason, the exchange agent will return the certificates,
without expense, to the tendering holder as promptly as practicable after the
expiration date of the exchange offer.

You will not be required to pay brokerage commissions, fees, or transfer
taxes in the exchange of your Series A notes. We will pay all charges and
expenses other than any taxes you may incur in connection with the exchange
offer.

Expiration Date; Extensions; Amendments

The exchange offer will expire at 5:00 p.m., New York City time, on August
, 2000, unless we extend it and thereby delay acceptance for exchange of any
Series A notes. In order to extend the exchange offer, we will issue a notice
by press release or by other public announcement before 9:00 a.m, New York
City time, on the next business day after the previously scheduled expiration
date.

We reserve the right, in our sole discretion:

. to delay accepting your notes;

. to extend the exchange offer;

. to terminate the exchange offer if any of the conditions were not
satisfied by giving oral or written notice of delay, extension or
termination to the exchange agent; or

. to amend the terms of the exchange offer in any manner.

Procedures for Tendering Your Notes

Only you may tender your notes in the exchange offer. Except as stated on
page 27 under the heading "Book-Entry Transfer," to tender in the exchange
offer, you must:

. complete, sign, and date the enclosed letter of transmittal, or a copy of
it;

. have the signature on the letter of transmittal guaranteed if required by
the letter of transmittal; and

. mail, fax, or otherwise deliver the letter of transmittal or copy to The
Bank of New York as the exchange agent before the expiration date.

In addition, either:

. the exchange agent must receive certificates for your Series A notes and
the letter of a transmittal before the expiration date; or

. the exchange agent must receive a timely confirmation of a book-entry
transfer of your Series A notes into the account of the exchange agent at
Euroclear or Clearstream Banking, societe anonyme, formerly Cedelbank,
under the procedure for book-entry transfer described below before the
expiration date of the exchange offer.

For your Series A notes to be tendered effectively, the exchange agent must
receive a letter of transmittal and other required documents before the
expiration date of the exchange offer.

If you do not withdraw your tender before the expiration date, it will
constitute an agreement between you and us in accordance with the terms and
conditions in this prospectus and in the letter of transmittal.

The method of delivery to the exchange agent of your Series A notes, your
letter of transmittal, and all other required documents is at your election and
risk. Instead of delivery by mail, we recommend that you use an overnight or
hand delivery service. In all cases, you should allow sufficient time to assure
delivery to the exchange agent before the expiration date of the exchange
offer. Do not send either a letter of transmittal or your Series A notes
directly to us. You may request your broker, dealer, commercial bank, trust
company, or nominee to make the exchange on your behalf.

Procedure if the Series A Notes are not Registered in Your Name

Any beneficial owner whose Series A notes are registered in the name of a
broker, dealer, commercial bank, trust company, or other nominee and who wishes
to tender the Series A notes in the exchange offer should contact the
registered holder promptly and instruct the registered holder to tender the
Series A notes on the beneficial owner's behalf. If the beneficial owner wishes
to tender on the owner's own behalf, the owner must, before completing and
executing a letter of transmittal and delivering the owner's Series A notes,
either make appropriate arrangements to register ownership of the Series A
notes in the beneficial owner's name or obtain a properly completed bond power
or other proper endorsement from the registered holder. We strongly urge you to
act immediately since the transfer of registered ownership may take
considerable time.

Signature Requirements and Signature Guarantees

Unless you are a registered holder who requests that the Series B notes be
mailed to you and issued in your name, or unless you are a member of, or
participate in, the Securities Transfer Agents Medallion Program,

the New York Stock Exchange Medallion Signature Program, the Stock Exchange
Medallion Program, or an "Eligible Guarantor Institution" within the meaning of
Rule 17Ad-15 under the Securities Exchange Act, each an "Eligible Institution,"
you must guarantee your signature on a letter of transmittal or a notice of
withdrawal by an eligible guarantor institution.

If a trustee, executor, administrator, guardian, attorney-in-fact, officer
of a corporation, or other person acting in a fiduciary or representative
capacity signs the letter of transmittal or any notes or bond powers on your
behalf, that person must indicate their capacity when signing and submit
satisfactory evidence to us with the letter of transmittal demonstrating their
authority to act on your behalf.

Conditions to the Exchange Offer

We will decide all questions as to the validity, form, eligibility,
acceptance, and withdrawal of tendered Series A notes and our determination
will be final and binding on you. We reserve the absolute right to reject any
and all Series A notes properly tendered or accept any Series A notes that
would be unlawful in the opinion of our counsel. We also reserve the right to
waive any defects, irregularities, or conditions of tender as to particular
Series A notes. Our interpretation of the terms and conditions of the exchange
offer, including the instructions in a letter of transmittal, will be final and
binding on all parties. You must cure any defects or irregularities in
connection with tenders of Series A notes as we shall determine. Although we
intend to notify holders of defects or irregularities with respect to tenders
of Series A notes, we, the exchange agent, or any other person will not incur
any liability for failure to give this notification. Tenders of Series A notes
will not be deemed to have been made until any defects or irregularities have
been cured or waived. Any Series A notes received by the exchange agent that
are not properly tendered and as to which defects or irregularities have not
been cured or waived will be returned by the exchange agent to the tendering
holders, unless otherwise provided in the letter of transmittal, as soon as
practicable following the expiration date of the exchange offer.

We reserve the right to purchase or to make offers for any Series A notes
that remain outstanding after the expiration date of the exchange offer or to
terminate the exchange offer and, to the extent permitted by law, purchase
Series A notes in the open market, in privately negotiated transactions, or
otherwise. The terms of any of these purchases or offers could differ from the
terms of the exchange offer.

These conditions are for our sole benefit and we may assert or waive them at
any time or for any reason. Our failure to exercise any of our rights will not
be a waiver of our rights.

We will not accept for exchange any Series A notes tendered, and no Series B
notes will be issued in exchange for any Series A notes, if at the time any
stop order is threatened or in effect with respect to the registration
statement or the qualification of the indenture relating to the Series B notes
under the Trust Indenture Act of 1939. We are required to use every reasonable
effort to obtain the withdrawal of any stop order at the earliest possible
time.

In all cases, issuance of Series B notes will be made only after timely
receipt by the exchange agent of certificates for Series A notes or a timely
book-entry confirmation of the Series A notes into the exchange agent's account
at Euroclear or Clearstream Luxembourg, a properly completed and duly executed
letter of transmittal and all other required documents. If we do not accept any
tendered Series A notes for a valid reason or if you submit Series A notes for
a greater principal amount than you desire to exchange, we will return the
unaccepted or non-exchanged Series A notes to you at our expense. In the case
of Series A notes tendered by book-entry transfer into the exchange agent's
account at a book-entry transfer facility under the book-entry transfer
procedures described below, the non-exchanged Series A notes will be credited
to an account maintained with the book-entry transfer facility. This will occur
as promptly as practicable after the expiration or termination of the exchange
offer for the Series A notes.

Notwithstanding any other provision of the exchange offer, we will not be
required to accept for exchange, or to issue Series B notes in exchange for,
any Series A notes and may terminate or amend the exchange offer

if at any time before the acceptance of the Series A notes for exchange or the
exchange of the Series B notes for the Series A notes we determine that the
exchange offer violates applicable law, any applicable interpretation of the
staff of the SEC or any order of any governmental agency or court of competent
jurisdiction.

Book-Entry Transfer

The exchange agent will make requests to establish accounts with respect to
the Series A notes at Euroclear and Clearstream Luxembourg for purposes of the
exchange offer within two business days after the date of this prospectus. Any
financial institution that is a participant in Euroclear's and/or Clearstream
Luxembourg's systems may make book-entry delivery of Series A notes being
tendered by causing Euroclear and/or Clearstream Luxembourg to transfer the
Series A notes into the exchange agent's account at Euroclear and/or
Clearstream Luxembourg in accordance with the appropriate procedures for
transfer. However, although delivery of Series A notes may be effected through
book-entry transfer at Euroclear and/or Clearstream Luxembourg, a letter of
transmittal or copy thereof, with any required signature guarantees and any
other required documents, must be transmitted to and received by the exchange
agent on or before the expiration date of the exchange offer.

Withdrawal Rights

You may withdraw your tender of Series A notes at any time before 5:00 p.m.,
New York City time, on the expiration date of the exchange offer.

For a withdrawal to be effective, a written notice of withdrawal must be
received by the exchange agent at its address provided in this prospectus
before 5:00 p.m., New York City time, on the expiration date of the exchange
offer.

The notice of withdrawal must:

. specify the name of the person who deposited the Series A notes to be
withdrawn;

. identify the Series A notes to be withdrawn, including the certificate
number or numbers and principal amount of the Series A notes;

. be signed by the holder in the same manner as the original signature on
the letter of transmittal by which the Series A notes were tendered or be
accompanied by documents of transfer sufficient to have the trustee of
the Series A notes register the transfer of the Series A notes into the
name of the person withdrawing the tender; and

. specify the name in which any Series A notes are to be registered, if
different from that of the holder who tendered the Series A notes.

We will determine all questions as to the validity, form and eligibility of
any notices (including time of receipt), and our determination will be final
and binding on all parties. Any Series A notes withdrawn will not be considered
to have been validly tendered. We will return any Series A notes that have been
tendered but not exchanged without cost to the holder as soon as practicable
after withdrawal, rejection of tender or termination of the exchange offer.
Properly withdrawn Series A notes may be retendered by following one of the
above procedures before the expiration date.

Exchange Agent

The Bank of New York has been appointed as the exchange agent for the
exchange offer.

You should direct all executed letters of transmittal to the exchange agent.
Questions, requests for assistance, and requests for additional copies of the
prospectus or a letter of transmittal should be directed to the exchange agent
addressed as follows:

By Mail: By Facsimile Transmission: By Hand or Overnight
The Bank of New York 44-207-964-6369 Courier:
30 Cannon Street Attention: Emma Wilkes The Bank of New York
London EC4M 6XH England Confirm by Telephone: 30 Cannon Street
Attention: Emma Wilkes 44-207-964-7284 London EC4M 6XH England
Emma Wilkes Attention: Emma Wilkes

For Information by Telephone
(call collect):
(212) 815-5919 (New York)
or
44-203-964-7284 (London)

Fees and Expenses

We currently do not intend to make any payments to brokers, dealers, or
others to solicit acceptances of the exchange offer. The principal solicitation
is being made by mail. However, additional solicitations may be made in person
or by telephone by our officers and employees. Our estimated cash expenses
incurred in connection with the exchange offer will be paid by us and are
estimated to be approximately $500,000 in the aggregate. This amount includes
fees and expenses of The Bank of New York as the trustee for the Series B and
Series A notes and as the exchange agent and accounting, legal, printing, and
related fees and expenses.

Transfer Taxes

If you tender Series A notes for exchange, you will not be obligated to pay
any transfer taxes. However, if you instruct us to register Series B notes in
the name of, or request that your Series A notes not tendered or not accepted
in the exchange offer be returned to, a person other than you, you will be
responsible for the payment of any transfer tax owed.

THE TRANSACTIONS

In March 2000, we completed the merger of PalEx with and into IFCO Systems.
Pursuant to the Amended and Restated Agreement and Plan of Reorganization,
dated October 6, 1999, and effective as of March 29, 1999, as amended, (1)
PalEx merged with and into Silver Oak Acquisition Corp., our newly formed,
wholly owned subsidiary and (2) Schoeller Industries and Gebruder Schoeller
contributed to us, directly or indirectly, all of the outstanding stock of the
IFCO Companies owned by them. As a result of the merger and related
transactions, we own all of the stock of the IFCO Companies and PalEx. In the
merger, PalEx stockholders received merger consideration with a total value of
$9.00 per share consisting of cash and/or IFCO Systems ordinary shares for each
share of PalEx common stock. The total merger consideration was approximately
$71.4 million in cash and approximately 7.4 million of ordinary shares based on
elections by PalEx stockholders and adjustments pursuant to the merger
agreement. The total consideration for the merger was approximately $184.5
million for the PalEx common stock, plus the assumption debt of PalEx, which
was approximately $153.5 million as of March 8, 2000.

In connection with the merger and the IPO, we also completed an initial
public offering of our ordinary shares and entered into a new senior credit
facility. We applied a portion of the proceeds from borrowings under the new
senior credit facility, together with cash on hand and proceeds from the
initial offering of the Series A notes and the IPO, to refinance a substantial
portion of the debt of the IFCO Companies and PalEx, to pay the merger
consideration to PalEx's stockholders, and to fund other related transactions.

In addition, we, together with Schoeller Industries, the shareholders of
Schoeller Industries, Schoeller Plast Industries GmbH, Gebruder Schoeller, and
Schoeller KG entered into the Option Release and IPO-Facilitation Agreement
with GE Capital and GE Erste in connection with the merger and the IPO.
Pursuant to that agreement, Schoeller Holding issued a DM45.0 million, or
approximately $21.8 million, convertible debenture to GE Erste in exchange for
contribution of the preferential share of IFCO Europe owned by GE Erste. We
also paid GE Capital DM43.0 million, or approximately $21.0 million (as of
March 8, 2000), out of the net proceeds of the initial offering of the Series A
notes, the IPO, and the initial borrowings under the new senior credit facility
in consideration of the release of GE Capital's and GE Erste's options and
other rights to purchase shares of the IFCO Companies.

At the same time as the completion of the IPO, we purchased the interest of
Intertape Polymer Group Inc. in IFCO U.S. for approximately $5.0 million in
cash. In addition, we repaid debt owed by IFCO U.S. to Intertape of
approximately $24.2 million. As a result of this purchase, we own all of the
equity interests of IFCO U.S.

USE OF PROCEEDS

We will not receive any cash proceeds from the issuance of the Series B
notes. In consideration for issuing the Series B notes as described in this
prospectus, we will receive in exchange Series A notes in the same principal
amount. The Series A notes will be canceled and we will have no increase in our
debt as a result of the exchange.

The net proceeds from the initial offering of the Series A notes were
approximately $184.7 million (after deducting underwriting discounts and
commissions and other estimated costs). We used the proceeds of the offering,
together with the proceeds from the IPO, and borrowings under the new senior
credit facility, to repay a substantial portion of the existing debt of IFCO
Systems and PalEx, to pay the merger consideration to PalEx's stockholders, and
to fund the other Transactions.

CAPITALIZATION

The following table sets forth our cash and cash equivalents and
capitalization as of March 31, 2000. You should read this table along with
"Management's Discussion and Analysis of Financial Condition and Results of
Operation," and the combined and consolidated financial statements of IFCO
Systems included in this prospectus. There have been no material changes in our
capitalization, as set forth below, since March 31, 2000.

As of
March 31,
2000
------------
(in thousands)
(unaudited)

Cash and cash equivalents...................................... $ 36,172
=========
Long-term debt (including current maturities):
Long-term debt............................................... $ 57,527
10 5/8% senior subordinated notes............................ 190,640
Capital lease obligations.................................... 30,428
---------
Total long-term debt....................................... 278,595
Stockholders' equity(1)........................................ 292,822
---------
Total capitalization....................................... $ 571,417
=========

- --------

(1) Our authorized share capital is divided into 100,000,000 ordinary shares
and 50,000,000 preference shares, each with a nominal value of (Euro)2.00
per share. As of March 31, 2000, we had approximately 42.5 million ordinary
shares and no preference shares outstanding.

UNAUDITED PRO FORMA COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS

The following unaudited pro forma combined and consolidated financial
statements give effect to:

. the contribution to IFCO Systems of the outstanding capital stock of the
IFCO Companies;

. the merger;

. the initial offering of the Series A notes and the IPO;

. IFCO Systems' acquisition of the minority interest in IFCO U.S.; and

. the other Transactions described under "The Transactions" section of this
prospectus.

The acquisition of PalEx was accounted for using the purchase method of
accounting. The IFCO Companies have been identified as the accounting acquiror
for financial statement presentation purposes as their former shareholders will
represent the largest voting interest within IFCO Systems.

The unaudited combined statements of operations give effect to the
Transactions as if they had occurred on January 1, 1999.

The pro forma adjustments are based on preliminary estimates, available
information, and assumptions that our management deems appropriate and may be
revised as additional information becomes available. Our management, however,
does not believe that there are any other material identifiable intangible
assets to which purchase price can be allocated. The pro forma financial data
do not represent what our financial position or results of operations would
actually have been if the Transactions in fact had occurred on those dates and
are not necessarily representative of our financial position or results of
operations for any future periods. The pro forma combined and consolidated
financial statements should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the historical financial statements and notes of IFCO Systems and PalEx
included in this prospectus.

Unaudited Pro Forma Combined and Consolidated Statement of Operations

For the Year Ended December 31, 1999
(In thousands, except for share and per share data)

IFCO IFCO
Systems Systems
IFCO Pro Forma Pro Forma
Systems PalEx Combined Adjustments Combined
-------- -------- -------- ----------- -----------

REVENUES................ $154,726 $386,887 $541,613 $5,751 a $ 547,364
COST OF GOODS SOLD...... 124,485 311,735 436,220 5,376 a 441,596
-------- -------- -------- ------ -----------
Gross Profit.......... 30,241 75,152 105,393 375 105,768
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES............... 24,511 44,249 68,760 2,144 a 70,904
MERGER AND INTEGRATION
COSTS.................. 3,519 -- 3,519 -- 3,519
AMORTIZATION OF GOODWILL
AND OTHER INTANGIBLE
ASSETS................. 289 4,774 5,063 4,208 b 9,271
OTHER OPERATING INCOME,
NET.................... (639) -- (639) -- (639)
-------- -------- -------- ------ -----------
Income from
operations........... 2,561 26,129 28,690 (5,977) 22,713
NET INTEREST COST....... (11,934) (14,996) (26,930) 5,707 c, d, e (21,223)
OTHER INCOME (EXPENSE),
NET.................... (3,070) 1,397 (1,673) 1,702 a 29
-------- -------- -------- ------ -----------
(Loss) income before
provision (benefit) for
income taxes........... (12,443) 12,530 87 1,432 1,519
INCOME TAX PROVISION
(BENEFIT).............. 320 5,777 6,097 2,033 f 8,130
MINORITY INTEREST....... (1,291) -- (1,291) -- (1,291)
-------- -------- -------- ------ -----------
Net (loss) income..... $(14,054) $ 6,753 $ (7,301) $ (601) $ (7,902)
======== ======== ======== ====== ===========
Net loss per share--
basic and diluted...... $ (0.20)
===========
Shares used in computing
net loss per share--
basic and diluted...... 40,432,278
===========
Other Financial Data
EBITDA(g)............. $ 85,853
EBITDA margin(g)...... 15.68%

See accompanying notes to unaudited pro forma combined and consolidated
financial statements.

Unaudited Pro Forma Combined and Consolidated Statement of Operations

For the Three Months Ended March 31, 1999
(In thousands, except for share and per share data)

IFCO IFCO
Systems Systems
IFCO Pro Forma Pro Forma
Systems PalEx Combined Adjustments Combined
------- ------- -------- ----------- -----------

REVENUES................ $38,799 $96,388 $135,187 $ 838 a $ 136,025
COST OF GOODS SOLD...... 31,289 77,392 108,681 854 a 109,535
------- ------- -------- ------- -----------
Gross Profit.......... 7,510 18,996 26,506 (16) 26,490
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES............... 6,137 10,482 16,619 517 a 17,136
MERGER AND INTEGRATION
COSTS.................. 582 -- 582 -- 582
AMORTIZATION OF GOODWILL
AND OTHER INTANGIBLE
ASSETS................. 72 1,085 1,157 1,169 b 2,326
OTHER OPERATING INCOME,
NET.................... (234) -- (234) -- (234)
------- ------- -------- ------- -----------
Income from
operations........... 953 7,429 8,382 (1,702) 6,680
NET INTEREST COST....... (3,081) (3,540) (6,621) 1,260 c, d, e (5,361)
OTHER INCOME (EXPENSE),
NET.................... (1,110) (191) (1,301) 418 a (883)
------- ------- -------- ------- -----------
(Loss) income before
provision (benefit) for
income taxes........... (3,238) 3,698 460 (24) 436
INCOME TAX PROVISION
(BENEFIT).............. 34 1,705 1,739 749 f 2,488
MINORITY INTEREST....... (65) -- (65) -- (65)
------- ------- -------- ------- -----------
Net (loss) income..... $(3,337) $ 1,993 $ (1,344) $ (773) $ (2,117)
======= ======= ======== ======= ===========
Net loss per share--
basic and diluted...... $ (0.05)
===========
Shares used in computing
net loss per share--
basic and diluted...... 40,432,278
===========
Other Financial Data
EBITDA(g)............. $ 21,438
EBITDA margin(g)...... 15.76 %

See accompanying notes to unaudited pro forma combined and consolidated
financial statements.

Unaudited Pro Forma Combined and Consolidated Statement of Operations

For the Three Months Ended March 31, 2000
(In thousands, except for share and per share data)

IFCO IFCO
Systems Systems
IFCO Pro Forma Pro Forma
Systems PalEx Combined Adjustments Combined
------- ------- -------- ----------- -----------

REVENUES................ $57,263 $74,623 $131,886 $1,397 a $ 133,283
COST OF GOODS SOLD...... 47,319 62,078 109,397 1,407 a 110,804
------- ------- -------- ------ -----------
Gross Profit.......... 9,944 12,545 22,489 (10) 22,479
SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES............... 6,865 10,261 17,126 445 a 17,571
MERGER AND INTEGRATION
COSTS.................. 1,283 -- 1,283 -- 1,283
AMORTIZATION OF GOODWILL
AND OTHER INTANGIBLE
ASSETS................. 642 990 1,632 810 b 2,442
OTHER OPERATING INCOME,
NET.................... (147) -- (147) -- (147)
------- ------- -------- ------ -----------
Income from
operations........... 1,301 1,294 2,595 (1,265) 1,330
NET INTEREST COST....... (4,303) (4,136) (8,439) 2,232 c, d, e (6,207)
OTHER INCOME (EXPENSE),
NET.................... (679) 284 (395) 428 a 33
------- ------- -------- ------ -----------
(Loss) income before for
income taxes and
minority interest...... (3,681) (2,558) (6,239) 1,395 4,844
INCOME TAX PROVISION.... (707) -- (707) 943 f 236
MINORITY INTEREST....... -- -- -- -- --
------- ------- -------- ------ -----------
Income (loss) before
extraordinary loss and
cumulative effect of
accounting change...... (2,974) (2,558) (5,532) 452 (5,080)
EXTRAORDINARY LOSS ON
EARLY EXTINGUISHMENT OF
DEBT................... (5,600) -- (5,600) -- (5,600)
CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING
PRINCIPLE.............. 770 -- 770 -- 770
------- ------- -------- ------ -----------
Net (loss) income..... $(7,804) $(2,558) $(10,362) $ 452 $ (9,910)
======= ======= ======== ====== ===========
Net loss per share--
basic and diluted...... $ (0.24)
===========
Shares used in computing
net loss per share--
basic and diluted...... 40,646,564
===========
Other Financial Data
EBITDA(g)............. $ 22,268
EBITDA margin(g)...... 16.7 %

See accompanying notes to unaudited pro forma combined and consolidated
financial statements.

NOTES TO UNAUDITED PRO FORMA COMBINED AND CONSOLIDATED FINANCIAL STATEMENTS

General

The historical financial statements reflect the financial position and
results of operations of IFCO Systems and PalEx and were derived from their
respective financial statements. The periods included in these financial
statements are for the year ended December 31, 1999, for IFCO Systems and for
the year ended December 26, 1999, for PalEx.

The Merger and Transactions

IFCO Systems issued 20.0 million of its ordinary shares in exchange for all
the outstanding capital stock of the IFCO Companies and issued approximately
7.4 million of its ordinary shares and paid approximately $71.4 million in cash
in exchange for all the outstanding capital stock of PalEx. The IFCO Companies
have been identified as the accounting acquiror and are the predecessors to
IFCO Systems. The acquisition of PalEx is accounted for using the purchase
method of accounting.

Unaudited Pro Forma Combined Statements of Operations Adjustments

a. Reflects the consolidation of the revenues and expenses of IFCO U.S. as
a wholly owned subsidiary, which occurred as a consequence of the
purchase of the remaining interest, the elimination of the previously
recorded loss accounted for under the equity method, and the elimination
of previously recorded interest expense as a result of IFCO Systems'
repayment of all interest-bearing debt of IFCO U.S.

b. Reflects the amortization of goodwill of approximately $4.2 million
during the year ended December 31, 1999, approximately $1.2 million
during the three months ended March 31, 1999, and approximately $0.8
million during the three months ended March 31, 2000, as a result of the
acquisition of PalEx, the purchase of the remaining interest in IFCO
U.S., and the acquisition of options and rights of GE Capital and GE
Erste. Goodwill will be amortized on the straight-line basis over a 30-
year estimated life.

c. Reflects interest expense reduction of approximately $28.0 million
during the year ended December 31, 1999, approximately $6.9 million
during the three months ended March 31, 1999, and approximately $6.4
million during the three months ended March 31, 2000, on $257.4 million
of historical debt for the year ended December 31, 1999, and the three
months ended March 31, 1999, and $277.9 million of historical debt for
the three months ended March 31, 2000, in each case which is assumed to
be repaid using available cash on hand and proceeds from the IPO and the
senior subordinated notes, reduced by cash payments required under the
terms of the merger agreement and other concurrent transactions. The
interest expense reductions are calculated using a weighted average
effective interest rate of approximately 10.0%.

d. Reflects additional interest expense incurred during the year ended
December 31, 1999, and the three months ended March 31, 1999 and 2000,
in conjunction with the issuance of (Euro)200.0 million of senior
subordinated notes, translated to approximately $191.5 million using the
exchange rate as of March 31, 2000, of (Euro)1.00 = $0.9574.

e. Reflects the amortization of loan costs associated with the issuance of
the notes and the refinancing of the credit facilities of PalEx and the
IFCO Companies.

f. Reflects the effect of income tax adjustments related to the pro forma
adjustments and considers the allocation of both reduced and additional
interest based on currently available tax planning information, the
assumption that goodwill amortization resulting from these transactions
is non-deductible, and limited recognition of any tax benefits that
result from additional net operating loss carryforwards created by pro
forma adjustments.

g. EBITDA is not presented as an alternative measure of operating results
or cash flows from operations as determined in accordance with generally
accepted accounting principles, but because it is an accepted financial
indicator of the ability to incur and service debt on a pro forma
consolidated basis. EBITDA represents IFCO Systems' pro forma combined
net (loss) after exclusion of net interest costs, income tax provisions,
depreciation and amortization charges, and nonrecurring, one-time
restructuring charges (credits). EBITDA as presented is not necessarily
comparable with similarly titled measures presented by other companies.
EBITDA margin is calculated by dividing IFCO Systems' EBITDA by its
revenues for the same period.

SELECTED FINANCIAL INFORMATION

IFCO Systems

The selected historical financial information presented below for, and as of
the end of, each of the years in the three years ended December 31, 1999, is
derived from IFCO Systems' audited combined and consolidated financial
statements, which were audited by PwC Deutsche Revision AG, independent
accountants. The selected historical financial information for, and as of the
end of, the year ended December 31, 1996, and for the three months ended March
31, 1999 and 2000, is derived from IFCO Systems' unaudited combined and
consolidated financial statements. No selected financial information has been
presented as of and for the year ended December 31, 1995. Financial information
for this year is unavailable since no consolidated financial information for
IFCO Europe was prepared for this year. Further, financial information for this
year was prepared for the individual IFCO Companies in accordance with German
GAAP, which differs significantly from U.S. GAAP. In our opinion, the
historical financial information for the interim periods includes all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of this information. The results of operations for the
interim periods are not necessarily indicative of the results of operations
that may be expected for the full fiscal year. The selected historical
financial information is not necessarily indicative of the future results of
operations of IFCO Systems. IFCO Systems' financial statements have been
prepared in U.S. dollars and in accordance with U.S. GAAP. You should read this
selected historical financial information along with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the combined
and consolidated financial statements of IFCO Systems included in this
prospectus.

Three Months
Ended
Year Ended December 31, March 31,
----------------------------------------- ----------------
1996 1997 1998 1999 1999 2000
----------- --------- -------- -------- ------- -------
(dollars in thousands)
(unaudited) (unaudited)

Statement of Operations
Data:
Revenues................ $122,959 $118,546 $136,176 $154,726 $38,799 $57,263
Cost of sales........... 118,354 99,622 106,218 124,485 31,289 47,319
-------- --------- -------- -------- ------- -------
Gross profit............ 4,605 18,924 29,958 30,241 7,510 9,944
Selling, general and
administrative
expenses............... 21,798 18,328 24,289 24,511 6,137 6,865
Merger and integration
costs.................. -- -- -- 3,519 582 1,283
Amortization of
goodwill............... 236 675 383 289 72 642
Other operating
(income), net.......... (5,371) (840) (864) (639) (234) (147)
-------- --------- -------- -------- ------- -------
Income (loss) from
operations............. (12,058) 761 6,150 2,561 953 1,301
Net interest cost....... (7,751) (10,415) (10,494) (11,934) (3,081) (4,303)
Other income (expense),
net.................... 267 (2,139) (2,997) (3,070) (1,110) (679)
Income tax (provision)
benefit................ -- (47) (210) (320) (34) 707
Minority interest....... -- -- (1,274) (1,291) (65) --
Extraordinary loss on
early extinguishment of
debt................... -- -- -- -- -- (5,600)
Cumulative effect of
change in accounting
principle.............. -- -- -- -- -- 770
-------- --------- -------- -------- ------- -------
Net (loss).............. $(19,542) $ (11,840) $ (8,825) $(14,054) $(3,337) $(7,804)
======== ========= ======== ======== ======= =======
Net (loss) applicable to
ordinary shares(1)..... $(19,542) $ (11,210) $ (8,913) $(13,879) $(3,337) $(7,804)
======== ========= ======== ======== ======= =======
Other Financial Data:
EBITDA(2)............... $ 27,953 $26,226 $ 34,313 $ 40,482 $10,420 $12,068
EBITDA margin(2)........ 22.7% 22.1% 25.2% 26.6% 26.9% 21.1%
Depreciation and
amortization........... $ 39,744 $ 27,604 $ 28,434 $ 36,094 $10,060 $14,993
Capital
expenditures(3)........ 39,569 40,195 30,767 16,835 9,004
Deficiency of earnings
to fixed charges(4).... (18,730) (8,816) (5,977) (11,821) (2,850) (6,680)

(Table continued on following page)

As of December 31, As of
---------------------------------------- March 31,
1996 1997 1998 1999 2000
----------- -------- -------- -------- -----------
(in thousands)
(unaudited) (unaudited)

Balance Sheet Data:
Cash and cash
equivalents............ $ 14,231 $ 7,992 $ 23,642 $ 12,240 $ 36,172
Receivables............. 95,970 93,397 74,462 64,809 139,035
Other current assets.... 9,296 775 1,874 4,591 58,364
-------- -------- -------- -------- --------
Total current assets... 119,497 102,164 99,978 81,640 233,571
Property, plant and
equipment, net......... 128,661 134,776 172,437 167,678 250,345
Other long term assets.. 6,735 12,617 12,038 17,303 319,386
-------- -------- -------- -------- --------
Total assets........... $254,893 $249,557 $284,453 $266,621 $803,302
======== ======== ======== ======== ========
Short-term loans........ $ 48,943 $ 53,440 $ 500 $ 795 --
Short-term related party
loans.................. 26,612 23,298 2,618 2,280 --
Current maturities of
long-term debt......... -- -- 4,912 70,038 899
Current maturities of
capital lease
obligations............ 15,135 4,738 9,340 10,329 9,365
Refundable deposits..... 50,029 64,323 70,875 66,436 71,608
Accounts payable........ 71,054 65,010 69,287 83,209 87,223
Accrued expenses and
other current
liabilities............ 21,661 12,294 7,303 7,918 53,751
Deferred income......... 4,347 4,660 6,573 5,459 6,058
Accumulated losses in
excess of investment
in equity entities..... 1,267 3,136 4,472 5,623 --
Long-term debt, net of
current maturities..... 4,975 464 77,874 -- 247,268
Capital lease
obligations, net of
current maturities..... 5,913 7,971 26,867 24,198 21,063
Other long-term
liabilities............ -- -- -- -- 13,245
-------- -------- -------- -------- --------
Total liabilities...... 249,936 239,334 280,621 276,285 510,480
Participating rights.... 5,419 3,956 4,274 3,259 --
Redeemable participating
rights................. -- 1,256 1,544 1,433 --
Minority interest....... -- 25,001 28,887 25,316 --
Total stockholders'
equity (deficit)....... (462) (19,990) (30,873) (39,672) 292,822
-------- -------- -------- -------- --------
Total liabilities and
stockholder's equity.. $254,893 $249,557 $284,453 $266,621 $803,302
======== ======== ======== ======== ========

- --------
(1) Net (loss) applicable to ordinary shares is net loss plus accretion on
redeemable convertible preferred stock, redeemable cumulative
participating rights, and participating rights.

(2) EBITDA is not presented as an alternative measure of operating results or
cash flows from operations as determined in accordance with generally
accepted accounting principles, but because it is an accepted financial
indicator of the ability to incur and service debt. EBITDA represents our
net (loss) applicable to ordinary shares after exclusion of net interest
costs, income tax (provisions), depreciation and amortization charges and
nonrecurring, one-time charges. EBITDA as presented is not necessarily
comparable with similarly titled measures presented by other companies.
EBITDA margin is calculated by dividing our EBITDA by their revenues for
the same period. The following table reflects the calculation of EBITDA:

Three Months
Year Ended December 31, Ended March 31,
--------------------------------------- ----------------
1996 1997 1998 1999 1999 2000
----------- -------- ------- -------- ------- -------
(in thousands)
(unaudited) (unaudited)

Net (loss).............. $(19,542) $(11,840) $(8,825) $(14,054) $(3,337) $(7,804)
Income tax provision
(benefit).............. -- 47 210 320 34 (707)
Net interest cost....... 7,751 10,415 10,494 11,934 3,081 4,303
Depreciation and
amortization........... 39,744 27,604 28,434 36,094 10,060 14,993
Non-recurring charges... -- -- 4,000 6,548 582 1,283
-------- -------- ------- -------- ------- -------
EBITDA.................. $ 27,953 $ 26,226 $34,313 $ 40,842 $10,420 $12,068
======== ======== ======= ======== ======= =======

(3) Our historical combined capital expenditure information is not available
for the year ended December 31, 1996.

(4) Represents the amount by which loss before provision for income taxes and
losses from equity investments plus accretion on preferred stock and
participating rights did not cover fixed charges. Fixed charges consist of
interest expense, that portion of rental expense, one-third, considered to
be representative of interest, and accretion on preferred stock.

PalEx

The selected historical financial information presented below for, and as of
the end of, each of the years in the five-year period ended December 26, 1999,
is derived from PalEx's consolidated financial statements. The selected
historical financial information is not necessarily indicative of the future
results of operations of PalEx or IFCO Systems. You should read this selected
historical financial information along with the financial statements of PalEx
included in this prospectus.

Fiscal Year Ended Fiscal Year Ended
November 30, --------------------------------------
------------------ December 28, December 27, December 26,
1995 1996 1997 1998 1999
-------- -------- ------------ ------------ ------------
(dollars in thousands)

Statement of Operations
Data:
Revenues................ $125,707 $145,030 $222,993 $319,691 $386,887
Cost of goods sold...... 105,195 121,865 188,084 259,562 311,735
Inventory valuation
adjustment(1) -- -- -- 1,235 --
-------- -------- -------- -------- --------
Gross profit............ 20,512 23,165 34,909 58,894 75,152
Selling, general and
administrative
expenses............... 13,333 14,063 20,135 33,042 44,249
Amortization of goodwill
and other intangible
assets................. 76 165 593 3,334 4,774
Pooling expenses........ -- -- -- 1,841 --
Compensation
differential............ -- -- 1,020 1,062 --
Restructuring
charge(1)............... -- -- -- 949 --
Plant closure costs and
asset abandonment
loss(1)................ -- -- -- 1,369 --
-------- -------- -------- -------- --------
Income from operations.. 7,103 8,937 13,161 17,297 26,129
Net interest cost(2).... (1,375) (1,065) (1,817) (8,206) (13,599)
Provision for income
taxes................... 1,594 1,833 4,704 5,105 5,777
-------- -------- -------- -------- --------
Net income ............. $ 4,134 $ 6,039 $ 6,640 $ 3,986 $ 6,753
======== ======== ======== ======== ========
Other Financial Data:
EBITDA(3)............... $ 11,258 $ 13,045 $ 19,933 $ 35,680 $ 42,195
EBITDA margin(3)........ 9.0% 9.0% 8.9% 11.2% 10.9%
Depreciation and
amortization........... $ 3,685 $ 3,597 $ 5,847 $ 11,665 $ 14,669
Capital expenditures.... 4,128 7,355 9,149 13,987 9,706
Ratio of earnings to
fixed charges (4)...... 4.10x 5.99x 7.59x 2.07x 1.84x

Balance Sheet Data (at
end of period):
Working capital
(deficit).............. $ 6,613 $ 7,630 $ 35,705 $ 54,672 $(88,901)
Total assets............ 50,857 57,868 120,005 292,438 304,910
Stockholders' equity.... 19,400 24,443 67,437 95,280 103,813

- --------
(1) The results of operations for PalEx's year ended December 27, 1998, include
pre-tax charges of approximately $1.2 million for inventory valuation
adjustment, approximately $0.9 million for restructuring costs and expenses
and approximately $1.4 million for plant closure costs and asset
abandonment loss related to the termination of PalEx's customer
relationship with CHEP USA.
(2) Includes interest expense and other income (expense), net.
(3) EBITDA is not presented as an alternative measure of operating results or
cash flows from operations as determined in accordance with generally
accepted accounting principles, but because it is an accepted financial
indicator of the ability to incur and service debt. EBITDA represents
PalEx's net income after exclusion of interest expense, provision for
income taxes, depreciation and amortization charges, nonrecurring, one time
restructuring charges (credits), pooling expenses, and compensation
differential. EBITDA as presented is not necessarily comparable with
similarly titled measures presented by other companies. EBITDA margin is
calculated by dividing PalEx's EBITDA by its revenues for the same period.
The following table reflects the calculation of EBITDA:

Fiscal Year Ended Fiscal Year Ended
November 30, --------------------------------------
----------------- December 28, December 27, December 26,
1995 1996 1997 1998 1999
-------- -------- ------------ ------------ ------------
(in thousands)

Net income.............. $ 4,134 $ 6,039 $ 6,640 $ 3,986 $ 6,753
Provision for income
taxes.................. 1,594 1,833 4,704 5,105 5,777
Interest expense........ 1,845 1,576 1,722 8,468 14,996
Depreciation and
amortization........... 3,685 3,597 5,847 11,665 14,669
Restructuring charge.... -- -- -- 3,553 --
Pooling expenses and
compensation
differential........... -- -- 1,020 2,903 --
-------- -------- ------- ------- -------
EBITDA................. $ 11,258 $ 13,045 $19,933 $35,680 $42,195
======== ======== ======= ======= =======

(4) Calculated as net income before the provision for income taxes and net
interest cost divided by net interest cost for the same period.

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion in conjunction with our combined
and consolidated financial statements included in this prospectus. In addition,
you should read "Business" for more information about IFCO Systems.

Introduction

We believe we own and manage the leading plastic round-trip container, or
RTC, pool in Europe based on 1997 market information. We also have RTC
operations in the United States, Japan, and Argentina and currently have over
63.5 million RTCs in circulation.

Our European perishables operations accounted for 91.9% of total revenues
during 1998 and 91.8% of total revenues during 1999. These operations are
comprised of round-trip systems for the movement of fruit and vegetables. We
deliver RTCs to growers for the transport of produce to retailers. Retailers
benefit from decreased product handling, in-store display in RTCs, reduced
storage requirements, and reduction of waste disposal costs. Retailers return
the RTCs to us for inspection and cleaning, repair, or recycling as necessary.
The RTCs are then reintroduced into the round-trip system for multiple reuse.
The RTCs are primarily used by producers of fresh fruits and vegetables in
exchange, generally, for a one-time use fee and a deposit. The deposit paid by
customers is transferred between the customer, intermediate parties, and the
retailer, until the deposit is ultimately repaid to the retailer upon our
recollection of the RTC.

The RTCs can be folded into a small volume when empty, reducing
transportation costs. The RTCs are generally used between three and 12 times a
year, depending on the type of RTC, and are depreciated over periods ranging
from eight to 15 years. Most RTCs are supplied by Schoeller Plast AG, an
indirect, 80%-owned subsidiary of Schoeller Industries, under a long-term
supply agreement.

Our non-European perishables operations are owned through IFCO
International. IFCO International owns interests in round-trip systems
operations in the United States, Japan, and Argentina. IFCO has a 33% minority
ownership interest in the Japanese operations and, as of December 31, 1999, a
51% economic interest and 50% voting interest in the U .S. operations. Both of
these investments are accounted for under the equity method. We acquired the
remaining interest in IFCO U.S. in connection with our merger with PalEx in
March 2000. The non-European businesses are still developing and are currently
generating operating losses, although we believe that this business segment has
the potential to generate profits as market share increases.

Our dry good operations accounted for 7.3% of our total revenues during 1998
and 6.5% of the total revenues during 1999. Through our dry good operations, we
operate round-trip systems for dry goods sold by retailers such as the major
grocery and department stores. The RTCs for dry goods are individually
identifiable by bar code, which enables us to accurately track their movements
and invoice customers. The logistics of RTC movement in the dry good operations
are similar to our European perishables operations. We currently have three
principal customers in this business segment: two department stores, whose
service agreements extend through 2003; and the Deutsche Post AG, whose
contract, which began in September 1999, extends to September 30, 2004.
Deutsche Post AG, the German postal service, is one of the largest European
transporters of parcels and letters.

We are reporting our results in accordance with U.S. GAAP and U.S. dollars.
We previously reported results under German GAAP and in Deutsch marks. As a
significant portion of our revenues will be collected in currencies other than
the U.S. dollar, our results of operations may be adversely affected by
fluctuations in currency exchange rates. For example, if the value of the
Deutsch mark to the U.S. dollar goes down, the portion of our revenues
collected in Deutsch marks would appear smaller when converted into U.S.
dollars for purposes of reporting under U.S. GAAP.

Quarterly Results Of Operations

Selected Financial Data

The results of operations for the periods presented include IFCO Systems and
our wholly owned subsidiaries, IFCO Europe, IFCO International, and MTS, and
the results of operations of PalEx and IFCO U.S. from the date of their
acquisitions effective March 8, 2000.

Results may be materially affected by the timing and magnitude of
acquisitions, assimilation costs, costs of opening new facilities, gain or loss
of a material customer, variation in product mix, and weather conditions.
Accordingly, the operating results for any interim period are not necessarily
indicative of the results that may be achieved for any subsequent interim
period or for a full fiscal year.

The following table sets forth certain selected financial data as a
percentage of revenues for the periods indicated (dollars in thousands):

Three Months Ended
-------------------------------
March 31, March 31,
1999 2000
-------------- --------------

Revenues.................................... $38,799 100.0% $57,263 100.0%
Cost of goods sold.......................... 31,289 80.6 47,319 82.6
------- ----- ------- -----
Gross profit................................ 7,510 19.4 9,944 17.4
Selling, general and administrative
expenses................................... 6,137 15.8 6,865 12.0
Merger transaction expenses................. 582 1.5 1,283 2.2
Goodwill amortization....................... 72 .2 642 1.1
Other operating income...................... (234) (.6) (147) (.2)
------- ----- ------- -----
Income from operations...................... 953 2.5 1,301 2.3
Interest expense............................ (3,081) (7.9) (4,303) (7.5)
Foreign currency losses..................... (185) (.6) (152) (.3)
Loss from equity entity..................... (521) (1.3) (417) (.7)
Other expense, net.......................... (404) (1.0) (110) (.2)
------- ----- ------- -----
Loss before income taxes and minority
interest................................... (3,238) (8.3) (3,681) (6.4)
Provision (benefit) for income taxes........ 34 .1 (707) (1.2)
Minority interest........................... (65) (.2) -- --
------- ----- ------- -----
Loss before extraordinary loss and
cumulative effect of change in accounting
principle.................................. (3,337) (8.6) (2,974) (5.2)
Extraordinary loss on early extinguishments
of debt.................................... -- -- (5,600) (9.8)
Cumulative effect of change in accounting
principle.................................. -- -- 770 1.4
------- ----- ------- -----
Net loss.................................... $(3,337) (8.6)% $(7,804) (13.6)%
======= ===== ======= =====

Three Months Ended March 31, 2000 Compared to Three Months Ended March 31,
1999

The functional currency is the local currency of each subsidiary. We have
selected the U.S. dollar ("US$") as our reporting currency. The financial
statements of our operations which are not denominated in US$ are translated
using the exchange rate as of the balance sheet date for assets and liabilities
and a weighted average exchange rate for the reported amount of revenues,
expenses, gains, and losses during the reporting period.

The US$ generally strengthened against the Deutsch mark during the three
months ended March 31, 1999 and 2000 and strengthened between 2000 and 1999.
During the three months ended March 31, 1999, the period average rate of
Deutsch marks per US$ was 1.74. During the three months ended March 31, 2000,
the period average rate of Deutsch marks per US$ was 1.98, resulting in a
period average increase of 13.8%.

Revenues increased 47.6% to $57.3 million in the three months ended March
31, 2000 from $38.8 million in the three months ended March 31, 1999. The
increase in revenues for the three months ended March 31, 2000 over the same
period in 1999 attributable to the acquisition of PalEx was approximately $20.8
million. DM revenues for RTC operations in Europe for the three months ended
March 31, 2000 increased 5.5% from the three months ended March 31, 1999;
however, due to the currency effects noted above, US$ revenues decreased $2.3
million, or 5.9%, between the periods.

Gross profit increased to $9.9 million for the three months ended March 31,
2000 from $7.5 million for the three months ended March 31, 1999. Gross profit
as a percentage of revenues decreased from 19.4% for the three-month period
ended March 31, 1999 to 17.4% for the three month period ended March 31, 2000,
primarily due to increased costs for RTC operations in Europe. Our gross profit
as a percentage of revenues may fluctuate as a result of competitive pricing in
different market areas in which it operates, continued changes to product mix,
and changes in raw material and transportation costs.

Selling, general and administrative expenses increased to $6.9 million, or
12.0% of revenues, in the three months ended March 31, 2000 from $6.1 million,
or 15.8% of revenues, in the three months ended March 31, 1999.

The results of operations for the three months ended March 31, 2000 and
March 31, 1999 include merger transaction expenses of $1.3 million and $0.6
million, respectively. The transaction expenses for the three months ended
March 31, 1999 were primarily for non-capitalizable legal and accounting fees.
The transactions expenses for the three months ended March 31, 2000 were
primarily for success bonuses paid upon completion of the merger and retention
bonuses for key executives.

Goodwill amortization increased to $0.6 million for the three months ended
March 31, 2000 from $0.1 million for the three months ended March 31, 1999 and
is the result of the acquisition of PalEx under purchase accounting.

Interest expense increased to $4.3 million for the three months ended March
31, 2000 from $3.1 million for the three months ended March 31, 1999, primarily
as a result of increased borrowings for our European operations.

The results of operations for the three months ended March 31, 2000 include
an extraordinary loss on the extinguishment of debt of $5.6 million. The loss
occurred as a result of the write-off of unamortized portions of deferred bank
fees and other charges related to credit facilities that were paid off in
conjunction with the merger and related transactions.

The results of operations for the three months ended March 31, 2000 includes
the cumulative effect of an accounting change related to the method used to
record RTC refurbishment costs in the amount of a credit of $0.7 million. We
undertook a comprehensive review of our RTC refurbishment cost capitalization
policies. The results of this review led us to conclude that we should adopt
the accounting method that we believe most fairly matches the cost of
refurbishing RTCs with the revenue cycle of RTCs. Previously, we charged cost
of sales for refurbishing costs at the end of the RTC trip cycle. We now charge
costs of sales for refurbishing expenses when the RTC begins the trip cycle.
The reasoning underlying this change in accounting policy is that refurbishing
the RTC prepares it for the next trip cycle. While the accounting policy for
refurbishment costs previously followed by us was in accordance with generally
accepted accounting principles, the changed policy is preferable.

Other operating income, foreign currency losses, loss from equity entity,
and other income expense totaled $0.8 million in expense for the three months
ended March 31, 2000 and $1.3 million for the three months ended March 31,
1999.

As a result of the foregoing, net loss increased to $7.8 million for the
three months ended March 31, 2000 from $3.3 million for the three months ended
March 31, 1999.

Annual Results of Operations

Selected Financial Data

The following table sets forth selected financial data for the periods
presented for each of our business segments and the same data as a percentage
of its total revenues. Functional currencies in our markets have been converted
to U.S. dollars at the average exchange rate during each period presented. The
effect of these fluctuations in exchange rates can affect comparison of the
results of operations between periods.

Reclassifications have been made in the 1998 and 1997 financial data to
conform to the 1999 presentation and are discussed below where applicable.

For the Year Ended December 31,
-------------------------------------------------
1997 1998 1999
--------------- --------------- ---------------
(dollars in thousands)

Revenues:

- --European Perishables..... $108,674 91.7% $125,128 91.9% $141,984 91.8%
- --Non-European
Perishables............... 292 0.2 1,147 0.8 2,588 1.7
- --Dry Good................. 9,580 8.1 9,901 7.3 10,154 6.5
-------- ----- -------- ----- -------- -----
118,546 100.0 136,176 100.0 154,726 100.0
Cost of sales:

- --European Perishables..... 90,849 76.6 96,884 71.2 115,154 74.5
- --Non-European
Perishables............... 219 0.2 717 0.5 1,864 1.2
- --Dry Good................. 8,554 7.2 8,617 6.3 7,467 4.8
-------- ----- -------- ----- -------- -----
99,622 84.0 106,218 78.0 124,485 80.5
Total gross profit......... 18,924 16.0 29,958 22.0 30,241 19.5
Selling, general and
administrative expenses:
- --European Perishables..... 15,002 12.7 20,694 15.2 21,239 13.7
- --Non-European
Perishables............... 1,718 1.4 1,629 1.2 2,128 1.4
- --Dry Good................. 1,608 1.4 1,966 1.4 1,144 0.7
-------- ----- -------- ----- -------- -----
18,328 15.5 24,289 17.8 24,511 15.8
Merger and integration
costs..................... 0 0.0 0 0.0 3,519 2.3
Goodwill amortization...... 675 0.6 383 0.3 289 0.2
Other operating (income),
net....................... (840) (0.7) (864) (0.6) (639) (0.4)
Income (loss) from
operations:
- --European Perishables..... 2,988 2.5 8,048 5.9 1,698 1.1
- --Non-European
Perishables............... (1,645) (1.4) (1,216) (0.9) (965) (0.6)
- --Dry Good................. (582) (0.5) (682) (0.5) 1,828 1.2
-------- ----- -------- ----- -------- -----
761 0.6 6,150 4.5 2,561 1.7
Other expenses, net........ (12,554) (10.6) (13,491) (9.9) (15,004) (9.7)
Income tax (provision)
benefit................... (47) 0.0 (210) (0.2) (320) (0.2)
-------- ----- -------- ----- -------- -----
Net loss before minority
interest.................. (11,840) (10.0) (7,551) (5.6) (12,763) (8.2)
======== ===== ======== ===== ======== =====
Other Financial Data:
- --EBITDA................... $ 26,226 24.1 $ 34,313 25.2 $ 40,842 26.4
======== ===== ======== ===== ======== =====

Year Ended December 31, 1999, Compared to Year Ended December 31, 1998

Revenues. Our total revenues increased $18.5 million, or 13.6%, to $154.7
million in 1999 from $136.2 million in 1998. Revenues for 1998 reflect
reclassification of sales of granulate from other operating income to revenues
to conform to the 1999 presentation.

European Perishables Operations. Revenues from the European perishables
operations increased $16.9 million, or 13.5%, to $142.0 million in 1999 from
$125.1 million in 1998. This increase was primarily attributable to an increase
of 14.0% in the number of RTCs used, in the round-trip systems for fresh
produce, and to a higher number of trips per RTC. This revenue increase was
partially offset by a decrease of 4.1% related to changes in currency exchange
rates relative to the previous period. The revenue increase was also a result
of our establishing new retail partners, favorable harvests of citrus fruit,
and increased business from existing customers. Revenues for 1999 reflect the
correction of an information systems error that created a one-day duplication
of revenues in Spain in the first month of 1999, resulting in a decrease of
revenues of $0.4 million. Revenues for European perishables operations for 1998
reflect reclassification of sales of granulate from other operating income to
revenues to conform to the 1999 presentation.

Non-European Perishables Operations. Revenues from the non-European
perishables operations increased $1.5 million, or 125.6%, to $2.6 million in
1999 from $1.1 million in 1998, as a result of increased volume in Argentina.

Dry Good Operations. Revenues from the dry good operations increased $0.3
million, or 2.6%, to $10.2 million in 1999 from $9.9 million in 1998, as a
result of increased business with a major customer and new business with
Deutsche Post AG as a result of the contract that began in September 1999. The
increase was offset by a decrease of 4.1% related to changes in currency
exchange rates relative to the previous period.

Cost of Sales and Gross Profit. Gross profit increased to $30.2 million year
in 1999 from $30.0 million in 1998, primarily due to increased sales volume.
Gross profit as a percentage of revenues decreased from 22.0% in 1998 to 19.5%
in 1999.

European Perishables Operations. The decrease in gross margin was primarily
due to additional freight costs incurred to transport crates over longer
distances in Europe and a non-recurring charge for RTC breakage in Europe.
Additional costs, net of a reimbursement from Schoeller Plast AG, were incurred
in 1999 as markets expanded in Europe. The cost reimbursement agreement with
Schoeller Plast AG expired as of December 31, 1999. Cost of sales for 1999
reflect accounting charges for the full year in the treatment of washing costs
in Denmark, an increased expense of $0.6 million, and an additional accrual for
deposits payable based on the actual number of RTCs outstanding to customers in
Spain, an increased expense of $0.7 million. In addition, cost of sales for
1999 reflect the correction of an information systems error that created an
underreporting of transportation costs, resulting in increased cost of sales of
$0.5 million.

Non-European Perishables Operations. Gross margin for non-European
perishables operations sales was slightly lower in 1999 compared to 1998 due to
additional start-up costs incurred in South American countries to expand market
share.

Dry Good Operations. Gross margin for sales of dry goods, as a percentage of
dry good sales, increased from 13.0% in 1998 to 26.5% in 1999, primarily due to
a reduction in internal crate handling costs.

Selling, General and Administrative Expenses and Other Operating Income
(Expenses), Net. Selling, general and administrative expenses and other
operating income (expenses), net increased $0.5 million, or 1.8%, to $23.9
million in 1999 from $23.4 million in 1998 and decreased as a percentage of
revenues to 15.4% in 1999 from 17.2% in 1998. Certain expenses increased in
1999 accompanying growth in sales volume. Selling, general and administrative
expenses and other operating income (expenses), net as a percentage of revenues
decreased due to expenditures made in 1998 to prepare for the increase in
business that we anticipated in 1999. Thus, the dollar increase was at a lower
rate than the growth in revenues. Selling, general and administrative expenses
and other operating income (expense), net for 1998 reflects reclassification of
sales of granulate to revenues and reclassification of factoring costs and
expense to other income and expense to conform to the 1999 presentation.

Merger and Integration Costs. Merger and integration costs consist of $2.8
million for transaction costs incurred by PalEx, which we agreed to reimburse,
and $0.7 million for severance pay and other costs related to our initial
public offering of ordinary shares.

Other Income and Expense. Interest expense increased $0.4 million, or 3.6%,
to $12.5 million in 1999 from $12.1 million in 1998. Interest income decreased
$1.0 million, or 62.7%, to $0.6 million in 1999 from $1.6 million in 1998. The
decrease in interest income was primarily a result of the reduction of
receivables from related parties due to the requirements under our credit
facilities. Other income and expense for 1998 reflects reclassification of
factoring costs and expense from other operating income to conform to the 1999
presentation.

Foreign currency losses increased $0.9 million, or 480.9%, to $1.1 million
in 1999 from $0.2 million in 1998, primarily due to changes in the U.S. dollar
and British pound exchange rates.

Losses from equity investments decreased $1.0 million, or 36.2%, to $1.7
million in 1999 from $2.7 million in 1998.

As a result of the foregoing, net loss before minority interest increased to
$12.8 million in 1999 from $7.6 million in 1998.

Year Ended December 31, 1998, Compared to Year Ended December 31, 1997

Revenues. Our total revenues increased $17.7 million, or 14.9%, to $136.2
million in 1998 from $118.5 million in 1997. Revenues for 1997 and 1998 reflect
reclassification of sales of granulate from other operating income to revenues
to conform to the 1999 presentation.

European Perishables Operations. Revenues from the European perishables
operations increased $16.4 million, or 15.1%, to $125.1 million in 1998 from
$108.7 million in 1997. This increase was primarily attributable to an increase
of 20.6% in the number of RTCs used in the round-trip systems for fresh
produce, and the number of trips per RTC. This volume increase was offset by a
2.8% decline in average prices that was primarily caused by volume discounting
in the United Kingdom and a 1.6% decline related to changes in currency
exchange rates relative to the previous period. The increased use was primarily
a result of our establishing new retail partners, favorable harvests of citrus
fruit, and increased business from existing customers. Revenues for European
perishables operations for 1997 and 1998 reflect reclassification of sales of
granulate from other operating income to revenues to conform to the 1999
presentation.

Non-European Perishables Operations. Revenues from the non-European
perishables operations increased $0.8 million to $1.1 million in 1998 from $0.3
million in 1997, as a result of increased volume in Argentina.

Dry Good Operations. Revenues from the dry good operations increased $0.3
million, or 3.4%, to $9.9 million in 1998 from $9.6 million in 1997, as a
result of increased business with MTS's major customer.

Cost of Sales and Gross Profit. Our total cost of sales increased $6.6
million, or 6.6%, to $106.2 million in 1998 from $99.6 million in 1997, but
gross profit as a percentage of revenues increased from 16.0% for 1997 to 22.0%
for 1998. These margin gains are primarily a result of the following:

. increased utilization of our reconditioning depots;

. the development of more internally operated cleaning facilities, as
opposed to contracting with third parties;

. decreased container breakage costs as a percentage of revenues, primarily
as a result of customer education initiatives; and

. decreased RTC trips between the various handling locations in the RTC
movement cycle.

European Perishables Operations. Cost of sales increased $6.1 million, or
6.6%, to $96.9 million in 1998 from $90.8 million in 1997. The percentage
increase in cost of sales was lower than the percentage increase in related
revenues for the same period primarily as a result of increasing economies of
scale.

Non-European Perishables Operations. Cost of sales increased $0.5 million,
or 227.4%, to $0.7 million in 1998 from $0.2 million in 1997. The percentage
increase in cost of sales was lower than the percentage increase in related
revenues for the same period due to increasing stabilization of the start-up
organization in Argentina and increasing economies of scale.

Dry Good Operations. Cost of sales was substantially unchanged, both in
absolute terms and as a percentage of revenues.

Selling, General and Administrative Expenses and Other Operating Income
(Expenses), Net. Selling, general and administrative expenses and other
operating income (expenses), net increased $5.9 million, or 33.9%, to $23.4
million in 1998 from $17.5 million in 1997 and increased as a percentage of
revenues to 17.2% in 1998 from 14.8% in 1997. The increase was due to
additional staff in electronic data processing, controlling, and logistic
management. Selling, general and administrative expenses and other operating
income (expense), net for 1997 and 1998 reflects reclassification of sales of
granulate to revenues and reclassification of factoring costs and expense to
other income and expense to conform to the 1999 presentation.

Other Income and Expense. Interest expense decreased $2.2 million, or 15.4%,
to $12.1 million in 1998 from $14.3 million in 1997. Interest income decreased
$2.3 million, or 58.7%, to $1.6 million in 1998 from $3.9 million in 1997. The
net reduction in interest costs was primarily a result of less average debt and
more favorable interest rates related to IFCO Europe's debt refinancing early
in 1998. Other income and expense for 1997 and 1998 reflects reclassification
of factoring costs and expense from other operating income to conform to the
1999 presentation.

Primarily as a result of the foregoing, net loss before minority interest
decreased to $7.6 million in 1998 from $11.8 million in 1997.

Liquidity and Capital Resources

We have historically financed our growth with bank financing, the funds from
which have been primarily used to purchase additional RTCs.

Cash Flows

Operating activities provided $36.3 million of cash in 1999 compared to
$59.9 million in 1998, which represents a decrease of $23.6 million, or 39.4%.
During 1998, we increased its factoring of accounts receivable, which led to a
one-time positive cash flow of $25.4 million. Accounts receivable, net of
factoring volume, increased $4.0 million in 1999 compared to a decrease of
$27.6 million in 1998 caused by the one-time factoring proceeds. During the
same period, accounts payable, accrued liabilities, and other liabilities
increased $15.8 million compared to an increase of $6.9 million in 1998. These
increases accompanied the higher sales volume in 1999 as compared to 1998.

Operating activities provided $59.9 million of cash in 1998 compared to
$29.5 million in 1997, which represents an increase of $30.4 million, or
102.9%. The net increase was due to several factors. In 1997, we experienced an
increase in accounts receivable of $11.6 million. In 1998, we reduced accounts
receivable through increased factoring activities, which led to additional
positive cash flow of $2.2 million. In 1997, we decreased inventory by $7.4
million compared to a $1.6 million increase in 1998. We obtained additional
liquidity through factoring proceeds of $25.4 million in 1998. Accounts payable
increased $2.1 million in 1997 and $10.9 million in 1998 due to higher sales
volume in each period. Accounts payable for 1997 related to certain non-cash
RTC purchases have been reclassified to conform to the 1999 presentation.

Cash used in investing activities in 1999 was $36.5 million compared to
$38.8 million in 1998, a decrease of $2.3 million, or 5.9%. The majority of
cash used in both periods was for the purchase of RTCs and property, plant, and
equipment. The purchase of RTCs decreased by $10.4 million to $27.7 million in
1999 from $38.1

million in 1998, mainly because of a lower average price for purchased RTCs due
to the product mix. Cash paid for merger costs and new information technology
was $5.1 million in 1999.

Cash used in investing activities in 1998 was $38.8 million compared to
$40.3 million in 1997, which represents a decrease of $1.5 million, or 3.8%.
The majority of cash used in both years was for the purchase of RTCs and other
property, plant, and equipment, which is the principal reason for the decrease
in cash used in investing activities. The investment in RTCs in 1998 was less
due to the decreased breakage of RTCs that we experienced in 1998. Financial
assets and property and equipment were also sold in 1998 and contributed $2.9
million in cash. Certain non-cash RTC purchases for 1997 have been reclassified
to conform to the 1999 presentation.

Cash used in financing activities was $7.8 million in 1999 compared to cash
used in financing activities of $6.4 million in 1998. The payments on long-term
bank borrowings and capital lease obligations were partially offset by proceeds
from the revolving bank borrowings.

Cash used in financing activities was $6.4 million in 1998 compared to cash
provided by financing activities of $5.0 million in 1997. The principal cause
for this shift to cash used in financing activities was a significant
refinancing of substantially all of our bank debt in 1998, which resulted in
proceeds of $91.8 million from long-term bank borrowings and a more significant
decrease in short- and medium-term bank borrowings. In 1997, $24.9 million in
proceeds were generated by the sale of redeemable convertible preferred stock.

During 1997, GE Erste acquired a 24% interest in IFCO Europe, which is
responsible for the European perishables operations, by purchasing redeemable
convertible preferred stock for $24.9 million. The proceeds from this capital
contribution were primarily used to fund IFCO Europe's operations. In
connection with this initial investment in the European operations in 1997, GE
Erste received options to increase this investment to 49% and then up to 100%
after specified dates had passed and criteria had been met. GE Erste also
received options to purchase up to 100% of IFCO International after specified
dates had passed and criteria had been met. In connection with these
transactions, GE Erste also received the right to require Schoeller Industries
to contribute 100% of its interests in MTS, which is responsible for our dry
good operations, to IFCO Europe. As part of the transactions related to the
merger, GE Capital and GE Erste contributed all of their interests to us and
released all of their rights to purchase shares of the IFCO Companies.

The Merger and Initial Public Offering

In March 2000, IFCO completed the merger of PalEx with and into Silver Oak
Acquisition Corp., our newly formed, wholly owned subsidiary, which changed its
name to "PalEx, Inc." As a result of the merger and related transactions, we
own all of the stock of the IFCO Companies and PalEx. In the merger, PalEx
stockholders received merger consideration with a total value of $9.00 per
share consisting of cash and/or our ordinary shares for each share of PalEx
common stock. The total merger consideration for all the shares of PalEx common
stock was $71.4 million in cash and 7.4 million of our ordinary shares based on
elections by PalEx stockholders and adjustments pursuant to the merger
agreement. The total consideration for the merger was $184.5 million for the
PalEx common stock plus the assumption of debt of PalEx, which was $153.5
million as of March 8, 2000.

In connection with the merger, we also completed an initial public offering
of 13.0 million ordinary shares in March 2000 and subsequently issued an
additional 1.95 million ordinary shares upon the underwriters' exercise of
their overallotment option. The total net proceeds to us from the IPO,
including the exercise of the overallotment option, were $211.4 million. The
net proceeds from the IPO were used, along with cash on hand, the net proceeds
from of the initial offering of the notes, and borrowings from our new senior
credit facility, to repay a substantial portion of the debt of the IFCO
Companies and PalEx, to pay the cash portion of the merger consideration to
PalEx stockholders, to fund the cash payment due to GE Capital described below,
and to fund our purchase of the remaining joint venture interest in IFCO U.S.

In connection with the merger, Schoeller Industries and Gebruder Schoeller
contributed to IFCO Systems, directly or indirectly, the outstanding capital
shares of IFCO Europe, MTS, and IFCO International owned by them.

In addition, we, together with Schoeller Industries, the shareholders of
Schoeller Industries, Schoeller Plast Industries GmbH, and Gebruder Schoeller
entered into the Option Release and IPO-Facilitation Agreement with GE Capital
and GE Erste, in connection with the merger and the IPO. Pursuant to that
agreement, Schoeller Technologies issued a DM45.0 million, or approximately
$21.8 million, convertible debenture to GE Erste in exchange for the
contribution of the preferential share of IFCO Europe owned by GE Erste. We
also paid GE Capital DM43.0 million, or approximately $21.0 million (as of
March 8, 2000), out of the net proceeds of the IPO, the initial offering of the
notes, and the initial borrowings under the new senior credit facility in
consideration of the release of GE Capital's and GE Erste's options and other
rights to purchase shares of the IFCO Companies.

Credit Facilities

On the closing date of the IPO and the merger, IFCO Systems and PalEx
entered into a new syndicated, secured senior credit facility, which was
amended and restated on March 31, 2000, to complete the syndication. The
syndicate of banks, financial institutions, and other entities includes
Canadian Imperial Bank of Commerce and Bank One, Texas, NA. PalEx is the
borrower, and we and our other subsidiaries are guarantors. CIBC World Markets
Corp. and Bank One Capital Markets, Inc., are the co-arrangers, and Bank One,
Texas, NA is also the administrative agent. The new senior credit facility
replaced the former credit facilities of IFCO Europe discussed below and
PalEx's senior credit facility, the outstanding balances of all of which were
repaid in March 2000 with cash on hand, the net proceeds of the IPO and the
initial offering of the notes, and initial borrowings under the new senior
credit facility.

The new senior credit facility provides for borrowings of up to $235.0
million and consists of (1) a multi-draw term loan facility in an aggregate
principal amount of up to $108.75 million and (2) a revolving credit facility
providing for revolving loans to PalEx of up to $126.25 million. The term loan
may be borrowed in up to 20 drawings commencing on the closing date of the IPO
and the merger and ending on the third anniversary of the closing date. The
term loan facility may be used only to finance permitted acquisitions.
Permitted acquisitions include any acquisition in which the total consideration
we pay does not exceed $25.0 million. The aggregate amount of consideration we
or our subsidiaries pay in connection with permitted acquisitions during any
consecutive 12-month period may not exceed $90.0 million.

PalEx is able to draw on the revolving credit facility from the closing date
of the IPO and the merger through the third anniversary of the closing date.
The revolving credit facility matures on the sixth anniversary of the closing
date. The revolving credit facility may be utilized to make capital
expenditures and to finance the working capital needs of us and our
subsidiaries in the ordinary course of business and to pay fees and expenses
related to the transactions. The borrowing base under the revolving credit
facility is based on a percentage of our eligible accounts receivable, eligible
inventory, and eligible RTCs. Eligible inventory includes RTCs and pallets that
we and our subsidiaries own for lease to third parties, and eligible RTCs are
those owned by IFCO U.S.

The outstanding amounts under the term loan and the revolving credit
facility, as well as the swingline facility described below, bear interest at
interest rates determined based upon our consolidated total leverage ratio,
which is defined in the new senior credit facility, and changes quarterly
commencing with September 30, 2000. The rates range from a high of 300 basis
points over LIBOR and 200 basis points over prime rate, if our consolidated
total leverage ratio is greater than 3.25, to a low of 200 basis points over
LIBOR and 100 basis points over prime rate, if our consolidated total leverage
ratio is less than 1.75. The new senior credit facility establishes a 25 basis
point increase if the consolidated total leverage ratio is 1.75 to less than
2.25 and a similar increase for each .50 increase in the consolidated total
leverage ratio. Generally we may elect one-, two-, three- and six-month LIBOR.

The outstanding amounts under the term loan and the revolving credit
facility are repayable in 12 consecutive quarterly installments commencing 39
months after the closing date in an aggregate amount for each 12-month period
equal to 20% in the first period, 30% in the second period, and 50% in the
third period.

PalEx has available to it a multi-currency swingline facility for short-term
borrowings denominated in certain readily available and freely tradable
currencies in an amount not to exceed $50.0 million and a dollar swingline
facility in an aggregate amount not to exceed $25.0 million. Any multi-currency
swingline loan or dollar swingline loan reduces availability under the
revolving facility on a dollar-for-dollar basis. PalEx may obtain letters of
credit, in an amount not in excess of $25.0 million of the revolving facility,
issued by Canadian Imperial Bank of Commerce and Bank One, NA. Drawings under
any letter of credit will be reimbursed by PalEx on the same business day.

PalEx's obligations under the new senior credit facility are guaranteed by
us and each of our existing and future direct and indirect subsidiaries, other
than subsidiaries deemed immaterial by the administrative agent. The new senior
credit facility and the guarantees are secured by a perfected first priority
security interest in all of the loan parties' substantial tangible and
intangible assets, except for those assets the co-lead arrangers determine in
their sole discretion that the cost of obtaining the security interest are
excessive in relation to the value of the security.

The new senior credit facility contains a number of covenants that, among
other things, limit our and our subsidiaries' ability to dispose of assets,
incur additional debt, merge or consolidate, pay dividends, create liens on
assets, enter into sale and leaseback transactions, make investments, loans, or
advances, make acquisitions, make capital expenditures, prepay debt, or engage
in certain transactions with affiliates, and otherwise restricts certain
corporate activities. In addition, the new senior credit facility requires that
we and our subsidiaries comply with specified ratios and tests, including a
minimum net worth test, a fixed charge coverage ratio, an interest coverage
ratio, a leverage ratio, and a minimum EBITDA requirement.

The new senior credit facility contains customary events of default,
including non-payment of principal, interest, or fees, material inaccuracy of
representations and warranties, violation of covenants, cross-default to
certain other debt, certain events of bankruptcy and insolvency, certain events
under ERISA, material judgments, actual or asserted invalidity of any
guarantee, security document, subordination provision, or security interest,
and a change of control in certain circumstances.

On March 8, 2000, we issued (Euro)200.0 million principal amount of the
Series A notes, which translates to approximately $189.7 million, in a private
placement. The total net proceeds to the Company from the issuance of the notes
were $184.7 million.

In 1998, IFCO Europe negotiated a new financing arrangement with a lending
syndicate for a total of DM181.0 million, or $87.8 million The amount of credit
available under the financing arrangement was reduced in 1999 to DM160.5
million, or $77.8 million. The credit facility consisted of DM125.5 million, or
$60.9 million, available under a Senior Facility Agreement and DM35.0 million,
or $17.0 million, available under a Senior Subordinated Facility Agreement.

The Senior Facility Agreement consisted of a DM64.0 million, or $31.0
million, fixed term loan and two revolving credit facilities totaling DM61.5
million, or $29.8 million. All borrowings under the Senior Facility Agreement,
DM100.5 or $51.5 million of which was outstanding as of December 31, 1999,
contained principal reduction provisions, matured in 2004, and accrued interest
at EURIBOR plus 1.75%, or 5.31% as of December 31, 1999. The amount available
for future borrowings under the Senior Facility Agreement as of December 31,
1999, was DM 25.0 million or $12.8 million.

Outstanding borrowings under the Senior Subordinated Agreement, which
totalled DM35.0 million, or $18.0 million, as of December 31, 1999, accrued
interest at a rate of EURIBOR plus 2.75%, or 6.31% as of

December 31, 1999. The Senior Subordinated Agreement did not have scheduled
principal reductions until a balloon payment in 2005.

As of December 31, 1999, IFCO Europe would not have been in compliance with
certain financial covenants in the Senior Facility Agreement and the Senior
Subordinated Agreement. IFCO Europe did not obtain waivers for these
violations, since these credit facilities were repaid in full in March 2000
upon completion of the IPO and related transactions.

The new senior credit facility permits, and the Senior Facility Agreement
and Senior Subordinated Agreement previously permitted, specified levels of
receivable factoring. During 1994, IFCO Europe had entered into a factoring
agreement under which IFCO Europe could offer all of its trade receivables to a
factoring agent. Under the factoring agreement, the sales price is the nominal
value of the receivable less a factoring fee of 0.6% of the nominal value of
the factored receivables. The factoring agent has the right to collect the
receivables and bears the collection risk. The factoring agent is required to
remit 75% of the factored receivables to IFCO Europe. The remainder, less the
factoring charge, is held in an escrow account and is remitted to IFCO Europe
following collection. The interest rate on cash advances relating to factored
receivables is based on the three-month EURIBOR rate plus 1.25%, or 4.59% as of
December 31,1999. IFCO Europe factored 50% of its revenues and incurred
factoring and interest charges under this agreement of $4.0 million in 1998.
During 1999, IFCO Europe factored 48% of its revenues and incurred factoring
and interest charges of $4.3 million.

At December 31, 1999, we had entered into several capital lease agreements
resulting in total capital lease obligations of $34.5 million.

To reduce its variable rate interest risk, IFCO Europe entered into an
interest rate cap agreement. As of December 31, 1999, this interest rate cap
covered DM101.4 million or $52.0 million of its outstanding debt and limited
interest rates applicable to those borrowings to 6.75% for $41.2 million of
borrowings under the Senior Facility Agreement and to 7.75% for $10.8 million
of borrowings under the Senior Subordinated Agreement. The costs of this
agreement are included in interest expense rateably over the term of the
agreement.

Capital Expenditures

Our aggregate capital expenditures were $30.8 million for 1999, $40.2
million for 1998, and $39.6 million for 1997. These capital expenditures were
principally for the purchase of RTCs. We anticipate that a planned expansion of
the European perishables RTC pool will require investments of $50.3 million in
2000 and $55.7 million in 2001. For the planned expansion of the non-European
perishables RTC pool, we project capital expenditures of $26.3 million in 2000
and $37.1 million in 2001. We currently anticipate capital expenditures for
additional and replacement pallet and drum manufacturing equipment and pallet
pool expenditures of $27.0 million during 2000 and $24.2 million during 2001.

Future Liquidity Needs

We believe we will be able to finance operations and scheduled debt
repayments from operating cash flow and additional borrowings under the new
senior credit facility for the foreseeable future. The planned capital
expenditures will be financed by the new senior credit facility. Our ability to
make scheduled payments of principal or interest on, or to refinance, our debt,
or to fund planned capital expenditures, will depend on our future performance.
Our ability to do so is subject to general economic, financial, competitive,
legislative, regulatory, and international and U.S. and European domestic
political factors and other factors that are beyond our control. We may not
generate sufficient cash flow from operations, anticipated revenue growth and
operating improvements may not be realized or future capital may not be
available in an amount sufficient, or on acceptable terms, to enable it to
service its debt or to fund its other liquidity needs.

We intend to pursue additional acquisitions. We are, from time to time,
engaged in ongoing discussions with respect to selected acquisitions and other
strategic opportunities, and expect to continue to assess these and other
opportunities. The timing, size, or success of any acquisitions or other
strategic opportunities and the resulting additional capital commitments are
unpredictable. We expect to fund future acquisitions primarily through a
combination of issuances of additional equity, working capital, cash flow from
operations, and borrowings under the new senior credit facility. We may also
require additional financing. To the extent new sources of financing are
necessary to fund future acquisitions, we cannot assure you that we can secure
the additional financing if and when it is needed or on terms deemed acceptable
to us.

Impact of Inflation

The results of our operations for the periods discussed have not been
materially affected by inflation.

Seasonality

Our RTC revenues vary depending on the fruit and vegetable harvesting season
in different countries. Historically, a higher portion of its sales and
operating income has been recognized in the fourth quarter than in the first
quarter, which has historically been its weakest quarter. Revenues in Germany
and France, for example, are highest in summer and fall, whereas revenues in
Southern Europe reach a peak late in fall and throughout winter. Seasonality
also has an influence on pricing, as transportation costs incurred during the
winter to transport IFCO's RTCs from warmer countries in Southern Europe are
higher than the costs to transport the RTCs from closer locations in Central
Europe. IFCO accordingly charges customers in these Southern European countries
higher usage fees.

The pallet manufacturing, recycling, and crating business in North America
is subject to seasonal variations in operations and demand. The third quarter
is traditionally the quarter with the lowest demand for this business. We have
a significant number of agricultural customers for this business and typically
experiences the greatest demand for new pallets from these customers during the
citrus and produce harvesting seasons, generally October through May. Yearly
results can fluctuate significantly in this region depending on the size of the
citrus and produce harvests, which, in turn, largely depend on the occurrence
and severity of freezing weather and changes in rainfall. Adverse weather
conditions may also affect our North American locations serving predominantly
manufacturing and industrial customers experience less seasonality. Our drum
reconditioning segment is seasonally impacted in the Southeastern and Western
United States by the agricultural industries. Reconditioned drum sales are
strongest during a period generally beginning in April and extending through
September, with preseason production for this period running from January
through March.

Related Party Supplier

In 1997, a subsidiary of IFCO Europe entered into a ten-year supply
agreement with Schoeller Plast Industries GmbH, a 100%-owned subsidiary of
Schoeller Industries, to provide the IFCO Companies with substantially all of
their new RTCs. The supply agreement was later assigned to Schoeller Plast AG,
an indirect 80%-owned subsidiary of Schoeller Plast Industries GmbH. Changes in
pricing may occur when Schoeller Plast AG's production costs vary by more that
15%. Under the terms of the supply agreement, we receive a fixed price per
kilogram for broken containers, which are taken back by Schoeller Plast AG.

Foreign Currency Translation Effects

Our functional currency is the Deutsch mark. We have elected the U.S.
dollar as our reporting currency and consequently, assets, liabilities,
revenues, and expenses are subject to exchange rate fluctuations between the
U.S. dollar and the Deutsch mark. For the translation of our financial
statements into U.S. dollars, the exchange rate at the respective balance
sheet date is used for assets and liabilities and a weighted average exchange
rate for the period for revenues, expenses, gains, and losses. The following
exchange rates for the translation of the Deutsch mark into U.S. dollars were
used:

Weighted Rate at the
Period average rate(1) balance sheet date(2)
------ --------------- ---------------------

Year ended December 31, 1997.......... 0.5757 0.5580
Year ended December 31, 1998.......... 0.5685 0.6140
Three months ended March 31, 1999..... 0.5644 0.5491
Year ended December 31, 1999.......... 0.5454 0.5125
Three months ended March 31, 2000..... 0.4929 0.4874

- --------
(1) The average of the buying rates for the Deutsch mark, expressed as U.S.
dollars per DM1.00, on the last business day of each full month during the
indicated period.

(2) The buying rate, expressed as U.S. dollars per DM1.00, as of the indicated
balance sheet date.

In "Liquidity and Capital Resources" the balance sheet date rates above are
used to translate Deutsch-mark-denominated amounts into approximate U.S.
dollar amounts. Otherwise in this report, approximate dollar amounts are
provided for euro-denominated amounts based on the Federal Reserve Bank of New
York noon buying rate on the date indicated or on July 7, 2000, (Euro)1.00 =
$0.9484, if no date is indicated. Approximate dollar amounts are provided for
Deutsch-mark-denominated amounts based on this euro rate and the fixed
conversion rate of (Euro)1.00 = DM1.95583, resulting in a rate of DM1 =
$0.4849. The exchange rates as of March 8, 2000, the closing date for the
merger and the IPO, were (Euro)1.00 = $0.9576 and DM1 = $0.4896.

Euro Currency

On January 1, 1999, conversion rates of the national currencies of eleven
European Union members, including Germany, were fixed against a common
currency, called the euro. Each participating country's currency is legal
tender during a transition period from January 1, 1999, until January 1, 2002,
after which only the euro will be used. We have assessed their internally
developed and purchased information technology applications to determine the
changes needed to process euro-denominated transactions. As a result, our
systems have been changed or will be changed to process euro-denominated
transactions. Additional costs associated with the transition period are
expected to be minimal and are not expected to have a material adverse effect
on our financial results. In the future, we will use the euro as its
functional currency in connection with its new information technology systems.

Quantitative and Qualitative Disclosures About Market Risks

We are exposed to two broad classes of risk: interest rate risk and
currency exchange rate fluctuations.

Our exposure to interest rate risk relates primarily to its variable rate
debt. At December 31, 1999, the carrying value of our total variable rate debt
was $69.6 million. To help to reduce variable rate interest risk, we have
entered into an interest rate cap agreement, which as of December 31, 1999,
covered $52.0 million of the outstanding debt and limits interest rates related
to these borrowings to 6.75% for $41.2 million of borrowings under the Senior
Facilities Agreement and to 7.75% for $10.8 million of borrowings under the
Senior Subordinated Agreement. The following table shows interest sensitivities
of hypothetical changes in interest rates on the debt as of December 31, 1999,
net of any interest rate differential received on the cap:

Change in interest rate in
percentage points from
December 31, 1999, borrowing
level.......................... -3% -1% +1% +3% +5% +1%
Increase (decrease) in net
interest expense (in
thousands)..................... $(2,217) $(739) $739 $1,354 $1,726 $2,656

We are exposed to a degree of currency risk by virtue of conducting a
portion of its business in currencies other than the Deutsch mark. Our currency
risk arises from foreign currency receivables as well as from firm commitments
to purchase services and supplies in the future in currencies other than the
Deutsch mark. Foreign currency transaction gains and losses have not been
material to the results of operations during the past three years. Currently,
our policy is not to use derivative financial instruments to manage its
exposure to fluctuations in foreign currency exchange rates. The introduction
of the euro should further reduce our exposure to exchange rate fluctuations
from its European operations.

Year 2000

We are unaware of any material impact resulting from or that could result
from the year 2000 issue.

INDUSTRY OVERVIEW

Round-trip Systems

Traditionally, corrugated cardboard, wood, and steel containers have been
used for the packaging and handling of products. Growers and manufacturers have
purchased or constructed containers for one-time shipment of their products.
Recipients of containers have then removed the products from the containers for
display, sale, or further distribution. Generally, the recipients have then had
to dispose or arrange for disposal of the containers.

We believe that the traditional packaging and material handling industry is
now evolving into round-trip systems in order to make the flow of goods more
efficient. The development of round-trip systems has been driven by retailer
and customer preferences, cost-savings, and environmental sensitivity. Round-
trip systems bring the historically separate segments of packaging and material
handling into an integrated system by combining:

. logistics management;
. standardized round-trip containers, pallets, industrial containers, and
other material handling products;
. reconditioning and recycling services to reduce the amount of packaging
for transport; and
. information management for the flow of products.

Round-trip Containers

The traditional one-way cardboard or wood containers have been the primary
means of transporting grocery and dry goods products, including fresh fruits
and vegetables. Prior to 1992, there were few alternatives for retailers in the
produce industry to ship their products. Fruits and vegetables transported to
grocery retailers in corrugated cardboard boxes have been damaged frequently
because of collapsed or wet boxes.

Round-trip containers, or RTCs, are reusable plastic or metal crates or
trays, which are an alternative to a one-trip outer packaging case, including
corrugated boxes. RTCs were initially developed to transport fruits and
vegetables, but have been expanded to other product categories and sectors.
They are typically used within exchange pools or closed loop round-trip
systems. Exchange pools are cooperatives for the sharing and exchange of RTCs
from company to company. In a closed-loop round-trip system, RTCs are provided
by a company to growers or manufacturers, filled and transported to retailers,
returned to the provider when empty for inspection and cleaning, repair, or
recycling when necessary, and are then reused in the flow of goods.

There are two basic categories of RTCs: collapsible and non-collapsible.
They are usually based on ISO standard dimensions, including 600 mm x 400 mm or
400 mm x 300 mm, in varying heights, and are compatible with standard-sized
pallets. Containers full of products are stacked at various heights.
Collapsible containers have become popular with many retailers for fresh
produce because when folded flat they require less storage space.

Based on industry information, the estimated number of corrugated containers
manufactured in Europe is approximately 15 billion each year, with
approximately 10% used for perishables and approximately 30% used for dry
goods. In the United States, the estimated number of containers is
approximately 20 billion each year, with approximately 8% used for perishables
and 30% used for dry goods. In Europe, approximately 20% of perishables are now
being shipped in RTCs. In the United States, the use of RTCs is just beginning,
with an estimated 15 million RTCs now in use for transporting perishables.

The market for RTCs presents the possibility for significant growth because
of cost savings and more efficient distribution through:

. multiple reuse;
. improved load utilization and container handling;
. reduced product handling, reduced product damage, and longer shelf life;

. more efficient temperature regulation;
. easier in-store display; and
. reduction of the amount of packaging for transport.

Pallets

A pallet is a platform, usually made of wood, that is used for storing and
shipping goods. Pallets are used in virtually all U.S. industries where
products are physically distributed, including the automotive, chemical,
consumer products, grocery, produce and food production, paper and forest
products, retail, and steel and metals industries. Pallets come in a wide range
of shapes and sizes. Although most pallets are made of wood, they may also be
made of steel, plastic, cardboard, molded wood fiber, and other materials to
satisfy smaller niche markets. The wooden pallet has traditionally been the
basis for the design of storage racks, warehouse storage areas, forklifts,
docks, and containers used for shipping goods.

We believe that there are over 1,000 different sizes and specifications of
pallets used in North America. The grocery industry, which utilizes
approximately one-third of all new pallets produced, uses a standard size 48
inch x 40 inch pallet, although many other styles and specifications are also
manufactured for use in that industry. Other industries use pallets having
specifications that are appropriate for their particular needs. Based on
information supplied by industry sources, we believe that over 90% of the
pallets used were of the traditional wooden type, fabricated from lumber and
metal fasteners.

Based on information supplied by industry sources, we estimate that the U.S.
pallet industry generated revenues of approximately $5.6 billion in 1997 and is
served by approximately 3,600 companies. We believe, based on our own
experience in the industry, that most of these companies are small, privately
held entities operating in only one location and serving customers within a
limited geographic radius. Historically, the industry has been composed of
companies that manufacture new pallets and companies that repair and recycle
pallets. We estimate, based on industry sources, that during 1998 approximately
400 million new wooden pallets were produced and approximately 175 million
wooden pallets were repaired or recycled. We also estimate there were
approximately 1.9 billion pallets in circulation in the United States in 1998.
Increasingly, pallet companies are considering the creation of pallet pools for
leasing to customers and management of their pallet needs.

The pallet industry has experienced significant changes and growth during
the past several years. These changes are due, among other factors, to the
focus by FORTUNE 1000 businesses on improving the logistical efficiency of
their manufacturing and distribution systems. This focus has caused many of
these businesses to attempt to reduce significantly the number of vendors
serving them in order to simplify their procurement and product distribution
processes. It also has prompted large manufacturers and distributors to
outsource key elements of processes that are not within their core operations
and to develop just-in-time procurement, manufacturing, and distribution
systems. With the adoption of these systems, expedited product movement has
become increasingly important and the demand for a high quality source of
pallets has increased. Freight on pallets assists movement through the supply
chain, reducing costly loading and unloading delays at distribution centers and
warehouse facilities. However, the use of low-quality or improperly sized
pallets may increase the level of product damage during shipping or storage.

These broad changes affecting U.S. industry have created significant demand
for higher quality pallets distributed through an efficient, more sophisticated
system. Environmental and cost concerns have also accelerated the trend toward
increased reuse or recycling of previously used pallets, further increasing the
importance of higher quality new pallets, which can be reused more often and
are easier to recycle than lower quality pallets.

Industrial Containers or Steel Drums

There are two basic types of steel drums--open top and closed top. Open top
drums are containers with a removable top that is fastened to the drum by a
locking ring. These drums are reconditioned in a thermal

process that uses high temperature furnaces. Open top drums are generally used
for agricultural purposes and for viscous materials, including paints,
coatings, greases, and adhesives. Closed top drums are those in which the top
is an integral part of the drum's construction. Closed top drums are typically
used for solvents, resins, and most petroleum products. These drums are
reconditioned using a chemical washing process.

Companies that use steel drums can choose between new and reconditioned
steel drums. Reconditioned steel drums are previously used drums that are
cleaned, repaired, and refurbished and are a cost effective alternative to new
drums. Steel drums can typically be reconditioned and reused six to eight times
and can then be scrapped and recycled. Similar to many other recycling
industries, drum reconditioners return a useful product to the marketplace and
solve a major disposal problem that would otherwise severely burden industry
and municipalities.

According to the Reusable Industrial Packaging Association, there are
approximately 120 steel drum recyclers and reconditioners in North America.
Based on 1996 market information from this industry association, we estimate
that steel drum recyclers and reconditioners process an estimated 40 million
drums each year, which represents approximately $500 million in revenues
annually based on estimated reconditioning revenue per container. Fifty-five
gallon steel drums are part of the non-bulk industrial packaging industry and
are found in virtually every industrial facility. These drums are used to
transport and store products primarily for the petroleum, chemical, coatings,
agricultural, and food processing industries.

Steel drum reconditioners in the United States tend to be regionally located
in industrialized and agricultural areas. These companies are regionally
located because of the freight costs of shipping empty drums long distances.

Steel drums have traditionally been owned by the customers. Recently,
companies have begun offering integrated drum management services to manage
customers' drum usage.

BUSINESS

General

We are a leading international provider of round-trip systems, serving over
9,000 customers in 17 countries. We believe we:

. own and manage the largest pool of round-trip containers, or RTCs, in
Europe based on 1997 market information;

. own and manage a rental pool of over 1.5 million pallets in Canada,
making us the second largest pallet rental pool owner and manager in
North America;

. are the largest provider of new and recycled pallets in North America
based on our pallet industry experience and industry information; and

We also manufacture, sell, lease, and recycle wooden pallets in a variety of
shapes and sizes for the movement of various types of goods. We currently
conduct our pallet operations from 60 facilities throughout the United States
and Canada. We also recondition industrial container products, which include
steel closed top drums, steel drums with fully removable heads, plastic drums,
and industrial bulk containers, from 12 facilities in the United States.

On a pro forma basis, our revenues for the year ended December 31, 1999,
were approximately $547.4 million and our EBITDA was approximately $84.7
million.

Company Strengths

We believe that we have the following strengths:

regional networks, we have the ability to manage complete shipping
platform systems for customers and retailers, which include production,
distribution, display, collection of RTCs from retailers' back docks
after use, and cleaning and reuse.

. Multiple reuse--the containers are reusable, reducing the amount of
waste and disposal costs;

. Time savings--the time spent handling goods is reduced, both in
terms of product handling during distribution and direct placement
on the retail floor;

. Reduction of product spoilage and waste--RTCs reduce spoilage and
waste, and promote longer shelf life, because RTCs are not subject
to water damage and there is less breakage and crushing during
distribution and display as compared to less durable corrugated
boxes;

. Energy efficiency--for produce, the open design of the RTCs allows
more efficient cooling through air circulation and better
temperature control; and

. Easier in-store display--products may be displayed in the RTCs
without any additional handling.

. Experienced Management Team and Strong Strategic Relationships. Our
management team has extensive experience in the transportation,
logistics, and packaging industries in transportation and logistics
operations, acquisitions, and knowledge of the U.S. market. Our
management group understands and has experience integrating acquired
businesses into a common infrastructure. We also enter both major
markets--Europe and North America--with established local management
personnel for day-to-day operations and expansion. In addition, GE
Capital has a continuing relationship with us because of the right of
its subsidiary to become a direct or indirect holder of our ordinary
shares. We intend to use this continuing relationship to avail ourselves
of GE Capital's extensive experience and other relationships.

Business Strategy

Our objective is to be the preeminent international provider of round-trip
systems through the implementation of the following strategy:

. Expand in the United States. We believe the combination of (1) our
comprehensive round-trip systems and high quality RTCs and (2) our
relationships with producers and retailers, knowledge of shipping
platform and container management services, and experience with North
American distribution channels will offer us a significant opportunity
to expand our round-trip systems business in the United States. In
Europe, the IFCO round-trip systems have become several large-scale
retailers' preferred alternative to conventional packaging and are
continuing to grow in popularity. We believe a similar evolution will
occur in the United States based upon comparable opportunities and
receptiveness among growers and retailers. Since we will benefit from
the existing pallet and industrial container network of approximately 70
supply and maintenance depots, this strategy is expected to reduce
expenditures on network infrastructure in the United States. These
expenditures are a significant part of start-up costs in the United
States.

. Further Development of Markets. We intend to continue our expansion into
other geographic and product markets with both existing and new products
and services.

History

The IFCO Companies

The IFCO Companies began the world's first round-trip systems business. The
business was initially founded in 1992 as IFCO International Fruit Container
Organization GmbH, an affiliate of Schoeller Industries, which later changed
its name to IFCO International Food Container Organization GmbH. Today, IFCO
GmbH is the operating company for IFCO Europe.

Since 1992, the IFCO Companies have developed European-wide round-trip
systems for fresh fruit and vegetables. The IFCO Companies hold several
international patent rights on its RTCs.

Schoeller Industries is a family-owned business with its origins in the
paper, sugar, wood, and textile industries dating back to the eighteenth
century. In 1958, Alexander Schoeller invented, developed, and launched the
first plastic beverage crates for use in the German beverage market, and
plastic moldings are still one of the Schoeller group's core businesses. In
1982, Alexander's sons, Christoph and Martin Schoeller, joined the group and,
in 1992, were responsible for the design of the collapsible RTCs and the launch
of the IFCO Companies.

In 1994, IFCO International entered into a joint venture with Mitsubishi in
Japan, the IFCO Companies' first market entry outside of Europe. In 1996, IFCO
International also entered into a U.S. joint venture. In 1997, GE Capital
became an investor in IFCO Europe. In 1998, IFCO Europe was named one of
Europe's Top 500 Growth Companies by the Association of Dynamic Entrepreneurs
in Brussels, Belgium.

PalEx

PalEx was formed in January 1996 to create a national provider of pallets
and related services. Concurrently with the closing of its initial public
offering in March 1997, PalEx acquired three businesses engaged in pallet
manufacturing and recycling. Since that time, PalEx acquired 16 additional
pallet companies, making it the largest producer of new pallets and the largest
pallet recycler in the United States. In the United States, PalEx provides a
broad variety of pallet products and related services, including the
manufacture and distribution of new pallets, the recycling of pallets,
including used pallet retrieval, repair, remanufacture, and secondary
marketing, and the processing and marketing of various wood-based by-products
derived from pallet recycling operations. In Canada, PalEx conducts pallet
rental and repair operations and pallet pooling management services through SMG
Corporation, a Canadian subsidiary. PalEx currently conducts its pallet
operations from approximately 60 facilities in 18 states in the United States
and seven Canadian provinces.

In separate transactions in February 1998, PalEx acquired four leading steel
drum reconditioning companies, which formed the base for expanding its
operations into the industrial container management industry. As a result of
these acquisitions and three subsequent acquisitions, PalEx is now the largest
reconditioner of industrial containers in North America. PalEx's container
group is also engaged in drum and intermediate bulk container leasing
operations. Its container group operates from approximately 10 facilities in
ten states in the United States.

Systems and Services

Round-trip Containers

The IFCO round-trip systems provide a complete system for product flow that
minimizes waste and improves customer satisfaction and retailer profitability.
The IFCO round-trip systems include delivery of RTCs to producers when needed,
collection of empty containers from retailers, cleaning of containers, and
quality control. The producers are invoiced for the RTCs on a per use or a time
basis. After cleaning and any necessary repair, the RTCs are reintroduced into
the product distribution cycle.

Since we started the RTC pool in Europe in 1992, we believe we have become
the leading supplier of RTCs in Europe. Currently, there are approximately 63.5
million IFCO RTCs in circulation. Our European RTC pool now serves over 4,000
growers supplying produce to approximately 15,000 supermarket outlets
throughout Western Europe.

Producers and retailers enjoy several advantages with the IFCO round-trip
systems compared to the use of traditional, disposable packaging, including
lower costs, better product protection, increased handling efficiency, more
efficient space utilization during transport, and less waste and environmental
impact. We are able to maximize these benefits as a result of experience with
container pooling and transport and our network of container depots, which is
extensive in Europe and growing in other regions.

The IFCO round-trip system is illustrated as follows:

[GRAPH]

This system includes the following steps:

. producer faxes order for IFCO RTCs to an IFCO container depot;
. RTCs are delivered from the IFCO container depot to producer;
. producer receives an invoice for round-trip services, which include the
one-time use of RTCs on either a trip or time basis;
. producer also receives an invoice for a deposit for RTCs;
. computer tracking system generally monitors the flow of RTCs, but does
not currently track the location of each individual RTC, except for RTCs
used in dry goods distribution;
. producer packs RTCs and ships them to retailer's distribution center or
retail outlet, depending on retailer;
. producer bills the deposit for the RTCs to retailer;
. retailer displays the products in the RTCs or removes the products for
display;

. we contract third parties to collect empty, collapsed RTCs from
retailer's distribution center or retail outlet, depending on retailer,
for return to an IFCO container depot;
. once RTCs are recollected, we return deposit to the retailer; and
. we inspect and clean, repair, or recycle, as necessary, empty RTCs at
the IFCO container depot to make them ready for their next delivery to a
producer.

The IFCO round-trip systems cover all of the steps in the flow of the goods
from delivery to return to depot, including:

. delivery to customer or first user;
. collection of empty containers from retailer;
. quality control;
. hygienic cleaning conforming to applicable health and safety guidelines;
. storage and delivery to the next customer; and
. optional tracking system.

Generally, we invoice customers on a per trip basis in Europe, Japan, and
the United States and on a time basis in Argentina.

IFCO RTCs are extremely versatile. All IFCO RTCs are made of 100% recyclable
materials. They are light, yet strong enough to withstand the stresses of long
distance travel and handling and significantly reduce produce damage and loss.
They are compatible with automated packaging systems and provide an attractive
product presentation at the point of sale. The RTCs fold on average to one-
fourth of their original volume, dramatically reducing transport and storage
costs for empty RTCs.

Because the IFCO RTCs are made of durable plastic, the products packed in
RTCs have better protection for handling during transport and bad weather
conditions. The RTCs are better able to bear the stress of large loads as
compared to corrugated containers. This is especially true with produce and
other perishables, which have an increased chance of arriving at the point of
sale in prime condition. Produce is then ready for display with minimum
handling. Retailers have the option of using the RTCs for display purposes.

The IFCO RTCs move back and forth among countries based on where crops are
being harvested and the countries to which crops will be exported. For example,
if Spain were at peak harvest, RTCs from depots outside Spain would be shipped
directly to customers in Spain. In our European container pool, most packed
RTCs end up back in Germany, since Germany imports much more produce than it
grows domestically while other European countries tend to be net exporters. The
RTCs are generally used between three and 12 times per year, depending on the
type of RTC.

We initially developed RTCs for use with fresh produce. We subsequently
developed RTC applications for other perishables like fish, eggs, and bakery
products. Other current applications for IFCO RTCs include transport and
display of food dry goods, bulk transport, postal shipments, transport of
products for department stores, and shipment protection for appliances. IFCO
RTCs include different sizes of containers in ISO standard dimensions,
including 600 mm x 400 mm and 400 mm x 300 mm. These different sizes are
stackable interchangeably whether erected or collapsed.

For a breakdown of our revenues for the year ended December 31, 1999, by
segments and geographical markets, see Note 11 to our combined and consolidated
financial statements.

Pallets

We offer new pallet manufacturing and pallet rental, repair, remanufacture,
and recycling services. We believe that rental pool, repair, remanufacture, and
recycling services present the greatest opportunity for future growth.

New Pallet Manufacturing. The manufacturing process at our new pallet
facilities is generally the most capital intensive part of the pallet business,
with the majority of assembly and construction being automated. New pallets are
manufactured from an assortment of wood products, varying in type and quality,
with

construction specifications being determined by the pallet's end use. We
believe approximately 70% of the wood used in new pallets manufactured in North
America consists of hardwoods, including oak, poplar, alder, and gum, with the
balance consisting of pine or other softwoods.

We use sawing equipment that cuts large wood sections to specification. The
cut wood is then transported to assembly points where employees load the side
boards and deck boards into nailing machines that nail the pallets together.
After construction is completed, pallets are transported to a stacker for
shipment or storage. More customized or smaller orders may be manufactured by
hand on assembly tables by two laborers using pneumatic nailers. We typically
manufacture pallets upon receipt of customer orders and generally do not
maintain a significant inventory of completed pallets.

New pallet manufacturing represented the following approximate percentages
of revenues for the historical and pro forma periods indicated:

IFCO Systems Pro
PalEx Historical Forma Combined
Year Ended Year Ended
December 26, 1999 December 31, 1999
----------------- -----------------

54% 38%

Fiscal 1999 included, for the full period, revenues from a crate manufacturing
business acquired in August 1998.

Pallet Pooling and Reconditioning. Many new pallets are discarded by pallet
users after one trip. However, pallets can be recovered, repaired, if
necessary, and reused. Pallet repair and recycling operations begin with the
retrieval or purchase of used pallets from a variety of sources. The condition
and size of these pallets vary greatly. Once obtained, the pallets are sorted
by size and condition. A portion of the pallets may require no repair and can
be resold or returned immediately. Repairable pallets have their damaged boards
replaced with salvaged boards or boards from new stock inventoried at the
repair facility. Pallets that cannot be repaired are dismantled, and the
salvageable boards are recovered for use in repairing and building other
pallets. Unsalvageable boards may be ground into wood fiber, which we sell for
use as landscaping mulch, fuel, animal bedding, gardening material, and other
uses. Despite recent increasing automation, pallet recycling remains a labor
intensive process.

Pallet pooling and reconditioning represented the following approximate
percentages of revenues for the historical and pro forma periods indicated:

IFCO Systems Pro
PalEx Historical Forma Combined
Year Ended Year Ended
December 26, 1999 December 31, 1999
----------------- -----------------

16% 11%

Industrial Containers

Drum Reconditioning. Although the drum reconditioning process varies
slightly throughout the industry, two basic processes are used to recondition
steel drums, depending on whether the drums to be reconditioned are closed top
drums or open top drums. Closed top drums have secure tops that are an integral
part of the drum's construction and have 2 inch and 3/4 inch head openings in
the top of the drum. A steel drum with a fully removable head is referred to as
an open top drum.

Closed top drums are typically used to transport and store oils, solvents,
and flowable resins. Closed top drums are reconditioned by cleaning the
interior of the drum at a series of high-pressure alkaline and acid flush-and-
rinse stations. Pneumatic machinery reshapes the drum by removing dents and
restoring chimes (the top and bottom lid seals). Pressure tests required by
U.S. Department of Transportation regulations are then performed to check each
drum for leakage. The old exterior coatings are stripped from the drums with an

alkaline solution and steel-shot blasting. Next, new decorative coatings are
applied and baked on to provide a new durable exterior finish. The thermal
treatment used on open top drums cannot be used on closed top drums unless the
drum heads are removed.

An open top drum is used for a number of agricultural and industrial
applications, including storing and shipping citrus products, berries,
foodstuffs, adhesives, and coatings. Open top drums are reconditioned using a
thermal process. This process involves passing drums through a furnace that is
heated to approximately 1,200 degrees Fahrenheit which vaporizes residual
materials inside the drums. Residual chemicals and compounds created from this
process are drawn into an afterburner and destroyed by temperatures approaching
1,850 degrees Fahrenheit. Steel-shot blasting then strips old finishes from
both the interiors and exteriors of drums. After this process, the drums pass
through a series of hydraulic and pneumatic equipment to restore each drum's
shape and integrity. Finally, new interior protective and exterior decorative
coatings are baked onto the drums.

When closed top drums contain residues that cannot be purged through the
standard procedures described above, the drums are converted to open top drums
by cutting off the heads of the drums. The drums are then reconditioned as open
top drums and are used as converted open top drums or reseamed and have new
heads installed so that they can be re-used as a slightly shorter closed top
drum.

Waste separated from drums in the reconditioning process is packaged and
shipped to appropriate landfills or incinerated in accordance with strict
environmental controls. Worn out drums that can no longer be reconditioned are
subjected to reconditioning cleaning processes so that they are acceptable raw
material for scrap metal processors.

Like pallet recycling, drum reconditioning remains a labor intensive process
despite advances in reconditioning methods. Drum reconditioning represented the
following approximate percentages of revenues for the historical and pro forma
periods indicated:

IFCO Systems Pro
PalEx Historical Forma Combined
Year Ended Year Ended
December 26, 1999 December 31, 1999
----------------- -----------------

27% 19%

Container Management. Container management is the process of providing a
combination of services related to a customer's pallet or drum usage, including
the manufacture, repair, retrieval, delivery, and storage of pallets or the
reconditioning, retrieval, delivery and storage of drums, as well as the
disposal of unusable pallets or drums and component parts. In a typical
arrangement, we will contract with a customer to remove all pallets or drums
from a particular location and transport them to our repair or reconditioning
facility. The pallets or drums are sorted and repaired or reconditioned as
needed at one of our depots and sold to third parties, returned to either the
customer or its supplier or placed in storage and made available for return to
service. We may contract with a customer to perform any or all of the
management services available. We believe there are significant opportunities
to manage customers' entire shipping container and platform requirements and
that we are in a unique position to develop and offer these services.

Expansion and Acquisitions

Round-trip Containers

We have interests in a joint venture in Japan and have begun an operation in
Argentina for the development and operation of round-trip systems and RTC
pools.

In Japan, we have a minority interest in a joint venture with Mitsubishi,
which began in 1995. The joint venture continues to encounter a very fragmented
market and strong cooperative controls.

In 1996, we entered into an agreement with Intertape Polymer Group, Inc., to
form IFCO-U.S., L.L.C. IFCO U.S. has been successful in attracting some large
retailers to the IFCO system. It still faces high costs, however, as it works
to develop the necessary infrastructure to support an RTC pool. We purchased
the Intertape interest in IFCO U.S. in March 2000 following the completion of
the IPO.

We entered the market in Argentina in mid-1998. The Argentine operation
began local production of RTCs in March 1999. We have had initial success in
attracting some major retailers to IFCO round-trip systems.

Pallets

Since the initial three acquisitions in connection with PalEx's initial
public offering in March 1997, we have purchased 16 pallet companies in
separate transactions. The total purchase price for these acquired companies
was approximately 5.2 million shares of PalEx common stock, approximately $55.4
million in cash, and approximately $10.0 million principal amount of
convertible notes.

Industrial Containers

In February 1998, PalEx Container Systems, Inc., one of our wholly owned
subsidiaries, acquired five companies in separate transactions. Since that
time, PalEx Container Systems has completed three additional acquisitions of
reconditioning companies. The total purchase price for these acquisitions
consisted of approximately 4.5 million shares of PalEx common stock and
approximately $29.9 million in cash.

We made no acquisitions during 1999.

Sales and Marketing

Round-trip Containers

We currently maintain a broad range of customers located throughout Europe,
Japan, the United States, and Argentina. Our RTC sales and marketing department
is comprised of approximately 50 people and is headquartered in Germany, with
eight regional offices in Western Europe and one in Argentina. Our sales
process is managed by direct salespersons, supplemented with high-level
discussions between our top management and the retail chains. The marketing and
sales strategy focuses primarily on:

. developing and enhancing relationships with retailer groups;
. encouraging retailers to request their suppliers to use the IFCO round-
trip systems; and
. working closely with new and existing customers, whether growers or
manufacturers, to implement IFCO round-trip systems for the customer and
expand their use.

Because we seek to generate the majority of our business through retailers,
our marketing strategy focuses on large retail chains. Our marketing objective
is to convince retailers of the advantages of the IFCO round-trip systems,
which will then, in turn, lead the retailers to encourage producers to use the
IFCO round-trip systems. This marketing strategy results in a well-defined
target group of approximately 150 retail chains worldwide as compared to a
large and highly fragmented group of producers. The current consolidation trend
in the retail industry favors this marketing strategy.

Our pricing is different in each country and is based on the distance
between the customer and the retailer. Generally, pricing is reviewed on a
yearly basis, except if there are changes in raw materials or taxes or other
exceptional events occur.

We place a significant emphasis on marketing. We maintain a large
advertising presence in relevant industry publications in order to increase our
international profile and create a strong brand name. Another successful
marketing tool which we utilize is attendance at trade fairs, where we market
our services to retailers

and growers. Additionally, we have a comprehensive and regularly updated
website and also produce an array of product brochures and other marketing
materials.

Our future growth prospects are largely dependent upon an internationally
recognized brand name which will expand our existing customer base and further
advance the acceptance of round-trip systems by the retail sector.

Pallets and Industrial Containers

We currently sell to pallet and industrial container customers within the
various geographic regions in which we have operations. Our primary sales and
marketing activities involve direct selling by our sales force and by members
of senior management to local and regional customers at the plant level and to
large accounts and target industries more broadly on a geographic basis.
Because pricing is a function of regional material and delivery costs, pricing
is established at the regional level.

Because many of our customers need pallets and/or container management
services on a national scale, we continue the development and implementation of
our national sales and marketing plan to provide these services at many
locations throughout the United States. We seek to continue to develop a
network of facilities that will allow these customers to:

. centralize purchases of new and recycled pallets, reconditioned drums,
and container management services;

. obtain convenient and dependable service and a consistent supply of
uniform quality pallets, reconditioned drums, and container management
services;

. achieve greater efficiencies in their shipping platform and container
use; and

. meet corporate recycling goals.

We have developed relationships with several national customers and intend
to provide services to these and numerous other customers on a local, regional,
and national basis. The shipping platform and container management needs of
national companies are not uniform, and we intend to tailor our national
programs for each customer. These programs include a combination of sourcing,
retrieving, repairing, and recycling pallets and drums according to individual
customer requirements.

Customers

Round-trip Containers

Although the direct customers of IFCO round-trip systems are producers, the
demand is driven mainly by the large retail chains and their product transport
requirements. Our top twenty grower customers for RTCs accounted for
approximately 12% of RTC revenues for 1999. No grower customer accounted for
more than 2% of our 1999 revenues, and we do not materially rely on any single
grower customer. The top ten retailer groups using IFCO RTCs accounted for
approximately 85% of the recollection of RTCs in 1999.

Currently, over 75 retailer groups are using IFCO round-trip systems,
including major retailers such as Tengelmann, Edeka, Rewe, and Metro in
Germany, Coop and Migros in Switzerland, and Waitrose in the United Kingdom. In
1998, we added Coop of Switzerland as a new large retail chain using IFCO RTCs.
There has been a trend towards consolidation of grocery retailers in Europe.
For example, Allkauf and Kriegbaum were acquired by Metro, and Wertkauf and
Interspar were acquired by Wal-Mart in Germany. This trend is expected to
continue and has had a positive effect on us as we are able to obtain more
volume through existing relationships.

Outside of Europe, our international operations are still largely in the
development stage. Major retailers in Japan using the IFCO round-trip systems
include Jusco, Coop Kobe, Odakyu, and Coop Tokyo. In the United

States, major retailers who have started to adopt the IFCO round-trip systems
include Wal-Mart, H.E. Butt, and Food Lion. In Argentina, the major retailers
now using the IFCO round-trip systems are Norte, Disco, Coto, Jumbo, Unimark,
and Toledo.

We currently have three principal customers for our dry good operations, two
department stores, whose service agreements extend through 2003, and, Deutsche
Post AG, whose contract extends to September 30, 2004. Deutsche Post AG is one
of the largest European transporters of parcels and letters.

Pallets and Industrial Containers

We seek to efficiently serve large numbers of customers across diverse
markets and industries to provide a stable and diversified base for ongoing
sales of products and services in all operations.

Our customers include companies in the automotive, chemical, consumer
products, grocery, produce and food production, petroleum, paper and forest
products, retail, and steel and metals industries. They are both regional and
national in scale. Because a significant part of our products and services are
sold to customers engaged in the produce and citrus industries, our sales
volumes in some regions tend to be seasonal.

Suppliers and Raw Materials

Round-trip Containers

Schoeller Plast AG manufactures the RTCs that we use in Europe. Schoeller
Plast AG has production sites throughout Europe. In addition to production
capability, Schoeller Plast AG also conducts destructive and non-destructive
testing, as appropriate, on raw material and production samples for quality
control, new product testing, and product development.

In 1997, IFCO GmbH, one of our subsidiaries, and Schoeller Plast Industries
GmbH entered into a ten-year supply agreement, which was later assigned to
Schoeller Plast AG. In addition to supplying crates, the supply agreement
provides for Schoeller Plast AG to develop and improve RTCs for IFCO GmbH.
Schoeller Plast AG is also required to transfer the related intellectual
property rights to IFCO GmbH, which is in turn required to purchase the
manufactured products from Schoeller Plast AG. Schoeller Plast AG is obligated
to supply the containers to IFCO GmbH, and IFCO GmbH is required to purchase
them from Schoeller Plast AG. The supply agreement establishes a price
structure that changes periodically and is subject to upward and downward
adjustment based on increases and decreases of more than 15% in raw material
prices paid by Schoeller Plast AG. The supply agreement was negotiated on an
arm's-length basis by GE Capital on behalf of IFCO GmbH and on market terms.
The supply agreement expires on December 31, 2007, and may, upon the request of
IFCO GmbH, be renewed for an additional ten-year period. For a more detailed
description, see "Certain Relationships and Related Transactions--Supply
Agreement."

Pallets

The primary raw materials used in new pallet manufacturing are lumber and
plywood. We have long-term relationships with our lumber and plywood vendors.
We believe that these relationships, as well as our ability to pursue larger
volume purchases, will help to ensure adequate lumber supplies at competitive
prices in the future. During the 1998 fiscal year, we purchased lumber and
plywood from over 120 vendors. One of these vendors accounted for approximately
8% and another for approximately 5% of our total lumber purchases during the
1998 fiscal year. We do not believe that the loss of either of these vendors
would materially adversely affect our financial condition or results of
operations. We intend to continue to pursue a strategy of purchasing and
upgrading low-grade and alternative sources of lumber as well as exploiting
pricing aberrations and market trends to take advantage of lower prices in the
marketplace as they occur.

Pallet prices are closely related to the changing costs and availability of
lumber, the principal raw material used in the manufacture and repair of wooden
pallets. Typically, lumber prices fall in oversupplied lumber

markets, enabling small pallet manufacturers with limited capital resources to
procure lumber and initiate production of low-cost pallets. This depresses
pallet prices overall and adversely affects our revenues and operating margins.
While we believe that we will benefit from strong relationships with multiple
lumber suppliers, we cannot assure you that we will be able to secure adequate
lumber supplies in the future. Lumber supplies and costs are affected by many
factors outside our control, including governmental regulation of logging on
public lands, lumber agreements between Canada and the United States, and
competition from other industries that use similar grades and types of lumber.
In addition, adverse weather conditions may affect our ability to obtain
adequate supplies of lumber at a reasonable cost. In 1997, we experienced
higher lumber costs resulting from high demand and the impact of wet weather on
the harvesting of hardwood timber in the southeast regions of the U.S.

We attempt to take advantage of the price volatility of lumber by buying
additional quantities of lumber when prices are favorable and storing the
inventory for later use. We also are able to buy low-quality lumber and upgrade
this lumber at our plants. Although we have studied the broad use of
alternative materials, like plastic, for the manufacture of pallets, we believe
that there is not currently an available alternative raw material that
possesses the tensile strength, recyclability, and low cost of wood. We
continue to evaluate alternatives to wood and are receptive to their future use
in pallet production.

We source the majority of our pallets for reconstruction from businesses
that use pallets and from trucking companies. Businesses that receive and ship
a significant amount of goods are generally good sources for used pallets.
Often the pallets they receive are damaged or do not meet their size or other
specifications for internal systems or shipping. As a result, these businesses
accumulate pallets that can be recycled. We identify these sources through
establishing relationships with pallet users and by direct solicitation,
telemarketing, and advertising. We generally achieve timely pallet removal by
placing a trailer at a source that is used to hold unwanted pallets. We then
remove the load of pallets at the same time we deliver recycled pallets to the
pallet user. In some cases, we are paid a tipping fee for hauling away the used
pallets or are allowed to take the pallets away at no charge. In other cases,
we buy the used pallets.

Industrial Containers

PalEx sources the majority of drums to be reconditioned from customers to
which we provide reconditioning services. Customers usually own the drums they
use. The acquisition cost of used drums is highly dependent on the costs of
recollecting them, including transportation costs. Drum demand in some regions
of the United States has required more drums to be shipped outside of the
region than are shipped into the region. Consequently, the acquisition costs of
used drums, the primary raw materials for reconditioned drums, in these regions
are significantly higher since the used drum deficit must be replaced by
collecting and shipping used drums from over 250 miles away. The West Coast and
Southeast regions of the United States tend to be net exporters of open top
drums because of their emphasis on agriculture. The Midwest, on the other hand,
tends to be a significant accumulator of drums because of its greater
industrial content and usage of petroleum products, coatings, and chemicals.

Intellectual Property

Round-trip Containers

The development and protection of proprietary technology is essential to our
business. Schoeller Plast AG conducts ongoing research and development as part
of its obligations under the supply agreement with us to create and improve the
design of our products. These efforts are conducted in collaboration with, and
with input from, us. They have resulted in a number of innovative product
designs and improvements. We have a policy of protecting our proprietary
technology with patents. We file patent applications in the countries in which
we operate and have obtained several European and international patents
covering our products. We believe the loss of these patent rights would have a
material adverse effect on our businesses.

Our principal patents relate to our RTCs for perishables and for dry goods.
The principal patent for RTCs in the perishables segment protects our rights to
produce and use IFCO RTCs that consist of one piece and are produced in one
production step. The RTC consists of a base and four sides with hinges that can
be folded inward toward the base. The patent expires in 2013. The principal
patent in the dry goods segment protects two main elements, a tray that can be
used as the top or bottom and a collapsible frame that holds the side walls.
This patent expires in 2011.

Pallets and Industrial Containers

We do not rely on patents or trademarks to any material degree in our pallet
or industrial container operations.

Competition

Round-trip Containers

We believe that no other company has successfully challenged our position in
Europe with respect to round-trip systems. We do, however, anticipate more
aggressive challenges. The principal competitive factors are network economics,
industry standards, and cost-savings. We believe that when retailers select
container systems, they want to be able to choose in a competitive environment.
We also believe the market position we have obtained is protected as a result
of:

. our established relationships with customers and retailers, which are
maintained in part by the logistical services provided through our
round-trip systems;
. more locations to service customers and retailers where the volume of
produce shipping from grower customers or to retailers creates the need;
and
. the advantages of initial market entry.

Our direct competitors in Europe include CHEP in many countries in Europe,
Europe Pool System BV in Germany, and Steco International Plastics Logistic AG
in Germany and Austria, plus four other RTC pools serving more regional
markets. These seven companies have begun development of competitive container
systems, but have limited customers and infrastructure at this time. In
addition, agricultural cooperatives and retailers have a limited impact with
their own reusable container systems.

Our principal competition still comes from companies that are not providing
round-trip systems, including manufacturers of disposable containers made from
paper or wood. The majority of fresh produce is still packed in disposable
containers.

We are currently supplying RTCs for dry goods to only three principal
customers.

We believe that neither the Japanese joint venture nor the Argentine
operations have any direct competitors other than the providers of traditional
corrugated packaging. In the United States, we face similar competitive
pressures to those in Europe, except that CHEP has a more significant presence
overall in the United States than we do and represents a competitive challenge.

Pallets

We believe that the principal competitive factors in the pallet industry are
price, quality of services, and reliability. With approximately 3,600 industry
participants, the pallet industry has been, and is expected to remain,
extremely fragmented and highly competitive. Though several companies have
attempted to establish national pallet operations, most of our competitors are
small, privately held companies that operate in only one location and serve
customers within a limited geographic area. Competition on pricing is often
intense and we may face increasing competition from pallet leasing or other
pallet systems providers that market to new pallet purchasers as less expensive
alternatives. CHEP USA's pallet leasing system competes with new pallet sales
and recycling to the grocery and wholesale distribution industries and may
expand into other industries in the

future. In addition, pallet manufacturing and recycling operations are not
highly capital intensive and the barriers to entry in these businesses are
minimal. Other smaller competitors may have lower overhead costs and,
consequently, may be able to manufacture or recycle pallets at lower costs than
ours. Other companies with significantly greater capital and other resources
than us, including CHEP USA, may enter or expand their operations in the pallet
manufacturing and recycling businesses in the future, which could change the
competitive dynamics of the industry. In the past, we have competed, and will
continue to compete, with lumber mills in the sale of new pallets. These mill
competitors typically view pallet manufacturing as an opportunity to use the
lower grade lumber that would otherwise be waste.

Industrial Containers

Drum reconditioning businesses generally compete with respect to three
criteria: price; manufacturing responsiveness; and delivery performance.
Customers typically give less than 24 hours' notice for a majority of their
orders. This practice requires reconditioners to maintain flexibility in their
manufacturing capacity across product lines, carry sufficient levels of
inventory to meet customer demands, and develop distribution systems with rapid
pick-up and delivery capabilities. Although the primary competitive criterion
is price, the increasing movement toward just-in-time delivery increases the
importance of customer service.

Transportation and regulatory requirements are also key competitive factors
in the drum reconditioning industry. Due to the high costs of transporting
drums, the competitive range of a reconditioning facility is approximately 250
miles. In each market in which we have container operations, we face local
competitors. In addition, drum reconditioning operations are subject to
significant regulatory oversight, which makes it difficult to open new
facilities. For instance, as previously discussed, open top drum reconditioning
operations require the use of large furnaces, which require regulatory permits
that are increasingly difficult to obtain. According to industry sources, less
than five new furnace permits have been granted to drum reconditioners in the
last ten years in the United States.

Employees

At March 31, 2000, we had a total of approximately 4,200 full-time
employees, 500 in the operation of our round-trip systems, 3,000 in our pallet
operations, and 700 in our industrial container group. Approximately 300
employees of our industrial container group at three locations are covered by
collective bargaining agreements. We believe that our relationship with our
employees is satisfactory.

Properties

Round-trip Containers

At December 31, 1999, we operated 62 container depots in connection with our
European operations. The European RTC depots, which are leased, are located in
the following countries:

Austria (3)
Belgium (2)
Cyprus (1)
Denmark (5)
France (14)
Germany (9)
Greece (1)
Italy (11)
Netherlands (1)
Norway (7)
Spain (3)
Switzerland (1)
Turkey (1)
United Kingdom (3)

Through our interests in joint ventures outside of Europe, our round-trip
systems operations are operated from 28 leased depot facilities in the
following countries:

Argentina (6)
Japan (11)
United States (11)

Pallets and Industrial Containers

At December 31, 1999, we operated 60 pallet facilities and 12 drum
reconditioning facilities in 24 states in the United States and seven Canadian
provinces. We own 25 of these facilities and lease 47. Most of our facilities
offer more than one pallet-related or drum-related service. Our corporate
office in Houston, Texas is leased. The chart below summarizes the locations of
our pallet and industrial container facilities:

Total Number of
Number Number of Number of Number of Drum Pallet
of New Pallet Recycling Reconditioning Leasing
State or Province Facilities Facilities Facilities Facilities Facilities
----------------- ---------- ---------- ---------- -------------- ----------

Alberta.......... 2 2
Arizona.......... 2 1 1
Arkansas......... 3 2 1
British Colum-
bia............. 1 1
California....... 4 2 1 1
Colorado......... 1 1
Florida.......... 4 1 1 2
Georgia.......... 4 3 1
Illinois......... 2 2
Indiana.......... 1 1
Kansas........... 1 1
Maine............ 1 1
Manitoba......... 1 1
Minnesota........ 1 1
Mississippi...... 1 1
Missouri......... 1 1
New Brunswick.... 1 1
North Carolina... 6 5 1
Ohio............. 4 2 2
Oklahoma......... 1 1
Ontario.......... 2 2
Pennsylvania..... 2 2
Quebec........... 1 1
Saskatchewan..... 2 2
South Carolina... 1 1
Tennessee........ 3 2 1
Texas............ 13 4 9
Utah............. 1 1
Virginia......... 1 1
Washington....... 1 1
Wisconsin........ 3 3

Our interests in our owned and leased properties are pledged as security for
the repayment of amounts due under our new senior credit facility.

We believe that our properties are generally adequate for our present needs.
Further, we believe that suitable additional or replacement space will be
available when required.

Regulation

Round-trip Containers

Our RTC businesses are subject to evolving environmental, health, safety,
and transportation laws and regulations. In Europe, these regulations are
administered by the respective government agencies and the European Union. In
the United States, they are administered by the U.S. Environmental Protection
Agency and various other federal, state, and local environmental, zoning,
health, and safety agencies.

Pallets

All of our pallet businesses are subject to evolving environmental, health,
safety, and transportation laws and regulations at the federal, state, and
local levels. These regulations are administered by the U.S. Environmental
Protection Agency and various other federal, state, and local environmental,
zoning, health, and safety agencies. Many of these agencies periodically
examine our pallet operations to monitor compliance with these laws and
regulations.

Industrial Containers

Our industrial container businesses are subject to extensive regulations
governing location, design, operations, monitoring, site maintenance, and
corrective actions. In order to construct and operate a furnace for open top
drum reconditioning, our industrial container group must obtain and maintain
one or more construction or operating permits and licenses and applicable
zoning approvals. Obtaining the necessary permits and approvals is difficult,
time-consuming, and expensive. Maintaining the necessary permits also requires
significant effort. Once obtained, operating permits are subject to
modification and revocation by the issuing agency. In addition, many drums
received by our industrial container group for reconditioning may have
contained products classified as a solid waste, a hazardous substance or a
hazardous waste by applicable laws or regulations. Our industrial container
group must ensure that these drums are "empty" as determined by EPA regulations
at the time they are received at its facilities. Our industrial container group
does not accept drums that are not empty because they are classified as
hazardous wastes and must be handled and disposed of in an expensive manner in
accordance with stringent regulatory requirements.

Compliance with current and future regulatory requirements may require us,
as well as others in the steel drum reconditioning industry, to make
significant capital and operating expenditures from time to time. We make a
continuing effort to anticipate regulatory, political, and legal developments
that might affect operations, especially the operations of our industrial
container group, but we will not always be able to do so. We cannot predict the
extent to which any legislation or regulation that may be enacted, amended,
repealed, interpreted, or enforced in the future may affect the operations of
our industrial container group or other businesses. These actions could
adversely affect our operations or impact our financial condition or
profitability for one or more fiscal quarters or years.

Governmental authorities have the power to enforce compliance with
regulations and permit conditions, to obtain injunctions, or to impose civil or
criminal penalties in case of violations. During the ordinary course of
operations, our container group or our other subsidiaries may from time to time
receive citations or notices of violations or orders from governmental
authorities. When we receive citations or notices, our subsidiaries will work
with the authorities to address their concerns. Failure to be in full
compliance with applicable governmental requirements could lead to civil or
criminal penalties, curtailed operations, facility closures, or the inability
to obtain or retain necessary operating permits. In addition, our subsidiaries
could be responsible for the remediation of an off-site source through their
status as a transporter of certain chemicals.

As a result of changing government and public attitudes in the area of
environmental regulation and enforcement, we anticipate that changing
requirements in health, safety, and environmental protection laws will require
our container group to continually modify or replace various facilities and
alter methods of operation at costs that may be substantial. Our container
group incurs substantial expenditures in the operation of its

businesses in order to comply with the requirements of environmental laws.
These expenditures relate to waste stream containment and treatment, facility
upgrades, and corrective actions. The majority of these expenditures are made
in the normal course of our container group's businesses and neither materially
adversely affects our profitability nor places us at any competitive
disadvantage. Although, to our knowledge, we are currently in compliance in all
material respects with all applicable federal, state, and local laws, permits,
regulations, and orders affecting our operations where noncompliance would
result in a material adverse effect on our financial condition, results of
operations, or cash flows, we cannot assure you that we will not have to expend
substantial amounts for environmental matters in the future.

Our container group expects to grow in part by acquiring other existing drum
reconditioning operations. Although we conduct due diligence investigations of
the past waste management practices and the environmental condition of the
businesses that our container group acquires, we cannot assure you that,
through our investigation, we will identify or quantify all potential
environmental problems or risks. As a result, our industrial container group
may have acquired, or may in the future acquire, properties that have
environmental problems and related liabilities. We seek to mitigate these risks
by obtaining environmental representations and indemnities from the sellers of
the acquired businesses or by requiring remediation of known environmental
contamination before acquisition. We cannot, however, assure you that we will
be able to rely on any of these actions if an environmental liability exists.

Federal Statutes and Regulation. The primary U.S. federal statutes affecting
our businesses are summarized below. These statutes regulate the discharges of
hazardous substances and waste to the air and water and related permits, as
well as handling and disposal practices for solid and hazardous wastes.

The Solid Waste Disposal Act, as amended by the Resource Conservation and
Recovery Act of 1976, and its implementing regulations establish a framework
for regulating the handling, transportation, treatment, and disposal of
hazardous and nonhazardous waste. They also require states to develop programs
to ensure the safe disposal of solid waste in landfills. Container residues may
be hazardous waste under the Resource Conservation and Recovery Act or the
corresponding state regulations and as such require special handling,
transporting, storing, and disposal of not only the residues but also the
containers. We, as well as other entities with drum reconditioning operations,
could incur significant costs in complying with these regulations; however, we
do not believe that the costs of complying with these standards will have a
material adverse effect on our operations.

The Comprehensive Environmental Response, Compensation, and Liability Act of
1980, or CERCLA, among other things, provides for the cleanup of sites from
which there is a release or threatened release of a hazardous substance into
the environment and the recovery of natural resource damages. Courts have
interpreted CERCLA to impose strict, retroactive, joint and several liability
for the costs of cleanup and for damages to natural resources upon the present
and former owners or operators of facilities or sites from which there is a
release or threatened release of hazardous substances with limited defenses.
Generators of hazardous substances and transporters are also strictly liable.
As a practical matter, at sites where there are multiple responsible parties
for a cleanup, the costs of cleanup are typically allocated according to a
volumetric or other standard among the parties. Under the authority of CERCLA
and its implementing regulations, detailed requirements apply to the manner and
degree of remediation of facilities and sites where hazardous substances have
been or are threatened to be released into the environment. Also, CERCLA
imposes substantial penalties for failure to report the release of a hazardous
substance.

Liability under CERCLA is not dependent upon the intentional disposal of
hazardous wastes, as defined under the Resource Conservation and Recovery Act.
Liability can be imposed upon the release or threatened release, even as a
result of lawful, unintentional, and non-negligent action, of any one of more
than 700 hazardous substances, including very small quantities of these
substances. CERCLA requires the EPA to establish a National Priorities List of
sites at which hazardous substances have been or are threatened to be released
and which require investigation or cleanup. Because of the extremely broad
definition of hazardous substances, other industrial properties with which our
subsidiaries or their predecessors have been, or with

which they may become, associated as an owner or operator may subject our
subsidiaries to liability under CERCLA. Consequently, if there is a release or
threatened release of these substances into the environment from a site
currently or previously owned or operated by one of our subsidiaries, we could
be liable under CERCLA for the cost of removing these hazardous substances at
the site, remediation of contaminated soil or groundwater, and damages to
natural resources, even if those substances were deposited at the facilities
before our subsidiaries acquired or operated them.

The Federal Water Pollution Control Act of 1972, or Clean Water Act
regulates the discharge of pollutants into streams, rivers, lakes, or the ocean
from a variety of sources, including nonhazardous solid waste disposal sites.
The Clean Water Act also regulates storm water runoff and indirect discharge.
Our subsidiaries are required to apply for and obtain discharge permits,
conduct sampling and monitoring, and, under some circumstances, reduce the
quantity of pollutants in those discharges. The Clean Water Act provides civil,
criminal, and administrative penalties for violations of its provisions.

The Clean Air Act provides for the federal, state, and local regulation of
the emission of air pollutants. These regulations impose emission limitations
and monitoring and reporting requirements on several of our operations,
including the operations of our industrial container group's open top drum
reconditioning furnaces. The costs of compliance with the Clean Air Act
permitting and emission control requirements are not anticipated to have a
material adverse effect on us.

State and Local Regulation. The states in which we operate have their own
laws and regulations that may be more strict than comparable federal laws and
regulations governing hazardous and nonhazardous solid waste disposal, water
and air pollution, releases, and cleanup of hazardous substances and related
liability. The states also have adopted regulations governing the permitting
and operation of furnaces, including those used in the open top drum
reconditioning operations of our industrial container group. Our industrial
container group's facilities and operations are likely to be subject to many,
if not all, of these types of requirements.

Environmental Proceedings. Our subsidiaries are currently parties to the
following judicial or administrative proceedings with respect to environmental
matters.

Zellwood Superfund Site. In February 1998, one of our wholly owned
subsidiaries acquired Drum Service Co. of Florida, a steel drum reconditioning
company with a facility in Florida. In 1982, Drum Service was notified by the
EPA and the Florida Department of Environmental Regulation that Drum Service
had been identified as a potentially responsible party with respect to the
Zellwood Groundwater Contamination Site in Orange County, Florida. The Zellwood
Site was designated a Superfund environmental clean-up site after the Florida
Department discovered arsenic contamination in a shallow monitoring well
adjacent to the site. The Drum Service facility is located on a portion of the
57 acres constituting the Zellwood Site. We believe that Drum Service and its
former shareholders were among approximately 25 entities and individuals
identified as potentially responsible parties by the EPA.

Between March 1990 and July 1996, the EPA issued various unilateral
administrative orders and notices to Drum Service and the other potentially
responsible parties regarding the Zellwood Site. Those orders and notices
demanded reimbursement from the potentially responsible parties of
approximately $2.0 million of the EPA's costs related to the Zellwood Site and
requested the potentially responsible parties to accept financial
responsibility for additional clean-up efforts. During that time, the EPA
estimated that the cost of the selected remedy for soil and the selected remedy
for groundwater at the Zellwood Site would be approximately $6.1 million. The
EPA currently estimates that the total cost will be approximately $6.6 million.
Drum Service and the other potentially responsible parties did not agree to the
EPA's demands or agree to fund any additional clean-up. In April 1997, the EPA
issued an order unilaterally withdrawing its previous order.

On June 12, 1998, a suit was filed by the EPA in United States District
Court in Orlando, Florida, against Drum Service and certain other potentially
responsible parties with respect to the Zellwood Site. The EPA is

seeking reimbursement of costs incurred at the Zellwood Site during the past 18
years and a declaratory judgment for future response costs.

Drum Service has maintained comprehensive general liability insurance
coverage over the past 25 years and has notified various insurers of the EPA's
claims regarding the Zellwood Site. A number of those relevant insurance
policies did not contain an exclusion for pollution. Drum Service has notified
the insurers that issued these policies of the EPA's claims regarding the
Zellwood Site and the commencement of the lawsuit. In 1992, Drum Service
settled a claim with one insurer for an amount that covered a substantial
portion of the costs Drum Service had incurred at that time in dealing with the
EPA and the Florida Department. Drum Service has identified other umbrella
liability policies for which coverage may also be available and has been
approached by the insurer under two of those policies seeking a settlement. The
insurer has now agreed to pay Drum Service's legal fees and expenses in
defending the EPA's lawsuit and to reimburse Drum Service for past legal fees
and expenses. In addition, the former shareholders of Drum Service have a
written agreement with Drum Service and PalEx to bear liabilities and expenses
with respect to the Zellwood Site, to the extent such liabilities and expenses
exceed Drum Service's and PalEx's insurance recoveries.

Drum Service is vigorously defending the lawsuit and intends to continue to
pursue its insurance coverage with respect to losses and expenses incurred in
connection with the Zellwood Site. Although there can be no assurance as to any
ultimate liability of Drum Service under the EPA's lawsuit, the amount of
recoveries from other potentially responsible parties or the insurance
coverage, or the amount of insurance recoveries, we believe that Drum Service's
insurance coverage, recoveries from other potentially responsible parties, and
the obligations of Drum Service's former shareholders will be adequate to cover
any liability or expenses of Drum Service arising from the lawsuit.

Legal Proceedings

From time to time, we may be a party to various legal proceedings arising in
the ordinary course of business. Most of that litigation involves claims for
personal injury or property damage incurred in connection with our operations.
We believe that none of these actions will have a material adverse effect on
our financial condition or results of operations.

On June 12, 1998, a suit was filed by the EPA in United States District
Court in Orlando, Florida, against Drum Service and other potentially
responsible parties with respect to the Zellwood Site. The EPA is seeking
reimbursement of costs incurred at the Zellwood Site during the past 18 years
and a declaratory judgment for future response costs. See "--Regulation--
Industrial Containers."

MANAGEMENT

Directors and Executive Officers

Responsibility for the management of IFCO Systems lies with our board of
directors, consisting of A members and B members. The maximum number of members
of the board of directors shall be nine, and the number shall be determined by
the general meeting of shareholders with the understanding that there shall be
at least one A member. The B members are responsible for the general course of
affairs of the Company and its enterprise. The A members are responsible for
the day-to-day management of the Company and its enterprise. The members of the
board of directors are appointed by the general meeting of shareholders. The A
members serve for an indefinite period of time. The B members must resign no
later than the close of the annual shareholders meeting held in the fourth year
after the year of their last appointment, but can be reappointed. We can be
represented by the board of directors, by each A member individually, and by
each B member acting jointly with an A member. Executive officers are appointed
by the board of directors and constitute the equivalent of a management board
of a company with a supervisory board and management board management
structure.

Our directors and executive officers are:

Name Age Position
---- --- --------

Christoph Schoeller...... 42 Chairman and B Director
Martin A. Schoeller...... 44 Chief Executive Officer and A Director
Cornelius Geber.......... 48 B Director
Sam W. Humphreys......... 40 B Director
Randall Onstead.......... 44 B Director
Eckhard Pfeiffer......... 58 B Director
Dr. Frank Tofflinger..... 39 B Director
James Griffin............ 46 Chief Executive Officer, North America
David Lee................ 51 Chief Executive Officer, Europe and Global
Systems
Vance K. Maultsby, Jr. .. 47 Executive Vice President, Strategy and
Finance and Chief Financial Officer
Edward E. Rhyne.......... 39 Executive Vice President and General Counsel
Howe Q. Wallace.......... 45 Executive Vice President, Human Resources

Christoph Schoeller became Chairman of the Board of Directors of IFCO
Systems in January 2000 and a B director in March 2000. Christoph Schoeller has
been a Managing Director of IFCO Europe since November 1997. Christoph
Schoeller became a director of PalEx in March 2000 upon completion of the
merger. In 1992, he co-founded IFCO GmbH and MTS with his brother, Martin
Schoeller. Mr. Schoeller is responsible for advancing both IFCO Europe's and
MTS's market and product development and logistics network. In 1982, Mr.
Schoeller joined the Schoeller group of companies, which are engaged in
plastics manufacturing and other activities, and presently serves as one of its
Managing Directors. From 1982 through 1984, he was involved in international
sales and licensing in the Eastern hemisphere. From 1985 to 1988, Christoph
Schoeller was focused on product development and build-up of the sales
organization. From 1988 until 1992, Mr. Schoeller developed Schoeller
Industries' sales and marketing organization. Mr. Schoeller is a member of the
supervisory board of Trans-o-flex Schnell-Lieferdienst AG, a logistics company,
and was formerly a member of the supervisory board of Danzas Holding AG, a
logistics company, until its merger with Deutsche Post AG.

Martin A. Schoeller became Chief Executive Officer and the A director of
IFCO Systems in March 2000 and was designated an executive officer of the
Company. Martin Schoeller has been a Managing Director of IFCO Europe since
November 1997 and the sole Managing Director of IFCO International since May
1995. Martin Schoeller became a director of PalEx in March 2000 upon completion
of the merger. In 1992, Mr. Schoeller co-founded IFCO GmbH and MTS with his
brother, Christoph Schoeller. In 1980, Martin Schoeller joined the Schoeller
group of companies and presently serves as one of its Managing Directors.
Initially, he

managed a plastics plant, from 1980 to 1982. From 1982 through 1984, he was
involved in international sales and licensing. From 1985 to 1988, Mr. Schoeller
was focused on developing plant operations. From 1988 until 1992, Martin
Schoeller developed several European production companies. Mr. Schoeller
presently serves as the Chairman of the European Association of Dynamic
Entrepreneurs, Europe's 500, in Germany.

Cornelius Geber became a B director of IFCO Systems in March 2000. Mr. Geber
has been the CEO of Kuhne & Nagel AG & Co., a worldwide transport company,
since 1996. From 1993 until 1998, Mr. Geber was a member of the holding board
of directors for Kuhne & Nagel International AG, a Swiss holding company of the
worldwide Kuhne & Nagel group. Mr. Geber has been a member of the board of
Friedrich Grohe AG, Hemer, a plumbing supply company, since October 1999. Mr.
Geber has been the Head of the Board of Paul Gunther Logistik AG, Hamburg, a
German transport and logistics company, since January 2000. Mr. Geber has been
a senior consultant to the board of directors of Deutsche Post AG, and a
consultant to BC Partner's Hamburg, the largest private equity investor group
in Europe, since April 1999.

Sam W. Humphreys became a B director of IFCO Systems in March 2000. Mr.
Humphreys is engaged in private equity and venture capital investing. Until
completion of the merger in March 2000, he was a director of PalEx since
January 1996 and non-executive Chairman of the Board since March 1997. Through
Main Street Merchant Partners II, L.P., a merchant banking firm, and other
investment partnerships, Mr. Humphreys was involved in the creation and
development of numerous businesses during the 1990s and has served in executive
management positions and on the board of directors of several of these
businesses, including C\\2\\ Media, Inc., a digital media business; e-CommLink,
Inc., which provides Internet banking systems to commercial banks; U.S.
Delivery Systems, Inc., the largest same-day local delivery company in the U.S;
and Envirofil, Inc., a solid-waste management company.

Randall Onstead became a B director of IFCO Systems in March 2000. Mr.
Onstead served as Chairman and Chief Executive Officer of Randall's Food
Markets, Inc. from 1998 until September 1999. From 1996 until 1998, Mr. Onstead
was President and Chief Executive Officer of Randall's. From 1986 until 1996,
Mr. Onstead was President and Chief Operating Officer of Randall's. Randall's
is a retail supermarket chain that had sales of over $2.7 billion in 1999.

Eckhard Pfeiffer became a B director of IFCO Systems in March 2000. Mr.
Pfeiffer is Chairman of Intershop Communications AG and Chairman of Ricardo.de
AG. From 1991 until 1999, Mr. Pfeiffer was the President and Chief Executive
Officer of Compaq Computer Corporation, the largest global computer systems
manufacturer. Mr. Pfeiffer is a member of the board of directors of General
Motors Corporation, Hughes Electronics Corporation, and Bell Atlantic
Corporation and serves on the advisory board of Deutsche Bank AG. Mr. Pfeiffer
is a member of the board of trustees of Southern Methodist University and
serves on the executive board of Southern Methodist University's Cox School of
Business.

Dr. Frank Tofflinger became a B director of IFCO Systems in March 2000. Dr.
Tofflinger has been Director of the Carlyle Group Europe, a private equity
group based in Washington DC, since January 2000. From July 1996 until December
1999, Dr. Tofflinger was Managing Director of Schoeller Industries. From
December 1993 until June 1996, Dr. Tofflinger was Managing Director of IMM
Office Systems, a large European independent copy and facsimile systems
distribution and service organization.

Jim Griffin became Chief Executive Officer, North America of IFCO Systems in
March 2000 and was designated an executive officer of the Company. From 1996
until joining the Company, Mr. Griffin was President of Ryder Transportation
Services, managing operations in the United States, Canada, the United Kingdom,
and Germany. During this same period, he also managed global purchasing and
corporate brand management and served as a member of Ryder's Corporate
Strategy, Policy, and Operating Committees. From 1993 through 1996, he was
President of Ryder Automotive Carrier Services, where he was responsible for
6,000 employees in 75 locations throughout the United States and Canada. From
1990 through 1992, Mr.

Griffin was Vice President and General Manager of the Mid-South Area for Ryder
Transportation Services. Mr. Griffin is a Certified Public Accountant.

David Lee became Chief Executive Officer, Europe and Global Systems of IFCO
Systems in May 2000 and was designated an executive officer of the Company.
From April 1999 until joining the Company, Mr. Lee was the European President
and Chief Executive Officer of Transport International Pool and Modular Space,
two subsidiaries of GE Capital. From April 1998 to April 1999, he served as
European President and Managing Director of Transport International Pool. From
May 1996 until January 1998, he served as Executive Vice President CHEP
Americas and President of CHEP Mexico, Brazil and Argentina with commercial
responsibility for sales, service, and operational strategy for North and South
America. During the same period, Mr. Lee was also Chairman of the International
Commercial Group that oversaw CHEP businesses around the world. From 1990
through 1996, Mr. Lee was Senior Vice President of CHEP USA, where he was
responsible for sales, service, and operational strategy for the Northeast
United States.

Vance K. Maultsby, Jr. became Executive Vice President, Strategy and Finance
and Chief Financial Officer of IFCO Systems in March 2000 and was designated an
executive officer of the Company. Mr. Maultsby also became a director of PalEx
in March 2000 upon completion of the merger. Mr. Maultsby has been Chief
Executive Officer of PalEx since December 1996. Mr. Maultsby served as PalEx's
President from November 1996 until November 1998. From 1993 to 1996, Mr.
Maultsby was a partner with Ernst & Young LLP, where he managed the Dallas,
Texas office of its Corporate Finance Group. From 1989 to 1992, Mr. Maultsby
was chief executive officer of Alemar Financial Company, later named Alemar
Cost Reduction, Inc., which provided financial advisory services to a variety
of industries. From 1985 to 1989, Mr. Maultsby was an officer in the Corporate
Finance Group for Stephens Inc., an investment banking firm. Prior to the
position with Stephens Inc., Mr. Maultsby was a partner with KPMG Peat Marwick,
served as the National Director of its Petroleum Industry Practice, was co-
director of its Southwest Area Mergers and Acquisitions Advisory Practice and
practiced public accounting for more than five years. Mr. Maultsby is a
Certified Public Accountant.

Edward E. Rhyne became Executive Vice President and General Counsel of IFCO
Systems in March 2000 and was designated an executive officer of the Company.
Mr. Rhyne has been Vice President and General Counsel of PalEx since June 1997.
Prior to his employment with PalEx, Mr. Rhyne was a partner at Gardere & Wynne,
L.L.P., where he was engaged in the private practice of law as a securities and
mergers and acquisitions lawyer for more than five years.

Howe Q. Wallace became Executive Vice President, Human Resources of IFCO
Systems in March 2000 and was designated an executive officer of the Company.
Mr. Wallace has been the Chief Human Resource Officer of PalEx since its
formation in 1997. He served in that same capacity for Ridge Pallets, one of
PalEx's founding companies since 1983. Mr. Wallace served on the board of
directors of the National Wooden Pallet and Containers Association from
February 1995 to February 1998, and has been active in industry education
efforts.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Supply Agreement

IFCO International Food Container Organization GmbH, one of our wholly owned
subsidiaries, is a party to a supply agreement with Schoeller Plast Industries
GmbH, dated November 4, 1997. The supply agreement was later assigned to
Schoeller Plast AG, an indirect 80%-owned subsidiary of Schoeller Industries.
Schoeller Industries will not become part of IFCO Systems upon completion of
the merger and will remain under the control of Martin and Christoph Schoeller.
Under the supply agreement, Schoeller Plast AG has agreed to supply collapsible
plastic RTCs exclusively to IFCO GmbH, and IFCO GmbH has agreed to purchase
RTCs for use in the European market exclusively from Schoeller Plast AG.
Schoeller Plast AG has also agreed to provide ongoing research and development
to improve technology relating to the RTCs. Under the supply agreement, all
IFCO RTC technological developments are registered on behalf of IFCO GmbH. The
supply agreement also includes an exclusive royalty-free license to Schoeller
Plast AG with respect to the manufacturing of the IFCO RTCs for IFCO GmbH.

The pricing of the RTCs purchased under the supply agreement is based upon
the type of RTC purchased. According to the terms of the supply agreement, IFCO
GmbH purchases the RTCs for cash, although, in the event that the average price
per RTC exceeds DM6.10, or approximately $2.96, IFCO GmbH may purchase the RTCs
by recording a payable, bearing interest at 7.59% per year, in favor of
Schoeller Plast AG for the aggregate cost of the RTCs purchased in excess of
DM6.10 per RTC. Additionally, IFCO GmbH has the option of requesting cost plus
pricing. Cost plus pricing would allow IFCO GmbH to purchase RTCs at Schoeller
Plast AG's actual cost of production plus an agreed amount or percentage for
Schoeller Plast AG's profit.

If IFCO GmbH desires to purchase additional, different, or improved products
from other suppliers, Schoeller Plast AG is entitled to deliver, within three
months, the products or any comparable products to IFCO GmbH, and IFCO GmbH is
required to purchase these products from Schoeller Plast AG under the terms and
conditions of the supply agreement. If Schoeller Plast AG is unable to supply
the requested products, IFCO GmbH may obtain the products from other sources.
If, however, IFCO GmbH is unsuccessful in marketing these products, Schoeller
Plast AG may market the products on a non-exclusive basis to third parties.
Further, if Schoeller Plast AG offers the products to any other customer at a
price or on conditions more favorable than those extended to IFCO GmbH, the
parties shall renegotiate the terms and conditions of the supply agreement.

The supply agreement expires on December 31, 2007, and may be renewed by the
parties for an additional ten-year period. The supply agreement may be
terminated by either party at any time for cause. If the supply agreement is
terminated by IFCO GmbH for good cause, Schoeller Plast AG is prohibited from
competing with IFCO GmbH for two years after that termination.

MTS may also become a party to the supply agreement whereby Schoeller Plast
AG will provide MTS with RTCs for dry goods.

In January 1999, IFCO GmbH entered into an additional agreement with
Schoeller Plast AG in which Schoeller Plast AG agreed to share higher initial
costs related to the strategic growth of the crate leasing and supply business
up to a maximum amount of DM6.0 million, or approximately $2.9 million, for the
year ended 1999. For the year ended December 31, 1999, Schoeller Plast AG has
reimbursed IFCO GmbH DM6.0 million, or approximately $2.9 million, which has
been recorded as a reduction of costs of goods sold. The additional agreement
terminated at the end of 1999, and after December 31, 1999, no further costs
related to the additional agreement will be reimbursed.

Management Agreements

Pursuant to a management agreement, dated as of January 2, 1997, Schoeller
Industries provides administrative and management services to IFCO Europe and
its subsidiaries, including management advice with respect to acquisition
activities and strategic alliances. In exchange for these services, IFCO Europe
and its subsidiaries pay Schoeller Industries an annual management fee, which
is paid monthly, that will not exceed

DM1.5 million, or approximately $0.7 million, for each of the fiscal years 1999
and 2000. This management agreement expires December 31, 2000, and may be
extended from year to year if mutually agreed upon.

Pursuant to a second management agreement, dated as of January 2, 1997,
Schoeller Industries provides administrative and management services to MTS,
including management advice with respect to acquisition activities and
strategic alliances. In exchange for these services, MTS pays Schoeller
Industries an annual management fee, which is paid monthly, that will not
exceed DM250,000, or approximately $121,000, for each of the fiscal years 1999
and 2000. This management agreement expires December 31, 2000, and may be
extended from year to year if mutually agreed upon. Each of the management
agreements will continue to be in effect upon completion of the merger,
although Schoeller Industries will not become part of IFCO Systems and will
remain under the control of Martin and Christoph Schoeller.

Loans and Guarantees

Martin Schoeller and Christoph Schoeller have, together, loaned IFCO
International $800,000 at an interest rate of 5% per annum. The loan became due
on December 31, 1998, and has been extended to December 31, 2000. The purpose
of the loan was to enable IFCO International to extend a loan of $800,000 to
IFCO U.S. This loan was repaid upon the closing of the merger and IPO.

Additionally, pursuant to an agreement between Schoeller-U.S., Inc, and IFCO
U.S., Martin Schoeller and Christoph Schoeller have together loaned to IFCO
U.S. $300,000. The loans are to provide additional working capital to IFCO U.S.
The loans have an interest rate equivalent to the interest rate paid by IFCO
U.S. on loans to IFCO U.S. from Intertape and were repaid upon the closing of
the merger and the IPO.

Martin Schoeller and Christoph Schoeller have each loaned IFCO International
an amount equal to 37.5 million yen, or 75.0 million yen in total, or
approximately $696,000, at an interest rate of 2.5% per year. The purpose of
the loan was to enable IFCO International to purchase capital stock in IFCO
Japan. The loan becomes due on December 31, 2000.

Additionally, Martin Schoeller and Christoph Schoeller have each loaned to
IFCO International DM100,000, or DM200,000 in total, or approximately $97,000
at an interest rate of 5.0% per annum. The purpose of the loan was to provide
additional working capital to IFCO International and was repaid upon the
closing of the merger and IPO.

Creditanstalt--Bankverein AG extended a credit facility of DM1.5 million,
approximately $0.7 million, to IFCO International. Of this amount,
approximately $500,000 was available to IFCO Argentina through Banco B.I.
Creditanstalt S.A., an affiliate of Creditanstalt. The credit facility had a
variable interest rate and became due on June 30, 1998, and has been extended
to May 31, 2000. To secure the DM1.5 million credit facility provided by
Creditanstalt--Bankverein, Alexander Schoeller & Co. Management Holding GmbH, a
company owned by Alexander Schoeller, and Alexander Schoeller & Co. GmbH
Schweiz, also a company owned by Alexander Schoeller, each provided a guarantee
of up to DM1.5 million in favor of Creditanstalt. This loan was repaid upon the
closing of the merger and IPO.

Participating Rights

IFCO GmbH has issued to Schoeller Plast Industries GmbH, an 80%-owned
subsidiary of Schoeller Industries, participating rights with a nominal value
of DM10.0 million, or approximately $4.8 million. The participating rights have
no voting rights and may be terminated by IFCO GmbH upon repayment of the
nominal value. In the event of IFCO GmbH's liquidation, the participating
rights are repayable after all other creditors and rank equally with the share
capital. The participating rights share in IFCO GmbH's profits, up to a maximum
of approximately $0.9 million, per year, before any other distribution may be
made and in IFCO GmbH's losses in the amount of 10% per year until the balance
is exhausted. If the participating rights have been reduced from their nominal
value by their share of losses, future profits must first be used to restore
them to their nominal value before any other distributions may be made. IFCO
GmbH redeemed these participating rights at their book value at the closing of
the IPO.

Redeemable Participating Rights

In 1996, IFCO International received DM2.0 million, or approximately $1.0
million, from Alexander Schoeller & Co. Management Holding GmbH, a company that
is wholly owned by the Schoellers. Each year that IFCO International recognizes
a profit under German GAAP, Alexander Schoeller & Co. is entitled to DM250,000,
or approximately $121,000 per year. This amount is cumulative, and any unpaid
balance due to IFCO International's lack of profit bears interest at 6.0% per
year. Alexander Schoeller & Co. does not participate in IFCO International's
losses and has no voting rights in IFCO International. The agreement is for an
unlimited duration and may be terminated by either party with a six-month
notice period. IFCO International redeemed these redeemable participating
rights at their book value at the closing of the IPO.

Agreement with GE Capital and GE Erste

GE Erste owned the single outstanding preferential share of IFCO Europe.
Schoeller Industries, the shareholders of Schoeller Industries, Schoeller Plast
Industries GmbH, Gebruder Schoeller, Schoeller KG, and we entered into the
Option Release and IPO-Facilitation Agreement with GE Capital and GE Erste in
connection with the proposed merger and the IPO. Pursuant to the Option Release
Agreement:

. GE Erste consented to the merger and the IPO;

. GE Erste agreed to contribute the IFCO Europe preferential share to us
for purposes of the merger and the IPO upon the request of GE Capital or
Schoeller Industries;

. GE Capital and GE Erste agreed, effective with the completion of the
merger and the IPO, to cancel and waive all options and other rights
they have under existing agreements to purchase shares of IFCO Europe,
IFCO International, or MTS; and

. GE Capital and GE Erste will have board observation rights with respect
to us.

In January 2000, GE Erste contributed the IFCO Europe preferential share to
Schoeller Holding, which then contributed the share to us. In exchange for the
contribution of the IFCO Europe preferential share, Schoeller Holding issued to
GE Erste a convertible debenture in the principal amount of DM45.0 million, or
approximately $21.8 million, with a 30-year term and bearing 5% interest per
year. The convertible debenture is convertible by GE Erste into our ordinary
shares held by Schoeller Holding consisting of not more than 15.45% of the
capital stock outstanding before completion of the merger and the IPO or into a
corresponding number of ordinary shares in Schoeller Holding. GE Erste may
require conversion of the debenture on demand at any time beginning six months
after the IPO. GE Erste's conversion of its debenture into our ordinary shares
after the merger will not dilute the ownership of the former PalEx stockholders
or the purchasers of shares in the IPO.

If at any time after the IPO the value of 15.45% of the capital stock
outstanding before the merger and the IPO is less than DM45.0 million, or
approximately $21.8 million, plus the accrued interest under the debenture, GE
Erste may require payment of the full principal plus accrued interest from
Schoeller Holding. In that case, however, Schoeller Holding has the right,
instead of making payment in cash, to deliver our ordinary shares with a value
equal to DM45.0 million, or approximately $21.8 million, plus accrued interest.
GE Erste will continue to own the debenture or the ordinary shares received on
exercise for at least one year after the IPO. GE Erste will, however, be able
to sell the debenture or the ordinary shares after the IPO if we make a
corporate acquisition or merger with a company or business that does not comply
with GE Capital's internal rules for affiliated companies.

In consideration of GE Capital's and GE Erste's release of options and other
rights, before the effective time of the merger, we paid GE Capital
approximately DM43.0 million, or approximately $21.1 million (as of March 8,
2000), out of the net proceeds of the offering of the notes, the IPO, and
initial borrowings under the new senior credit facility. In addition, Schoeller
Industries has granted GE Capital an option to purchase approximately 95,000
IFCO Systems ordinary shares held by Schoeller Holding at the IPO price.

SECURITY OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT

The following table sets forth as of June 30, 2000, the beneficial ownership
of our ordinary shares, by each person who, to our knowledge, beneficially
owned more than 10% of our ordinary shares and all of our directors and
executive officers as a group.

Except as indicated, beneficial ownership includes the sole power to vote
and dispose of our ordinary shares. If a person has the right to acquire
beneficial ownership of any ordinary shares by exercise of options within 60
days after June 30, 2000, the ordinary shares are deemed beneficially owned by
that person and are deemed to be outstanding solely for the purpose of
determining the percentage of our ordinary shares that person owns. These
ordinary shares are not included in the computations for any other person.

Beneficial Ownership
---------------------
Name of Beneficial Owner Shares Percentage
------------------------ ---------- ----------

Christoph Schoeller(1)............................. 20,771,500 47.7%
Martin A. Schoeller(1)............................. 20,771,500 47.7%
All directors and executive officers as a group (12
persons)(2)....................................... 22,310,952 50.0%

- --------
(1) The listed ordinary shares are owned directly by Schoeller Holding, which
is owned 75.95% by Schoeller Industries and 24.05% by Gebruder Schoeller.
Schoeller Industries and Gebruder Schoeller are each beneficially owned by
Christoph Schoeller, Martin Schoeller, Andrea Schoeller, and Schoeller KG.
Christoph Schoeller and Martin Schoeller share voting and investment power
with respect to the capital shares of Schoeller Holding, Schoeller
Industries, Schoeller Holdings GmbH, which directly owns the shares of
Schoeller Industries, and Gebruder Schoeller. Includes (a) 1,900,000
ordinary shares beneficially owned by Andrea Schoeller, Christoph
Schoeller's wife, and (b) 2,000,000 ordinary shares beneficially owned by
Schoeller KG, which is beneficially owned by Alexander Schoeller and
Leopold Schoeller, the children of Martin Schoeller. Christoph Schoeller
and Martin Schoeller disclaim beneficial ownership of the ordinary shares
beneficially owned by Andrea Schoeller and by Schoeller KG. Each of
Christoph and Martin Schoeller have been granted options to purchase
771,500 IFCO ordinary shares that are fully exercisable.

(2) Includes (a) a total of 3,901,131 ordinary shares with respect to which the
director or executive officer disclaims beneficial ownership and (b)
options to purchase a total of 1,843,000 ordinary shares that are
exercisable within 60 days of June 30, 2000. Excludes options to purchase a
total of 1,396,805 ordinary shares that are not exercisable.

DESCRIPTION OF NEW SENIOR CREDIT FACILITY

On the closing date of the Transactions, IFCO Systems and PalEx entered into
a new syndicated, secured senior credit facility, which was amended and
restated on March 31, 2000, to complete the syndication. The syndicate of
banks, financial institutions, and other entities includes Canadian Imperial
Bank of Commerce, which is an affiliate of CIBC World Markets Corp., and Bank
One, Texas, NA, which is an affiliate of Banc One Capital Markets, Inc. CIBC
World Markets Corp. and Banc One Capital Markets, Inc. served as co-arrangers
and co-book runners for the new senior credit facility. CIBC World Markets
Corp. acted as the syndication agent and Bank One, Texas, NA also acted as the
administrative agent (the "Agent"). The following is a summary description of
the principal terms of the new senior credit facility. The description set
forth below does not purport to be complete and is qualified in its entirety by
reference to the agreements setting forth the principal terms and conditions of
the new senior credit facility.

The term loan may be borrowed in up to 20 drawings under the new senior
credit facility commencing on the closing date of the Transactions and ending
on the third anniversary of the closing date. The term loan facility may be
used only to finance permitted acquisitions. Permitted acquisitions include any
acquisition in which the total consideration we pay does not exceed $25.0
million. The aggregate amount of consideration we pay in connection with
permitted acquisitions during any consecutive 12-month period may not exceed
$90.0 million.

We are able to draw on the revolving credit facility from the closing date
of the Transactions through the third anniversary of the closing date. The
revolving credit facility matures on the sixth anniversary of the closing date.
The revolving credit facility may be utilized to make capital expenditures and
to finance the working capital needs of IFCO Systems and our subsidiaries in
the ordinary course of business and to pay fees and expenses related to the
transactions.

The borrowing base under the revolving credit facility is based on a
percentage of our eligible accounts receivable, eligible inventory and eligible
RTCs. Eligible inventory includes RTCs and pallets that we and our subsidiaries
own for lease to third parties, and eligible RTCs are those owned by IFCO U.S.
The borrowing base is computed by PalEx on a periodic basis, and a borrowing
base certificate will be delivered to the Agent reflecting the borrowing base
as of the last day of the period mutually agreed upon.

PalEx has available to it a multi-currency swingline facility for short-term
borrowings denominated in certain readily available and freely tradeable
currencies in an amount not to exceed $50.0 million and a dollar swingline
facility in an aggregate amount not to exceed $25.0 million. Any multi-currency
swingline loan or dollar swingline loan reduces availability under the
revolving facility on a dollar-for-dollar basis.

PalEx may obtain letters of credit, in an amount not in excess of $25.0
million of the revolving facility, issued by Canadian Imperial Bank of Commerce
and Bank One, NA. Any letter of credit issued will expire on the earlier of (1)
one year after the date of issue or (2) five business days prior to the
termination of the revolving credit facility, provided, that any letter of
credit with a one-year term may provide for additional one-year periods, but
under no circumstances may the term exceed five days prior to the termination
of commitments under the revolving credit facility. Drawings under any letter
of credit will be reimbursed by PalEx on the same business day.

PalEx's obligations under the new senior credit facility are guaranteed by
us and each of our existing and future direct and indirect subsidiaries, other
than subsidiaries deemed immaterial by the Agent. The new senior credit
facility and the guarantees are secured by a perfected first priority security
interest in all of the loan parties' substantial tangible and intangible
assets, except for those assets the co-lead arrangers

determine in their sole discretion that the cost of obtaining the security
interest are excessive in relation to the value of the security.

The new senior credit facility contains a number of covenants that, among
other things, limit our and our subsidiaries' ability to dispose of assets,
incur additional indebtedness, merge or consolidate, pay dividends, create
liens on assets, enter into sale and leaseback transactions, make investments,
loans, or advances, make acquisitions, make capital expenditures, prepay
indebtedness, or engage in certain transactions with affiliates, and otherwise
restrict certain corporate activities. In addition, the new senior credit
facility requires that we and our subsidiaries comply with specified ratios and
tests.

The new senior credit facility contains customary events of default,
including non-payment of principal, interest, or fees, material inaccuracy of
representations and warranties, violation of covenants, cross-default to
certain other indebtedness, certain events of bankruptcy and insolvency,
certain events under ERISA, material judgments, actual or asserted invalidity
of any guarantee, security document, subordination provision, or security
interest, and a change of control in certain circumstances.

DESCRIPTION OF THE REGISTERED NOTES

The Company will issue the Series B notes under an existing Indenture, dated
as of March 8, 2000 (the "Indenture"), by and among itself, the Guarantors and
The Bank of New York, as trustee (the "Trustee"). The outstanding Series A
notes and the registered Series B notes are collectively referred to as the
"Notes." The terms of the Notes include those stated in the Indenture and those
made part of the Indenture by reference to the Trust Indenture Act of 1939 (the
"TIA") as in effect on the date of the Indenture. The Notes are subject to all
such terms, and holders of the Notes are referred to the Indenture and the TIA
for a statement of them. The following is a summary of the material terms and
provisions of the Notes. This summary does not purport to be a complete
description of the Notes and is subject to the detailed provisions of, and
qualified in its entirety by reference to, the Notes and the Indenture
(including the definitions contained therein). A copy of the form of Indenture
may be obtained from the Company by any holder or prospective investor upon
request. Definitions relating to certain capitalized terms are set forth under
"--Certain Definitions." Capitalized terms that are used but not otherwise
defined herein have the meanings ascribed to them in the Indenture and such
definitions are incorporated herein by reference.

General

The Notes will be limited in aggregate principal amount to (Euro)200.0
million. The Notes will be issued in registered form in minimum denominations
of (Euro)50,000 and in increments of (Euro)1,000 above (Euro)50,000. The Notes
are general unsecured obligations of the Company, subordinated in right of
payment to Senior Debt of the Company and senior in right of payment to any
current or future subordinated Indebtedness of the Company. The Notes rank and
will rank pari passu without any preference among themselves.

The Guarantors (together with each other Restricted Subsidiary of the
Company which guarantees payment of the Notes pursuant to the covenant
described under "--Certain Covenants--Limitation on Creation of Subsidiaries")
have jointly and severally Guaranteed the Notes, on a senior subordinated
basis, as to payment of principal, premium, if any, and interest.

Governing Law

The Notes and the Indenture are governed by New York law.

Maturity, Interest and Principal

The Notes will mature on March 15, 2010. The Notes may be redeemed upon
stated maturity for 100% of their principal amount plus any accrued and unpaid
interest. The Notes will bear interest at a rate of 10 5/8% per annum from the
Issue Date until maturity. Interest is payable semiannually in arrears on each
March 15 and September 15 commencing September 15, 2000, to holders of record
of the Notes at the close of business on the immediately preceding March 1 and
September 1, respectively. The interest rate on the Notes is subject to
increase, and such Additional Interest will be payable on the payment dates set
forth above, in certain circumstances, if the Notes (or other securities
substantially similar to the Notes) are not registered with the SEC within the
prescribed time periods. See "Exchange Offer; Registration Rights."

Optional Redemption

The Company may redeem the Notes at its option, in whole at any time or in
part from time to time, on or after March 15, 2005, at the following redemption
prices (expressed as percentages of the principal amount thereof), together, in
each case, with accrued and unpaid interest, if any, to the redemption date, if
redeemed during the twelve-month period beginning on March 15 of each year
listed below:

Year Percentage
---- ----------

2005.............................................................. 105.3125%
2006.............................................................. 103.5417%
2007.............................................................. 101.7708%
2008 and thereafter............................................... 100.0000%

Notwithstanding the foregoing, the Company may redeem in the aggregate up to
35% of the original principal amount of Notes at any time and from time to time
prior to March 15, 2003 at a redemption price equal to 110.625% of the
aggregate principal amount so redeemed, plus accrued and unpaid interest, if
any, to the redemption date out of the Net Proceeds of one or more Equity
Offerings; provided that:

(1) at least 65% of the principal amount of Notes originally issued remains
outstanding immediately after the occurrence of any such redemption; and

(2) any such redemption occurs within 60 days following the closing of any
such Equity Offering.

In the event of a redemption of fewer than all of the Notes, the Trustee
shall select the Notes to be redeemed in compliance with the standard
procedures of Euroclear and/or Clearstream, as the case may be, and the
Luxembourg Stock Exchange on a pro rata basis, by lot or in such other manner
as the Trustee shall deem fair and equitable. The Notes will be redeemable in
whole or in part upon not less than 30 nor more than 60 days' prior written
notice, mailed by first class mail to a holder's last address as it shall
appear on the register maintained by the Registrar of the Notes. Notice of any
redemption will also be published in a Luxembourg newspaper of general
circulation. On and after any redemption date, interest will cease to accrue on
the Notes or portions thereof called for redemption unless the Company shall
fail to redeem any such Note.

Subordination

The indebtedness represented by the Notes is, to the extent and in the
manner provided in the Indenture, subordinated in right of payment to the prior
indefeasible payment and satisfaction in full in cash of all existing and
future Senior Debt of the Company. As of October 31, 1999, after giving pro
forma effect to the Transactions, the principal amount of outstanding Senior
Debt of the Company, on a consolidated basis, would have been approximately
$4.2 million, or (Euro)4.0 million ((Euro)4.4 million based on the current
exchange rate), excluding capital leases.

In the event of any

(1) bankruptcy, reorganization, insolvency, receivership, or similar
proceeding relating to the Company or to its creditors, as such, or to its
assets;

(2) liquidation or dissolution or other winding-up of the Company;

(3) assignment for the benefit of creditors of the Company; or

(4) marshalling of assets or liabilities of the Company,

(all of the foregoing events described in clauses (1) through (4) referred
to herein individually as a "Bankruptcy Proceeding" and collectively as
"Bankruptcy Proceedings"), the holders of Senior Debt of the Company will be
entitled to receive payment and satisfaction in full in cash of all amounts due
on or in respect of all Senior Debt of the Company before the holders of the
Notes are entitled to receive or retain any payment or distribution of any kind
on account of the Notes. By reason of such subordination, in the event of any
such Bankruptcy Proceeding, creditors of the Company who are holders of Senior
Debt may recover more, ratably, than other creditors of the Company, including
holders of the Notes.

Upon the occurrence of a Payment Default on Designated Senior Debt, no
payment or distribution of any kind or character (including, without
limitation, cash, property, and any payment or distribution which may be
payable or deliverable by reason of the payment of any other indebtedness of
the Company being subordinated to the payment of the Notes by the Company) may
be made by or on behalf of the Company or any Restricted Subsidiary of the
Company, including, without limitation, by way of set-off or otherwise, for or
on account of the Notes, or for or on account of the purchase, redemption or
other acquisition of any Notes, and neither the Trustee nor any holder or owner
of any Notes shall take or receive from the Company or any Restricted

Subsidiary of the Company, directly or indirectly in any manner, payment in
respect of all or any portion of Notes commencing on the date of receipt by the
Trustee of written notice from the representative of the holders of Designated
Senior Debt (the "Representative") of the occurrence of such Payment Default,
and in any such event, such prohibition shall continue until such Payment
Default is cured, waived in writing, or otherwise ceases to exist. At such time
as the prohibition set forth in the preceding sentence shall no longer be in
effect, subject to the provisions of the following paragraph, the Company shall
resume making any and all required payments in respect of the Notes, including
any missed payments.

Upon the occurrence of a Non-Payment Event of Default on Designated Senior
Debt, no payment or distribution of any kind or character (including, without
limitation, cash, property and any payment or distribution which may be payable
or deliverable by reason of the payment of any other indebtedness of the
Company being subordinated to the payment of the Notes by the Company) may be
made by the Company or any Restricted Subsidiary of the Company, including,
without limitation, by way of set-off or otherwise, for or on account of the
Notes, or for or on account of the purchase, redemption, or other acquisition
of any Notes, and neither the Trustee nor any holder or owner of any Notes
shall take or receive from the Company or any Restricted Subsidiary of the
Company, directly or indirectly in any manner, payment in respect of all or any
portion of the Notes for a period (a "Payment Blockage Period") commencing on
the date of receipt by the Trustee of written notice from the Representative of
such Non-Payment Event of Default unless and until (subject to any blockage of
payments that may then be in effect under the preceding paragraph) the earliest
of

(1) more than 179 days shall have elapsed since receipt of such written
notice by the Trustee,

(2) such Non-Payment Event of Default shall have been cured or waived in
writing or otherwise shall have ceased to exist or such Designated Senior
Debt shall have been paid in full, or

(3) such Payment Blockage Period shall have been terminated by written
notice to the Company or the Trustee from the Representative,

after which, in the case of clause (1), (2) or (3), the Company shall resume
making any and all required payments in respect of the Notes, including any
missed payments. Notwithstanding any other provision of the Indenture, in no
event shall a Payment Blockage Period commenced in accordance with the
provisions of the Indenture described in this paragraph extend beyond 179 days
from the date of the receipt by the Trustee of the notice referred to above
(the "Initial Blockage Period"). Any number of additional Payment Blockage
Periods may be commenced during the Initial Blockage Period; provided, however,
that no such additional Payment Blockage Period shall extend beyond the Initial
Blockage Period. After the expiration of the Initial Blockage Period, no
Payment Blockage Period may be commenced until at least 180 consecutive days
have elapsed from the last day of the Initial Blockage Period. Notwithstanding
any other provision of the Indenture, no Non-Payment Event of Default with
respect to Designated Senior Debt that existed or was continuing on the date of
the commencement of any Payment Blockage Period initiated by the Representative
shall be, or be made, the basis for the commencement of a second Payment
Blockage Period initiated by the Representative, whether or not within the
Initial Blockage Period, unless such Non- Payment Event of Default shall have
been cured or waived for a period of not less than 90 consecutive days.

In the event that, notwithstanding the foregoing, the Trustee or any holder
of Notes receives any payment or distribution of assets of the Company of any
kind, whether in cash, property, or securities, including, without limitation,
by way of set-off or otherwise, in respect of the Notes before all Senior Debt
of the Company is paid and satisfied in full in cash, then such payment or
distribution will be held by the recipient in trust for the benefit of holders
of Senior Debt and will be immediately paid over or delivered to the holders of
Senior Debt or their representative or representatives to the extent necessary
to make payment in full of all Senior Debt remaining unpaid, after giving
effect to any concurrent payment or distribution, or provision therefor, to or
for the holders of Senior Debt.

Each Guarantee will, to the extent set forth in the Indenture, be
subordinated in right of payment to the prior payment in full of all Senior
Debt of the respective Guarantor and will be subject to the rights of holders

of Designated Senior Debt of such Guarantor to initiate blockage periods, upon
terms substantially comparable to the subordination of the Notes to all Senior
Debt of the Company.

If the Company or any Guarantor fails to make any payment on the Notes or
any Guarantee, as the case may be, when due or within any applicable grace
period, whether or not on account of payment blockage provisions, such failure
would constitute an Event of Default under the Indenture and would enable the
holders of the Notes to accelerate the maturity thereof. See "--Events of
Default."

A holder of Notes by its acceptance of Notes agrees to be bound by such
provisions and authorizes and expressly directs the Trustee, on its behalf, to
take such action as may be necessary or appropriate to effectuate the
subordination provided for in the Indenture and appoints the Trustee its
attorney-in-fact for such purpose.

Certain Covenants

The Indenture will contain, among others, the following covenants:

Limitation on Additional Indebtedness

The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, incur (as defined) any Indebtedness (including
Acquired Indebtedness); provided that the Company or any of its Restricted
Subsidiaries may incur Indebtedness (including Acquired Indebtedness) if after
giving effect to the incurrence of such Indebtedness and the receipt and
application of the proceeds thereof, the Company's Consolidated Fixed Charge
Coverage Ratio is at least 2.5 to 1.

Notwithstanding the foregoing, the Company and its Restricted Subsidiaries
may incur Permitted Indebtedness; provided that the Company will not incur any
Permitted Indebtedness that ranks junior in right of payment to the Notes that
has a maturity or mandatory sinking fund payment prior to the maturity of the
Notes. Notwithstanding any other provision of this "Limitation on Additional
Indebtedness" covenant, (1) the maximum amount of Indebtedness that the Company
or a Restricted Subsidiary may incur pursuant to this covenant shall not be
deemed to be exceeded, with respect to any outstanding Indebtedness, due solely
to the result of fluctuations in the exchange rates of currencies and (2) in
the event that an item of Indebtedness meets the criteria of more than one of
the categories of Permitted Indebtedness or is otherwise entitled to be
incurred pursuant to this covenant, the Company may, in its sole discretion,
classify (or reclassify) such item of Indebtedness in any manner that complies
with this covenant and such items of Indebtedness will be treated as having
been incurred pursuant to only one of such clauses or pursuant to the first
paragraph hereof. Accrual of interest, accretion or amortization of original
issue discount, and the payment of interest in the form of additional
Indebtedness, will not be deemed to be an incurrence of Indebtedness for
purposes of this covenant and accruals of mandatory dividends or the payment of
mandatory dividends on Disqualified Capital Stock in the form of additional
shares of the same class of Disqualified Capital Stock will not be deemed an
issuance of Disqualified Capital Stock for purposes of this covenant.

Limitation on Other Senior Subordinated Indebtedness

The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, incur, contingently or otherwise, any Indebtedness
(other than the Notes and the Guarantees, as the case may be) that is both (1)
subordinated in right of payment to any Senior Debt of the Company or any of
its Restricted Subsidiaries, as the case may be, and (2) senior in right of
payment to the Notes and the Guarantees, as the case may be. For purposes of
this covenant, Indebtedness is deemed to be senior in right of payment to the
Notes or the Guarantees, as the case may be, if it is not explicitly
subordinated in right of payment to Senior Debt at least to the same extent as
the Notes and the Guarantees, as the case may be, are subordinated to such
Senior Debt.

Limitation on Restricted Payments

The Company will not make, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, make, any Restricted Payment, unless:

(1) no Default or Event of Default shall have occurred and be continuing at
the time of or immediately after giving effect to such Restricted Payment;

(2) immediately after giving pro forma effect to such Restricted Payment,
the Company could incur (Euro)1.00 of additional Indebtedness (other than
Permitted Indebtedness) under "--Limitation on Additional Indebtedness" above;
and

(3) immediately after giving effect to such Restricted Payment, the
aggregate of all Restricted Payments declared or made after the Issue Date does
not exceed the sum of

(a) 50% of the Company's Cumulative Consolidated Net Income (or minus
100% of any cumulative deficit in Consolidated Net Income during such
period), provided that for purposes of this "Limitation on Restricted
Payments" covenant the Company's Cumulative Consolidated Net Income shall
include the net income (loss) of PalEx from January 1, 2000,

(b) 100% of the aggregate Net Proceeds received by the Company from the
issue or sale after the Issue Date of Capital Stock (other than
Disqualified Capital Stock or Capital Stock of the Company issued to any
Subsidiary of the Company) of the Company or any Indebtedness or other
securities of the Company convertible into or exercisable or exchangeable
for Capital Stock (other than Disqualified Capital Stock) of the Company
which have been so converted, exercised, or exchanged, as the case may be,

(c) without duplication of any amounts included in clause (3)(b) above,
100% of the aggregate Net Proceeds received by the Company from any equity
contribution from a holder of the Company's Capital Stock, excluding, in
the case of clauses (3)(b) and (c), any Net Proceeds from an Equity
Offering to the extent used to redeem the Notes, and

(d) without duplication, the sum of

(i) the aggregate amount returned in cash on or with respect to
Investments (other than Permitted Investments) made subsequent to the
Issue Date whether through interest payments, principal payments,
dividends, or other distributions;

(ii) the net proceeds received by the Company or any of its
Restricted Subsidiaries from the disposition, retirement or redemption
of all or any portion of such Investments (other than to a Subsidiary
of the Company); and

(iii) upon redesignation of an Unrestricted Subsidiary as a
Restricted Subsidiary, the fair market value of the net assets of such
Subsidiary,

provided, however, that the sum of clauses (i), (ii), and (iii) above shall not
exceed the aggregate amount of all such Investments made subsequent to the
Issue Date.

For purposes of determining under clause (3) above, the amount expended for
Restricted Payments, cash distributed shall be valued at the face amount
thereof and property other than cash shall be valued at its fair market value.

The provisions of this covenant shall not prohibit:

(1) the payment of any distribution within 60 days after the date of
declaration thereof, if at such date of declaration such payment would comply
with the provisions of the Indenture,

(2) the repurchase, redemption, or other acquisition or retirement of any
shares of Capital Stock of the Company or Indebtedness subordinated to the
Notes by conversion into, or by or in exchange for, shares of Capital Stock of
the Company (other than Disqualified Capital Stock), or out of the Net Proceeds
of the

substantially concurrent sale (other than to a Subsidiary of the Company) of
other shares of Capital Stock of the Company (other than Disqualified Capital
Stock),

(3) the redemption or retirement of Indebtedness of the Company
subordinated to the Notes in exchange for, by conversion into, or out of the
Net Proceeds of a substantially concurrent sale or incurrence of, Indebtedness
of the Company (other than any Indebtedness owed to a Subsidiary) that is
Refinancing Indebtedness,

(4) the retirement of any shares of Disqualified Capital Stock of the
Company by conversion into, or by exchange for, shares of Disqualified Capital
Stock of the Company, or out of the Net Proceeds of the substantially
concurrent sale (other than to a Subsidiary of the Company) of other shares of
Disqualified Capital Stock of the Company,

(5) payments made to effect the Transactions,

(6) repurchases by the Company of Capital Stock (other than Disqualified
Capital Stock) (or options therefor) of the Company from directors, officers,
or employees of the Company or any of its Restricted Subsidiaries or their
authorized representatives upon the death, disability, termination of
employment of such officers or employees, in an aggregate amount not to
exceed, in any calendar year, (Euro)1.0 million,

(7) loans and advances to officers and other employees of the Company or
any of its Restricted Subsidiaries for the exercise of stock options in any
amount not to exceed (Euro)1.0 million at any one time outstanding,

(8) the exchange by the Company of the SMG Exchangeable Shares for cash
and/or Capital Stock of the Company (other than Disqualified Capital Stock of
the Company) as elected by a holder of SMG Exchangeable Shares on or before
the Issue Date, and

(9) other Restricted Payments in an aggregate amount since the Issue Date
not to exceed (Euro)2.0 million.

In calculating the aggregate amount of Restricted Payments made subsequent
to the Issue Date for purposes of clause (3) of the first paragraph above,
amounts expended pursuant to clause (1) of the immediately preceding paragraph
shall be included in such calculation.

Limitation on Investments

The Company will not, and will not permit any of its Restricted
Subsidiaries to, make any Investment other than:

(1) a Permitted Investment, or

(2) an Investment that is made after the Issue Date as a Restricted Payment
in compliance with the "Limitation on Restricted Payments" covenant.

Limitation on Liens

The Company will not, and will not permit any of its Restricted
Subsidiaries to, create, incur, or otherwise cause or suffer to exist or
become effective any Liens of any kind securing Indebtedness other than Senior
Debt upon any property or asset of the Company or any of its Restricted
Subsidiaries or any shares of Capital Stock or Indebtedness of any Restricted
Subsidiary of the Company that owns property or assets, now owned or hereafter
acquired, unless:

(1) if such Lien secures Indebtedness that is subordinated to the Notes,
any such Lien shall be subordinated to the Lien granted to the holders of the
Notes to the same extent as such Indebtedness is subordinated to the Notes;
and

(2) in all other cases, the Notes are equally and ratably secured; except
for:

(a) Liens existing as of the Issue Date to the extent and in the manner
such Liens are in effect on the Issue Date;

(b) Liens of the Company or a Wholly Owned Restricted Subsidiary of the
Company on assets of any Restricted Subsidiary;

(c) Liens securing Refinancing Indebtedness that is incurred to
Refinance any Indebtedness that has been secured by a Lien permitted under
the Indenture and that has been incurred in accordance with the provisions
of the Indenture, provided, however, that such Liens: (i) are no less
favorable to the Holders and are not more favorable to the lienholders with
respect to such Liens than the Liens in respect of the Indebtedness as
being Refinanced; and (ii) do not extend to or cover any property or assets
of the Company or any of its Restricted Subsidiaries not securing the
Indebtedness so Refinanced; and

(d) Permitted Liens.

Limitation on Transactions with Affiliates

The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, enter into or suffer to exist any transaction or
series of related transactions (including, without limitation, the sale,
purchase, exchange or lease of assets, property or services) with any Affiliate
(each an "Affiliate Transaction") unless:

(1) such Affiliate Transaction is between or among the Company and its
Restricted Subsidiaries; or

(2) the terms of such Affiliate Transaction are fair and reasonable to the
Company or such Restricted Subsidiary, as the case may be, and the terms of
such Affiliate Transaction are at least as favorable as the terms which could
be obtained by the Company or such Restricted Subsidiary, as the case may be,
in a comparable transaction made on an arm's-length basis between unaffiliated
parties.

In any Affiliate Transaction (or any series of related Affiliate
Transactions that are similar or part of a common plan) involving an amount or
having a fair market value in excess of (Euro)2.0 million that is not permitted
under clause (1) above, the Company must obtain a resolution of the board of
directors of the Company certifying that such Affiliate Transaction complies
with clause (2) above. In any Affiliate Transaction (or any series of related
Affiliate Transactions that are similar or part of a common plan) involving an
amount or having a fair market value in excess of (Euro)5.0 million that is not
permitted under clause (1) above, the Company must obtain a favorable written
opinion as to the fairness of such transaction or transactions, as the case may
be, from an Independent Financial Advisor.

The foregoing provisions will not apply to:

(1) reasonable fees and compensation and customary expense reimbursement
paid to, and indemnity provided on behalf of, officers, directors, employees,
or consultants of the Company or any Restricted Subsidiary of the Company as
determined in good faith by the Company's board of directors or senior
management,

(2) any agreement as in effect as of the Issue Date (including, without
limitation, any agreement entered into on the Issue Date in connection with the
Transactions) or any amendment thereto or any transaction contemplated thereby
(including pursuant to any amendment thereto) in any replacement agreement
thereto so long as any such amendment or replacement agreement is not more
disadvantageous to the holders in any material respect than the original
agreement as in effect on the Issue Date,

(3) loans and advances to employees or officers of the Company and its
Restricted Subsidiaries permitted by clause (3) of the definition of "Permitted
Investments,"

(4) Restricted Payments permitted by the Indenture,

(5) transactions with Affiliates solely in their capacity as holders of
Indebtedness or Capital Stock of the Company or any of its Subsidiaries, so
long as such Affiliates are treated no more favorably than holders of such
Indebtedness or Capital Stock generally, or

(6) transactions with a Receivables Subsidiary in connection with Permitted
Receivables Financing.

Limitation on Creation of Subsidiaries

The Company will not create or acquire, and will not permit any of its
Restricted Subsidiaries to create or acquire, any Subsidiary other than:

(1) a Restricted Subsidiary existing as of the Issue Date,

(2) a Restricted Subsidiary that is acquired or created after the Issue
Date; provided, however, that each Restricted Subsidiary other than an
Immaterial Subsidiary acquired or created pursuant to this clause (2) shall
have executed a guarantee, pursuant to which such Restricted Subsidiary will
become a Guarantor; provided, further, in the event the Company or any of its
Restricted Subsidiaries incurs Acquired Indebtedness (assuming such incurrence
is in accordance with the "Limitation on Additional Indebtedness" covenant) as
a result of the acquisition of a Restricted Subsidiary and as long as the terms
of such Acquired Indebtedness prohibit the Guarantee of the Notes by such
newly-acquired Restricted Subsidiary or such newly-acquired Restricted
Subsidiary would be in breach or default of the terms of the Acquired
Indebtedness as a result of such Guarantee, such Restricted Subsidiary will not
be required to execute a Guarantee; provided, that, until such Restricted
Subsidiary executes and delivers a Guarantee in accordance with this covenant,
(a) none of the Company or any other Restricted Subsidiary of the Company will
transfer any assets (other than in the ordinary course of business) to such
newly-acquired Restricted Subsidiary, (b) such newly-acquired Restricted
Subsidiary will not transfer such Acquired Indebtedness to the Company or any
other Restricted Subsidiary, and (c) neither the Company nor any Restricted
Subsidiary of the Company shall provide any guarantee of, or similar credit
support for, or otherwise become directly or indirectly liable for any
Indebtedness of such newly-acquired Restricted Subsidiary, or

(3) an Unrestricted Subsidiary.

Limitation on Certain Asset Sales

The Company will not, and will not permit any of its Restricted Subsidiaries
to, consummate an Asset Sale unless:

(1) the Company or such Restricted Subsidiary, as the case may be, receives
consideration at the time of such sale or other disposition at least equal to
the fair market value of the assets sold or otherwise disposed of (as
determined in good faith by the board of directors of the Company, and
evidenced by a board resolution);

(2) not less than 75% of the consideration received by the Company or such
Restricted Subsidiary, as the case may be, is in the form of cash or Cash
Equivalents other than in the case where the Company or such Restricted
Subsidiary is undertaking a Permitted Asset Swap; and

(3) the Asset Sale Proceeds received by the Company or such Restricted
Subsidiary are applied:

(a) to the extent the Company or any such Restricted Subsidiary, as the
case may be, elects, or is required, to prepay, repay or purchase
indebtedness under any then existing Senior Debt of the Company or any such
Restricted Subsidiary within 360 days following the receipt of the Asset
Sale Proceeds from any Asset Sale; provided that any such repayment shall
result in a permanent reduction of the commitments thereunder in an amount
equal to the principal amount so repaid;

(b) to the extent the Company elects, to an investment in assets
(including Capital Stock or other securities purchased in connection with
the acquisition of Capital Stock or property of another Person) used or
useful in its business; provided that such investment occurs or the Company
or any such Restricted Subsidiary enters into contractual commitments to
make such investment, subject only to customary conditions, within 270 days
following receipt of such Asset Sale Proceeds (provided that such
investment shall in any event be consummated no later than 90 days
following such 270th day); and

(c) if on such 360th day in the case of clause (3)(a) or the 270th day
in the case of clause 3(b) (or on such 90th day in the case of the proviso
to clause (3)(b)) with respect to any Asset Sale, the Available Asset Sale
Proceeds exceed (Euro)10.0 million, the Company shall apply an amount equal
to the Available Asset Sale Proceeds to an offer to repurchase the Notes,
at a purchase price in cash equal to 100% of the principal amount thereof
plus accrued and unpaid interest, if any, to the purchase date (an "Excess
Proceeds Offer").

Notwithstanding the foregoing, in the event that a Restricted Subsidiary
that is not a Wholly Owned Restricted Subsidiary dividends or distributes to
all of its stockholders on a pro rata basis any proceeds of an Asset Sale to
the Company or another Restricted Subsidiary, the Company or such Restricted
Subsidiary need only apply its share of such proceeds in accordance with the
preceding clauses (a), (b), and (c).

If an Excess Proceeds Offer is not fully subscribed, the Company may retain
the portion of the Available Asset Sale Proceeds not required to repurchase
Notes.

If the Company is required to make an Excess Proceeds Offer, the Company
shall mail, within 30 days following the date specified in clause (3)(c) above,
a notice to the holders stating, among other things:

(1) that such holders have the right to require the Company to apply the
Available Asset Sale Proceeds to repurchase such Notes at a purchase price
in cash equal to 100% of the principal amount thereof plus accrued and
unpaid interest, if any, to the purchase date;

(2) the purchase date, which shall be no earlier than 30 days and not
later than 60 days from the date such notice is mailed;

(3) the instructions that each holder must follow in order to have such
Notes purchased; and

(4) the calculations used in determining the amount of Available Asset
Sale Proceeds to be applied to the purchase of such Notes.

In the event of the transfer of substantially all of the property and assets
of the Company and its Restricted Subsidiaries as an entirety to a Person in a
transaction permitted under "--Merger, Consolidation, or Sale of Assets" below,
the successor Person shall, for purposes of this covenant, be deemed to have
sold the properties and assets of the Company and its Restricted Subsidiaries
not so transferred and shall comply with the provisions set forth in 3(a),
3(b), and 3(c) of this covenant with respect to such deemed sale as if it were
an Asset Sale.

The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and other securities laws and regulations thereunder to the extent
such laws and regulations are applicable in connection with the repurchase of
Notes pursuant to an Excess Proceeds Offer. To the extent that the provisions
of any securities laws or regulations conflict with the "Asset Sale" provisions
of the Indenture, the Company shall comply with the applicable securities laws
and regulations and shall not be deemed to have breached its obligations under
the "Asset Sale" provisions of the Indenture by virtue thereof.

Limitation on Preferred Stock of Restricted Subsidiaries

The Company will not permit any of its Restricted Subsidiaries that are not
Guarantors to issue any Preferred Stock (except Preferred Stock issued to the
Company or a Wholly Owned Restricted Subsidiary of the Company) or permit any
Person (other than the Company or a Wholly Owned Restricted Subsidiary of the

Company) to hold any such Preferred Stock unless such Restricted Subsidiary
would be entitled to incur or assume Indebtedness under "--Limitation on
Additional Indebtedness" above (other than Permitted Indebtedness) in the
aggregate principal amount equal to the aggregate liquidation value as of the
date of issuance thereof of the Preferred Stock to be issued.

Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries

The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, create or otherwise cause or suffer to exist or
become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary of the Company to:

(1) pay dividends or make any other distributions to the Company or any
Restricted Subsidiary of the Company

(a) on its Capital Stock, or

(b) with respect to any other interest or participation in, or measured
by, its profits or

(2) repay any Indebtedness or any other obligation owed to the Company or
any Restricted Subsidiary of the Company,

(3) make loans or advances or capital contributions to the Company or any of
its Restricted Subsidiaries, or

(4) transfer any of its properties or assets to the Company or any of its
Restricted Subsidiaries,

except for such encumbrances or restrictions existing under or by reason of:

(1) encumbrances or restrictions existing on the Issue Date to the extent
and in the manner such encumbrances and restrictions are in effect on the Issue
Date,

(2) the Indenture, the Notes, and the Guarantees,

(3) applicable law,

(4) contracts to which any Person who is acquired in accordance with the
terms of the Indenture is a party, including any instrument governing Acquired
Indebtedness or Capital Stock, which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person, other than
the Person, or the property or assets of the Person (including any Subsidiary
of the Person), so acquired,

(5) customary non-assignment provisions in leases or other agreements
entered in the ordinary course of business and consistent with past practices,

(6) Refinancing Indebtedness; provided that such restrictions are no more
restrictive than those contained in the agreements governing the Indebtedness
being extended, refinanced, renewed, replaced, defeased, or refunded,

(7) customary restrictions in Capitalized Lease Obligations, security
agreements, or mortgages securing Indebtedness of the Company or a Restricted
Subsidiary to the extent such restrictions restrict the transfer of the
property subject to such Capitalized Lease Obligations, security agreements,
and mortgages,

(8) customary restrictions with respect to a Restricted Subsidiary of the
Company pursuant to an agreement that has been entered into for the sale or
disposition of all or substantially all of the Capital Stock or assets of such
Restricted Subsidiary,

(9) contracts entered into in the ordinary course of business, not relating
to any Indebtedness, and that do not, individually or in the aggregate, detract
from the value of property or assets of the Company or any Restricted
Subsidiary in any manner material to the Company or any Restricted Subsidiary,

(10) restrictions on cash or other deposits or net worth imposed by
customers under contracts (not evidencing or relating to Indebtedness) entered
into in the ordinary course of business,

(11) customary provisions in joint venture agreements and other similar
agreements (in each case relating solely to the respective joint venture or
similar entity or the equity interests therein) entered into in the ordinary
course of business,

(12) customary provisions restricting dispositions of real property
interests set forth in any reciprocal easement agreements of the Company or any
Restricted Subsidiary, or

(13) with respect to a Receivables Subsidiary, an agreement relating to
Indebtedness of such Receivables Subsidiary which is permitted under
"Limitation on Additional Indebtedness" above or pursuant to an agreement
relating to a Permitted Receivables Financing by such Receivables Subsidiary.

Limitation on Sale and Lease-Back Transactions

The Company will not, and will not permit any of its Restricted Subsidiaries
to, enter into any Sale and Lease-Back Transaction unless:

(1) the consideration received in such Sale and Lease-Back Transaction is at
least equal to the fair market value of the property sold, as determined in
good faith by the board of directors of the Company and evidenced by a board
resolution; and

(2) the Company could incur the Attributable Indebtedness in respect of such
Sale and Lease-Back Transaction in compliance with "--Limitation on Additional
Indebtedness" above.

Change of Control Offer

Upon the occurrence of a Change of Control, the Company shall be obligated
to make an offer to purchase (the "Change of Control Offer") each holder's
outstanding Notes at a purchase price (the "Change of Control Purchase Price")
equal to 101% of the principal amount thereof plus accrued and unpaid interest,
if any, to the Change of Control Payment Date (as defined) in accordance with
the procedures set forth below.

Within 30 days of the occurrence of a Change of Control, the Company shall
send by first-class mail, postage prepaid, to the Trustee and to each holder of
the Notes, at the address appearing in the register maintained by the Registrar
of the Notes and publish in a Luxembourg newspaper of general circulation, a
notice stating:

(1) that the Change of Control Offer is being made pursuant to this covenant
and that all Notes tendered will be accepted for payment;

(2) the Change of Control Purchase Price and the purchase date (which shall
be a Business Day no earlier than 30 days nor later than 60 days from the date
such notice is mailed (the "Change of Control Payment Date"));

(3) that any Note not tendered will continue to accrue interest;

(4) that, unless the Company defaults in the payment of the Change of
Control Purchase Price, any Notes accepted for payment pursuant to the Change
of Control Offer shall cease to accrue interest after the Change of Control
Payment Date;

(5) that holders accepting the offer to have their Notes purchased pursuant
to a Change of Control Offer will be required to surrender the Notes to the
Paying Agent at the address specified in the notice prior to the close of
business on the Business Day preceding the Change of Control Payment Date;

(6) that holders will be entitled to withdraw their acceptance if the Paying
Agent receives, not later than the close of business on the third Business Day
preceding the Change of Control Payment Date, a telegram, telex, facsimile
transmission, or letter setting forth the name of the holder, the principal
amount of the Notes delivered for purchase, and a statement that such holder is
withdrawing his election to have such Notes purchased;

(7) that holders whose Notes are being purchased only in part will be issued
new Notes equal in principal amount to the unpurchased portion of the Notes
surrendered;

(8) any other procedures that a holder must follow to accept a Change of
Control Offer or effect withdrawal of such acceptance; and

(9) the name and address of the Paying Agent.

On the Change of Control Payment Date, the Company shall, to the extent
lawful:

(1) accept for payment Notes or portions thereof tendered pursuant to the
Change of Control Offer,

(2) deposit with the Paying Agent money sufficient to pay the purchase price
of all Notes or portions thereof so tendered and

(3) deliver or cause to be delivered to the Trustee Notes so accepted
together with an Officers' Certificate stating the Notes or portions thereof
tendered to the Company.

The Paying Agent shall promptly mail to each holder of Notes so accepted
payment in an amount equal to the purchase price for such Notes, and the
Company shall execute and issue, and the Trustee shall promptly authenticate
and mail to such holder, a new Note equal in principal amount to any
unpurchased portion of the Notes surrendered; provided that each such new Note
shall be issued in an original principal amount in denominations of (Euro)1,000
and integral multiples thereof.

The Indenture requires that if the New Senior Credit Facility is in effect,
or any amounts are owing thereunder or in respect thereof, at the time of the
occurrence of a Change of Control, prior to the mailing of the notice to
holders described in the second preceding paragraph, the Company covenants to:

(1) repay in full all obligations and terminate all commitments under or in
respect of the New Senior Credit Facility and all other Senior Debt the terms
of which require repayment upon a Change of Control or offer to repay in full
all obligations and terminate all commitments under or in respect of the New
Senior Credit Facility and all such Senior Debt and repay the Indebtedness owed
to each such lender who has accepted such offer, or

(2) obtain the requisite consents under the New Senior Credit Facility and
all such other Senior Debt to permit the repurchase of the Notes as described
above.

The Company must first comply with the covenant described in the preceding
sentence before it shall be required to purchase Notes in the event of a Change
of Control; provided that, notwithstanding the foregoing, the Company's failure
to consummate a Change of Control Offer in accordance with the provisions of
this covenant due to the covenant described in the immediately preceding
sentence shall constitute an Event of Default described in clause (3) under "--
Events of Default" below after the notice required by such clause. As a result
of the foregoing, a holder of the Notes may not be able to compel the Company
to purchase the Notes unless the Company is able at the time to refinance all
of the obligations under or in respect of the New Senior

Credit Facility and all such other Senior Debt or obtain requisite consents
under the New Senior Credit Facility and all such other Senior Debt.

The Indenture further provides that (1) if the Company or any Restricted
Subsidiary thereof has issued any outstanding (a) Indebtedness that is
subordinated in right of payment to the Notes or (b) Preferred Stock, and the
Company or such Restricted Subsidiary is required to make a change of control
offer or to make a distribution with respect to such subordinated indebtedness
or Preferred Stock in the event of a change of control, the Company shall not
consummate any such offer or distribution with respect to such subordinated
indebtedness or Preferred Stock until such time as the Company shall have paid
the Change of Control Purchase Price in full to the holders of Notes that have
accepted the Company's change of control offer and shall otherwise have
consummated the change of control offer made to holders of the Notes and (2)
the Company will not issue Indebtedness that is subordinated in right of
payment to the Notes or Preferred Stock with change of control provisions
requiring the payment of such Indebtedness or Preferred Stock prior to the
payment of the Notes tendered pursuant to a Change of Control Offer in the
event of a Change in Control under the Indenture.

The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Change of Control Offer. To the extent that
the provisions of any securities laws or regulations conflict with the "Change
of Control" provisions of the Indenture, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the "Change of Control" provisions of the
Indenture by virtue thereof.

Taxation; Redemption for Taxation Reasons

All payments of principal, premium (if any), and interest in respect of the
Notes and of any other amounts payable pursuant to the Indenture will be made
without withholding or deduction for, or on account of, any present or future
taxes, duties, assessments or governmental charges of whatever nature imposed
or levied by or on behalf of the Netherlands or any political subdivision or
any authority thereof or therein having power to tax, unless the withholding or
deduction of such taxes, duties, assessments or governmental charges is
required by law. In that event, the Company will pay such additional amounts
("Additional Amounts") as may be necessary in order that the net amounts
received by the Holders after such withholding or deduction shall equal the
respective amounts of principal, premium (if any), and interest and of any
other amounts payable pursuant to the Indenture that would have been receivable
in respect of the Notes in the absence of such withholding or deduction, except
that no Additional Amounts shall be payable in relation to any payment in
respect of any Note:

(1) to, or to a third party on behalf of, a Holder who is liable for such
taxes, duties, assessments, or governmental charges in respect of such Note by
reason of his having some connection with the Netherlands other than the mere
holding of the Note; or

(2) in the case of payments or principal, premium (if any), or interest in
respect of the Notes made against presentation of the Note at the specified
office of a Paying Agent in the Netherlands; or

(3) in the case of payments of principal, premium (if any), or interest in
respect of the Notes presented for payment more than 30 days after the date on
which such payment first becomes due or, if the full amount of the money
payable has not been received by the Trustee or a Paying Agent on or prior to
such due date, the date on which, the full amount of such money having been so
received, notice to that effect shall have been given to the Holders by the
Trustee, except to the extent that the Holder thereof would have been entitled
to Additional Amounts on presenting such Note for payment on the final day of
such period of 30 days; or

(4) to, or to a third party on behalf of, a Holder who would not be liable
or subject to the withholding or deduction by making a declaration of non-
residence or other similar claim for exemption to the relevant tax authority.

All, but not less than all, of the Notes may be redeemed, at the option of
the Company, at any time, upon giving notice to Holders as described below
(which notice shall be irrevocable), at a redemption price equal to 100% of the
principal amount thereof, together with interest accrued to the date fixed for
redemption, if the Company determines and certifies to the Trustee immediately
prior to the giving of such notice that on the occasion of the next payment due
in respect of the Notes the payment of Additional Amounts in respect of such
Notes would become required as a result of the provisions of this clause. Prior
to the giving of any notice of redemption described in this paragraph, the
Company shall deliver to the Trustee an Officer's Certificate stating that the
obligation to pay Additional Amounts cannot be avoided by the Company taking
reasonable measures available to it, and setting forth a statement of facts
showing that the conditions precedent to the right of the Company so to redeem
have occurred and the Trustee shall be entitled to accept such Certificate as
sufficient evidence of the satisfaction of the conditions precedent set out
above, in which event it shall be conclusive and binding on the Holders. Notice
of redemption shall be given to the Holders at least 30 but not more than 60
days before the date fixed for redemption.

Merger, Consolidation, or Sale of Assets

The Company will not and will not permit any of its Restricted Subsidiaries
to consolidate with, merge with or into, or sell, assign, transfer, lease,
convey, or otherwise dispose of all or substantially all of the assets of the
Company and its Restricted Subsidiaries (as an entirety or substantially as an
entirety in one transaction or a series of related transactions), to any Person
unless:

(1) the Company or such Restricted Subsidiary, as the case may be, shall be
the continuing Person, or the Person (if other than the Company or such
Restricted Subsidiary) formed by such consolidation or into which the Company
or such Restricted Subsidiary, as the case may be, is merged or to which the
properties and assets of the Company or such Restricted Subsidiary, as the case
may be, are sold, assigned, transferred, leased, conveyed, or otherwise
disposed of shall be a corporation organized and existing under the laws of any
member state of the European Union, Switzerland, or any state of the United
States of America or the District of Columbia and shall expressly assume, by a
supplemental indenture, executed and delivered to the Trustee, in form
satisfactory to the Trustee, all of the obligations of the Company or such
Restricted Subsidiary, as the case may be, under the Indenture, the Notes, and
the Guarantees, and the obligations thereunder shall remain in full force and
effect;

(2) immediately before and immediately after giving effect to such
transaction, no Default or Event of Default shall have occurred and be
continuing; and

(3) immediately after giving effect to such transaction on a pro forma basis
the Company or such Person could incur at least (Euro)1.00 of additional
Indebtedness (other than Permitted Indebtedness) under "--Certain Covenants--
Limitation on Additional Indebtedness" above; provided that a Guarantor may
merge into the Company or another Person that is a Guarantor without complying
with this clause (3).

In connection with any consolidation, merger, or transfer of assets
contemplated by this provision, the Company shall deliver, or cause to be
delivered, to the Trustee, in form and substance reasonably satisfactory to the
Trustee, an Officers' Certificate stating that such consolidation, merger, or
transfer and the supplemental indenture in respect thereto comply with this
provision and that all conditions precedent herein provided for relating to
such transaction or transactions have been complied with.

For purposes of the foregoing, the transfer (by lease, assignment, sale, or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries of the Company, the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Company, shall be deemed
to be the transfer of all or substantially all of the properties and assets of
the Company.

Payments for Consent

The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, pay or cause to be paid any consideration, whether by
way of interest, fee or otherwise, to any holder of any Notes for or as an
inducement to any consent, waiver or amendment of any of the terms or
provisions of the Indenture or the Notes unless such consideration is offered
to be paid or agreed to be paid to all holders of the Notes that so consent,
waive, or agree to amend in the time frame set forth in solicitation documents
relating to such consent, waiver or agreement.

Guarantees

The Guarantors will Guarantee the Notes on a senior subordinated basis. All
payments pursuant to the Guarantees by the Guarantors are subordinated in right
of payment to the prior payment in full of all Senior Debt of each respective
Guarantor, to the same extent and in the same manner that all payments pursuant
to the Notes are subordinated in right of payment to the prior payment in full
of all Senior Debt of the Company.

The obligations of each Guarantor are limited to the maximum amount as will,
after giving effect to all other contingent and fixed liabilities of such
Guarantor (including, without limitation, any guarantees of Senior Debt) and
after giving effect to any collections from or payments made by or on behalf of
any other Guarantor in respect of the obligations of such other Guarantor under
its Guarantee or pursuant to its contribution obligations under the Indenture,
result in the obligations of such Guarantor under the Guarantee not
constituting a fraudulent conveyance or fraudulent transfer under federal or
state law. Each Guarantor that makes a payment or distribution under a
Guarantee shall be entitled to a contribution from each other Guarantor in a
pro rata amount based on the Adjusted Net Assets of each Guarantor.

A Guarantor shall be released from all of its obligations under its
Guarantee if all of its assets or Capital Stock is sold or the Capital Stock of
its direct or indirect parent company is sold, in each case in a transaction in
compliance with "--Certain Covenants--Limitation on Certain Asset Sales" above,
and such Guarantor has delivered to the Trustee an Officers' Certificate and an
opinion of counsel, each stating that all conditions precedent herein provided
for relating to such transaction have been complied with.

As of the date hereof, all of the Company's Restricted Subsidiaries other
than Immaterial Subsidiaries will be Guarantors. The Company is a holding
company with no separate operations other than its ownership of the equity of
its subsidiaries. Accordingly, the description of the Company's business and
operations in this prospectus includes a description of the business and
operations of its subsidiaries, most of whom will be Guarantors. As a result,
the operations of the subsidiaries are not separately described.

Events of Default

The following events are defined in the Indenture as "Events of Default":

(1) default in payment of any principal of, or premium, if any, on the Notes
whether at maturity, upon redemption or otherwise (whether or not such payment
shall be prohibited by the subordination provisions of the Indenture);

(2) default for 30 days in payment of any interest on the Notes (whether or
not such payment shall be prohibited by the subordination provisions of the
Indenture);

(3) default by the Company or any Restricted Subsidiary in the observance or
performance of any other covenant in the Notes or the Indenture for 30 days
after written notice from the Trustee or the holders of not less than 25% in
aggregate principal amount of the Notes then outstanding (except in the case of
a default with respect to the "Change of Control" or "Merger, Consolidation, or
Sale of Assets" covenants, which shall constitute an Event of Default with such
notice requirement but without such passage of time requirement);

(4) the failure to pay at final maturity (giving effect to any applicable
grace periods and any extensions thereof) the principal amount of any
Indebtedness of the Company or any Restricted Subsidiary of the Company, or the
acceleration of the final stated maturity of any such Indebtedness if the
aggregate principal amount of such Indebtedness, together with the principal
amount of any other such Indebtedness in default for failure to pay principal
at final maturity or which has been accelerated, aggregates (Euro)10.0 million
or more at any time;

(5) any final judgment or judgments (not covered by insurance) which can no
longer be appealed for the payment of money in excess of (Euro)10.0 million
shall be rendered against the Company or any Restricted Subsidiary thereof, and
shall not be discharged for any period of 60 consecutive days during which a
stay of enforcement shall not be in effect;

(6) certain events involving bankruptcy, insolvency, or reorganization of
the Company or any Significant Restricted Subsidiary thereof; and

(7) any of the Guarantees of a Guarantor that is a Significant Restricted
Subsidiary ceases to be in full force and effect or any of the Guarantees of a
Guarantor that is a Significant Restricted Subsidiary is declared to be null
and void and unenforceable or any of the Guarantees of a Guarantor that is a
Significant Restricted Subsidiary is found to be invalid or any of the
Guarantors that is a Significant Restricted Subsidiary denies its liability
under its Guarantee (other than by reason of release of a Guarantor in
accordance with the terms of the Indenture).

The Indenture provides that the Trustee may withhold notice to the holders
of the Notes of any default (except in payment of principal or premium, if any,
or interest on the Notes) if the Trustee considers it to be in the best
interest of the holders of the Notes to do so.

The Indenture provides that if an Event of Default (other than an Event of
Default with respect to the Company of the type described in clause (6) above)
shall have occurred and be continuing, then the Trustee or the holders of not
less than 25% in aggregate principal amount of the Notes then outstanding may
declare to be immediately due and payable the entire principal amount of all
the Notes then outstanding plus accrued interest to the date of acceleration
and the same shall become immediately due and payable; provided, however, that
after such acceleration but before a judgment or decree based on acceleration
is obtained by the Trustee, the holders of a majority in aggregate principal
amount of outstanding Notes may, under certain circumstances, rescind and annul
such acceleration if:

(1) all Events of Default, other than nonpayment of principal, premium, if
any, or interest that has become due solely because of the acceleration, have
been cured or waived as provided in the Indenture,

(2) to the extent the payment of such interest is lawful, interest on
overdue installments of interest and overdue principal, which has become due
otherwise than by such declaration of acceleration, has been paid,

(3) if the Company has paid the Trustee its reasonable compensation, and
reimbursed the Trustee for its expenses, disbursements, and advances and

(4) in the event of the cure or waiver of an Event of Default of the type
described in clause (6) of the above Events of Default, the Trustee shall have
received an Officers' Certificate and an opinion of counsel that such Event of
Default has been cured or waived.

No such rescission shall affect any subsequent Default or impair any right
consequent thereto. In case an Event of Default with respect to the Company of
the type described in clause (6) of the first paragraph above shall occur, the
principal, premium, and interest amount with respect to all of the Notes shall
be due and payable immediately without any declaration or other act on the part
of the Trustee or the holders of the Notes.

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The holders of a majority in principal amount of the Notes then outstanding
shall have the right to waive any existing default or compliance with any
provision of the Indenture or the Notes and to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee,
subject to certain limitations provided for in the Indenture and under the TIA.

No holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such holder shall
have previously given to the Trustee written notice of a continuing Event of
Default and unless the holders of at least 25% in aggregate principal amount of
the outstanding Notes shall have made written request and offered reasonable
indemnity to the Trustee to institute such proceeding as Trustee, and unless
the Trustee shall not have received from the holders of a majority in aggregate
principal amount of the outstanding Notes a direction inconsistent with such
request and shall have failed to institute such proceeding within 60 days.
Notwithstanding the foregoing, such limitations do not apply to a suit
instituted on such Note on or after the respective due dates expressed in such
Note.

Defeasance and Covenant Defeasance

The Indenture provides that the Company may elect either:

(1) to defease and be discharged from any and all of its and any Guarantor's
obligations with respect to the Notes (except for certain obligations such as
to register the transfer or exchange of such Notes, to replace temporary or
mutilated, destroyed, lost, or stolen Notes, to maintain an office or agency in
respect of the Notes and to hold monies for payment in trust) ("defeasance") or

(2) to be released from its obligations with respect to the Notes under
certain covenants contained in the Indenture ("covenant defeasance")

upon the deposit with the Trustee (or other qualifying trustee), in trust for
such purpose, of money and/or non-callable U.S. government obligations which
through the payment of principal and interest in accordance with their terms
will provide money, in an amount sufficient to pay the principal of, premium,
if any, and interest on the Notes, on the scheduled due dates therefor or on a
selected date of redemption in accordance with the terms of the Indenture. Such
a trust may only be established if, among other things,

(1) the Company has delivered to the Trustee an opinion of counsel (as
specified in the Indenture)

(a) to the effect that neither the trust nor the Trustee will be
required to register as an investment company under the Investment Company
Act of 1940 and

(b) describing either a private ruling concerning the Notes or a
published ruling of the Internal Revenue Service, to the effect that
holders of the Notes or persons in their positions will not recognize
income, gain, or loss for federal income tax purposes as a result of such
deposit, defeasance and discharge and will be subject to federal income tax
on the same amount and in the same manner and at the same times, as would
have been the case if such deposit, defeasance, and discharge had not
occurred;

(2) no Default or Event of Default shall have occurred and be continuing on
the date of such deposit, or insofar as Events of Default from bankruptcy,
insolvency, or reorganization events are concerned, at any time in the period
ending on the 91st day after the date of deposit;

(3) such defeasance or covenant defeasance shall not result in a breach or
violation of, or constitute a default under the Indenture or any other material
agreement or instrument to which the Company or any of its Subsidiaries is a
party or by which the Company or any of its Subsidiaries is bound;

(4) the Company shall have delivered to the Trustee an Officers' Certificate
stating that the deposit was not made by the Company with the intent of
preferring the holders of the Notes over any other creditors of the Company or
with the intent of defeating, hindering, delaying, or defrauding any other
creditors of the Company or others;

101

(5) the Company shall have delivered to the Trustee an Officers'
Certificate and an opinion of counsel, each stating that all conditions
precedent provided for or relating to the defeasance or the covenant
defeasance have been complied with;

(6) the Company shall have delivered to the Trustee an opinion of counsel
to the effect that

(a) the trust funds will not be subject to any rights of holders of
Senior Debt, including, without limitation, those arising under the
Indenture and

(b) assuming no intervening bankruptcy shall occur and that no Holder is
an insider of the Company, after the 91st day following the deposit, the
trust funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization, or similar laws affecting creditors' rights
generally; and

(7) certain other customary conditions precedent are satisfied.

Modification of Indenture

From time to time, the Company, the Guarantors, and the Trustee may,
without the consent of holders of the Notes, amend or supplement the Indenture
for certain specified purposes, including providing for uncertificated Notes
in addition to certificated Notes, and curing any ambiguity, defect, or
inconsistency, or making any other change that does not, in the opinion of the
Trustee, materially and adversely affect the rights of any holder. The
Indenture contains provisions permitting the Company, the Guarantors, and the
Trustee, with the consent of holders of at least a majority in principal
amount of the outstanding Notes, to modify or supplement the Indenture, except
that no such modification shall, without the consent of each holder affected
thereby,

(1) reduce the amount of Notes whose holders must consent to an amendment,
supplement, or waiver to the Indenture,

(2) reduce the rate of or change the time for payment of interest,
including defaulted interest, on any Note,

(3) reduce the principal of or premium on or change the stated maturity of
any Note or change the date on which any Notes may be subject to redemption or
repurchase or reduce the redemption or repurchase price therefor,

(4) make any Note payable in money other than that stated in the Note or
change the place of payment,

(5) waive a default on the payment of the principal of, interest on, or
redemption payment with respect to any Note,

(6) make any change in provisions of the Indenture protecting the right of
each holder of Notes to receive payment of principal of and interest on such
Note on or after the due date thereof or to bring suit to enforce such
payment, or permitting holders of a majority in principal amount of Notes to
waive Defaults or Events of Default,

(7) amend, change, or modify in any material respect the obligation of the
Company to make and consummate a Change of Control Offer in the event of a
Change of Control or make and consummate an Excess Proceeds Offer with respect
to any Asset Sale that has been consummated or modify any of the provisions or
definitions with respect thereto,

(8) modify or change any provision of the Indenture or the related
definitions affecting the subordination or ranking of the Notes or any
Guarantee in a manner which adversely affects the holders of Notes, or

(9) release any Guarantor from any of its obligations under its Guarantee
or the Indenture otherwise than in accordance with the terms of the Indenture.

102

Reports to Holders

So long as the Company is subject to the periodic reporting requirements of
the Exchange Act, it will continue to furnish the information required thereby
to the SEC and to the holders of the Notes. The Indenture provides that even if
the Company is entitled under the Exchange Act not to furnish such information
to the SEC or to the holders of the Notes, it will nonetheless continue to
furnish such information to the SEC and holders of the Notes. Copies of such
information may also be obtained during normal business hours on any weekday at
the office of Kredietbank S.A. Luxembourgeoise, the Luxembourg Paying Agent, at
43, Boulevard Royal, L-2955 Luxembourg.

Compliance Certificate

The Company will deliver to the Trustee on or before 90 days after the end
of the Company's fiscal year an Officers' Certificate stating whether or not
the signers know of any Default or Event of Default that has occurred. If they
do, the certificate will describe the Default or Event of Default, its status,
and the intended method of cure, if any.

The Trustee

The Trustee under the Indenture will be the Registrar and Paying Agent with
regard to the Notes. The Indenture provides that, except during the continuance
of an Event of Default, the Trustee will perform only such duties as are
specifically set forth in the Indenture. During the existence of an Event of
Default, the Trustee will exercise such rights and powers vested in it under
the Indenture and use the same degree of care and skill in its exercise as a
prudent person would exercise under the circumstances in the conduct of such
person's own affairs.

Transfer and Exchange

Holders of the Notes may transfer or exchange Notes in accordance with the
Indenture. The Registrar under such Indenture may require a holder, among other
things, to furnish appropriate endorsements and transfer documents, and to pay
any taxes and fees required by law or permitted by the Indenture. The Registrar
is not required to transfer or exchange any Note selected for redemption and,
further, is not required to transfer or exchange any Note for a period of 15
days before selection of the Notes to be redeemed.

The Notes will be issued in a transaction exempt from registration under the
Securities Act and will be subject to the restrictions on transfer described in
"Notice to Investors."

The registered holder of a Note may be treated as the owner of it for all
purposes.

Certain Definitions

Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms as well as any other capitalized terms used herein for which no
definition is provided.

"Acquired Indebtedness" means Indebtedness of a Person existing at the time
such Person becomes a Restricted Subsidiary or is merged into or consolidated
with any other Person or that is assumed in connection with the acquisition of
assets from such Person and, in each case, not incurred by such Person in
connection with, or in anticipation or contemplation of, such Person becoming a
Restricted Subsidiary or such merger, consolidation or acquisition.

"Adjusted Net Assets" of any Person at any date shall mean the lesser of:

(1) the amount by which the fair value of the property of such Person
exceeds the total amount of liabilities, including, without limitation,
contingent liabilities (after giving effect to all other fixed and contingent
liabilities), but excluding liabilities under the Guarantee of such Person at
such date; and

103

(2) the amount by which the present fair salable value of the assets of such
Person at such date exceeds the amount that will be required to pay the
probable liability of such Person on its debts (after giving effect to all
other fixed and contingent liabilities and after giving effect to any
collection from any Subsidiary of such Person in respect of the obligations of
such Person under the Guarantee of such Person), excluding Indebtedness in
respect of the Guarantee of such Person, as they become absolute and matured.

"Affiliate" means, with respect to any specific Person, any other Person
that directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person. For the
purposes of this definition, "control" (including, with correlative meanings,
the terms "controlling," "controlled by," and "under common control with"), as
used with respect to any Person, means the possession, directly or indirectly,
of the power to direct or cause the direction of the management or policies of
such Person, whether through the ownership of voting securities, by agreement
or otherwise; provided that, for purposes of the covenant described under "--
Certain Covenants--Limitation on Transactions with Affiliates," beneficial
ownership of at least 10% of the voting securities of a Person, either directly
or indirectly, shall be deemed to be control.

"Asset Acquisition" means:

(1) an Investment by the Company or any Restricted Subsidiary of the Company
in any other Person pursuant to which such Person shall become a Restricted
Subsidiary of the Company, or shall be merged with or into the Company or any
Restricted Subsidiary of the Company or

(2) the acquisition by the Company or any Restricted Subsidiary of the
Company of the assets of any Person (other than a Restricted Subsidiary of the
Company), which constitute all or substantially all of the assets of such
Person or comprise any division or line of business of such Person or any other
properties or assets of such Person other than in the ordinary course of
business.

"Asset Sale" means any direct or indirect sale, issuance, conveyance,
assignment, transfer, lease, or other disposition (including any sale and
lease-back transaction), other than to the Company or any of its Restricted
Subsidiaries, in any single transaction or series of related transactions of:

(1) any Capital Stock of or other equity interest in any Restricted
Subsidiary of the Company; or

(2) any other property or assets of the Company or of any Restricted
Subsidiary thereof other than the sale of the Company's products in the
ordinary course of business;

provided that Asset Sales shall not include:

(1) a transaction or series of related transactions for which the Company or
its Restricted Subsidiaries receive aggregate consideration of less than
(Euro)1,500,000;

(2) the sale, lease, conveyance, disposition, or other transfer of all or
substantially all of the assets of the Company as permitted under "--Merger,
Consolidation, or Sale of Assets";

(3) any Restricted Payment made in compliance with the "Limitation on
Restricted Payments" covenant, and any making of any Permitted Investment;

(4) surrender or waiver of contract rights or the settlement, release, or
surrender of contract, tort or other claims of any kind;

(5) sales of Cash Equivalents;

(6) granting of Liens not otherwise prohibited by the Indenture;

104

(7) leases or subleases to third persons in the ordinary course of business
that do not interfere in any material respect with the business of the Company
or any of its Restricted Subsidiaries; and

(8) transfers of Receivables and Related Assets in connection with a
Permitted Receivables Financing.

"Asset Sale Proceeds" means, with respect to any Asset Sale,

(1) cash and Cash Equivalents received by the Company or any Restricted
Subsidiary of the Company from such Asset Sale (including cash or Cash
Equivalents received as consideration for the assumption of liabilities
incurred in connection with or in anticipation of such Asset Sale), after

(a) provision for all income or other taxes measured by or resulting
from such Asset Sale,

(b) payment of all brokerage commissions, underwriting fees and other
fees and expenses related to such Asset Sale,

(d) repayment of Indebtedness that is secured by the assets subject to
such Asset Sale or otherwise required to be repaid in connection with such
Asset Sale and

(e) deduction of appropriate amounts to be provided by the Company or a
Restricted Subsidiary of the Company as a reserve, in accordance with GAAP,
against any liabilities associated with the assets sold or disposed of in
such Asset Sale and retained by the Company or a Restricted Subsidiary
after such Asset Sale, including, without limitation, pension and other
post-employment benefit liabilities and liabilities related to
environmental matters or against any indemnification obligations associated
with the assets sold or disposed of in such Asset Sale, and

(2) promissory notes and other non-cash consideration received by the
Company or any Restricted Subsidiary of the Company from such Asset Sale or
other disposition upon the liquidation or conversion of such notes or non-cash
consideration into cash or Cash Equivalents.

"Attributable Indebtedness" in respect of a Sale and Lease-Back Transaction
means, as at the time of determination, the greater of:

(i) the fair value of the property subject to such arrangement, and

(ii) the present value (discounted at the rate borne by the Notes,
compounded annually) of the total obligations of the lessee for rental
payments during the remaining term of the lease included in such Sale and
Lease-Back Transaction (including any period for which such lease has been
extended).

"Available Asset Sale Proceeds" means, with respect to any Asset Sale, the
aggregate Asset Sale Proceeds from such Asset Sale that have not been applied
in accordance with clauses (3)(a) or (3)(b), and which have not yet been the
basis for an Excess Proceeds Offer in accordance with clause (3)(c) of the
first paragraph of "--Certain Covenants--Limitation on Certain Asset Sales."

"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, or other equivalents (however designated and
whether or not voting) of corporate stock, partnership or limited liability
company interests, or any other participation, right or other interest in the
nature of an equity interest in such Person including, without limitation,
Common Stock and Preferred Stock of such Person, or any option, warrant, or
other security convertible into any of the foregoing.

"Capitalized Lease Obligations" means with respect to any Person,
Indebtedness represented by obligations under a lease that is required to be
capitalized for financial reporting purposes in accordance with GAAP, and the
amount of such Indebtedness shall be the capitalized amount of such
obligations determined in accordance with GAAP.

105

"Cash Equivalents" means:

(1) securities issued or directly and fully guaranteed or insured by the
Government of any of the member states of the European Union, the United States
of America, Switzerland, or any agency or instrumentality of any such
Government; provided that, in each case, such obligations mature within one
year from the date of acquisition thereof;

(2) commercial paper maturing no more than one year from the date of
creation thereof and, at the time of acquisition, having the highest rating
obtainable from either S&P's or Moody's, or carrying an equivalent rating by an
internationally recognised rating agency if both of the two named rating
agencies cease publishing ratings of investments or do not rate institutions in
the subject country;

(3) time deposits, demand deposits, certificates of deposit or bankers'
acceptances maturing within one year from the date of acquisition thereof
issued by any bank incorporated in a member state of the European Union, the
United States of America, Switzerland, Canada, or any branch of the foregoing
and rated P-1 by Moody's or A-1 by S&P, or carrying an equivalent rating by an
internationally recognised rating agency selected by the Company if both of the
two named rating agencies cease publishing ratings of investments or do not
rate institutions in the subject country;

(4) shares of any money market mutual fund that (a) has its assets invested
continuously in the types of investments referred to in clauses (1) and (2)
above, (b) has net assets of not less than (Euro)250,000,000 (or its foreign
currency equivalent), and (c) has the highest rating obtainable from either
S&P's or Moody's, or carrying an equivalent rating by an internationally
recognised rating agency selected by the Company if both of the two named
rating agencies cease publishing ratings of investments or do not rate
institutions in the subject country; and

(5) repurchase agreements with respect to, and which are fully secured by a
perfected security interest in, obligations of a type described in clause (1)
or clause (2) above and are with any commercial bank described in clause (3)
above.

A "Change of Control" of the Company will be deemed to have occurred at such
time as

(1) (a) any Person or group of related Persons for purposes of Section 13(d)
of the Exchange Act (a "Group"), other than a Permitted Holder, becomes the
beneficial owner (as defined under Rule 13d-3 or any successor rule or
regulation promulgated under the Exchange Act, except that a Person shall be
deemed to have "beneficial ownership" of all securities that such Person has
the right to acquire, whether such right is exercisable immediately or only
after the passage of time) of 50% or more of the total voting or economic power
of the Company's Capital Stock, and (b) the Permitted Holders no longer have
the power to elect a majority of the directors of the board of directors of the
Company,

(2) the occurrence of any sale, lease, exchange, or other transfer (in one
transaction or a series of related transactions) of all or substantially all of
the assets of the Company and its Restricted Subsidiaries, taken as a whole, to
any Person or Group, together with any Affiliates thereof (whether or not
otherwise in compliance with the provisions of the Indenture) other than to the
Permitted Holders,

(3) during any period of two consecutive years, individuals who at the
beginning of such period constituted the Board of Directors of the Company
(together with any new directors whose election by such Board of Directors or
whose nomination for election by the shareholders of the Company has been
approved by the Permitted Holders or a majority of the directors then still in
office who either were directors at the beginning of such period or whose
election or recommendation for election was previously so approved) cease to
constitute a majority of the board of directors of the Company, or

106

(4) the approval by the holders of Capital Stock of the Company of any plan
or proposal for the liquidation or dissolution of the Company (whether or not
otherwise in compliance with the provisions of the Indenture).

"Common Stock" of any Person means all Capital Stock of such Person that is
generally entitled to

(1) vote in the election of directors of such Person or

(2) if such Person is not a corporation, vote or otherwise participate in
the selection of the governing body, partners, managers, or others that will
control the management and policies of such Person.

"Consolidated Fixed Charge Coverage Ratio" means, with respect to any
Person, the ratio of EBITDA of such Person during the four full fiscal quarters
(the "Four Quarter Period") ending on or prior to the date of the transaction
giving rise to the need to calculate the Consolidated Fixed Charge Coverage
Ratio (the "Transaction Date") to Consolidated Fixed Charges of such Person for
the Four Quarter Period. In addition to and without limitation of the
foregoing, for purposes of this definition, "EBITDA" and "Consolidated Fixed
Charges" shall be calculated after giving effect on a pro forma basis for the
period of such calculation to

(1) the incurrence or repayment of any Indebtedness of such Person or any of
its Restricted Subsidiaries or the issuance or redemption or other repayment of
Preferred Stock of any such Restricted Subsidiary (and the application of the
proceeds thereof) giving rise to the need to make such calculation and any
incurrence or repayment of other Indebtedness and, in the case of any
Restricted Subsidiary, the issuance or redemption or other repayment of
Preferred Stock (and the application of the proceeds thereof), other than the
incurrence or repayment of Indebtedness in the ordinary course of business for
working capital purposes pursuant to working capital facilities, occurring
during the Four Quarter Period or at any time subsequent to the last day of the
Four Quarter Period and on or prior to the Transaction Date (except that, in
determining the Consolidated Fixed Charge Ratio as of any Transaction Date, any
Permitted Indebtedness that is incurred at the same time as the Indebtedness
giving rise to the need to calculate the Consolidated Fixed Charge Coverage
Ratio shall not be included for purposes of such calculation), as if such
incurrence or repayment or issuance or redemption or other repayment, as the
case may be (and the application of the proceeds thereof), occurred on the
first day of the Four Quarter Period, and

(2) any Asset Sales or Asset Acquisitions (including, without limitation,
any Asset Acquisition giving rise to the need to make such calculation as a
result of such Person or one of its Restricted Subsidiaries (including any
Person who becomes a Restricted Subsidiary as a result of the Asset
Acquisition) incurring, assuming or otherwise being liable for Acquired
Indebtedness and also including any EBITDA (provided that such EBITDA shall be
included only to the extent includable pursuant to the definition of
"Consolidated Net Income" without regard to clauses (3) and (7) of the
definition of "Consolidated Net Income") (including any pro forma expense and
cost reductions calculated on a basis consistent with Regulation S-X of the
Exchange Act) attributable to the assets that are the subject of the Asset
Acquisition or Asset Sale during the Four Quarter Period) occurring during the
Four Quarter Period or at any time subsequent to the last day of the Four
Quarter Period and on or prior to the Transaction Date, as if such Asset Sale
or Asset Acquisition (including the incurrence, assumption or liability for any
such Acquired Indebtedness) occurred on the first day of the Four Quarter
Period.

If such Person or any of its Restricted Subsidiaries directly or indirectly
guarantees Indebtedness of a third Person, the preceding sentence shall give
effect to the incurrence of such guaranteed Indebtedness as if such Person or
any Restricted Subsidiary of such Person had directly incurred or otherwise
assumed such guaranteed Indebtedness. Furthermore, in calculating "Consolidated
Fixed Charges" for purposes of determining the denominator (but not the
numerator) of this "Consolidated Fixed Charge Coverage Ratio":

(1) interest on outstanding Indebtedness determined on a fluctuating basis
as of the Transaction Date and which will continue to be so determined
thereafter shall be deemed to have accrued at a fixed rate per annum equal to
the rate of interest on such Indebtedness in effect on the Transaction Date;

107

(2) if interest on any Indebtedness actually incurred on the Transaction
Date may optionally be determined at an interest rate based upon a factor of a
prime or similar rate, a eurocurrency interbank offered rate, or other rates,
then the interest rate in effect on the Transaction Date will be deemed to have
been in effect during the Four Quarter Period; and

(3) notwithstanding clause (1) above, interest on Indebtedness determined on
a fluctuating basis, to the extent such interest is covered by one or more
Hedging Obligations, shall be deemed to accrue at the rate per annum resulting
after giving effect to the operation of such agreements.

"Consolidated Fixed Charges" means, with respect to any Person, for any
period, the sum, without duplication, of:

(1) Consolidated Interest Expense, plus

(2) the product of

(a) the amount of all dividend and distribution payments on any series
of Disqualified Capital Stock and Preferred Stock of such Person and its
Restricted Subsidiaries paid (other than dividends paid in Capital Stock
(other than Disqualified Capital Stock)), accrued or scheduled to be paid
or accrued during such period, times

(b) a fraction, the numerator of which is one and the denominator of
which is one minus the then current effective consolidated federal, state,
and local tax rate of such Person, expressed as a decimal.

"Consolidated Interest Expense" means, with respect to any Person, for any
period, the aggregate amount of interest which, in conformity with GAAP, would
be set forth opposite the caption "interest expense" or any like caption on an
income statement for such Person and its Restricted Subsidiaries on a
consolidated basis including, but not limited to:

(1) Redeemable Dividends, whether paid or accrued, on Preferred Stock,

(2) imputed interest included in Capitalized Lease Obligations,

(3) all commissions, discounts and other fees and charges owed with respect
to letters of credit and bankers' acceptance financing,

(4) the net costs associated with Hedging Obligations,

(5) amortization of other financing fees and expenses,

(6) the interest portion of any deferred payment obligation,

(7) amortization of discount or premium, if any,

(8) interest-equivalent costs associated with any Permitted Receivables
Financing, whether accounted for as interest expense or loss on the sale of
Receivables and Related Assets, and

(9) all other non-cash interest expense (other than interest amortized to
cost of sales),

plus, without duplication, (i) all net capitalized interest for such period,
(ii) all interest incurred or paid under any guarantee of Indebtedness
(including a guarantee of principal, interest or any combination thereof) of
any Person, and (iii) the amount of all dividends or distributions paid on
Disqualified Capital Stock (other than dividends paid or payable in shares of
Capital Stock of the Company that does not constitute Disqualified Capital
Stock).

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"Consolidated Net Income" means, with respect to any Person, for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided, however, that there shall be excluded therefrom:

(1) the Net Income of any Person, other than a Restricted Subsidiary of the
referent Person, except to the extent of the amount of dividends or
distributions paid to the referent Person or a Restricted Subsidiary of such
referent Person;

(2) the Net Income of any Restricted Subsidiary of the Person in question
that is subject to any restriction or limitation on the payment of dividends or
the making of other distributions to the extent of such restriction or
limitation;

(3) the Net Income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition;

(4) any net gain (but not loss) resulting from an Asset Sale by the Person
in question or any of its Restricted Subsidiaries other than in the ordinary
course of business;

(5) extraordinary gains and losses;

(6) income or loss attributable to discontinued operations (including,
without limitation, operations disposed of during such period whether or not
such operations were classified as discontinued);

(7) in the case of a successor to the referent Person by consolidation or
merger or as a transferee of the referent Person's assets, any earnings of the
successor corporation prior to such consolidation, merger, or transfer of
assets; and

(8) non-recurring charges in connection with the Transactions in an
aggregate amount not to exceed (Euro)2.0 million.

"Consolidated Tangible Assets" of any Person at any date means the total
assets of such Person, less goodwill and other intangible assets of such
Person, in each case as shown on the most recent balance sheet of such Person,
determined on a consolidated basis in accordance with GAAP.

"Cumulative Consolidated Net Income" means, with respect to the Company, as
of any date of determination, Consolidated Net Income from January 1, 2000, to
such date of determination, taken as a single accounting period.

"Designated Senior Debt," as to the Company or any Guarantor, as the case
may be, means

(1) any Senior Debt under the New Senior Credit Facility, and

(2) after the New Senior Credit Facility has been paid in full and
terminated, any other Senior Debt which at the time of determination exceeds
(Euro)25.0 million in aggregate principal amount (or accreted value in the case
of Indebtedness issued at a discount) outstanding or available under a
committed facility, which is specifically designated in the instrument
evidencing such Senior Debt as "Designated Senior Debt" by such Person and as
to which the Trustee has been given written notice of such designation.

"Disqualified Capital Stock" means any Capital Stock of a Person or a
Restricted Subsidiary thereof which, by its terms (or by the terms of any
security into which it is convertible or for which it is exchangeable at the
option of the holder), or upon the happening of any event (other than an event
that would constitute a Change of Control), matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or is
redeemable solely at the option of the holder thereof, on or prior to the
maturity date of the Notes, for cash or securities constituting Indebtedness;
provided, however, that Preferred Stock of a Person or any Restricted
Subsidiary thereof that is issued with the benefit of provisions requiring a
change of control offer or

109

an asset sale offer to be made for such Preferred Stock in the event of a
change of control of or sale of assets by such Person or Restricted Subsidiary,
which provisions have substantially the same effect as the provisions of the
Indenture described under "Change of Control" and "Limitation on Certain Asset
Sales," shall not be deemed to be Disqualified Capital Stock solely by virtue
of such provisions.

"EBITDA" means, with respect to any Person and its Restricted Subsidiaries,
for any period, an amount equal to:

(1) the sum of
(a) Consolidated Net Income for such period, plus
(b) the provision for taxes for such period based on income or profits
to the extent such income or profits were included in computing
Consolidated Net Income and any provision for taxes utilized in computing
net loss under clause (a) hereof, plus
(c) Consolidated Interest Expense for such period, plus
(d) depreciation for such period on a consolidated basis, plus
(e) amortization of intangibles for such period on a consolidated basis,
plus
(f) any other non-cash items reducing Consolidated Net Income for such
period (other than any non-cash item requiring an accrual or reserve for
cash disbursements in any future period), minus

(2) all non-cash items increasing Consolidated Net Income for such period
(other than any non-cash item that represents a reversal of an accrual or
reserve initially recorded in anticipation of a cash disbursement to be made in
a future period), all for such Person and its Restricted Subsidiaries
determined on a consolidated basis in accordance with GAAP.

"Equity Offering" means a sale by the Company of shares of its Common Stock
(however designated and whether voting or non-voting) (other than Disqualified
Capital Stock) and any and all rights, warrants or options to acquire such
Common Stock.

"Exchange Act" means the U.S. Securities Exchange Act of 1934 and the rules
and regulations of the SEC promulgated thereunder.

"fair market value" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, between
a willing seller and a willing and able buyer, neither of whom is under undue
pressure or compulsion to complete the transaction. Fair market value shall be
determined by the board of directors of the Company acting reasonably and in
good faith and shall be evidenced by a resolution of the board of directors of
the Company delivered to the Trustee.

"GAAP" means generally accepted accounting principles consistently applied
as in effect in the United States from time to time.

"Guarantee" means the guarantee of the obligations of the Company with
respect to the Notes by each Guarantor.

"Guarantor" mean each Restricted Subsidiary of the Company on the Issue Date
that guarantees the Notes (other than any Immaterial Subsidiaries) as of the
Issue Date and each other Restricted Subsidiary that in the future executes a
Guarantee pursuant to the covenant described under "Certain Covenants
Limitation on Creation of Subsidiaries" or otherwise; provided that any person
constituting a Guarantor as described above shall cease to constitute a
Guarantor when its Guarantee is released in accordance with the terms of the
Indenture.

"Hedging Obligations" means, with respect to any Person, the net payment
obligations of such Person under (a) interest rate swap agreements, interest
rate capital agreements and interest rate collar agreements and

110

(b) other agreements or arrangements entered into in order to protect such
Person against fluctuations in commodity prices, interest rates or currency
exchange rates.

"Immaterial Subsidiaries" means at any time, any Restricted Subsidiary of
the Company having Consolidated Tangible Assets (as determined in accordance
with GAAP) in an amount of less than 1% of the Consolidated Tangible Assets of
the Company and its Restricted Subsidiaries (as determined in accordance with
GAAP); provided, however, that the Consoldiated Tangible Assets (as so
determined) of all Immaterial Subsidiaries shall not exceed 3% of Consolidated
Tangible Assets of the Company and its Subsidiaries (as so determined). In the
event that the Consolidated Tangible Assets of all Immaterial Subsidiaries
exceeds 3% of Consolidated Tangible Assets of the Company and its Restricted
Subsidiaries, the Company will designate Restricted Subsidiaries that would
otherwise be Immaterial Subsidiaries to be excluded as Immaterial Subsidiaries
until such 3% threshold is not exceeded. Notwithstanding the foregoing, no
Restricted Subsidiary that guarantees the New Senior Credit Facility shall be
deemed an Immaterial Subsidiary.

"incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange, or otherwise),
assume, guarantee or otherwise become liable in respect of such Indebtedness or
other obligation or the recording, as required pursuant to GAAP or otherwise,
of any such Indebtedness or other obligation on the balance sheet of such
Person (and "incurrence," "incurred," "incurable," and "incurring" shall have
meanings correlative to the foregoing); provided that a change in GAAP that
results in an obligation of such Person that exists at such time becoming
Indebtedness shall not be deemed an incurrence of such Indebtedness.

"Indebtedness" means (without duplication), with respect to any Person, any
indebtedness at any time outstanding, secured or unsecured, contingent or
otherwise, which is for borrowed money (whether or not the recourse of the
lender is to the whole of the assets of such Person or only to a portion
thereof), or evidenced by bonds, notes, debentures, or similar instruments or
representing the balance deferred and unpaid of the purchase price of any
property (excluding, without limitation, any balances that constitute accounts
payable or trade payables, and other accrued liabilities arising in the
ordinary course of business) if and to the extent any of the foregoing
indebtedness would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, and shall also include, to the extent not
otherwise included:

(1) any Capitalized Lease Obligations of such Person,

(2) obligations secured by a Lien to which the property or assets owned or
held by such Person is subject, whether or not the obligation or obligations
secured thereby shall have been assumed; provided that, if such obligations
have not been assumed by such Person, the amount of such Indebtedness shall be
the lesser of (a) the fair market value of such assets at such date of
determination and (b) the amount of such obligations,

(3) guarantees of items of other Persons that would be included within this
definition for such other Persons (whether or not such items would appear upon
the balance sheet of the guarantor),

(4) all obligations for the reimbursement of any obligor on any letter of
credit, banker's acceptance or similar credit transaction,

(5) Disqualified Capital Stock of such Person or any Restricted Subsidiary
thereof, and valued at its mandatory maximum redemption price or liquidation
preference plus accrued dividends, and

(6) obligations of any such Person under any Hedging Obligations applicable
to any of the foregoing (if and to the extent such hedging obligations would
appear as a liability upon a balance sheet of such Person prepared in
accordance with GAAP); provided that,

(a) the amount outstanding at any time of any Indebtedness issued with
original issue discount is the principal amount of such Indebtedness less
the remaining unamortized portion of the original issue discount of such
Indebtedness at such time as determined in conformity with GAAP; and

111

(b) Indebtedness shall not include any liability for federal, state,
local, or other taxes.

Guarantees of (or obligations with respect to letters of credit supporting)
Indebtedness otherwise included in the determination of such amount shall not
also be included.

"Independent Financial Advisor" means an investment banking, financial
advisory, valuation, or accounting firm of national reputation in the United
States:

(1) which does not, and whose directors, officers, and employees or
Affiliates do not, have a direct or indirect financial interest in the Company
and

(2) which, in the judgment of the board of directors of the Company, is
otherwise independent and qualified to perform the task for which it is to be
engaged.

"Investments" means, with respect of any Person, directly or indirectly, any
advance, account receivable (other than an account receivable arising in the
ordinary course of business of such Person), loan, or capital contribution to
(by means of transfers of property to others, payments for property or services
for the account or use of others, or otherwise), the purchase of any Capital
Stock, bonds, notes, debentures, partnership or joint venture interests, or
other securities of, the acquisition, by purchase or otherwise, of all or
substantially all of the business or assets or stock or other evidence of
beneficial ownership of, any Person or the making of any investment in any
Person. Investments shall exclude extensions of trade credit on commercially
reasonable terms in accordance with normal trade practices of such Person, but
shall include the repurchase of securities of any Person by such Person.

For the purposes of the "Limitation on Restricted Payments" and "Limitation
on Investments" covenants, (1) "Investment" shall include and be valued at the
fair market value of the net assets of any Restricted Subsidiary at the time
that such Restricted Subsidiary is designated an Unrestricted Subsidiary, (2)
the fair market value of the net assets of any Unrestricted Subsidiary at the
time that such Unrestricted Subsidiary is designated a Restricted Subsidiary
shall be deemed a repayment of such Investment, and (3) the amount of any
Investment shall be the original cost of such Investment plus the cost of all
additional Investments by the Company or any of its Restricted Subsidiaries,
without any adjustments for increases or decreases in value, or write-ups,
write-downs, or write-offs with respect to such Investment, reduced by the
payment of cash distributions in respect thereof received by the Company or any
Restricted Subsidiary of the Company; provided that no such payment of
distributions or receipt of any such other amounts shall reduce the amount of
any Investment if such payment of distributions or receipt of any such amounts
would be included in Consolidated Net Income. If the Company or any Restricted
Subsidiary of the Company sells or otherwise disposes of any Common Stock of
any direct or indirect Restricted Subsidiary of the Company such that, after
giving effect to any such sale or disposition, such Restricted Subsidiary would
no longer constitute a Restricted Subsidiary of the Company, the Company shall
be deemed to have made an Investment on the date of any such sale or
disposition equal to the fair market value of the Common Stock of such
Restricted Subsidiary not sold or disposed of.

"Issue Date" means the date the Notes are first issued by the Company and
authenticated by the Trustee under the Indenture.

"Lien" means, with respect to any property or assets of any Person, any
mortgage or deed of trust, pledge, hypothecation, assignment, deposit
arrangement, security interest, lien, charge, easement, encumbrance,
preference, priority, or other security agreement or preferential arrangement
of any kind or nature whatsoever on or with respect to such property or assets
(including, without limitation, any Capitalized Lease Obligation, conditional
sales, or other title retention agreement having substantially the same
economic effect as any of the foregoing).

"Net Income" means, with respect to any Person, for any period, the net
income (loss) of such Person determined in accordance with GAAP.

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"Net Proceeds" means:

(1) in the case of any sale of Capital Stock by or equity contribution to
any Person, the aggregate net proceeds received by such Person, after payment
of expenses, commissions, and the like incurred in connection therewith,
whether such proceeds are in cash or in property (valued at the fair market
value thereof, as determined in good faith by the board of directors of such
Person, at the time of receipt),

(2) in the case of any exchange, exercise, conversion or surrender of
outstanding securities of any kind for or into shares of Capital Stock of the
Company that is not Disqualified Capital Stock, the net book value of such
outstanding securities on the date of such exchange, exercise, conversion or
surrender (plus any additional amount required to be paid by the holder to such
Person upon such exchange, exercise, conversion or surrender, less any and all
payments made to the holders, e.g., on account of fractional shares and less
all expenses incurred by such Person in connection therewith), and

(3) in the case of any issuance of any Indebtedness by the Company or any
Restricted Subsidiary, the aggregate net cash proceeds received by such Person
after the payments of expenses, commissions, underwriting discounts and the
like incurred in connection therewith.

"New Senior Credit Facility" means the Credit Agreement dated as of a date
on or about the Issue Date, among PalEx, Inc., the guarantors party thereto,
CIBC World Markets Corp. and Banc One Capital Markets, Inc. as Co-Lead
Arrangers, Bank One, Texas, NA as Administrative Agent, CIBC World Markets
Corp. as Syndication Agent, and the lenders party thereto in their capacities
as lenders thereunder, together with the related documents thereto (including,
without limitation, any guarantee agreements and security documents), in each
case as such agreements may be amended (including any amendment and restatement
thereof), supplemented or otherwise modified from time to time, including any
agreement extending the maturity of, refinancing, replacing or otherwise
restructuring (including increasing the amount of available borrowings
thereunder (provided that such increase in borrowings is permitted by the
"Limitation on Additional Indebtedness" covenant) or adding Restricted
Subsidiaries of the Company as additional borrowers or guarantors thereunder)
all or any portion of the Indebtedness under such agreement or any successor or
replacement agreement and whether by the same or any other agent, lender or
group of lenders.

"Non-Payment Event of Default" means any event (other than a Payment
Default) the occurrence of which entitles one or more Persons to accelerate the
maturity of any Designated Senior Debt.

"Officers' Certificate" means, with respect to any Person, a certificate
signed by the Chief Executive Officer, the President or any Vice President and
the Chief Financial Officer, Chief Accounting Officer, or any Treasurer of such
Person that shall comply with applicable provisions of the Indenture.

"Payment Default" means any default, whether or not any requirement for the
giving of notice, the lapse of time or both, or any other condition to such
default becoming an event of default has occurred, in the payment of principal
of or premium, if any, or interest on or any other amount payable in connection
with Designated Senior Debt.

"Permitted Asset Swap" means any transfer of properties or assets by the
Company or any of its Restricted Subsidiaries in which the consideration
received by the transferor consists of properties or assets (other than cash or
Cash Equivalents) that will be used in the business of the transferor; provided
that the aggregate fair market value (as determined in good faith by the board
of directors of the Company) of the property or assets being transferred by the
Company or such Restricted Subsidiary is not greater than the aggregate fair
market value (as determined in good faith by the board of directors) of the
property or assets received by the Company or such Subsidiary in such exchange.

"Permitted Holders" means Christoph Schoeller, Martin A. Schoeller, their
respective children and spouses or other lineal descendants, or any other
corporation, partnership, or other entity all of the shareholders, partners,
members, or owners of which are any of the foregoing.

113

"Permitted Indebtedness" means:

(1) Indebtedness incurred pursuant to the New Senior Credit Facility in an
aggregate principal amount at any time outstanding not to exceed $125.0
million, reduced by any required permanent repayments (which are accompanied
by a corresponding permanent commitment reduction) thereunder;

(2) Indebtedness under (a) the Notes outstanding on the Issue Date and (b)
the Guarantees;

(3) Indebtedness not covered by any other clause of this definition which
is outstanding on the Issue Date;

(4) Indebtedness of the Company to any Restricted Subsidiary and
Indebtedness of any Restricted Subsidiary to the Company or another Restricted
Subsidiary;

(5) Purchase Money Indebtedness and Capitalized Lease Obligations incurred
to acquire property used or useful in the ordinary course of business which
Purchase Money Indebtedness and Capitalized Lease Obligations do not in the
aggregate exceed at any one time outstanding an amount equal to the greater of
(a) (Euro)20.0 million and (b) 5% of the Total Assets of the Company
determined on a consolidated basis, as shown on the balance sheet of the
Company as of the end of the most recent fiscal quarter, in accordance with
GAAP;

(6) Hedging Obligations;

(7) Refinancing Indebtedness;

(8) Indebtedness of the Company or any Restricted Subsidiary arising from
the honoring by a bank or other financial institution of a check, draft or
similar instrument inadvertently drawn against insufficient funds in the
ordinary course of business; provided, that such Indebtedness is extinguished
within five business days of incurrence;

(9) Indebtedness of the Company or any Restricted Subsidiary consisting of
guarantees, indemnities or obligations in respect of purchase price
adjustments (including adjustments in the purchase price related to the
performance or results of any acquired business) in connection with the
acquisition or disposition of assets permitted under the Indenture;

(10) Indebtedness of the Company or any of its Restricted Subsidiaries
represented by letters of credit for the account of the Company or such
Restricted Subsidiary, as the case may be, issued in the ordinary course of
business of the Company or such Restricted Subsidiary, including, without
limitation, in order to provide security for worker's compensation claims or
payment obligations in connection with self-insurance or similar requirements
in the ordinary course of business and other Indebtedness with respect to
workers' compensation claims, self-insurance obligations, performance, surety,
and similar bonds, and completion guarantees provided by the Company or any
Restricted Subsidiary in the ordinary course of business;

(11) guarantees of Indebtedness otherwise permitted under the Indenture;
and

(12) additional Indebtedness of the Company and its Restricted Subsidiaries
not to exceed (Euro)15.0 million in aggregate principal amount at any one time
outstanding.

"Permitted Investments" means Investments made on or after the Issue Date
consisting of:

(1) Investments by the Company, or by a Restricted Subsidiary thereof, in
the Company or a Restricted Subsidiary;

(2) Investments by the Company, or by a Restricted Subsidiary thereof, in a
Person, if as a result of such Investment

(a) such Person becomes a Restricted Subsidiary of the Company, or

114

(b) such Person is merged, consolidated, or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is liquidated
into, the Company or a Restricted Subsidiary thereof;

(3) Investments in cash and Cash Equivalents;

(4) loans and advances made to officers and employees of the Company and its
Restricted Subsidiaries in the ordinary course of business not to exceed
(Euro)1.5 million in the aggregate at any one time outstanding;

(5) an Investment that is made by the Company or a Restricted Subsidiary
thereof in the form of any Capital Stock, bonds, notes, debentures, partnership
or joint venture interests or other securities that are issued by a third party
to the Company or such Restricted Subsidiary solely as partial consideration
for the consummation of an Asset Sale that is otherwise permitted under
"--Certain Covenants--Limitation on Certain Asset Sales" above;

(6) Hedging Obligations entered into in the ordinary course of the Company's
or its Restricted Subsidiaries' business and not for speculative purposes;

(7) Investments in prepaid expenses, negotiable instruments held for
collection and lease, utility and workers compensation, performance, and
similar deposits entered into as a result of the operations of the business in
the ordinary course of business;

(8) Investments in any of the Notes;

(9) receivables owing to the Company or any Restricted Subsidiary created in
the ordinary course of business;

(10) investments in securities of trade creditors or customers received
pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of such trade creditors or customers or in good faith
settlement of delinquent obligations of such trade creditors or customers;

(11) obligations of one or more officers or other employees of the Company
or any of its Restricted Subsidiaries in connection with such officer's or
employee's acquisition of shares of Common Stock of the Company so long as no
cash is paid by the Company or any of its Restricted Subsidiaries to such
officers or employees in connection with the acquisition of any such
obligations;

(12) Investments acquired in exchange for, or out of the Net Proceeds (which
have not been, and will not be, included pursuant to clause (3)(b) of the
"Limitation on Restricted Payments" covenant) of a substantially concurrent
offering of, shares of Capital Stock (other than Disqualified Capital Stock) of
the Company (or options, warrants, or other rights to acquire such Capital
Stock);

(13) Investments in connection with a Permitted Receivables Financing by or
to any Receivables Subsidiary, including Investments of funds held in accounts
permitted or required by the arrangements governing such Permitted Receivables
Financing or any related Indebtedness; and

(14) additional Investments the amount of which when made, when taken
together with the then outstanding amount of other Investments made under this
clause (14), shall not exceed (Euro)10.0 million in the aggregate at any one
time outstanding.

"Permitted Liens" means the following types of Liens:

(1) Liens for taxes, assessments, or governmental charges or claims either
(a) not delinquent or (b) contested in good faith by appropriate proceedings
and as to which the Company or its Restricted Subsidiaries shall have set aside
on its books such reserves as may be required pursuant to GAAP;

115

(2) statutory Liens for landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen, and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or
being contested in good faith, if such reserve or other appropriate provision,
if any, as shall be required by GAAP, shall have been made in respect thereof;

(3) Liens incurred or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance, and other types
of social security, including any Lien securing letters of credit issued in the
ordinary course of business consistent with past practice in connection
therewith, or to secure the performance of tenders, statutory obligations,
surety and appeal bonds, bids, and other similar obligations (exclusive of
obligations for the payment of borrowed money);

(4) judgment Liens not giving rise to an Event of Default;

(5) easements, right-of-way, zoning restrictions and other similar charges
or encumbrances in respect of real property not interfering in any material
respect with the ordinary conduct of business of the Company or any of its
Restricted Subsidiaries;

(6) any interest or title of a lessor under any Capitalized Lease
Obligation; provided that such Liens do not extend to any property or assets
which is not leased property subject to such Capitalized Lease Obligation;

(7) Liens upon specific items of inventory or other goods and proceeds of
any person securing such Persons' obligations in respect of bankers'
acceptances issued or created for the account of such Person to facilitate the
purchase, shipment, or storage of such inventory or other goods;

(8) Liens securing reimbursement obligations with respect to commercial
letters of credit which encumber documents and other property relating to such
letters of credit and products and proceeds thereof;

(9) Liens securing Hedging Obligations that relate to Indebtedness that is
otherwise permitted under the Indenture;

(10) Liens securing Capitalized Lease Obligations and Purchase Money
Indebtedness permitted pursuant to clause (5) of the definition of "Permitted
Indebtedness"; provided, however, that in the case of Purchase Money
Indebtedness (a) the Indebtedness shall not exceed the cost of such property or
assets and shall not be secured by any property or assets of the Company or any
Restricted Subsidiary other than the property and assets so acquired or
constructed and (b) the Lien securing such Indebtedness shall be created within
180 days of such acquisition or construction or, in the case of a refinancing
of any Purchase Money Indebtedness, within 180 days of such refinancing;

(11) Liens securing Acquired Indebtedness incurred in accordance with the
"Limitation on Incurrence of Additional Indebtedness" covenant; provided that:

(a) such Liens secured Acquired Indebtedness at the time of and prior to
the incurrence of such Acquired Indebtedness by the Company or a Restricted
Subsidiary and were not granted in connection with, or in anticipation of,
the incurrence of such Acquired Indebtedness by the Company or a Restricted
subsidiary; and

(b) such Liens do not extend to or cover any property or assets of the
Company or any of its Restricted Subsidiaries other than the property or
assets that secured the Acquired Indebtedness prior to the time such
Indebtedness became Acquired Indebtedness of the Company or a Restricted
Subsidiary of the Company and are no more favorable to the lienholders than
those securing the Acquired Indebtedness prior to the incurrence of such
Acquired Indebtedness by the Company or a Restricted Subsidiary; and

(12) Liens securing industrial revenue bonds; and

116

(13) Liens not permitted by clauses (1) through (12) that are incurred in
the ordinary course of business of the Company or any Restricted Subsidiary of
the Company with respect to obligations that do not exceed (Euro)5.0 million at
any one time outstanding.

"Permitted Receivables Financing" means a transaction or series of
transactions (including amendments, supplements, extensions, renewals,
replacements, refinancings, or modifications thereof) pursuant to which a
Receivables Subsidiary purchases Receivables and Related Assets from the
Company or any Subsidiary and finances such Receivables and Related Assets
through the issuance of indebtedness or equity interests or through the sale of
the Receivables and Related Assets or a fractional undivided interest in the
Receivables and Related Assets; provided that:

(1) the board of directors of the Company shall have determined in good
faith that such Permitted Receivables Financing is economically fair and
reasonable to the Company and the Receivables Subsidiary;

(2) all sales of Receivables and Related Assets to or by the Receivables
Subsidiary are made at fair market value (as determined in good faith by the
board of directors of the Company);

(3) the financing terms, covenants, termination events and other provisions
thereof shall be market terms (as determined in good faith by the board of
directors of the Company);

(4) no portion of the Indebtedness of a Receivables Subsidiary is guaranteed
by or is recourse to the Company or any Restricted Subsidiary (other than
recourse for customary representations, warranties, covenants and indemnities,
none of which shall relate to the collectibility of the Receivables and Related
Assets); and

(5) neither the Company nor any Subsidiary has any obligation to maintain or
preserve the Receivable Subsidiary's financial condition.

"Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated
organization, or government (including any agency or political subdivision
thereof).

"Preferred Stock" means any Capital Stock of a Person, however designated,
which entitles the holder thereof to a preference with respect to dividends,
distributions, or liquidation proceeds of such Person over the holders of other
Capital Stock issued by such Person.

"Property" of any Person means all types of real, personal, tangible,
intangible, or mixed property owned by such Person whether or not included in
the most recent consolidated balance sheet of such Person and its Subsidiaries
under GAAP.

"Purchase Money Indebtedness" means Indebtedness of any Person incurred for
the purpose of financing all or any part of the purchase price, or the cost of
installation, construction, or improvement of, any Property.

"Receivables and Related Assets" means accounts receivable and instruments,
chattel paper, obligations, general intangibles and other similar assets, in
each case relating to such receivables, including interests in merchandise or
goods, the sale or lease of which gave rise to such receivable, related
contractual rights, guarantees, insurance proceeds, collections, other related
assets, and proceeds of all of the foregoing.

"Receivables Subsidiary" means a Wholly Owned Restricted Subsidiary which is
established for the limited purpose of acquiring and financing Receivables and
Related Assets and engaging in activities ancillary thereto.

"Redeemable Dividend" means, for any dividend or distribution with regard to
Preferred Stock, the quotient of the dividend or distribution divided by the
difference between one and the maximum statutory

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federal income tax rate (expressed as a decimal number between 1 and 0) then
applicable to the issuer of such Preferred Stock.

"Refinancing Indebtedness" means Indebtedness that refunds, refinances, or
extends Indebtedness of the Company or of a Restricted Subsidiary of the
Company incurred pursuant to the Consolidated Fixed Charge Coverage Ratio test
of the covenant "Limitation on Additional Indebtedness" or pursuant to clauses
(2), (3), (4), (8), (9) or (11) of the definition of Permitted Indebtedness,
but only to the extent that:

(1) if the Indebtedness being refunded, refinanced or extended is
subordinated to the Notes, the Refinancing Indebtedness shall be subordinated
to the Notes to at least the same extent as the Indebtedness being refunded,
refinanced, or extended,

(2) the Refinancing Indebtedness is scheduled to mature either

(a) no earlier than the Indebtedness being refunded, refinanced, or
extended, or

(b) after the maturity date of the Notes,

(3) the portion, if any, of the Refinancing Indebtedness that is scheduled
to mature on or prior to the maturity date of the Notes has a Weighted Average
Life to Maturity at the time such Refinancing Indebtedness is incurred that is
equal to or greater than the Weighted Average Life to Maturity of the portion
of the Indebtedness being refunded, refinanced, or extended that is scheduled
to mature on or prior to the maturity date of the Notes, and

(4) such Refinancing Indebtedness is in an aggregate principal amount that
is equal to or less than the sum of

(a) the aggregate principal amount then outstanding under the
Indebtedness being refunded, refinanced or extended,

(b) the amount of accrued and unpaid interest, if any, and premiums
owed, if any, not in excess of pre-existing prepayment provisions on such
Indebtedness being refunded, refinanced or extended and

"Restricted Payment" means any of the following:

(1) the declaration or payment of any dividend or any other distribution or
payment on Capital Stock of the Company or any Restricted Subsidiary of the
Company or any payment made to the direct or indirect holders (in their
capacities as such) of Capital Stock of the Company or any Restricted
Subsidiary of the Company (other than (a) dividends or distributions payable
solely in Capital Stock (other than Disqualified Capital Stock) or in options,
warrants, or other rights to purchase such Capital Stock (other than
Disqualified Capital Stock), and (b) in the case of Restricted Subsidiaries of
the Company, dividends or distributions payable to the Company or to a
Restricted Subsidiary of the Company and pro rata dividends or distributions
payable to the other holders of Common Stock of such Restricted Subsidiary),

(2) the purchase, redemption, or other acquisition or retirement for value
of any Capital Stock of the Company or any of its Restricted Subsidiaries
(other than Capital Stock owned by the Company or a Wholly Owned Restricted
Subsidiary of the Company, excluding Disqualified Capital Stock) or any option,
warrants or other rights to purchase such Capital Stock,

(3) the making of any principal payment on, or the purchase, defeasance,
repurchase, redemption or other acquisition or retirement for value, prior to
any scheduled maturity, scheduled repayment or scheduled sinking fund payment,
of any Indebtedness which is subordinated in right of payment to the Notes
(other than subordinated Indebtedness acquired in anticipation of satisfying a
scheduled sinking fund obligation, principal installment or final maturity, in
each case due within one year of the date of acquisition),

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(4) the making of any Investment or guarantee of any Investment in any
Person other than a Permitted Investment, and

(5) any designation of a Restricted Subsidiary as an Unrestricted Subsidiary
(valued at the fair market value of the net assets of such Restricted
Subsidiary on the date of such designation),

"Restricted Subsidiary" means a Subsidiary of the Company other than an
Unrestricted Subsidiary and includes all of the Subsidiaries of the Company
existing as of the Issue Date. The board of directors of the Company may
designate any Unrestricted Subsidiary as a Restricted Subsidiary if immediately
after giving effect to such action (and treating any Acquired Indebtedness as
having been incurred at the time of such action):

(1) the Company could have incurred at least (Euro)1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to "--Certain
Covenants--Limitation on Additional Indebtedness" above and

(2) no Default or Event of Default shall have occurred and be continuing or
result therefrom.

"Sale and Lease-Back Transaction" means any arrangement with any Person
providing for the leasing by the Company or any Restricted Subsidiary of the
Company of any real or tangible personal property, which property has been or
is to be sold or transferred by the Company or such Restricted Subsidiary to
such Person in contemplation of such leasing.

"Senior Debt" means the principal of and premium, if any, and interest on,
and any and all other fees, expense reimbursement obligations, and other
amounts due pursuant to the terms of all agreements, documents and instruments
providing for, creating, securing, or evidencing or otherwise entered into in
connection with:

(1) all Indebtedness of the Company or any Guarantor owed to lenders under
the New Senior Credit Facility,

(2) all obligations of the Company or any Guarantor with respect to any
Hedging Obligations,

(3) all obligations of the Company or any Guarantor to reimburse any bank or
other person in respect of amounts paid under letters of credit, acceptances,
or other similar instruments,

(4) all other Indebtedness of the Company or any Guarantor which does not
provide that it is to rank pari passu with or subordinate to the Notes or the
Guarantee of such Guarantor, as the case may be, and

(5) all deferrals, renewals, extensions and refundings of, and amendments,
modifications and supplements to, any of the Senior Debt described above.

Notwithstanding anything to the contrary in the foregoing, Senior Debt will not
include:

(1) Indebtedness of the Company or any Guarantor to any of its Subsidiaries,
or to any Affiliate of the Company or such Guarantor or any of such Affiliate's
Subsidiaries,

(2) Indebtedness represented by the Notes and the Guarantees,

(3) any Indebtedness that by the express terms of the agreement or
instrument creating, evidencing, or governing the same is junior or subordinate
in right of payment to any item of Senior Debt,

(4) any trade payable arising from the purchase of goods or materials or for
services obtained in the ordinary course of business,

(5) Indebtedness incurred in violation of the Indenture, unless such
Indebtedness consists of Indebtedness under the New Senior Credit Facility, and
the holder(s) of such Indebtedness and their agents and

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representatives shall have received a representation from the Company at the
time of incurrence to the effect that the incurrence of such Indebtedness did
not violate the Indenture,

(6) Indebtedness represented by Disqualified Capital Stock, or

(7) any Indebtedness to or guaranteed on behalf of, any shareholders,
director, officer, or employee of the Company or any Subsidiary of the Company.

"Significant Restricted Subsidiary" means, with respect to any Person, any
Restricted Subsidiary of such Person that satisfies the criteria for a
"significant subsidiary" set forth in Rule 1.02 (w) of Regulation S-X under the
Exchange Act, as such Rule is in effect on the Issue Date.

"SMG Exchangeable Shares" means the Non-Voting Exchangeable Shares issued by
SMG Corporation, a corporation amalgamated under the laws of the Province of
Ontario, all of the voting stock of which is held by PalEx.

"Subsidiary" of any specified Person means any corporation, partnership,
limited liability company, joint venture, association, or other business
entity, whether now existing or hereafter organized or acquired,

(1) in the case of a corporation, of which more than 50% of the total voting
power of the Capital Stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, officers or trustees thereof
is held by such first-named Person or any of its Subsidiaries; or

(2) in the case of a partnership, limited liability company, joint venture,
association, or other business entity, with respect to which such first-named
Person or any of its Subsidiaries has the power to direct or cause the
direction of the management and policies of such entity by contract or
otherwise or if in accordance with GAAP such entity is consolidated with the
first-named Person for financial statement purposes.

"Total Assets" means the total consolidated assets of the Company and its
Restricted Subsidiaries, as set forth on the Company's most recent consolidated
balance sheet.

"Transactions" has the meaning provided to such term under "The
Transactions."

"Unrestricted Subsidiary" means:

(1) any Subsidiary of an Unrestricted Subsidiary and

(2) any Subsidiary of the Company that is classified after the Issue Date as
an Unrestricted Subsidiary by a resolution adopted by the Board of Directors of
the Company;

provided that a Subsidiary may be so classified as an Unrestricted Subsidiary
only if

(a) such classification is in compliance with the "Limitation on Restricted
Payments" covenant,

(b) immediately after giving effect to such classification, the Company
could have incurred at least (Euro)1.00 of additional Indebtedness (other than
Permitted Indebtedness) pursuant to "Certain Covenants--Limitation on
Additional Indebtedness" above,

(d) neither the Company nor any Restricted Subsidiary shall at any time

(i) provide a guarantee of, or similar credit support to, any
Indebtedness of such Subsidiary (including any undertaking, agreement, or
instrument evidencing such Indebtedness),

(ii) be directly or indirectly liable for any Indebtedness of such
Subsidiary or

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(iii) be directly or indirectly liable for any other Indebtedness which
provides that the holder thereof may (upon notice, lapse of time or both)
declare a default thereon (or cause the payment thereof to be accelerated
or payable prior to its final scheduled maturity) upon the occurrence of a
default with respect to any other Indebtedness that is Indebtedness of such
Subsidiary (including any corresponding right to take enforcement action
against such Subsidiary),

except in the case of clause (i) or (ii) to the extent

(A) that the Company or such Restricted Subsidiary could otherwise provide
such a guarantee or incur such Indebtedness (other than as Permitted
Indebtedness) pursuant to "--Certain Covenants--Limitation on Additional
Indebtedness" above and

(B) the provision of such guarantee and the incurrence of such Indebtedness
otherwise would be permitted under "--Certain Covenants--Limitation on
Restricted Payments" above.

The Trustee shall be given prompt notice by the Company of each resolution
adopted by the Board of Directors of the Company under this provision, together
with a copy of each such resolution adopted.

"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing:

(1) the then outstanding aggregate principal amount of such Indebtedness
into

(2) the sum of the total of the products obtained by multiplying

(a) 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

(b) the number of years (calculated to the nearest one-twelfth) that
will elapse between such date and the making of such payment.

"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary, all of
the outstanding voting securities (other than directors' qualifying shares) of
which are owned, directly or indirectly, by the Company. For purposes of this
definition, any directors' qualifying shares or investments by foreign
nationals mandated by applicable law shall be disregarded in determining the
ownership of a Restricted Subsidiary.

Form of Notes, Clearance and Settlement

The Series B notes to be issued in this exchange offer will be represented
by one or more notes in registered, global form (the "Global Notes") deposited
with The Bank of New York Depositary (nominees) Limited, as common depositary
(the "Common Depositary") for Euroclear and Clearstream Banking, societe
anonyme, formerly Cedelbank, and registered in the name of a nominee of the
Common Depositary. The Series B notes will not be eligible for clearance
through The Depository Trust Company. Except in the limited circumstances set
forth below, notes in certificated form will not be issued.

Depositary Procedures

We understand that Euroclear and Clearstream Luxembourg each hold securities
for their account holders and facilitate the clearance and settlement of
securities transactions by electronic book-entry transfer between their
respective account holders, thereby eliminating the need for physical movements
of certificates and any risk from lack of simultaneous transfers of securities.
Euroclear and Clearstream Luxembourg each provide various services including
safekeeping, administration, clearance, and settlement of internationally
traded securities and securities lending and borrowing. Each of Euroclear and
Clearstream Luxembourg can settle securities transactions in any of more than
30 currencies, including euros. Euroclear and Clearstream Luxembourg each also
deal with domestic securities markets in several countries through established
depository

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and custodial relationships. The systems of Euroclear and Clearstream
Luxembourg have established an electronic bridge between their two systems
across which their respective account holders of each may settle trades with
each other. Account holders in both Euroclear and Clearstream Luxembourg are
world-wide financial institutions including underwriters, securities brokers
and dealers, banks, trust companies, and clearing corporations. Indirect access
to both Euroclear and Clearstream Luxembourg is available to other institutions
that clear through or maintain a custodial relationship with an account holder
of either system. An account holder's overall contractual relations with either
Euroclear or Clearstream Luxembourg are governed by the respective rules and
operating procedures of Euroclear or Clearstream Luxembourg and any applicable
laws. Both Euroclear and Clearstream Luxembourg act under their rules and
operating procedures only on behalf of their respective account holders, and
have no record of or relationship with any persons who are not direct account
holders.

Investors who hold accounts with the Euroclear Operator or Clearstream
Luxembourg may acquire, hold and transfer security entitlements with respect to
each such Global Note against the Euroclear Operator or Clearstream Luxembourg
and its respective property by book-entry to accounts with the Euroclear
Operator or Clearstream Luxembourg, each of which has an account with the
Common Depositary and is subject at all times to the procedures and
requirements of Euroclear or Clearstream Luxembourg, as the case may be.
Security entitlement means the rights and property interests of an account
holder against its securities intermediary under applicable law in or with
respect to a security, including any ownership, co-ownership, contractual, or
other rights. Investors who do not have accounts with the Euroclear Operator or
Clearstream Luxembourg may acquire, hold, and transfer security entitlements
with respect to a Global Note against the securities intermediary and its
property with which the investors hold accounts by book-entry to accounts with
such securities intermediary, which in turn may hold a security entitlement
with respect to the Global Note through the Euroclear Operator or Clearstream
Luxembourg. Investors electing to acquire security entitlements with respect to
a Global Note through an account with the Euroclear Operator or Clearstream
Luxembourg or some other securities intermediary must follow the settlement
procedures of their securities intermediary with respect to the settlement of
new issues of securities. Security entitlement with respect to a Global Note to
be acquired through an account with the Euroclear Operator or Clearstream
Luxembourg will be credited to the account as of the settlement date against
payment in euros for value as of the settlement date. Investors electing to
acquire, hold, or transfer security entitlements with respect to a Global Note
through an account with the Euroclear Operator, Clearstream Luxembourg, or some
other securities intermediary other than in connection with the initial
distribution of the notes must follow the settlement procedures of their
securities intermediary with respect to the settlement of secondary market
transactions in securities.

Except as described below, owners of interests in the Global Notes will not
have notes registered in their names, will not receive physical delivery of
notes in certificated form, and will not be considered the registered owners or
holders of notes. So long as the Common Depositary is the registered owner or
holder of a Global Note, it will be considered the sole owner or holder of the
notes represented by such Global Note for all purposes under the Indenture and
the notes. Accordingly, each person owning a beneficial interest in a Global
Note must rely on the procedures of Euroclear and Clearstream Luxembourg, as
the case may be, and their account holders to exercise any rights and remedies
of a holder of notes under the Indenture. Payments of principal and interest on
the Global Notes will be made to the Common Depositary on behalf of Euroclear
and Clearstream Luxembourg as the registered owners thereof.

The laws of some countries and some states in the United States require that
specified persons take physical delivery in definitive form of securities that
they own. Consequently, the ability to transfer beneficial interests in a
Global Note to these persons may be limited to that extent. Because Euroclear
and Clearstream Luxembourg can act only on behalf of their own account holders,
the ability of a person having beneficial interests in a Global Note to pledge
the beneficial interests to persons or entities that do not participate in the
relevant clearing system, or otherwise take actions in respect of the
beneficial interests, may be affected by the lack of a physical certificate
evidencing such interests.

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Payments on the Global Notes

Payments in respect of the principal of, premium, if any, and interest,
including Additional Amounts, if any, on a Global Note will be made through a
paying agent appointed pursuant to the Indenture and will be payable to the
Common Depositary on behalf of Euroclear and Clearstream Luxembourg, each in
its capacity as the registered holder of the notes under the Indenture. Under
the terms of the Indenture, IFCO Systems and the Trustee will treat the persons
in whose names the notes, including the Global Notes, are registered as the
owners of the notes for the purpose of receiving such payments and for any and
all other purposes whatsoever. Consequently, none of IFCO Systems, the Initial
Purchasers, the Trustee, or any agent of IFCO Systems, the Initial Purchasers,
or the Trustee has or will have any responsibility or liability for (1) any
aspect or accuracy of the records of the relevant clearing system or their
account holders relating to payments made on account of beneficial ownership
interests in the Global Notes, or for maintaining, supervising, or reviewing
any records of such clearing system or account holder relating to beneficial
ownership interests in the Global Notes, or (2) any other matter relating to
the actions and practices of the relevant clearing system or their account
holders.

Euroclear or Clearstream Luxembourg, as the case may be, upon receipt of any
payment, will immediately credit the accounts of their relevant account
holders, with payments in amounts proportionate to their respective holdings in
principal amount of beneficial interests in the relevant Global Note, as shown
on the records of Euroclear or Clearstream Luxembourg, as the case may be. IFCO
Systems expects that payments by the account holders to the beneficial owners
of Global Notes will be governed by standing instructions and customary
practices and will be the responsibility of the account holders. Neither IFCO
Systems nor the Trustee will have responsibility or liability for the payment
of amounts owing in respect of beneficial interests in the Global Notes held by
the Common Depositary on behalf of Euroclear and Clearstream Luxembourg.

Transfers of Global Securities and Interests Therein

Unless definitive securities are issued, the Global Notes may be
transferred, in whole and in part, only by Euroclear and Clearstream Luxembourg
to the Common Depositary, as the case may be, or by the Common Depositary to
Euroclear, to Clearstream Luxembourg, or to another nominee or successor or a
nominee of a successor.

Transfers of beneficial interests in the Global Notes will be subject to the
applicable rules and procedures of Euroclear and Clearstream Luxembourg, as the
case may be, and their account holders and intermediaries. Any secondary
market-trading activity in beneficial interests in the Global Notes is expected
to occur through the account holders and intermediaries, as the case may be, or
Euroclear and Clearstream Luxembourg, and the securities custody accounts of
investors will be credited with their holdings against payment in same-day
funds on the settlement date.

No service charge will be made for any registration of transfer or exchange
of notes, but the Trustee may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.

Although Euroclear and Clearstream Luxembourg have agreed to procedures to
facilitate transfers of interests in the Global Notes among account holders in
Euroclear and Clearstream Luxembourg, they are under no obligation to perform
or to continue to perform the procedures, and the procedures may be
discontinued at any time. None of IFCO Systems, the Initial Purchasers, the
Trustee, nor any agent of IFCO Systems, the Initial Purchasers or the Trustee
will have any responsibility for the nonperformance or misperformance, as a
result of insolvency, mistake, misconduct, or otherwise, by Euroclear or
Clearstream Luxembourg or their account holders or intermediaries of their
obligations under the rules and procedures governing their operations.

IFCO Systems understands that under existing industry practices, if either
IFCO Systems or the Trustee requests any action of holders of notes, or if an
owner of a beneficial interest in a Global Note desires to give instructions or
take an action that a holder is entitled to give or take under the Indenture,
Euroclear or

123

Clearstream Luxembourg, as the case may be, would authorize their respective
account holders owning the relevant beneficial interest to give instructions or
take the action, and the account holders would authorize intermediaries to give
instructions or take the action, or would otherwise act upon the instructions
of the intermediaries.

IFCO Systems understands that under existing practices of Euroclear or
Clearstream Luxembourg if less than all of the respective class of notes are to
be redeemed at any time, Euroclear or Clearstream Luxembourg, as the case may
be, will credit their account holders' account on a proportionate basis, with
adjustments to prevent fractions, or by lot or on such other basis as Euroclear
or Clearstream Luxembourg, as the case may be, deems fair and appropriate,
provided that no beneficial interests of less than (Euro)1,000 may be redeemed
in part.

Certificated Notes

Beneficial interests in a Global Note are exchangeable for definitive notes
in registered certificated form only if (1) Euroclear and Clearstream
Luxembourg are unwilling or unable to continue as depositary for the Global
Note and IFCO Systems fails to appoint a successor depositary within 90 days or
(2) there shall have occurred and be continuing a Default or an Event of
Default with respect to the notes. In all cases, certificated notes delivered
in exchange for any Global Note or beneficial interest in a Global Note will be
registered in the names, and issued in any approved denominations, requested by
or on behalf of Euroclear or Clearstream Luxembourg in accordance with their
customary procedures. The notes may not be issued in bearer form.

Upon the issuance of definitive notes, payments of interest on a definitive
note will be made (1) by check drawn on a bank in London and mailed to the
payee or (2) by transfer to an account maintained by the payee with a bank in
London, in either case to the person in whose name such definitive note is
registered on the fifteenth day before the due date for the payment of interest
and payment of principal upon presentation and surrender of such definitive
note at the specified office of the Paying Agent or any additional or
substitute Paying Agent by a euro-denominated check drawn on a bank in London,
as the case may be.

In the case of the issuance of certificated notes in the limited
circumstances set forth above, the holder of any certificated note may transfer
such or exchange note by surrendering it at the offices or agencies of IFCO
Systems maintained for this purpose within the City and State of New York and
London, England, and at the office of the transfer agent in Luxembourg upon the
surrender of such notes, together with the form of transfer thereon duly
completed and executed and otherwise in accordance with the Indenture. Until
otherwise designated by IFCO Systems, IFCO Systems' offices or agencies in the
City and State of New York and London, England, will be the offices of the
Trustee maintained for this purpose. In the event of a partial transfer of a
holding of notes represented by one certificate, or partial redemption of a
holding represented by one certificate, a new certificate shall be issued to
the transferee in respect of the part transferred or redeemed and an additional
new certificate in respect of the balance of the holding not transferred or
redeemed shall be issued to the transferor, provided that no certificate in
denominations less than (Euro)1,000 shall be issued. Each new certificate to be
issued shall be available for delivery within ten business days at the office
of the Trustee or the transfer agent in Luxembourg. IFCO Systems shall bear the
cost of preparing, printing, packaging, and delivering the certificated notes.

IFCO Systems shall not be required to register the transfer or exchange of
certificated notes for a period of 15 days preceding (1) the due date for any
payment of principal of or interest on the notes or (2) a selection of notes to
be redeemed. Also, IFCO Systems is not required to register the transfer or
exchange of any notes selected for redemption. In the event of the transfer of
any certificated note, the Trustee may require a holder, among other things, to
furnish appropriate endorsements and transfer documents, and IFCO Systems may
require a holder to pay any taxes and fees required by law and permitted by the
Indenture and the notes.

If certificated notes are issued and a holder of a certificated note claims
that the note has been lost, destroyed, or wrongfully taken or if the note is
mutilated and is surrendered to the Trustee or, for so long as the notes are
listed on the Luxembourg Stock Exchange, at the specified office of the
transfer agent in

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Luxembourg, IFCO Systems shall issue and the Trustee shall authenticate a
replacement note if the Trustee's and IFCO Systems' requirements are met. If
required by the Trustee or IFCO Systems, an indemnity bond must be sufficient
in the judgment of both to protect IFCO Systems, the Trustee or any paying
agent or authenticating agent appointed pursuant to the Indenture from any loss
that any of them may suffer if a note is replaced. IFCO Systems may charge for
its expenses in replacing a note.

In case any such mutilated, destroyed, lost, or stolen note has become or is
about to become due and payable, or is about to be redeemed or purchased by
IFCO Systems pursuant to the provisions of the Indenture, IFCO Systems in its
discretion may, instead of issuing a new note, pay, redeem, or repurchase the
note.

Certificated notes held in the Netherlands may be subject to withholding of
taxes due. Prospective purchasers of notes are advised to consult their own tax
advisers as to the Netherlands tax consequences of the purchase, ownership, and
disposition of notes including the effect of any regional or local tax laws. In
the event the notes are issued in certificated form, the certificated notes
will bear a legend to the foregoing effect.

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TAXATION

United States Tax Considerations

The following is a discussion of material U.S. federal income tax
consequences relevant to the exchange of Series A notes for Series B notes. The
U.S. federal income tax considerations discussed below are based upon currently
existing provisions of the Internal Revenue Code of 1986, applicable Treasury
Regulations, judicial authority and current administrative rulings and
pronouncements of the IRS. We can give you no assurance that the IRS will not
take a contrary view, and we have not asked, and do not intend to ask, for a
ruling from the IRS on these issues. Legislative, judicial, or administrative
changes or interpretations may be forthcoming that could alter or modify the
statements and conclusions made below. Any changes or interpretations may or
may not be retroactive and could affect the tax consequences discussed below.
The description below does not consider the effect of any applicable foreign,
state, local or other tax laws or estate or gift tax considerations.

Because individual circumstances may differ, each holder of the notes is
strongly urged to consult his or her own tax advisor with respect to his or her
particular tax situation and as to any federal, foreign, state, local, or other
tax considerations (including any possible changes in tax law) affecting the
purchase, holding and disposition of the notes.

The exchange of Series A notes for Series B notes in the exchange offer
should not constitute a sale or an exchange for federal income tax purposes.
Accordingly, this exchange should have no federal income tax consequences to
you. You should have a basis in the Series B notes equal to the basis of your
Series A notes and your holding period for the Series B notes should include
the period during which you held your Series A notes.

A holder who does not tender his Series A notes will not recognize any gain
or loss for federal income tax purposes from the exchange offer.

Netherlands Tax Considerations

This summary describes the consequences that will generally apply in the
case of an investment in the Series B notes under Netherlands tax laws in force
and in effect as of the date of this prospectus, and is subject to changes in
Netherlands law, including changes that could have retroactive effect. Not
every potential tax consequence of such an investment under the law of the
Netherlands has been addressed. Prospective purchasers of the notes are advised
to consult their own tax advisors with respect to an investment in the Series B
notes.

Withholding

All payments under the notes may be made free of withholding or deduction
of, for, or on account of any taxes of whatever nature imposed, levied,
withheld, or assessed by the Netherlands or any political subdivision or taxing
authority thereof or therein.

Income and Capital Gains

A holder of notes will not be subject to any Netherlands taxes on income or
capital gains in respect of any payment under the notes or in respect of any
gain realized on the disposal of the notes, including the exchange of Series A
notes for Series B notes, provided that:

. the holder is neither a resident nor deemed to be a resident in the
Netherlands;

. the holder does not have an enterprise which is, in whole or in part,
carried on through a permanent establishment or permanent representative
in the Netherlands and to which enterprise as the case may be, the notes
are attributable; and

126

. the holder does not have a substantial interest or a deemed substantial
interest in IFCO Systems or, if the holder does have such an interest,
it forms part of the assets of an enterprise.

Generally, a holder of notes will have a substantial interest if he, his
spouse, certain other relatives, including foster children, or certain persons
sharing his household, hold, alone or together, whether directly or indirectly,
the ownership of, or certain other rights over, shares representing 5% or more
of the total issued and outstanding capital, or the issued and outstanding
capital of any class of shares, of IFCO Systems, or rights to acquire shares,
whether or not already issued, that represent at any time, and from time to
time, 5% or more of the total issued and outstanding capital, or the issued and
outstanding capital of any class of shares, of IFCO Systems or the ownership of
certain profit participating certificates that relate to 5% or more of the
annual profit of IFCO Systems and/or to 5% or more of the liquidation proceeds
of IFCO Systems. A deemed substantial interest is present if all or part of a
substantial interest has been disposed of, or is deemed to have been disposed
of, on a roll-over basis.

Other Taxes and Duties

No Netherlands registration tax, custom duty, transfer tax, stamp duty, or
any similar documentary tax or duty, other than court fees, will be payable in
the Netherlands in respect of or in connection with the enforcement by legal
proceedings, including the enforcement of any foreign judgment in the courts of
the Netherlands, of any rights of the holders or the performance by IFCO
Systems of our obligations under the Series A notes or under the Series B
notes.

127

PLAN OF DISTRIBUTION

Based on an interpretation by the staff of the SEC provided in no action
letters issued to third parties in similar transactions, we believe that Series
B notes issued in the exchange offer in exchange for Series A notes may be
offered for resale, resold or otherwise transferred by holders, other than any
holder that is our "affiliate" within the meaning of Rule 405 under the
Securities Act, without compliance with the registration and prospectus
delivery provisions of the Securities Act. This applies, however, only if
Series B notes are acquired in the ordinary course of the holders' business and
the holders have no arrangement with any person to participate in the
distribution of the Series B notes. We refer you to the "Morgan Stanley & Co.
Inc." SEC No-Action Letter available June 5, 1991, "Exxon Capital Holdings
Corporation" SEC No-Action Letter available May 13, 1988, and "Sherman &
Sterling" SEC No-Action Letter available July 2, 1993, for support of our
belief.

Each broker-dealer that receives Series B notes for its own account in the
exchange offer must acknowledge that it will deliver a prospectus with any
resale of the Series B notes. This prospectus may be used by a broker-dealer in
connection with resales of Series B notes received in exchange for Series A
notes where the Series A notes were acquired as a result of market-making
activities or other trading activities. We have agreed that, for a period of
180 days after the exchange offer begins, we will make this prospectus, as
amended or supplemented, available to any broker-dealer for use in connection
with any such resale.

Series B notes received by a broker-dealer for its own accounts in the
exchange for offer may be sold from time to time in one or more transactions in
the over-the-counter market, in negotiated transactions, through the writing of
options of the Series B notes or a combination of these methods of resale, at
market prices prevailing at the time of resale, at prices related to the
prevailing market prices or negotiated prices. Any resale may be made directly
to purchasers or to or through brokers or dealers who may receive compensation
in the form of commissions or concessions from any such broker-dealer or the
purchasers of any of the Series B notes. Any broker-dealer that resells Series
B notes that were received by it for its own account and any broker or dealer
that participates in a distribution of Series B notes may be deemed to be an
underwriter within the Securities Act, and any profit on any resale of Series B
notes, commissions or concessions received by any of these persons may be
underwriting compensation under the Securities Act.

The letter of transmittal states that by acknowledging that it will deliver
and by delivering a prospectus meeting the requirements of the Securities Act,
a broker-dealer will not be admitting that it is an underwriter within the
meaning of the Securities Act.

We have agreed to pay all expenses incident to the exchange offer, including
the expenses of one counsel for the holders of the Series A notes, other than
commissions or concessions of any broker-dealers. We have agreed to indemnify
holders of the notes, including any broker-dealers, against some liabilities,
including some liabilities under the Securities Act.

128

ENFORCEABILITY OF CIVIL LIABILITIES

We are a public limited liability company incorporated under the laws of the
Netherlands. Some members of our board of directors, some of our officers, and
some of the experts named in this prospectus reside outside of the United
States. As a result, it may not be possible for investors to effect service of
process within the United States upon us or those persons, or to enforce, in
courts outside of the United States, judgments against us or those persons
obtained in U.S. courts and based upon the civil liability provisions of the
federal securities laws of the United States. Furthermore, since a substantial
portion of our assets will be located outside of the United States, any
judgment obtained in the United States against those persons or us may not be
collectible within the United States. Additionally, there may be doubt as to
the enforceability, in original actions in Dutch courts, of liabilities based
solely upon the federal securities laws of the United States.

LEGAL MATTERS

The validity of the notes will be passed upon for us by our Dutch counsel,
Stibbe Simont Monahan Duhot P.C., New York, New York, and our U.S. counsel,
Gardere & Wynne, L.L.P., Dallas, Texas. Partners of Gardere & Wynne who
participated in the preparation of this prospectus beneficially own 1,000 of
our ordinary shares.

EXPERTS

The combined and consolidated financial statements of IFCO Systems as of
December 31, 1998 and 1999, and for each of the three years in the period ended
December 31, 1999, appearing in this prospectus have been so included in
reliance on the report of PwC Deutsche Revision AG, independent accountants,
given on the authority of that firm as experts in auditing and accounting.

The financial statements of IFCO U.S. as of December 31, 1998 and 1999, and
for each of the three years in the period ended December 31, 1999, appearing in
this prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent certified public accountants, given on
the authority of that firm as experts in auditing and accounting.

The consolidated financial statements of PalEx and its subsidiaries as of
December 26, 1999, and December 27, 1998, and for the years ended December 26,
1999, December 27, 1998, and December 28, 1997, included in this registration
statement and prospectus have been audited by Arthur Andersen LLP, independent
certified public accountants, as indicated in their report dated March 10,
2000, and are included in reliance upon the report of that firm as experts in
auditing and accounting.

129

WHERE YOU CAN FIND MORE INFORMATION

We file annual reports and other information with the SEC. You may read and
copy any reports, statements, and other information we file at the SEC's public
reference rooms in Washington, D.C., New York, New York and Chicago, Illinois.
Please feel free to call the SEC at 1-800-SEC-0330 for further information on
the public reference rooms. Our SEC filings are also available to the public
from commercial document retrieval services and at the internet world-wide web
site maintained by the SEC at www.sec.gov.

We have filed a registration statement on Form F-4 to register the Series B
notes. This prospectus is part of the registration statement. This prospectus
does not include all the information contained in the registration statement.
For further information about us and the Series B notes, you should review the
registration statement. You may inspect or copy the registration statement and
the exhibits to the registration statement at the SEC's public reference rooms
or obtain a copy from commercial document retrieval services or the SEC's web
site.

130

ISSUER

We are a leading international provider of round-trip systems, serving over
9,000 customers in 17 countries. We believe we:

. own and manage the largest pool of round-trip containers, or RTCs, in
Europe based on 1997 market information;

. own and manage a rental pool of over 1.5 million pallets in Canada,
making us the second largest pallet rental pool owner and manager in
North America;

. are the largest provider of new and recycled pallets in North America
based on our pallet industry experience and industry information; and

We also manufacture, sell, lease, and recycle wooden pallets in a variety of
shapes and sizes for the movement of various types of goods. We currently
conduct our pallet operations from 60 facilities throughout the United States
and Canada. We also recondition industrial container products, which include
steel closed top drums, steel drums with fully removable heads, plastic drums,
and industrial bulk containers, from 12 facilities in the United States.

We were incorporated on March 31, 1999 under the laws of the Netherlands as
a public limited liability company. Our authorized share capital consists of
100,000,000 ordinary shares, nominal value (Euro)2.00 per share, and 50,000,000
preferred shares, nominal value (Euro)2.00 per share. We have approximately
42.5 million ordinary shares and no preferred shares outstanding. As of March
31, 2000, we had approximately $278.6 million of total debt including capital
lease obligations.

The notes are guaranteed by all of our subsidiaries other than our
immaterial subsidiaries. The subsidiary guarantors are:

. IFCO Europe Beteiligungs GmbH

. IFCO International Food Container Organisation GmbH

. IFCO Finance Consulting GmbH

. IFCO Skandinavien A/S

. GISO Verwaltungsgesellschaft mbH & Co. Behalterleasing KG

. MTS Okologistik GmbH

. IFCO International Network Beteiligungsgesellschaft mbH

. IFCO Argentina S.A.

. IFCO-U.S., L.L.C.

131

. PalEx, Inc.

. Acme Barrel Company, Inc.

. Bay Area Pallet Company

. Black River Forest Products, Inc.

. Charlotte Steel Drum Corporation

. Consolidated Container Corporation

. Container Resources Corporation

. Container Services Company NW, Inc.

. Container Services Company SW, Inc.

. Duckert Pallet Co., Inc.

. Drum Service Co. of Florida

. Environmental Recyclers of Colorado, Inc.

. Gilbert Lumber Incorporated

. Isaacson Lumber Company

. Interstate Pallet Co., Inc.

. New London Pallet, Inc.

. PalEx Container Systems, Inc.

. PalEx-Texas, Inc.

. PalEx-Texas, L.P.

. PalEx Texas Holdings, Inc.

. Pallet Outlet Company, Inc.

. Ridge Pallets, Inc.

. Sheffield Lumber and Pallet Company, Inc.

. Shipshewana Pallet Co., Inc.

. SMG Corporation

. Sonoma Pacific Company

. Southern Pallet, Inc.

. Valley Crating and Packaging, Inc.

. Western Container Limited Liability Company

Our immaterial subsidiaries that are not guaranteeing the notes are:

. IFCO Logistic Services GmbH

. IFCO System Logistik GmbH

. IFCO International Food Container Organisation Ges. mbH

. IFCO France s.a.s.

. IFCO Schweiz AG

. IFCO Contenedores S.A.

. IFCO UK Ltd.

. IFCO Italia S.r.l.

. GELOG AG

132

. MTP GmbH

. MTP GmbH & Co. KG

. Schoeller-U.S., Inc.

. IFCO Uruguay s.a.

. IFCO Japan Inc.

. IFCO do Brasil Embalagens Ltda.

. Atlas Container Company, Inc.

. McCook Drum & Barrel Co., Inc.

. NLD, Inc.

. NLP Transport, Inc.

. PalEx Iowa, Inc.

. PalEx Kansas, Inc.

. Pallet Management Services, Inc.

. Southern Steel Drums, Inc.

We are a holding company with no separate operations other than our
ownership of the equity of our subsidiaries. Accordingly, the description of
our business and operations in this prospectus includes a description of the
business and operations of our subsidiaries, most of whom will be guarantors.
As a result, we have not separately described the operations of our
subsidiaries.

133

GENERAL INFORMATION

Listing

The Series A notes are listed on the Luxembourg Stock Exchange, and we have
applied to list the Series B Notes on the Luxembourg Stock Exchange. In
connection with listing, we have deposited copies of our articles of
association and a legal notice (Notice Legale) relating to the issue of the
notes with the Chief Registrar of the District Court in Luxembourg (Greffier
en Chef du Tribunal D'Arrondissement de et a Luxembourg), where copies may be
obtained on request. In addition, copies of these documents may be obtained at
the Luxembourg office of Kredietbank Luxembourg, the paying agent under the
Indenture. Notice of any optional tax redemption, any change of control, or
any change in the rate of interest payable on the notes will be published in a
Luxembourg newspaper of general circulation.

Corporate

We are incorporated under the laws of the Netherlands. The address of our
registered office is "Rivierstaete", Amsteldijk 166, 1079 LH Amsterdam, The
Netherlands.

Authorization

The issuance of the notes was authorized by a resolution of our board of
directors on February 28, 2000.

Accounts

Copies of each of the following consolidated financial statements of IFCO
Systems and its subsidiaries and PalEx and its subsidiaries as may be
published for the life of the notes, will be available at the principal office
of the paying agent in Luxembourg so long as the notes are listed on the
Luxembourg Stock Exchange:

. audited combined and consolidated financial statements of IFCO Systems
as of December 31, 1998 and 1999, and for each of the three years in the
period ended December 31, 1999;

. audited consolidated financial statements of PalEx and its subsidiaries
as of December 27, 1998, and December 26, 1999, and for the years ended
December 28, 1997, December 27, 1998, and December 26, 1999; and

. audited financial statements of IFCO-U.S., L.L.C., as of December 31,
1998 and 1999 and for each of the three years in the period ended
December 31, 1999.

We will provide to the Trustee and holders of the notes and will publish
(1) annual reports including annual financial statements and (2) quarterly
reports, containing unaudited financial statements. These annual and quarterly
reports will be available free of charge at the office of the paying agent in
Luxembourg.

No Material Adverse Change

Except as disclosed herein, there has been no material adverse change in
the consolidated financial position of IFCO Systems and its subsidiaries and
PalEx and its subsidiaries since December 31, 1999.

Litigation

There are no legal or arbitration proceedings, including any proceedings
which are pending or threatened of which we or our subsidiaries are aware,
which may have, or have had in the past 12 months, a significant effect on our
financial position.

Clearing

The Notes have been accepted for clearance through Euroclear and
Clearstream Banking, societe anonyme with a Common Code of 011457789, in the
case of the 144A Global Note, and an International Securities Identification
Number of XS0114577892, in the case of the 144A Global Note.

134

Documents Available

Copies of each of the following documents are available for inspection on
request, and, in the case of the documents specified in paragraph (a) below,
obtainable at the specified office of the principal paying agent or the paying
agent with its specified office in Luxembourg:

(a) our articles of association;

(b) the Indenture (incorporating the forms of the notes);

(d) the registration rights agreement.

135

INDEX TO FINANCIAL STATEMENTS

IFCO Systems N.V.
Report of Independent Accountants........................................ F-2
Combined and Consolidated Balance Sheets as of December 31, 1998 and
1999.................................................................... F-3
Combined and Consolidated Statements of Operations for the years ended
December 31, 1997, 1998, and 1999....................................... F-4
Combined and Consolidated Statements of Comprehensive Loss for the years
ended December 31, 1997, 1998, and 1999................................. F-5
Combined and Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1997, 1998, and 1999........................... F-6
Combined and Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1998, and 1999....................................... F-7
Notes to Combined and Consolidated Financial Statements.................. F-9

IFCO Systems N.V. (unaudited)
Condensed Consolidated Balance Sheets as of December 31, 1999 and March
31, 2000................................................................ F-27
Condensed Consolidated Statements of Operations for the three months
ended March 31, 1999 and 2000........................................... F-28
Condensed Consolidated Statements of Comprehensive Income for the three
months ended March 31, 1999 and 2000.................................... F-29
Condensed Consolidated Statements of Cash Flows for the three months
ended March 31, 1999 and 2000........................................... F-30
Notes to Condensed Consolidated Financial Statements..................... F-31
PalEx, Inc. and Subsidiaries
Report of Independent Certified Public Accountants....................... F-39
Consolidated Balance Sheets as of December 27, 1998 and December 26,
1999.................................................................... F-40
Consolidated Statements of Operations for the years ended December 28,
1997, December 27, 1998, and December 26, 1999.......................... F-41
Consolidated Statements of Comprehensive Income for the years ended
December 28, 1997, December 27, 1998, and December 26, 1999............. F-42
Consolidated Statements of Changes in Stockholders' Equity for the years
ended December 28, 1997, December 27, 1998, and December 26, 1999....... F-43
Consolidated Statements of Cash Flows for the years ended December 28,
1997, December 27, 1998, and December 26, 1999 ......................... F-44
Notes to Consolidated Financial Statements............................... F-45
IFCO-U.S., L.L.C.
Report of Independent Certified Public Accountants....................... F-63
Balance Sheets as of December 31, 1998 and 1999.......................... F-64
Statements of Operations and Changes in Accumulated Members' Deficit for
the years ended December 31, 1997, 1998, and 1999....................... F-65
Statements of Cash Flows for the years ended December 31, 1997, 1998, and
1999.................................................................... F-66
Notes to Financial Statements ........................................... F-67

F-1

REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders of IFCO Systems N.V.
Rivierstaete
Amsteldijk 166, 1079 LH
Amsterdam

In our opinion, the accompanying combined and consolidated balance sheets and
the related combined and consolidated statements of operations, comprehensive
income, changes in shareholders' equity and of cash flows present fairly, in
all material respects, the combined and consolidated financial position of IFCO
Systems N.V. and its subsidiaries (collectively "the Company") at December 31,
1999 and 1998, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 1999, in conformity
with generally accepted accounting principles in the United States on the basis
described in Note 1. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
combined and consolidated financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards in the United States and Germany, which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.

PwC Deutsche Revision
Aktiengesellschaft
Wirtschaftsprufungsgesellschaft
Dusseldorf, Germany
April 26, 2000

(Betz) (Hartmann)
Wirtschaftsprufer Wirtschaftsprufer

F-2

IFCO SYSTEMS N.V.

COMBINED AND CONSOLIDATED BALANCE SHEETS

(In thousands of US$)

December 31,
------------------
1998 1999
-------- --------

ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................ $ 23,642 $ 12,240
Receivables.............................................. 74,462 64,809
Other.................................................... 1,874 4,591
-------- --------
Total current assets................................... 99,978 81,640
PROPERTY, PLANT AND EQUIPMENT, net......................... 172,437 167,678
OTHER NON-CURRENT ASSETS................................... 12,038 17,303
-------- --------
Total assets........................................... $284,453 $266,621
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term loans......................................... $ 500 $ 795
Short-term related party loans........................... 2,618 2,280
Current maturities of long-term debt..................... 4,912 70,038
Current maturities of capital lease obligations.......... 9,340 10,329
Refundable deposits...................................... 70,875 66,436
Accounts payable......................................... 69,287 83,209
Accrued expenses and other current liabilities........... 7,303 7,918
Deferred income.......................................... 6,573 5,459
-------- --------
Total current liabilities.............................. 171,408 246,464
ACCUMULATED LOSSES IN EXCESS OF INVESTMENT IN EQUITY
ENTITIES.................................................. 4,472 5,623
LONG-TERM DEBT, net of current maturities.................. 77,874
CAPITAL LEASE OBLIGATIONS, net of current maturities....... 26,867 24,198
COMMITMENTS AND CONTINGENCIES..............................
MINORITY INTEREST.......................................... 28,887 25,316
PARTICIPATING RIGHTS....................................... 4,274 3,259
REDEEMABLE PARTICIPATING RIGHTS............................ 1,544 1,433
SHAREHOLDERS' EQUITY:
Contributed capital of predecessor companies............. 10,017
Common stock, (Euro)10 par value, authorized 5,000,000
shares; issued 1999--5,000 shares, issued 1998--0
shares.................................................. 54
Paid-in capital.......................................... 10,339
Accumulated deficit...................................... (38,858) (52,737)
Accumulated other comprehensive income (loss)............ (2,032) 2,672
-------- --------
Total shareholders' equity............................. (30,873) (39,672)
-------- --------
Total liabilities and shareholders' equity............. $284,453 $266,621
======== ========

The accompanying notes are an integral part of these combined and consolidated
financial statements.

F-3

IFCO SYSTEMS N.V.

COMBINED AND CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands of US$)

Year Ended December 31,
----------------------------
1997 1998 1999
-------- -------- --------

REVENUES......................................... $118,546 $136,176 $154,726
COST OF SALES:
Depreciation and amortization expense and crate
breakage...................................... 26,929 28,051 35,805
Other costs of sales........................... 72,693 78,167 88,680
-------- -------- --------
99,622 106,218 124,485
-------- -------- --------
Gross profit................................. 18,924 29,958 30,241
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES..... 18,328 24,289 24,511
MERGER AND INTEGRATION COSTS..................... 3,519
AMORTIZATION OF GOODWILL......................... 675 383 289
OTHER OPERATING (INCOME) EXPENSES, NET........... (840) (864) (639)
-------- -------- --------
Income (loss) from operations................ 761 6,150 2,561
INTEREST EXPENSE................................. (14,302) (12,101) (12,534)
INTEREST INCOME.................................. 3,887 1,607 600
FOREIGN CURRENCY (LOSSES) GAINS.................. 25 (188) (1,092)
LOSSES FROM EQUITY ENTITIES...................... (2,347) (2,726) (1,738)
OTHER INCOME (EXPENSE), net...................... 183 (83) (240)
-------- -------- --------
Loss before income taxes and minority
interest.................................... (11,793) (7,341) (12,443)
INCOME TAX PROVISION............................. (47) (210) (320)
MINORITY INTEREST................................ (1,274) (1,291)
-------- -------- --------
Net loss..................................... (11,840) (8,825) (14,054)
PARTICIPATING RIGHTS............................. 630 (88) 175
-------- -------- --------
Net loss applicable to common stock.......... $(11,210) $ (8,913) $(13,879)
======== ======== ========
Basic loss per share (in US$).................... ($0.56) ($0.45) ($0.69)

The accompanying notes are an integral part of these combined and consolidated
financial statements.

F-4

IFCO SYSTEMS N.V.

COMBINED AND CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands of US$)

1997 1998 1999
-------- -------- --------

Net loss.......................................... $(11,840) $ (8,825) $(14,054)
Other comprehensive income (loss):
Foreign currency translation adjustment......... 317 (1,970) 4,704
-------- -------- --------
Comprehensive loss................................ $(11,523) $(10,795) $ (9,350)
======== ======== ========

The accompanying notes are an integral part of these combined and consolidated
financial statements.

F-5

IFCO SYSTEMS N.V.

COMBINED AND CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(In thousands of US$)

Contributed Accumulated
Capital of Other
Predecessor Common Paid-In Accumulated Comprehensive Shareholders'
Companies Stock Capital Deficit Income (Loss) Equity
----------- ------ ------- ----------- ------------- -------------

BALANCE January 1,
1997................... $ 10,017 -- -- $(10,100) $ (379) $ (462)
Capital distribution,
net of tax............. -- -- -- (8,635) -- (8,635)
Participating rights,
net of tax............. -- -- -- 774 -- 774
Redeemable cumulative
participating rights,
net of tax............. -- -- -- (144) -- (144)
Foreign currency
adjustment............. -- -- -- -- 317 317
Net loss................ -- -- -- (11,840) -- (11,840)
-------- --- ------- -------- ------- --------
BALANCE December 31,
1997................... 10,017 (29,945) (62) (19,990)
Participating rights,
net of tax............. -- -- -- 61 -- 61
Redeemable cumulative
participating rights,
net of tax............. -- -- -- (149) -- (149)
Foreign currency
adjustment............. -- -- -- -- (1,970) (1,970)
Net loss................ -- -- -- (8,825) -- (8,825)
-------- --- ------- -------- ------- --------
BALANCE December 31,
1998................... 10,017 (38,858) (2,032) (30,873)
Original cash
contribution on March
31, 1999............... -- 54 -- -- -- 54
Participating rights,
net of tax............. -- -- -- 328 -- 328
Contribution from
shareholder, net of
tax.................... 322 -- -- -- -- 322
Contribution of shares
from SLT............... (10,339) -- 10,339 -- -- --
Redeemable cumulative
participating rights,
net of tax............. -- -- -- (153) -- (153)
Foreign currency
adjustment............. -- -- -- -- 4,704 4,704
Net loss................ -- -- -- (14,054) -- (14,054)
-------- --- ------- -------- ------- --------
BALANCE December 31,
1999................... $ -- $54 $10,339 $(52,737) $ 2,672 $(39,672)
======== === ======= ======== ======= ========

The accompanying notes are an integral part of these combined and consolidated
financial statements.

F-6

IFCO SYSTEMS N.V.

COMBINED AND CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands of US$)

Year Ended December 31,
---------------------------
1997 1998 1999
-------- ------- --------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.......................................... $(11,840) $(8,825) $(14,054)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization expense and crate
breakage........................................ 26,929 28,051 35,805
Amortization of goodwill......................... 675 383 289
Amortization of intangible assets and debt
issuance costs.................................. -- 1,036 1,311
Foreign currency (gains) losses.................. (25) 188 1,092
Loss applicable to minority interests............ 1,274 1,291
(Profit)/loss on sale of property, plant and
equipment....................................... (2) -- 2
Losses from equity entities...................... 2,347 2,726 1,738
Changes in operating assets and liabilities--
Proceed from factoring arrangement.............. -- 25,435 32,887
Receivables..................................... (11,588) 2,160 (36,851)
Other assets, long term......................... 243 176 202
Inventory....................................... 7,414 (1,621) (2,742)
Prepaid expenses and other current accounts..... 107 673 (443)
Accounts payable................................ 2,133 10,933 6,429
Other current liabilities....................... 3,515 (7,791) (1,683)
Accrued liabilities............................. 8,722 3,803 11,073
Deferred income................................. 917 1,337 (28)
-------- ------- --------
Net cash provided by operating activities...... 29,547 59,938 36,318
-------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of crates............................... (39,007) (38,098) (27,691)
Purchase of property, plant and equipment........ (562) (2,097) (3,076)
Purchase of other intangible assets.............. (243) (33) (3,097)
Merger costs..................................... -- -- (2,039)
Investment in equity entities.................... (478) (1,390) (587)
Proceeds from sale of property and equipment..... 448 106 --
Sale (purchase) of investments carried at cost... (436) 2,746 --
-------- ------- --------
Net cash used in investing activities.......... (40,278) (38,766) (36,490)
-------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from original issuance of shares........ 54
Proceeds from sale of redeemable convertible
preferred stock................................. 24,949 -- --
Proceeds from shareholder contribution........... -- -- 322
Payments on short-term bank borrowings........... -- (51,254) --
Payments on long-term bank borrowings............ (3,502) (15,351) (13,634)
Payments on short-term related party loans....... -- (25,779) (196)
Payments on capital lease obligations............ (14,214) (5,331) (9,401)
Proceeds from short term bank borrowings......... 8,591 -- 314
Proceeds from long term bank borrowings.......... -- 91,756 14,453
Proceeds from related party loans................ 3,997 1,850 276
Payment for interest rate cap.................... -- (202) --
Debt issuance costs.............................. (6,621) (2,131) --
Capital distribution to shareholders............. (8,635) -- --
Other............................................ 464 -- --
-------- ------- --------
Net cash provided by (used in) financing
activities.................................... 5,029 (6,442) (7,812)
-------- ------- --------

The accompanying notes are an integral part of these combined and consolidated
financial statements.

F-7

IFCO SYSTEMS N.V.

COMBINED AND CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)

(In thousands of US$)

Year Ended December 31,
--------------------------
1997 1998 1999
------- ------- --------

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS...................................... $ (549) $ 920 $ (3,418)
------- ------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS...................................... (6,251) 15,650 (11,402)
CASH AND CASH EQUIVALENTS, beginning of the
period........................................... 14,243 7,992 23,642
------- ------- --------
CASH AND CASH EQUIVALENTS, end of period.......... $ 7,992 $23,642 $ 12,240
======= ======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest........................... $ 6,772 $ 6,959 $ 12,143
Cash paid for income taxes....................... $ 47 $ 64 $ 92
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Accretion of redeemable convertible preferred
stock........................................... -- $ 1,274 $ 1,077
Redeemable cumulative participating rights....... $ 144 $ 149 $ (153)
Participating rights............................. $ (774) $ (61) $ (328)
Purchase of containers on capital leases......... $ 8,465 $ 9,382 $ 13,984
Merger costs included in accounts payable........ -- -- $ 4,100
Container purchases included in accounts
payable......................................... $ 2,943 -- $ 16,484

The accompanying notes are an integral part of these combined and consolidated
financial statements.

F-8

NOTES TO THE FINANCIAL STATEMENTS OF IFCO SYSTEMS N.V.

(In thousands of US$ unless otherwise stated)

1. BUSINESS AND ORGANIZATION:

IFCO Systems N.V. ("the Company" or "IFCO"), which was incorporated under
the laws of the Netherlands on March 31, 1999, is a holding company for IFCO
Europe Beteiligungs GmbH ("IFCO Europe"), MTS Okologistik GmbH ("MTS"), and
Schoeller International Logistics Beteiligungsgesellschaft ("SIL").

On March 8, 2000, the Company completed a merger with PalEx, Inc. ("PalEx")
upon the approval of the shareholders of PalEx, in addition to an initial
public offering. See Note 13.

IFCO Europe was established in 1997 and is the holding company of IFCO
International Food Container Organisation GmbH ("IFCO GmbH"), a German company,
which was established in 1992. IFCO Europe is involved in the organization and
administration of the purchase, distribution and leasing of round-trip
container ("RTC") systems in Germany and other European countries. The RTCs are
leased primarily to producers of fresh fruit and vegetables in exchange for a
one-time usage fee. The producers' goods are transported in the RTCs to various
intermediaries and ultimately retailers for sale to consumers. IFCO Europe
delivers the empty RTCs to customers' bulk warehouses and collects the empty
crates from regional service points, where the RTCs are transported to the
Company's depots and cleaned for reuse. IFCO Europe is 76% owned by IFCO
Systems N.V., with a subsidiary of General Electric Capital Corporation
("GECC") holding a minority interest of 24%. In connection with its initial
investment of $24,949 in IFCO Europe in 1997, GECC received options to increase
its investment in IFCO Europe to 49% and then up to 100% after certain dates
have passed and criteria have been met. GECC also received options to purchase
100% of MTS and up to 100% of SIL after certain dates have passed and criteria
have been met.

MTS, a German company that is 100% owned by IFCO Systems N.V. was
established in 1992 and offers a reusable packing system for dry goods sold
primarily by retailers. MTS's business processes are generally similar to those
of IFCO Europe.

SIL, a German company that is 100% owned by IFCO Systems N.V. was
established in 1994 to hold ownership interests in RTC systems in the United
States, Argentina and Japan. The operation in Argentina is wholly owned and is
consolidated within SIL. SIL has a 50% voting interest in the operations in the
United States and a 33% ownership investment in the Japanese operations. SIL
has agreed to fund its proportionate share of losses of the operations in the
United States and Japan in excess of its capital investment. Both of these
operations are accounted for under the equity method. SIL's business processes
are generally similar to those of IFCO Europe.

Prior to November 3, 1999, IFCO Europe and MTS were subsidiaries of
Schoeller Packaging Systems GmbH ("SPS"). In December 1999, SPS changed its
name to Schoeller Logistics Industries GmbH ("SLI"). SIL was a subsidiary of
Gebruder Schoeller Beteilungsverwaltungs GmbH, Munich ("GSB"). SLI and GSB are
wholly owned by the same group of shareholders, the Schoeller family. Effective
November 3, 1999, SLI indirectly contributed its shares of IFCO Europe and MTS
to IFCO Systems N.V. In addition, GSB contributed its shares of SIL to IFCO
Systems N.V. effective November 22, 1999. IFCO Systems N.V. is 100% owned by
Schoeller Logistic Technologies Holding GmbH, Pullach ("SLT"). SLT is 24% owned
by GSB and 76% owned by SLI. The transfer of shares was accounted for as a
transfer between entities of common control using the historical basis of
assets and liabilities transferred.

Periods prior to the contribution of shares to IFCO Systems N.V. described
above represent the combined financial statements of IFCO Europe, MTS and SIL.
Periods subsequent to the contribution represent the combined and consolidated
results of IFCO Systems N.V. The contribution of shares to IFCO Systems N.V.
has been reflected as a transfer from combined contributed share capital of
IFCO Europe, MTS and SIL to paid-in capital of IFCO Systems N.V. within the
combined and consolidated statement of shareholders' equity.

F-9

IFCO SYSTEMS N.V.

NOTES TO THE FINANCIAL STATEMENTS--(Continued)

IFCO Europe and MTS previously reported separately to SLI. SIL previously
reported to GSB. All costs relating to each entity were historically billed
through management charges. These costs include all general corporate
overhead, consisting of accounting, legal and technical services and other
general and administrative costs, and interest expense related to the
operations of IFCO Europe, MTS, and SIL. Subsequent to the transfer of shares
to IFCO Systems N.V., SLI continues to provide management services to the
Company. See Note 9. All significant inter-company transactions and balances
between the combined and consolidated companies have been eliminated. Income
taxes have been calculated on a separate return basis.

On February 29, 2000 a debenture in the amount of DM 45 million ($22,151)
was issued to GECC by SLT in exchange for the contribution of GECC's preferred
share in IFCO Europe to SLT. On March 1, 2000 SLT contributed this
preferential share to IFCO Systems N.V., making IFCO Systems N.V. the 100%
shareholder of IFCO Europe. This debenture has a 30 year term and bears
interest at 5% per year. The debenture is convertible to IFCO Systems N.V.
ordinary shares that are held by SLT after a mandatory holding period.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Accounting Principles

The accompanying combined and consolidated financial statements have been
prepared in accordance with United States generally accepted accounting
principles.

Reclassifications

Certain reclassifications have been made in the 1998 and 1997 financial
statements to conform to the 1999 presentation.

Fiscal Year

All combined and consolidated entities maintain their accounting records
using a December 31 year-end.

Cash and Cash Equivalents

The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.

Inventory

Inventories are stated at the lower of cost or net realizable value. The
cost of inventories is determined using a weighted average cost method.

Property, Plant and Equipment

Property, plant, and equipment is carried at cost. Depreciation and
amortization are provided for in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives. The
straight-line method of depreciation is utilized for financial reporting
purposes.

Included in property, plant and equipment is the Company's RTC rental pool,
which is being depreciated to estimated salvage value using the straight line
method over lives ranging from 8 to 15 years. The Company periodically reviews
its RTC rental pool to ensure that all unusable RTCs are reduced to net
realizable value in

F-10

IFCO SYSTEMS N.V.

NOTES TO THE FINANCIAL STATEMENTS--(Continued)

accordance with the Company's RTC supply contract. These charges are considered
breakage by the Company and are included in cost of sales in the accompanying
combined and consolidated statements of operations.

Expenditures for maintenance and repairs are charged to expense as incurred.
Additions and major replacements or betterments that increase capacity or
extend useful lives are added to the cost of the asset. Upon sale or retirement
of property, plant and equipment, the cost and related accumulated depreciation
are eliminated from the respective accounts and the resulting gain or loss is
included in other income (expense), net, in the accompanying combined and
consolidated statements of operations.

The Company follows the reporting requirements of Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed Of" ("SFAS No. 121").
SFAS No. 121 establishes the recognition and measurement standards related to
the impairment of long-lived assets. The Company periodically assesses the
realizability of its long-lived assets pursuant to the provisions of SFAS No.
121. See Note 3.

The Company follows the reporting requirements of SFAS No. 13 "Accounting
for Leases". Leases classified as capital leases are recognized as assets and
liabilities in the balance sheet at amounts equal at the inception of the lease
to the fair value of the leased property or, if lower, at the present value of
the minimum lease payments. Lease payments are apportioned between imputed
finance charge and the reduction of the outstanding liability. The lease asset
is depreciated during the period of expected used on a systematic basis
consistent with the depreciation policy for depreciable assets that are owned.

Goodwill and Other Intangible Assets

Goodwill, which represents the excess of acquisition cost over the fair
market value of identified net assets acquired in business combinations
accounted for as purchases, is amortized using the straight-line method over 15
years. The Company capitalizes certain internal software development costs
which are amortized by the straight-line method over the estimated useful
economic lives of the software, not to exceed 4 years. At December 31, 1998 and
1999, unamortized software costs were $2,974 and $896, respectively.
Amortization of capitalized internal software development costs totalled $261,
$186 and $168, in 1997, 1998 and 1999, respectively.

The Company evaluates on a regular basis whether events and circumstances
have occurred that indicate that the carrying amount of goodwill and other
intangible assets may warrant revision. Management believes that there has been
no impairment of the goodwill and other intangible assets as reflected in the
Company's combined and consolidated financial statements as of December 31,
1999.

Advertising Costs

All advertising costs are expensed when incurred. Total advertising costs
were $1,215, $833, and $1,502 for the years ended December 31, 1997, 1998, and
1999, respectively.

Investment in Equity Entities

Entities over which IFCO has between 20% and 50% of the voting rights, and
over which IFCO exercises significant influence, are accounted for using the
equity method.

SIL's share of operating losses in the Japanese operations ("IFCO-Japan")
has exceeded its capital investment, and accordingly the investment in IFCO-
Japan has been reduced to zero. In 1999, SIL agreed to fund the losses of IFCO-
Japan and accordingly has recorded its proportionate share of the losses in
IFCO-Japan in excess of its investment as accumulated losses in excess of
investment in equity entities in the combined and

F-11

IFCO SYSTEMS N.V.

NOTES TO THE FINANCIAL STATEMENTS--(Continued)

consolidated balance sheet. IFCO-Japan's losses that have been recorded are
included in losses from equity entities on the combined and consolidated
statement of operations.

SIL's share of the operating losses in the operations in the United States
("IFCO-US") has exceeded its initial capital investment. SIL has recorded its
proportionate share of the losses in IFCO-US in excess of its investment as
accumulated losses in excess of investment in equity entities in the combined
and consolidated balance sheet as SIL has agreed to fund its proportionate
share of the losses. The loss that has been recognized by SIL in respect of
IFCO-US is recorded in losses from equity entities on the combined and
consolidated statement of operations.

Participating Rights

The participating rights were originally issued to Schoeller Plast
Industries GmbH, Pullach, ("SPI"), a company wholly owned by SLI, in respect of
IFCO GmbH with a nominal value of DM 10.0 million. The rights have no voting
rights and are issued for an unlimited period and may be terminated by IFCO
upon repayment of the nominal value. In the event of IFCO GmbH's liquidation,
it is repayable after all other creditors and ranks equally with the share
capital. The participating rights share in IFCO GmbH's profits up to a maximum
of DM1.6 million ($0.8 million) per year, before any other distribution may be
made, and in IFCO GmbH's losses in the amount of 10% per year until the balance
is exhausted. In the event that the participating rights has been reduced from
its nominal value by its share of losses, future profits must first be used to
restore it to its nominal value before any other distributions may be made.

On March 8, 2000, in connection with the IPO and the refinancing of IFCO,
the Company made a payment of DM 8.0 million ($3,915) to SPI for the
termination of the participating rights. This payment is an estimate of the
amount required to terminate the participating rights. SPI will reimburse the
Company for approximately DM 1.7 million ($838) as the Company made an over-
payment to SPI.

Redeemable Participating Rights

In 1996 SIL received DM 2.0 million ($1,228) from Alexander Schoeller & Co.
Management Holding GmbH ("ASMH"), a company which is wholly owned by the
Schoellers. Each year that SIL recognizes a profit under German GAAP, ASMH is
entitled to DM 250,000 ($128) per annum. This amount is cumulative, and any
unpaid balance due to SIL's lack of profit bears interest at 6.0% per annum.
ASMH does not participate in SIL's losses, and has no voting rights in SIL. The
agreement is for an unlimited duration, and may be terminated by either party
with a six month notice period.

On March 8, 2000, the Company paid DM 2.8 million ($1,370) to ASMH to
terminate these redeemable participating rights.

Income Taxes

The Company uses the liability method of accounting for income taxes,
wherein deferred tax assets and liabilities are recognized for future tax
consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to reverse. The effect of a change in tax
rates on deferred tax assets and liabilities is recognized in income in the
period that includes the enactment date. Deferred tax assets are reduced by a
valuation allowance if, based on the weight of the available evidence, it is
more likely than not that some portion or all of the deferred tax assets will
not be realized. As changes in tax laws or rate are enacted, deferred tax
assets and liabilities are adjusted through income tax expense.

F-12

IFCO SYSTEMS N.V.

NOTES TO THE FINANCIAL STATEMENTS--(Continued)

Revenue Recognition

The majority of the Company's combined and consolidated revenues are
generated from RTC usage fees and are recognized over the Company's service
obligation period, which is complete when the customer's product is removed
from the RTCs and the RTC is returned to the Company.

In December 1999, the United States Securities and Exchange Commission
("SEC") issued SAB 101, "Revenue Recognition", which summarizes certain of the
SEC staff views in applying generally accepted accounting principles to revenue
recognition in financial statements. The Company adopted SAB 101 in these
financial statements. Such adoption had no impact on the Company's financial
statements.

The Company also generates revenues from the lease of RTCs for specified
periods of time, which are recognized on a straight-line basis over the lease
term. Additionally, the Company generates revenues from the sale of broken
RTCs.

Refundable Deposits

The Company receives a deposit from its customers upon RTC delivery that is
classified as a refundable deposit in the accompanying combined and
consolidated balance sheets. This deposit is refunded by the Company when the
RTC is recollected.

Fair Value of Financial Instruments

SFAS No. 107, "Disclosures About Fair Values of Financial Instruments", and
SFAS No. 119, "Disclosures About Derivative Financial Instruments and Fair
Value of Financial Instruments", require the disclosure of the fair value of
financial instruments, both assets and liabilities recognized and not
recognized on the balance sheet, for which it is practicable to estimate fair
value. The carrying value of the Company's long-term debt approximates fair
value due to variable interest rates. The carrying value of the Company's other
financial instruments also approximates fair value, except for the interest
rate cap of the Senior Facility Agreement. The cap uses a derivative financial
instrument, and as it is an integral part of the Senior Facility Agreement, it
cannot be reliably segregated and measured. There are no published price
quotations in active public securities markets and even though there are well-
established valuation models, the data inputs to these models does not come
from active markets.

Foreign Currency Transactions and Translation

Sales and purchases in foreign currency are measured using the exchange rate
at the day of the transaction. Foreign currency transaction gains and losses
are included in the combined and consolidated statement of operations.

The functional currency is the local currency of each subsidiary. The
Company has selected the United States dollar ("US$") as its reporting
currency. The financial statements of the Company's operations which are not
denominated in United States dollars are translated using the exchange rate as
of the balance sheet date for assets and liabilities and a weighted average
exchange rate for the reported amount of revenues, expenses, gains and losses
during the reporting period. The cumulative translation adjustment is recorded
as a separate component of shareholders' equity.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires the use of estimates and assumptions by
management in determining the reported amounts of assets

F-13

IFCO SYSTEMS N.V.

NOTES TO THE FINANCIAL STATEMENTS--(Continued)

and liabilities and disclosures of contingent assets and liabilities at the
date of the financial statements and the reported amount of revenues and
expenses during the reporting period. Although the Company reviews all
significant estimates affecting its combined and consolidated financial
statements on a recurring basis and records the estimated effect of any
necessary adjustments prior to their publication, actual results could differ
from these estimates.

Basic Loss Per Share

Basic loss per share has been computed using the actual number of ordinary
shares that were issued to the shareholders of IFCO in connection with the IPO
of IFCO Systems N.V. and the merger with PalEx. This amount has been calculated
as 20.0 million. The numerator used in the calculation of proforma basic loss
per share has been calculated using the net loss for the year plus the
redeemable cumulative participating rights and the participating rights. The
number of shares used in calculating basic and diluted loss per share is the
same, as the conversion of the preferred stock would result in anti-dilution.

Recent Accounting Pronouncements

On May 19, 1999, the Financial Accounting Standards Board decided to delay
the effective date of SFAS 133, "Accounting for Derivative Instruments and
Hedging Activities," to all fiscal quarters of all fiscal years beginning after
June 15, 2000. SFAS 133 requires that all derivative financial instruments be
recognized as either assets or liabilities on the balance sheet at their fair
values and that accounting for the changes in their fair values is dependent
upon the intended use of the derivatives and their resulting designations. The
new standard will supersede or amend existing standards that deal with hedge
accounting and derivatives. The Company has not determined the effect that
adopting this standard will have on its combined and consolidated financial
statements.

3. PROPERTY, PLANT AND EQUIPMENT:

Property, plant and equipment consist of the following:

Estimated
Useful December 31,
Lives in ------------------
Years 1998 1999
--------- -------- --------

Crates....................................... 8-15 $188,848 $189,964
Machinery and equipment...................... 4-10 7,631 6,641
Furniture and fixtures....................... 4-10 4,213 3,910
-------- --------
$200,692 $200,515
Less: Accumulated depreciation and
amortization................................ (28,255) (32,837)
-------- --------
$172,437 $167,678
======== ========

Depreciation expense for the years ended December 31, 1997, 1998, and 1999,
was $8,579, $10,414, and $12,757 respectively. Of the total assets above, costs
of $14,388, $38,288, and $37,159, and accumulated depreciation of $651, $981,
and $2,876 are held under capital leases at December 31, 1997, 1998, and 1999,
respectively.

F-14

IFCO SYSTEMS N.V.

NOTES TO THE FINANCIAL STATEMENTS--(Continued)

4. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:

Accounts Receivable

The major components of accounts receivable are as follows:

At December 31,
----------------
1998 1999
------- -------

Trade (gross).............................................. $63,292 $61,723
Less: Allowance for doubtful accounts...................... (6,079) (4,706)
Related Party.............................................. 11,738 4,071
Other...................................................... 5,511 3,721
------- -------
$74,462 $64,809
======= =======

Activity in the Company's allowance for doubtful accounts consists of the
following:

Year ended
December 31,
--------------
1998 1999
------ ------

Balance, beginning of year................................... $5,886 $6,079
Write-offs................................................... (887) (1,996)
Additional provisions........................................ 540 1,277
Increase (decrease) due to foreign exchange translation...... 540 (654)
------ ------
$6,079 $4,706
====== ======

Other Non-current Assets

The major components of other non-current assets are as follows:

At December 31,
----------------
1998 1999
------- -------

Debt issuance costs........................................ $ 9,364 $ 7,974
Merger costs............................................... -- 5,051
Goodwill................................................... 4,187 3,496
Software................................................... 896 2,974
Other intangible assets.................................... 66 1,215
------- -------
14,513 20,710
Less: accumulated amortization............................. (2,475) (3,407)
------- -------
$12,038 $17,303
======= =======

Merger costs represent the direct costs of the acquisition of PalEx during
1999. Included in other intangible assets at December 31, 1999 are deferred IPO
and deferred high yield debt issuance costs of $857 and $231, respectively. The
deferred IPO costs relate to costs of issuing equity securities in early 2000,
and will be accounted for as a reduction of the proceeds of the equity
offering. Accordingly, these costs will not be amortized over future periods.
The deferred high yield debt issuance costs relate to debt issued in early 2000
and will be amortized over the life of the new debt issue.

F-15

IFCO SYSTEMS N.V.

NOTES TO THE FINANCIAL STATEMENTS--(Continued)

Accounts payable

The major components of accounts payable are as follows:

At December 31,
---------------
1998 1999
------- -------

Trade........................................................ $65,525 $72,013
Related party................................................ 3,762 11,196
------- -------
$69,287 $83,209
======= =======

5. DEBT:

Long-Term Debt

During 1998, the Company negotiated a new financing arrangement through a
lending syndicate under a Deutsche Mark ("DM") 146 million ($89.6 million)
Senior Facility Agreement (SFA) and a DM35 million ($21.5 million) Senior
Subordinated Agreement (SSA). The proceeds from the SFA and SSA were primarily
used to reduce the Company's outstanding short-term borrowings.

During 1999, the amount of credit available to the Company was reduced to DM
160.5 million ($82.3 million). The credit facility consists of DM 125.5 million
($64.3 million) available under the SFA and DM35.0 million ($18.0 million)
available under the SSA.

The SFA consists of a DM64.0 million ($32.8 million) fixed term loan and two
revolving credit facilities totaling DM61.5 million ($31.5 million). All
borrowings under the SFA, approximately DM100.5 million ($51.5 million)
outstanding as of December 31, 1999, contain principal reduction provisions,
mature in 2004, and accrue interest at EURIBOR plus 1.75% (5.31% as of December
31, 1999). The amount available for future borrowings under the SFA as of
December 31, 1999 was approximately DM25.0 million ($12.8 million). The SSA
does not have scheduled principal reductions until a balloon payment in 2005.
Outstanding borrowings under the SSA, which totaled DM35.0 million ($18.0
million) accrue interest at a rate of EURIBOR plus 2.75% (6.31% as of December
31, 1999).

Substantially all of the Company's receivables and long-lived assets are
pledged as security against all outstanding borrowings under the SFA and SSA,
which also prohibit any dilution of GECC's capital investment. The SFA and SSA
prohibit the payment of dividends by the Company as long as any outstanding
borrowings exist under the SFA or SSA, restrict the Company's incurrence or
assumption of other indebtedness and require the Company to comply with non-
financial and financial covenants, including certain funded debt and interest
expense to earnings before taxes, depreciation, interest and amortization
ratios and certain cash flow ratios. The Company was in compliance with, or had
obtained waivers for, each of the covenants as of December 31, 1998. At
December 31, 1999, the Company was in violation of certain covenants under the
SSA and SFA. The Company did not obtain waivers for these violations as the SSA
and SFA were paid in full in March 2000 upon completion of the IPO. See Note
13. The outstanding balances on the SFA and SSA have been classified as current
liabilities at December 31, 1999.

To hedge its variable rate interest risk, the Company has entered into an
interest rate cap agreement, which as of December 31, 1999, covers DM101.4
million ($52.0 million) of the Company's outstanding debt and limits interest
rates applicable to the SFA and SSA borrowings to 6.75%, and 7.75%,
respectively. The costs of this agreement are included in interest expense
ratably over the agreement's life. The unamortized cost of the agreement is
included in other assets in the accompanying combined and consolidated balance
sheets.

F-16

IFCO SYSTEMS N.V.

NOTES TO THE FINANCIAL STATEMENTS--(Continued)

Long-term debt consists of the following:

At December 31,
----------------
1998 1999
------- -------

SFA term loan.............................................. $44,208 $32,840
SFA credit facilities...................................... 16,578 18,706
SSA term loan.............................................. 21,490 18,045
Other...................................................... 510 447
------- -------
82,786 70,038
Less: current maturities................................... (4,912) (70,038)
------- -------
$77,874 $ --
======= =======

The maturities of long-term debt are as follows for the year ending December
31, 1999:

Amount
-------

2000................................................................. $70,038
2001................................................................. --
2002................................................................. --
2003................................................................. --
2004................................................................. --
Thereafter........................................................... --
-------
$70,038
=======

Short-Term Loans

Short-term loans at December 31, 1998 and 1999 relate to a renewable short-
term note with a bank.

Short-Term Related Party Loans

SLI and GSB, SLI's subsidiaries and SLI's direct owners have historically
provided working capital financing to the Company. Outstanding balances accrue
interest at rates ranging from 5.0% to 8.0%.

Receivable Factoring

Prior to May 1998, IFCO Europe had an agreement whereby the trade accounts
receivable balances were used as collateral against borrowings from third
parties. Both the receivables and the funding were recorded on IFCO Europe's
books. The administrative processes related to collecting the receivables was
performed by the third party acting as an agent for IFCO Europe, for which IFCO
Europe paid a fee.

In May 1998 the arrangement was altered to allow IFCO Europe to factor up to
85% of accounts receivable balances that meet certain requirements as set forth
in the agreement. For the receivables accepted for factoring, the factoring
agent is required to remit between 60% and 80% of the unpaid amounts of
factored receivables to IFCO Europe. The remainder, less a factoring charge, is
held in an escrow account and is remitted to IFCO Europe following collection.
There is no risk of loss associated with the funds initially received by IFCO
Europe, and these funds have been netted off against receivables. The risk of
loss on the balance held in the escrow account remains with the factoring agent
who performs the administrative collection process for all factored
receivables. The balance held in the escrow account is included in receivables
on the combined and consolidated balance sheet and at December 31, 1999 and
1998 was $9,485 and $7,279, respectively. The interest rate on cash advances
relating to uncollected factored receivables is based on the

F-17

IFCO SYSTEMS N.V.

NOTES TO THE FINANCIAL STATEMENTS--(Continued)

three-month EURIBOR rate plus 1.25% (4.59% as of December 31, 1999). IFCO
Europe factored approximately $32,887 and $25,435 of its combined and
consolidated receivables in 1999 and 1998, respectively. IFCO Europe incurred
approximately $4,270 and $3,966 in 1999 and 1998, respectively, in factoring
and interest charges relating to this agreement.

Capital Lease Obligations

The Company has entered into leases with third parties principally for
plastic RTCs that are accounted for as capital leases. The future minimum lease
payments for assets under capital leases, together with the present value of
minimum lease payments, were as follows as of December 31, 1999:

2000................................................................ $12,131
2001................................................................ 9,427
2002................................................................ 8,214
2003................................................................ 8,205
2004................................................................ 162
Thereafter.......................................................... 760
-------
Total future minimum lease payments................................. 38,899
Less amounts representing interest.................................. (4,372)
-------
Present value of future minimum lease payments...................... $34,527
=======
Current............................................................. $10,329
Non-current......................................................... 24,198
-------
Total............................................................... $34,527
=======

6. MINORITY INTEREST:

IFCO Europe has outstanding, one share of preferred stock held by a
subsidiary of GECC. The holder of the preferred share shall be entitled to 16%
of the vote on all matters of which common stockholders are entitled to vote.
The other 84% of votes are held by the common stockholders. The holder of the
preferred share participates in 24% of the profits of IFCO Europe. However, the
preferred share has preference over the first DM 2,250 ($1,153) of profits
before any profits are distributed to the common shareholders.

The preferred share is convertible into common stock of IFCO Europe at any
time prior to September 30, 2004. The preferred stock is redeemable beginning
September 30, 2002, at the option of the holder for the original investment
amount. In addition to the original investment amount, the holder is entitled
to 5% annual interest on the purchase price minus any capital repaid to the
holder for the period starting at the day of the original investment and ending
on the date of redemption election, such interest amount being compounded at an
interest rate of 5% per year and being reduced by any dividends paid out to the
holder. The redemption amount outstanding on the redemption date is payable in
12 monthly installments, plus 5% interest beginning two years after the
redemption election date. In addition, the preferred stock is redeemable
subject to certain conditions at the option of the issuer in year 2003 at the
earliest. The redemption amount is calculated under similar terms as above.

In the event of liquidation or dissolution of the Company, the holder of the
preferred share shall have priority entitlement before distribution to other
shareholders to proceeds which are available for distribution to the
shareholders up to an amount of DM 45,000 ($23,062), plus preferential
dividends which have not been distributed, less any eventual distribution of
profits in excess of the preferential dividends.

F-18

IFCO SYSTEMS N.V.

NOTES TO THE FINANCIAL STATEMENTS--(Continued)

In connection with the investment in the preferred share, GECC received
options to increase its investment in IFCO Europe to 49% and then up to 100%
after certain dates have passed and criteria have been met. In addition, GECC
received options to purchase 100% of MTS and up to 100% of SIL after certain
dates have passed and criteria have been met. Also in connection with the
investment, SLI has a put option to sell its interest in IFCO Europe to GECC
after certain dates have passed and criteria have been met.

Effective November 3, 1999, upon transfer of the shares of IFCO Europe to
IFCO Systems N.V. by SLI, the preferred share in IFCO Europe still held by GECC
is shown as minority interest on the balance sheet of IFCO Systems N.V. as of
December 31, 1999. The interest attributable to the preferred share from
November 3, 1999 to December 31, 1999 is reflected as minority interest in the
statement of operations for the year ended December 31, 1999. Reclassifications
have been made to the balance sheet and the statement of operations in order to
be consistent with the 1999 presentation of the preferred share in IFCO Europe
still held by GECC.

7. INCOME TAXES:

Year ended
December 31,
------------------------
1997 1998 1999
------- ------ -------

Loss before income taxes
Germany............................................. $ 8,576 $3,802 $ 3,532
Foreign............................................. 3,217 3,539 8,911
------- ------ -------
Total................................................. $11,793 $7,341 $12,443
======= ====== =======
Income tax provision
Current
Germany............................................. $ -- $ -- $ (106)
Foreign............................................. (47) (210) (214)
------- ------ -------
Total current......................................... $ (47) $ (210) (320)
------- ------ -------
Deferred
Germany............................................. $ -- $ -- $ --
Foreign............................................. $ -- $ -- $ --
------- ------ -------
Total deferred........................................ $ -- $ -- $ --
------- ------ -------
Total provision....................................... $ (47) $ (210) $ (320)
======= ====== =======

The differences in income taxes provided and the amounts determined by
applying appropriate statutory tax rates to loss before income taxes result
from the following:

Year ended December 31,
-------------------------
1997 1998 1999
------- ------- -------

Tax benefit at statutory rate (48.8%)............... $ 5,755 $ 3,582 $ 6,072
Increase (decrease) resulting from:
Movement in valuation allowance................... (3,693) (3,605) (6,133)
Participating rights.............................. (378) (30) (160)
Non deductible finance charges.................... (464) (348) (304)
Goodwill amortisation............................. (131) (118) (141)
Other............................................. (1,136) 309 346
------- ------- -------
$ (47) $ (210) $ (320)
======= ======= =======

F-19

IFCO SYSTEMS N.V.

NOTES TO THE FINANCIAL STATEMENTS--(Continued)

Deferred taxes result from temporary differences in the recognition of
income and expenses for financial reporting purposes and for tax purposes.
Components of the Company's net deferred tax liability are as follows:

At December 31,
------------------
1998 1999
-------- --------

Deferred income tax liabilities:
Accelerated depreciation.................................. $ 81,114 $ 75,323
Other..................................................... 3,467 7,674
-------- --------
Total deferred income tax liabilities....................... 84,581 82,997
Deferred income tax assets:
Carryforward losses....................................... 73,891 78,222
Interest on accretion..................................... 622 526
Capitalized crate cost.................................... 17,679 16,240
Patent.................................................... 3,596 2,626
Other..................................................... 6,164 4,974
-------- --------
Total deferred income tax assets............................ 101,952 102,588
-------- --------
Valuation allowance......................................... (17,371) (19,591)
-------- --------
Net deferred income tax assets.............................. 84,581 82,997
-------- --------
Deferred income tax assets, net............................. $ -- $ --
======== ========

Income tax payable at December 31, 1998 and 1999 was approximately $146 and
$207, respectively, and is included in accrued liabilities in the accompanying
combined and consolidated balance sheets.

As certain RTC leases are capitalized for book purposes but are treated as
operating leases for tax purposes, the amount of expense recognized for book
and tax purposes differs, resulting in a deferred tax asset. Such asset will
reverse over the life of the lease.

At December 31, 1998 and 1999, the Company has net operating loss
carryforwards in Germany of approximately $135,275 and $ 132,801, respectively.
The loss carryforwards attributable to German operations do not expire. The
loss carryforwards attributable to foreign operations at December 31, 1998 and
1999 are $18,648 and $27,489, respectively. These operating loss carryforwards
expire in 2005 and 2006, respectively. These carryforwards are available to
offset future taxable income. A valuation allowance has been made by the
Company to provide for all deferred tax assets. The valuation allowance is
necessary as the specific subsidiaries for which it is attributable have not
made profits consistently, thereby making it more likely than not that the
asset will not be realized. The amount of the valuation allowance is reviewed
periodically and will be released in the future if it becomes more likely than
not that these carryforward losses can be realized.

Activity in the Company's valuation allowance for deferred tax assets
consists of the following:

Year ended December 31,
------------------------
1997 1998 1999
------- ------- -------

Balance, beginning of year.......................... $ 5,497 $11,719 $17,371
Increase (decrease) due to foreign exchange
translation........................................ (958) 1,485 (3,120)
Additions during the year........................... 7,180 4,167 5,340
------- ------- -------
Balance, end of year................................ $11,719 $17,371 $19,591
======= ======= =======

F-20

IFCO SYSTEMS N.V.

NOTES TO THE FINANCIAL STATEMENTS--(Continued)

The valuation allowance allocated by tax jurisdiction is as follows:

Year ended December 31,
-----------------------
1997 1998 1999
------- ------- -------

Germany:
Current............................................... $ 300 $ 800 $ 420
Long-term............................................. 7,192 10,451 7,848
------- ------- -------
$ 7,492 $11,251 $ 8,268
Other:
Long-term............................................. $ 4,227 $ 6,120 $11,323
------- ------- -------
Total............................................... $11,719 $17,371 $19,591
======= ======= =======

At December 31, 1999 the recognition of any future tax benefits resulting
from the reduction of $2,910 of the valuation allowance will result in a credit
to accumulated deficit.

8. COMMITMENTS AND CONTINGENCIES:

Litigation

In 1998, one of the Company's subsidiaries was assessed a charge related to
value added tax by the Swiss government in the amount of approximately $2.0
million, resulting from differing interpretations of the Company's RTC activity
in Switzerland. The Company objects to the charge and is currently negotiating
with the tax authorities. The Company has accrued an amount that it believes to
be a probable liability.

In 1999, another of the Company's subsidiaries has been assessed a charge
related to value added tax by the Spanish government for the years 1995 through
1998. Negotiations between tax authorities and IFCO have given rise to a
potential settlement of approximately $1.2 million, which IFCO has included in
accrued liabilities at December 31, 1999.

The Company is involved in various legal proceedings that have arisen in the
ordinary course of business. While it is not possible to predict the outcome of
such proceedings with certainty, in the opinion of the Company's management,
all such proceedings are adequately covered by insurance or, if not so covered,
should not materially result in any liability which would have a material
adverse effect on the financial position, liquidity or results of operations of
the Company.

Leasing Arrangements

The Company also leases certain facilities and machinery under
noncancellable operating leases. Lease payments are expensed on a straight-line
basis over the term of the lease. Minimum future rental payments under these
leases as of December 31, 1999 are as follows:

Amount
-------

2000.............................................................. 4,180
2001.............................................................. 3,469
2002.............................................................. 2,511
2003.............................................................. 2,358
2004.............................................................. 1,457
Thereafter........................................................ 1,263
-------
$15,238
=======

Rent expense under operating leases was approximately $2,335, $4,442 and
$3,928 for the years ending December 31, 1997, 1998, and 1999, respectively.

F-21

IFCO SYSTEMS N.V.

NOTES TO THE FINANCIAL STATEMENTS--(Continued)

9. RELATED PARTY TRANSACTIONS:

RTC Supply Contracts

IFCO Europe has historically purchased the majority of its RTCs through
single-year supply contracts with SPI. During 1997, the Company entered into a
ten-year supply agreement with SPI to provide all of the Company's plastic
RTCs. SPI will not provide plastic crates to other third party crate rental or
leasing companies. SPI unit prices are a function of their weight, the price
for granulate and the actual quantity purchased by the Company. There is not a
minimum purchase requirement. Changes in pricing may occur when SPI's
production costs vary by more that 15%, as defined in the agreement. This
supply agreement also states that the Company is to receive a fixed price per
kilogram for broken RTCs that are recollected from the Company by SPI. During
1997, 1998, and 1999, the Company paid SPI $45,472, $46,397, and $34,959,
respectively, for RTCs. Sale of broken RTCs from the Company to SPI totaled
$8,750, $9,438, and $9,475 in 1997, 1998, and 1999, respectively, and are
included within revenues.

Management Fee

The Company has entered into a management contract expiring in December 2000
with SLI to provide management and administrative services to the Company. The
Company has recorded $769, $576, and $954, in costs under this contract during
fiscal years 1997, 1998, and 1999, respectively, which are included in selling,
general and administrative costs in the accompanying combined and consolidated
statement of operations. The current contract expires on December 31, 2000, and
the Company is obligated to pay an additional $954 for management services
during 2000.

Related Party Working Capital Financing

The Company has generated payables to and receivables from SPI, primarily as
a result of the purchase of RTCs from SPI and the subsequent sale of broken
RTCs to SPI. Additionally, the Company has recorded receivables and payables
from other related parties. The Company receives interest on its receivables
and accrues interest on its payables at 7.5%.

The Company has recorded net interest income (expense) from related parties
which principally consist of SLI and SPI of approximately ($1,266), $215, and
$72, during fiscal years 1997, 1998, and 1999, respectively.

Capital Distribution

During 1997, IFCO Europe purchased a patent for a type of plastic RTC from
SPI for $8,635. The patent had been internally developed by another related
party and had a nominal carrying value. As this represented a transfer of
assets under common control, the amount paid for the patent has been treated as
a capital distribution, and IFCO Europe is carrying the patent at the nominal
carrying value.

Cost Reimbursement Agreement

In January 1999, the Company entered into an additional agreement with
Schoeller Plast AG, an indirect 80%-owned subsidiary of SLI, in which Schoeller
Plast AG agreed to share higher initial costs related to the strategic growth
of the RTC leasing and supply business up to a maximum amount of DM 6.0 million
($3,272) for the year ended 1999. For the year ended December 31, 1999,
Schoeller Plast AG has reimbursed the Company DM 6.0 million ($3,272) which has
been recorded as a reduction of cost of goods sold. The agreement terminated at
the end of 1999 and subsequent to December 31, 1999, no further costs related
to the agreement will be reimbursed.

F-22

IFCO SYSTEMS N.V.

NOTES TO THE FINANCIAL STATEMENTS--(Continued)

10. MERGER AND INTEGRATION COSTS:

The major components of merger and integration costs are as follows:

1999
------

PalEx transaction costs........................................... $2,800
Restructuring costs............................................... 564
Other............................................................. 155
------
$3,519
======

In connection with the merger between the Company and PalEx on March 8,
2000, the Company agreed to reimburse PalEx for their transaction costs
incurred during 1999 of approximately $2,800. These costs are expensed as they
are not direct costs of acquisition for the Company. In connection with the
restructuring of IFCO Systems N.V. due to the PalEx merger, four operational
employees were terminated during 1999. Costs incurred during 1999 relating to
this restructuring total $564, and are included in "merger and integration
costs" in the statement of operations. At December 31, 1999, the remaining
accrual balance is $500 and is included in accrued expenses and other current
liabilities on the balance sheet.

11. BUSINESS SEGMENTS:

The Company has three business segments, the European plastic RTC operations
("European perishables"), the dry good RTC operations ("Dry goods"), and the
non-European plastic RTC operations ("Non-European perishables"). The European
perishables and Non-European perishables segments sell, repair/wash, lease and
retrieve plastic RTCs primarily for use in agricultural markets. The Dry goods
segment has a reusable packing system for dry goods, primarily for use in
industrial markets.

The accounting policies for the segments are the same as those described in
Note 2, Summary of Significant Accounting Policies. The Company evaluates the
performance of its reportable segments and allocates resources based on
operating profit.

As discussed in Note 2, Summary of Significant Accounting Policies,
accumulated loss in excess of investments in equity entities relates to the
amount shown in the combined and consolidated balance sheet of a portion of
IFCO-US's and IFCO-Japan's losses recognized in excess of the carrying value of
the investments in IFCO-US and IFCO-Japan. Losses from equity entities
represents the portion of IFCO-US and IFCO Japan's losses that the Company has
recognized in the combined and consolidated statements of operations.

Year ended December 31, 1997
-----------------------------------------------------------
European Dry Non-European Combined and
perishables goods perishables Eliminations consolidated
----------- ------- ------------ ------------ ------------

Revenues................ $108,674 $ 9,580 $ 292 $ -- $118,546
Profit (loss) before
taxes.................. (7,338) (424) (4,031) (11,793)
Interest revenue........ 4,031 240 71 (455) 3,887
Interest expense........ (14,236) (244) (277) 455 (14,302)
Depreciation and RTC
breakage............... (25,009) (1,783) (137) -- (26,929)
Amortization of
goodwill............... (675) -- -- -- (675)
Total assets............ 237,629 15,242 2,411 (5,725) 249,557
Accumulated loss in
excess of investments
in equity entities..... -- -- (3,136) -- (3,136)
Losses from equity
entities............... -- -- (2,347) -- (2,347)
Capital expenditures.... (37,713) (1,783) (73) -- (39,569)

F-23

IFCO SYSTEMS N.V.

NOTES TO THE FINANCIAL STATEMENTS--(Continued)

Year ended December 31, 1998
-----------------------------------------------------------
European Dry Non-European Combined and
perishables goods perishables Eliminations consolidated
----------- ------- ------------ ------------ ------------

Revenues................ $125,128 $ 9,901 $ 1,147 $ -- $136,176
Profit (loss) before
taxes.................. (2,644) (470) (4,227) -- (7,341)
Interest revenue........ 1,660 238 7 (298) 1,607
Interest expense........ (11,910) (133) (356) 298 (12,101)
Depreciation and RTC
breakage............... (25,927) (1,917) (207) -- (28,051)
Amortization of
goodwill............... (383) -- -- -- (383)
Total assets............ 267,866 17,954 2,777 (4,144) 284,453
Accumulated loss in
excess of investments
in equity entities..... -- -- (4,472) -- (4,472)
Losses from equity
entities............... -- -- (2,726) -- (2,726)
Capital expenditures.... (37,690) (2,122) (383) -- (40,195)

Year ended December 31, 1999
-----------------------------------------------------------
European Dry Non-European Combined and
perishables goods perishables Eliminations consolidated
----------- ------- ------------ ------------ ------------

Revenues................ $141,984 $10,154 $ 2,588 $ -- $154,726
Profit (loss) before
taxes.................. (9,464) 900 (3,879) -- (12,443)
Interest income......... 834 76 8 (318) 600
Interest expense........ (11,217) (998) (634) 315 (12,534)
Depreciation and RTC
breakage............... (33,517) (1,474) (814) -- (35,805)
Amortization of
goodwill............... (289) -- -- -- (289)
Total assets............ 255,381 13,527 6,696 (8,983) 266,621
Accumulated loss in
excess of investments
in equity entities..... -- -- (5,623) -- (5,623)
Losses from equity
entities............... -- -- (1,738) -- (1,738)
Capital expenditures.... (29,256) (1,390) (121) -- (30,767)

Eliminations for revenue and expense items above are made to eliminate
intercompany sales and expenses. Eliminations for total asset are made for
intercompany receivables and investments in other affiliated entities.

The Company's revenue by country, based on the location of the customer, is
as follows:

Year ended December 31,
--------------------------
1997 1998 1999
-------- -------- --------

Germany.......................................... $ 44,616 $ 49,838 $ 60,189
Spain............................................ 20,914 23,727 22,091
Italy............................................ 14,746 18,369 19,305
France........................................... 10,043 11,208 11,998
Other............................................ 28,227 33,034 41,143
-------- -------- --------
Combined and consolidated........................ $118,546 $136,176 $154,726
======== ======== ========

The Company's long-lived assets by country are as follows:

1998 1999
-------- --------

Germany................................................... $182,274 $179,023
Other..................................................... 2,201 5,958
-------- --------
Combined and consolidated................................. $184,475 $184,981
======== ========

F-24

IFCO SYSTEMS N.V.

NOTES TO THE FINANCIAL STATEMENTS--(Continued)

12. EQUITY ENTITIES:

Summarized combined financial data of IFCO-US and IFCO-Japan, entities
accounted for under the equity method by the Company, is as follows:

At December 31,
----------------------------
1997 1998 1999
-------- -------- --------

Total assets................................... $ 20,058 $ 22,186 $ 38,682
Total liabilities.............................. $(27,437) $(32,783) $(52,727)
Members' deficit............................... $ (7,379) $(10,597) $(14,045)

Summarized income information for IFCO-US and IFCO-Japan is as follows:

At December 31,
-------------------------
1997 1998 1999
------- ------- -------

Revenue........................................... $ 3,709 $ 6,252 $12,447
Gross margin (loss)............................... (1,132) 213 4,478
Loss from operations.............................. (3,405) (3,213) (1,420)
Net Loss.......................................... (4,641) (5,303) (3,440)

13. SUBSEQUENT EVENTS:

Merger and IPO

On March 8, 2000, the Company completed the merger with PalEx upon the
approval of the shareholders of PalEx, in addition to an initial public
offering. Under the terms of the merger agreement, 7.4 million shares of IFCO
Systems N.V. common stock was issued to PalEx shareholders. Also, approximately
$71.4 million was paid to former PalEx shareholders in exchange for
approximately 8.2 million shares of PalEx common stock. The merger will be
accounted for under purchase accounting, with the purchase price allocated to
the acquired assets and assumed liabilities based on fair market value. The
gross proceeds received by the Company from the IPO was $222.2 million.

Issuance of Shares to SLT

Effective March 1, 2000, the Company issued to SLT a total of 995,000 common
shares in connection with the contribution of IFCO Europe, MTS, and SIL.

Debt Offering

Effective March 3, 2000, the Company issued 10 5/8% Senior Subordinated
Notes ("SSN") in the amount of (Euro)200,000,000 ($192,349). The Company has
agreed to register similar notes with the SEC.

Debt Extinguishment

On March 8, 2000, the Company repaid the remaining outstanding balance under
the Senior Facility Agreement in the amount of DM 119 million ($58.4 million)
and repaid the remaining balance under the Senior Subordinated Agreement in the
amount of DM 35 million ($17.2 million).

Release of GECC's Options and Purchase of GECC's Interest in IFCO-Europe

On March 8, 2000, the Company made a payment of DM 43 million ($21.0
million) to GECC in exchange for the release of options and rights to purchase
shares in the IFCO Companies. The Company received a 4.5% discount on the
original contractual amount of DM 45 million payable to GECC.

F-25

IFCO SYSTEMS N.V.

NOTES TO THE FINANCIAL STATEMENTS--(Continued)

On February 29, 2000 a debenture in the amount of DM 45 million ($22,151)
has been issued to GECC by SLT in exchange for the contribution of GECC's
preferred share in IFCO Europe to SLT. On March 1, 2000 SLT contributed this
preferential share to IFCO Systems N.V., effectively making IFCO Systems N.V.
the 100% shareholder of IFCO Europe. This debenture has a 30 year term and
bears interest at 5% per year. The debenture is convertible to IFCO Systems
N.V. ordinary shares that are held by SLT after a mandatory holding period.

Purchase of IFCO-US

On March 10, 2000, the Company paid $5.0 million to Intertape for its 49%
interest in IFCO-US, giving the Company 100% ownership of IFCO-US.

Payment of Participating Rights

On March 8, 2000, the Company paid DM 2.8 million ($1,370) to ASMH to
terminate their redeemable participating rights held in SIL.

Repayment of Related Party Loans

On March 8, 2000, the Company repaid all short-term related party loans,
which are not included in accounts payable as of December 31, 1999.

F-26

IFCO SYSTEMS N.V. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Share Data)
(Unaudited)

December 31, March 31,
1999 2000
------------ ---------
ASSETS

CURRENT ASSETS:
Cash and cash equivalents............................. $ 12,240 $ 36,172
Accounts receivable................................... 64,809 139,035
Inventories........................................... -- 35,884
Other current assets.................................. 4,591 22,480
-------- --------
Total current assets................................ 81,640 233,571
PROPERTY, PLANT AND EQUIPMENT, net...................... 167,678 250,345
GOODWILL AND OTHER INTANGIBLE ASSETS.................... -- 280,121
OTHER ASSETS............................................ 17,303 39,265
-------- --------
Total assets........................................ $266,621 $803,302
======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Short-term loans...................................... $ 795 $ --
Current maturities of long-term debt and related party
loans................................................ 72,318 899
Current maturities of capital lease obligations....... 10,329 9,365
Refundable deposits................................... 66,436 71,608
Accounts payable, accrued expenses and other current
liabilities.......................................... 96,586 141,901
-------- --------
Total current liabilities........................... 246,464 223,773
ACCUMULATED LOSSES IN EXCESS OF INVESTMENT IN EQUITY
ENTITIES............................................... 5,623 --
LONG-TERM DEBT AND RELATED PARTY LOANS, net of current
maturities............................................. -- 247,268
CAPITAL LEASE OBLIGATIONS, net of current maturities.... 24,198 21,063
MINORITY INTEREST, PARTICIPATING AND REDEEMABLE
PARTICIPATING RIGHTS................................... 30,008 --
OTHER LONG-TERM LIABILITIES............................. -- 18,376
COMMITMENTS AND CONTINGENCIES...........................
STOCKHOLDERS' EQUITY:
Ordinary shares, (Euro)2 nominal value, 25,000,000 and
100,000,000 authorized shares, respectively; 25,000
and 42,538,672 issued and outstanding, respectively.. 54 87,102
Additional paid-in capital............................ 10,339 275,421
Accumulated other comprehensive income:
Foreign currency translation adjustment............. 2,672 5,672
Accumulated deficit................................... (52,737) (75,373)
-------- --------
Total stockholders' equity.............................. (39,672) 292,822
-------- --------
Total liabilities and stockholders' equity.......... $266,621 $803,302
======== ========

The accompanying notes are an integral part of these condensed consolidated
financial statements.

F-27

IFCO SYSTEMS N.V. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In Thousands, Except Share and Per Share Data)
(Unaudited)

Three Months Ended
-----------------------
March 31, March 31,
1999 2000
---------- ----------

REVENUES.............................................. $ 38,799 $ 57,263
COST OF GOODS SOLD.................................... 31,289 47,319
---------- ----------
Gross profit...................................... 7,510 9,944
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.......... 6,137 6,865
MERGER TRANSACTION EXPENSES........................... 582 1,283
GOODWILL AMORTIZATION................................. 72 642
OTHER OPERATING INCOME, NET........................... (234) (147)
---------- ----------
Income from operations............................ 953 1,301
INTEREST EXPENSE, NET................................. (3,081) (4,303)
FOREIGN CURRENCY LOSSES, NET.......................... (185) (152)
LOSS FROM EQUITY ENTITY............................... (521) (417)
OTHER EXPENSE, NET.................................... (404) (110)
---------- ----------
LOSS BEFORE INCOME TAXES AND MINORITY INTEREST........ (3,238) (3,681)
INCOME TAX PROVISION (BENEFIT)........................ 34 (707)
MINORITY INTEREST..................................... (65) --
---------- ----------
LOSS BEFORE EXTRAORDINARY LOSS AND CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE.................... (3,337) (2,974)
EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT OF DEBT.... -- (5,600)
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE... -- 770
---------- ----------
NET LOSS.............................................. $ (3,337) $ (7,804)
========== ==========
LOSS PER SHARE--basic and diluted, before
extraordinary item and cumulative effect of change in
accounting principle................................. $ (.17) $ (.12)
Extraordinary item--loss on early extinguishments of
debt................................................. -- (.22)
Cumulative effect of change in accounting principle... -- .03
---------- ----------
NET LOSS PER SHARE--basic and diluted................. $ (.17) $ (.30)
========== ==========
Weighted average shares used in computing net loss per
share--basic and diluted............................. 20,000,000 25,603,018

The accompanying notes are an integral part of these condensed consolidated
financial statements.

F-28

IFCO SYSTEMS N.V. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands)
(Unaudited)

Three Months Ended
-------------------
March 31, March 31,
1999 2000
--------- ---------

Net loss.................................................... $(3,337) $(7,804)
Other comprehensive income:
Foreign currency translation adjustment................... 2,629 3,000
------- -------
Comprehensive loss.......................................... $ (708) $(4,804)
======= =======

The accompanying notes are an integral part of these condensed consolidated
financial statement.

F-29

IFCO SYSTEMS N.V. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)
(Unaudited)

Three Months Ended
--------------------
March 31, March 31,
1999 2000
--------- ---------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................. $ (3,337) $ (7,804)
Adjustments to reconcile net income to net cash provided
by (used in) operating activities--
Depreciation and amortization.......................... 10,060 14,993
Foreign currency exchange loss......................... 185 153
Loss on sale of assets................................. -- 6
Losses from equity entities............................ (521) (417)
Changes in operating assets and liabilities--
Accounts receivable.................................. (20,135) (8,357)
Inventories.......................................... (1,077) (663)
Other current assets................................. (293) (1,832)
Accounts payable and accrued expenses................ 16,512 (14,523)
Other assets and liabilities......................... (155) (141)
-------- --------
Net cash provided by (used in) operating activities.... 1,239 (18,585)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of RTCs........................................ (16,789) (6,623)
Purchases of property, plant and equipment............... (46) (2,381)
Proceeds from sale of equipment.......................... 570 39
Purchase of intangible assets............................ (207) (40,134)
Purchase of investments carried at cost.................. (826) (566)
Cash paid for business acquisitions, net of cash
acquired................................................ -- (77,052)
-------- --------
Net cash used in investing activities.................. (17,298) (126,717)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt and related party loans..... 1,755 251,747
Payments on long-term debt and related party loans....... (3,387) (251,988)
Payments of acquired indebtedness of purchased
companies............................................... -- (34,888)
Payments on capital lease obligations.................... (1,836) (2,072)
Payments for termination of participating rights......... -- (3,135)
Net proceeds from factoring.............................. 1,185 --
Net proceeds from issuance of common stock............... -- 207,532
Net proceeds from exercise of stock options.............. -- 2,034
Distributions to stockholders............................ (128) --
-------- --------
Net cash (used in) provided by financing activities.... (2,411) 169,230
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS............................................... -- 4
-------- --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS....... (18,470) 23,932
CASH AND CASH EQUIVALENTS--beginning of period........... 23,642 12,240
CASH AND CASH EQUIVALENTS--end of period................. $ 5,172 $ 36,172
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for--
Interest............................................... $ 3,098 $ 5,394
Income taxes........................................... $ 11 $ 22

The accompanying notes are an integral part of these condensed consolidated
financial statements.

F-30

IFCO SYSTEMS N.V. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2000
(Unaudited)

1. BASIS OF PRESENTATION

IFCO Systems N.V. (the "Company" or "IFCO"), which was incorporated under
the laws of the Netherlands on March 31, 1999, is a holding company for IFCO
Europe Beteiligungs GmbH ("IFCO Europe"), MTS Okologistik GmbH ("MTS"), IFCO
International Network Beteiligungsgesellschaft mbH (formerly known as
Schoeller International Logistics Beteiligungsgesellschaft mbH) ("IFCO
International", and together with IFCO Europe and MTS, the "IFCO Companies"),
and PalEx, Inc. and its subsidiaries ("PalEx"), which was acquired by merger
(the "Merger") on March 8, 2000 concurrently with the Company's initial public
offering and related transactions. As such, PalEx's financial position and
results of operations for the period from March 8, 2000 through March 31, 2000
are included in the accompanying condensed consolidated financial statements.

The accompanying financial statements have been prepared in accordance with
U.S. generally accepted accounting principles. Unless otherwise noted, all
amounts are shown in U.S. dollars, which IFCO has elected as its reporting
currency. The Company's assets, liabilities, revenues, and expenses are
subject to exchange rate fluctuations between the U.S. dollar and the Deutsch
mark, since the Deutsch mark is the functional currency of the Company's
European operations.

The IFCO Companies have been identified as the accounting acquiror for
financial reporting purposes.

The Company

IFCO Europe, a German company that is 100% owned by the Company, is
involved in the organization and administration of the purchase, distribution
and leasing of round-trip container ("RTC") systems in Germany and other
European countries. The RTCs are leased primarily to producers of fresh fruit
and vegetables in exchange for a one-time usage fee. The producers' goods are
transported in the RTCs to various intermediaries and ultimately retailers for
sale to consumers. IFCO Europe delivers the empty RTCs to customers' bulk
warehouses and collects the empty RTCs from regional service points, where the
RTCs are transported to the Company's depots and cleaned for reuse.

MTS, a German company that is 100% owned by the Company, was established in
1992 and offers a reusable packing system for dry goods sold primarily by
retailers. MTS's business processes are generally similar to those of IFCO
Europe.

IFCO International, a German company that is 100% owned by the Company, was
established in 1994 to hold ownership interests in RTC systems in the United
States, Argentina and Japan. The operation in Argentina is wholly owned and is
consolidated within IFCO International. IFCO International owns a 33%
ownership investment in the Japanese operations. The operation in Japan is
accounted for under the equity method. IFCO International's share of operating
losses in the Japanese operation ("IFCO-Japan") has exceeded its initial
capital investment and, accordingly, the investment in IFCO-Japan has been
reduced to zero. In 1999, IFCO Internatinoal agreed to fund its proportionate
share of the losses of IFCO-Japan. Effective with the date of the Merger, the
Company now owns 100% of IFCO-U.S. L.L.C. ("IFCO-U.S"), which operates the
Company's RTC system in the United States. IFCO International's business
processes are generally similar to those of IFCO Europe.

PalEx, a U.S. company that is 100% owned by the Company, was founded in
January 1996 to create a nationwide provider of pallet products and related
services. Between the time of its founding and October, 1998, PalEx acquired,
either directly or through other subsidiaries, 27 companies, three of which
were its

F-31

IFCO SYSTEMS N.V. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

founding companies and eight of which are engaged in the reconditioning and
rebuilding of industrial steel containers. One is engaged in the rental of
pallets in Canada.

The Company's headquarters are located in Amsterdam, the Netherlands. Its
European subsidiaries' headquarters are in Pullach, Germany, and its North
American subsidiaries' headquarters are in Houston, Texas. There are operations
in approximately 60 locations in Europe, 11 locations in Japan, 6 locations in
Argentina and approximately 80 locations in North America.

The accompanying unaudited condensed consolidated financial statements are
prepared pursuant to the rules and regulations for reporting interim results
for companies listed on the SMAX segment of the Frankfurt Stock Exchange.
Accordingly, certain information and footnotes required by United States
generally accepted accounting principles for complete financial statements are
not included herein. The Company believes all adjustments necessary for a fair
presentation of these interim statements have been included. The interim
statements should be read in conjunction with the Audited Financial Statements.

The Merger and Initial Public Offering

In March 2000, IFCO completed the merger of PalEx with and into Silver Oak
Acquisition Corp., IFCO's newly formed, wholly owned subsidiary, which changed
its name to "PalEx, Inc." As a result of the merger and related transactions,
IFCO owns all of the stock of the IFCO Companies and PalEx. In the merger,
PalEx stockholders received merger consideration with a total value of $9.00
per share consisting of cash and/or the Company's ordinary shares for each
share of PalEx common stock. The total merger consideration for all the shares
of PalEx common stock was $71.4 million in cash and 7.4 million of IFCO's
ordinary shares based on elections by PalEx stockholders and adjustments
pursuant to the merger agreement. The total consideration for the merger was
$184.5 million for the PalEx common stock plus the assumption of debt of PalEx,
which was $153.5 million as of March 8, 2000.

In connection with the merger, IFCO also completed an initial public
offering of 13.0 million ordinary shares in March 2000 and subsequently issued
an additional 1.95 million ordinary shares upon the underwriters' exercise of
their overallotment option (collectively, the "IPO"). The total net proceeds to
the Company from the IPO, including the exercise of the overallotment option,
were $211.4 million. Effective March 8, 2000, the Company issued 10 5/8% Senior
Subordinated Notes Due 2010 ("Senior Subordinated Notes") in the principal
amount of (Euro)200.0 million ($181.9 million, based on current exchange
rates). The net proceeds from the IPO, the net proceeds from the Senior
Subordinated Notes, borrowings from the Company's new senior credit facility,
along with cash on hand, were used to repay a substantial portion of the debt
of the IFCO Companies and PalEx, to pay the cash portion of the merger
consideration to PalEx stockholders in the amount of $71.4 million, to fund the
cash payment due to GE Capital Corporation ("GE Capital") described below, and
to fund IFCO's purchase of the remaining joint venture interest in IFCO-U.S.

In addition, IFCO, together with Schoeller Logistics Industries GmbH
("Schoeller Industries"), the shareholders of Schoeller Industries, Schoeller
Plast Industries GmbH, and Gebruder Schoeller Beteiligungsverwaltungs GmbH
entered into the Option Release and IPO-Facilitation Agreement with GE Capital
and General Electric Erste Beteiligungs GmbH ("GE Erste"), in connection with
the merger and the IPO. Pursuant to that agreement, Schoeller Logistic
Technologies Holding GmbH ("SLT") issued a DM45.0 million, or approximately
$20.9 million, convertible debenture to GE Erste in exchange for the
contribution of the preferential share of IFCO Europe owned by GE Erste. The
Company also paid GE Capital DM43.0 million, or approximately $21.0 million,
out of the net proceeds of the IPO, the offering of the Senior Subordinated
Notes, and the initial borrowings under the new senior credit facility in
consideration of the release of GE Capital's and GE Erste's options and other
rights to purchase shares of the IFCO Companies.

F-32

IFCO SYSTEMS N.V. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Effective March 1, 2000, the Company issued a total of 995,000 (4,975,000
split effected) common shares in connection with the contribution of IFCO
Europe, MTS, and IFCO International to IFCO.

On March 8, 2000, the Company repaid the remaining outstanding balance under
its previous senior facility agreement in the amount of DM119 million ($58.4
million) and repaid the remaining balance under the previous senior
subordinated agreement in the amount of DM35 million ($17.2 million).

On March 8, 2000, in connection with the IPO and the refinancing of IFCO,
the Company made a payment of DM8.0 million ($3.9 million) to Schoeller Plast
Industries GmbH for the termination of participating rights. This payment was
an estimate of the amount required to terminate the participating rights. The
Company will be reimbursed by the participating rights holder for an
overpayment of approximately DM1.7 million ($0.8 million).

On March 8, 2000, the Company paid DM2.8 million ($1.4 million) to terminate
the redeemable participating rights held in IFCO International.

On March 8, 2000, the Company repaid all short-term related party loans.

Prior to the merger, during the three months ended March 31, 2000, the
Company declared a five-for-one ordinary share split. Ordinary shares
authorized, issued and outstanding have been restated on the accompanying
condensed consolidated balance sheets to reflect the split. Nominal value was
changed from (Euro)10 to (Euro)2.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company maintains its accounting records using a calendar year, except
for PalEx, which uses a 52/53 week year ending on the last Sunday in December.

Except as discussed in the following paragraph, there has been no
significant change in the accounting policies of the Company during the periods
presented. For a description of these policies, refer to Note 2 of Notes to the
Audited Financial Statements.

The Company undertook a comprehensive review of its RTC refurbishment cost
capitalization policies. The results of this review led the Company to conclude
that it should adopt the accounting method that it believes most fairly matches
the cost of refurbishing RTCs with the revenue cycle of RTCs. Previously, the
Company charged cost of sales for refurbishing costs at the end of the RTC trip
cycle. The Company now charges costs of sales for refurbishing expenses when
the RTC begins the trip cycle. The reasoning underlying this change in
accounting policy is that refurbishing the RTC prepares it for the next trip
cycle. While the accounting policy for refurbishing costs previously followed
by the Company was in accordance with generally accepted accounting principles,
the changed policy is preferable. The effect of this change in accounting for
the three months ended March 31, 2000 was a credit of $0.8 million ($.03 per
share).

3. GOODWILL RELATED TO THE MERGER

The acquisition of PalEx and the remaining interest in IFCO-U.S were
accounted for as purchases and have been reflected in the Company's financial
statements as of March 8, 2000. The aggregate consideration paid in these
transactions was $77.1 million in cash and 7.4 million of the Company's
ordinary shares with a fair value of approximately $110.7 million based on the
initial public offering price of the ordinary shares. The accompanying balance
sheet as of March 31, 2000 includes allocations of the purchase price. The
allocations resulted in approximately $74.7 million in goodwill. The goodwill
from the purchase of PalEx and remaining interest in IFCO-U.S. is being
amortized over 30 years.

F-33

IFCO SYSTEMS N.V. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

4. LONG-TERM DEBT

On the closing date of the IPO and the merger, IFCO and PalEx entered into a
new syndicated, secured senior credit facility, which was amended and restated
on March 31, 2000, to complete the syndication. The syndicate of banks,
financial institutions, and other entities includes Canadian Imperial Bank of
Commerce and Bank One, Texas, NA. PalEx is the borrower, and IFCO and IFCO's
other subsidiaries are guarantors. CIBC World Markets Corp. and Bank One
Capital Markets, Inc., are the co-arrangers, and Bank One, Texas, NA is also
the administrative agent. The new senior credit facility replaced the former
credit facilities of IFCO Europe discussed below and PalEx's senior credit
facility, the outstanding balances of all of which were repaid in March 2000
with cash on hand, the net proceeds of the IPO and the offering of the Senior
Subordinated Notes discussed below, and initial borrowings under the new senior
credit facility.

The new senior credit facility provides for borrowings of up to $235.0
million and consists of (1) a multi-draw term loan facility in an aggregate
principal amount of up to $108.75 million and (2) a revolving credit facility
providing for revolving loans to PalEx of up to $126.25 million. The term loan
may be borrowed in up to 20 drawings commencing on the closing date of the IPO
and the merger and ending on the third anniversary of the closing date. The
term loan facility may be used only to finance permitted acquisitions.
Permitted acquisitions include any acquisition in which the total consideration
paid does not exceed $25.0 million. The aggregate amount of consideration IFCO
or its subsidiaries pay in connection with permitted acquisitions during any
consecutive 12-month period may not exceed $90.0 million. There was $28.0
million outstanding under the new senior credit facility as of March 31, 2000.

PalEx is able to draw on the revolving credit facility from the closing date
of the IPO and the Merger through the third anniversary of the closing date.
The revolving credit facility matures on the sixth anniversary of the closing
date. The revolving credit facility may be utilized to make capital
expenditures and to finance the working capital needs of IFCO and its
subsidiaries in the ordinary course of business and to pay fees and expenses
related to the transactions. The borrowing base under the revolving credit
facility is based on a percentage of IFCO's eligible accounts receivable,
eligible inventory, and eligible RTCs. Eligible inventory includes RTCs and
pallets that IFCO and its subsidiaries own for lease to third parties, and
eligible RTCs are those owned by IFCO-U.S.

The outstanding amounts under the term loan and the revolving credit
facility, as well as the swingline facility described below, bear interest at
interest rates determined based upon the Company's consolidated total leverage
ratio, which is defined in the new senior credit facility, and changes
quarterly commencing with September 30, 2000. The rates range from a high of
300 basis points over LIBOR and 200 basis points over prime rate, if the
Company's consolidated total leverage ratio is greater than 3.25, to a low of
200 basis points over LIBOR and 100 basis points over prime rate, if the
Company's consolidated total leverage ratio is less than 1.75. The new senior
credit facility establishes a 25 basis point increase if the consolidated total
leverage ratio is 1.75 to less than 2.25 and a similar increase for each .50
increase in the consolidated total leverage ratio. Generally the Company may
elect one-, two-, three- and six-month LIBOR.

F-34

IFCO SYSTEMS N.V. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

PalEx has available to it a multi-currency swingline facility for short-term
borrowings denominated in certain readily available and freely tradable
currencies in an amount not to exceed $50.0 million and a dollar swingline
facility in an amount not to exceed $25.0 million. Any multi-currency swingline
loan or dollar swingline loan reduces availability under the revolving facility
on a dollar-for-dollar basis. PalEx may obtain letters of credit, in an
aggregate amount not in excess of $25.0 million of the revolving facility,
issued by Canadian Imperial Bank of Commerce and Bank One, NA. Drawings under
any letter of credit will be reimbursed by PalEx on the same business day.

PalEx's obligations under the new senior credit facility are guaranteed by
IFCO and each of its existing and future direct and indirect subsidiaries,
other than subsidiaries deemed immaterial by the administrative agent. The new
senior credit facility and the guarantees are secured by a perfected first
priority security interest in all of the loan parties' substantial tangible and
intangible assets, except for those assets the co-lead arrangers determine in
their sole discretion that the cost of obtaining the security interest are
excessive in relation to the value of the security.

The new senior credit facility contains a number of covenants that, among
other things, limit IFCO's and its subsidiaries' ability to dispose of assets,
incur additional debt, merge or consolidate, pay dividends, create liens on
assets, enter into sale and leaseback transactions, make investments, loans, or
advances, make acquisitions, make capital expenditures, prepay debt, or engage
in certain transactions with affiliates, and otherwise restricts certain
corporate activities. In addition, the new senior credit facility requires that
IFCO and its subsidiaries comply with specified ratios and tests, including a
minimum net worth test, a fixed charge coverage ratio, an interest coverage
ratio, a leverage ratio, and a minimum EBITDA requirement. At March 31, 2000,
the Company was in compliance with all covenants of the new senior credit
facility.

On March 8, 2000, IFCO issued (Euro)200.0 million principal amount of Senior
Subordinated Notes, which translates to approximately $181.9 million, based on
current exchange rates, in a private placement. The total net proceeds to the
Company from the issuance of the Senior Subordinated Notes were $184.7 million.
The Senior Subordinated Notes mature on March 15, 2010. Interest at the rate of
10 5/8% per year from the date of issuance is payable semiannually in arrears
on each March 15 and September 15 commencing September 15, 2000. The Senior
Subordinated Notes are not secured, but are guaranteed by the Company's
material subsidiaries. The notes and the guarantees rank behind all of IFCO's
existing and future senior debt, including IFCO's obligations under the new
senior credit facility. The indenture governing the Senior Subordinated Notes
contains a number of significant covenants, which restrict IFCO's corporate and
business activities, including its ability to dispose of assets, incur
additional debt, prepay other debt, pay dividends, repurchase or redeem capital
stock, enter into specified investments or create new subsidiaries, enter in to
sale and lease-back transactions, make specific types of acquisitions, engage
in mergers or consolidations, create liens, or engage in certain transactions
with affiliates.

The new senior credit facility permits specified levels of receivable
factoring. During 1994, IFCO Europe had entered into a factoring agreement
under which IFCO Europe could offer all of its trade receivables to a factoring
agent. Under the factoring agreement, the sales price is the nominal value of
the receivable less a factoring fee of 0.6% of the nominal value of the
factored receivables. The factoring agent has the right to collect the
receivables and bears the collection risk. The factoring agent is required to
remit 75% of the

F-35

IFCO SYSTEMS N.V. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

factored receivables to IFCO Europe. The remainder, less the factoring charge,
is held in an escrow account and is remitted to IFCO Europe following
collection. The interest rate on cash advances relating to factored receivables
is based on the three-month EURIBOR rate plus 1.25%, or 5.1% as of March 31,
2000. For the three months ended March 31, 2000, IFCO Europe factored 48% of
its revenues and incurred factoring and interest charges of $1.0 million.

At March 31, 2000, IFCO had entered into several capital lease agreements
resulting in total capital lease obligations of $30.4 million.

5. NET LOSS PER SHARE

Net loss per share--basic for the three months ended March 31, 2000 was
computed using 25,603,018 weighted average shares (the shares attributable to
the IPO, the shares issued to the stockholders of PalEx, the shares allocated
for future transfers to shareholders of the Company's Canadian subsidiary, the
shares issued to the former shareholders of IFCO Europe, MTS and IFCO
International, and the shares issued through March 31, 2000 pursuant to the
exercise of stock options). Unaudited net loss per share--basic for the three
months ended March 31, 1999 was computed using the 20,000,000 outstanding
ordinary shares, which were issued to the existing IFCO Companies' shareholders
prior to the merger and reflects the five-for-one ordinary share split. The
effect of unexercised stock options determined under the treasury method was
anti-dilutive for the three months ended March 31, 2000 and March 31, 1999.

In conjunction with the merger, each option to purchase PalEx common stock
that was outstanding on the date of the merger was converted into an option to
purchase a certain number of ordinary shares of IFCO, as determined by the
merger agreement. The PalEx options became immediately vested upon completion
of the merger and conversion to IFCO options.

6. COMMITMENTS AND CONTINGENCIES

Litigation

In 1998, one of the Company's subsidiaries was assessed a charge related to
value added tax by the Swiss government in the amount of approximately $2.0
million, resulting from differing interpretations of the Company's RTC activity
in Switzerland. The Company objects to the charge and is currently negotiating
with the tax authorities. The Company accrued an amount during 1999 that it
believes to be a probable liability.

Potential Environmental Liabilities

In February 1998, PalEx acquired Drum Service of Florida ("DSF"), a steel
drum reconditioning company with a facility in Zellwood, Florida. DSF is a
wholly-owned subsidiary of PalEx Container Systems, Inc., a wholly owned
subsidiary of PalEx ("PCS"). In 1982, DSF was notified by the U.S.
Environmental Protection Agency (the "EPA") and the Florida Department of
Environmental Regulation (the "DER") that they believed that DSF might be a
potentially responsible party ("PRP") regarding the Zellwood Groundwater
Contamination Site in Orange County, Florida (the "Zellwood Site"). The
Zellwood Site was designated a "Superfund" environmental clean-up site after
the DER discovered arsenic contamination in a shallow monitoring well adjacent
to it. The DSF facility is a portion of the 57 acres constituting the Zellwood
Site. The Company believes that DSF and its former shareholders were among
approximately 25 entities and individuals identified as PRPs by the EPA.

F-36

IFCO SYSTEMS N.V. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

$2 million of the EPA's costs regarding the Zellwood Site and requested the
PRPs to accept financial responsibility for additional clean-up efforts. During
that time, the EPA estimated that the cost of the selected remedy for soil at
the Zellwood Site would be approximately $1 million and the cost of the
selected remedy for groundwater at the Zellwood Site would be approximately
$5.1 million. DSF and the other PRPs did not agree to the EPA's demands or
agree to fund any additional clean-up. In April 1997, the EPA issued an order
unilaterally withdrawing its previous orders.

On June 12, 1998 a suit was filed in the United States District Court for
the Middle District of Florida (Orlando Division) against DSF and certain other
PRPs with respect to the Zellwood Site (United States of America v. Drum
Service Co. of Florida, John Michael Murphy, Douglass Fertilizer & Chemical,
Inc., et, al., Civil No. 98-687-Civ-Orl-22C) (the "Zellwood Suit"). In this
lawsuit, the EPA is seeking reimbursement of costs incurred at the Zellwood
Site during the past 17 years and a declaratory judgment for future response
costs.

DSF has maintained comprehensive general liability insurance coverage for
over 25 years, and a number of the policies providing such coverage did not
contain exclusions for environmental contamination. DSF has notified the
insurers that issued such policies of the EPA's claims regarding the Zellwood
Site and the commencement of the Zellwood Suit. The insurer has now agreed to
pay DSF's legal fees and expenses in defending the EPA lawsuit and to reimburse
DSF for past legal fees and expenses. In addition, the former shareholders of
DSF have agreed with DSF and PalEx to bear liabilities and expenses with
respect to the Zellwood Site, to the extent such liabilities exceed DSF's and
PalEx's insurance recoveries.

DSF and several other PRPs are currently negotiating with the EPA to settle
the Zellwood Suit. DSF intends to vigorously defend the Zellwood Suit and
pursue its insurance coverage with respect to losses and expenses incurred in
connection with the Zellwood Site. Although there can be no assurance as to any
ultimate liability of DSF under the Zellwood Suit, the amount of recoveries
from other PRPs or the insurance coverage, or the amount of insurance
recoveries, the Company's management believes that DSF's insurance coverage,
recoveries from other PRPs and the obligations of DSF's former shareholders
will be adequate to cover any liability or expenses of DSF arising from the
Zellwood Suit. The accompanying consolidated balance sheet as of March 31, 2000
includes a $2.0 million receivable from a former shareholder of DSF and a
corresponding amount in other long-term liabilities.

7. BUSINESS SEGMENTS

As a result of the merger, the Company now has two business segments, one
operating in the materials handling services industry ("Systems and Services")
and the other in the pallet manufacturing industry ("Manufacturing"). The
Systems and Services segment leases RTCs in Europe, North and South America and
Japan, recycles, sells, repairs, leases and retrieves wooden pallets in the
United States and Canada primarily for use in agricultural and industrial
markets and reconditions and sells steel drums in the United States primarily
for use in agricultural and industrial markets. The Manufacturing segment
manufactures wooden pallets and crates in the United States primarily for use
in industrial and agricultural markets. There were no significant intercompany
sales between the two segments for the three month periods ended March 31, 1999
and March 31, 2000.

The Company's business segments are managed separately because they require
different technology and marketing strategies.

The Company evaluates the performance of its reportable segments based on
income before corporate overhead charges, interest expense, non-recurring
expenses, goodwill amortization and income taxes.

F-37

IFCO SYSTEMS N.V. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Three Months Ended March 31, 1999
-----------------------------------
Systems
and
Services Manufacturing Consolidated
-------- ------------- ------------

Revenues................................... $38,799 $ -- $38,799
======= ======= =======
Earnings contribution...................... 1,025 -- 1,025
======= =======
Corporate expenses......................... --
Interest expense........................... (3,081)
Amortization of goodwill................... (72)
Other income (expense)..................... (1,110)
-------
Income before provision for income taxes... $(3,238)
=======

Three Months Ended March 31, 2000
-----------------------------------
Systems
and
Services Manufacturing Consolidated
-------- ------------- ------------

Revenues................................... $45,042 $12,221 $57,263
======= ======= =======
Earnings contribution...................... 2,623 927 3,550
======= =======
Corporate expenses......................... (1,607)
Interest expense........................... (4,303)
Amortization of goodwill................... (642)
Other income (expense)..................... (679)
-------
Income before provision for income taxes... $(3,681)
=======

F-38

Report of Independent Certified Public Accountants

To the Board of Directors of
PalEx. Inc. and Subsidiaries:

We have audited the accompanying consolidated balance sheets of PalEx. Inc. (a
Delaware corporation) and subsidiaries as of December 26, 1999, and December
27, 1998, and the related consolidated statements of operations, comprehensive
income, changes in stockholders' equity and cash flows for the years ended
December 26, 1999, December 27, 1998, and December 28, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the 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 financial statements referred to above present fairly, in
all material respects, the financial position of PalEx, Inc. and subsidiaries
as of December 26, 1999, and December 27, 1998, and the results of their
operations and their cash flows for the years ended December 26, 1999, December
27, 1998, and December 28, 1997, in conformity with accounting principles
generally accepted in the United States.

/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP

Tampa, Florida
March 10, 2000

F-39

PALEX, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
(Note 1)

December 27, December 26,
1998 1999
------------ ------------

ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................... $ 4,157 $ 4,889
Accounts receivable, net of allowances of $1,616 and
$1,671 in 1998 and 1999, respectively.............. 44,543 49,885
Inventories......................................... 29,986 30,302
Deferred income taxes............................... 2,105 2,276
Prepaid expenses and other current assets........... 4,427 9,770
-------- --------
Total current assets.................................. 85,218 97,122
PROPERTY, PLANT AND EQUIPMENT, net.................... 75,724 75,074
GOODWILL AND OTHER INTANGIBLE ASSETS,
net of accumulated amortization of $4,648 and $9,249
in 1998 and 1999, respectively....................... 128,568 129,718
OTHER ASSETS.......................................... 2,928 2,996
-------- --------
Total assets.......................................... $292,438 $304,910
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt................ $ 1,960 $137,719
Current maturities of subordinated convertible notes
payable to related parties......................... -- 10,012
Bank overdraft...................................... 8,407 8,925
Accounts payable.................................... 9,004 8,847
Accrued expenses.................................... 10,646 19,656
Income taxes payable................................ 529 864
-------- --------
Total current liabilities............................. 30,546 186,023
LONG-TERM DEBT, net of current maturities............. 143,902 2,054
SUBORDINATED CONVERTIBLE NOTES PAYABLE TO RELATED
PARTIES, net of current maturities................... 9,910 --
DEFERRED INCOME TAXES................................. 5,350 5,653
FOREIGN DEFERRED INCOME TAXES......................... 3,957 4,326
OTHER LONG-TERM LIABILITIES........................... 3,493 3,041
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value; 5,000,000 shares
authorized, no shares issued....................... -- --
Common stock, $.01 par value; 30,000,000 shares
authorized; 20,289,091 and 20,299,341 shares
outstanding........................................ 203 203
Additional paid-in capital.......................... 79,030 79,107
Unearned compensation............................... (1,770) (1,770)
Accumulated other comprehensive income (loss):
Foreign currency translation adjustment............ (623) 1,080
Retained earnings..................................... 18,440 25,193
-------- --------
Total stockholders' equity............................ 95,280 103,813
-------- --------
Total liabilities and stockholders' equity............ $292,438 $304,910
======== ========

The accompanying notes are an integral part of these consolidated financial
statements.

F-40

PALEX, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(Note 1)

Year Ended Year Ended Year Ended
December 28, December 27, December 26,
1997 1998 1999
------------ ------------ ------------

REVENUES............................... $ 222,993 $ 319,691 $ 386,887
COST OF GOODS SOLD..................... 188,084 259,562 311,735
INVENTORY VALUATION ADJUSTMENT......... -- 1,235 --
---------- ---------- ----------
Gross Profit........................... 34,909 58,894 75,152
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES.............................. 20,135 33,042 44,249
AMORTIZATION OF GOODWILL AND OTHER
INTANGIBLE ASSETS..................... 593 3,334 4,774
POOLING EXPENSES....................... -- 1,841 --
COMPENSATION DIFFERENTIAL.............. 1,020 1,062 --
RESTRUCTURING CHARGE................... -- 949 --
PLANT CLOSURE COSTS AND ASSET
ABANDONMENT LOSS...................... -- 1,369 --
---------- ---------- ----------
Income from operations................. 13,161 17,297 26,129
INTEREST EXPENSE....................... (1,722) (8,468) (14,996)
OTHER INCOME (EXPENSE), NET............ (95) 262 1,397
---------- ---------- ----------
INCOME BEFORE PROVISION FOR INCOME
TAXES................................. 11,344 9,091 12,530
PROVISION FOR INCOME TAXES............. 4,704 5,105 5,777
---------- ---------- ----------
NET INCOME............................. $ 6,640 $ 3,986 $ 6,753
========== ========== ==========
Net income per share--basic............ $ .43 $ .21 $ .33
========== ========== ==========
Net income per share--diluted.......... $ .42 $ .21 $ .33
========== ========== ==========
Shares used in computing net income per
share--basic.......................... 15,561,489 18,937,354 20,297,424
========== ========== ==========
Shares used in computing net income per
share--diluted........................ 15,914,157 19,310,295 20,299,783
========== ========== ==========

The accompanying notes are an integral part of these consolidated financial
statements.

F-41

PALEX, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Note 1)

Year Ended Year Ended Year Ended
December 28, December 27, December 26,
1997 1998 1999
------------ ------------ ------------

Net income (loss)...................... $6,640 $3,986 $6,753
Other comprehensive income (loss):
Foreign currency translation
adjustment............................ -- (623) 1,703
------ ------ ------
Comprehensive income................... $6,640 $3,363 $8,456
====== ====== ======

The accompanying notes are integral part of these consolidated financial
statements.

F-42

PALEX, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands)
(Note 1)

Common Stock
--------------------
Accumulated
Additional Treasury Other
Stockholders' Paid-in Unearned Retained Stock Income Comprehensive
Shares Amount Capital Compensation Earnings (loss) Income (Loss) Total
------ ------------- ---------- ------------ -------- ------------ ------------- --------

BALANCE, November 30,
1996................... 9,433 $ 94 $ 6,561 $(1,980) $20,644 $(876) $ -- $ 24,443
Shares issued to profit
sharing plans.......... 143 1 800 -- -- -- -- 801
Public offering, net of
offering costs......... 3,450 35 23,529 -- -- -- -- 23,564
Acquisition of founding
companies.............. 4,087 41 17,228 -- -- -- -- 17,269
Acquisition of purchased
company................ 286 3 4,457 -- -- -- -- 4,460
Acquisition of pooled
company at inception... 245 2 92 -- 497 -- -- 591
Retire treasury shares.. -- -- -- -- (876) 876 -- --
Capital contributions... -- -- 231 -- -- -- -- 231
Capital contributions
equal to the current
income taxes of S
corporations........... -- -- 1,209 -- -- -- -- 1,209
Distributions to
stockholders, net...... -- -- -- -- (12,382) -- -- (12,382)
Net loss for the one-
month period ended
December 31, 1996...... -- -- -- -- (66) -- -- (66)
Adjustment to conform
year-end of pooled
companies.............. -- -- -- -- 467 -- -- 467
Shares released under
leveraged ESOP plan.... -- -- -- 210 -- -- -- 210
Net income, year ended
December 28, 1997...... -- -- -- -- 6,640 -- -- 6,640
------ ---- ------- ------- ------- ----- ------ --------
BALANCE, December 28,
1997................... 17,644 176 54,107 (1,770) 14,924 -- -- 67,437
Acquisition of purchased
companies.............. 2,639 27 25,502 -- -- -- -- 25,529
Exercise of stock
options................ 6 -- 49 -- -- -- -- 49
Purchase of minority
interest in pooled
company................ -- -- (751) -- -- -- -- (751)
Capital contribution.... -- -- 123 -- -- -- -- 123
Foreign currency
translation
adjustment............. -- -- -- -- -- -- (623) (623)
Adjustment to conform
year end of pooled
companies.............. -- -- -- -- (470) -- -- (470)
Net income.............. -- -- -- -- 3,986 -- -- 3,986
------ ---- ------- ------- ------- ----- ------ --------
BALANCE, December 27,
1998................... 20,289 203 79,030 (1,770) 18,440 -- (623) 95,280
Exercise of stock
options ............... 10 -- 77 -- -- -- -- 77
Foreign currency
translation adjustment
....................... -- -- -- -- -- -- 1,703 1,703
Net income (unaudited).. -- -- -- -- 6,753 -- -- 6,753
------ ---- ------- ------- ------- ----- ------ --------
BALANCE, December 26,
1999................... 20,299 $203 $79,107 $(1,770) $25,193 $ -- $1,080 $103,813
====== ==== ======= ======= ======= ===== ====== ========

The accompanying notes are an integral part of these consolidated financial
statements.

F-43

PALEX, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)
(Note 1)

Year Ended Year Ended Year Ended
December 28, December 27, December 26,
1997 1998 1999
------------ ------------ ------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................. $ 6,640 $ 3,986 $ 6,753
Net loss for Fraser for the one-month
transition period..................... (66) -- --
Adjustment to conform year-end of
pooled companies...................... 467 (470) --
Unearned compensation.................. 210 -- --
Cash acquired from pooled company at
inception............................. 51 -- --
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization.......... 5,558 11,665 14,669
Adjustments to goodwill and other
intangible assets, net................ -- -- (5,060)
Deferred tax provision (benefit)....... (86) 1,207 501
(Gain) loss on sale of property, plant
and equipment......................... 400 1,135 (461)
Capital contributions.................. 1,209 -- --
Changes in operating assets and
liabilities, net of purchased
companies:
Accounts receivable.................... (1,632) (7,349) (5,191)
Inventories............................ (5,458) 473 (210)
Prepaid expenses and other current
assets................................ (1,478) (29) (5,351)
Accounts payable and accrued expenses.. (1,957) 1,181 9,284
Income taxes payable................... 1,135 (707) 150
Other assets and liabilities........... 1,370 1,899 (513)
-------- --------- --------
Net cash provided by operating
activities............................ 6,363 12,991 14,571
-------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and
equipment............................. (9,149) (13,951) (9,706)
Purchase of minority interest in pooled
company............................... -- (751) --
Cash paid for purchased companies, net
of cash acquired...................... (4,607) (85,512) --
Proceeds from sale of property, plant
and equipment......................... -- -- 1,775
-------- --------- --------
Net cash used in investing activities.. (13,756) (100,214) (7,931)
-------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments on line for credit........ (365) (1,150) --
Net payments on subordinated
convertible notes payable to related
parties............................... (2,980) -- --
Proceeds from long-term debt........... 32,787 170,675 79,380
Payments on long-term debt............. (28,648) (59,064) (85,367)
Payments of acquired indebtedness of
purchased companies................... -- (26,667) --
Net proceeds from exercise of stock
options............................... -- 49 77
Net proceeds from issuance of common
stock................................. 23,564 -- --
Other capital contributions............ -- 123 --
Distributions to stockholders.......... (12,382) -- --
-------- --------- --------
Net cash provided by (used in)
financing activities.................. 11,976 83,966 (5,910)
-------- --------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS.................. -- (34) 2
-------- --------- --------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS...................... 4,583 (3,291) 732
CASH AND CASH EQUIVALENTS, beginning of
year.................................. 2,865 7,448 4,157
-------- --------- --------
CASH AND CASH EQUIVALENTS, end of
year.................................. $ 7,448 $ 4,157 $ 4,889
-------- --------- --------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest................. $ 1,710 $ 7,474 $ 13,717
======== ========= ========
Cash paid for income taxes............. $ 1,835 $ 4,776 $ 5,094
======== ========= ========
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING AND FINANCING ACTIVITIES
Convertible notes payable issued in
business acquisitions................. $ -- $ 9,910 $ --
======== ========= ========

The accompanying notes are an integral part of these consolidated financial
statements.

F-44

PALEX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BUSINESS AND ORGANIZATION:

PalEx, Inc. ("PalEx" or the "Company") was founded in January 1996 to create
a nationwide provider of pallet products and related services. On March 25,
1997, concurrently with the closing of PalEx's initial public offering (the
"Offering") of its common stock, par value $.01 per share (the "Common Stock"),
PalEx and separate wholly owned subsidiaries of PalEx acquired, in separate
transactions, the following three businesses: Fraser Industries, Inc.
("Fraser"), Ridge Pallets, Inc. ("Ridge"), and Interstate Pallet Co., Inc.
("Interstate") (collectively, the "Founding Companies").

Subsequent to the acquisition of the Founding Companies and the Offering and
through the end of fiscal 1998, PalEx acquired 24 additional companies, eight
of which were accounted for using the pooling-of-interests (the "Pooled
Companies") and 16 of which were accounted for using the purchase method of
accounting (the "Purchased Companies"). PalEx did not acquire any companies in
fiscal 1999.

Eight of the 24 companies acquired are engaged in the reconditioning and
rebuilding of industrial steel containers with the other 16 companies acquired
plus the Founding Companies primarily engaged in the sale and lease of wooden
pallets.

The Company's headquarters are in Houston, Texas, with significant
manufacturing operations located in Arkansas, California, Florida, Georgia,
Illinois, North Carolina, Ohio, Pennsylvania, Texas and Wisconsin and pallet
leasing operations in seven Canadian provinces. Sales are made throughout the
United States and Canada with significant concentrations in the southeastern,
midwestern and western regions of the United States serving primarily
agricultural and industrial customers. Revenues related to the agricultural
customers are highly seasonal, occurring primarily during the harvesting
season.

Unless the context otherwise requires, all references herein to the Company
include PalEx, the Founding Companies, the Pooled Companies and the Purchased
Companies.

Pursuant to the amended and restated merger agreement dated October 6, 1999,
PalEx and a group of commonly controlled companies collectively known as IFCO
were merged on March 8, 2000, and became subsidiaries of a newly formed public
company, IFCO Systems, N.V. ("IFCO Systems"). IFCO Systems includes IFCO's
European, United States, Asian and Latin American returnable packaging
operations and PalEx's North American pallet and industrial container
operations. PalEx shareholders received consideration valued at $9.00 per share
for each of their shares of the Company's common stock, with approximately 40
percent of the total consideration paid in cash and the balance of the
consideration in the form of shares of stock of IFCO Systems.

Concurrent with the merger, IFCO Systems raised approximately $193.7
million, before expenses, from an initial public offering of its stock and Euro
200.0 million (approximately $191 million), before expenses, in subordinated
notes (the "New Subordinated Notes"). IFCO Systems also entered into a
revolving credit facility (the "New Revolving Credit Facility") on March 8,
2000, in the amount of approximately $200.0 million. The net proceeds of the
initial public offering, the New Subordinated Notes, and initial drawings on
the New Revolving Credit Facility were used to repay PalEx's Amended Credit
Facility, Subordinated Notes and Convertible Notes, as defined in Note 6, which
were then subsequently retired.

2.SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Basis of Presentation

Fraser has been identified as the accounting acquiror for financial
statement presentation purposes. The acquisitions of Ridge, Interstate and the
Purchased Companies were accounted for using the purchase method of accounting.
The allocations of the purchase price to the assets acquired and liabilities
assumed have been

F-45

PALEX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

assigned and recorded based on estimates of fair value and have been adjusted
to reflect changes in the estimates of fair value, although the Company does
not believe those changes have been material. All significant intercompany
transactions and balances have been eliminated in consolidation.

Reclassifications

Certain reclassifications have been made to the 1998 financial statements in
order to conform to the 1999 presentation.

Fiscal Year

PalEx's fiscal year-end is the last Sunday in the calendar year.
Accordingly, it maintains its accounting records using a 52/53-week year ending
on the last Sunday in December. Each quarter contains 13 weeks, unless
otherwise noted.

Cash and Cash Equivalents

The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.

Inventories

Inventories are valued at the lower of cost or market, with cost determined
on a first-in, first-out basis or by specific identification. The cost of
finished goods inventory includes direct materials, direct labor and overhead.

Property, Plant and Equipment

Property, plant and equipment acquired in business combinations accounted
for under the purchase method of accounting is recorded at fair value.
Property, plant, and equipment acquired subsequently is carried at cost.
Depreciation is provided for in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives. The
straight-line method of depreciation is utilized for substantially all assets
for financial reporting purposes, but accelerated methods are used for tax
purposes.

The Company's rental pool consists of a pallet rental pool at its Canadian
operations. Where the Company repairs its own pallets, cost includes materials
plus direct labor and applicable overhead. The rental pool is being depreciated
to estimated salvage value, using the straight-line method over lives ranging
from three to 10 years, with a weighted average useful life of approximately
nine years.

Expenditures for maintenance and repairs are charged to expense as incurred.
Additions and major replacements or betterments that increase capacity or
extend useful lives are added to the cost of the asset. Upon sales or
retirement of property, plant and equipment, the cost and related accumulated
depreciation are eliminated from the respective accounts and the resulting gain
or loss is included in other expense, net, in the accompanying consolidated
statements of operations.

The Company periodically assesses the realizability of its long-lived assets
and has determined that no impairments were required during the years ended
December 26, 1999, December 27, 1998, or December 28, 1997.

Goodwill

Goodwill, which represents the excess of acquisition cost over the fair
market value of identified net assets acquired in business combinations
accounted for under the purchase method of accounting, is amortized using

F-46

PALEX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

the straight-line method over 30 years. The Company evaluates, on a regular
basis, whether events and circumstances have occurred that indicate that the
carrying amount of goodwill may warrant revision. Management believes that
there has been no impairment of the goodwill as reflected in the Company's
consolidated financial statements as of December 26, 1999.

Income Taxes

Deferred income taxes were not provided on the undistributed foreign
earnings of the Company's Canadian subsidiary because such earnings are
expected to be reinvested indefinitely.

Revenue Recognition

The Company recognizes revenue upon delivery of the product to the customer
for product sales and recognizes revenue on a straight-line basis over the life
of the rental period for product leases.

Fair Value of Financial Instruments

The carrying value of the Company's financial instruments approximates fair
value.

Foreign Currency Translation

The financial statements of the Company's Canadian subsidiary are translated
to U.S. dollars using the exchange rate as of the balance sheet date for assets
and liabilities and a weighted average exchange rate for the reported amount of
revenues, expenses, gains and losses during the reporting period. The
cumulative translation adjustment is recorded as a separate component of
stockholders' equity.

Use of Estimates

The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires the use of estimates and
assumptions by management in determining the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amount of revenues and
expenses during the reporting period. Although the Company reviews all
significant estimates affecting its consolidated financial statements on a
recurring basis and records the estimated effect of any necessary adjustments
prior to their publication, actual results could differ from these estimates.

Earnings Per Share

Under Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings
Per Share", net income per share--basic excludes dilution and is determined by
dividing income available to common stockholders by the weighted average number
of common shares outstanding during the period.

Net income per share--basic for the year ended December 27, 1998, was
computed using shares issued in consideration for the acquisition of the
Founding Companies, the Pooled Companies, the shares issued pursuant to the
Offering and the related overallotment option, shares issued to Main Street
Capital Partners, L.P. and to PalEx management, the shares issued to the profit
sharing plans of the Founding Companies, the weighted average shares issued for
the 1998 acquisition of certain of the Purchased Companies and exercise of
stock options. Net income per share--basic for the year ended December 28,
1997, was computed using shares

F-47

PALEX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

attributable to Fraser, the shares issued in acquisitions of the Pooled
Companies, the weighted average shares issued in consideration for the
acquisition of Ridge, Interstate and a purchased company, the shares issued
pursuant to the Offering and the related overallotment option, the shares
issued to Main Street Capital Partners, L.P. and to PalEx management, the
shares issued to the profit sharing plans of the Founding Companies and the
shares issued in the 1998 acquisition of one of the Pooled Companies, deemed to
have been acquired at its date of inception in 1997.

Net income per share--diluted reflects the potential dilution that could
occur if securities and other contracts to issue common stock were exercised or
converted into common stock and includes 2,359, 372,941 and 352,668 shares for
unexercised stock options computed under the treasury method for the years
ended December 26, 1999, December 27, 1998, and December 28, 1997,
respectively. The weighted average shares also include, as common stock
equivalents, those shares of the Company's Canadian subsidiary, which are
convertible on a share for share basis into the common stock of the Company.
The effect of the conversion of the Company's outstanding subordinated
convertible notes payable to related parties was anti-dilutive for all periods
presented, and therefore not included in the calculation of net income per
share--diluted.

The following stock options were outstanding as of December 28, 1997,
December 27, 1998 and December 26, 1999, but were not included in the
computation of net income per share--diluted because the options' exercise
prices were greater than the average market price of the common shares:

December 28, 1997
--------------------------------

Number of options........................... 292,000
Range of exercise prices.................... $11.38-$14.75
Range of expiration dates................... August 1, 2007-December 10, 2007

December 27, 1998
--------------------------------

Number of options........................... 1,056,000
Range of exercise prices.................... $10.25-$14.88
Range of expiration dates................... June 6, 2007-May 21, 2008

December 26, 1999
--------------------------------

Number of options........................... 2,382,400
Range of exercise prices.................... $6.81-$14.88
Range of expiration dates................... March 20, 2007-November 9, 2008

Concentrations of Risk

Materials

Pallet prices are closely related to the changing costs and availability of
lumber, the principal raw material used in the manufacture and repair of wooden
pallets. Lumber supplies and costs are affected by many factors including
weather, governmental regulation of logging on public lands, lumber agreements
between Canada and the United States and competition from other industries that
use similar grades and types of lumber.

Drum demand in certain regions of the United States has required more drums
to be shipped outside of the region than are shipped into the region.
Consequently, the acquisition costs of used drums, the primary raw materials
for reconditioned drums, in these regions are significantly higher since the
used drum deficit must be replaced by collecting and shipping used drums over
significant distances. The west coast and southeast are regions that tend to be
net exporters of open top drums because of their emphasis on agriculture. The
midwest

F-48

PALEX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

tends to be a significant accumulator of drums because of its greater
industrial content and usage of petroleum products, coatings and chemicals.

Markets

Markets for pallet manufacturing and pallet recycling are highly fragmented
and competitive. These markets are not capital-intensive and barriers to entry
in such businesses are minimal.

Markets for steel drum reconditioning are highly fragmented and competitive.
There are three significant barriers to entry in the steel drum reconditioning
industry: (i) regulatory permits for facilities and ongoing compliance
requirements, (ii) significant distribution barriers as a result of high
transportation costs for containers; and (iii) the capital-intensive nature of
the business.

Customers

The Company seeks to efficiently serve large numbers of customers across
diverse markets and industries to provide a stable and diversified base for
ongoing sales of products and services in all of its operations.

Customers of the Company include companies in the automotive, chemical,
consumer products, grocery, produce and food production, petroleum, paper and
forest products, retail, and steel and metals industries and are both regional
and national in scale. Because a significant part of the Company's products and
services are sold to customers engaged in the produce and citrus industries,
the Company's sales volumes in certain regions tend to be seasonal.

On April 29, 1998 the Company notified its largest customer, CHEP, that
PalEx was terminating all its existing agreements with CHEP (see Note 12). CHEP
operates a national pallet leasing program that provides 48" x 40" pallets
primarily to grocery and consumer products customers throughout the U.S. for a
daily fee. The Company manufactured and repaired pallets for CHEP and provided
a variety of logistical services with respect to CHEP's pallet leasing program,
including the storage and just-in-time delivery of pallets. Sales to CHEP were
approximately 26 percent and 8 percent of the Company's consolidated revenues
in 1997 and 1998, respectively.

The Company sold approximately $490,000 and $481,000 of lumber to a
corporation owned by a Board director and two other employees during the fiscal
years 1997 and 1998, respectively. Management believes sales prices approximate
those charged to unaffiliated third parties.

3.BUSINESS COMBINATIONS:

1997 Purchase Acquisitions

The acquisitions of Ridge, Interstate and one other company in 1997 were
accounted for as purchases and have been reflected in the Company's
consolidated financial statements from March 31, 1997 for Ridge and Interstate
and from November 20, 1997 for the other company. The aggregate consideration
paid in these transactions was approximately $4.6 million in cash and 3,301,971
shares of commons stock with an estimated fair value of approximately $21.7
million. The accompanying consolidated balance sheet as of December 28, 1997,
includes allocations of the respective purchase prices of these acquisitions.
The allocations resulted in

F-49

PALEX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

approximately $25.2 million of goodwill, which represents the excess of
purchase price over the fair value of net assets acquired, as follows (in
thousands):

Goodwill........................................................... $ 25,241
Fair value of assets acquired...................................... 20,503
Liabilities assumed................................................ (19,408)
Fair value of common stock......................................... (21,729)
--------
Cash paid, net of cash acquired.................................... $ 4,607
========

1998 Purchase Acquisitions

Certain acquisitions in 1998 were accounted for as purchases and have been
reflected in the Company's consolidated financial statements from the date of
each respective acquisition. The aggregate consideration paid in these
transactions was approximately $85.5 million in cash, 2,638,571 shares of
common stock with an estimated fair value of approximately $25.5 million and
issuance of convertible notes payable to former shareholders of approximately
$9.9 million. The accompanying consolidated balance sheet as of December 27,
1998 includes allocations of the respective purchase prices of these
acquisitions. The allocations resulted in approximately $103.9 million in
goodwill, which represents the excess of purchase price over the fair value of
net assets acquired, as follows (in thousands):

Goodwill........................................................... $103,949
Fair value of assets acquired...................................... 62,601
Convertible notes payable issued................................... (9,910)
Liabilities assumed................................................ (45,599)
Fair value of common stock......................................... (25,529)
--------
Cash paid, net of cash acquired.................................... $ 85,512
========

4.PROPERTY, PLANT AND EQUIPMENT:

Property, plant and equipment consist of the following (in thousands):

Estimated Useful December 27, December 26,
Lives In Years 1998 1999
---------------- ------------ ------------

Land............................ $ 5,485 $ 5,275
Machinery and equipment......... 5-10 60,753 62,350
Rental assets................... 3-10 15,537 17,996
Buildings and leasehold
improvements................... 15-40 19,890 20,339
Furniture and fixtures.......... 5-8 3,890 3,640
Tractors and trailers........... 5-6 18,122 19,463
-------- --------
123,677 129,063
Less: accumulated depreciation.. (47,953) (53,989)
-------- --------
$ 75,724 $ 75,074
======== ========

F-50

PALEX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

5.DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:

Activity in the Company's allowance for doubtful accounts consists of the
following (in thousands):

December 27, December 26,
1998 1999
------------ ------------

Balance at beginning of year..................... $ 617 $ 1,616
Additional charges to costs and expenses......... 394 412
Additional allowances from Purchased Companies... 843 (148)
Deductions for uncollectible accounts written
off............................................. (238) (209)
------- -------
Balance at end of year........................... $ 1,616 $ 1,671
======= =======

The major components of inventories are as follows (in thousands):

December 27, December 26,
1998 1999
------------ ------------

Raw materials.................................... $23,174 $19,485
Work-in-process.................................. 43 1,041
Finished goods................................... 6,769 9,776
------- -------
$29,986 $30,302
======= =======

Accrued expenses consist of the following (in thousands):

December 27, December 26,
1998 1999
------------ ------------

Accrued compensation and benefits................ $ 2,762 $ 3,067
Accrued taxes.................................... 1,503 961
Contingent purchase price (Note 8)............... -- 6,000
Other accrued expenses........................... 6,381 9,628
------- -------
$10,646 $19,656
======= =======

6.DEBT:

Amended Credit Facility

The Company and members of a lending syndicate are parties to an amended and
restated secured credit agreement dated as of September 26, 1999 (collectively,
the "Amended Credit Facility"). The Amended Credit Facility provides the
Company with a revolving line of credit of up to $150.0 million, which may be
used for general corporate purposes, including acquisitions, the repayment or
refinancing of indebtedness of all acquisitions, including future acquisitions,
capital expenditures, letters of credit and working capital. Amounts
outstanding under the Amended Credit Facility as of December 26, 1999, are
classified as current liabilities in the accompanying consolidated balance
sheet.

Advances under the Amended Credit Facility bear interest at Bank One's base
interest rate, as defined, plus a margin of 200 basis points, as of December
26, 1999. At the Company's option, such advances may bear interest based on a
designated LIBOR rate plus a margin of 400 basis points, as of December 26,
1999. Commitment fees of 50 basis points are payable quarterly on the unused
portion of the Amended Credit Facility. The Amended Credit Facility contains a
limit for standby letters of credit of $10.0 million. There were letter of
credit commitments of approximately $4.4 million outstanding under the Amended
Credit Facility as of December 26, 1999. The Amended Credit Facility prohibits
the payment of dividends by the Company, restricts the Company's incurrence or
assumption of certain indebtedness and acquisitions and requires the

F-51

PALEX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Company to comply with certain financial covenants, including consolidated net
worth, fixed charge coverage and funded debt and senior debt to earnings before
interest, taxes, depreciation and amortization ratios, and certain levels of
earnings before interest, taxes, depreciation and amortization ("EBITDA"), as
defined. The Company was in compliance with the covenants as of December 26,
1999. The approximate level of borrowings available under the Amended Credit
Facility as of December 26, 1999, was $34.8 million. The Amended Credit
Facility is secured by a lien on the real and tangible personal property of the
Company, as defined, a pledge of the outstanding stock of each of the Company's
U.S. subsidiaries and 65 percent of the outstanding stock of the Company's
Canadian subsidiary. The amounts due under the Amended Credit Facility are also
guaranteed by the Company's U.S. subsidiaries.

Note Purchase Agreement

During 1999, the Company entered into a note purchase agreement (the "Note
Purchase Agreement") with CIBC World Markets Corp. (CIBC) to acquire $25.0
million of the Company's unsecured Senior Subordinated Notes due September 30,
2000 (the "Subordinated Notes"). Under the terms of the Subordinated Notes, the
Company will pay interest at the greater of LIBOR plus 600 basis points and the
rate on the Amended Credit Facility plus 200 basis points.

Convertible Notes Payable to Related Parties

The Company issued approximately $10.0 million in subordinated convertible
notes payable (the "Convertible Notes") to certain former owners of the
Purchased Companies. The Convertible Notes, which bear interest at rates
ranging from 6 to 8 percent, are convertible into shares of the Company's
common stock at conversion prices ranging from $10.78 to $15.86 per share.

Long-term debt consists of the following (in thousands):

December 27, December 26,
1998 1999
------------ ------------

Advances under the Amended Credit Facility,
bearing interest at rates ranging from 9.51% to
10.25%........................................... $141,500 $110,700
Note Purchase Agreement, bearing interest at
10.13%........................................... -- 25,000
Various notes payable, bearing interest at rates
ranging from 3.00% to 8.64% at December 26, 1999,
with maturities ranging from 2001 until 2009,
secured by certain company assets................ 2,662 2,373
Variable rate note issued by the Acme ESOP (see
Note 9), guaranteed
by the Company, interest at 6.19%................ 1,700 1,700
-------- --------
145,862 139,773
Less-Current maturities........................... (1,960) (137,719)
-------- --------
$143,902 $2,054
======== ========

Future maturities of long-term debt as of December 26, 1999 are as follows
(in thousands):

Fiscal Year Ending December,
----------------------------

2000............................................................... $137,719
2001............................................................... 345
2002............................................................... 316
2003............................................................... 308
2004............................................................... 303
Thereafter......................................................... 782
--------
$139,773
========

F-52

PALEX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

As further explained in Note 1, all amounts outstanding under the Amended
Credit Facility, the Subordinated Notes, and the Convertible Notes were repaid
in connection with the Company's merger with IFCO.

7.INCOME TAXES:

The provision (benefit) for income taxes consisted of the following (in
thousands):

Year Ended
--------------------------------------
December 28, December 27, December 26,
1997 1998 1999
------------ ------------ ------------

Current:
Federal............................. $3,944 $2,831 $4,146
State............................... 846 829 1,247
Foreign............................. -- 238 (117)
------ ------ ------
4,790 3,898 5,276
------ ------ ------
Deferred:
Federal............................. (71) 892 200
State............................... (15) 131 12
Foreign............................. -- 184 289
------ ------ ------
(86) 1,207 501
------ ------ ------
$4,704 $5,105 $5,777
====== ====== ======

The differences in income taxes provided and the amounts determined, by
applying the federal statutory tax rate to income before provision for income
taxes are as follows (in thousands):

Year Ended
--------------------------------------
December 28, December 27, December 26,
1997 1998 1999
------------ ------------ ------------

Tax at federal statutory rate of
35%................................ $3,970 $3,182 $4,386
Increase (decrease) resulting from:
State income taxes, net of federal
benefit........................... 547 624 818
Income taxed to Fraser
stockholders...................... (172) -- --
Foreign income tax provision
(benefit)......................... -- 74 (20)
Nondeductible items--
Amortization of goodwill and other
intangible assets................. 200 484 740
Pooling expenses................... 45 603 --
Other.............................. 114 138 (147)
------ ------ ------
$4,704 $5,105 $5,777
====== ====== ======

F-53

PALEX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 27, December 26,
1998 1999
------------ ------------

Deferred income tax liabilities:
Property and equipment............................ $(8,405) $(9,580)
Other............................................. (902) (399)
------- -------
Total deferred income tax liabilities.............. (9,307) (9,979)
------- -------
Deferred income tax assets:
Allowance for doubtful accounts................... 654 680
Basis difference in inventory..................... 175 550
Accruals and reserves............................. 1,276 1,046
------- -------
Total deferred income tax assets................... 2,105 2,276
------- -------
Net deferred income tax liabilities................ $(7,202) $(7,703)
======= =======

8.COMMITMENTS AND CONTINGENCIES:

Litigation

The Company is involved in various legal proceedings that have arisen in the
ordinary course of business. While it is not possible to predict the outcome of
such proceedings with certainty, in the opinion of the Company's management,
all such proceedings are adequately covered by insurance or, if not so covered,
should not materially result in any liability, which would have a material
adverse effect on the financial position, liquidity or results of operations of
the Company.

Insurance

The Company carries a broad range of insurance coverage, including general
and business auto liability, commercial property, workers' compensation and a
general umbrella policy.

The Company is self-insured for certain medical claims up to $50,000 per
person per year and is self-insured for workers compensation claims up to
$250,000 per incident per year. Provisions for expected future payments are
accrued based on the Company's estimate of its aggregate liability for all open
and unreported claims. Management believes the amount currently accrued is
adequate to cover all known and unreported claims as of December 26, 1999.

Operating Lease Agreements

The Company leases certain facilities and equipment. Minimum future rental
payments under noncancelable operating leases as of December 26, 1999 are as
follows (in thousands):

Fiscal Year Ending December
---------------------------

2000................................................................ $ 3,197
2001................................................................ 3,042
2002................................................................ 2,561
2003................................................................ 1,971
2004................................................................ 1,641
Thereafter.......................................................... 8,225
-------
$20,637
=======

F-54

PALEX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Rent expense under operating leases was approximately $1,445,000, $2,995,000
and $3,827,000 for fiscal years 1997, 1998 and 1999, respectively. Rent expense
paid to related parties and included in the foregoing amounts was approximately
$146,000, $558,000 and $713,000 for fiscal years 1997, 1998 and 1999,
respectively.

Potential Environmental Liabilities

In February 1998, the Company acquired Drum Service Co. of Florida ("DSF"),
a steel drum reconditioning company with a facility in Zellwood, Florida. DSF
is a wholly-owned subsidiary of the Company. In 1982, DSF was notified by the
U.S. Environmental Protection Agency (the "EPA") and the Florida Department of
Environmental Regulation (the "DER") that they believed that DSF might be a
potentially responsible party ("PRP") in the Zellwood Groundwater contamination
site in Orange County, Florida (the "Zellwood Site"). The Zellwood Site was
designated a "Superfund" environmental clean-up site after the DER discovered
arsenic contamination in a shallow monitoring well adjacent to it. The DSF
facility is a portion of the 57 acres constituting the Zellwood Site. The
Company believes that DSF and its former shareholders were among approximately
25 entities and individuals identified as PRPs by the EPA.

Between March 1990 and July 1996, the EPA issued various unilateral
administrative orders and notices to DSF and various other PRPs. Those orders
and notices demanded reimbursement from PRPs of approximately $2 million of the
EPA's costs regarding the Zellwood Site and requested the PRPs to accept
financial responsibility for additional clean-up efforts. During that time, the
EPA estimated that the cost of the selected remedy for soil at the Zellwood
Site would be approximately $1 million and the cost of the selected remedy for
groundwater at the Zellwood Site would be approximately $5.1 million. DSF and
the other PRPs did not agree to the EPA's demands or agree to fund any
additional clean-up. In April 1997, the EPA issued an order, unilaterally
withdrawing its previous orders.

On June 12, 1998 a suit was filed in the United States District Court for
the Middle District of Florida (Orlando Division) against DSF and certain other
PRPs, with respect to the Zellwood Site (United States of America v. Drum
Service Co. of Florida, John Michael Murphy, Douglass Fertilizer & Chemical,
Inc., et, al., Civil No. 98-687-Civ-Orl-22C) (the "Zellwood Suit"). In this
lawsuit, the EPA is seeking reimbursement of costs incurred at the Zellwood
Site during the past 18 years and a declaratory judgment for future response
costs.

DSF has maintained comprehensive general liability insurance coverage for
over 25 years, and a number of the policies providing such coverage did not
contain exclusions for environmental contamination. DSF has notified the
insurers that issued such policies of the EPA's claims regarding the Zellwood
Site and the commencement of the Zellwood Suit. In addition, the former
shareholders of DSF have agreed with DSF and the Company to bear liabilities
and expenses with respect to the Zellwood Site, to the extent such liabilities
exceed the Company's insurance recoveries.

DSF is vigorously defending the Zellwood Suit and intends to pursue its
insurance coverage with respect to losses and expenses incurred in connection
with the Zellwood Site. Although there can be no assurance as to any ultimate
liability of DSF under the Zellwood Suit, the amount of recoveries from other
PRPs or the insurance coverage, or the amount of insurance recoveries, the
Company's management believes that DSF's insurance coverage, recoveries from
other PRPs and the obligations of DSF's former shareholders will be adequate to
cover any liability or expenses of DSF arising from the Zellwood Suit. The
accompanying consolidated balance sheet as of December 26, 1999, includes a
$2.0 million receivable from a former shareholder of DSF and a corresponding
amount in other long-term liabilities.

F-55

PALEX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

In approximately 1990, Container Services Company ("CSC"), a subsidiary of
the Company, first received notice from the EPA, identifying it as a PRP with
respect to the Operating Industries, Inc. site ("OII Site") in Monterey Park,
California. The estimated maximum liability of CSC with respect to the OII Site
is approximately $300,000 based on CSC's quantified contribution to the site.
Although CSC intends to aggressively negotiate any final settlement of this
matter, the Company has accrued $300,000 in the accompanying consolidated
balance sheet as of December 26, 1999.

In November 1998, CSC received notice from the EPA that it had been
identified as a de minimis PRP with respect to the Casmalia disposal site in
Santa Barbara County, California ("Casmalia Site"), which was a licensed
hazardous waste disposal facility from 1974 to 1989.

In December 1999, CSC settled in full with the EPA for its liability related
to the Casmalia Site for approximately $200,000, which is included in accrued
expenses in the accompanying consolidated balance sheet as of December 26,
1999.

Contingent Purchase Price

The Company is obligated under the terms of an agreement with the former
owners of one of the Purchased Companies to pay, in either cash or equal
amounts of cash and the Company's Common Stock, up to $6,000,000 based on the
subsidiary's post-acquisition earnings, as defined. The Company reached a
preliminary determination that the maximum amount of the contingent purchase
price will be required to be paid. As a result, the Company has accrued
$6,000,000 as part of the purchase price in the accompanying consolidated
balance sheet as of December 26, 1999. The payment method will be determined
after the amount of the contingent purchase price has been finalized.

Employment Agreements

The Company has entered into employment agreements with certain company
officers and certain former owners of the companies acquired by PalEx. The
remaining commitment under the terms of these agreements as of December 26,
1999 is approximately $1 million, all of which is payable during the twelve-
month period ending December 2000. Certain of these agreements were amended in
connection with the merger of PalEx with IFCO (see Note 1).

Warrant

On September 30, 1998, the Company issued a warrant for the purchase of up
to 250,000 shares of its Common Stock for professional advisory services at an
exercise price of $11.375 per share. that would become exercisable upon the
consummation of certain defined transactions, including, without limitation,
the merger of PalEx with IFCO (see Note 1). During 1999, this agreement was
modified to also provide for the issuance of 200,000 shares of the Company's
Common Stock if certain criteria are met upon the closing of the merger between
PalEx and IFCO. Upon completion of the merger on March 8, 2000 (see Note 1),
the 250,000 warrants were converted to warrants to purchase common stock of
IFCO Systems and the 200,000 shares of the Company's Common Stock were awarded
to the advisor and exchanged for approximately $675,000 in cash and
approximately 76,000 shares of IFCO Systems.

9. STOCK OPTION PLAN:

On June 1, 1996, the Board of Directors (the "Board") and the stockholders
of the Company approved the 1996 Stock Option Plan, as amended (the "Stock
Option Plan"). The Stock Option Plan provides for the granting of stock options
to directors, executive officers, other employees and certain non-employee
consultants

F-56

PALEX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

of the Company. The Company accounts for the Stock Option Plan under APB
Opinion No. 25, "Accounting for Stock Issued to Employees," and accordingly no
compensation expense has been recognized. The Stock Option Plan, which permits
an amount equal to no more than 15 percent of the outstanding shares of the
Company's common stock to be issued as optioned shares, terminates in June
2006. In general, the terms of the option awards (including vesting schedules)
are established by the Compensation Committee of the Board.

The following table summarizes activity under the Stock Option Plan:

Weighted
Average
Exercise Exercise
Shares Price Range Price
--------- ------------ --------

Outstanding at November 30, 1996............ -- -- --
Granted.................................... 1,328,500 $7.50-$14.75 $ 8.97
Exercised.................................. -- -- --
Forfeited.................................. (7,000) $7.50 $ 7.50
Outstanding at December 28, 1997............ 1,321,500 $7.50-$14.75 $ 8.85
Granted.................................... 1,361,500 $5.88-$14.88 $ 9.46
Exercised.................................. (6,500) $7.50 $ 7.50
Forfeited.................................. (65,850) $7.50-$13.50 $ 9.25
Outstanding at December 27, 1998............ 2,610,650 $5.88-$14.88 $ 9.94
Granted.................................... -- -- --
Exercised.................................. $(10,000) $7.50 $ 7.50
Forfeited.................................. (194,500) $6.75-$14.88 $11.67
Outstanding at December 26, 1999............ 2,406,150 $5.88-$14.88 $ 9.87

At December 26, 1999, options for approximately 997,000 shares of the
Company's common stock were exercisable. Unexercised options expire 10 years
from the issue date.

The following pro forma summary of the Company's consolidated results of
operations have been prepared as if the fair value based method of accounting
required by SFAS No. 123, "Accounting for Stock-Based Compensation" had been
applied (in thousands, except per share data):

Year ended Year ended Year ended
December 28, December 27, December 26,
1997 1998 1999
------------ ------------ ------------

Net income attributable to common
stockholders....................... $6,640 $ 3,986 $ 6,753
Pro forma adjustment................ (775) (1,434) (1,638)
------ ------- -------
Pro forma net income attributable to
common stockholders................ $5,865 $ 2,552 $ 5,115
====== ======= =======
Net income per share ("EPS")
Basic EPS as reported.............. $ .43 $ .21 $ .33
Basic EPS pro forma................ $ .38 $ .13 $ .25
Diluted EPS as reported............ $ .42 $ .21 $ .33
Diluted EPS pro forma.............. $ .37 $ .13 $ .25

F-57

PALEX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Fair value of the options issued during 1998 and 1997 was estimated at the
date of grant using the Black-Scholes option-pricing model using the following
weighted average assumptions:

Fiscal Year
Option
------------------
1997 1998
-------- --------

Risk free interest rate.................................. 6.66% 5.39%
Dividend yield........................................... 0.00% 0.00%
Volatility factor........................................ 35.77% 41.99%
Weighted average expected life........................... 10 years 10 years

A summary of stock options outstanding and exercisable as of December 26,
1999 is as follows:

Options outstanding Options exercisable
--------------------------------------------------- ----------------------------
Range of
exercise Number Weighted average Weighted average Number Weighted average
prices outstanding remaining life (years) exercise price exercisable exercise price
------------- ----------- --------------------- ---------------- ----------- ----------------

$5.88-$8.75 1,298,250 7.77 $ 7.54 579,917 $ 7.50
$8.88-$13.12 766,500 8.10 $11.84 276,750 $11.70
$13.13-$14.88 341,400 7.93 $14.33 140,367 $14.22

All of the Company's outstanding options became immediately vested in
connection with the merger of PalEx and IFCO (see Note 1).

10.EMPLOYEE BENEFIT PLANS:

The Company approved a defined contribution profit-sharing plan (the "Plan")
in March 1997, which qualifies under Section 401(k) of the Internal Revenue
Code. Eligible employees may contribute up to the lesser of 15 percent of their
annual compensation or the maximum amount permitted under Internal Revenue
Service (IRS) regulations to their account. The Company matches the
contributions of participating employees on the basis of the percentages
specified in the Plan. The employee and company matching contributions are
invested at the direction of the individual employee. Employer contributions to
the Plan were approximately $768,000, $1,134,000 and $1,476,000 for the years
ended December 28, 1997, December 27, 1998, and December 26, 1999,
respectively.

In May 1985, Acme Barrel Company, Inc. ("Acme"), which was acquired by the
Company in 1998, established an employee stock ownership plan ("ESOP") for
Acme's eligible employees, as defined. The ESOP is a qualified plan exempt from
taxes under IRS 401(a). In May 1994, the ESOP purchased 3,400 shares of Acme
common stock at $765 per share from a stockholder for $2,601,000. The ESOP
funded the purchase by issuing a variable rate note to a commercial bank that
was guaranteed by Acme. Upon completion of the acquisition of Acme by PalEx,
the shares of Acme stock in the ESOP were replaced with shares of the Company's
Common Stock of equal value and the guaranty by Acme was replaced by a letter
of credit issued under the Credit Facility.

The Company accounts for the ESOP in accordance with Statement of Position
93-6, "Employers' Accounting for Employee Stock Ownership Plan" ("SOP 93-6").
Accordingly, the debt of the ESOP is recorded as long-term debt and the shares
pledged as collateral are reported as unearned compensation on the Company's
consolidated balance sheet. As shares are released, the Company reports
compensation expense equal to the current estimated market price of the shares.
In accordance with SOP 93-6, additional paid-in capital is adjusted whenever
the market value of the shares released is more or less than the cost of the
shares released.

Contributions to the ESOP amounted to approximately $727,000, $153,000 and
$0 for the years ended December 28, 1997, December 27, 1998, and December 26,
1999, respectively, which include interest paid by

F-58

PALEX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

the Company on the loan used to purchase the ESOP shares of approximately
$122,000, $83,000 and $102,000, for the years ended December 28, 1997, December
27, 1998, and December 26, 1999, respectively. The balance in unearned
compensation of $1,770,000 at December 26, 1999, results from the leveraged
ESOP stock purchase less the deemed release of shares at cost. At December 26,
1999, the ESOP contained 843,061 allocated shares and 425,923 unallocated
shares of the Company's common stock, for a total of 1,268,984 shares.

The Company received a Private Letter Ruling from the IRS in 1999 that
allows the termination of the ESOP and the non-taxable disposal of the PalEx
shares in the ESOP. It is the Company's intent to use the proceeds from the
sale of the shares to repay the ESOP's indebtedness. Upon termination of the
ESOP and debt retirement, the ESOP will allocate the remaining unallocated
shares to the plan participants, resulting in a charge to earnings by the
Company and a corresponding increase to additional paid-in-capital for the
difference between the total value of the shares at the time of their sale and
the ESOP indebtedness. In anticipation of the termination of the ESOP, no
additional shares were allocated during the year ended December 26, 1999.

During March 2000, 206,800 shares of the Company's common stock were sold by
the ESOP. Proceeds of the sale were used to repay the note that was guaranteed
by the Company. The remaining 219,123 unallocated shares will be distributed to
the ESOP participants when the method of distribution has been approved by the
ESOP participants. In accordance with the AICPA Statement of Position 93-6,
"Employers' Accounting for Employee Stock Ownership Plans," compensation
expense of approximately $2 million was recorded during March 2000, when the
ESOP shares were effectively committed to be released.

11.TERMINATION OF CHEP RELATIONSHIP

During the fourth quarter of 1997 and first quarter of 1998, company
management had numerous discussions with representatives of its largest
customer, CHEP, regarding numerous issues affecting the profitability of the
products manufactured for CHEP by the Company and the pricing of new pallets,
the uncertainty of CHEP production requirements, the absence of fees for extra
services provided to CHEP, quality control and the opening of new facilities
that would be primarily dedicated to performing services for CHEP. The Company
manufactured new, high-grade pallets for CHEP, which in turn leased these
pallets to its customers. These pallets were part of a "closed-loop" materials
handling and management system that included recovery of the pallet from the
end user, aggregating them in Company operated depots where they were sorted,
repaired and returned to CHEP's customers.

In addition, the Company began renegotiating the prices CHEP was being
charged for new pallets to more accurately reflect constantly changing lumber
prices. Subsequent discussion and communications ensued until it became
apparent to Company management that the issues would not be resolved to the
mutual satisfaction of CHEP and the Company. Accordingly, CHEP was notified
that effective April 29, 1998, the Company would cease supplying CHEP with new
pallets and provided advance notice (generally, 10 to 60 days) under
contractual arrangements to discontinue repair and depot services for CHEP.

The termination of the Company's relationship with CHEP affected the
operations of certain of the Company's facilities in the southeastern and
western United States. As a result, management formally adopted a restructuring
plan, which was approved by the Board of Directors, to close, curtail, or
convert operations to alternative business activities at facilities related to
CHEP production. There were eight CHEP-related manufacturing facilities that
were targeted for either closure, sale, consolidation or conversion to
alternative product lines. As of December 27, 1998, three facilities dedicated
to CHEP production have been closed, one was sold and two more were
consolidated into one facility. The other two facilities were converted to
manufacture non-CHEP products. The Company terminated approximately 400
production-related employees at CHEP related facilities during 1998.

F-59

PALEX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Management determined that there were four categories of CHEP restructuring
costs, in accordance with Emerging Issues Task Force 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit
an Activity (including Certain Costs Incurred in a Restructuring)"
("EITF 94-3"): disputed accounts receivable; severance payments; lease
cancellation fees and penalties; and a valuation allowance to restate
CHEP-related inventory at its net realizable value.

The results of operations for the year ended December 27, 1998 include net
charges to continuing operations of approximately $1.2 million for an inventory
valuation adjustment to reduce CHEP-related inventory to net realizable value
and approximately $0.9 million for disputed accounts receivable, lease
cancellation fees and penalties and severance pay associated with the
termination of employees at CHEP related facilities. As of December 27, 1998,
all CHEP restructuring costs have been paid or incurred. Accordingly, there is
no remaining balance in accrued liabilities or inventory valuation allowance in
the accompanying consolidated balance sheet.

In addition, management determined that the termination of the CHEP
relationship also required the application of SFAS No. 121, "Accounting for
Long-Lived Assets and for Long-Lived Assets to be Disposed of," and evaluated
the facts and circumstances with regard to the CHEP-related facilities and the
assets employed in the production of CHEP pallets. Accordingly, the results of
operations for the year ended December 27, 1998 include a charge of
approximately $1.4 million for plant closure and asset abandonment costs for
the CHEP facilities noted above. The charge includes approximately $0.9 million
for abandoned leasehold improvements and approximately $0.5 million to value
pallet production machinery and equipment at its net realizable value. The
abandoned and impaired assets had a book value of approximately $1.8 million
prior to the revaluation. The net realizable value of these assets was
determined based on management's estimates of current market value for similar
types of manufacturing equipment used in the pallet production process. There
have been no changes in the estimates used nor corresponding adjustments to the
charges previously taken. The Company is attempting to sell the machinery and
equipment as soon as possible. Depreciation expense on these assets for the
period from their impairment date until December 27, 1998 would have been
approximately $109,000.

Management reviewed the recoverability and possible impairment of goodwill
related to the subsidiaries which operated the CHEP facilities and determined
that no goodwill adjustments were necessary due to the potential for replacing
CHEP business with other customers.

Management believes that all CHEP-related restructuring was complete as of
December 27, 1998.

12.BUSINESS SEGMENTS:

The Company has two business segments, one operating in the pallet industry
and the other in the steel drum reconditioning industry. The pallet segment
produces, recycles, sells, repairs, leases and retrieves wooden pallets in the
United States and Canada primarily for use in agricultural and industrial
markets. The drum segment reconditions steel drums in the United States,
primarily for use in agricultural and industrial markets. There were no
significant intercompany sales between the two segments for the periods
presented.

F-60

PALEX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The Company's business segments are managed separately because they require
different technology and marketing strategies. The accounting policies for the
segments are the same as those described in Note 2. The Company evaluates the
performance of its reportable segments based on income before corporate
overhead charges, interest expense, non-recurring expenses, goodwill
amortization and income taxes.

Year Ended December 28, 1997
-------------------------------
Pallet Drum Consolidated
-------- -------- ------------
(in thousands)

Revenues....................................... $162,848 $ 60,145 $222,993
Segment earnings contribution.................. 15,402 (152) 15,250
Total assets................................... 96,562 23,443 120,005
Depreciation and amortization.................. 4,607 951 5,558
Capital expenditures........................... 7,683 1,446 9,149

Year Ended December 27, 1998
-------------------------------
Pallet Drum Consolidated
-------- -------- ------------
(in thousands)

Revenues....................................... $234,120 $ 85,571 $319,691
Segment earnings contribution.................. 15,286 11,743 27,029
Total assets................................... 255,363 37,075 292,438
Depreciation and amortization.................. 9,442 2,223 11,665
Capital expenditures........................... 9,428 4,523 13,951

Year Ended December 26, 1999
-------------------------------
Pallet Drum Consolidated
-------- -------- ------------
(in thousands)

Revenues....................................... $283,521 $103,366 $386,887
Segment earnings contribution.................. 26,343 12,857 39,200
Total assets................................... 221,253 83,657 304,910
Depreciation and amortization.................. 10,059 4,610 14,669
Capital expenditures........................... 4,701 5,005 9,706

Segment earnings contribution is reconciled to consolidated income before
provision for income taxes as follows (in thousands):

Year Ended Year Ended Year Ended
December 28, December 27, December 26,
1997 1998 1999
------------ ------------ ------------

Total earnings contribution for
reportable segments............... $15,250 $27,029 $39,200
Unallocated amounts:
Corporate expenses................ (1,496) (4,080) (8,297)
Interest expense.................. (1,722) (8,468) (14,996)
Goodwill amortization............. (593) (3,334) (4,774)
Restructuring charge.............. -- (949) --
Plant closure and asset
abandonment loss................. -- (1,369) --
Other income (expense)............ (95) 262 1,397
------- ------- -------
Income before provision for income
taxes............................. $11,344 $ 9,091 $12,530
======= ======= =======

F-61

PALEX, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The Company's revenue by country, based on the location of the customer, is
as follows (in thousands):

Year Ended Year Ended Year Ended
December 28, December 27, December 26,
1997 1998 1999
------------ ------------ ------------

United States......................... $222,993 $314,967 $370,735
Canada................................ -- 4,724 16,152
-------- -------- --------
Consolidated.......................... $222,993 $319,691 $386,887
======== ======== ========

The Company's long-lived assets by country are as follows (in thousands):

December 27, December 26,
1998 1999
------------ ------------

United States...................................... $176,063 $175,493
Canada............................................. 31,157 32,295
-------- --------
Consolidated....................................... $207,220 $207,788
======== ========

Earnings contribution for the Drum segment for the year ended December 27,
1998 includes charges of approximately $1.8 million for pooling expenses and
compensation differential (the difference between previous owners' and
officers' compensation before the acquisitions and the amounts to which they
have contractually agreed) of approximately $1.1 million. There were no pooling
expenses for the year ended December 28, 1997. Compensation differential was
approximately $1.0 million for the year ended December 28, 1997.

Earnings contribution for the Pallet segment for the year ended December 27,
1998 includes an inventory valuation adjustment of approximately $1.2 million.

F-62

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Members of IFCO-U.S., L.L.C.:

In our opinion, the accompanying balance sheets and the related statements of
operations and changes in accumulated members' deficit, and of cash flows
present fairly, in all material respects, the financial position of IFCO-U.S.,
L.L.C. (the "Company") at December 31, 1999 and 1998, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1999 in conformity with accounting principles generally accepted
in the United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States, which 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, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.

/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Tampa, Florida
April 12, 2000

F-63

IFCO-U.S., L.L.C.

BALANCE SHEETS

December 31,
--------------------------
1998 1999
------------ ------------

ASSETS:
Cash.............................................. $ 10,487 $ 27,754
Receivables, net of allowance for doubtful
accounts of $50,000 and $75,000.................. 2,376,495 5,199,535
Related party receivables......................... 95,749 4,977,836
Crate rental pool, net............................ 5,299,773 12,016,378
Crates held for transfer to related party......... 611,107 535,420
Equipment and furniture, net...................... 1,296,018 1,124,998
Other assets...................................... 40,883 26,360
------------ ------------
$ 9,730,512 $ 23,908,281
============ ============
LIABILITIES AND MEMBERS' DEFICIT:
Accounts payable and accrued expenses............. $ 616,945 $ 1,456,952
Related party payables............................ 3,120,816 4,924,577
Refundable deposits............................... 2,014,188 3,779,234
Other liabilities................................. -- 124,920
Related party debt................................ 14,521,444 27,598,287
------------ ------------
20,273,393 37,883,970
------------ ------------
Commitments and contingencies (Notes 1, 6 and 7)

MEMBERS' DEFICIT:
Class A voting membership interests, $.40 par
value; 1,000 shares authorized................... 400 400
Class B non-voting membership interests, $.40 par
value; 1,500 shares authorized................... 600 600
Accumulated deficit............................... (10,543,881) (13,976,689)
------------ ------------
Total members' deficit........................... (10,542,881) (13,975,689)
------------ ------------
$ 9,730,512 $ 23,908,281
============ ============

The accompanying notes are an integral part of these financial statements.

F-64

IFCO-U.S., L.L.C.

STATEMENTS OF OPERATIONS AND CHANGES IN ACCUMULATED MEMBERS' DEFICIT

Year Ended
December 31,
---------------------------------------
1997 1998 1999
----------- ------------ ------------

Rental revenues...................... $ 919,427 $ 1,657,424 $ 5,750,889
----------- ------------ ------------
Cost of revenues:
Rental logistics cost............... (1,254,538) (1,646,080) (3,608,314)
Crate depreciation.................. (499,098) (679,324) (1,623,303)
Equipment depreciation.............. (49,140) (132,763) (144,000)
Loss on related party crate
transfers.......................... (454,445) (193,238) --
----------- ------------ ------------
Total cost of revenues............... (2,257,221) (2,651,405) (5,375,617)
----------- ------------ ------------
Gross margin (loss)................ (1,337,794) (993,981) 375,272

Selling, general and administrative
expenses............................ (1,423,417) (1,719,353) (2,144,534)
----------- ------------ ------------
Loss from operations............... (2,761,211) (2,713,334) (1,769,262)

Interest expense..................... (1,033,872) (1,382,946) (1,677,085)
Other income (expense), net.......... 12,031 (175,887) (13,539)
----------- ------------ ------------
Net loss............................. (3,783,052) (4,272,167) (3,432,808)

Beginning accumulated deficit........ (2,488,662) (6,271,714) (10,543,881)
----------- ------------ ------------
Ending accumulated deficit........... $(6,271,714) $(10,543,881) $(13,976,689)
=========== ============ ============

The accompanying notes are an integral part of these financial statements.

F-65

IFCO-U.S., L.L.C.

STATEMENTS OF CASH FLOWS

Year Ended
December 31,
-------------------------------------
1997 1998 1999
----------- ----------- -----------

Net cash provided by (used in)
operating activities:
Net loss............................... $(3,783,052) $(4,272,167) $(3,432,808)
Adjustments to reconcile net loss to
cash provided by operating activities:
Depreciation.......................... 557,934 826,042 1,807,299
Provision for doubtful accounts
receivable........................... 25,000 25,000 25,000
Transfer of crates to related parties,
excluding freight and duty........... 219,141 106,343 (193,148)
Loss on disposition of equipment and
furniture............................ -- 198,547 --
Decrease (increase) in receivables.... (595,894) (1,351,104) (2,848,040)
Decrease (increase) in related party
receivables.......................... (1,969,647) 1,999,467 (1,729,087)
Decrease (increase) in other assets... 58,577 (40,883) 14,523
Increase (decrease) in accounts
payable and accrued expenses......... 94,552 161,836 845,400
Increase (decrease) in related party
accounts payable..................... 1,069,925 1,177,851 1,798,371
Increase (decrease) in refundable
deposits............................. 561,991 997,289 1,765,046
----------- ----------- -----------
Net cash used in operating activities.. (3,761,473) (171,779) (1,947,444)
----------- ----------- -----------
Net cash provided by (used in)
investing activities:
Purchases of furniture and equipment... (683,066) (279,084) (12,976)
Proceeds from crate transfers to
related parties....................... 1,790,551 1,128,973 1,897,208
----------- ----------- -----------
Net cash provided by investing
activities............................ 1,107,485 849,889 1,884,232
----------- ----------- -----------
Net cash provided by (used in)
financing activities:
Proceeds from issuance of related party
debt.................................. 4,504,285 1,682,585 3,406,857
Payment of other liabilities........... -- -- (202,267)
Payment of related party debt.......... (1,854,456) (2,358,238) (3,124,111)
----------- ----------- -----------
Net cash provided by (used in)
financing activities.................. 2,649,829 (675,653) 80,479
----------- ----------- -----------
Net increase (decrease) in cash:
Cash equivalents at the beginning of
the period............................ (4,159) 2,457 17,267
Cash at the end of the period.......... 12,189 8,030 10,487
----------- ----------- -----------
$ 8,030 $ 10,487 $ 27,754
=========== =========== ===========
Supplemental cash flow information:
Interest paid......................... $ 270,000 $ 289,000 $ 333,000

Non-cash investing and financing
activities:

During 1997, 1998, and 1999, the Company had crate purchases of
approximately $1,854,000, $2,154,000, and 9,783,500, respectively. These crate
purchases have been financed with notes payable from related parties.

The accompanying notes are an integral part of these financial statements.

F-66

IFCO-U.S., L.L.C.

NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION AND BASIS OF PRESENTATION:

IFCO-U.S., L.L.C. (the "Company" or "IFCO-US") is a limited liability
company. The Company's members are Schoeller-U.S., Inc. ("SIL-US") and Polymer
International Corporation ("PIC"). SIL-US is a wholly-owned subsidiary of
Schoeller International Logistics Beteiligungsgesellschaft mbH ("SIL") and PIC
is a wholly-owned subsidiary of Intertape Polymer Group Inc. ("IPG"). The
Company owns and manages a rental plastic container pool in the United States.
These collapsible, reusable plastic containers ("crates") offer produce
retailers and growers economic and environmental advantages over disposable
packaging alternatives. The crates are leased primarily to growers of fresh
fruit and vegetables in exchange for a one-time usage fee. The growers' goods
are transported in the crates to various intermediaries and ultimately
retailers for sale to consumers. The Company delivers the empty crates to
customers' bulk warehouses and collects the empty crates from regional service
points, where the crates are transported to the Company's depots and cleaned
for reuse.

The nature of the Company's business is such that short-term obligations are
typically met by cash flow generated from long-term assets. Consequently, the
accompanying balance sheet is presented on an unclassified basis.

On September 2, 1999, PIC and SIL-US entered into a Membership Interest and
Share Purchase Agreement (the "Purchase Agreement"). Upon execution of the
agreement, PIC purchased from SIL 36.25% of the outstanding shares in SIL-US
(the "Polymer Shares") for a note payable of $3,153,000 (the "Polymer Note").
Effective October 1, 1999, SIL assigned the Polymer Note to the Company. As a
result of the assignment, the Company recorded a receivable from PIC and a
payable to SIL for $3,153,000. Interest on the Polymer Note and interest on an
additional $3,153,000 of existing PIC debt will be waived until March 1, 2000.

PIC also agreed to sell subject to certain conditions including consummation
of a merger between IFCO Systems and PalEx, Inc. (the "Palex Merger") and a
related initial public offering of IFCO Systems N.V. (the "IPO") no later than
March 31, 2000, its entire 20% interest in IFCO-US (the "Polymer Interest") and
the Polymer Shares to IFCO Systems N.V. for approximately $10,657,500, plus all
outstanding indebtedness which was approximately $26,840,000 as of December 31,
2000. Such amount will be reduced by the cancellation of the Polymer Note in
the amount of $3,153,000, and $2,500,000 and certain other indebtedness.

Commencing September 10, 1999, and on the first business day of each month
thereafter until the earlier of the consummation of the PalEx Merger and IPO or
March 1, 2000, SIL-US and PIC shall each make a loan to the Company in the
amount of $75,000.

On March 8, 2000, the merger of IFCO Systems N.V. ("IFCO Systems") and
PalEx, Inc., was completed. In conjunction with the merger, PIC sold its entire
20% interest in the Company and the Polymer Shares to IFCO Systems N.V. for
$10,657,000, plus all outstanding indebtedness at that date, less $3,153,000
for cancellation of the Polymer Note, and $2,500,000 and certain other
indebtedness.

The Company is currently trying to establish the plastic crate rental
concept to the produce distribution market in the United States. As such, the
Company is in a start-up business phase and will continue to realize net losses
until its sales and gross margins increase high enough to cover variable and
fixed operating costs. The Company's continuation as a going concern is
dependent on its ability to obtain profitability and to generate sufficient
cash flows, in a timely basis to meet obligations. IFCO Systems has represented
to the Company's management that they intend to continue to provide whatever
financial support is necessary to enable the Company to continue to operate and
meet its liabilities as and when they fall due for a period of at least twelve
months from the date of the audit opinion of these financial statements.

F-67

IFCO-U.S., L.L.C.

NOTES TO FINANCIAL STATEMENTS--(Continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

A summary of the significant accounting policies followed in the preparation
of the Company's financial statements is set forth below:

Crates

The Company depreciates its crate pool using the straight line method over a
15-year life. Additionally, the Company accrues additional depreciation for
estimated crate breakage at a rate of 4.5% of the crate purchase price on a per
trip basis. The Company periodically reviews its crate rental pool to ensure
that all unusable crates are reduced to net realizable value.

Expenditures for repairs are charged to expense as incurred. Upon transfer
or retirement of crates, the cost and related accumulated depreciation are
eliminated from the respective accounts.

The gains and losses from related party crate transfers are included within
cost of revenues. The cost of related party crate transfers includes the net
book value of the asset sold and any direct costs associated with the
transfers.

Equipment and Furniture

Equipment and furniture are stated at cost, less accumulated depreciation.
Depreciation is provided on the straight-line basis over the estimated useful
lives of the related assets. Machinery and equipment are depreciated from 5-10
years and furniture and fixtures are depreciated over 5 years.

Income Taxes

The Company is a limited liability company which is treated as a partnership
for federal and state tax purposes. As such, the income or loss generated by
the Company is taxable to its members. Therefore, no provision for income taxes
is recorded by the Company.

Revenue Recognition

The majority of the Company's revenues are generated from crate rental fees.
Revenue is recognized over the Company's service obligation period. The service
obligation period is complete when the customer's product is removed from the
crates and the crate is ready to be returned to the Company. The Company
accrues for the cost of returning crates to the rental pool.

The Company records a two-dollar per crate deposit receivable and an
offsetting refundable deposit liability for each crate delivered. Deposits are
refundable upon proof of crate shipment by the customer.

Fair Value of Financial Instruments

SFAS No. 107, "Disclosures About Fair Values of Financial Instruments,"
requires the disclosure of the fair value of financial instruments, both assets
and liabilities recognized and not recognized on the balance sheet, for which
it is practicable to estimate fair value. The carrying amounts reported in the
accompanying balance sheets for accounts receivable, accounts payable and
accrued expenses, related party payables, and refundable deposits approximate
fair value because of their short term nature. It is not practicable for the

F-68

IFCO-U.S., L.L.C.

NOTES TO FINANCIAL STATEMENTS--(Continued)

Company to reasonably estimate the fair market value of the long term debt due
to the related party nature of the debt, absence of a quoted market rate for
the debt or debt with similar characteristics and complexities surrounding
maturity dates.

Use of Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the
reporting period. Although the Company reviews all significant estimates
affecting its financial statements on a recurring basis and records the
estimated effect of any necessary adjustments, actual results could differ from
these estimates.

Advertising Expense

The Company expenses the cost of advertising as incurred. The Company
incurred approximately $80,000, $295,000, and $412,000 in advertising costs for
the year ended December 31, 1997, 1998, and 1999, respectively.

Start-up and organization costs

The Company has expensed all start-up and organization costs when incurred.

Impairment of Long-Lived Assets

SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" requires that long-lived assets to be held
and used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be fully
recoverable. The Company believes that there is no impairment of its long-lived
assets, primarily rental crates.

Concentrations of Risk

Financial instruments that potentially subject the Company to concentrations
of credit risk consist principally of accounts receivable. The Company performs
credit evaluation procedures on its customers and the Company's rental invoices
are primarily on 14-day terms. Historically, the Company has not incurred
significant credit related losses, however, an allowance for potential credit
losses is maintained. Risk may exist in the Company's business and accounts
receivable as approximately 39% and 18% of the Company's customers are located
in California and Florida, respectively. As the Company's customers are in the
produce industry, the Company's sales volumes in certain regions tend to be
seasonal and subject to weather and other naturally occurring conditions.

During the year ended December 31, 1999, the Company had no customer that
accounted for more than 10% of total receivables. During each of the years
ended December 31, 1997 and 1998, the Company had one customer each year that
accounted for more than 10% of total revenues. DNE International accounted for
approximately 12% of revenues during fiscal year ended December 31, 1997. Fresh
From Texas accounted for 14% of revenues during fiscal year ended December 31,
1998.

Reclassifications

Certain prior year balances have been reclassified to be consistent with
current year presentation. Such reclassifications had no effect on total
assets, equity, net income, or total cash flows.

F-69

IFCO-U.S., L.L.C.

NOTES TO FINANCIAL STATEMENTS--(Continued)

3. RECEIVABLES:

Receivables consisted of the following at December 31:

1997 1998 1999
---------- ---------- ----------

Trade--Rental receivables................... $ 206,648 $ 523,339 $1,569,049
Trade--Deposit receivables.................. 862,383 1,903,156 3,705,486
Less: Allowance for doubtful accounts....... (25,000) (50,000) (75,000)
Other receivables........................... 6,360 -- --
---------- ---------- ----------
$1,050,391 $2,376,495 $5,199,535
========== ========== ==========

Related party receivables consisted of the following at December 31:

1997 1998 1999
----- -------- ----------

Crate transfer receivable............................ $ $ 95,749 $1,824,836
Polymer Note receivable.............................. -- 3,153,000
----- -------- ----------
$ $ 95,749 $4,977,836
===== ======== ==========

4. CRATE RENTAL POOL, NET

Crate rental pool, net consisted of the following at December 31:

1997 1998 1999
---------- ----------- -----------

Crate rental pool......................... $6,149,627 $ 6,367,117 $14,024,437
Less: accumulated depreciation............ (722,141) (1,067,344) (2,008,059)
---------- ----------- -----------
Crate rental pool, net.................... $5,427,486 $ 5,299,773 $12,016,378
========== =========== ===========

Crate depreciation expense for the years ended December 31, 1997, 1998 and
1999 was $499,098, $679,324 and $1,623,307, respectively.

5. EQUIPMENT AND FURNITURE:

Equipment and furniture consisted of the following at December 31:

1997 1998 1999
---------- ---------- ----------

Machinery and equipment.................. $1,405,317 $1,444,451 $1,485,596
Furniture and fixtures................... 18,538 25,040 32,382
---------- ---------- ----------
1,423,855 1,469,491 1,517,978
Less: accumulated depreciation........... (61,656) (173,473) (392,980)
---------- ---------- ----------
Equipment and furniture, net............. $1,362,199 $1,296,018 $1,124,998
========== ========== ==========

Equipment and furniture depreciation expense for the years ended December
31, 1997, 1998 and 1999 was $58,836, $146,718 and $183,996, respectively.

F-70

IFCO-U.S., L.L.C.

NOTES TO FINANCIAL STATEMENTS--(Continued)

6. OTHER LIABILITIES

During 1999, IFCO-US entered into a purchase agreement with GE Polymer
Logistics B.V. to purchase econobins (a large type of crate) for approximately
$325,000. As of December 31, 1999, the Company has $124,920 of the remaining
purchase agreement which will become due and payable in monthly installments
through June 2001.

7. RELATED PARTY DEBT:

Indebtedness consists of the following as of December 31:

1997 1998 1999
----------- ----------- ------------

U.S. prime rate advances from PIC........ $ 4,465,882 $ 4,353,392 $ 1,878,208
0% advances from PIC..................... -- 800,000 4,315,281
U.S. prime rate + 6% related party notes
payable in default from IFCO
Manufacturing........................... 860,807 1,339,883 2,901,937
10% related party notes payable from IFCO
Manufacturing .......................... 6,315,943 5,828,169 12,487,580
U.S. prime rate PIC member loan.......... 1,400,000 1,400,000 1,700,000
0% SIL-US member loan.................... -- 800,000 4,315,281
----------- ----------- ------------
$13,042,632 $14,521,444 $ 27,598,287
=========== =========== ============

The maturities of indebtedness are as follows for the years ending
December 31:

Amount
-----------

2000.......................................................... $19,535,007
2001.......................................................... 4,072,333
2002.......................................................... 3,506,376
2003.......................................................... 484,571
2004.......................................................... --
Thereafter.................................................... --
-----------
$27,598,287
===========

Advances from PIC

PIC has advanced funds to the Company for operating cash flow purposes.
Under the terms of the operating agreement between SIL-US and PIC, advances
from members accrue interest at the U.S. prime rate as published in the Wall
Street Journal ("U.S. prime rate"), which was 8.5%, 7.75% and 8.5% at December
31, 1997, 1998 and 1999, respectively.

In May 1998, PIC agreed to waive interest charges on the first $800,000 of
its advances to the Company (see discussion of member loans).

Related Party Note Payables

The Company purchases its crates from IFCO Manufacturing, Inc. ("IFCO
Manufacturing"), a wholly-owned subsidiary of IPG. The Company finances crate
purchases with a three year note payable with IFCO Manufacturing. The notes
accrue interest at 10%, with interest becoming payable on a semi-annual basis.
One third of the principal of each note becomes due after every 12 months. The
Company is currently in default on a portion of its principal and interest
payments on its manufacturing note payables. Upon default, the notes and
interest due began accruing additional interest at the default interest rate
which is the U.S. prime rate plus 6% (14.5%, 13.75% and 14.5% at December 31,
1997, 1998 and 1999, respectively). Substantially all of the Company's
receivables and long-lived assets are pledged as collateral for all outstanding
notes payable under the crate supply agreement with IFCO Manufacturing.

F-71

IFCO-U.S., L.L.C.

NOTES TO FINANCIAL STATEMENTS--(Continued)

Member Loans

The Company has a member loan with PIC for $1.4 million, which accrues
interest at the U.S. prime rate. The funds were provided to the Company during
1995 and 1996 to fund start-up and organization costs. In accordance with the
February 16, 1995 operating agreement between PIC and SIL-US, repayment of the
loan by the Company shall be at such times as the Company can repay the loan
when considering its future cash or requirements as contemplated in the
operating agreement. At the time the Company has sufficient operating capital
from profits, the entire principal and interest remaining outstanding shall
then become due and payable in semi-annual installments of principal together
with all accumulated interest until all amounts due and owing are paid in full.
As of December 31, 1999, no principal or interest payments have been made.

During May of 1998, SIL-US agreed to fund the Company's cash flow deficits
with an $800,000 interest free loan. The SIL-US loan was funded in cash and
does not have a stated maturity date. In conjunction with the SIL-US loan, PIC
agreed to waive interest charges on the first $800,000 of advances.

8. COMMITMENTS AND CONTINGENCIES:

Litigation

The Company is involved in various legal proceedings that have arisen in the
ordinary course of business. In the opinion of the Company's management, all
such proceedings are adequately covered by insurance or, if not so covered,
will not materially result in any liability which would have a material adverse
effect on the financial position, liquidity or results of operations of the
Company.

Leasing Arrangements

The Company leases certain facilities and machinery under non-cancelable
operating leases. Additionally, the Company sub-leases office space from a
wholly-owned subsidiary of IPG. The Company's rent expense under the related
party sub-lease was $46,000, $47,000 and $50,000 for the years ended December
31, 1997, 1998 and 1999, respectively. Lease payments are accrued on a
straight-line basis over the term of the lease. Minimum future rental payments
under these leases as of December 31, 1999 are as follows:

Amount
--------

2000............................................................. $282,636
2001............................................................. 186,728
2002............................................................. 7,000
2003............................................................. --
Thereafter....................................................... --
--------
$476,364
========

Rent expense under operating leases was approximately $46,000, $155,000 and
$270,000 for the years ending December 31, 1997, 1998 and 1999, respectively.

9. MEMBERS' EQUITY:

SIL-US and PIC each own 500 shares of the Class A voting membership
interests. Additionally, SIL-US owns 100% of the 1,500 shares of the Class B
non-voting membership interests. All shares participate equally in the sharing
of the Company's profits/losses and distributions.

F-72

IFCO-U.S., L.L.C.

NOTES TO FINANCIAL STATEMENTS--(Continued)

10. OTHER RELATED PARTY TRANSACTIONS:

Related Party Receivables and Payables

All of the Company's related party receivables are the result of crate
transfers. The Company's related party payables are related to services
provided by related parties in connection with export crate rentals under the
export servicing agreement, crate deposits, royalties, and other miscellaneous
payables. The related party payables are composed of the following:

December 31,
--------------------------------
1997 1998 1999
---------- ---------- ----------

Crate deposits................................ $ 152,400 $ 259,754 $ 259,754
Reconditioning fees........................... 297,257 552,531 832,166
Crate purchases............................... 317,735 22,608 22,608
Royalties..................................... 24,117 92,517 257,508
Interest payable.............................. 795,105 1,558,525 2,584,440
Interest payable in default................... 356,351 634,881 968,101
---------- ---------- ----------
$1,942,965 $3,120,816 $4,924,577
========== ========== ==========

Crate Supply Agreement

During 1996, the Company entered into a five-year supply agreement with IPG
(through its wholly owned subsidiary IFCO Manufacturing) to provide all of the
Company's plastic crates. The agreement specifies that the Company must
purchase all crates from IPG and IPG is prohibited from selling crates to other
customers. Crate prices are determined by a formula based upon raw material
weight, the price for granulate and the actual quantity purchased by the
Company. The agreement does not call for a minimum purchase requirement. During
1997, 1998 and 1999, the Company purchased approximately $1,854,000, $2,154,000
and $9,783,500, respectively, for crates supplied by IFCO Manufacturing. These
crate purchases are financed through notes with IFCO Manufacturing.

System Licensing Agreement

In 1996, SIL and the Company entered into a ten-year licensing agreement.
Under the agreement, the Company shall owe SIL a royalty commission equal to 3%
of domestic crate rentals which are payable every quarter. For the years ended
December 31, 1997, 1998 and 1999, the Company recorded royalty commission
expenses of $19,123, $45,484 and $171,186, respectively.

Export Servicing Agreement

Some of the Company's customers use the crates to ship produce to
international markets. In conjunction with its export rental program, the
Company has a service agreement with IFCO-GmbH, a related party, whereby, IFCO-
GmbH has agreed to collect, sort, wash, and include the crates within the
European operations rental pool. Under the agreement, the Company records an
amount equal to 80% of the export rental revenue as an expense payable to IFCO-
GmbH as consideration for the services.

Export rental revenue was approximately $273,000, $306,000 and $309,000 for
the years ended December 31, 1997, 1998 and 1999, respectively.

F-73

IFCO-U.S., L.L.C.

NOTES TO FINANCIAL STATEMENTS--(Continued)

Related Party Crate Transfers

Under the terms of the export servicing agreement discussed above, the
Company transfers ownership of crates shipped to Europe to related parties upon
completion of the export rental period at the net book value of the crates.

In 1997, 1998 and 1999, the Company agreed to transfer certain excess crates
to related parties. These transfers were not related to the export servicing
agreement. For the years ended December 31, 1997, 1998 and 1999, the Company
recognized losses of $193,000, $454,000 and $0 on the transfer of crates to
related parties which have been included within cost of revenues.

Management

IPG employees oversee the daily management of the Company. The Company's
controller and assistant controller share responsibilities with other companies
owned by IPG, including IFCO Manufacturing. Their salaries are charged to the
Company based upon the estimated time spent working on Company business. All
significant business decisions are determined by the Company's Board of
Directors, which is composed of two members from SIL-US and two members from
PIC.

IPG has provided various management, accounting and administrative services
to the Company. Wherever appropriate and practical, the costs associated with
these services have been allocated and/or directly charged to the Company.
However, the costs of some services such as credit, collections, treasury
management, marketing and information systems management have not been
allocated to the Company and the Company's financial statements do not reflect
amounts associated with such services.

The significant services that have been allocated to the Company include:

Year ended December 31,
--------------------------
1997 1998 1999
-------- -------- --------

Employee benefits................................... $ 35,000 $ 45,000 $100,000
Leased vehicles for salesman travel................. 40,000 60,000 60,000
Telecommunications expenses......................... 15,000 23,000 25,000
-------- -------- --------
$ 90,000 $128,000 $185,000
======== ======== ========

11. EMPLOYEE BENEFITS:

The Company's employees are eligible to participate in IPG's 401(k) defined
contribution plan. The Company may make a discretionary match of up to 6% of
the participant's salary to the participant's account. Additionally, the
Company may make profit sharing distributions to the participants based upon
IPG's financial performance. Contributions for the years ended December 31,
1997, 1998 and 1999 were $12,000, $24,000 and $33,000, respectively.

F-74

REGISTERED OFFICE OF THE ISSUER

IFCO SYSTEMS N.V.

"Rivierstaete"
Amsteldijk 166
1079 LH Amsterdam
The Netherlands

LEGAL ADVISORS

To the Issuer as to U.S. law To the Issuer as to Dutch law
Gardere & Wynne, L.L.P. Stibbe Simont Monahan Duhot P.C.
1601 Elm Street, Suite 3000 350 Park Avenue, Suite 2800
Dallas, Texas 75201 New York, New York 10017

BOOK-ENTRY DEPOSITARY,
EXCHANGE AGENT TRUSTEE REGISTRAR, AND PAYING AGENT

The Bank of New York The Bank of New York The Bank of New York
30 Cannon Street 101 Barclay Street 101 Barclay Street
London EC4M 6X4 England Floor 21W Floor 21W
New York, New York 10286 New York, New York 10286

LUXEMBOURG LISTING, PAYING, TRANSFER, AND EXCHANGE AGENT

Kredietbank S.A. Luxembourgeoise
43 Boulevard Royal
L-2955 Luxembourg

AUDITORS

Auditors for IFCO Systems N.V. Auditors for IFCO-U.S., L.L.C. Auditors for PalEx, Inc.
and IFCO Companies PricewaterhouseCoopers LLP Arthur Andersen LLP
PwC Deutsche Revision AG 400 N. Ashley Street, Suite 2800 101 E. Kennedy Blvd.,
Moskauer Strabe 19 Tampa, Florida 33602 Suite 2200
40227 Dusseldorf, Germany Tampa, Florida 33602

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You should rely only on the information contained in this prospectus or the
accompanying letter of transmittal. We have not authorized anyone to provide
you with different information. We are not offering these securities in any
jurisdiction where an offering is not permitted. The information in this
prospectus and the letter of transmittal may only be accurate on the date of
this document.

------------------

TABLE OF CONTENTS

Page
----

Presentation of Financial Information.................................... i
Exchange Rate Information................................................ i
Prospectus Summary....................................................... 1
Risk Factors............................................................. 14
Cautionary Note Regarding Forward-Looking Statements..................... 22
The Exchange Offer....................................................... 23
The Transactions......................................................... 29
Use of Proceeds.......................................................... 30
Capitalization........................................................... 30
Unaudited Pro Forma Combined and Consolidated Financial Statements....... 31
Selected Financial Information........................................... 37
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 40
Industry Overview........................................................ 54
Business................................................................. 57
Management............................................................... 76
Certain Relationships and Related Transactions........................... 79
Security Ownership of Principal Shareholders and Management.............. 82
Description of New Senior Credit Facility................................ 83
Description of the Registered Notes ..................................... 85
Taxation................................................................. 126
Plan of Distribution..................................................... 128
Enforceability of Civil Liabilities...................................... 129
Legal Matters............................................................ 129
Experts.................................................................. 129
Where You Can Find More Information...................................... 130
Issuer................................................................... 131
General Information...................................................... 134
Index to Financial Statements............................................ F-1

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[LOGO OF IFCO SYSTEMS]

IFCO Systems N.V.

Offer to Exchange
All Outstanding
Series A 10 5/8% Senior

Subordinated Notes due 2010
for
Series B 10 5/8% Senior

Subordinated Notes due 2010

-------------------------
PROSPECTUS
-------------------------

, 2000

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- -------------------------------------------------------------------------------

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 20. Indemnification of Directors And Officers

IFCO Systems N.V. has agreed to indemnify each member of its board of
directors if, in the course of executing his or her duties, the member incurs
personal liability under civil laws, subject to the right of IFCO Systems to
recover payment from each such member to the extent permitted by applicable
law. IFCO Systems will also maintain an insurance policy with a third-party
carrier insuring members of the board of directors against the foregoing
liabilities.

Item 21. Exhibits And Financial Statement Schedules

(a) Exhibits.

3.1 Articles of Association of IFCO Systems (English translation)
(incorporated by reference to Appendix D to the proxy
statement/prospectus filed as part of IFCO Systems' Registration
Statement on Form F-4, registration no. 333-96021).

4.1 Specimen Certificate of IFCO Systems ordinary shares (incorporated by
reference to Exhibit 4.1 filed as part of the Company's Registration
Statement of Form F-4, registration no. 333-96021).

*5.1 Opinion of Stibbe Simont Monahan Duhot P.C. and opinion of Gardere &
Wynne, L.L.P., as to the legality of the securities registered.

9.1 Voting Agreement dated as of October 6, 1999, and effective as of
March 29, 1999, by and among PalEx and certain stockholders of PalEx
(incorporated by reference to Exhibit 9.1 to IFCO Systems'
Registration Statement on Form F-4, registration no. 333-96021).

10.1 Amended and Restated Agreement and Plan of Reorganization, dated as
of October 6, 1999 and effective as of March 29, 1999, by and among
IFCO Systems, IFCO Europe, MTS, IFCO International, Schoeller
Industries, Silver Oak, and PalEx, as amended by Amendment No. 1
dated as of January 31, 2000 (incorporated by reference to Appendix A
to the proxy statement/prospectus filed as part of IFCO Systems'
Registration Statement on Form F-4, registration no. 333-96021).

10.2 Lockup Agreement executed by Christoph Schoeller, Martin Schoeller,
Schoeller Industries, Schoeller Holding, and certain senior
executives of PalEx and its subsidiaries (incorporated by reference
to Exhibit 10.1 to IFCO Systems' Registration Statement on Form F-4,
registration no. 333-96021).

10.3 Waiver entered into by IFCO Systems and by certain employees of PalEx
(incorporated by reference to Exhibit 10.2 to IFCO Systems'
Registration Statement on Form F-4, registration no. 333-96021).

10.4 Form of Underwriting Agreement (incorporated by reference to Exhibit
1 to IFCO Systems' Registration Statement on Form F-1, registration
no. 333-96191).

*10.5 Amended and Restated Credit Agreement dated as of March 31, 2000,
among IFCO Systems, PalEx, the several lenders from time to time
parties thereto, CIBC World Markets Corp., and Bank One, NA.

*10.6 Form of Guarantee and Collateral Agreement dated as of March 8, 2000,
among IFCO Systems, PalEx, and certain of their subsidiaries, in
favor of Bank One, NA, as Administrative Agent.

*10.7 Indenture, dated March 8, 2000, by and among IFCO Systems, the
guarantors named therein, and The Bank of New York, as Trustee.

*10.8 Registration Rights Agreement, dated March 8, 2000, by and among IFCO
Systems, the guarantors named therein, CIBC World Markets Corp., and
Banc One Capital Markets, Inc.

II-1

10.9 Senior Facility Agreement, dated February 20, 1998, between IFCO
International Food Container Organization GmbH, as Borrower, IFCO
Europe, and the Financial Institutions named therein (incorporated by
reference to Exhibit 10.3 to IFCO Systems' Registration Statement on
Form F-4, registration no. 333-96021).

10.10 Amendment to Senior Facility Agreement, dated February 28, 1998
(incorporated by reference to Exhibit 10.4 to IFCO Systems'
Registration Statement on Form F-4, registration no. 333-96021).

10.11 Senior Subordinated Facility Agreement, dated February 20, 1998,
between IFCO International Food Container Organization GmbH as
Borrower, IFCO Europe, and the Financial Institutions named therein
(incorporated by reference to Exhibit 10.5 to IFCO Systems'
Registration Statement on Form F-4, registration no. 333-96021).

10.12 Intercreditor Agreement, dated February 20, 1998, between BHF Bank AG
as Senior Agent and Security Trustee, Barclays Bank PLC as Senior
Subordinated Agent, and the Financial Institutions named therein as
Initial Senior Lenders and Initial Senior Subordinated Lenders
(incorporated by reference to Exhibit 10.6 to IFCO Systems'
Registration Statement on Form F-4, registration no. 333-96021).

10.13 Security Trust Agreement, dated February 27, 1998, between BHF Bank
AG as Security Trustee and Senior Agent, IFCO International Food
Container Organization GmbH as Borrower, IFCO Europe, Barclays Bank
PLC as Senior Subordinated Agent, and the Financial Institutions
named therein (incorporated by reference to Exhibit 10.7 to IFCO
Systems' Registration Statement on Form F-4, registration no. 333-
96021).

10.14 Option Release and IPO-Facilitation Agreement, dated May 27, 1999, by
and among, inter alia, Schoeller Industries, Schoeller Plast AG, GE
Capital, and GE Erste, as amended by the Amendment of the Option
Release and IPO-Facilitation Agreement, dated January 31, 2000
(incorporated by reference to Exhibit 10.8 to IFCO Systems'
Registration Statement on Form F-4, registration no. 333-96021).

10.15 Supply Agreement, dated November 4, 1997, between IFCO Europe and
Schoeller Plast Industries GmbH (assigned to Schoeller Plast AG)
(incorporated by reference to Exhibit 10.9 to IFCO Systems'
Registration Statement on Form F-4, registration no. 333-96021).

10.16 Membership Interest and Share Purchase Agreement, dated September 2,
1999, by and among, inter alia, Polymer International Corp., as
seller, and IFCO Systems, as purchaser (incorporated by reference to
Exhibit 10.10 to IFCO Systems, Registration Statement on Form F-4,
registration no. 333-96021).

10.17 Management Agreement, dated as of January 2, 1997, between Schoeller
Industries and IFCO Europe (incorporated by reference to Exhibit
10.11 to IFCO Systems' Registration Statement on Form F-4,
registration no. 333-96021).

10.18 Management Agreement, dated as of January 2, 1997, between Schoeller
Industries and MTS (incorporated by reference to Exhibit 10.12 to
IFCO Systems' Registration Statement on Form F-4, registration no.
333-96021).

10.19 Asset Purchase Agreement, dated as of February 12, 1998, by and among
PalEx, Container Services Company NW Acquisition, Inc., Container
Services Company SW Acquisition, Inc., Consolidated Drum
Reconditioning Co., Inc., CDRCo. HC, LLC, CDRCo. NW, LLC, CDRCo SW,
LLC, Joseph Cruz, and Philip Freeman (incorporated by reference to
Exhibit 2.1 to PalEx's Current Report on Form 8-K dated February 12,
1998, Commission file no. 000-22237, as filed with the SEC on
February 27, 1998).

10.20 Acquisition Agreement and Plan of Reorganization, dated as of
February 23, 1998, by and among PalEx, Acme Acquisition, Inc., Acme
Barrel Company, Inc., and the stockholders named therein
(incorporated by reference to Exhibit 2.2 to PalEx's Current Report
on Form 8-K dated February 12, 1998, Commission file no. 000-22237,
as filed with the SEC on February 27, 1998).

II-2

10.21 Acquisition Agreement and Plan of Reorganization, dated as of
February 23, 1998, by and among PalEx, Acme Barrel Company, Inc., ESP
Realty Corp., Inc., and the Elliot Pearlman Living Trust u/t/a dated
July 2, 1996 (incorporated by reference to Exhibit 2.3 to PalEx's
Current Report on Form 8-K dated February 12, 1998, Commission file
no. 000-22237, as filed with the SEC on February 27, 1998).

10.22 Acquisition Agreement and Plan of Reorganization, dated as of
February 23, 1998, by and among PalEx, Western Container Acquisition,
Inc., Environmental Recyclers of Colorado Inc., and the individual
options named therein (incorporated by reference to Exhibit 2.4 to
PalEx's Current Report on Form 8-K dated February 12, 1998,
Commission file no. 000-22237, as filed with the SEC on February 27,
1998).

10.23 Acquisition Agreement, dated as of February 23, 1998, by and among
PalEx, Western Container Acquisition, Inc., and Barton A. Kaminsky
(incorporated by reference to Exhibit 2.5 to PalEx's Current Report
on Form 8-K dated February 12, 1998, Commission file no. 000-22237,
as filed with the SEC on February 27, 1998).

10.24 Share Purchase Agreement, dated as of September 11, 1998, by and
among (a) PalEx, (b) 1313530 Ontario Inc., an Ontario corporation
that is wholly owned by PalEx, and (c) 1271477 Ontario Limited,
Rollem Holdings Inc., 1271478 Ontario Limited, 1296288 Ontario
Limited, Save On Pallets Ltd., Pallet Management Services Inc., The
David E. Turner Family Trust II, The David E. Turner Family Trust
III, The Enrico DiLello Family Trust II, The Enrico DiLello Family
Trust III, The Worden Teadsdale Family Trust, The Fraser Campbell
Family Trust II, The Fraser Campbell Family Trust III, The John
F.Campbell Family Trust II, The John F. Campbell Family Trust, The
Ronald Doering Family Trust, Fraser Campbell, John F. Campbell,
Enrice DiLello, Ronald Doering, Susan Virginia Teadsdale, Worden
Teadsdale, Clint Sharples, and David E. Turner (incorporated by
reference to Exhibit 2.1 to Palex's Current Report on Form 8-K dated
September 11, 1998, Commission file no. 000-22237, as filed on
September 23, 1998).

*10.25 Employment Agreement, dated as of March 8, 2000, by and among IFCO
Systems and Vance K. Maultsby, Jr.

*10.26 Employment Agreement, dated as of March 8, 2000, by and among IFCO
Systems and Edward Rhyne.

*10.27 Employment Agreement, dated as of March 8, 2000, by and among IFCO
Systems and Howe Q. Wallace.

10.28 IFCO Systems N.V. 2000 Stock Option Plan (incorporated by reference
to Exhibit 10.1 to IFCO Sytems Registration Statement on Form S-8,
registration no. 333-32818)

*10.29 First Supplemental Indenture, dated as of May 31, 2000, among IFCO-
U.S., L.L.C., IFCO Systems, the existing guarantors named therein,
and The Bank of New York, as Trustee.

*21.1 Subsidiaries of the Registrant.

*23.1 Consent of PwC Deutsche Revision Aktiengesellschaft
Wirtschaftsprufungsgesellschaft.

*23.2 Consent of Arthur Andersen LLP.

*23.3 Consent of PricewaterhouseCoopers LLP.

*23.4 Consent of Stibbe Simont Monahan Duhot P.C. and consent of Gardere &
Wynne, L.L.P. (included in Exhibit 5.1).

**24.1 Power of Attorney (included on signature page).

*25.2 Statement of Eligibility Under the Trust Indenture Act of 1939 of a
Corporation Designated to Act as Trustee on Form T-1 of The Bank of
New York.

*99.1 Letter of Transmittal.

*99.2 Form of Supplemental Offering Memorandum.

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* Filed herewith.

** Previously filed.

II-3

(b) Financial Statement Schedules.

Not required.

Not applicable.

Item 22. Undertakings

(a) The undersigned registrant hereby undertakes:

(1) That, for purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(2) That, for the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and this offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.

(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, subject to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.

(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.

II-4

SIGNATURES

Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Amendment No. 1 to registration statement on Form F-4 to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Houston, State of Texas, on July 14, 2000.

IFCO Systems N.V.

/s/ Edward E. Rhyne
By: _________________________________
Edward E. Rhyne
Executive Vice President and
General Counsel

POWER OF ATTORNEY

Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 1 to registration statement on Form F-4 has been signed by the
following persons in the capacities indicated on the dates indicated.

Signature Title Date
--------- ----- ----

* Chief Executive Officer July 14, 2000
______________________________________ and A Director (principal
Martin A. Schoeller executive officer)

* Executive Vice President, July 14, 2000
______________________________________ Strategy and Finance and
Vance K. Maultsby, Jr. Chief Financial Officer
(principal financial and
accounting officer)

* Chairman of the Board and July 14, 2000
______________________________________ B Director
Christoph Schoeller

* B Director July 14, 2000
______________________________________
Sam W. Humphreys

* B Director July 14, 2000
______________________________________
Randall Onstead

/s/ Edward E. Rhyne

*By: _______________________

Attorney-in-fact

II-5

EXHIBIT INDEX

4.1 Specimen Certificate of IFCO Systems ordinary shares (incorporated by
reference to Exhibit 4.1 filed as part of the Company's Registration
Statement of Form F-4, registration no. 333-96021).

*5.1 Opinion of Stibbe Simont Monahan Duhot P.C. and opinion of Gardere &
Wynne, L.L.P., as to the legality of the securities registered.

10.3 Waiver entered into by IFCO Systems and by certain employees of PalEx
(incorporated by reference to Exhibit 10.2 to IFCO Systems'
Registration Statement on Form F-4, registration no. 333-96021).

10.4 Form of Underwriting Agreement (incorporated by reference to Exhibit
1 to IFCO Systems' Registration Statement on Form F-1, registration
no. 333-96191).

*10.5 Amended and Restated Credit Agreement dated as of March 31, 2000,
among IFCO Systems, PalEx, the several lenders from time to time
parties thereto, CIBC World Markets Corp., and Bank One, NA.

*10.6 Form of Guarantee and Collateral Agreement dated as of March 8, 2000,
among IFCO Systems, PalEx, and certain of their subsidiaries, in
favor of Bank One, NA, as Administrative Agent.

*10.7 Indenture, dated March 8, 2000, by and among IFCO Systems, the
guarantors named therein, and The Bank of New York, as Trustee.

*10.8 Registration Rights Agreement, dated March 8, 2000, by and among IFCO
Systems, the guarantors named therein, CIBC World Markets Corp., and
Banc One Capital Markets, Inc.
10.9 Senior Facility Agreement, dated February 20, 1998, between IFCO
International Food Container Organization GmbH, as Borrower, IFCO
Europe, and the Financial Institutions named therein (incorporated by
reference to Exhibit 10.3 to IFCO Systems' Registration Statement on
Form F-4, registration no. 333-96021).

10.10 Amendment to Senior Facility Agreement, dated February 28, 1998
(incorporated by reference to Exhibit 10.4 to IFCO Systems'
Registration Statement on Form F-4, registration no. 333-96021).

*10.25 Employment Agreement, dated as of March 8, 2000, by and among IFCO
Systems and Vance K. Maultsby, Jr.

*10.26 Employment Agreement, dated as of March 8, 2000, by and among IFCO
Systems and Edward Rhyne.

*10.27 Employment Agreement, dated as of March 8, 2000, by and among IFCO
Systems and Howe Q. Wallace.

10.28 IFCO Systems N.V. 2000 Stock Option Plan (incorporated by reference
to Exhibit 10.1 to IFCO Sytems Registration Statement on Form S-8,
registration no. 333-32818)

*10.29 First Supplemental Indenture, dated as of May 31, 2000, among IFCO-
U.S., L.L.C., IFCO Systems, the existing guarantors named therein,
and The Bank of New York, as Trustee.

*21.1 Subsidiaries of the Registrant.

*23.1 Consent of PwC Deutsche Revision Aktiengesellschaft
Wirtschaftsprufungsgesellschaft.

*23.2 Consent of Arthur Andersen LLP.

*23.3 Consent of PricewaterhouseCoopers LLP.

*23.4 Consent of Stibbe Simont Monahan Duhot P.C. and consent of Gardere &
Wynne, L.L.P. (included in Exhibit 5.1).

*24.1 Power of Attorney (included on signature page).

*25.2 Statement of Eligibility Under the Trust Indenture Act of 1939 of a
Corporation Designated to Act as Trustee on Form T-1 of The Bank of
New York.

*99.1 Letter of Transmittal.

*99.2 Form of Supplemental Offering Memorandum.

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* Filed herewith.